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Fragmenting WorkBlurring Organizational Boundaries and Disordering Hierarchies$

Mick Marchington, Damien Grimshaw, Jill Rubery, and Hugh Wilmott

Print publication date: 2004

Print ISBN-13: 9780199262236

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780199262236.001.0001

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Public-Private Contracting: Performance, Power, and Change at Work

Public-Private Contracting: Performance, Power, and Change at Work

Chapter:
(p.111) 5 Public-Private Contracting: Performance, Power, and Change at Work
Source:
Fragmenting Work
Author(s):

Damian Grimshaw

Gail Hebson

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199262236.003.0005

Abstract and Keywords

This chapter raises two questions largely absent from other studies: how are performance gains (and losses) distributed between unequal partners and how do changing organizational boundaries shape the employment relationship? These questions are illuminated by analysing four different forms of public-private contracting arrangements. Section 5.1 provides a brief overview of evidence to date concerning public-private contracting arrangements and their implications for performance and employment. Section 5.2 introduces the four case studies. Sections 5.3, 5.4, and 5.5 analyse the data by exploring issues of performance, power, and change at work, respectively.

Keywords:   unequal partners, performance gains, organizational boundaries, employment relations, contracting arrangements

5.1 Introduction

Questions of organizational boundaries are at the forefront of UK policy efforts to reform delivery of public services. These involve increasing use of partnership arrangements between public and private sector organizations, as well as the more traditional policies of outsourcing activities to private sector subcontractors. Public–private partnerships (PPPs) have provoked a great deal of attention in the popular media. On the one hand, PPPs are seen to represent privatization by stealth, a drain on government expenditures, and a threat to the high standards of both services provision and terms and conditions of employment among public sector workers. On the other hand, PPPs are seen as a key element of public services reform since they embrace private sector expertise, diffuse the risks of new capital investment, and provide new flexible career trajectories for public sector workers. Arguments and evidence have been presented on both sides of this wide-ranging controversy, including the report by the IPPR's Commission on Public Private Partnerships (IPPR 2001), as well as more critical reports funded by the major public services trade union UNISON (Sachdev 2001; UNISON 2001; see, also, Pollock et al. 2001).

Policy debate concerning PPPs is, in part, rooted in divisions found within academic study of public administration and strategic management. There is a fast-growing literature on the way decisions regarding organizational boundaries are taken against a given set of complementary resources in networked organizations (see Chapter 2). Extension of these ideas to a public sector model, where outsourcing and partnership are said to represent the practical steps towards refocusing on ‘core’ competencies, includes the development of a strategic management framework and the application of a transaction costs model (Domberger 1998). By contrast, other studies emphasize the embeddedness and peculiarities of public services provision associated with long-standing (p.112) processes of decision-making, bureaucratic rules, and the fiduciary responsibility of the state (Stiglitz 1989; O'Toole 1993; Du Gay 2000). Such studies argue that public sector reform ought not to be reduced to a question of identifying core competencies or exploiting opportunities for new sources of added value, but rather ought to involve a strengthening of citizenship (Crouch 2003a, b).

To date, very little case-study research has analysed the implications of public–private contracting in terms of both performance (including the quality of services and the distribution of risks) and the nature of the employment relationship. In this chapter, we raise two questions largely absent from other studies (Chapter 2), namely how performance gains (and losses) are distributed between unequal partners and how changing organizational boundaries shape the employment relationship. These questions are illuminated by analysing four different forms of public–private contracting arrangements. Section one provides a brief overview of evidence to date concerning public–private contracting arrangements and their implications for performance and employment. Section 5.2 introduces the four case studies. Sections 5.3, 5.4, and 5.5 analyse the data by exploring issues of performance, power, and change at work, respectively.

5.2 ‘Blairing’ the public–private divide

Under the leadership of Tony Blair, the Labour government has made PPPs ‘a cornerstone of the government's modernization programme for Britain’ (Milburn 1999, cited in IPPR 2001: 33). PPPs are described as an ‘innovative hybrid approach’ to public management (IPPR 2001: 38) and are said to replace outmoded alternative models, including the traditional rules-based, hierarchical approach and the ‘new public management’ approach.1 They are said to be distinctive because they are constituted by ‘a risk sharing relationship between the public and private sectors based upon a shared aspiration to bring about a desired public policy outcome’ (IPPR 2001: 40). But, in practice, partnerships appear to have become a catch-all phrase, covering any arrangement where a public service is delivered in cooperation with the private sector (PSPRU 1998; Grimshaw et al. 2002). As such, it is not clear that PPPs present a distinctive, alternative approach that transcends previous approaches to public services management.

Use of the term ‘partnership’ is symbolic of New Labour's chosen ideology underpinning reform, through which there is an explicit effort to eschew any notion that ownership is better either under the public or the private sector:

Nobody argues that the private sector offers a panacea to transform our public services. There are indeed significant ways in which the private sector can learn from the public sector…What matters is what works: that the public can choose the services they need, that they provide good value for money, and that they deliver higher standards. (OPSR 2002: 26)

(p.113) Nevertheless, despite the apparently neutral language and ideology, the years since 1997 have witnessed a remarkable increase in the role of the private sector across all areas of government activity. Perhaps the best known (and most controversial) is the Private Finance Initiative (PFI), where a private sector consortium designs, builds, finances, and operates an asset-based service, typically involving the construction of new buildings and provision of ancillary services (estates, maintenance, cleaning, and security) for an agreed charge.2 Other examples include long-term service provision contracts (such as for IT systems), joint ventures (involving a joint equity stake), wider markets (where the private sector partner exploits public sector assets commercially) and strategic partnerships (where partners are directly involved in policy formation and implementation) (IPPR 2001).

Implications for risk, cost savings, and staff transfer

Proliferation of PPPs has occurred amidst growing controversy and debate. First, it is not clear that the risk is balanced between private and public sector partners. One difficulty involves agreeing which elements ought to be covered by a risk assessment. In particular, the definition of risk does not incorporate risk to the users, or to other public sector agencies other than the commissioning body. Also, even where it is possible to list risks ex ante, in many projects (mainly IT outsourcing deals) the public sector partner has been unable to enforce penalties. Finally, private sector contractors are able to reduce risk substantially through refinancing loans at lower interest rates once the contract has been signed (IPPR 2001; Pollock et al. 2001). Overall, there is a polarization of evidence, with claims that risk transfer (mainly involving the risks of construction) has enabled the public sector to achieve value-for-money (Arthur Andersen 2000) and counterevidence that asymmetry of risk allocation in fact benefits the private sector (Pollock et al. 2001).

A second issue involves debates over whether PPPs deliver cost savings. The ‘discipline’ of the market is assumed to drive down costs, both through competitive bidding among a range of providers for the contract and through regular ‘benchmarking’ of prices for activities throughout the contract (Domberger 1998). However, competition at the point of tender for the contract may be limited by the large costs of bidding (Broadbent et al. 2000; Grimshaw et al. 2002). Regular benchmarking may also be problematic, especially where it is difficult to obtain information from competitor firms. Nevertheless, PPPs offer an additional route to potential cost savings since services provision is managed through formally specified contracts, which offer potential scope for control and monitoring (including penalties for poor performance). Also, periodic renewal of the contract may act as a competitive incentive to induce higher motivation among workers and management (Domberger 1998). However, significant resources may be required for the specification, monitoring and measurement (p.114) of contracted services (Marchington et al. 2003). Also, the flexible price structure of many PPP deals raises the risk of cost escalation, presenting problems of managing an essentially unknowable cost trajectory.3

A third issue of contention centres on the role of staff transfer in many PPPs and the implications for terms and conditions of employment for public services workers. TUPE Regulations provide only limited protection (see Chapter 3). In particular, TUPE does not protect new employees recruited by the private sector firm, leading to the widely publicized problem of a ‘two-tier workforce’ where different groups of workers carry out similar work for different sets of terms and conditions (Willis 2001; UNISON 2002; Toynbee 2003). Since 2000, government policy has shifted—under pressure from public sector strikes and a high profile ‘living wage’ campaign in East London (Grimshaw, 2004)—resulting, ultimately, in statutory provisions issued in 2003 which require contractors to provide recruits with terms and conditions which are ‘no less favourable’ than those of workers transferred from local government.

But questions remain concerning the prospects for the traditional notion of a public sector ethos. On the one hand, the new emphasis on outcome and away from process is said to reflect the reorientation towards ‘consumer’ needs and to foster a mutual sense of commitment and purpose among workers employed by the public and private sector partners (Brereton and Temple 1999). On the other hand, the market-based principles underpinning PPPs are expected to lead to an emphasis on private gain over public service, personal accountability over collegial process, and discretionary individual remuneration instead of uniform pay and promotions systems (O'Toole 1993, 2000; Du Gay 2000; Hebson et al. 2003).

5.3 The case studies

Four cases of public–private contracting are analysed in this chapter (Table 5.1). They represent a mix of private sector involvement across different areas of public sector activity: central government (the IT case); health (the PFI case); education (Teacher Supply); and local government (Customer Services). In addition, the value and duration of contracts varies considerably from more than £1 billion over 10 years for the IT case to the daily rates paid by schools for supply teachers provided by Teacher Temp.

The pressures that led to contracting differed for each case. In the IT case, the pressure on Govco stemmed from the 1991 government White Paper (‘Competing for Quality’, HMSO 1991), which established the policy that, wherever possible, government work should be market tested with the work going to the provider of best value for the taxpayer. At the time, this was the largest government outsourcing contract and, for FutureTech, was important in reinforcing their visibility in the market for government services provision. The PFI case began in 1998 – after a rather protracted process dating back to 1993–4 of (p.115)

Table 5.1. Four cases of public–private contracting arrangements

Case

Public sector partner

Private sector partner

Nature of contract

Number of staff transferred

Approximate initial value

Length (start date)

IT

Govco

FutureTech

More than £1 billiona

10 years (1994)

2,300

PFI

NHS Trust

Consortium (cleaning firm, construction firm, estates firm and a design consultancy)

£66 million

35 years (1998)

500

Teacher Supply

Individual schools

TeacherTemp

Varies

From just 1 day to 2 or more school terms

n/a

Customer Services

Council X

TCS

£18 million

7 years (1998)

Approx. 100

Note: (a) An approximate figure is presented to preserve anonymity.

approving the building scheme, tendering, and selecting a consortium—as one of the first wave of PFI hospital deals encouraged by government ministers in the health sector. Initially, the four private sector partners each held a 25 per cent stake in a ‘Special Purpose Vehicle’, charged with coordinating services provision in line with the needs of the purchasing partner, the NHS Trust. In education, the introduction of Local Management of Schools in 1988 gave head teachers control of 80 per cent their school budgets, leading simultaneously to an erosion of the power and influence of Local Education Authorities (LEAs) (especially in personnel and financial management—Ironside and Seifert 1995) and to a withdrawal from LEAs as the main provider of temporary cover in favour of private sector agencies. Our case focuses on the provision of supply teachers from a large agency, TeacherTemp, to schools in the North West region. In our fourth case, local authorities faced increasing pressure during the 1990s to ensure efficiency and effectiveness in services provision, in a context where PPPs were encouraged by government (Marchington et al. 2003). Coupled with a crisis in housing benefits administration in London (our case was singled out as one of twelve which were ‘named and shamed’), Council X was keen to exploit private sector investment in IT. For TCS, the selected partner, this was their first local government contract.

(p.116) 5.4 Performance gains from public–private contracting?

The shift from internal, bureaucratic provision of public services to an arrangement involving private sector firms has the potential to reduce costs and improve the quality of service delivery for reasons relating to market discipline, contract performance, and private sector expertise. Considering each issue, we find mixed evidence of the relative costs and benefits across the four cases (Table 5.2).

Market discipline

It is difficult to make a quantitative assessment of the costs and benefits of organizing services provision through private sector providers, in part because of the intangibility, or unmeasurability, of many of the outcomes. As such, our

Table 5.2. The gains and losses of public–private contracting

Market discipline

Contract performance

Private sector expertise

IT

FutureTech agreed 50% reduction in unit (baseline) costs—but difficulties in benchmarking make it difficult to control other prices

Profit share and options to impose penalties—but costly problems arising from mis-specification

Potential for more rapid innovation in IT—but new developments restricted by tight contract

PFI

Consortium passed ‘value for money’ test—but high costs of bidding reduces competition at bidding stage

Flexible tariff to match performance level—but costly problems arising from mis-specification and disagreement over monitoring process

Potential for innovation in services delivery and HRM—but adversarial approach threatens cooperative IR tradition

Teacher Supply

No evidence of cost reductions—but some head teachers happy to pay more for a better service, despite national concern over ‘soaring’ costs

Generic contract to match all needs—but gaps in contract cause conflict with what is expected of supply teachers and some failure of monitoring performance

Agencies save head teacher's time—some problems of distinguishing good from bad agencies

Customer Services

Access to technical and organizational expertise more important than price

Bonuses and penalties in line with KPI—but problems of formalizing channels of communication and disagreement over monitoring process

Potential for more rapid innovation in IT—but operational ‘isolation’ of TCS contract hinders improvements; expertise derives from ex-public sector staff

(p.117) aim is largely to highlight some of the anticipated and unanticipated consequences in each case. In two of the cases, public and private sector managers agreed that because the market-based process of tendering for services forced firms to compete prices downwards, the public sector enjoyed a reduction in costs compared to that estimated for in-house provision. FutureTech agreed to a 50 per cent reduction in unit costs over the 10-year contract and the PFI consortium was officially selected on the basis of it meeting ‘value for money’.

In the other two cases, price was not the driving condition in the tendering process. In the Customer Services case, TCS did not submit the cheapest bid (TCS-L, union rep. 2, male). Instead, TCS won the contract because it promised considerable investment in IT systems, training, and property, and continuous improvement of key performance indicators (KPIs). In the Teacher Supply case, schools faced higher costs when using private sector agencies in favour of LEAs (which traditionally controlled all temporary cover) for the provision of supply teachers. Nevertheless, some school head teachers were happy to pay higher fees because this saved their time spent searching for cover and made it more likely that they would meet their goal of having a teacher in the classroom.4 A senior official with the Association of Teachers and Lecturers supported this view:

Political principle is one thing, but do I really want angry parents? [Agencies] ring in the evening and you have a supply teacher there for 8.30 am. The agencies make it very simple. There is no technical reason why the LEA could not do that, but they did not think of it. (ATL, Union rep. 2, female)

Importantly, unlike the long duration of contracts in the other three cases, schools and agencies continuously agree contracts, often on a day-to-day basis. As such, head teachers are less likely to become locked in to an expensive arrangement. However, satisfaction at the level of the school with the trade-off between costs and the efficient supply of teachers ought not to obscure evidence of concern at a national level. During 2001, parliamentary questions were raised regarding ‘whether excess profits are being made in this privatised sector’ (Willis 2001, cited in Barlin and Hallgarten 2001: 5) and several reports in the media identified problems of increasing costs (Grimshaw et al. 2003).

Nevertheless, the market for teacher supply does involve a large number of firms competing to provide services to schools; as yet, there is no evidence of price collusion among the large players, nor of a trend towards monopoly provision. By contrast, the market for PFI contracts is widely recognized as being dominated by a handful of powerful firms and consortia, thereby diminishing the downward cost pressures of market competition. One of the reasons for this, as we found in our PFI case, is that it is expensive to bid for a contract. Proposals must include highly detailed design plans, financial accounts, and legal arrangements, which incur high costs to designers, lawyers, and consultants.

A final consideration regarding the potential benefits of market discipline is how to establish benchmarking of costs throughout the duration of a long contract. In the IT and PFI cases, given the length of contracts, there was a concern (p.118) from the outset to try to build in to the contract some mechanism for matching costs against market rates. Govco required FutureTech to conduct regular benchmarking of costs and performance levels against competitor organizations and the NHS Trust required the Consortium to benchmark prices after the first seven years of its 35-year contract. However, evidence for the IT case suggests that it is extraordinarily difficult to exploit the cost pressures of market competition through benchmarking, due both to the difficulties of obtaining cost and quality information from competitor IT firms and the non-comparability of some areas of IT provision. Indeed, Govco only expected to be able to benchmark around half of all outsourced activities because of these problems.

The PPPs also involve a radical change in the way services are coordinated. In particular, the purchase of activities through a formally specified contract, rather than through a traditional open-ended employment contract, is associated with potential opportunities for new forms of control and monitoring of the level and quality of services provision. Indeed, public sector managers in the IT, PFI, and Customer Services cases argued that a key benefit was the opportunity to build quality considerations and changing budget pressures into the contract: the contract between the NHS Trust and the Consortium had a flexible monthly payment that could be adjusted to match performance standards; Govco's contract with FutureTech built in financial penalties where performance was below standard and profit sharing where it exceeded a stipulated minimum level; and Council X built in bonuses and penalties in line with measures of KPI.

In practice, however, our evidence suggests that it is very difficult for the public and private sector partners to agree penalties—largely because of the difficulties in specifying tasks in the contract, in identifying the performance standards and in agreeing the design of monitoring and evaluation methods. Specification and pricing of tasks is complicated. IT services outsourced to FutureTech were subdivided into thirty types—each priced separately—based on productivity and volume characteristics of work done. If a job task changed then Govco and FutureTech negotiated what this meant for the unit price. The PFI contract included hundreds of pages of details covering the different ancillary job tasks. For example, there were ten pages on cleaning tasks (barrier cleaning, operating the Washtech 300, theatres, laboratories, etc.) and ten pages on food hygiene (refrigeration, transportation, microwaves, etc.). Each area of activity was matched with an output specification, which defined what was required of the private sector partner—ranging from eight pages of detail for switchboard services to thirty pages for estates maintenance5 and job tasks were costed following a time and motion model. The Customer Services contract did not specify job tasks, as such, but key performance indicators, which set out what was expected in terms of administration costs and response times. Reflecting these complex processes of specification, our interviews uncovered a great deal of dissatisfaction, from both public and private sector managers, regarding the difficulties of ‘managing to contract’. Even trivial problems of (p.119) mis-specification could consume a great deal of managerial time:

We suddenly realized there is nobody who hangs curtains. Someone has got it in the Concession Agreement [the PFI contract] to take them down, but there is nothing to say who will put them up.

Q. Can the person who took them down put them up?

No. I know it sounds silly

Q. Wouldn't you just follow custom and practice?

No, because that is why we have a Concession Agreement. (NHS Trust, Manager 5, female)

Managing to contract not only challenges customary norms defining job boundaries, but also may weaken channels of communication between managers and workers across the different organizations. Council X workers who transferred to TCS-L were often unwilling to retain long-standing social bonds with their ex-colleagues (working in the same building) due to a belief that the latter were policing the performance indicators too stringently (TCS-L, Supervisor 2, female) (see below). Also, Council X staff were instructed to communicate with their ex-colleagues through the newly established TCS call centre, which sometimes meant waiting 30 minutes to be connected (Council X, Manager 3, male). At TeacherTemp, we were told by one of the agents that some school head teachers choose to communicate with the agencies, rather than directly with supply teachers in their school:

We send a teacher into the school and they will ring and say, ‘Fred Smith is in school today, could you just ask him if he will come in tomorrow, or will he do his marking for tomorrow?’…No respect for the teacher, or the company who is offering the teacher, and it's very sad really. We have had supply teachers go in where no-one has spoken to them. (TeacherTemp, Manager 2, female)

The Teacher Supply case was distinctive from the other three by the absence of mechanisms between contracting parties to adapt continuously towards a common understanding of what was specified in the contract. In the IT case, we found that mis-specification of one part of the contract for IT services resulted in Govco agreeing to pay an additional £0.9 million to FutureTech—since Govco was found at fault for its ‘very sketchy’ initial outline of business requirements (Govco document). But at the Teacher Supply case, contracts were characterized by unresolved grey areas in terms of what supply teachers were expected to do, causing innumerable problems. TeacherTemp managers suggested they had certain expectations of their supply teacher—to be on time, to fit in with the school, to do playground duty, and to mark work before leaving for the day—but recognized it was impossible to specify these in a contract. Conflict between head teachers and supply teachers was inevitable:

[Additional tasks are] kind of expected, but they [supply teachers] don't have to. Because you can't contract for the things teachers have to do. (TeacherTemp, consultant 1, female)

(p.120) While ex-ante specification and pricing of job tasks presents one set of problems, a more significant difficulty in our four cases concerns the need for contracting parties to agree systems for monitoring and evaluation. In the PFI case, private sector managers (many of whom had transferred from the NHS Trust) were dissatisfied that the performance system introduced in the late 1970s—which the Trust did not apply rigorously—was now used as the basis for evaluating levels of services delivery. Consequently, managers of the estates firm were happy to encourage workers to manipulate the system to their advantage (Estates Company, Manager 3, male). However, Trust managers were equally dissatisfied the consortium was not abiding by its duty to self-monitor services delivery as specified in the contract. It therefore carried out independent monitoring, but the results were challenged by the private sector partner:

They are saying at the moment that our independent results to support any bits and pieces that we've done are a complete waste of time and don't stand up. Now the Trust's legal advisors have advised us to say they can't say that—that our results stand. (NHS Trust, Manager 6, female)

At TCS, there was a strong feeling among managers that Council X's system of monitoring was too stringent. In keeping with new legislation (enforced soon after the contract was signed), Council staff have retained control in making the final decision on housing benefit claims (Marchington et al. 2003). This made it difficult to assign responsibility to one party or the other regarding the time taken to process claims—one of the KPIs. In addition, Council X checked all claims, rather than a sample. The wider local government view was that it ensured accurate decisions were made and guarded against errors made by rising numbers of temporary staff employed by TCS-L. But TCS staff complained of delays:

The fact that you have to have the local authority make the final determination on a claim I think is wrong.…If they checked 50 per cent of the cases, they would still get a feeling of whether what we are doing is right or wrong, but the customer would get their payments quicker. (TCS-L, supervisor 2, female)

Monitoring of supply teachers is particularly difficult because the agency, as the legal employer, can only rely on indirect information provided by the school head teacher, or the supply teacher; a reluctance to carry out site visits means that agencies typically do not engage in direct monitoring. But head teachers were concerned that even when they provided information to the agencies, there was little they could do to ensure this information was being acted upon:

We have had some abysmal teachers in as well, absolutely abysmal. And yet sometimes there is very little you can do until they have actually been in school and you have had them and you can phone them [the agency] and say, ‘I do not want to have that person again’.…When you ring they say, ‘Don't worry, you are not the first school to have complained’. And my question is, ‘How many others?’ (School B, senior teacher 2, male)

(p.121) Private sector expertise

PPPs offer the potential for public sector organizations to exploit private sector expertise. The evidence from our four cases suggests that such claims ought to be interpreted with some caution. In the Customer Services and IT cases, the decision to outsource was strongly influenced by the expectation among public sector managers (and trade union officers) that the private sector would have better access to, and be in a stronger position to exploit, new information technologies. For Council X, this also included the expertise of TCS in setting up a call centre. However, these expectations were marred by problems. One Council X manager argued that TCS ‘didn't bring much technology with them’ and pointed to problems in meeting response times in the new call centre (Council X, Manager 3, male). In the IT case, an ex-Govco systems engineer who had transferred to FutureTech believed that the contractual focus on costs constrained opportunities to experiment with new technology:

Technically, we were very good in the old Govco IT Office, probably because we didn't have funding barriers.…We worked closely with ICL on a lot of leading edge development.…It was because we didn't need to be risk averse.…When FutureTech took over we became technically constrained…We became commercially aware but not commercially competent. (FutureTech, Manager 38, male)

In the Customer Services case, any technological expertise which TCS may have brought to the arrangement seems to have been drowned out by a number of negative factors. TCS suffered problems of down time of their revamped operating system, unfilled staff vacancies and frequent changes in housing benefit regulations. Moreover, since this was TCS's first (and only) housing benefit contract it was unable to draw on a wider pool of specific knowledge and experience within TCS. It was also geographically isolated from other TCS sites. In fact, much of its expertise derived from staff who transferred over from the public sector. One Council X manager argued that this fact exploded the ‘myth’ of private sector expertise (Council X, Manager 3, male). Notably, while the first TCS-L general manager in charge of the contract was from the private sector, as the problems mounted the company recruited a manager from local government who had experience of managing housing benefits (Marchington et al. 2003). Similarly, at the PFI case, the multinational hotel services company relied largely on the knowledge of transferred staff; it had not redeployed staff from elsewhere in the corporation with specialist know-how (NHS Trust, Manager 6, female). In these three cases, there is little evidence of private sector expertise. Indeed, the process of inter-organizational learning is decidedly one-way—from the public sector to the private sector.

The Teacher Supply case provides a positive example of the expertise offered by private sector agencies. There was general consensus among all head teachers and other senior school staff that, compared to the role played by the LEAs, (p.122) private sector agencies were more efficient:

The problem with the LEA system was that you would have a long list of teachers to start ringing.…The advantage of the agency is that it is one telephone call and they do all the ringing. (School B, senior teacher 2, male)

Overall, the four cases demonstrate mixed evidence of gains and losses that arise from the outsourcing of activities to private sector firms. The possibility of costly, and often unintended or unanticipated, problems raises the question as to who bears the burden of these costs. The next section considers how the relative costs and benefits are distributed between parties to the contract.

5.5 Risk sharing or an imbalance of power?

While many studies of inter-organizational relations implicitly assume homogeneity of contracting organizations, there is a need to question the distribution of risk and the ability of one of the contracting organizations to act opportunistically (Chapter 2). Here, we investigate the proposition that differences in ‘power’ (loosely defined) shed light on the distribution of gains and losses from partnership. Such differences might mean that one of the contracting parties is able to secure a larger slice of the benefits accruing from performance improvements, or, conversely, shoulders a disproportionate share of the risk where problems arise. In addition, where parties to the contract do not share common performance goals, the organization in the stronger position may attempt to steer new policies and practices in a direction that conflicts with the espoused strategic goals of the contracting partner. Such a scenario may be especially applicable to PPPs where there are good reasons to believe that public and private sector organizations do not share common goals. We heard this kind of view from many public sector managers and union officials who were concerned about the stress placed by private sector managers on profit maximization at a cost to the delivery of quality services:

The overall standard of services has decreased, because at the end of the day they are only here to make a profit…They say they are making a loss, but everything is cut to the bone far more than it ever was. (NHS Trust, Manager 6, female)

The agencies are not untruthful, but it is a business and they just need enough people out there getting them income. They are becoming less and less discriminatory. (School N, senior teacher 16, female)

Differences in organizational goals mean that public and private sector partners may be pulling in different directions. The challenge for partnership is thus to forge a set of shared interests around which trusting relations can be developed. Chapter 6 analyses these trusting relations in more detail, with particular attention to the role of ‘boundary spanners’. Here, we question the extent to which each partner enters the trusting relationship from a position of equal bargaining strength.

(p.123)

Table 5.3. Factors contributing to ‘power imbalance’ in PPPs

Expertise in outsourced activity

Expertise in negotiating and working to contract

Shelter from reputation effects

External support

IT

Govco

Medium–high, declining

Low–medium

Low

Medium

FutureTech

Medium, rising

High

Medium–high

High

PFI

NHS Trust

Medium–high, declining

Low, rising

Low

Low

Consortium

Medium, rising

High

Medium–high

Medium

Teacher Supply

Schools

High

Low–medium

Low

Low

TeacherTemp

Medium

High

High

Medium

Customer Services

Council X

High

Medium, rising

Low

Medium

TCS

Low, rising

Medium

Low–medium

Low

Four factors contribute to the relative balance of power in PPPs (Table 5.3). The first concerns the relative level of expertise in the outsourced activity. On the one hand, outsourcing requires the client to surrender a significant level of expertise in order to exploit the assumed benefits from greater specialization. On the other hand, without expertise in the externalized activity it is difficult for the client to effectively manage the monitoring of services delivery and specification of new work. The four cases differ in the extent to which expertise was retained in-house. At Govco, a core of staff with specialist IT and contract management skills was retained in-house to evaluate services provision. Managers argued this was critical to maintaining bargaining leverage:

We retained expertise, loosely under the heading ‘Intelligent Customer’.…These people came with experience from within Govco and were in a strong position to provide some sort of reality check on any ideas that were coming from FutureTech. (Govco, Manager 19, male)

Over time, however, this source of bargaining strength was expected to diminish as FutureTech developed new IT systems in areas where retained Govco staff had little experience. Moreover, Govco managers recognized that many of their highly skilled IT staff had better prospects elsewhere in the IT industry and that it would be difficult to fill vacant posts in the specialized area of contract management. In the Customer Services case, Council X retained (p.124) expertise due to its control of the final processing of housing benefit claims. Its advantage was reinforced by the fact that TCS faced a steep learning curve in the business of administering housing benefit claims. Also, given its subsequent decision not to pursue other housing benefit contracts, TCS did not make sufficient investment in developing the required expertise.

Second, a shift to market-based contracting arrangements may be expected to deliver a comparative advantage to private sector organizations, relative to the public sector, since they have greater experience in managing services delivery to meet contractual requirements. This is best illustrated by the PFI case. From the early stages of negotiating the contract, while the Consortium had a large bid team and could draw on past experience of negotiating contracts, the NHS Trust employed a group of just three staff—and all three quit soon after signing the contract. Moreover, while the Consortium financed a ‘special purpose vehicle’ (SPV) with two full-time senior managers to manage the contract, the NHS Trust relied upon existing management staff who had to fit in their new role alongside other responsibilities. Lack of expertise and resources within the Trust gave the Consortium a relatively free hand in setting and interpreting details of the contract. This was clarified in conversations with the General Manager of the SPV:

[NHS management staff] are completely overwhelmed by the work they have to do.…We could screw them every day of the week if we wanted to. We educate them about the contract because the Trust bid team has moved on.…The senior manager found that the Trust managing team didn't understand the Concession Agreement.…We train them to see things how we see them. (SPV, Manager 1, female)

NHS managers admitted their lack of expertise hindered their capacity to win a good deal for the Trust. We were told that training in legal matters did not start until 18 months after the contract was signed, that the Trust did not hire new staff with experience of signing public–private contracts and that NHS managers were forced to rely on the SPV for guidance:

The SPV was streets ahead of us, and the balance of power shifted from day one when the services were transferred.…So when you are trying to monitor and audit from the Trust point of view to make sure you are getting value for money we were on the back foot…And they knew we wouldn't know anything and they used it to their advantage…Because there was no input from the Trust, we learned initially from SPV manager.…It was extremely superficial and it's only now with [legal firm] that we know what we learned was a load of rubbish. (NHS Trust, Manager 6, female)

Evidence of apparent opportunistic behaviour, therefore, appears to be consistent with a strongly uneven balance of expertise in negotiating and working to contract. In the IT and Teacher Supply cases, the private sector partner also enjoyed an advantage, albeit not as extreme as in the PFI case (column 2, Table 5.3). In the IT case, evidence of Govco's weaker expertise in managing contracts is supported by the fact that FutureTech had managed the flexible price nature of the 10-year contract to its advantage. While the baseline IT services were (p.125) on target to meet the 50 per cent reduction in costs, FutureTech more than offset this by charging Govco for additional services. After 6 years, the total value of the contract had more than doubled. Our interviews with Govco managers suggest that the reasons lie partly with the complicated and time-consuming process of assessing submissions for additional work. Divergent interests between the two partners means that not all submissions necessarily meet Govco's organizational goals. While recognizing this fact, Govco managers told us that their ability to carry out a comprehensive cost-benefit analysis of each submission, in a way that would satisfy FutureTech managers, was constrained by limited resources (Govco, Manager 36, male).

The Customer Services case provides an exception to this general pattern. Three years into the contract, Council X managers became more successful than TCS in renegotiating the contract to meet its terms (Marchington et al. 2003). Moreover, many suspected that the true volume of the work in the original tender had been underestimated. Some TCS managers argued that at the bidding stage the aim was to win the contract as ‘a loss leader’, in order to build a reputation and expertise as a basis for future local government contracts. Ultimately, however, the complex nature of the back office work, the strong focus on meeting the needs of (often desperate) claimants and the limited opportunity for ‘growing’ the size of the contract meant that TCS could not improve its bargaining position. During the early stages of the contract, TCS focused efforts upon those KPIs that provided more lucrative returns, rather than the whole bundle of KPIs. However, Council X responded quickly by restructuring the payments to ensure this could not be done:

It was possible with the original KPIs to cherry pick. If they were particularly good at something, or it was easier, it was possible to specialize in that and pick up the profit…The way it is now structured is that unless all of the indicators are returned to a minimum standard you get nothing even in relation to the areas where they do particular well. (Council X, Manager 2, male)

The third factor which shapes the degree of power balance between partners is sensitivity to reputation.6 Again, our evidence shows that there may be an imbalance between public and private partners (column 3, Table 5.3). In all four cases, the private sector partners have operations across a variety of sectors (and countries, with the exception of TCS-L) and the ability to win future contracts depends less on their reputation in a narrow area of services delivery. There is also evidence of a lack of diffusion of reputation effects. In the IT case, despite publicized evidence of FutureTech's poor performance in other PPPs, we were told that Govco did not investigate such claims. This suggests either that the partnership had become over-sheltered, or that there was simply no other realistic alternative IT supplier (due to the high costs of entry or the specificity of technical know-how). In addition, in all cases, problems of poor standards of services provision were typically interpreted by the public (through the media, or the end-users—patients, housing benefit claimants, etc.) (p.126) as the fault of the public sector partner, largely because it is more visible. While this may have the indirect effect of pressuring the public sector partner to switch suppliers, it does not have the effect of diffusing the reputation of particular private sector suppliers into the public arena.

Fourth, each partner may benefit from external support, such as from regulatory bodies or from other divisions within the organization (column 4, Table 5.3). In the IT and Customer Services cases, the public sector partner benefited from external support. One of the duties of the government's Public Sector Accounts Committee is to monitor the provision of IT services and, given the size and significance of Govco's contract with FutureTech, the Committee made regular public statements which arguably provided a check against unscrupulous claims. Council X managers met regularly with other managers from neighbouring local authorities and were able to compare notes on the management of outsourced operations. Council X also benefited from the internal publication of a report on services provision carried out by a management consultancy. The report identified problems of ‘low and inconsistent productivity’ and insufficient reporting of performance and output levels. It also recommended ‘an escalation of pressure to a higher level on both sides’ to raise the profile of the contract:

[As a result of the Report] the Chief Executive and senior managers [from Council X] have become very involved, put an extra political dimension on it…saying this has got to happen.…The balance of power…probably has shifted a bit back to us. (Council X, Manager 1, male)

These two cases diverge, however, in the external resources available to the private sector partners. FutureTech benefited considerably from the expertise and knowledge diffused from other divisions of the multinational organization. Indeed, many of the managers we interviewed were transplanted from divisions in the United States to the United Kingdom in order to transfer their expertise in running similar contracts. By contrast, TCS managers complained of a lack of wider expertise. Finally, it is notable that NHS Trust managers benefited very little from external governmental support. It appears that the government's policy efforts during the 1990s focused too narrowly on the question of how to win private sector support for PFI hospitals and neglected the issue of how to deliver sufficient expertise and support to the individual NHS Trusts charged with negotiating and managing contracts.

5.6 Changes at work

In this section we focus on workers who transferred from the public sector to the private sector and assess evidence of increased job insecurity, disillusion with performance targets and changes in traditional public sector values. Further evidence concerning the fragmentation of terms and conditions (such as pay, for example) is provided in Chapter 7. Importantly, a straightforward comparison of workers' relationship with their past and present employers is (p.127) not possible. This is because workers have moved from a relationship with a single public sector employer to a triangular relationship, involving a private sector employer and a public sector contracting organization. Change is a result of both the switch to a private sector employer and the new role of the ex-employer—the public sector partner—in policing the contract, whether from a weak or a strong bargaining position.

Job insecurity and work intensification

In three of the four cases (Teacher Supply is the exception), the outsourcing of services was accompanied by transfer of staff from the public sector to the private sector organization (see Table 5.1). In the PFI and Customer Services cases, the transfer of staff was very quickly followed by job cuts, implemented by the private sector organization, but agreed (contractually) with the public sector partner.7 At the PFI case, the post-transfer job cuts were in large part a result of the simultaneous closure of one of the Trust's hospitals (four miles away) and rationalization of services on the main site. The contract estimated that the 1998 full-time equivalent workforce figures of ninety estates staff and 519 hotel services staff would be reduced to fifty and 353, respectively, by 2001.8 These cuts had a major impact on workers' perceptions of security. Also, they seemed to go beyond what was needed for the rationalization of the two hospital sites:

They are running us ragged. They've only got half the amount of porters [compared to pre-PFI], but patients are sat there waiting for two hours while they try and get a porter. (Hotel Services Company, porter 6, male)

The impact of the job cuts was aggravated, and complicated, by the way it was managed. The NHS Trust was keen for the private sector firms to follow the Trust's HR procedures, requiring all staff to re-apply for their jobs through formal competitive interviews. However, as it was not the employer, the Trust could only request this; its role specified in the formal contract was to finance the redundancy payments. In practice, however, the private firms did follow the Trust's procedure. Workers were denied the opportunity to apply for voluntary redundancy or early retirement and had to apply for a job interview. The Trust HR manager argued that the job interview process was the best way to ensure good staff did not leave. But after the job cuts had been decided, some of the managers from the private firms expressed reservations, perhaps reflecting their closer involvement with the process (Estates Company, Manager 3, male). Also, several workers blamed the redundancies on Trust managers, since they were perceived to control the process and because they made the redundancy payments; the private sector partner's role in recommending the total number of job cuts in the PFI contract received little attention.

Agency work is by its nature insecure. In the Teacher Supply case, stability varies directly with length of contract, with some teachers dependent on day-to-day contracts and others working continuously for more than one term at (p.128) the same school. But perceptions of security also depended on whether the person had signed on with the agency because they could not find a permanent contract (such as many of the newly qualified teachers), or because it was believed to represent a positive trade-off between insecurity and increased flexibility (Grimshaw et al. 2003). Moreover, some were paid a guaranteed weekly income by the agency (provided they did not sign with another agency), which enhanced security and encouraged some not to seek permanent work.

Perhaps more striking was evidence concerning work intensification as a result of increased pressures to work to performance targets. This was particularly marked in the PFI and Customer Services cases where, despite significant differences in the ability and expertise of the public sector partner to monitor services provision (see above), workers complained about pressures to work to contract. In these cases the nature of the contractual relationship, and in particular how the performance of the private sector partner was measured, was central to how workers understood their work. The emphasis upon performance statistics, and the resulting work intensification, caused disillusionment among some workers:

There is more pressure.…They are keen on keeping our times. The design company get paid on results so they want us to get as much work out as possible. (Estates Company, maintenance worker 7, male)

The atmosphere—everyone's got their heads down. You've got to tick this and that and then they come over and see how much you have done. It's becoming very much like a factory production line. We are under stress to reach targets. (TCS-L, caseworker 3, female)

At FutureTech, the pressures of the contractual arrangements were borne by individual workers who found themselves working longer hours to meet contractual deadlines while ensuring quality was not compromised (see Chapter 10). Again, the Teacher Supply case is an exception. Working with an agency enables teachers to avoid many of the pressures faced by school teachers. However, in a form of vicious circle, increasing use of supply teachers within schools further increases work pressures on schoolteachers since they often have to cover for the additional duties not carried out by supply teachers. A key difference between this case and the other three is the absence of contractual monitoring of service delivery. The problems of monitoring and evaluating performance of supply teachers (see above) generate an almost complete absence of contract performance pressures on supply teachers, with schoolteachers and pupils potentially paying the price where performance is inadequate.

Overall, therefore, evidence of change at work is not solely the result of a shift to a new private sector employer, but also involves the particular form of the contractual arrangement between public and private sector partners. Indeed, it is impossible to compare the public sector employment relationship with the private sector form because the public sector partner influences the private sector employment relationship through its role in policing the (p.129) contract for services. This feature was present in many workers' accounts of change:

The client side have revelled in our failure.…They love that the nature of their work is to catch us out. (TCS-L, Manager 3, male)

I've got no time for the Trust, people in the Trust are just rubbish as far as I am concerned. We used to work for the Trust and a certain person is now a monitor for the Trust who was in charge of us. And he's pulling us up on different things that before when we worked for the Trust it was ‘leave it, don't bother with that’. (Estates Company, maintenance worker 7, male)

The private sector partner may actively shape such perceptions. For example, a private sector manager might tell workers that increased work intensification is due to contractual targets stringently enforced by the public sector partner, when in fact it reflects their own difficulties in managing staffing, or a policy of reducing labour costs. The employer can thus exploit the contractual arrangement to displace workers' discontent over working conditions, laying the blame at the hands of the ‘non-employer’. Such practices appear likely in the PFI case, where, although the Trust was in a relatively weak position to impose stringent performance targets, many workers blamed Trust managers for work intensification. Conversely, in the Customer Services case, the visibility of the monitoring procedure suggests that TCS-L managers had no need to exploit workers' discontent with Council X. These contrasting cases demonstrate that it is difficult to draw a straightforward relationship between the shape of power imbalance between parties to the contractual arrangement and change at work. In both cases, workers experienced increased insecurity and work intensification despite the fact that the public sector was in the driving seat in the TCS case, yet in a position of weak bargaining strength in the PFI case. In the IT case, where power relations were relatively balanced between FutureTech and Govco, we found less evidence of job insecurity or work intensification as a result of the contractual arrangement.

Public sector values

The combination of disenfranchisement with their old public sector employer and the pressures of working to strict performance targets presents challenges to the degree to which workers are able and willing to retain the kind of values that sustain a traditional notion of public sector ethos. While we do not claim that an ideal form of ethos ever existed in these public sector organizations, it is nevertheless of interest to note the direction of trends (Table 5.4).9

In all cases, to varying extents, employees were expected to focus upon their own performance and to take on more risk and responsibility for their own careers. This individualistic culture presents a challenge to traditional norms of collegiality In the IT case, ex-Govco workers had to accept responsibility for (p.130)

Table 5.4. Pressures on traditional public sector values

Individualistic culture

Profit motive

Working to contract

IT

Workers responsible for career development

No evidence

Resilience of informal relations with ex-colleagues at Govco and difficulty of specifying IT work enables some workers to escape strict contractual performance monitoring

PFI

Job re-application requires individual sense of flexibility

Some ancillary staff perceive profit motive hinders ability to provide quality service

Collegiate relations with NHS staff and desire to deliver quality public service ensures working beyond contract

Teacher Supply

Supply teachers learn to bargain for individual terms and conditions with schools and agencies

Some reservations about agencies' need to sell placements to teachers and teachers to schools

Narrow contract of supply teachers conflicts with broad ethos of teaching profession

Customer Services

Accepted by team leaders but rejected by caseworkers

Some caseworkers perceive profit motive conflicts with needs of end-users

Limits ability of caseworkers to communicate fully with claimants.

their individual career development. As one team leader put it, ‘The onus is always on the individual, it's your career, unless you do it, it won't happen’. In the Customer Services case the HR manager called for employees to ‘own their performance’. Caseworkers at TCS were very critical of the new individual performance culture. However, workers in team leader and specialist IT roles were more likely to embrace this new brand of individualism:

One of the good things to happen is that…positive contributions to the organization, to work,…[are] acknowledged and recognized frequently, and formally and informally as well. So high performance is rewarded. Within the local authority structure…you couldn't ever distinguish between one member of staff and another. (TCS-L, Manager 3, male)

In the Teacher Supply case many supply teachers felt they could not rely on the agency or the school to nurture their careers. This fuelled an individualistic bargaining culture whereby teachers negotiated additional payments for duties (p.131) such as marking and parents evenings—duties that are ordinarily considered to constitute the professional work of a schoolteacher. But this behaviour was perceived as opportunistic by the permanent teachers we spoke with.

A second source of pressure on workers' values was the new private sector employer's emphasis on profit. Workers at the Customer Services and PFI cases had close contact with the public and felt an especially strong sense of unease. In both cases, many workers had joined the public sector because of an altruistic motive and this conflicted with the new goal of making profit:

If I wanted to work for a private company I would have applied for a job in the private sector.…I am not driven by profit or bonuses.…When it is about making money out of this type of business we all cringe because to me the two don't go hand in hand. (TCS-L, caseworker 3, female)

You see, the Hotel Services Company is a business like every other business. They are out to make their pennies and the feelings of people are not paramount—they can't be because they have to make their money. (Hotel Services Company, Domestic 6, female)

Rejection of the profit motive suggests that at this early stage of PPPs employees' commitment to more deeply rooted values of altruistic motivation is ongoing—a finding supported by the emphasis workers attached to the need to deliver a ‘public service’, another key tenet of a traditional public sector ethos. Sustained commitment to the ‘public service’ also provided workers with a legitimate means of resisting pressures from managers to work to contract, a third pressure on the public sector ethos. Many workers we interviewed argued that the strict contractual monitoring of their work restricted the time available to do favours for colleagues or to provide a rounded service to end-users:

If I go on a job and if they [nurses] ask can you do this and do that I will. But we've had to stop that now because…all our times are monitored. We do sneak them in because we beat the times on the docket nine times out of ten. Sometimes you can't. (Estates Company, maintenance worker 5, male)

In the past you had your stint on the counter and dealt with someone's queries, and then you go away and do it and they come back and they say thank you very much. We would get thank you cards.…You don't get as much of it now. In the backlog it is really hard to get involved with them because you are on a clock now. (TCS-L, caseworker 5, female)

At FutureTech, many transferred IT staff were still proud to be delivering IT services in a public sector setting. Some still identified more with Govco than FutureTech even eight years after transfer:

I've been with FutureTech now eight years. You still sometimes…talk about them rather than us. It's strange. I think a lot of it is because FutureTech, as a company, seems so far away.…I've always worked on Govco accounts whether it was in the Civil Service or now, and nothing has sort of changed in that essence. You still feel very much towards them [Govco]. (FutureTech, Programmer 1, male)

Thus, across the different cases, many ex-public sector employees still view their job primarily as delivering a public service, rather than serving the goals (p.132) of a private sector company. These findings alert us to the importance of understanding the way workers actively make sense of the employment relationship. While changes in work intensification and job insecurity were imposed upon workers, they were more able, it seems, to resist pressures which challenged their general approach to work—especially those pressures which demand they work to contract in the name of profit maximization.

5.7 Conclusion

This chapter has analysed four very different cases of public–private contracting and assessed the implications for performance, power, and change at work. In terms of performance, none of the cases achieved the anticipated improvements in all three areas of market discipline, contract performance and private sector expertise. For example, while the private sector agencies providing supply teachers were relatively successful in filling vacancies in schools, contractual difficulties in monitoring performance led to problems. Also, while the mega-contract agreed between Govco and FutureTech was able to institutionalize contractual mechanisms for managing performance, Govco did not fully benefit from the supposed downward cost pressures of the market. In the Customer Services case, there was dissatisfaction among public sector managers regarding TCS's expertise in delivering new information and communication technologies. And in the PFI case, there was a great deal of friction regarding contract specification and the process of monitoring performance.

But the question of whether public–private contracting generates performance improvements has to be accompanied by the question of whether potential gains (and losses) are evenly distributed. Our analysis investigated the balance of power between public and private sector organizations, as well as the extent of change experienced by workers. As we argued in Chapter 2, once we introduce notions of power and risk, it is very difficult to postulate a clear set of relationships between the type of contracting arrangement and the form of employment conditions. In particular, there is no reason why a balance or imbalance of power between contracting organizations should be directly associated with a particular form of employment conditions. Also, there is no reason to suppose that if the employer (the private sector in the case of transferred workers) enjoys a position of bargaining power in administering the contract with the purchasing partner (the public sector organization) then its workforce will necessarily be sheltered from cost cutting.

The four cases illustrate these complexities. The PFI case is illustrative of a contracting arrangement that was highly one-sided in favour of the private sector partner. Nevertheless, we found no evidence that the private sector, as the employer of some 400 transferred workers, passed on cost savings to its workforce. There was increased work intensification, job insecurity and pressures to work to contract. The Customer Services case provides a contrasting example (p.133) where power relations were relatively balanced between partners. Again, we found evidence of job insecurity and work intensification, but in this case it was more strongly related to the public sector organization's role in monitoring performance than to evidence of opportunistic behaviour by the private sector employer. In the IT case, FutureTech was in the driving seat, reflecting its greater expertise in managing the contract, although Govco did benefit from external regulatory support. But in this case power relations in the contracting arrangement had relatively little influence on change at work, with the exception of the insecurity generated at times of contract renewal. This reflects the relatively intangible nature of IT services provision, which lessens the day-today monitoring and evaluation of work. Finally, in the Teacher Supply case, the balance of power depended on the type of school entering into a contract with the agency; schools in deprived areas had a relatively weak bargaining position. Also, there was high variation of employment experience among supply teachers with some able to bargain for relatively stable conditions while others experienced insecurity. However, while some supply teachers may have learned to shelter themselves from the vagaries of contracting, the costs were displaced to permanent schoolteachers (and pupils) who faced pressures to cover duties not written into the supply teachers’ contracts.

Our analysis of the contracting arrangements, as presented in this and the previous chapter, demonstrates considerable scope for tension, problems, and conflict between partner organizations. Until now, we have focused upon the causes and consequences of these tensions. In the next chapter we turn our attention to the way managers actively seek to contain or resolve these conflicts. These ‘boundary-spanning agents’ shape the strength of trusting relations between organizations. The important issue is whether trust can act as a counterweight to the kinds of conflict and power imbalances identified so far.

Notes

(1.) For reviews of the traditional approach and ‘new public management’, see Fry (1989) and Lane (2000), respectively.

(2.) Prior to 1992, government borrowing was used by the public sector to employ private companies to construct new infrastructure. The change to PFI in 1992 represents a shift to a form of leasing, rather than the purchase of assets, since the private sector funds and builds the asset and charges the public sector for the flow of services from the asset (Grout 1997). PFI is, thus, defined as a contract for services over a specified period of time, which is quite different to the previous practice where public bodies would contract for the construction of pre-specified building requirements.

(3.) Insufficient knowledge regarding future payments is, at the aggregate, a significant problem for government. During the early to mid-1990s there was concern within the Treasury that it did not have accurate knowledge of future payment commitments to private sector partners, a problem it referred to as a ‘fiscal time bomb’ (Private Finance quarterly 1996, cited in Kerr 1998).

(p.134) (4.) Importantly, compared to the costs of employing teachers on permanent contracts, supply teachers are cheaper. Some head teachers may therefore seek to reduce costs by buying in supply teachers on daily rates (with no holiday pay, pension contributions, etc.) instead of replacing permanent posts.

(5.) For example, the twelve pages for domestic services include details of standards to be achieved for each area/item cleaned (e.g. polished hard floor surfaces must have ‘soilage and debris arising out of the day's activities removed. Spots, soil build up, black marks from shoes, wheels etc. removed’, PFI Concession Agreement), maximum response times for ad hoc cleaning (from ‘within 10 minutes’ to ‘by agreement’) and performance indicators.

(6.) In conventional transactions cost analyses, reputation is often claimed to limit the possibility of one partner acting opportunistically, subject to certain conditions including that ‘defections’ from cooperative behaviour are made public knowledge and that contrived, as opposed to real, claims of defection can be verified (Williamson 1985: 395–396). The four case studies demonstrate that these conditions are by no means easily achievable.

(7.) TUPE regulations only protect staff at the point of transfer. While there is some evidence of partner organizations adhering to a customary practice of protecting jobs and terms and conditions for 12 months after the date of transfer, there is no time limit specified in the legislation.

(8.) In terms of headcount figures, there were more than 200 planned job cuts.

(9.) For a more general account of pressures on the public sector ethos see Hebson et al. (2003), where we develop the framework suggested by Pratchett and Wingfield (1996).

Notes:

(1.) For reviews of the traditional approach and ‘new public management’, see Fry (1989) and Lane (2000), respectively.

(2.) Prior to 1992, government borrowing was used by the public sector to employ private companies to construct new infrastructure. The change to PFI in 1992 represents a shift to a form of leasing, rather than the purchase of assets, since the private sector funds and builds the asset and charges the public sector for the flow of services from the asset (Grout 1997). PFI is, thus, defined as a contract for services over a specified period of time, which is quite different to the previous practice where public bodies would contract for the construction of pre-specified building requirements.

(3.) Insufficient knowledge regarding future payments is, at the aggregate, a significant problem for government. During the early to mid-1990s there was concern within the Treasury that it did not have accurate knowledge of future payment commitments to private sector partners, a problem it referred to as a ‘fiscal time bomb’ (Private Finance quarterly 1996, cited in Kerr 1998).

(p.134) (4.) Importantly, compared to the costs of employing teachers on permanent contracts, supply teachers are cheaper. Some head teachers may therefore seek to reduce costs by buying in supply teachers on daily rates (with no holiday pay, pension contributions, etc.) instead of replacing permanent posts.

(5.) For example, the twelve pages for domestic services include details of standards to be achieved for each area/item cleaned (e.g. polished hard floor surfaces must have ‘soilage and debris arising out of the day's activities removed. Spots, soil build up, black marks from shoes, wheels etc. removed’, PFI Concession Agreement), maximum response times for ad hoc cleaning (from ‘within 10 minutes’ to ‘by agreement’) and performance indicators.

(6.) In conventional transactions cost analyses, reputation is often claimed to limit the possibility of one partner acting opportunistically, subject to certain conditions including that ‘defections’ from cooperative behaviour are made public knowledge and that contrived, as opposed to real, claims of defection can be verified (Williamson 1985: 395–396). The four case studies demonstrate that these conditions are by no means easily achievable.

(7.) TUPE regulations only protect staff at the point of transfer. While there is some evidence of partner organizations adhering to a customary practice of protecting jobs and terms and conditions for 12 months after the date of transfer, there is no time limit specified in the legislation.

(8.) In terms of headcount figures, there were more than 200 planned job cuts.

(9.) For a more general account of pressures on the public sector ethos see Hebson et al. (2003), where we develop the framework suggested by Pratchett and Wingfield (1996).