The price of meeting political timetables: baby boxes as a case study

Update on 29 December:  A check of recent SG FoI responses today brings up this one published by SG on 22 December, just after the post below was written. The SG had been asked by the original inquirer, presumably, to clarify  what was covered by the item listed as “Scottish Government Procurement £51,143.50 – In relation to advice concerning procurement of Baby Boxes”.   The response was that

To clarify, the figure for “Scottish Government Procurement” is not an item of Scottish Government expenditure. This refers to a funds transfer between Scottish Government cost centres and is an internal “re-charge” to cover work undertaken by Scottish Government staff in the procurement team. Re-charge policy for procurement is corporate, ie normal practice that applies across the whole of government. The figure represents 147.5 man-days at various charge rates.

So this amount was not, as assumed below, expenditure on external legal advice but on internal advice recharged by one part of government to another, because staff in Procurement do, it turns out, levy an internal charge for their time. It’s not clear whether this was legal advice or advice of some other sort.  It clearly affects the analysis below: there was still a £92,000 investment in procurement-related advice, but not all of this was externally provided.

As long as this relates to existing staff costs, and no new staff were recruited specifically due to this (temporary agency staff, for example), this information reduces the additional public spending incurred due to procurement advice to £41,000. The £51,143.50 would then instead be an internal opportunity cost:  the new response describes it as the equivalent of around 7 months’ work on producing advice (147.5 days, out of around 250 in the working year). That in turn implies an average annual cost for the staff concerned of almost £90,000 a year. Even allowing for the recharging of on-costs, that’s pretty high in civil service terms. Something a bit out of the ordinary still seems to be going on.

It was odd and confusing that the original response defined “all spending to date” as including  this element of internal staff costs, but not any others. However, doing so still shed a useful light on how significant procurement-related advice was in total, as an expense in one form or another.

I have left the original post unamended, because I think the main point of interest here stands, but readers will want to bear this new information in mind.

Original post

Baby boxes have been in the news again. Yesterday’s coverage was of some new SG research (worth a separate post at some point).  But there’s also new financial information available for this policy which gives some insight into how the Scottish Government works, especially the power of political imperatives, and attitudes within government towards the parliament.

Costs to date

A Freedom of Information response was published on the SG website on 30 November which gave a breakdown of all costs to date of the baby box policy. I don’t know who submitted it (it was not me).

Here are the costs in each year to date (categorisation by this author). The biggest surprise is that £91,885 was spent on procurement advice, more than was spent on research (£80,444).

MacRoberts LLP (£40,621 in 2015-16 and £120 in 2016-17) [correction:  should say 2016-17 and 2017-18: table is correctly labelled] is one of the big commercial law firms in Scotland and has a standing “framework” contract with the SG for providing external legal advice.  SG lawyers don’t charge internally, so the £51,144 in 2016-17 [correction: 2017-18, as above] assigned to SG Procurement must also be for external advice, though we don’t know where from [See update note above: this turns out to have been an internal charge].  Two large payments in different financial years suggests complexity, for example that the question was so tricky MacRoberts had to be paid in instalments, or a second substantial  question arose, or the first advice didn’t do quite what was needed.

The relevant background here will be the granting of the baby box national contract, worth £35m over 4 years, with no competitive process to APS Group (Scotland)  Ltd (more here, from August). APS Group (Scotland) Ltd is a private limited company  75% owned  by the Cheshire-based APS Group Ltd. It has a standing “framework” contract with the SG, for “publishing, printing, design and associated services”.

Back in August, I observed that

the decision not to submit this to competitive tendering must surely have to had to be put through the legal wringer, given how it stretches the interpretation of the terms of the existing call-off contract and that it is so large in value.

The existence of that legal wringer is now confirmed, and its cost.

A competitive tendering exercise would have meant some delay. SG would have to say how much time a competition would have added to the process, but it would be a matter of months not years.  Even so, it was presumably enough to jeopardise meeting the commitment in the SNP manifesto that scheme would start nationally in the summer of 2017.

A report in the Times today notes:

The box is one of the policies that Ms Sturgeon is most proud of. The first minister drove the idea through from the first plans to implementation

Was £92,000 spent only in order to avoid politically unwanted delays? That looks possible. The sum at stake is small change in the overall government budget. But it’s also not nothing. Deciding to spend that much public money on legal advice is never a trivial decision.

Whether there was a larger cost to how this was handled is more unknowable. The theory of competitive tendering is that it saves money, for example by avoiding a single supplier having the public purse over a barrel.  As the SG Procurement pages put it, the purpose of the procurement rules is “ensuring value for money for the taxpayer”. No-one can say how far a competitive process would have brought down the cost. What can be said is that in acting as it did, the Scottish Government was choosing to spend a substantial amount of money specifically in order to avoid testing the water on costs and not just for the first year, but for four years. The contract will not fall to be re-let until the run-up to the next Holyrood elections, for reasons that aren’t obvious.

The budget for 2018-19

In last week’s budget document, an odd arrangement continues from last year, in which baby boxes are listed as part of the Children and Families budget within the Education and Skills portfolio (p71), while the cost is in fact being met by the Health and Sport budget (see the Health tab in the Level 4 spreadsheet linked here:  baby boxes contribute to producing the total shown for Early Years in Table 5.03 on p57 of the main budget document). Having now done this twice, the SG must for some reason prefer this to matching the words accurately with the numbers. The Parliament did not complain last year about the implications for scrutiny of this confusion, even though it involves switching between Ministers and parliamentary committees.  Unless MSPs make an issue of it, it looks likely to become embedded.

The budgeted sum is £8m in 2018-19, although the FoI response above shows planned spend in 2018-19 of £8.8m, in line with the amount APS is contracted to receive. So for some reason SG is under-budgeting by 9%/£0.8m in the figures provided for parliamentary scrutiny, compared to the figures it is holding. 

Who profits?

In health policy, the use of public spending to pay private providers is sensitive. So the location of this spending in the health budget is salient. 99% of baby box spending has been direct to private suppliers and this will continue. The FoI response explains that the payment to APS covers:

Baby Box contents, Distribution Centre Activity, Delivery Charges, Contract Management, Customer Contact Centre costs, Print costs, Operating Margin.

Operating margin is in effect profit: APS is a private firm, after all. Further, this contract involves a lot of stuff that’s not APS’s normal business, on a large scale relative to its pre-box turnover, so  quite a lot of sub-contracting, involving even more people’s profit margins, seems likely.

So that’s £8m (if you are an MSP), or nearly £9m (if you are anyone else) a year now being spent from the health budget directly in the private sector. Of course masses of the health budget already ends up with the private companies who supply the NHS. Here however a new national service provided out of the health budget is being commissioned by central government from a for-profit organisation, which is delivering it (literally, for once) direct to individuals, with private profit being extracted at various points. It may be a model with merits in this case, and I suspect most people won’t be bothered. But it’s curiously at odds with a more familiar government rhetoric which positions any form of privatisation as a threat to essence of a public health service, even when  services remain free.  (Opticians, dentists, pharmacists and some GPs occupy a blind spot here already, I realise.)

Conclusion

Whether or not this was a policy the FM had driven personally, the precedents being set here would deserve attention: direct private contracting by government for a new national service out of the health budget, costly effort to avoid competitive tendering, repeated inaccurate description to parliament of which bit of government is responsible for providing the money, and under-budgeting.

I think MSPs should make a fuss if the budget materials provided to them are not factually correct, as a matter of principle, regardless of the policy or scale.  But on this one they didn’t last year, as far as I know, so the government may be banking on a further free pass. The award of the contract to APS has not caused the government much parliamentary discomfort either. So it’s doubtful the decision to spend so much money on legal advice, to all appearances just to avoid several politically-unwanted months delay to implementation, will attract much criticism. As reports of positive responses from parents to getting a box build up, scrutiny of the policy process may look increasingly irrelevant to the media and politicians of all shades.

Perhaps opposition parties will be tempted to bank the precedents being set here for their own future use: you can see why they might. The current administration would not be the first to find the constraints involved in contracting rules frustrating, or to want as much freedom as possible in how they report figures to the Parliament.

For  all sorts of reasons, the baby box policy continues to be a fascinating case study in the operation and scrutiny of government policy-making in contemporary Scotland.