Kathy's article on commissioning for CYP Now, May 2019 "Commissioning Children's Services: Policy context"

As we digest the excellent HCLG report on local authority children's services funding, it's clear that care commissioning needs major systemic reform. Among its recommendations is a call for the Competition and Markets Authority to investigate how to make the market more competitive and control spiralling council spending. That is a laudable aim, but a serious review of the care commissioning marketplace will have to unravel the common assumption that more competitive markets create more competitors. In fact the opposite is true.

The report recounts eye-watering figures of steep rises in the "costs" of independent care, but in most cases they are actually referring to the prices, not the costs, of care. Costs are what a provider has to pay out in salaries and bills; price determines the amount they can earn in income from councils.

Many council procurement strategies attempt to cap, or fix, the maximum prices they're willing to pay providers, which can sound like an obvious way to prevent excessive profit. But different providers don't all have the same costs - smaller organisations with fewer places to sell will have higher costs per place than organisations with a higher volume of care places. Whatever their size, providers who pay better terms and conditions for staff, invest in training, qualifications and quality of living conditions, will have far higher costs than high-volume high-turnover businesses paying minimum wages in the cheapest properties and areas of the country. A uniform fixed price is less likely to be sufficient to cover the costs of smaller local organisations and higher quality more ethical employers; more likely to be sustainable for low-cost, high-churn business models.

Fee-capping can therefore be precisely what drives smaller and/or higher quality providers out of business, or forces them into mergers with the bigger companies who grow their market share; reducing rather than increasing the number of competitors. Having fewer larger providers with greater market power is what enables them to break free of council fee-caps altogether, and to charge almost any price they want from councils who are now competing with other councils in the attempt to win their bid for the same oversubscribed placement.

Thirty years of market competition is what created this problem - more competition can't be the solution. One of my favourite sayings is particularly true of where we find ourselves today with commissioning and procurement - “if you are doing the wrong thing then doing it better makes you wronger, not righter”. But if we can all accept the need for radical change is urgent, and that it involves moving away from short-term competition towards long-term collaboration, then I do believe that all the people and organisations who have the best interests of children at heart can work out how to do the right thing, better, together.