Prison Privatisation in the UK - Essay Example

Contract Journal: Prison Sector Spending Section I: 500 words Section II: 2,000 words TABLE OF CONTENTS SECTION I.3 I. Introduction.3 II. Essay Question I...3 SECTION II4 III. Essay Question II.4 IV. Conclusion9 SECTION I. I. Introduction Prison-building in the UK is a large and flourishing business. In January 2000, Prison Privatisation Report International noted that '[the Crime and Disorder Act] could create the need for more prisons. Since all new prisons in England and Wales are to be privately financed, designed, built and run this could allay the private sector's fears about future prison contracts'" ("Prison Privatization," 2000). Here it will be discussed: a) how PFI procurements would have benefitted NOMS (the National Offender Management Service) in the building of these prisons; and b) the contract strategies put in place in order to design four prisons in four years. II. Question I Procurement is obviously a key issue. How a job is going to be attained is an issue that relates mainly to procurement. There are three different main routes of procurement which one could follow. The first option is perhaps the most obvious, PFI (private finance initiative) procurement, is classic and actually quite attractive. For the purposes of this project, PFI will not be used. However it is helpful to know what it is exactly. Private finance initiatives are usually used when the public sector arranges to buy services, with very empirically-based outcomes from the private sector. This is ongoing for a long time, which includes the maintenance and/or construction of the appropriate designs so that management by the private sector is maximized by the private finance being at a high risk. Next, which is not as innately apparent, is prime contracting. In this instance, a sole contractor is in the place of being the point man for a client in the public realm to produce deliverable goods-such as a completed construction project with budgetary constraints. The next and final procurement option is design and build, wherein one contractor, also indebted to a client in the public realm, has a single outcome specified. Unlike the prime contracting model, there is no pre-agreed cost data. Basically, the fact that these prisons are not being built with private finance initiative procurement is problematic. First, the fact that the money being spent would be taken from private funding would ensure that the public was not being swindled. Secondly, if something went wrong with the project, the money being spent would not be public monies. In fact, the fact that the monies that will be spent are public monies is highly problematic. How then does the prison industry make sure that it is being faithful to its intended purpose (housing prisoners). Someone, if this is public funds being used, must be kept accountable in terms of how the public's money or tax dollars are being spent. Private finance initiative procurement monies would be safer to use because if the money is not utilized properly, the private sector could more easily sue for damages. However, since the money is the public's money, the public does not necessarily have a representative in place to represent their interests, needs, and wants with regard to how the project is coming along. In this way, there is much more potential for abuse when it comes to the public's money being spent on the prison programme. SECTION II. III. Question II In the opinion of Ramus, et. al. (2006), "After a client has selected an appropriate procurement strategy for his building project, the next stage will be a review of how best to obtain the resources that will be necessary for him to have the work carried out. In most instances, client organizations will have limited skills and resources" (pp. 68). There are four different types of contracts which could be utilized in this situation: a contract based on bills of quantities; a contract based on a schedule of rates; a cost-reimbursable contract; and a design and construct contract. The bills of quantities contract will be used, and the reasons for it will be put forth when describing this particular contract. According to Murdoch (2001), "English law does not as a general rule require a contract to be made in any particular form. Thus it isquite possible for the parties agreement to be spread over a number of documents, and even to include oral statements" (pp. 131). Contracts which are based on bills of quantities are quite common for bigger projects within the construction industry in the UK. Two kinds of arrangements exist-contracts with estimated quantities, and contracts with fixed prices. Contracts with fixed prices are basically contracts that are ordered in the fashion of the contractor being paid a certain amount for rendered services. "Prison contractors on the 1.8bn NationalOffender Management Service (NOMS) Strategic Alliance framework are bracing themselves for swinging changes to the way prisons work is delivered. A major NOMS review could see framework contractor numbers slashed or the framework ditched altogether next year in a major procurement overhaul" ("Contractors Brace for Prisons Framework Cuts," 2009). The positive aspect of using this particular contract is that everyone is pricing similarly and any risk associated with quantities is not the contractor's responsibility. According to Beck (2009), "Unfortunately, the concept of 'average jail bed cost' is poorly defined and the numbers sometime change drastically from jail to jail and from year to year. Jail planners often face the dilemma of trying to decide what number to use" (pgh. 2). Additionally, the contractor need not arrange his own amounts and therefore any mishaps in tender pricing can be found and corrected immediately. "The fevered rate of prison building, at a cost of 170,000 per place, is now set to propel the UK past most of our Eastern European neighbours for prison capacity. Overuse of custody has become a badge of political toughness rather than a matter for national shame" ("Juliet Lyon: Our Prison-Building Binge Is a Badge of National Shame," 2009). The other kind of contract deals with approximate or estimated quantities. With this form of contract, approximate quantities are evaluated. The price of a contract is based upon the actual work being done itself within construction. "[One] review has given new incentive for improving working relations between prisons and contractors 'There are some terrific examples of good practice. For instance in some prisons contractors assist in opening receptions and conducting searches so they can speed up discharge'" ("The Good PECS Guide," 2009). Although it might be an advantage to have this sort of contract because everything need not be constructed before tenders are issued and the contractor does not take on any risk-sandwiching both construction and design-there is the inherent risk that one takes that if the approximation or estimation is too close to the real amount of quantities, the contract could become just a rate schedule. Speaking of which, the second type of contract which could be pursued is the contract based on a schedule of rates. Similar to the first type of contract, with a schedule of rates contract, the actual quantity of work which is performed at a fixed price irregardless of quantity. The difficulty with either type of contract is that if what was approximated in the beginning equals to less or more than what was actually used, the contractor would probably have to recalculate the rates. In Brook's view (2004), "The planning engineer will often have a better understanding of current site practice and will be better placed to collect data from monitoring exercises on site. His experience of completed work will be important especially where the overall duration of a project could be reduced" (pp. 118). The third kind of contract is called a cost-reimbursable contract. Usually, the ordinarily priced or design and construct contract forms, there is a great amount of detail which is clearly thought out before the project begins. This allows to be a substantial amount of well-defined allocations of potential problems between the client and contractor. In such a case, it is not uncommon to realize that contractors assume most of the risk. According to Harris, et. al. (2006), "The budgetary system comprises many individual budgets, which are ultimately integrated into a master budget. The master budget is similar in form to a profit and loss account, butis based on forward estimates of costs and revenues and isonly a forecast of the anticipated profit to be earned" (pp. 239). This deals with the aspects of liability, time, quality, and cost. Risks include bad weather and delays, variations on costs, unforeseen conditions, and losses of other kinds. A Ministry of Justice spokesman said: 'There are no significant delays to prison building schemes, we are following the due process. At present, work through the Strategic Alliance is ongoing capital and planned maintenance spend[ing]'" ("Fears Over Government Prison Building Programme," 2009). In such a state, it is usually not attempted by the contractor to help foster slashing prices. Contractors are there to make money. Cost reimbursement forms give contractors the edge in that it is the best estimate which is given to a contractor to be paid for work which will be done. This gives a realistic purse to a contractor for actual work which will be performed, and any pending expenditures that will need to be paid in terms of costs which are outstanding for the contractor. There is not much reason for a contractor to have efficacy with such a contract. Therefore the client has no real firm knowledge what the final cost will be. In this case, the client must be studious about continuing to check the contractor's work in the case of pursuing such a contract. The aspect from another perspective is that such a contract would be helpful in the even where there is a short amount of time in which the project is to be finished or wherein the necessity of getting started soon as possible is seen as more important than obtaining the least cost. Another situation in which the usage of a cost plus contract would help would be where a project could not be delineated majorly before the beginning of work on the project. An additional situation in which this would apply is where the client wants to have an active role in project management and/or design. When someone drafts a cost plus contract, it is necessary that there is a quite elaborate schedule of costs that is discussed, which should be included in the contract as it is originally drawn up. Different kinds of contracts in the cost plus form include a percentage fee wherein the contractor asks for a percentage on various elements of the project, plus another kind of fee which seeks to garner wages for other aspects of the project. This last contract is a bit different from the previous one in the manner that, in the first place the contractor is remunerated based on cost plus either a percentage or a fee that is a fixed. It should also be noted that a bonus or a penalty may be incurred, depending on whether or not the fees are scheduled correctly. Also, there is more encouragement for the contractor to make economical deductions than under the former two types of contracts. The forms of the contract as designated by the cost-reimbursable method employ radical changes in the assumption of risk by different parties. This means that the risks are divided evenly between all the parties involved, which becomes even more obvious in the forms of contract dealing with target cost. This impacts the relationship of all parties involved. Cost-reimbursable contracts put most of the risk associated with the project on the client. This means to say that contractors will not have much reason-other than having steady work-in order to work in a manner that is both quick and financially sound. However, standard types of forms would make for room for the contractor to be more responsible. One concern of the client in using this method would be to give the contractor incentive to estimate (at least in part) the final costs of the project, in order so that action may be taken on both of their parts to prevent any differences in cost. There are two ways in which this arrangement can be approached: first, it is possible to establish a relation which allows the contractor to get in touch with the client when there is a reason to believe that cost will be an issue; or second, that the contractor and client share the potential costs of the project. There is another element key to developing a good relation between contractor and client. This includes something called the value-engineering approach. The ability to use engineering concepts in order to resolve difficulties that happen on-site is of premier importance. Design and construct contracts are the fourth type of contract. Since they have fixed prices, they are quite popular in construction. One of the most problematic issues in UK construction deals with quality control as well as the production of the contractor. Problems usually crop up when the design and the craftsmanship do not necessarily blend well. Single point contracts should be distinguished from turnkey contracts (which are the same as design and construct contracts). Within a single point contract, only one contract is in place for the entire length of construction. However, the contractor who has responsibility for the entire project not limited to and including the design, is the turnkey contract. Even though this phrase is used to denote projects that are single contract projects, one of the main aspects of the design and construct contract is the fact that the contractor will control all of the necessary elements of design. Advantages of the turnkey system include that there is usually just one person in charge of being responsible for any kind of problems that should come up regarding the outcomes of the project or the material being used. The client doesn't need to decide from whence the difficulties arrive. Also, this contract allows for a single payment to be made to the contractor, or even a fixed rate of payments at various stages of completion of the project. As long as this is all delicately delineated in writing, there should be no problem as to unit prices for materials and so forth. In this type of contract, there are also advantages for the contractor. He has complete control over the project for the most part once he is paid; he can decide what kind of procurement is best. One downfall of this type of contract is that payment issues are consistently a problem that clients have. At times payment is not made on time and this can be one element or problematic that can suddenly appear in the course of the project being completed. IV. Conclusion Procurement is without a doubt a difficult process, but perhaps even more difficult is trying to make a selection of which contract to enter into with regard to building a prison. It was noted that a contract with a bill of quantities would be the most appropriate choice for building these prisons. The schedule of rates, the cost-reimbursable, and the design and construct contracts were considered but not so entertained as a possibility for this particular project. This is very basic. REFERENCES Beck, A.R., 2009. Misleading jail bed costs. [Online Article]. Available: http://www.realcostofprisons.com/allocation.html Brook, M., 2004. Estimating and Tendering for Construction Work. Oxford, UK: Elsevier Butterworth-Heinemann. Contractors brace for prisons framework cuts, 2009. [Online Article]. Available: http://ow.ly/JYoz Fears over government prison building programme, 2009. [Online Article]. Available: http://ow.ly/K0B8 The good PECS guide, 2009. [Online Article]. Available: http://ow.ly/JYuh Harris, F., McCaffer, R., & Edum-Fotwe, F., 2006. Modern Construction Management. UK: Blackwell. Juliet Lyon: our prison-building binge is a badge of national shame, 2009. [Online Article]. Available: http://ow.ly/K0yg Murdoch, J., 2001. Construction Contracts: Law and Management. Abingdon, UK: Taylor & Francis. Prison privatisation, 2000. [Online Article]. Available: http://archive.corporatewatch.org/magazine/issue11/cw11f6.html Ramus, J., Birchall, S., & Griffiths, P. (2006). Contract Practice for Surveyors, 4th Ed. Oxford, UK: Elsevier Butterworth-Heinemann. Read More