Nov 1, 2010

Serco’s paper trailer raises accountability questions

Crikey has taken a closer look at the extent that Serco contracts outsources to other companies and can reveal that millions of dollars from the detention contract has ended up in some startling places.

The recent suicide at Villawood Detention Centre in Sydney again confirmed that the situation in Australia’s immigration detention centres has become critical. But what has remained largely unquestioned is the role of Serco, the British multinational that holds the $367 million contract to run detention facilities across the country (alongside a few prisons and a just won contract for a hospital in Western Australia). The company said it was "preparing a report" on the suicide for the Department of Immigration and Citizenship just after the event and most journalists left it at that. But Crikey has taken a closer look at the extent that Serco outsources to other companies. The paper trail shows how the tender process allows private companies to further outsource, limiting the abilities of the Department of Immigration and Citizenship to scrutinise the fulfilment of their contracts. The Department of Immigration and Citizenship says Serco employs two major subcontractors: MSS Security and Resolve FM. Resolve FM is owned by the Norfolk Group and is a "facilities management" organisation that provides services across a wide range of areas. The Norfolk Group was established in 2004, when it was bought from Tyco International by Hauraki Private Equity No.2, managed by the private equity firm JBWere (NZ). JBWere has given almost $1 million in donations to both the Liberal and Labor parties since 2000. JBWere is also a subsidiary of Goldman Sachs, which according to ASIX is the majority shareholder of the Norfolk group. MSS Security provides security services in several detention centres and their guards have been involved in several notable incidents, including an officer allegedly caught in bed with an asylum seeker. Furthermore, foreign workers are working for MSS to guard asylum seekers and illegal fisherman at the Darwin detention centre. The Northern Territory News reported in early October that "the asylum seekers and illegal fishermen under detention in Darwin are being guarded by foreign students and "guest" workers":
"A company payslip obtained by the NT News reveals MSS security pays its foreign staff $16 an hour plus penalties. One employee worked 66 hours during a 14-day period and took home $1554.00 after tax."
MSS Security is actually owned by an Indian multinational security company, Security Intelligence Services (SIS) India Ltd, which also owns Chubb Security Personnel. It is one of the biggest security providers in India. The paper trail doesn’t stop there. In January 2008 the global private equity fund DE Shaw bought a 14% stake in SIS. While this name may mean very little, the company that bought a 20% stake in DE Shaw in 2007 is more infamous; they trade by the name Lehmann Brothers. This is the very same Lehmann Brothers that filed for bankruptcy in the US. Mainstream media coverage, if it happens, rarely questions the ideological underpinnings of privatising asylum seekers, merely the effectiveness or otherwise of the services for them. At least some in Britain are questioning the morality and effectiveness of outsourcing the management of vulnerable people to unaccountable multinationals. When Crikey requested the names of the subcontractors that Serco employs, a DIAC spokesperson said that not all the names of subcontractors were available. Serco employs more subcontractors, but they’re not reported to DIAC due to the size or duration of the contracts. When asked about the specific guidelines for when a contractor had to be reported to the immigration department, a spokesperson said:
"The detention services provider has met its obligations to the department regarding the reporting of subcontractors. It would be inappropriate for the department to discuss in further detail the names of each individual contractor engaged, as it is a matter for that company ... if it is a major subcontract (that being, total value greater than $1 million), IHMS (Serco) must seek prior written approval from the department ... if it is a minor subcontract, IHMS (Serco) does not need to seek prior written approval from the department.  IHMS (Serco) must provide a copy of the subcontract to the department within 10 business days from the department's request."
*Paul Farrell is a Sydney-based freelance journalist. Antony Loewenstein is an independent journalist and author.

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20 thoughts on “Serco’s paper trailer raises accountability questions

  1. Sean

    But none of this goes anywhere, Antony and Paul. These are just normal business arrangements where Serco uses whatever companies are in the area to recruit extra staff as necessary. We’re talking Darwin here, not the centre of Sydney. (Although MSS as a recruting security company might well be used in the centre of Sydney also.)

    Ultimately the government or relevant department is accountable to the people of Australia, as it always has been. There is usually a requirement for a chain of accountability in the form of ISO9000 accreditation between companies, and so on.

    The links to outfits like Lehmann Brothers are meaningless. Lehmann was allowed to fail in a process in the US which itself was highly suspicious, and subjected to some ‘death spiral’ insider short selling as well. Its subsidiaries might be being used to defray the bankruptcy of the US parent in paying creditors. None of this should have any impact on the ability of the subsidiary to do its job however.

    I don’t think it’s clear in this article what the better, alternative outome should be? Should new public service guards be recruited around Australia and flown up to Darwin like mining staff? And there won’t be a single disciplinary issue amongst any of the recruits? And the recruiting process will be efficient and effective, by recruiting around the country and flying extra bodies up there, paying isolation allowance and so on? Don’t we see corrupt or ethically dubious state police being let go in the gazette discharges pages every month?

    Surely if an outsourced company is having trouble with subcontractors, its contract should require it to remedy the situation post haste?

    Given that current public service recruitment processes are widely acknowledged to be highly inefficient compared with the private sector, with no better recruitment outcomes and oftentimes worse, I’m not sure that accountability has been sacrificed and certainly not that a superior outcome would be obtained by using a Federal public service approach, somewhat akin to utilising the Federal police (which would then have to recruit new numbers in turn to meet the demand for dedicated security officers for the specific task — who would then be impossible to let go of when the situation changed due to labour protections in the APS, at least not without large payouts, union agitation, etc etc). Is there a better way for the APS to turn itself into an ad hocracy, given its present unwieldiness and pathological and excessively labour-intensive internal rules and practices around recruitment and promotion, ones which are also clearly subject in practice to cronyism, nepotism, and the protection of incompetence, such as the one that says your substantive level can never be taken away from you short of murdering someone with witnesses present, or the ‘pass the useless manager on’ where a manager who is made redundant in an exercise to get rid of them is automatically granted another job if merely ranked ‘suitable’ in a new agency by an unsuspecting panel?

  2. billie

    Thanks for the article. I would like to see the Public Service be responsible for staff at Detention Centres and Prisons. Obviously it would be cheaper for the public service to hire the staff directly – afterall all these private companies are in business to make a profit. If there is no profit they won’t tender.

  3. Rena Zurawel

    The whole detention centre business is a part of a bigger game. I think, it is high time the government came clean about it. Why should Australian taxpayers pay for human misery? Why should we foot the bill for long term extra-judicial prisons?

  4. Richard Wilson

    I guess if it is good enough for the Rudd family company to be awarded the equivalent of the Centrelink contract for London, then it is only reasonable to expect that a contract for a roughly equivalent amount might be awarded to a UK company (of unknown connections) for detention centres in Australia.

    Here is my personal view on privatisation of public assets.

    Firstly when the government sells what the people already own back to them, then this has got to be the greatest swindle of all time. It never results in a profit for the people. e.g. Telstra.

    But there is something worse. And that is to sell the public’s basic services, clean water and energy to a foreign entity which is not accountable to the Australian people. When the government controls public resources, it is accountable to the people. Private industry is not.

    When the deal is an out and out monopoly such as airports or certain roads, railways, energy supply or water; then the people are placed at the mercy of a private firm with a monopoly. They also have limited options to refuse to participate because it is a monopoly. Worse, many times these deals are sweetened with government undertakings to subsidize losses, provide money interest free and to enforce compliance from the public such as becoming collectors of penalties for the privatised entity e.g. if you do not pay a fine on a private tollway you can have your licence suspended or cancelled by the state.

    So when the government sells off the people’s resources and services to private enterprise and then enforces compliance after the sale is effected, you could be forgiven for thinking you are well on the way to fascism or corporatism. However, some times the people fight back. When the NSW Government attempted to prevent some motorists from leaving Sydney other than via privatised roadway, there was a major public backlash which forced it to back down.

    Before the corporatisation of government, it was not interested so much in making profits from its utilities but breaking even because that meant charges were in line with expenses. However, the perfectly valid goal of any corporation is to maximise profits and you do not do that by breaking even. So, by definition, privatisation must result in greater cost to the publc as profits must be maximised, particularly in a monopolistic situation. Even when the public does not face a strict monopoly situation , charges are still rising at three to four times the rate if inflation such as is the case with energy and water. The public needs competition to benefit and business needs monopoly to maximise profit.

    Now in the case of business taking over the services that governments run, the attempt to maximise profits as noble as that may sound to some, has many unintended consequences. Here are a few examples:

    Suppose you own an Immigration Detention Centre. The way to maximise profits is by housing as many detainees as possible as cheaply as possible. So… what do you need, vilification of the inmates is a good start because the public won’t want too much spent on them. Next, you need lax policing pre-detention but strict enforcement of laws upon detention. This is what is going on in Arizona at the moment where the people most strongly behind the harsh “illegals” laws put forward by the state governor, are in fact the immigration detention centre operators. Now, in the case of Australia, you want the boats to arrive en masse but then to have the strict laws apply to detention and processing for as long as possible. That is how you make a lot of money and your one customer, the Federal Government always pays its bills. All businesses want to be in a monopoly, they hate competition and ideally they prefer just the one customer, a customer who can always pay its bills i.e. the Federal Government.

    If you run the prisons, then maximisation of profits is attached to more crime, more drugs and stricter enforcement of the laws i.e. longer prison sentences. This is not to say longer sentencing is not justified for many crimes, merely that it is a profit imperative for the private operators of the prisons irrespective of any moral or social considerations.

    Perhaps even more alarming, is the privatised child welfare business such as you find in the UK and the US and probably here now. The more children that can be removed from supposedly bad parents, the more money the business (used to be a service) makes and the temptation is to ensure that parents are watched as closely as possible and policed as strictly as possible because that will deliver more customers. Your one customer, yes the government again, is usually willing to help drum up business in this regard by becoming especially zealous in its enforcement of child protection laws. Once again, I am not decrying the virtue of child protection, but rather to point out that an economic imperative operates outside of the public good when these types of services become privatised and the public has no direct avenue for complaint and immediate course of remedial action.

    The profit imperative has no conscience nor does it show mercy. This is because it is the product of a dog eat dog system greatly exacerbated when privatisation and public private partnerships become de rigeur. Great for the new owners of the privatised services to be sure, but not so good for the recipients of those privatised services which are now dispensed with a constant eye to the maximisation of profits.

    Next, witness the increasing number of mercenary armies that are running riot in Iraq, Afghanistan, South and Central America and elsewhere operating with almost totally impunity as demonstrated consistently by Wikileaks. With warfare such a major money spinner for so many corporations, the only way to ensure continued profits is to…yep have more and ideally, never ending war.

    It’s not going to stop folks because it is only about economics not social justice, democracy, human decency, repression of minorities or anything else with noble ideal attached to it. It’s just economics. Without war, the military industrial complex goes belly up.

    If you control hospitals and need profitability then you need as many sick people as possible and it is not particularly helpful when they get better.

    This is all part of the outcomes based scientific management theory of the discredited Frederick Taylor. Taylor has been shown to have fixed the results of his brutal scientific management projects based on time and motion methods which are extremely popular in the Third World locations where all our stuff is now made.

    I won’t talk about water and energy in this rant but will point out that they are going up at four times the CPI compared to the known money thieves – health and education travelling at just twice the CPI. But that is another story.

    So now you know why privatisation is such a good idea for the few and such a bad idea for the many. Privatisation takes over what the people own and then rents it back in perpetuity to one customer i.e. the government which then enforces the terms of the agreement upon the population.

    So remember that the people who enjoy the fruits of privatisation and public private partnerships do better when bad stuff happens. This is called “disaster capitalism” as Naomi Klein so aptly coined it. This is how you make more money, particularly if you can panic the government into some knee jerk reaction. This is not personal. This is the very nature of business and because business now rules the world, this is what we are experiencing and why we need to become increasingly alarmed.

    Remember that all businesses are largely at the mercy of their financiers and must be prepared to do whatever it takes to keep in the black. So, at the end of the day, the banks call the shots on privatisation including energy – especially be wary of concepts such as carbon trading, ETS and any other business transaction scheme. When you hear politicians promoting trading schemes to be run by banks look out because your income is about to be privatised.

  5. Beerhead

    Well well well, it appears you have the most unlikely of allies re your view on Public Private Partnerships.

    Joan Veon, in her very controversial book..”Prince Charles…The Sustainable Prince” compares PPP to Corporate Facism. You will have to ignore her religious tendencies if you read it, but it’s an interesting read never the less.

    She recently passed away aged 61.

  6. Sean

    A long treatment by Richard Wilson on the perils of selling off public assets lock, stock and barrel, such as power or prisons, as we see in the US.

    There are degrees of ‘privatisation’, however. In the case of detention centres, Serco does not build, finance or own, simply operates — more cheaply than the equivalent public service setup. The company also has a number of other contracts in Australia to do a number of things — none of it BFO or PFI.

    Therefore the prisons and detention centres are not owned by Serco and never will be, they are simply providing the bodies to run them. There are no incentives in the contracts to encourage people smugglers or try to get more people into prison, for instance. They simply do the same job for less than the public service, which is why Australian governments are increasingly outsourcing various functions on a selective basis, still overseen by public sector contract management teams.

    If on the other hand you are contemplating selling off a natural monopoly like the water supply or the capacity to generate electricity, that’s a different ball game in terms of the risk borne by the public of facing escalating costs, or inequities of service, or of unaccountable structures, unacceptable corner-cutting with maintenance, etc. NSW Labor is hellbent on selling off the state’s power supply, for instance, but again, it is nuanced in terms of ‘opening up the market for competition’ to a number of retailers. Each new proposal for outsourcing or ‘privatisatin’ nedes to be opened up and scrutinised on a case by case basis for its merits or pitfalls, rather than dismissing all such arrangements and partnerships as ‘flawed’ or ‘unaccountable’.

    Breaking up natural government-run monopolies can, in a consumer-driven competititive market model, sometimes lead to better levels of service and responsiveness, the option to choose company B if you don’t like A, a wider variety of services, and more dynamism in product offerings. The market punishes poor performers by lack of custom, and there are inbuilt drivers to maintain an efficient workforce and get the job done as efficiently as possible. You used to have to wait a month to get a phone connected by the PMG, for instance. Admittedly the sell-off of Telstra by the Howard govt was a complete botch-up, they should have broken the utility into infrastructure and services, and probably retained ownership and control over the infrastructure part, although possibly outsourcing its running to private IT&T companies on a tender basis bound up in performance contracts. The current arrangement sees Telstra providing misleading information to other ISPs and abusing its monopoly status by controlling the copper and various services like DSLAMs. Stephen Conroy was right some time ago to signal the breakup into two parts, and I believe that is back on the agenda.

  7. shanks' pony

    Paul/Antony, well done. You’ve just demonstrated that companies are owned by companies are owned by asset managers who invest the money of….the people! Viva la socialisme! Honorary doctorates in inane journalism coming your way…

  8. Richard Wilson

    I take your point Sean that service contractors are not acquiring Australian capital. However, I would argue that they in fact are by taking over the capital built out of the skills acquired in doing the job. i.e. the government, at its cost, has trained people to do their job properly. These people are “acquired” in the takeover.

    The private sector, in my view, is only doing the work cheaper (if in fact it us) because it does not invest to any degree in training and development. Rather it survives and occasionally thrives by poaching experienced government trained employees. Once the government gets out of an activity, its employees are on the street, looking for work. Bingo, the successful contractor picks up desperate workers at attractive rates. Look at the path of former Telstra employees (and before them PMG employees). These people have fed the private contractor business for the last 25 years. The difference is now they are working for oversees businesses not locals, because these are the companies which for some reason are being awarded the contracts.

    But imagine 10 -15 years down the track when the government has sold off all its activities to private contractors and is no longer investing in training and development. The entire system will collapse and the governments will be called in to bail everybody out yet again at our expense.

    This as far as I can see is much the same as the parasitic way Big Pharma has operated for the last 50 years. These firms argue that the reason drugs have to become so expensive is because of all of the R&D they have to do. But these organisations largely acquire product from under funded universities and research laboratories and work it till it can’t get up off the floor. Their own R&D programs in relation to profits are laughable Most have no new products coming down the pipeline and will not have unless they can scout some poor academic group somewhere working on something with promise and in the first stages of production.

    No. Investment in training, once under the charge of government instrumentalities, is no longer happening. When the present generation of half-trained guards and other service providers retires, we can only guess at the quality of the personnel that will be foisted upon detention centres, prisons, hospitals and other institutions serving the population, in the name of efficiency, sustainability and transparency.

  9. Sean

    Doesn’t really hold water, Richard. I don’t see the kind of faux-Leftist Doomsday scenarios you outline coming to pass. These guys are already trained private sector security guards. It’s not exactly a difficult job that requires a lot of training either, let’s face it. They would be better off being ‘multi-skilled’ private sector security workers rather than narrowing down to one type of public sector work, which I suppose might dry up one day — although NSW is building more prisons and imprisoning more people than ever, as part of its ‘Laura Norder’ stance which it believes the public wants.

    I’m not sure how you can be ‘half-trained’ in these areas, which are basically low security environments. There are many other people employed to provide services like laundry and cooking and professionals such as doctors and psychologists need to check detainees often.

    You will note that state govts are increasingly trying to outsource the running of prisons generally, once again to save money — existing staff simply transfer over to a private sector operator, remaining in place, the skill sets are not lost. Overall staff numbers are generally whittled down due to attrition — relocation, retirement, etc.

    This is the age-old debate about what should be public or private — the earliest police forces and armies were not ‘public sector’ but private businesses — the very notion of a centralised national authority controlling everything came along a lot later. Britain has always had a stronger tradition of individual businesses offering services rather than a single national entity, hence Serco’s success in the UK. I’m not sure in fact how you ensure that the higher levels of management know what they’re doing in taking on such a contract once you have kind of decapitated the organisation, short of importing very experienced managers from the UK in the prison system to get things started again at each contract.

    In the case of hospitals, by the way, I’m reliably informed that places like NSW Health are swarming with multitudes of overpaid, hands-off middle managers who have commandeered fat salaries, may be male ex-nursing staff and similar, and micro-manage the system to death at very great public expense. It strikes me that some of these bloated govt departments could do with some outsourcing of functions to leaner models — and we see the NSW govt presently clutching frantically at such solutions in order to get their wages bill down in a post-GFC environment where they squander most of their hard-earned stamp duty revenues on public service salaries and claim to be virtually bankrupt.

  10. Richard Wilson

    I am unconvinced that any entity bent on profit is prepared to deliver a public service at the exense of the marginal dollar because I am yet to see it happen. And if held to account. investors will bail at pace. The corruption of the State and the corruption of big business are equally vexing for me. There is but one difference. The State, while still a democracy in name at least, can be held accountable by the people. Witness the current Labor Govt. in NSW which will be held to account after heck knows how long by a majority of voters. Business on the other hand, if in a monopolistic situation (see PPP’s), is largely unaccountable. When the State bestows a monopoly upon its key contributors, then great windfalls follow and the people suffer. When the State controls these services and becomes lazy and complacent, again the people suffer. If the people are more politically aware they can apply greater pressure to their elected officials. This is, to a degree, happening with the Independents controlling the balance of power in the federal Parliament. Businesses on the other hand, when they hold a monopoly such as the case with the US Federal Reserve, a private bank which is owned by the major global banks (you know the ones that were bailed out a couple of times already by their own entity) and including I understand these days the Bank of China; has no accountability at all. The Fed does what it likes and cannot be dictated to by the US Govt. which itself consists of former employees of the Fed and the banks that own it.

    I don’t think efficiency as defined by profitability is the right paradigm for determining the social good Sean. I am no socialist but I do believe in positive human outcomes rather than cost savings and efficiencies as the mosdt appropriate measure of the social good. Not that I want to see money wasted; but taking away a child’s bowl of rice in the name of efficiency doesn’t wash with me I am sorry. I believe in fair commerce rather than free commerce which must by definition invariably become dominated by the biggest operators.

    I don’t believe in an open go for big business in the hope that competition will right the ship when the goal of business is to destroy competition and hold a monopoly. Small busines by virtue of its size is always in a competitive situation otherwisse it soon becomes a bigger business.

    Therefore, the people via their elected officials need to police big business – all business really but not merely as a ploy to eliminate smaller competitors incapable of dealing with exessive regulation.
    Business is easiestr to police at a local level and not at all at an international level. Which is why Big Business is going international. but the people are moving to community business models.

    As for the flunkies presently in office, you have got to question their motives about selling out to overseas providers of services that can be managed perfectly well locally, and exporting jobs to Asia. Neither major party at this stage has convinced me they are against this agenda and the Union movement is more concerned with cushy international jobs or positions on the Labor Part election ticket than the people they purportedly represent. The truth is in my view that the middle and working clases are being thrown overboard here and across the Western World. We are lagging most other Western nations in this regard but it is happening if you bother to look.

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