General practitioners are small business owners working independently and unfamiliar with the process of tendering. The awarding of contracts is a discipline that has matured over the last 230 years. History has much to teach us.
The loss of the American colonies in 1783 marked the end of transportation of British convicts to the New World. It is estimated that over 50,000 made the trans Atlantic journey in the century prior. The industrial revolution was changing British society and increasing numbers of workers were replaced by machines. The unemployed flocked to work in the cities but industrial growth was not strong enough to accommodate their number. Idle hands are the devil's workshop.
Convictions for theft and forgery rose and Britain's prisons and overflow prison hulks on the Thames were soon at capacity. Treasury needed a solution. The largely unknown land of Terra Australis would be the new destination for the detritus of British society.
Britain had over a hundred years of experience in transporting convicts around the Atlantic but the much longer passage to Australia, posed new logistical problems.
Bound for Botany Bay
The 11 ships of the First Fleet sailed on 13 May 1787 and stopped in the Canary Islands and Rio de Janiero before final provisioning in Cape Town for the long passage across the Southern Ocean. Despite the eight month journey, of the 1,487 who embarked, only 48 died on the journey; a death rate of 3 per cent.
The success of the fleet has been attributed to the careful provisioning of the ships and the attention to prisoner welfare overseen by Governor Arthur Phillip and by the successful contractor for prisoner transportation, William Richards. Richards was an evangelical Christian and reportedly was as concerned for the welfare of his charges as he was for his fee.
The cost of this epic journey and the establishment of the new colony at Port Jackson were staggering, at least for the British Treasury. The final sum came to £55,000 and equates to $75 million dollars in today's currency.
As a result, the commissioning for the second fleet was pitched at a quarter of the price of the first and awarded to the lowest bidder. Camden, Calvert and King were the largest slave trader firm in London and their priorities did not extend to convict welfare. Their three vessels of the second fleet carried 1,026 convicts, stopped only once at the Cape Town and made the journey in five months, three month's shorter than the first fleet's.
During the voyage 267 died and 486 were deathly sick on arrival at Port Jackson, of these 124 subsequently died. The death rate was a staggering 40%.
Governor Arthur Phillip wrote:-
I will not, sir, dwell on the scene of misery which the hospitals and sick tents exhibited when these people were landed, but it would be want of duty not to say that it was occasioned by the contractors having crowded too many on board these ships, and from their being too much confined during the passage.
Contracts for the First Three Fleets
There appears to have been no formal contract for the First Fleet since many of the costs were too hard to estimate. Richards was paid on a cost plus small profit basis. Britain has successfully established a penal colony on the other side of the world but the price for prisoner transportation was too great.
The Second Fleet contract was therefore made much more explicit. It specified standards of accommodation and rations, and the employment of a qualified surgeon with access to a stocked infirmary. Captains were required to keep journals monitoring the voyage. However, there were penalties if prisoners escaped and there were no minimal number of landfalls specified. In addition, excess food and supplies could be sold by the contractors at the end of the journey to the struggling inhabitants of the new colony. Starved and confined below decks for most of the journey the Second Fleet's prisoners' lives were a living hell.
The contract was paid in three installments:- on fitting out the the ships, after loading the prisoners and on arrival at Port Jackson. This last payment was not contingent upon the health of the prisoners or even of them still being alive.
When the news of the death rate got back to London there was a scandal. There was no official investigation, however, and a criminal prosecution failed. In fact Camden, Calvert and King went on to be awarded the contract for the Third Fleet. Thankfully, with previous experience behind they managed to get the mortality rate for the Third Fleet under 10%.
Transactional versus Relational Contracting
The last 40 years has seen an increase in tendering for the delivery of government services. The United Kingdom has led the way and shown that it is an effective means to contain costs. Private contracting has driven down the price of prisoner care and vocational education in Great Britain while demonstrably maintaining or even improving the quality of the service.
Commissioning is not a panacea, however. Fear and greed are the drivers of a market. Camden, Calvert and King were slave traders and indifferent to criticism they were heartless opportunists. Their reputation as a profitable company was their only criteria for success. Two consecutive contracts suggest that this approach held some sway in Treasury.
He makes the distinction between "transactional" and "relational" contracting.
Prior to the American War of Independence contracts between the government and contractors were usually underpinned by a long term relationship between the two parties. The British government knew the reputation and capabilities of the contractor and awarded them repeat contracts. As a result the contractor built up skills and efficiencies in the delivery of the service allowing them over time to achieve a better service at a lower price.
After the American War of Independence there was a push to change to open or transactional contracting. By opting for the lowest bid bureaucrats could escape any suggestion of cronyism and corruption while keeping Treasury happy. Everybody understands price.
The problem with open contacting is that the contractor is not rewarded for providing a better service. There is no value in building up expertise since this entails additional costs while not increasing the likelihood of repeat contracts.
Commissioning for Human Services
The death rate on subsequent voyages to Australia trended down to under 5%. This has been largely attributed to the requirements of the Inspector of Transports, surgeon Sir Jeremiah Fitzpatrick.
He identified 8 key areas: pre-transportation medicals, layout of the quarters, sanitation, ventilation, water filtration, table of rations posted in the prison (so that prisoners knew what they were supposed to be getting), codification of surgeon's duties, certificate of performance upon arrival and review of the surgeon's journal.
Under Fitzpatrick's regime, if performance was satisfactory (prisoners made it to Port Jackson both alive and healthy) a certificate of compliance was issued that triggered the final payment.
Fitzpatrick's approach foreshadowed the recommendations of Henry Parnell
, a British and Irish early 19th century politician.
Sturgess credits Parnell with seven principles for contracting:-
- Set out the specifications in the "fullest and clearest manner"
- No unnecessary expenses for the contractor
- Set the contract price so the supplier can provide a good service and still make a profit
- Pay in installments but reserve a small incentive payment for the completion of the work
- Select honest and able contractors
- Prefer contractors for continuing supply (subject to termination for non-performance)
- Advertise widely for each contract
Alternative payment systems were trialed. Contracts that left the transport particulars largely unspecified but paid a significant portion of the contract on the basis of a successful outcome failed. They were not popular with contractors because of the multiple risks involved in achieving the end result. As a result only three voyages were financed this way.
Contracting for the delivery of human services poses different problems to those for other goods and services. Investment in capability building is necessary for long term improvement. To justify this investment contractors must have a high likelihood of future successful tenders and cost alone cannot be the deciding factor.
Neither pure relational nor transactional contracting is appropriate in all circumstances and experimentation is required to determine what works in particular situations. A/B testing
is the term used in business for controlled experiments on product variation. It is extensively used in online markets but is also suitable for improving human services.
Aged care, disability support, mental health care and chronic disease management can be delivered affordably and humanely in Australia. Experimentation underpinned by mutual support from both the government and the professions will help us get there.