Premier Custodial Group (PCG) is a joint venture company equally owned by Serco Group plc (Serco) and Wackenhut Corrections Corporation (WCC). WCC has responsibility for the operational control of the business and Serco the financial control and HR aspects.

  It is anticipated that on 2 July 2003, Serco will become the sole owner of PCG.

  PCG was formed in 1992 and manages contracts ranging from prisons, a secure training centre, an immigration centre (with a second in the course of construction), escorting and court custody services and electronic tagging. Its turnover in 2002 was £127.4 million.

  Serco is one of the world's largest public service companies operating on a global basis in a diverse range of sectors, including defence, aerospace and science, public transport and traffic management, health, education, justice and local government.

  Serco is focused on the public sector which represents around 90% of its business and has a strong public service ethos with the UK government having been its principal customer for 40 years. In partnership with customers and staff Serco aims to enhance service levels and operational efficiency by shortening decision making chains, reducing bureaucracy and achieving continuous improvement.

NATIONAL AUDIT OFFICE REPORT

  Premier welcomes the NAO Report as it provides detailed and up-to-date information on the operational performance of the PFI prisons. It confirms that, on average, PFI prisons are performing much better than their public sector counterparts. It also confirms that the PFI prisons have outperformed public sector prisons in the decency agenda.

  The underlying statistics also provide useful information not previously available, that until 2001-02, the PFI prisons had better escape rates and in two of the past five years, no escapes at all.

  The Report recognises that competitive tendering of prison management in the UK has delivered a number of areas of best practice that could be copied elsewhere in UK government. At the same time, it recognises the need for further improvement and makes a number of key recommendations which Premier broadly supports.

PREMIER'S PRISON BUSINESS

  PCG opened its first prison, Doncaster, in 1994 followed by Lowdham Grange in 1998. Both prisons are acknowledged by Her Majesty's Prison Service (HMPS) and the Chief Inspector of Prisons (HMCIP) as providing extremely high quality services to the prisoners in their care.

  Now approaching its second anniversary, Dovegate is showing every indication of delivering those same standards of service. During his visit to the prison while still Director General of HMPS, Martin Narey commented that Dovegate's education department was one of the best in the whole prison estate.

ASHFIELD

  We accept unreservedly the criticisms made by HMCIP following their inspection a year ago and acknowledge that we failed to operate this establishment to the same high standards as our other prisons. However, PCG, working in partnership with HMPS, has delivered real and sustained improvement over the past twelve months.

  We have strengthened the senior management team, carried out an extensive recruitment campaign, improved employee terms and conditions, developed the initial staff training programme to make it more relevant to the management of adolescents and provided refresher training for existing staff. We have also revised our processes and procedures to reflect best practice in the juvenile estate and have instigated a more comprehensive auditing process. In addition, the education department has been restructured with more teachers in post and the recruitment of teaching assistants; and the curriculum has been rewritten to better reflect the needs and capabilities of the youngsters in our care. We have also refurbished and re-equipped the living accommodation.

  While acknowledging our shortcomings, we believe there are structural factors that contributed to the difficulty in Ashfield reaching the high standards of our other contracts. Since its inception, Ashfield has seen almost constant change of focus and direction. The building was designed for young adults and not juveniles or remand prisoners. The emergence of the Youth Justice Board (YJB) as the contract was being negotiated made anticipating the requirements of the new institution difficult. This was further complicated by the subsequent articulation of the YJB's expectations and the implications of child protection procedures. And, as reported by the NAO, the complex contractual arrangements between the YJB, HMPS and ourselves, combined with the divergence between our contract with the HMPS and the service level agreement between the YJB and HMPS further complicates the situation.

  However, the corner has been turned at Ashfield and we are now seeing a pattern of real improvement. The last Improvement Notice was lifted in February 2003 and no more are expected. Ashfield scored 77% and 72% respectively in the recent Standards and Security Audits carried out by HMPS in February 2003. Within those overall scores Ashfield attained 80% for Safer Establishments and 91% for Healthcare. The Prison's Ombudsman, following a visit in April 2003, wrote to Vicky O'Dea, Ashfield's Director "You know that I was pleased by much of what I saw, and the juveniles themselves spoke very well of the establishment and of your staff. Manifestly, the public reputation of Ashfield is significantly at odds with the current reality . . ."

BENEFITS OF COMPETITION

  The introduction of competition in the custodial market has brought benefit to many stakeholders as acknowledged by the NAO and also by the CBI in their recently published report—Competition, a catalyst for change in the prison service.

  Contestability, The Commissioner for Correctional Services, the NAO and the CBI have all concluded that the introduction of contestability has been a valuable stimulus in raising standards across the entire prison estate.

  It is not that the private sector is better than the public sector, but that competition is better than monopoly. The public wins when public services are exposed to competition and socially responsible firms are encouraged to participate.

  The NAO Report has also confirmed that the public sector has obtained significant efficiency savings as a result of competition.

  Clarity of Contract—Prisons with a contract or service level agreement benefit from the clarity of knowing exactly what is expected of them and the manner in which their performance will be measured. It is that same clarity that serves to `protect' the prison from ad hoc and sometimes competing additions, variations and changing priorities.

  However, PFI prison contracts generally operate for 25 years and during that time it is inevitable that correctional policy will change. It is vital therefore that contracts have the flexibility to enable them to be refreshed and updated on a regular basis to ensure that they remain at the leading edge of custodial provision. We are pleased that the Corrections Commission has already committed itself to a refresh of all PFI and management only contracts.

  By way of example, Lowdham Grange is a prison contractually based around an industrial prison framework whilst the correctional agenda has moved on to one based on resettlement via education, training and offending behaviour programmes. Lowdham Grange does what it is asked to do well, but it is not necessarily being asked to do the right thing. Without that refresh, prisoners sent to Lowdham may well be disadvantaged simply by reason of the contract.

FRESH START—WE HAVE CHOSEN TO CONSIDER THIS ASPECT OF PFI UNDER THREE KEY HEADINGS:

Design—A "greenfield" site enables the prison to be designed and built around the operational requirements of the regime resulting in a more efficient deployment of staff and contributing towards a safer environment. For example, residential accommodation in PCG's prisons is designed along the "hub and spoke" principle of Victorian times. Clear sight lines are established on every wing complimented by extensive camera coverage and individual personal alarms for all members of staff. Activity in the wings is monitored from a small control room located in the hub.

Culture—It is widely accepted that the private sector has brought about a revolution in staff/prisoner relationships resulting in more humane and decent treatment of prisoners. This has been achieved by recruiting the vast majority of staff with no prior prison experience. As the CBI noted in their recent report "staff bring with them none of the weariness and cynicism that characterises the culture of many public sector prisons." Symbolic of the new environment is the practice of referring to prisoners as "Mr" or by their first name, all staff wearing name badges and the introduction of privacy locks, giving prisoners keys to their own cells. All staff, including managers, wear the same uniform, which in itself is less military in style than the public sector.

Operation—The contractual requirements are largely output based i.e. they specify what is required, leaving us the freedom to decide how, resulting in innovation. However, the increasing scope of Prison Services Orders and Instructions and audit baselines, plus the shadowing of KPTs, all of which specify some level of inputs and assume a certain method of working, all contribute to reducing the scope for innovation.

In moving from HMPS to the Commission, we would also not want to lose the opportunity for Contract Directors (equivalent to HMPS Governors) to interact with their public sector peers on a regular basis under the auspices of HMPS Area Manager meetings. These meetings provide an opportunity to share best practice and new developments in correctional policy.

  Performance Measures—On the one hand the performance measurement system enshrined in the contract provides clarity in its articulation of the basis on which our success or failure will be measured. Conversely, the contractual performance regime has been altered incrementally through changes to orders and instructions, extensions to audit baselines and the introduction of KPTs leading to overlap and duplication.

  We welcome, therefore, the NAO proposals, which are supported by the CBI, for more effective performance measurement regimes to be developed across the entire prison estate enabling comparisons to be made irrespective of whether the prison is publicly or privately managed. In so doing, it is vital that the Commission avoids imposing layers of inconsistent performance regimes that will stifle innovation and flexibility.

  We agree with the NAO recommendation that in revamping the performance measurement system a clear link between performance and financial deductions should be established.

  Financial penalties—The financial penalties which accrue from failures in service provision are a powerful incentive to the contract to take the necessary steps to improve performance. Ashfield is proof that the contracting regime works; faced with significant financial penalties and the potential for an ongoing impact on our reputation, the parent companies and leading financiers became actively involved in the process of reform to ensure that Ashfield was returned to a safe and stable situation.

IN CONCLUSION

  The introduction of competition into the custodial market has been instrumental in raising standards across the entire prison estate and in the main, privately run prisons perform to a higher standard than their public sector counterparts. But, the private sector is not infallible.

  We welcome the creation of the Commission for Correctional Services and look forward to working with them to refresh our contracts and revamp the performance measurement system to encompass all aspects of prison regime and be an accurate comparator of performance across the prison estate.

Mr Kevin Beeston

Executive Chairman

Serco Group plc

24 June 2003