Latest Public Sector News

12.09.14

Penalty clause of up to £400m if probation contracts cancelled

The next government could face a penalty clause of £300m-£400m if it tries to cancel the controversial probation privatisation contracts.

The Labour Party has pledged to scrap the Ministry of Justic (MoJ) contracts that outsource probation services should they win the next general election. But there are warnings that they may not be able to do so because of so-called ‘poison pill’ clauses written in by the current government.

The Ministry of Justice has said it is following Treasury guidance by including the clauses.

Commons public accounts committee chair, Margaret Hodge MP, secured confirmation from MoJ officials about the clauses and said they are written into contracts to run 21 new community rehabilitation companies.

She has asked the National Audit Office to challenge any politically contentious contracts that are signed in the last few months before the general election.

The contracts will see 70% of the work of the probation service given to private and voluntary sector providers as part of justice minister Chris Grayling’s “transforming rehabilitation programme”. 

The disclosure led the shadow justice secretary, Sadiq Khan, to write to Grayling, as reported by the Guardian, to remind him of Labour’s opposition to privatisation: "What's more, I do not believe, in the dying months of this government, contracts should be signed for a decade that will bind in two future parliaments. If you insist on proceeding, there should be a sensible option for a change of government to walk away from the contracts without lumbering taxpayers with a penalty running into hundreds of millions of pounds."

According to Hodge the clauses in the contracts are unprecedented. She said the payments could amount to £300m-£400m.

She contrasted them with traditional ‘no fault’ clauses, which see 12-18 months of compensation for lost profits.

The Ministry of Justice said that they did not recognise the figure. A spokesperson said: "There are clear principles set out by the Treasury on contract provisions for this type of deal, including voluntary termination clauses, and we have followed these at every stage."

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