Safety and Cost Effectiveness of Private Prisons

Tabled: 29 March 2018

Audit overview

Victoria's prison system faces significant challenges and risks:

  • Male prisoner numbers increased by approximately 50 per cent over the last seven years, including significant growth in remand (unsentenced) prisoners.
  • The prisoner population is increasingly complex, with mental health conditions, drug and alcohol issues, and chronic illnesses.
  • Across the system, 43.6 per cent of prisoners returned to prison within two years in 2016–17.
  • Young prisoners, prisoners with disabilities and prisoners of Aboriginal and Torres Strait Islander background are over‑represented.

Private prisons are part of the broader prison system in Victoria and, as such, are not immune to the challenges posed by a growing and increasingly complex prisoner population.

Victoria's privately operated prisons accommodated around one third of the state's male prisoners in December 2017. The safe, secure and cost-efficient operation of these private prisons is essential, both for the effective functioning of Victoria's corrections system and for community safety.

Corrections Victoria (CV), a division of the Department of Justice and Regulation (DJR), is responsible for managing the contracts with the private prison operators to ensure the safe custody and welfare of prisoners.

In this audit, we examined two of the three privately operated prisons in Victoria:

  • Port Phillip Prison (Port Phillip) is a maximum-security men's prison in Melbourne's west. G4S Correctional Services (Australia) Pty Ltd, and its successor G4S Custodial Services Pty Ltd (G4S), has operated Port Phillip since 1997. G4S recently commenced a new contract term of up to 20 years. Port Phillip has more prisoners than any other prison in Victoria and, at December 2017, nearly half of these were remand prisoners. Port Phillip is also unique in that it provides statewide prison medical services and specialist services for intellectually disabled prisoners. It has more prisoner movements, in and out, than any other prison in the corrections system.
  • Fulham Correctional Centre (Fulham) is a medium-security men's prison near Sale. The state has contracted Australasian Correctional Investment Ltd (ACI) to operate this prison since 1995. ACI is a special-purpose company established by The GEO Group, with The GEO Group Australia Pty Ltd (GEO) subcontracted as the prison operator. GEO commenced a new contract term of up to 19.25 years in July 2016. Fulham first accepted remand prisoners in September 2015. In December 2017, remand prisoners accounted for around 25 per cent of Fulham's population.

In this audit, we focused on whether these private prisons are safe and cost effective. In particular, we examined how well the private prisons are managing safety and security risks and whether they met the state's expectations for service delivery, cost and risk transfer during the original contract terms. We also assessed how well DJR and the Department of Treasury and Finance (DTF) managed negotiations for the new contracts and whether they achieved value for money.

We did not examine Victoria's third private prison, Ravenhall Correctional Centre (Ravenhall), as it commenced operation in November 2017, after this audit began.

Conclusion

G4S and GEO deliver cost-efficient services for the state that have largely met the contracts' service and performance requirements. Port Phillip and Fulham cost up to 20 per cent less to run than the average for publicly operated prisons of the same security rating.

CV demonstrates sound contract management and genuine engagement with the private operators of Port Phillip and Fulham. DJR successfully negotiated new contracts for the operation of these prisons that address key weaknesses in the initial contractual arrangements, at a cost consistent with government expectations.

However, the prison operators are not always meeting the state's service and performance requirements to run safe and secure prisons, particularly in relation to assaults at both prisons and drug use at Port Phillip. This is consistent with system-wide performance.

Serious incidents at both Port Phillip and Fulham have, in some instances, exposed weaknesses in how G4S and GEO manage safety and security risks, and neither operator is investigating serious incidents using methods that effectively identify root causes. The operators and CV need to improve how they address the risks inherent in the prison environment to better discharge their shared duty of care to prisoners, prison staff and the community.

Prisoner-on-prisoner assaults is increasing across the prison system, as prisoner numbers and complexity increases. Private operators and CV have violence‑reduction strategies in place, but there is a need to better evaluate these and share the lessons learnt.

Findings

Private prison performance

Performance results

CV measures prison performance against service delivery outcomes (SDO), which cover prisoner safety, security, health, welfare, activities and programs. Applicable SDOs and performance thresholds vary for each prison, depending on the prison's security level, prisoner profile and past performance. DJR's target is to meet 90 per cent of SDO thresholds.

Fulham's performance against its SDOs has been largely positive since 2010−11, apart from a decline in performance in 2012–13, partly related to a single incident involving several staff injuries.

Port Phillip has failed to meet a greater number of performance thresholds than Fulham relating to prisoner-on-prisoner assault, assaults against staff and positive random drug tests.

The new contracts include key performance indicators (KPI), with 18 that apply to Port Phillip and 16 to Fulham. These cover health services, facility and asset management, performance and incident reporting, prisoner reintegration and prisoner management. The KPIs significantly increase the requirements for the private operators to maintain their facilities and, importantly, require private prisons to turn around poor performance quickly and provide accurate performance data. These KPIs do not apply to public prisons. Under the new contracts, CV continues to measure the performance of private prisons monthly, and calculates performance-linked payments quarterly rather than annually. This increases pressure on private prisons to consistently meet performance requirements.

Monitoring private prisons

CV scrutinises private prison performance more than public prisons, including validating the operators' self-reported performance data.

This is important, as achieving an appropriate transfer of risk to the private operators was a key objective of the initial contracts. Those contracts allocated the financing risks for construction of the new prison facilities to the private operators. The operators also took on the operational risks associated with accommodating prisoners and delivering correctional services to agreed service standards.

DJR's management of the private prison contracts has significantly improved since our 2010 audit Management of Prison Accommodation Using Public Private Partnerships. CV has an almost constant presence at both prisons and routinely checks contractual compliance to support performance and maintain the allocation of risks agreed in the initial contracts.

CV has responded appropriately to poor performance including significant safety and security breakdowns, requiring the operators to develop and implement plans to address the underlying issues and causes.

CV uses a variety of graduated responses to address operators' underperformance, and engages and supports the operators to manage risks. This reflects the mature contractual relationship developed between the parties. Since 2012, CV has appropriately issued five contract default notices in response to serious performance concerns. To date, the operators have complied with the requirements of the default notices to implement corrective action plans, known as 'cure' plans.

CV's increased oversight and scrutiny of private prisons is positive, however, it is not possible to determine whether it has resulted in improved performance. CV and the prison operators monitor and regularly discuss these corrective action plans, but they do not routinely evaluate the impact of their improvement activities.

CV collects a significant amount of data from all prisons, but its legacy IT systems are not integrated and this hinders its ability to analyse data effectively. CV cannot use this data to fully understand the trends and issues that may affect prisons' performance, safety, security and costs across the corrections system.

Despite the large amount of information CV holds on prison performance, little data on whether Victoria's prisons are safe, secure and meeting performance requirements is publicly available. CV currently publishes information about drug testing and contraband seizures in prisons, but does not publish prison‑specific performance results relating to other safety and security matters such as assaults, deaths and escapes. This reduces the transparency of the Victorian corrections system.

Costs

The privately operated prisons cost the state up to 20 per cent less to run than the average for publicly operated prisons of the same security rating. This is consistent with DJR's advice to government in recent years that the two privately operated prisons are cheaper to run than public prisons, largely due to more efficient staff shift patterns.

Safety and security of private prisons

Prisoner-on-prisoner assaults are increasing at Port Phillip and Fulham, particularly Level 1 assaults, which involve an injury that does not require admission to hospital. This is consistent with the broader prison system as it deals with capacity pressures, increasing remand population, increased prisoner movement through the system and an increasingly complex prisoner profile. Assaults on staff also increased in 2015–16 and then again in the first half of 2016–17 across the corrections system, and are more common at maximum‑security prisons including Port Phillip.

Fulham and Port Phillip have both developed violence-reduction strategies to address this risk. Port Phillip's strategy is comprehensive and involves a broad range of activities targeting violence, which reflects the higher risks at that prison. It involves dedicated resources and has recently broadened to include a specific focus on occupational violence (OV). Fulham's strategy also includes a range of activities to minimise the risk of assault on prisoners and staff, such as staff communication and training, prisoner employment and programs. Both prisons have a strong focus on reducing violence and improving performance in this area. They closely monitor incidents of violence and SDO performance, however, neither prison periodically evaluates its strategies to ensure they are working and based on current evidence.

CV has a system-wide OV strategy, but this does not specifically address prisoner-on-prisoner assaults. There is no planned evaluation of the strategy and no coordinated process for capturing and sharing the lessons of the various prison strategies.

Serious safety and security incidents have occurred at both private prisons since 2010–11, including escapes, a riot, unnatural deaths and serious assaults. CV and the private operators have worked well together to respond to these incidents, but the investigation process lacks a contemporary methodology to analyse the root cause. This creates the risk that corrective actions will not successfully prevent further incidents.

Negotiating new private prison contracts

While negotiating new contracts, DJR successfully navigated significant challenges to ensure service continuity at Fulham and Port Phillip. The new contracts addressed key weaknesses in the initial contractual arrangements and broadly met the cost limits approved by government. Advice to government throughout the process was sound, with some minor exceptions that did not invalidate the outcomes achieved.

These transactions were unique given the context within which they occurred. The processes used by DJR did not fully align with DTF's Partnerships Victoria requirements for public–private partnership (PPP) projects. However, DTF accepted these departures from the usual requirements, and the close involvement from senior DJR officers, DTF and the Department of Premier and Cabinet (DPC) meant there was adequate oversight and review of the options analysis and negotiation process.

DJR analysed the most viable procurement options early enough to protect the state's negotiating position. This analysis found that the state was likely to incur significant additional costs if it competitively tendered the operation of the prisons or decided to operate them itself.

The expected additional costs related largely to the need to buy out leases held by GEO and G4S over the prison sites, which extended well beyond the 2017 expiration dates of their contracts. These long‑term land leases were part of the initial contract arrangements entered into in the 1990s.

The original Crown leases were to expire in 2035 for Fulham and 2046 for Port Phillip. This misalignment of the lease terms with the service contract terms was a key reason for the state negotiating extended contracts with the incumbent operators, and ultimately served to reduce competitive tension. The revised lease terms now align with the new service contract terms of up to 20 years.

DJR developed and implemented a robust strategy to negotiate the new contracts with the operators. Cost was the main criteria assessed and highlighted in advice to government on whether to enter into new contracts. DJR took reasonable steps to gain assurance about the value for money of the proposals put forward by the operators, including targeted examination of the operators' actual operating costs.

DJR only examined service performance at a cursory level, and we saw no detailed assessment of whether the incumbent operators were capable and high-performing providers. DJR's concerns about G4S's performance during 2014 received little coverage in advice to government on whether to negotiate with the incumbent operator.

A commercial adviser working for DJR and one of the operators during the negotiations for the new contract did not adequately disclose conflicts of interest and these were not adequately assessed, or acknowledged in advice to government.

The new contracts negotiated with the operators addressed substantial weaknesses in the previous contracts. They will place the state in a much stronger position at the end of the new service terms to consider and pursue all available options, including competitively tendering the contracts, unencumbered by substantial legacy issues or costs.

DJR needs to manage these contracts effectively to achieve value for money in both performance and cost in the future. This is a significant challenge, but DJR has established robust contract administration guidance and processes to support this task.

Recommendations

We recommend that the Department of Justice and Regulation:

1. update relevant approval processes for changes to system-wide operational requirements and standards so that contractual implications are adequately identified, considered and addressed before changes are implemented (see Section 2.2)

2. address known issues with legacy IT and data systems by integrating offender management systems, to improve data management and analytical capability (see Section 2.3)

3. improve the transparency of the prison system by increasing public reporting on the performance of individual prisons and the system as a whole, against applicable service delivery outcomes and key performance indicators (see Section 2.4)

4. monitor and enforce compliance with the contract requirement that serious incident investigations in privately operated prisons follow contemporary root-cause analysis methodology (see Section 3.2)

5. evaluate the effectiveness and impact of violence-reduction efforts across the system, share the findings for continuous improvement and lead the development of a system-wide violence-reduction strategy that includes occupational violence and prisoner-on-prisoner violence (see Section 3.5)

6. resolve system issues so private prisons have access to the corrections intelligence system that is equivalent to public prisons' access (see Section 3.6).

We recommend that the Department of Treasury and Finance:

7. ensure that its advice to government, and associated public information on Partnerships Victoria and other major projects, should wherever practicable present costs and benefits in nominal and present value terms, with the discount rate (nominal and/or real rate) and other key assumptions explicitly stated and justified (see Sections 5.2 and 5.3)

8. update relevant guidance to require probity reports and sign-off letters for major procurement transactions to disclose any material probity issues that arose during the relevant project, even where the issues were managed to the satisfaction of the probity practitioner and project governance group (see Section 5.3).

Responses to recommendations

We have consulted with DJR, DTF, G4S and GEO, and we considered their views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to those agencies and asked for their submissions or comments. We also provided a copy of the report to DPC.

The following is a summary of those responses. The full responses from each agency are included in Appendix A.

DJR acknowledged the insights the audit has provided and accepted all of the recommendations. DTF also accepted the recommendations, and both agencies have provided an action plan detailing how they will address the recommendations.

While the recommendations were not directed to GEO or G4S, both private prison operators supported the audit findings and the recommendations made.

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