Perverse incentives at work in Nauru subcontracting

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The finer details of government contracting don’t tend to grab headlines, but when you’re dealing with some of society’s most vulnerable individuals — people in detention — how those details play out on the ground can have a huge impact.

It appears the reporting system in place in the outsourcing contract for the Nauru detention centre incorporates some damaging perverse incentives, argues Melbourne School of Government professor of public management Janine O’Flynn, who is currently writing a book on privatised detention and residential facilities.

But this isn’t a rare occurrence — it’s actually pretty common in detention facilities around the world, she says.

Under-reporting to avoid fines

Psychologist Paul Stevenson, who went on 12 deployments to Nauru, told The Guardian it was common for incident reports — for issues such as sexual assault and threats of self-harm — to be downgraded, due to financial concerns.

“The reporting arrangement is such that if they don’t adhere to the strict guidelines that are set under their contract, they face enormous fines,” Stevenson said. “For example, if there’s a critical incident and it takes four hours to report it, Wilson could lose $80,000 in a fine because it hasn’t respected its reporting arrangements.”

The Department of Immigration and Border Protection contracts the running of the centre out to Broadspectrum (formerly known as Transfield Services), which subcontracts security to Wilson Security. The treatment of incidents — whether they need to be escalated — differs based on whether they are classified as “critical”, “major” or “minor” or information reports.

There are rules about how different incidents should be classified, and Wilson has been accused of marking incidents as a lower level of seriousness than the rules require.

Stevenson said the threat of fines for non-compliance with escalation requirements — critical incidents have to be verbally reported within half an hour and in writing within three hours — led to systematic downgrading of incident reports:

“So what we find is that mostly there are very, very few reported as critical. They de-escalate to majors, and the majors de-escalate to minors, and there’s a whole number of incidents that de-escalate to no particular incident, so they’re not classified as anything at all. All along the line, incidents are de-escalated for the purpose … of avoiding extremely heavy fines under their contract,” he explained.

The department sees the published evidence differently. Last week it released a statement clarifying that many of the incident reports reflected unconfirmed allegations, not statements of proven fact:

“The documents published today are evidence of the rigorous reporting procedures that are in place in the regional processing centre — procedures under which any alleged incident must be recorded, reported and where necessary investigated.”

Nonetheless, DIBP is examining the matters further to ensure service providers have reported appropriately and consistently with the policies and procedures.

“The Department currently has no evidence to suggest that service providers have under-reported or misreported incidents in Nauru.”

The full statement on the DIBP website explains the support offered to the government of Nauru.

A common problem

This is not an isolated example but has been seen in other countries with similar contracting out of facilities, says Melbourne School of Government professor of public management Janine O’Flynn.

Although she hasn’t seen the Nauru contract herself — such things are, of course, difficult to obtain — it fits a pattern of similar agreements.

“There’s a perverse incentive because if we don’t classify it as critical we don’t get a fine,” she says. “The contract is trying to make sure critical incidents don’t happen, but it also creates a perverse incentive.”

The absolute perversity of performance regimes. Are contractors minimising assault reports to maximise profits? https://t.co/VixUaDXFNV

— Janine O’Flynn (@JanineOFlynn) August 11, 2016

There are echoes of both Nauru and Don Dale (which, it should be noted, is state-run) in an incident in the UK earlier this year. G4S was running Medway, a youth detention centre with “high” levels of violence — there are allegations of staff assaulting inmates, as well as inmates assaulting each other and attacking staff.

G4S is accused of falsifying reports to avoid paying fines. Video footage aired on TV shows staff discussing how to misreport an incident to avoid a fine. The company is fined if it “loses control” of the centre, which includes more than two young people being in a fight.

“If we have an incident with four kids, it will get split up into two separate incidents, so they — G4S — don’t get fined,” the footage shows guards saying.

The way reporting arrangements often work in practice is different to what the government that creates them might expect.

“There’s something about the way the contracts are structured which on the face of it looks like they would encourage reporting, but in the day to day running of something like that it creates a disincentive to report incidents, because too many critical incidents means you’re not running it properly,” she explains.

Apart from moral questions, such incidents create broader risks for government. The scandal led to G4S pulling out of the sector — making what is already a very small pool of potential providers even smaller. The government has taken over management of Medway itself.

Australia may end up with similar problems finding contractors to run its asylum detention centres — the owner of Broadspectrum has indicated it intends to get out of the business — making it difficult to run competitive tenders and get value for money.

And there are similar examples of perverse incentives impacting on lives in the United States private prison system, O’Flynn adds. Cost-cutting by companies has seen inmates go without medical treatment — and die. Payment per prisoner creates incentives to stuff the facility with as many people as the legislation allows — another common problem.

What’s the answer?

Greater transparency and oversight obviously makes it more difficult to misreport incidents.

But ineffective oversight is not much better than nothing at all. Medway was ostensibly being overseen by the Youth Justice Board, a government body, when the incidents in question took place.

The YJB appears to have been highly ineffective. The chair of a government report stated those on the inquiry were “troubled by the cultural norms that have grown over time”. It highlighted a range of problems:

“We noted that accountability for outcomes appears to sit uneasily between G4S and the YJB. This means that the monitoring regime appears to focus more on confirming contractual compliance than on meeting young people’s needs. We also discovered that frontline managers have considerable authority but there is little regular oversight of their work. We further noted that a very high proportion of staff have been in post for a year or less and so have little experience of dealing with very challenging behaviours demonstrated by some of the young people.”

In an ideal environment regulators and providers operate in a high trust relationship, but that requires an appropriate relationship, O’Flynn says. “In a lot of these contracts there are very heavy compliance requirements but not very good monitoring. The company was allowed to self-report in G4S’s case. Who allows that to emerge as the way of doing that?”

Asked how such perverse incentives can be avoided, O’Flynn is unsure. In the case of Nauru in particular, it unavoidably comes down to politics in the end.

“You have to think about what’s the outcome you’re seeking. If there’s one thing that’s difficult to determine from the current state of how you manage asylum seekers, it’s that question — what is the outcome?” she says.

“There’s a political dimension, publicly stated, about it being a deterrent. They want to construct something they want to tell the world is not attractive. So how do you contract for that?”