Public service, private contracts: how Serco was wired into our future

Like most visits to “the future” of anything, a trip to Australia’s most advanced digital hospital is full of surprises. The Fiona Stanley hospital in Perth is the biggest public works project commissioned by the state of Western Australia since the goldfields water pipeline in 1898. It is also the site of the largest outsourced health contract in Australian history: a $4.3bn deal with the global giant Serco for non-clinical services over 20 years.

The Serco website promises a building that isn’t just “smart”, but galaxy-brain smart: with a fleet of autonomous robots that quietly deliver meals to rooms, “real-time tracking” of assets and people, 15,000 points of electronic contact and something known as “advanced interactive wayfinding” – some sort of technical assurance, I guess, against visitors getting lost. Even individual towels are on the grid, each one bearing a unique trackable code. Protection from disorder comes not only in the form of advanced technology, but also from law: a 726-page contract containing 480 “key performance indicators”, drawn up to secure the trust of the local population. In this place, run in “the Serco way”, promises are kept, uncertainty is banished and prayers to St Anthony, the patron saint of lost things, are forever redundant.

The weird thing is, when you actually visit the Fiona Stanley hospital, the name of Serco is practically nowhere to be seen. The uniforms of the Serco employees who staff the helpdesk and clean the floors say “Fiona Stanley Hospital”, not Serco. The state-of-the-art entertainment system, a centrepiece innovation of the Serco pitch for the hospital contract – bears only the reassuring official kangaroo and black swan logo of the WA Department of Health. What does it mean for public trust when a core public institution like a hospital is run by an entity that offers no tangible sign of its presence to the citizens that use it?

Serco is one of a handful of multinational companies that strike contracts with governments to perform “citizen services” for profit on a global scale. Yet despite their massive scale and economic power, these entities are poorly understood. They employ very large numbers of people. The British-based security firm G4S claims to be the third-largest private employer in the world and ISS, the Danish-based facilities provider, the fourth. In Australia, in 2018-19, the facilities management industry generated $10.3bn in revenue. The top eight companies alone employ more than double the number who work in the Australian coalmining industry.

They have been significant actors in the landscape of Australian governance since the 1990s, when agencies first started outsourcing services at scale. With live contracts that run into the 2040s, these firms are also now wired into our medium-term future. Serco holds contracts to operate contact centres in the National Disability Insurance Agency; 11 onshore immigration detention centres; the Christmas Island detention centre; Centrelink call centres; Australian defence force healthcare; rail and ferries; prisoner transport; and prisons in a number of states, including the construction and operation of what will be Australia’s largest prison at Grafton in NSW. In 2017–18, the Australian government spent between $90bn and $100bn purchasing goods and services from private and not-for-profit providers, which is about three times the amount spent on direct public service employment.

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Our critical framework for understanding global outsourcing firms rarely goes deeper than expressing outrage at the scandals. Serco has been at the centre of some notorious incidents including fraud in the prisoner tagging contracts with the UK Ministry of Justice and allegations of excessive force and prison-like conditions in Australian immigration detention centres and even sterilisation safety failures at Fiona Stanley hospital itself.

But apart from their scandals, outsourcing firms also have a systemic impact on democratic governance, accountability and social trust. Outsourcing splits the workforce into “core” and “non-core” categories, creating social, legal and often financial distance between groups of workers. It disrupts lines of accountability that connect the institution to the public. The single chain of responsibility that would otherwise bind the most junior public servant to an elected minister is substituted with opaque systems of internal contract management on the government side and shareholder interests on the corporate side. It imports secrecy, introducing private actors to whom freedom of information laws do not apply to public contexts.

Serco originated as a UK subsidiary of the Radio Corporation of America (RCA), a radio technology (and later film, record and TV) company that was established in the aftermath of the first world war. From the outset the firm was shaped by geopolitics, created in response to American anxieties about ownership of powerful new radio technology being in the hands of a foreign power (albeit a friendly one). The establishment of RCA meant the US would be able to build and control its own radio network equivalent of the Imperial Wireless Chain the British had constructed to connect its empire. The subsidiary that would become Serco was based in the UK, and was initially established to capitalise on the growing “talking pictures” industry.

With the outbreak of the Second World War RCA (GB) came to play a critical role serving both the UK War Office and Ministry of Supply, furnishing the department with top-secret equipment that would simulate the sound of battle noise for the purposes of confusing the enemy. The project had the personal backing of Winston Churchill. In partnering with the War Office, RCA (GB) established the preconditions for a powerful convergence of capabilities, arising from its technical expertise, spatial location and a network of trust relationships with military officials on both sides of the Atlantic that would prove highly felicitous in the Cold War to come.

As a high-tech US entity that was based in the UK, RCA (GB) was perfectly positioned to produce and oversee military and surveillance equipment to defend the west against the Soviet threat. In 1952, it was awarded its first contract with the US Navy to produce submarine-detecting sonar equipment for the navies of Nato. This was followed in 1960 by a contract from the UK Ministry of Defence (MoD) to design, install and maintain the Ballistic Missile Early Warning System (BMEWS). This positioned RCA (GB) as the entity responsible for the “four-minute warning” of an imminent Soviet nuclear attack. Any technical mistake could also set in train a path to mutually assured destruction, and potentially annihilate the human population of the Earth. It also represented an unusual kind of contract in the UK at that time, one that extended responsibility for the running of virtually all station functions – including cleaning, transport, stores and workshops – to a for-profit company, an arrangement that would eventually mushroom across public institutions in the Thatcherite 1980s.

Trust relationships were naturally crucial to RCA (GB)’s operations, but they were forged with officials within government, not with the public (to whom the firm seemed to be nothing more than a record and electronics provider.) Its business model relied on its reputation for maintaining high levels of secrecy around sensitive operations, such as the Anglo-American radar defence station in Orford Ness, Suffolk. War in the Falklands in 1982 and Iraq in 1990 were both opportunities for the company to reinforce its reputation as an agent of discretion, flexibility and helpfulness to the armed forces, where it demonstrated its preparedness to adapt to a war footing, scrapping routine work schedules to provide everything that was requested.

Dwelling in the folds of the US and UK defence departments afforded the company the chance to leverage unique commercial opportunities in the civilian sector that could only arise by virtue of its close proximity to the epicentre of military power. For example, a contract to manage the accommodation stores at RAF Quedgeley near Gloucester enabled the company to partner with another US-based outsourcing corporation, Securicor. That deal also set a precedent for the company’s capacity to manage a complex contract for receipt, storage, repair and distribution of goods to all three armed services, schools, churches and technical buildings. This contract became a template for an agreement with the Australian Defence Department in the late 1980s to manage Q Stores in Sydney.

Precedents, sectors and skillsets were ingeniously mixed and matched, enabling “the Serco way” to metastasise across boundaries. Expertise gleaned from a contract to work on electron microscopes, paired with experience overseeing support to military bases made possible a successful bid to operate West Middlesex University hospital. Skillsets developed in the UK, such as the 1990 contract to teach electronics and trade skills to apprentices at the Royal Electrical and Mechanical Engineers training school enabled a stream of contracts in the developing world to provide education and vocational training to Turkey, Indonesia, the Caribbean, Laos and the Philippines.

By 1999, the company’s annual report claimed that its management processes could be applied “to almost any activity”, from atomic weapons facility maintenance to primary school teaching. Growth was spectacular until 2013, when a string of high-profile scandals led to a change in tone in the rhetoric of Earth-mastery. The ascension of Serco’s current CEO, Rupert Soames, appears to represent a return to an earlier company era, when the firm seemed to operate as more straightforward technical assistants to modernising states. As the grandson of Winston Churchill, Soames is one of the most establishment figures in the UK uniquely placed to provide this impression. His speech is sprinkled with phrases about “humble servants”, “sticking to knitting” and diffident Etonian renderings of economic catastrophe. (He described the aftermath of the collapse of the British multinational Carillion as a kind of toilet mishap: “Crash – bang – wallop, someone’s fallen in!”) But the “Keep calm and carry on” optics are merely a graft onto “there is no alternative” substance. Serco shows no signs of retreating from its citizen-services portfolio.

Every public hospital rests on an accretion of trust arrangements laid down by previous generations. There are the oaths to take care and do no harm stretching back to ancient Greece; moral associations that accrue from their origins as sites of philanthropy and benevolence in the 19th century; industrial standards and laws dating back to the early 20th century, when hospitals were decisively lifted out of the domestic sphere and became part of nation-building states. In the mid-20th century social democracies, public hospitals became a powerful emblem of the trust deal between states and citizens. One that offered, for the first time in history, a promise of medical care without proof of moral deservedness or ability to pay.

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These trust foundations are worth bearing in mind when we think about future paths for the way we govern in the public interest, and the place of multinationals with such systems. So is a sense of the importance of audacity, luck and good timing to the success of companies such as Serco over the past 30 years. Without Cold War geopolitics, the company may well have entered the 80s as a radio, film, television, record and videotape firm, with scant claims to run air traffic control services, let alone hospitals, schools, welfare services or immigration detention facilities.

Rather than mindlessly follow the groove cut by past generations, our challenge is to truly acknowledge the challenges of our time: the fact that we live in a dangerously unequal, environmentally collapsing world where the bonds of trust between citizens and institutions are being corroded by relentless surveillance for private interest. Digital technologies provide us with the means to grasp and co-ordinate resources to support human and ecological flourishing like never before. The demand for a better system doesn’t have to wait for the next outsourcing company scandal.

  • Frances Flanagan is a University of Sydney fellow in the discipline of work and organisational studies

This is an edited extract from Griffith Review 67, Matters of Trust

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