Category Archives: mutuals

IBM in dispute with its joint venture partners on £585m contract

By Tony Collins

IBM says it is currently in dispute with the joint venture partners on a number of contractual matters relating to South West One, a joint venture between IBM and three public authorities. IBM owns the joint venture company.

South West One’s annual report says that a mediation was held on 4 and 5 July 2012 between IBM and Somerset County Council, which is the main public authority partner, on a confidential basis.

“No settlement has been reached and accordingly the board [of South West One] will be reviewing which of the remaining options in the contractual procedure should now be pursued,” says SW1′s annual report.

South West One’s report doesn’t give any detail on the “contractual matters” in dispute.

Possible matters under discussion might have included a withholding of money (the councils are expected to pay IBM about £585m over 10 years, from 2007),  contention over KPIs (IBM did not meet all of its key performance indicators and indeed met fewer of Somerset’s KPIs in 2011 than in 2010), changes to the contract which is being re-negotiated, a lack of remedial action over accounting problems in Somerset’s finance department following a major SAP implementation , a shortfall in expected savings, and the council’s extra costs of working around SAP-related problems .

It is known that a contract renegotiation has been underway for some time.

The contract was subjected to review after the Conservatives took control of Somerset County Council from the Liberal Democrats in May 2009.

The review in June 2010 found that some aspects of the contract had been successful but “figures provided do, however, tend to indicate that the anticipated procurement savings are currently falling short of projections”.

On service delivery the review said there had been “major and minor system problems and difficulties in implementation have been experienced which have often involved Somerset County Council staff in additional time and effort in working around these issues”.

It said that a “significant area of difficulty has been in relation to financial and processing components of SAP which have also had a serious effect on others outside Somerset County Council.

“As a result, there appears to have been substantial but unquantified additional direct and indirect costs incurred by the County Council and others in resolving the various difficulties encountered.

“Southwest One has also provided intensive additional resources at its own expense, notably in addressing the issues that arose in relation to the SAP phase one roll out where lessons have clearly been learned and applied to the more successful phase two implementation. More work is, however, still required as a priority in some key areas where concerns remain around the efficiency and effectiveness of service delivery and financial systems.”

South West One is dependent on the financial support of IBM to continue trading, says  company’s annual report. It adds that the “difficult political and economic environments in which the company has been operating have not shown any signs of easing”. Somerset has taken back from South West One finance, an HR advisory service, design and print.

“The difficult environment for business, both public and private, will continue to place strains upon opportunities for South West One,” said the annual report.

“There will be specific challenges in the forthcoming year due to the implementation of Universal Credit, the requirements of the Winsor report and changes in regard to the move from Police Authorities to Police Crime Commissioners.”

South West One made a loss in 2011 of £6.8m (a loss of £22.7m in 2010) and has accumulated net liabilities of £43.2m. The company can continue trading, in part because it has the support of IBM UK’s parent:  International Business Machines Corporation based at Armonk New York.

IBM owns 75% of the shares in South West One. Somerset owns 11.75%, Avon and Somerset Police Authority 8.25%, and Taunton Deane Borough Council 5%.

This article owes much to Dave Orr who has campaigned tenaciously for the facts of the South West One deal to be made known.  

Comment

The unsettled dispute suggests that the “partnership” aspect of the contract between IBM and the three public authorities – Somerset County Council, Taunton Deane Borough Council and Avon and Somerset Police Authority –  is at an end. A partnership normally implies a harmonious relationship between the parties.

Is it any surprise that things have come to this?

The South West One contract was signed in 2007, in the early hours, at a weekend, amid great haste and secrecy.  The deal was driven by a senior official at Somerset who wanted to take the council “beyond excellence”. But the joint venture had little support from many of the council staff who were seconded to South West One. Most councillors took little interest in the setting up of South West One.

IBM has found to its cost that signing a major contract with just an inner circle of enthusiasts is not enough to make such a deal work. Though some have changed many of Somerset’s councillors remain. It could be said that they deserve the deal they have got, given that so few of them took any interest in the negotiations in 2007.

Besides, it is unlikely that any joint venture which doesn’t have the support of most staff will work, which makes mutuals a potentially better shared-services option.

IBM struggles with SAP two years on – a shared services warning?

IBM-led model partnership based on SAP makes loss

MyCSP becomes first public sector mutual spin-out

By David Bicknell

An article on the Daily Telegraph website suggests that this week will see the creation of the government’s first public sector mutual spin-out. 

MyCSP will be spun out from the Department for Work and Pensions (DWP) and “transformed into an independent mutual that will give staff an unprecedented say in how the business is run and the chance to share in the new company’s profits.”

A 25% stake in MyCSP will be divided between the agency’s 500 staff, with a 40% sold off to a major player in the financial services industry. The company will try to win new business from the public and private sectors.

The Telegraph reports that ministers believe mutualisation will halve MyCSP’s administration costs. Although staff will become members of the private sector, they will retain their public sector pensions.

MyCSP has signed a 10-year contract to administer the civil service pension scheme, which has around 1.5 million members. At the end of this contract, the new mutual will have to compete against other private sector pension adminstators to run the scheme.

Lord Hutton of Furness, a former Labour minister, will be the chairman of the MyCSP. He said he hoped this was the “first of many” mutuals to be spun out of the public sector.

“Creating mutuals are a very exciting way for people on the front line of the public sector to take ownership and responsibility for the services they provide,” said Lord Hutton.

“They get a voice on the board and a share of any profits. I hope this model will lead to better performance and better value for the taxpayer.”

He argued that the old model of public sector monopolies were “not fit for the 21st century”, and added that the greater squeeze on taxpayers’ money ensured that poor performance in the public sector could “no longer be tolerated”.

“There is no such thing as a status quo in the public sector worth defending – we must have a relentless pursuit of excellence,” he said.

“I am a very strong supporter of what this Government is trying to do with public service reform particularly with a view to mutualisation.”

MyCSP’s private sector partner will be the Equiniti Group’s Paymaster business, which will hold a 40 per cent stake, with the government holding 35 per cent and the employees 25 per cent under a model based on the much-quoted John Lewis model of mutual ownership , which rewards employees with profit-related bonus schemes.

Related articles

Mutualised civil service pension service is launched

Hutton to head up Whitehall mutual

Equiniti Group’s Paymaster business partners with first central government mutual

Mutuals: “lean, people-focused businesses” trying to “climb a wall of technical complexity”

By David Bicknell

There are some insightful comments from Co-operatives UK’s secretary general Ed Mayo and the London Borough of Hammersmith & Fulham’s Andy Rennison on mutuals in this piece by People Management.

Mayo is quoted as saying, “At the moment we are asking people in public services to climb a wall of technical complexity, and the most urgent task for the mutuals programme is now to simplify it.”

He highlights taxation and procurement as the areas in most need of attention, and would ultimately like to see public sector mutuals given the same special dispensation as they have in Italy.

Rennison, Hammersmith & Fulham’s mutual lead, provides an interesting description of a well-attended bidders’ day held where 28 private organisations expressed an interest in being backers of the tri-borough’s (Westminster City Council and the London Borough of Kensington and Chelsea are also involved) schools IT services mutual project.

 “The feedback from one organisation was that we had too many people, we’ve got to cut this and cut that. But we felt that, actually, no, we’re already quite lean with a clear business plan which we’re confident we can deliver. That demonstrated their lack of understanding about what this business does – it’s a people-focused business.”

Why nations – and organisations – fail

By David Bicknell

I just came across an excellent piece by Craig Dearden-Phillips on why nations – and organisations – fail.

In it, he discusses a book,  ‘Why Nations Fail’, by Daron Acemoglu and James Robinson.

He writes: “The opener of the book contrasts two halves of a city, Noglales which straddles the Mexico-US border. One sits in the region on Sonala, Mexico, the other in Arizona, US. Here the people, culture, climate and operating conditions are the same. On one side of the border, incomes are many times higher, there are good public services and crime is uncommon. On the other, people are mostly poor, there are few public services and crime is rampant because the state isn’t in real control on the ground.

He continues: “Perhaps what has capitivated me most, though, is the read-across to why certain types of public services fail, despite wonderful resources and high levels of native talent. Analogous to the extractive and exclusive institutions described at state level in this book could be placed the large public sector monopolies which still dominate much of public service in Europe and certainly in the UK.

“Here, power is often monopolised and change, even ‘good change’ does run against the interests of many of those involved. Initiative is often powerfully suppressed. It is hard, frequently impossible, to set up in business against these monopolies and there are often few political processes which can be used to break these systems down.

“What am I thinking of here? Well, if you haven’t guessed, I am alluding to many of the organisations from which spin-outs do or don’t emerge.

“The truth of the matter, and I see this every day, is that setting up a new business to deliver public services feels like it probably does to set up any ordinary business in parts of the developing world. You need the buy-in of a variety of power-brokers, all of whom need to see their interests satisfied. You need to go through all sorts of bureaucratic processes to show you’re not a risk and are ‘worthy’ of delivering services.

“From there, you need to make all sorts of promises to the system that its interests will not be threatened and create opportunities for the system to have it’s say even when the business is up and running.

“All of this, of course, creates a massive disincentive for any sane person in public services who wants to change things. The risks are massive – to career, to sanity, to reputation – that most people, quite understandably either stay put or move out. Those that try to start a public service business have to run a gamut that looks far more like something you’d see in Mexico than in Midshire, UK.”

Dearden-Phillips makes some excellent points and the whole piece is worth reading.

Some mutuals reading and listening

By David Bicknell

I just came across a couple of items on mutuals: a piece by Kevin Jaquiss from the Cobbetts law firm about how to register as a mutualised service provider  and a piece on the Baxi Partnership website about a documentary showcasing employee-owned enterprises, including Mondragon.

If you’re interested in Mondragon, there is a BBC radio programme which you can also listen to.

The campaigners’ view of the Gloucestershire case on social enterprise and the NHS

By David Bicknell

Left Foot Forward recently carried a piece discussing the impact of the recent case in Gloucestershire where campaigners had “argued that the local PCT had acted unlawfully in planning to hand over management of nine county hospitals and 3,000 community health staff in what would have been the biggest planned transfer (so far) to a social enterprise in the country.”

It is written from the perspective of the campaigners who question, now that the Health Bill is passed, how far are current NHS providers obliged to put existing services out to competitive tender?

Local government committee considers mutuals’ role in ‘the co-operative council’

By David Bicknell

Just spotted a tweet from Allison Roche from Unison on Twitter about the Communities and Local Government Committee’s inquiry into ‘the co-operative council’, including the services role played by mutuals.

You can read more about the inquiry here

The Committee is seeking answers to the following questions:

  • What is the difference between a co-operative council where services are supplied via not-for-profit businesses and other local authorities?
  • What arrangements need to be put in place to deliver services by not-for-profit businesses such as employee-owned mutuals? More specifically, what are the barriers to establishing not-for-profit businesses to supply services; what role does the local authority have in promoting and incubating a not-for-profit business; and where does accountability lie?
  • What are the advantages of and drawbacks to providing services via not-for-profit businesses?
  • Where services are delivered by a not-for-profit businesses what difference will the local resident and local taxpayer see?

The closing date for submissions is 11th May.

FT: ‘Lessons from the house that John Lewis built’

By David Bicknell

John Kay’s column in the FT yesterday on the need for pluralism in business structures (that include mutuals) was a good read.

In “Lessons from the house that Lewis built”, he argues that we need to find more robust capital and governance structures that permit wider forms of commercial activity. Worth a read (you may need to register or find “Lessons from the house that Lewis built” via Google)

The column refers to a recent report by the Ownership Commission chaired by Will Hutton. You can read the report here

David Cameron launches £600m Big Society Fund

Rights to Provide plans focus on “potential offered by mutual models” to improve services

By David Bicknell

The Government has detailed how it is developing and implementing Rights to Provide to “empower front line staff across the public sector to take over the services they deliver,” possibly through the creation of new mutuals.

The Government said it has identified local authorities’ services, fire services, probation and adult social care as some of the areas for developing new mutuals. This it says, will be backed by enhanced support available to staff through the Mutuals Information Service and the Mutuals Support Programme.

In announcing an updated discussion paper David Cameron said increasing parental choice in schools, extending personal budgets so people can choose how they spend money on services and increasing the transparency of public service performance and user satisfaction are all part of the next steps to improve public services by opening them up.  The paper updates the Open Public Service (OPS) White Paper published last summer.

Launching the new paper, Cameron said: “Nearly two years on from coming into office, brick by brick, edifice by edifice, we are slowly dismantling the big-state structures we inherited from the last government. We are putting people in control, giving them the choices and chances that they get in almost every other area of life. There is still a way to go and this kind of change will not happen overnight. But no one should doubt my determination to make our public services better, by opening them up.”

Specifically on mutuals, the paper says:

“Alongside the focus on digital delivery, and as a core part of work to reform the Civil Service, Government Commercial Teams are working with individual departments to identify where new commercial models would accelerate reform and improve services. In some cases, this may involve high-quality in-house delivery; in other cases outsourcing may offer best value.

“We are particularly interested in the potential offered by mutual models, including mutual joint ventures, that give employees much greater say in the way their organisation is run, for example the model being considered for MyCSP.

“To ensure that the benefits of mutualisation are available across the wider public sector, we are giving public sector staff new Rights to Provide – empowering employees to form public service mutuals to bid or request to take over the services they deliver. This will empower millions of public sector staff to become their own boss,freeing up untapped entrepreneurial and innovative drive.

“Public service mutuals are now well established in community healthcare, with thousands of public servants working in new mutuals with contracts worth almost £1 billion. We have extended these rights to new areas, including adult social care and NHS trusts, and we are looking to go further, in areas such as youth services, probation services, children’s centres, and fire and rescue services.

“We have been actively working with fledgling mutuals on the ground, for example through the Mystery Shopper service and the Mutuals Information Service; and we are supporting some of the most promising and innovative mutuals to reach the point of investment readiness, through the Mutuals Support Programme – a fund of more than £10 million to contract for support in the form of business and professional services to groups of staff who want to form mutuals or existing mutual organisations in the public sector. A steady stream of applications is developing into a pipeline of projects.”

The Government said all its departments will put in place a Right to Provide to empower employees in public services for which they are responsible to s pin out to create new public service mutuals. Public sector workers who want to formmutuals or co-operatives to deliver public services will be given a Right to Provide.

The Government will look to reflect these commitments in departmental business plans where appropriate.

Information from the Mutuals Information Service will inform departmental policy development, the new paper says.  

It points out that “the Department of Health’s Right to Request is near completion, with 40 services now operating as independent social enterprises and further projects to go live by April 2012. The Right to Provide has generated interest across NHS trusts, foundation trusts and adult social care.

“The Department of Health is already exploring opportunities to support social enterprises and mutuals spinning out from the NHS, social care and adult social work. The status of other government departments is as follows:

Department for Business, Innovation and Skills (BIS) Further Education – now starting

Home Office – not yet started

Ministry of Justice – now starting; commitments will be reflected in the Department’s business plan 

Department for Work and Pensions – not yet started

Department for Education Youth Services, and Social Work – now starting

Department for Education Children’s Centres – not yet started.

Other Links

Cabinet Office news release

Mutuals likely to be focus of Government Right to Provide plans expected today

By David Bicknell

The Government looks set to make an announcement about mutuals today as part of ‘Right to Provide’ plans due to be unveiled by David Cameron. The likelihood of an announcement appears to have been leaked.

Here’s today’s Daily Mail’s take on the proposed announcement.

More details to follow

Updated: Rights to Provide Plans focus on “potential offered by mutual models”