By Tony Collins
Comment and analysis
An inner circle of councillors at Cornwall council is rushing plans to sign a big outsourcing deal despite a council vote against it. The aims of the deal include an IT-based transformation of services, the creation of “up to” 500 new jobs and tens of millions of pounds in savings – all too good to be true?
The warning signs are there. The council’s remarkable naivety, a hurried enthusiasm for signing a deal, and a confident waving aside of internal and external concerns, may be early indications of a possible disaster. An internal report warns of a potential “catastrophe” over service delivery.
If all turns sour could accusations of maladministration follow? Is there still time for the full council to stop the inner circle from pressing ahead with a contract signing?
Major IT suppliers have some exceptional salespeople. They don’t merely sell hardware, software and services. They inspire. They rouse to action. Their promises are believable because they believe them with a conviction that can be contagious.
Joe Galloway might have been a one-off. He was managing director of a part of one of the world’s largest IT companies EDS (now HP). He helped to strike a CRM [Customer Relationship Management] deal with BSkyB in 2000. The contract ended in a £709m legal dispute in which Galloway was a main witness for HP. The judge in the case of BSkyB v HP found that some of Galloway’s evidence was untrue.
He demonstrated an “astounding ability to be dishonest, making up a whole story about being in St John [part of the Virgin Islands], working there and studying at Concordia College. EDS properly distance themselves from his evidence and realistically accept that his evidence should be treated with caution,” said the judge.
The judge also said
“I am driven to the conclusion that he proffered timescales (on the CRM project) which he thought were those which Sky desired, without having a reasonable basis for doing so and knowing that to be the position… I consider that he acted deliberately in putting forward the timescales knowing that he had no proper basis for those timescales. At the very least he was reckless, not caring whether what he said was right or wrong.”
During the High Court hearing, when HP discovered Galloway’s dishonesty, it sacked him.
He had held a senior position at EDS and the company’s customer BSkyB believed what he had said. The case cost HP £318m plus tens of millions of pounds in legal fees – and the dispute lasted more than seven years. HP, it could be said, became a victim of some of the statements made by one of its executives.
The point about mentioning the case is that supplier promises, even if made with the best of intentions, may in the end come to nothing – or worse, a costly and prolonged legal dispute. Good intentions were behind the setting up of a joint venture between IBM and Somerset County Council – Southwest One – in 2007. The two sides are now immersed in a legal dispute that looks like going to court. Other councils have gone into joint ventures with major IT suppliers only to be disappointed.
So why do councils still want to sign mega outsourcing deals?
Councils keen to enter a large outsourcing deal become convinced that failures of such ventures elsewhere do not apply to them because their plans are unique. Indeed Cornwall council says on its website:
“Our strategic partnership is unlike any that has happened before, and as such, we cannot compare our programme accurately to others.”
But how do potential suppliers explain failing contracts?
In talks with potential customers IT companies correct or clarify reports in the media about outsourcing deals that have failed or are failing. It is customary during the bidding process for salespeople to take potential clients to reference sites where the representatives will agree that the media reports of a failing partnership were inaccurate or hyperbolic.
[Councils that have signed failing outsourcing deals will sometimes be reluctant to publicise the fact – and may put on a brave face in which they align themselves with the supplier; until a council changes hands, as at Somerset County Council, when a new administration is happy to publicise the mistakes of the last, and the full extent of the problems begins to emerge publicly.]
Cornwall council says on its website that it has received responses from its two shortlisted suppliers BT and CSC to specific negative press articles. The Council is now untroubled by any of the articles.
“The feedback we received from the references contacted were balanced and gave us no significant causes for concern… We do need to reflect that these are press stories and we know only too well from our own experience that you can find negative reports on most major companies if you look for them.
“As global companies, it is to be expected that you will find a whole range of perspectives on each; it is important we take a balanced and independent view. Please be assured that we will continue to work with both companies to deal with any issues that may arise throughout the procurement process and beyond…”
Articles BT and CSC were not asked to respond to included one in the Financial Times which said of NHS IT contracts:
“There are big doubts as to whether the government can fire BT and CSC, its two main suppliers, without paying huge sums in compensation.”
Cornwall says it continues to monitor press coverage, with the help of BT and CSC. It suggests that articles not yet written may be biased.
“… We actively monitor the press, and both companies [BT and CSC] make sure that they let us know if a negative or positive story is going to break, making sure that we understand the background. It is important to note that these articles do not always present an unbiased view,” says Cornwall.
Does setting up a “critical friend” group give a false assurance?
On the face of it Cornwall deserves praise for setting up an independent panel of “critical friends” to scrutinise the council’s outsourcing plans. It is called the “Support Services Single Issue Panel” which comprises mostly Cornwall councillors. It had help from, among others, council officers, and BT and CSC. The Panel also visited some customers of BT and CSC that the suppliers chose.
But when the Panel later expressed serious concerns about Cornwall’s outsourcing plans the council’s inner circle simply replied that it did not accept those concerns. This may strike some as a naive response to real risks.
This was part of the council’s response to the Panel:
“We do not accept the magnitude of some of the risks raised in the SIP [Single Issue Panel]. This includes the risk of service delivery failure and the risk of losing senior officers to the partner. Nor do we think there is a significant conflict between profitable trading and a public service commitment. We do not think our timescales are risking service delivery but will advocate delaying those timescales if this is judged necessary to protect the Council’s interests and/or to achieve greater contractual benefit…”
Is there a danger the council will use the setting up of the critical friend group to say that it has considered all the risks – even if it has considered then dismissed the most serious of them?
A poor supplier would be in breach of contract – but then what?
To the Panel’s concerns that the joint venture may fail to deliver, or costs escalate, Cornwall responds that if its suppliers do not deliver they will be in breach of contract.
But then what?
Said the council:
“The contract obliges the strategic partner to deliver. Any initial failure to deliver would be dealt with through a service credit arrangement. Persistent failures would represent a breach of contractual conditions which would lead to breach of contract where the Cornwall Partners would exit the contract.
“The cost for this would be picked up by the strategic partner. Financial difficulty is covered by a guarantee that the parent company would step in and continue delivery. Costs are largely within our control…”
Is it straightforward to exit a contract after an alleged breach of contract? The Department of Health was in dispute with CSC over alleged breaches of contract on the National Programme for IT, NPfIT. CSC made it clear in its statements to US regulators that the DH was unable to exit the NPfIT contracts without large payments. CSC and the Department ended up accusing each other of breaches of contract which made negotiations for a settlement long and costly.
Heading for claims of maladministration?
Is Cornwall being naive when it says simply that after any breach of contract the council “would exit the contract”? In the past this has been the legal cycle of events in some major legal disputes on IT contracts
– Customer alleges breach of contract
– Supplier makes counter-claim
– Customer withholds money
– Supplier instigates legal action
– Customer wishes to exit contract but cannot because of potential costs, counter-claims and need for supplier’s cooperation to maintain existing services.
– Long and costly settlement negotiations – which is good for lawyers – while service delivery remains in the “hold” position, unresponsive to changes that may need to be made or remedial action that may need to be taken.
International IT companies are experts in the legal side of contracts and dealing with disputes. Do Cornwall’s ruling councillors believe that the council’s expertise and legal advice would trump the supplier’s in the event of an alleged breach of contract?
When Cornwall says that in a breach of contract it would exit the contract and “the cost for this would be picked up by the strategic partner”, do the council’s ruling councillors trust that the supplier would say to the council in any dispute, “Let us know your costs of exiting the contract and we’ll settle up.”
There is another worrying sign of Cornwall’s apparent naivety. The council says “The costs would only escalate if the Cornwall Partners make changes to the services required.”
Unforeseen change is endemic in the public sector: governments change, policies change, legislation changes, organisations change, particularly the NHS which is a potential party to Cornwall’s outsourcing plans.
Is any public authority that signs up to a large and complex outsourcing deal on the basis of ‘no unforeseen change’ leaving itself open to accusations of maladministration?
Has Cornwall’s democratic process broken down?
The most extraordinary single thing about Cornwall’s outsourcing plans is that, at a full council meeting on 4 September, a majority of councillors voted against a deal but the inner circle is going ahead anyway.
Says the council’s website: “A motion calling on Cornwall Council to change its decision to enter into a partnership with the private sector to deliver a range of support services was supported by a majority of 17 Members following a three hour debate at County Hall on 04 September.”
[The motion was put and seconded by two councillors, Andrew Wallis and Andrew Long, who are not members of the major political parties.]
In dismissing the vote of the council, a spokesman for Cornwall’s pro-outsourcing group said
“All the concerns which have been raised today have already been considered by the Cabinet… This is a very complex proposal and unfortunately the decision by Members not to move into private session meant that we were unable to share the detailed confidential information they needed to make an informed decision”.
Should the Council rush to sign a deal?
Somerset County Council’s joint venture was characterised by a rush to sign, which culminated in the signing at 2am at the weekend. The failed NHS IT plan was also notable among potential suppliers for the haste before the signing of contracts, as was the failed Firecontrol contract. Is Cornwall’s deal being rushed? Cornwall’s Support Services Single Issue Panel said
“The timetable restrictions placed on the SIP [Single Issue Panel] has condensed the available time such that this report has had to be compiled within one working day. Had the timetable slipped by just that one day it is certain that no report would have been submitted.”
The Panel also said
“The risk is that this timescale is far too short for detailed evaluation and due diligence to be carried out. This is a significant value contract. The estimated value of the contract in the Prospectus for Cornwall …was £210m to £800m. The current estimated value is not known to the Panel…”
The council’s inner circle concedes that its timescales are “tight but achievable”.
When outsourcing plans have taken up much time and money there is always a danger a contract will have to be signed to justify the effort. But would the signing of a mega deal at Cornwall be a triumph of ideology over objective reasoning?
One has to wonder how a mega outsourcing deal can improve services, provide a good profit margin for an international IT company, save the council money and create hundreds of jobs. Doesn’t something have to give? Is there so much inefficiency, and so much money floating around the council and its potential NHS partners, that a major supplier can cut tens of millions of pounds, spend to transform services, and make money?
In evidence to MPs last year SOCITM, which represents ICT professionals in councils, said of outsourcing ICT that it “carries many risks for local authorities and can come at a heavy price”.
Some praise for Cornwall’s approach
Cornwall’s ruling councillors should be applauded for two things:
– There is every sign that the inner circle’s plans are motivated are by the best of intentions: to save money, improve services, protect existing jobs and create more.
– Although some criticise the council’s lack of openness, the inner circle is not hiding all of its papers and discussions in a blanket of secrecy. It has published the report of the “critical friend” Panel and the council’s responses. There is much information – and links – on the planned deal on the council’s website. This doesn’t always happen in the run-up to a large public sector outsourcing contract.
But good intentions do not make up for naivety and a wish for outsourcing that may border on fanaticism – the pursuit of a Cause whatever the dangers.
If a majority of councillors at a full council meeting cannot stop the signing of a mega-deal can anyone?
It appears that a tiny group within the council will make the final decision – although it is arguably the most momentous decision in the council’s history.
Says the council: “The final approval of, and the date for, the issuing of the said invitations to submit final tenders be determined by the Chief Executive in consultation with the Leader of the Council and the Portfolio Holders for Environment, Waste Management Policy and Shared Services, Health and Wellbeing and Human Resources and Corporate Resources.”
The final decision is due next month. If Cornwall enters a deal in which it relies on the contract to protect services and the council’s reputation is it being naive? Could it end up facing accusations of maladministration, particularly after side-lining a council vote against the deal?
Thank you to Dave Orr and a journalist in Cornwall for your emails on Cornwall’s outsourcing plans.