Outsourcing costs in Cornwall escalate – and no deal signed yet

By Tony Collins

The estimated procurement costs of a mega-outsourcing project in Cornwall have risen sharply, not necessarily under the full control of the county council’s cabinet, and before any deal with BT or CSC is signed.

Meanwhile councillors are due to be told, in confidential briefings, that BT and CSC may claim back their costs so far, and are prepared to legally enforce that claim,  if no outsourcing deal is signed.

Such a legal claim, of potential suppliers suing a potential client, would be highly unusual perhaps unprecedented. 

Is Cornwall’s  cabinet using FUD – fear, uncertainty and doubt – to make councillors fearful of not  agreeing a deal with CSC or BT at a full council vote next week?

Papers published by Cornwall County Council show that a mega-outsourcing deal proposed by the authority’s ruling cabinet will be worth between £210m and £800m.

The full  council will vote on whether to proceed with a contract with BT or CSC on 23 October.

Before that vote the cabinet is expected to give confidential briefings to individual councillors. The briefings will focus on the promised benefits of signing a deal,  and the disadvantages of not going ahead.

The cabinet may tell councillors approximately how much money BT and CSC will claim, and if necessary take legal action to recover, if a deal is not signed, according to an interview the council leader Alec Robertson gave to thisiscornwall.co.uk

“The two bidding companies have spent a lot of money over the past couple of years and they will have a legal claim against the council for changing direction,” Robertson is quoted as saying.

“Councillors need to know the consequences. There is a lot of commercial confidentiality, but we wouldn’t be talking about small amounts of money.”

The council’s own budget for the outsourcing project so far has escalated. An independent panel set up as a “critical friend” to scrutinise the council’s plans for outsourcing has learned that the costs to Cornwall’s taxpayers of planning for the scheme were £375,000 in July 2011.

In March this year the “Single Issue Panel” members were told that the costs for the project would need to be increased from £650,000 to £800,000.

“The current estimate of the cost of the procurement process at the time of writing this report is £1.8m,” says the panel in its July 2012 report.

The £1.8m will be met from existing budget, says the cabinet in council documents.

On top of this, potential NHS partners in the deal have their legal costs.

The cabinet says in its written reply to the panel that the increase in costs is due in part to a “significant  increase in external support drawn in to support the procurement”, including specialist legal support and costs for consultancy KPMG, which has advised on the finance and client side support.

There has also been an “extension of scope” due to the proposed inclusion of telehealth/telecare. In addition there have been “project delays”.

Comment:

With the outsourcing-related costs to Cornwall’s taxpayers escalating before any deal with CSC or BT is signed, what will happen after the council is contractually committed to a long-term deal with one of the companies?

One reason there is no clear answer to this question is that so much of the council’s plans are based on assumptions that BT or CSC will commit contractually to providing up to 500 new jobs, saving money and achieving an IT-led transformation of services (while making a profit from the deal and recovering bid costs).

Cornwall’s cabinet seems confident that BT or CSC will enshrine all its promises in a contract free of caveats and ambiguities, and that the sort of legal dispute that has broken out in Somerset over the IBM/Somerset County Council joint venture Southwest One is unlikely to happen in Cornwall.

But isn’t Cornwall repeating Somerset’s mistake of not seeing that, behind the promises, assumptions, hopes and so-called contractual commitments,  the reality of withheld payments for poor service and the subsequent threat of legal action by the supplier is always there.

If Cornwall’s cabinet is already concerned about possible legal action from the bidders to recover their costs,  will the council be more confident about avoiding a legal action once the chosen suppliers’ lawyers have agreed a long and very carefully-worded outsourcing contract – a contract that may be different from the council’s proposed draft contract?

The Cabinet Office’s Major Projects Authority, under the enlightened David Pitchford, has a guiding principle that sets the coalition apart from previous administrations when it comes to avoiding disasters. That principle is to stop a deeply-flawed project cheaply before much more is spent and at risk of being wasted.  Ian Watmore, when permanent secretary at the Cabinet Office, put it well: “Fail early, fail cheaply.”

Will council leader be asked to stand down?

Cornwall outsourcing/partnership debate.

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3 responses to “Outsourcing costs in Cornwall escalate – and no deal signed yet

  1. I totally agree with Peter Smith. I have worked on major procurement contracts including Outsourcing ones, albeit it in the Private Sector, and the clauses that Peter is referring to are pretty standard. I think this is scaremongering by Alec Robertson. I do find the Council costs of £1.8 Million an exhorbitant figure for their Procurement Costs. These costs need breaking down in detail!

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  2. Thank you Peter – all the more reason to think that Cornwall’s cabinet may be playing the FUD card to encourage councillors to vote for the deal.

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  3. Every major tender I’ve worked on in the public sector has clauses like this (taken from one I’m looking at currently) –

    “XYZ reserves the right to cancel, amend or resubmit this RFP in part or entirely at any time.

    XYZ is not responsible for any bidder costs associated directly or indirectly with thisRFP, bidder responses or any contract discussions or negotiations. No statement by XYZ in this RFP or any subsequent pre-contractual communications or negotiations should be viewed as a request by XYZ or justification for bidder to increase or change
    inventory, staff, facilities, business relationships with its suppliers, or internal business processes.

    All actions by the bidder in response to this RFP or subsequent discussions
    or negotiations should be taken with the clear understanding that neither this RFP nor subsequent actions or omissions by XYZ obligate or commit XYZ to pay or reimburse the bidder for any costs or expenses which it may incur. This RFP is not an offer to enter into a contract.”

    If Cornwall and Cornwall’s legal advisers didn’t have something like this in every document they’ve sent to the bidders then there should be a professional negligence claim against someone. (I can only think of one very specific example where a Government body agreed in advance to subsidize bidder’s costs and there was a good reason – to ensure a competitive process where there was a very strong incumbent).

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