By Tony Collins
Cornwall Council’s officers have written a 134-page report on the options available to councillors for confronting budget cuts.
It will help councillors decide at a full council meeting on 11 December whether to ask officers to conclude a joint venture with BT.
The report “Partnership for Support Services – Options Appraisal” is clearly a well-meant attempt to convince councillors that the best option is a deal with BT. The current plan is for BT to set up a subsidiary it would own completely, that would deliver ICT and other services back to the council and parts of the local NHS. BT has no plans for the council to be represented on the subsidiary’s board.
The new report is strong on the benefits of a joint venture with BT, such as guaranteed jobs and savings. Absent, though, are important parts on costs, risks and local authority experiences on joint ventures and private sector partnerships.
The report says that the “risks inherent in SP 1 [the joint venture with BT] has been submitted to the Council” by legal firm Eversheds. A final version of the Eversheds report will be signed off by council officers before any invitation to tender is issued to BT. But there’s no indication that this report on risks will be shown to all councillors.
The council’s own procurement costs relating to the proposed joint venture, and further projected costs, are escalating.
In July 2011 the costs to Cornwall’s taxpayers of planning the joint venture were estimated at £375,000. That figure rose to £650,000, then to £800,000, then £1.8m and now stands at £2.1m.
“The current forecast estimate of the costs of the procurement process now stands at £2.1m. This is funded from the corporate improvement budget,” says the new report.
There are further costs arising from the partnership, says the report. One example is the pension fund for the transfer of staff which will cost about £10m over 10 years. “There will also need to be additional budget to create a robust client team [to manage the BT contract],” says the report. This would cost between £400,000 and £700,000 a year.
“Both of these additional costs have been taken into account in the option analysis contained in appendix 2.”
But appendix 2 is missing in the public version of the report.
The report suggests that strategic partnerships are “nothing new”. It adds:
“BT – and other councils (sic) – have been involved in them for more than 10 years. Similarly the outsourcing market is mature and well understood. The UK local government IT and Business Process Outsourcing market is the biggest outsourcing market in the world and there are over 100 deals in operation. Risks are sometimes managed well and sometimes managed badly. The risks have been mitigated by using expert advisors and the Council has senior officers who understand this territory well.”
But the report does not mention that some councils in the mature local authority market have, after poor experiences, outcast joint ventures and one-size-fits-all outsourcing deals. Neither does it mention that the Cabinet Office disapproves of partnerships that lock public sector organisations into one major supplier.
These are some of the partnerships not mentioned in Cornwall’s report:
– Suffolk County Council signed a £330m joint venture deal with BT in 2004. By late 2010 the cost had risen 26% to £417m. A BT spokesman told the Guardian that the additional costs were due to “…additional services contracted by the council”. Suffolk has decided not to renew the BT contract. It will instead outsource to separate specialist firms. Assistant director director strategic finance Aidan Dunn said in a council report that “efficiencies can be achieved by dealing with individual suppliers who are experts in specific areas of back office service provision, rather than contracting with back office generalists”.
He added: “Our analysis suggests that it is not necessary to have one large contract, but that our requirements would best be serviced via three separate contracts: finance and HR, ICT and services to schools.”
– Somerset County Council’s loss-making joint venture is in dispute with its main supplier IBM. Council leader Ken Maddock said the joint venture was “failing to be flexible enough in the changing financial landscape”. He did not blame the workforce but the “contract, the complications, the failed technology, the missed opportunities, the lack of promised savings”.
– Birmingham City Council is, in effect, locked into a “Services Birmingham” contract with Capita that began in 2006 and lasts for another nine years. The contract has been largely successful but the relationship is deteriorating in some areas, according to a report which was published this week. The two sides have many problems to overcome.
– Essex County Council has taken civil legal dispute advice over its deal with BT. The European Services Strategy Unit quotes the Financial Times as saying that a 10-year contract began 2002 but in January 2009 Essex Council served BT with a notice of material breach of contract. A spokeswoman for the council said: “We decided it wasn’t value for money and we weren’t getting the level of service we required, so we decided to terminate the contract.”
Analysis of other parts of latest Cornwall report
The options appraisal report says it was produced in a tight timeframe which has limited its usefulness to councillors. But who has imposed a tight timeframe? Councillors have not imposed any specific time limit. It could be that some council officers have. But aren’t artificial time limits usually the prerogative of double-glazing salesmen who offer 60% off if you sign straight away? Cornwall’s report says:
“… it is recognised that the necessity for the Chief Executive to fulfil the mandate of Council in such a tight timeframe means that it has been difficult in terms of ensuring full Member engagement…
” … As stated, the timeframe has been particularly challenging and the report would have benefited from more discussions with and input from Members but it is hoped that the Council has sufficient analysis and background information to make a decision on the best way forward.”
The report says of the council’s three proposed health partners that “all are keen to promote closer integration, improve services and deliver savings through the SP 1 [BT joint venture] proposal”.
This isn’t quite what “all” the health partners said.
Kevin Baber, chief executive of Peninsula Community Health in St Austell said the only realistic option was a BT joint venture (though the authority has begun telehealth talks outside the partnership). The other two health authorities were not so definite in their support for a BT joint venture – and one of them wished expressly not to influence Cornwall Council’s debate.
Lezli Boswell, Chief Executive of Royal Cornwall Hospitals NHS Trust, said:
“It would not be appropriate for me to comment on the Options Appraisal as [the trust] has not been involved in the preparations process and also would not want to appear to be influencing the Council’s debate…”
Phil Confue, chief executive of Cornwall Partnership NHS Foundation Trust, said that the option for a BT joint venture appeared to offer to a real opportunity to deliver value for money. But he made no commitment to the partnership even if Cornwall votes in favour of a deal with BT. He said the trust did not want, as an NHS body, to lobby the council over its decision.
“The decision whether to pursue the Strategic Partnership will be made by
our Trust Board of Directors, once the Council has made its decision on the 11 December 2012.”
As the Cornwall options appraisal report concedes, health trusts have the option of outsourcing services to Shared Business Services, a successful shared services organisation run by Steria.
Most of the councils that went into joint ventures with high hopes amid promises of large savings have become disillusioned. Such deals are characterised by an anxiety for a deal to be signed as soon as possible, followed by rising costs, lack of flexibility, high prices when there is a need for major legislative and organisational change, and the discovery that ending a contract early carries risks of disruption to services, high re-transitional expenses, legal action and sunk costs.
Some may wonder if the unforeseen rising costs of procurement – they have increased five-fold – may be a sign of what could happen with costs after a contract is in place.
Given the lessons from the growing number of joint venture failures, one would have thought that council officers would be suspicious of supplier promises. Not at Cornwall. The officer-enthusiasts for the BT deal don’t mention any of the joint venture contracts that have failed. Indeed those officers prefer the claims of suppliers that failures are in the eyes of trouble-makers, media scaremongers and union activists.
Why does so much enthusiasm at the start of contracts dissipate once realities set in? Could it be that the best marketing people are the easiest to sell to? Do the officials that want success so much overlook or minimise the risks and past poor experiences of others?