BT gets termination notice on £300m outsourcing contract

By Tony Collins

Sandwell Council has issued BT with a 30-day termination notice on a 15-year £300m outsourcing contract that has yet to reach its half-way point.

The metropolitan borough council says there are various defaults BT needs to resolve. Based at Oldbury, West Midlands, about five miles from Birmingham, Sandwell has been an outsourcing reference site for BT.

The company quoted Sandwell Council in its presentations that formed part of the bidding for Cornwall Council’s planned outsourcing work.

The “guaranteed” savings in Sandwell’s contract with BT appear to be based on a level of spending the council is not maintaining. One point of contention appears to be the council’s wish for BT to reduce its charges to the council in line with the authority’s lower levels of activity.

In June 2012 Sandwell submitted a change request that asked BT to recalculate the annual service charge because the service volumes delivered through the contract had reduced significantly.

The council wanted the recalculation to be based on a reduction in the workforce from around 7,400 in 2007 when the contract with BT was signed to 4,688 in mid 2012.

Government Computing quotes a council document on the dispute as saying

“A reduction in the workforce should have a corresponding reduction in volumes such as the size of the ICT estate, the payroll, HR support and budget holders. There have been volume reductions in invoices, the number of contracts administered and calls to the contact centre for some services.”

Sandwell’s 30-day termination notice to BT was issued on 16 July so it will expire around that time next month. The council says it is prepared to take back staff.

Sandwell council leader, Councillor Darren Cooper, told Government Computing: “Cabinet has approved a recommendation to start the process of ending our contract with BT. That termination will take effect in 30 days’ time unless BT puts right various defaults we have asked them to resolve.

“If we have to, I am confident we will be able to bring the services BT currently supplies to us back to the council and run them in the most effective way in future.”

Guaranteed

In 2007 BT and its joint bidder, outsourcing provider Liberata, had set out to run the council’s back-office functions at what was announced as a “guaranteed” reduced cost over the lifetime of the contract.

The deal was aimed at cutting costs and improving Sandwell’s IT infrastructure, HR, finance, payroll and customer services functions.

There was some success. The BT-led ‘Transform Sandwell’ team won the UK’s Best Customer Services Management Team at the National Customer Services Awards in December 2010.

BT built a 75,000 square foot office block for Transform Sandwell. It accommodated 400 employees of Transform Sandwell and a 300-strong customer service team working for BT.

Massive mistake?

Independent socialist councillor Mick Davies said “Someone somewhere has obviously made a massive mistake and the taxpayers of Sandwell will have to foot the bill… The writing seemed to be on the wall when BT’s partner in the project, Liberata, was dumped unceremoniously a couple of years ago.”

Sandwell Council’s deputy leader and cabinet member for strategic resources Councillor Steve Eling said: “In view of the current climate and public expenditure reductions, the council is engaging with its partner to determine services that are needed over the medium term and to reduce the overall costs in light of public spending reductions.”

Technologies used in the Transform Sandwell contact centre have included Verint Impact 360, Siebel CRM and Nortel Contact Centre 6.0.

A BT spokesman told the Halesowen News

“BT continually looks at ways to improve the service it provides to its customers. The original contract was signed in 2007 and as is normal with long-term partnerships BT constantly looks at ways to service the changing needs of both the council and citizens of Sandwell.”

BT told Government Computing it “has throughout – and remains – fully committed to delivering the commitments it made through the Transform Sandwell Partnership.”

The European Services Strategy Unit which has carried out detailed research on outsourcing contracts lists some of the terminated and reduced local authority strategic partnership contracts.

Sandwell has 72 councillors, 67 of which represent Labour.

Comment

At some point in a 10 or 15-year outsourcing contract a major dispute seems almost inevitable because a supplier’s business objectives will rarely change when the council’s priorities change.

BT’s deal with Sandwell was signed in 2007 – as was Southwest One’s deal with IBM – at a pre-austerity period.

Now that councils have been making, and continue to make, radical savings, they want the flexibility to cut their outsourcing costs too. But it may not be in the supplier’s interests to take profits that are much lower than expected.

No such thing as a free lunch

How can the business interests of outsourcing providers and their council clients ever completely align and move in time like synchronised swimmers?

The growing number of disputes in local authority outsourcing deals suggests that councils are not properly weighing up the risks when they sign deals.

Perhaps small groups of ruling councillors – such as those at Barnet – are too easily persuaded by the “guaranteed” savings on offer at the start of a contract.

There is no such thing as a free lunch. But try telling that to council Cabinet councillors who have cartoon-character pound signs in their eyes in the Disney period before a big outsourcing contract is well underway.

Let’s hope BT and Sandwell kiss and make up. It looks like the lawyers are already in the middle of them, though; and at whose expense?

Sandwell and BT consider end of strategic partnership – Government Computing