Ban the “g” word from outsourcing lexicon?

By Tony Collins

Is the word “guaranteed” as in “guaranteed savings” just spin –  perhaps the most misused word  in the lexicon of outsourcing? Should it be banned by general voluntary agreement?

It’s commonly used when suppliers are bidding for council contracts; and it is used almost as much by cabinet councillors when they are marketing an outsourcing proposal to fellow councillors and the public.

 It was used a lot by BT in its bid marketing documents that were shown to Cornwall councillors before  they signed a contract with the company. Cornwall’s ruling councillors last year, too, used the phrase “guaranteed savings” to batter their outsourcing critics. 

These are mentions of “guaranteed” from a single marketing document – BT’s Cornwall Council Briefing Strategic Partnership for Support Services, October 2012

– “£149.6m of guaranteed savings”

–  “jobs supported by formal commitments and guarantees on delivery along with clarity on the nature and type of jobs”

– “Guaranteed savings of £60.6m year Core Contract Savings Years 1-10”

– Contractual guarantees for both job creation and performance levels reached

– sales and marketing team and guarantees – £2mpa

But when “guaranteed” faces its most critical test –  in a legal dispute – it appears to mean little or nothing. It’s not a contractual word. [That’s wrong. It is a contractual word says Ali Mehmet in a comment at the end of this blog.]

Somerset County Council portrayed the lowered costs of outsourcing as guaranteed when it contracted out IT and other services to the IBM-owned “Southwest One” joint venture.

Said an IBM-sponsored article on Southwest One in 2008, a year after the joint venture was formed,

“The contract calls for guaranteed [the article’s emphasis] lower costs for service delivery. IBM knows it can lower costs for the partners’ processes, so all three government agencies come out ahead. So do citizens.”

In the end the claimed savings were not achieved, the contract between the council and IBM went into a legal dispute which was settled at a cost to the council of £5.9m, and Somerset’s Cabinet member for resources, David Huxtable, told the BBC last week:

“It was a very complex contract and lots of the savings were predicated on an ever-increasing amount of money being put into public services and we know in the last four years that has gone into reverse.”

Barnet Council uses the word “guaranteed” liberally as it prepares to outsource its New Customer Services Organisation [NCSO] to Capita in a 10-year £320m contract which is part of the One Barnet transformation programme. Says a Barnet statement on the choice of Capita as preferred supplier for NCSO: 

“The contract is worth £320 over ten years and guarantees a saving to the council of £126 million over that period.”

Guarantees are subject to …

The g word may have little meaning in a contract because it is usually tied to variables – such as level of spend – which the public and most councillors rarely ever know the detail of, because the contract is kept confidential.

And against what – subjective? – basis, and baseline, are the guaranteed savings measured? Again it is in the commercially confidential contracts.

Once in a legal dispute between outsourcing supplier and customer, lawyers will argue over the sense, meaning and purpose of contractual guarantees that are subject to an ambiguous string of variables.

 If political parties made manifesto commitments that were “guaranteed” would anyone believe them? If a double-glazing salesmen offered security and thermal insulation that was guaranteed would anyone believe them? 

So why are ruling councillors so inclined to believe outsourcing bidders when they sprinkle their documents with the “g” word? How does it come to mean so much at the pre-contract stage – and nothing afterwards?

A ban on the “g” word? 

If a voluntary ban on the “g” word, at least with reference to outsourcing and related proposals, would be a good idea, please let me know when you see it used and, most likely, abused.  tony@tonyrcollins.co.uk

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2 responses to “Ban the “g” word from outsourcing lexicon?

  1. I have received this emailed comment from Ali Mehmet, Technical Director of health IT supplier Maracis Solutions:

    A blanket ban might be a bit harsh.

    I have seen the g word in contracts that we have signed in the past. However the terms of that guarantee are clearly defined and legally unambiguous. The difference is the use to which the g word is put, in most cases it is used in conjunction with SLA’s eg no screen should take more than .2 sec to open when the systems has 400 concurrent users logged on

    When it come to cost savings things get a bit more complicated but not impossible. The guarantee must be defined in simple terms. If it can’t be it’s not worth having. We could guarantee a return on investment for software we supplied where the conditions were clearly defined. The conditions formed a framework for assessing achieving what was guaranteed.

    For example, delivered software cost £15,000 + 20% support and maintenance = £18,000 Term ROI 5 years total cost = £15,000 + (5*£3000) = £30,000 over the 5 year contract, £30,000 / 5 = £6000 per year. So the Trust was looking to either save £6000 a year or increase its income by £6000 per year. The software in question was designed to allow community based clinicians to access that part of their patients data which would allow then to record a contact, makes notes on that contact and schedule a new contact if necessary without returning to base. 500 clinicians would use the system. We, being conservative, stated that if each clinician made 1 more contact over the life of the contract as a result of using the software and the income from such a contact was between £50-£75 then the Trust would over the 5 year period receive between £25,000 and £37,500.

    The Trust was very happy with this as were we as both parties saw that this was a measurable metric (they knew how many contacts were being made before the new solution was implemented) and they and we could therefore assess that the terms of guarantee had been met.

    As it turned out they had a peak of 650 clinicians using the software and each clinician was making at least 1 extra contact a day! You do the maths.

    We have seen new procurements from the NHS which stipulate that the new EPR should yield cost savings of between 2 to 5 million per year with penalties for not doing so. I would assume that once the contract has been negotiated and drafted the mechanism by which such savings would be assessed is clearly defined.

    To that end would it not make more sense to make all contracts awarded by public sector bodies open to scrutiny with no recourse to them being commercial in confidence. We never had a problem with this approach and our price lists for software and services were always published. Given that all such contract for the NHS should be based on the terms of SYSCON and SSCON, which are publicly available, what would be the problem of making the final draft open? Those suppliers that did not want play by those rules simply need not apply.

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