Somerset Council publishes “lessons learnt” from IBM contract

By Tony Collins

It’s rare for any council to publish the lessons learned from its outsourcing/joint venture contract, but Somerset County Council has set an example.

The council has produced its report to “inform future commissioning”. The council held a workshop to help identify the right lessons.

Written by Kevin Nacey, the council’s Director of Finance and Performance, and published by the Audit Committee, the document is diplomatically worded because the South West One joint venture contract with IBM continues; it was renegotiated in 2013 when the council took back some services and about 100 staff that had been seconded to South West One.

IBM is the majority shareholder in the joint venture company, and is its main funder. The minority shareholders comprise the county council, Taunton Deane Borough Council and Avon and Somerset Police. The joint venture company still provides ICT, finance and human resources/payroll.

Dave Orr, a former council IT employee and campaigner for openness, who spotted Nacey’s report, says it misses some important lessons, which are in Orr’s From Hubris to High Court (almost) – the story of Southwest One.

Lessons

From Somerset County Council’s Audit Committee report:

Contract too long and complicated

“One of the most significant lessons learnt is not to make contracts overly complicated. Both the provider and the Council would agree that the contract is incredibly complicated. A contract with over 3,000 pages was drawn up back in 2007 which was considered necessary at the time given the range of services and the partnership and contractual arrangements created.”

Expectations not met

“The partnership between the provider and the three clients has at times been adversarial and at times worked well. What has become clear over time is that any such partnership depends upon having similar incentives and an understanding of each partner’s requirements.

“Requirements change and the nature of local government changed considerably as a result of the national austerity programme. The well-documented financial difficulties faced by the provider early into the contract life also affected its ability to meet client expectations. The net effect is that at times the provider and partner aims in service delivery do not always match and discord and dissatisfaction can occur.”

Client team to monitor supplier “too small”

“The Client function monitoring a major contract needs to be adequately resourced. At the outset the size of the client unit was deemed commensurate with the tasks ahead, such as monitoring a range of performance measures and reporting on such to various management and Member forums.

“Liaison between partners, approving service development plans and approval of payments under the contract were other significant roles performed by the client unit. However, as performance issues became evident and legal and other contractual disputes escalated, the team had to cope with increasing workloads and increasing pressure from service managers and Council Members to address these issues.

“This is a difficult balancing act. You do not want to assemble a large client function that in part duplicates the management of the services being provided nor overstaff to the extent that there is insufficient work if contract performance is such that no issues are created.

“With hindsight, the initial team was too small to manage the contract when SAP and other performance issues were not resolved quickly enough. Sizing the function is tricky but we do now have an extremely knowledgeable and experienced client team.”

Some contract clauses “too onerous”

“Performance indicators need to be meaningful rather than simply what can be measured. Agreement between the provider and the SCC client of all the appropriate performance measures was a long and difficult exercise at the beginning of the contract. Early on in the first year of the contract, there were a large number of meetings held to agree how to record performance and what steps would be necessary should performance slip below targets.

“Internal audit advice was taken (and has been at least twice since under further reviews) on the quality and value of the performance indicator regime. It is regrettable and again with hindsight a learning point that too much attention was paid to these contractual mechanisms rather than ensuring the relationship between provider and SCC was positive. Perhaps the regime was too onerous for both sides to administer.”

Too ambitious

“Contract periods need to be different for different services as the pace of change is different. The range of services provided under the initial few years of the contract were quite extensive. On another related point the provider also had to manage different services for different clients.

“This level of complexity was perhaps too ambitious for all parties. Although there are many successful parts to the contract, it is inevitable that most will remember those that did not work so well.

“The contract period of 10 years is a long time for 9 different services to change at the same pace. Of course, service development plans were agreed for each service to attempt to keep pace with service needs as they changed. The secondment model introduced as part of the contract arrangements had been used elsewhere in the country before this contract used it.

“Nevertheless, it was the first time that 3 separate organisations had seconded staff into one provider. In many ways the model worked as staff felt both loyalty to their “home” employer, keeping the public service ethos we all felt to be important, and to Southwest One as they merged staff into a centre of excellence model.”

Hampered by terms of staff contracts

“The disadvantage was that Southwest One was hampered by the terms and conditions staff kept as they tried to find savings for their business model and to provide savings to the Council in recent years given the changing financial conditions we now operate under.

“Another aspect of this contract in terms of complexity is the nature of the partnering arrangement. It is not easy for all partners to have exactly the same view or stance on an issue. Southwest One had to manage competing priorities from its clients and the partners also had varying opinions on the level of performance provided.”

In summary

“This was a very ambitious venture. The service provided in some cases got off to an unfortunate start with the issues generated by SAP problems and relationships were strained and attracted much inside and outside attention.

“All parties have been working very hard to keep good relationships and to fix service issues as they arise. The sheer size and complexity of this contract has proven difficult to manage and future commissioning decisions will bear this in mind.

“Over the years officers running services that receive support from Southwest One have been surveyed regularly on how they feel the contract has been progressing. Despite all of the issues and lessons learnt outlined in this report, it is worth pointing out that many of the customer satisfaction and performance levels under the contract have been met by Southwest One.”

Comment

Well done to Somerset County Council’s Audit Committee and the Council’s auditors Grant Thornton for asking for the report. The South West One contract has been a costly embarrassment for IBM and the council. It has also had mixed results for Taunton Deane and the local police though officials in these two organisations seem locked into a “good news” culture and cannot admit it.

Perhaps the best thing to emerge from the IBM-led joint venture is this “lessons learnt” report. Without it, what would be the point of the millions lost and the damage to council services?

From contracts that don’t work out as expected, councils and central government departments rarely produce a “lessons” report , because nobody requires them to. Why should they bother, especially when it may be hard to get an internal consensus on what the lessons are, and especially when a report may mean admitting that mistakes were made when the contract was drawn up and signed.

Public sector organisations will sometimes do anything to avoid admitting they’ve made mistakes. Somerset County Council and its Audit Committee have shown they are different. Maybe the rest of the public sector will start to follow their example.

Dave Orr’s well-informed analysis of the lessons from Southwest One.