Too easy for councils to make up savings for IT outsourcing?

By Tony Collins

Birmingham City Council, Barnet Council and Somerset County Council have in common outsourcing deals that are subject to effective, independent scrutiny.

That scrutiny comes from bloggers and a former council IT employee. Their unpaid commitment continues for years. They are energetic, tenacious, local citizens with strong social consciences who look closely at what their local officials and councillors say in public about the benefits of their outsourcing contracts.

What they have found out shows that official claims for savings from IT-based outsourcing deals are based on subjective interpretations of council-supplied information. Interpreted differently, the same facts and figures could show the success of the contract – or the opposite.

This is usually because the council-supplied information raises questions that it does not always answer.

In the published costs of the outsourcing deal what is not included? Charges and mark-ups for items the outsourcer buys from other suppliers? Are redundancy payments taken into account? Are the costs of consultants and agency staff taken into account? Are the costs included of hiring a company to handle work that would otherwise present the potential for a conflict of interest if handled by the outsourcer Capita – as has happened at Barnet?

And what assumptions have council and supplier made about profit sharing? Somerset County Council concedes it has had endless arguments with IBM over what should be included and excluded when calculating the profit sharing in their joint venture.

Some of the uncertainties in working out savings from a big IT-based outsourcing contract are set out in an  email from Somerset County Council to an investigative and campaigning former IT employee Dave Orr:

“Since internalising the service, we have revised our working arrangements within the procurement service as many of the reports and practices performed by SWO [Southwest One, owned by IBM] were not satisfactory.”

Orr elicited this admission by Somerset County Council on the extent to which savings figures can be the subject of  dispute:

“Over the years there were disputes on individual savings initiatives and therefore also on the overall total that qualified towards the threshold. That dispute escalated to the courts and was settled before a full hearing.

“Along the way, for 6 years, a running total was kept by both sides as to how much they thought savings were and these were reported to various committees of the Council (and indeed to other authorities’ committees too).

“The agreed savings (where there was no dispute) and the value of savings believed to be achievable by SCC were fed into the Council’s budget process and reduced the overall need for budget pressures within services. Again, this is as per guidance in SERCOP and was reported to Scrutiny and Full Council meetings as councillors regularly asked what was happening with regard to savings realised.”

A murky pond

Those who support an outsourcing deal can fish facts and figures from a pond of numbers that show huge savings, while critics of the deal can fish in the same pool and show that payments to outsourcers are excessive.

Establishing the truth about the success or otherwise of a complex outsourcing deal can be impossible – because the truth may be subject to variables and interpretations.

At least, though, the independent scrutineers bring into the open facts and figures that would otherwise be unnoticed. And they hold officials and councillors to account in a way that internal auditors – who answer to the council – don’t always do.

Birmingham

For the Birmingham Post, Professor David Bailey of the Aston Business School writes regularly on the cost to the city council of Service Birmingham, which is two-thirds owned by Capita, the rest by the council.

SB was set up in April 2006 “to support the council in changing the way it works, using information communications technology to pave the way”.

Bailey gives detailed arguments for his belief that the council is making excessive payments to Service Birmingham. He questions the council’s claims that terminating the contract would be uneconomic.  Too much information is withheld by the council under the guise of commercial confidentiality, he says.

His columns go some way to countering the secrecy; he gives Birmingham’s residents a chance to see figures the council would probably not want exposed in an easy-to-understand context.

One of his latest blog posts says that Birmingham City Council paid Service Birmingham £102m in 2013 – of which £23m went in dividend payments and £5m in taxes.

“So that’s £28m that went out of the council in 2013 that could have been avoided if Service Birmingham had been scrapped,” says Bailey.

Barnet

Mrs Angry [Theresa Musgrove] is a much-respected blogger who writes the “Broken Barnet” blog, in part about Capita’s outsourcing contracts with the London Borough of Barnet.

She calls the borough “Capitaville”. Under the banner of “One Barnet” Capita runs a range of services from IT to cemeteries (and has produced a produced a business document for the council on the “opportunities” from making funerals more efficient).

Her blog posts are humourous, passionate and full of informed comment. She attends some council meetings and asks awkward questions that are often obliquely answered, if at all. She shows what happens when the council’s attempts to be open meet reality.

Barnet Council is lucky enough to have several effective scrutineers of the Capita contracts including “Mr Reasonable” who wrote in September that Barnet paid Capita £59m in 2013/2014 – compared to £53m which he says the services cost before outsourcing.

Does Barnet know what it is doing? Not according to the bloggers who, as well as Mrs Angry and Mr Reasonable, include The Barnet Eye and Mr Mustard. The Barnet Alliance is also a useful campaigning website.

Somerset 

Like the bloggers at Barnet and David Bailey at Birmingham, Dave Orr is not put off by unsubstantiated, vague or impenetrable council claims on outsourcing savings. A former IT employee at Somerset County Council, Orr has followed closely the authority’s joint venture with IBM-owned Southwest One.

He has objected formally to the council’s 2013/14 accounts, with the result that Somerset’s  officers and its auditors Grant Thornton in essence have negotiated to persuade him to withdraw his objection.

Orr agreed to withdraw his 0bjection on condition that:

–   2013/14 procurement savings figures are publicly published

– future years’ procurement savings figures are publicly published

The council agreed to the changes.

Comment

When interpretations of the known facts are optimistic,  proclaimed savings from IT-based outsourcing deals can seem large. When interpreted coldly or sceptically, the same facts may suggest there are no savings at all.

The truth may be that the council has no real idea whether costs are lower or higher than before given that the costs at the point of outsourcing were complex and uncertain and subject to an interpretation of the facts.

As Somerset council suggests: some lower costs can be cancelled out by reducing an overspend elsewhere.

It seems that big council IT-based outsourcing deals are like GPS systems which have parts of the map missing and the “my location” designation is never very close to where it actually is – while the supplier and council officials who are enthusiasts of the deal can claim without fear of authoritative contradiction that the facts are 100% certain and the savings are guaranteed.

The Barnet and Birmingham bloggers, and Dave Orr, have forced councils to be more open than they would otherwise be but there is still too much secrecy, especially at Birmingham and Barnet.

Can council officials and councillors always self-justify their decision to outsource IT and other services in a major long-term contract? Yes – always.

Can the critics credibly show that the outsourced service costs more than claimed, or that the savings are less than the council could have made itself if it didn’t have to pay the supplier’s profits?

The critics usually produce more credible arguments than the unnecessarily complicated and sometimes obfuscatory arguments of the council’s outsourcing enthusiasts.

Update:

Such are the bizarre complexities around council outsourcing deals and the claimed potential savings that a new trend is emerging: councils claiming savings by bringing IT-based outsourced deals back in-house.

This happened at Somerset and now Liverpool Council, which is full of praise for BT , is nevertheless scrapping its “Liverpool Direct” joint venture with the company. The Council is taking ownership of Liverpool Direct from BT.

The move will save  £30m over three years, as reported by Computerworld UK.

A Liverpool Council report on the savings says:

“Following the transfer of ownership, it is anticipated that the integration
of services from Liverpool Direct Limited to Liverpool City Council will deliver budget savings over a 3 year period from 2014-2017 totalling £30m.

“This delivers the best value option for Liverpool City Council, reflecting an
internal service delivery model with no further investment requirement
from BT and hence no return needing to be paid to BT for such
investment.”

Achievements

Service Birmingham lists its achievements here.

Barnet says its Capita contracts “will save £165m”

Southwest One – delivering value

BT and Liverpool Council’s “Liverpool Direct” delivers “growth and success”.

Should Liverpool Council smile now it’s ending joint venture with BT?

Liverpool Council expects to save £30m by ending joint venture with BT