Capita to lose part of £1bn+ Service Birmingham contract?

By Tony Collins

Birmingham City Council is set to take back the “Revenues” – council tax – element of its Service Birmingham contract with Capita.

A report which went before a cabinet meeting on Tuesday said that decisions on the “proposed termination of the revenues element of the Service Birmingham contract” with Capita would be taken in the “private” – secret – part of the meeting.

One reason the discussions are in private is that even though the contract allows the council to take back services “at will”, this may still involve paying compensation to Capita,

In the open part of the meeting, the deputy leader said that bringing the revenues service back in-house will allow the council “greater flexibility” – which appears to mean lower costs.

It will require a change to the wider Service Birmingham contract under which Capita delivers Birmingham’s ICT services.

In particular, said the deputy leader, taking back the revenues service will avoid any need to invoke a formal “change control” within the contract. He didn’t say why the council was keen to avoid invoking the change control clause.

Taking back revenue services could mean up to 150 Capita staff returning to the direct employment of the council, according to theBusinessDesk.com.

Service Birmingham is a joint venture company run by Capita since 2006 in which the council owns a minority of shares. The contract, which mainly covers ICT services, ends in 2021.

In the first few years Capita received about £120m a year from the joint venture but the figure has come down to about £90m-£100m a year after much criticism of the cost of the contract.

Between 2006 and 2012, Service Birmingham paid Capita £994m. It’s unclear whether the payments have represented value for money for Birmingham’s residents.

The report for this week’s cabinet meeting said that since Capita took over revenue collection the government has introduced a number of local welfare reforms [related to Universal Credit] “which have resulted in the council wishing to deal with Revenues matters differently”.

Keen to retain the revenues work, Capita had suggested a revised service to the council but the report said, “These were considered and it was concluded that they did not meet the current requirements of the council.”

Taking back revenue collection could result in “savings” worth £10.5m between next year and 2020, according to theBusinessDesk.com.

The gradual introduction of Universal Credit means that the Department for Work and Pensions, rather than the council, will eventually handle housing benefit payments.

This would mean less work for the council and Service Birmingham.

Councillors were expected at yesterday’s meeting to confirm officer recommendations on terminating the revenues collection part of the Service Birmingham contract. The new arrangements are likely to come into effect from February 1, 2017

Capita says on the Service Birmingham website that it has transformed services and “realised savings of approximately £1bn”. Capita had introduced SMS texting to prompt council tax payments and reduce the need to issue paper reminders.

Overspend

Birmingham council has a serious overspend for 2016/17, estimated to be around £49m.

The Birmingham Independent Improvement Panel says, “The Council faces a mammoth task to prepare a balanced budget for 2017/18.  With very limited general reserves available, this potentially places at risk its future success.”

Lessons

In 2012 a “high-level” review of Service Birmingham by the Best Practice Group suggested that the deal had its successes but that trust and relationships might have been breaking down in some areas.

It said,

“BCC [Birmingham City Council] and SB [Service Birmingham] seemed to overcome early challenges in their relationship by having a ‘great common cause’. The Council entered into this relationship in 2006 because it had the foresight to realise it had to fundamentally transform how it operated in order to improve social outcomes for its population…

“Now the transformation has largely been successful and the initiatives are almost complete, the level of innovation seems to have stalled and the relationship has deteriorated. Somewhere in the fire-fighting, both BCC and SB have lost sight of the next ‘great common cause’ – the fact that the Council needs to further reduce the cost of ICT service delivery by £20m per annum. This will require some significant ‘outside the box’ thinking about how to achieve from both BCC and SB.”

The report said that some individuals within the council needed to understand better that Service Birmingham was not a social enterprise, a public sector mutual, or a charity, and needed “to make a significant return on its capital for its shareholders” amid a “significantly deteriorating financial position due to Government cutbacks.”

Best Practice Group also said that Capita reduced its charges when challenged

“There have been statements made by a number of the officers in the Council that SB drops its prices when challenged, especially when the Council has investigated alternative industry offerings. SB have suggested that it is only when the challenge arises that initial data is clarified and therefore, more focused pricing can be provided.”

Trust

There was – at that time – a “general lack of commercial trust between the parties and the fact that BCC have shown that SB have reported some data incorrectly (after discussion around interpretation), means that the KPIs are not fully aligned to the business outcomes BCC now needs to achieve in the current financial climate”.

The report reached no firm conclusions on value for money but questioned whether Service Birmingham was “significantly more expensive” in some technology areas.

Comment

Birmingham City Council expects to make “savings” by bringing the revenues collection service back in-house.

If the new savings are added to the claimed £1bn savings originally predicted for the Service Birmingham joint venture, are the actual savings more or less what the council could have saved if it carried on supplying ICT in-house, without helping to keep Caita’s shareholders happy?

In fact the word “savings” has been largely discredited when used in connection with large council outsourcing deals and joint ventures.

In the absence of published and audited savings figures, council reports can interpret the word “savings” to mean almost anything.

The unfortunate truth, as observers of Barnet Council’s deal with Capita have discovered, is that local residents who fund joint ventures and outsourcing deals, have no idea whether their councillors end up paying far too much for IT and other services.

Hide

Birmingham Council this week discussed a major revision to the Service Birmingham contract in secret, which raises a wider point.

Commercial confidentiality means that councils and suppliers can hide behind the contract when things go wrong. Indeed all parties to the contract have an interest in not telling the public about anything that goes wrong.

Exactly what is going on with Service Birmingham nobody knows – outside the council’s inner circle of officers and ruling councillors.  Could the contract be costing too much but the cancellation fees are too high to make cancellation worthwhile?

How many of the councillors who were involved in the signing of the original deal will care if it ends up costing a fortune?

The ruling councillors in 2006 are highly unlikely to be the ruling councillors in 2016.

Councils have the power to make the wrong decisions in private and local residents have no options but to pay for those decisions; and when, many years later, councillors want to discuss a major revision to the contract, which could involve paying compensation on the basis of further promised savings, they have the power to go into private session again.

Those who have no right to know what’s going wrong are the captive council tax payers – those who fund the council’s decisions on the basis of never-ending promises of “savings” – savings that are rarely if ever independently verified as having been achieved.

The system could work well if big decisions were taken in public view.

ICT suppliers are not always obsessed with secrecy. They tend to want only very specific details kept secret. Ian Watmore, former head of Accenture, later government chief information officer and the first Civil Service Commissioner, has been a notable advocate of public sector openness.

But council officers and ruling councillors usually want to have all discussions about outsourcing deals in private – largely because life is simpler without accountability.

It’s not a political matter. Birmingham council is staunchly labour but it was a coalition of Conservatives and Lib-dems that set up Service Birmingham in 2006.

In the same way as the government imposed openness on local councils, so new laws or government guidelines could force councils to be open on big decision and major revisions to contracts.

There again, if council tax payers knew in advance the whole truth about the likely full-term costs and speculative benefits of a major IT-based outsourcing deal or joint venture, would such a public-private partnership deal ever be signed?

Update 11.05 17 November 2016

Barnet Council has this week published a report on “£31” savings from its contract with Capita, alongside “increased resident satisfaction”. Barnet outsourced IT,  HR, a call centre and other services in 2013 in a 10-year contract. The Barnet report will be the subject of a separate post on Campaign4Change.

Birmingham set to pull out of [part of] Capita joint venture in revenues collection overhaul.