Barnet Council claims £31m savings with Capita – and not an auditor in sight.

By Tony Collins

capita

It’s commendable that Barnet Council has published much material on its three-year review of a £322m 10-year outsourcing contract with Capita.

More than a dozen council reports and appendices cover every aspect of the contract.

The quantity of material seems, on the face of it, to answer critics of the outsourcing deal, among them local bloggers, who have pointed to the lack of reliable evidence of the savings achieved. The suspicion is that costs have increased and council services including ICT have deteriorated since Capita took over in 2013.

Now the council has ostensibly proved that the opposite is the case. Barnet’s press release says,

Barnet Council and Capita contract delivers £31m savings

“A review of a contract between Barnet Council and Capita has demonstrated it is delivering significant benefits to the borough with overall savings of £31 million achieved alongside increased resident satisfaction…

“In terms of satisfaction with services provided, the review, showed 76 per cent of residents were satisfied with the outward-facing customer services, up from 52 per cent before the contract was established.

“This increase was even more significant in respect of face to face services, as 96 per cent of residents who engaged with the council in this way said they were satisfied compared with a previous 35 per cent.

“The review also showed that the cost of delivering the bundle of services provided in the contract is now £6m a year less than before the contract was signed and that 90 per cent of the contract’s key performance indicators being met or exceeded.”

The press release quotes two leaders of the council saying how pleased they were with the contract. Capita calls it a “positive review”.

The review has various mentions of items of additional spending including £9m on ICT and it’s not clear whether the extra sums are taken into account in the savings figures.

Among the review’s suggestions is that the council pay Capita’s annual management fee of £25m up front – a year in advance – instead of every quarter in return for extra savings.

The review also raises the possibility of extending the contract beyond the 10 years in return for additional savings. Capita is “keen” to explore this suggestion (though it could tie the hands of a future council administration).

The review reports were compiled by council officers who reported to a working group of Tory and Labour councillors, under a much-respected Tory chairman. By a small margin, Conservatives run the council.

Lack of independent challenge?

It’s unclear why the council did not commission its audit committee, or auditors, to review the contract. In the past the audit committee has been critical of some aspects of the contract.

For this reason the reports are unlikely to silence critics of Barnet’s outsourcing deal. Council officers compiled the review’s findings, not auditors.

As a result, despite the volume of published written material, there is no evidence that the figures for savings have been independently verified as accurate.

Neither is there independent verification of the methods used by officers for obtaining the figures.

Further, some observers may question the positive tone of the review findings. The “good news” tone may be said to be at odds with the factual neutrality of, say, reports of the National Audit Office.

There are also questions about whether the council is providing enough effective challenge to Capita’s decisions and figures.

At a council committee meeting in November 2016 to discuss the review reports, the most informed challenges to the findings appear to have come not from Barnet councillors but two local bloggers, Mrs Angry and Mr Reasonable, who questioned whether the claimed savings could be more than wiped out by additional spending – including an extra £9m on ICT. They appear to have received no clear answers.

Concerns of some officials

The body of the review reports outline some of the concerns of staff and directors. Mrs Angry quotes some of the concerns from the review reports:

“Transparency of costs, additional charges and project spend were raised as key concerns. It was felt that CSG [Barnet’s Customer and Support Group, for which Capita is responsible] are often reluctant to go above and beyond the requirements of the contract without additional charges.

“Directors reported that the council needs to be more confident that solutions suggested by CSG, particularly for projects and capital spend are best value.

“Concerns were raised that CSG has a disproportionate focus on the delivery of process and KPIs over outcomes, creating a more contractual rather than partnership relationship between CSG and the council. Directors noted that many KPIs are not relevant and their reporting does not reflect actual service performance.”

The Capita contract began in September 2013, under which it provides finance, ICT, HR, Customer Services, Revenues and Benefits, Procurement, Estates and Corporate Programmes.

Comment

On the face of it, Barnet Council’s review of the Capita contract looks comprehensive and impressively detailed.

Looked at closely it’s disappointing – a wasted opportunity.

Had the council wanted the review’s findings to be widely believed, it would have made it uncompromisingly independent, in line with reports by the National Audit Office.

As it is, the review was carried out by council officers who reported to a working group of councillors. The working group comprised Labour as well as Tory councillors but the facts and figures were compiled by officers.

Nearly every page of every Barnet review report has a “good news” feel. There’s an impression that negative findings are played down.

Example:

“It should be noted that the failure to meet the target for KPI 30 related to one quarter only [my italics] and discussions are continuing regarding the application of the above service credit.”

Some negative findings are immediately countered by positive statements:

“CIPFA benchmarking data shows that the cost of the ICT service is slightly above the median, but below upper quartile in terms of the cost of the service as a percentage of organisational running costs.”

Another example of a negative finding immediately countered by a positive one, which may be said to be one hallmark of a non-independent report:

“One key area of concern in terms of overall performance is internal customer satisfaction… Survey results in respect of the financial year 2015/16 were universally poor, with all services failing to meet the target of upper quartile customer satisfaction. As a result, service credits to a total value of £116k have been applied in respect of these KPIs.

“To some extent, a degree of dissatisfaction amongst internal service users is to be expected, given the fact that cost reductions have been achieved to a large extent through increased self-service for both managers and staff, along with more restrictive processes and controls over things like the payment of invoices and the appointment of staff.

“Despite the survey outcomes indicating a low level of satisfaction, the interviews conducted with staff and managers as part of this Review suggest that services are generally considered to be improving.”

Integra ERP financial system a “success” – ?

The review report describes Capita’s introduction of the Integra financial system as “successful”. Elsewhere, however, it says,

“Many users raised issues with the Integra finance system, describing it as clunky and not user-friendly or intuitive.”

Double counting?

There’s no evidence that savings figures have been checked for possible inadvertent double counting on overlapping services. Double counting of savings is regularly found in National Audit Office reports.

“There are no standardised way for departments to evidence the reductions in ongoing expenditure,” said the National Audit Office in a report on Cabinet Office savings in July 2014. “Departments provided poor evidence, and double counting was highly likely as projects reduced staff or estates requirements.”

In a separate report on claimed savings in central government, the National Audit Office quoted the findings of an internal audit …

“A number of errors (instances where the evidence did not support the assertion) were found during our review and total adjusted accordingly … In addition, a number of savings were double counted with other savings categories and these have now been removed…

“We assessed some £200m of other savings as Red because they were double counted due to the same savings having been claimed by different units or, for example, because savings on staff were also claimed through reductions in average case costs.”

Omitted costs?

The omission of relevant costs could skew savings figures. It’s unclear from Barnet’s review reports whether extra spending of millions of pounds on, for example, ICT have been taken into account. Barnet blogger Mr Reasonable, who has a business background, raises the question of whether £65m of additional spending has been taken into account in the savings figures.

Reverse Sir Humphrey phenomenon?

The biggest single flaw in the review reports is that they appear worded to please the councillors who made the decision to outsource – the reverse of the “Sir Humphrey” caricature. The positive tone of Barnet’s reports implies that officers are – naturally – deferring to their political leaders.

In a BBC Radio 4 documentary on Whitehall, former minister Peter Lilley talked about how some officials spend part of their working lives trying to please their political leaders.

“Officials are trying to work out how to interpret and apply policy in line with what the minister’s views on the policy is …. They can only take their minister’s written or spoken word for it and that has a ripple effect on the department far greater than you imagine… Making speeches is the official policy of the department and that creates action.”

Another former minister Francis Maude told the BBC he found that too few officials were willing to say anything the minister did not want to hear.

“The way it should work is for civil servants give very candid well informed advice to ministers about what it is ministers want to do – the risks and difficulties,” said Maude. “My experience this time round in government, 20 years on from when I was previously government, is that the civil service was much less ready to do that.

“There were brilliant civil servants who were perfectly ready to tell you things that they thought you might not want to hear but there were too few of them.”

Barnet’s reviewing officers might have been dispassionately independent in reporting their findings and double checking the supplied figures – but who can tell without any expert independent assessment of the review?

The US Sabanes-Oxley Act, which the Bush administration introduced after a series of financial scandals, defines what is meant by an “independent” audit. The Act prohibits auditing by anyone who has been involved in a management function or provided expert services for the organisation being audited.

That would disqualify every Barnet officer from being involved in an independent audit of their own council’s contract with Capita.

The Act also says that the auditor must not have been an employee of the organisation being audited. Again that would disqualify every Barnet officer from an independent audit of their own council’s contract.

Review a waste of time and money?

It would be wrong to imply that the review is a pointless exercise. It identifies what works well and what doesn’t. It will help officers negotiate changes to the contract and to key performance indicators. For example it’s of little value having a KPI to answer phone calls within 60 seconds if the operator is unable to help the caller.

What the review does not provide is proof of the claimed savings. Barnet’s press release announcing savings of £31m is just that – a press release. It does not pretend to be politically neutral.

But without independent evidence of the claimed savings, it’s impossible for the disinterested observer to say that the Capita contract so far has been a success. Neither does evidence exist it has failed.

Capita share price at 10-year low

What is clear is that fixing some of the more serious problems identified in the report, such as obsolescent IT, will not be easy given the conflict between the continuing need for savings and Capita’s pressing need to improve the value of its business for shareholders, against a backdrop of difficulties on a number of its major contracts [Transport for London, Co-op Bank, NHS] and a share price that was yesterday [30 November 2016] at a ten-year low.

The review also raises a wider question: are most of a council’s busy councillors who come to council meetings in their free time equipped to read through and digest a succession of detailed reports on the three-year interim results of a complex outsourcing contract?

If they do glance through them, will they have enough of a close interest in the subject, and a good understanding of it,  to provide effective challenge to council officers and their political leaders?

If nothing else, the Barnet review shows that councillors in general cannot provide proper accountability on an outsourcing contract as complex as Capita’s deal with Barnet.

Either council tax payers have to put their faith in officers, irrespective of the obvious pressure for officialdom to tell its political leaders what they want to hear, or council taxpayers can put their faith in an independent audit.

Barnet Council has not given its residents any choice.

It’s a pity that when it comes to claimed savings of £31m there’s not an auditor in sight.

Barnet declares its contract a success – Barnet and Whetstone Press

Mr Reasonable – important questions on the Capita review

Mrs Angry – who writes compellingly on the council meeting where the review reports were discussed.

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6 responses to “Barnet Council claims £31m savings with Capita – and not an auditor in sight.

  1. Watch out for using an old pre-austerity baseline for unitary charges to outsourcers and creating “virtual savings”.

    Taunton Deane Borough Council (TDBC) were also in South West One and claim the deal for them was better than Somerset County Council and they have genuine net savings of £2.9m over 10 years.

    However, these figures, as in Barnet, are calculated by Officers (working to a political brief to show success) without an independent audit and with the key underlying figures withheld via a confidential Appendix and therefore beyond public or independent verification.

    The Unitary charge is based upon the pre-austerity 2007 budgets.

    Had the IT and other back office services remained in-house then for the 5 years from 2010/11 they would have been cut by an average 40%, as the Government cut grants hugely to all Councils and the number of staff employed by Councils requiring back office services fell (by 40-50% on average).

    Most Councils prioritised some protection from cuts to frontline and statutory services over back office services.

    Ironically, South West One protected back office services through an inflexible 10-year contract at the expense of supporting key frontline services – the opposite of its stated purpose on creation!

    However, IT and back office services unitary charge payments were “fossilised” in South West One at the pre-austerity 2007 budget levels and could not be cut in line with the savage cuts in grant by Government.

    The formula in TDBC was that each year the unitary charge to South West One went up by the higher RPI measure of inflation then a 2.5% savings was returned by South West One. These are extremely modest annual savings targets that any internal management team should be able to make.

    So, during the 5 years of austerity from 2010/11, TDBC received net annual savings of around 1.5% making 7.5% of “virtual savings” over the 5 years.

    Had these back office services remained in-house for those same 5 years, then cumulative cuts of 40% would, on average, been applied instead of “virtual savings” of 7.5%.

    So, TDBC are claiming “virtual savings” of 7.5% when, with an updated 2010/11 baseline, the South West One unitary charge payments remained 32.5% higher than they should have been!

    Looking at this another way, TDBC paid the same unitary charge for back office services to a workforce that HALVED in size from 2007!

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    • The figures you’ve obtained – and set out clearly – show that when a council outsources back office services such as IT, the savings can be a lot less than if the same services had stayed in-house.

      Yet councillors and officers continue to issue press releases on (unaudited) outsourcing “savings”.

      Maybe some councils, when proclaiming the success of their IT-based outsourcing deals, have a sense of humour. Do they think it would be fun for their PR people to believe, at times, that they’re working for Orwell’s Ministry of Truth? Tony Collins

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  2. Ironically, today is the day that in Somerset County Council the IT Service (and all remaining services) return back in-house from the ill-fated joint venture with IBM called SouthWest One,

    Former Somerset County Council UNISON Branch Sec and now UNITE Branch Sec Nigel Behan has assiduously (with myself) collected all the figures published to work out true NET savings.

    That involves counting all the costs against validated GROSS savings claims and then NETTING those down to true NET avings.

    To do that required a 9-year tenacious commitment with dogged follow up by;

    – tracking every Audit Committee report on contract benefits realisation;
    – inspecting the accounts every year in the open period and obtaining information during the open accounts period (a powerful legislative tool);
    – checking progress of loan repayments and interest;
    – checking published spend data;
    – making rounds of Freedom of Information (FOI) requests with appeals to the Information Commissioner’s Officer (to force disclosure where evasion or refusal was encountered outside of the FOI Act);
    – checking budget out-turn and Medium Term budgeting reports;
    – attending relevant Audit Committees and asking public questions;
    – attending Full Council and putting statements on the public record etc

    Tony Collins is absolutely right to treat this in-house Officer-produced report as “UNAUDITED” and NOT independenti.e. SPIN!

    We don’t allow schools and hospitals to mark their own homework and grade themselves so why are Councils allowed to get away with this?

    Apart from double counting, “Good News” Councils, in our experience, will ignore some or all overheads and costs:

    – all the considerable costs of getting into contract and then managing it;
    – the considerable upfront ERP costs;
    – interest on loans;
    – impact of RPI inflation annual uplift on unitary charges during staff pay freezes or 1% pay caps etc.

    Another biggie is that staffing in Councils has fallen at least 40% since 2010, so per seat IT costs would have fallen significantly IF the IT Service was in-house.

    Will the contract and internal client management team flex the old baseline on contact entry for periodic updating as a valid and up to date baseline comparator? Not usually.

    Instead, unitary charges are fixed over a long period, so do not follow real world events readily.

    Who in 2005-07 (during tender for Southwest One) predicted the banking crisis in 2008-09 and the ensuing austerity and cuts? No-one.

    Long term “big bang” contracts are doomed to fail or underperform as no-one can predict events over 10 years.

    Here is a BBC Points West video on exactly that issue in Somerset (with IBM in South West One):

    The known and updated losses from this failed contract with IBM for Southwest One are now (conservatively) around £70m.

    You also get good examples in IT of potential double charging i.e. the unitary charge came from the in-house IT budget which allowed for 3-5 year updates of IT equipment and software licenses but the contractor bills for them during the contract, so effectively you pay twice over (if you don’t understand the baseline comparator and what should be included in the annual unitary charge or, as in Somerset, have no-one with IT knowledge in the Client Team for the first 4 years).

    Without up to date and accurate IT Asset Registers, the contractor can run down the IT estate towards the end of the contract requiring significant reinvestment (£4m of IT investment here in Somerset at contract end).

    Typically, the contractor will renew the IT estate on the contract extension and the Officers will claim that the new contract they negotiated has £ many millions of new IT, when in fact, the IT estate has been run down by the contractor and should not have required such a big investment.

    It is a shame that Opposition Councillors (who have all usually voted for the original deal) sit on these tame Panels and give these dubious reports an all party gloss of pseudo-respectability.

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  3. Hi Tony, Thanks for shedding more light on this. The review process is contractual so it had to be undertaken. I asked for the process to be held in public, but as is always the case the Conservative Councillors held all but one meeting in private as they felt they couldn’t be open and direct if members of the public were present. I gave evidence to the committee at the open evidence session http://barnet.moderngov.co.uk/documents/s36001/Appendix%20B%20-%20additional%20public%20submission.pdf which illustrates that, for example, on call answering some departments never meet the KPI target but by amalgamating with the virtual assistant calls (an automated voice activated service which always gets 100% on the KPI) they can hit their target. Just as a footnote bloggers get paid nothing unlike councillors who receive £10,597 allowance plus an additional £15,333 special responsibility for the committee chairman.

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    • Thank you for the comment. It’s amazing that councillors receive so much more than their expenses when they provide so little challenge, at least in terms of IT-related contracts. It seems to me that doggedly concerned local observers – you, Dave Orr and Mrs Angry among them – often do far more for the public weal – at zero cost – than the general body of well-paid councillors. Tony Collins.

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