Why are councils hiding exit costs of outsourcing deals – embarrassment perhaps?

Tony Collins

Excerpt from Taunton Deane council’s confidential “pink pages”.
The last sentence contains a warning that IBM-owned SWO – Southwest One – may try to “maximise revenues” on exiting its joint venture with the council.

Somerset County Council has refused a Freedom of Information request for the costs of exiting its joint venture with IBM.

But a secret report written last year by officers at Taunton Deane Borough Council – which was a party to the IBM-owned joint venture company Southwest One  – warned that the supplier could attempt to “maximise revenues on exit”.

It said,

“… from experience anything slightly ambiguous within the contract is likely to be challenged by SWO [Southwest One] in order to push it into the chargeable category as they attempt to maximise revenues on exit”.

A separate section of the confidential report said,

“disaggregating from the SWO [Southwest One] contract will be complex and expensive …”

Taunton Deane Borough Council did not tell councillors what the exit turned out to be. The figures are also being kept secret by Somerset County Council which signed the “transformative” SWO joint venture deal with IBM in 2007.

Both councils have now brought back services in-house.

Secrecy over the exit costs is in contrast to Somerset’s willingness to talk in public about the potential savings when local television news covered the setting up of Southwest One in 2007.

The silence will fuel some local suspicions that exit costs have proved considerable and will have contributed to the justifications for Somerset’s large council tax rise this year.

£69m losses?

David Orr, a former Somerset County Council IT employee, has followed closely the costs of the joint venture, and particularly its SAP-based “transformation.

It was his FOI request for details of the exit costs that the council refused.

Orr says that Somerset has lost money as a result of the Southwest One deal. Instead of saving £180m, the joint venture has cost the council £69m, he says.

FOI

Under the Freedom of Information Act, Orr asked Somerset for the “total contract termination costs” including legal, consultancy, negotiation, asset valuations, audit and extra staffing.

He also asked whether IBM was paid compensation for early termination of the Southwest One contract. In replying, the council said,

“The Authority exited from a significant contract with Southwest One early, and the services delivered through this contract were brought back in-house in November 2016.

“The Authority expects the costs to fall significantly now it has regained control of those services.

“Somerset County Council made payment under the ‘Termination for Convenience’ provisions of the original contract. We do hold further information but will not be releasing it at this point as we believe to do so would damage the commercial interests of the County Council, in that it would prejudice the our negotiating position in future contract termination agreements in that it would give contractors details on what terms the Council was willing to settle …”

Orr will appeal. He says the Information Commissioner has already established a principle with Suffolk Coastal District Council that the termination costs of a contract with a third party should be disclosed. The commissioner told Suffolk Coastal council that, in opting out of FOI,

“there is no exemption for embarrassment”

Hidden costs

Taunton’s pink pages paper said that the Southwest One contract’s Exit Management Plan provided for a smooth transfer of services and data, and for access to staff to assess skills and do due diligence.

In practice, though, there were many exit-related complications and costs – potential and actual. The paper warned that Taunton would need to find the money for:

• Exit programme and project management costs
• Early termination fees
• Contingency
• ICT infrastructure disaggregation
• Service transition and accommodation costs
• Disaggregating SAP from Southwest One. Also the council would need to exit its SAP-based shared services with Somerset County Council because the estimated costs were lower when run on a non shared services basis. SAP covered finance, procurement, HR, payroll, website and customer relationship management.
• Costs involved in a “soft” or “hard” (adversarial) exit.
• Estimating council exit costs when IBM was keeping secret its own Southwest One running costs.
• Staff transfer issues.

Comment

So much for open government. It tends to apply when disclosures will not embarrass local government officials.

In 2007 Somerset County Council enjoyed local TV, radio and newspaper coverage of the new joint venture with IBM. Officials spoke proudly on camera of the benefits for local taxpayers, particularly the huge savings.

Now, ten years later, the losses are stacking up. Former Somerset IT employee and FOI campaigner Dave Orr puts the losses at £69m. And local officials are keeping secret the further exit costs.

Suffolk Coastal District Council lost an FOI case to withhold details of how much it paid in compensation to a third party contractor to terminate a contract. But at least it had published its other exit costs.

Somerset is more secretive. It is withholding details of the sums it paid to IBM in compensation for ending the joint venture early; it also refuses to publish its other exit costs.

Trust?

Can anything said by councils such as Somerset or Barnet in support of major outsourcing/joint venture deals be trusted if the claimed savings figures are not audited and the other side of the story – the hidden costs – are, well, hidden?

In local elections, residents choose councillors but they have no say over the appointment of the permanent officials. It’s the officials who decide when to refuse FOI requests; and they usually decide whether the council will tell only one side of the story when public statements are made on outsourcing/joint ventures.

Across the UK, local councils employed 3,400 press and communications staff –  about double the total number in central government – in part to promote the authorities’ services and activities.

What’s the point if they publicise only one side of the story – the benefits and not the costs?

Somerset’s decision to refuse Orr’s reasonable FOI request makes, in its own small way, a mockery of open government.

It also gives just cause for Somerset residents to be sceptical about any council statement on the benefits of its services and activities.