Category Archives: Barnet Council

Are you happy paying to help with problem Capita contract?

By Tony Collins

This week, as Barnet residents go to the polls, how many will be influenced by the continuing national and local media coverage of the council’s mass outsourcing deal with Capita?

Barnet’s Capita contracts are a local election issue. The council’s conservatives and Capita say the outsourcing contracts have saved money and are performing as expected “in many areas”.

But a former local Tory councillor Sury Khatri , who has been deselected after criticising the Capita contract, described the deal as “disastrous”. Barnet has paid Capita £327m since the deals were signed in 2013. Capita runs council services that range from cemeteries to IT.

Councillor Khatri said,  “My time at the council has been overshadowed by the disastrous Capita contract that is falling apart at the seams. Four years on, issues still keep rolling out of the woodwork. This contract represents poor value for money, and the residents are being fleeced.”

Another critic of the Capita contracts is John Dix who blogs as “Mr Reasonable” and is one of several highly respected local bloggers. He has been studying the council’s accounts for some years. He runs a small business and is comfortable with accounts and balance sheets.

He writes,

“I have no problem with outsourcing so long as it is being done for the right reasons. Typically this is where it involves very specialist, non core activities where technical expertise may be difficult to secure and retain in house.

“In Barnet’s case this outsourcing programme covered so many services which were core to the running of the council and which in 2010 were rated as 4 star (good). Barnet has been an experiment in mass outsourcing and almost five years in, it appears to be a failure.

“Last night’s [19 April 2018] audit committee was a litany of service problems, system failures, lack of controls, under performance, a major fraud. Internal audit saying issues were a problem, Capita saying they weren’t.”

Shadow Chancellor John McDonnell has entered the debate. He has applauded Barnet’s Unison branch for its enduring, close scrutiny of the Capita contracts. Unison this week published a report on the deal.

Capita’s share price rises

Earlier this month the national press reported extensively on concerns that Capita would follow Carillion into liquidation.

Since the bad publicity, the company’s announcement of a pre-tax loss of £535m, up from £90m the previous year, £1.2bn of debt and a rights issue to raise £662m after fees by selling new shares at a discount, Capita’s share price has risen steadily, from a low a month ago of about 130p to about 191 yesterday.

Could it be that investors sense that Capita’s long-term future is secure: the company has a wide range of complex and impenetrable public sector contracts where history shows that public sector clients – ruling politicians and officials – will defend Capita more enthusiastically than Capita itself, whatever the facts?

A list of some of Capita’s problem contracts is below the comment.

Comment

Carillion, a facilities management and construction company, collapsed in part because the effects of its failures were usually obvious: it was desperately short of money and new roads and hospitals were left unfinished.

When IT-based outsourcing deals go wrong, the effects are usually more nuanced. Losses can be hidden in balance sheets that can be interpreted in different ways; and when clients’ employees go unpaid, or the army’s Defence Recruiting System has glitches or medical records are lost, the problems will almost always be officially described as teething even if, as in Capita’s NHS contracts, they last for years.

It is spin that rules and protects IT outsourcing contracts in the public sector. Spin hides what’s really going on. It is as integral as projected savings and key performance indicators.

When Somerset County Council signed a mass outsourcing deal with IBM, its ruling councillors boasted of huge savings. When the deal went wrong and was ended early after a legal dispute with IBM the council announced that bringing the deal in-house would bring large savings: savings either way. Liverpool council said the same thing when it outsourced to BT – setting up a joint venture called Liverpool Direct – and brought services back-in house: savings each time.

Barnet Council is still claiming savings while the council’s auditors are struggling to find them.

Spinmeisters know there is rarely any such thing as a failed public sector IT contract: the worst failures are simply in transition from failure to success. Barnet’s council taxpayers will never know the full truth, whoever is in power.

Even when a council goes bust, the truth is disputed. Critics of spending at Northamptonshire County Council, which has gone bust, blame secretive and dysfunctional management. Officials, ruling councillors and even the National Audit Office blame underfunding.

In March The Times reported that Northamptonshire had paid almost £1m to a consultancy owned by its former chief executive. It also reported that the council’s former director of people, transformation and transactions for services, was re-hired on a one-year contract that made her company £185,000 within days of being made redundant in 2016.  Her firm was awarded a £650-a-day IT contract that was not advertised.

In the same month, the National Audit Office put Northamptonshire’s difficulties down to underfunding. It conceded that the “precise causes of Northamptonshire’s financial difficulties are not as yet clear”.

Perhaps it’s only investors in Capita who will really know the truth: that the full truth on complex public sector contracts in which IT is central will rarely, if ever, emerge; and although Capita has internal accountability for failures – bonuses, the share price and jobs can be affected – there is no reason for anyone in the public sector to fear failure. No jobs are ever affected. Why not sign a few more big outsourcing deals, for good or ill?

Thank you to FOI campaigners David Orr and Andrew Rowson for information that helped me write this post.

Some of Capita’s problem contracts

There is no definitive list of Capita’s problem contracts. Indeed the Institute for Government’s Associate Director Nick Davies says that poor quality of contract data means the government “doesn’t have a clear picture of who it is buying from and what it is buying”. Here, nevertheless, is a list of some of Capita’s problem contracts in the public sector:

Barnet Council

A Capita spokesperson said: “The partnership between Capita and Barnet Council is performing as expected in many areas. We continue to work closely with the council to make service enhancements as required.”

Birmingham City Council

“The new deal will deliver a mix of services currently provided under the joint venture, plus project based work aimed at providing extra savings, with forecasts of £10 million of savings in the current financial year and £43 million by 2020-21.”

West Sussex County Council

A spokesman said, “Whatever your concerns and small hiccups along the way, I believe this contract has been and will continue to be of great benefit to this county council.”

Hounslow Council

A Capita spokesperson said: “We are working closely with the London Borough of Hounslow to ensure a smooth transition of the pensions administration service to a new provider.”

Breckland Council

“They concluded that planning officers, working for outsourcing company Capita, had misinterpreted a policy, known as DC11, which dictates the amount of outdoor playing space required for a development..”

Army

Mark Francois, a Conservative former defence minister,  said Capita was known “universally in the army as Crapita”. But Capita said in a statement,

“Capita is trusted by multiple private and public clients to deliver technology-led customer and business process services, as demonstrated by recent wins and contract extensions from clients including British Gas, Royal Mail, BBC, TfL Networks, M&S and VW.”

Electronic tagging

(but it’s alright now)

A Ministry of Justice spokeswoman said: “As the National Audit Office makes clear, there were challenges in the delivery of the electronic monitoring programme between 2010 and 2015…

“As a direct result, we fundamentally changed our approach in 2015, expanding and strengthening our commercial teams and bringing responsibility for oversight of the programme in-house.

“We are now in a strong position to continue improving confidence in the new service and providing better value for money for the taxpayer.”

Disability benefits

A spokesperson for the Department for Work and Pensions said, “Assessments work for the majority of people, with 83 per cent of ESA claimants and 76 per cent of PIP claimants telling us that they’re happy with their overall experience…”

Miners

A Capita spokesperson said: “This issue has been resolved and all members affected will shortly receive letters to advise that they do not need to take any action. We sincerely apologise for any concern and inconvenience this has caused.”

NHS

Opticians

Dentists

BBC licence fee

Windrush

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Capita’s problems were “preventable” says Royal London

By Tony Collins

Royal London, a Capita investor, said yesterday it has been “raising concerns about Capita’s weak governance with the firm for a number of years, and voting against many resolutions on director re-elections and pay consistently since 2014.”

Royal London is the UK’s largest mutual life, pensions and investment company. It managed £113bn of funds as of 31 December 2017. It owns a 0.44% stake in Capita.

Ashley Hamilton Claxton, Royal London Asset Mananagement’s Head of Responsible Investment, said in a statement,

“We welcome the honesty and transparency with which Capita’s new CEO has accepted the company’s past failings, and put a plan in place to simplify and improve the business. However, we believe this was preventable and have been privately raising concerns about Capita’s weak governance with the firm for a number of years, and voting against many resolutions on director re-elections and pay consistently since 2014.

“Until recently, Capita’s board flouted one of the basic rules of the corporate governance code, with a small board primarily comprised of management insiders. The result was a board that lacked the independent spirit to rigorously assess whether the company was making the right long-term decisions.

“Our concerns about governance were compounded by the complexity of the underlying business and the company’s acquisition strategy. Capita’s approach to remuneration also left something to be desired, with major losses in 2013 being excluded from the profit figures used to assess the bonuses paid to executives at the firm.

“The sea change in the board over the past 18 months has been welcome and has addressed the key issue of independence. It will be up to the new Chairman and the Board to ensure that Capita does not repeat the mistakes of the past, and that its strategy is fit for purpose during a particularly turbulent time for the outsourcing sector.”

Last week Capita issued a profits warning and announced plans to raise £700m from investors to reduce debts.

With Capita seeking to raise money and cut costs, where will this leave local government customers that are reliant on the supplier to cut the costs of running local services?

Barnet Council has, controversially, contracted out a large chunk of its services to Capita – and also gives the company tens of millions in advance payments in return for a discount on the supplier’s fees.

By becoming a “commissioning council”, Barnet has made itself wholly reliant on Capita, say critics of the outsourcing deal. Among other responsibilities, Capita produced the council’s latest annual accounts – including a financial account of its own services to the council. The accounts were not produced on time which created extra chargeable work for the council’s auditors BDO.

Capita has run into problems on a number of its major outsourcing deals. The National Audit Office is investigating its work on GP support services.

Councillor Barry Rawlings, leader of the Labour group in Barnet, said the profits warning and Capita’s low share price raised questions about how it may respond to further troubles.

He told The Guardian that Capita may be looking to cut back services it supplies.

“Capita handles all of the back office, enforcement, planning, environmental health, trading standards, estates, payroll and so on. Will that be part of their core services? We might be one of the only places they do some things. If they narrow their scope, what is going to happen to these services?

Conservative leader of  Barnet council, Councillor Richard Cornelius, said,  “Capita currently runs approximately 10 per cent of our services by value. They do not run the entire council as some reports have suggested.

“The council regularly reviews the financial status of its major suppliers as part of its contract management and contingency planning arrangements. This is what any responsible local authority would do.”

Capita’s share price has more than halved in the last month – from about 400p to a low on 1 February 2018 of 158p – but today rose by about 10% to 196.

Comment

When an outsourcing giant is looking to cut its costs and raise money to cover debts, how does that square with local government customers that also want to cut costs – which is why they outsourced to Capita?

Outsourcing can make good sense – when for example a global company like BP wants to standardise IT services across the world. It doesn’t always make sense when an organisation wants a service transformation while also cutting costs. Something usually has to give which, perhaps, Barnet Council and its taxpayers are slowly finding out.

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