Category Archives: joint ventures

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.

Birmingham Council to “close down” contract with Capita when it ends in 2021

By Tony Collins

Birmingham City Council has said in a job advert that it plans to “close down” its joint venture contract with Capita when it expires in 2021.

The advert was discovered by Government Computing which has reported the job requirements in detail.

Capita and Birmingham City Council have one of the largest and longest IT-based outsourcing contracts in the public sector.

It began in 2006 when the council and Capita set up a joint venture “Service Birmingham”. The council has spent about £85m to £120m a year on the contract which puts the total cost of the deal so far at more than £1bn.

Government Computing reports that the council is seeking an assistant director ICT and digital services and CIO role. The job will include a task to “oversee the effective closedown of the current Service Birmingham ICT contract”.

This suggests the council is unlikely to renew the existing contract. It could decide to sign a new outsourcing deal but the signs so far are that the council will bring services in-house in 2021.

The council says in the job advert it wants to move to an “increasingly agile state of continuous business transformation”.

Nigel Kletz, director of commissioning and procurement for Birmingham City Council, told Government Computing,  “The current Service Birmingham contract has four years still to run (until 2021), so this role will lead the implementation of the ICT and digital strategy, which includes developing a transition programme to identify and then implement ICT delivery options going forward.

“Decisions on how ICT support is provided from 2021 onwards are yet to be taken.”

Capita did not add to the council’s statement.

Alan Mo, research director at public sector analysis group Kable, is quoted in Government Computing as saying,

“When it comes to ICT, Birmingham is the largest spending council in the UK. Given what’s at stake, we cannot over emphasise the importance of early planning…

“As we know, Service Birmingham has been under a huge amount of scrutiny over the past few years. Given the trends in local government, it would not surprise us if Birmingham prefers to go down the in-sourcing path; the council has already opted to take back contact centre services.”

Projected savings of “£1bn” 

Service Birmingham lists on its website some of the benefits from the joint venture.

  • Projected cost savings of £1bn back to the Council over the initial 10-year term, for reinvestment in services
  • £2m investment in a new server estate
  • Rationalising 550 applications to 150
  • Consolidated 7 service desks into 2
  • 500% improvement in e-mail speed
  • Help desk calls answered within 20 seconds increased from 40% to nearly 90%

Service Birmingham provides Birmingham City Council’s IT, along with a council tax and business rates administration service. The council has discussed taking back in-house the council tax  element of the contract. 

Capita has run into trouble on some of its major contracts, including one with the NHS to supply services to GPs.

Comment

It appears that Capita has served its purpose and put the council into a position where it can take back ICT services now that are in a better state than they were  at the start of the contract 2006.

Austerity is the enemy of such large public sector IT-based outsourcing contracts.  When councils can afford to spend huge sums – via monthly, quarterly and annual service charges – on so-called “transformation”, all may be well for such deals.

Their high costs can be publicly justified on the basis of routine annual efficiency “savings” which do not by law have to be verified.

The downfall for such deals comes when councils have to make large savings that may go well beyond the numbers that go into press releases. It’s known that Birmingham City Council has been in almost continuous negotiation to reduce the annual sums paid to Capita.

Capita is not a charity. How can it continue to transform ICT and other services, pay the increasing salaries of 200 more people than were seconded from the council in 2006, accept large reductions in its service changes and still make a reasonable profit?

It makes economic sense, if Birmingham needs to pay much less for IT, to take back the service.

It’s a pity that austerity has such force in local government but not in central government where IT profligacy is commonplace.

Job spec for senior Birmingham IT post looks towards end of Service Birmingham ICT deal – Government Computing

 

Days from taking back outsourced IT, Somerset Council is unsure what it’ll find

By Tony Collins

Facing the TV cameras, officials at Somerset County Council spoke with confidence about the new joint venture company they had set up with the “world-class” IT supplier IBM.

“The contract has to succeed; we will make it succeed, ” a senior official said at the time. Greater choice for residents, more control, sustained improvement of services, improved efficiency, tens of millions in savings and enhanced job prospects for staff.

These were some of the promises in 2007.

Since then, Somerset County Council has been through a costly legal dispute with IBM; projected savings have become losses, and Somerset is days away from taking back the service early.

Now the council faces new IT-related risks to its reputation and finances, warns a team of auditors.

In several audit reports on the exit arrangements, auditors warn of a series of uncertainties about:

  •  what exactly IT assets the council will own as of 1 December 2016, when the joint venture hands back IT and staff.
  • how much software may not be licensed, therefore being used illicitly.
  • how much software is being paid for without being needed or used, wasting council tax money.
  • whether thousands of pieces of hardware have been disposed of securely over the years of the contract, or whether confidential data could later turn up in the public domain.
  • the accuracy of some supplied information. “… the same networking hardware items have the same value associated with them even though one is twelve years old and the other only four” said auditors.

Comment

That Somerset County Council laments setting up the Southwest One joint venture with IBM is not new. What continues to surprise is the extent of the difficulties of ending the joint venture cleanly – despite months, indeed more than a year – of preparatory work.

The realty is that uncertainties and risks abound.

When IT journalists ask leading councillors and officers at the start of outsourcing/joint venture deals whether all the most potentially serious risks have been given proper consideration, the spokespeople inevitably sound supremely confident.

If things go wrong, they are sure the council will be able to take back the service under secure arrangements that have been properly planned and written into the contract.

Yet today some of the most potentially serious risks to Somerset’s finances and reputation come from continuing threats such as the possibility confidential data being found on old hardware not securely disposed of.

Or the council may be paying for unneeded software licences.

In short Somerset County Council is taking back the IT service on 1 December 2016 without being certain what it will find.

In future, therefore, when councillors and officials across the country talk with supreme confidence at the start of an outsourcing deal or joint venture about large savings, sustained efficiencies, and a step-change improvement in services that comes with the benefits of collaborating with a world-class private-sector partner, local residents will have every right to be deeply sceptical.

For the reality is more likely to be that the council and its world-class supplier are about to embark on a journey into the unknown.

Thank you to campaigner Dave Orr for alerting me to the council audit reports that made this post possible.

TV broadcast in 2007 days after the council and IBM signed the Southwest One joint venture deal.

**

Excerpts from reports due to be considered by Somerset County Council’s Audit Committee next week (29 November 2016):

“… laptops, servers, storage devices, networking equipment, etc.) have been disposed of without the correct documentation historically, throughout the term with SWO [Southwest One]. There is a high likelihood that without the documentation to show that SWO were meant to have previously disposed of any specific data baring assets in a compliant manner then subsequent fines and loss of reputation will need to be dealt with by the Council.

“This is being addressed as part of the exit works but initial investigations show an expected lack of documentation.

**

“The quality of asset management and therefore exposure to risk (over and above this inherited risk) is expected to improve significantly once asset management returns to SCC [Somerset County Council).”

**

“Asset locations have been updated and improved though there are still issues regarding all asset details not being recorded accurately in the Asset Register. There is a risk that if wrong details are recorded against an asset then incorrect decisions could be made regarding these assets which may in turn cause the Council financial loss and/or loss of reputation.”

**

“… the same networking hardware items have the same value associated with them even though one is twelve years old and the other only four.”

**

“Software assets are now included in the monthly asset register report though the information collected and lack of correlation to meaningful license information means the original risk is not fully mitigated.

“This continued lack of software asset usage information against licensing proof of entitlement as well as the obvious risk of illegally using non licensed software there is also a risk that the Council is wasting public funds and Council officer’s time to manage unnecessary software. This means the Council will not be able to show “Best Value” in these purchases which could lead to fines being imposed by Central Government and loss of reputation by the inefficiencies being reported in the media.”

**

“I cannot though see evidence of the warranty & support arrangements being recorded or accurate recording of end of life assets. Due to a lack of or incorrect detail on the asset information there is the risk of incorrect decisions being made regarding an asset’s usage which could then lead to loss of money or reputation for the Council.”

MPs to debate Capita NHS contract today

By Tony Collins

In the House of Commons today MPs will debate the Capita Primary Care Support Services contract.

It has been secured by Coventry North West MP Geoffrey Robinson, who wants GPs to be compensated for the failures arising from the outsourcing contract.

The debate comes a day after the BBC reported that “more than 9,000 patients’ records in Norfolk, Suffolk and Essex have gone missing” since Capita took on the task of transferring files.

As part of its contract Capita took on the job of transferring patients’ records, when people move from one GP to another.

A BBC survey of 78 GP practices showed that 9,009 records had been missing for more than two months.

Capita told the BBC it did not “recognise these claims”.

An NHS England spokesman said, “We know there have been serious issues with services delivered by Capita which have had an unacceptable impact on practices. We are ensuring Capita takes urgent steps to improve services.”

Patients “at risk”

Paul Conroy, a practice manager in Essex, has started a House of Commons petition on the delays, which has been signed by more than 3,000 people. It calls for an inquiry into the Capita contract and the impact it has had on GP practices.

“GPs rely on that full medical history in order to make key clinical decisions on patient care,” he said.

“If they can’t get hold of that physical record there could be vital information there could be vital information that puts a patient at risk.”

James Dillon, director of Practice Index – an organisation bringing together practice managers – told the BBC,

“GP practices are getting more and more frustrated by the missing patient records.

“Not only is this debacle putting the health of their patients at risk, it is putting added pressure on already stretched practices.”

In a statement, Capita said it had taken on the “challenging initiative” to streamline GP support services and there had been “teething problems”.

“[But] medical records are now being delivered securely up to three times faster than under the previous system,” it said.

“We do not recognise these claims regarding thousands of files being missing whatsoever.

“We request and move on average 100,000 files a week from multiple sites including GP surgeries and also third party run storage facilities which are contracted and managed by NHS England.”

GP magazine Pulse quoted MP Geoffrey Robinson as saying that the secretary of state should intervene directly “as this is extremely dangerous”. Robinson said that some medical records are not being delivered at all, or delivered late or delivered to the wrong practices.

Dr Richard Vautrey, deputy chairman of the British Medical Association’s GP Committee said that the problems arising from the outsourcing contract “are directly impacting on the ability of many GPs to provide safe, effective care to their patients in the area”.

He said, “They are in some cases being left without the essential information they need to know about a new patient and the tools to treat them.”

In August 2016, NHS England published the results of a User Satisfaction Survey of primary care support services over the previous six months. Only 21% of GPs were satisfied with the outsourced service, giving it an average overall score of 2.91 out of 10.

Lunacy?

An anonymous GP told Pulse how the problems are affecting him. He refers to the “performers list” that assures the public that GPs are suitably qualified, have up to date training, have appropriate English language skills and have passed other relevant checks such as with the Disclosure and Barring Service and the NHS Litigation Authority.

Said the GP,

“I moved 12 months ago and still haven’t been able to transfer performers list. I am 6 months late for my appraisal and unemployable except for my current salaried job as a result.

” It would have been easier to emigrate. The department responsible for the performers list at Capita is uncontactable except via a national email that isn’t responded to and a phone line that isn’t able to put you through to anyone.

“… As it is it’s virtually impossible to move region if you a UK GP. I am basically a slave bonded to a geographical region, forbidden to move house and work anywhere else other than short periods. Totally at the mercy of a faceless uninterested bureaucracy incapable of helping. Lunacy and utterly depressing. Why the hell did I become a GP? I curse the day.”

“I urgently need my medical records”

A patient who wrote to Campaign4Change said,

“My medical records were requested at the beginning of June 2016 when I changed to another health centre about 2 miles away.

“[I] phoned Capita today and was told there was no record of this request and to get my solicitor to contact them. Then they put the phone down. I don’t have and cannot afford a solicitor.

“I urgently need my medical records with my new doctor and am feeling helpless and extremely stressed by this.”

Pulse magazine reported yesterday (7 November 2016) the results of a snapshot survey of 281 GP practices carried out by the BMA’s GP Committee. It found:

  • 31% of practices had received incorrect patient records;
  • 28% failed to receive or have records collected from them on the date agreed with Capita;
  • 58% reported that new patient registrations were not processed within the required three days.
  • 81% of urgent requests for records were not actioned within three weeks.

GP practices also noted a reduction in the number of incorrect payments and fewer delays in registrations of the “performers list”.

Comment

It would be a pity if MPs today, in criticising Capita, lost sight of the bigger picture: how such outsourcing deals are considered and awarded.

The root of the problem is that before the contract is awarded officials concentrate their attention on the minutiae of the benefits: exactly how much will be saved, and how this will be achieved.

Pervading the pre-contract literature and discussions are the projected savings. This is understandable but wrong.

It’s understandable because it’s the projected savings that justify the sometimes-exciting time and effort that go into the pre-contract negotiations and discussions.

Large amounts of money are at stake. For officials, the pre-contract work can be a euphoric time – certainly more interesting than the day-to-day routine.

But what happens to negotiation and discussion of risk?

Risk is a table or two at the back of the reports. It’s a dry, uninspiring vaguely technical and points-scoring analysis of the likelihood of adverse events and the seriousness of the consequences materialising.

Sometimes the most serious risks are highlighted in red. But there’s always a juxtaposed “mitigation” strategy that appears to reassure. Indeed it appears to cancel out any reason for concern.

Risk is mentioned at the back of the internal pre-contract because it’s a cultural anathema. It’s the equivalent of visits by Building Regulations inspectors at a theme park under construction.

Who wants to talk about risk when a contract worth hundreds of millions of pounds is about to be awarded?

A bold official may dare to point out the horror stories arising from previous outsourcing contracts. That hapless individual will then be perceived by the outsourcing advisory group to have a cloud over his or her head. Not one of us.

And the horror stories will be dismissed by the officer group as the media getting it wrong as usual. The horror stories, it will be explained, were in fact successes.

Even when big public sector outsourcing deals end in a legal action between the main parties, officials and the supplier will later talk – without explanation or detail or audited accounts –  of the contract’s savings and overall success.

We’re seeing this on the Southwest One outsourcing/joint venture contract.

No doubt some will claim the GP contract support contract is a success. They’ll describe problems as teething. Marginalise them. And later, when it comes to the awarding of future contracts, supporters of the GP outsourcing contract will be believed over the critics.

And so the cycle of pre-contract outsourcing euphoria and post-contract rows over failure will be repeated indefinitely.

It would be of more use if MPs today debated the role of NHS England in the award of the GP support contract.

Blaming Capita will do little good. The supplier will face some minor financial penalties and will continue to receive what it is contractually due.

Countless National Audit Office reports show how contracts between the public and private sectors, when it comes to the crunch, strongly protect the supplier’s interests. The public sector doesn’t usually have a leg to stand on.

A focus today on Capita would be a missed opportunity to do some lasting good.

NHS England letter on Capita contract – September 2016

Capita NHS contract under scrutiny after “teething” problems – June 2016

GPs decry Capita’s privatised services as shambles – The Guardian

Did NHS England consider us in the Capita take-over?

NHS England vows to hold Capita to account

Capita mistakenly flags up to 15% of GP practice patients for removal  

Capita primary care support service performance “unacceptable”

 

 

 

Well done to Unite for challenging council’s joint venture “savings” claim

By Tony Collins

When councils make unexplained (and self-congratulatory) claims that they have made savings at the end of a joint venture, it will usually raise a series of questions.

So well done to Nigel Behan of the Unite union for putting a series of FOI questions to Taunton Deane Borough Council about its joint venture with IBM, as part of Southwest One.

In an “Efficiency Plan” published on its website last month, Taunton Deane
Borough Council announced that it was “part of the ground-breaking Southwest
One shared services joint venture partnership, between Somerset County
Council, Avon and Somerset Police and IBM”.

“This ten year partnership, which is now drawing to a close, has delivered significant savings to the Council and has made an important contribution to our finances.”

Unite is not so sure. Its officials believe the joint venture has, for Taunton Deane,  broken even at best. Its FOI questions to the council:

  • Please will you provide the unitary charge payable by TDBC to
    Southwest One/IBM for each financial year from 2007-2008 to date?
  •  For each financial year since 2007-2008 what was the cost of
    letting and managing the contract – including legal costs, procurement costs etc. etc.?
  • Re IT – software, hardware and peripherals. What was the value in 2007 of all IT (Hardware, software, peripherals and infrastructure) and what is the value of these assets now, ie what has been the depreciation on this asset class since 2007? What will cost of replacing these?
  • What are the net savings achieved by Southwest One for Taunton Deane Borough Council for each financial year since 2007-2008? Will you define “significant savings” (provide a measurable test)?

 Comment:

Taunton Deane Borough Council’s claim of savings was imperious, self-serving and unexplained. The council’s Efficiency Plan looks like a glossy commercial brochure that local residents have had no option but to pay for.

Were a newspaper to make a controversial claim without any explanation or justification, its readers would be entitled to question the article’s veracity.

Taunton Deane’s joint venture peripherally involved a costly legal action between the two main parties to the joint venture: IBM and Somerset County Council.

To make a claim of savings in such circumstances is like officials claiming a mission to space was a success even though the spacecraft blew up.

No rational judgement can be made without a detailed weighing up of the costs and benefits.

Even then the costs and benefits may be subjective. What costs have been excluded from the “savings” figure? What were the baseline costs on which the savings have been measured? And were those baseline figures audited as accurate  – or were they intelligent guesses? Have any benefits been double-counted? Are the benefits audited?

Without people like Nigel Behan and Somerset campaigner Dave Orr, and organisations like Unite, councils would get used to saying publicly whatever they liked, possibly without challenge.