Category Archives: SAP

Taunton council to bring some outsourced services back in-house?

By Tony Collins

A week after praising the Southwest One joint venture with IBM, officers at Taunton Deane Borough Council are recommending bringing some services back in-house.

Last week a report to councillors said:

 “Service delivery for TDBC, viewed in the round, is broadly on track. The majority of services perform well or extremely well (eg Customer Services). We do have concerns in some areas and we are working closely with the services in question to remedy the issues.”

Now Penny James, Chief Executive of the council, has written to staff about bringing services back in-house.

“Dear All

The Corporate & Client Services Team has over the past few months with the assistance of Southwest One (SWO) reviewed the services being provided to TDBC under our contract with SWO.

“The review has considered whether, in the light of the decisions taken by Somerset County Council to remove a number of their services from SWO and by Avon and Somerset Police to remove Property Services, TDBC [Taunton Deane Borough Council] should also consider whether services should be removed…

“The review concludes that it would be prudent for TDBC to bring back in-house the following service areas: Corporate Administration, Design & Print, Facilities Management, Finance Advisory, HR Advisory (including Learning and Development) and Property Services.  These are all services where TDBC has largely lost the benefit of shared service delivery.”

James says a formal decision will require the agreement of councillors after consultation with staff directly affected by the potential changes. The consultation will end on 31 October and a decision will be taken by the full council on 12 November 2013.

“Should the members agree to the return of these services the necessary changes are likely to be implemented early in 2014,” says James.

In a statement to Taunton’s Corporate Scrutiny Committee last week, local resident Dave Orr, who has campaigned for the full truth over the Southwest One venture to be made public, told Taunton’s councillors that the council had borrowed £3.65m in 2008 to buy SAP from IBM and Southwest One.

“That debt was to be paid out of procurement savings and should have been paid off 18 months ago. Instead, almost £1m of the debt for SAP is left, incurring interest charges that are reducing funding for our Council services.”

Orr said in the statement that Southwest One has continued to make losses and IBM has disposed of its global customer service business which adds to uncertainty over the future of the joint venture.

“Will Southwest One survive to the end of contract in 2017 or will parent company actions by IBM from the USA bring about an earlier demise? What is Taunton Deane’s response to this added uncertainty and risk?

He concluded: “Don’t throw any more money away in South West One – we can’t afford it.”

The story of Southwest One

By Tony Collins

Dave Orr worked in a variety of IT and project management roles for Somerset County Council and retired in 2010. For years he has campaigned with extraordinary tenacity to bring to the surface the truth over an unusual joint venture between IBM, Somerset County Council, a local borough council and the local police force.

Now he has written an account of the joint venture and the lessons. It is published on the website of procurement expert Peter Smith.

Orr questions whether Southwest One was ever a good idea, since it was formed in 2007.

The deal has not made the savings intended, a SAP implementation went awry, the contract has been mired in political controversy and criticism, Southwest One has repeatedly lost money, and many of the transferred staff and services have returned to the county council, and some services returned to the borough council. IBM and the county council have ended up in a legal dispute that cost the county council £5.5m to settle. Southwest One was not exactly the partnership it set out to be.

The contract may show how an outsourcing deal that doesn’t have the support of the staff being transferred is flawed fundamentally from the start (which is one reason few people will be surprised if a 10-year £320m deal for Capita to run Barnet Council’s new customer service organisation [NSCSO]  ends in tears).

These are some of Orr’s points:

–  Like other light-touch regulators, the Audit Commission repeatedly gave Southwest One positive reports, without ever qualifying the accounts, even as problems with SAP implementation mounted in 2009 and procurement savings were not being made in line with forecasts.

 – The contract called for transformation based upon ‘world-class technologies’, yet all of the IT Service was placed into Southwest One with no IT expertise back in the Somerset County client (until after a poor SAP implementation in 2009). Was the lack of retained IT skills in the Somerset County client behind the formal acceptance of a badly configured SAP implementation?

– Large scale outsourcing over a long contract of 10 years or more requires an ability to foresee the future that is simply not possible to capture in a fixed contract. In a 10-year contract, there will be three changes of national government and three changes of local government. That is a great deal of unpredictable change to cope with via a fixed, long-term contract.

– Local Government will always be at a disadvantage in resources and skills, to a large multi-national contractor like IBM, when it comes to negotiating, letting and managing a complex multi-service contract.

– What was the culture of Southwest One (75% owned by IBM)? Was it private, public or a hybrid? The management culture remained firmly IBM, yet the councils and police workforces were seconded and remained equally firmly public sector rooted. There is such a thing as a public service ethos. In fact, Southwest One was run like a mini-IBM based upon global divisions, complete with IBM standard structures and processes. Southwest One seconded employees were not allowed anything like a full access to IBM internal systems, thus creating additional complexity, as “real” IBM employees relied entirely upon on-line systems.

–  Mixed teams in a single shared service were hard to amalgamate. This meant the IBM managers of Southwest One never really gained the sort of command & control of the multi-tier workforces that their bonus-oriented model needs to function. “I doubt that IBM would ever again contemplate the seconded staff model over the TUPE transfer model,” says Orr.

– Somerset County Council ran with a “thin” client management team that, in Orr’s view, did not have sufficient expertise or enough staff resources to effectively manage this complex contract with IBM. The councils relied upon definitions of “partnership” that meant one thing to the councils’ side and quite another thing to IBM, says Orr.

– In Southwest One, Somerset County Council handed their entire IT Service over lock, stock and barrel. “Can you really consider IT as wholly a ‘back office’ service? Many successful private Companies see IT as a strategic service to be kept under their own control.”

– The real savings might have been found in optimising processes in big departments (like Social Care, Education, Highways) that lay outside of Southwest One’s reach. “The focus on IT rather than service processes was another flaw in the model.”

Orr  concludes that nobody who played a major part in the Southwest deal has in any way been held to account for what has gone wrong.

Southwest One – the complete story from Dave Orr

Somerset County Council settles IBM dispute – who wins?

By Tony Collins

Somerset County Council has settled a High Court legal dispute with IBM-led Southwest One. It will bring some services back in-house.

The Conservative leader of Somerset council John Osman said, “This agreement will save Somerset residents millions of pounds and will make the contract fit for the future.”

Osman added that the agreement involves settlement of Southwest One fees, which the council had been withholding, for a mutually- agreed sum.

“Most importantly the cancelling of the gainshare agreement will save Somerset County Council residents millions of pounds in the future as those sums can now be kept by the Council,” said Osman.

But as the deal includes payment of an undisclosed sum by the council to Southwest One it is unclear which side is the beneficiary in the dispute. [See Dave Orr comment on this post.]

The council says the settlement will bring benefits for the council including securing “greater strategic control and capacity back with SCC  in terms of Procurement, Property and ICT”.

The agreement also “removes some barriers to ensure successful delivery of our Change Programme – with greater alignment to the operating model, commissioning capacity, service reviews, and technology enablers.”

And the settlement allows officers to focus on improving services rather than on a series of disputes.

Southwest One had issued a writ against the council – what the authority calls a “substantial claim” – and a date for a High Court hearing was set provisionally for November 2013.  Yesterday [March 27 2013] the council agreed to settle the High Court claim, and an unspecified number of other disputes.   

IBM, Somerset County Council, Taunton Deane Borough Council, and Avon and Somerset Police set up Southwest One as a joint venture company in 2007.  IBM  owns 75% of the company.

Somerset’s officers said in a report yesterday:

“Following a series of discussions between the Council and Southwest One we are now in a position to settle the disputes and the Procurement legal proceedings against SCC will cease.

“The agreement includes a settlement payment to SWO which is substantially lower than the claim against SCC and releases payments to SWO that were held by SCC as part of the dispute.”

Somerset County Council will take back several services and about 100 people who had been seconded to Southwest One. The council says that taking back staff and services will “reduce the potential for further disputes and align those services much closer to the operating model the Council has adopted”.

Services returning to SCC include:

• Strategic and Operational Procurement
• Property Services
• Estates Management
• ICT Strategic Management including some web management posts
• Some business support posts for the above functions

The council says there will be little change in day to day activities and no changes to locations of staff. Somerset’s staff will have their secondments terminated and revert to the council’s terms and conditions.

The High Court action was because of a disagreement  about the quality of Southwest One’s procurement service and what payments Southwest One was entitled to as a result of savings made through the joint venture.

Secrecy

Whereas a High Court hearing would have been open to the public, the sum paid by Somerset to IBM as part of the settlement,  and the risks of bringing staff and services back in-house, are being kept confidential because of what the council calls “commercial sensitivity”.

Risks

Some of the settlement’s main risks for the council are listed in yesterday’s report:

• The confidential nature of the discussions held to secure an agreement has
meant that full consultation with a wide range of officers and partners has not
been possible.
• The transfers of staff and functions will take place during the new financial
year. The proposed transfers create some risk due to SAP changes required.
• There will be some risks in the hand-over of programmes of work.
• Despite all efforts to mitigate risks to services, it is possible that some
disruption may occur. Transition workshops are planned to identify and preempt such instances, which significantly reduces the risk.
• Implications for partners have also been estimated. It is possible that partners
may take a different view of the implications for them.

Blame

Osman blamed the previous Liberal Democrat administration for the problems which he said were owing to the way the contract was worded, the actions of the previous Lib Dem administration transferring services to Southwest One that should never have transferred and the failure to clarify the savings sharing element of the agreement. Osman said this was the “equivalent of the Lib Dems writing a blank cheque”.

The 10-year joint venture, which started in 2007, will continue. 

Comment:

As the terms of the settlement and the risks associated with transferring staff and services back in-house are being kept secret nobody outside an inner circle of the council can know how bad the joint venture and the dispute have been for Somerset council’s taxpayers.

If anything is clear it is that IBM held the dominant legal hand all along. It issued a High Court claim, and now it has received a payment from the council.

It seems to be a feature of big council outsourcing deals and joint ventures that councillors are easily swayed by promises of enormous savings, often upfront savings, and are not too concerned about the risk of things going wrong because they won’t be in office when or if any mud hits the fan.

Yesterday Cornwall Council’s Interim CEO, along with the Chairman of Cornwall Partnership Foundation Trust and the Director of Finance at Peninsula Community Health signed a contract for a joint venture with BT.

As Andrew Wallis, an independent councillor in Cornwall, says

“Lets hope the Council does not regret this day.”

The Southwest One joint venture was flawed joint venture from the time a rushed contract riddled with literals was signed in the early hours of a Saturday morning in 2007.  For years afterwards, Somerset Council has been trying to dig itself out of a hole. It is now near the surface – except that yesterday’s council report says there is a potential for further disputes. 

Will other councils learn from Somerset’s experiences? Cornwall’s deal shows that any learning will be very limited.

And the secrecy that tends to go with big outsourcing deals and joint ventures means that a small group of councillors can sign joint ventures and outsourcing contracts without proper accountability  – and can settle any legal disputes later without accountability, and indeed with impunity.

Whenever a  major supplier offers a council large upfront savings from an outsourcing deal or a joint venture why would the authority’s inner circle of councillors say no?

Thank you to campaigning Somerset resident and former county council employee Dave Orr who provided the links and information that made this post possible.

Don’t fire staff before going live – lessons from a SAP project failure

By Tony Collins

When an NHS chief executive spoke at a conference in Birmingham about how he’d ordered staff cuts in various departments in advance of a patient administration system going live – to help pay for the new system – it rang alarm bells.  

This is because more staff are usually needed to cope with extra workloads and unexpected problems during and after go-live. That’s a lesson BT and CSC gradually learned from Cerner and Lorenzo go-lives under the National Programme for IT. It’s also a lesson from some of the case studies in “Crash”.

The trust chief executive who was making the speech was managing his go-live outside of the NPfIT. He didn’t seem to realise that you shouldn’t implement savings in advance of a go-live, that the go-live is likely to cost much more than expected, and that, as a chief executive, he shouldn’t over-market the benefits of the new system internally. Instead he should be honest about life with the new system. Some things will take longer. Some processes will be more laborious.

Bull-headed

If the chief executive is bull-headedly positive and optimistic about the new IT his board directors and other colleagues will be reluctant to challenge him. Why would they tell him the whole story about the new system if he’d think less of them for it? They would pretend to be as optimistic and gung-ho as he was. And then his project could fail.

Much of this I said when I approached the trust chief executive after his speech. It wasn’t any of my business and he’d have been justified in saying so. But he listened and, as far as I know, delayed the go-live and applied the lessons.

Disaster

Now a SAP project disaster in the US has proved a reminder of the need to have many extra people on hand during and after go-live – and that go-live may be costlier and more problem-laden than expected.

The Post-Standard reported last month that a $365m [£233m] system that was intended to replace a range of legacy National Grid’s payroll and finance IT has led to thousands of employees receiving incorrect payments and delayed payments to suppliers. Some employees were not paid at all and the company ended up issuing emergency cheques.

Two unions issued writs on behalf of unpaid workers, and the Massachusetts attorney general fined National Grid $270,000 [£172,500] for failing to comply with wage laws. New York’s attorney general subpoenaed company records to investigate.

Hundreds assigned to cope with go-live aftermath

National Grid spokesman Patrick Stella said the company has assigned hundreds of employees, including outside contractors, to deal with problems spawned by the new system. Many of them have been packed into the company’s offices in Syracuse in the state of New York. Others are dispersed to work at “payroll clinics,” helping employees in crew barns or other remote locations.

For more than a year National Grid worked to develop a new system to consolidate a patchwork of human resource, supply chain and finance programs it inherited from the handful of U.S. utilities it has acquired. The system, based on SAP, cost an estimated $365m, according to National Grid regulatory filings.

Stella said the glitches to be expected when a complex new system goes live were exacerbated in the wake of Sandy, when thousands of employees worked unusual hours at unusual locations. “It would have been challenging without Hurricane Sandy,” Stella said.

SAP software woes continue to plague National Grid.

Payroll blunder.

National Grid struggles to fix payroll problems.

Cornwall Council – a model of local democracy

Cornwall Council yesterday debated in an open and informed way proposals to set up a major joint venture with BT, keep services in-house or have a limited “strategic partnership”.

The debate was webcast and councillors voted on the basis of a wealth of information published by the council on its website. On the specific potential benefits of a joint venture the council had information from BT and Kevin Lavery, the council’s chief executive. Lavery also produced a useful “pros and cons” summary of the options available to councillors.

On the risks of a joint venture, and the experiences of other authorities, councillors had invaluable information from Cornwall Council’s independent “Single Issue Panel” of councillors, and from Dave Orr who has a deep understanding of Southwest One, the failed joint venture in Somerset with IBM.

In the end the full council rejected proposals for in-house services, and also decided against setting up a major joint venture with BT. Councillors voted for a limited strategic partnership which includes telehealth and telecare, ICT and document management.  How this will work, whether BT will want to run it, and whether it will need a new competitive tender are questions yet to be answered.

Jim Currie, the council leader, and a sceptic of a major joint venture, warned councillors about the dangers of making a decision under pressure of fear.

“The doom and gloom is just not sustainable,” he said. “The fear that has been put in us has to be modified by reality. The reality is that the vast majority of councils will go under before we do.”

He added that the council has expertise, pensions, and trading contacts that would be given away in a joint venture or outsourcing deal. A costly SAP system would also be transferred. The council, he said, would be “giving away the ERP that cost us so much money and lots of IT updates that go with it”.

Comment:

Cornwall Council has emerged from the debate over the proposed joint venture with BT as an exemplar of local democracy. Alec Robertson, the former council leader, who was ousted because of his strong support for a joint venture, comes out of the debate with credit.

There was pressure to do so but Robertson decided that the future of council services should be a decision taken by the full council and not by an inner circle of cabinet councillors. This was a bold step but a critical one in favour of local democracy.

Jim Currie who was voted Cornwall’s leader after Robertson was ousted, also emerges from the debate with credit. Like Robertson Currie is a conviction politician.

But the clear winner of the debate is Cornwall Council. Its reports on the options available to councillors are not perfect but at least they make clear what is and is not being published; and a great deal has been published. Everything Cornwall Council has done is in marked contrast to the partnership decision of Barnet Council which kept its decision on a partnership deal to an inner circle of cabinet councillors. Barnet was entitled to do so, but it was a macho stance given the strength of local opposition. Barnet published little information on its proposals compared to Cornwall.

It would be a pity, though, to shine a light on Cornwall’s democratic strengths by putting Barnet in the shadows. Democracy has its flaws, but Cornwall Council has shown how those weaknesses can be tackled by more democracy, not less.

Cornwall Council – middle way agreed.

The biggest cause of shared services failure?

Shared services in the public sector – Tim Manning.

Jude’s Blog (local councillor)

Very thin joint venture is supported – Andrew Wallis (local councillor)

Lessons from Birmingham Council’s joint venture with Capita

By Tony Collins

A report on Service Birmingham – Capita’s joint venture with Birmingham City Council – shows that the deal has been largely successful so far but that trust and relationships may be breaking down in some areas.

The “High-Level” review of Service Birmingham by the Best Practice Group could be read in two ways: as a qualified endorsement of the deal so far, or as a warning that a deteriorating relationship in some areas could end up, in years to come, as a legal dispute.

The report’s authors suggest that the council and Capita have little choice but to make improvements given that the contract lasts another nine years. They say:

“Given the fact that the commercial partnership has a further nine years to operate, there is an inherent risk that unless a core focus for both parties is re-established, the commercial trust between BCC [Birmingham City Council and SB [Service Birmingham] will continue to deteriorate.

“Neither party will benefit from the relationship if this situation is permitted to manifest itself.”

In another part of its report the Best Practice Group says:

“BCC and SB 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.”

Below are verbatim extracts from the Best Practice Group’s report which highlight some of the lessons arising from of the joint venture so far. The sub-headings (in italics) are mine.

Extracts from Best Practice Group’s report:

Service Birmingham charges a fee even when the council implements services outside the joint venture – poor value and reputedly poor practice?

“SB has an on-going contractual duty to ensure it provides independently benchmarked best value in the services it delivers to BCC [Birmingham City Council]. As part of these arrangements, BCC can request specific third party services (outside SB’s own delivery capability) with SB applying a fee for ‘contract management’.

“However, these situations vary considerably, raising the question of how to maximise value. The contract management fee would be considered high value when BCC gives SB a service outcome it wants to achieve, and SB researches the market, provides options and recommendations to BCC, sources the best value vendor, and ensures the solution is implemented and the business outcomes achieved.

“In other situations, BCC already knows the outcome to be achieved, how to achieve it and who the best value vendor is, and can implement the solution itself. However, the same contract management percentage still applies to these cases. This causes resentment for the service area involved because they cannot see how SB has added to the process, and in real terms, is perceived by BCC as very poor value. Although the sums involved are minimal compared with the relationship’s overall cost, it is highly visible as an area of poor value and reputedly bad practice, and needs to be realigned.”

Service Birmingham needs to make a significant return for its shareholders

“Given the relationship challenges between BCC and SB, there are a couple of fundamental points to address, namely that: (a) certain individuals within the Council need to understand that SB is not a social enterprise, a public sector mutual, or a charity, and needs to make a significant return on its capital for its shareholders, and (b) SB needs to understand that the Council is in a significantly deteriorating financial position due to Government cutbacks.”

SB drops its prices 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.”

A hardened commercial stance in some circumstances?

“… these obvious and immediate savings are now being met with a hardened commercial stance for anything that falls outside of the core deliverables by SB.”

The cloud imposes hidden costs for SB

“Regardless of whether a scale of mark-up can be achieved, one issue that is clear from the interviews undertaken is that SB/BCC needs to educate the BCC service areas at all levels around what the contract management mark-up actually buys for the Council from SB. At present, for example, there is a lack of understanding within BCC service areas that having ‘cloud’ delivered solutions within the overall portfolio does still incur hidden costs for SB in supporting the overall infrastructure and managing the intermediate fault–reporting service.”

Staff survey on SB – mixed results

“With regards to the survey, 63% stated that they talk ‘positively’ about SB to their colleagues. Slightly less, 59%, believe SB understands the requirements and support needed to deliver the Council’s services. However, when asked if they would naturally think to contact SB for help and advice in situations where they were thinking about undertaking new ICT related work, only 33% of the Council respondents said that they would…

“When asked the direct question of how satisfied they were overall with the service delivered by SB, only 15% of the respondents felt that the service was less than satisfactory. However, only 10% believed that it was excellent with 39% rating it as satisfactory and 36% rating the service received as good.”

Project concerns

“There is a feeling which was voiced by several interviewees from the Council that project implementation often runs behind schedule and ultimately it is the ‘loudest project to shout’ which will then have the scarce resources allocated to it at the cost of other projects.”

Lack of commercial trust

“…there are elements of the KPI [key performance indicator] reporting received from SB that BCC need clarity on . This, coupled with the 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.”

Seeds of a possible legal dispute in future years between the two sides?

“One point that should be highlighted is that we believe there is a misalignment between both parties view of what partnership working actually entails. From the perspective of some service areas within BCC, they view certain individuals within SB as uncooperative. In a similar vein, there are certain individuals within SB who view specific BCC staff also as uncooperative. It should be noted that these individuals within both BCC and SB are in the minority.

“However, such un-cooperation is manifesting itself into a perception of a lack of commercial trust in both camps. Some BCC individuals are not really taking into account, or understanding, that SB is a commercial organisation that has a majority shareholding by a publically listed company. Its commercial shareholders need to see financial returns from SB that increase annually…

“In the early stages, the working relationship was put firmly on the rails by having a ‘great common cause’. The transformation requirements of BCC were so fundamental, it seems many differences of opinion were set aside and both parties worked very hard to overcome the obstacles in ensuring the transformation was successful. Largely, that was achieved. Now that the original transformation process has almost all been completed, the parties working relationship seems to have deteriorated in certain instances. This pattern of behaviour is normal in most strategic vendor relationships.”

SB more expensive than the average in certain areas?

“SB appear to be significantly more expensive than average in the areas of voice, data and converged service provision (KPI-17). The most significant of the three costs provided is the provision of Data services where SB are the worst value of all of the respondents in the SOCITM survey with a cost of £227 per data outlet (capital + support) compared to a median of £118. At the time of writing this report, no clarification had been provided as to the reasons for the significant difference between the SB provided cost and the survey median. When KPI-17 is reviewed as a cost per user, SB fairs much better across the service types. It has a cost of £321 per user compared to a median of £290 per user. However if you consider that this £31 per user per year, it actually represents over £600k per annum above average.”

Council concerns over SAP work going abroad

“Different parties within BCC perceived that in the interest of cost savings, SB was passing some work on SAP projects to an off-shore organisation, rather than using the UK workforce. It should be noted that the contract allows for the off-shoring of SAP work, but only where such work does not adversely impact jobs in the UK.

“A high level review of the SAP project work has identified that SAP work has only been off-shored when the UK workforce does not have the required expertise. In addition, we requested specific evidence from individuals to support their view that work was being off-shored that could have been undertaken by the UK workforce, but this could not be provided.”

The Council was paying for unused phone lines

“… Ultimately, the Council kept receiving invoices from the line provider for what were essentially unused telephone lines. The process ceased promptly after BCC and SB addressed the escalation of the issue.”

Stagnating innovation could widen the divide between the two sides

“It is clear that both parties will continue to feel significant frustration until they can resolve how to share the innovation process, provide resources to help the generation of sound business cases and provide formalised and comprehensive feedback to allow for the implementation of suggestions. These suggestions need to become acceptable to the Council as realistic deliverable solutions. If this does not happen, then innovation between the partners will continue to stagnate, driving a widening divide between the organisations.”

KPIs not always useful?

In the case of the BCC and SB agreement, despite an abundance of KPIs being in place, the Council perceives the contract could be better aligned in order to maximise the behaviours from SB that it needs.

Comment:

The report gives the impression that those running the joint venture must overcome the many problems because the contract still has nine years left to run. Both sides, it seems, are locked into the relationship. In some areas it works. In others it doesn’t.

Capita, clearly, has been trying hard to make the relationship work. Some within the council have too. Some are not so enthusiastic and have been “making noise” according to the report’s authors. Do those making a noise have a point, or are they simply making trouble against the joint venture? The report suggests removing those making a noise. But will that remove some of those who are providing an independent challenge?

So far the relationship has been largely successful; and the survey of staff is generally positive. But there are signs of serious trouble. Innovation is stagnating, the council’s finances are deteriorating and Capita needs to make a profit from the venture. Are these fundamental incompatibilities? Will the relationship really last another nine years, especially if there is more political change within the council?

High-Level Review of Service Birmingham

IBM sues its council “partner”

By Tony Collins

Earlier this week we reported IBM’s disclosure that it is in dispute with Somerset County Council, its lead partner on a joint venture Southwest One.

In  its annual statement on Southwest One, a joint venture owned by IBM in which Somerset County Council is the lead partner, the company said that a dispute with its partners had gone to mediation which had failed.

Now it turns out that the dispute has escalated: IBM, in the form of Southwest One, is suing Somerset County Council according to BBC online.

On its website Southwest One says how “collaboration and cooperation can help to deliver procurement savings”.  But it is largely over the level of procurement savings that Southwest One is going to court.

Southwest One’s statement

Southwest One said it had taken court action because an agreement could not be made with Somerset Country Council.

“Southwest One complies with its contractual obligations, providing a robust service to all partners which includes the identification of substantial procurement savings.

“Throughout the course of the contract, Southwest One has secured procurement savings that amount to £22 million which have been approved by all partners, with contracts in place to deliver a further £71 million of savings.

“Southwest One has also successfully achieved external recognition from the Cabinet Office for Customer Service Excellence and operates an award-winning Customer Contact Centre.”

Somerset’s statement

Somerset County Council said

“We are in disagreement with Southwest One about the quality of the procurement service and what payments Southwest One is entitled to as a result of savings made by getting better deals through the joint venture.

“As set out in the terms of the contract, we had hoped we would be able to settle this issue through mediation and negotiation.

“It is now apparent that this will not be possible and it is disappointing that we are in the position of going to court.

“It is paramount that we look after the best interests of tax payers and take action when standards of performance and quality are not being met.

“We will therefore robustly defend our position and make counter-claims where we believe we have suffered losses.

“Somerset County Council will not be commenting any further on this issue at this stage.”

Thank you to Dave Orr for drawing my attention to IBM’s legal action.

Comment

As procurement expert Peter Smith asks: what is a procurement saving? Amid a complexity of transactions the phrase “procurement saving” can mean almost anything.

Southwest One was supposed to be a partnership between IBM and three public authorities: Somerset County Council, Taunton Deane Borough Council and Avon and Somerset Police.

Now the primary beneficiaries will be lawyers … And so we plough along, as the fly said to the ox.

Links

Southwest One sues Somerset County Council

Procurement savings disputes are not unusual

IBM in dispute with partners on £585m contract

IBM in dispute with its joint venture partners on £585m contract

By Tony Collins

IBM says it is currently in dispute with the joint venture partners on a number of contractual matters relating to South West One, a joint venture between IBM and three public authorities. IBM owns the joint venture company.

South West One’s annual report says that a mediation was held on 4 and 5 July 2012 between IBM and Somerset County Council, which is the main public authority partner, on a confidential basis.

“No settlement has been reached and accordingly the board [of South West One] will be reviewing which of the remaining options in the contractual procedure should now be pursued,” says SW1’s annual report.

South West One’s report doesn’t give any detail on the “contractual matters” in dispute.

Possible matters under discussion might have included a withholding of money (the councils are expected to pay IBM about £585m over 10 years, from 2007),  contention over KPIs (IBM did not meet all of its key performance indicators and indeed met fewer of Somerset’s KPIs in 2011 than in 2010), changes to the contract which is being re-negotiated, a lack of remedial action over accounting problems in Somerset’s finance department following a major SAP implementation , a shortfall in expected savings, and the council’s extra costs of working around SAP-related problems .

It is known that a contract renegotiation has been underway for some time.

The contract was subjected to review after the Conservatives took control of Somerset County Council from the Liberal Democrats in May 2009.

The review in June 2010 found that some aspects of the contract had been successful but “figures provided do, however, tend to indicate that the anticipated procurement savings are currently falling short of projections”.

On service delivery the review said there had been “major and minor system problems and difficulties in implementation have been experienced which have often involved Somerset County Council staff in additional time and effort in working around these issues”.

It said that a “significant area of difficulty has been in relation to financial and processing components of SAP which have also had a serious effect on others outside Somerset County Council.

“As a result, there appears to have been substantial but unquantified additional direct and indirect costs incurred by the County Council and others in resolving the various difficulties encountered.

“Southwest One has also provided intensive additional resources at its own expense, notably in addressing the issues that arose in relation to the SAP phase one roll out where lessons have clearly been learned and applied to the more successful phase two implementation. More work is, however, still required as a priority in some key areas where concerns remain around the efficiency and effectiveness of service delivery and financial systems.”

South West One is dependent on the financial support of IBM to continue trading, says  company’s annual report. It adds that the “difficult political and economic environments in which the company has been operating have not shown any signs of easing”. Somerset has taken back from South West One finance, an HR advisory service, design and print.

“The difficult environment for business, both public and private, will continue to place strains upon opportunities for South West One,” said the annual report.

“There will be specific challenges in the forthcoming year due to the implementation of Universal Credit, the requirements of the Winsor report and changes in regard to the move from Police Authorities to Police Crime Commissioners.”

South West One made a loss in 2011 of £6.8m (a loss of £22.7m in 2010) and has accumulated net liabilities of £43.2m. The company can continue trading, in part because it has the support of IBM UK’s parent:  International Business Machines Corporation based at Armonk New York.

IBM owns 75% of the shares in South West One. Somerset owns 11.75%, Avon and Somerset Police Authority 8.25%, and Taunton Deane Borough Council 5%.

This article owes much to Dave Orr who has campaigned tenaciously for the facts of the South West One deal to be made known.  

Comment

The unsettled dispute suggests that the “partnership” aspect of the contract between IBM and the three public authorities – Somerset County Council, Taunton Deane Borough Council and Avon and Somerset Police Authority –  is at an end. A partnership normally implies a harmonious relationship between the parties.

Is it any surprise that things have come to this?

The South West One contract was signed in 2007, in the early hours, at a weekend, amid great haste and secrecy.  The deal was driven by a senior official at Somerset who wanted to take the council “beyond excellence”. But the joint venture had little support from many of the council staff who were seconded to South West One. Most councillors took little interest in the setting up of South West One.

IBM has found to its cost that signing a major contract with just an inner circle of enthusiasts is not enough to make such a deal work. Though some have changed many of Somerset’s councillors remain. It could be said that they deserve the deal they have got, given that so few of them took any interest in the negotiations in 2007.

Besides, it is unlikely that any joint venture which doesn’t have the support of most staff will work, which makes mutuals a potentially better shared-services option.

IBM struggles with SAP two years on – a shared services warning?

IBM-led model partnership based on SAP makes loss

IBM won bid without lowest-price – council gives detail under FOI

By Tony Collins

Excessive secrecy has characterised a deal between IBM and Somerset County Council which was signed in 2007.

Indeed I once went to the council’s offices in Taunton, on behalf of Computer Weekly, for a pre-arranged meeting to ask questions about the IBM contract. A council lawyer refused to answer most of my questions because I did not live locally.

Now (five years later) Somerset’s Corporate Information Governance Officer Peter Grogan at County Hall, Taunton, has shown that the council can be surprisingly open.

He has overturned a refusal of the council to give the bid prices. Suppliers sometimes complain that the public sector awards contracts to the lowest-price bidder. But …

Supplier / Bid Total cost over 10 years
BT Standard bid £220.552M
BT Variant Bid £248.055M
Capita Standard Bid £256.671M
Capita Variant Bid £267.687M
IBM Standard Bid £253.820M
IBM Variant Bid £253.820M

The FOI request was made by former council employee Dave Orr who has, more than anyone, sought to hold Somerset and IBM to account for what has turned out to be a questionable deal.

Under the FOI Act, Orr asked Somerset County Council for the bid totals. It refused saying the suppliers had given the information  in confidence. Orr appealed. In granting the appeal Grogan said:

“I would also consider that the passage of time has a significant impact here as the figures included under the exemption are now some 5 years old and their commercial sensitivity is somewhat eroded.

“Whilst, at the time those companies tendering for the contract would justifiably expect the information to be confidential and that they could rely upon confidentiality clauses, I am not able to support the non-disclosure due the fact that the FOI Act creates a significant argument for disclosure that outweighs the confidentiality agreement once the tender exercise is complete and a reasonable amount of time has passed.

“I therefore do not consider this exemption [section 41] to be engaged. Please find the information you requested below…”

[In my FOI experience – making requests to central government departments – the internal review process has always proved pointless. So all credit to Peter Grogan for not taking the easy route, in this case at least.]

MP Ian Liddell-Grainger ‘s website on the “Southwest One” IBM deal.

IBM struggles with SAP two years on – a shared services warning.

Council accepts IBM deal as failing.

Was Audit Commission Somerset and IBM’s unofficial PR agents?

Shared services disaster: a gain for some officials and ERP suppliers?

By Tony Collins

Today an impressive report by the National Audit Office shows in detail how various shared services ventures in central government have, over time, cost rather than saved money.

Five shared services centres studied by the NAO have cost £1.4bn so far; they were supposed to have saved £159m by 2010-11 but the net cost has been £255m. Setting up the centres since 2004 has been good, though, for some suppliers (and officials who wanted to gain new skills in Oracle and SAP enterprise resource planning systems).

The Cabinet Office has now intervened and plans a new shared services strategy, based on the DWP [Oracle v11i ERP) and Department for Transport [SAP ERP] offering independent major shared service centres to departments and agencies.

One of the urgent drivers for the Cabinet Office’s publishing a new strategy in July 2011 was that three shared service centres face an investment of £47m to upgrade their Oracle ERP systems before November 2013, says the NAO.

“The current version of Oracle will not be supported by the manufacturer past this date,” says the NAO. “This means that if their core system fails, there is a high risk that they would not be able to re-instate it quickly. This gave the Cabinet Office an opportunity to see if it could derive better value-for-money options for shared services.”

Saving £32m on Oracle upgrade costs?

The Cabinet Office expects its new plans to save £32m on Oracle upgrade costs, says the NAO. Indeed the Cabinet Office has questioned whether departments need to use large ERP systems. It acknowledges that smaller, simpler software solutions may be appropriate, says the NAO.

Civil servants in search of new ERP skills rather than saving money?

The NAO report hints that civil servants at the five service centres might have wanted to implement new Oracle or SAP ERP software more than to save money.

Says the NAO: “The [shared service] Centres have prioritised increasing the number of customers or implementing new software, rather than working with existing customers to drive efficiency… There are other options to reduce costs in addition to increasing the number of customers or implementing a new ERP system.”

Indeed the NAO questions why the service centres bought big and expensive ERP systems that are now under-used, without looking at smaller and simpler accounting packages.

“These ERP systems [installed at five shared service centres studied by the NAO] are complex and it is not easy to modify them when needs change, such as when an organisation is restructured or processes are redesigned.

“We found the Centres are only using a small part of the capability their ERP systems provide. The systems are capable of handling larger volumes of transactions and more services and it is not clear why such expensive solutions were bought. Other smaller and simpler accounting packages were not looked at to see if they may have provided the required functionality.”

Concludes the NAO:

The shared services initiative has not so far delivered value for money for the taxpayer. Since the Gershon Review recommended the creation of shared services in 2004, the Government has spent £1.4 billion against a planned £0.9 billion on the five Centres we examined.

“By creating complex services that are overly tailored to individual departments, government has increased costs and reduced flexibility. In addition, it has failed to develop the necessary benchmarks against which it could measure performance. The Cabinet Office has issued an ambitious new shared services strategy to address these issues.”

Failing to standardise ways of working

Shared services are about standardising ways of working, not running separate services for every client but the NAO found that the five centres replicated old ways of working.

“The services provided are overly customised. We found shared services to be more complex than we expected. They are overly tailored to meet customer needs. This limits the ability for the Centres to make efficiencies as they have an overhead of running multiple systems and processes.”

Big cheques to big ERP suppliers?

The NAO said departments have wasted money on ERP systems – and now plan to spend more on DRP systems.:

“The software systems used in the Centres have added complexity and cost. All the Centres we visited use Enterprise Resource Planning (ERP) software systems. These are complex and have proven to be expensive. They are designed to manage all the information generated by an organisation by using standard processes. These systems work most effectively with large volumes of heavily automated transactions.

“With a lack of scale and usage in some Centres, limited standardisation and low levels of automation, the cost to establish, maintain and upgrade these systems is high. As a result two Centres intend to totally re-implement their existing systems with simpler, standard ERP software, despite the significant investment already made.

“All the Centres acknowledge they need to simplify and standardise their systems and reduce customisation.”

Cabinet Office took a back seat instead of driving sensible change

Says the NAO: “The Cabinet Office and Civil Service Steering Board could have done more to ensure shared services were implemented appropriately. While the Cabinet Office led by example in initiating their own shared service arrangements, more could have been done to challenge the performance achieved by customers and providers.

“They could have established reliable cost and performance benchmarks and done more to document best practice and lessons learned for customers. Also, they could have done more to remove the barriers to departments and agencies joining shared services.

“The Cabinet Office relied on a collaborative model of governance, which was consistent with the role of central government at the time. Under this model it was left to individual departments to implement shared services and eight shared services have been established. There has been little actual sharing of services between departments…”

Should officials have been forced to take part in shared services?

“Departments have struggled to fully roll-out shared services across all their business units and arm’s-length bodies,” says the NAO. “This is because participation has largely been voluntary. Of the five Centres we examined, three had not attracted the customers they had expected and two had potential spare capacity of 50 per cent.”

Cabinet Office is trying to repair the damage

Using DWP and DfT centres the Cabinet Office plans to have two independent shared service centres and a host of sub centres. But the NAO suggests the strategy may fail unless the Cabinet Office mandates the use of the centres. [But there’s no point in mandating change unless working practices are standardised.  If they cannot be standardised shared services may end up – again – costing more.]

Says the NAO  “The Cabinet Office did not have the powers to mandate shared services. Without a mandate, we do not think that coherent shared services are likely to be achieved. If there is an overall value-for-money case for the taxpayer, the Cabinet Office should seek appropriate authority to mandate the shared services strategy and its implementation.

“The Cabinet Office should also make sure that there is clear accountability for implementing its new shared services strategy.”

MPs ignored

“…the Committee of Public Accounts set out recommendations (on shared services) for the Cabinet Office in 2008,” says the NAO. “None of the recommendations have been fully implemented. All are relevant to shared services today.”

The five shared service centres under NAO scrutiny – and their ERP

• The Department for Environment, Food and Rural Affairs (Defra) Centre provides services to 16,000 customer users (full-time equivalents)7 from the Department and 13 of its agencies. Enterprise Resource Planning System: Oracle 11i, upgrade to Oracle v12 in 2012-13.

• The Department for Transport (DfT) Centre provides services for 14,000 customer users from the Department and four of its agencies. SAP ERP.

• The DWP Centre provides services for 130,000 customer users from the Department, the Cabinet Office and the Department for Education. Main site Norcross. ERP system: Oracle 11i, upgrade to Oracle v12 planned in 2012-13.

• The Ministry of Justice Centre manages two separate systems – serving 47,000 customer users for its National Offender Management Service and 27,000 for the Home Office. Enterprise Resource Planning System: Oracle 11i, upgrade to Oracle v12 in 2012-13 and plans to completely re-implement its system to remove all customisation.

• Research Councils UK Centre provides services to 11,000 customer users from seven Research Councils. ERP is Oracle 12.

Three major shared service centres not under NAO scrutiny

• The Ministry of Defence’s Defence Business Services, which was established in July 2011. ERP is Oracle 11i. An upgrade to Oracle v12 in planned for 2012-13.

• The Department of Health NHS Shared Business Services Ltd (joint venture with Steria) which does not provide services to central government. (ERP is Oracle v12)

• HMRC which set up a shared service centre – but no other departments used it. ERP is SAP.

Comment:

Anyone reading the NAO report could be forgiven for thinking that civil servants setting up shared service centres have aimed to fail, perhaps to prove to ministers that major change within central government is a bad idea. We doubt this.

What is more likely is that civil servants, encouraged by some suppliers, thought it a good idea to buy big ERP systems from which they thought savings would naturally flow. But big has not proved to be better. When will this message get through? Isn’t it time for civil servants to stop throwing money at big suppliers?

[And there may be some substance in the NAO’s hint that some civil servants have preferred to work on big ERP systems rather than save money. Having strong ERP skills is an insurance against job loss.]

NAO report