Wednesday, 5 June 2013

Barnet DRS Savings - an Equitable Split?

Going through the DRS Business Case which will be discussed at the Budget & Performance Overview & Scrutiny Committee  on 11 June, there are some very strange numbers which I hope to explore in a bit more detail.

The basis of awarding the contract to Capita is that they will "save" £39.1 million over 10 years of the contract. When you dig into the figures the reports says that actually the £39.1 million of savings are made up of £5.3 million of cost reduction and £33.8m of "net income growth". So on the face of it Capita aren't going to make that much of a cost reduction but they are going to hike up prices to customers (like you and me) and sell DRS services to other local authorities.

However, if you read the detail within the report and buried away on page 38 in Table 8.2 there are some percentages for cost savings which start to illustrate just what a convoluted contract this really is. What is says is that Capita envisage making cost savings of 21%.  The report says that Barnet will receive 3.5% of that 21% and that equates to £5.3 million. They also state that 4.5% of the savings will be reinvested which equates £6.8 million although I can't quite understand where that reinvestment will take place other than to fund the investment Capita are already claiming in IT software and hardware. But then we come to the key figure which is the value of cost savings that  Capita will retain. Based on the report, this suggests that Capita get to keep £19.7 million.

So let's just look at that again. Capita cut costs by c£31.8 million, Barnet get to keep £5.3 million of that and Capita get £19.7 million with the balance reinvested. Now to me that looks like a rotten deal and a long way from what I would see as an equitable split.

Barnet will apparently receive £33.8 million of net income growth but what worries me is that someone will find a reason for that income not to be realised yet Capita will get to keep the lion's share of the cost savings. Surely Barnet should have said "we will keep most of the cost savings and you get to keep most of the new income growth". All very strange and hopefully more will be revealed at the meeting next week. More on the DRS contract tomorrow.

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