Tuesday, 2 June 2015

Barnet and the Dodgy Business Case

Today some Barnet Council staff are on strike about the continued outsourcing of services in Barnet. Already we are starting to see the wheels are starting to come off existing outsourced contracts with over grown cemeteries and the "Inadequate" rating given to an outsourced care home (read the damning Care Quality Commission report here).

What makes this situation much worse are the entirely dodgy business case reports that have promoted outsourcing as the answer to all our woes. In the original CSG business case it was based on Capita making a major investment in IT because Barnet didn't have the money. Yet once the  contract is signed we find the Council advanced a massive capital sum of £16 million to invest in the IT. For the Your Choice Barnet contract, which involved outsourcing adult social care to Barnet Homes, the business case was predicated on generating income from other local authorities which, surprise surprise, failed to materialise.

In the latest outsourcing scheme, which focuses on educational services we have another dodgy business case which uses assumptions which are entirely unsupported and without any benchmarks to justify a joint venture. The business case is here

The services being outsourced include:
  • Strategic and financial management of the service
  • School improvement
  • Special educational needs
  • Educational psychology team (part traded)
  • Admissions and sufficiency of school places
  • Vulnerable pupils
  • Post 16 learning
  • Traded services including:
  • Catering service
  • Governor clerking service
  • Barnet Partnership for School Improvement (BPSI)
  • Newly Qualified Teachers support
  • Educational psychology (part)
  • Education Welfare Service (part)
  • North London Schools International Network (NLSIN)
The problem is that much of the justification for pursuing an outsourced joint venture is predicated on generating a large amount of new income from traded services with other local authorities. In total 71% of the financial improvement is from income growth rather than efficiency savings and of that 60% comes from school meals. Given that school meals is such an important component of the outsourcing package you would have thought that whoever put the business case together would have made sure their assumptions were accurate or at least supported by benchmarks. 

The problem is they have used very generic assumptions, specifically around the profit margin that school meals generate. In the business case they have assumed that school meals generate a 20% margin and the Council's justification for this is that the current service will pick up most of the fixed overheads. However, speak to anyone in school meals and they will tell you that a 20% margin is a complete fantasy and many school meal services just about break even. Indeed Barnet's in house school meals service is well regarded and generates an operating profit of £190,470 on a turnover of  £7.1 million or a margin of approximately 2.7%.

Having asked the council to tell me what school meal service in the UK operates at a margin of 20% the answer came back none, or rather we don't know. By using a profit margin of 20% that generates a forecast profit of £963,000 it suggests a turnover target of £4.8 million. However, if they have got the margin wrong and it is 5% then to generate the same level of profit they will need to generate £19.26 million of additional school meal sales or approximately 9 million school meals, a huge increase which seems entirely unrealistic. I have brought this to the attention of the council including Richard Cornelius but no one seems particularly concerned.

We are being pushed down an outsourcing path, not because it makes financial sense but because of political dogma and anyone who challenges the financial logic is branded a troublemaker. If the outsourcing follows what happened with Your Choice Barnet, where all the promised revenue growth failed entirely to materialise, then the risk is that staff will be forced to take pay cuts and services will be reduced in the same manner as YCB and that is unforgivable.

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