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 need to be really sure that the company delivering the service is suitably qualified.
I have questioned the business case because they have used completely unsupported assumptions that show both a commercial ineptitude and and lack of understanding of the way school meals operates. Previously I challenged these margins and received this reply from Barnet Council:
"As stated at the Committee meeting in January, the document presented to Committee was an outline business case, which was based on our assessment of the various options for the future delivery of these services and which of those options was most likely to meet the project’s overall objectives. The report made it clear that a full business case, based on the outcome of a procurement exercise, would be brought back to Committee for final approval. It was also made clear to Members that the only true test of the market would come by carrying out this procurement exercise and that proceeding to procurement was the only means of providing certainty over the delivery of the required savings".
When we had three bidders for this contract there was an argument that a dialogue might reveal that the business case was completely wrong. That very rapidly became two bidders, Capita and Mott MacDonald. Capita made it clear that they would subcontract out school meals to Compass so at least everyone knew what they were dealing with.
This week we found out that this tender competition has become a one horse race with Capita folding, leaving a clear run for Mott MacDonald who trade under the name Cambridge Education. They don't provide school meals services so for the first time this week we found that they would subcontract that element of the business to ISS Catering.
So to summarise the situation:
- Barnet have tendered a contract for which there is only one bidder;
- Barnet don't know what margin they will achieve on the largest component of the business and will depend on the sole bidder telling them;
- The company Barnet are in dialogue with don't actually provide the largest component of the service being tendered;
- Until this week no one was aware (other than a few senior officers) that the now sole bidder would subcontract the largest component;
- Capita who run the two large outsourcing contracts and have the best opportunity for economies of scale have walked away which may indicate that the contract isn't viable.
We are faced with a situation now which is entirely unsatisfactory, exposes the council to significant financial risk and from a governance and scrutiny perspective is inadequate.
I also believe that there is a glaring flaw in the entire process. The Barnet business case is for a Joint Venture with Cambridge Education. The largest part of this contract is the school meals service and without that hitting very aggressive growth targets they will fail to deliver the forecast savings. ISS, the school meals sub contractor, is a major player. They will not be part of the JV, merely a subcontractor to it. When opportunities to bid for more school meals contracts arise, say, in Harrow, Brent or Enfield, will ISS forgo a share of their profit to bid for these contracts as part of the Barnet JV or will they bid for them on their own - given they are specialist school meals caterers - and keep all of the profit to themselves. The JV model can only work where the partners are the major service suppliers and that is not the case with Cambridge Education. I forecast therefore that if Barnet enters a JV with Cambridge Education they will never hit the massive revenue growth targets which are predominantly school meals driven and as such they will fail to meet the budget savings required. Consequence - disaster.
I call on all councillors to suspend the dialogue process immediately and seek an in house comparator bid to at least provide some form of competition/comparison.I also ask them to reconsider the right to subcontract such a large component of the contract to a third party. If the council continue to push this through with a single bidder with a subcontracted school meals service, then they will have failed in their responsibility to demonstrate best value and in the future that decision will come back to haunt them.