Monday, 22 January 2018

Is Gainshare Costing Barnet a Fortune? - Part One

When Barnet signed up for the outsourcing contract with Capita it was claimed that there would be lots of savings. As anyone with an ounce of sense knows, something that sounds too good to be true usually is. At the time the contract was signed most people, including many councillors, were in the dark as to the details of the contract because it was "commercially sensitive".

What many may not have realised is that Capita are guaranteed a minimum share of any procurement saving before the remaining savings are shared with Barnet. This is known as the 'Agreed Procurement Price Recovery' (APPR) which was explained to me as follows: 

"The CSG contract includes within it investment into the procurement service by means of subject matter experts that aid in delivering the guaranteed procurement saving. This investment is self financed through savings generated over and above the guaranteed position to the council". 

However, if Capita don't achieve enough saving to cover the minimum guarantee to Barnet and the Agreed Procurement Price Recovery, they can roll over their APPR share and claim it back the following year. 

The procurement savings claimed are large, although some may  be surprised just what they claim savings on. Below is a list of the procurement gainshare paid to Capita last financial year.
I would note that the claimed savings as reported in the accounts do not appear to coincide with the invoices provided by Capita for the claimed savings and, as such, gainshare payments. What is noticeable is that Capita are claiming gainshare on vital services such as Domestic Violence, Children's and Adolescent Mental Health Services (CAMHS), Stroke Services and Return Home Interviews to name just a few. What is also interesting is that a number of these payments were subsequently credited back to Barnet as they were not substantiated. What worries me is that Capita are trying to make money from vital services which must be considered in terms of the QUALITY of the service not just the COST of the service.

It would also be interesting to understand to what extent this process is tying up council staff trying to assess whether these savings have actually been delivered given a number have been rejected.

 Just to be clear, these are just the procurement gainshare savings. In addition, Capita also claim gainshare on reducing single person discounts, increasing collection rates on council tax, generating additional rental income on council properties and generating additional capital receipts on property sales. Barnet summarise these savings and below is the summary of how much has been paid to Capita on the various gainshare clauses since the start of the contract:

Be under no illusion, gainshare is very profitable for Capita and, as I understand it, is included in a number of their other contracts. However, should we, in Barnet, be hanging on to more of those savings, if they actually exist at all. I have asked this of Conservative councillors on a number of occasions where their view is "it is better to have two thirds of something than 100% of nothing".

While there is a logic to that statement, it is of course not comparing like for like. This year alone we paid Capita a guaranteed payment of £970,000 for their procurement "subject matter experts". This is on top of the standard contract fee we pay them for managing the day to day procurement function that is part of the CSG contract. Based on many year's experience in business there are always some "low hanging fruit" or easy wins to be gained whether that is sales, savings, or service changes. If you are the client, what you want the contractor to do is actually look at the tougher areas where savings, sales or service changes are harder to realise. As such you would typically incentivise the contract so that on the first slug of changes generate minimal benefits for the contractor but once they have over come that threshold they then start to benefit.

My view is that if Barnet were serious about procurement savings they could employ a red hot Head of Procurement on £100,000, which seems a pretty competitive salary if you look at current vacancies on Indeed. Give them an assistant manager and an admin person and that comes to  no more than  £200k per annum including on costs. Capita only addressed 21 procurement items during the year  2016/17 and a number of those, such as building maintenance and agency staff, had been agreed in previous years, so the workload isn't huge. That way we spend £200k but save £770k on the Agreed Procurement Price Recovery payment and keep 100% of the other procurement savings rather than handing over a third to Capita. It makes sense to me but why don't Councillors see it the same way?

I will be looking into the gainshare deal in more detail in a series of blogs in the coming days so please keep following.

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