Tuesday, 27 November 2018

Will the £4m cheque buy Capita another 5 years?

Updated below in Red
Urgency Committee meetings are designed to pick up urgent matters that can't wait to be dealt with at other scheduled meeting. This meeting popped up in the calender last week and will be held this Friday morning at 8.30 am with the single issue of whether the Leader should authorise the acceptance of a £4.12 million cheque.  In most cases people would be cheering at getting a welcome cash injection just before year end. In this case it is what the payment is for that is most troubling.
The report is titled 'Commercial Settlement of Historic Issues' a rather startling title and I think not as intended. I think the intention was to discuss previous (historical) issues but they may have been historic as well in so far as they will be remembered for many years as one of the most disastrous deals ever done in Barnet.

This report provides an overview of the £4.12m cash settlement payment to the Council negotiated between Capita and the Council to resolve historical commercial issues related to the CSG (NSCSO) and Re (DRS) contracts.
The key items that form this proposed commercial settlement are:
  • Mosaic (the Adults Social care system) – new IT system implementation that experienced issues with timeliness and quality of delivery;
  • Development pipeline – delays in delivering housing on council land;
  • Increased monitoring associated with financial controls – to cover cost of Grant Thornton and additional council resources (in addition to first payment made in September 2018);
  • Procurement gainshare – settling of respective claims; and
  • Miscellaneous items – estates compliance (related to 2013 to 2016); and KPI failures related to the Re contract.
In theory this may look attractive  but a further analysis of the problems suggest that Capita are getting off lightly. The Mosaic Case management systems has been an unmitigated failure and in July the council identified that it would cost £4.2 million and a new supplier to sort it out. The fraud and consequent Grant Thornton Report has not only cost a fortune but taken up huge amounts of senior officer time to try and sort of the mess and to implement control procedures that Capita should have put in place 5 years ago. The gainshare rip off is nothing short of a scandal and deserves much greater scrutiny and the KPI failures are numerous and serious.

So the payment is welcome if somewhat low compared to the actual costs Barnet has been subject to. However the sting in the tail is that paying this £4.12m allows Capita to sidestep their procurement savings guarantees of £30.17 million over the next 5 years. The argument is that we will now receive 100% of the savings. Given that most of the savings have already been squeezed out of the procurement budget, the risk now is that we receive 100% of not very much instead of a guaranteed £30 million.

My really big concern is that this has been pushed through as an urgency item to forestall any decision about Capita's future services to be discussed at the Policy & Resources Committee on 11 December. We have already seen that we are not going to get the agreed full business cases on which services to bring back in house. This cheque has the potential to render the meeting on 11 December entirely redundant other than as a talking shop.

I will blog more about this after the meeting  on Friday but below are the questions I have submitted.
  1. Please can you provide the notional allocation of the £4.12 million attributed to each of the 5 items set out at 1.1 (a)-(e)
  2. Given that at the July Policy & Resources Committee the report noted that the costs of resolving the problems with the Mosaic system were £4.2 million and that there “are differences in views on who should pay for the £4.2m costs” can you clarify whose views have prevailed in this settlement and how much of the £4.2 million Capita are paying?
  3. The report notes that the payment of £4.12 million removes the liability for Capita to deliver net guaranteed procurement savings which amount to £30.17 million over the last 5 years of the contract. What impact does this have on the overall guaranteed savings of £126 million over the lifetime of the CSG contract and what are the risks of these savings not being delivered?
  4. In the financial  year 2019/20 will Capita receive £356,000 under the Agreed Procurement Price Recovery (APPR) mechanism as set out at 41.27 of Schedule 4 Price Payment Mechanism?
  5. Given that Capita will no longer receive any gainshare on this contract and APPR would have ceased after 2019/20 anyway, what incentives are there for Capita to fully resource the procurement function?
  6. Given that Capita have commenced formal redundancy consultations to cut 72% of their Corporate Programmes Team working on the Barnet contract, what reassurances have been provided by Capita that they will not cut the number of staff in their procurement team down to the bare minimum and /or move out the most talented staff to other contracts where they do receive a gainshare?
  7. Can you clarify if, by signing this agreement, it precludes the procurement team from being TUPE’d across to Barnet before the end of the contract?
  8. The report notes that no gainshare has been paid in 2018. However, advance claims were made and paid in 2016/17 for the entire three years of a contract which include 2018/19. Will those advance payments be recovered and if so what proportion of the £4.12 million do they represent?
  9. Can you clarify how much of the net guaranteed procurements savings were actually delivered in 2017/18 and, before this settlement is agreed, can you provide evidence that any shortfall in historical guaranteed procurement savings have been met?
  10. The report notes that procurement gainshare payments to Capita in 2017/18 were approximately £2 million. Can you clarify how that sum is broken down given that the Capita invoices suggest that the sum was  £1,665,543.26 and that of that sum, £534,000 was paid at the rate of 100% to Capita under the APPR mechanism (i.e. Capita received 100% of the savings and none was shared with LBB).
  11. Can you clarify if, by accepting this payment, this automatically guarantees that Capita will continue to provide the procurement function until the end of the contract irrespective of what the Business Case being presented to P&R in December finds?
  12. Does the payment of this sum guarantee that Capita will continue to provide any other services for the remaining 5 years of the contract irrespective of what the Business Case being presented to P&R in December finds and if so what are they?
  13. Does the offer of £4.12 million from Capita crystallizes an acknowledgement of financial loss exceeding £500,000 and  by accepting this payment does this preclude Barnet from invoking Step In Rights as set out at 21.1.1 in the contract?
UPDATE: 1 December 2018
I attended and spoke at the committee meeting yesterday. You can listen to what was discussed here and clicking on the sound bar. My appeal to the Councillors was not to refuse the payment but, at this stage, to defer the decision until the Policy & Resources Committee on the 11 December when more councillors would be able to scrutinise this decision and for more information to be provided to inform that decision.  Given that the payment from Capita will not go through until January anyway, deferring this decision by 11 days would have had no impact of the timing of the payment. It would have also allowed this to be discussed alongside the review of the Capita contract so the two items, which are inextricably linked, could be dealt with together. As is the way in Barnet, two councillors, Richard Cornelius and Dan Thomas, made the decision to press ahead, out-voting Barry Rawlings who was in favour of deferring the decision.

One thing that did come out during the course of the meeting is whether these savings are real or not. Because of the way the contract is written with a baseline for costs being set in 2012, it appears that any savings that are made at any time during the 10 years of the contract trigger a gainshare payment for the remaining duration of the contract, even if Capita had little or no involvement in the process. This is what I have always suspected but this seemed to be clarified in the responses and discussion to my supplementary questions. I have blogged about the one sided and anomalous gainshare process many time especially where contracts are let by council consortia. One such contract is the highways contract - LOHAC which is a London Highways Alliance and TfL joint initiative - you can read about it here. In the last two years Capita have claimed £1 million in gainshare on this contract. Part of the deal offered means that they can no longer claim gainshare on any procurement - which is a good thing. What it does do is make a complete nonsense of the often repeated statement that Capita is saving us £1 million a month. Over the period of the contract Capita claimed to save Barnet a net £47 million on procurement.  This meeting highlights that these savings are nothing more than smoke and mirrors and would have been saved anyway with or without Capita as part of the normal council procurement process. 

As such I can start to see why this might be a better deal for Barnet than sticking with the original contract - BUT it fundamentally undermines the rationale for outsourcing in the first place. In which case the best option would be to take the money and sack Capita. The problem is that by taking the money I suspect it makes it much harder to sack them. Cllr Thomas also made the bizarre comment that it was good that we had outsourced because when the contractor fails we can claim compensation unlike in house teams. The issue is if you outsource contracts you don't expect them to go wrong and getting Capita to constantly pay up for failure just means we have a failing service.  

Time will tell what happens but given the tactics employed yesterday I have no confidence that we will see a fair and balanced business case appraisal on 11 December. 

My speech to the committee is below:

"The question is “does this deal represent good value for money. The council’s legal advisors say it represents “good value” but there’s not a single piece of evidence to support that statement. This 5 page report contains no detail, no risk assessment, no analysis of how the sum has been calculated, yet you are being asked to make a decision which could have major financial consequences over the next 5 years. This sum doesn’t cover the cost of fixing the Mosaic system. We still don’t know what the final bill will be for all the additional management time and control systems to address the fraud let alone the total cost of the Grant Thornton report. We’ve paid just shy of £8 million in gainshare on alleged savings which may not have been cashable.
By accepting this offer you remove Capita’s liability to pay £30.17 million of net procurement savings. The contract was back end loaded with two thirds of the savings falling due in the last five years which they will now avoid. You may argue that by taking away the gainshare guarantee we get to keep 100% of the savings. The problem is that the level of savings look entirely unrealistic. The two largest alleged savings were on the Comensura and LOHAC contracts. Comensura has been replaced and LOHAC savings are currently subject to challenge with the external auditor. Some gainshares were only derived because officers had set an indicative budget too high. The risk is  Barnet receives 100% of not very much maybe  £1 -2 million a year at the most. This would leave us with a £20-25m shortfall against the guarantees. There’s no risk analysis, no forward procurement projections, no advice from external procurement experts. Approving this deal without those documents or advice would be nothing short of criminally reckless.

I urge you to defer this decision and deal with it at the Policy & Resources Committee on 11 December alongside the Capita business case review by which time officers can provide the level of detail a decision such as this deserves and allow greater scrutiny by more councillors. The payment is not scheduled till January so deferring the decision for two weeks will have no impact on when you receive the money. Making the decision now could cost the council at least £20 million. Think carefully, you will be held accountable".

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