Response to Review of Capita Contracts
Introduction:
The review
set out at Agenda Item 7 falls short of the standards that should be expected
when considering such an important decision. As such, any decision taken at
this meeting will have no credibility and may expose the Council to the risk of
a legal challenge. Worse still, it may fail to address the unsatisfactory
performance of Capita and provide poor value for money at a time when budgets
are under extreme pressure.
The Council
has chosen to withhold Appendix C which contains the business case that support
the decisions. Without that Appendix there is no way to validate or support any
of the assertions made in the report. I have asked both the Leader and the
Chief Executive to release Appendix C but have so far not even had the courtesy
of a reply.
There were numerous
misstatements and inaccuracies at the time these contracts were originally let.
Many of the concerns raised then have come true. Contracts reviews were carried
out in years 3 and 4 which found that everything was fine, yet we have been hit
with a series of recurring problems which suggest the reviews failed to
discover or address the underlying problems.
Starting
Point:
In July 2018
this committee resolved the following:
1. Agrees to review the council’s
partnership with Capita, and authorises the Chief Executive to develop a Full
Business Case.
2. Agrees that the proposed
strategic aims underpinning the Full Business Case should be to:
a) Deliver high quality
services; b) Secure best value for money for Barnet’s
residents; and
c) Strengthen the council’s
strategic control of services.
3. Notes the three options
identified and considered in more detail in paragraphs 2.4 to 2.7 and Tables 1
to 4.
4. Agrees that option 2 – realigning the
CSG and DRS contracts to bring back in house those services listed in Table 5 –
is the proposed preferred option to be tested in the Full Business Case.
5. Agrees that option 3 is fully
tested and considered in the Full Business Case.
6. Agrees that the Full Business
Case should review the joint venture arrangement for the delivery of
Development and Regulatory Services.
7. Agrees that the Full Business
Case should be considered by Policy & Resources Committee, for referral to
Council for final decision.
Eleven
months later and this has not been delivered, even though there was both a
clear rationale for doing so and unanimous approval by this committee. In the interim,
a meeting was held between the Council and Mr John Lewis, the Chief Executive
of Capita, but there are no minutes or details of what was discussed or agreed
at that meeting nor the extent to which that meeting has influenced the remit
and structure of this review. As such, it raises serious concerns about governance
and authority of this committee.
Capita’s
performance has been lamentable. The fraud and subsequent Grant Thornton review
exposed the fundamental failings of Capita’s systems, the inadequacy of
management and failure of the Council to adequately monitor Capita’s
performance. It was also noticeable that Grant Thornton identified that “the Business Director for Regeneration, with overall responsibility for
regeneration projects, had only nine months experience of regeneration and was
not directly involved in reviewing the financial management activity of his
managers. The role was geared more towards commercial account management,
focusing on the contractual relationship with the Council and not with detailed
functional and technical oversight of the projects themselves”. The
high turnover of senior management is a recurring theme across a number of the
failing services provided by Capita.
The Pensions
Regulator has fined Barnet and issued improvement notices because of Capita’s
failure to provide a basic service. Again, the churn of senior management has
exacerbated the resolution of the failings. Schools Payroll has been given a no
assurance rating by Internal Audit and 170 members of staff had pension
payments incorrectly deducted from their pay packets.
Highways
performance is poor in spite of spending £50 million on the Network Recovery
Plan. The complex contractual framework, the inability to agree and enforce
common KPIs between Barnet and Capita and between Capita and the Highways
contractor has made contract monitoring and enforcement much more difficult. Yet
again, there have been difficulties in recruiting and retaining a Senior
Highways Manager. It is also important to note that Capita were paid an
additional £1 million in gainshare on the Highways Contract even though London
Councils initiated the contract.
Customer
service has failed to meet targets with calls to Housing Benefit and Council
Tax, having failed to meet the agreed KPI in any single quarter since the
contract started, even though the 20 seconds service level target for answering
calls was raised to 60 seconds.
What makes
this situation even worse is that Capita claimed an additional charge on top of
their core fee because the number of calls answered exceeded the contracted
volume.
IT has been
a consistent failing service. The implementation of the Mosaic casework system was
commissioned from Capita as a special project for which they were paid extra,
on top of the contract fee. However, they still failed to deliver the system and
new external consultants were commissioned to implement the system incurring
additional costs. It has also caused significant operational difficulties and
is sufficiently serious to be identified as a red risk on the Corporate Risk
Register (AC028).
Procurement
has been poor, with Capita being paid £5.9 million in gainshare on procurement
contracts even though it appears to be generally realised that the savings were
nothing more than smoke and mirrors. This became even more apparent at the
Urgency Committee on 30 November 2018 when a settlement was agreed with Capita
to cease claiming any further procurement gainshare payments.
Capita’s
performance has, by any measure, been poor. A constant churn of managers with
posts vacant for prolonged periods, has prevented problem resolution and
contributed to the continuing poor performance. The failing performance is not
just my opinion, it is also the opinion of Council Users and Commissioning
Officers who gave 9 out of 10 indicators a Red rating with 7 of the 10 ratings
worse than last year.
Methodology:
There is no
transparency about the methodology used to carry out the review, who carried it
out and who peer reviewed or sense checked the findings. In particular, I would
note the following issues:
·
It appears that the review has
looked at individual, silo based services and carried out a like for like comparison
of costs. That is an artificial basis and ignores the synergy and savings that
could be generated if the service was restructured. I have repeatedly asked
that the review should take the opportunity to consider a restructuring of
service which could generate significant savings that would not be realised on
a simple like for like in-sourcing exercise.
·
There is no transparency on the
cost base used for comparison. For example, the cost of the service as set out
in the contract is not the price paid by the council. Each year the council is
invoiced separately for Indexation to reflect the cost of inflation. In 2017-18
Barnet were charged an extra £1,668,464.23 for indexation, split £937,502.23 on
the CSG contract and £730,962 on the Re contract. It is not clear if a
proportion of the indexation charge was allocated to each service when the
comparison against in-sourcing was made. If it was not included, then it will
artificially inflate the savings of the Capita service.
·
Any comparison between the cost
of the Capita service and an in house service must take account of the inferior
and unsatisfactory service provided by Capita. Failure to consider this will mean
that the comparison will be between a non compliant/unsatisfactory service with
a fully compliant in house service. This will always place the fully compliant
service at a financial disadvantage.
·
Mention is made of the cost of pension
liabilities of bringing staff back in house. However, it is important to note
that in 2017/18 Barnet paid Capita an additional charge, on top of the contract
fee, of £3.849 million in Pension Strain, Recharges and Costs. In 2016/17 the figure was £5.211 million. It
is not clear if these additional charges were included in the cost calculations
but if they were not, it may artificially inflate the savings of the Capita
service.
·
Revenues and Benefits have
defined workloads that Capita will provide within the contract fee. In 2016/17
Capita were paid an additional £428,267 for workload that exceeded the contractual
limit. In 2017/18 Capita were paid an extra £190,953 for additional workload. It
is essential to understand how these excess workload payments were factored
into the calculations. If they were not included, then it will artificially
inflate the savings of the Capita service.
·
Customer Service has defined
volumes included with the contract. In 2017/18 Capita charged an extra £415,876
because the contracted volumes were exceeded. It is not clear if these
additional charges were include in the cost comparisons but if they were not,
it may artificially inflate the savings of the Capita service.
·
A huge amount of Council senior
management time has been taken up dealing with the problems generated by
Capita. It is not clear whether the cost of resolving Capita failings has been
included in the calculation but if not it will artificially inflate the savings
of the Capita service.
It may be that
all of these additional costs were factored into the business case calculations
but as the public do not have sight of Appendix C it is not possible to make
that assessment.
The
Cost So Far:
To date, the
cost of the two contracts has amounted to £398.5 million, £145.9 million above
the contracted value. While some of the additional
cost is for projects that Barnet may have had to procure separately, it is
clear that overall, the costs have been much higher than expected.
There is
very little transparency of costs on the Re contract. However, based on the most
recent benefits realisation table published last year, an analysis of the CSG
contract suggests that in the first 5 years of the contract, no actual savings
have been realised as demonstrated in the chart below.
Conclusions:
In July last year there was a clear view that a range of services
would benefit from being brought back in house. So far just two services have
been in-sourced: Finance and Strategic HR. The Council has an opportunity to
rethink how it is structured and how it can create a sustainable financial
model in an environment of continuing central government funding cuts. This report
ignores those opportunities and opts for the status quo of a commissioning
council, with Capita providing services in silos from geographically dispersed
offices around the UK. This model has been shown as failing in the direct
services provided by Capita. However, the silo structure that forms the basis
of the Capita contract has also had a negative impact on other services provided
by the Council. This was highlighted by the Children’s Commissioner in her report into Children’s Social Care Services in
the London Borough of Barnet of January 2018, where she said, “Silo working was pervasive throughout the Council. While lack of ‘join
up’ is often seen in large organisations, the silos found in Barnet at the
corporate level mitigated against the potential of SCB to make a strong
contribution to support the improvement for children”. Capita’s
contract structure reinforces the silo structure of the Council while
delivering unsatisfactory services. Maintaining the status quo with Capita will
maintain silo working limiting the Council’s ability to deliver real change.
When there
is a problem, decisive action is necessary. The fraud and the subsequent report
from Grant Thornton was a wake-up call that Capita were failing in so many
aspects of the service. This was the opportunity and impetus for change. The
report to the committee appears superficial and without rigour. It shows a
reluctance and timidity to change and resolve the problems that are clear for
all to see. It suggests your acceptance of failure by Capita and that there are
no better solutions. Please do not accept the officer recommendations and ask
for a more thorough and rigorous examination of the options.
