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.

Special Projects - Capita's nice little earner at Barnet

Before the CSG contract with Capita was signed, Councillor Hugh Rayner made a very insightful observation which, thanks to the sadly missed, Dan Hope, we can still see below. Cllr Rayner made the observation that in many contracts the profit is made in the "extras".



As part of my inspection of  Barnet's accounts, I have analysed all of the invoices and the supporting data to compile a list of all the extras, contract variations and special projects which Barnet have paid Capita to carry out on their behalf.

In terms of contract variations  and extras there have been a number including routing library calls through the Capita call centre. Apparently this was omitted from the original contract so as a result we were charged £453,580 for that service in the first two years of the contract. I did some analysis of call volumes and by my reckoning it worked out at a charge of just over £8 per call.

In the most recent contract variations schedule Barnet agreed to move the Single Fraud Investigation Service (SFIS) from the council's own staff in the Corporate Anti Fraud Team (CAFT) to Capita's CSG Revenues and Benefits team. That means an additional charge by Capita of £112,291. Whether we will save £112k of salaries by reducing the CAFT is a moot point. Also Capita have been given the task of administering the Barnet Crisis Fund. Again this will be undertaken by the CSG Revenues and Benefits (Revs & Bens) team as a cost of £449,166.67. (You can read them both here at page 85).

Update 13 July 2018 - welcome Guardian Readers have a look at some of the findings from the most recent accounts - there are some real shockers here, here, here and here.

One might suspect that the Revs & Bens team have got plenty of spare time on their hands  to be able to take on this extra work. Yet trawling through the Capita invoices for 2016-17 I see that Capita charged Barnet an extra £330,228 for the extra workload above the agreed contract thresholds plus an extra £98,039 for "face to face" support.

We also had to pay an extra £14,400 for 12 executive coaching sessions provided by a subsidiary of Capita to senior council officers. One invoice mentions the name of the recipient of 6 of those coaching sessions but I will spare their blushes here. However, paying Capita £1,200 per coaching session seems quite lucrative to me.

So now we move on to special projects. These are items that weren't included in the original contract and for which we pay Capita at pre agreed consultancy day rates. We don't know what those day rates are because this is one of the items Barnet/Capita want to remain secret even though both parties agreed in the contract they would be disclosed after three years (see my previous blog).

To be clear, these charges are just for Capita's input at pre-agreed consultancy rates. While some of the projects may have always required external support, there are some which in the past may have been able to be carried out by council officers within their normal duties. This was confirmed by an officer when I asked the question a a committee meeting.

The list is long so apologies if it looks a bit boring. The key issue here is that there are so many projects and in total they add up to over £16.8 million. Have we had value for money? Certain Conservative councillors will says yes, we have had value for money because the day rates charged are similar to other consultants. Grant Thornton were commissioned to carry out a review of the Re special projects of which they said,

"In addition to the core contract, there is substantial expenditure on projects and the Review brief anticipated that the Review would pay some attention to this aspect. However, timelines have not permitted detailed reviews of individual projects, so the focus has been on value for money. Despite the use of external support, it has proved difficult to obtain sufficient information to conclude whether or not overall project costs represent good value for money and it is proposed that officers should explore this further". 

Grant Thornton also commented, "Our benchmarking identified that a clearer understanding would be achieved if margins and costs were considered in relation to prices charged for service delivery".  So the answer is we don't know.

A few highlights from special projects list below include: £248,000 for Family Services Recruitment, £1.4 million for work on the libraries downsizing, £1.52 million on project managers, £895,000 for Greenspaces support. Some, many or all may be perfectly legitimate but without a doubt this is a significant money earner for Capita.

So my question is are we being ripped off on any of these projects and are they really saving us money? I think Cllr Rayner was right on this one.