Capita Week - Today's Spotlight on Birmingham

Today's spotlight is on Capita's role at Birmingham City Council. Service Birmingham is a joint venture partnership between Capita and Birmingham City Council.  It provides information and communications technology (ICT) services and manage the council's revenue service and contact centre, as well as a number of other large and small scale IT enabled solutions to Birmingham City Council as part of the joint partnership agreement.

Between July and October 2012 a specialist consultancy organisation, Best Practice Group PLC, undertook a review of the Service Birmingham and  they published their findings in a report which you can download here.

The key findings were as follows:

• SB Board governance needs strengthening; there was no independent chair or members on the board which is definitely not best practice. Worryingly, I suspect there will be similar governance issues for Barnet. There is only one councillor on the proposed Board overseeing the NSCSO contract and as far as I am aware no residents. Governance is an issue on which Barnet does not have a glowing track record, it is secretive and it does its best to shut out the views of residents.
• Value for money/performance could be enhance; due to the secrecy in the One Barnet contract and the lack of a public sector comparator we will never know whether the NSCSO contract with Capita will represent true value for money.
  
• Partnership working has improved but challenges remain; partnership working is always difficult where the two partners have such differing objectives. Barnet want services to be of a good standard and Capita want to deliver a high return on investment for their shareholders. Such conflicting objectives will always make for a tense relationship and that inevitably leads to a sub optimal solution.
  
• Intelligent client function (ICF) team has more to offer; in Barnet we will have a thin client function and the risk is that it simply will not be sufficient to drive the contractor to innovate and enhance the service beyond what is specified in the contract. That could lead to ten years of inertia in terms of service improvements.
  
• Innovation in the partnership needs reinvigorating; the problem with a ten year contract is that once the initial honeymoon period is over there is no incentive to keep innovating. If Barnet had chosen a five year contract there would be a greater incentive on Capita to keep innovating but with a long contract and a 5 year extension option, there is no real incentive for Capita.
• Management of value in projects is not being maximised; in Birmingham, Capita had a duty to validate the value of both existing and on-going projects. If Capita do not have a financial incentive to do so why should they invest resources? In Barnet we are not clear in Capita have a similar role because we are not allowed to see the contract but I suspect that if there is no financial incentive for Capita to do anything outside the specification they won't.
  
• Flexibility required for pass-through charging; basically SB get a fee when managing a contract even if BCC had all the expertise and set up the deal. This is always an issue in contracts where there is adherence to the letter of the contract rather than the spirit of the contract. I suspect that the naivety of Barnet will lead to similar situations arising.
  
• Concerns over SAP project work being off-shored; although SAP has been implemented in Barnet there may be a risk at some time in the future that some of the data entry work may be off-shored. We have had some reassurances that call centres will not be off-shored but I do not recall the same assurance about data entry, software development, IT management etc. All I do know is that when contract costs come under pressure, Capita have a habit of off-shoring the work. Only time will tell.

The report also highlights some other serious issues. For example, it found that there was a significant reduction in the number of IT Support Staff. The reports states:

"There were 82 staff members leaving SB in the period, with only 32 joining. SOCITM (the professional society of Public Sector ICT Management) refer to this as ‘Staff Turmoil’. SOCITM define “turmoil” in this case as covering all the activity that is associated with the management of staff when they leave or join the organisation. Familiar activity can include exit interviews; advertisement; recruitment interviews internally and externally; consequential promotions; redistribution of workload and further interviews.
SOCITM caution “At low levels this turmoil can be helpful in bringing in fresh ideas, new experience and different skills to the organisation, but at higher levels (>10%) it becomes a drain on management resources and reduces overall productivity owing to the loss of information and experience, recruitment overhead and familiarisation of the new members of staff”. Without appropriate context from SB, such information can create uncertainty within the staff ranks."

In terms of procurement of IT the report states:

With the exception of desktop computers and based on the evidence provided to us at the time of writing this report, our analysis of the SOCITM benchmarking report indicates that SB could do much better with regards to the procurement of standard infrastructure (including laptops).
Based on the examples provided and the evidence from the SOCITM benchmarking survey, it is our view that generally, SB’s procurement capability is adequate when it comes to bulk purchase of standardised items. There is a lack of evidence to demonstrate that specialist project related purchases that fall into the £25,000 to £100,000 band (small to mid-range systems) are generating appropriate value.

Given that Capita will be responsible for Barnet Council's procurement function, I found this statement deeply worrying.

In terms of Key Performance Indicators (KPIs) upon which the contractor's performance is judged, the report states:

Having briefly reviewed the KPIs against several months of performance data it is evidenced that, despite the odd ‘glitch’, on the whole these KPIs are being met and exceeded by SB. Given the concerns from BCC about maximising value, this would indicate that these KPIs are in need of urgent review in order to replace those not now appropriate. The opportunity should also be taken to increase the standards of those which are still relevant and are being reliably reached and exceeded.

My experience is that KPIs can be a blunt tool and that meeting them does not always mean that the contractor is delivering the best service. We are not privy to the detail of the KPIs set by Barnet but I suspect that we will run into exactly these problems in the NSCSO contract.

If you have a spare 30 minutes the report is well worth a read. My big concern is, did any of our councillors read this report? Did they go and talk to anyone from Birmingham in depth about the contract performance and if so what lessons did they learn. Sadly, the impression I get is that Councillors have been spoon fed with information from the external consultants and senior officers who all have a massive incentive to get this contract implemented.

Barnet Council, Andrew Travers and the myths propping up One Barnet

Last night was the Business Management Overview and Scrutiny Committee at which the One Barnet outsourcing project was discussed. I was pleased at the probing questions put forward by Cllr Brian Salinger and Cllr Hugh Rayner; they have experience and a dose of common sense. However they seemed to have been fobbed off by vague and rather vacuous responses from acting CEO Andrew Travers and supported by the somewhat bizarre comments of Cllr Rowan Turner who, it appeared, didn't have a clue what he was talking about.

The issue of flexibility is a perennial problem in contracts. Make them too inflexible and every time you make a change it costs you money - that was indeed Cllr Rayner's point. However, making contracts too flexible simply adds costs as the contractor builds in the need to change into their contract price. I have seen it time and time again where clients ask for a load of flexibility and the contractor simply costs it into the price. The more naive client thinks they have a very accommodating contractor but contractors are in business to make money, pure and simple. With the DRS and NSCSO contracts they are extremely complex and simply specifying the service is difficult enough. Identifying and modelling the financial consequences of changes to the contract and building that into a change mechanism is colossally complex and exceptionally difficult to achieve in a workable format. That is where I think this contract will go horribly wrong. For what its worth my experience suggests that the lawyers on both sides will make the contract as tight as possible setting up an adversarial position from the outset.

Joint venture versus supply contract is the next issue that was glossed over. My experience is that JV's can work well when the objectives of the two parties are closely aligned. The classic is when two parties come together to supply services to a third party for profit. in that case both client and contractor share the desire to maximise profit. In Barnet's case the situation is quite different with the majority of the services provided without a direct charge to the end user. So for example you don't get charged when you contact the council but that process has a cost and the customer has no alternative - you can't go to another council to ask them about your council tax bill. As such the council will have an objective about dealing with the enquiry efficiently and resolving the problem whereas the contractor simply wants to deal with the query as quickly and cheaply as possible. In a JV there will be continuing conflict between the two partners and it is for this reason that there is a very high risk that the contractor may end up breaching the agreement, just as has happened at SouthWest One where the JV is suing one of the partners, Somerset County Council.

Length of contract was something Cllr Turner ventured his opinion on. In my experience there is no set length for a contract. It is a balancing act which considers how much time the contractor needs to start making a difference, and how long they need to recoup any capital investment they make in the contract. Some contracts are ten years because that is how long the contractor needs to write off their investment. Other contracts where there is very little capex can be as short as two or three years. However, contractors will always push for as long a contract as possible because they know that the capitalised value of the revenue stream from the contract can help to boost the value/share price of their company. They also know that bidding or re-tendering for contracts is an expensive process and needs to be avoided for as long as possible. From a client perspective the first two years are where the contractor is getting into their stride and hopefully by year three they are performing at their optimum.If the contract term extends significantly belong that time, the issue becomes one of how to keep the contractor motivated - carrot or stick. the problem is if you are locked into a contract the ultimate stick, contract termination is not in the repertoire. You also get issues relating to continuing investment in infrastructure and training which get put on the back burner when there are still five or six years left to run on the contract.

Now it may be that all these matters have been adequately addressed but, because of the secrecy shrouding this process, we will never know. Only the consultants advising the council, a handful of senior officers and the select members of the cabinet who have actually bothered to read all the information will have any idea whether these critical issues have been adequately addressed (although I doubt that is possible).

Conservative councillors, YOU need to think very carefully now. YOU have a responsibility to inform YOURSELF about the risks this contract poses. YOU need to seek out as much information and satisfy yourself that there are adequate safeguards. Arguing that officers told you it will be alright will simply not stand up  to scrutiny or possibly even legal challenge when this all goes horribly wrong  - which it inevitably will. All of the warning signs are there and you have been offered briefings by independent experts such as APSE.

I strongly urge Conservative Councillors to call a halt to proceedings and at the very least set up an independent scrutiny team to review all of the details of the proposals, to rigorously question senior officers and, if need be, bring in independent consultants to review the process to date. Only when you have addressed all your concerns can you make a rational decision as to whether or not to proceed with One Barnet.