What we are paying Capita

 Even though large parts of the Capita contract will finish next year, they continue to bill Barnet for their charges. The running total is now £607.7 million, £246.8 million more than the contracted sum.

As readers will know, I also review every single invoice Capita have submitted during the Inspection of Accounts period which give residents the right to inspect bills, invoices and payments. This year it was 381 invoices for a total sum of just under £50 million.

Within that figure there are some interesting numbers. £4.49 million was for 'indexation' of their fees. I have raised this with the council on numerous occasions saying that no other council service is guaranteed to get RPI increases every year so why do Capita? This will be a major issue over this financial year when RPI in August was 14.2% (significantly higher than the more accepted CPI rate).

£805,261 was paid to Capita for 'E Test & Trace' work. I just hope we are able to recover that from central government. We were billed £979,727 for the 'Network Recovery Programme' for which read road repairs. Now my understanding is that this figure is not for things like tarmac and pneumatic drills but simply staff to manage the programme.

Brent Cross is a major project to which Barnet has already made a massive investment including £77 million last year alone. The project management of the new Brent Cross Thameslink station was taken away from Capita and given to Mace but Capita still managed to bill £815,880 in fees.

There remains the infamous gainshare clause whereby Capita get to keep a proportion of any savings they make. It was phased out on procurement after many years of me complaining that it was a flawed system (you can read some of the old examples here) but it is still in operation of some other areas. This year we paid £300,015 gainshare on Council Tax and Housing benefit overpayment recovery. Given that Capita administer both these services one would have hoped they got it right first time. A further £221,160 gainshare was paid for reducing council tax single person discounts.

Capita also set thresholds for the number of council tax and benefits enquires they deal with. If the number is exceeded, we get billed an additional charge known as a volumetric charge. This year that amounted to £122,075, less than in previous years but still a lot of money.

In special projects, £2,749,758.83 was paid to Capita on various elements of the Hendon Hub project, one which has drawn very significant opposition and legal challenges. They also billed £1.66m for various IT projects.

In today's Barnet Times (22 September 2022) we see yet another example of poor performance in the Capita contract and that the representative from Capita refused to attend the Audit Committee to answer any questions. While a decision has been made to end the Capita contract, some elements will be continuing for another 42 months. The need to monitor and challenge the performance and cost of the Capita contract continues until the very last day. 

Inspection of the accounts - What we pay to Capita.

I don't know about you but I was keen to see the details of the £83.2 million Barnet Council have paid to Capita in the last year, especially as the contract value for 2019/20 was just £39.7 million.  

I have found issues in the past and feel it is my civic duty to at least provide a modicum of scrutiny to the huge amount we pay Capita.  I used to be able to attend committee meetings and ask detailed questions about the contract, but Barnet hated that, so  they introduced the gagging rules stopping that level of public scrutiny. Luckily, every Barnet resident has the right in law to inspect the accounts and that is what I have just completed, checking 421 Capita invoices. It presents some interesting data.

Contract Fee:

We paid £24.2 million on the Capita CSG contract and £20.3 million on the Capita Re contract for the basic fee.  What isn't made clear, when some councillors talk about savings with the Capita  contract, is that this figure excludes an inflation element which is billed separately under the heading of indexation. Last year this amounted to an additional £3.44 million. I would love to have a contract that gave me an automatic uplift for inflation each year and I can't think of a single council department where that inflation proof guarantee since 2013 is in place.

Gainshare:

We are still paying out on the gainshare clause whereby Capita get a share of any savings. They don't get gainshare on any procurement now, thanks to my persistent campaign showing that we were being ripped off by a poorly worded contract. However, last year Capita received £109,198 on printing gainshare and just over £100,000 gainshare on property income where Capita  keep 30% of the additional income from rent reviews, lease renewals and letting on the property portfolio above an agreed baseline. They received £180,421.92 gainshare for exceeding the council tax collection target on the basis that if they collect more than 98.5% of council tax  revenues Capita receive 50% in gainshare.  They also received £125,057.81 for gainshare on recovered housing benefit over-payments and £230,702.89 for reducing the number of people claiming single person discounts.  

In total, gainshare amounted to £837,218.66 last year, which I would suggest is money that Barnet desperately needs and should have been retained by the council. Capita supporters say it is essential to incentivise a company to gather this extra revenue, but I doubt the front line staff who do the actual chasing get a share of that gainshare. Barnet used to publish a schedule of how much gainshare had been paid to Capita (Benefits Realisation Schedule) but as with so much else in Barnet, they no longer publish it, possibly because it paints a very different picture of the contract performance.

Out of Hours Service:

Last year we paid Capita  £86,031 to answer the phone out of hours. We pay £1,200 per month as a fixed fee,  which guarantees 80% of call will be answered within 40 seconds, and then between £5.86 and £7.58 per call answered. We also pay and additonal charge if they have to escalate matters with an outbound call. According to Capita's website "'Response out of hours’ is a nationally shared out of hours customer service partnership, delivered by Ealing Borough Council and Capita. Public sector bodies such as local authorities, housing associations and health service providers can join the partnership, wherever they are in the UK, to access a large pool of highly skilled and experienced customer service agents, to deliver their out of hours customer service requirements". It does make me wonder if it might be a bit cheaper if we got together with some of our neighbouring London Boroughs and did this ourselves.

DBS Checks:

Last year we paid Capita £152,972.60 for DBS checks. Nobody is doubting the need for DBS checks, but this seems like a large number of checks and makes me wonder if this is driven by the large number  and churn of agency staff.

Other Items:

The are lots of other costs such as the £1 million paid to Capita for Office 365 licences, £463,628 for mailroom & photocopying, £1.96 million for pension deficit payments and £683,500  for TUPE payments. This again highlights that the savings talked about in headlines are quickly eroded by so many top up charges that are never discussed. We also had to pay back to Capita £801,775 which was money recovered through the proceeds of crime act. When the massive fraud happened within Capita Re with one member of staff stealing over £2 million, Capita had to refund all the money stolen. As money has been recovered and returned to Barnet, we have to refund it to Capita, so in this case not an actual cost to Barnet.  However, the other big cost area is Special Projects which I have detailed below:

Special Projects:

Capita have carried out a variety of special projects with a value of around £8.39 million including:

• £503,441 for the Corporate Transformation Programme (yes I wondered what that was as well);
• £286,458 for Customer Transformation Programme to deliver "improved and additional digital online transaction function to deliver a better service"
• £256,985 to "provide an impact assessment of all relevant and appropriate IT infrastructure for the introduction of the new office and subsequent closing of NLBP B4"
• £270,457 to provide support to the LBB;
• £357,787 to prepare a business case for development opportunities under the One Public Estate  (OPE) programme.

The Capita Re contract it is structured differently so they simply bill for work requested.  So in addition to the £8.39 million they have  also billed £659,523 on the new Council Offices in Colindale, £1.065 million on the Local Implementation Plan (LIP), £132,000 for Enhanced Advice and Adaption Services £436,930 for work on the Upper & Lower Fosters regeneration project, to name but a few. 

However, the biggest source of billing for Capita is for work on the different elements of Brent Cross project including the new waste transfer station, the new Thameslink station and the Brent Cross South regeneration. In total these Brent Cross projects clocked up £14.1 million of charges from Capita.

Brent Cross is a massive regeneration project and it has become a major source of income for Capita. I will be writing a follow up blog on Brent Cross in the next few days which I would urge you to read as the consequences of this project could be exceptionally serious.

In summary, when councillors tell you about all the money that the Capita contract is saving ask them about all the extra charges, and whether they have factored these into their claims. It is a bit like the £350 million pounds a week sign on the big red bus. It makes great headlines but dig a bit deeper and you know it simply isn't true.

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".

Why Capita's Gainshare is Such a Rip Off

I have just finished carrying out my inspection of Barnet's accounts. In particular, I have reviewed every single one of Capita and Re's 256 invoices. Some are clear in representing what we agreed in the contract but others, especially the gainshare invoices, frankly make me shudder at how anyone could have signed them off.

(Just in case anyone isn't aware, "Gainshare" is a contractual mechanism by which Capita is entitled to a share in savings they make for Barnet).

The way I described it to a friend is that it was a bit like an episode of BBC Rogue Traders - you know they haven't done anything illegal but you definitely feel your granny has been right royally ripped off. The reason why this is important right now is because next week Barnet are going to be deciding which services should be brought back in house and which should be left with Capita. Procurement and the gainshare payments arising are one of those services currently identified as being left with Capita.

Over the next few days I will give you some examples of Capita invoice with which I have concerns. The first is an initiative to move people with Learning Difficulties (LD) or  Mental Health (MH) issues from supported living or residential care homes to the private rented sector. Now clearly there is a drive to cut adult social care costs but these projects always give me some real concerns and I am aware that there have been some problems when this type of move has taken place.  Set out below is the "Project Overview and Savings Methodology" provided by Capita.

Four users were identified and moved into the private rented sector. I haven't seen any details as to how the individuals felt about this move and whether it met their needs but this is of course all about the money. Over 3 years the savings achieved are at £197,203. Some may say that is a positive move as costs have to be brought under control.

So now here comes the rub. Capita said we have saved you £197,203 we are entitled to a gainshare of £67,138 (34%) and that is what Barnet have paid. This makes me very uncomfortable because it turns vulnerable people into a commodity on which a profit can be earned. This isn't about effective procurement, it is about cutting a service to make money. It also worries me that making inroads into the adult social care budget will be difficult if Capita are going to keep taking a massive slug of the savings on every initiative.

A second example is a procurement exercise for the  Domestic Violence Unit covering:

• Independent Domestic Violence Advisors;
• Refuge Provision;
• Support Service for Perpetrators and Victims of Domestic Violence;
• Risk Assessors; and 
• Multi Agency Risk Assessment Conference (MARAC). 

Capita carried out tender exercise and compared the new prices to what Barnet previously paid. Much of the detail is redacted but critically Capita claimed a gainshare of £47,102.80. Last year the payment was disputed because it was thought that Domestic Violence was funded from grant money and Capita can't claim gainshare on grant money. However, this year it was agreed that Barnet had funded the service and as such were stuck with the bill for £47k. Again, what seems to be missing from the process is the issue of quality and user satisfaction with vulnerable people being a source of profit for Capita.  What I also struggle with is whether this is the type of work we are already paying for from a procurement service included in the core contract; my view is that it is, but apparently not.

A third example today is on court costs. Capita receive a gainshare paid at 20% of court costs collected above a baseline.  The baseline was set at £871,000 and last year the total court costs collected was £1,242,495.  Capita therefore received a gainshare payment of (£1,242,495 less £871,000) x 20% = £74,299. The point I made is that by having a fixed sum as a baseline,  as court cost rise over time or if there is a year when there is more legal action, Barnet will end up paying a fortune in gainshare, not because Capita have recovered a higher proportion of court costs but simply because the overall bill was higher.

There will be more examples to come tomorrow.

Is Gainshare Costing Barnet a Fortune - Part Three The Energy Rip Off

Back in 2015 a report was presented to the Policy & Resources Committee regarding potential savings on energy costs. The report was authored by the Council's Commercial and Customer Services Director, a Council employee (not Capita) and who has subsequently left the Council.

The report highlighted an energy review which had been undertaken to inform options for procuring energy for the Council. The energy review was undertaken following receipt of London Energy Project’s (LEP) benchmarking update on energy provision which compared energy arrangements delivery by LASER and Crown Commercial Services. Just to be clear LEP is a  London Councils initiative of which Barnet is a member.

The review informed the options for procuring energy going forward and these are presented both within this report and in the supporting Energy Review Business Case. The report was considered some way in advance of the new contract commencing, as advance commitment had to be given to "enable the opportunity of forward purchase of energy during optimal market conditions."

So just to be clear, this was a report presented by a Council employee, based on a benchmarking update from the London Energy Project for energy delivered by LASER Energy which is a wholly owned subsidiary of Kent County Council and an organisation from which Barnet has been buying energy since 1993.

The report also notes that alternative options were considered but were not recommended as "these would represent an approach which does not conform to the Pan Government Energy Project recommendation that all Public Sector organisations adopt aggregated, flexible and risk managed energy procurement." So this was pretty much the only option.

The report identified that the new contract would save around £110,000 a year on energy costs. In addition, by opting for a fully managed contract,  the report said that the service would avoid certain costs, the largest of which is correcting overcharges. Personally, I find this implausible because if the procurement department were doing their job there should not be £202,000 of overcharges and ultimately they get corrected. I also do not believe that you can forecast those cost avoidances going forward as surely mistakes would not continue to be repeated year in year out? Nevertheless it can be an indicator a fully managed service might be a better option. I have subsequently identified that this fully managed service comes at a cost and is reflected in the price LASER charge for energy, typically 1.5% of energy usage.

The report was signed off and the new contract commenced in October 2016. So far so good.

As part of my review of all Capita invoices, I was therefore surprised to come across this invoice claiming a gainshare of  £357,701.51 of which £313,215 is for making savings on the energy contract of £942,000.

So what Capita are claiming under gainshare is not only the energy saving for three years but also costs avoided for three years, a service provided by LASER and for which Barnet pay LASER a fee of approximately 1.5%.  In total they are claiming a saving of £942,000, yet from what I can see Capita had no input to the generation of this saving and have used theoretical potential cost avoidance, which we pay another provider for, to arrive at an inflated figure of which they want 33.25%. That is, to my mind, is not acceptable, does not represent a fair and reasonable interpretation of the gainshare clause and should not have been signed off by the person who authorised this payment.

What I also find interesting is that Harrow Council, who provide legal services for Barnet, also went through a similar process in 2015. They came to a similar conclusion (with a couple of variations for renewal energy and low energy use sites). You can read their report here. Could we have had a chat with Harrow and made the same savings without any charge from Capita?

What I also want to know is whether any of the councillors who attended that meeting were made aware that by signing off this procurement they were creating a financial liability to the council of  £313,215.  For reference sake, these are committee members:

Be aware that by claiming an overall saving of £942,000, it means that Capita can claim to have met their guaranteed procurement saving and  bill Barnet the £970,000 Agree Procurement Price Recovery. Yet again this has a very bad odour about it and makes me question the whole gainshare arrangement.

I raised this matter with the external auditor, BDO, as an objection to the accounts back in July 2017 but six months on BDO have still to provide a response. I remain concerned that no one has a grip on what we are paying Capita through this money spinner gainshare clause, that Barnet are being right royally ripped off, and that councillors are blissfully unaware.

Is Gainshare Costing Barnet a Fortune? - Part Two Double Bubble

In Barnet we have two contracts with Capita: one for the CSG contract and a joint venture for regulatory services known as Re.  Under the CSG contract Capita can claim a gainshare payment for  savings they make on procurement contracts or from existing contractors.  The Re contract is structured in a completely different way, being a joint venture between Barnet Council and Capita and as such there is no gainshare clause within that contract.

As part of the inspection of the accounts I have gone through all 224 Capita and Re invoices and all the supporting information, a thick arch lever file's worth, and have discovered a number of issues. One in particular is set out below.

As part of the Re contract Capita are responsible for highways. This is also one of the areas where Barnet collaborates with other London Councils on something known as the London Highways Alliance Contract (LOHAC). You can read more about it here.

On 9 May 2016 Re submitted an invoice to Barnet for the sum of £365,088.67 +VAT for LOHAC Procurement Support.

I'm not sure specifically what they did for that very large amount of money, but it should have bought a great deal of support on what is a framework contract. Barnet duly paid the invoice.

Five months later, on 7 October 2016 Capita CSG, the other arm of Capita in Barnet, submitted an invoice for a gainshare payment of £484,375 for saving made on the, wait for it, LOHAC procurement contract.

So one side of Capita appears to be getting paid for providing procurement support and then the other side of Capita claims the gainshare savings on the same contract. That, I believe, is known as "double bubble".

Because the claimed savings on the LOHAC contract are so large it means that Capita have met the guaranteed savings level and can claim their £970,000 Agreed Procurement Price Recovery (APPR) fee. If this turns out to be a mistaken claim then not only would the £484,385 have to be refunded but also some or all of the £970,000 APPR fee. In total we are talking just shy of £1.5 million so not chicken feed.

Now it may be that there is an innocent and entirely plausible reason for both Capita contracts being paid for the procurement savings on the same contract but having raised it with the Chief Executive,  the Council Leader, and the external auditor no one have so far responded.

What worries me is that I seem to be the only person looking at all of the Capita invoices in any great detail. It also worries me that the finance function of the council is run by Capita who not only raise the bills but pay the bills. That just seems inappropriate to me.

I have lost all confidence in the Capita run finance function, especially after the year end audit debacle where the year end accounts were delayed and Capita were fined £55,000 which you can read about here.

At the time I suggested that the finance function of the council be brought back in house. Given all the concerns I have seen as part of my inspection of the accounts, my view hasn't changed.

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.

Gainshare, the contract clause that keeps on giving for Capita

Every three months the Council publishes the payments made to Capita.  I thought it might be useful to shine a bit more light on one of those payments, gainshare, the £8.3 million bonus that has been paid to Capita so far.

When Barnet Council agreed the massive Customer and Support Group (CSG) contract in December 2012, many people expressed concern at the lack of transparency in the process and what had actually been agreed. Once the contract was signed in August 2013 and after much badgering we eventually got to see chunks of the contract. Buried away in the thousands of pages was something called Gainshare. In the contract this is defined as follows:

"Gainshare means a distribution of benefits between the Authority and Service Provider in
relation to a benefit calculated by reference to the relevant provision within Schedule 4
(Payment and Performance Mechanism), or business case developed under the
provisions of Schedule 15 (Special Projects Approval Procedure)"

In plain English what it means is that if Capita make a savings on a project, exceed an agreed target or negotiate a better purchasing deal they get a share of those savings. On the face of it that seems reasonable but as always the devil is in the detail. The contract included specific guarantees of savings and my original thought was that gainshare would only be payable on the savings over and above those guarantees but that is not the case. This means, for example, that Capita were able to claim £5.9 million of gainshare payments on procurement savings while Barnet received just £1.36 million above the guarantee. That doesn't look like a fair share to me.

I have always had concerns about this clause as it seems to offer some very open ended incentives. As I feel it is important to hold Capita to account given how much we are paying them, I inspected the accounts this summer to understand if these are valid payments. It was quite revealing. In addition to savings on reduction in the numbers claiming single persons discount on council tax,  Capita have claimed gainshare payments on savings made on a range of other services including:

• Domestic Violence Services;
• Children and Adolescent Mental Health Services;
• Mental Health Assessors;
• Return Home Interviews;
• Independent Social Workers;
• Stroke Services;
• Independent Advice and Advocacy Services.

Now to be fair, council staff disputed the savings made on Domestic Violence Services and Return Home Interviews and subsequently Capita had to issue credit notes for those payments but the fact that they were paid in the first place is very worrying. 

If you can save some money by buying a standard commodity product, like a laptop computer, somewhere cheaper then I am sure most people wouldn't argue with that so long as it is the same computer. When you start looking at services for the vulnerable there is a real risk that the savings have a direct impact on the service offered. The problem is the contract is heavily incentivised to make these savings and that may prompt actions which are undesirable and risk reducing the quality of service.

The lion's share of the gainshare payments have been paid on the Comensura contract who supply all the council's agency and interim staff.(£1.26 million), London Highways Alliance Contract which provides road repairs (£500k) and saving on gas and electricity (£313k). To be clear, this is not the total saving but merely what is paid to Capita. It is also important to note that the payment is not made against savings actually achieved. It is invoiced up front on forecast savings and at the end of the period they have a "true up" which compares the savings claimed up front against the actual and either further payment is made or a credit issued by Capita.

Looking at the example of the Gas and Electricity savings you can read the basis for Capita's claim here. Capita have claimed a saving of £942,000 made up of  actual annual energy savings of £111,071 plus £202,420 of "corrected overcharges". They then gross up the three years of potential savings and send Barnet a bill for £313,000 as their share of the savings. To my mind this is a serious manipulation of the actual savings that could be justified given that if a procurement department was doing their job properly overcharges would get picked up in the normal day to day review of invoices. I am so concerned about this claim that I have raised it with the external auditor and I await his response.

Normally this whole gainshare process is entirely opaque but as I remain concerned about how much is being paid on this clause I make sure I examine the details. Some people will say that it shouldn't matter as it is better to get 66% of something than 100% of nothing but if we had a well resourced council run procurement department then all that saving would be retained. Just think what the £8.3 million could mean if that was coming back to Barnet instead of supporting Capita shareholders.

Perhaps Richard Cornelius will be able to explain this to me at one of his "Question Time With The Leader" meetings coming up in the next few weeks. You can book your place here

Barnet's Performance and Contract Management Committee - 20 Questions

On 31 May is Barnet's quarterly Performance and Contract Management Committee. The papers have been published in advance of the meeting  which you can read here. Having spent 5 hours reading all of the reports I have submitted a list of questions which I have set out below:

In relation to agenda item 8 Appendix H

• Please can you clarify how the reduction in Single Person Discount is calculated to arrive at the net figure and, for example, is a saving made in 2015/16 treated as an on-going saving for the purposes of gainshare calculation or just a one off saving for that year only. 
• Please can you clarify how the Additional Council Tax Income  is calculated to arrive at the net figure. To what extent is the additional income from the additional 2,732 households treated as part of the calculation and why is 100% of the net income paid to Capita in Gainshare. 
• Can you clarify if Capita have achieved the 98.5% council tax collection rate and how that impacted on the Gainshare payment.  
• Why did you set a guarantee target in 2015/16 that is £3.3 million lower than for 2014/15 when recurring savings on renegotiated contract continue to attract gainshare payments for Capita?

In relation to agenda item 8 Appendix H(iii)

• Please could you clarify of what the £242,615.87 true up payment comprises?

In relation to agenda item 8 Appendix I

• Who authorised the spend of £276,094 for an accelerated refresh of employee computing devices so all devices are refreshed after 18 months instead of 5 years. Was the procurement handled by Capita and did they generate a gainshare saving on this purchase?
• Please can you clarify what the £9.7 million contract true up of third party contracts comprises?
• For the library service call cost of £453,000 what does that work out per call?

In relation to agenda item 8 Appendix J

• How many letters of action have been received in the last 6 months and how does that reconcile with the risk - Resident Engagement - ORG0029 being rated as medium to low 
• Risk  - Increasing costs of Adult Social Care - ORG0042  states that there is a risk that the pressure on Adults budgets caused by increasing demographics and complexity will not be contained within existing budgets and the risk matrix suggests the probability of this happening is “unlikely”. Do you think that is an accurate reflection of the current situation

In relation to agenda item 8 Appendix J

• Do you really think that extending the NSL contract till October 2018 sends the right signal to Barnet residents given the parking contracts scores so badly on the resident satisfaction survey

In relation to agenda item 12

•  In light of the referral from Audit Committee and given that Internal Audit recently said:

a)    There is a lack of formal documentation held by the Council of the first line defence activities operating at Capita. For example, this may include access to procedure manuals to assess whether the control framework in place mitigates the Council’s key risks. This was highlighted as a finding in relation to the accounts payable process where there was no up to date procedure document in place.

b)    That currently Internal and External Audit activities provide the only evaluation of the design and operation of the controls in place within Capita processes to mitigate the Council’s key risks... These form part of the third line of defence in the assurance framework. This testing approach is generally retrospective and would only identify issues after they have occurred, possibly a significant period of time following the initial non-compliance. We did not see evidence of real time monitoring of the operation of Capita controls.

c)     Although some second line management oversight activities were found to be operating effectively, there are some second line activities which are currently recorded as the ‘first line’ of activities within the Commercial team’s analysis. These should be moved within the updated version of the assurance map.

They also noted that “performance management information is not independently validated by the Council” and that “not all SRO’s have an allocated deputy. Placing reliance on one individual may result in contingency issues when officers leave the Council either permanently or for extended periods”

On that basis are you sure that the clienting arrangements are satisfactory?

In relation to agenda item 12

• Do you think it is appropriate for Council Senior Responsible Officers to be commissioned to assess delivery of the contract against outcome specifications, method statements and contractual commitments given that they are fulfilling this role already. While it will undoubtedly be useful to take their evidence surely it would be more appropriate for someone independent such as internal audit or an external body to make that assessment of delivery?
• Please can you clarify the contents of the benchmarking survey and can you confirm that it will also include examples from private sector partnerships?
• Will any members’ working group meetings be open to the public?
• When will the public engagement take place and what steps are you going to take to ensure that the public are actively involved in the process?
• Who will be responsible for reconciling whether the commitments set out in Schedule 35 of the contract have been delivered?
• What contingency plans have been made to consider terminating part or all of the contract if the 3 year review is unsuccessful and agreement on changes cannot be reached?
• When will you be taking evidence from the Leadership Panel?
• Will you be publishing Capita’s proposals of new opportunities for improving service quality and reducing costs throughout the Contract Period?

I will update you after I receive answers to my questions.

Capita's Money Making Machine - It's Called Barnet Council

Over the next few weeks I will be publishing a series of blogs which relate to the two massive contracts which Capita have with Barnet Council, the CSG and Re contracts. It has taken some time to compile the data and is taken from many Capita invoices that I requested as part of the inspection of the accounts in June. The reason for inspecting all of Capita's invoices is because I remain unconvinced that the appointment of Capita is actually saving any money overall. They may be making savings on the core contracts but they charge for everything extra with dozens of special project which all attract additional payments. Overall in 2014/15 we paid Capita £51 million and £126 million since the contract started so I believe this deserves much greater scrutiny.

I preface my comments by noting that I was warned not once but twice, in writing, by Barnet Council that I risked committing a criminal offence for passing on, blogging or communicating in any form any of the information I discovered other than to the auditor, Grant Thornton, or the Police.  Surely in a 21st century open democracy this type of information should be available to everyone without any threats of prosecution. I read the legislation and in the absence of any clear evidence to support these assertions I asked where such offences existed in the legislation. Surprise, surprise Barnet said they had made a mistake! Time will tell on that front.

Today I will start with the Comensura contract. Comensura were appointed back in 2012 to act as a broker who coordinates the supply of agency and interim staff. They don't directly supply any staff themselves but provide one point of contact for Barnet with a range of staff agencies. In theory they are supposed to save the council money but over the last three years the cost of the Comensura contract has risen inexorably. In 2012 the average monthly cost of the contract was just over £1 million a month. In the first three months of 2015/16 it has hit £1.6 million a month and in July alone it was £2.3 million.  Now there may be very good reasons why we are having to use so many interim and agency staff, two thirds of which are in the Adults and Children's department but Barnet have been talking about reducing this cost for the last two years and have so far failed miserably. Based on my calculations and the current run rate, Barnet will pay Comensura around £20 million this year.

So, you may ask, what has this got to do with Capita. When Capita negotiated the CSG contract they included a Gainshare clause which means they get a share of any savings they make on contract negotiations. Although the percentage they receive is confidential by my reckoning it is 40% and so far I estimate they have been paid around £750,000 on this single contract. This contract was due to expire in October but because the procurement function ( run by Capita) have not started the tendering process and they don't want to be rushed,  the contract will be extended for another 12 months. If Capita continue to receive gainshare at the same level I estimate they will receive another £750,000 in gainshare payments over the next 12 months.

I would also point out that there are a number of people taking their cut on the agency staff contract in between what the staff get paid and what Barnet Council pays. The contract was originally let through a framework agreement from the Eastern Shires Purchasing Organisation (ESPO). They charge a small levy on every contracted hour purchased to cover their costs. The staff agency takes their cut on the staff supplied, Comensura take their cut of all the staff supplied and finally Capita get their gainshare payment. So four different organisations are taking their cut on this contract.

Some people may say that if Capita are getting 40% we are saving 60%. I would suggest that any contract that is so generous for one contract discussion should itself be renegotiated. It also make me wonder what on earth the Barnet commercial team were up to before Capita were appointed that allowed such poor contracts to be agreed - oh yes they were all too busy working on the Capita contract. I raised all my concerns  on the Comensura  contract at the recent Policy & Resources committee and although treated politely and courteously by Richard Cornelius the committee still voted to extend the Comensura contract for another year. Looks like another good year for Capita - unless they tell me otherwise?

Barnet Spend on Interims & Agency Staff Continues to Rise

Supplier payments for November are out and yet again the fallacies of savings are cast into doubt. Back in July I blogged about a question Cllr Mark Shooter had asked at the full council meeting relating to the spend on interim and agency staff. The Council response implied large savings had been made but I knew the figures were utterly misleading and when Cllr Shooter queried the figures the answer was laughable.

Question 5 Councillor Mark Shooter
What was the trend in the last quarter of 2013/14 with regards to the council’s spend on agency
workers?

Answer by the Leader
There was a 12% reduction in agency staffing expenditure. Agency staff costs incurred during
2013/14 was £3.276m lower than in 2012/13.

Supplementary Question
Can the Leader confirm that these figures are correct?

Supplementary Answer
By one definition, these figures are correct. However, overall, they do not give the full picture and this will be communicated in writing.

In November Comensura billed Barnet a massive £1,630,620.33 bringing the running total for the financial year to date to £9,554,145.16 and running slightly ahead of the same period last year. What I want to understand is why, 15 months into a massive outsourcing contract, are we still spending so much on agency and interim staff. I also want to know why Capita were paid in advance over £360,000 in Gainshare payments for supposedly anticipated  agency staff savings which do not appear to have materialised and  what steps are being taken to recover that money with interest from Capita. At a time when further outsourcing is being planned it seems ridiculous that we are spending so much money on agency staff.

Other major payments in November were Capita who were paid a shade under £2 million, Barnet Lighting, our flawed and financially disastrous Street Lighting PFI was paid £451,028.56 particularly galling when having replaced all the lights to make them brighter they then dimmed over 90% of the street lights to save on electricity.  Barnet's car parking contractor NSL were paid £561,615.28.

We were also charged £143,750.84 by Facultatieve Technologies Ltd. This company installs and repairs crematoria, so this appears to be yet another bill for Hendon Crematorium where we have already been charged £856,081 in the last 18 months.

We also saw the reappearance of an old favourite this month. Impower Consulting, the partners with Agilisys in the One Barnet programme were paid £27,290.75. Perhaps they are trying to sort out the mess they left behind given that so many of the council staff involved with the project have left the council.

As ever I shall be keeping a close eye on Barnet's spending in 2015.

So how much is this Capita contract costing us in Barnet?

As you may know, I like to exercise my right to inspect the accounts and in particular to review invoices. This year my focus was on Capita invoices given that in 2013/14 they amounted to £62,743,081.83. Yes you have read it correctly £62.75 million and that isn't even for a full year.

At the very outset of the 2013 financial year Capita billed Barnet £340k to pick up the pieces when 2e2 went into administration and to maintain the IT systems through till 15 June 2013. A not insubstantial sum but definitely embarrassing given that Barnet had paid 2e2 their fees in advance so this was paying a second time for the same work.

On 27 June Capita invoiced Barnet for £14.74 million for "Interim measures to provide critical services". According to the annotation on the invoice this also included elements of capital. Now bear in mind this payment was made 6 weeks before the main contract was signed. Interestingly when I asked where the contract for this interim support existed I was pointed to the main contract where it had been neatly written in. So to me this looks like the main contract was signed in Augiust to include a contract for an interim service that had already taken place. Very curious and swiftly followed up with a further invoice for "Interim measures to provide critical services" for another £125k for the period 17-28 June or an extra £10k a day.

We then had a tranche of invoices on 6th August (the very same day the contract with Capita was signed) for capital investment - remember the capital investment that previous councillors said Barnet did not have and could not fund. Those invoices amounted to £10.478 million for various IT systems.

At the end of August and the first couple of days of September Capita invoiced Barnet £11.7 million for "Periodic Service Payments". From what I can understand these are the payments for actually delivering the service and relate specifically to the NSCSO (CSG) contract.

On the 30th September Capita under its "Re" contract (DRS) invoiced Barnet £5.18 million for the contract that started on 1st October.

From then on to the end of the year there are a number of payments including two periodic payments for the CSG contract each of £6.89 million and a further Re contract payment of  £3.4 million.

What intrigued me were a couple of comparatively small invoices,one on 27 November and one on 9th december for a total of £417,007. What this payment relates to is a clause in the contract called "Gainshare" where Capita get a cut of any savings made. Although the contract is redacted it is apparent from the numbers on the invoices that Capita receive 40% of any savings made.

I felt deeply uncomfortable about these savings and have been trying to understand how such savings could be made so quickly. Following a great deal of correspondence with the council and having several subtly different version of how the savings are justified I have been  told that these savings are the estimate of savings to be made over the next year, that Capita invoice Barnet upfront and then at the end of the year if the savings are not as great as Capita forecast then Capita have to return some of the money.  Frankly I was staggered that the council should be sharing out quite so much of the savings of our money and paying out forecast savings as much as a year before they are realised.

Personally  I cannot believe that any commercial organisation would countenance such a one-sided deal but this is Barnet Council we are talking about. Transparency on these savings is absolutely zero. I have asked repeatedly for evidence and it has been promised as recently as Tuesday but it still has not materialised. Indeed one of the largest elements of this saving relates to an area which I believe is virtually impossible to audit which should make everyone very uncomfortable.

So what you may say. It's £417k out of a massive budget. However this week Barnet signed off approval for contracts worth £594 million to be procured. Most of these are existing contract so will Capita be entitled to 40% of the savings on all those contracts? Let us say that they realise 10% savings possibly by squeezing residential and nursing homes who will in turn squeeze staff wages in exactly  the same way that Your Choice Barnet have cut the wages of staff by 9.5%.

 If that were the case would Capita be entitled to £23.76 million of "Gainshare" which they will bill upfront?
Do any of the councillors who signed the contract know? Was the matter raised by councillors on Tuesday evening when the approved the procurement exercise? There was no debate on the subject and Dan Thomas did not allow any scrutiny from Cllr Paul Edwards who wanted to asked questions.

Barnet have signed up to a contract which increasing appears immensely complex and entirely one sided with not one councillor bothering to query why so much money has been paid to Capita in such a short period of time.
At the Audit Committee this week one of the independent committee members said quite firmly " I am not prepared to sign off accounts I have not read". What a shame Conservative councillors did not take the same approach before they signed off this massive Capita contract.