Friday, 9 November 2018

Capita realignment -The silence is deafening. Should we read something into that?

Back in July Barnet Council published a very significant paper which set out the details of the process for the "realignment" of the Capita contract. You can read the full details here. The basis for this review was driven by a number of issues identified with the contracts as follows:

"In relation to the CSG contract, these have included issues with: financial controls and reporting; pensions administration; estates; and user satisfaction with back office services. In relation to the Re contract, issues have been raised on financial controls and the operation of the Highways service. A number of these performance concerns were also highlighted in the contract reviews that were carried out in 2016 and 2017 of the CSG and Re contracts respectively".

The review considered which option could deliver three aims as follows: high quality services, value for money and strategic control and they framed this in three options as follows:

  • Option 1  - keep the Capita contracts as they are now; 
  • Option 2 - bring some services back in house; and
  • Option 3 - terminate the contracts and either insource or contract with a different organisation.
The initial conclusion was to go for Option 2  and the summary of reasons is set out below:

Option 2 would consider bringing the following services back in house.

At the meeting  and after some debate, it was agreed that consideration would also be given to bringing even more services in house by looking at Option 3 as well as Option 2.  At the meeting I also asked several questions including:


"Which firm of consultants will be used to carry out the business case" to which the response was "The full business case will be developed by council officers, taking external advice as appropriate". The other question I asked was "As part of the business case process will there be any public consultations or public evidence sessions" to which the response was a very succinct "Yes". I expressed my concern that council officers were already very busy dealing with day to day matters and that there was a risk that they simply wouldn't have time to prepare a business case. By contrast I was pleased that the council were taking the sensible approach to hold public consultation on the business case especially as this might at some stage be subject to legal action.

That was back in July. We are now in November and the business case report is due to be tabled at the Policy & Resources Committee in just over 4 weeks. Given that the report has to go through all the council review processes before it is published and it has to be published a week before the meeting,that means it should just about be finished. Yet we have not had any public consultation on this process, or been able to provide any public evidence. Once again we have been told an untruth.

As you will know I am not prepared to leave matters like this to lie unresolved so on 30 October I wrote to the Chief Executive and copied in to Cllr Cornelius asking when the consultation would take place. No reply, not even an acknowledgement. So on Tuesday I emailed them both again. Today is Friday and still no response.

You can draw one of two conclusions from this. The first is that they are simply ignoring me and do not want to engage in any form of dialogue - definitely a possibility. The alternative conclusion is that they they have no intention of opening up consultation because they have no intention delivering either option 2 or option 3 and they will now seek a fudge on the current contract.

If I hear back from either the Chief Executive or Cllr Cornelius on the consultation then I will of course blog about it. If I hear nothing then don't be surprised if, in 3 weeks time, we hear that, yet again, Barnet have fudged the options and most, if not all, the service are staying with Capita. 

I have reached a point where I no longer believe anything the Council tells me.

Saturday, 3 November 2018

Ten Tips to Negotiate a Contract Break - Perhaps Barnet Councillors Should Read This

I saw this and thought Barnet Council might find it useful. My comments are in Red
Solicitor Robert Griffiths gives ten tips on negotiating your way out of troublesome contracts.
1. Read the contract thoroughly
Before you take any firm action, or start worrying about how to deal with a troublesome contract, the first thing you should do is read the contract thoroughly. By doing this you will make sure that you are properly prepared and appraised of the situation, and can be sure that you know your contractual position, all well in advance of contacting the other party.
If you are in any doubt as to the meaning or effect of any of the clauses in the contract, you should seek specialist advice from a solicitor as soon as possible.  
I would recommend Barnet employ a red hot contract lawyer as soon as possible - not members of the "magic circle" but a lawyer that has a real appetite to dig deep into this contract.
2. Consider all of your options
Before you decide to take any firm action, take stock. Ask yourself whether you are certain that you want to bring the contract to an end, and whether this is the only course of action open to you. If you are reacting impulsively as a result of falling sales or rising overheads, or have found a more profitable or better-value deal elsewhere, you may be able to talk to your customer/supplier and work out a way forward that suits both parties.
In Barnet's case they have been in discussions with Capita for at least 10 months and over that period the problems only seem to be getting worse. It may be that some services don't come back in-house and are instead shared with another local authority but the experience of  sharing legal services with Harrow has been expensive and problematic. There are a long list of councils that have brought contracted services back in-house and I would hope that officers have visited and talked to them to see how that process was managed.
3. Look at the termination clause
The contract may allow you to end the deal at any time, provided you give due notice. Before you do this, however, check whether you will have to make a penalty payment. Ideally, you will have agreed an exit clause with a minimal penalty. If not, the “fine” may be such that you are effectively locked into the contract. In these cases, it usually pays to be open with the other party and attempt to negotiate a better deal. 
I FOI'd the termination clause and had to go all the way to the ICO to get Barnet to reveal it.  You can read it here. It seems to me that the costs are not significant in comparison to what we are paying and the poor service we are receiving, although ideally we would not pay any penalty payments to Capita.
4. Look out for anniversaries or other key dates in the contract
These might enable you to leave the contract without penalty at certain times. Many contracts operate on a rolling yearly term, which is automatically renewed on the anniversary of the term and can usually be terminated without penalty at the anniversary. 

We missed opportunities to take advantage of the three year review but in less than 12 months the six year review is due at which time, if the contract has not been terminated, Barnet have the opportunity to change elements of the contract.
5. Cost your exit. What will you save by an early exit?
Don’t rush into serving notice or terminating the agreement until you have costed the implications of both leaving the contract and finding an alternative.

I hope the alternative solutions are being costed right now. If they haven't been then Officers have not been doing their jobs properly. We also need to make sure that we don't keep referring back to the baseline costs of 2012/13. The world has moved on, technology has improved and services have changed. We need detailed and thorough costings which are realistic and evidenced.
6. Look for a breach
Go through the contract to check that both parties have complied with their obligations. If the other party has performed poorly or failed to meet its obligations, you might be able to terminate the contract for a breach on its part.

There are so many occurrences which look like contract breach, the failure to provide reliable financial data, the failure to back up data for the library system, the failure of the pensions administration system, repeated payroll system failures, the failures to meet contractual commitments.
7. Misrepresentation?
You may be able to do the same if you have been the victim of misrepresentation – that is, you signed the contract on the basis of a written or verbal statement that turned out to be misleading or untrue. 

So many issues seem to be being raised where the spirit of the contract seems to have been breached but the letter of the contract has been followed. Is that misrepresentation?
8. Once you know your position – contact the other party and begin negotiations
The best course is almost always to try to negotiate a mutually beneficial and cordial end to the relationship that leaves open the possibility of working together again the future.

Hopefully that is what Barnet have been doing over the last 9 months - if it isn't then someone hasn't been doing their job.
9. Consider setting-off money you’re owed against what you owe
The law in this area is complex, but it may be possible to set sums off against each other where “the claim and cross claim are so closely connected that it would be manifestly unjust to enforce one without taking account of the other”.

I'm not sure how this applies in Barnet's case but certainly worth investigating
10. Be flexible
The chances are the other party will be feeling the pinch, too, and won’t want to lose your custom. They may respond to your concerns by amending prices, increasing quality or changing service provisions, or agreeing to a temporary variation in the contract until sales pick up again.
Frankly I don't care if Capita are feeling the pinch because Barnet residents are feeling the pinch much more and supporting Capita shareholders should not be the first priority.

Wednesday, 31 October 2018

Supplier Payments September 2018 - Bonus for Capita

Barnet's supplier payments for September are out. First of all the good news. The spend with Comensura seems to be slowing slightly with spend in September down to £1.28 million and a year end forecast down to £18.47 million, still more than last year but starting to fall.  I did raise a very real concern that the figures being provided to the Financial Performance and Contracts Committee do not reconcile with the figures published in the suppliers payments. As yet no one from the Council has come back to me as why there is such a large difference. This is the last month of Comensura figures as the contract has now been awarded to a company called Matrix SCM but I will continue to monitor their spend.

This month Capita received a bumper payment of just over £8 million on the CSG contract and a more modest  £726,066 on the Re contract. We will have to wait and see what the contract review brings and whether Councillors will actually agree to bring services back in-house and finally get these costs under control.





I will of course continue to keep a close eye on Barnet' spending.

Friday, 26 October 2018

Guest Blog - Kick Out Capita Inquiry - House of Commons 6th November



Barnet UNISON call-out for people to give evidence at the #KickOutCapitaInquiry
If you are a Barnet resident or Barnet UNISON member and want to give evidence to the #KickOutCapitaInquiry  in person or want to provide evidence but remain anonymous please please email contactus@barnetunison.org.uk
Already a number of people have already registered their intention to submit evidence to the #KickOutCapita Inquiry which is being held at the
House of Commons Westminster, London SW1A 0AA.
On Tuesday 6 November 2018 at 7pm
Please arrive early as there will be a queue for security checks.
Meeting is sponsored by Barnet Alliance for Public Services and Barnet UNISON
Chair: Aditya Chakrabortty Guardian columnist and senior economics commentator
Purpose of Inquiry
To hear evidence from residents, trade unions, politicians on what Capita has done in Barnet and elsewhere and end with a set of recommendations.
How you can help.
  1. Please join #KickOutCapita campaign from 6 pm outside Hendon Town Hall,11th December, The Burroughs, Hendon NW4 4BG.
  2. Please sign and share our #KickOutCapita petition here https://you.38degrees.org.uk/petitions/kick-out-capita-from-barnet-council-now
Background
A Capita employee managed to steal over £2 million from Barnet Council because neither Capita nor Barnet Council had control of financial matters.
Barnet Council felt obliged to commission Grant Thornton to identify how such a large scale fraud was possible. This project could cost up to half a million pounds of tax payers’ money.
 The review found no proper budgetary controls, no checking of basic banking details, inexperienced managers responsible for large amounts of Council money, no written financial procedures and check-lists.
Barnet Council agreed to pay Capita £252.54 million, but has already paid Capita £352.41 million with FIVE more years to go!
Barnet Council is in financial crisis with a budget overspend of £10.3 million this financial year and a funding gap of £66.8 million over the next three years.
Front-line services such as street cleansing, waste and recycling, libraries and social care are all facing more and more cuts that are already affecting Barnet residents.
Capita is having difficulty with its own finances.
Their Share Price has dropped from £13 a share to under £1.50 a share in the last two years.
On 11th December 2018, Barnet Council Policy and Resources Committee will decide on whether to end both contracts. We are campaigning that they VOTE to end both contracts and begin the urgent process of taking back control of those services.
Support:
Please join #KickOutCapita campaign from 6 pm outside Hendon Town Hall,11th December, The Burroughs, Hendon NW4 4BG.
Please sign and share our #KickOutCapita petition here https://you.38degrees.org.uk/petitions/kick-out-capita-from-barnet-council-now

Friday, 12 October 2018

Property Acquisitions - It's all about the extras

Over the last year I have been reviewing the properties acquired by Barnet Group. The idea of the acquisitions is sound, to buy properties for people who would otherwise be placed in rented temporary accommodation.  Last year Barnet decided that it would be cheaper to buy those properties in Peterborough, something I blogged about here last year. However they failed to agree this strategy with Peterborough Council who felt that this was putting a strain on their own housing market.
Part of the rationale behind this strategy is that the properties would be acquired and refurbished to a good standard. The cost of this refurbishment was set out in a report to Barnet Cllrs in April 2017 which you can read in full here.   Critically, they include the table below:

As you can see in the table the best case scenario for refurbishment costs and fees was £23,669 and worst case £31,890.  Barnet Homes said that the other costs include:
  • Management of the purchasing process;
  • Agent fees;
  • Survey costs;
  • Independent valuation costs;
  • Legal fees;
  • Costs associated with lease extensions;
  • Refurbishment cost;
  • Management to the refurbishment process. 

In 2017 Barnet Homes acquired a number of properties. I have taken the details and figures from a number of Council Delegated Powers Reports (DPR) for the 42 properties I know about. All I have done is collate that data into a table. Set out below is a table showing the purchases in 2017.


From the table above you can see that the average refurbishment cost is £45,796 which is 43.6% above the worst case scenario. I did raise this with Barnet Homes but they simply said:

"Many of the properties require extensive refurbishment to get them up to the Barnet Homes standard. This can include works to the structure of the property such as new doors and windows, plus works to roofs and guttering as well as asbestos surveys and consequent removal, new heating systems, kitchens, bathrooms, and redecoration". 

My argument is that if properties need that much work then that should be reflected in the purchase price or maybe you should buy different properties especially if these works take a long time to carry out. Also if you are buying this many properties you would have a team to manage this process and have agreed suppliers of kitchens and bathrooms at a discounted price.

Jump forward to 2018 and 77 more properties are being purchased closer to, or in, Barnet. Set out below are details of the properties acquired.


As you can see from the table above the additional costs are now averaging £56,512.  This was explained to me that it automatically includes a lease extension allowance of £15,000 where it is a flat and that some of the properties have an extra bedroom and that adds to the refurbishment costs.  What is troubling is how so many properties can have such a huge additional cost of over £60,000. I did ask about the property that had nearly £80,000 of additional costs on a property costing £315,000 but I was told that this sale has now been discontinued. 

There is a degree of irony as many of the 2018 properties are ex local authority properties. Indeed, at least one property is a former Barnet council house previously sold under right to buy. I googled Zoopla and found interiors of the property from 2013 when it was offered for rent.  You can see them here. OK, it is 5 years on but it is hard to see how it is necessary to spend £37,950 especially as Barnet Council own the freehold.

At the Financial Management and Contracts committee this week I mentioned these costs and asked who was checking. Cllr John Marshall challenged me and asked if I understood why these properties were purchased. Yes of course I do and I welcome the principle of what is being done especially as the latest crop of properties are much closer or in our own community. My problem is who is checking all these extra costs which on the face of it seem excessive and much greater than councillors were led to believe when they signed up to this strategy. So far the extra costs are just over £6 million compared to the best case estimate of  £2.8 million and a worst case scenario of  £3.8 million. That shortfall (compared to the worst case scenario) of £2.2 million could pay for  90+  full time care support staff, or is the equivalent of all the savings from the decimated library service cuts.

Barnet are focused on cutting budgets but I worry that they don't pay enough attention to controlling  costs. 

Saturday, 29 September 2018

Supplier Payments - Time to look in more detail at Barnet Group.

Barnet Council's supplier payments for August were out yesterday. Yet another month when Capita  and Re were paid very little (Capita £282,166.04 & Re £294,200). I wonder if something is afoot; either Capita payments are being held back or it is linked in with the current contract review. Next month will be the crunch month as quarterly payments are due.

Barnet Group were paid £19.27 million in August, not a record amount but if you compare YTD 2018/19 against Aug 2017/18  Barnet Group have received  £9.14 million more than last year, a 19% increase. When you add in the Open Door subsidiary of Barnet Group, the increase compared to last year rises to £15 million or a 31% increase. Given that Barnet are forecasting a £9.5 million overspent this year, and I expect that will rise when we see the quarter 2 figures, they need to start focusing on how money is being spent in the Barnet Group.

Comensura are being replaced as the Interim and Agency Staff contractor and hopefully this will bring the costs under control. In August, Barnet paid them £1.667 million bringing the forecast for year end to just over £19 million a £1.1 million increase compared to last year when we are being told that interim and agency costs are falling - no they are not! Usual graphs and charts below.





Sunday, 23 September 2018

Is this the end of Capita in Barnet - Grant Thornton's report is a devastating critique of Capita's dismal performance

Background:
Late last year a massive fraud was discovered at Barnet Council. One individual managed to steal over £2 million in 62 separate transactions. I’ll say that again; 62 separate acts of theft, some of which were six figure sums, which took place between July 2016 and December 2017. The individual made requests for payment on fictitious Compulsory Purchase Orders (CPOs). 

Did Barnet’s systems pick up these multiple acts of theft? No, it was actually discovered by the individual’s bank who queried a transaction and contacted the Council on 18th December last year. The individual worked for the Capita joint venture, Re, and the transactions were processed by the outsourced finance department, CSG, also run by Capita.

Having identified very quickly that this was a fraud, Barnet commissioned Grant Thornton to undertake a major review to identify how such a large scale fraud had been able to take place. This project, called Project Rose, was given a budget of “up to” £500,000 and has been on-going ever since. By the end of June the bill was already £225,654. 26 and it looks like significant work has taken place since then. I was made aware of the fraud back in February but nothing was mentioned publicly until April when a major fraud investigation was mentioned at the Audit Committee, although no details were given. The individual who committed the fraud was eventually sent for trial and pleaded guilty on 31 July 2018. He was sentenced to 5 years in prison.

The Report:
On 17th July members of the Audit Committee were given a draft copy of the Grant Thornton Report in private session. It appears that this was a much briefer version of the report and annexes which have now been released and which you can read here. At the time I asked why the public were not allowed to see this report and was told that the reason was:

“Council officers/the report author determined that Appendix 1 (the Grant Thornton report) should be exempt. Capita has made a request for more time to respond on the accuracy of this document and this was considered”.

The report version we have now is “7th Draft” so it looks like there have been long and protracted discussions between Capita, Barnet and Grant Thornton as to what the public finally get to see. I did wonder whether the version we would get to see would be watered down. It may well be, but the version we have received paints a vivid picture of a failure of epic proportions. In total, the report and annexes run to 138 pages. What is interesting is that not only does the report look at how the fraud was able to take place, but it goes much further in examining the contractual obligations of Capita to deliver financial controls and where those obligations have failed. This suggests that the pressure is being ramped up on Capita to hand back parts of the contract.

The Findings:
So let’s look at some of the key findings.
The Five Pillars of Control 
Grant Thornton have set out five themes for financial control and then detail how Capita have failed on each one. 

Some of this stuff is a bit technical but some of it is just common sense, for example:
“There was a lack of clarity about both the role of the budget holder and the allocation of budget holder responsibility between Re, CSG Finance and the Council, in respect of regeneration projects and related financial management activity”. This is something I have been raising with the council since the start of the contract. It is a subject that has cropped up in a number of internal audit reports back as far as 2014.
“We noted as part of our review, that due to the lack of a formal scheme of financial authorisation, the CSG Finance Treasury Team could not check that the officer requesting a CHAPS payment for a CPO was an appropriate person to do so. There was a check by CSG Finance Treasury Team against the approval levels for the recorded on Integra,(Capita’s own IT system) but this was not an adequate check in the absence of a formal scheme on which Integra authorisations should have been based”. This is such a basic error that it is shocking when you see it in such a large organisation.
“During the period of the fraud, there were no CHAPS (a faster version of BACS for same day bank transfers) procedures or task checklists in place for those working in CSG Finance Treasury to guide them through the CHAPS approval process. This resulted in the officers loading bank details onto Bankline and authorising and releasing payments who were unclear on their checking and verification responsibilities”.  Just remember we are talking large sums of money here, typically tens of thousands, with the largest being £124,750. It is beyond belief that there were no written procedures or checklists for checking and verifying who  was authorised to request such large sums of money.
“We found that schedules of expected property acquisitions did appear to be held by Regeneration Managers, in some form although this tended to be on non- standardised spreadsheets. Finance officers we interviewed in CSG Finance Treasury and the Business Partner team were not aware of the existence or potential application of these schedules, which could help them monitor the value and timings of large payments, including through the CHAPS process. We would expect lists such as these to be to be used to cross check spending on regeneration cost centres as part of the budget monitoring process”. So they didn’t even check against a list of properties to be acquired to make sure which payment related to that property. That a basic error and not one you expect of a FTSE250 outsourcing company.
“Where payments were processed via CHAPS there has been no direct verification with the supplier/vender (e.g. by telephone) to confirm the bank details are correct. The payee’s bank details were not checked against independent information. This control alone would have prevented the fraud”. Again, a simple common sense check that simply was not undertaken.
"In the cases of reporting to both Growth and Regeneration Oversights Board (GROB) and the Performance and Contract Management Committee, the information is relatively high level and therefore significant onus is placed on CSG finance business partners to challenge the narrative on budget variances provided by budget holders, for the cost centres they are responsible for."  I have attended most of the Performance & Contract Management committees and  there is seldom any real challenge from councillors. Part of the problem is that they are given so much high level information and in ever changing formats that even if the information was available I am not sure they would spot it.
In the absence of this detailed understanding of Re transactions, CSG finance business partners will be unable to effectively challenge the narrative provided by the regeneration manager, weakening the review control that could identify error or fraud. As CSG Finance act on behalf of the Council in this capacity, this in turn exposes the Council to significant risk”. So we have appointed people to act on the Council's behalf and in the residents' best interest but one part of Capita under the CSG contract has failed to challenge another part of Capita under the Re joint venture. These types of conflict were predicted at the outset, now they have come true.
“The current 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 or the Individual, in regard to regeneration budgets and related ledger codes. In its current form this  role is 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”. So we are paying for a skilled team of experts and what we got were inexperienced sales people.
Lack of Oversight:
The report is damning about the attitude of CSG and Re management when it says:
“A number of officers in CSG Finance and Re commented during our meetings that they were aware of control weaknesses (for example, through Internal Audit findings or their own observations) or recognised in hindsight that control weaknesses should have been identified and addressed. This report describes several situations where a higher level of professional scepticism and rigour on the part of senior managers within Re and CSG Finance, could be reasonably expected to have identified and challenged unusual and potentially suspicious transactions – notwithstanding weaknesses in formal controls and CSG Finance when approving journals, payments and system access, and when reviewing budgetary performance. Some of this may be attributable to the turnover of personnel in key roles and the lack of effective knowledge transfer”. This is what I call, “Don’t give a s**t syndrome” something that is not uncommon when people have no direct link with the organisation they are managing. Creating a culture where staff are both engaged and empowered to act when they see problems is what we should aspire to and something that can be delivered.
The report also pins blame on the council itself:
"In our view, there has also been insufficiently close scrutiny and client side management on the part of the Council and the Chief Officers coupled with an over reliance on the limited scope and frequency of work carried out by the Internal Audit service, to highlight issues. This is likely to have contributed to the lack of focus on effective controls". What I want to know is where were Capita’s Internal Audit and Anti Fraud teams as they also have responsibility for these contracts? I have been raising questions on these types of concerns for years at both the Performance & Contract Management Committee and Audit Committee meetings. Consistently my questions and concerns have been ignored, patronised or dismissed by a council that was in denial about any failings of the precious outsourcing contracts. We now know the truth and it is all bad.
How did we arrive at this mess:
To my mind outsourcing the finance function (and most of the others services) was always a reckless decision based on false assumptions. Back in March 2011 when the business case for outsourcing was being considered I specifically asked why Barnet were outsourcing the finance function and they said;
“It is entirely appropriate that the Finance and Revenues & Benefits functions are included in the cluster of services to be outsourced, as this is the option that it is believed will best deliver the desired outcomes for these services. It is true to say that they are already relatively high performing and relatively low cost, however there is potential for improvement to make these services higher performing and lower cost than they already are, and the options appraisal recommends that outsourcing these services is the option that will best enable this desired outcome to be delivered”.
Seven years on and these are definitely not the desired outcomes. I and other bloggers and activists have been highlighting the risks with this contract from day one and the entirely inadequate business case built on assumptions and aspirations that have proved nothing more than exactly that.
In April 2012 I flagged up the financial control risks in the speech I gave to Audit committee which I republished in November 2012 and which can be read here.   Based on the Grant Thornton report it looks like my concerns were entirely justified.  
I have no confidence in senior Councillors who have exhibited hubris and contempt over the years and, as such I think it is time for a complete review of the committee system and the people who chair those committees. We need people who are prepared to challenge officers, to query facts to scrutinise properly, not people who are seeking favour and a special responsibility allowance. We also need to look closely at the Council’s senior management team to see if they are up to the job (Interim Finance Director excepted). We need strong leadership from people who can command respect and engender commitment, something which I  do not see that at present.

The Council are currently reviewing which of the Capita and Re services should be brought back in house. What worries me is that this report has only addressed two functions  - the Finance and Regeneration departments, one in the Re contract and one in the CSG contract. Are the issues identified by Grant Thornton a symptom of a much wider problems across all the functions of the CSG and Re contracts (and for that matter the Cambridge Education contract)? I reckon they probably are. 

Outsourcing has been tried and in Barnet it has failed. We have inadequate services, a culture of denial and procrastination. It is time to draw a veil over this experiment in political ideology and start building a new council structure that will deliver the services we need with the massive budget cuts we still face.