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