Nine spectacular council outsourcing failures

Alan White and Kate Belgrave give us more reasons why you don’t want the private sector in the NHS.

One of the many concepts that free marketeers refuse to abandon in the face of all evidence is the idea that the private sector is better at providing public services than the public sector. Private companies have been cashing in on this fable for years at council and government level. As we file this report, another glorious outsourcing triumph is breaking: the Ministry of Justice has asked police to investigate alleged fraudulent behaviour by Serco staff in its Prisoner Escort and Custodial Services contract.

The national news stories are coming at such a rate we can barely keep up with them. But what happens at a local level often slips under the radar. That’s why we’re crossposting and adding to this False Economy blog by Kate, which features a list of some of the many spectacular council privatisation failures of the past few years (hat-tip to Barnet Unison for the idea - they published a Top Ten Commissioning Failures list last month).

The list below shows how much councils have spent to get out of private sector contracts and/or to deal with contract disputes and cost overruns. A lot of the companies featured on this and Barnet Unison’s list are sniffing excitedly around the NHS - to which they’ll doubtless bring this long-honed craft of getting heaps of public money, ditching service the second the contract is framed and delivering huge returns to their shareholders.

Feel free to add your own, or send them through to us at thesecretcuts@gmail.com

1) The Somerset county council and Southwest One dispute (via the eminently reasonable Barnet blogger Mr Reasonable)

This row was over savings not made by the joint venture partnership that the council had formed with IBM company Southwest One. The contract was to provide back office functions and services for Somerset, Taunton Deane borough council and Avon and Somerset Police.

As this Somerset County Gazette story observed: “Almost £5.5m of taxpayers’ money has been spent settling a dispute between Somerset County Council and an organisation it hired to cut costs.”

Mr Reasonable reported: “The dispute has now been settled, but the process has racked up a huge legal bill. As revealed in a Freedom of Information request, the total legal bill came to more than £2.6m. The lion's share of fees went to Pincent Masons, but it was interesting to see that Barnet's lawyers Trowers & Hamlin were also in receipt of fees in 2011/12.” (Barnet’s lawyers are worth a mention, as they’ve been much to the fore as Barnet residents, bloggers and campaigners have fought Barnet Council’s own mass privatisation plans.)

Somerset council cabinet member for resources, David Huxtable, told the BBC: "In this kind of dispute with a major international blue-chip company you wouldn't want to go forward with inexpensive lawyers."

The BBC reported overall costs to the council of the debacle of more than £5m. Tony Collins reports at Campaign4Change that some Southwest One services will be brought back into the council and run in-house.

2) Barnet Council vs Catalyst Housing

Shambles-prone Tory Barnet council is probably worthy of its own list and will doubtless continue to be as it pursues its ill-thought-out and unpopular mass-privatisation plan. But we start a few years back, nearer the dawn of Barnet’s disasters: In 2011, Barnet council was forced to pay out about £10m following a disagreement with private company Catalyst Housing over a contract dispute over care buildings.

This followed a very bitter two-year industrial dispute between careworkers and Catalyst Housing’s partner organisation the Fremantle Trust. The Trust cut careworkers' salaries by as much as £300 a month in a bid to “save” money and improve finances, but ultimately had to concede that the salary cuts and slashed leave allowances had not balanced the books.  

3) Bedfordshire County Council and the exit from the HBS contract

Still a loud warning to all in council circles. The outsourcing expert Dexter Whitfield investigated this in detail: In 2001, Bedfordshire County Council (BCC) and the HBS Business Services Group had a 12-year, £267m Strategic Service Delivery Partnership which covered financial, information technology, human resources, school support services and contracts/facilities management. There was also a loose notion of creating a regional business centre which would provide similar services to a range of public sector organisations. Unfortunately, a few years in, there was no sign of it (“no evidence of centre” Whitfield noted in his report).

BCC was forced to pay HBS £7.7m to terminate the outsourcing contract prematurely. According to The Register, the local authority was "deeply dissatisfied" with HBS's performance and served a written termination notice on the company for alleged breach of contract. The Register also reported that Unison produced a dossier of evidence to back up its claims that the quality of the council's services had suffered, not improved.

4) Barnet Council, again

Once you start looking at Barnet council, it’s hard to look away. This one is about IT.

Earlier this year, Barnet Council had to pay thousands of pounds for “emergency” IT services after its regular provider went into administration.

The local press reported:

“The authority has been forced into a costly interim arrangement with business processes firm Capita after IT company 2E2 Ltd called in administrators. Finance officers are now looking at how the authority can reclaim £220,000 in advance payments to 2E2, which passed a council credit check days before it collapsed.” (You could say this actually represented a slight procedural improvement from the council given that during another scandal - the council’s failed contract with security firm Metpro - it didn’t check the company’s finances at all).

As the excellent Barnet blogger Mrs Angry reports, the council decided that the way out of the 2E2 problem was to give more than £72,000 a month to Capita to pick up the “service”:

To get themselves out of a hole quickly, Barnet Council have appointed Capita, without any form of tender, on the basis that it was an emergency and they had already had discussions with Capita to take over the running of this service. This new contract will cost £72,595 per month.

Mrs Angry also made this interesting observation:

The Council states that they did undertake a risk analysis of 2e2 in January “using Experian reports” and that “the report stated the company was satisfactory”. However a quick check on the internet would have shown that suppliers have not been able to get credit insurance on goods supplied to 2e2 for some time and that 2e2 were handed a number of County Court judgements in 2012.

5) Swansea city council and contractor Capgemini.

A salient lesson in the importance of listening to staff, or indeed to anyone with any sort of expertise. Staff took strike action from the moment that Swansea CC revealed that it would outsource IT. The Register reported: “they warned that the move would lead to a less effective service and lost jobs.” Sadly, none of that stopped the council from cantering towards the inevitable conclusion - a conclusion that was so inevitable that even PriceWaterhouseCoopers was compelled to take the long view of the Swansea foray during a later analysis:

Said Computer Weekly in 2007:

Swansea City Council failed to apply key principles of IT management properly when it agreed an £83m outsourcing deal that is struggling to deliver anticipated benefits, a report by auditor PricewaterhouseCoopers has concluded.

The council's original outsourcing contract with Capgemini, to replace back-office systems and create online public services, promised to deliver £70m savings over its 10-year life when it was signed in 2006.

But:

the council scaled back the contract to a £40m project a year later, predicting savings of £26m over 10 years. To date, it has achieved savings of £6m, PwC revealed.

The Register quoted a Councillor Mike Hedges who said that after outsourcing, “the email system was so unreliable he has switched to using his Yahoo! account for council business. He said email notifications of shut-downs of up to 24 hours are now a weekly occurrence.”.

6) Cornwall council’s mega-outsourcing deal

Cornwall hit all kinds of self-erected hurdles with its plans for a mega-outsourcing deal with BT or CSC – and council leader Alec Robertson was ousted - before a smaller deal was finalised this year.

Tony Collins wrote on Campaign4Change about the costs of the fiasco:

The council’s own budget for the outsourcing project so far has escalated. An independent panel set up as a “critical friend” to scrutinise the council’s plans for outsourcing has learned that the costs to Cornwall’s taxpayers of planning for the scheme were £375,000 in July 2011.

In March this year the “Single Issue Panel” members were told that the costs for the project would need to be increased from £650,000 to £800,000.

The current estimate of the cost of the procurement process at the time of writing this report is £1.8m,” says the panel in its July 2012 report.

7) Birmingham, “Service Birmingham” and Capita

As large as it is unreal. We’re adding this one, because we don’t really know what is going on with it. There is a lot of confusion about how much the Capita “Service Birmingham” venture is costing, although people seem to know it’s costing a lot.

The Birmingham Mail reported earlier this year:

The venture, run by the council and private sector contractor Capita, operates the authority’s call centre, IT infrastructure, Library of Birmingham IT and support and the collection of debts and council tax until 2020. The arrangement was formed in 2005 with £55 million-a-year running costs. But costs were thought to have spiralled to about £120 million-a-year following a renegotiation in 2011 and the addition of extra services, including council tax collection.

That story also said that “new checks will be carried out on Service Birmingham’s accounts amid complaints that councillors had 'little idea' of how much the arrangement was costing.”

In an extraordinary statement which we trust is genuine (it was made close to 1 April), Councillor John Clancy said Birmingham City Council members were being “deterred from getting a grip” on the nuts and bolts of the “complex” deal because the facts were unclear.

“Nowhere is there a clear, total figure for what we are paying and what we should be paying,” he told a scrutiny meeting.

“The biggest issue is transparency, we have little idea of what is going on.”

8) North Tyneside council and Capita

As recently reported in Tim Minogue’s excellent “Rotten Boroughs” page in Private Eye, Jim Allan, the Labour group leader at North Tyneside council has been found guilty of bringing the council into “disrepute” after a standards investigation by law firm Eversheds on behalf of the council and its consultant chief exec, Graham Haywood.

Allan expressed disappointment over social media last year that the council’s then-Conservative cabinet hadn’t investigated the risks linked to an outsourcing contract worth £260m with Balfour Beatty and Capita Symonds.

He claims he was merely stating facts. As Minogue reported: “Part-time chief exec Haywood had told him members needn’t worry about the risks in the contract because they were the ‘responsibility of officers’. Haywood was previously chief exec at Sefton council, where in 2008 he helped negotiate a £70m outsourcing contract with, er, Capita Symonds. This year Sefton brought services back in-house after cutting short Crapita’s contract years early.”

And as Minogue points out: “The report into [Allan’s] three tweets ran to 223 pages, took more than six months to prepare and cost an estimated £15,000. Terrific use of taxpayers’ money at a council seeking to make more than £21m savings this year.”

9) And a recent big one: Sandwell Council to part ways with BT and end £300m contract

Said the local Express and Star paper:

Sandwell Council has been in a 15-year partnership with BT called Transform Sandwell, in which the company manages services such as finance, customer contact and communication. The current deal, signed in 2007, sees the council paying BT around £15m a year.

In July, the authority told the telecommunications giant it wanted to bring its contract to an end, unless BT addressed issues raised by the council within 30 days.

And today it can be revealed that both parties have begun to thrash out how they will end their contract by March next year.

Those details will be interesting.

The council was apparently unhappy with BT’s service and began dispute proceedings last September.

Ones to watch (feel free to send others):

There’s a growing list here of local and council services that have been privatised this year. One potential wreck is Capita’s new contract with Lambeth council. Undeterred by the famous failure of the ALS-Capita court interpreting service, widespread loathing of the company at Barnet, or whatever is going on with Service Birmingham, Lambeth council and Capita signed a nine-year deal last week. The contract is for, among other things, ironically-named “customer service support.” Time will tell whether the customer is first served, or Capita. Lambeth has cut tens of millions from its budgets in the last three years, too. You can see why people mutter that there is always plenty of money around for companies like Capita, if not for children’s services, etc.

There’s also Cheshire council’s outsourcing of youth services. In July, Children and Young People Now reported:

Cheshire youth services will be delivered by independent organisations in the future, following a local authority decision to outsource its youth work provision.

We’ll be watching that - when you remove services from council, you remove a lot of the democratic accountability around them, as those of us who report on these things know too well. Earlier this year, we and families of service users were chucked out of a care cuts meeting when the board in charge of the service said it didn’t have to speak to people because it represented a private company.

And. . .

We might as well finish with Barnet council. Two major contracts worth (price tag varies) £500m with Capita. Service users hate it, residents hate it, staff hate it and local journalists hate it. This can’t end well. Or cheaply.

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Brexit is an opportunity to rethink our economic model

Our industrial strategy must lift communities out of low-wage stagnation, writes the chair of the Prime Minister's policy board. 

With the long term fallout of the great crash of 2008 becoming clearer the issue of "inclusive growth" has never been more urgent.

Eight years after the Great Crash, it is becoming clear that the long term impacts of the crisis profoundly challenges the model of economy - and politics - we have become used to. Asset inflation and technological revolutions are entrenching untold wealth for a small global elite.

This sits alongside falling relative disposable incomes for the many, and increasing difference in the disposable income of different generations. Meanwhile, a cohort of "just-about-managing" citizens are working harder than ever simply to get by, despite falling rates of savings. All of this – along with a persistent structural deficit in pensions, welfare and health budgets - combines to create an urgent need for new economic thinking about a model of growth and 21st century economic citizenship that works better for all people and places in our country.

The main political parties have set out to tackle these challenges and develop policy programmes for them. Theresa May has set out a bold new Conservative agenda of reforms to help those of our fellow citizens who are working hard but struggling to get by: to build an economy that works for everyone, and for the people and places left behind.

But this challenge is also generational, and will need thinkers from all parties - and none - to talk and think together about fresh approaches. This is why this cross-party initiative on inclusive growth is a welcome contribution to the policy debate.

The Prime Minister leads a government committed not just to deliver Brexit, but also to the fresh thinking and fresh solutions to the scale of the domestic challenges we face, which clearly contributed to the scale of the Leave vote last June. As she has said, it's clear that as well as rejecting the EU, voters were rejecting a model of growth that wasn’t working for them.

The UK’s vote to leave the European Union was one of the most dramatic and significant political events in decades – for this country and potentially for Europe. It changes everything: our economic model, our long term economic prospects, the assumptions and mechanisms through which we run most of our government and the diplomatic and economic status of the UK internationally.

Delivering a successful Brexit – one which strengthens our global security, our united kingdom, our economy and popular trust in parliamentary democracy, and a model of political economy that works to these ends, will dominate this political generation.

This is a challenge. But it is also an unprecedented opportunity to reform our model of political economy to tackle the causes of deepening domestic political disillusionment and put our country on the path to long-term recovery. 

Brexit provides us with a unique chance to address two of the most important public policy challenges facing our country.

First, the need to enable and enhance the conditions for creating and developing greater enterprise and innovation across our economy, in order to increase competitiveness and productivity. Second, the need to tackle the growing alienation of so many people and places from the opportunities of globalisation, which has in turn entrenched attitudes towards welfarism. I believe these two challenges are fundamentally linked. 

Without social mobility, and the removal of the barriers holding back national and regional participation enterprise, we will never be able to tackle the structural challenges of productivity, public service modernisation, competitiveness and innovation. 

It's becoming clearer to more and more people that a 21st century "innovation economy" both requires and drives an "opportunity society". You can't have an enterprising economy with low rates of social mobility. And the entrepreneurial spirit of economic aspiration is the fuel that powers the engine of social mobility.

For too long, we have run an economic model based on generating growing tax revenues from an ever smaller global elite, in order to pay for the welfare costs of a workforce increasingly dependent on handouts.

Whitehall has tended to treat social policy quite separately from economic policy. This siloed thinking – the Treasury and the Department for Business, Energy and Industrial Strategy for "growth" and the Department for Work and Pensions, Department of Health and Department for Education for "public services" - compounds a lack of the kind of integrated policymaking needed to tackle the socio-economic causes of low productivity. The challenges holding back the people and places we need to help do not fall neatly into Whitehall silos. 

Since 1997, successive governments have pursued a model of growth based on a booming service sector, high levels of low-cost migrant labour and housing and asset inflation. At the same time, policymakers tried to put in place framework to support long term industrial renaissance and rebalancing. The EU referendum demonstrated that this model of growth was not working for enough people. 

Our industrial strategy must be as much about lifting communities out of low-skill and low-wage stagnation as it is about driving pockets of new activity. We need Cambridge to continue to grow, but we also need to ensure that communities from Cromer to Carlisle and Caithness, which do not enjoy the benefits of being a global technology cluster, can participate too. That means new measures to spread opportunities more widely. 

The Great Crash and its aftermath - including Brexit - represents a chance for a new generation to think these problems through and tackle them. We all have a part to play. Six years ago, I set up the 2020 Conservatives Group in Parliament, as a forum for a new generation of progressive Conservative MPs, regardless of increasingly old-fashioned labels of "left" or "right", or where they stood on the Europe debate. This is a forum to discuss new ways to tackle the current problems facing our country, beyond the conventional silos of Whitehall. Drawing on previous career experiences outside of Parliament, the group also looks ahead strategically at the potential longer-term social and economic challenges that may confront us in the future.

I believe that technology, and a new zeitgeist for public sector (as well as private sector) enterprise hold the key to resolving the barriers that are currently holding back the development of new opportunities. With new approaches, better infrastructure and skills connecting opportunities with the people and places left behind, better incentives for our great innovators, and new models of mutualised public/private partnerships and ventures, we can build an economy that genuinely works for everyone.

The government has already set about making this happen. Through the industrial strategy, the £23bn package of investment in new infrastructure and innovation announced by the Chancellor, Philip Hammond, we can now be much bolder in developing a 21st century knowledge economy infrastructure that will be the foundation for economic success. 

The success of inclusive growth rests on a number of core foundations - that our economy grows, that social inequality is redressed; that people are given the skills they need to pursue a career in the new economy and that we better spread the opportunities of the global economy hitherto enjoyed by a segment of our workforce to the many. 

This can only be achieved if we recognise the way in which enterprise and opportunity are interdependent. Together, politicians from all parties have a chance to set out a new path for a Global Britain: making our country the world capital of innovation and opportunity. Not trickle-down economics, but "innovation economics" where the private and public sector commit to a programme of supporting each other for mutual benefit.

An economy that works for everyone is an economy in which the country unites around the twin pillars of opportunity and security, which are open to all. A country in which "shared values" are as important as "shareholder value". And in which both are better shared by all. A country once again with that precious alignment of economic and social purpose which is the hallmark of all great civilisations. It's a great prize.

This is an edited version of George Freeman's article for All-Party Parliamentary Group on Inclusive Growth's new "State of the Debate" report, available to download here.The APPG on Inclusive Growth's "State of the Debate" event with the OECD, World Economic Forum, RSA and IPPR is on Tuesday 21st February at 6.30pm at Parliament. See www.inclusivegrowth.co.uk for full details. 

George Freeman is the MP for Mid-Norfolk and the chair of the Prime Minister's Policy Board.