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.

The NHS logo outside St Thomas's Hospital in London. Photo: Getty
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Taking back control... in the workplace

It’s time to reboot dignity and respect at work, says Frances O’Grady, general secretary of the TUC

Jess* lives in a small town in the north-west and is on a zero-hours contract. Some weeks she could work up to 50 hours, but others she works as few as 30. And when she got ill, her company refused to pay her sick pay. Sarah* is 38 and lives in a big city. She is employed through an agency and although she has worked more than 12 weeks for the same employer, she feels like she’ll never get the same status as permanent staff. She told the TUC: “I feel frustrated at the lack of permanent jobs in the market and how little control you have as an agency worker. Everything in my life feels temporary at the moment. My experience of agency working is that you are on the bottom rung. You can’t speak out or you won’t get work.”

Wherever you go in the UK, the story is the same. Too many working people are stuck in jobs that don’t offer enough pay or enough security to build a life on – in short, there’s not enough control. Working for the TUC, I hear these stories every week. Stories of workers who don’t know from one day to the next whether they’ll work that day. Working people in all sorts of jobs who can’t raise problems at work, because on today’s “flexible” contracts: the boss doesn’t need to sack you, he can just take away next week’s hours. Delivery drivers who have found themselves deactivated without warning. Warehouse pickers red-flagged by a gadget that decides they are too slow. And stories from careworkers whose work lives are governed by the ping of an app – but who never get enough time to meet their elderly clients’ needs.

This is the reality of work for too many people now. Isolated from colleagues and at the beck and call of their boss. Without the small measure of security granted by a permanent contract and some basic employment rights. It all leaves hard-working people with precious little dignity or control. The time is ripe for a new deal for working people – and that’s what must be on offer at this election. For a start, as we leave the European Union, every party must guarantee that our rights at work don’t go backwards. Hard-won rights such as holiday pay and protection from pregnancy discrimination came from the EU. We can’t afford to lose these rights after we leave – and we need to know that they can’t be watered down on the quiet by judges or by parliament.

And in the years to come we have to make sure that hard-working Brits won’t miss out on new protections that Dutch, Spanish and German workers get. That’s why the final Brexit deal has to include a level playing field on workers’ rights – making sure they will always be as good as or better than what’s on offer to the rest of the EU. Second, the rules to protect working people haven’t kept up with how working lives have changed. One in ten workers is already in insecure work – and if nothing changes, 290,000 more people will join them by the next general election in 2022. That’s the equivalent of 13 extra Sports Directs, or the entire working population of Sheffield.

These jobs don’t pay enough and they push all the risks on to the workers. Paying rent and bills can be a nightmare when you don’t know how much you’ve got coming in each month. Britain’s 900,000 zero-hours contract workers earn a third less per hour than the average worker. And every worker pushed into false self-employment loses their rights to sick pay and paid holiday. If Britain aspires to become a high-skill, high-productivity economy, the next government must drag the rules about work into the 21st century. Promising a review isn’t enough; every party must make real commitments to crack down on zero-hours contracts and bogus self-employment, and make sure agency workers always get the going rate for the job.

And Britain still needs a pay rise. Rising inflation and slow wage growth means a new living standards crisis is coming. And we’re still in the longest pay squeeze since Victorian times: workers are on average over £1,000 worse off each year in real terms than they were in 2008. Over the coming parliament, the minimum wage needs a serious boost, so that it reaches £10 per hour as soon  as possible. We need to get more people covered by collective bargaining agreements that raise wages and skill levels. And it’s time for the government to stop artificially holding down public servants’ pay. By 2020, midwives and nurses will have seen their real pay fall by over £3,000 – scarcely the right reward for years of dedicated public service.

Of course, the best way to raise wages is to bring great jobs to every corner of the country. In both 2014 and 2015, London’s growth was double that of the average across the rest of the UK. We still lag behind our competitors on the infrastructure we need to help the whole country – such as modern transport links and fast broadband. And our investment in infrastructure is the lowest in the OECD. More than ever we need an industrial strategy that delivers good jobs to the parts of the UK where they’re needed most. Improving the lives of ordinary working people and giving them back control of their rights – that’s what all of the major parties should be prioritising this election.

** Names have been altered to protect people’s anonymity.

Frances O'Grady is the General Secretary of the TUC. 

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