Money wasted in council privatisation fiascos - and how those companies are eyeing up the NHS…
How much does it cost councils to get out of private sector contracts, or to deal with contract disputes and cost overruns with private companies?
And how much of this will we see as private companies race for NHS contracts?(Answer - A Lot).
Recently, Barnet's eminently reasonable Mr Reasonable published this very interesting blog about the cost of the contractual dispute between Southwest One and Somerset council (the row was over savings not made by the partnership that the council had formed with IBM company Southwest One. The contract was to provide back office functions and services).
Called the Cost of Contractual Disputes: Pay Attention Barnet – Mr Reasonable reported that:
“Southwest One, the outsourcing contract in Somerset, ended up in dispute when the council was sued by its outsourcing partner. 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 £2.6 million. 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.”
The BBC reported overall costs to the council of the debacle were more than £5m. There's a history to the whole sorry story here.
So we decided to list of some of the payments that councils and other public sector authorities have had to make over the years to get out of failing contracts, or when costs have overrun and/or when councils have found themselves faced with private companies that have demanded more money. This will give you an idea of the costs of privatisation's many, many failures and the money wasted on these ventures. There are plenty to add – as we say, there will no doubt be more as private companies start to carve up the NHS for themselves. We're also going to add examples of services that councils have brought back in house because private companies failed to deliver.
We've also started to add NHS and more council privatisation information to our cuts database so that you can see some of the deals that are being done as the government carves up the public sector. If you want to add your own examples of privatisation, choose the Privatisation category tag when you're entering the details into our cuts database.
Expensive council privatisation failures (we've seen one example with Mr Reasonable's blog on Southwest One and Somerset above):
2) Barnet council vs Catalyst Housing
In 2011, Barnet council was forced to pay out about £10m after a disagreement with private company Catalyst Housing after a contract dispute over care buildings. This followed a two-year industrial dispute between careworkers and the Fremantle Trust where the Trust cut careworkers' salaries by as much as £300 a month their leave allowances. The Trust was forced to ultimately concede that the salary cuts had not actually balanced its books to the extent it claimed they would.
3) Bedfordshire County Council was forced to pay its “business service provider" HBS £7.7m to terminate a £250m, 12-year outsourcing contract prematurely. According to documents released at the time in 2005, the local authority was "deeply dissatisfied" with HBS's performance and served a written termination notice on the company for alleged breach of contract. Earlier that year, public sector union UNISON produced a dossier of evidence to back up its claims that the quality of the council's services had suffered, not improved.
4) Let's have Barnet again. Barnet council really is the gift that keeps giving and doubtless will continue to be as the council pursues its already-failing plans to mass-outsource council services:
Earlier this year, Barnet Council had to fork out tens of thousands of pounds for “emergency” IT services after its regular provider went into administration.
Said the local press:
“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.”
And not only that – as Barnet bloggers report here, the council decided that the way around this problem was to start to shell out 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.”
5) Redcar and Cleveland council – failed contract with Liberata. Following a 'strategic review of services,' HR and Payroll, Finance and Accounting, ICT, Public Access and Business support were brought back in-house in September 2006 after only three years of the 10 year contract. About 500 staff were transferred back to the council.
6) Haringey council and the failed “technical refresh programme” with contractors Deloitte Touche and Northgate Tech. The programme began in 2004, but costs rose to £24.9m by late 2005. Contractors “absorbed” £5.5m and left the council with extra £10.1m to cover (a 112% increase).
7) Swansea city council and contractor Capgemini: Swansea outsourced IT in 2005 despite opposition and a lot of strike action. The council decided that Phase Two with a new call centre was not affordable only two years into the ten year contract. It seemed that £7.4m of ‘cash realisable benefits’ over ten years was achievable but the full contract would cost Council £40m more than its normal IT budget over ten-year period.
Said Computer Weekly: “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.
The council scaled back the contract to a £40m project a year later.”
8) Cornwall council: Cornwall was hit with all kinds of problems over its plans for a mega-outsourcing deal with BT or CSC – including a vote of no-confidence in the council leader before a smaller deal was finalised earlier this year.
Said Tony Collins of the costs of the fiasco (the mega-outsourcing plan that caused such controversy):
“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.”
9) West Berkshire Council in 2005 terminated a £168m Strategic Service-delivery Partnership with Amey plc. The contract for IT and corporate services, had only completed three of the ten year contract period.
Amey Plc continues on in the same field - this year, the company got a £150m+ contract to combine the facilities management services of Westminster City Council, the Royal Borough of Kensington and Chelsea and the London Borough of Hammersmith & Fulham.
10) Birmingham, Service Birmingham and Capita. We're adding this one because it is utterly bizarre and shows how badly governed some of these deals are. Nobody seems to know how much the Capita Service Birmingham venture is costing the council.
As 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.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.
Coun John Clancy (Lab) 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.”"
There's a good list here from Dexter Whitfield on similar failures across the country in the last decade. You'll notice that names like Capita, Atos Origin and Liberata appear regularly in it.
Getting into the NHS (plenty of these companies are already in it, of course)
Costly failure in local government and in government departments appears to be no reason not to pursue further triumphs in the NHS: see how blatantly some of the companies on that failure list are eyeing up "opportunities" in the NHS.
"The challenge: the new [NHS] clinical commissioning system brings the challenge of creating a managed, co-ordinated approach to service delivery, to reduce risks during the transformation phase...Our solution: Liberata has 35 years of experience of providing Business Process Outsourcing services, IT Solutions and managed services to the public sector. We have helped our clients achieve lasting improvements in performance levels and service delivery, and optimise cost savings through our CapacityGRID service."
"[We are] a trusted partner in healthcare. In this era of unprecedented transformation where quality of care, patient safety and efficiencies are under increased scrutiny, we can help you improve standards, lower costs and enable you to concentrate on the critical job of patient care."
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