SCRAPita?

By David Bailey on Dec 9, 13

http://blogs.birminghampost.co.uk/business/2013/12/scrapita.html
Despite supposedly being broke, Birmingham City Council has just found another half a million quid down the back of the municipal sofa to hand over to Capita, this time to come up with an ‘education services transformation programme’ for education (see here for a piece by Paul Dale at the Chamberlain Files on this). http://www.thechamberlainfiles.com/capita-set-to-pocket-500000-from-birmingham-city-council-for-job-no-one-else-can-do/

Quite why anyone in the council – including the Leader himself or a cabinet member – couldn’t have come up with such a ‘model’ isn’t at all clear.

Couldn’t a local university have done this at a much lower cost? Or is it just too convenient to pick up the phone to our old friends Capita? It seems like the Council has gone for the Rolls-Royce model yet again.

Of course, over the last year or so I have been pressing the point here in my blogs that the Service Birmingham Rolls-Royce (Capita to you and me) is costing the City Council at least £120m a year.

I have been repeatedly criticised in public by the leadership of the City Council. They claim to ‘not recognise’ my figures on the cost of Capita for the city, even though those figures came from Service Birmingham’s own Annual Accounts filed at Companies House.

What’s more, at no point have Albert Bore, Ian Ward or Stephen Hughes come up with any alternative figures to challenge my own.

So, to stress again, as far as I can figure out from what information is in the public domain, Service Birmingham costs the Council £126m a year (at least it did in 2012). That works out at £345,000 a day or over £1m every three days. On that, as the Post pointed out back in October, Service Birmingham stacks up £58,000 a day in profits. Nice work if you can get it.

The £126m spend covers a ‘core’ IT service, numerous IT ‘one-offs’, an IT service to schools, a so-called ‘business transformation’ (or ‘picking low hanging fruit and being paid a lot for it’) programme, revenue collection, the calls centre, and probably a few other things I’m not aware of. In what proportions the £126m is spent on each element is not clear as the contract is not in the public domain.

On this £126m a year contract, Service Birmingham made £26m in gross profits in 2012. These were anyway profits after piles of stuff had been purchased, with a mark-up, from a wide range of Capita Group firms for £54m.

They each made a profit to feed back into the Capita money-making machine group. So the £26m gross profit reported is really just a fraction of the real value-extraction made by Capita through the lucrative Service Birmingham contract.

So it’s not surprising that overall Capita Group margins ran at 12.5% in the first half of 2013, with full year margins expected to be well ahead of this. And the Capita share price is up by over 30% this year.

Of the £8m dividend paid last year by Service Birmingham, 98% of it went to Capita PLC. And given that there was never an expectation that any profits would be made at this stage of the contract, this is again indication of how lucrative a money-making machine this has become for Capita. And we’re all paying for it, of course.

To put this into context, Birmingham City Council is spending around 10% of its entire controllable budget on the contract with Capita. Is this really how our city should be allocating increasingly scarce resources?

This spend on Capita should either be capped or scrapped. Simply trying to trim £20m off the Capita ‘core IT’ contract – as the new White Paper indicates that the Council appears to be trying to do (so far unsuccessfully I add) – doesn’t deal with all the one-offs and other add-ons that Capita gleefully rakes fat profits in on.

A maximum spend of – say – £40m a year should be set for all of Service Birmingham, and Capita ordered to cut costs and provide services within this limit, or face the chop.

My argument all along has been that £126m a year is way too much. And if the over-blown Service Birmingham spend of the council can be cut by £80m annually until 2018 (leaving aside the exit fee that I estimate at £20m to £30m) then a huge dent can be made in Albert Bore’s apocalyptic Jaws of Doom.

Indeed, what has amazed me most by Bore’s frequent portends of doom, climaxing in his ‘Armageddon’ analogy (now apparently postponed, it seems), is that he has failed to live up to his own hyperbole when it came to doing much if anything about it as regards Service Birmingham.

Indeed, despite Coun Ward’s claim in the Birmingham Post that the “Council continues to challenge Service Birmingham”, there is very little evidence to back this up (at the highest levels of the Council at least).

Some 18 months into the current administration and around £190m later, Service Birmingham is still costing the council – and us – big time. It has essentially been ring fenced while many public services are being salami sliced before our eyes.

This is now critical because if serious cuts can be made to Capita then front-line services may not need to take such a hit as the big Osborne’s austerity cuts really start to really bite.

As I have said frequently before, quite why the Labour-led Council did not get hold of this contract 18 months ago and immediately pare it right down remains the big question. Bore, Ward and Hughes have collectively failed to answer this critical challenge.

A first step must be to put the Service Birmingham contract into the public domain so that it can be subjected to scrutiny, as has happened elsewhere such as in Barnet, so that we can see how to squeeze the contract down to a manageable level.

Indeed, rather than paying for ‘world class legal advice’ as Birmingham City Council tends to do on such matters (like the equal pay issue), why not use an ‘open innovation’ model and put the contract in the public domain.

We could then let a volunteer army of citizens, academics, pro bono lawyers, IT specialists and local IT firms (who might want a bit of the action) crawl all over the contract and come up with ideas as to how we can squeeze its costs right down.

Such a move is essential so we can start to answer some of the key questions on Capita and Service Birmingham I’ve yet to be given answers to by the Council (seehere for a recent list).
Professor David Bailey works at the Aston Business School in Birmingham.

 

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