Capita admits it won't make money on botched NHS England contract

Embattled outsourcing giant Capita has made a loss of £140m trying to deliver on a seven-year contract to upgrade back-office support in the NHS – and never expects to turn a profit on it. CEO Jonathan Lewis made the admission at an evidence session in front of the influential Public Accounts Committee yesterday, which was …

[}{amis}{]

Their Business Model

They will get no sympathy from anyone that recognises that massively underbidding to win contracts and then assuming they can slap on a load of extras is how capita rolls.

In this case, they have failed to get their usual 100%+ uplift from the government a thus are making the loss that their original bid had written in.

Frankly, the Audit office should be working out how the NHS achieved this and making sure that other departments follow suit.

[Anonymous Coward]

Re: Their Business Model

Capita's business model is to take the blame for their political masters, issue bonuses to their upper management and ultimately go bankrupt owing millions.

[cosmogoblin]

Re: Their Business Model

"... ultimately go bankrupt owing millions billions."

FTFY

[macjules]

Re: Their Business Model

Lewis, meanwhile, emphasised that the firm had invested £125m in the work, which with added loss margins would be closer to £140m – money it did not expect to make back.

How about this response from a PAC member, "Thank you Mr Lewis for taking such a loss. Can you please now provide audited accounts to prove that you have invested £125m in the work?"

[}{amis}{]

Re: Their Business Model

Can you please now provide audited accounts to prove that you have invested £125m in the work?

Of course, they can their mate's over at KPMG would more than happy to help!

BBC: KPMG's audit work unacceptable, says watchdog

[Anonymous Coward]

Re: Their Business Model

"On the other hand, the work has saved the NHS some £60m over the past two years"

I think it should be borne in mind that the number of admitted failures is likely to be the best-case/lowest impact interpretation of the data and the real number, in terms of actual consequence, is most probably greater. If so, then in view of all the stuff that should have been done over that period, but wasn't, it's easy to see how the 'work' resulted in a saving of money.

[codejunky]

Hmm

"Embattled outsourcing giant Capita has made a loss of £140m trying to deliver on a seven-year contract to upgrade back-office support in the NHS – and never expects to turn a profit on it."

Another way to read that is Crapita saved the tax payer $140m. If this was kept in house the tax payer would have to stump this and probably more.

[TechnicianJack]

Re: Hmm

I don't mind paying for in house services that work, instead of outsourced ones that don't.

[codejunky]

Re: Hmm

@ TechnicianJack

"I don't mind paying for in house services that work, instead of outsourced ones that don't."

And if the insourced didnt? I am not defending crapita here so dont get me wrong and phuzz states the awful possibility that it is 'too big to fail'. But that to me points back to the point I was making that a public sector effort would be splurged with more cash (the more it fails the more it would get) while actual private business would have to take the loss and potentially collapse. I dont recall any public sector group suffer the same issue, they just get more money.

Crapita could be just like that if it is a public entity masquerading as a private entity. Carillion was private and took the hit of not being able to deliver. And it was that same in house gov that continued to back Carillion with contracts when it was at risk and continues to use Crapita. I doubt their ability to act better keeping things internal.

[Anonymous Coward]

Re: Hmm

But thats the problem, in house IT doesn't work, in house IT is lazy and takes advantage of working for public services. They are paid way more than what they should be paid and do much less work.

[Doctor Syntax]

Re: Hmm

"But thats the problem, in house IT doesn't work, in house IT is lazy and takes advantage of working for public services."

More likely the in house IT in public services are running around like blue-arsed flies because their numbers have been cut and cut and cut again and there aren't enough left to do the job. There's probably not many between the techies who know what they're doing and what needs to be done and the PHBs who have no idea about either. So the solution is to outsource it, a process managled by the said PHBs with entirely predictable results. Usually it goes to an underbidder who then load on extras when they discover what needs to be done. In this case it looks as if Capita failed to discover what needs to be done before attempting to do it with even more predictable results.

[phuzz]

Re: Hmm

Who's to say that Crapita won't turn out to be designated 'too big to fail'? (I guess it depends how many ministers have cosy positions there lined up). We might end up paying even more for their losses.

[MonkeyCee]

Re: Hmm

@codejunky

I'm pretty sure the only way to read the article is to conclude that the project is running over cost (or failing to make expected savings), and that Crapita have decided to carry the bag in order to gain more down the line.

They've admitted that neither they nor the client knew what they where doing before they started, and it was rushed purely on a cost basis. Oh, and the assumption that a client who "doesn't know" won't have some steaming pile of crap for you to clean up (by accident or design) implies that you've never taken a contract in your life.

You'll notice that the project is making *exactly* the predicted savings (60M), whilst Crapita is taking a hit of roughly 120M for the same period. So making sure the flagship project works and provides "savings" is clearly just silly accounting.

"Another way to read that is Crapita saved the tax payer $140m."

They saved 140M on their tax bill.

[Anonymous Coward]

Re: Hmm

Another way to read that is Crapita saved the tax payer $140m. If this was kept in house the tax payer would have to stump this and probably more.

That would depend on whether they delivered the project in the same way. The tragic thing is that all of this is very simple in concept, with the complexity mainly in the data and interfaces. The way most of these projects go wrong is that they make the concept complex, and assume simplicity in the data and interfaces.

There's only two levels for the concept, the processes, and the IT (which is largely transaction processing tied to a very simple database or three). You design a robust and common process around what the users of the system want. It is important to pay lip service to the requirements spec issued by procurement, but the actual requirement must be based on what the end users want to achieve (procurement won't have asked them). All of the business units have to accept the new process - or pay from their own budget for a custom process - this usually shuts up the whiners. Then you either build new, or preferably re-use any existing halfway adequate systems according to the new process, and roll in the "client" workload sequentially, knowing that the first 40% of easy records will go across with few problems, and then you'll unearth all the skeletons when you move from 40-60% of the data. So you don't rush it.

There's no rocket science. And typically, when you take a bunch of different organisations and systems, somewhere there's a process that's working at least adequately, and somebody has an IT system that isn't a disaster. Best option is build out from those things that work, so ideally not everybody, every process and every system are changed.

When you look at the fuck ups that Crapita are associated with, the hugely costly messes they create for non functioning systems (like Army recruitment), it's quite clear that the vendor are simply incompetent, unfortunately so is their client.

[katrinab]

Re: Hmm

I don't want to spend £330m on something that doesn't work even if at cost them £470m to deliver the screw-up.

[Anonymous Coward]

I take from that the crapness of Crapita. I mean their business model is outsourcing work and making a profit but they lose 140m, that's got to be indicative of their business as a whole. It'll be gone after the shareholder purge anyway and the tax payer will be left to clean up the mess.

[a pressbutton]

Re: The future...

"We will not make money over the life of this contract"

I.e. we get this renewed and then we coin it

... and fair play as taking the financial hit and the political blame should help with the renewal as long as they deliver.

[Vanir]

Just where are

the 'successful' public / government IT projects?

Can anybody cite one please?

[Anonymous Coward]

Re: Just where are

Where are the successful private ones?

[Doctor Syntax]

Re: Just where are

the 'successful' public / government IT projects?

Under the radar because success isn't newsworthy. I've been on a few with one of my clients. One by one they eventually lost the contracts to the usual suspects. Go figure as to why that might be; I couldn't possibly comment.

[adam payne]

Sharp added that the firm was "working blind" for some time because of this lack of information available, and that the firm faced "bigger issues" than had been expected when the work did begin.

If there was a lack of information available then how could you come up with any sort of implementation plan let alone come up with a vague idea of costings.

Lack of proper due diligence will come back to bite you every time

[mrbawsaq]

I agree.

Capita's sales process must go something like this:

"How much money have you got?"

"Ok, we'll take it"

[Valerion]

Don't worry guys

I'm sure the executives who put the winning bid together got massive bonuses and promotions.

I know you were all worried for their well-being.

[SVV]

If Crapita et al were IT project experts

They would look at the stupid level of complexity of the proposed projects and simply report back at the tendering stage "No, sorry can't be done. Too complex. Make it into smaller projects and do them in stages. Projected budgets hugely unrealistic. Anyone who claims it can be done shouldn't be trusted".

That sort of actual expertise might eventually get listenhed to if someone did this when bidding for all these projects, and they might actually end up being awarded all the work in the future.

[Jellied Eel]

Re: If Crapita et al were IT project experts

In a perfect world, you'd be absolutely right.

In the wild world of public sector procurement, the NHS would probably have hired someone like KPMG to 'manage' the bid process. Where these bids tend to fall down is the RFP often contains insufficient information to fully appreciate costs, complexity and risks. And being public sector, the bid process tends to be very formal and limits the ability to ask questions or pre-qual the bid.

Then on the other side, you have a sales-driven organisation. Which means you have to answer 'Yes' to every question and generate a fully compliant bid. Ideally, that should also mean fully qualified and costed, but that may make it too expensive and sales want their commission.

Then you 'win' it, and the rest of the organisation has to deliver it. Which is where the 'fun' tends to start, and why I try and avoid working on public sector projects, even if I know they're doable and for a good cause.

[Anonymous Coward]

In a rare moment of clarity for Fujitsu Services they walked away taking a small hit when they realised they could not make a profit on the life of the project

[Anonymous Coward]

"More money for the NHS" - "Keeping us safe" - etc. etc.

So....taxpayers (i.e. you and me) fork out 330 million. Even at the beginning of this mess, we now find out that the contract terms were incomplete, poorly drafted. And while the contract is running we get poor service, plus an unknown amount of harm to an unknown number of individuals.

*

And, as ever, there's no one taking responsibility for the creation and management of this mess. Just a well paid CEO taking it on the chin....so that his company can continue feeding at the trough.

*

This taxpayer, for one, does not feel "safe". And I wonder if the tax raises needed to "fund the NHS" (see the Prime Minister's comments yesterday) will not just go down the tubes....just like this 330 million.

*

Just saying!

[Salestard]

Summed up in a sentence

As you chaps might be aware, I've been selling IT and IT Services for a long time, for companies far bigger and more unwieldy than Capita. Indeed, I recently declined the opportunity to be interviewed for a role with them.

Most people's perceptions of IT Sales are shaped by the small percentage of total wankers they deal with, rather than majority who might be varying degrees of useless, but usually want to do the right thing by the customer.

Then we get this shit;

"and some 162,000 items of clinical correspondence going undelivered because the terms had failed to make forwarding a contractural obligation."

A simple thing.

Somewhere, someone missed out on this at contract stage. It happens. No big deal to deal with it.

Except when it is - When collectively, nobody at Capita takes responsibility for it... the account team don't regard it a problem, nor the service team, the lawyers, the management, nor anyone else.

'nah, not in the contract, not our problem, not our problem to even tell NHSE of the problem... fahgedabowdit'

[HmmmYes]

Re: Summed up in a sentence

Actually, no, Capita are not to blame for this.

AFAIK the correspondence never made it to Capita.

Various GPs / NHS groups blithely carried on posting stuff and not checking where the address was.

The people operating the old system - within the NHS - just ignored the mail.

[Anonymous Coward]

Re: Summed up in a sentence

“The people operating the old system - within the NHS” were no longer there: the few non-agency permanent NHS staff left after years of delay, demoralisation and uncertainty in the outsourcing would either have TUPE’d to Capita, or been made redundant.

[Jez53]

Shambolic

Capita's approach to bidding and delivery sounds shambolic, but I suspect the NHS contract was full of holes as well.

The problem with Capita in recent times has been a total lack of understanding between their bid and operational teams. Plus a lot of their managers promoted well beyond their experience and ability.

[Hans 1]

Embattled outsourcing giant Capita has made a loss of £140m trying to deliver on a seven-year contract to upgrade back-office support in the NHS – and never expects to turn a profit on it.

Who has a cluebat with Linux all over it ? There, pile of cash for Crapita ... but no ...

Paris, cause even Paris knows that Linux phones are cheaper than iPhones ...

[gotes]

Ah yes, just install Linux, that'll solve all their problems! If only they knew!

My understanding of this is that it has very little to do with operating systems, and is more due to poor project management and handling of data.

But hey, Linux is great!

(I believe it is great, but it's not the answer to everything).

[Lotaresco]

Linux is great, but one has to be rather naïve to think that Linux is "free as in beer". There are cost savings to be had, but the majority of work irrespective of OS is hands-on work that has to be paid for. That's the same in both cases and can be rather more that the cost of implementation of Windows for Linux because Linux takes a bit more work than Windows to configure. Before the Linux weenies, and I'm one of them, have a meltdown, yes, yes, I know but sadly it's true. Windows works mostly in "chimp mode" where people poke large friendly buttons like at McDonalds to get something up and running. Linux admins and installers need to be both smarter and more savvy. That has cost and availability issues.

[Lotaresco]

As I said five months ago

It takes spectacular talent to be in the position that Capita is (was?) and not be coining money hand over fist. They are in the privileged position of being a monopoly supplier to government. Their income is guaranteed and gold plated. They are helped along by a "sympathetic" approach from government ministers who, if one is charitable, one must assume have an eye on becoming a Capita shareholder/director just as soon as they can wriggle free from government.

As an IT contractor I've seen the Capita coalface where they move in and tell the existing contractors to either take a massive, and I mean massive, pay cut, get opted in to IR35 and be handed a complete crock or leave. I looked at the offer and left. I later found out that although payments to contractors had halved the charge to government had increased. Money for nothing.

When one has a client that will collude in increasing profitability how can one lose?

[David 164]

Let be honest now the upfront costs into staff training, equipment, office hire are done, they hope NHS is now dependent on them and they will have this contract in perpetuity and can cream large profits off future contract extensions.

Only problem is Simon Stevens seem to taking non of capita bullshit. An if the chancellor can't get him fired, I'm pretty sure capita ain't going to get rid of him anytime soon either.