UK gov grilled over massive exposure to struggling outsourcer Capita The British government has received a grilling over its exposure to 1,000 plus Capita contracts, following a pre-tax loss of £515m reported by the outsourcing giant yesterday. In an urgent question to the House of Commons on Tuesday, Lib Dem MP Vince Cable drew the inevitable comparison with collapsed outsourcing provider …
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If they cancel any existing plans they might have had for new contracts, that will only hasten the demise of capita...
There is ALWAYS a risk of suppliers failing, and a sensible exit strategy should be a standard requirement for any contract or procurement... Sadly this is almost never the case, as suppliers want to keep their customers locked in - not make it easy to migrate.
Threat to who?
If Crapita were to fail, there'd probably be very little visible difference in service delivery in the short term in many places. The people forced to endure Crapita's alleged "services" would probably survive, and indeed the money saved by not having to pay for Crapita's alleged "services" might allow some restoration of unfashionable concepts like real "customer service" and maybe even "an honest day's work for an honest days pay (exclusions apply, please refer to our privacy policy on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying 'Beware of the Leopard.".).
I write this as a former ratepayer in Birmingham, where once upon a time the Birmingham Post and Mail (a newspaper, for those who remember them) did a lot of digging to try to expose the truth of the City Council's joint venture with Crapita, and allegedly contributing to the eventual early termination of the Service Birmingham fiasco.
https://www.birminghammail.co.uk/news/business/councils-controversial-service-birmingham-company-13916249
It's time to remodel Thatcher's economic experiment, after thirty odd years of CCT or whatever the current buzzword is for outsourcing, expecting a service provider to offer a better service more efficiently and cheaper than in house while still making an acceptable profit has pretty much been debunked. The only winners are those who have gained villas in the sun and CEOs who get inversely proportionate bonuses to the losses made.
Let's not forget that the lower tiers of former public servants now employed on rolling Crapita contracts have suffered from a reduction in salary and a worsening of terms of employment over the years, even in comparison to their former colleagues who have barely seen a pay rise since the imposition of austerity eight years ago. Not only is the taxpayer paying for poor results, but we're also obliged to top up the earnings of many of the increasingly lower paid through working tax credits and the like.
The system is screwed from beginning to end -- unless of course you're a Tory grandee with time and money to spend dabbling in the Stock Market to boost your wealth, in which case it's working wonderfully.
Over the years I have been involved in a lot of bids where the point of the outsourcing contract was to 'modernise' an IT department that was clearly failing to deliver for the business. We can argue why that was (weak IT management, CFO in charge of IT etc.) but it has been one of the drivers.
Of course the expectation is that contract winner is the bidder who can deliver it at the lowest cost - service, quality, cost - pick two. That equation never changes.
"a Tory grandee with time and money to spend dabbling in the Stock Market to boost your wealth,"
Or dabbling in the property market, as recently reported in various usually loyal Tory media.
http://www.dailymail.co.uk/news/article-5536123/Jeremy-Hunt-slammed-setting-buy-let-business.html (23 March 2018)
https://www.thesun.co.uk/news/6040937/jeremy-hunt-property-firm-broke-rules/ (13 April 2018)
https://www.telegraph.co.uk/politics/2018/04/22/jeremy-hunt-saved-100000-tax-bulk-purchase-seven-flats/
And of course it's only an accidental oversight. Except he has been at it for years:
https://www.telegraph.co.uk/news/politics/9232692/Jeremy-Hunt-avoided-more-than-100000-on-property-deal-weeks-before-the-election.html (article dated 27 Mar 2012)
"The Culture Secretary was paid a dividend by the company he founded in the form of half the firm’s office building. The offices were then immediately leased back to the same company.
Accountants say that the deal allowed Mr Hunt to legally reduce his tax bill by more than £100,000 because it was completed completed just days before the tax on dividends rose by 10%. "
There you have it. Actions speak louder than words, rules are for the little people.
Maybe this time round it's not going to be just James Naughtie who's calling the former Culture Secretary by his real name in public:
https://www.youtube.com/watch?v=YS5mVoqJpUk (6 Dec 2010)
As part of the years of austerity, one wheeze Crapita has had is to ink deals with local authorities whereby they get a percentage of the cuts... errr I mean "savings" they suggest to be implemented by the authority.
Trebles all round!
The idea behind outsourcing something is that instead of a government department bumbling its way through, costing whatever it managed to spend, you get a specialist company doing it and bidding in a competitive marketplace to keep prices down and quality up.
This is a nice theory, but in practice it isn't working. When you look at companies like Capita, they are obviously not specialists in any of the things they get paid to do. What they are really specialists in is navigating the complex world of government procurement and jumping through all the hoops in the bid process. Since you need to be a big company to do this there aren't many of them around, so its not surprising that the same few names keep cropping up in government outsourcing contracts. Because there are so few there is no real pressure on prices, and quality is measured by short term numerical targets rather than long-term desirable outcomes, so the desirable outcomes tend not to happen either.
You missed out an obvious advantage though - any failure can be blamed on the outsourced provider, not the government department. You'll see the same policy with regard to local councils. Central government hives off responsibility for something like social care to local authorities and makes it a legal obligation, but then cuts their grants. This results in other services being cut, but it's the fault of someone else, not the government.
Whilst said specialist companies make a choice:
1) make do with small scraps of work, unable to compete for complete contracts.
2) become subcontractors for the likes of Crapita, told what to do, how to do it and for almost below cost. Specialism is completely thrown out of the window.
Tendering was great, it served a purpose to ensure best value was gained in a transparent and corrupt free way until frameworks and unrealistic financial requirements put many and then almost all contracts outside of their reach. Frameworks have made the system corrupt by design, only a select few ever win the contracts, like actually having a real money tree.
What amazes me is how can they be struggling financially?
There's the real question. Crapita (or other) outsourced services are generally terribly, inflexible and inadequate. They charge for everything outside a tight contract, which they get paid for. No money seems to get saved or freed up for other services, which are closing ( libraries etc) and they still can't make a profit.
Clearly not the people to arrange a pi** up in a brewery.
>They charge for everything outside a tight contract, which they get paid for
And since the contracts are derived from the Government frameworks, the end-user body generally has very little room to negotiate changes to it.
Some might speculate that those contracts were written with the assistance of the outsource companies in order to maximise their profits. I couldn't possibly comment.
were written with the assistance of the outsource companies in order to maximise their profits.
I'm sure they were. For starters the commissioning bodies are usually pretty clueless and need help from someone. And who else is there?
Which makes their failure to make a profit even more damning.
>What amazes me is how can they be struggling financially?
If they are anything like our current crop of outsourcers they:
1. Bid too low on the initial tender, knowing that 35% of the scoring is based on price alone.
2. Once the tender is won, put the minimum resources into the contract since as the consequence of (1) they can't afford to do otherwise.
3. Complain to us that they are not making any money.
4. When we are unsympathetic, try to convert anything and everything into a 'project' (ie, something that they can charge lots more for since it's outside the 'framework'
5. Will eventually lose the contract come renewal time as a direct consequence of {1,2,3,4}. Unfortunately, all the other outsource companies on the framework are playing the same game since most of the poeple running them learnt their trade in one of the big outsourcers, it's 'welcome to the new outsourcer, same as the old one' and the whole grim fandango starts again.
Makes me nostalgic for the old days where only very specialist stuff (like WAN provision) was outsourced and everything else was done in-house. But, since the beancounters are in charge now, that's not going to happen again.
As someone who works for an organisation who provides BPO and IT outsource services (and don't forget this can range from global organisations to a sole trader who provides backoffice services like HR to small organisations), one of the biggest problem is that most contract decisions are based solely on price. Large amounts of time and effort are taken developing estimates of the service needed to support the proposed contract and the number of people needed to deliver it properly.
This then gets shaved down to fit the 'win price' that it is thought that the client wants to pay. Now all that is fair enough, this is a business deal, and any outsource provider will be looking to provide efficiencies in delivering that service, sometimes sharing them with the client, so building that into the up-front cost is a reasonable decision, as long as the numbers add up. Downselect follows downselect until you are in the last 2 or 3.
Unfortunately it is at this point that one of the bidders often 'drops their trousers' and lowers the price by a massive amount, in some cases i have seen them go below what internally we think it will cost us to run the service. Often this is an attempt to 'buy business' - I have seen Indian pure plays doing to to get a foothold in the market, while others (and I would include Captia in this) do so to win work. Clients have told me in post bid that our bid price was good, their experience with lowest cost providers in the past has been terrible, but because x has dropped their price by £y million they had to chose them.
Cue a bad service made worse by everything being change-controlled to death. I wish I had an answer but as long as price is the prime reason for choosing an outsource contractor then you get what you pay for (literally).
I worked with their IT security team (which was SC cleared) and both the way they treated their staff and customers was horiffic. They wouldn't pay vendors for support, they never gave staff pay rises and their usual answer for missing staff was to hire temporary contractors which likely cost a fortune.
Case in point, we had issues with an old Checkpoint firewall that caused a P1 outage - our manager had to get the corporate credit card to pay Checkpoint for support to fix the issues - all while NHS services were down for a good day.
Their services are crap as they treat their staff like crap, all while having more directors and managers than front end support staff. I know before I left we had 3 staff working 9-5 normally and supporting two data centers and at least 15 seperate contracts, not once were we thanked but they were always quick to critisize when you made any mistakes - partly as that was their excuse for not giving out pay raises.
Trust me they deserve the name Crapita, all the staff still stupid enough (or stuck) working for them know of the name - same also goes for the spinoff Updata (the network part that actually makes good business they seperated to remove them from the crappy Crapita name).
Crapita does everything on the cheap, cheap service, cheap to staff, and actually factor in SLA payments in the contract as they know they are crap.
Of all the companies that deserve to die - Crapita is one of them. I just feel for all the staff that will lose out as they don't deserve it as they try to keep the monster working, even if the directors and shareholders have bleed it dry.
I knew someone who worked for them and her stories backed that. "Good people, Shit company" was ger general comment.
also Crapita has a lot more than 1000 contracts, that will just be the central government biggies. They also run many critical services in councils as a monopoly supplier. And they run them as a monopoly, gouging prices and not providing support and effectively putting entire organisation at risk because they refuse to maintain products beyond the minimum. Even where legally required.
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According to the Barnet (pdf) https://barnet.moderngov.co.uk/documents/s19249/DPR%20Award%20Public%20Report%20v5F%20Nuisance%20Vehicle%20Contract.pdf record posted online for it's abandoned car contract only one company tendered.
The criteria for judging tenders was 40% quality 60% cost ( not even 50/50 ) But in fact the winning (only) tender scored just 28% quality and 40% on price ( I have no idea how that is evaluated - 40% of what ?)
When we ( a community run Barnet service operating out of a Barnet building, ) tried to report a vehicle abandoned in the slip road outside our door they said they couldn't remove it because it wasn't on council property and that the responsibility was ours. They wouldn't listen to our trying to explain that a) the slip road was a piece of Barnet roadway complete with Barnet pavement, Barnet bins and Barnet signs b) that it was not part of our building and C) It was a Barnet building anyway. They just didn't want to know. It was pretty obvious that they were working hard to avoid dong the job they were contracted to do. Not Crapita this time. But it tells you how the system works .
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