Lambeth Council is locked in a housing benefits contract with
outsourcer Capita, despite a 40,000 backlog of claims and a series
of failed rectification programmes.
Resource-strapped Lambeth is spending up to £1.5m to take back
management control of the service.
But the council has ruled out the option of exercising its legal
right to make Capita pick up the cost of the move.
The council's executive director of finance, Michael Crich, said
such a move could affect Capita's work on the rest of the contract,
which covers council tax, call centre and cashier services.
Lambeth's plight follows last month's admission by Treasury
minister Dawn Primarolo that the Government would not demand
compensation from Andersen for the troubled NIRS2 national
insurance records contract for fear of damaging future
relationships.
The two cases illustrate the dangers that could face
organisations, public and private, which outsource core business
processes. When problems develop, clients can find themselves at
the mercy of their outsourcer, however strong their contracts.
Lambeth admitted its reliance on Capita in a report presented to
the council's policy committee on 3 April. It said, "The council is
legally in a position to suspend the benefits service from the
contract and to provide or procure the service from elsewhere at
Capita's expense.
However, the key question is whether this is operationally
feasible. "Capita is believed to be losing about £1m a year on the
contract and is likely to resist the possibility of additional
losses."
The council said that the service implications of Capita pulling
out of Lambeth are ''massive", and "must bring into question the
adequacy" of a £5m performance bond held by the borough.
Capita refused to comment on its losses at Lambeth or the
council's fears that it might pull out of the borough. A Capita
spokeswoman said, "We are in talks with the council to find new
ways of working to make housing benefit in the borough work."
Lambeth has faced similar problems in administering housing
benefit as other inner city boroughs, including Manchester, Hackney
and Taunton Deane. Processing delays caused by the installation of
new software compounded its difficulties.
On the council's dependence on Capita, Crich said, "The standard
contractual model does not seem to work" with outsourcing.
With hindsight he would have let the council's services in
separate contracts, not as one block.