Lambeth Council, one of the UK's biggest local authorities, is
preparing to pay double the original cost of an outsourcing
contract to bring the service back in-house from 1 July.
An officers' report is due to go before the council's policy
committee next week which recommends paying the extra money this
year - about £6.3m on top of the original contract price of £4.1m -
to bring 150 benefits staff and the housing and council tax
benefits service back in-house.
Under the original seven-year contract, which began in 1997, Capita
charged between £4m and £4.5m a year for the housing service. Now
the company has indicated that it wants to charge more than £10m a
year for the remainder of the contract to restore the service to a
satisfactory level. The council has a backlog of about 30,000
claims for housing and council tax benefits.
Capita has already asked the council for an extra £350,000 a month
on top of the agreed charges, but this has been refused.
The council said it is faced with two main choices: pay Capita's
fees, which hold no prospect of significant reductions over the
remaining term of the contract and offer no guarantee of an
improved service; or pay £10.4m in the first year to bring the
service back in-house. Costs should reduce thereafter, and the
council would be able to control any future costs.
But the report to the Policy Committee painted a bleak picture of
the possible consequences of ending the deal with Capita three
years early.
It warned of legal difficulties, a lack of skilled staff to run the
in-house service, the need to re-employ Capita for some call centre
and other services, and a risk of the Government cutting back on
financial subsidies.
The report also advised councillors against a legal row with
Capita, saying this would "inevitably lead to a rapid and severe
short-term worsening in the housing benefit service".
Even so, it recommended the "transfer of the housing benefit
service to the direct management of the council" adding that the
housing benefit service has "continued to be a source of
dissatisfaction for customers during this [outsourcing]
period".
Capita believes that the costs of the original contract were
underestimated, partly because it was not given all the necessary
information by the council. No Capita spokesperson was available
this week for comment.
Government outsourcing: critical report delayed
The publication of an official report that is highly critical of
Capita Business Services, one of the Government's biggest IT
contractors, has unexpectedly been put back until after the general
election.
Lambeth Council had expected the Benefit Fraud Inspectorate's
report to be published before now, as the research was completed
last year. But the Department of Social Security said the report is
still being bound and will not be published until later this
month.
The report is critical of Lambeth Council and its housing benefits
supplier Capita over controls to prevent fraudulent claims.
A DSS spokeswoman denied the report has been withheld. "It is not
quite ready," she said.
Tony Collins
tony.collins@rbi.co.uk