Last month's decision by
Swansea City
Council to cancel the second part of an outsourcing contract
because of a lack of funds has raised questions about how councils
should best approach outsourcing in the future.
According to John O'Brien, government analyst at research firm
Ovum, joint ventures and incremental outsourcing are likely to
receive more attention from councils. The models may help councils
avoid the difficulties experienced by Swansea, which led it to drop
the "e-government" phase of an
£83m outsourcing deal with Capgemini.
Liverpool and Berkshire were the councils that had led the way
with these models, said O'Brien.
Swansea signed the outsourcing deal with Capgemini in January
last year, after 18 months of wrangling with council IT staff,
which included strike action by members of Unison, the public
sector workers' union.
Phase one of the outsourcing deal will create new back office IT
systems and processes at a cost of £40m. The second phase, which
was expected to roll out later this year, had been promoted by the
council as transforming customer access via a new call centre, new
face-to-face contact centre, extended opening hours and
state-of-the-art 24x7 internet services.
Swansea is still pressing ahead with the first-phase technology
refresh, but phase two has been cancelled, although the council
still plans to build a contact centre.
Michelle Morris, the council's programme director, said, "The
money the council set aside [for phase two] was not enough. This is
a major programme, but only one of many that is under pressure in
many areas, including social services and education.
"We intend to go forward with a customer service centre, but are
going to have to do it more incrementally and not fund this
contract," she said.
O'Brien praised Swansea's decision to split the contract in two
and avoid being locked into a project it could not afford. Other
councils had managed to agree more "finely diced" deals, which made
outsourcers prove their worth as a contract progressed, he
added.
One such deal was signed for £26m in November 2005 between
Hertfordshire County Council and IT service supplier Vertex. The
deal was described by the council as an "innovative partnership"
rather than outsourcing.
"This deal was along the lines of 'let's see how we get on' and
there may be more business," O'Brien said.
"It is a sensible, pragmatic approach, protecting the taxpayer
and helping deliver the outcomes. The outsourcing suppliers are not
stupid they know that there is a lot of business down the line, but
only provided they prove that they can deliver."
Another outsourcing model that is likely to attract more
interest following Swansea's decision is the joint venture
approach.
In January, Liverpool City Council decided to extend its joint
venture with BT by five years. The parties originally set up the
venture in 2001 but, with the extension, BT will now continue to
run the council's call centre, revenues and benefits, HR and IT
services until 2017.
This model avoids the animosity between management and staff
that Swansea encountered, said O'Brien.
"Under a joint venture, the local authority retains control of
the organisation, which is something workers like. When you look at
joint ventures, secondment has become very popular because people
working in the joint venture get a council payslip. They are part
of the council and have an employment contract that allows them to
go back to working for the council full time."
Yet another partnership model is in evidence at Birmingham City
Council, which signed a 10-year deal with Capita in March last
year.
Under the terms of that deal, a joint venture company has been
set up that will be the preferred supplier every time the council
goes out to tender for a business transformation project.
The joint venture company, which is 35% owned by Birmingham City
Council and 65% owned by Capita, has already been awarded a £420m
contract to run the council's IT function until 2016.
Glyn Evans, assistant to the chief executive on transformation
at Birmingham City Council, and chair of The Society of Information
Technology Management's information age group, said, "I have always
been of the view that there is no single model of outsourcing. I
have been an IT manager at four organisations, but this is the only
time I have done anything like outsourcing.
"In IT terms, we had a situation where we had a long history of
under-investment, while at the business end we could not put
forward a viable business case [for in-house investment] because
you cannot put forward a 10-year investment plan.
"By creating a contract we can have investment in that time
frame."
By seconding staff to the joint venture rather than transferring
them to the IT services firm, Birmingham also gained long-term
investment without upsetting staff, Evans said.
The other main lesson council IT leaders should perhaps take
away from Swansea's experience is not to overestimate potential
savings. Swansea initially banked on saving £26m from the first
phase, but subsequently had that forecast cut to £7.4m.
O'Brien said it was important for councils and outsourcers to be
rigorous in calculations at the start of the deal. "Overestimating
savings has been a pitfall in many outsourcing deals. It is
difficult to comment on Swansea specifically, but it is a trend
that needs to be addressed."
Swansea timeline
August 2004
Swansea IT staff vote in favour of strike action as the council
continues talks with Capgemini and ITNet for a £100m outsourcing
deal.
September 2004
Swansea Council and its striking IT staff go to arbitration
service Acas to settle a six-week dispute over a proposed
outsourcing deal.
September 2004
Striking Swansea IT staff say the deal with cost 50% more than
the official estimate of £100m.
October 2004
IT staff suspend strike action following talking with
arbitration service ACAS.
January 2005
Swansea City Council signs £119m IT outsourcing deal with
Capgemini but the threat of strike action still hangs over the deal
as IT staff wait for employment terms to become clear.
April 2005
Council cabinet approves the transfer of IT staff to
Capgemini
May 2005
The council and Capgemini estimate their egovernment programme
will save £72m over 10 years
September and November 2005
The council delays the start of the contract after while talks
over the terms and conditions for transferred staff are
negotiated
January 2006
Capgemini and Swansea City Council sign deal £83m deal after 18
months of negotiations
January 2007
Swansea City Council cancels the second phase of the contract,
which was to support e-government, and slashes the contract value
to £40m.
End to
outsourcing "exclusivity"?
Swansea turns back on follow-up Capgemini deal
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