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CSC paid 0.5% tax on £1.5bn outsource

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Public Accounts Committee chair Margaret Hodge rebukes Starbucks for low tax payments - 12 NOV 2012.pngComputer Sciences Corporation has paid just half a percent in tax on £1.5bn income it earned from the 10-year outsource deal it did with with Royal Mail in 2003.

The revelation comes from Computer Weekly's analysis of eight years of accounts published to date by CSC Business Systems Limited, the private vehicle Royal Mail put its IT division into when it privatised that part of its backoffice in 2003.

In the week MPs on the Public Accounts Committee rebuked multinationals Amazon, Google, and Starbucks for paying little or no tax while making £billions in UK sales, Private Eye also reported tax-avoiding arrangements used by other major government IT suppliers: Accenture, Capgemini, Fujitsu, HP, and IBM.

Delving into the accounts of CSC's Royal Mail deal sheds some light on how IT suppliers can win big government contracts by cutting prices to kamikaze-levels. And then make up the difference by ruthlessly cutting costs. They avoid disaster in the interim by claiming tax rebates.

The losses are built into the outsource model, say accountancy experts. Non-payment of tax is built in too - since companies only pay tax on their profits. But a loss-making outsource will still generate income for its parent - in the form of inter-group payments that go unrecorded under UK accounting rules.

Shady

Should multinationals be taxed on inter-group payments that get recorded officially not as repatriated profits but costs taken out before profits are calculated for taxation? That's what the Public Accounts Committee was getting at this week.

For IT outsourcers, the question is whether sustained losses can be justified when buyer and seller effectively set the costs and revenues of the deal when they set it up. Or whether the industry is predicated on an unsavoury system of officially-sanctioned tax evasion and back-door cuts.

CSC Business Systems Limited - Tax credits and Income - 2004 to 2011.pngCSC made a cumulative loss of £12.4m on its £1.5bn Royal Mail contract. It started turning a meagre profit in 2009 after it had finished cutting 63 per cent of the staff (1,082 people) it acquired under the deal.

It got £61.6m of tax credits when it was making a loss. And has since going profitable paid only 0.5 per cent tax on its £1.5bn income - that's £7.8m.

The shape of this arrangement would have been set out by CSC and Royal Mail when they got together to do the deal in 2003, said the director of a big-ten accounting house, who asked to remain anonymous.

Set up

"Generally for a long term contract Step 1 is what are we going to do. Step 2 is what will it cost. You budget for that over 10 years and price it accordingly.

"Part of the pricing strategy might be, 'We can do it more efficiently if we cut back on staff. And that would have been planned from the outset," he said.

CSC Business Systems Limited - Income, Costs and Losses - 2003 to 2011.pngThe planning can be seen clearly in the accounts of CSC Business Systems Limited, its Royal Mail outsource venture, which reported fairly consistent income and expenditure for the duration of the contract.

The contract had a mid-way renegotiation built into it. That passed on to Royal Mail, in the form of lower prices, the lower costs CSC was enjoying as a consequence of the 1,000 job cuts it made in the first years.

Otherwise it was business as usual, year-in, year-out: losses, tax credits, job cuts and opaque inter-group payments; followed by meagre profits and minuscule tax payments on a £1.5bn business.

If it was standard practice to run an outsourcing contract like clockwork, why was this clock running so badly that it never had any money to pay tax?

Lost profit

"The fair question is why a company has gone for 10 years, turned over £1.5bn and hardly made any money out of it," said John Brace a forensic accountant with Harwood Hutton and former president of the Association of Chartered Certified Accountants.

"Why have they not made any money on £1.5bn of turnover? They made £35m in recent years. But the net result is they have not made a row of beans out of £1.5bn. Is that the intended plan, or is it incompetence, or is it just bad luck?" he said.

Lee Ayling, IT outsourcing expert and management consulting partner at KPMG, said: "They've taken a bunch of costs in the first years and then made a profit in the last part.

"That's very typical for an IT outsourcing contract. They take a bit of business where they can essentially restructure the cost profile into a shape they can make a profit on."

CSC Business Systems Limited - Wages, losses and tax credits - 2004 to 2011.pngCSC got a tax credit of £43m for its Royal Mail business in 10 months it traded in its first fiscal year.

It cut 500 staff in the period. £17m of the tax break went to its parent as a write-off against its losses. It got that back in cash. The rest was raised against capital it laid out for the Royal Mail unit.

At the end of the period it recorded debts to its parent of £53.9m. It cannot be known how much CSC Business Systems Limited actually paid to its parent company that year. Nor any year. UK accounting rules do not require them to be reported.

The IT outsource industry usually does this within accounting rules. Although CSC is subject to an ongoing fraud investigation by the US Securities and Exchange Commission that includes its UK business, there is no reason at all to suspect CSC of foul play in its Royal Mail outsource. It has itself taken steps to route out financial errors and sack people responsible. Everything looked above board in the accounts of CSC Business Systems Limited to the three senior accountants who looked at Computer Weekly's summary of its numbers.

Business as usual

It was not only above board. It was par for the course, said the experts.

"There's nothing here that looks remotely surprising or remotely worthy of criticism. It's absolutely bog standard," said the accounting director who did not want to be named.

Par for the course, that is, to run at a loss, hide inter-company payments made before tax is calculated and only claim meagre profit for the tail of the contract.

Turning a cynical eye over the numbers, Brace said the outsource model might be a way for public bodies to pass the buck for downsizing. The outsourcer goes to the union with its losses in the first year and says, 'If we don't make cuts we could all be out of a job'.

However, he said, "One has to be careful about what conclusions one draws. It might all be perfectly straight forward - they went into the contract knowing they were going to suffer a bit of pain in the early years and that it would pan out and start operating reasonably well."

A government source said today it was looking at making an upfront declaration of tax and revenues a requirement of public bids. But such an idea would be fruitless (the government already knows what tax companies pay - and anyone can see it in their accounts) unless it either publishes a league table, or sets a tax bar below which companies will be prohibited from supplying government.

CSC was unavailable for comment.

Cornwall outsourcing revolt spreads to London

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Barnet protest film gathering - 22 OCT 2012 - EDIT II - 767188768.pngLondon Barnet Council is to vote on whether to oust its leader on Tuesday in a revolt over a plan to outsource 70 per cent of council services to an IT company.

The move follows in the wake of a rebellion at Cornwall council last week, where a vote of no confidence forced out council leader Alec Robertson, and councillors suspended a plan to outsource £800m of public services to BT.

A member of Cornwall's scrutiny panel yesterday called for an explanation from the council after Computer Weekly revealed how Cornwall had been working with BT before the council approved the outsource or a contract had been signed.

Councillor Alison Moore, leader of Barnet Council's Labour opposition, and who called the vote to oust Councillor Richard Cornelius, Conservative leader of the London Borough Council, said the Barnet outsource looked "in complete disarray".

"Given the level of risk involved in the procurement... and the gambling of £1 billion of council tax payers' money, Council resolves that the Executive Leader be removed from office."

Barnet Council Labour Party Leader Alison Moore - EDIT - Alison Moore 1f.pngMoore accused Barnet of obstructing democratic scrutiny of the plan, which proposed outsourcing up to £1bn of public services in two, 10-year contracts called collectively One Barnet.

She said Barnet had scrapped a scrutiny panel it set up to oversee the outsource. Councillors who were not members of the council Cabinet had not been allowed to scrutinise financial details of the deal. The Cabinet had been given brief views of financial papers in certain meetings as long as they handed them back at the end.

The motion said the programme hadn't saved any money and it had been running three years. It had actually increased council costs by £663,000. The council executive had meanwhile disagreed over what outsource business model they should use.

Councillor Cornelius was not available to answer the allegations. Barnet Council press office said it was unable to answer party political allegations.

Money

Barnet's website said One Barnet was forecast to save £111m. A third of "total projected baseline savings" had been delivered by the end of 2011/12, it said. It said this was equivalent to an annual saving of £5.7m.

But Barnet has not let either of the two major contracts at the heart of the One Barnet programme. The first will see either BT or Capita acquire IT and other backoffice functions next month and rent them back to the council for £750m over 10 years.

The second will sell transport and environment services to either Capita or EC Harris, in a £275m contract to be awarded in January. Both deals could be boosted with 5-year extensions that may inflate their value to the outsourcers considerably.

A spokeswoman for Barnet Council said One Barnet had already established two cost saving programmes. One was a shared legal service with Harrow, another London Borough Council. Another was a team of "community coaches" who helped people living chaotic lifestyles avoid spinning out of control. Neither service had been outsourced.

Unison, a public sector union, has helped organise the Barnet Labour Party campaign to stop the £1bn outsource. Last week it broadcast a film called The Billion Pound Gamble, which the local paper said examined local fears about the outsource.

It also organised a petition in which almost 3,000 residents called for referendum power over the decision to sell off public services.

Opposition

John Burgess, Barnet Unison branch secretary, said in a recent written statement that the council's outsource was "designed to divest itself of responsibility" for public services. "We are concerned big business views Barnet Council services as simply a line on a spreadsheet," he said.

Robert Rams, Barnet council cabinet member handling the outsource, has been reported saying: "I don't believe residents are concerned about who provides back-office services to the council."

Barnet issued a written statement this afternoon.

Councillor Richard Cornelius - London Borough of Barnet Council leader - EDIT - 140244500.pngIt quoted Councillor Cornelius, who said: "The One Barnet Programme is our model for dealing with incredibly difficult financial circumstances all local authorities now face."

Barnet needed to "transform" the way it worked if it wanted to "provide high quality and flexible services", said the Council leader's statement. It needed to do "better with less".  

"Residents are more concerned about the quality of services and how much council tax they pay than whether the council delivers a service directly or gets a third party to do it," it said.

Barnet press office said the council was required to cut £72m, a quarter of its budget, by 2015. It said the two outsource deals would transfer 767 employees, a quarter of its workforce of 3,180 people, to the successful bidder.

Councillors in Cornwall say they are still being refused full scrutiny of the outsource even after they ousted the council leader and put the deal on probation.

Widespread initiatives to sell council services to outsourcing companies have suddenly looked more uncertain after the financial failure of Somserset's Southwest One deal with IBM this year, exposed in Computer Weekly, and the revelation that their business model - that puts once disparate public bodies into competition to run one another's services - has not been fully explored in democratic proposals.

Cornwall caught in bed with BT as councillors raise red card

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Patient Mr Alec Butteriss using Bosch Telehealth device in South Yorkshire.jpgCouncillors might have put Cornwall's privatisation on probation. But the council had already begun acting as a joint venture partner with BT.

They voted unanimously Tuesday to suspend a proposal to put up to £800m of public services into a company in which BT would own a majority stake.

BT planned to transform it into a hub from which it would manage the privatisation of other council services around the country, and to operate a telehealth business.

Councillors withheld their approval and said they wanted to scrutinise the deal properly before approving it.

But a "confidential" BT brochure mailed to councillors by Cornwall's own executive last Friday said Cornwall was already working with BT on bids for business from other public authorities.

"We are already in three competitive bid situations for Telehealth/care with Australia Telehealth, Northumbria Telehealth and Hampshire Telecare; where we have named Cornwall as our partner," it said.

"And have an expression of interest from others including Surrey."

BT had been one of two companies competing to acquire Cornish public services. The other, Computer Sciences Corporation, pulled out last Wednesday - just two days before BT's admission that it had already been operating as Cornwall's partner.

Thumbnail image for Steve Double, Cornwall Council.jpgCouncillor Steve Double, who had led the process for the Cabinet till his resignation last week, told Cornwall Council chamber Tuesday that competition law had forbidden councillors from having proper scrutiny of the procurement.

This had apparently suited Kevin Lavery, Cornwall Council CEO. He had written, in his books on local government privatisation, that councillors should be engineered out of the council executive's decision making process. That's what Councillor Jan Powell told the chamber on Tuesday.

Lavery's attempts at local government privatisation had last run into trouble when he was CEO of Newcastle City Council in 2001.

Kevin Lavery - Cornwall Council CEO - kevin-9.pngHe tried to form what was then a pioneering strategic partnership, with BT.

Councillors opposed him. He resigned and they tore up BT's bid. Lavery spent the the best part of the next decade doing outsourcing on the supply side, including a stint as head of local government at BT.

Now a council worker again at Cornwall, he has had no specific meetings with BT. History is repeating itself all the same.

Fresh air

Yet things will be different from now on, Councillor Double told his colleagues before Tuesday's vote.

Councillors would be permitted to scrutinise the BT deal, where before the details had been withheld. While CSC and BT where in competition, procurement law forbade councillors from seeing the details of their bids, Double told Councillors. Now the council was simply giving the business to BT, they could see the details. Competition law didn't apply when there was no competition.

This is what it would take for public representatives to be permitted to see a bid to privatise their services before they were called upon to approve it. They would get all the facts to settle the public/private debate. Lavery would meanwhile be vindicated if BT's plans passed muster.

The first signs were however that the new transparency was not actually very enlightening. Not in the way it was supposed to be.

Things started moving as soon as CSC dropped out last week. The council executive joined BT in wooing councillors ahead of Tuesday's big vote. It pulled half of them into a meeting on Wednesday where four BT sales managers inundated them with promises and forecasts of greatness and prosperity. The only minuted, critical voice came from Unison the union.

Neil Rogers - president of Global Government for BT Global Services - neilrogers3.jpgThen Friday, the council executive sequestered the services of Cornwall's scrutiny office, which was meant to have taken an independent position on the outsource, to email a BT promotional pack to councillors.The scrutiny office also helped BT and Cornwall executives organise a promotional roadshow they did last Thursday. The email included a sales letter from Neil Rogers, president of Global Government for BT Global Services, and the "confidential" BT brochure.

Hot air

The brochure, styled as a "business plan", set out an incredible vision for "BT Cornwall".

BT wanted to build a "Global Centre of Excellence" for telehealth and telecare in Cornwall. It would do this by assimilating assets acquired from Cornwall's NHS Trusts. It would turn Cornwall into one node in a network of "business hubs and Centres of Excellence" it was building from its outsource deals across the public sector. Telehealth would become Cornwall's specialism in the national and global economy.

BT Vision for Cornwall - From BT brochure - OCT 2012.pngBT also wanted to acquire Cornwall's procurement expertise. Yet its sales patter may have misled Cornwall councillors.

"BT is currently seeking a UK base for a Procurement Centre of Excellence, from which to support other UK public sector opportunities," said the brochure.

"Cornwall Council has an established procurement service that is rated as upper quartile by government audits," it said.

"BT proposes to use its expertise to further develop the service as a tradable procurement service."

Thus it implied it might also put its national procurement hub in Cornwall as well, if it could only nab Cornwall's procurement office.

This is what councillors who supported the bid where saying.

But BT is already building a "Procurement Centre of Excellence" out of an outsource it did with Lancashire County Council last year. Now called One Connect Limited, BT Lancashire's backoffice aims, like Cornwall, to grow by assimilating the backoffices of other public authorities.

BT's "business plan" did not say how Cornwall would fit into its grand plan of global and regional "Centres of Excellence".

Might it have a mid-term plan to discard staff superfluous to the needs of a Centre's specialism? If BT had already set up procurement elsewhere, might it want to acquire Cornwall's procurement office only to strip its knowledge assets and kill it off?

It might be too soon to call it a carve-up. As well as procurement, BT acquired various Lancashire services outside its alloted specialism. It picked up payroll, HR, and IT as well. Their superfluity might not become apparent for some years yet.

BT Lancashire One Connect Limited Centre of Excellence Annual Report graphic.pngLancashire's distinct district authorities are disparate from a corporate point of view. Not all of them went in on BT's deal from the off. It might take BT the full term of its 10 year contract to acquire all their assets. Only then might it decide it doesn't need human resources in Lancashire because it has an HR Centre of Excellence in, say, Derbyshire.

Allure

For now, BT just needs to get the sale. It has 400 field sales agents leaning on chief executives in every public authority and NHS Trust in the UK.

That's what it told Cornwall councillors. And that a team of 27 people supported its sales force by firing concentrated campaigns at targeted authorities.

In Cornwall this involved producing a brochure that looked like a business plan but left out the downside risks a sensible business manager would demand to see. The document is stuffed full of pastel-coloured promises. It has all the allure of the full-moon at a rave party, rendered as a tea-shop oil painting by a pony-tailed retiree who once took acid. Some councillors went goggle-eyed over it.

BT promo people taking note.pngNot so Nigel Pearce, Liberal Democrat councillor for Bude South, who said in Tuesday's debate: "The problem with this bid is there's too much marketing."

"There's very little information on the finance," he said.

"And also about the operation, how its going to work, the nuts and bolts. We do need to avoid some of the flannel-speak."

The choice, however, was clear. It was the difference between the soothing noises made by BT's army-sized sales and marketing department and the infamous Barnet Graph of Doom that claims to show how council budgets will be squeezed so severely by 2030 that they will need to flog off their services. The logic is peccable.

BT's marketing conjured a vision of Cornwall as a high-tech hub, networked not just across the Country but the Commonwealth. What it actually means is Cornwall will be the site of a medical call-centre. The attraction for BT is Cornwall's unusually large population of dependants.

Demographics

Cornwall has fewer youngsters than the UK average, and more retirees, who's incomes are less then average, and half of whom are dependant on care. This is a unique asset in the world of telehealth and telecare, where services are automated, commoditized and delivered over BT phone and network cables.

The idea is that BT Cornwall becomes to the infirm what the City of London is to the rich: an international hub for the incapable and insensible. In years to come, it will employ a small army of joy-stick operators to direct drone mechanoids in the wiping of back-sides half way across the world.

BT's brochure proposed that Cornwall's uniquely dependent population would be a valuable testbed for its telehealth technologies. It proposed setting up an "R&D centre" in Cornwall to "develop new ways of delivering telehealth services".

BT Telehealth showroom - pulse_pic.jpgThis would employ five people primarily concerned with identifying innovative local firms who could be subsumed into BT Health, to give it a competitive edge with rival telehealth centres one presumes will be springing up in Bangladesh and Bolivia.

They would report to BT's real R&D centre in Martlesham, Suffolk, which employs not five but three and a half thousand people. BT recently opened a Telehealth showroom there.

For BT, the race is on for Telehealth in the UK. NHS and Social Services are abuzz with the idea. Housing Associations have a head start.

BT lost a bid to run telecare in Northern Ireland last year to a consortium led by Tunstall Health Care, the market leader, that operates a Centre of Incontinence or whatever you call it in Doncaster, South Yorkshire. It makes about £200m-a-year from 2.5m dependants in over 30 countries. It is a leader in the supply of alarm pendants for old people who take a fall.

Pressure

BT is counting on Cornwall to help it win tenders in a national government programme called 3millionlives, which aims to get 3m patients and dependants tended remotely across the NHS by 2018.

The Department of Health reckons £70bn of the UK health budget goes on care of people with long term conditions, the target market for telehealth and telecare. That's 15m people. 3millionlives will therefore turn the tap on a £23bn market, or whatever part of it can be administered remotely.

Things start moving next month. Formal tenders start in "early 2013". This may explain why BT gave Cornwall councillors an ultimatum this week: it would keep its offer on the table only until March.

Fiona Ferguson - Cornwall Council Councillor for Truro Trehaverne - Cabinet Portfolio Holder for Corporate Resources - bigpic.jpgFiona Ferguson, a member of the Cornwall Council Cabinet that backed the plan, passed the ultimatum on to councillors on Tuesday. She neglected to mention BT's own spring deadline.

But she did insist the council acted urgently. And she painted a desperate picture of the Cornish health system: "There are very serious challenges in adult social care and health," she said.

"There was a lot in the proposed contract about that. I recently spent 24 hours in Treliske [Hospital] with my father who had a fall. And there was trolley after trolley of people in exactly the same situation."

Tragically, at that very moment Carolyn Rule, Ferguson's Cabinet colleague responsible for Health and Wellbeing, was lying, collapsed outside the council chamber door.

Council leader Jim Currie interrupted proceedings to report that Rule had apparently fainted, but it was feared her situation might be much worse.

They just didn't know. Twenty minutes had passed since she left the chamber and collapsed outside its door. She was a very unhealthy colour and could still not sit up. It would be another five minutes before an ambulance arrived.

Fear

Thankfully, Rule got a clean bill of health at the hospital. She had a check-up and was released later that day. But it was a worrying reminder of the sort of pressures felt by the health service in a rural county like Cornwall, where people were often far from help.

Julian German - Cornwall Council Councillor - Independent - Roseland - bigpic.jpgThe dilemma was stark. Councillor Julian German had spelt it out earlier.

If Cornwall didn't do a deal with BT, "there won't be a world-wide Centre of Excellence for telehealth and telecare in Bodmin," he said.

Neither would there be a "procurement Centre of Excellence in Cornwall", said German.

Neither would BT deliver the promised cuts in those services it acquired from the council.

Neither would it create 1,043 jobs that would be "committed in contract".

BT's proposal had actually only guaranteed 350 new jobs. It had estimated that business might also grow quickly enough to create another 512 jobs.

The other 181 jobs in BT's 1,043 forecast were people it already employed at a "Truro retail facility". BT had promised not to make them redundant for the life of the telehealth contract. It was like a number from a dodgy dossier.

But you got the idea. The choice for Cornwall was whether or not to invest its resources in BT's telehealth gambit.

The original reason why Cornwall had started down the path that led it into talks with BT in the first place was now forgotten. Was it to pass the buck for a backoffice cull? Whatever it was, it was now second place.

Cornwall's priorities and all other alternatives would now be held up for comparison against against BT's business plan, that pastel vision that had infected the collective mind of Cornwall's Council Chamber on Tuesday like a mall shopper's retail lobotomy.

Councillors had stopped to recover their bearings. But BT had become the default setting.

The Department of Health, incidentally, refuses to talk of its telehealth initiative in terms of market-size and supply-side opportunities.

It likens telehealth to the introduction of the stethoscope: an inconspicuous tool that will slip into the complex arrangement of systems and people that make the National Health Service work.

The department insists it will leave local trusts to incorporate the technology in the way they see fit. It has not insisted Trusts can only do telehealth if they sell off their assets and go into business flogging the services themselves.

It betrays no sign of embarking on a frenetic pursuit of a corporation's marketing dream; nor that it has adopted the false dilemma that has echoed hypnotically around the corridors of Cornwall Council: that do-nothing is not an option, unless you want to miss out on the prize. Don't miss out on the prize.

Other befoolery put to the council chamber this week included the suggestion that the outsource is not ideological or political. And that battery-level councillors cannot understand the complex contractual matters that have been occupying the Cabinet's superior minds.

Or perhaps even that Cornwall is in crisis. Lavery himself wrote in the Guardian last week that that at 8 per cent growth, Cornwall's economic success is second only to the City of London.

Perhaps councillors will gather their wits by considering whether Cornwall needs BT as much as BT needs Cornwall, or whether BT needs Cornwall as much as Cornwall needs BT.

What competition means for Cornwall

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Cornwall smugglers postcard.jpgAs Cornwall Council leader Alec Robertson faces a vote of no-confidence today over plans to outsource £800m of public services, the proposals are looking weaker than a my-dog-ate-it excuse for missing school homework.

Ruling councillors and executives have resorted to dubious justifications for the deal as it has come under increasing scrutiny from people demanding answers to the simple question: why do it?

There might be very good reasons why Cornwall's Council and health Trusts should shove their revenue, benefits, human resources, contact centre, libraries and some frontline care services into a profit-making venture with an IT outsourcer. There might be good reason why Cornwall should take only a minority stake in the venture, even though it will use its own cheap credit lines to finance the deal.

But Cornwall hasn't given them. Its reticence does of course hide a much bigger story than the one it's giving councillors.

Since Cornwall is transferring its public resources to a private vehicle (commanded by whichever of BT or CSC wins the bid) it's going to be operating in a market where it will have to fight, dog-eat-dog for survival. But the council has not even produced a market forecast. Councillors scrutinising the deal have not been told how Cornwall thinks it might manage in competition with other local authorities that are also launching backoffice corporations.

Such forethought is more important than ever since Southwest One, a similar outsource venture in nearby Somerset, ran into serious trouble this year.

Southwest One logo.jpgBooty

What happens when Cornwall Council Corp goes head to head with Southwest One? Might Cornwall Corp be so successful that it puts Somerset out of business?

It sounds absurd but this is the game these local authorities have got themselves into: the aggressive business of backoffice outsourcing, where prices get slashed and jobs get sent overseas. Outsourcing is one thing. Going into outsourcing is quite another.

It is the sort of world in which Cornwall Corp might crush Somerset Inc in open competition, and then celebrate when it wins the contract to do social services to the unemployed call-centre workers that subsequently flood the soup kitchens and underpasses of Yeovil.

It is a heartless world in which there is no public accountability. It is the sort of world in which some fat-cat BT executive might use the money he makes running Yeovil social services to buy a dainty little cottage overlooking the sea in St.Ives, his preferred location ever since Somerset got so full of scummy, out of work no-hopers from Southwest One.

Yet Somerset might actually turn its troubled Southwest One venture round. It might annihilate Cornwall Corp before it even gets off the ground, beating it to every contract with outsourcing councils up and down the country.

Somerset might then open an office in Truro, in a sort of corporate takeover of council services. Or it might keep all the jobs in Somerset, and manage Cornwall remotely like a digital Queen Victoria administering an overseas Empire of primitive peoples. Somerset could sell Cornwall Corp's premises off as holiday lets.

But this new market for privatised council services won't just be Somerset and Cornwall in a bloody fight to the death. Other public bodies around the country are going on the game as well.

Privateers

The most glaring question, after who will reign supreme, is therefore one that the public authorities behind these ventures have been most unwilling to answer: how much business must their backoffice spin-offs generate before they become viable, so they don't end up like Southwest One.

How much business must they generate before they turn a profit? How many other councils must they do backoffice outsource deals with so they can attain these targets? How many assimilated council backoffices does it take to make a privatisation work? And how many corporate council spin-offs can the market take before it becomes saturated?

Cornwall has not even shown councillors the proposed business plans. Its Single Issue Panel, tasked especially with scrutinising the deal, is negotiating terms to see the details. They expect to be let into a locked room where they can see the documents for an allotted time but will not be permitted to make notes or take anything away.

That may explain why the deal's advocates have been able to talk it up with nonsense statements.

That's what Councillor Steve Double, portfolio holder for the Cornwall outsource, sounded like he was doing when on 26 September he wrote fellow councillors an urgent email rebuttal to points raised by critics.

Steve Double, Cornwall Council.jpgDouble had been put in an awkward spot by Southwest One. Somerset had intended its venture to do the backoffices for public authorities across the whole of South West England. It failed. Somerset's backoffice venture subsequently went stale. Southwest One is now said with emphasis on the second word.

Ahoy

Cornwall would be different, Double told his fellow councillors.

Cornwall's backoffice company was going to pitch for business from councils in London and the South East. Its horizons weren't limited to the West country. It was going into the TeleHealth business as well - the business of using a computer system to remotely administer health and social care. It had one eye on the future and one eye on national triumph.

"All of this makes the context completely different from SouthWestOne where IBM was hoped to sell services to other South West Councils," said Double.

Southwest One had in fact broadened its own horizons this year too, after it nearly went bankrupt.

It is now pitching for backoffice business from councils all over the country, like Cornwall proposes to do. It is desperate to make up nearly £60m of losses. IBM, its parent, is desperate to recover some £60m of accumulated debt and other credit lines. The competition will be tough.

It may therefore be too soon to talk of a carve up. But the TeleHealth bit of Cornwall's proposal (the shiniest bauble ever since it was tacked onto the proposal, after the council Cabinet approved the outsource in July 2011) has given Cornwall Corp a unique selling point among other privatising councils.

TeleHealth

The plan for a Cornwall TeleHealth Corp has also lent a chimera of credence to the idea that the venture will bring jobs to Cornwall.

Alec Robertson, Cornwall Council.jpegRobertson guaranteed it would produce 500 jobs. The jobs have not yet been guaranteed by either of the suppliers. But they will apparently be guaranteed when they do guarantee them, presumably in a manner that can be depended upon.

Cornwall TeleHealth Corp will also be a boon of special significance for its outsource supplier, no matter which of BT or CSC win the business.

This pair were responsible for the disastrous NHS records system called the National Programme for IT. They may have been slow to deliver it (five years late, it is not yet finished) but they have moved quickly now there's new public assets up for grabs.

Cornwall will give them a way to resell their NHS systems into local government. NHS health records will be allied with social security records in the Cornwall system. It will become the fulcrum of health integration with social security, as well as benefits and other public services.

Yet why Cornwall can't do TeleHealth itself, and then pay these suppliers simply to supply, is another matter to which the Single Issue Panel has not yet been privy.

Cornwall's entire NHS has got behind the scheme, including the Kernow Clinical Commissioning Group, which will take over from the existing Primary Care Trust when the coalition government's plan to "devolve" the NHS in 2013 to those privateers more commonly known with inexplicable affection as GPs.

Cornwall has also failed to communicate why it needs to give its outsource supplier a controlling 51 per cent interest in its services.

The county could use its own cheap credit lines to finance its own TeleHealth, or to restructure its own services. But Cornwall didn't attempt to develop such an idea into a proposal that could be given serious consideration alongside the outsource. Nor did it develop the other options that first made the outsource idea look less threatening when they were put alongside it on the table, briefly, in 2011.

Lavery

Why indeed had Cornwall not opted to do this all in-house, asked independent councillor Mark Kaczmarek in Cornwall's Cabinet meeting in July.

Kevin Lavery, Cornwall Council CEO.jpegCornwall chief executive Kevin Lavery, once head of local government for BT, and a career, supply-side advocate of privatisation, said the council should put its services into a commercial venture because only a commercial venture could behave like a commercial venture. He used the proposal to justify itself on its own terms.

"An 'in-house' option would not be in a position to offer the commercial skills which a private sector partner could offer," the meeting minutes attributed to Lavery.

"As an example, a dedicated sales team already existed within both of the two potential private sector partners and it would not be a practicable option for the Authority to try and create such a sales team as it would take a significant amount of time and investment," he explained.

It was just the sort of circular nonsense you would expect but would dearly hope, when you knelt down beside your bed and prayed at night, did not really pass for thinking in the high offices of the public sector.

But it is not all so bad. A push into Kent and the South East will be just the ticket for Lavery, who had pushed Conservative transformation work at Kent and London councils early in his career, and who later managed contracts in those regions for BT. That's also where BT has its NHS contracts. And it is where Lavery now proposes to pitch his outsource joint venture with BT, or CSC if the latter wins the bid.

When Kaczmarek asked Lavery why not do it in-house, the poacher-turned-gamekeeper might have said conversely, well the outsource company has got this bloody sales team. It's surplus to requirements. Isn't it?

Cornwall privatisation hangs in the balance

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Cornwall Council's unpopular plans for back-office privatisation are hanging in the balance after councillors complained they didn't know enough about it to give it their consent.

The proposal to outsource £800m of council services to either BT or CSC would turn Cornwall into a pioneer for a radical new model of local government in which councils become aggressive commercial competitors.

Cornwall's plan would put it in direct competition with an outsource venture in nearby Somerset, which has been struggling ever since Cornwall refused to join it in 2007. Somerset's venture, called Southwest One, had struggled because it couldn't drum up enough business. Now both Cornwall and Somerset will be climbing over one other as they try to convince other councils around the UK to privatise their back-offices using each of their profit making ventures.

The free-for-all was launched when the coalition government introduced an 'anything goes' law for local authorities in March. Called the general power of competence, it allowed councils to operate services for profit.

But with councillors and electors struggling to understand the implications of the change, and to comprehend why Cornwall should be embracing it, the Conservative-led council has already come near the point of no return in its deal-broking with BT and CSC.

Council leader Alec Robertson said yesterday he would put the privatisation proposal to the mercy of the council later this month, when councillors will vote on whether to keep it.

He had already told councillors it was too late to go back after they voted against the proposal on 4 September. But they called a no-confidence vote against him, to be held on 16 October, and opposition Labour councillors organised a petition to bring the issue back before the council chamber.

"If the majority of councillors vote against the proposal when its brought to full council, hopefully on 23 October, it won't go ahead," Robertson told BBC Radio Cornwall yesterday.

He said councillors only withheld their approval because "they didn't have enough information to make a properly informed decision".

Doom

But while the Council Cabinet had legal power to go ahead with the unpopular deal, Robertson conceded it would be "doomed to fail" if the council opposed it, because people would make sure it didn't work.

Somerset's outsource venture had been thus doomed after the 2009 election brought in a Conservative council who opposed it. It has since embraced the general power of competence in a desperate attempt to avert financial collapse. The bid will only work if it can convince enough councils to privatise their back-offices with its venture and not Cornwall's.

When Somerset launched Southwest One in 2007 it had aimed to get 36 public bodies across Southwest England to merge their back-offices into one company. The original plan included local authorities in Cornwall, Devon, Dorset, Gloucestershire, Somerset and Wiltshire. But in the end only three Somerset bodies joined in, by selling 75 per cent ownership of their IT, accounts, human resources and purchasing departments to IBM.

Now Cornwall councillors now have to decide whether they should outsource at all. Their Council Cabinet has told them that if they don't approve the venture Cornish back-office jobs will end up being acquired by another council's outsource venture somewhere down the line; and that if they do approve it, jobs will be created in Cornwall, presumably the spoils of battle against other councils in this new private/public market.

Southwest One creative accounting for dummies

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Burrowdridge - Tuanton Deane - Somerset.jpgIt was lucky for Southwest One that it misplaced the majority of invoices sent by its parent, IBM, when it published its erroneous 2010 accounts in January.

It was already facing bankruptcy and Somerset County Council, its lead outsource partner, was trying to cut its contract. The missing invoices would have increased its losses 25 per cent to over £40m. It might have been the end of SW1.

It was lucky for IBM as well. As 75 per cent owner, IBM's reputation as an outsource service provider was riding on this, its flagship local government venture. With central government spending drying up and the coalition government pushing the privatisation of municipal offices, market research firm Kable has predicted that local government outsourcing will be the main source of growth for the public sector IT industry in the UK.

This was no minor incident. You don't lose £10m of invoices, amounting to 73 per cent of your run rate cost of goods and services from your parent, down the back of the sofa.

SW1 was past the worse of its troubles when it found the invoices six months later and restated its 2010 accounts. But it would still have trouble explaining why Somerset CC didn't know about the £10m additional losses when it renegotiated its contract.

Another stroke of luck


Here, SW1 and IBM had luck on their side again. SW1 was able to bury the additional IBM costs in the notes of its accounts by offsetting them - by cancelling them out. But this was not normal. You can't just offset your losses against thin air and pretend they don't exist.

So how did SW1 bury the IBM invoices? It was like a card trick: it pulled something from its sleeve. That was a £9.512m credit note from IBM. By presenting the credit note in the notes of its 2010 accounts, it cancelled out the rediscovered invoices. Hence they could stay in the notes of the accounts. And the front page of the restated numbers - the headline costs and losses - could meanwhile remain unchanged. Anyone who looked at the accounts would be told, 'Nothing to see here - carry on!'.

But the £9.512m was curious. IBM did not give SW1 a credit note for £10m to cover the cost of the rediscovered invoices - although even that would have looked dodgy, or erroneous. It gave SW1 a credit note for the cost of the £10m invoices after they were balanced against a variety of other minor credits and deficits in its restated cost account that had nothing to do with IBM. This was just enough, in other words, to bury the loss.

With the loss buried, the news that broke about SW1's accounts in August was that its finances were better than they used to be. But they were in fact worse than it was letting on.

Of course, this could all have been a succession of terrible but wholly innocent mistakes. They have indeed thus far proved so embarrassing that SW1 has refused to talk about them.

IBM checks and balances

There might have been a legitimate reason why SW1 lost £10m of invoices from its parent. SW1 and IBM finance executives might also have thought they had a plausible explanation for IBM's fees being 73 per cent lower in 2010 when they signed the accounts off in January. They would presumably have demanded an explanation if they didn't already know where this £10m had gone. They would presumably have tried to tally the invoices in IBM's own financial records with the purchase orders in SW1's. Such things are presumably done automatically by computer between IBM and its subsidiaries. A management accountant would presumably press a button to produce such a report. They would have presumably have done at least that much to verify that a drastic fall in IBM costs was help from Heaven and not some horrible mistake. IBM would presumably make efforts to account for £10m of invoices to one of its subsidiaries, no matter how trifling the figure is on its own $26bn accounts. Count the pennies and the pounds will look after themselves.

Similar conjectures might be made reasonably of the £9.512m IBM credit note SW1 attributed to the period that ended 31 December 2010 - that it attributed not when it filed its accounts in January but when it restated them six months later.

It is not as though SW1 didn't have enough time to get the accounts right. It
filed them four months late. And it has set itself up as a backoffice for local government, whose accounting is more efficient because it is automated.

There was one more lucky break for SW1 in January. If it hadn't filed its accounts so late it wouldn't have first secured a £10m mortgage from IBM - which it did two days before the filing on 17 January. Though it couldn't officially use this to credit its 2010 accounts, it did allow Derek Pretty, SW1 chairman, to claim the venture was a going concern when he signed off them off and went into the final stage of contract negotiations with Somerset CC.


Southwest One Payments to IBM - Against Revenue - 2008 to 2011 - Restated.png



Southwest One Payments from Somerset - to IBM - 2008 to 2011.pngSouthwest One published its 2010 accounts in January 2012.

It reported 2010 payments to IBM, its parent, were down 73 per cent.

Such a drastic fall in the single largest item in its cost account was relief at a time when SW1 was in crisis.

Finance staff passed SW1's 2010 accounts without apparently clarifying the drastic fall in payments to IBM over 2009.

SW1 restated its 2010 accounts six months later.

It's payments to IBM had not been so low after all.

They had in fact been over 80 per cent of revenue.
Payments to Southwest One by Public Bodies - 2008 to 2011.png
But SW1 had suffered a drastic cut in payments from Somerset Council.

Somerset had been SW1's biggest outsource partner. But it cut payments in half after Conservatives took power in 2009.

Of SW1's other outsource partners: one cut only 19%; the other actually increased payments by 70%.

But SW1's IBM costs were put in stark relief.






Somerset goes national to stem outsource losses

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Somerset County Council's private sector spin-off is going national in the hope of reversing its financial losses and exploiting government cuts in other regions.

The outsource shared services venture, called Southwest One, has already begun bidding for contracts to privatize backoffices for the NHS, as well as other councils. It hopes to drum up sales it failed to generate among local authorities in South West England after launching as a joint venture with IBM in 2007.

Derek Pretty, SW1 chairman, said in his annual statement last week it was counting on government cuts to make its services more attractive to other local authorities.

"The result of cuts is that all public authorities must seek new ways to reduce expenditure. This places the company in a position of being able to provide a solution to the problems faced by Authorities," said Pretty. "The opportunities for expansion are believed to be feasible."

"SWO has responded to invitations to tender and has hosted several visits to Taunton and Portishead from interested parties - including County Councils, District Councils and Police Forces as well as NHS representatives.

"The customer base is currently restricted to public sector bodies in the South West of England. Future development is to focus on expanding the customer base to other public sector organisations throughout the United Kingdom."

Somerset Council originally intended for SW1 to run the backoffices of up to 34 public authorities across South West England when it put the tender out in 2005. It had only one other partner by the time it signed its contract with IBM in 2007 - Taunton Deane District Council - though it still held out for business with all 34 original contenders. It eventually secured three.

Now other public bodies such as London Metropolitan University are seeking to replicate Somerset, by turning their backoffices into launch assets for private joint ventures with outsource suppliers. Aping Somerset's revised strategy, London Met also intends its outsource venture to bid nationally to rip and replace the backoffices of other authorities with its own rented services.

Roop Singh, global head of consulting services for Wipro, one of three outsource suppliers short-listed for the London Met bid, said such a venture setting up from scratch would have to bring in about four or five partners before it could break even.

Then it could expect to deliver savings of between 25 and 30 per cent a year by consolidating - that is, cutting - the software, hardware and employees of the merged organisations, he said.

David Orr, a former SW1 employee who campaigns for greater transparency and accountability in outsource ventures, said SW1 had originally signed its 34 participating authorities up to a European procurement framework so they could buy its services without the usual legal hurdles. But the framework would have run out last year, he said. SW1's sales outside its core three partners have been less than 10 per cent of revenue.

SW1's posted its fourth consecutive financial loss last Thursday, while its relationship with Somerset County Council (SCC), its lead public sector partner, has descended into a legal dispute over its poor performance.

TfL spends £100m on temporary helpdesk

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Transport for London has spent £100m on a temporary contract that is still running after five and half years and will be clocking up more costs until 2014.

TfL gave a temporary IT contract to Computer Sciences Corporation in December 2006 after terminating an existing deal with Capgemini, claiming the stop-gap would be for just a year. But the temporary arrangement has been refreshed at least three times already.

TfL revealed the full cost of the temporary contract under coalition government orders to publish all contracts above £25m. TfL has like other departments not published its contract. But it did disclose a budget of £100m+ for CSC's "Marathon", the name of the temporary desktop computer contract.

A TfL spokeswoman said £100m was the total TfL had paid CSC under the temporary contract since 2006. The bill was inflated in January with another £21m for what the spokeswoman said was another temporary contract with CSC. This one would last until 2014.

She said TfL had extended its CSC contract again in 2011 while it conducted another IT review. Called "Project Horizon", it was completed in January. But TfL still needed more time to work out how it should organize its contracts. In 2007, TfL said it needed just a few months to work out how to organize its IT contracts. Then it stalled for more time until 2009 when it launched Project Horizon.

The spokeswoman said: "In August 2011, TfL had a contract providing a single point of contact for all IT incidents, the central helpdesk was provided by CSC. Following the completion of project Horizon in January 2012, the decision was made to extend the CSC contract to 2014 in order to provide time for us to complete the sourcing review and undertake and award any resultant procurement."

"Since the structural changes to TfL under Project Horizon, the information management team now operates for the whole organisation. In light of the new structure and emerging commercial and technological supply models we are in the process of reviewing the multi-sourcing arrangements to ensure they fully meet our business needs and provide the best service," she said.

CSC revealed January's temporary contract renewal in April, one week before its new CEO Mike Lawrie made his first presentation to Wall Street after joining the company in March. CSC had not had any good news in the UK since its 2009 cloud contract renewal with Royal Mail.

Liz Benison, CSC UK president, said in a press release: "We are delighted to be extending our relationship with TFL."

The temporary contract was set up by Phil Pavitt. Now chief information officer at HM Revenue & Customs, Pavitt is locked into a £multi-billion contract with Capgemini until 2017.

After Pavitt left TfL for HMRC, the transport body claimed to save money on its IT by bringing services back in-house from CSC. This is known only to have amounted to £6.7m over 2007 and 2009, according to TfL's board minutes.

Other budgeted TfL IT expenditure includes £100m+ with IBM for the congestion charge "enforcement" system, another £100m+ to Siemens for other congestion charge systems, £50-100m to NSL Limited for information systems and taxi licensing services, up to £25m to BT for an Automatic Vehicle Location system, up to £25m for SAP software licences and "maintenance", £25m for SAP managed services and application hosting and £25m to Computacenter for other hardware and software.

Southwest One emits hot air after near-collapse

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Failed IBM outsourcing venture Southwest One became a cause célèbre in Somerset last week, with the council leader damning it so loudly he almost sounded like he might do something about it.

But it was all hot air. And it had the stink of opportunism, what with Somerset being in the middle of renegotiations over its 10-year Southwest One contract. Southwest One was nevertheless forced to respond. But when it did, it merely gave a blast of hot air as well: giving the same assurances that it has been giving Somerset for the last four and a half years. Yes, there was a right pong hanging over Somerset last week.

It all started letting off after Computer Weekly exposed the terrible state of the IBM venture's finances.

Southwest One had appeared on the verge of bankruptcy in the 2010 accounts that Chairman Derek Pretty signed off just last month.

CW asked SW1 whether IBM had saved it from bankruptcy with the £10m mortgage it extended last month. It ignored our questions.

Council leader Ken Maddock had meanwhile used his annual budget statement before a full council meeting last Wednesday to give SW1 a dressing down.

SW1 had been a failure, he repeatedly told councillors. His words reverberated around the county. He called SW1 a failure no fewer than eight times in his brief speech. SW1 had failed to give the people of Somerset value for money, good prices or flexibility, he said.

So he was presumably going to cancel the contract or at least do something more convincing than what Somerset had been doing over the four years in which SW1 consistently failed to deliver on the promises IBM made on its behalf in 2007? No, actually.

"We [will] continue to do all we can to make Southwest One work," he said.

But there is one thing Maddock will be doing after his speech. He'll be back to renegotiations over the SW1 contract. The media squall that followed his outburst will have done Somerset's negotiating position no harm at all.

And there was something else he would do: more outsourcing. He had embarked on a review of what other things the council could outsource to joint ventures like SW1.

"Almost half our most vital services are carried out by private sector or not for profit organisations - we will look to increase this where appropriate," he said, failing to note the unbelievable irony of it.

SW1 answered Maddock by claiming it was still on track to make savings for the council.

"We have negotiated contracts that will deliver savings of at least £71m for the partners over the next few years, of which they have implemented £15m to date," it said.

But it had been repeating this statement during the four years that its directors were forced in January to write-off as an accounting loss.

IBM had in 2007 promised £192m of over 10 years. SW1's failure to deliver these savings had been apparent to critics in 2009. It answered them by claiming it had "identified" savings of £65m.

"It has claimed an early success in procurement, identifying £65m in savings and declaring that it is on course to deliver £200m over the 10 year life of the contract," said The Guardian after an interview with Somerset chief executive Alan Jones in 2009.

An internal review commissioned by then newly elected Somerset council leader Ken Maddock found in 2010 that SW1 had delivered just £2m of its promised savings. The earlier identified £65m savings were nowhere to be seen.

SW1 reassured councillors in 2010 it had identified savings of £45m. It had accumulatively identified savings now of £110m.

But SW1 admitted in its statement last week it had actually delivered just £15m. Identified savings were now £71m.

Little appears to have changed, apart the now wide acknowledgement of SW1's failure. SW1 may refuse to admit it in statements to the press, but its directors were forced to admit it in not so many words in its 2010 accounts. They had been forced to tear up its business model and start again.

Its bankruptcy was also apparent. It couldn't pay its debts. Its directors doubted it would cover them by the time it had reached the end of the 10-year outsourcing contract into which it had been spun-off from Somerset County Council in 2007. It was about half-way through its £0.5bn term and its directors couldn't even foresee how to cover its £17m start-up costs.

SW1 directors had been so embroiled with their troubles they were four months late filing their accounts. They only did so after IBM had given them a £10m mortgage. They said they had a new business model. This time it would deliver. They didn't say what it was.

Downturn undermines flagship government outsourcing deal

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IBM's flagship local government outsourcing deal is still failing to deliver savings it promised in 2007. The problems have dragged on so long that one council has been forced to reschedule debt it took out to cover its cost of doing the deal in the first place.

Southwest One, a private/public partnership IBM set up with three public authorities, has delivered little more than a third of the savings it originally promised to Taunton Deane Borough Council, said a report to it's executive committee on 18 January. That's still exponentially lot more than the £400m deal delivered overall.

"Procurement savings have been delivered at a lower rate than originally anticipated in 2007," said the report.

"Back then it was estimated by IBM that £3.376m savings would have been generated by close of 2011/12," wrote Paul Harding, performance & client manager for Taunton Deane.

IBM had estimated its outsourcing deal would have paid back its costs within four years. Taunton Deane spent £3.65m on it in 2007. But it has been unable to repay £2.87m of loans it took out to finance the deal. The deal had delivered the council only £1.25m of its savings, forcing the council to reschedule its debt.

Cllr John Williams, Conservative leader of Taunton Deane Borough Council told Computer Weekly it was "purely a coincidence" that a £2.1m shortfall in the council's 2012-13 budget matched the £2.12m shortfall in savings IBM promised its outsourcing deal would deliver by 2012.

"It is unlikely we will meet the original targets," the majority of which were promised procurement savings, said Williams.

Land of plenty

"We are looking at a whole different world from when this contract was conceived. Back then we were in a land of plenty. Councils were awash with money. Government was spending like there was no tomorrow. But unfortunately since 2008, the money isn't there. Spending has been cut.

"Because we are not spending as much, there are not the purchases we envisaged when the contract was conceived. Across the board, Southwest One are saying there's far less procurement to be carried out than they were anticipating.

"They are redoubling their efforts to get everything within the net. There has to be a sea change. Instead of everyone going to buy bits and pieces, there has to be discipline. We have hopefully instilled that, that everything goes through Southwest One," said Williams.

But the council leader insisted Taunton Deane was benefiting from the deal. Southwest One was meeting a contracted obligation to reduce its charges to the council by 2.5 per cent a year for the life of the 10-year contract.

Williams, who was leader of the opposition when the deal was done in 2007, said SW1 was contracted on the basis that it was the private sector and therefore more efficient. Hence its service charges were reduced by 2.5 per cent every year.

"We have no problem with this contract at the moment. It's delivering what it's meant to deliver, apart from the procurement savings," he said.

Public Image Ltd.

Southwest One's service charge was set from day one. But by 2011 it had delivered just £3.3m of £192m promised cost-savings - a promise that clinched the deal for Taunton Deane and the other two participating public bodies, Somerset County Council and Avon & Somerset Police Authority, in 2007.

Southwest One meanwhile reported a £31m loss in the year to 31 December 2010 and has notched a loss for every year it operated.

The loss, reported last week, included a one-off charge of £17m for ongoing implementation of an SAP system intended to unite the back-offices of participating public bodies and cut their costs. The SAP implementation has had ongoing problems.

Southwest One's finances went unremarked on the news service it provides "customers" in Somerset. But it has showered them in the last 18 months with such mollifications as "Maximising efficiency through shared services", "Punching above your weight to achieve growth", and "How collaboration and cooperation can help to deliver procurement savings".

As the IBM venture was planning to file its latest cost-overruns at Companies House in December, it told residents about an award it had received for its revenue & benefits service.

Benefits have given councillors no cause for celebration however. A Taunton report on benefits cuts said recently: "In the end we will have to decide, from a limited number of claims, which vulnerable group we support the least".

At least, with Southwest One's award winning support, Taunton Deane will be able to turn the needy down more efficiently.

£176m shortfall

Participating councils are meanwhile seeking to renegotiate their Southwest One contract half way through its 10 year term after Somerset concluded this would be the only way it could hope to see the £192m savings IBM promised.

A spokeswoman for Southwest One said it had "identified more than £6.5 million of potential procurement saving opportunities" for Taunton Deane.

She repeated Cllr. William's statement that councils were saving less because they were spending less.

"Southwest One has a target to deliver approx £200m savings for TDBC, Somerset County Council and Avon & Somerset Police over the course of the 10-year contract," she said in a written statement.

"So far projects have been commissioned, which plan to deliver £71m of savings over the life of the contract and to date £15.9 million of savings have already been delivered."

IBM was unavailable for comment.

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