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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.






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