Nearly 300 employees of services company Sema face an uncertain future after a disagreement between their employer and the Department of Social Security over the renewal of a major outsourcing contract.
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Many of the staff, based at Lytham St Anne's and Newcastle, are former civil servants who transferred to Sema in 1995 when the supplier won a five-year outsourcing contract, called Focus 95, to run desktop and networking services for the Department of Social Security.
The contract is due to expire on 30 November this year, but it is by no means certain that the DSS will renew with Sema. The options being seriously considered include signing an extension to the contract, returning the service in-house or signing a new deal with another supplier. But there are complications with all three options.
A leaked Sema memo, obtained by Computer Weekly, said Sema is willing to agree to a contract extension but only if the DSS meets two requirements.
The first is that there is an adjustment in the terms and conditions of the extension to "reflect the changes in economic conditions that have occurred since the contract was signed in 1995". This is interpreted by some DSS specialists as a request by Sema for a price increase on the contract extension.
The second requirement is that the DSS gives "commitments" to "protect the position of our staff at the end of any extension term".
However, the memo to staff from senior Sema executive Neville Hoyle said, "I have to report that the DSS were unwilling to accept either of these conditions . . . Sema Group and the DSS were therefore unable to reach an agreement on an extension to the Focus contract."
The memo also reveals that the DSS wants to "novate" the contract. Novation is a legal process that usually involves the ownership of a contract changing hands but everything else staying the same. So the staff will remain with their existing employer.
In this case, according to the memo, the DSS is "insistent on the novation of our contract before its normal expiry date to an as yet unspecified third party".
This is a reference to the DSS' desire to pass responsibility for the Sema contract to either US services supplier Electronic Data Systems, or a partnership of BT and Bull. Under the terms of the novation, staff would remain as Sema employees but their company's contractual relationship would be with EDS or BT/Bull rather than directly with the DSS.
Sema opposes the novation. This is partly because it would be accountable for the quality of its services, and its costs, to a competitor such as EDS or to the BT/Bull joint venture rather than the DSS.
It is unclear why the DSS wants to novate the contract rather than simply renew, extend or allow it to expire.
Some observers say the novation is a means of mitigating against the ill-effects of not renewing the contract. A definite split between Sema and the DSS would mean the staff having to transfer back in-house or to an unspecified third party. This could lead to bad publicity, and the loss of morale and staff due to the uncertainties.
However, these problems may still be unavoidable. Sema warns staff that it may have to "transfer its entire Focus operation back to the DSS or its nominated supplier".
Sema and the DSS declined to comment, but the DSS did confirm that it is "in negotiations with Sema".