Downturn undermines flagship government outsourcing deal

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.