Somerset goes national to stem outsource losses

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.