Southwest One emits hot air after near-collapse

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.