Birmingham City Council has selected Capita as the preferred bidder for a major IT partnership deal that it expects will cut costs by £1bn over the next 10 years.
The local authority will take a 35% stake in the joint venture company that will provide all of the council's IT services - a contract that is worth £420m over 10 years.
The company will also be the first-choice supplier when the council embarks on a series of business transformation projects that it expects will save £1bn.
Birmingham has an annual budget of £1.45bn. If the partnership achieves its anticipated savings, it will deliver all the cost reductions the council is obliged to meet under the government's Gershon efficiency review.
Glyn Evans, the council's director of business solutions and IT, said the starting point for the business transformation projects is whether they can be delivered via the joint venture.
Three business transformation projects have already been identified. The first is to transform Birmingham's procurement function. The second is to enable more staff to take advantage of flexible working so the council can reduce its office space. The third is to increase the amount of time social workers spend delivering front-line care.
IT systems supplied by the joint venture company will underpin all three projects.
The council has already started work on a business transformation project in its HR department. For an investment of £900,000, Evans estimates the department's running costs will be reduced by £3m a year.
Birmingham has managed its staff relations carefully during the preparations for the joint venture. About 450 employees will be seconded from the council's IT department to the new company. The council will keep 25 people to manage the contract with Capita.
Birmingham Council got IT staff involved in the joint venture by having staff representatives at every meeting with Capita.
Capita chief executive Paul Pindar said, "We have committed to deliver several hundred new IT jobs into the Birmingham area over the course of the deal."
Public sector outsourcing deals
North Lanarkshire Council has signed a four-year, £5m contract with Steria to provide IT support and infrastructure management services. Steria will be responsible for managing three council datacentres as well as providing network, telecoms and desktop services in a deal the supplier said offered "guaranteed" savings.
Winchester City Council is planning to spend £2.5m on a five-year outsourcing contract with Digica for desktop, server, infrastructure and applications support.