Swansea City Council offers outsourcing lessons

Swansea City Council's decision to cancel the second phase of an outsourcing contract has put the spotlight on public sector partnership deals

Last month's decision by Swansea City Council to cancel the second part of an outsourcing contract because of a lack of funds has raised questions about how councils should best approach outsourcing in the future.

According to John O'Brien, government analyst at research firm Ovum, joint ventures and incremental outsourcing are likely to receive more attention from councils. The models may help councils avoid the difficulties experienced by Swansea, which led it to drop the "e-government" phase of an £83m outsourcing deal with Capgemini. Liverpool and Berkshire were the councils that had led the way with these models, said O'Brien.

Swansea signed the outsourcing deal with Capgemini in January last year, after 18 months of wrangling with council IT staff, which included strike action by members of Unison, the public sector workers' union.

Phase one of the outsourcing deal will create new back office IT systems and processes at a cost of £40m. The second phase, which was expected to roll out later this year, had been promoted by the council as transforming customer access via a new call centre, new face-to-face contact centre, extended opening hours and state-of-the-art 24x7 internet services.

Swansea is still pressing ahead with the first-phase technology refresh, but phase two has been cancelled, although the council still plans to build a contact centre.

Michelle Morris, the council's programme director, said, "The money the council set aside [for phase two] was not enough. This is a major programme, but only one of many that is under pressure in many areas, including social services and education.

"We intend to go forward with a customer service centre, but are going to have to do it more incrementally and not fund this contract," she said.

O'Brien praised Swansea's decision to split the contract in two and avoid being locked into a project it could not afford. Other councils had managed to agree more "finely diced" deals, which made outsourcers prove their worth as a contract progressed, he added.

One such deal was signed for £26m in November 2005 between Hertfordshire County Council and IT service supplier Vertex. The deal was described by the council as an "innovative partnership" rather than outsourcing.

"This deal was along the lines of 'let's see how we get on' and there may be more business," O'Brien said.

"It is a sensible, pragmatic approach, protecting the taxpayer and helping deliver the outcomes. The outsourcing suppliers are not stupid they know that there is a lot of business down the line, but only provided they prove that they can deliver."

Another outsourcing model that is likely to attract more interest following Swansea's decision is the joint venture approach.

In January, Liverpool City Council decided to extend its joint venture with BT by five years. The parties originally set up the venture in 2001 but, with the extension, BT will now continue to run the council's call centre, revenues and benefits, HR and IT services until 2017.

This model avoids the animosity between management and staff that Swansea encountered, said O'Brien.

"Under a joint venture, the ­local authority retains control of the organisation, which is something workers like. When you look at joint ventures, secondment has become very popular because people working in the joint venture get a council payslip. They are part of the council and have an employment contract that allows them to go back to working for the council full time."

Yet another partnership model is in evidence at Birmingham City Council, which signed a 10-year deal with Capita in March last year.

Under the terms of that deal, a joint venture company has been set up that will be the preferred supplier every time the council goes out to tender for a business transformation project.

The joint venture company, which is 35% owned by Birmingham City Council and 65% owned by Capita, has already been awarded a £420m contract to run the council's IT function until 2016.

Glyn Evans, assistant to the chief executive on transformation at Birmingham City Council, and chair of The Society of Information Technology Management's information age group, said, "I have always been of the view that there is no single model of outsourcing. I have been an IT manager at four organisations, but this is the only time I have done anything like outsourcing.

"In IT terms, we had a situation where we had a long history of under-investment, while at the business end we could not put forward a viable business case [for in-house investment] because you cannot put forward a 10-year investment plan.

"By creating a contract we can have investment in that time frame."

By seconding staff to the joint venture rather than transferring them to the IT services firm, Birmingham also gained long-term investment without upsetting staff, Evans said.

The other main lesson council IT leaders should perhaps take away from Swansea's experience is not to overestimate potential savings. Swansea initially banked on saving £26m from the first phase, but subsequently had that forecast cut to £7.4m.

O'Brien said it was important for councils and outsourcers to be rigorous in calculations at the start of the deal. "Overestimating savings has been a pitfall in many outsourcing deals. It is difficult to comment on Swansea specifically, but it is a trend that needs to be addressed."

 

Swansea timeline

August 2004

Swansea IT staff vote in favour of strike action as the council continues talks with Capgemini and ITNet for a £100m outsourcing deal.

September 2004

Swansea Council and its striking IT staff go to arbitration service Acas to settle a six-week dispute over a proposed outsourcing deal.

September 2004

Striking Swansea IT staff say the deal with cost 50% more than the official estimate of £100m.

October 2004

IT staff suspend strike action following talking with arbitration service ACAS.

January 2005

Swansea City Council signs £119m IT outsourcing deal with Capgemini but the threat of strike action still hangs over the deal as IT staff wait for employment terms to become clear.

April 2005

Council cabinet approves the transfer of IT staff to Capgemini

May 2005

The council and Capgemini estimate their egovernment programme will save £72m over 10 years

September and November 2005

The council delays the start of the contract after while talks over the terms and conditions for transferred staff are negotiated

January 2006

Capgemini and Swansea City Council sign deal £83m deal after 18 months of negotiations

January 2007

Swansea City Council cancels the second phase of the contract, which was to support e-government, and slashes the contract value to £40m.

 

End to outsourcing "exclusivity"?

Swansea turns back on follow-up Capgemini deal

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