Swansea City Council failed to apply key principles of IT management properly when it agreed an £83m outsourcing deal that is struggling to deliver anticipated benefits, a report by auditor PricewaterhouseCoopers has concluded.
The council's original outsourcing contract with Capgemini, to replace back-office systems and create online public services, promised to deliver £70m savings over its 10-year life when it was signed in 2006.
The council scaled back the contract to a £40m project a year later, predicting savings of £26m over 10 years. To date, it has achieved savings of £6m, PwC revealed.
The auditor criticised the council for failing to check properly whether the projected savings put forward by Capgemini were credible. Swansea relied solely on existing government estimates, the report said.
The council only shifted 5% of the risk of failing to meet savings targets to its supplier. This appeared to be a very low level of risk transfer, given that Capgemini was confident of these savings in its bid, PwC said.
The council also failed to benchmark the project adequately against the performance of other councils and suppliers. "Insufficient benchmarking was undertaken at key stages in the process to challenge whether the procurement was value for money," PwC said.
The council said, "The PwC report clearly outlines a series of serious weaknesses associated with the development of the e-government programme. As a council we need to frankly admit to the weaknesses, and set about creating a clear strategy for ensuring no repetition."
Analysts said the report highlights important lessons for managing outsourcing projects.
John O'Brien, government practice analyst at Ovum, said that benchmarking projected savings was a vital step. "It is very important to ensure that the savings you have talked about can be delivered. The only way you can do that is to get independent advice," he said.
Karene House, public sector practice leader at consultancy Morgan Chambers, said, "It is like buying a car you would go to consumer car magazines and look at what the experts say a good price would be."
Swansea Council chief executive Paul Smith said the council was "generally happy to accept PwC's findings". The council would conduct further analysis to draw up an action plan, and it was working on business process re-engineering to create greater savings than already signed off, he said.
Swansea's outsourcing troubles date back to 2002. IT staff went on strike during the negotiation process, complaining of a lack of consultation over terms of transfer, delaying the project by 18 months.
The council pulled out of the second phase of the outsourcing contract with Capgemini in January, after it became clear that the first tranche of work would not make anywhere near the original forecast savings. The decision meant shelving plans for a call centre and a website to give residents a single point of contact with the council.
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