Southwest One outsourcing achieves 10% of target savings

Somerset council's Southwest One outsourcing venture achieved just 10% of the savings initially targeted half way through the programme

Somerset's Southwest One outsourcing venture had achieved just 10% of its targeted savings half way through the 10-year programme.

A legal dispute between Somerset council and Southwest One marred the authority's cuts strategy, according to a report to the Somerset County Council's Audit Committee.

Southwest One – an outsourcing venture led by Somerset council and IBM – made just £16.2m of savings in the five years to 31 December 2012, according to figures released to local campaigner David Orr.

Southwest One – which negotiates cut-price procurement contracts for Somerset council – has implemented deals that would make barely one third of the £192m savings it promised to make over 10 years to 2017.

David Orr's freedom of information request found Southwest One had implemented savings of just £58m. Orr told Audit Committee members before today's meeting that Southwest One would not make its promised £192m.

Southwest One report

Southwest One timeline

  • 18 September 2007 - Somerset County Council forms Southwest One, a shared services company, with IBM and Taunton Deane Borough Council.
  • 29 September 2007 - Somerset awards £400m, 10-year outsourcing contract to Southwest One, promising £190m back-office and procurement savings.
  • 20 March 2008 - Avon & Somerset Police Authority joins Southwest One, taking part ownership.
  • May 2009 - Conservatives, led by Ken Maddock, campaign against Southwest One in local elections.
  • 4 June 2009 - Conservatives win control of Somerset council from Liberal Democrats and begin a review of the Southwest One contract with the aim to renegotiate.
  • 16 November 2009 - Southwest One reports £57m 2008 turnover, 92% derived from Somerset council, with 54% of revenue paid out for IBM goods and services.
  • June 2010 - Somerset council report calls for Southwest One contract to be renegotiated.
  • 30 September 2010 - Southwest One reports that IBM fees went up to 81% of revenue in 2009, while Somerset Council cut payments by 16%.
  • 3 June 2011 - Somerset Council publishes 2010 report of Southwest One review.
  • 17 January 2012 - IBM secures Southwest One debt with £10m loan, on trade debt of £40m.
  • 19 January 2012 - Southwest One files 2010 accounts four months late, saying revenue were down 61% on 2008, with Somerset payments down 42% and IBM fees down to 35% from 81%. The venture has delivered just £6m of promised £190m savings.
  • 15 February 2012 - Somerset County Council leader Ken Maddock says Southwest One has failed. Renegotiations over contract continue.
  • 2 March 2012 - Somerset Council takes strategic services back off Southwest One.
  • 23 August 2012 - Southwest One restates 2010 accounts, revealing £10m of undisclosed IBM fees and offsets increased costs with previously undisclosed IBM credit note. IBM payments were 81% of revenue, not 35% as previously stated. Southwest One's 2011 revenue was down 63% on 2008. Somerset County Council's 2011 payments were down 51% on 2008.
  • 31 August 2012 - Southwest One sues Somerset County Council for non-payment of contracted fees.

Accountant Grant Thornton said, in a commissioned report to Somerset County Council's Audit Committee, that Southwest One savings were falling significantly behind planned expectations.

This had an "adverse impact" on Somerset's attempts to implement the ambitious scheme to cut £40m from council services.

Grant Thornton recommended in December 2012 that Somerset council put the Southwest One outsourcing venture under review. This followed a prolonged stand-off that led Somerset council and Southwest One to issue legal writs against each other in Autumn 2012.

The legal dispute was hindering the council's ability to conduct this review as well, the accountants told the Somerset council's Audit Committee.

John Wilkins, chairman of the Audit Committee, said in an email seen by Computer Weekly that it had been two years since the committee was last given information on how well Southwest One was meeting its savings targets.

Orr challenged Kevin Nacey, Somerset County Council's finance director, to explain how he had let this happen. 

Orr pointed out Nacey held statutory responsibility to ensure Somerset council derived value for money from its public expenditure.

Nacey said in an email to Orr: "I can reassure you that this lack of performance is regularly discussed at senior levels in the council."

Southwest One was unavailable for comment. Somerset County Council refused to comment.


Read more on IT outsourcing