Capita to lose money on pension debacle but ‘has government’s private parts in its grip’

‘Cash cow’

Setting the mood for Capita’s grilling, PACAC chair Simon Hall MP asked the outsourcer’s CEO, Adolfo Hernandez, how Capita views the UK government: “Is it a cash cow to be milked to the point of dropping with exhaustion, or a valued client?”

With 85 contacts with central government and the wider public sector, the UK government is Capita’s biggest customer.

After Hernadez described the relationship between Capita and the government as being one of partners, the firm’s pride serving government and how seriously the supplier takes these matters, Hall listed some of the supplier’s failings on the CSPS contract.

PACAC chair Hall described Capita’s “inability to run – to customer satisfaction – a telephone helpline” and its “inability to deliver a reliable, transparent, accessible portal”.

He highlighted that Capita is relying on HMRC to provide a “surge team” of 140 people, and another 40 on other related work at taxpayer cost, to get it back on track.

Government officials had earlier stated that government costs associated with providing additional resources to Capta is £12.5m, which Cabinet Office minister Nick Thomas-Symonds said will be recovered from Capita “to the penny”. The cost will increase as Thomas-Symonds added that the surge team will remain in place until the service is “at the standard we expect”.

Hall also described the suffering pension members are going through.

Broken promises

Hall reminded Hernadez and his colleagues of promises made to government during the contracting process. The Cabinet Office was told “that the two-year transition period would lead to the digital artificial intelligence revolution to deliver a world-class, world-leading pension service”, he said. “None of that met neither the novel nor the basic.”

Minister Thomas-Symonds has earlier told the committees of these lofty promises. Hall asked: “What in the name of all that is holy went wrong? Because this is systemic failure, not a one-off.”

Hernadez said the scheme is very complex –more complex than Capita had thought. “It is like nothing that our colleagues in pensions have seen before in terms of the ramifications. We have served pension schemes in the defined benefits space for maybe 50 years, we do over 200 of them,” he added.

Hernandez said it is not the size of the scheme, with 1.7 million members, that make it complex, but the fact that there are around 300 different employers, with some no longer in existence. He also repeated Capita’s claims from previous select committee hearings that the backlog of work left by previous supplier MyCSP was a core part of the problem.

But Hernandez also said the technology Capita planned to use to automate processing did not work. “We have not been able to deploy the technology that would allow us to get there.”

With the failure to get the technology right, Hall questioned the purpose of the two-year transition period.

In part one of the joint select committee hearing, it was government officials who faced questions. Angela MacDonald, deputy CEO at the HMRC, who was brought in to lead the recovery of the troubled service in January, just over a month after Capita went live, was asked if the outsourcing provider understands the human cost of its failings.

She said in her meetings with Capita that “the only thing we talk about is the members. We don’t talk about money, we don’t talk about commercials. We talk about families and the complaints we are receiving.”

‘Too cosy’

She described Capita staff as colleagues, to which Hall responded: “They are not your colleagues in Capita. They are a private business which the government has contracted to provide a service. We need to give the public confidence that your side of the table understand absolutely the professional, corporate, commercial relationship here. But colleagues they are not.”

MacDonald replied: “I wouldn’t want you to think that they are not feeling the strength of my 35 years of operational experience.”

With the government’s policy to end the era of outsourcing at front of mind, Thomas-Symonds was asked under what circumstances would he terminate the contract with Capita. He has earlier stated that the CSPS contract is a “prime candidate to be insourced.”

Alternative outsourcing suppliers are few and far between – in fact, the only bidders for the current contract were Capita and previous supplier MyCSP, which Thomas-Symonds said was not sustainable to continue with.

“There was no legal basis to continue with MyCSP, let alone anything else. But even if you moved beyond that, there was such significant problems in that scheme. There was no union recognition and there were ongoing industrial disputes. It was more expensive to stay with MyCSP [even] if it was possible. There was also the issue that they weren’t even willing to commit to proper KPIs.”

Regarding insourcing, Hall described a two-year period to get the resources and service up and running, and suggested that in this interim period Capita would lose incentive. “What is today a bad situation then suddenly gets 10 times worse,” he said.