The Chamberlain News

Birmingham city council may call time on ‘special relationship’ with Capita and axe £120m contract

The chances of outsourcing company Capita retaining lucrative contracts with Birmingham City Council have suffered a serious setback after the local authority admitted it is considering bringing IT services back in-house.

Deputy council leader Ian Ward confirmed at a spending cuts consultation meeting that work was underway to discover how much it would cost to close down Service Birmingham – the joint venture company between the council and Capita which provides IT support and runs the call centre.

Chamberlain News understands that under the terms of an agreement drawn up in 2006 the council could terminate its contract with Capita by giving a little over two months’ notice, and on the basis that neither side was at fault.

Estimates of the cost in compensation of walking away from Capita vary wildly from about £20 million to a possible £80 million.

The council has always refused to publish details of the Service Birmingham contract, claiming that it is commercially sensitive information. But details lodged at Companies House show Service Birmingham registering £58,000 a day in profits.

It was already known that council leaders were intent on reducing the annual £120 million bill it pays Capita, and Cllr Ward told a media briefing earlier this month that he thought that by renegotiating the contract the figure could be cut to “the low £80s millions”.

But there was no mention of dropping Capita completely until last Friday’s budget consultation meeting at the Nishkam Centre when Cllr Ward appeared to veer away from Labour’s agreed party line on the issue and admitted that terminating the Capita contract was indeed under consideration.

His comments might have gone largely unreported, were it not for the power of social media.

Journalists monitoring Twitter were alerted by a message from Tony Smith (@SmithTonyD), the council’s Policy Executive, who works closely with Labour city council leader Sir Albert Bore.

Mr Smith tweeted: “A call from the floor to bring IT services back in house is applauded.”

It is extremely unlikely that Mr Smith would have intentionally strayed ‘off message’ by drawing attention to any matter that could embarrass the council leadership. The only possible interpretation, therefore, of highlighting the fact that a call to sack Capita had been applauded must be that giving a public airing to the possibility is no longer thought unhelpful.

Minutes later, Cllr Ward confirmed that he was considering bringing ICT services back to a new council department. His words were apparently recorded and repeated verbatim by the blogger Politics in Birmingham (@politicsinbrum), leading to a wide-ranging Twitter discussion with comments from the trade union Unision, which is fighting Capita’s involvement with Barnet Council in London.

Cllr Ward was reported to have said: “If we go down that route (terminating the contract) we will have to build an IT department for the city council and we will have to follow that with the money that it will cost to terminate the contract.

“We cannot terminate the contract without knowing the termination costs.

“If we are to end that arrangement, we will have to build an IT department for the council and there will be a cost to that and a cost to early ending the contract that we have with Capita.

“What we need to think about here is what delivers the biggest saving to the city council and what is the most efficient way of moving forward? We are beginning to get to the bottom of these numbers.”

Sir Albert Bore and Cllr Ward are under pressure from Labour backbenchers to slash the £120 million a year payments to Capita, which have been described as unacceptable when the council faces axing services and cutting spending by £460 million over the next three years.

As part of the Service Birmingham agreement Capita provides IT support and computer systems, runs the call centre and the council tax collection service.

But Service Birmingham has never been far from controversy. The company charged the council £1.2 million to set up a website for the new Library of Birmingham, and £7,000 for a single computer for the council catering firm, causing councillors to question value for money.

Earlier this month Chamberlain News revealed that the council was set to pay Capita £500,000 to undertake a review of children’s services.

The huge cost of meeting the Service Birmingham bill and the size of Capita’s profits have been criticised by city council leadership challenger, Labour councillor John Clancy. The issue will be a central plank in Clancy’s 2014 manifesto for his next attempt to topple Sir Albert.

Cllr Clancy responded to Cllr Ward’s remarks by stressing that bringing IT back in-house is not the only option.

He would like to see the council consider handing IT to a consortia of local firms.

Cllr Clancy said: “As to the suggestion of bringing the services in-house: well, I think that can be an option. But it is not the only one. So also should the option of offering the contract to small and medium local businesses to do at a fraction of the current costs, if that also saves the council massive re-setup costs.

“I have always said that if we can offer the new contracts to consortia of smaller local ICT businesses then that is a good route for the city and our local economy.

“There are always ways to allow for this to happen, especially if you break the massive contract down into smaller parts.

“I’m sure some will say it’s not possible. I think it is.”

Cllr Clancy said the latest turn of events was a vindication of his own policy stance: “I have warned on many occasions that the consequences of cancellation should have been part of our plans from the outset. I have advised that appropriate succession plans should have been put in place so that, when any decision on cancellation was made, there could be a seamless and timely handover from Capita.

“I assume that this has already been done, or cancellation would not be on the table or even being mentioned.”

Just how serious the ‘nuclear option’ of dumping Capita really is remains open to question.

Cllr Ward’s remarks could be part of an exercise in brinkmanship with the hope that Capita will respond by voluntarily cutting the cost of the contract. Or, perhaps, the council’s leadership is intent on proving to troublesome backbenchers that the combined cost of exiting the contract and establishing an in-house ICT department is unaffordable.

Chamberlain News understands that the council’s contract with Service Birmingham contains an unusually generous termination clause permitting the local authority to exit “at will” by giving about two months’ notice. However, the cost in compensation to Capita is a matter of fierce debate among lawyers ranging from £20 million to £80 million.

Cllr Clancy and his ally Professor David Bailey, from Aston University, make the point that the compensation is highly unlikely to be anywhere near the £120 million cost to the council of Service Birmingham. That claim has to be tempered by the unknown cost of establishing an in-house ICT department.

Sir Albert Bore will no doubt remind critics of Service Birmingham that Capita’s involvement only became necessary in the first place because the council did not have the expertise or the determination to transform its ageing computer systems.

The council leader may also consider that his long-held antipathy toward using social media is well founded.