The Chamberlain News

Clancy’s message to Capita and Amey: ‘Get in the real world and cut your costs’

In the second part of his interview with Chamberlain News chief blogger Paul Dale, Birmingham city council leader John Clancy says he is prepared to rip up the local authority’s contract with Capita unless the firm “gets in the real world”.

Private outsourcing giant Capita has been told it must shave at least £30 million off the cost of running Service Birmingham or face the probability of losing its valuable contract with Birmingham city council.

New council leader John Clancy has made it clear to Capita executives he intends to follow through on a manifesto commitment to scale down the deal that allows the firm to supply and manage the council’s ICT needs as well as run the authority’s billing services.

Negotiations have begun and Cllr Clancy is unlikely to be satisfied unless the payment the council makes to Service Birmingham can be cut from an estimated £80 million this year to significantly under £50 million.

The council leader warned that Capita “will have to adapt to survive”, in a clear indication that he is prepared to axe the contract if needs be.

The cost to council tax payers of the Capita deal has been a bone of contention on the Labour backbenches – fees have topped £1 billion since the joint venture company was set up in 2006 – and Service Birmingham has faced allegations of an excessive charging regime and profiteering.

In 2013, the council paid Capita £23 million in profit-related dividends, equivalent to £63,000 a day.

Although the contract has been renegotiated several times and costs cut, the fees paid to Service Birmingham remain one of the council’s single largest spending commitments.

When campaigning for the council leadership Cllr Clancy said he wanted to get rid of Service Birmingham and hand ICT contracts to local firms, even though tearing up the Capita contract could mean the council paying substantial compensation.

In his manifesto for the council leadership, Cllr Clancy said:

The Capita-Service Birmingham Contract will have to go: in its current form there is effectively a protected £80-100 million a year department. This is simply no longer the kind of spend we can contemplate when we will have to take tough decisions elsewhere. We will offer the contract out at a price we can afford at a fraction of the current cost. We should look to our own West Midlands firms to do our IT.

In an exclusive interview with Chamberlain News to mark his first 30 days in office, Cllr Clancy hinted that Capita could keep the contract but only if the firm was prepared to “get real” and cut its costs substantially.

As a minimum, the council leader is likely to insist Capita reduces its fees by £30 million, which is the amount of money the authority is cutting from adult social services following Government grant cuts.

In a two-pronged attack on contracted-out costs the council leader will also begin talks with Amey in an effort to save money on the £2.7 billion PFI deal which allows the firm to manage Birmingham’s highways network until 2034.

Cllr Clancy said he could not justify the “huge sums of money” paid to Capita and Amey when all other parts of the council were forced to make massive savings and staff were being asked to sign new contracts with less generous sick pay, increased hours and fewer holidays.

He said Capita had to understand that the council’s circumstances had changed since the Service Birmingham joint venture agreement was signed a decade ago. The number of council employees has reduced by 10,000 and the budget has shrunk by £560 million since 2010, with a further £250 million to go by 2020.

Clancy, a former corporate lawyer, said it was common practice for long-term contracts to be renegotiated when financial conditions changed.

We have to radically remodel the way we deliver adult social care and we are taking £30 million out of the budget. In these circumstances where I have to save £30 million from social care I intend to follow exactly the same principles for the way we run our computers and billing.

How can we try to negotiate a new contract with the workforce and remodel social care and at the same time say to IT and billing you can stay the same?

We have to come up with a brand new way of doing IT and billing. We have to make a judgment as to whether the current contract is fit for purpose.

It is up to Capita to decide whether this contract can be remodelled. I can’t sack 1,202 people and demand the renegotiation of workers’ contracts and expect adult social care to be completely remodelled and at the same time allow the Capita contract to be untouched.

Anyone with any experience of the private sector realises that contracts have to change. If the contract no longer fits the market it has to be changed.

Our private sector contractors have to get real in terms of the climate they are now in. Service Birmingham and Amey are aware of my position with regard to these things. I would suggest they will have to adapt to survive because it is a completely different world we are going into over the next four years.

My message to Service Birmingham and Amey is ‘get real’.

The council entered a formal dispute with Amey earlier this year over the quality of work, particularly the durability of pothole repairs.

Under the PFI agreement, which is the largest local government highways partnership in Europe, Amey is responsible  for repairing, maintaining and modernising almost 2,500km of roads, along with 96,000 street lights, 1,000 traffic signals and more than 850 bridges, structures and tunnels.

Tomorrow on Chamberlain News: the city council leader outlines his plans for a cleaner Birmingham.