Wednesday, 29 November 2017

Supplier Payments October

Barnet's supplier payments are out for October and as ever they make interesting reading. Yet again Capita are receiving significant payments even though they have had massive advance payments. In the audit report published in September the External Auditor noted that Barnet had made £44 million of prepayments on the CSG contract. On the Re contract Barnet agreed in June to make a pre payment of £16 million in return for a discount. With such a large pre payment balance it then comes as a surprise that in October Barnet paid £1.71 million on the CSG contract and £1.24 million on the Re contract. Set out below is the latest tally on the two Capita contracts.

We have also been told that Barnet is working hard at bringing down agency costs. Unfortunately that isn't work as well as planned and after an initial drop in payments to Comensura they have started climbing again. In October Barnet paid Comensura £1.853 million bringing the running total for the year to £10.88 million with a year end forecast of £17.3 million.

There are a few other payments which caught my eye, although given that this month's expenditure spreadsheet ran to over 12,400 separate payments I have probably missed something more interesting.

  • Blue 9 Security are doing nicely out of the library work billing Barnet £78,599.69. This brings the running total for the seven months of this financial year to £625,647.68. To set that in context in 2015-16, before the unstaffed library process began, they billed £662,949 for the entire year.
  • The council spent £9,600 for events at the Ariana Banqueting suite conveniently located on the North London Business Park - I wonder where they will use when the council offices move to Colindale.
  • There are also over £1.1 million of redacted payments classified as "various" from "various" departments. Not helpful or transparent.

I will keep watching.

Monday, 27 November 2017

So are we getting value for money from the outsourced Re Contract?

On Tuesday 28 November we have a  meeting which will discuss the review of  the Development and Regulatory Services contract with the Capita Joint Venture, Re.

I have read the report and the numerous appendices and it makes uncomfortable reading. Some services such as Trading Standards and Environmental Health are okay, others such as Highways and Planning are problematic.

Some of the statements which I find most worrying are as follows:

"The RE contract is a wide-ranging and complex commercial structure, which has created challenges regarding interpretation and understanding. The review has been particularly beneficial in terms of securing better awareness of this structure and thereby resolving a number of matters relating to interpretation and understanding of various elements of the contract."  What this says to me is that they didn't understand the contract when it was signed and even after 4 years of this contract being in operation they are only now coming to terms with interpretation of the contract which to my mind is unforgivable.

"There have been significant issues on highways service delivery, which is in part due to the complexity of the arrangements between RE, Conways and the Highways DLO." I have said repeatedly that the complex contractual relationship means that certain tasks fall between the gaps at the contractual boundaries and that is bad for residents.

"The Working Group concluded that:

  • Planning enforcement needs to be more responsive; 
  • Accessibility to planning applications needs to be improved, particularly on larger applications with high volumes of associated documents; 
  • Communication between planning and the public needs to be improved; 
  • There is a need to ensure that the consultation system is operating effectively (i.e. residents receive consultation letters in accordance with the policy); and 
  • The Planning Committee may wish to consider the policy in terms of the extent of consultation". 

Good recommendations but the fact that we are 4 years into this contract shows that the monitoring system has been inadequate to date. I blame all those professional consultants and lawyers who were paid millions to set up this contract but have so clearly failed to consider how it would be implemented.

"Capita’s internal organisational structure (known as “the towers”) has been identified as a layer of complexity that potentially impacts on day to day service delivery and a further exploration of this is recommended (report will include specific examples)"

Talk about "silo mentality" to anyone in business and they will tell you how destructive it can be for an organisation yet Capita seem to foster and promote this through their "Towers". Again this is something that should have been identified and addressed much earlier. The key risk now is that while it has been identified Barnet have no ability to influence how the much larger Capita organisation operate and as such they are likely to remain in place.

The Grant Thornton benchmarking report makes a telling comment when it says:
"Our benchmarking identified that a clearer understanding would be achieved if margins and costs were considered in relation to prices charged for service delivery".  In other words we don't know if we are being ripped off!

The killer for me is the statement below:

"In addition to the core contract, there is substantial expenditure on projects and the Review brief anticipated that the Review would pay some attention to this aspect. However, timelines have not permitted detailed reviews of individual projects, so the focus has been on value for money. Despite the use of external support, it has proved difficult to obtain sufficient information to conclude whether or not overall project costs represent good value for money and it is proposed that officers should explore this further".

Again, the issue of the cost of special projects is something I have been challenging for the last four years. I challenged on the CSG contract and it was brushed aside. Now they are saying they can't tell whether projects are value for money. In any other organisation any senior manager making such a statement would either be demoted or sacked. In Barnet they just accept it and say officers ought to  explore it further - pathetic!

There is no mention of a number of issues which I raised as part of my submission and which I know other people have concerns about such as the transparency of the contract and who in Re is responsible for each service. The Council has a large chart with names, emails and phone numbers for key senior council staff but not a single person within the Re or CSG contracts is included. That makes them faceless and it frustrates residents when they seem unable to get through to the people who can resolve problems and get things done. There is no mention of the financial performance of this contract. Given that it is overly dependent on raising money rather than making savings ,understanding how well it is performing is critical. The big risk is that in the absence of revenue generated from new business, Re simply put up prices to Barnet residents. The report notes that  Barnet had one of the highest set of  charges for pre planning advice of any of the comparator boroughs. We also have the highest charges for pest control and second highest for vehicle crossovers. So when Barnet say this contract is saving money remember we are generating those "savings" through the higher prices we are paying.

I have submitted a series of questions to the meeting which I have set out below. It will be interesting to see how they respond.
  1.       Appendix A says “The contract is on track to deliver significant savings to the council, in the order of £39m over the 10-year term”. However the external auditor stated in the audit completion report that there was an under performance of contracted income for the past two years totalling £4.599 million and that this was unbilled by Barnet. In addition, the Partnership Director from Capita said  that he "acknowledged the disputed £4.6 million" but that would be subject to debate. Are you sure this report is an accurate reflection of the true financial performance of this contract and why did this shortfall only come to light in the audit report.
  2. When the report says “in the order of £39 million” why is it so ambiguous. Is it more or less than £39 million and if less, by how much?
  3. What is “reasonable quality” and is reasonable good enough?
  4. A prepayment  of £16 million generating a discount is not a service improvement. Why has it been categorised as such?
  5. The report states that “the review has been particularly beneficial in terms of securing better awareness of this structure and thereby resolving a number of matters relating to interpretation and understanding of various elements of the contract”. If it has taken you 4 years to interpret and understand this contract is that a success or an admission of failure?
  6. Under regeneration, please can you clarify what are the “ongoing disagreements about what services are covered by the management fee”?
  7. In Appendix A the report states “it has proved difficult to obtain sufficient information to conclude whether or not overall project costs represent good value for money”. In particular the Impower report notes that there may be a benefit in looking at alternative suppliers of project resources especially firms like supplier D. Why has it taken 4 years to discover this.
  8. The reports states that “contractual commitments have been reviewed and the majority have been delivered” In my submission I identified 132 contractual commitment s and have not seen evidence that they have been delivered. Has this committee been provided with evidence that they have been delivered?
  9. In Appendix C the number of customer satisfaction responses in 2014/15 was 1101 but in 2016/17 was only 162. How confident are you that the data is representative given such a small sample size and why was a larger sample not sought?
  10. In Appendix D the levels of customer satisfaction  in 2015/16 fell by 10 percentage points compared to the previous year. The explanation of the 2016 figure implies people are unhappy because applications have been refused. Does this mean that the level of refusals is up on the previous year or is it simply an excuse for falling performance.
  11. In Appendix E the report notes that contractual commitment T3-100 has only been partially completed even though the commitment should have been completed by December 2013. Do you think a commitment that is 4 years overdue is acceptable?
  12.  In Appendix E the report notes that contractual commitment T3-110 has still not been completed even though the commitment should have been completed by September 2014. What service credit has been levied for this non compliance?
  13.  In Appendix E the report notes that contractual commitment T3-112 is not due. However the contract says this commitment was due 12 months after the contract was signed. Please can you clarify why this commitment has been incorrectly labelled as not due?
  14. In Appendix F the report notes that three contractual commitments T3-091, 097 & 098 are still not complete even though they should have been completed within 1 year of signing the contract. Why?
  15. Given that there is a clear disconnect between the service that was defined by the output specification and KPIs at the time and the council’s current requirements, does this mean that the service specification will be changed, will there be additional costs and does this exemplify the problems of trying to specify such a complex service over such a long contract period.

Thursday, 5 October 2017

Barnet Council - Massive Pay Rises for Senior Staff

In times of austerity everyone has to tighten their belt, so we are told. Cuts are being made at Barnet Council and lots of staff, including many in the libraries, have been made redundant. Every month Barnet publish the salaries of senior staff. Checking the October figures I noticed a few that seemed different and at first I thought it was a mistake so I looked back through the figures for each month. In August 2017 a number of staff appear to have received a very nice pay rise maybe sneaking it in while councillors were on holiday. The Government has been holding public sector pay rises down to 1% so imagine my surprise when I saw some of the huge rises which have been introduced. The comparison is based on the same staff between July 2017 (before the pay rise) and October 2017. Some staff have left or joined the council in the intervening period so I have excluded them from this analysis to ensure it is a straight, like for like, comparison. The analysis is below:

 Now a couple of staff seem to have had a change to their job title. The biggest pay rise, 45% has gone to the former Strategic Lead Clean & Green who is now Street Scene Director. Same person different title. The Chief Operating Officer has now become the Assistant CEO although their pay rise is a much more modest 2%. There are a few senior officers who have had no change of title but substantial pay rises. The Strategic Director of Commissioning has had a 10% or £13,594 pay rise. The Head of Hospitals and Health has had a rather attractive 19% pay rise while the Director of resources has had a whopping £23,154 pay rise or 22%.

In the interests of balance I would also note that there are a number of staff who have had no pay rise at all including the Chief Executive. I have also used job titles only to save staff some embarrassment although all of the staff above are named in the data published here.

I hear all the time how front line staff are struggling to manage following so many years of below inflation increases, pay freezes or, in the case of Your Choice Barnet staff, a pay cut, yet when I see pay rises of this magnitude I can see that the people at the top are certainly very comfortable. When Richard Cornelius attends the Question Time with the Leader event next week I for one will be asking how he can justify these massive increases. I hope lots of other people ask him similarly probing questions about how the council is being run - make sure you book your tickets here.

Tuesday, 26 September 2017

Gainshare, the contract clause that keeps on giving for Capita

Every three months the Council publishes the payments made to Capita.  I thought it might be useful to shine a bit more light on one of those payments, gainshare, the £8.3 million bonus that has been paid to Capita so far.

When Barnet Council agreed the massive Customer and Support Group (CSG) contract in December 2012, many people expressed concern at the lack of transparency in the process and what had actually been agreed. Once the contract was signed in August 2013 and after much badgering we eventually got to see chunks of the contract. Buried away in the thousands of pages was something called Gainshare. In the contract this is defined as follows:

"Gainshare means a distribution of benefits between the Authority and Service Provider in
relation to a benefit calculated by reference to the relevant provision within Schedule 4
(Payment and Performance Mechanism), or business case developed under the
provisions of Schedule 15 (Special Projects Approval Procedure)"

In plain English what it means is that if Capita make a savings on a project, exceed an agreed target or negotiate a better purchasing deal they get a share of those savings. On the face of it that seems reasonable but as always the devil is in the detail. The contract included specific guarantees of savings and my original thought was that gainshare would only be payable on the savings over and above those guarantees but that is not the case. This means, for example, that Capita were able to claim £5.9 million of gainshare payments on procurement savings while Barnet received just £1.36 million above the guarantee. That doesn't look like a fair share to me.

I have always had concerns about this clause as it seems to offer some very open ended incentives. As I feel it is important to hold Capita to account given how much we are paying them, I inspected the accounts this summer to understand if these are valid payments. It was quite revealing. In addition to savings on reduction in the numbers claiming single persons discount on council tax,  Capita have claimed gainshare payments on savings made on a range of other services including:
  • Domestic Violence Services;
  • Children and Adolescent Mental Health Services;
  • Mental Health Assessors;
  • Return Home Interviews;
  • Independent Social Workers;
  • Stroke Services;
  • Independent Advice and Advocacy Services.
Now to be fair, council staff disputed the savings made on Domestic Violence Services and Return Home Interviews and subsequently Capita had to issue credit notes for those payments but the fact that they were paid in the first place is very worrying. 

If you can save some money by buying a standard commodity product, like a laptop computer, somewhere cheaper then I am sure most people wouldn't argue with that so long as it is the same computer. When you start looking at services for the vulnerable there is a real risk that the savings have a direct impact on the service offered. The problem is the contract is heavily incentivised to make these savings and that may prompt actions which are undesirable and risk reducing the quality of service.

The lion's share of the gainshare payments have been paid on the Comensura contract who supply all the council's agency and interim staff.(£1.26 million), London Highways Alliance Contract which provides road repairs (£500k) and saving on gas and electricity (£313k). To be clear, this is not the total saving but merely what is paid to Capita. It is also important to note that the payment is not made against savings actually achieved. It is invoiced up front on forecast savings and at the end of the period they have a "true up" which compares the savings claimed up front against the actual and either further payment is made or a credit issued by Capita.

Looking at the example of the Gas and Electricity savings you can read the basis for Capita's claim here. Capita have claimed a saving of £942,000 made up of  actual annual energy savings of £111,071 plus £202,420 of "corrected overcharges". They then gross up the three years of potential savings and send Barnet a bill for £313,000 as their share of the savings. To my mind this is a serious manipulation of the actual savings that could be justified given that if a procurement department was doing their job properly overcharges would get picked up in the normal day to day review of invoices. I am so concerned about this claim that I have raised it with the external auditor and I await his response.

Normally this whole gainshare process is entirely opaque but as I remain concerned about how much is being paid on this clause I make sure I examine the details. Some people will say that it shouldn't matter as it is better to get 66% of something than 100% of nothing but if we had a well resourced council run procurement department then all that saving would be retained. Just think what the £8.3 million could mean if that was coming back to Barnet instead of supporting Capita shareholders.

Perhaps Richard Cornelius will be able to explain this to me at one of his "Question Time With The Leader" meetings coming up in the next few weeks. You can book your place here

Wednesday, 20 September 2017

Barnet Audit Fiasco Part 2 - Capita penalised £55,000 but disaster looms after 2020

Last night we had the re-run of the Barnet Audit Committee, this time with a largely complete audit report. I blogged about the previous meeting here.

Most of the issues identified at the previous meeting still exist but we now had a largely complete report with just a few odds and ends in need of completion. Before the meeting got under way the Chair of the committee Cllr Hugh Rayner made a statement, one which was critical of Capita's performance and one which sought to build bridges with the external auditor after the unjustified pummelling they received from certain Conservative members at the previous meeting. He said that the reason for the late production of the audit report was not just the external auditor's (BDO) fault but the format in which Capita had provided the information to BDO "almost as if Capita were talking to BDO in a foreign language". He noted  that there would be a service credit (a penalty) to be paid by Capita of £55,000, some or all of which may have to be paid to BDO for all the extra and unbudgeted time they expended to get the accounts into a usable format. He praised BDO "for doing a magnificent job in difficult circumstances". Cllr Rayner went on to say that he was satisfied by the financial state of Barnet but not about the process of collecting financial data and that he was commissioning a review to be carried out by the Section 151 Officer to understand what happened and to bring that review to the November audit meeting.

I mention all of this as it seems unprecedented in Barnet's history and suggests some very serious problems have been encountered. Normally this would not have been so openly addressed so it is refreshing to see Cllr Rayner be so open and transparent about this.

Next up were three of the Barnet Bloggers, Barnet Eye and myself who addressed the committee, and then Mrs Angry as well for the questioning. As is so often the way, comments are received in silence and questions dealt with in a perfunctory manner. Often answers are supplied but not necessarily to the question asked. A copy of the questions and the answers provided can be read here.

After the questions, the Partner from BDO went through their report page by page. The key issue that became apparent is that the auditor can still provide a true and fair judgement on the report if the variation is less than 1.5% of the total council budget which the auditor said was in the region of £13 million pounds. That may seem a small amount in audit terms but that is a massive amount in terms of the amount raised through Council Tax (9%) and to set it in context the cuts to the library service were aimed at saving £2.3 million.

This becomes more important when the issue of bad debts were discussed. This included a debt of £4.6 million from Re, the Capita joint venture. It appears that this is a shortfall against guaranteed income targets. The auditor said that he was satisfied with the management representation that the debt is recoverable even though nothing has been billed and no confirmation of liability has been received from Re. At this point the Partnership Director from Capita spoke to say that he "acknowledged the disputed £4.6 million" but that would be subject to debate. My interpretation is clear, that the chances of recovering all £4.6 million are slim to nil. When the auditor was questioned he made the point that all of it or none of it might be recovered but because it was below the 1.5% threshold it didn't matter from an audit perspective. The auditor has covered his backside and preserved the auditors professional indemnity cover by getting management to make a signed representation that it is recoverable but the sum is still at risk. Interestingly Cllr Finn made the point that Capita compiled the accounts which recognised the debt and Capita owed the money therefore they must recognise the debt. Unfortunately, it doesn't work that way although it highlights the massive conflict of interest of having a contractor that owes money who also prepares the accounts.

There were many disturbing comments raised during the meeting but perhaps two of the most shocking were both on the same subject, one made by the auditor and one made by an independent member of the audit committee.  First of all the external auditor said when discussing the use of reserves that in the medium term till 2020 the council could manage its budget drawing off reserves but after 2020 the council "will need a complete re-write of what you do" if there is any hope of balancing the budget. This was then reinforced by the independent member Richard Harbord. Now Mr Harbord rarely speaks up and some may wonder why he is on the committee but he is a local government finance expert having previously been a local authority CEO and is a regular contributor to a local authority finance website Room 151. He confirmed that indeed after 2020 local authorities "haven't got the faintest idea how they will be financed in any way shape or form". He made the point that so many changes to local authority finance need primary legislation but the legislative timetable was full because of Brexit. The Director of Resources also made the point that they don't have enough funding to meet next years requirements and that is why further cuts are on the way. It looks like we are in a complete mess and based on both Mr Harbord's and the external auditors comments this must be the biggest single risk to the future of the council.

Towards the end the external auditor was asked how Barnet rated compared to other local authorities in the preparation of their accounts. I suspect some councillors were expecting a positive answer but no. Some clients could be worse than this "but taken in the round I would put you on the not so good step of the range I am dealing with".

To be clear, the audit process has been a mess, there are "loads of issues" as noted by one committee member, which need to be addressed. There will be a review document in November but it will be essential to see how any action plan addresses these problems. My concern has always been that having such a key function as finance run by an external contractor, Capita, creates divisions, barriers and risks that key financial actions will not be undertaken properly. The fact that Capita are in effect being fined £55,000 for their miserable performance at this audit must raise doubts about their ability to continue to provide the financial function for the council. At some point in the very near future I believe that councillors will need to consider taking the finance team back in house where there can be proper control and insight into this vital function. The interchangeability of Capita and LBB staff makes for confusion and a real chance that matters get missed or fall down the cracks between the two organisations.

I will report back after the November meeting but watch out for a series of blogs coming up in the next week or so.

Friday, 15 September 2017

Barnet's Payments to Capita - the external auditor challenges £44 million pre-payment

Barnet's external auditor has produced their final (almost) audit completion report. One thing they make reference to on page 32 is the amount Barnet have paid in advance to Capita where it says;

"As at 31 March 2017, the Council has a prepayment balance of £44.7 million in respect of its Customer and Support Group (CSG) contract. This contract covers a number of front line and back office services including finance, ICT, HR, customer services, revenues and benefits, procurement,
estates, and corporate programmes. As this is a significant prepayment, we challenged management with regard to its basis".

I have been raising this issue every since the contract was signed so it is good to see that the Auditor has now questioned it. The first prepayment made but the council's continuing desire to throw money at Capita was compounded in November 2016 when councillors agree a further advance payment of £26.9 million. In July Barnet paid Capita  £4,026,345.08 (which included Capita employee benefits of £2.68 million) and paid Re £1,760,758.67.

Set out below is the running total paid to capita through the CSG and Re contracts from the start and you will realise how much extra Capita are being paid add-ons such as special projects, gainshare and contract variations.

Barnet keep talking about the savings that Capita have made. They may have made savings on the core contract but all the extras are costing a fortune and as a net figure I see no savings whatsoever.

Barnet Council Agency Staff Spend - reducing but still very high

Earlier this week I attended the Performance & Contract Management meeting at which I asked a number of questions about the procurement failure of the Enablement Homecare Contract. As is often the case, no criticism of Capita was allowed and even when Cllr Finn agreed with one of my points, he was stopped in his tracks by Cllr Zinkin who is the Praetorian Guard of the Capita contract. The debate then moved to the topic of Interim and Agency spend which has seen a decline from the high point of last finance year. It is nevertheless still very significant and, as Cllr Edwards pointed out, how is that agency spend going to be affected once Brexit happens?
To set this in context the chart below illustrates the huge growth in Interim and Agency staff spend over the last 5 years.

It was always envisaged that the Interim and Agency staff spend would decrease after the two large outsourcing contracts were signed whereas in reality it has continued to grow year on year to the point where it has become a massive embarrassment for the council. Steps have been taken to try and reduce this spend and my latest forecast for the year end spend look like the outturn will be around £16.5 million down on the £19.88 million of last year but still double what it was in 2011/12 and we still have 8 months of the financial year to run.

I would also note that the Interim and Agency spend has a nasty sting attached. At the year end 2016/17 the council stated that the agency spend was in fact £21.194 million a difference of £1.3  million over the spend shown in monthly payments. This did puzzle me until I carried out my inspection of the accounts when it became clear that Capita were paid £1.3 million in Gainshare payments for "savings" made on the interim and agency contract with Comensura. I have still not been shown the evidence to support the claims of these savings but Barnet is quite happy to pay Capita £1.3m on top of the £19.88 million paid to the agencies and that, I believe, is why the Council's figure is higher. I have raised this with the external auditor and I await his findings.

The last point to make is that Capita are the council's HR provider and one would have hoped they would have come up with some clever recruitment strategies to bring in more permanent staff and reduce the use of agency staff. Perhaps this is the re-run of their recruitment role for the Army  which has turned out to be a disaster. Or maybe they quite like the gainshare payments which are directly linked to the spend on agency staff - the more agency staff the more gainshare payment.