I was intrigued to see that Barnet Council has admitted that key parts of their contract with Capita were based on 'unrealistic assumptions. Papers released for next Mondays Financial performance Review committee state
The position of the finances on the RE contract is more complex, due to the Income Guarantee. This Guarantee has never worked as originally anticipated, as Capita over-estimated the income that could be derived from the Highways Service. Although the Planning Service has significantly outperformed expectations, this has not been sufficient to offset the shortfall of income in Highways. As a result, the council has benefited significantly from the Guarantee over the last eight years. However, as Council has now agreed to bring the Highways Service back in-house, this underperformance will no longer occur. The remaining service is predominantly Planning and Building Control, where the level of income that can be achieved is primarily demand-driven, as the volume of service is dependent on the level of development within the borough, rather than any activities that Capita can influence. This means that the Income Guarantee is no longer a relevant mechanism to the council. The council and Capita are therefore exploring alternative contractual mechanisms that provide a fair and realistic balance of risk and reward, along with appropriate incentivisation for the provider to maximise the level of income received by the council.
I was fascinated to see that the Council are claiming that Capita actually cocked up the contracts, because they were wildly over optimistic with the revenue they promised Barnet Council and were having to pay 'income guarantee' payments for the Highways Service. Unsurprisingly, as Capita are not making a profit on these, they are giving them back to the Council to run. One of my criticisms of outsourcing is it seems that the public always take the risks and when the private companies don't make the money they thought they would, they give the contracts back.
Perhaps more interesting is the scenario with planning. The report makes clear that Capita are making far more money than was originally envisaged. The council also admit that this is completely unrelated to whether Capita are doing a good job. If you'd wondered why we are seeing every last inch of the Borough being over developed, the answer is there. It is propping up the council's finances.