Has Liverpool council lost control of its IT joint venture with BT?

A “strictly private” report has depicted Liverpool City Council as having lost full control of IT and services joint venture with BT.    The leaked internal report of the council accuses the joint venture of overcharging...

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A “strictly private” report has depicted Liverpool City Council as having lost full control of IT and services joint venture with BT. 
 
The leaked internal report of the council accuses the joint venture of overcharging and says that bringing the services back in house would save £82m by 2016/17, and £23m a year thereafter. 
 
Liverpool council has all but disowned the report which bears its name and logo on every page. It says: “This is an internal report prepared by consultants. Its report has to be fully evaluated by the city council as a number of the findings are based on assumptions. Until that full appraisal is carried out, the report does not represent the council’s views…”
 
BT says it believes the report to be based on incorrect assumptions and generally inaccurate. “We are of course reviewing the report and will provide our comments to the Council, in confidence, in due course, rather than through the media. We continue to work closely with Liverpool City Council to enhance services and look forward to a continued relationship.”
 
The report, to me, underlines one of the biggest underlying weaknesses in joint ventures, large outsourcing deals and some major IT deals: that when they go wrong the truth about what has gone wrong, and indeed whether anything has gone seriously wrong, will always be difficult to ascertain. 
 
Serious problems can't be tackled if they're not admitted.

The report now in question is called “improving the LDL relationship”.  Marked “Strictly Private and Confidential” it was leaked to the Liverpool Echo.

The joint venture between Liverpool City Council and BT is called Liverpool Direct Ltd [LDL].  It was set up in July 2001 under an 11-year contract. The council owns 19.9% of the shares, BT the rest. The company is staffed mainly by secondees from the council and BT. The council pays a baseline fee for the running of IT-intensive services including IT, HR, payroll, and benefits. It also pays LDL for "out of scope" services. In 2008/9 the combined costs of out of scope services and the base contract was about £70m.
 
The council’s stated objective - which was backed by the Labour government - was to avoid costly and bureaucratic contract monitoring arrangements.
 
But has the lack of effective monitoring arrangements caused the problems outlined in the newly-disclosed report?   

The report was written to strengthen the council’s hand in its negotiations with BT over the contractual future of LDL. It includes recommended “points of negotiation”. It was based on more than a year’s research by consultants in conjunction with two senior council officers. The report's authors took external legal advice. 
 
Council not clear what's included in the price

The report says the council isn’t clear what is, and is not, included in the price of the contract, what BT has invested in or not under the contract, whether there is a business continuity plan, what documented operating procedures exist, what key controls there are, what dependences exist; and what profit BT is making from the deal. There is no accurate register of IT and other assets; and the council has a “limited understanding of what LDL are working on at any given time”.
 
Lack of evidence of business continuity plan

On business continuity, the report says:
 
"During the review we have requested an understanding of the Business Continuity arrangements within LDL… this has been requested on many occasions but nothing received.
 
"More recently we received a proposal template from LDL for a Business Continuity plan which suggests an absence of a plan overall, which is an issue for Liverpool City Council as this presents a significant operational risk”.

Disagreements over how much BT has invested
 
There have been disagreements between LDL and the City Treasurer over how much money has been invested by BT.
 
“It is the Council’s position, including that of the City Treasurer, that the amounts of investment to be made by BT are the absolute minimum amounts as detailed in both the original Contract and the Contract extension … LDL have failed to provide the supporting evidence for the investment they claim to have made despite repeat requests ..." says the report.
 
It adds says that the partnership was, and should still be, a significant opportunity for both parties. There should be an appetite within BT and LDL to resolve the issues highlighted in the report. “The current culture between the Client [Liverpool City Council] and the Contractor [LDL] is one of a lack of transparency and a lack of trust and confidence.
 
"This needs to fundamentally change … the culture of partnership-working that we understand operated in the earlier years of the Contract needs to be re-established.”

**
 
Liverpool's statement to us in full
 
Liverpool City Council said in a statement to Computerworld UK: 

"This is an internal report prepared by consultants. Its report has to be fully evaluated by the city council as a number of the findings are based on assumptions. Until that full appraisal is carried out, the report does not represent the council’s views. 

"The city council is currently in constructive negotiations with BT to renegotiate the Liverpool Direct contract to ensure the taxpayer continues to receive value for money and the highest quality in the wide range of services provided by Liverpool Direct."

BT's statement in full
 
BT told Computerworld UK:
 
“We have seen the [Liverpool Echo] article which references a draft report containing highly confidential information.  We had not seen this report previously and we believe it to be based on incorrect assumptions and generally inaccurate.  

"We are of course reviewing the report and will provide our comments to the Council, in confidence, in due course, rather than through the media. We continue to work closely with Liverpool City Council to enhance services and look forward to a continued relationship.” 

Comment:

It should be remembered that the report is about the contract, not about the services LDL provides. In its annual report of 2008/9, LDL said it “continued to make a real difference to the lives of many individuals, families and communities across all age groups and level of need”. It created 250 new jobs in Liverpool. It said it “continues to set and lead the agenda nationally in the field of public/private partnerships and shared services within the public sector”.

That said, anyone reading the review team’s report could be forgiven for thinking that Liverpool City Council has lost control of the joint venture. Indeed the report may be a warning for all public authorities that contract out IT-based services to one supplier.

The lack of competition for the appointed supplier means that scrutiny of that supplier must be all the more diligent, though not adversarial. It’s a pity that the council’s review team at times asked repeatedly for information that LDL did not always provide.
 
The council implies that the review team made incorrect assumptions and got its figures wrong. But it is difficult to see how the team could be wrong when it says that LDL has failed to “provide management accounts information in a form that illustrates their profits from the operation of the Services”. There is supposed to be “open-book” accounting on the contract. 
 
If I were a taxpayer in Liverpool I would be concerned that the council is all but disowning what could be the most important report written on LDL in its nine-year existence. Is the joint venture providing value for money? The report’s authors are by no means certain.

It may be that LDL is providing excellent public services. Were I a Liverpool resident, though, I would press for a full, published report on the state of the joint venture; and I would not expect the council to commission one without being pressed.

Links:

Review team's report - part one - provided by Liverpool Echo  

Review team's report - part two - provided by Liverpool Echo


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