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Report into Southwest One pinpoints “incredibly complicated” contract

One of the most significant lessons from the Southwest One support services project was not to make contracts overly complicated, a report prepared for Somerset County Council’s audit committee has said.

In 2007 the county council, Avon and Somerset Police Authority (as it then was) and Taunton Deane Borough Council entered into contracts with Southwest One, a joint venture with IBM as majority shareholder and where the public authorities nominate a board director and have a shareholder veto on certain reserved matters.

The joint venture provides operational services such as ICT, finance and HR/payroll to the county council and other public authorities.

In March 2013 Somerset and Southwest One settled a multi-million pound dispute over the provision of strategic procurement services.

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The company had claimed that it had secured £22m in savings through the course of the contract and that contracts had been secured that would deliver a further £71m in savings.

However, the county council had rejected the claims and said it would make a counter-claim where it believed it had suffered losses.

The settlement and renegotiation of the contract last year saw the return to Somerset of a number of the more strategic functions originally placed with Southwest One.

A report entitled Lessons learnt to inform future Commissioning from the experience of the Southwest One contract went before Somerset’s audit committee earlier this month (13 February).

The report said: “Both the provider and the council would agree that the contract is incredibly complicated. A contract with over 3,000 pages was drawn up back in 2007 which was considered necessary at the time given the range of services and the partnership and contractual arrangements created.”

The size of the client unit that monitored the contract was deemed commensurate at the start with its tasks and responsibilities. “However, as performance issues became evident and legal and other contractual disputes escalated, the team had to cope with increasing workloads and increasing pressure from service managers and council members to address these issues.”

This was a difficult balancing act, the report suggested. “You do not want to assemble a large client function that in part duplicates the management of the services being provided nor overstaff to the extent that there is insufficient work if contract performance is such that no issues are created.”

With hindsight, it said, the initial team was too small to manage the contract when SAP and other performance issues were not resolved quickly enough. “Sizing the function is tricky but we do now have an extremely knowledgeable and experienced client team.”

The report also found:

  • The partnership between the provider and the three clients had “at times been adversarial and at times worked well.” What had become clear over time was that any such partnership depended upon having similar incentives and an understanding of each partner’s requirements. “Of course, requirements change and the nature of local government changed considerably as a result of the national austerity programme. The well-documented financial difficulties faced by the provider early into the contract life also affected its ability to meet client expectations. The net effect is that at times the provider and partner aims in service delivery do not always match and discord and dissatisfaction can occur.”
  • Performance indicators needed to be meaningful rather than simply what could be measured. Agreement between the provider and the [county council] client of all the appropriate performance measures was “a long and difficult exercise” at the beginning of the contract. It was “regrettable and again with hindsight a learning point” that too much attention was paid to these contractual mechanisms rather than ensuring the relationship between provider and Somerset was positive. “Perhaps the regime was too onerous for both sides to administer.”
  • Contract periods needed to be different for different services as the pace of change was different. The range of services provided under the initial few years of the contract were quite extensive. On another related point the provider also had to manage different services for different clients. “This level of complexity was perhaps too ambitious for all parties. Although there are many successful parts to the contract, it is inevitable that most will remember those that did not work so well.” The contract period of ten years was a long time for nine different services to change at the same pace.
  • In many ways the secondment model worked “as staff felt both loyalty to their ‘home’ employer, keeping the public service ethos we all felt to be important, and to Southwest One as they merged staff into a centre of excellence model”. The disadvantage was that Southwest One was “hampered by the terms and conditions staff kept as they tried to find savings for their business model and to provide savings to the council in recent years given the changing financial conditions we now operate under”.
  • Another aspect of the contract in terms of complexity was the nature of the partnering arrangement. It was not easy for all partners to have exactly the same view or stance on an issue. “Southwest One had to manage competing priorities from its clients and the partners also had varying opinions on the level of performance provided.”

The report concluded: “In summary, this was a very ambitious venture. The service provided in some cases got off to an unfortunate start with the issues generated by SAP problems and relationships were strained and attracted much inside and outside attention.

“All parties have been working very hard to keep good relationships and to fix service issues as they arise. The sheer size and complexity of this contract has proven difficult to manage and future commissioning decisions will bear this in mind.”

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