Select Committee on Public Administration Minutes of Evidence


Memorandum by Capita Group Plc (PSR 8)

A  EXECUTIVE SUMMARY

A.1  Introduction

  A.1.1  The Capita Group Plc is pleased to submit evidence to the Public Administration Select Committee and to have the further opportunity to present verbal evidence.

  A.1.2  Capita is the leading partner of central and local government and in submitting this evidence is able to draw upon over 15 years experience in partnership working, with over 150 major service contracts currently in operation with public sector bodies. Capita specialises in helping public sector organisations to transform their relationships with customers through improving their support services and customer interfaces. There are four principal ways in which Capita contributes to public service development and delivery:

    —  Transforming existing public services through long term strategic partnerships;

    —  Achieving continuous improvement through business process outsourcing;

    —  Designing, implementing and managing new public service initiatives;

    —  "Repairing and rebuilding" the capacity of underperforming public sector organisations.

  A.1.3  In seeking to address the questions posed to respondents by the PASC we have divided our submission into the following sections:

    —  Executive summary;

    —  Public service reform;

    —  Public Service ethos;

    —  Accountability;

    —  Conclusion and issues to be addressed.

A.2  Public service reform

  A.2.1  Public services, by which we mean those services which society has decided that Government should ensure are available for all citizens, are in need of substantial modernisation and improvement. Government spending has been significantly increased but there is a public expectation that this should lead to a visible and rapid step change in performance.

  A.2.2  Technological change and the customer service revolution mean that the public now expects services, be they public or private, to be available to them, when they want them, through whatever means most suits them, tailored to their individual needs. The public can now access a range of services from banking to shopping on a 24/7 basis from home, work or the high street, by phone, on line or in person. Therefore they expect to be able to do the same with the majority of public services at present. These changes also require major re-engineering and change to the whole organisation including its "back office" functions.

  A.2.3  The challenge for public service reform is not therefore just to run services better but fundamentally to transform them so that a new relationship is established between citizens, their services and public bodies including national and local government. Public services need to be re-engineered so that they are driven by the needs of the individual and so that a more direct democratic relationship between the individual and public bodies can be established.

  A.2.4  There are some good examples of service transformation in the public sector, and some not so good ones, just as there are in the private sector. But the public sector does not have sufficient capacity, experience or expertise to achieve service transformation of the magnitude required on its own. Nor should they be expected to have. That is why public sector bodies are increasingly choosing to engage with private sector and voluntary sector partners to form strategic partnerships aimed at achieving step changes in the delivery and experience of public services in a risk averse way.

  A.2.5  Private sector firms like Capita can bring added value to the table: economies of scale; additional investment and expertise in areas such as IT; performance management experience; a culture of customer service and the capacity to manage and stimulate major change. That means that Capita can establish strategic partnerships with local authorities and central government departments to re-engineer their "back office" and "front office" public services, and establish the state of the art customer and citizen access points. It means that Capita can help public bodies establish new on-line entitlement and registration systems which create new forms of direct relationships with individual citizens. And it means that Capita can help the public sector use its resources better, for example providing regional business centres which can achieve significant back office administration savings which can then be re-invested in front line services.

  A.2.6  Public sector bodies when they engage companies like Capita to deliver public services remain in control: setting the standards; determining the ethos; monitoring performance; and controlling payments to the provider. They also remain accountable for the public services for which they are responsible.

  A.2.7  Public service bodies will only achieve the best from partnerships with the private sector when they have the strategic capacity to procure effectively and to be good clients. There is currently a major capacity deficit in the public sector. This has to be addressed as a matter of urgency.

A.3  Public service ethos

  A.3.1  Capita believes that a clear distinction should be made by the Committee between the privatisation of public services and private sector involvement in public service reform. In the case of privatisation, the public sector relinquishes control of that service to a private body which takes over ownership. In partnerships, such as those in which Capita is involved, the public sector remains firmly in control of the service. The public sector sets the standards, determines how a service will be performed and ultimately can cancel the contract and take the service back in house. It also determines the ethos for the service. Moreover, where Capita partners with the public sector the branding and identity of the service remains firmly within the public sector rather than being Capita branded.

  A.3.2  The public service reform agenda creates major challenges for the public sector, even where it has decided to use private sector partners to deliver services. The public sector needs to become a more sophisticated client, with more effective and consistent procurement processes and a clearer idea of the magnitude of the transformation in services it seeks to achieve. In Capita's view the creation of a single public service culture would do much to facilitate this process, not only standardising processes but also spreading best practice and fostering career development more effectively.

  A.3.3  Capita is a modern company having grown out of the public sector, and is now a FTSE 100 company. Two thirds of its work is still in the public sector. Its culture combines public sector understanding and experience with private sector entrepreneurialism and responsiveness. The majority of Capita's 12,500 employees, including the Executive Chairman, worked in the public sector before joining the Company. Capita has a strong service ethos and a commitment to public service improvement, which is reflected both in the philosophy of the company and the experience of its people. People employed in public service delivery want to be able to offer the best possible services to their customers and want to be empowered to do this.

  A.3.4  Capita believes that well motivated, well rewarded employees are critical to public service reform. That is why Capita is a strong supporter of the extension of TUPE conditions, with two thirds of its staff transferred to Capita under TUPE regulations. Capita also believes that unions have an important role to play in public service reform and has national agreements with both UNISON and PCS. Capita believes that all its employees should benefit from the success of their company which is why it has established a Save As You Earn share option scheme which has been taken up by over 50 per cent of staff.

  A.3.5  Capita believes that public service reform is best achieved through partnership working with the public sector rather than through compulsion. For that reason Capita was opposed to Compulsory Competitive Tendering and did not tender for contracts under CCT against "in house" providers. Capita's commitment to partnership is about recognising the key strategic and leadership role which needs to be played by public bodies, such as Councils. To this end, Capita has signed a national partnership agreement with the LGA and IDeA to promote educational improvement in local education authorities which in selecting Capita as their partner acknowledged our commitment to public service values and partnership.

  A.3.6  Where companies play a significant role in public sector reform and become a major employer of public service workers in different localities then they do have a special obligation to behave in a socially responsible way. Capita has always sought to recognise its corporate social responsibility and to support the communities in which it operates. We are currently strengthening our approach to this social responsibility, drawing together many initiatives and practices into a corporate approach.

  A.3.7  There would be much merit in developing a consensus across the sectors and society to establish a common set of standards and an ethical framework for public service in the UK.

A.4  Accountability

  A.4.1  Whilst Corporate Social Responsibility is important it can never be a substitute for fuller accountability. As a provider of services to the public sector Capita simultaneously is accountable for its performance to its procuring partners. It is also accountable for business performance to its shareholders. We are used to being accountable to a number of groups. Capita accepts that in respect of public services, accountability also needs to operate at two levels—to the public as customers, and to the public as citizens.

  A.4.2  In order to address this need Capita has developed a Partnership Board model. The Board comprises equal representation from Capita and the public sector body and its job is to provide strategic oversight for the partnership contract. This not only overcomes the split which sometimes occurs between purchaser and provider but also provides a clear point of accountability both internally and externally. Capita would be interested in the views of the Committee about this model.

  A.4.3  Capita also recognises that as a major partner of the public sector it needs to be directly accountable to those bodies, which are scrutinising public service performance. That is why Capita is pleased to submit this evidence and appear before the Public Administration Select Committee. Capita has also given evidence to a local scrutiny panel and recognises that as this system of governance develops it will be required to appear before these with greater frequency. Capita believes that the Committee's views on how to develop accountability will be very timely and relevant.

A.5  Conclusion and issues to be addressed

  A.5.1  Capita is committed to helping to modernise and improve public services and believes that working alongside public sector bodies it has much to contribute to this process.

  A.5.2  It would be desirable if the Government facilitated the development of a consensual approach to an "ethical framework"—setting down ethos, standards and accountabilities for all public services irrespective of who provides and who manages them.

  A.5.3  We recommend that the Government should ensure that:

    —  There are frameworks to achieve best value which are not over prescriptive;

    —  Procurement capability and capacity across the public sector are enhanced;

    —  There is better public information available about the benefits of public private partnerships and the differences between these and forms of privatisation;

    —  There is a genuine "level playing field" between the private and public sectors and that the option of a contribution by the private sector is always considered for all services—Capita does not argue for denying capital to the public sector as a means of encouraging PPPs;

    —  Regulation facilitates effective public-private partnerships and does not disadvantage staff nor hinder service modernisation;

    —  It consults the range of stakeholders including representatives of service users; local authorities and public service staff and their trade unions; and the private sector with the aim of seeking to achieve a consensual approach to a set of "ethical standards" for public services, irrespective of who delivers them.

  We further recommend that the private sector and Government jointly should:

    —  Develop new forms of governance and accountability models for public-private partnerships, which strengthen democratic accountability and stakeholder accountability whilst protecting commercial accountability;

    —  Establish clear measures and standards for the effectiveness of public service reform and in particular the nature of the involvement of the private sector in the delivery of public services;

    —  Ensure that there is appropriate protection for employees without preventing flexibility which can deliver effective public services designed to meet the needs of customers and citizens.

    A.5.4  Capita believes that public service reform can be achieved through the engagement of private sector companies with the right values, capacity and competencies in appropriate situations.

    A.5.5  Capita will be very pleased to supplement this submission with further evidence should the Committee require this.

B  PUBLIC SERVICE REFORM

B.1  The importance of public services

  B.1.1  Public services are critical to the well being of society and the economy. Therefore, they should deliver the best possible service outcomes for the expenditure which society is willing to commit to them. This is particularly important because a large proportion of the population depends on these services for their education; their health care; their access to basic income; their safety; and for the protection of the environment. Moreover, business depends on effective and efficient public services in order to be competitive.

  B.1.2  The Government has significantly increased public expenditure on public services. This is welcome and important. It is vital that this expenditure achieves value for money and that these services meet the public's needs and reflects their aspirations.

  B.1.3  In this submission we are defining public services as those services which society has decided that Government should ensure are available for citizens and which are usually collectively funded. By this definition, for example, health and education are public services even though they can be purchased outside the state arrangements but retail shops are not public services even though they serve the public.

  B.1.4  However, for most public services including health and education the public are not simply customers. They have a relationship with these services as taxpayers and as citizens. This means that the relationship and the change management processes required to transform public services may be different from those required in much of the private sector. Public service provision requires enhanced systems of accountability and direct links between service delivery and citizenship.

B.2  Modernisation is unavoidable and essential

  B.2.1  There is a broad consensus in the country in support of the need to modernise and improve public services.

  B.2.2  The public as customers of public services are expecting the same standards they experience in the best of the private sector—including, wherever possible, choice, electronic access and in many cases a "24 x 7" access, and high quality outcomes. The public deserve and will increasingly expect to be able to access and use public services which meet the highest possible standards. They will hold politicians to account for the pace and effectiveness of public service reform.

  B.2.3  The public sector has to be able to step away from an overriding provider perspective and develop the capacity to act as an advocate for the customer and citizen, as well as the protector of the tax payers' interests—in this way it will be able to take a more objective view about service provision and who the provider should be. It must engage with people as citizens as well as customers.

  B.2.4  Capita does not argue that all public services should be delivered in partnership with the private sector—the decision as to whether to engage the private sector should be taken on a pragmatic basis dependent on what will meet the needs of the customer and strategic goals of the public sector procurer.

  B.2.5  Those who challenge the idea that greater involvement of the private sector working in partnership with the public sector can achieve this objective, should answer the question "what is the alternative?" The solutions, which are needed, cannot be achieved simply by increasing public expenditure nor by relying on current structures or entrusting public sector managers to make the difference on their own. Private sector companies like Capita have the technology, expertise and capacity to support the delivery of a step change in public services. Capita is able to specialise in this area and thus able to develop new models of service with a capacity to implement and deliver these.

B.3  Modern public services—the vision can be reality

  B.3.1  Capita's vision of modern public services, envisages delivery by a plurality of providers whilst they are collectively funded and procured by public sector bodies, which are accountable to the service users and the wider community.

  Customer centred services—Public services should be orientated around the needs of the individual, with high levels of customer satisfaction because the maximum levels of resources would be directed at front line delivery. They should be easily accessible through multi-channels including "face to face", telephone, internet and paper mail. Instead of having to go to numerous different points of entry into services run by the same public body, customers would be able to choose a single point of access. A county council, for whom Capita runs an innovative new customer contact centre, found that under their old system a parent with a disabled child wanting a wheel chair had to deal with over a dozen different points of contact. With the technology and expertise which is now available, there can no excuse for perpetuating such poor and complicated customer experiences of public services.

  Empowered citizens—Customers should also have a relationship with these services and the public sector bodies responsible for them as citizens—voters, members of the community and taxpayers. That means being informed about comparative performance and having confidence that these services represent value for money. It requires having access wherever possible to alternative suppliers—competition driving up standards and customer choice—the greater use of ICT based service delivery will enable this to happen in areas such as council tax collection and benefit payments. Fundamentally, it means being able to hold the public sector procuring body to account democratically—ICT will enable e-democracy development at a local and national level to strengthen links between the elected representatives and the electorate. The objective of all this should be that the positive experiences which citizens have of accessing and using public services will generate greater support for their provision and make people less inclined to want to pay for services privately.

  Public sector leadership and advocacy—Public sector bodies such as government departments, local authorities, schools and the NHS, should see their first responsibility as being to secure the best possible services within resource constraints for their customers and citizens, but should not expect necessarily to directly deliver such services. Instead they should be freed up to concentrate on their advocacy and leadership roles rather than on direct service management. This should enable them to ensure that these services contribute to the wider social, economic, environmental and political objectives of the community and society and balance any conflicts between these. And, of course, public sector bodies should be democratically accountable for the comparative performance of public services irrespective of who provides the services and be responsible for setting the standards and raising the necessary funds for these public services.

B.4  Provision and commissioning

  B.4.1  There are many excellent examples of good public services delivered within the public sector and we recognise that there have been a few difficulties in the delivery of some public services by the private sector on occasion. These difficulties form a minority of the cases where the private sector has been engaged as service deliverer. There is often greater transparency when the private sector manages public services than when this is in the public sector. There is now a growing number of successful partnerships between the public and private sectors involving the delivery and transformation which are already delivering positive results for local and central government.

  B.4.2  There should be no ideological expectations that public services will be delivered within either the public or the private sectors—what matters is what works best and services can be provided by a plurality of providers, ensuring diversity and contestability.

  B.4.3  Capita recognises the need for many public services such as education and health to be publicly secured and collectively funded. It also recognises and respects that these and other public services make an important contribution to the wider social, economic and environmental goals of society and that they therefore must be under public sector control, which does not necessarily mean public management.

  B.4.4  Capita does not accept that public sector control of outcomes requires delivery to be undertaken exclusively by monopolistic public sector suppliers. Diversity will offer choice and competition, which in turn should lead to enhanced quality. Contestability is an important determinant of best value.

  B.4.5  There are a number of reasons why public services are not achieving the results that are possible and that the public expects and deserves. There has too often been a denial of the real comparative state of performance as witnessed by the resistance to accept comparative educational performance analysis for several decades. This in turn can sometimes lead to a lack of political will to challenge failure and under performance. There is still in some sections of the public sector a suspicion and fear of the private sector in the public sector. These factors can result in the public sector not making the most of the resources it has available, so that very good policy specialists are in the main too often inappropriately required to act as operational managers and with major transformation opportunities squandered because of a culture of risk aversion.

B.5  Tackling under performance

  B.5.1  Private sector involvement should not just be about tackling serious under performance in a publicly managed service. Indeed there should be no expectation that such engagement will lead to a transformation of performance immediately, especially if the service deliverer does not have the opportunity to take appropriate management action which might include closure of the operation and a "fresh start" or the ability to build on new infrastructure in parallel to running existing processes.

  B.5.2  In circumstances of serious under performance there will usually also be a need to rebuild strategic and client capacity in the failing body. A poor performer cannot automatically become an effective strategic client. In failing services there is a case also to consider a "repair and rebuild" approach led by the private sector but with the services returning to or remaining managed by the public sector or remaining managed in the independent sector—see the case study on Education Leeds.

  B.5.3  Government should not give the impression that the major contribution of the private sector in public service reform is to address underperformance. This will not create the right conditions for active public—private sector engagement.

B.6  New models for support services

  B.6.1  Most public sector "back office" services, including human resources administration, payroll, ICT support, financial administration, council tax collection, benefit processing and contact centres with e-enabled transaction on line, could be delivered in a competitive manner from a number of regional and sub-regional business centres. These services could be delivered to local government, the NHS and other public sector bodies and the resource also used to provide services to the private sector—this would underpin the concept of "joined up government", as well as facilitate modernisation. It is, for example, impractical, unnecessary and very expensive for every individual local authority to develop its own multi-service contact centre.

  B.6.2  For the public service user this approach based on regional business centres would deliver what they want—seamless access to public services. Regional business centres can provide state of the art customer relations whilst still enabling the customer interface of such services to be customised and tailored to local requirements. Private sector companies like Capita, often in partnership with lead authorities, are already developing these business centres. They are also using them with their own infrastructure to create benefits for their customers. This approach leads to better quality services and potential reduced costs for core support services—money that can be redirected to front line priorities.

  B.6.3  The provision of these services in this way does not detract from local political autonomy or control—there is no added value from the direct involvement of and interface with local politicians or managerial leaders in the delivery of basic process activities. If the services are delivered in more cost effective ways the resources freed up could be imaginatively deployed by local authorities and others to meet the needs and priorities of the communities they serve.

  B.6.4  The development of these new models could lead to new relationships between public sector bodies and their private sector provider partners—with some services delivered from remote sites and procured on a commodity basis.

  B.6.5  There is a case for Government to explore the adoption in a positive approach to shared support services.

B.7  Performance improvement through strategic partnerships

  B.7.1  There are four principal ways in which Capita and similar companies contribute to public service development and delivery:

    —  Transforming existing public services through long term strategic partnerships;

    —  Achieving continuous improvement through business process outsourcing;

    —  Designing, implementing and managing new public service initiatives;

    —  "Repairing and rebuilding" the capacity of underperforming public sector organisations.

  B.7.2  Capita amid other companies has demonstrated its ability to achieve step change in performance in public services and to establish new public services from policy to operation in a very short period of time, as the case studies in the Appendix show. There are several reasons why private sector providers can often achieve these results in ways that are not readily available in much of the public sector. These arrangements can:

    —  Overcome tradition, timidity and territorialism where these impede progress and change—enabling staff and managers to move into new ways of thinking and problem solving;

    —  Focus on core tasks which are core to the company's competencies, expertise and strengths thus enabling public sector partners and their senior managers and politicians to concentrate on their core tasks;

    —  Invest in new systems, equipment, and training and people development when this is often not an option available to a public sector body—this is particularly the case with "back office" support services which are low on many agencies' capital programme priorities;

    —  Introduce performance management systems and culture, including personal rewards systems and monitoring systems and change work practices on a voluntary basis to realign these with service needs;

    —  Mobilise expertise ensuring that there is expert and experienced management focused on the task of change and delivery without the distraction of other demands and mobilising specialist resource which can be deployed across projects and transfer experience and learning from previous projects

    —  Design new systems, processes and implement these speedily because of the "can do" culture and a non-hierarchal decision making process—often moving through implementation to operation in a much shorter time that the public sector could achieve on its own—for example the delivery of Winter Fuel Payments for the Department of Social Security as it then was, and the introduction of the Connexions Card for the DfES;

    —  Achieve economies of scale for certain activities including "back up" resources from other sites and economies of scale for purchasing and procuring supplies, equipment, often using shared facilities across sites and projects—for example ICT infrastructure and hardware.

  B.7.3  In every public private partnership there is likely to be a combination of some of these and usually to some degree all of them will be actively contributing to service performance.

  B.7.4  A private sector provider partner delivering public services is held to account for clear unambiguous performance targets set by the public sector and which should define requested standards and ethos for the services. Alongside these clear accountabilities are clearly defined responsibilities.

  B.7.5  A private sector provider is measured, monitored and held to account on a range of KPIs (key performance indicators) which are usually far more extensive and often more rigorously and transparently monitored than for "in house" managed services. These KPIs will relate to and include national service targets and in local government to best value performance plan targets. In addition in our strategic partnership with Blackburn with Darwen Council, Capita is monitored and held to account for a range of KPIs including commitment to partnership; customer satisfaction; employment practices; local purchasing, and job creation etc. This form of accountability both reinforces service performance but also the Company's commitment to its community and social responsibilities as a public service provider.

  B.7.6  Interestingly it is usually the case that when Capita deliver services for a public sector partner these services remain "branded" in the name of that public sector agency, so for example when any contact is made to the BBC customer centre it is answered as the "BBC" but by Capita employees.

  B.7.7  Capita increasingly is engaged by private sector companies to provide their non-core support services and their customer relations services demonstrating that the public and private sectors often adopt similar business models in order to improve effectiveness and secure value for money. These companies do not believe that such service delivery partnerships undermine their ethos or branding or their relations with their customers - indeed, they believe the opposite is the case.

C  PUBLIC SERVICE ETHOS

C.1  Partnership not privatisation

  C.1.1  The Committee has asked witnesses and respondents to consider whether a public service ethos could be undermined by private sector involvement in public services. Capita believes that it is perfectly possible to have a strong public service ethos in a private sector company. Capita's vision for transforming public services involves putting customers at the heart of public services, empowering citizens in their dealings with services and freeing up public bodies to play a leadership and advocacy role. This vision is a challenging one both for the public sector and private companies. It requires companies to be strongly committed to public service and a public sector which is prepared to grasp the opportunity of change. Private sector engagement can strengthen rather than weaken the ethos of public service.

  C.1.2  There has been a great deal of debate and discussion about the potential role and contribution of the private sector to public service delivery and reform—some of this has been based on confused terminology and sometimes on misunderstandings. Capita believes that it is important to differentiate between privatisation and private funding on the one hand, and private sector involvement in publicly funded and publicly controlled services on the other. A variety of forms of private involvement in public services have existed for many years, in some cases since the origin of that particular public service. It has not been suggested in the past that the public service ethos is undermined by using the private sector as a supplier, for example, of equipment for schools or hospitals, or as a contractor for building those same institutions.

  C.1.3  This confusion and the frequent lack of definition are major sources of the current misunderstanding. Successful public private partnerships should not be condemned because of the problems associated with, for example, the experience of the privatisation of the railway industry.

  C.1.4  Capita is principally involved in delivering services to outcome specifications, which are set by the procuring public sector body. Capita has not been involved in any privatisation programme and has only limited experience of PFI projects other than as an advisor and/or project manager. From our experience, PFI is not usually the appropriate funding mechanism for service partnerships, whilst it has a role for major infrastructure projects.

  C.1.5  Policy determination should be a matter for the public sector and for democratically accountable bodies—the private sector can act as the agent of these bodies to ensure implementation and the fulfilment of those policies.

  C.1.6  The ethos and standards for any public service should and can be determined by the public sector agency responsible for those services and sometimes by statute irrespective of who provides and manages the service. Therefore the quality of a service and the manner in which it meets customer needs and expectations is determined by those who are democratically accountable to the public. This requires the capacity in public sector organisations such as local government, the NHS and central government to be able to define and set such standards and the ethos having preferably consulted customers. These agencies then have the responsibility to ensure that the service providers deliver to their requirements—this is as important when there is an "in house" delivery as when a private sector partner is appointed. The procuring body will fulfil this duty through the process of procurement and contracting. If there is cause for concern about the ethos of services delivered by the private sector on behalf of the public sector the focus of attention should be on the client capacity of the procuring agency. Equally if "in house" services fail to meet defined standards, the responsibility is with the organisation.

  C.1.7  There is nothing unusual or unacceptable with a company such as Capita making a reasonable commercial return on its investment as reward for the risks which it bears when delivering public services, providing that it is adding value and that it is delivering the service more effectively than the public sector could. Capita has in the last ten years invested significantly in developing the infrastructure for public services. It has at the same time not only transformed and developed new public services but also saved them significant revenue expenditure on an ongoing basis. It would be of greater concern if a public sector body was wasting public money whilst failing to improve service performance.

  C.1.8  The public sector has always transacted for goods and services with private, profit making companies. The issue is therefore not whether profit is inappropriate but rather whether the return is justified by the value added.

C.2  Creating the right public sector, service ethos

  C.2.1  As we have demonstrated the reform agenda poses challenges both for the private sector and the public sector. Government needs to continually promote public service transformation, and challenge orthodoxy and traditional means of service delivery and commissioning. Change of the kind required demands strong focused leadership.

  C.2.2  The starting point for the modernisation of Britain's public services should be with the structure and working of government itself. Local and central government and its agencies should be modernised as one coherent and comprehensive programme of change and not in disconnected ways if the maximum benefits are to be secured.

  C.2.3  There needs to be a strong service ethos throughout the public services. This could be more effectively achieved with a single public service culture, with a more joined up approach to service delivery and greater cross fertilisation of staff and ideas between different arms of government.

  C.2.4  A customer's perception of public service ethos will be subjective and will in many ways be influenced by their personal experience of the service received and how this impacts on their and their family's lives—irrespective of who is providing the service—public or private sectors: for example a poor experience of travelling on the London Underground compared with a positive experience of flying with a private sector airline or a poor experience in a benefits or tax office compared to a good one from a private sector managed local authority customer contact centre. There is a relationship between public service and democratic accountability and as we demonstrate elsewhere in this submission this is not denied by private sector managed public services. There is a significant difference between a public service ethos and a public sector ethos. The pursuit of a public service ethos should not be an alibi for poor performance in the public sector.

C.3  More effective public sector clients

  C.3.1  Without effective public sector clients there can be no successful public-private partnerships and the best will not be secured through them.

  C.3.2  The effective client will be accountable for performing their client role of:

    —  Defining the standards for and the ethos of the services;

    —  Setting outcome targets and defining specific delivery approaches which must be followed;

    —  Monitoring performance and holding the provider to account;

    —  Controlling payments;

    —  Representing the public interest which may be the customer, the taxpayer or the wider community interest—recognising that these may at times be in conflict with each other.

  C.3.3  The management of relationships is critical to the success of any public—private partnership. A public sector organisation cannot simply abandon its responsibilities and its involvement because it has engaged a private sector provider. There are examples where this has been attempted and the results have been continued poor performance and protracted disputes between the company and the procurer. Effective partnership rather than traditional client—contractor relationships are essential for success.

  C.3.4  There is an urgent need to develop the capacity in the public sector both to procure and to ensure effective client management, especially in local government. Its paucity could hamper the public service reform programme.

C.4  Private companies with public service ethos

  C.4.1  The public service reform agenda also requires private sector companies to have a strong commitment to public service. Capita is a modern company, which has grown out of the public sector, and is now a leading FTSE 100 company—with two thirds of its work still for the public sector. Its culture combines public sector understanding and experience with private sector entrepreneurialism and customer responsiveness, together with a corporate commitment to wider social responsibility goals. The majority of Capita's 12,500 employees, including the Executive Chairman, worked in the public sector before joining the Company. Capita has a strong service ethos and a commitment to public service improvement, which is reflected both in the philosophy of the Company and the experience of its people.

  C.4.2  Capita believes that public service reform is best achieved through partnership working with the public sector rather than through compulsion. For that reason Capita was opposed to Compulsory Competitive Tendering and did not tender for contracts under CCT against "in house" providers. Capita's commitment to partnership is about recognising the key strategic and leadership role which needs to be played by public bodies, such as Councils. To this end, Capita has signed a national partnership agreement with the LGA and IDeA to promote and support educational improvement in local education authorities and was selected by the LGA and IdeA because of its commitment to public service and local democracy, and its values.

  C.4.3  Where companies play a significant role in public sector reform and become a major employer of public service workers in different localities then they do have a special obligation to behave in a socially responsible way. Capita is currently strengthening its approach to corporate social responsibility in order to ensure that its overall contribution to the well being of the community is maximised. It is building on its existing practice and drawing together several initiatives and approaches which it has practiced for sometime, as well as seeking to meet the best practice of others. We are now exploring with local authority partners how we can further engage with their local communities.

C.5  Delivering public services—a well motivated and rewarded workforce

  C.5.1  The majority of people employed to deliver public services whether they are in the public sector or the private sector are hard working and committed to striving to deliver high quality services for the public—their customers. Successful public services can only be delivered when there is a motivated and well rewarded workforce—one which is empowered to act professionally, invested in and valued. That is why employees should be involved at every stage of procurement and service delivery decision making through effective consultative arrangements.

  C.5.2  With over 7,000 staff having transferred from the public sector to Capita under TUPE conditions, we are committed to strong TUPE regulations to protect staff and we have recently applied "admitted body" status for local government pensions—in the last twelve months we have transferred over 1,000 people who have retained "admitted body" status pensions. We welcome the DTI's proposals for strengthening TUPE regulations and pension rights. Staff must be motivated and remain motivated to deliver quality public services. Any future workforce reforms whilst protecting employees should also ensure that there is no impediment to service transformation or the realisation of the benefits of flexible employment conditions which enhance opportunities for employees.

  C.5.3  Unions have an important role to play in public service reform. Their perspective should be heard and recognised because the quality of public services ultimately depends on their members. Capita enjoys positive relations with the main public sector unions, becoming the first private sector company to sign a national agreement with UNISON. Capita also has a national agreement with the PCS.

  C.5.4  Companies like Capita can often offer greater opportunity to staff than much of the public sector though company growth. Many people who have joined Capita from the public sector, under TUPE regulations, have been promoted to senior positions across the Company; compulsory redundancy is less than 1 per cent and because of the growth in business when productivity on a public sector contract is improved the people can work across a range of alternative projects—see the case study on the Teachers' Pensions Agency partnership. Capita's staff turnover is 8 per cent pa and we invest 2 per cent of staff costs annually in employee development—a very favourable comparison to much of the public sector. Capita also believes that its employees should benefit from the success of their Company, which is why it has established a Save As You Earn share option scheme, available to all its staff including TUPE transfers. Over 50 per cent of employees are part of this scheme.

D  ACCOUNTABILITY FOR PUBLIC SERVICE COMMISSIONING AND DELIVERY

  D.1.1  The delivery of public services must be publicly accountable. There should be a direct link between performance and democratic accountability.

  D.1.2  Where a private sector company is delivering public services on behalf of a public sector body it is essential that the public sector body whilst holding the provider accountable through contractual arrangements is itself transparently accountable for service performance.

  D.1.3  Traditional outsourcing too often led public sector bodies to believe they could simply transfer their prime responsibilities to the service provider and then often to hide from their accountability to the public. That is why Capita promotes strategic service delivery partnerships as a model, which can ensure accountability and shared commitment to success—the approach is outlined below.

  D.1.4  There must be full accountability when public sector management itself delivers public services—there is a tendency for the accountability of performance in these circumstances to be less than transparent with little direct relationship between democratic accountability and performance at local authority level and elsewhere in the public sector. The same level and transparency of accountability should apply whoever is delivering the service. The engagement of the private sector can often lead to greater accountability.

D.2  Accountability through strategic partnership

  D.2.1  Capita has developed a range of partnership models to support its local government and central government service delivery relationships which are based on the principles and practice of best value, community leadership, corporate social and commercial responsibility and the wider modernisation programme. These models are applicable to local and central government and represent a major step forward from past CCT driven relationships, where often there was no will in the procuring body to ensure the success of the relationship with the external provider.

  D.2.2  Most of Capita's current partnership models share some common features:

    —  The commissioning public sector body and Capita share common objectives for the partnership and have a shared commitment to ensuring the achievement of these;

    —  The public sector procuring body sets the standards and outcome targets and has control over these and the provider partner is accountable through a contract for achieving these standards and targets - there is no loss of democratic control nor accountability for service standards—there are clear performance targets which will ensure continuous improvement in performance and usually step change in performance;

    —  There are clear accountabilities and identified responsibilities for each partner with a mutual understanding of and respect for each partner's drivers and objectives;

    —  There is a mechanism to allow informed dialogue and discussion between the partners as a means of resolving disputes and any necessary change control—there is flexibility to ensure that changes occur to allow the procuring body to make changes to targets balanced against commercial considerations;

    —  There can be effective mid-contract review including best value reviews in local government and the ability to test performance and cost against the best in the public and private sectors;

    —  There are shared benefits including shared profit arrangements.

  D.2.3  There are partnership governance arrangements which enable the commissioning body to have major influence over service delivery in ways which are underpinned by the contract control, management and monitoring arrangements.

  D.2.4  Capita pioneered this approach to strategic partnerships with a member/officer/Capita partnership board in local government with Norfolk County Council three years ago and has successfully introduced this approach to its more recent public sector contracts including Blackburn with Darwen Council.

  D.2.5  Typically a strategic partnership board will comprise senior representatives of the procurer and the provider partner—in local government this will include council executive members. These partnership boards have responsibility:

    —  To act as the custodian of the Partnership and relationships between the partners—to drive forward the Partnership to ensure there is significant achievement;

    —  To agree the strategic development of the Partnership through a three year strategic plan and an annual business plan for the Strategic Partnership;

    —  To monitor performance against a set of high level strategic performance indicators and to agree processes for the application of best value to the Partnership—there will be an agreed system of "open book accountancy" and information sharing;

    —  To agree the appropriate Partnership arrangements to reflect the evolving nature of the Partnership and the wider community priorities;

    —  To be the forum for consideration of major change control decisions in accordance with the contractual agreement and where necessary, to contribute to the resolution of serious disputes between the Partners in accordance with the agreed disputes procedure;

    —  To be supported by liaison groups of Capita operational managers and client representatives which will deal with operational matters to ensure effective service delivery and development—there will be partnership liaison at all operational levels;

    —  To be subject to member/political scrutiny and external audit/review.

  D.2.6  In local government these boards report directly and openly to council executives/cabinets. Consideration needs to be given to exploring their application in central government and other public sector bodies.

  D.2.7  Significantly these strategic partnership boards are not involved in operational matters. Nor are they the board of a joint venture company with shared equity or the board of a subsidiary of Capita. This ensures there is no commercial risk for the public sector partner and for public money, and there is less opportunity for the relationship to blur the objective accountability of the client as the custodian of public money and public values. There is a robust contract to underpin the partnership.

  D.2.8  There are other models of partnership which could achieve the same objectives including those which involve some public sector equity—it is important though that the latter approach does not hinder the ability to achieve service transformation nor compromise the objectivity of the public sector client partner.

  D.2.9  Services and the client role should always be open to scrutiny and external inspection and audit where this is a statutory requirement—for example under the Best Value regulations.

  D.2.10  A variant on the partnership approach is the model of Education Leeds, which is a wholly Council owned Company set up by the City Council to manage education services in the City. Education Leeds has contracted Capita as its strategic partner to support the programme of education change through long term strategic and technical consultancy—two Capita personnel are board directors of Education Leeds, and we are providing a range of education specialists and managers. This project is designed to rebuild the capacity of education management in Leeds.

D.3  Modernising accountability for strategic partnerships - the next phase

  D.3.1  The strategic partnership arrangements which Capita and others have developed have improved accountability and governance arrangements for public—private partnerships. However, there is now a need to consider new governance arrangements and the legal status for strategic partnerships—do they naturally fit into company law or into public sector accountabilities?

  D.3.2  It is essential for new arrangements to include accountabilities and wider operational governance. These will require public service providers—whether they are public, voluntary or private sector organisations to:

    —  Address responsibilities to their users/customers and other stakeholders and involve them in decision making—companies are usually only contractually responsible to the purchasing public sector body;

    —  Be business efficient—private sector companies must be accountable to their shareholders for financial performance and public sector organisations should have to demonstrate the same degree of business efficiency and effectiveness;

    —  Adopt commitments to contribute to the wider community and to be responsive to local and community priorities as socially responsible organisations; to be model employers.

  D.3.4  Society and the economy are changing. There could be more direct purchasing of public services, even those which are publicly funded by consumers. There are changes to the ways in which collectively procured public services are available with the individual service user having choice even when they are publicly funded with universal access. ICT makes this increasingly possible in more and more situations.

  D.3.5  Companies delivering public services will increasingly be expected to demonstrate certain values related to corporate social and community responsibility as well as to their commercial and service delivery capabilities. A balance needs to be struck between these in order not to over burden the Company's ability to deliver effective public services, be a good employer and meet its commercial objectives.

E CONCLUSION—ISSUES STILL TO BE ADDRESSED

  E.1  Capita believes that public service reform can be achieved through the engagement of private sector companies with the right values, capacity and competencies in appropriate situations.

  E.2  We therefore recommend that the Government should ensure that:

    —  There are frameworks to achieve best value which are not over prescriptive;

    —  Procurement capability and capacity across the public sector are enhanced;

    —  There is better public information available about the benefits of public private partnerships and the differences between these and forms of privatisation;

    —  There is a genuine "level playing field" between the private and public sectors and that the option of a contribution by the private sector is always considered for all services—Capita does not argue for denying capital to the public sector as a means of encouraging PPPs;

    —  Regulation facilitates effective public-private partnerships and does not disadvantage staff nor hinder service modernisation;

    —  It consults the range of stakeholders including representatives of service users, local authorities and public service staff and their trade unions, and the private sector with the aim of seeking to achieve a consensual approach to an "ethical framework"—setting down ethos, standards and accountabilities—for public services irrespective of who delivers them.

E.3  We further recommend that the private sector and Government jointly should:

    —  Develop new forms of governance and accountability models for public-private partnerships, which strengthen democratic accountability and stakeholder accountability whilst protecting commercial accountability;

    —  Establish clear measures and standards for the effectiveness of public service reform and in particular the nature of the involvement of the private sector in the delivery of public services;

    —  Ensure that there is appropriate protection for employees without preventing flexibility which can deliver effective public services designed to meet the needs of customers and citizens.


 
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Prepared 7 February 2002