Select Committee on Public Administration Minutes of Evidence

Examination of Witnesses (Questions 290-309)



  290. Just a final question. What is the average length of contract that you would win in the public sector?
  (Mr Aldridge) The average length has moved over a period. When we first started, some of them were three- or five-year contracts; they are now, an average is around seven years, and we have got a lot of ten-year and 15-year arrangements. The contract I mentioned with Blackburn with Darwen is a 15-year relationship, and we are very proud of it. It will be something which I think people will look at and watch, very closely. So they are getting longer because people are more confident, we are confident about our ability to be able to do things. In Blackburn, we took over 600 staff[1]; it is quite an interesting point about the unions, the people that were not being transferred complained to the union that they were not being transferred. Because what we are going to do in Blackburn is we are going to recruit and double the size of our business there, so there will be over 1,000 people working in Blackburn with Darwen. There is going to be a modern business centre, modern services provided, complete engagement with the local community, through the schools, with employers and organisations, and it is with a council that are very positive about wanting to make this happen. So I am very pleased about this; it is early days yet, it has begun very, very well, and the staff have performed excellently.

  291. And they do not need to become fans of Brighton, if they take part in the transfer?
  (Mr Aldridge) There are some limits, are there not, Chairman?

Mr Prentice

  292. This is to Mr Aldridge. You spoke earlier, very briefly, about the individual learning accounts and you won a five-year contract, I think, with £50 million; but the whole scheme has just been closed down. You told us that the scheme was phenomenally successful at getting people to sign up, but who was responsible for the fraud amongst the learning providers that caused the scheme to be closed down prematurely?
  (Mr Aldridge) I think we do need to put some facts around what actually our responsibilities are and what actually has happened. The point is that 2.4 million people signed up for the individual learning account, around that number, and around 7,200, I think, providers. Some of the problems that you referred to are in a very small number of the providers; that does not make it right or wrong. What our job was, the Department would be very supportive of that, and they were in the press release and they were subsequent to it, our job was to register names and organisations and a bit more, but we have fundamentally followed exactly what was part of our arrangement, in terms of that. We are now working with them in looking at other possibilities.

  293. You had no responsibility for checking out whether the learning providers were competent to do what they were being engaged to do?
  (Mr Tizard) No, that was not a part of the specification from the Department for Education and Skills.

  294. That is what I am trying to get at, the fact that there was this massive fraud, involving 279 learning providers, it had nothing to do with you because it was not in the contract between the Department and Capita?
  (Mr Aldridge) Your statement is factually correct.

  295. That is all I wanted to know. Can I also say, I have been impressed, just looking at the briefing material we have got, by the phenomenal growth of Capita, a major organisation, so you are obviously doing something right. And I just want to ask you about your training, the training system you use for staff, because my colleague Kevin Brennan spoke earlier about the Lambeth situation and the comments that were made by the Benefit Fraud Inspectorate, and in their document they talk about your academy system, and I wonder if you could just tell me about the academy system and how you train your people coming into the organisation?
  (Mr Aldridge) Starting first with training, we focus very heavily on it, in the way we go about it. People who come into the organisation have an induction programme about the organisation and about the style of the organisation, what we do etc. In this year alone, over 3,000 people have been through key skills training that we offer, on a whole range of different aspects associated with our business. We also run a fast-track management development programme for people that we would see are going to be part of our senior team going forward, and somewhere around 100 people have been through that this year alone, and I am actively involved in this programme. We also recruit graduates, and, again, there is a whole programme for graduates. We encourage people to continue with their professional qualifications, if they transfer to us, when they are part-way through it. And, again, what we are trying to do is to skill people as much as we possibly can and get them feeling good about themselves, about what their opportunities are, so that they can actually develop with us. On academy, academy is our computer system, academy is a wide range of different computer packages, one of which is involved with housing benefit, and it is used by a large number of local authorities.

  In the absence of the Chairman, Mr White was called to the Chair

  296. So I misunderstood the academy system.
  (Mr Aldridge) It is not an academy of excellence, but it is an excellent system, I have to say.

  297. That was my misunderstanding. But what I am trying to get to, the people that you bring into the organisation from local government, what kind of special training do they need, do they bring methods of working with them that you just find unacceptable and you need to retrain them into the new ethos of Capita?
  (Mr Aldridge) They bring skills. I know that myself, from working in it. Some of the programmes that we put people through will be customer management type courses, improving the whole area of how you deal with a customer. A fascinating thing we found, in the centre, for example, in Hertfordshire, I mentioned, the people recruited into it had no knowledge of the services but had a lot of knowledge of how to deal with a customer, particularly when a customer came through on the telephone; and what we envisaged that they had is a detailed knowledge of the services, which they can pick up very quickly, so we have almost turned it on its head, in that sense. So that is customer contact, customer management. How they can work better, in terms of project management skills, maybe selling skills, if they are in those sorts of roles, skills around their own activity. So it is a skilling of the person, and it comes through the assessment of their performance and the discussions that everyone has, it is an assessment of that. So it is what they want to achieve and how they want to grow, not us imposing it, so we are not like some of the large six, who actually say `you have to go on these programmes', this is a two-way response with people who want to be on them.

  298. My final question is this, given your huge experience in local government, over 30-odd years, are there any common characteristics of failing, of public sector organisations, failing local authorities, common characteristics?
  (Mr Aldridge) I think what we found, in terms of success, is where there is a very strong political leadership and engagement of the political process, where there is a chief executive and a team of officers who work as a team and who interact with that political process, where there is an openness of mind to change rather than to protect, which is a big point, it means sometimes you have got to be very bold to actually think in those terms. In the process that we go through of procurement, where we do genuinely believe that there is a need to up the skill base in procurement, but to engage with the private sector, or a person, sooner, do not just send things out and then expect it, but to have discussions about what is possible, so it is open-mindedness, come and see what it is possible to do. And, in the failing sense, hence my remark about we do not believe that the way of only engaging is with failure, if you tell people they are a failure, in a sense, you have got a problem to start with, you have got to actually work a way of rebuilding their confidence and the capacity, and simply being part of that in an organisation. Unless the other things are being rebuilt around it, it will not succeed, because you have to interact with the organisation. This is our point about LEAs. So what we have done, for example, in Leeds, is that the Council has transferred education out. It has formed a company, that company is wholly owned by Leeds City Council, it is chaired by Peter Risdale, of Leeds United, and there is a board where we are represented, the staff have been transferred into it, and now we are about making the changes to make it happen and go well. Where it goes after that, we will see. But it is creating the space to do things, which you do not always get in some of the circumstances.
  (Mr Tizard) It is just worth adding that, often, where there is a serious and certainly a series of service failure in local government, there is probably a corporate issue that needs to be addressed, both political and managerial.

  Brian White: Our Chair apologises, he has got question five on Education and Skills Questions today, which are going on now.

Mr Heyes

  299. I should declare that, like John Lyons, I am a UNISON member. In answer to his question about expansion possibly into health services, you gave me the impression that, I think you said, you have got quite a lot on at the moment, the impression from that was that you were not looking to expand. I just want to put that against the comment of your Chief Executive recently, about the potential size of the market that you are in, you felt you would hit maybe £50 billion, and that was said to come from discussions with Government. What were those discussions with Government, who did you speak to?
  (Mr Aldridge) Can I, for the sake of completeness, just comment on the points you make, and then I will come to that. We are growing this year at something like 52 per cent, we have a lot of options about, therefore, what we do and where we actually do things. We are very taken with the public sector and we will remain in the public sector. The position about health is one where there is a lot of debate going on, is there not, and, in a sense, local government has been engaged with this modernisation for some time. Central government, I think, has done quite a lot, there is a lot more to be done but there are things which are going on now that we are involved with. So we are not unambitious, quite the reverse, we are a long-term partner of the public sector in the reform programme. In terms of the numbers that you quoted, the £50 billion is a number which breaks down our individual markets, and each of those markets has been externally valued, in terms of what the size of them is; so, for example, the Local Government Chronicle put £4 billion on local government, £7 billion was put on education by Capital Strategists, £20 billion was put on the market by CommerzBank, who look at the market-place, etc., and the rest of it is in the private sector. So these are individually calibrated. What we are saying is, the potential for our type of services is quite considerable in the UK, because we are only in the UK. Now that is a backcloth really. Engagement with Government; I see it as part of my role to talk to people who are very senior about what we do, so I engage actively with local government, chief executives and leaders, and with the LGA, with think tanks and also with Government Departments, the Cabinet Office, the Department for Work and Pensions, DfES, because they are major customers, the Home Office are major customers. So really that is what my role is, and others, and John is a part of that in what we do. Because what we felt was that, unless we tell people what we do and what we are capable of doing, people are actually going to think it is not possible; what we are actually demonstrating, and what Capita does, and others, is it is very possible. And I think it right, when people are trying to shape thinking, to actually share that with them.

  300. There are some huge financial rewards, obviously, however you measure it, in this takeover of the delivery of public services, and I think you yourself have benefited from that, it is a matter of public record, I think, about your salary, including performance-related pay, in 2000 being nearly £370,000, dividend on your share ownership of in the region of £300,000, the recent valuation of your shareholding would suggest a potential profit of nearly £3 million, if you were to realise your share options; so there are tremendous rewards available to you, and, I guess, some of your senior colleagues similarly. Your own remuneration committee believes that your overall payment package is rightly weighted to share-based rewards, which strongly link the interests of directors in respect of shareholder value. This is almost self-evident, that that is your primary objective as a company, to maximise shareholder value, so, in fact, you have probably got a legal requirement on you to do that. So what I am trying to do is draw the contrast between that, that imperative, and you have talked about giving a lot of thought to the issue of accountability, you have talked about the democratically-elected bodies that you work with, and the accountability through them, it is getting the balance between that, your responsibility, ultimately, to your shareholders, and that public accountability responsibility. Can you tell me how you achieve that; it seems to me there is a dilemma there for you?
  (Mr Aldridge) I will deal with the point about me, and maybe John can deal with the more general point. About me, for example, what I am very pleased about, and it is not in what you have there, is that over 50 per cent of the 13,000 people in Capita are either shareholders or have the potential to be shareholders through an SAYE scheme. People who join from the public sector share in that scheme, people who join the public sector have share options, which is a different scheme; so the whole thing that we will do is not only about me, as an individual. One of the things that you will check, if you look at me, and I am not saying that the numbers you have quoted there are insubstantial, but if you look in terms of the FTSE 100, I am probably the lowest-paid FTSE 100 executive chairman. And, in a sense, my job is to maximise profit for the shareholders, but I do not apologise for profit, profit enables us to invest in our business, which we have done enormously, it enables us to invest in our people. In some of our contracts, we even share some of that profit. And the savings that we have actually saved for our customers are enormous as well. So it is a question of balance. And I feel the risk that is taken, when I first started the company and I did a management buyout, the risk which was there at that point was very, very real and considerable. So one has to balance everything, and 17 years of activity has got me in the position that you have there. I think, in terms of profitability, it is inconceivable to think, in my terms, and it is a personal comment, that, as a company, we would not go that extra mile for our customers just for the sake of making extra profit; you do not make profit, you do not retain customers at the level that we have retained them unless you deliver, and that is day in, day out accountability of very stark proportions, very stark proportions.

Brian White

  301. But when the Government set the rules to say that under CCT, as it did, it had to go out, then you have got a ready-made market?
  (Mr Aldridge) But we did not bid. Anything that happened during that period was contracts where the authority had decided that they wanted to do it voluntarily, and there would not be an in-house bid; why would we want to bid against people that were going to come and join us. It was an absolutely hostile environment, and it was not a good period for us or others in the industry, I do not think it was a very good period for anybody, frankly. And, in a sense, what a lot of the conversations that we are having here now, and John referred to it, a lot of those conversations are being driven by what happened in that regime and, I think, in some cases, what has happened in other parts of the industry rather than in the part of the industry that we are in. Some of the points about the way staff are treated is just something that we had never, ever, thought of as being the way that you deal in business, or as individuals.

Mr Heyes

  302. You mentioned the share scheme that your staff benefited from, as you benefit from one, I guess not at a similar level to yours, but in what way do these share schemes affect the motivation of your staff, compared with when they were in the public sector?
  (Mr Aldridge) Some of the fact of my position is that it is an historic one, because, obviously, as being a founder and in the business. In terms of the staff, they have a share option scheme, some have a share option scheme which is where they have an option over shares at a particular price, which is then exercisable in three or five years' time. The SAYE scheme we have has the ability for staff, which the majority of staff are in, to convert to shares priced at a point when they entered the scheme; frankly, there is no downside for them, there is only an upside, because these monies attract interest.

  303. Does that make them work harder or better then?
  (Mr Tizard) It is part of gaining a sense of belonging to Capita as an organisation and a commitment to Capita and a recognition that delivering quality public service, which is actually what 70 per cent of our staff are engaged in, because 70 per cent of our business is public service. There is a performance reward for them as well, because of the impact on the Company. And to answer your colleague's question, about the possibility of secondment, one of the downsides of schemes like secondment is that staff who were seconded could not benefit from those kinds of benefits, which being an employee of a company like Capita brings.

  304. A very swift point, Chairman, an important one that needs to be asked, I think, and it probably only needs a brief answer. If all the things that you say are true, about your efforts to achieve accountability and achieve something that reflects the public sector ethos, and your company is geared to doing all that, if you are so financially successful and such an attractive company, you must be ripe, at some point in the future, for takeover; what if you were taken over by another firm, maybe from overseas, that did not share your ethos and your accountability approach, what effect for the public in that?
  (Mr Aldridge) I have to answer that as a sort of financial point, as it were. In a sense, it is not something the directors want, or the shareholders want, because you would never try to take Capita over in a hostile way, it would not be possible in terms of the funding of it. As a public company, you are a public company and therefore your shares are publicly traded.

  305. But you cannot tell me, Mr Aldridge, that you will never be taken over by another company; that is just not possible, is it?
  (Mr Aldridge) I can only tell you that my job is to grow the business, and we believe we can grow that business, and we are very engaged in that business, we are very excited about that business, and that is our job. What happens in terms of futures I cannot comment on. What I can comment on, in transfers or where that happens, staff retain all the rights that they do retain legally. Equally, it would not be possible to do what you have just spoken about without retaining most of the management of the company, because, bluntly, that would be the involvement that anybody who was interested in us would want, and it would not work without engaging and working with the workforce, because it is the workforce that delivers. This is a company which is about people.

Annette Brooke

  306. If I could just declare, I am a councillor for the unitary authority, I do not think we use you yet. I would like to just explore two areas, and obviously it is going to have to be rather brief. Just following on from that last point, it seems to me that many of your contracts, and I know you will find an exception to this, as you have been doing through the questions, but, many of your contracts, actually, there is not a great deal of risk involved, and that makes you rather different from other private sector companies. Could you just comment? But let us take the collection of council tax, it is a service, it has got to be performed; once a council has signed up to that contract it is absolutely dependent on you, and it cannot just move away. You say here that you can just lose the contract, but my experience from council is that you cannot get rid of contracts overnight when they go wrong?
  (Mr Aldridge) I think, on the level you are talking, in terms of council tax collection, the contract, once it is transferred, we would have Service Level Agreements around what our speed of collection has to be, and there will be benefits and there will be penalties for not achieving that.

  307. But would you not build penalty clauses into the price that you put in? I think the Islington Education Company did, it did not achieve the right proportion of five A-C GCSEs and it had obviously built in its £300,000 fine?
  (Mr Aldridge) I do not know the circumstances around the Islington Education Company, but I think it is a very complex contract to be running. I think the one you have chosen, on council tax, is quite less, in terms of us, but we have got the equivalence of where the risk and reward is something we would look at very thoroughly around the contract. So, for example, in things like the Criminal Records Bureau, or the contract we have got with Blackburn with Darwen, which is an integrated contract across IT, finance, HR, property, very integrated and big, you would look at all these issues. Your point about once you have got us you cannot get rid of us,—

  308. Not overnight, no?
  (Mr Aldridge) In a way, what we have created is the environment to have a discussion, if you are unhappy. Contractually, you have got fallbacks to that. I am not suggesting for one moment you can do it overnight, but, contractually, the example we talked about with Lambeth has indicated that open discussion can happen, if performance is not reached to the level that people would want to share as being the way forward. History does say, in showing our contracts, that most people, luckily and happily, are happy with what we provide. In the extreme cases, one has to face what that means, that is why the partnership rules are important, and act accordingly.
  (Mr Tizard) If I could just add, I do not want to talk about Islington specifically, but there were a number of local education authorities that, for many, many years, until Ofsted and Government intervened, had actually been underperforming at the expense of young people and learners in those authorities. So what I would suggest to you is that, actually, often, there is no ability to move when there is in-house provision either, and actually what we need is much greater transparency of performance, where we are all much more confident of the comparative information, and, ultimately, in local government terms, the local electorate can make judgements about the quality of performance, irrespective of whether it is provided by private, voluntary or in-house providers.

  309. I think that takes us back to the fact it is how that contract is specified, and I think you yourself said that if it was not in the contract then it would not be delivered, so it then becomes the accountability is back on to the authority. If I—
  (Mr Aldridge) I do not want you to think, I do not want you honestly to think, that if you have got a ten-year relationship and you have got a contract, that you can run your life over ten years by saying `it's not in the contract so they're not going to do it.' This is not the style that we operate, and I do not think it is the style that others operate. There is now in place a structure to have that conversation about what it means. Because things change, over the life of a contract things will change, over a ten-year period, and you have got to have the space and the capacity to be able to openly talk about that. That is the style. I am not a contractor, I am a partner, and as a partner I act differently.

1   Witness correction: 500 staff. Back

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