Capita – an example of market failure

I met Rod Aldridge a couple of times back when I was still a CPO. Impressive but unassuming, and more interested in checking his offspring’s exam results than schmoozing the corporate clients around him, he seemed like someone I would have been happy to work with. And I don’t think he got enough credit for what he created with Capita, particularly after the storm in a teacup that ended up with him resigning from the Chairmanship to protect the firm.

He took Capita from being a division of the non-profit Chartered Institute of Public Finance and Accountancy in 1984 via a management buyout in 1987 (with 33 people) to a self-standing  company, that is now a member of the FTSE 100 with a market capitalisation of over £7 billion. The firm may not be liked by everyone in the public sector, and it has had a few well publicised failures, but given the sheer volume of work they do, the record is pretty good. And there is evidence that when work is moved away from them, the replacements are quickly seen to be worse!

However, those genuinely positive comments notwithstanding, their success is becoming clear evidence of market failure. Consider this. When their annual financial results were announced recently, Paul Pindar, the retiring CEO, said that in 2013, Capita won two-thirds of all contracts they bid for.  That’s not just public sector of course, or UK-based, but in any case it is a remarkable figure. Two–thirds!

As a procurement professional, how many strong suppliers would you like to see in any given market? At least 5? 10? 20? or more?  Yet here is a huge firm that is winning well over half the contracts they bid for. Now there are a number of possibilities here. Either there just aren’t enough firms to bid and win contracts against Capita (market failure), or those firms are intrinsically mush weaker than Capita who are therefore developing monopoly positions based on competitive advantage (market failure), or they shouldn’t be winning so many contracts, but they are just much better at bidding for contracts than the competition (market and perhaps procurement failure).

There’s also the aspect that if you’re on a shortlist of say, four firms, and you are up against Capita, your chances of winning are not the 25% you may have postulated when you looked at the risk / reward equation of bidding. Your chances are just 11.1%.  (Capita probability 66.66%; three others sharing the remaining 33.33%). You might as well give up and go home now.

I don’t have any easy answers here. Why should any individual organisation perhaps forego the ‘best’ supplier for the greater good of bringing on a smaller or less effective supplier perhaps? And Capita just steams on – winning the MOD Defence Infrastructure contract just the other day, for instance.

It’s a tough one, but this is not healthy, and the fact remains - no firm operating in a genuinely competitive market should be winning anything like two-thirds of the contracts they bid for. That seems undisputable. But what on earth we’re going to do about it, I don’t know.

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Voices (6)

  1. johnlandseer:

    IMHO Capita do some things really well and something’s exceptionally well, viz:
    – they understand the OJEU process really well and exploit it to their full advantage – (you have to question whether other companies do this…)
    – they really do answer the full question (ATFQ) when bidding – you would be amazed at the number of, I mean companies who don’t
    – they qualify hard (if you are going to spend 4-5M GBP on a bid – you better win!
    – they forensically play to VfM and MEAT criteria
    – They don’t gold-plate – suspect they don’t offer compliant +
    – offer economies of scale
    Finally – they really do understand the work for which they are bidding

    I’m struggling to work out …what’s not to like or admire in their approach?

    1. Secret Squirrel:

      You’ve got to admire the bid team. But they’re not known as Crapita because of their excellent delivery…..

  2. Richard Scott:

    Peter. Surely the right questions are:
    – do the notoriously rigid public procurement rules create barriers to entry for public sector markets?
    – do Public Sector clients have the right sourcing capability to manage complex sourcing projects and markets?
    – do Capita compete in a fair, compliant and commercial manner?
    – once Capita (or any other provider) win the contract, do they deliver?

    Blaming a provider (a successful British provider no less) for running a successful sales team and robust qualification process (I am with Final Furlong here) seems a curious approach …

    1. Peter Smith:

      Really not blaming Capita – as I said, I think they’re an impressive firm. But I do think the outcome in terms of how many contracts they win indicates that there is something wrong – and I think you have probably hit the nail on the head with your first bullet point! (maybe not just the rules, also something around how work is packaged for instance).

  3. Final Furlong:

    I have a view. And I have seen many of their bids (and their competitors) over the last decade. They have an excellent bid management team. They put ticks in boxes within boxes that didn’t exist in the ITT, and know how to score the maximum points in any evaluation criteria, the principle means by which all public sector contracts are won. Secondly, Capita (I recall) are very selective when bidding for contracts. I know that one of the key drivers is ‘bid costs’, but I am also aware that they have a very robust process (a committee perhaps?) for deciding which contracts they have a significant chance of winning (taking aside attractiveness of the client and contract ie: £s)

    1. bitter and twisted:

      If you input the tenders against a variety of differently weighted criteria, would Capita still often win / be well placed, or, do they have the special knack of hitting the sweet spot?

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