Capita Profits Warning – a Sign of Better Public Procurement?

We have never subscribed to the Private Eye view of business process outsourcing firm Capita, but there would have been a few smiles amongst opponents of public sector outsourcing and perceived “privatisation” last week when the firm announced a serious profit warning.

It shocked the London stock market and investors by announcing a profit warning; this year's figure would be some 20% below expectations. Underlying profit before tax for the full year to December was expected to be in the range of £535m to £555m, whereas previously analysts were forecasting around £614m. Capita shares lost some 30% of their value.

A number of reasons were given for the profit warning. “Our performance in the second half of the year to date has been below expectations, as a result of a slowdown in specific trading businesses, one-off costs incurred on the Transport for London congestion charging contract and continued delays in client decision-making.”

Yes, Brexit is going to be blamed for every corporate shortfall for the next two years at least, but the two specific contracts that were mentioned are very interesting. One is an outsourcing contract with the Co-op Bank, where Capita claimed they are owed money and the Co-op says “no you’re not”. We’d love to hear more about that story! And indeed we might if it ends up in court, which seems quite possible.

The other is with Transport for London (TfL). Capita carried out IT system upgrade work on the congestion charge that was late and incurred penalties of some £25 million for the firm. Which leads us to congratulate TfL for punishing Capita for their poor performance and to ask – is this a sign that public sector buyers are generally getting better at holding suppliers to account?

We’d like to think so, and if you want to read a deeper discussion of that issue, we have gone into more detail here on our Public Spend Forum site.

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