Exclusive! Ministry of Defence to Bring Shared Services Back In-house when Serco Contract Ends

We heard recently from our sources that the Ministry of Defence has decided to bring the management of Defence Business Services (DBS) back in-house next April after four years of Serco holding the management contract. DBS was created in July 2011 and provides a range of corporate services, including human resources, finance, information and vetting, to all areas of the huge department.

When the contract was announced in 2012, it was described as a four-year contract, with the option to extend for a further year. It looks like MOD have decided not to extend, or to bring in another supplier - at least not for the moment.

As the initial announcement in 2012 said, “Over its 4-year duration, the value of the contract is around £36m, but there is an option for the department to extend this for a further year. The contract is based on a zero management fee, with all Serco’s earnings being performance-related. Serco will be strongly incentivised to drive down costs and deliver efficiencies, and savings in the order of around £71m are expected to be achievable over the life of the contract”.

We wonder what savings have been delivered against that target*? And did Serco make the return from the contract that they expected? There is a chance that they are not unhappy about exiting of course, if it was not a profitable contract, although at first sight it certainly looks like another kick in the teeth for the struggling outsourcer. The MOD gave us the following statement.

“The MOD’s contract with Serco for Defence Business Services (DBS) ends in April 2016. DBS operations will be hosted within MOD as we consider our future requirements.”

They said that the contract had reached its “natural end” (although as we say, it looks like there was an option to extend), and went on to say this: “MOD has decided to initially bring the management of DBS back within the Department.  This will allow us to fully consider options for the next phase of DBS whilst ensuring  the needs of Defence, as outlined in last year’s Strategic Defence and Security Review, are met”.

It is still unusual for a contract like this to be brought back in house by a public sector organisation, although many opponents of outsourcing will rejoice at the move. No doubt this will be positioned positively as a case of MOD learning from the private sector experience, transfer of knowledge, and so on. There may be some truth in this, although without seeing detailed metrics it is impossible to tell how well Serco has performed and what has really driven this decision.

It's also interesting to note that the Permanent Secretary for the MOD, Jon Thompson, was a key architect of DBS when he was MOD CFO before his promotion in late 2012. Earlier this year, he was telling Civil Service world how well DBS worked (compared to some of the Department’s other private sector contracts):

“But let me be clear: on Defence Business Services it worked, and on our Defence Infrastructure Organisation it worked. On DE&S it didn’t quite work, so we’ve slightly adjusted the strategy and taken a big step forward this year, and maybe the next government will have the choice to come back to that decision if it wants to.”

The wider implications are also interesting. DBS is one of the largest shared services centres in Europe, and it does make us wonder just how the Cabinet Office shared services centres are going – it is a while since we heard that there were certainly teething troubles there. And with major BPO deals in the local government world also unwinding (more on that later today, actually), is the trend now moving back towards in-house provision? Or maybe we will see serious questions about the whole basis of massive government shared services initiatives?   John Seddon will be very pleased today, we suspect!

*Late news - MOD tells us that "the contract has to date delivered nearly £64 million of savings and is well on track to deliver the full anticipated savings over the final year".

Voices (2)

  1. David Orr:

    Why is there no published metrics of net savings (after costs)?

    Why is there so much secrecy on contract & KPI performance?

    Under this veil of secrecy, how can Lessons Learnt take place and be promulgated around the civil service and wider public sector?

    How many times do we see those in charge of the public sector organisation set up these big outsourcing deals and then move on, often with a promotion, whilst claiming aspirations on contract signing as successes?

    Here, MoD Permanent Secretary Jon Thomson.

    Alan Jones at Somerset County Council.

    Kevin Lavery at Cornwall County Council etc.

    When these large “Big Bang” outsourcing contracts go “pear-shaped” does anyone (managers and politicians) who took the decision to outsource ever step-up to the plate and take responsibility?

    In point of fact, here in Somerset, all those responsible for a massive procurement failure that the BBC described as losing over £50m (instead of saving a so-called “assured” £180m) have instead all prospered:

    – Lib Dem Leader Cathy Bakewell who agreed to make IBM the preferred bidder in 2007 is now in the House of Lords;
    – Lib Dem successor Leader Jill Shortland who signed the contract with IBM for SW1 in 2007 is now an OBE;
    – Chief Exec Alan Jones (salary £163K) left in 2011 with a package worth £340K and a pension estimated then at £80K and continues to work as a consultant;
    – Acting Finance Director Roger Kershaw who controversially was both s151 Officer (Treasurer) and SRO for the SW1 project, left Somerset and joined Derby City Council in 2011 on a salary of £110K.

    Finally, why does the taxpaying wider population accept these failures and losses of public money with so little interest or push-back?

    Are we all resigned to these serial failures in oversight & governance with public money as part of our political and cultural status quo?

    Coming next? Barnet Borough Council with Capita; HS2; Hinkley nuclear power station; NHS near you; FOI Commission to knobble our access to information etc.

    Perhaps Spend Matters should run a Readers’ Lottery to get a list of potential failures in 2016.

    Happy New Year i.e. More of the same!

  2. Final Furlong:

    Great stuff Peter. On the subject of CO Shared Services, as we know, these are generally never very good, but they know how to spend an awful lot of money at least trying to deliver. However, the final point you make resonates with one of the major issues prevailing government procurement – outsourcing problems to the private sector. (while aligning to poor contract management behaviours such as “while you’re doing that for us, can you also do this for us please..” as opposed to “let’s select the best organisation to deliver this requirement”.). ideally, I’d also like to explore the subject of ‘pace’ but i can’t find any evidence of that.

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