Appendix E: Contract

Introduction

The law requires that LAs must determine whether to pay benefit but the contractor can perform preparatory functions such as collecting evidence on which the LA makes the determination.

The functions that can be contracted out include:

dealing with general enquiries from the public
staffing reception facilities
issuing claim forms
initial checking of claim forms for correct completion
carrying out any check visits required by the LA and reporting the results
gathering evidence such as evidence of earnings or other income
maintaining written case records
inputting data onto software when authorised by the LA and sending the data to the LA as required
making preliminary calculations of benefit
making payments determined by the LA
preparing statistical returns for the LA
exchanging information with BA.

Letting the contract

Lambeth Members decided to outsource the Revenue Benefits and frontline Cashiers service in 1996. It was decided to use the Voluntary Competitive Tendering (VCT) regime.

A tender document was produced and an advertisement placed in January 1997. Twelve companies expressed an interest, with 8 submitting documentation.

An evaluation panel was created and the companies were asked to submit a stringent questionnaire about their financial and operational affairs. Following consideration of the questionnaires, invitations to tender were sent with a closing date of 28 July 1997. Of the 8 companies invited to tender, 2 had withdrawn from the process before the closing date. Six tenders were received.

All of the 6 tenders were scrutinised and evaluated by the panel. The panel looked at the price and the level of quality each company was offering to bring to the contract.

After the initial evaluation, 2 companies were chosen for further enquiries to be carried out. Once these had been concluded, it was recommended in
October 1997 that the contract be awarded to Capita Business Services PLC for 7 years commencing on 3 November 1997 with an option to extend a further 2 years.

Conditions of the contract

We were told that the contract had been drawn up using the best advice available at the time. Lambeth used CIPFA’s contract guidance as the base. We review the conditions of the contract in Figure E.1. We considered there was sufficient detail in the contract regarding the level of attainment expected from the contractor, but we felt it was weakened by not having:

incentives linked to performance targets. They exist for the Council Tax and NNDR parts of the contract, but not for the administration of HB and CTB
no provision for disaster recovery
no provision for IT if the contract is terminated.

Monitoring the contract

The CCU monitors the contract. They carry out and provide assistance to all departments in the LA who are considering or want to consider outsourcing and major purchases. CCU consists of:

HCC who reports to the Executive Director of Finance and Corporate Services
3 officers dealing with contractual, subsidy and benefit policy issues who report to the HCC. There are also 2 senior determination officers and 9.5 determination officers (there were 3 vacancies at the time of our on-site inspection).

We consider that Lambeth has no effective monitoring process for the contract. We are aware that there have been regular meetings between Lambeth and Capita. We are also aware Capita produces a regular "stat.pack" showing its performance against the contract. However, we are concerned that there is no proactive monitoring of the detail of the contract.

The most relevant part of the HB and CTB contract is the HB specification. It is against this that we would expect to find the greatest part of the monitoring procedure. Yet we were unable to find a systematic procedure in place. The state of the service and the issues we have discussed in the Getting it right and the Keeping it right sections of this report reflect this. Figure E.1 compares some of the service specifications included in the contract together with our findings.

Fig. E.1: Contract specification and BFI findings
Service specification	Specification met?	BFI findings
Invitations to renew claims will be made at a maximum of 52 weeks.	No	We found that 10 (17%) of the cases in our renewal sample had been awarded benefit for a period of 60 weeks (7 RA and 3 RR cases), despite the fact that there was no policy for awarding benefit for more that 52 weeks.
The contractor will provide a turn around time within 3 working days in respect of benefit queries at possession and eviction stage…urgent benefit advice at possession and eviction stage will receive a response by fax within 3 hours.	No	A claim for HB and CTB was submitted in September 1998. On 1 September 1999 claimant received a notice seeking possession sent by the NHO. In the covering letter the claimant was threatened with the authority’s naming and shaming policy in the local press if the agreement to clear the arrears was not kept to. The claim was finally assessed in October 1999.
Personal callers to the office seen and interviewed in 15 minutes.	No	During September 2000 Number of callers 1,924 Average waiting time 101 minutes Average time spent with each caller 27 minutes Total time 128 minutes.
The contractor will make recommendations to the authorised officer to make a payment on account where a final assessment cannot be made within 14 days of an effective claim being made.	No	Amongst 27 RA claims in our sample we found 17 claims on which a payment on account should have been made. In these Lambeth had failed to make such a payment.
The contractor will ensure that all notifications of determination or decisions meet statutory requirements.	No	Part 2 – Awards where IS/JSA(IB) is payable: notifications on RA cases do not advise the day of payment in accordance with paragraph 9(f) where non-dependant deductions are made, notifications state the amount deducted from entitlement, but they do not give the category of the deduction, in accordance with paragraph 9(d) the date on which the benefit period will end is not clearly stated, often suggesting an award covers to April, but then going on to state that benefit will be "reviewed" on a different date. Paragraph 9(h) applies.
The contractor will ensure that all contractor staff are properly trained in fraud awareness.	No	We were told by the Borough Solicitor that the fraud awareness sessions had been ineffective and are now limited to 2 a year. The high turnover of contractor staff we were told has meant that the sessions have had a negligible impact.

Source: BFI analysis

Our findings confirm those of the Scrutiny Committee in December 1999, where the management arrangements for the contract were heavily criticised. It said:

…it would appear a complacent attitude has been taken in ensuring that the contractor met its statutory and contractual arrangements.

The committee also went on to say that:

…it was apparent that the remedial action to date has involved simply setting and perhaps meeting targets rather than the contractor using these targets to address systematic failings and thus provide meaningful information to the client.

Our interviews left us with the clear impression that senior officers at Lambeth have an understanding of what they believe is being monitored, but other staff indicated on more than one occasion that this was not the case. We found that the contract has no provision for the important post of client-side benefits contract manager. We were told that the HCC carried out this function as part of her management duties.

We were told that 3 default notices were issued in accordance with the conditions of the contract in February 2000. The subject of each of the notices confirm to us that the contract has not been monitored effectively. The notices covered the following failures:

failure to pass first stage appeals to an authorised officer with a recommendation for review or confirmation of the original determination within 8 days of receipt (25 default points)
failure to respond to benefit queries within the required timescales (25 default points)
failure to respond to enquiries and complaints within the required timescale set out in the customer charter for 1999/2000 (25 default points).

The contract states that:

…if the contractor is awarded a total of 100 default notice points in any 1 consecutive 4 week period, the council shall be entitled at its option to terminate this contract to recover from the contractor, the amount of any direct and reasonable loss resulting from such termination subject to paying the contractor the deferred payments and refurbishment costs set out in the pricing document.

The monitoring of the contract started poorly. Lambeth compromised its position when it was found that a substantial backlog of 65,800 pieces of post had not been included in the tender document specification. This required a Notice of Due Diligence. We were told that Lambeth then had no option but to take a lenient approach to monitoring. This continued until July 1998.

BFI inspection

We examined the key performance standards in the specification setting out our findings in Figure E.2.

Fig. E.2: Managing the contracting arrangements
Recommended good practices	Operated by Lambeth?	Comment
Contract letting
Scope and define the business to be outsourced including assessment of current costs and business risks.	Yes	The service was included with the Council Tax and Frontline cashiers service contract. However, the main reason for the outsourcing was for someone else to carry out the service with a reduction in the cost for Lambeth.
Subject contract to compulsory competitive tendering using DETR guidelines.	Yes	Lambeth undertook a VCT exercise in 1997. CIPFA guidelines were followed.
Seek legal advice to ensure contracting arrangements comply with current procurement legislation including European directives.	Yes	Lambeth reviewed other contracted out LA contracts, liased with the HD, HAs’ and civil servants. The intention was to define what it wanted from the contract. We were told that Lambeth consulted widely and included all aspect of best practice at the time. The contract was let under VCT regulations using the CIPFA Best Practice Guide.
Ensure adequate competition from credible contractors with sufficient staff and skills.	Yes	The tendering process was advertised in the correct places and 12 companies showed interest. Eventually 8 companies were invited to tender.
Ensure equity in consideration of bids from potential contractors including the professional analysis of proposals.	Yes	The team responsible for the letting of the contract included representatives from RSLs, Lambeth Housing, legal department, finance directorate and the Chief Executive’s office. Members at committee reviewed the contract.
Ensure credible evaluation criteria in the selection of the final contractor.	Yes	The conditions were set out and reported to the relevant committee.
Conditions of the contract
Ensure confidentiality of information.	Yes	Contract provisions cover this.
Ensure price proposals are related to achievement of contract conditions.	No	There is a performance/liquidated damages schedule, but there are no specific price incentives for HB.
Specify appropriate damages for unsatisfactory performance.	Yes	There is a bond for the lifetime of the contract.
		There is a system in place for serving default notices. 13.9
		The LA is entitled to liquidation damages. Capita will indemnify the council for fees and costs incurred as a result of a breach of the contract and default notices. 13.14
		If, as a result of random survey, the number of failures to perform to the contract standard recorded for any period is less than the same period revealed by any such inspection the authorised officer has the right to determine repayment amount. 13.15
		On termination of the contract the council has to pay Capita deferred payments and refurbishment costs. 13.22.a
		No liquidated damages shall be payable for late determination of HB in respect of the first £50,000 of such loss in a financial year. 7.4.1
Ensure protection of LA access, assets intellectual property rights.	Partly	The LA will not acquire any intellectual property rights in the software Capita uses. 5.2 This means that Lambeth will receive the data from Capita but will not have a system to keep the data other than their non-year 2000 compliant MAPBEN system. Other aspects are covered by the contract. 6.2 Tender document background information mentions disaster recovery provision to be made. 6.1.1.b On the commencement of the contract all council assets referred to in the ITT reverted to Capita. If the contract is terminated assets sold to Capita revert back to the council on payment of £1.13.22.b
Ensure adequate arrangements exist for terminating the contract in the event of default by the contractor, including contingency plans for continuation of the service in the event of a disaster.	Yes	There are contract provisions for termination and default. The council will pay Capita deferred payments and refurbishment. It also provides for the council to recover any costs in taking back the service from Capita. 13.22
	No	Capita accepts no liability if government does not pay the subsidy. 6.4.d
Ensure continuity of service.	No	The contract does not specifically mention continuity of service.
Provide for dispute resolution procedures.	Yes	Arbitration provision by experts provided. 23.1
Ensure coverage of TUPE staff transfer.	Yes	Contract covers TUPE provision. 24.1
Ensure coverage of conflicts of interest and staff vetting.	No	This is not included in the contract but we understand Capita has asked staff to complete a declaration of interest document.
Ensure coverage of security measures and data protection issues.	Yes	In all respects the contractor shall comply with the provisions of the Data Protection Act 1984. 4.1.2.1
Provide clear contractor reporting arrangements.	Yes	Contractor reports to the authorised officer.
Contract monitoring
Ensure the contractor sends performance information on a regular basis which is validated and systematically monitored.	Yes	Capita is expected to provide competent staff to ensure performance. 13.1 The council may undertake its review of performance by way of any method it deems appropriate. 13.12
Protect access for audit purposes, including the establishment of a credible IA function.	Yes	IA is outsourced to PWC. A Chief Internal Auditor remains with the LA. Auditor has access to records.
Clear meeting arrangements with the contractor.	Yes/No	There is provision for regular liaison with the authorised officer. 13.1.c Regular meetings take place but the minutes are too brief to be able to reflect the decisions of the meeting. There are no action points or follow up indicated in the minutes. We were told, monitoring is undertaken fortnightly between the LA and Capita. It examines the general areas of monitoring such as backlogs and complaints and also reviews any other issues which have arisen in the intervening fortnight.
Establish sufficient and expert monitoring arrangements to ensure legal requirements of HB and CTB administration are met.	No	A comprehensive monitoring policy is not in place.
Establish effective client monitoring arrangements and the enforcement of liquidation damages.	No	No effective monitoring arrangements are in place.
Service delivery		The LA undertook a review of Capita performance in August 1998. Members undertook a comprehensive review of Capita’s performance in December 1999 and found it to be unsatisfactory.

Source: BFI analysis

Conclusions

The contract was created using the best available advice at the time. It is not the worst contract we have seen.

We recommend that when the contract is renewed, performance-related indicators for HB and CTB are added, similar to the Council Tax section of the contract.

The monitoring of the contract has been superficial. Lambeth has not mastered it in enough depth. The specification included in the contract spells out the performance that is expected. It is against this that the tenders were based. Yet we did not see any evidence of performance against the specification being monitored. This is confirmed by our findings in the Getting it right and Keeping it right sections of this report.

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