Agenda item

(To receive a report by Sophie Reeve (Chief Commercial Officer) which invites the Board to consider a report on the Corporate Support Services Re-provision.  Comments of the Board will be presented to the Executive in advance of its consideration of this item of business at its meeting on 1 May 2018)

Consideration was given to a report by the Executive Director of Children's Services which provided information in relation to the re-provision of Corporate Support Services, in advance of its consideration by the Executive on 1 May 2018.

 

Debbie Barnes (Executive Director of Children's Services), Sophie Reeve (Chief Commercial Officer), Andrew McLean (Chief Commissioning Officer), John Wickens (Head of IMT), Arnd Hobohm (Contract Support Services Manager) and Jason Davenport (Payroll Consultant) were in attendance for this item.

 

Sophie Reeve (Chief Commercial Officer) introduced the report which provided the Board with the following information:-

·       General background;

·       Performance:-

o   Overview;

o   Key Performance Indicators (KPIs);

o   Market alternatives to an extension of the Contract;

o   Business Process Outsourcing Contracts;

o   Insourcing;

o   Business World On (formerly known as Agresso);

o   Payroll and People Management (PM) Administration Services;

o   Hoople Limited;

o   IT; and

o   Customer Services Centre, Finance and People Management (PM) Services.

 

The Board was advised that the corporate support services re-provision would cost significantly more from 2020 than currently.  This was due to Serco very significantly underestimating the costs of delivering the services which resulted in Serco making an onerous contract provision on the Lincolnshire contract in the sum of £34m over the first five years of the contract in 2015/16.  A Programme Board had been established to oversee this work and would be led by the Executive Director of Children's Services.

 

The report noted that Serco had been asked to re-price an extension and had indicated they were interested in doing so having asked to refer to Lincolnshire as a centre of excellence when bidding for future local government contracts.

 

The Chairman suggested that each section be considered separately to give Members the opportunity to ask relevant questions.

 

Performance

It was reported that the first year of operations (April 2015-March 2016) had been particularly difficult due to the implementation of the Council's ERP, Business World On, which suffered significant problems.  This had been improved and successfully upgraded over the last couple of years although this remained heavily reliant on manual workarounds within payroll.  The lack of proper commitment accounting also remained an issue, however these were not easily remedied due to implementation problems at the start of the contract.

 

Elements of the IT and CSC transformation had also been delayed in addition to payroll errors.  The scale of the payroll errors had resulted in a project being set up to review all three payrolls.

 

People Management professional advisory services had been good throughout the contract and the Customer Service Centre had also performed well.  Adult Care Finance and Finance Services were also now generally at a higher standard than that of the previous provider.

 

In spite of the significant failure in IT delivery, 154 IT projects had been delivered out of a possible 309.  The IT estate had improved considerably since 2015 in terms of email security, web browsing security and resilience.

 

41 Key Performance Indicators covered most of Serco's service delivery and were measured monthly.  Initial contract performance was poor and resulted in service deductions in excess of £2m.  Since October 2017, performance had been strong which had resulted in no service credits in January 2018.

 

Members were invited to ask questions, during which the following points were noted:-

·       Paragraph 9 indicated that the first year of operations within payroll had been 'particularly difficult'.  It was suggested, and acknowledged, that this situation had been much worse than the paragraph would suggest;

·       The lack of proper commitment accounting was agreed to be a fundamental failure by Serco;

·       It was explained that the BWON/Agresso system worked well in other authorities but that the issue for Lincolnshire was how it was configured during implementation in 2014.  The system would require a full rebuild to configure it properly;

 

Market Alternatives to an Extension of the Contract/Business Process Outsourcing (BPOs)

 

A number of reports and market reviews in relation to outsourcing contracts procured in local government had been undertaken which showed a move away from the business processing outsourcing like the Serco contract.  Large public sector providers were also becoming less financially secure in the face of local authority austerity with a number seeing a significant reduction in share prices.

 

As a result, it was thought to be better not to re-procure on the same business process outsourcing model but to proceed on a multiple provider model in order to achieve the required performance standards.

 

During discussion, the following points were noted:-

·       During the re-provision process, the Board was assured that a full financial assessment would be carried out, including a parent company guarantee if necessary.  The payment cycle meant that larger suppliers were not paid in advance of completed work but generally three weeks after and a week in advance which provided some level of protection.  It would be appropriate for a performance bond to be put in place as a form of insurance where a considerable sum of money was required upfront, as was the case with the Energy from Waste plant but this was not the case here;

·       In relation to insourcing, the Council was a commissioning council but not a recently experienced deliverer of back office services therefore a decision would be required for each service area, i.e. people services; financial management; customer service centre; and IT;

·       When asked if the issues within payroll were of an IT nature or payroll itself, it was reported that it was payroll delivery due to the lack of relevant expertise in that area and the implementation of BWON! (Agresso);

·       Although most local authorities delivered their own payroll, Lincolnshire County Council had not done so for over 18 years and, therefore, had no in-house experience.  It was thought that the IT system in place currently were sufficient to deliver payroll services, but that would be part of ongoing due diligence discussions with Hoople and Herefordshire County Council;

 

At 10.35am, Added Member Mrs P J Barnett joined the meeting

 

 

Business World On (BWON) – formerly known as Agresso

 

A systematic review had been undertaken by Unit 4 of the Council's current deployment of BWON.  Additionally, an independent Business Consultant had reviewed the payroll issues and traced the root causes of the problems experienced.  Unit 4 advised that they had improved the system with each milestone release.

 

The configuration issues in Lincolnshire could not be easily fixed on the live system due to the risk of harm to the live payroll and further because of the age of the difficulties it may not be possible that all current issues could be remedied. 

 

During discussion, the following point was noted:-

·       It was reiterated that to retain the Lincolnshire build of BWON in Lincolnshire, the system would have to be rebuilt.  The preference would be to retain the software and the ERP and have a third party provide the payroll which would require the Council to come to an arrangement with Herefordshire County Council;

 

Payroll and People Management Administration Services

 

A review of the market had identified that there were no private sector providers of local government payroll or people management administration outside of the larger business process outsourcing contracts similar to the Council's contract with Serco.  Two viable shared service partners had, therefore, been identified which included Herefordshire County Council through Hoople Limited.

 

The Board was advised that due diligence activities had been carried out which had comprised of site visits in addition to scenario based questions, audit inspections and a review of Information Governance and IT management arrangements. Based on these activities, Jason Davenport (Payroll Consultant) had strongly recommended Hoople Limited as the preferred partner for the Council's payroll services.

 

Both Herefordshire County Council and Hoople Limited were keen to partner with LCC and an indicative cost had been provided which was similar to Serco charges once adjusted.

 

Serco had provided assurance that it would support the Council in the proposed new arrangement and would work collaboratively with Herefordshire County Council, Hoople, Unit 4, LCC and its advisers to ensure there was a successful handover.  Herefordshire also recognised that the payroll and people management partnering solution would need to be extended to maintained schools.  It was confirmed that Herefordshire County Council and Hoople deliver payroll and people management administration to schools currently.

 

During discussion, the following points were noted:-

·       Concern was raised about the ability of Herefordshire County Council to scale up to sufficient numbers of trained payroll staff to cope with the size of Lincolnshire County Council's payrolls.  The Board was assured that officers had been clear with Herefordshire County Council in regard to the size of the workforce and that discussions continued about how this could be managed;

·       The Board recommended that six, successful, payment test runs be conducted rather than the three proposed to ensure that the new payroll system was working properly pre-transfer;

·       It was noted that the overall level of assurance for payroll delivered by Hoople Limited was only rated 'reasonable' in an audit carried out in 2017-18.  The Board was informed that officers had looked at other local authorities for which Hoople provided payroll and had been reassured by the error rate which was very low;

·       Concern was noted at the potential lack of control and influence which Lincolnshire County Council would have over the payroll system provided by Herefordshire County Council, and what could be done if problems started to occur as the LCC would not be in the 'driving seat'.  The Board suggested that due diligence would be the key to the success of this proposal and that lessons learnt from the current contract should be given serious reflection;

·       The complexity of the Fire Authority's payroll system and lack of experience of Herefordshire County Council for this type of system was noted by the Board, especially given the issues with Lincolnshire Fire & Rescue payroll during the current contract.  The Board was advised that some testing scenarios in relation to firefighter payroll claims had been conducted and that Herefordshire County Council had performed well.  Herefordshire County Council had assured officers that they had both the desire and capability to build the fire payroll into their current system;

·       Other fire authorities had been contacted regarding their own payroll systems and the possibility of a shared service.  However officers had been unsuccessful in locating a fire authority who offered a shared service;

·       The geographical distance between Lincolnshire County Council and Herefordshire County Council was of particular concern to the Board who stressed that a local office within Lincolnshire would be necessary, particularly during the transition period;

·       The Board asked for confirmation that Herefordshire County Council had been made aware of the significant IT problems within Lincolnshire County Council;

·       Herefordshire County Council was aware that the Agresso/BWON system required a full rebuild;

·       Assurance was given that there would be no impact on the existing Mosaic system which was reported to be working well;

·       Clarification was provided that Unit 4 was the author of Agresso/BWON and were a sub-contractor of Serco;

·       Although Unit 4 had undertaken a systematic review of the Council's current deployment of BWON, it was reiterated to the Board that an independent business consultant had also reviewed the payroll issues and traced their root cause; and

·       One member suggested that payroll could be insourced, building a suitable system and transferring payroll staff from Serco to LCC via TUPE.  It was explained that this had been expected when the current contract was awarded but that staff had continued to work with the previous provider and opted not to TUPE to Serco.  Although TUPE would apply, if staff were willing to transfer it could not require them to transfer and as a result new providers could be left without the experienced staff necessary to deliver.

 

Information Technology

 

The Council had experienced some dissatisfaction with the IT service received from Serco, in addition to those issues experienced with BWON.  In particular, delivery of transformation activity had been slow and user experience had been poor.  It was explained that there were also 'non-Serco' factors apportioned to these issues including a lack of investment/improvement in the Council's infrastructure pre-2015; a lack of business need and IT strategy; legacy applications used for work for which they were not designed; and insufficient Council IT resource for assurance and contract management.

 

Research showed that IT was the one service area of the existing contract where there was a market for IT services with well-developed service delivery models by specialist IT providers which the Council could benefit from.

 

The Board was advised that a single supplier model was believed to be the only procurement model which would enable successful service transition by the current contract end in April 2020.

 

There was however a risk under new arrangements that the service could become more remote and there was already a desire to move the remote elements of the IT helpdesk back to Lincoln from Birmingham in its entirety.

 

During discussion, the following points were noted:-

·       Concerns were raised by some members that the late start of the procurement process for IT had resulted in the only option being available to the Council would be a single supplier model due to the time it would take to undertake multi-sourcing.  It was explained that multi-sourcing had to be phased in and where there were, for example, five towers of service, it would take between four and five years to procure;

·       As it was too early in the procurement process and there were too many unknowns to make a judgement regarding IT, the Board requested that a further report be presented, at the meeting scheduled for 30 August 2018, on the outcomes of the market engagement with IT providers and feedback from the Council stakeholder engagement with future recommendations;

·       The history of significant IT problems within the Council was highlighted and concerns raised regarding how this would be addressed and the deliverability of the improvements required; and

·       It was acknowledged that some contributory factors such as rurality and underinvestment in the wider infrastructure, such as Broadband, were beyond the control of IT providers and the Council.

 

Customer Services Centre, Finance and People Management Services

 

People Management, Exchequer Services and much of Adult Care Finance and Assessments had been outsourced for 18 years with the Customer Services Centre outsourced since 2015.  It was reported that service delivery in these areas was generally good and that, as they needed to have experienced and local staff, this may favour Serco continued delivery over the Council.

 

The Board was advised that the lead-in time for insourcing was shorter and therefore no decision would be required for these services for some time.  It was suggested that the better approach was to continue to monitor Serco's performance and consider an extension of this element of the current contract before making a final decision.

 

During discussion, the following point was noted:-

·       The Board recommended that an alternative option be identified in the event that Serco did not want to extend the contract beyond March 2020.  It was noted that a report on further options in these areas would be presented to the Board at its meeting on 27 September 2018 and to the Executive on 2 October 2018.

 

RESOLVED

1.    That recommendations (i), (iv) and (v) to the Executive, as set out in Appendix A to the report, be fully supported;

2.    That recommendations (ii) and (iii), as set out in Appendix A to the report, be agreed with qualified support;

3.    That a further report, regarding the outcomes of the due diligence process with Hoople Limited in relation to the payroll system and governance arrangements, be presented to the Board at its meeting on 28 June 2018; and

4.    That the comments of the Board be presented for consideration by the Executive at its meeting on 1 May 2018.

 

At 11.45am, Councillor B Young joined the meeting.  The Chairman adjourned the meeting at this point to allow a short comfort break.

 

At 11.55am, the meeting was reconvened.