Capita faces fresh Whitehall inquiry after SME backlash over £1.5bn contract

Profile picture for user ddpreez By Derek du Preez February 18, 2015
Summary:
The Crown Commercial Service – which already has had a tough week – is under fire again, as it is responsible for the terms of the Capita contract.

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Capita and the government's Crown Commercial Service have come under fire over a £1.5 billion labour contract, after a backlash from a group of SMEs that claim that the terms of the contract are unreasonable and are squeezing out smaller firms.

ComputerWeekly revealed this week that a number of SME IT services suppliers have lost tens of millions of pounds in business after refusing to sign up to the controversial £1.5 billion Contingent Labour One (CL1) purchasing framework.

Dozens of smaller suppliers are complaining, and have been complaining to government for months, that the contract and its terms directly contradict the Cabinet Office's commitment to opening up work to SMEs.

The government has a commitment to award 25% of its spend to SMEs by 2015 (this year) – the most recent figures from 2013 show that direct spend with SMEs was at 10.5% and indirect spend (via a supply chain) was at 9.4%.

I've raised concerns in the past about SMEs working indirectly with government departments via the supply chain, given the control that bigger suppliers will have to set prices and limit access.

As the ComputerWeekly piece highlights, the CL1 framework centralises the sourcing of all temporary staff across central government departments. Some of the alleged 'unreasonable' terms include a ban on restrictive covenants, which are clauses that stop competitors going to work for competitors for a set amount of time. By banning these, suppliers claim that this leaves Capita free to bypass them and deal directly with their contractors.

Perhaps more worryingly, the CL1 framework also allows Capita to dish out 20% of the total value of contracts to its own divisions.

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Capita told me in a statement that most of the work going through the contract is given to SMEs and that it has a good track record in working with smaller companies. It said:

More than 60 per cent of the work under Contingent Labour 1 has been awarded to SMEs. Of the 302 suppliers on the framework, 274 are SMEs.

The framework has been designed, and is run, in the manner required by Government to ensure a level playing field and best value for money.

Capita has an excellent track record of working with and engaging SMEs. We refute any suggestions of wrong-doing regarding this recruitment framework.

However, the reaction on Twitter has not been a positive one:

This latest dispute follows a report by the Independent earlier on in the week, which said that Capita had also been accused of using a separate £250 million contract to short-change small firms, resulting in some going out of business.

Despite Capita's claim that most of the work is going to SMEs, Cabinet Office minister Francis Maude has said that the situation is “not acceptable” and Whitehall officials have said that they are “looking into” the concerns raised by the smaller companies.

One SME told PoliticsHome.com:

The architecture of the contract is absolutely appalling and provides scope for Capita to slam SMEs to the wall long-term.

The Recruitment Employment Confederation has said that there are a number of specialised agencies that are refusing to take part in the contract because they can't afford to get involved in a framework where there is no protection. The trade body has been negotiating with the Cabinet Office and Capita for over year.

With suppliers turning away from the contract, concerns will also be raised that Whitehall will be losing out on some much needed specialist skills to drive its transformation plans across departments.

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The Cabinet Office said in a statement:

Since 2010 this Government has introduced a radical programme of commercial reform as part of our long-term economic plan. Our reforms helped contribute to savings of £14.3 billion last year alone, while dramatically increasing the proportion of business won by Small and Medium-sized Enterprises (SMEs).

However we know there's more to do. We always take concerns from suppliers very seriously, have introduced new ways for concerns to be raised, and are looking at the issues highlighted.

My take

Whilst Capita is very much in the spotlight on this occasion, the government's Crown Commercial Service, the organisation that is responsible for the framework itself, will also likely take a lot of the blame.

This adds to what has already been an incredibly difficult week for CCS, which has faced calls for it to be scrapped, and has been slammed by SMEs for its involvement with the heavily criticised Digital Services Framework. For a summary of the problems facing CCS, read here.