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Examples of the failures, defaults and financial penalties incurred in outsourced and privatised services. Evidence from UK, Ireland, other EU countries, Canada, Australia and Developing Countries
Examples of the failures, defaults and financial penalties incurred in outsourced and privatised services.
Evidence from UK, Ireland, other EU countries, Canada, Australia and Developing Countries
- Terminated UK PPP Projects
Details of 15 terminated PPP projects plus 5 other projects with major difficulties (download document).
- UK: 105 public sector ICT contract failures
The Research Report identifies the scope of major cost overruns, delays and terminations in 105 outsourced public sector ICT projects in central government, NHS, local authorities, public bodies and agencies in the last decade. There has been wide reporting of individual and department or authority-wide project failures in the national and ICT press but little analysis of the overall scope and evidence. The value of contacts is nearly £30billion with an average cost overrun of 30.5%.
- 37 Failed Privatisation Projects in Water Supply and Sanitation
A global list of failed privatisation projects in water supply and sanitation by country, date started and ended, companies, reason for failure and outcomes such as renationalisation. From Water: Private, Limited: Issues in Privatisation, Corporatisation and Commercialisation of Water Sector in India, 2007, by Gaurav Dwivedi, Rehmat and Shripad Dharmadhikary.
- 247 Cancelled and Distressed PPP and Privatisation Projects in Developing Countries
World Bank Private Participation in Infrastructure Database: Two tables providing sector and regional analysis by value and number of projects of 247 cancelled and distressed PPP and Privatisation projects in developing countries between 1990-2007.
- CANADA: Flawed, Failed, Abandoned: 100 P3s: Canadian and International Evidence
By Natalie Mehra, Ontario Health Coalition, with research and support from: BC Health Coalition, Canadian Health Coalition, Council of Canadians, Canadian Union of Public Employees, Friends of Medicare/Alberta and National Union of Public and General Employees. March 2005. Analysis of 100 failed projects.
- Savings greater if IT kept in-house
The majority of companies that have outsourced IT operations would have saved more money had they kept the services in-house, acc-ord-ing to a study of contracts worth more than £3bn.
The outsourcing industry is facing a mid-life crisis with some "high-profile outsourcing deals being taken back in-house" and employers starting to question the value of long-term savings, research by Compass Management Consulting found.
- Strategic Partnership terminated by Bedfordshire County Council
The Strategic Service-delivery Partnership (SSP) between Bedfordshire County Council and HBS Business Services was terminated by the County Council in August 2005. Nearly 550 staff were transferred from HBS back to the County Council.
The report ‘Strategic Partnership in Crisis’ prepared by the Centre for Bedfordshire UNISON, published in April 2005, is available in the section on Strategic Partnerships in this library.
The council took over all HBS services, all the staff and assets involved in the delivery of those services. It paid HBS £6.75m to purchase assets such as IT, furniture and fittings and to acquire goodwill, contracts and services provided by HBS, including to schools and other organisations. This document sets out the rationale for terminating the contract and the terms of the agreement.
- West Berkshire Council Terminates Strategic Partnership
In June 2005 West Berkshire Council terminated a £168m Strategic Service-delivery Partnership with Amey plc. The contract, for IT and corporate services, had only completed three of the ten year contract period. Amey plc agreed to pay £3m to the Council as part of the settlement agreement.
The document includes the Council resolution and press releases.
- Strategic Partnership Significantly Reduced by Redcar & Cleveland Council
Following a 'strategic review of services' HR and Payroll, Finance and Accounting, ICT, Public Access and Business support will be brought back in-house by September 2006 after only 3 years of the 10 year Liberata contract. Only 120 of 650 staff will be retained by company to continue to provide Council Tax, Revenues, Housing Benefits and Consumer Direct (Government business).
- Scope of Strategic Partnership Reduced by Swansea City Council
The City Council signed a £83m contract with CapGemini in 2006 to transform IT services and promising £70m savings over ten years. However, a year later the contract was reduced to a £40m project with the abandonment of phase 2.
- IBM savings failure in Department for Transport shared services contract
IBM’s shared services contract with the UK’s Department for Transport’s (DfT) forecast £57.0m savings by 2015, but these had vanished by March 2008 and were replaced by a forecast of £81.1m additional costs (National Audit Office, 2008). A centralised Shared Services Centre in Swansea for the departments and its agencies such as the Driver and Vehicle Licensing Agency (DVLA) and the Driver Standards Agency (DSA), began in April 2005. The original estimate of the technical contract was £16.5m, yet the Department paid IBM over £54m by the end of March 2008 plus a further £18m to other contractors.
- Leisure Trust Failure Alternative Option for East Hertfordshire District Council
East Hertfordshire’s Leisure Services contract with Enfield Leisure Centres Ltd (Aspire Trust) has a major financial crisis. It was £500,000 in the red in the first year of a five-year contract. Resignations of senior staff and the liquidation of the Enfield Trust added to the scale of the crisis – a crisis in the making during the evaluation of the market testing bids in 2005. An in-house bid ‘disappeared’ at the evaluation stage and despite the Enfield Trust bid being based on an 8% increase in leisure income and a 10% cut in staffing costs, they were awarded the contract. But the contract was not signed until five months after staff were transferred and large sections on monitoring and staffing issues were removed.
- Overview of Leisure Trust Performance
Comparison of performance of in-house and leisure trust services between 2000-2006 and summary of Bristol, Chiltern and East Herts trust failures.
- Education: Individual Learning Accounts - failed marketisation of training
Failure of Capita's contract to administer Individual learning Accounts
- National Air Traffic Control PPP has to be refinanced
NATS was privatised in July 2001 but had to be refinanced in 2003 because the company’s financial position was not strong enough to continue with capital investment and the airline group was unwilling or unable to invest additional funds.
- Restructuring of Royal Armouries PPP/PFI project
The Royal Armouries moved from the Tower of London to a new museum in Leeds in 1996. The £43m PPP/PFI deal with Royal Armouries International (RAI - led by 3i Group plc,) included £20m from the museum and £8.5m from Leeds City Council and Leeds Development Corporation. However, visitor numbers were a fraction of those projected leading to two refinancings of the project and eventually ceased to be a PPP project.
- Sale and lease-back of government buildings offshored
The New Labour government, keen to establish a market in the sale and lease-back of government buildings, announced a A$9 billion (£3.6 billion) private finance initiative deal with Mapeley Group in March 2001. It included 700 buildings of the Inland Revenue, HM Customs and Excise, and the Valuation Office Agency in the Strategic Transfer of the Estate to the Private Sector (STEPS) project. Mapeley immediately transferred the freehold and long-lease properties to Bermuda.
- Pathways to Work
In 2008–09, £94m (38%) of Pathways to Work programme expenditure on employment support did not deliver additional jobs. Between 2005-10 the Pathways programme cost £793m but did not provide a net return to the Exchequer. “Although there has been a reduction of 125,000 claimants in receipt of incapacity benefits between February 2005 and August 2009, the Department accepted that Pathways will have contributed only modestly to this reduction, and cannot determine precisely its contribution” (House of Commons Public Accounts Committee, 2010).
- British Energy
The privatised nuclear power generator, supplying 20% of Britain's electricity, had to be bailed out by the government to the tune of £410m in 2002 to meet the company's debts. A restructuring deal was agreed in which the company's creditors agreed a debt-for-equity swap in which they take control of 97.5% of the shares leaving the existing shareholders with just 2.5%. The restructuring deal has been extended to March 2005. British Energy was delisted from the London Stock Exchange as part of the agreement from where it was first privatised as part of the Tories electricity privatisation.
- London Borough of Southwark – WS Atkins
The £100m education contract to operate the Local Education Authority (LEA) was terminated after two years of the five-year contract. Atkins failed to meet several key targets and claimed the contract was unprofitable. The contract termination cost Southwark Council £1.5m.
- Railtrack PLC replaced by Network Rail
Railtrack PLC, the privatised rail infrastructure company was placed in administration on 7 October 2001. Railtrack was sold for £1,904m in 1996 preceded by a £869m net debt write-off. The shares were priced at 390p, almost doubled in price within a year and by 1999 were over 1,600p valuing the company at £8bn, four times its original sale price (Whitfield, 2001). Network Rail is a non-profit company limited by guarantee. It operates commercially but any surplus is reinvested in the railways it owns and maintains the tracks, signals, bridges and 2,500 stations.
- National Express East Coast rail franchise terminated
The Government terminated the National Express plc East Coast rail franchise (London-Aberdeen) in 2009 less than two years into a 7.5 year contract. The contract required the company to pay the government £1.4bn, but had paid just £120m at termination and had failed to make service improvements. The line was renationalised in November 2009 when government owned East Coast Trains took over the route.
National Express walked away at no cost and informed the company that the termination would affect future bids for rail franchises! http://www.bbc.co.uk/news/uk-14087578
- Network Rail takes over outsourced rail maintenance
Network Rail originally split the rail network into 20 maintenance contract areas which were awarded to seven firms Amey, Carillion Rail, First Engineering, Balfour Beatty, Amec, Jarvis and Serco. In October 2003 Network Rail made a strategic decision to terminate all contracts and to return all maintenance work in-house following the earlier agreement to takeover Amey's Reading contract in January 2003 (Network Rail, 2003).
- Connex South East Trains
On 26 June 2003 Connex were informed by the Strategic Rail Authority that after seven years of poor performance their rail franchise was being terminated. Connex were given a choice of immediate termination or 6 months notice and chose the latter although they later agreed an early transfer with South Eastern Trains taking over on 9 November 2003 (SRA, 2003). South Eastern Trains is a newly formed subsidiary of the SRA. Between 1996/97 and 2002/03 Connex received £779m in public subsidies (www.csenews.net).
- Hospital cleaning
The NHS market testing programme led to a series of contract failures and reduction in cleaning standards in the 1983-2000 period (Public Service Action, 1983-1997). By 2002 some 52% of domestic services contracts were outsourced with an estimated value of £94m according to an unpublished NHS outsourcing study.
- Individual Learning Accounts failed marketisation of training
In July 2000 Capita Group PLC won a contract to operate the Individual Learning Account (ILA) scheme under which everyone aged 19 or over had a right to an ILA entitling them up to chose how they spent up £200 on training. Between its September 2000 launch and its closure on 21 November 2001 there were 2.5m accounts logged on to Capita's computer system. The scheme was closed because there were suspicions that abuse of the scheme had become so endemic that could not be eradicated without killing the scheme itself (House of Commons, 2002).
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