Examination of Witnesses (Questions 255-269)
MR ROD
ALDRIDGE AND
MR JOHN
TIZARD
THURSDAY 22 NOVEMBER 2001
Chairman
255. On behalf of the Committee, could I extend
a warm welcome to Capita and to Rod Aldridge, the Executive Chairman,
and John Tizard, Director of Public Service Development. It is
very good of you to come along and help us with our inquiry. Do
you want to say a word, just to kick off?
(Mr Aldridge) If I could, Chairman. Can
I say we are delighted to be here, and thank you for inviting
us to give oral evidence in support of the written evidence that
we have given to the Committee. John Tizard, as you have mentioned,
is here with me this morning. John is the Director of Policy Development;
he has got extensive experience of both the public and the voluntary
sectors and works very closely with me on the development of our
stance towards Public Private Partnerships. Can I say that I think
the deliberations of your Committee are both timely and highly
relevant, because much has been spoken and written about the involvement
of the private sector in public service delivery and reform; much
of this debate, I feel, is based upon confused terminology, and
in some cases on misunderstandings. For example, I feel, for this
morning, it is important to recognise the fundamental difference
between privatisation and private funding, on the one hand, and
private sector involvement in publicly-funded and publicly-controlled
services, on the other. And I would ask that successful Public
Private Partnerships should not be condemned, because, for example,
of the failed privatisation of Railtrack, or because of the debate
that currently is going on around PFI. Capita is principally involved
with the delivery of services to outcome specifications, which
are set by the procuring body, and that body then continues to
have close involvement in the outcomes and the style of delivery.
Hopefully, this morning, what we can bring you is a practical
insight into our experiences of delivering services through partnerships,
and what we feel the opportunities are of going forward, because
we think they are considerable. The interesting point to me, Chairman,
is that people who are critics of the way of delivering services
in this manner never really want to answer the question what is
the plausible alternative, because the status quo is not
an option, I do not believe. Capita is a leading partner of central
and local government, and our evidence draws upon 17 years of
experience of working in partnership, over 150 major contracts
in operation with public bodies. And, during that time, the company
I formed back in 1984 has grown from, within the public sector,
a start-up position to today being a FTSE 100 company. We employ
13,000 people, we only work in the UK, but our services interact
with something like 33 million people in the country. The majority
of our workforce have either worked in the public sector, like
myself, or have been associated with it, and more than 7,000 of
13,000 people that we employ have been transferred to the Group
under TUPE, and we were one of the first private sector organisations
to have a national partnership agreement with UNISON. I would
say that we have a strong service ethos, and we have a commitment
to public service improvement, which is reflected in the philosophy
of the company and the experience of our people. I think that
you can sum up our culture as being a combination of both public
sector understanding and experience, with private sector entrepreneurism
and responsiveness. I think we are a good example of what can
be achieved when the public and the private sectors come together
and work in a very positive way. Just for your purposes, just
to define what we do, Capita is a provider of white-collar, back
office support services, and we specialise really in helping organisations
to transform their relationship with customers through improving
their support services and customer interfaces; what we have found
is that this frees up resources, management time and money for
front-line services. We do not operate in the blue-collar market
nor do we bid under the CCT regime of contracting, we are not
involved in providing services under PFI contracts. We equally
have no desire to run hospitals or to run schools, but we do believe
that there is a lot that can be done in making the back office
and support to those organisations more efficient. Two-thirds
of our work, as a company, is in the public sector, split across
local government, central government and education, and we are
implementing and running new initiatives, such as the Criminal
Records Bureau, we are implementing the introduction of the Connexions
Card for every 16-19 year old in the country, and we introduced
the theory driving test throughout the UK. In local government,
we have been at the forefront of some of the thinking around partnerships,
and we pioneered these with Blackburn and Darwen Council and with
Norfolk County Council. And, in the case of education, we have
signed a national partnership with the Local Government Association
and the IDeA to promote and support improvements in LEAs. Just
to conclude, on a personal front, I have been associated with
public services for my entire working career of over 35 years,
and this is including working for four local authorities. I believe
very much in public services and the need for them to meet public
needs and aspirations; however, I feel that it has reached a point
where public sector bodies now have a very substantial need to
transform services, and I believe that the capacity and the capability
to do that does not only reside with them and that they need to
partner to achieve that change. And, essentially, what Capita
has done is establish itself as a specialist to work in partnership
with organisations, and what we believe is that change can be
introduced faster, and more fundamental change and more sustainable
change can be achieved; so we are very excited about that relationship
and we look forward very much to answering the questions that
you have this morning, Chairman.
256. Thank you very much for that, it is a very
helpful introduction. Could I just immediately take you up on
what you have said and then what you say in your paper. You said
just now that people who criticise private involvement have to
ask the question what is the alternative, and then you have just
said that the public sector itself is not the only body that can
make changes. In fact, you are saying rather more than that, are
you not, you are saying that the public sector cannot make the
changes, because you say in your paper here, "the public
sector does not have sufficient capacity, experience or expertise
to achieve service transformation of the magnitude required on
its own"? So it is not just the question that the public
service alone cannot do it, but the public service cannot do it,
on your view?
(Mr Aldridge) I think, from the experience—hence
my introduction about positioning what we do—of the areas
that we work in, the degree of change and the speed that it can
be achieved, when it is being externalised to a partner such as
us, is incredibly quicker than it can be achieved internally.
So you have two or three factors working for you here and supporting
what I am saying. First of all, I think that we are a specialist,
and as a specialist we can drive through changes much faster,
because it is what we have set ourselves up to do, and we have
got many examples, some you have seen in the back of our evidence,
of where that has happened. The second point I would say is that,
the sort of transformation I am looking for, is significant. We
work very hard at customer interfaces and working at how the customer
is dealt with by the organisation, and a lot of this has been
through customer contact centres and how they engage with the
organisation. I cannot believe that 400 local authorities, each
needs to have one of these centres, I feel that that is a waste
of public money and it is very unnecessary in the terms of what
we have. So the step change that I am talking about and the transformation
of the services of what we are involved with, I think that we
are almost like an outboard motor which can work positively with
the partner to achieve a real change. I think we have found through
the staff that transfer to us, the momentum, the involvement,
the engagement that you can get with the staff, is incredibly
more positive than when they were residing inside an organisation
such as a local authority or a central government department.
257. So, just to emphasise this, your argument
is that public service reform cannot take place from the inside,
it has to take place through this external, do you call it, outboard
motor?
(Mr Aldridge) I think we act, we bring specialisms,
we bring engagement and experience, investment, performance management,
which I do not think resides certainly in the back office of the
public sector organisations.
258. So what is it about public service then
that makes them incapable of reform?
(Mr Aldridge) You take me down a line where I clearly
recognise that local authorities and government have transformed
and been involved in a lot of change; what I am talking about
is cultural, in the way that people can be organised and perform.
For example, in Darlington, we took over responsibility for the
Teachers' Pensions Agency; we inherited an organisation where
450 people have transferred to us, we inherited an organisation
which had a good service, but it sat behind nine miles of files,
of paper, and the whole organisation was shaped around the paper
and chasing the paper. What we did was to re-engineer that, through
the introduction of technology, through scanning and then introducing
a customer contact centre, where we changed the way that the customer
interfaced with, where 80 per cent of the customers' contact is
through the telephone, a very experienced operator dealing with
it, on the spot. We introduced through TP Online. Now these are
things which the Agency, you could argue, could have done itself,
but it would have competed for funds to have done that. Culturally,
the changes that we put in there—because what we have now
got is a major centre that employs 600 people, in Darlington,
it runs others contracts, some for public sector and some for
private sector, and the style of operating, the people, is now
totally different, and more responsive to the customers' needs,
that they serve.
259. But if you worked, you, personally, as
the chief executive of one of these local authorities, or one
of these public bodies that you are describing, you would come
in and you would do these things, would you not?
(Mr Aldridge) I may well have a desire to do these
things. You have to also think about what we do. We look after
what are sometimes thought of as non-core, back office services.
And I have to say to you, on the ground, these are devoid of investment,
the morale of the staff that are running the services is very
low, and it is very difficult to justify, as the chief executive
of a local authority, to invest the money that is possibly needed
to modernise these services in the way that I am actually talking
about. Even with good staff, we have found that—we built
a company around some of those staff who transferred to us, who
are freed up and the bureaucracy which sometimes gets in the way
of change is no longer there, although there is the accountability,
very heavy accountability. And, I would argue, when these services
are run the way I am saying, the accountability is even higher
than it is when they are run within the local authority itself.
But, culturally often in the public sector, you cannot do it at
the speed of the sort of change that I am actually talking about;
and that is frustrating to people. I have worked in it, but it
is a fact. We have also specialised in implementing new things,
new initiatives. The theory driving test I mentioned was set up
by us in six months; we recruited 1,000 people, we set up 150
offices around the country where people took their test. This
could not be done within a Government structure, I would suggest,
in the time-frame, with the same investment and the same attention
to the way that that was actually delivered.
260. I think we want to explore some of the
accountability issues with you; particularly, we were interested
in what you said in your paper to us. But can I just ask you one
more thing, before I hand you over to a colleague, which is, you
said, in passing, that you did not do PFI and you did not want
to run hospitals or schools; is this because you do not like PFI,
or you do not like the idea of the private sector running hospitals
and schools, or just because that is not your business?
(Mr Aldridge) Starting from the top, it is not our
business, it is not the thing we are in, we do not operate in
PFI, we operate support services. What I want to do for a school,
because I believe passionately in education, I actually want to
free up the time of a headteacher from the non-core activities.
So I want to help him run the organisation, the financial side,
all of the IT, or the property, and I want those to be run from
the business centres that we have round the country, we have a
lot of those relationships that are beginning to develop in that
way. I save money for him, which he can then invest in different
parts of the front-line education. So that is what I want to do,
and the same sort of concept could be applied in the Health Service
to hospitals and to Trusts. That is what I want to do.
261. Yes, that is the back office. I know that
is what you want to do, but I want to know, from your experience,
whether you think, for the reasons that you have given about the
dynamism that the private sector brings in, whether the private
sector could run, in your view, schools and hospitals and get
the same kinds of benefits?
(Mr Aldridge) The model that I am applying to the
back office, potentially, can be applied to other, more front-line
services, in my experience. I think there are other issues, however,
in how you interface with the organisation. We have very clear
interface with the organisation and it is very clear what we are
there to do. So I am not totally convinced that it will be the
same if you were physically running everything within the hospital
or local authority. But the concept of what we do, of partnering,
if you think about the Criminal Records Bureau, the whole agency
is being run and established by Capita, with a clear relationship
to the Home Office; so we are doing quite a lot of the activity
which is both front-line and back office. But it is in areas that
we understand and know very well and have been working at for
15, 16 years; we are not in PFI because the model does not fit
financially and commercially what we want to do with our business.
262. And you are doing alright?
(Mr Aldridge) It seems to be okay.
Kevin Brennan
263. In your view, apart from the specialisms
you have described, and so on, what is it about your organisation
at the root, because this is a very fundamental inquiry we are
conducting here, what is it about your organisation at the root
that makes it better than a public sector organisation at delivering
these services?
(Mr Aldridge) I think it has been quite fascinating
really to go through the experience that we have, because, in
a sense, I have told you about the mix between the public and
the private, what is being good is to see a fresh, sort of `can
do' mentality applied to issues, and a very innovative style of
trying to solve things and resolve things much quicker than possibly
you can do directly within many public sector organisations. We
are much flatter in our structure, there is less bureaucracy.
264. But these are all managerial things, yet,
so far, you have not mentioned the word `profit' once. Is not
that, essentially, surely you would argue, the fact that you are
a-profit-making organisation, that the bottom line for you is
devoted to pleasing your shareholders, your publicly-quoted company,
is not that at the root of your argument of why you would be more
effective at delivering these services?
(Mr Aldridge) The interesting point, of course, is
that, and the dilemma, in a way, we probably save our customer
anything between 15 and 20 per cent, and if you look at what our
margins are, in terms of the published margins, for which obviously
we are fully accountable, our margins are around 11 per cent.
So, in a way, there is a lot of scope in these things, if you
can apply thinking of how they can be delivered.
265. So an organisation that was a non-profit-making
organisation could be just as effective as yours at introducing
these types of changes into the public sector?
(Mr Aldridge) Clearly, what we have done is we have
invested very heavily; if you think about our infrastructure,
we have invested between £500 million and £600 million
in that. Could that have been done within public sector organisations.
What we have found is accountability is another, I am not talking
about accountability to the customer or to the citizen here, I
mean accountability within, so people know that they are successful.
And that is not around profit, that is around understanding what
they are being asked to do, understanding whether they are achieving
it.
266. So, for example, if the rules that constrain
local authorities from being able to invest, in the way that you
are talking about, without causing difficulty in competing for
capital, if they were freed from those rules, it is perfectly
possible that they could deliver the services, and well, provided
they took on the good management practice that you are talking
about?
(Mr Aldridge) Three things. We have found the introduction
of key management and key resource at different points is a very
important thing to have, because we do not simply just take the
people over and run it as a steady state. The second thing is,
they are prepared to take the risks that we have taken, contractual
risks that have to be delivered in these contracts, these are
not soft contracts, so if they are prepared to do that. And, equally,
if they can make the sea change that I am talking about, the major
change; currently, 400 local authorities collect council tax,
they all send out individual bills, this is about actually cutting
through that and making a real change in the way that we deliver
some of these services, 400 authorities do not have to deliver
that service. Now I do not believe a single organisation can be
the catalyst for that sort of change; it can be a part of it.
267. The truth is, you have had a difficult
couple of years really, have you not, with some of these contracts,
because, for example, you have just lost one contract, with Lambeth,
so I understand? I have got a document in front of me that says,
this is from the GMB, just to let you know its origin, in Lambeth,
that they found that 22.5 per cent of your treatment of new and
renewal claims of housing benefit were breaching legislative requirements;
they found that, on 17 April 2000, your organisation sent out
a letter to someone that said, "Your council tax benefit
has been stopped because there has been a change in your circumstances,
the change is because you are dead." Computer Weekly, on
7 June 2001, this year, said that you had asked Lambeth Council
for an extra £350,000 a month for the contract, on top of
the agreed charges. Is it not true that your type of organisation
just goes in, negotiates contracts and then once you have got
the council hooked that is when you lay on the extra costs that
are not really good value for money for the taxpayer?
(Mr Aldridge) In answer to your question, we probably
have to record facts in answering your point. It was very regrettable
about the letter that was sent, and I can only apologise about
that, and we did so to the individual's relatives. You have to
look at what we inherited from Lambeth and the contract we had;
it is not true that we have lost the contract, we still have a
contract, our original contract was for housing benefits, collection
of council tax, collection of business rates and dealing with
the cashier side. What is actually being handed back to Lambeth
is the housing benefits administration calculation, all the other
services we keep, we are running, all the IT surrounding housing
benefits we are still running, the call centre is still being
run by us; so it is the calculation administration that has gone
back. You also have to say that when this contract was let, in
1997, it was at end of the CCT era, but the partnership approach
that I talk about had not developed, and it was let really in
that interregnum. What you have in Lambeth is that the original
contract that Lambeth let saved Lambeth £18 million over
seven years; they have that saving. We were told that the service
was poor, we knew that it had been failing for some time, we were
told that the backlog was something like 60,000 items; when we
got in there, the backlog was over 100,000 items. We were told
the number of staff that were involved on it was something around
320; when we got in there, previously, more staff had been used,
and most of the staff that were there were temporary staff. I
am only telling you this because it is a picture about failing
services and it is a picture about how these relationships need
to work. Now we feel that what we should have done with that situation
was that we should have been even more proactive than we were,
and our proposal to the Council was, first, that they should appoint
a partnership board. The second thing was that we said we should
have closed the operation, particularly around housing benefits,
in Lambeth. We should have left a front end where the customer
could have come in, and the back end should have been moved to
where there was an area of stability of employment of experienced
staff and where investment could have been made. They did not
want to do that, so that is fine. When you look at what we have
done, the achievement of the service at the level we took it over
and the time that it was handed back, the improvement was incredible
and enormous; it was not as good as I would have wanted it or
we felt we could have achieved, so we are disappointed by that.
We invested £2 million in the site, in addition to the savings
that we have told, we lost money on the site, so we actually gave
a lot of attention to it and made some considerable improvements.
The fascinating point is that most of the services, in the end,
were being run by other places, the customer contact centre was
run in Coventry, the NNDR was collected in Bromley, because of
what we found internally with the Lambeth service.
268. So Lambeth were very ungrateful for all
you did for them?
(Mr Aldridge) No; with officers and with the Leader
of the Council, I think they understood the situation very well.
And the other critical point is that, this contract, and the union,
UNISON, would conclude that this was the case, both the way the
staff were handled, at the point of the transfer, and the point
that it went back was impeccable, the way that the service was
transferred back to the authority was impeccable, it was not confrontational,
it was dealt with, because it was the right thing to be done.
But it was taken back, and the capacity had been rebuilt for that
to go back.
Mr Wright
269. Just to continue along the lines of accountability,
you mention within your submission that the customers' perception
of public service ethos will be subjective and will, in many ways,
be influenced by their personal experiences of the service. Who
would you expect to get the blame when a public service goes wrong,
because my experience of this is always, in the public sector,
whether it is run by private or public, it will always be the
public sector that will get the blame?
(Mr Aldridge) I will ask John to take that, but just
in handing over. I think what you can never underestimate, to
an organisation like us and to others, is that our reputation
is a very important point, and if something goes wrong, in the
way that we have just discussed, it is not good for us and it
is not easy for us. But John will give you a more detailed answer.
(Mr Tizard) I think it is worth stressing that we
work on a voluntary basis with public sector organisations, and
those organisations voluntarily engage Capita because they believe
we can add value, we can make a difference. And, I think, in answer
to some of the earlier questions, you asked what can we contribute
to service improvement, it is very clear that a whole variety
of local authorities, central government departments, have decided
that it is better to engage companies like Capita to make improvement;
and, in doing that, they determine the standards to which we will
work, and, to a great extent, actually the ethos of the services
which we deliver. Therefore, we will reflect very much the requirement
of, in local government terms, the local authority with whom we
are working, and the service which it wishes us to deliver for
its customers and for its citizens. So there will be different
standards of service in different parts of the country, because
that is what has been specified by the democratically accountable
body, in this case the local authority. The local authority, or
the Government Department, or any other public sector body which
engages Capita or any other company as a partner, has a responsibility
and an accountability for performance. Whilst it can delegate
operational responsibility, it cannot delegate its accountability,
I would suggest, to its citizens and to its taxpayers. So our
effectiveness is, to some extent, as effective as the client in
terms of its responsibility. We are accountable for performance
through the contract to the procuring body, the procuring body
is accountable, through the democratic processes and the other
processes of Government, to taxpayers and to the community. I
think, one of the areas where we have to be very careful is that
we actually define responsibilities and accountabilities very
clearly in any partnership contract, whether that is with central
government or local government, so there is no blurring and it
is very clear where those responsibilities and accountabilities
lie. Therefore, there can be transparency and the right organisation,
be it Capita or the local authority, can be held to account.
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