Capita’s contracts with the Ministry of Defence Contents

1 The set up and implementation of the Recruiting Partnering Project

8. On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Defence (the Department) on the problems that the British Army (the Army) has encountered in establishing and implementing its partnership with Capita to recruit soldiers, and the steps that it is taking to achieve the intended benefits.1

9. In 2012, the Army sought to reform its approach to recruitment by entering into a partnering agreement with Capita Business Services Ltd (Capita). It established the Recruiting Partnering Project and committed £1.36 billion over ten years. The Programme’s aim was to recruit the quantity and quality of soldiers that the Army requires each year (including regular and reserve officers and soldiers), and to save money. In March 2012, following a competitive process, the Army awarded a £495 million contract to Capita. It believed that contracting-out to a commercial provider would bring new expertise in recruitment and marketing.2

10. However, Capita has missed the Army’s annual targets for recruiting new soldiers and officers every year since it began in 2013. The shortfall each year has ranged from 21% to 45% of the Army’s requirement. In 2017–18, Capita recruited 6,948 fewer regular and reserve soldiers and officers than the Army needed. Capita missed the Army’s annual target for recruiting regular soldiers by an average of 30% over the first five years of the contract, compared with a 4% shortfall in the two years before Capita started. Recruitment shortfalls result in the Army placing greater strain on existing personnel to maintain operations and limit its ability to develop the capabilities it needs in the future.3

The set-up of the Project

11. The Army stated that at the time it entered into the partnership with Capita in 2012, it was pre-occupied with the war in Afghanistan, which had helped with recruitment. It told us that it had been naïve to think it could just contract out recruitment to an organisation that was not military.4 Capita also accepted that it made mistakes entering into the contract. It had been more interested in “chasing revenue” and winning new contracts rather than its partnership with the Army.5 As a result, Capita under-estimated the complexity of the Armed Forces’ requirements. It did not, for example, recognise the level of customisation that was required to develop the new online recruitment system and, as a result, could not use an ‘off-the shelf’ commercial solution.6 The delays in developing a bespoke application meant Capita could not introduce the digital recruitment approach as originally envisaged at the outset.7

12. The Army and Capita entered into a overly complicated contract, with the Army insisting on 10,000 areas of contract compliance (i.e. contract specifications). The level of complexity reflected the Army’s career structure, which had 240 career employment groups, and the Army assumed that Capita would be able to work within this structure.8 This constrained Capita’s ability to innovate but the company did not push back on the level of contract specification.9 The Army’s management of the Programme has also limited its ability to refine the recruitment process. Between 2013 and 2018, it responded slowly to Capita’s proposals to streamline or change the recruitment process.10 The Army told us that it had now reduced some of the complexity of the contract to allow Capita to innovate.11

13. At the outset, Capita introduced a centralised, call-centre approach to recruiting, using Upavon as the national recruiting centre. The Army acknowledged that, as a result, it lost its ability to support candidates through the application process.12 Capita did not trial this approach before its introduction and the Army accepted that it was a mistake not to recognise the importance of face-to-face contact with applicants. They have now ended this approach and put the onus back on local recruitment centres and local engagement with schools and colleges. It is also using military ‘role-model’ soldiers to promote a career in the Army and an enhanced package of support for applicants to help them through the process.13

Problems with implementation

14. Capita has missed the Army’s targets for recruiting new soldiers each year since 2013.14 The Department suggested that the fundamental deficiencies in Capita’s performance did not become fully apparent for about three years.15 It told us that it was initially focussed on training in preparation for the war in Afghanistan and then on meeting the Prime Minister’s target to increase the size of its reserve force to 30,000. The Department could not, though, explain how senior management were monitoring performance during this period. Given the Parliamentary interest in recruitment figures, we are extremely surprised at the Army’s failure to recognise the scale of Capita’s performance problems and at the passive approach to managing the contract before 2016.16 This is particularly the case since this Committee published a report in September 2014 on Army 2020 which covered these issues. In that report, the Committee commented that the recruitment contract with Capita was not established on the basis of a clear understanding of the scale of the recruitment challenge, that shortfalls in Army recruitment were increasing the risk of capability gaps emerging in some parts of the Army’s structure and that a huge step up in performance was required if the Army was to hit its ambitious targets.17

15. In April 2017, the Army agreed to revise its contract with Capita, lowering performance targets and resetting the contract’s penalties. It believed that continuing to apply the maximum service credit deductions would not give Capita an incentive to invest in improving its performance.18 We are concerned, however, that the Army gave away a lot at this point and that this was a good deal for Capita, with the potential for big wins in the future. In particular, the Army did not amend the contract to secure the intellectual property for the online recruitment system that it had co-developed and co-funded. The Army could not explain why – despite Capita’s poor performance - there had been no pushback on these issues and it did not use its leverage to secure additional benefits.19 The National Audit Office report shows that Capita has not even achieved the reduced targets for the number of new recruits since the contract was reset.20

16. The Army and Capita have failed to simplify the recruitment process. In 2017–18, half of applicants took 321 days to complete the recruitment process – from application to starting basic training – and one third took over 400 days. The Army and Capita have not, however, made any substantive changes to the recruitment process and recruitment times have not reduced since 2014–15. While some applicants complete the process quicker and others like to pace themselves through the process, there are also applicants that are not fit enough to meet the Army’s requirements and need to spend time preparing to get through the physical assessments.21 Applicants have also had long waits for medical records to be obtained from their general practitioner. However, the Army and Capita have also introduced some changes - such as the use of primary health care records - without trialling them and subsequently found that these changes slowed recruitment times.22

17 The length of time to complete the recruitment process affects the conversion of applicants into new recruits. Capita estimated that just 14% of applicants actually join the Army and 47% voluntarily dropped out..23

18. The Department accepted that the time it takes to recruit new soldiers is too high and that it needs to streamline the recruitment process across the three frontline services. It has begun to trial new initiatives, including taking more risks at the beginning of the process and running different stages in parallel. It is also reviewing its policy and approach to obtaining medical records, including working with NHS Digital to obtain documentation more quickly, and assessing the value of the online medical questionnaire. Overall, the Army aims to reduce recruitment times to three months – from application to the offer of a post.24

The Army and Capita’s response

19. The Army and Capita have introduced a series of new initiatives to address the problems that they have encountered and to address Capita’s under-performance. They have introduced new arrangements for managing recruitment, bringing together the eight areas of the Army with a responsibility for aspects of recruitment, with meetings chaired by senior personnel from both bodies.25 The online system is now operational and provides better data to understand the progress of applications through the recruitment process.26 In January 2019, the Army and Capita also launched a new marketing campaign and told us that applications were three times higher than in January 2018.27

20. Capita has performed poorly against the key performance indicators in the contract, meeting a target just four times out of 228 since August 2015. It accepted that it was not pleased with this performance but was confident that the recent changes will lead to improvements.28 As a result of the contract penalty clauses, the Army has deducted £26 million from its payments to Capita (6% of contract payments since 2012) which, in most months, was the maximum amount possible. The Army was not, though, able to provide us with a convincing answer on how it would penalise Capita for under-performance in the future, and the conditions under which it would consider terminating the contract. The Secretary of State has previously said that the Department would remove the contract if it “lost confidence in Capita”.29 But the Department could not provide us with clarity on in what circumstances – other than the withdrawal of key staff - or what level of under-performance would lead to this and how long it would take to disentangle Capita from the process.30

21. However, despite increased applications, Capita has not yet met the Army’s targets for recruiting new soldiers.31 The Army forecasts that Capita will recruit 60% of the soldiers that it needs in 2018–19. The Army also told us that it had a high degree of confidence that it would achieve 80% of its requirement by March 2020 and that Capita would be recruiting the full demand by end of contract. Capita also stated its confidence in meeting or exceeding these targets.32

1 C&AG’s Report, Investigation into the British Army Recruiting Partnering Project, Session 2017–19, HC 1781, 14 December 2018

2 C&AG’s Report, paras 2, 1.5

3 Qq 10,13; C&AG’s Report, para 5

4 Qq 3,16

5 Qq 39, 75

6 C&AG’s Report, para 10

7 Q 86

8 Q 3

9 Qq 35, 37–38

10 C&AG’s Report, para 18

11 Q 10

12 Q 3

13 Qq 16, 17, 99

14 C&AG’s Report, para 5

15 Q 27

16 Qq 60, 63, 66

17 Committee of Public Accounts, Army 2020, 11th report of Session 2014–15, HC 104, 5 September 2014

18 C&AG’s Report, paras 3.6 – 3.7

19 Qq 111–112, 114

20 C&AG’s Report, para 3.8

21 Qq 52, 53; C&AG’s Report, para 14

22 C&AG’s Report, paras 2.18 and 2.20

23 Qq 53, 54

24 Qq 67, 68

25 Q 45

26 Q 56

27 Q 35

28 Qq 32, 37, 79

29 Qq 24–26, 35

30 Qq 128–132

31 C&AG’s Report, para 20

32 Qq 5, 42, 44

Published: 1 March 2019