Capita’s contracts with the Ministry of Defence Contents

2 Achieving future benefits

Recruiting the skills that are needed in the future

22. The evolving threats to national security mean that nature of the Department’s work is changing rapidly. It is seeking to develop its future force to ensure that it has the skills and capabilities that are needed, particularly in areas such as digital technology and cyber security.33 Our September 2018 report on Skill Shortages in the Armed Forces highlighted the long-standing problem of skills shortages and the challenge of recruiting the specialist skilled personnel needed to meet future ambitions.34 The Department told us that it has a skills plan and considers options to address shortages, including the remuneration package for trades with shortages and lateral entry into these trades. The Army also considers its shape, size and skill requirements and, on this basis, sets targets for Capita to recruit into specific groups. However, Capita did not achieve the Army’s requirement in more than five of 17 target groups in any quarter in 2017–18.35

23. We were concerned that the Department’s policies restricted its ability to recruit the specialist skills that it will increasingly need in the future. The Department told us that it was not changing its entry standards but has widening its entry criteria. For example, it is revising its medical conditions, considering areas such as mental health standards and musculoskeletal requirements, to attract a wider range of people.36 The Department is also growing its cyber capabilities, essential in a changing world. It is engaging with other government agencies to consider the entry requirements of people with cyber skills, and the extent to which they need to meet military standards and criteria. The Department accepted that these developments will require a fundamental change to the culture of the Armed Forces which had to be managed carefully. We were not convinced, however, that the Department was thinking radically enough or re-assessing its policies at the necessary pace.37

24. The Army has closed 68 local recruitment centres, more than half of the local offices it had in 2013. It claimed that the closures were largely in rural areas and based on an analysis of the number of applicants coming from those offices.38 However, the Committee found that some of the closures were in areas with historicall high recruiting rates or had the effect of requiring applicants to travel long distances.39 The National Audit Office report shows that closures have increased journey times to local offices.40 Capita claimed that the location of offices is not fixed and also, using its analysis of the origin of applicants, it could use its mobile facilities to increase its representation in areas without a recruitment office. We were concerned, however, that the Army was limiting the pool of potential recruits, and consider it should not rely solely on data on applications to indicate potential interest, nor should it underestimate the value of face-to-face recruitment drives.. The closure of offices has also reduced its ability to travel to schools and colleges to generate interest in careers in the Armed Forces.41

Achieving the intended savings

25. In 2012, the Department forecast that it would save £267 million over 10 years from its partnership with Capita, mainly by withdrawing personnel from the recruitment process and redoplying them to frontline operations.42 In January 2019, the Department forecast that it would now save £180 million, a reduction of 33%. At our evidence session the Department could not, though, provide us with clarity on the number of soldiers that were still involved in recruitment, or would be needed in the future.43 The Department has since written and stated that there are currently 417 military recruiting posts, which includes 374 Regular personnel and 43 Full Time Reserves.44 The National Audit Office found that the Army had employed additional military personnel to improve awareness of recruitment campaigns.45

26. The Army has achieved savings of just £25 million in the first six years of the contract, which means it expects to save £155 million in the remaining four years.46 Achieving this is dependent on delivering the remainder of the Programme within the budget of £1.36 billion. In October 2018, the Army was within budget, but the increased cost of the Capita contract – which had risen from £495 million to £677 million – was a significant factor in the Army using all of the Programme contingency of £199 million. This, and the lack of certainty over the need to use Army personnel to boost recruitment in the future, meant that the Army was not confident of achieving these savings.47

27. The Army and Capita jointly developed the online recruitment system. The Army incurred costs of £113 million and Capita invested £60 million to bespoke the system to meet the services’ recruitment processes and criteria,48 Capita told us that the Army will have an in-perpetuity right to use the system for an industry-standard maintenance fee.49 We were concerned, however, at the risk of commercial exploitation and the potential future cost to the Army, given that it had co-created and co-funded the system. The Army is exploring its future options, including its ability to adapt the system in the future, the potential costs and possible alternatives.50

28. The Army aimed to transform recruitment by bringing in Capita’s expertise in recruiting and marketing.51 It removed 900 of its military and civilian personnel as Capita introduced its own professional recruiters. Given this, we were not convinced that the Army was doing enough to build up its capability so that it would have the option of reverting to an in-house approach in 2022, rather than be reliant on Capita.52 The Army has recently introduced a new Programme to explore its options for recruiting across the three frontline services and the Department’s civilian workforce. It plans to trial new ideas to build its understanding of the options before 2022, and inform its thinking on whether to continue with its partnership with Capita.53 The Department plans to consider its options in early 2020.54

The Department’s wider relationship with Capita

29. The Department has 81 current contracts with Capita, as well as 49 more where the final payments have not yet been made or which have yet to be closed. Together these arrangements are worth £1.28 billion.55 The Department told us that of the contracts it had with Capita, two - for army recruitment and for managing the defence estate for the Defence Infrastructure Organisation - account for around 90% of payments made last year to the company. In addition, in June 2018, Capita won a further important contract for Defence Fire and Rescue Services but this is currently subject to a judicial review.56 Most of the remainder are small contracts, where the Department told us that it is not dependent on Capita as it could use alternative suppliers. Capita secures around 46% of its revenue from the public sector as a whole, but just 4% from the Department.57

30. As we noted last year, poor performance by Capita on the defence estate contract has led the Department to end it five years early and take responsibility for managing the estate back in-house in 2019.58A number of aspects of the inadequate set-up and management of that contract were similar to that for army recruitment, including the delay to the necessary IT system and misaligned objectives.59 Both Capita and the Department state that their relationship is now stronger, with new people in post on both sides. Capita was supportive of the reforms that are being pushed forward by the Cabinet Office and stated that it is committed to the ‘living will’ concept, in case of contractor failure.60 The company told us that the calibre of dialogue with government is much higher than it was, and that closer working relationships was important in avoiding problematic outsourcing contracts. The Department also considered that Capita had been constructive in their approach to transferring key personnel over.61

33 Qq 97, 99

34 Q 117; Committee of Public Accounts, Skill shortages in the Armed Forces, Session 2017–19, HC 1027, 12 September 2018

35 Q117, C&AG’s Report, para 2.23

36 Q 95

37 Qq 91, 96, 97

38 Q 81, C&AG’s Report, Figure 5

39 Qq 80, 83

40 C&AG’s Report, para 2.17

41 Qq 80, 83–86

42 Qq 121, 124

43 Qq 122, 123

45 C&AG’s Report, para 3.12

46 C&AG’s Report, para 3.12

47 Qq 122, 123

48 Q 35, C&AG’s Report, para 9

49 Qq 103, 109

50 Qq 107, 110, 111, C&AG’s Report, para 12

51 Q 10, C&AG’s Report, para 1,5

52 Qq 18, 35

53 Qq 98, 99, 105

54 Q 125

55 Q 133

56 Qq 157–162

57 Qq 134, 141–142

58 Committee of Public Accounts, Ministry of Defence’s contract with Annington Property Limited, Fifty-third Report of Session 2017–19, HC 974, 13 July 2018

59 Q 154

60 Qq 144–150, 156

61 Qq 153,155–156

Published: 1 March 2019