NAO finds little evidence of savings from centralised training contract

In: BlogDate: Apr 02, 2015By: Henry Stewart

In February I wrote about the government decision to outsource all its training – in all subjects and for all departments – to one supplier, Capita. I suggested that contracts like this rarely produce better value, as any savings from economies of scale are offset by the extra cost of administration.

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The recent report by the National Audit Office, on the Capita contract, appears to support my view:

“Cabinet Office are in a reasonable position to claim that the overall strategy of centralising training is delivering savings, particularly in the core curriculum, but is not in a position to say whether the procurement of bespoke training through the Capita contract is achieving sufficient savings to offset Capita’s management fee for those courses.”

The National Audit Office also confirms that “departments are likely to pay more for courses where they have kept the same provider for the course, but that provider is now routed through the CSL contract.”

So they are not able to report savings overall from the contract and acknowledge that some departments are paying more as a result of it.

The claimed savings: do they stand up?

NAO reports that Civil Service Learning (CSL) claims a saving of £89 million from the contract. Oddly it does not include the 18% cost that Capita adds onto each training contract when calculating this saving. So the saving is, not including this fee, is not a real saving compared to previous spending.

£77 million of this saving comes from alternatives to one set of courses from one provider, the National School of Government. Only a £12 million saving is claimed from the whole range of other training that was previously delivered by dozens, if not hundreds, of training providers.

Perhaps a better solution would have been to review the contracts with the National School of Government and put them out to competitive tender, which would have brought similar savings (but without the 18% additional cost). It is likely that the £12 million of claimed savings across all the other courses is significantly less than the fee that Capita adds for that provision.

£12 million of claimed saving, but not compared to previous spending

However close examination of the claimed £12 million of savings reveals a very odd methodology:

£3 million of the claimed saving is from reductions in the Capita fee from 22.2% to 18%. Thus CSL does not include the cost of the fee when comparing costs, but does include the reduction in a fee that wasn’t taken into account in the first place!

The other £9 million is described as “savings from procuring specialist courses through competition”. One would assume that current prices have been compared to previous prices and the saving has been calculated.

That assumption would be wrong. Instead “Capita compares the price of the winning tender for each procured course with the average of the unsuccessful bids”. No attempt is made at all to calculate savings from what was actually paid previously.

This is a very strange way of calculating a “saving”. It would be valid only if government departments chose providers at random with no awareness of which were best value, and never themselves chose through competition.

It used to be the case that 25% of my company’s training income came from central government. I cannot recall one single instance where a substantial contract was awarded without competition. This £9 million is not a saving, but presumably exactly the same amount that would have resulted from similar competition outside of the Capita contract.

In fact the £9 million is likely to be less than the savings that would have occurred anyway from competitive tendering as, under this contract, not all provision faces competition. Some is simply awarded to the central provider or their partners.

Conclusion: A very strange way to produce savings in training provision

Having read the NAO report I am not surprised that the Crown Commercial Service, who are responsible for the contract, have repeatedly refused – despite my Freedom of Information requests – to release details of how their claimed savings were calculated.

The one area of significant saving is from a contract with a single provider, which appears to have been charging well above the market rate (though, to be fair to them, there is no evidence of whether the quality is comparable). It did not require a massive and complex centralised provision, covering every single central government training contract, to achieve that, but simply a requirement to put these courses out to the same competition that all other government training providers have always had to face.

The remaining claimed £9 of saving from competitive tendering does not reflect a saving on any previous spend. Instead it simply reflects the same saving from competitive tendering that those government departments would have secured anyway, and without having to pay an extra 18% in management fees.

Any impartial observer can only conclude that this is a crazy way to procure training. Government department cannot deal directly with training providers but have to go through a central provider

One assumes that when this contract ends in 2016 a sensible analysis will come up with a method with less central overhead, more competition, and more openness to all training providers and not just those favoured by the central supplier.

Statement of interest

As I noted in the previous post my company, Happy Ltd, lost 25% of its income when this contract was introduced. This was not because our provision was uncompetitive or due to any quality issues. It was simply because we were no longer able even to bid for contracts that we used to win in competitive tender. Instead that provision has gone, normally without a competitive tender, to the “prime” providers on this central contract.

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Henry Stewart, Founder and Chief Happiness Officer

Henry is founder and Chief Happiness Officer of Happy Ltd, originally set up as Happy Computers in 1987. Inspired by Ricardo Semler’s book Maverick, he has built a company which has won multiple awards for some of the best customer service in the country and being one of the UK’s best places to work.

Henry was listed in the Guru Radar of the Thinkers 50 list of the most influential management thinkers in the world. "He is one of the thinkers who we believe will shape the future of business," explained list compiler Stuart Crainer.

His first book, Relax, was published in 2009. His second book, the Happy Manifesto, was published in 2013 and was short-listed for Business Book of the Year.

You can find Henry on LinkedIn and follow @happyhenry on Twitter.

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