Government BPO Insight

The Principal Civil Service Pension Scheme is the third largest defined benefit scheme in the U.K. MyCSP now administers four different schemes: Classic, Classic Plus, Premium and Nuvos. In Nuvos MyCSP administers the largest Career Average scheme in the U.K.. NelsonHall estimates the contract to be worth £280m over seven years. This makes Xafinity Paymaster's share potentially as much as £112m as well as new revenues that could come from growing the business. It is no wonder that the tender was hotly contested with Xafinity Paymaster beating Capita, JLT and Wipro.

The government was clearly in no mood to take further risks with its new venture into the unknown. It needed a safe pair of hands to help the venture to success and Xafinity Paymaster, with its long track record of pension administration services, fitted the bill.

The company will be looking to transform the organization's operations such as pensions, payroll, and payments to achieve savings.

Xafinity Paymaster intends to upgrade its Claybrook pension administration software which is already in use by MyCSP. It intends to bring ~50 employees from its own organization to modernize and run the ICT as well as develop MyCSP's sales function. Although not a greenfield site, MyCSP is not a part of the public sector and so will need to transfer to its own enterprise ICT capabilities. The changes are expected to be completed within 24 months.

The six service centers are existing government sites, which MyCSP has rented from departments. These are not divided into specialist functions but simply deliver pension services to different parts of the Civil Service.

MyCSP will be looking to implement Lord Hutton's pension reform recommendations as part of its services.

Fidelity is now the sole recordkeeping service provider for the University of Washington. While vendor consolidation is a common trend in the HRO marketplace, new regulations are the impetus with 403(b) retirement plan administration. Specifically, fiduciary oversight and compliance for 403(b) plans are now similar to 401(k) plans; this makes it more difficult for companies to manage multiple retirement vendors.

Fidelity serves ~3.6m not-for-profit participants including ~10,000 at the University of Oklahoma for which Fidelity is the sole retirement provider.

This contract also highlights another long-standing relationship that Fidelity has maintained. Other examples include:

• HP (since 1991)
• Raytheon (since 1992)
• BP America (since 1998).

HP has been providing payroll services to the U.K. military since 1997, initially in a contract awarded to EDS by the Armed Forces Personnel Administration Agency (AFPAA) and then with the Service Personnel & Veterans Agency (SPVA), the entity formed in April 2007 by the merger of AFPAA and the Veterans Agency. HP was tasked with a new IT system implementation and with improving service quality. In March 2011 HP ES was awarded a 12-month extension to November 2012.

HP's unsuccessful attempt to renew the contract is not about poor performance. In its 2010/11 annual report, the SPVA talks of "excellent team working of both MOD and HP" and the agency's six strategic performance priorities were all met or surpassed. JPA is said to have revolutionized personnel and HR services for the U.K. Armed Forces, through shared services and systems for the RAF, the Navy, and the Army by providing self-service capabilities and a dedicated contact point for help and support.

CSC was not the obvious winner for a major payroll BPO award: it has a very small presence in HR BPO services, most notably within a back-office BPO and IT services contract for NASA. Price was presumably a major factor in the SPVA decision. CSC's relationship with the U.K. government has been stretched over the failure of the two parties to reach agreement over an MoU for the continuation of the NHS' NPfIT Local Service Provider contract. Presumably CSC will be signing the long-delayed MOU with the NHS before this contract is signed.

Capita, the other shortlisted supplier has been targeting U.K. defence sector BPO opportunities, recently winning its first major contract, for recruitment services to the Army.

Capita and HP are also competing against each other in the two major U.K. government BPO contracts currently being contested: the first Department for Transports shared service center, a new opportunity, and the NS&I renewal, where Atos is the incumbent.

Maryland's DHMH is responsible for administering the state's Medicaid program. Until now Maryland has been one of 15 states to operate their own MMIS. Missouri's Medicaid system covers ~900,000 citizens currently: this number will increase substantially, by at least 20% and possibly by over 40%, when the federal healthcare reform act comes into effect. Under its Medicaid Enterprise Restructuring Project (MERP) Maryland will be replacing its legacy system with a new MMIS and chose to use an external services provider to do the work.

DHMH received proposals from Accenture and CSC, but CSC was the only one to submit a BAFO. NelsonHall assumes that CSC's preceding offer was substantially cheaper than Accenture's: its BAFO was 22% lower than the estimated costs provided by DHMH in the advanced planning document it submitted to CMS to apply for federal matching funds. Certainly, this is a much needed win for CSC's health & public sector business.

CSC will be implementing a MMIS based on eCAMS, developed by CNSI. CSC is not that familiar with eCAMS, using proprietary technology for the MMIS at New York and also at North Carolina, where it took over from HP. In a tight schedule for CSC, Maryland is looking for a go-live on the new system by September 1, 2013

This is not a new outsource with some of the services already being provided by Medirest. While FM outsourcing has been a feature in the sector for many years, the sector is going through major change. Private companies are being invited to provide servies that have not been outsourced before including clinical care.

In some cases a range of suppliers are being contracted to deliver specialist services. Patient records are then passed to them by hospital triage services for processing and appointments. A variety of suppliers are getting in on the act including private hospitals that hitherto only catered for private patients who either paid cash or through insurance claims.

Although it has become a highly competitve market, Serco is positioned well to grow its health sector revenues through its range of service offerings:

• FM, as seen in this contract award
• GP out of hours services which it provides in Cornwall
• Back-office BPO services, as demonstrated by the contract awarded by Anglia Support Partnership.

This tender has taken years but Capita has finally won the contract. It has been looking to extend its U.K. defense sector activity for some time, particularly in the back-office. In this contract, it beat competitors such as Serco, which already has a longstanding relationship with the MOD.

Once again Capita has committed to generating considerable financial benefits for its client. The anticipated cost savings in this deal at £300m, are even bigger than the £220m that Capita has committed to in the £560m 8-year BBC TV Licensing renewal.

This is also the largest announced total contract value recruitment process outsourcing contract to date. Previously the largest TCV RPO contract value was awarded to Manpower by the Australian Defense Force (ADF), valued at $200m, for a 3-year period. The annual value of this contract to Capita is roughly equal to the lifetime value of ManpowerGroup Solutions contract with ADF.

CSC will be greatly relieved that an agreement is at last being reached in what has become a very political discussion, receiving a lot of attention by U.K. politicians and media alike.

Negotiations of a MoU in reduction of scope and value were taking place throughout 2011 but on December 27, CSC announced that it had been informed that neither the MoU nor recent proposals for its contract amendment would be approved by the UK. government. Earlier guidance in the November had been of a contract TCV of £2.1bn (versus £2.9bn initially) with an extension expected to June 2017 (see separate articles).

The good news for CSC is there is no contract termination. However, the contract value is much lower than the November 2011 guidance. Under the new agreement, CSC will potentially generate £900m to £1bn in revenues until 2016.

CSC is considering cutting 500 jobs on the NHS contracts as part of a 90-consultation period starting in February 2012. Currently, CSC employs 1,700 personnel in its U.K. healthcare business, working primarily on its NHS contracts.

When signed, this agreement will also put an end to what has efffectively been a blacklisting of CSC for other major U.K. government contracts.

For NHS Trusts, the "base product" Lorenzo software to be implemented will have less functionality, which should enable faster implementation. Also, the new agreement offers more choice to NHS Trusts, both to the 166 hospitals inside the regions in which CSC has been the LSP and also to those in other regions.

The government has opted for this type of contract where the prime contractor delivers some of the actual services and also manages the delivery of the rest by SMEs as part of its policy to boost the SME share of its contracts.

This is one in a string of recent government contract awards to Capita that have included DVLA's tax and insurance enforcement concession, the BBC's TV licensing deal and the Army's recruitement contract. Furthermore, a couple of other tenders have reached the shortlist stage with Capita among the final list of suppliers.

The early termination of this partnership shows the risks that are inherent in long-term contracts when requirements and circumstances change due to external factors. The projected £2.8m savings is significant at ~17% of the annual cost of the contract. It is a significant sum for a council that has to save >20% in costs following the Spending Review 2010.

The new opportunities that the council is talkiing about include new partnerships with the NHS, following the government's plans to bring closer the work of local health and social services. In January, Rotherham MBC started work on a combined one-stop council and health center for the residents of Rawmarsh. This is the council's third joint venture which provides health facilities by NHS Rotherham. The other two are located at Maltby and Aston.

Experian has operated the Motor Insurance Database, a UK motor insurance industry initiative to combat uninsured driving, on behalf of the Motor Insurers Bureau since 2003. The Motor Insurance Database holds details on all UK insured drivers, covering over 25 million motor insurance policies, 34 million private vehicles and 4 million commercial vehicles. 1 in 20 cars in the U.K. are uninsured.

The client DILA is required to have a balanced budget and therefore sells its services to other government agencies. It operates 24/7. The private cloud datacenter designed by Accenture is to host applications used by other agencies.

G4S beat 12 other bidders to win this contract, including a partnership between Steria and Reliance that had made it to the final shortlist alongside G4S.

This is the biggest multi-process outsourcing contract ever let by a British police authority. Steria's contract with Cleveland Police awarded in 2010 was for £175m over 10 years which saw ~475 civilian staff transfer to Steria.

While G4S is generally known for its security services, and offender and facilities management, it is not well known for back office BPO. The contract extends G4S' portfolio into back-office services, demand for which in the U.K. public sector is on the increase as more public agencies look to outsource services to save costs.

Lincolnshire Police hopes that in time it can turn its centers of operations into service hubs for sharing services with other police authorities.

G4S' win is a blow for Steria which has ambitions to deliver shared services to Police forces in the U.K. based on its multi-tower BPO contract with Cleveland police. Steria has relationships with over half of the police authorities in the U.K. for its 'Storm' command & control system.

The council is having to cut spending and 350 jobs are likely to be axed. This has led to some councillors questioning the value for money that the Impact Partnership offers. This is despite the partnership having reportedly generated £3.3m of savings since it started in 2006.

The decision by Rochdale Council to terminate may indicate concerns about Mouchel's financial stability. If indeed the termination will have little impact on its profitability or cash, then clearly the contract was not profitable.

The value of this contract to arvato has not been disclosed but we estimate it to be ~£7.5m pa.

This is the fourth public-private partnership (PPP) agreement that arvato government services has entered into in the U.K.. Previous PPP deals include:

• A 10-year ITO/BPO services contract by Chesterfield Borough Council in the U.K. jointly with partner, Kier.
• A 10-year PPP with Sefton Metropolitan Borough Council in Merseyside signed in 2008 covering a range of finance and IT services
• An 8-year PPP contract with East Riding of Yorkshire Council signed in 2005.

The government spending cuts has increased the trend for partnership deals between local authorities and suppliers but these types of contracts are not always profitable. Only today, in its interim management statement, Mouchel announced that it was in talks with Rochdale Council to mutually end a 15 year partnership agreement. Mouchel states that the termination will reduce its order book by £130m but will have little impact on its profit or cash.

Slough is hoping to achieve £1.4m of savings in total from 2012 to 2014. It is also hoping to provide services to other local authorities, public bodies and the private sector. This is an interesting move by the council which pulled out of a shared services scheme with Cambridgeshire and Northamptonshire county councils in 2010. Historically local authorities have shown a preference for providing shared services to others and not consuming them. Cambridgeshire and Northamptonshire have pressed ahead with their Local Government Shared Services (LGSS) program but are yet to win over another partner/client. The Southwest One shared services scheme between Somerset County Council, Taunton Deane Borough Council and Avon and Somerset Police has also continued with its original partners since 2006.

The opening up of services to the private sector is a new trend in the public sector and only time will tell if it will be a successful venture.

Capita's relationship with the BBC goes back a long way. It first started to deliver TV licensing administration services to the corporation in December 2001. Prior to that, Capita had been providing audience research services to the BBC since 1999.

Under the new contract, Capita's responsibilities will increase to include management of the TV Licensing's collection, administration and enforcement services being performed by iQor. The two companies working together are expected to reduce duplicated effort. Capita is also going to be managing the direct marketing aspect of TV Licensing so that activity can also be combined with the end-to-end customer service, from notification through to collection.

The consolidation of the two contracts should assist to some degree with the drive for efficiency savings. The target of £220m savings over the life of the contract is ~40% of the contract value: even with the amalgamated contracts, it remains an ambitious target. Capita will be using analytics to more robustly target non-payers. The technology can also be used to automatically trigger action with workflow. Another possibility is increasing off-shoring of back-office functions: some off-shoring is already in place in the old contract and we anticipate this to increase further.

To win this renewal, Capita has had to beat tough competition from the other shortlisted bidders Capgemini, IBM and Accenture. All are better known than Capita for their capability to apply technology to bring innovation to transform services, yet according to the BBC Capita's bid was the best for innovation and efficiencies. A review of BBC's TV licensing data bears witness to the efficiencies at least:

• Gross revenue for 2010/11 was £3,242m up 2.5% YoY
• Costs as a % of revenue were kept relatively steady hovering at around 3.5% from 2007 to 2010
• Self-service transactions over the web and the telephone have increased from 35.3% in 2008/09 to 54.2% in 2010/11 and are expected to increase further in 2011/12.

NelsonHall believes the deciding factor in Capita's securing of the renewal was in its willingness to reduce its pricing.

Capita's latest renewal comes on the back of its 7-year, £80m renewal in October for the administration of the Teachers' Pension Scheme and also a one-year extension to its work on the Criminal Records Bureau. There has been a spate in the U.K. government sector of outsourcing renewal awards to incumbent suppliers: good news for suppliers such which have major contract renewals coming up.

Unlike its predecessor, CNX II will not have separate individual categories that require client selection before a task order can be competed and awarded. Instead, CNX II will have four solution sets:

• Communications and networking solutions
• Building and campus facility preparation
• Operations administration & management (OA&M)
• Customer service and technical support.

Federal agencies can request work in one or more of these solution sets, or request an entirely new solution.

SAIC is one of 21 vendors included in CNX II: others include HP ES, General Dynamics, BAE Systems, Ciber, Harris IT Services, AT&T, and Verizon.

Capita Software Services acquired Talis Information Limited, a supplier of LMS, for £18.5m in March 2011. The Hive contract is the second library systems win for Capita since the acquisition, the first having been with Barnsley Metropolitan Borough Council, awarded in June 2011.

The Talis acquisition brought with it library self-service offerings that will help with improving the efficiency of processes at the Hive; the first shared library service that combines university and public library functions.

Library services are under budgetary pressure and more consolidation and sharing of resources is expected among them. This type of activity typically leads to different library systems being replaced with a new shared platform. Accordingly, Capita is expected to extend its offerings by combining its LMS with managed services to target the market with end-to-end capabilities.

This is the renewal of a 7-year, $93.7m contract for Medicaid services signed by EDS and the DHS in June 2004. HP has acted as fiscal agent for Arkansas since 1985.

The per annum value of the contract has increased partly due to the increasing number of Medicaid claimants in Arkansas and partly as additional services are included, such as the health records system.

EDS employed ~170 people on the 2004 contract.

(NelsonHall is about to publish an uodate Key Vendor Assessment on HP Enterprise Services)

NGS is the Part A incumbent in the majority of states in J6 already but will be assuming control of Part B activities from Wisconsin Physicians Service Insurance Corporation (WPS) in Illinois, Minnesota and Wisconsin over the next few months. In addition, NGS will be assuming responsibility for Part A activities from Noridian Administrative Services (NAS) in Minnesota.

NGS will be actively trying to secure the J5 contract, currently held by WPSI, but is undergoing recompete at present. Should NGS be successful with J5, it will place in them in a strong position when CMS consolidates J5 and J6, to be known as Jurisdiction G, in several years' time.

This is part of a longstanding relationship between HP and CMS. HP currently manages the DME contract in California and the Medicare Part B claim payments as the jurisdiction 14 administrator. J14 includes Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

At $72.3m the renewal is >$12m more than the original contract, possibly a reflection of the increasing Medicare population.

Thanks to its hardware business Dell already has a strong presence in the public sector in Europe and so should be able to tap into emerging opportunities for related services. Furthermore, the acquisition of Perot Systems has given it strong capabilities in its health target market. These capabilities include healthcare systems integration, consulting and revenue cycle management BPO, electronic medical records (EMR) and practice management hosting. It is also through Perot Systems that Dell Services is subcontracting for BT on the implementation of local electronic patient record systems in England within the London local service provider contract for the National Health Service's National Programme for IT (NPfIT). That experience should help Dell with its ambition to win future opportunities for converting patient records to digital formats and to integrate and link the data with related systems.

Dell services is also positioned well to offer cloud-based storage and utility computing with both Dell and Perot Systems having made investments in this area.

Dell has expressed strong ambitions for its services arm, wanting it to grow to match its hardware. It still needs to make more of its Perot acquisition by exporting expertise to Europe from Perot's heartland in the U.S.. It also needs to win more services contracts and should have opportunities as the health market evolves.

Despite the potential for growing Perot's heritage business, organic growth alone is unlikely to enable Dell to achieve its stated ambition for increasing its services revenue. Another acquisition is very likely.

Next to Japan, whose working population is ageing, India is forecast to have the most difficulty filling jobs due to a mismatch between talent needs and talent available: this is thus an important initiative for India's National Skill Development Corporation. JobSkills is Genpact to provide expertise in:

• Content design and development capabilities
• Analytics emphasis, all clients are provided with measurements
• eLearning capability, ~85% of Genpact's courses are delivered through eLearning, which includes virtual instructor training (VLT).

Genpact also has the ability to provide training administration and implementation of training should services be required beyond 'train the trainer'.

This is the fourth new contract, renewal or extension that Capita has been awarded for revenue and benefits services this year. The other three were awarded by Oxfordshire and Vale of White Horse District Councils, London Borough of Bexley and LB of Brent. Capita is showing flexibility in contract terms including doing more for the same price, reducing its performance related payments and committing to investing in the local community. To some, the Capita juggernaut must look unstoppable but competitors will up their game. These include Liberata which has put its pension hole problem behind it and which, going forward, is free to concentrate wholly on business development.

These Capita contract wins show that local authorities are getting smarter with procurement of services. Not only are they expecting more for their money, even from a long standing supplier such as Capita, but they are getting smarter with the cumbersome OJEU tendering process. Adding options to extend the length and scope of the contract from the beginning leaves them with flexibility for the future and minimizes contracting overheads. In this case, it includes the option to extend the services to partners.

One problem with public sector shared services is that there are many bodies that want to provide services and not enough wanting to take them. Lambeth's option to extend Capita's services to partners shows that it wants to be the provider and not just the receiver of services.

The combination of VED and CIE makes the services to be provided under this contract large in scale. Capita's scale will have helped it win this contract against NSL, the VED services incumbent contractor (who now provides the enforcement services in London as a sub-contractor to London), and Mouchel.

The contract price looks low compared with Capita's former revenue of ~£50m pa from the London Congestion Charging Scheme. Although the scope of services are not the same (for example, Capita does not have to do the database comparisons as the DVLA will provide it with the list of vehicles to take action against) the scale is significant and Capita will have upfront costs of setting up and equipping staff.

Capita states that it intends to equip its enforcement officers with Android mobile phones, satellite navigation and digital pens, invest in route planning and scheduling software and upgrade its vehicle fleet. It will deploy a modified version of the software used by Equita, its enforcement arm.