Capita closes in on £1.7bn deal with Staffordshire County Council

Capita has confirmed that it has been recommended as the preferred bidder to create an educational support services joint venture (JV) with Staffordshire County Council, in a deal that is worth £1.7 billion over twenty years.

The news follows Capita beating BT to be selected as the preferred bidder for a £320 million IT and business process outsourcing deal at London Borough of Barnet.

These two significant deals are likely to somewhat make up for the loss of its ten year long contract with the Home Office to provide criminal record checks to Tata Consultancy Services, which is worth £143 million.

The Staffordshire JV, in which Capita will hold a majority stake, will deliver a range of educational support services for schools and academies in the region. It is expected to generate revenues of approximately £85 million per annum from Staffordshire.

Capita still has to gain approval by the Cabinet at a meeting on 5th December, but providing this goes ahead, the Council will commence detailed negotiations to formulate the JV that will underlie the long-term partnership.

As part of the agreement, Capita will acquire its stake in the joint venture with an initial investment of £24.9 million in the first year and a further £6.6 million over the following three years.

Some 3,800 staff are expected to transfer to the newly formed organisation.

Deals of this nature have been criticised by public sector IT managers association Socitm, which has said that lengthy outsourcing contracts with the private sector are ‘highly risky’. It recommends ‘strategic sourcing’ as a better alternative.

Strategic sourcing aims to find the best mix of local public, voluntary and private sector organisations to deliver the services required through a range of formulas, from informal service level agreements to formal contracts.

Potential suppliers may include collaborative partnerships, single public sector organisations providing services to other parts of the sector on a commercial basis, voluntary or third sector organisations, the community itself, and commercial suppliers, including SMEs.

Capita’s JV with Staffordshire also aims to secure revenues by targeting local authorities, schools and academies across the UK. It has said that it aims to achieve £2 billion in revenue over the first ten years, which has been criticised by TechMarketView’s research director, John O’Brien.

“That £2 billion figure seems very ambitious. Even including current spend with Staffordshire the JV will need to generate £115 million in additional third party annual revenue to hit this target,” he said.

“Without any firm evidence of interest from other authorities, it’s hard to believe this is achievable – certainly we have seen very little evidence of similar shared services programmes taking off anywhere near to that degree.”

Copyright © 2012 IDG Communications, Inc.

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