Outsourcing options appraisal

Rochford District Council (RDC) faced important decisions regarding future options for its outsourced ICT service. The contract was awarded for 10 years and they were approaching the option for an extension for up to two more years. Since the award of the contract in 2001 the charges had significantly increased fuelled by indexation and contracted changes. Options to be considered included the two-year extension, re-letting the contract, or bringing the service in-house. In particular, the Council was concerned the option it chose supported the financial savings it needed to achieve over the forthcoming years. Equally it wished to remain flexible in order to take advantage of any shared services opportunities. It was necessary to ensure a timely decision was made on the extension in order to allow enough time for a procurement project to re-let the contract.

A recent benchmarking exercise had indicated that Rochford’s ICT costs were higher than other authorities in Essex. Even taking account of the small size of the authority, Key Performance Indicators such as average support costs per workstation were a cause of concern.

Socitm Consulting was commissioned to undertake an options appraisal of the Council’s requirements for future ICT services and to support it in selecting the most effective option in terms of the Council’s wider strategic requirements.

Socitm Consulting facilitated a visioning session with the senior management team. We then went on to advise the Head of Information and Customer Services on the options and issues to consider. It was agreed that the preferred option was to extend the existing contract provided improvements in value for money (VFM) could be secured.
We then supported the client in negotiating revisions to the scope and charges to a point that VFM comparable to benchmark peers was achieved, and the decision was accepted by members and management.

This involved round table discussion and feedback on a number of draft iterations of a formal contract Variation Order, through which the charges in the extension period were revised leading to estimated savings of over 20 percent.

We recommended that RDC could realise significant savings in terms of the mark-ups on purchases. We also helped reduce the way variations and changes had driven up costs by getting the supplier to limit increases in charges to actual cost increases. Finally it re-established a joint commitment to use the account management function to generate a continuous improvement programme, (CIP) and release the renewals fund to be available to support future development of ICT services such as the CIP.

We supported the Head of Information and Customer Services in preparing the report to the Council Leader, Portfolio Holder and the Chief Executive. The proposal to extend the contract was agreed within the timescales.

By providing expert knowledge of ICT Services benchmarking and the outsourcing market and experience of reviewing contracts, Socitm Consulting was able to support the Council to analyse its options for the future of its ICT Service in terms of its overall strategic priorities. We were able to offer the Council a timely decision and to support them in taking ownership of the most effective solution for its future ICT Service. As a result, the Council was able to secure its flexibility in terms of responding to shared services commitments while making significant short term savings, which enabled the Council to release funding for future development within its ICT strategy.

The consultancy fees totalled £20,000 and the savings over the 2-year extension are in the order of £350,000 plus some future cost avoidance. In addition we achieved savings over the remainder of the original term, estimated to be at least £50,000. This represents a very healthy return on investment at 20:1. Further more the authority now has a better understanding of the issues and is likely to be more successful in its on-going relationship management.

Project identification
Client organisation: Rochford District Council
Client contact: Sarah Fowler, Head of Information and Customer Services, 01702 318135, Sarah.Fowler@rochford.gov.uk
Lead consultant: terry.street@socitmconsulting.gov.uk
Project no: 6925