The National Audit Office has revealed the findings of its investigation into the way outsourcing firm Capita has handled the £250m contract to manage civil service training.
Under the Civil Service Learning deal, awarded to Capita in 2012, departments now buy training for staff through a single system overseen by the firm, rather than from suppliers directly. The changes were made in an attempt to reduce costs, standardise training, and end differences in the amount departments were paying for courses.
But the National Audit Office launched a probe into the contract last month after concerns were raised by some of the training providers sub-contracted by Capita that the company was crowding out small business. One group of small and medium-sized firms, led by training provider the Faraday Partnership, has also lodged a complaint with the Competition and Markets Authority about the use of clauses which they say limit the ability of smaller companies to compete with Capita.
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The NAO's report, published last night, investigates four main concerns put to it by sub-contractors. It looks at whether Capita used anti-competitive clauses in its contracts with suppliers; whether it put enough of the training contracts out to open competition; whether it charged the correct management fees to departments for its services; and whether it met its obligation to pay suppliers within 30 days of work being completed.
The watchdog does not pass judgement on the overall value for money of the CSL contract or Capita's general relationship with suppliers, and does not scrutinise the quality of the training procured by Capita.
But the NAO says it has seen no evidence that Capita has inflated its management fees, or that it has intentionally delayed payments to suppliers.
It concludes that the firm is “highly likely” to have exceeded its target of ensuring that 51% of contracts awarded through the CSL framework are done so after an open competition process. However, the NAO expresses some doubt over Capita's claim to have procured almost three-quarters of civil service training courses in this way. The company has welcomed the watchdog's findings.
'Anti-compete' clauses
One clause in Capita's standard contracts with training suppliers – which has since been removed – says sub-contractors cannot "solicit, accept or facilitate the acceptance of, or deal with the custom of" government departments until a year after providers' agreements with Capita have come to an end.
Providers told the NAO that this clause – 13.1 – could be used to stop them from competing against Capita when the entire CSL contract comes up for renewal in April 2016.
But Capita told the NAO during its investigation that this clause had in fact been included at the request of the Cabinet Office in order to ensure that all training requests by departments were made through the new, centralised system "and not directly with market" as had been the case before CSL was brought in. The NAO points out that Capita has written to all sub-contractors this year to formally remove clause 13.1.
The NAO stops short of offering any conclusions on the use of anti-compete clauses in the CSL contract. But it says there are "a number of legitimate reasons" for their inclusion in public sector deals, such as protecting commercially sensitive information.
Open competition
The NAO also says it is "highly likely" that Capita has met a requirement for at least 51% of the training procured through CSL to be done so after a competitive process, but flags up concern about the way the company has classified a number of contracts.
"Capita had not introduced standard documentation for recording the actions taken and decisions made on open competitions," the watchdog says.
"As a result, it proved difficult to confirm that agreed procedures had been followed at all stages. Given the lack of a clear audit trail and the level of misclassifications found, we conclude that Capita has not achieved 73% of training through the open market as it reported in January 2015. However, the small value of the procurements which were misclassified in our sample suggests that it is highly likely that Capita has exceeded its KPI [Key Performance Indicator] target of 51%."
The watchdog points out that Capita has used 583 separate suppliers to provide CSL training since the start of the contract. Capita has run 8% of the training services offered under the scheme itself, the NAO says, while noting that one of the company's subsidiares - BlueSky - has also won £93,000-worth of contracts. No other Capita subsidiaries were found by the NAO to have won CSL contracts.
Payment target
On late payments, the NAO points out that Capita has not, "since the start of the contract", met its target of making 100% of payments to suppliers within an agreed 30-day period.
But the watchdog says Capita has had some success in speeding up the payment times since drawing up an improvement plan with the Cabinet Office in June 2014. The NAO says it could find "no evidence” that Capita has “deliberately withheld payment of valid invoices", and says it "normally pays valid training invoices 21 days from the invoice date".
A spokesperson for Capita told CSW that the company was "currently paying 92% of invoices within 30 days" and was "working hard to ensure that this figure moves ever closer to 100%".
An analysis of Capita's financial systems carried out by the watchdog also suggests that the firm is currently paying out £4m more to sub-contractors than it is receiving from government because of delays in payments from departments. CSW is currently awaiting a response from the Cabinet Office on that finding.
Management fees
The watchdog finds no evidence that Capita has incorrectly calculated the management fees it charges to departments for running the CSL system.
The NAO says that, since 2012, the company has taken an average of 21.6% of the total paid by departments for training courses run by larger 'Prime Providers'. The proportion taken up in management fees for courses procured through the open competition process is slightly lower, standing at 21.1%.
“We verified that Capita was correctly calculating its charges to departments by reviewing a random sample of 60 [training] events in our examination of open competition,” the report states. “Our analysis found that the overall management fee that Capita charged to departments was in accordance with the contract rates and later negotiations with CSL.”
While the NAO concludes that departments who have stuck with the same training suppliers they were using before the introduction of CSL “are likely to pay more for courses” because of the additional management fees charged by Capita, it says the Cabinet Office is “in a reasonable position to claim that its overall strategy of centralising training is delivering savings” for government as a whole.
'Acted properly'
A spokesperson for Capita told CSW that the company had been "fully supportive" of the NAO probe and said it welcomed the watchdog's findings.
"Capita acted properly with regard to the contract’s aims and has ensured that the majority of training courses are delivered by a range of external suppliers, including many SMEs, who secure work via an open market process," the spokesperson added.
Vince Heaney, a spokesperson for the 'Not Acceptable' campaign - the consortium of 36 SMEs which has filed a complaint about CSL with the competition regulator - said the NAO's probe had failed to address its concerns and was overly reliant on Capita's evidence.
"It is disappointing to find that the real concerns of the small business community are yet again ignored with no evidence being considered and the requirements of competition law playing no part," he said. "We will therefore continue our public campaign for the real evidence to be considered and questions answered."