Capita Contract

MQT on 2003-09-17
Session date: 
September 17, 2003
Question By: 
Sally Hamwee
Liberal Democrats
Asked Of: 
The Mayor



Answer for Capita Contract

Answer for Capita Contract

Answered By: 
The Mayor

The Mayor: This was addressed in my recent letter and was discussed at the Budget Committee on 11 September. In summary, the contract was awarded after an extensive competitive process in line with EU procurement rules. Capita was less expensive than the alternative short-listed provider and had greater risk transferral. Capita also had a far better developed solution for retail sales than the alternative short-listed bidder. The final decision to enter into the contract was taken by the TfL board unanimously after extensive advice from TfL officers and their external advisers. The recently agreed supplementary agreement adds to the best value.

Sally Hamwee (AM): As you know, we are obviously delighted that in terms of tackling congestion the scheme appears to be doing so well. I know that you have confirmed that it remains best value and is even better value following the renegotiations. At the Budget Committee last week, you said " and I am quoting " "We renegotiated the contract so that Capita can make a decent and honest profit and a reasonable profit and we clamp down on those people who are specifically evading paying". Could not Capita have looked after themselves in the first round of negotiation and organised an adequate profit then?

The Mayor: The advice we were giving them about the scheme was that the number of private cars being driven into Central London would be cut by half of what it eventually turned out to be. The contract was structured so that Capita gained their profit by a small commission from each person driving in. Once we saw that instead of the 20% reduction it was a 38% reduction, effectively it was virtually impossible for Capita to have a viable contract and income stream.

Equally, we underestimated the number of people who would evade so what we have now done is we have structured the contract so that, providing Capita catch the people who are evading, they will make a reasonable profit. By catching those people, the income stream to TfL will rise from somewhere in the low £60 million this year to £88 million next financial year.

Sally Hamwee (AM): I would not for a moment say that evaders should not be brought to task but you told us that the reason for the renegotiation was because the customer service was appalling. It was not adequate and not acceptable and you sent off Bob Kiley to terrify them and then Peter Hendy as the good cop to persuade them. It is a new scheme, yes, with a lot of unknowns but the one known in this would be customer service. That really was where Capita was falling down and that was what persuaded you to go and renegotiate it according to what you told us last week, was it not?

The Mayor: Capita's creation of the software and the computer systems was excellent. One cannot complain at all. Their customer service was completely unacceptable, which is why, had we not been able to negotiate the amendments to the contract, we would have had no alternative but to suspend the scheme until a new contractor could be found to step in.

Sally Hamwee (AM): My point about that is that customer service is something that everybody ought to have been adequately prepared to negotiate and put all the building blocks in place ahead of time. This is a rather different issue to things like the cameras and so on. Was is the credible threat that you would have pulled out of the contract, either for financial or political reasons? The constraints on you financially and perhaps particularly political must have been such that Capita thought, "Well, he does not really mean that".

The Mayor: They had no doubt that we meant it. We could not have sustained the level of customer service because had we not got the improvements we now have negotiated, the whole question of enforcement would slowly have unravelled. We might have got away with it for a few more months but eventually it would have been unsustainable. That is why once our team went in to do these negotiations, led by Peter Hendy, they went in knowing that if we could not gain the amendments we required, we would suspend the scheme and cancel the contract. That was made clear to Capita, which helped, I think, in getting to an outcome that benefits both them and us.

Sally Hamwee (AM): What a huge political risk that would have been.

The Mayor: I am used to taking them.

Sally Hamwee (AM): You also told us that it is not always possible to transfer risk to the private sector. Was it acceptable to transfer risk to London taxpayers? The Mayor: I think this concept, which has underlain so much of privatisation, about transferring risk is grossly overstated. In all the PFIs that I am now beginning to look at that we have inherited for London Underground, I have to say that transferring risk is an illusion. Equally, when one is locked in with a firm like Capita, which was really the only credible bidder for this contract at the end of the day, the position they know as well is there would be a huge political price to be paid by myself if we had had to suspend the scheme and people had seen the congestion flooding back. So it was hard-nosed negotiating.

I am not for one minute suggesting this firm is a group of happy philanthropists. They are there to make the biggest profit they can get. What we have now locked them into is an amended contract which should see the income to TfL rise by over £20 million next year, plus a much better enforcement of the scheme for those who evade it and a better service for the honest people who actually phone to pay their £5.

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