Government shared services programme not yet providing value for money, NAO says

26 May 2016

The government’s programme to transfer back-office functions to two shared service centres has not yet achieved value for money, according to the National Audit Office (NAO).

The NAO has reported on the Cabinet Office’s Next Generation Shared Services strategy, which included the creation of two independent shared service centres to provide back-office functions for up to 14 departments and their arm’s-length bodies.

The report said that although the two centres, ISSC1 and ISSC2, had provided some cost savings with most departments that planned to outsource functions having successfully done so, the programme was not progressing as planned.

The £90m of overall cost savings delivered by the two centres, which had operations costs of £94m, was less than the £128m originally forecast. This was because some departments had not outsourced their back-office functions as planned, the NAO said. It estimated that savings would total £484m by 2023-24, with a cost of £159m. In addition, the government estimates that savings of £110m will be achieved by the Metropolitan Police Service as a result of joining the shared service centre, the report mentioned.

The government signed contracts with private sector firms Arvato UK and Steria to operate the centres, which began providing outsourced services to participating departments and arm’s-length bodies in 2013.

Departments were required to transfer their existing back-office functions to one of the two independent shared service centres. All customers would be migrated to a single operating platform with standardised systems and processes.

However, delays in designing, building and testing the systems, meant that only two of 26 organisations which planned to adopt single operating platforms by April this year had done so, the NAO said.

Eleven government departments now received services from a shared service centre under the strategy. No organisations had met their target date for adopting single operating platforms for shared services.

The delays have also significantly increased costs for suppliers and departments which have had to extend the life of existing ageing systems, the NAO said. Departments have also been unable to deliver the projected £172m to £272m annual efficiencies from improving their back office processes.

The NAO said that the lack of an integrated and agreed business case for the programme had made it difficult for the Cabinet Office to take decisions, and that creating standardised processes was not well managed. The Cabinet Office also failed to secure sufficient buy-in from departments at an early stage, the report said.

According to the NAO, belief in the merits of the shared service centres varied across departments, with some saying they were pressured into joining the programme.

It added that the Cabinet Office did not deal with problems with the programme in a timely and effective manner, partly because it did not have a clear mandate to act on behalf of customers. The NAO said the Cabinet Office must take a more proactive role to make the programme a success in the future.

The NAO acknowledged that the Cabinet Office had introduced new governance and leadership arrangements, and ensured the programme had a senior responsible owner with experience in implementing shared services.

However, it said that because of the delays the current system may be out of date. It did acknowledged that the Cabinet Office had recognised this and was taking steps to make sure the current arrangements delivered savings and improved functionality.

Amyas Morse, head of the National Audit Office, said that the Cabinet Office’s failure to manage the risks around the move to the shared service centres from the outset meant the programme had not yet achieved the significant anticipated benefits.

“The Cabinet Office has begun to find its role in leading the programme but the delays have meant that technology has moved on significantly,” he said. “The programme will only achieve value for money in the future if the Cabinet Office shows clear leadership, and government accepts the need for collaborative and flexible behaviours from all departments involved.”

A Cabinet Office spokesperson said it was pleased the report noted the success that the government has had in establishing shared service centres.

“As the report states, the Independent Shared Service Centres have already saved £90million, and are forecast to make a further £504million in savings for the government and police by 2023/24,” the spokesperson said.

“The report recognises that the Cabinet Office is addressing the challenges involved in managing digital transformation, but we accept that we need to go further, and we will.”

A spokesperson for Arvato said: “ISSC1 has successfully established shared services for the DfT and its executive agencies for the first time and Arvato continues to deliver services to these customers at a significantly reduced cost to the taxpayer.

“Both Arvato and government departments have agreed that ISSC1 should focus on the DfT service provision. Other government departments (OGDs) are no longer under contractual obligation to join ISSC1 under the current arrangement.

“However, ISSC1 remains open for business. OGDs are free to choose the service delivery model that best meets their requirements and Arvato will look to attract new customers to the centre.”

A comment from Shared Services Connected Ltd, a joint venture between Sopra Steria and the Cabinet Office to manage ISSC2, said it was in the early stages of a ten-year partnership and was already delivering savings.

 “We recognise the challenges the National Audit Office report has highlighted, but we are confident that we are making good progress and that these savings will accelerate as we move clients onto a single technology platform and continue to grow our business,” the comment said.

It added that Defra and the Defra network had successfully migrated onto the SSCL Single Operating Platform (SOP) this week, joining the Environment Agency which moved onto SOP last September.

“This is an important milestone for SSCL, moving closer to a more efficient shared way of working for government,” the spokesperson said. “In addition to the transformation project, SSCL continues to deliver business as usual services for the public sector, reaching 300,000 customers and receiving high levels of customer satisfaction with the quality of these services.”

The NAO has also published an overview of its work on the government’s management of contracting, which examined the government’s commercial capability, accountability and transparency, and its management of contracted-out service delivery.

The government spends around £225bn a year with private and voluntary providers, according to the NAO. It said that contracts had evolved from being relatively simple to innovative and high profile commissioning.

The NAO said that it, along with the Public Accounts Committee, had acknowledged improvements in the government’s management of contracts in recent years.

However it added that there was much more to be done to provide better value for money for the taxpayer.

The NAO pinpointed several areas for improvement including greater transparency of the  performance, costs and revenues of suppliers.

It also called for more effective competition for government business to reduce over reliance on a small number of suppliers, and encouraging more business with SMEs.

The NAO also highlighted the need for better commercial skills in government when buying services, managing contracts and dealing with problems with providers.

It added that service providers also needed to demonstrate the standards of integrity expected from those delivering public services.

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