Industry news

Minister for the Cabinet Office Francis Maude and Business Minister Edward Davey have outlined plans for a new Public Data Corporation.

The Corporation will, for the first time, bring together Government bodies and data into one organisation and provide an unprecedented level of easily accessible public information and drive further efficiency in the delivery of public services.

Supporting the Government's growth agenda, it will open up opportunities for innovative developers, businesses and members of the public to generate social and economic growth through the use of data.

The Corporation will also have the potential to attract investment, reinforcing and accelerating the development of these world class assets and their contribution to the knowledge economy.

By bringing valuable Government data together, governed by a consistent set of principles around data collection, maintenance, production and charging, the Government can share best practice, drive efficiencies and create innovative public services for citizens and businesses. The Public Data Corporation will also provide real value for the taxpayer.

Francis Maude said: “We have entered a new era of transparency in Government and have already made an unprecedented level of data available. But we want to go further and faster, this agenda is more important than ever.

“Public sector information underpins a growing part of the economy. The technology that is around today allows people to use and re-use this information in new and different ways. The role of Government is to help maximise the benefits of these developments. At present many state agencies face a conflict between maximising revenues from the sale of data and making the data freely available to be exploited for social and economic gain. Creating the PDC will enable the conflicts at the least to be managed consistently with a view to opening up access, and at best to be eliminated."

A consortium of water companies is inviting tenders for call handling services during major operations.

The contract is to ‘provide a consortium of water companies with a call handling contingency plan’ in the event of a major operational incident that causes an unexpected increase in incoming customer calls. This could be during a burst water mains when customers are trying to call suppliers.

The members of the consortium are Veolia Water East, Veolia Water Central, Bristol Water, South Staffs Water, Scottish Water, Cambridge Water, Dee Valley Group, South East Water, Wessex Water, Northumbrian/Essex and Suffolk Water.

CSC has announced that it has signed a seven-year information technology (IT) outsourcing contract renewal with Tryg, the second-largest insurance company in the Nordic region. The new agreement expands the scope of the existing contract to include new services and extends to include Tryg’s most recent acquisitions in Finland and Sweden with Moderna. This extension, which was awarded during CSC’s fiscal 2011 fourth quarter, adds $348 million to the previously announced contract, which now runs through December 2017, if all options are exercised.

As part of the agreement, CSC will deploy a series of innovative new technologies including CSC Dynamic Desktop and private cloud technologies that will provide further IT cost efficiency and flexible support for the transition and business development of Tryg.

Under the terms of the contract, which supersedes the previous agreement signed in 2007, CSC will continue to provide IT infrastructure services, including help desk, mainframe, midrange, network, Web hosting, project work, print and distributed computing. These services will support approximately 4,500 users at Tryg locations in Denmark, Norway, Sweden and Finland. These services have resulted in continued cost reductions over the course of the previous seven-year partnership, while delivering high-quality IT services to support Tryg’s business and its partners.

“We are pleased to confirm our partnership with CSC in signing this new agreement to support our insurance activities across the Nordic countries,” said Morten Hübbe, group chief executive officer, Tryg. “It is important to Tryg’s future business development that we establish an affordable and world-class IT support with the geographical breadth and depth that matches our ambitions.”

“This expansion and extension represents a milestone in our partnership with Tryg,” said Andy Williams, president of CSC’s Northern European Operations. “This renewal is testament to the benefits Tryg has received from outsourcing. CSC’s expertise and growth within the financial services industry will provide Tryg with the next generation of innovative, flexible and cost-effective IT services to support its business agenda.”

Water Treatment Outsourcing Agreement With GE Provides Italy’s Yara S.p.A. With Secure Water Supply, Cost Savings

An $18 million outsourcing agreement and facility upgrade for Yara S.p.A.’s Ferrara, Italy, plant with industrial water treatment leader GE is helping meet increasing customer demands for profitability and reliability. The plant in Ferrara supplies ammonia and urea liquids fertilizers to agricultural markets, which are growing strongly. But while production of these products requires copious amounts of clean water, the plant must rely on brackish, low-quality surface water sources.

Yara S.p.A., a unit of Yara International ASA, world leader in mineral fertilizers, outsourced its Ferrara water treatment operations to GE in 2005 to reduce costs, increase reliability and focus on its main businesses. With the recent contract expansion, GE will continue to build, own and operate the water treatment plant with onsite GE personnel through 2020. The facility currently produces up to 320 m 3 /hr of demineralized water using two proprietary GE technologies: brackish water reverse osmosis filtration and electrodeionization.

“The arrangement we have with GE enables us to capitalize on more favorable market conditions, which can be fleeting. We are confident we can meet the strong demands for fertilizers at acceptable margins because we can find alternative sources of water, and it also gives us substantial cost savings,” said Frank De Vogelaere, plant manager, Yara’s Ferrara, Italy, plant. “The cost savings come in two ways: we don’t have to buy expensive demineralized water from an outside supplier, and we have avoided production losses caused by low-quality water. Our expanding activities with GE are a direct result of GE’s performance over the years, and thus we have evolved out of a traditional supplier-vendor relationship into a more effective collaboration.”

BT is world’s largest financial services cloud provider with 15,000 member sites

BT has announced that its BT Radianz dedicated financial services cloud now reaches 15,000 member sites globally, consolidating its position as the world’s leading managed cloud for the financial services community. BT's Radianz cloud now supports the largest secure networked financial community in the world. This includes over 3,000 applications provided by over 400 service and content providers to users in 64 countries today.

The surge in member sites has been delivered through three key activities: a renewed focus on the Foreign Exchange (FX) sector; a focus on services in and to the Asia Pacific region; and helping customers respond to regulatory changes around the world. Demand from the FX community has increased significantly over the past year, with higher volumes prompting institutions to improve access to data and trading venues.

During the year, BT targeted and developed services with key application providers through recognising the value that their applications bring to the wider member base.

José Antonio Martinez, managing director of Radianz & Payments, BT Global Services, said: “We’re totally committed to satisfying the needs of the financial services industry through the provision of a world-class service and will continue to innovate and listen to the needs of our customers.

“The recent uplift in demand from FX market participants to use this service confirms our position as the preferred partner for fast and secure access to the global FX community. Watch this space as we announce further innovative products and services this year.”

Larry Tabb, CEO of leading financial markets research and advisory firm TABB Group, said: “The strength of a financial markets network is demonstrated by the number of secure endpoints and the ease of connecting exchanges, brokers, investors, and service providers. Surpassing 15,000 global member location connections is a feat demonstrating BT Radianz Managed Infrastructure’s leadership in providing secure, financial markets managed connectivity.”

The business process outsourcing (BPO) market in India will expand by 23.2 per cent in 2011 to reach a size of $1.4 billion, compared to $1.1 billion a year ago, a study by global IT research firm Gartner said Tuesday.

"Changing demographics, increasing affluence and economic growth in Asia-Pacific continues to drive shared services and BPO adoption, especially in Australia, India, Southeast Asia and China," Gartner's research director T.J. Singh said.

"Buyers continue to invest in services that deliver scalable and consistent services across their geographical presence," he added.

The study also forecasts that the BPO market will grow to $1.69 billion by 2012 and $2.47 billion by 2014.

According to the study, India is one of the fastest growing BPO markets in the region. However, the largest BPO country market is Australia, which is more than three times larger than India, the second-largest consumer of BPO services.

A ground-breaking new 15-year deal between Sport England and Serco has cemented the future of two of Sport England's key National Sports Centres that were among the cornerstone of Team GB's record success at the 2008 Beijing Olympics. The agreement will see Serco provide a range of support services including catering, hospitality and events, landscaping, reception and security services, marketing and communications. In addition, Serco will work in partnership with Sport England to create new accommodation and sporting facilities at both sites, as well as upgrading existing facilities and conference venues.

Bisham Abbey and Lilleshall provided the training base for 29 of our medal-winning athletes in 2008, and today they are helping hone the competitive prospects of our teams preparing for the London 2012 Olympic and Paralympic Games. For this reason, major developments and refurbishments will not begin until after the Games.

Mahindra Satyam, the brand name of Satyam Computer Services Ltd., a leading global consulting and IT services provider, has revealed that it has been awarded a large Enterprise Resource Planning contract from Qatar University, the largest academic institution in Qatar. The contract, which will be implemented over a nine-month period, will cover the end-to-end implementation of the Oracle E-Biz Suite R12, which would streamline the various business processes of the university’s different departments and provide real time MIS abilities to give management better decision-making.

Qatar University engaged Mahindra Satyam as its partner, given the company’s experience in Oracle ERP implementations in Qatar and across the world. The university faced key challenges in the automation and integration of various business functions, which acted as a main hindrance to increase productivity. The implementation of Oracle E-Biz Suite R12 is expected to integrate the different functional areas; ensure visibility and availability of real time MIS; help standardize business processes, create a smoother business work flow and enable better inventory control and optimization.

“This project complements the country’s move towards developing smart cities and reinforcing the education sector’s vital role in the development of the same. The implementation of Oracle's comprehensive product suite will help us strengthen financial management and control, supply chain management, customer service and HR functionalities,” said Saeed Rashid Al-Athba, IT Director, Qatar University.

Mahindra Satyam’s strategic partnership in the long run looks towards creating a hub of IT excellence that will provide best-of-class learning capabilities that reaches out not only within the confines of the university but also to other Gulf countries. This implementation will help Qatar University improve the daily management processes and operations of the university - enabling the management to focus on the core business and remain competitive.

“We are very proud to partner with Qatar University in this unique engagement. This strategic new partnership will allow us to create and integrate a smoother flow of information within the different departments of the university. Mahindra Satyam is committed to marking its presence in Qatar, one of the region’s leading proponents in the development of center of excellence for sports, education, healthcare and e-Government,” said Bobby Gupta, Vice President and Head of Middle East and North Africa, Mahindra Satyam.

There is little doubt about it – outsourcing contracts are complicated. Once a company has selected a supplier and the lawyers have gotten involved, a great deal of effort can be expended on negotiating and drafting a contract that both parties will agree “should just stay in the drawer.” Whilst certain clauses are best left to the lawyers, there are a number of others which need to be understood and actively managed by the operational and governance teams throughout the contract. One example of this is the service level agreement, or SLA.

Anyone who has grappled with some of the service level methodologies that exist will understand just how complicated this area can be. Even advisors can struggle to understand the intricacies of their own tools. The first methodologies evolved in the 1990s to cater to large ITO deals that dominated the outsourcing market at that time and were based on the following basic concepts:

i. Appropriate performance standards should be contractually defined to ensure quality performance levels

ii. They should be easy to measure and report

iii. The client should not pay for poor quality services. There should be some level of fees-at-risk to provide a deterrent for suppliers to fail to meet service levels – known as “service level credits”

iv. If the service is consistently unacceptable, the client is entitled to terminate the contract

v. Performance standards should improve over time

vi. Clients need a mechanism to change the focus of their attention from time to time

As BPO contracts – particularly in HRO and FAO – became more prevalent in the early 2000s, the terms that had been applied to ITO and contact centre contracts were replicated, even for concepts such as benchmarking that make less sense in the BPO services world. As many experienced outsourcers will agree, there was a temptation to try to measure everything under the SLA when first faced with the possibilities.

Most service levels tend to measure one of two things – accuracy or timeliness. Many objective measures of performance require both. For example, it will be important that my suppliers’ invoices are made ready for payment in time for me to pay them and for me to pay them the right amount. As BPO contracts developed initially, the focus was very much on cost reduction. Little attention was paid to improving process hand-offs in-house that might aid the overall process. Suppliers were only prepared to be measured on items over which they had full control and so the number of service levels proliferated – to measure various pieces of a process chain that relied wholly on the supplier and could safely ignore the delays caused by client’s internal approval processes.

Additionally, clients could often not tell how well they performed their own processes prior to the outsourcing engagement. Whilst it might be reasonable to expect a supplier to provide services to a level at least as good as those currently provided, this created an opportunity for suppliers to take a “service level credit holiday,” whilst baselines were established.

The market has matured along with attitudes of both suppliers and clients. Suppliers looked to provide continuous improvement on the elements of a process under their control and at the same time they also started to advise clients on the inefficiencies within the process. Common examples include delays in approvals, automation possibilities and a failure to set consistent, meaningful policies to drive processes and behaviour.

Many clients recognize that suppliers can perform these services better than they can themselves and now require more than just cost reduction from outsourcing. They seek transformation, improvement and standardization and they seek these results across the process chains regardless of nominal ownership. Similarly, suppliers have begun to see that they are best served by delivering real improvements to clients across process flows and that they need to work with their clients to drive improvements in areas that will optimize end-to-end processes. After all, why should a client refuse to implement a suggestion to make rational improvements for its own good in a win-win scenario? When suppliers provide services such as high-end analytics, reengineering, and risk management, they provide impactful business intelligence from which clients can make smart business decisions, including which processes should and shouldn’t be outsourced.

Transaction-based pricing has long been discussed but essentially comes down to productivity of FTE-based pricing (unless employees can be truly shared across clients). Contracts are now moving towards outcome-based pricing rather than merely charging for the number of “bodies” on an FTE basis. This has resulted from recognition by both parties that they can work more collaboratively to drive improvements and to release value to the client’s business as a result. This is appealing to both parties as the efforts made by the supplier can be rewarded under a gain share arrangement from value released to the client that would otherwise have remained locked away. This is a true win-win scenario. For example, suppliers will now commit to service levels for Days Sales Outstanding (DSO) collection metrics, recognizing that they can work with clients to apply techniques to drive down the DSO figure and reduce the working capital requirement for the client.

As the BPO market has been maturing, the more experienced clients are now asking for more than cost arbitrage. They are demanding real business impact over and above the lower costs and the increased productivity. There will always be clients who focus on the lowest cost providers but the real value is driven from the value that is released from inefficiencies in the end-to-end processes. Certain suppliers have recognized this. Clients are beginning to do so.

In June 2010, Lord Hutton was asked by the Government to lead a review of public service pension provision. The 'Hutton Report' (published on 10 March 2011) recommended major changes to the way that pensions are structured and delivered to millions of public sector workers. The implications are huge - not just for the public sector, but also for businesses that work with the public sector and who employ former public sector workers who transferred to them as part of an outsourcing exercise.

In anticipation of the Hutton Report, on 3 March 2011 the Government launched a consultation on the future of its 'Fair Deal' policy. The current Fair Deal policy protects pension provision for public sector workers who have transferred to the private sector. Post-Hutton, given the likelihood that public sector pension schemes will remain defined benefit (and therefore valuable) for the foreseeable future, how might a revision of Fair Deal affect companies who outsource? And what are the options for the Government: the Fair Deal, the No Deal and the somewhere in between?

What is the current situation?

The Fair Deal policy was introduced by the Labour Government in 1999 and since then has become a potentially complicated and often demanding requirement for contractors. The Fair Deal is a non-statutory policy which prescribes the level of pension provision offered to public sector staff when they are compulsorily transferred to a non-public sector employer.

At the moment, the legal minimum pension provision for employees who transfer under TUPE - where a transferring employee was either a member of, or eligible to join an occupational pension scheme - is for the new employer to provide a defined contribution scheme with matching employer contributions of up to 6% of basic pay.

In contrast, in respect of transferring public sector employees, the Fair Deal requires:

a) broadly comparable pension benefits for future service. Given public sector pension arrangements are predominantly defined benefit pensions, this ultimately means that the new employer has to provide a defined benefit pension for transferring employees; and

b) transferring employees to have the right to elect to transfer their accrued benefits in the public sector scheme to the new employer's broadly comparable scheme.

In Local Authority outsourcing contracts, "best value authorities" are also obliged to provide for pension protection in accordance with the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (the 'Direction'). This has the same broad effect as the Fair Deal policy although there is no specific protection for accrued (pre-transfer) benefits.

The Fair Deal policy therefore provides for a more onerous requirement for pension provision for staff transferring under TUPE from the public to the private sector – and the cost to the new employer will be significantly more than 6% of basic pay.

Although the majority of private sector employers have moved away from defined benefit pensions for new employees (a defined benefit pension being an amount calculated by reference to scheme rules - often based on salary at or near retirement), as a result of Fair Deal, it is still therefore a requirement for outsourced public sector employees. This ultimately creates a high cost for outsourcing contractors and potentially deters many companies and charities from bidding for public sector work. As a consequence of this, the Government is seeking to find a framework to boost cost effective and varied provision of public services, whilst at the same time considering appropriate pension protection for ex-public sector employees.

Importantly, neither the Fair Deal nor the Direction are overriding law and do not apply directly to private sector contractors. The obligations are those of the public sector body and the relevant body must ensure there are obligations in the outsourcing contract to require the contractor to meet the requirements of Fair Deal.

The options under consideration

The Government's Fair Deal consultation document explains that the Government is looking at all options. These must therefore include three broad options – keeping the Fair Deal, scrapping the Fair Deal and considering a variation on the Fair Deal. For each of the three options it is important to understand the implications and to prepare for whether that option is retained or scrapped:

Keeping the Fair Deal in current form – this would seem the least likely option given a Government objective of reducing costs in the provision of public services. If Fair Deal were retained, contractors would need to consider negotiating pensions terms which protect their position, including:

(a) pension contribution 'caps and collars';

(b) indemnification at contract end; or

(c) 'shortfall' provisions to ensure that, where any pension liabilities for accrued benefits pass to the contractor's broadly comparable pension scheme, there are sufficient assets to meet those liabilities.

Reforming the Fair Deal – options could include retaining some element of pension protection which falls short of the current Fair Deal. These could include:

(a) removing the requirement to provide for transfers of accrued rights (which would remove the risk of an immediate shortfall in funding);

(b) allowing the contractor to compensate the transferring employees for a reduction in pension scheme benefits through higher salary or other benefits;

(c) enhanced contributions to a defined contribution scheme (i.e. contributions in excess of 6%).

Scrapping the Fair Deal – the result would be that contractors would only be obliged to meet the basic minimum requirements (matching contributions of up to 6% of basic pay). Given this would be a very material reduction in the employment package for transferring employees, there is likely to be significant resistance from public sector unions and the employees themselves. This could lead to unattractive industrial relations issues for the contractor.

Issues regarding re-tendering

As well as considering pension schemes for future transactions, it is import to consider what happens if previously outsourced public services are transferred to a new employer (a 'second generation transfer'). Where there is a second generation transfer, the Fair Deal, as it stands today, would also apply to the incoming contractor (subject to the terms of the original outsourcing contract).

The Government has said that any revision of Fair Deal would not override any existing contractual obligations although the relevant parties could seek to review existing contract terms. Any revision of Fair Deal may prompt negotiations between contractors and the public body who originally let the contract - although the public body authority may seek to recoup any savings made where the contract is modified in line with a change in Fair Deal.

What if you are currently bidding for contracts?

Contractors that are currently bidding for contracts may wish to highlight the Fair Deal consultation with the public authority and ask for clarity on the approach which the authority would take where there is a change in Fair Deal either:

(a) during bid negotiations; and

(b) after the contract has been signed.

Contractors (and public sector authorities) will not want to lock into contractual terms which exceed the requirements of any revised Fair Deal policy.

Final thoughts

The Hutton Report provided no real insight into the outcome of the Government's Fair Deal consultation. However, it indicated that the mechanism whereby contractors become "admitted" to a public service pension scheme to meet the 'broadly comparable pension' requirement of Fair Deal – for example through the Local Government Pension Scheme – may be restricted. Where Fair Deal is retained in its current form, but contractors are not able to become admitted to the public sector scheme, there could be an additional cost burden in the administration of the contractor's own broadly comparable scheme.

What is certain is that the outcome of the Fair Deal consultation will have significant implications for outsourcing.