NAO pans Whitehall shared services centres programme
"Programme is not progressing as planned" and "has not achieved value for money to date", says spending watchdog
The National Audit Office (NAO) has strongly criticised the government's shared service centre programme, saying it has not so far achieved value for money.
The watchdog, in a critical report , said that while the two centres have led to some savings, those savings of £90m have been outstripped by investment costs of £94m, and in the NAO's words, "the programme is not progressing as planned."
The Cabinet Office has responded to the report, saying it welcomes its publication, and will consider its recommendations for government.
The report says that the government signed contracts with two private sector companies (arvato UK Ltd and Steria Ltd) to operate the centres, initially known as ISSC1 and ISSC2. These began providing outsourced services to participating departments and arm's-length bodies in 2013. Staff working in the Department for Transport's (DoT) existing shared service centre were transferred to arvato. Staff in other departments joined Shared Services Connected Limited (SSCL), a new joint venture company that was 75% owned by Steria and 25% owned by the Cabinet Office)
The NAO pointed out the context that the government's 2015 spending review had reinforced the need for departments to reduce costs and free up resources from back-office functions to provide better front-line services. Central government, the NAO said.has long pursued shared service centres as one way of providing such savings and transforming the delivery of back-office functions.
Typically, the private sector and local authorities typically claim over 20% savings on annual running costs from using shared service centres. They break even on their investment costs in less than five years.
The NAO found that most departments that had planned to outsource functions to the two test centres have successfully done so.The £94m of costs incurred comprises £69m for business change activity and £25m paid by SSCL customers to develop a single operating platform to replace individual departmental systems.
But the £90m savings are actually less than the £128m a year originally forecast because some departments have not outsourced and transformed their back office functions as planned. The Cabinet Office currently estimates that the two contracts will generate savings of £484m in total by 2023-24 at a cost of £159m.
The NAO points out that in order to achieve the planned savings, departments were required to transfer their existing back-office functions to one of the two independent shared service centres, along with a migration of all customers to a single operating platform where systems and processes would be standardised. The report found, however, that due to delays in designing, building and testing the systems, only two of the 26 planned customers have joined a single operating platform. On one of the centres, four customers have exited their contracts.
In addition, costs have also increased significantly for both the customer departments and the suppliers of the shared service centres as a direct result of the delays. The increased cost to customers is mainly down to maintaining and extending the life of existing and ageing systems. Departments have also been unable to deliver further efficiencies from improving their back office processes, which the strategy had estimated to be in the region of £172m to £272m a year.
Another NAO criticism is that weaknesses in the programme design undermined its success. The NAO argues that the Cabinet Office did not develop an integrated programme business case to include both independent shared service centres and the customer departments. This meant it has been difficult to show customers how their decisions impact on the programme, and therefore the importance of making decisions with the programme's objectives in mind.
In addition, the NAO said, the Cabinet Office did not secure sufficient buy-in from departments at an early stage of the programme. Departments varied in the extent to which they believed in the merits of the shared service centres and some said that they were pressured into joining the programme.
The report also found that the Cabinet Office did not act in a timely and effective manner as problems emerged with the programme, in part because it did not have a clear mandate to act on behalf of customers. According to the NAO, it must take a more proactive role if such programmes are to be a success in the future.
Summing up its value for money conclusion, the NAO said, "The government has saved £90m to date from outsourcing its back-office functions to two independent shared service centres and some further related efficiencies. However, the Cabinet Office's failure to manage risks has resulted in the programme failing to achieve the significant savings and other benefits set out in the
2012 strategy. Therefore, the programme has not achieved value for money to date.
"The Cabinet Office has begun to find its role in leading the programme. However, the delays have meant that technology has moved on significantly, and new options should now be considered and evaluated as part of revising the programme plan. The future
shared service programme will only achieve value for money if the Cabinet Office shows clear leadership, sets realistic expectations and manages risks, and government accepts that change requires collaborative and flexible behaviours from all departments involved."
The NAO produced eight recommendations, ranging from requiring the Cabinet Office to ensure that all parties are open about the state of the programme, are realistic about timetables and benefits, and understand each others' concerns, to also requiring the Cabinet Office to take a more proactive approach to risk management by monitoring and responding to risks as they arise.
The NAO also warns that the Cabinet Office needs to be aware of the limitations in the contractual transfer of financial risk to suppliers and needs to consider the role of the centre in delivering cross-government programmes, given the devolved nature of departmental accountability and funding.
Amyas Morse, head of the NAO, said, "The Cabinet Office's failure to manage the risks around the move to two independent shared service centres from the outset means that the programme has not achieved the significant anticipated savings and benefits to date.
"The Cabinet Office has begun to find its role in leading the programme but the delays have meant that technology has moved on significantly. The programme will only achieve value for money in 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: "We welcome the NAO's report, and will carefully consider its recommendations for government.We are pleased that the report notes the success that the government has had in establishing shared service centres to deliver business services to multiple organisations at a significantly lower cost to the taxpayer.
"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 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 Sopra Steria spokesperson said, "We are in the early stages of a ten year partnership with the Cabinet Office to transform the delivery of business support services for the public sector, and we are 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. 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 recommendations in full
- The Cabinet Office should provide clear leadership to encourage collaboration and ensure that all parties are open about the state of the programme, are realistic about timetables and benefits, and understand each others' concerns.
- The Cabinet Office needs to take a more proactive approach to risk management by monitoring and responding to risks as they arise. It needs to be aware of the limitations in the contractual transfer of financial risk to suppliers.
- The government needs to consider the role of the centre in delivering cross government programmes, given the devolved nature of departmental accountability and funding.
- HM Treasury should reiterate existing guidance that any large-scale transformation project should have a programme business case with clear buy-in from all stakeholders. This should include clear governance and management
arrangements, clear plans for realising benefits and funding models.
- The Cabinet Office and HM Treasury need to carefully consider how funding is distributed to ensure that affordability issues within some departments, caused by delays and commercial negotiations, do not compromise the programme as a whole.
- The government needs to ensure that its initiative to identify common finance and HR processes leads to these being simplified and standardised to realise planned benefits.
- The government should ensure that short-term risks caused by departments nearing the end of support arrangements for existing IT systems do not dictate decisions about new long-term solutions.
- The government needs to be confident that any future change programmes (for example to make savings through cloud-based solutions or increasing automation) can be delivered by suppliers and are not subject to the same delays and issues we have seen in developing the single operating platforms.