Industry news

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.

Over the past 10 years, the financial services sector has become more and more competitive, with many companies now fighting for that competitive edge. Today, a key part of this battle is the ability to launch innovative financial products that savvy investors will find appealing – and to do it very quickly.

Most financial institutions are actually set up to develop new and innovative products - they often just need to find the right development path to take the product to market. In fact, financial institutions can delegate the majority of the hard work involved in a new product launch and focus their efforts, instead, on creating a financial product that is in tune with the market and what customers want.

Even for an established provider, the cost of developing and launching a completely new product can be very high. An increasing number of banks are therefore working with outsourcers to develop, launch and administer a wide variety of new products, since companies that specialise in this area can reduce the time-to-market for these products dramatically, and yet still meet the demanding standards that the provider would expect from its inhouse development teams.

By using an outsourcer for third-party administration, financial services companies can also delegate the responsibility for time-consuming tasks such as customer communications, product distribution, marketing etc.

As such, third-party experts can mirror the activities that would usually be handled by the financial services industry in-house, including issues related to actuarial support, compliance, business administration and IT.

The key to making sure that outsourcing delivers the desired result is to view the relationship as a true partnership. When working with an outsourcer to launch a new financial product, financial services providers will need to begin with a few very basic questions: will this product appeal to our clients? How will this product fit with what the market expects from us? How can we make sure that it accurately reflects our brand? And will it meet our particular needs in terms of return on investment, risk and service quality?

As technology continues to develop, financial services providers will increasingly need to make sure that they have access to a robust technology platform that will enable them to offer and support any new products through multiple channels, whether that means via the internet, on mobile devices, an extranet site, through the post and/or by telephone. Access to this kind of technology will play an essential role not only when launching new products, but also in supporting them once they've been brought to market.

Before long, retailers, supermarkets and other new entrants to this market will be launching new financial products of their own, and will therefore be facing these same challenges. As companies outside the financial services sector begin developing and selling unique 'own-brand' mortgages and pension products, expert advice in these areas will be essential. Companies like these will therefore benefit greatly from working with outsourcers, since they may not have the in-house expertise required to bring these new products to market quickly.

Regardless of the type of company launching a new product, however, an outsourcing partner should be able to produce comprehensive technical specifications and delivery plans within very short time frames, using systems that are bespoke to the company's specific needs. Above all else, the real key to the successful launch of a new product will rely upon the outsourcer's unique expertise and strong understanding of the financial organisation's requirements and product concept – and that is the true power of partnerships.

BT, a leading global provider of communications and networked IT services, has announced it has secured a multi-million pound contract to provide the Police Service of Northern Ireland (PSNI) with a fully managed Multi Protocol Label Switching(MPLS) network. Specifically, BT will provide a Northern Ireland Wide Area Network (WAN) across PSNI’s sites for the next five years. This infrastructure will enable the PSNI's mission critical IT systems to be delivered across Northern Ireland at high speeds providing the flexibility needed for modern policing to deliver services and information when and where needed.

The fully managed MPLS network has been designed to provide the PSNI's business functions and operational team with a resilient, agile and flexible service to support its growth and deliver greater cost efficiencies, while enhancing the user experience. The network also provides the PSNI with a platform on which to build further cost-effective and converged ICT services.

The new BT infrastructure will support a number of applications for the PSNI including faster and efficient IT links to all police stations giving the end user a better experience; it will support video conferencing solutions for internal meetings and provide the platform for cloud services so that the organisation can upscale and downscale bandwidth capability according to policing resource requirements and ultimately future proof the network for the growing IT demands of a modern police force .

“The PSNI requires solutions and services that give them peace of mind both in terms of delivering value as well as ensuring high quality of service,” said Peter Russell, Head of Public Sector NI, BT. “BT has worked closely with the PSNI to understand their business requirements so that we can offer them a solution that makes it easier and more cost effective to manage their communications in this fast-paced environment. By managing their network needs, we enable them to continue to focus squarely on policing.”

IT Leader to Host Science-Based Mortality Assessment Tool as Cloud-Based Service

CSC has announced it has signed an alliance agreement with BioSignia, a privately held science and technology company located in Research Triangle Park, N.C., to offer North American life insurers and reinsurers Mortality Assessment Technology (MAT), a patented, science-based predictive underwriting tool developed by BioSignia. Under the agreement, CSC will host MAT as a secure cloud-based service, while BioSignia will continue to own, maintain and enhance the intellectual property.

Unisys NZ has won a three-year renewal of its longstanding IT services contract with the financial services cooperative PSIS.

The services delivered under the contract include ClearPath and ES7000 servers and other data centre hardware support, disaster recovery hosting and services, and security monitoring of PSIS’ internet banking channel.

In a statement from Unisys announcing the contract extension, Annette Natta, general manager of information services at PSIS, is quoted as saying: “At PSIS our customers are also our shareholders, so our aim is to provide consistent and reliable services that they can depend upon to protect their financial assets. We have worked closely with Unisys since 1967 to develop an IT infrastructure that combines flexibility and dependability to support that aim as the banking industry evolves and the economic environment in which we operate changes.”

The London borough of Bexley and Capita Local Government Services have agreed to extend and expand their existing partnership.

Under a new contract, worth £14m, the deal will run for three years before the original expiry date of June 2016, and the council's financial assessment team will transfer to Capita Local Government Services.

The service will join council tax and business rates administration, cashiering services and benefits administration in the contract. The financial assessments team is responsible for the administration of applications for assistance towards residential care costs and costs for care packages delivered to citizens in their homes. There are currently just over 3,700 active assessment cases in Bexley.

The pension scheme for 1.5 million civil servants in Britain is to be run by a new joint venture in the biggest "spin-out" of a government service under plans to devolve power.

Francis Maude, the cabinet office minister, will announce that handing My Civil Service Pension (MyCSP) to a mutual shows that the government is ending the days of a "binary choice" between central state provision of a service and outsourcing.

The new mutual, a professionally managed form of collective investments, will be a joint venture between MyCSP's 400 staff and a private sector partner. The mutual will take over the administration of pensions for most of Britain's civil servants. The government will continue to assume the liability for the pensions.

Maude will say: "Too often there's been a binary choice between the government providing a service itself, or outsourcing it to the private sector. These choices have historically been driven by a belief that services have to be controlled centrally – with a one-size-fits all approach that has left little room for innovation.

"We are looking for more innovative ways to structure services. We know that employees who have a stake in their business, or take ownership of it completely, have more power and motivation to improve the service they run. They can also benefit from partnerships with private or voluntary sector organisations which can bring in capital and expertise.

"For the private sector, which can no longer expect the generous margins of the past, tapping the talent of frontline staff to improve efficiency will be a priority. The state, too, can keep a stake so that taxpayers benefit from the rising value of an improved service.

"I'm impressed with entrepreneurial zeal of Phil Bartlett and his team at My Civil Service Pension. They are pioneering the mutual joint venture model, and the government is committed to ensuring they have they right support to succeed."

Phil Bartlett, chief executive of My Civil Service Pension, said: "At MyCSP we are proud to be the first pension administration service to pioneer an innovative mutual joint venture between the government, employees and a new private sector partner. By taking the opportunity to mutualise, we can better acknowledge our people and their expertise – and access valuable additional resources and expertise in the private sector. This new and innovative structure will give us the agility to exploit opportunities in the changing pension landscape and grow our business, and the taxpayer will benefit from the increased value of an improved and more efficient service."