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									                                                                               Agenda Item: 8

       ICT OUTSOURCING CONTRACT EXPIRY – OPTIONS AND ISSUES
               Improvement & Development Committee – 1 July 2008
       Report of the Assistant Chief Executive - Finance and Resources
                                   Resolution Required
                                 EXECUTIVE SUMMARY

Purpose of Report
To summarise the current arrangements for delivering the ICT operational service via the
outsourced contract with Steria and to indicate the possible options on contract expiry and
to seek a steer on those options that could be explored further.
Key Issues
The main options are:

 (a)    Simple re-tendering of ICT Service. To start a new ICT contract from 1st January
        2011. This could be a full EU tender or a reduced tender process based on the
        Catalist Framework agreement.
 (b)    Take the service back in-house
 (c)    Shared services
       (i)     two (or more) Local Authorities joining for in-house ICT service delivery
       (ii)    two (or more) Local Authorities jointly tender for an outsourced ICT service
               delivery contract
       (iii)   two (or more) Local Authorities join up in-house for a wider package of service
               provision (i.e. more than just ICT)
       (iv)    two (or more) Local Authorities join up and jointly tender for a wider package
               of service provision (i.e. more than just ICT)
       (v)     Spelthorne tenders for a wider package of service delivery (i.e. not just ICT)
Issues considered have included the nature of the market, the shared services agenda, in-
house capacity, service standards and quality, benchmarking of costs and performance,
potential for innovation and improvement, together with the contractual, financial and
service delivery risks.
Financial Implications
The ICT outsourcing contract, at around £0.5 million a year, is a major element of the
Council‟s budget. It is essential to get the best value for money from the expenditure,
whilst also ensuring that we are able to use ICT to deliver the operational day to day
service, generate efficiency and service benefits throughout the Council, whilst minimising
risk.

Recommendations
That the I & D Committee recommend to the Executive a steer to officers as to which
options they wish officers to explore in detail and for officers to report back by the end of
2008.

Contacts: Helen Dunn - ICT Manager, Terry Collier - Assistant Chief Executive
(Finance and Resources)
Portfolio Holder: Councillor Michel Bouquet
                                     MAIN REPORT

1.    BACKGROUND
1.1   In 2006, the existing Steria contract was extended for a further three years after
      consideration of a number of alternative options. This was agreed by Executive
      following a report to I & D by a Task Group of six elected Members and the
      contract was signed to run until 31 December 2010. See the confidential report
      to the Improvement and Development Committee 4 December 2006 produced by
      Richard Wilkinson which this report updates.
1.2   This Task Group also recommended that they should be reconstituted after May
      2008 to explore the options further in light of the contract expiry date. Although
      expiry may seem some way off (end 2010), should an alternative to the straight
      outsourcing option be given full consideration, it would need significant lead
      times.
2.    MAIN ISSUES
2.1   The main options are:
            (a)   Simple re-tendering of ICT Service. To start a new ICT contract
                  from 1st January 2011. This could be a full EU tender or a reduced
                  tender process based on the Catalist Framework agreement.
            (b)   Take the service back in-house
            (c)   Shared services
                  (vi)     two (or more) Local Authorities joining for in-house ICT
                           service delivery
                  (vii)    two (or more) Local Authorities jointly tender for an
                           outsourced ICT service delivery contract
                  (viii)   two (or more) Local Authorities join up in-house for a wider
                           package of service provision (i.e. more than just ICT)
                  (ix)     two (or more) Local Authorities join up and jointly tender for a
                           wider package of service provision (i.e. more than just ICT)
                  (x)      Spelthorne tenders for a wider package of service delivery
                           (i.e. not just ICT)
2.2   The key issues in appraising the options are:


            (a)   The contract extension ends on 31 December 2010. We need to
                  consider which option we wish to investigate to take us to 2015 and
                  beyond.
            (b)   Depending on the outcome of the options considered, resources and
                  timescales may dictate that we need to start the process now,
                  especially if options (b) or (c) are viable.
            (c)   A full re-tender could be an EU open tender taking several months or
                  could be based on the Office of Government Commerce (OGC)
                  Framework suppliers agreement, in which case a restricted tender is
                  appropriate which could be completed in a shorter timescale.


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            (d)   Market place – what would be the likely market response? Knowing
                  there is a successful incumbent supplier, would other possible
                  suppliers judge it worthwhile to bid, given the substantial costs of
                  bidding and the transitional costs that would also have to be built in
                  and the lack of prospects of additional income from projects etc.
            (e)   Strategic Fit – appropriateness to the Council‟s corporate strategies
                  and service delivery
            (f)   Shared Services - how do the options relate to this agenda?
            (g)   Business continuity and risks.
            (h)   Costs - contract or operational costs, and costs of achieving the
                  change.
            (i)   In house capacity - e.g. for Service Delivery and/or client and
                  contract management.
            (j)   Innovation and development of ICT services and benefits realisation.
            (k)   Service Quality - customer satisfaction and service performance.
            (l)   Contractual/legal/procurement issues.


3.    SERVICE REQUIREMENTS
3.1   A full re-tender or shared services approach would require significant work to
      establish our long-term service requirements. An in-house service would give
      greater flexibility to adapt to immediate priorities.
3.2   Appendix 1 summarises some of the key characteristics of the present contract
      and areas where improvements might be sought.
4.    SHARED SERVICES
4.1   The expression “shared services” covers a wide spectrum, from low level joint
      working through to the delivery of major functions under partnership
      arrangements. The Local Government White Paper on re-organisation
      encourages more use of “shared services”.
4.2   Shared services could take several forms. Some examples:
            (a)   Two or more authorities joining up their ICT services through some
                  form of in-house service provision (possibly through an arm‟s length
                  organisation).
            (b)   Two or more authorities conducting a joint procurement for ICT
                  services or a particular system.
            (c)   One or more authorities packaging a set of back-office services
                  together for delivery as “business process” managed services by an
                  external supplier.
            (d)   Lower level joint working (e.g. sharing training arrangements or in-
                  house software developments).
4.3   We have held a range of discussions with other Surrey authorities about options
      for shared services. Whilst there is interest in principle, experience shows that
      shared services can often take a long time to set up. The circumstances of the
      individual partners need to be closely aligned, and issues of timing and

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      governance can be very difficult to resolve. Currently, there are not strong
      enough links to do this, even if it was just to offer ICT resilience between some
      Surrey Districts.
4.4   The ESIP (East Surrey Improvement Partnership) between Reigate and
      Banstead, Tandridge and Mole Valley demonstrates the challenges and pitfalls
      of shared services. Initially anticipated to be a considerable success, this has
      now all but dissolved owing to a lack of shared vision and leadership and buy in
      from the top and despite considerable time having been spent by the partner
      authorities and the pump-priming investment of the South East Centre for
      Excellence (SECE) laying the foundations in terms of governance arrangements
      etc. The complexities of technically „joining‟ up networks should not be
      overlooked. The Audit Commission in its recent publication “For Better for
      Worse” has highlighted the risks and issues which have to be addressed when
      pursuing strategic shared service partnerships.
4.5   No other Surrey District has an outsourced ICT service and a number of them do
      not have Service Level Agreement (SLA) type contracts internally for service
      delivery.
4.6   There is, however, already a great deal of lower level joint working with other
      Surrey authorities and elsewhere. The Surrey IT Managers Group (SCITO)
      meets regularly and opinion on the possibility of joint services or partnership
      working could be explored more fully here.
4.7   Outsourcing is itself one form of “shared services”, and Spelthorne already
      benefits from Steria‟s ability to deliver shared services in various respects:
            (a)   The Help Desk runs from Risley (Cheshire), which serves a wide
                  range of Steria‟s clients. They use sophisticated (and costly)
                  systems, and provide access to a wider range of skills and staffing
                  (including longer opening hours) than would be possible from a local
                  operation.
            (b)   Applications support is provided from Bexley. The staff are used
                  flexibly, and the larger team gives cover and enables wider skill
                  development. They undertake all our batch processing and
                  reconciliation work and enable the interfaces between the financial
                  systems. This work is key to the daily financial operation of the
                  Council and should not be overlooked in its relevance and
                  complexity.
            (c)   Desktop and network support has single management covering
                  Spelthorne, Three Rivers and South Buckinghamshire. This
                  provides cover for sickness or leave. We have benefited from
                  Steria‟s previous experience at other sites in implementing Planning
                  Public Access, Websense, Network Back-up, Business Continuity /
                  Disaster Recovery and other systems, meaning that they have been
                  able to call on staff with pre-existing expertise. Without this, it may
                  have been necessary to treat these as more substantial projects
                  requiring additional paid-for consultancy.
            (d)   With the expectation these days of 24x7 availability, the Steria team
                  at their headquarters at Hemel Hempstead provide a system
                  monitoring tool that alerts the on-site team to any breaks in service.


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                   We have benefited on more than one occasion from this service out
                   of hours and have averted some major outages.
             (e)   The notion of shared staff and a resource pool of expertise is a
                   comfort factor in an age where external contract resources are
                   expensive and elusive.
             (f)   The development with Steria of the Technology Roadmap for
                   Spelthorne on which the strategic ICT direction is going to be based
                   for the next three years is crucial to the support aspect of the
                   contract. With the introduction of „virtual‟ environments for the
                   servers and „thin client‟ desktops, our carbon footprint will be
                   improved, costs reduced and more efficient and effective support
                   processes introduced.
4.8   The possibility of a wider package of services (i.e. not just ICT) needs to have
      the in-house motivation and ambition to see this through. Which services would
      be included, the impact on the staff and the general uncertainty could affect the
      whole of the organisation.
4.9   Arvato have a presence in the East Riding of Yorkshire (a unitary Council) and
      provide revenues, benefits, HR, payroll, print, debtors, ICT and customer
      services. They have provided a presentation at Spelthorne to ourselves and
      several other Surrey authorities on their approach to delivering successful shared
      services. Arvato could see ICT at Spelthorne as part of the possible package.
      There are a number of other suppliers who may also be interested if the wider
      service package option was a viable.


5.    RE-TENDERING
5.1   There remain a number of suppliers in the market for local authority outsourcing.
      Advice from the Office of Government Commerce is that the market is moving in
      favour of the suppliers, who are now more interested in larger contracts or in
      shared services approaches, and all are looking for opportunities for contract
      growth – which may be limited if the contract is tightly drawn.
5.2   Tenderers incur high bidding costs, and weigh these against the prospects for
      success and future profitability. Initial interest often does not translate into an
      actual bid – especially if there is known to be an existing incumbent with which
      the authority is not dissatisfied. Costs of transition also need to be recovered.
5.3   The market constantly changes, and may be influenced by moves to shared
      services.
5.4   There is a risk of no other bid as the incumbent supplier is seen to be successful.
5.5   A new supplier would introduce the possibility of TUPE issues for the current
      Steria staff and possibly the client side in-house Spelthorne team. The Steria
      staff could choose to stay with Steria whereby a whole new team would be
      introduced resulting in a massive learning curve. This should also be identified
      as a risk.




                                           4
6.    IN-HOUSE
6.1   As noted above, every other Surrey district has an in-house team. This option, if
      viable, needs to be worked up fully, further to the work done prior to the contract
      extension in 2006, as prices will have changed and the existing in-house
      capacity has since been restructured and reduced. It is estimated the in-house
      team would have to significantly increase in numbers to be able to deliver the
      current service. With an in-house approach there would issues with respect to
      the recruitment and retention of the skilled staff required. TUPE would apply but
      existing Steria staff may not transfer.
6.2   There would be considerable initial investment, (transition and implementation
      costs estimated of at least £100,000) significant risks to service delivery and a
      period of instability while the service is being set up and settling down.
6.3   Whilst an in-house option would provide better control of revenue spend, the risk
      would be in the resilience of the service and the change of expectation within the
      service delivery. For example, an in-house option is unlikely to offer the range of
      support hours offered by a large outsourced Helpdesk facility. The lack of
      technical expertise or developers within the current team would identify the need
      for a considerable training budget as the skill set cannot be transferred.
6.4   Benchmarking has been undertaken with other Surrey authorities to establish the
      likely costs and implications of an in-house service. The exercise would also
      consume a lot of in-house resource (in ICT, Finance, Human Resources and
      elsewhere) in setting up the new service, which would need to take priority over
      other work. The risks would also have to be assessed, and may result in
      additional costs if they materialise.
6.5   The Customer and e-Government Services Business Process Improvement
      review in 2007/08 saw a reduction in the number of FTE posts in the department
      and the retirement of the former E-Government Service Head in October 2008.
      The in-house team would have only one FTE with any experience of the culture
      and dynamic of an in-house team. This makes the in-house option a significantly
      bigger challenge and risk.


7.    STERIA
7.1   The Current Position
      The following table shows the current (08/09) regular expenditure with Steria:

       Original Service
                  Applications                £365,200
                  Desktop & Network           £113,700
                  Sub Total                              £478,900
       Extras
                  Print Management              £4,000
                  Depot Link                    £2,500
                  CCTV                          £7,000
                  Web Support*                 £21,500
                  Network Support              £33,200
                  Members†                      £9,750
                  Sub Total                               £77,950
       Total                                             £556,850


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       * Including 3rd party software support and maintenance for Content Management, Search Engine etc
       † In full year. Additional charges will be incurred for call-outs – estimated at £4,000 pa


7.2    Apart from the formal chargeable changes, Steria have absorbed a number of
       additional services/changes without additional direct charge:
                (a)    They now support 48 servers (25 at start of contract)
                (b)    They now support 330 PCs (283 at start of contract)
                (c)    A wide range of new systems and interfaces
                (d)    Extensive development in remote access and security.
                (e)    Business Continuity and Disaster Recovery.
7.3    In some cases these have been managed by adjustments within the contract, in
       others they have just been absorbed. Steria and the Council have put in place
       many operational and efficiency changes to enable workload increases to be
       handled within the available resources, and Steria have been proactive and
       extremely co-operative in delivering these. As an example, minor upgrades and
       patches are often installed over the weekend to minimise downtime and
       disruption, at no extra cost.
7.4    A 2.5% efficiency element was also built into the Steria contract extension which
       means a cumulative reduction for each of the three remaining years of the
       contract, although there is also an inflationary increase because the contract
       costs are predominantly based on people, not the technology.
7.5    Steria would not incur any transition costs if they re-tender and nor would there
       be a significant need for skills transfer.
7.6    Appendix 2 is the options appraisal matrix that was developed for the review in
       2006.


8.     FINANCIAL IMPLICATIONS
8.1    It is recognised that more work will be needed to work up the financial
       implications of the different options, unless there is one preferred option from the
       start.
8.2    The Council needs to achieve the best value for money from the provision of ICT
       services, taking account of the current pressures on the Council‟s budget. It is
       also important to achieve the best combination of value for money and flexibility
       for potential partnership or shared services, whilst minimising risk.


9.     LEGAL IMPLICATIONS
9.1    Procurement is subject to EU Procurement rules.


10.    RISKS
10.1   Whichever option is chosen, it should be noted that there are significant risks of
       service delivery in the run-up to the end of a contract – even if the supplier



                                                        6
       makes every effort to sustain service quality, it may be very hard to retain locally
       knowledgeable and committed staff when these staff see an uncertain future.
10.2   A full risk assessment should be taken of all the options, if they are to be
       investigated fully.


11.    OPTIONS APPRAISAL
11.1   The options are as follows :
              (a)   Simple re-tendering of ICT Service. A re-tender could be
                    undertaken through the OGC Catalist framework agreement. This
                    tender could take varying guises.
              (b)   Shared services – currently insufficiently defined, with insufficient
                    interest and commitment from well-matched partners.
              (c)   Take the service in-house –considerable disruption and risk. Could
                    involve some significant service reductions in certain areas – e.g. it
                    would be hard to deliver the existing support hours provided by
                    Steria (including evening and weekend support for Members), and to
                    secure the same range of technical expertise and cover for the
                    absence or vacancy of critical technical posts. There would also be
                    a significant period of disruption while the new service is being
                    established and settling down.


12.    TIMETABLE FOR IMPLEMENTATION
12.1   A simple re-tender could probably be achieved within 12 months from the point
       of the decision of how to specify and procure the services or less if it is possible
       to use the Catalist process.
12.2   The in-house option could take anything up to two years and would have to run
       in parallel with the existing contract for skills transfer etc.
12.3   The shared services options could take anything up to two years depending on
       the nature of the specification of services and the challenge of writing this
       specification with the full agreement in principle of all parties. The
       documentation is a key factor here as it would likely mean starting from scratch.
       Legal clauses and liability would constitute a time factor being built in and could
       be a big risk.



Report Author: Helen Dunn ICT Manager




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                                                                   Appendix 1


             CURRENT STERIA CONTRACT DELIVERABLES
The Steria outsourcing contract started 1 Jan 2003, for 5 years until 31 Dec 2007. It
was extended in 2006 for a further three years. It expires on 31 December 2010.

Key elements of the current service are:

Service Hours

      Normal Support Hours (Helpdesk and other support, with staff on-site) from 8 am
       to 6 pm weekdays, though Services are expected to stay available at other times.
      E-mail and website problems are remotely monitored and (where feasible) fixed
       from 6 am to midnight.
      Members and officers (within „reasonableness‟ parameters) can log support calls
       8 am to 10 pm weekdays and 9 am to 5 pm Saturdays – some issues can be
       resolved by the off-site Helpdesk directly without reference to the on-site staff.
      Extensions can be arranged for particular needs (e.g. to install new releases).

Services

Steria provide a range of services, including:

      Help Desk and Problem Management. The Help Desk operates from Risley, and
       can fix some problems directly (around 10%), but most require action by on-site
       engineers. They take an average of 300 calls per month on our behalf.
      Network and Security Management. By extending the network, with the addition
       of wireless and widening access from outside (e.g. public, home workers,
       Members), this is now much more complex and demanding. The threats from
       viruses, worms, hacking etc have increased greatly and need to be met with
       enhanced skills and resources. The introduction of our joining the Government
       Connect Secure Infrastructure (GCSi) and the higher standards of security
       demanded by this make this element of the service much more challenging and
       time consuming.
      Server Operations. Server management, back-ups etc. At the start of the
       contract we had 27 servers; we now have 48. Some are monitored off-site (e.g.
       Unix servers). New back-up hardware and software has greatly improved
       resilience.
      File and print support. Steria are now managing the Multi Functional Devices
       (MFDs) (i.e. the networked photocopiers), offset by a reduction in the number of
       networked printers.
      Desktop support. We have had a slight increase in the number of desktops, and
       have upgraded or replaced many desktops over recent years and continue to do
       so with a rolling refresh program.
      E-mail/Exchange. New e-mail archiving software is being introduced. „Push‟ e-
       mail is provided to senior staff members with the use of mobile XDA devices.
      Internet and Intranet Services. We have no ongoing support for web
       developments, which are commissioned as individual projects, but we need
       access to good technical skills on a day-to-day basis for minor problem solving
       and enhancements.



                                           1
      Application Support. All batch, interfacing and reconciliation work is done by the
       on-site Steria team at the London Borough of Bexley.
      Contingency Planning/Disaster Recovery. This now covers 12 core services and
       is sub-contracted through SunGard, Steria‟s preferred BC/DR supplier. A recent
       test (April 2008) was seen to be very successful.
      Inventory Control and Asset Management.
      General advice and guidance.
      Projects and consultancy as commissioned. Some minor development can be
       undertaken within the general contract terms; projects will typically incur
       additional charges, subject to quotation and approval.
      Members support. Steria now support the Members set-up with a back to base
       „hot-swap‟ principle but much more is provided in practice. This has included the
       introduction of „push‟ e-mail to remote mobile devices (XDAs) for Executive
       Members.




Potential areas identified for improvement are:

      Website development – need to provide a number of days available on call-off
       basis rather as for minor developments.
      Business Process Improvement – we will need support in delivering changed
       processes, probably in workflow and system integration (including middleware
       and connectors).
      Authentication, access control and personalisation – giving the public and staff
       secure access to personalised information. May require portal development and
       use of Government Connect, as well as personalisation of systems.
      Extension of Members‟ diagnostic remote support to cover weekends and bank
       holidays between 9am and 1pm. This would not include home visits but would be
       more than simply logging the call. Remote log-on by the on-site team would aim
       to diagnose and resolve the problem. This would be done on a rota basis.
      The strategic direction of the „Technology Roadmap‟ development and new ways
       of working to 2011.
      Introduction of software to support improved information and records
       management.
      Introduction, development and support of integration tools to link front and back
       office functions and activities.




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