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
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.
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
(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.
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
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
Contacts: Helen Dunn - ICT Manager, Terry Collier - Assistant Chief Executive
(Finance and Resources)
Portfolio Holder: Councillor Michel Bouquet
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
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
(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
(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.
(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
(i) In house capacity - e.g. for Service Delivery and/or client and
(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
(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
(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
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
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
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
(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
(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.
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
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.
5.1 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
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.
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.
7.1 The Current Position
The following table shows the current (08/09) regular expenditure with Steria:
Desktop & Network £113,700
Sub Total £478,900
Print Management £4,000
Depot Link £2,500
Web Support* £21,500
Network Support £33,200
Sub Total £77,950
* 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
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
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.
10.1 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
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
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
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:
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).
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
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
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
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
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
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
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
Introduction, development and support of integration tools to link front and back
office functions and activities.