Monday, 3 June 2013

One Barnet - The hidden costs of outsourcing exposed

We are told that outsourcing to private companies provides value for money for the taxpayer. What we are not told is how costs and risks are shunted off the balance sheet, into the long grass. One such example is brutally exposed in a delegated powers report recently deposited on the Barnet Council website. This deals with one such agreement, with Fremantle, the company responsible for Care homes in Barnet. This DPR deals with the ongoing costs of providing pensions for staff TUPE'd over to Fremantle.

The report states in section 9.3

9.3 The Fremantle Trust has indicated it is unlikely to be able to obtain a pension an affordable price within the context of the contract with the London Borough of Barnet. This is due to it predominantly employing former local authority staff and, as an admitted body to a number of local government pension schemes, having a significant FRS17 provision on its balance sheet. The recent relaxation of the regulations outlined in 5.3 above would allow The Fremantle Trust to provide a guarantee instead of a Pension Bond. In terms of the Fund it is essential that such a guarantee is reliable and the guarantor is unlikely to default. The Fremantle Trust has indicated that its bank will provide such a guarantee on the basis that the Trust deposits the sum calculated as necessary by the actuary with the bank. This would therefore be a secure guarantee and it is recommended that the Committee approves this course of action.
Translated into plain English, this paragraph states that the Fremantle trust has had to take advantage of a relaxation of regulations to meet its commitments to staff. It states that due to the fact a considerable number of staff are former employees of the local authority, a pension would be too expensive. Now the Barnet Eye wodners how such an oversight could possibly be made if all proper due diligence was done. We also ask whether such considerations are adequately covered in the huge One Barnet outsoircing schemes, which dwarf the Fremantle contract.

What concerns the Barnet Eye is the fact that it seems the reason for downgrading the requirement for a bond to one of a guarantee is that "it is unlikely to be able to obtain a pension an affordable price within the context of the contract with the London Borough of Barnet." In other words a bond is too expensive for the contractor, even though it is contractually required. We have been told that the One Barnet Contracts are "watertight". I wonder what the Borough has to say about the Fremantle contract? Barnet Council claim that the guarantee does the same job as the bond. Now I am not an expert in the bonds and guarantee area, but one has to ask "how come this guarantee is cheaper for Fremantle than the bond that was contractually required?" Will it do the same job and provide the same guarantee of mitigation of risk to the taxpayer and to the employees who are at risk? One has to conclude that if it costs less money, there are questions to answer.
It doesn't bode well for the One Barnet project. As ever the money question is "who ultimately will pick up the bill if it all goes wrong?" The answer is likely to be (as ever) the taxpayer in Barnet.

You can find full details of the report at the Barnet Council website here

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