The boss of troubled outsourcer Capita has painted a glossy coat on its woes to MPs, while attempting to turn the spotlight on the government – as the firm sold off a £160m chunk of business and bagged yet another Whitehall contract.
Jonathan Lewis – who joined the firm at the end of last year – was giving evidence to the Public Accounts Committee as part of its inquiry into the government’s strategic suppliers.
This was launched after the Carillion collapse reignited the debate over how reliant the UK’s public services are on private companies, with Capita being a cause for concern as it holds a large number of public sector contracts and has a less than exemplary track record.
The session opened with MPs quizzing Lewis on the firm’s capacity to handle its central government contracts, to which he said that it was meeting 88 per cent of all the KPIs it has been set.
At the same time, the firm’s financials are less than rosy, having issued a profit warning in January this year and reported a £513.7m pre-tax loss for 2017.
Lewis – whose appearance was a masterclass in balancing the contrite, responsible and happy-to-help businessman with "that's not how I would have done it if I'd been in charge then" – told MPs that Capita had become “very large and to an extent unwieldy” and that he had taken “quick and decisive action to address the balance sheet” on arrival.
This included stopping dividend payments, efforts to fix the large pension deficit, and a reduction in focus from 40 areas down to five areas of growth. As part of this, the firm has today announced the sale of its Supplier Assessment Services for £160m.
“We’re going to be much more focused; we’re not going to try and do a whole range of services we’ve done historically that perhaps we weren’t the best entity to be delivering service upon,” he said. “We can’t be great at 40 [segments], but we will be great at five.”
This means being more rigorous in choosing what contracts to go for; unlike its current reputation, which committee chair Meg Hillier said was for bidding on contracts whether or not it was qualified for them. “The moniker you have from Private Eye [Crapita] is there for a reason,” she added.
Lewis fired back: “I hope that you get a sense that is not going to be the modus operandi going forward.”
However, the revamp hasn’t boosted the share price back to its 2016 levels. Although Lewis said it had gone up since the rights issue, he was accused by MPs of issuing a “slightly glossy answer”, given that it was 250p in 2016 and was at the time just 121p.
“What we have now is, for the first time in Capita’s history, a multi-year strategy, a level of robustness of the balance sheet, and a focusing of the business on five core segments that will lead to growth and success going forwards,” Lewis said. “I very much hope that our share price responds over time to that clarity of strategy.”
We'll show you ours, if you show us yours
Lewis was also asked about his relationship with government and whether he would be open to publishing details of the deals it has with the public sector – which allowed him to the chance to turn the tables a little.
Although the boss said he was supportive of greater transparency on targets and KPIs, Lewis argued that the government should do the same for the services it runs in-house.
“I think, as a taxpayer, I’d want to see the value for money I’m getting for services performed internally by a government department, as well as the value for money I’m getting for outsourced services,” he said.
Lewis argued that only seeing the outsourced deals gone wrong is “biasing” public opinion against private sector suppliers – but of course the openness would also benefit his company by effectively creating a brochure of areas in which the government might be persuaded to part with more cash.
“That’s exactly what happens in the private sector; [there, you are] constantly looking at ways you can help private sector companies become more efficient,” he said, adding that he would “absolutely” like to see Capita do more of that.
Similarly, he suggested that the government needed to do more to “co-create and collaborate” with the private sector before putting a tender out; make terms and conditions less “onerous”; and rethink the way it “gold plates” services – for instance, requiring that 98 per cent or more phone calls are answered in 30 seconds – that drives up costs.
Who's a better integrator: Us or government?
Lewis also deftly shrugged off the idea that the government might want to split up larger projects and directly contract with the smaller firms companies like Capita often use as suppliers.
“Effectively companies like Capita are playing the role of integrator… in order to bring that service to government,” he said. If government was to do that, “one then has to make an assumption as to who is the best integrator… not that government couldn’t do that, but the question is who is best skilled to do that".
Lewis also revealed that when Capita was going through its “strategic realignment” after he started, he discussed market contract opportunities with the government.
“The government was discussing what it thought Capita was particularly competent at, and how that might relate to the pipeline of contracts that would likely come to tender over the course of the next several years,” he said.
When challenged on this by MPs, Lewis confirmed that the government had not provided any information that wasn’t available to its competitors.
Nonetheless, any concerns that may still be harboured by MPs on the PAC seem not to have been heeded by the Ministry of Defence.
The department today handed Capita yet another contract, this time to run its fire and rescue services – covering 2,200 staff at 78 defence fire stations worldwide – a choice not celebrated by Unite the union.
“This decision is deeply alarming and entirely wrong-headed. It demonstrates that the government has learnt exactly nothing from the collapse of Carillion,” said Unite national officer for the MoD Jim Kennedy.
“Capita’s financial woes raise deep concerns about whether they are capable of successfully running this contract for its duration.” ®