Steven Morris – Monday July 2, 2001

Lambeth council has severed its £48m contract with a private firm to run its benefits operation, just days after the failure of a similar contract in Hackney led to the threat of government intervention.

The decision by the Labour-run Lambeth to cut short its contract with Capita Business Services is being seen as the latest example of a flawed public-private partnership.

Last week, Hackney’s failed benefits contract with another private computer company – ITnet – prompted local government secretary Stephen Byers to threaten to take control of the council’s finances.

Lambeth claims its benefits service has deteriorated since Capita’s seven-year contract began in 1997. It says the problems peaked in April last year when it faced 55,000 outstanding queries and the quality of the service remains “unacceptable”.

A report from the benefit fraud inspectorate (BFI) published earlier this week concluded that there was a need for radical improvement in most areas.

After a special meeting to discuss the partnership, Lambeth announced it was “cutting short” its contract. From today, 175 staff previously employed by Capita to run housing and council tax benefit services will be “welcomed back” to the council.

Council leader Tom Franklin conceded it would be “some months” before Lambeth taxpayers began to see a difference, but claimed the authority had inherited a “very challenging position”.

However, Capita claimed that it had inherited a backlog of more than 100,000 cases, which was now down to 26,500 and continuing to fall.

Paddy Doyle, Capita Group Operations director, said: “Capita is handing back a much-improved housing benefits service to Lambeth, and will continue to provide the council with key support.

“Capita has worked hard to achieve these service improvements and to enhance customer care for claimants. Now that the service is in a stable and improving state, the council has decided that they wish to take over the management of the service at this point, to oversee future delivery and modification of the service,” he said.

Capita will be retained for IT support and for its call centre service at Coventry, as well as the collection of Lambeth’s council tax and non-domestic rates. A spokesman for the council said a new structure had been established and a new “file tracker” system installed to ensure that files and post do not go missing.

Labour has championed public-private partnerships but has been embarrassed by a series of botched IT projects. Only this week it emerged that government plans to speed up the criminal justice system were in disarray after a £319m computer scheme was delayed indefinitely because of mounting costs.

Ministers have been embarrassed by the failure of a £100m caseworking system for the immigration and nationality directorate, built by the German company, Siemens Business Services.

There were also problems with a new £230m system for issuing passports and in November 1999 the Home Office admitted that 13 of its 17 IT projects were behind schedule or over budget.

Capita is a favoured “outsourcing” company. Recently it won a £100m contract to provide a one-stop shop access to Croydon’s council services and last year signed a £400m contract to set up and administer the criminal records bureau for the Home Office.