Chief Operating Officer The London Borough of Barnet North London Business Park (NLBP) Oakleigh Road South

London N11 1NP contact: tel: e-mail: date: Letter sent by email Dear Mr Dishman, Mr Dix, Ms Musgrove and Mr Tichborne I refer to your open letter to Councillors dated 8th November 2013. Cllrs Thomas and Rams have asked me to respond, as your letter raises a number of technical matters that I am well placed to explain. In so doing I hope to put your minds, and those of the many readers of your respective blogs, to rest. Im afraid that you have misunderstood the purpose of the publicly published DPR of the 5th August 2013 and as a result have made a number of incorrect inferences about changes to the business model agreed by Cabinet on the 6th December 2012. You will recall that this was the publicly agreed and published key decision which authorised payments to Capita of 320m over the coming ten years. There has been no subsequent change to the business model, no change in Capitas investment commitments and no change or reversal in policy. The plan remains as it did on the 6th December 2012. DPR 5th August 2013 did not authorise any payment to Capita. Starting with the DPR of the 5th August 2013, the purpose of this decision was to authorise the inclusion of Capitas investment in IT and other infrastructure assets into the Councils capital programme. In this regard we are bound by a range of technical accounting standards. In summary, if assets are to be used by the Council, irrespective of who has paid for them or who controls their day to day use (in this instance Capita) then those assets need to be recorded on the Councils balance sheet. In order for them to be included in the Councils balance sheet, they first need to appear in the Councils capital programme hence the need for the DPR. I would draw your attention to paragraphs 5.2, 5.3 and 5.4 and the report recommendation at paragraph 10.1. As you can see, very clearly, this DPR does not concern itself with the authorisation of a payment to Capita or the approval of a payment to Capita or as your letter puts it the sanctioning of a payment to Capita. In fact the DPR had nothing what so ever to do with authorising any payment to Capita, it was simply a technical enabling decision to include Capitas forthcoming investment into our capital programme. Evidently this needed to take place before the contract was signed, but after the judicial review outcome was known which was why it was agreed when it was. There would have been no point including Capitas potential investment in the Councils capital programme while ever that eventuality was in doubt. Chris Naylor 020 8359 5193 chris.naylor@barnet.gov.uk 11 November 2013

In short, its a red-herring to connect the DPR of 5th August 2013 with any decisions about payments to Capita. The key decision to agree expenditure with Capita was the cabinet decision on the 6th December 2012. In your letter, you collectively assert that Capita is no longer making the investment in the Councils IT infrastructure, but instead that the investment is coming from Council reserves. You consider this to be: contrary to the business model approved; by Cabinet in December 2012 and contrary to public pronouncements about the benefits of the contract made at the time and subsequently. I can assure that none of these assertions are correct. The business model agreed by Cabinet established that the Council would pay Capita 320m over the coming 10 years. In simple terms, for this sum the Council would: achieve a very considerable saving on the prevailing cost of the CSG services -320m over ten years compared to the in-house cost of 390m; receive investment of 16.1 million in IT and other necessary back office infrastructure; and receive service performance equal to or better than that currently delivered by the Council.

This overall business model remains unchanged by payments to Capita since the contract was signed. Payments of the agreed 320m to Capita have been profiled over the ten year contract to maximise savings and service improvements to the Council. In particular, in the first year of the contract, to reduce the cost of capital in Capitas contract price, 16.1m of the overall 320m was paid on contract award. This is not an additional contribution; it is within the 320m contract sum. Doing so has saved the Council not Capita an additional 0.8m. This sum contributed to the additional savings set out in section 9.4 of the published public Cabinet report of November 4th. All decisions about the profile of payments have been made in accordance with the Councils publicly published financial regulations. For the avoidance of doubt, the profile of payments to Capita have had: No impact on the Councils reserves. The investments referred to in the business model continue to be made from within the 320m agreed contract sum. Council Reserves have therefore not been used to fund the investment. Reserves have not gone down by 16.1 million. Tax payers are not now paying for something that they thought was being paid for from the contract price and Capita arent receiving additional amounts of investment from the Council. In fact as a result of the profiling of payments, tax payers benefit from additional savings. No impact on the Councils balance sheet. The IT and other infrastructure assets that Capita will be purchasing will be recognised as capital assets on the Councils balance sheet. As stated above, this is the correct accounting treatment for the assets in these circumstances. It is for this reason, and this reason only, that the intended purchase of IT and other infrastructure assets by Capita are captured in the Councils Capital Programme. Mr Dix has written to me and other colleagues in the Council about the accounting treatment of these assets and I will respond to him separately in due course.

For these reasons it is incorrect to state, as you do so in your letter, that Capita failed to make the promised capital funding. that in August, in a complete reversal of policy, the Leader sanctioned the payment to Capita of 16.1 million of taxpayers money held in the Authorities reserves, in order to cover the cost of the capital investment. To reiterate this is because:

Capita are making the promised investment within the 320m contract sum. In other words the Council/taxpayers will pay Capita 320m over the next ten years. Taxpayers are not paying 16.1m in addition to this amount; The Leader did not sanction a payment of 16.1 million, the relevant Key decision to sanction payments to Capita was the one taken by Cabinet on the 6th December 2012; and There has been no use of Council reserves to fund this investment.

There is no change to the original business case. The original business case set out that one of the benefits of an outsourced option would be that a private sector partner could afford to include capital investment in their overall bid price in a manner that the Council, acting alone could not. For the reasons set out above, this is exactly what has been achieved and it is what is happening. To suggest otherwise is misleading. As an aside, I dont recognise your collective point about capped procurement savings. The publicly published contract commits Capita to guarantee the procurement savings already identified by officers in the medium term financial plan. The contract includes a payment by results provision for procurement savings that are identified and delivered by Capita over and above those included within the guarantee where this is agreed in advance by the Council as the most commercially sensible way to proceed. The contract does not bind the Council to use Capita to deliver procurement savings. Accordingly, in the future, we can make a case by case judgement based on what is most commercially opportune for the Council. In conclusion, I can advise that there has been no change in policy, and no radical change to the terms of the business model agreed by Cabinet on 6th December 2012. Likewise, there has been no decision to use Reserves for a capital investment payment to Capita other than that set out in the agreed 320m contract sum agreed by Cabinet on 6th December 2012. As all payments to Capita have fallen within the contract price agreed by cabinet I cannot share your conclusion that there has been any breach of council regulations. I would be very happy to meet with you to discuss the contents of this letter in more detail. Indeed I am due to meet Mr Dishman and Mr Dix next week to discuss a range of other matters and would very happily add this issue to that agenda. By way of this letter, I extend a similar invitation to Ms Musgrove and Mr Tichborne. In the spirit of openness and transparency, and given that you have all written extensively about these matters on your popular blogs, please could I ask you to publish my response letter in full. Yours sincerely

Chris Naylor Chief Operating Officer