Press Release - National Savings: Public-Private Partnership
with Siemens Business Services
25 May 2000
Sir John Bourn, head of the National Audit Office, reported to
Parliament today on the £635 million contract awarded to Siemens
Business Services (SBS) to process transactions and provide a
service to National Savings' 30 million customers. The partnership
forms a vital part of a programme of modernisation and
transformation which aims to provide better value for the taxpayer
and National Savings' customers. An intensive investment programme
should enable National Savings to be competitive and relevant in
the highly competitive and fast moving retail savings market.
The deal price of £635 million, obtained through a competitive
process, represents better value to National Savings than the
alternative of keeping the operational service in-house at an
estimated cost of £792 million.
From 1 April 1999, SBS took over some 4,000 National Savings
staff based in Blackpool, Durham and Glasgow. National Savings'
remaining 130 staff, based largely in London, are fully responsible
for the overall business performance of National Savings and for
the design, management and marketing of products to customers,
liaison with the Treasury on funding requirements and managing the
relationship with SBS.
Sir John considers that this deal broke new ground. Not only did
National Savings transfer the risk of modernising business
processes involving IT solutions to a private sector partner but
also the staff who will be responsible for implementing those
solutions. National Savings also required a private sector partner
to make proposals for alternative work for their new employees. SBS
saw the acquisition of the operational service as a strategic asset
which provided an opportunity to develop services for other
customers and create new jobs for former National Savings
employees.
Sir John concludes that government departments could learn a
number of lessons from this deal. These include:
- it is unwise to rely solely on risk transfer and
appropriate incentives on the private sector partner to ensure that
required services will be delivered. As the transformation
of operational services is central to achieving the benefits
expected by each partner and the ultimate success of the
partnership, National Savings is not only monitoring progress by
SBS but has also engaged independent IT consultants to help it act
as an intelligent customer;
- departments should ensure that poor performance by a
service provider will put the contract at risk of
termination. National Savings has avoided being
"locked-in" to the contract and can terminate the partnership if
performance standards agreed with SBS are not achieved;
- in entering into a long term partnership, departments
must ensure that the underlying contract reflects changes which
will occur over time. National Savings and SBS have agreed
detailed procedures to facilitate the agreement of changes and
incorporate them in the contract. The contract should be varied
using those agreed procedures so that the provisions for handing
back staff and assets remain workable whenever the contract is
terminated;
- departments should ensure that they have appropriate
management resources to monitor the performance of a private sector
partner. National Savings has increased the resources it
devotes to monitoring SBS performance and aims, through effective
business judgement, to incentivise performance improvement rather
than apply a mechanistic formula of penalties;
- senior departmental management should be closely
involved. As a substantial part of its operations would be
transferred to the private sector, National Savings senior
management took control of the project and, with the support of
professional and experienced staff, committed a large amount of
time to planning the procurement and agreeing the terms of the
contract with SBS; and
- departments will be in a much stronger negotiating
position if the content and scope of the deal is made clear to
bidders. National Savings clearly defined its own
responsibilities and those of a private sector partner at the
Invitation to Negotiate stage of the procurement process. There
were considerable benefits in sending out a properly constructed
Invitation to Negotiate and it is questionable whether National
Savings would have got such a good deal if the document had been
issued on the date originally intended. Throughout the procurement,
pre-determined criteria were used to evaluate bids. To avoid any
drift on price, risk transfer and value generally, competitive
pressure was maintained on two final bidders by negotiating a draft
contract with each of them before recommending a preferred bidder
to the Treasury.
Sir John said today:
"This is one of the most remarkable PFI deals we have
seen because it has resulted in the transfer to private sector
employment of all but some 130 staff of an entire Government
department. The number of staff employed on National Savings work
will fall but the deal has been structured in such a way that SBS
is incentivised to find alternative work for its new employees.
There are a number of lessons that other Government departments can
learn from this partnership, particularly how National Savings
procured the deal and the framework established to manage the
partnership with SBS."
Notes for Editors
Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 37/00
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