The back-office system, the big bucks - and the bills

24th June 2011 at 01:00
Analysis - Capita, whose administrative systems are used in 20,000 schools, is being accused of making 'excessive' profits from the academy programme. Richard Vaughan investigates what happens when those leaving local authority control are left to the mercy of a market dominated by a single player

Earlier this month, The TES reported that private services company Capita was being accused of making "excessive" profits from the Coalition's expansion of the academy programme. Headteachers overseeing the conversion of their schools to academy status had complained they were being slapped with huge bills, often as much as #163;20,000, just to change the licence on their school's back-office computer software.

The systems are critical to the running of a school, covering almost every part of its administration, from registration and attainment to controlling dinner money and admissions. Capita's own version, called Sims, is used by some 20,000 schools in England and controls about 80 per cent of the market.

The issue is not without a sense of irony as the man who started Capita, Rod Aldridge, is now an academy sponsor. But it also highlights wider concerns within education about the increasing role of private companies profiting from public services.

As more schools opt to become academies, and as more free schools are established, school leaders and their staff will be forced to become ever more vigilant when it comes to buying in services.

Since the first TES article, more stories have emerged about Capita charging schools to re-license their management information systems (MIS). One primary, St Patrick's Academy in Solihull, was charged "consultancy" costs of around #163;1,150 a day to help it convert, on top of re-licensing costs of about #163;15,000.

A Solihull Council source says they had seen first-hand how much Capita was charging as the local authority was helping its schools convert to academy status.

"None of our schools has paid (the consultancy cost) as we know it's just Capita chancing their arm," the source says. "When I heard about it, I had to phone them up and ask them what they were playing at," the source said. "But we have paid for re-licensing. If every secondary school pays #163;20,000 and every primary that converts also has to pay, they will make millions and all they have to do is change their billing system."

This week, a legal expert in the field said Capita could be guilty of an "exploitative abuse" by charging schools converting to academy status to re-license their MIS. Capita says it must pass the cost of re-licensing on to the school in order not to be "seen as using its position unfairly against its competitors". But according to Edward Pitt, a solicitor with London-based Bates Wells amp; Braithwaite and one of Europe's leading authorities on the MIS market, Capita may be using competition law as an "excuse to charge a high fee".

"A dominant supplier (such as Capita, with an 80 per cent-plus market share in the markets for MIS systems used in schools) must not abuse its dominant position," Mr Pitt tells The TES. "This sounds to me like Capita is sheltering behind competition law to charge a high fee ... The charge of a fresh licence fee to an academy which in practice is stepping into the shoes of a predecessor school might be seen to be an exploitative abuse."

Mr Pitt, who has acted on behalf of Bromcom, a competitor to Capita, adds this was not an isolated incident in the schools IT marketplace.

Capita was one of the first companies to spot the market opportunities presented by schools moving away from a paper-based administrative system, and quickly became the top IT supplier to local authorities. But its dominance has led to a series of run-ins with the Office of Fair Trading (OFT) following complaints from its competitors. Two were upheld in 1999 and 2003. In 2009, the company was accused by other suppliers of over-charging schools by #163;75 million over a 10-year period.

Bromcom, another early entrant in the MIS market, claimed that Capita was including a research and development levy in its package, which effectively tied schools to the company as they were paying for software upgrades before they had been fully developed.

The company was also accused of bundling packages together, such as software for time-tabling and financial management, meaning that smaller companies could not sell niche products as schools had already acquired them through Capita. The OFT has not given a verdict on the 2009 complaint.

A former Capita employee, who did not want to be named, says the company was well aware of its dominant position in the market, and charged accordingly.

"Local authorities were spending big bucks," he says. "We would bring out a new version of maintenance, basically upgrading the software which we would say you have to buy again, and local authorities did it. Local authorities were paying Capita hundreds of thousands of pounds for their software. They were supposed to go to an OJEC (competitive tender), but they knew and we knew how much it would cost to re-tender and to then change your system. We knew they just couldn't do anything about it."

The source adds: "I remember having to go to tell a local authority that the new contract would cost 19 per cent more, when retail price index was around 5 per cent."

If a local authority did choose to change its system, Capita would charge it for moving the data from its database. And schools were concerned that they would then have to spend even more on retraining staff to work the new system. But the problem runs even deeper than that, with each local authority employing a Sims support team which has a vested interest in Capita's system.

"If you moved to another system, particularly a cloud-based (internet) system, which is becoming more and more common now, the Sims support team is effectively redundant. RM's system, for instance, doesn't need a Sims support team," the source says.

Mary Bousted, general secretary of teachers' union the ATL, says the issue is just the beginning when it comes to schools converting to academy status and being forced to turn to private companies.

"This should act as a warning to schools that academy status will not give you more money in the long run," Dr Bousted says. "(Education secretary) Michael Gove said schools should not be gaining an advantage by separating from the local authority, and in the next year or two the Government will terminate the current grant academies receive and they will find the cost of buying in these services will be enormous."

The issue of Capita's dominance is one that the Department for Education is keenly aware of. In one of its final acts, Becta, the IT quango abolished by Mr Gove, published a report stating that around 80 per cent of local authorities were inadvertently procuring MIS systems illegally.

By not putting their contracts out to tender for fear that the process and any costs involved in changing suppliers would be too expensive, local authorities have made it easier for the market to be dominated by a single supplier.

The report said that local authorities were leaving themselves open to legal challenges from other companies in the market. As a result, Kent County Council, the largest education authority in the country, announced it would not renew its contract with Capita when it ends next April.

The matter has become a pressing concern for the Department for Education as the Becta report highlighted that schools are likely to spend more than #163;500 million on their MIS over the lifetime of this parliament. The Department is now talking to a number of companies in a bid to shake up the market to ensure schools get better value for money.

The move has been welcomed by many of Capita's competitors, which believe they will be able to offer rival products that will bring down costs for schools.

Bromcom managing director Ali Guryel is looking forward to a new framework. "The impact will be seismic in scale on the present annual costs across local authorities and schools, which are around #163;110 million per annum," he says. "What we should see in the coming years is that this money is spent more competitively in an open market for fresh software licences across suppliers, driving the cost down and providing choice and innovation for better software.

"This is what has not been happening over the past 15 years, hence the increasing costs, market stagnation and breaches in EU and UK procurement and competition."

Phil Neal, managing director of Sims for Capita, says: "The allegations made against Capita are without merit.

"As a company we have invested significant sums to provide academies with high-quality products and services and we believe that our prices are reasonable, competitive and offer good value for money. Recent tender activity in the MIS market shows that local authorities are able and willing to change MIS provider if the product is not up to the job. Sims does its job very well and that is why we are often chosen above our competitors.

"Our principal aim is to make the best software for a reasonable price and this is why so many local authorities choose Sims. We consult with user groups and the relevant associations before setting annual maintenance increases, which are well below the figure quoted, and the cost of a number of our products has remained static for many years."

The DfE said it is trying to work with Capita and other suppliers in the MIS market to ensure schools converting to academy status are not any worse off than those who remain in local authority control.

Unless the issue is nipped in the bud, there will be ever-more claims of large companies abusing their market dominance.


Admin on auto

Capita's Sims system was first developed by Phil Neal, a teacher at Lea Manor High School, Luton, who saw the benefits of being able to produce computerised pupil reports.

The local authority, Bedfordshire County Council, pumped thousands of pounds into developing the system, and by the mid-1980s more than half a dozen schools were piloting the programme. By 1986 every school in the county was using it.

But Bedfordshire failed to capitalise on the system, and by 1988 Sims Ltd was created, with Mr Neal as managing director.

Capita, which counts local and central government among its biggest clients, bought it in 1994.

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