County Council braced for lawsuit from Southwest One
County Council is making preparations for legal action from Southwest
One, the joint venture that it formed with IBM in 2007.
Weekly reports that the stand-off is the culmination of 18
months of crisis talks over the joint venture's failure to deliver
procurement savings IBM promised at its outset, and a financial
crisis that saw Southwest One deliver a fourth consecutive loss
in its 2011 annual accounts this week.
Nacey, chief accountant at Somerset County Council, said the authority
has made a contingent liability for a contract claim from Southwest
One in its accounts, which are due to be published on 27th September.
However, it had not made a firm provision because it believed
the claim would be groundless.
a possible court case regarding our procurement liabilities with
Southwest One. We rigorously deny it," she said.
believe they have a claim of a share of our procurement savings.
They are contracted to find procurement savings. When they reach
a certain level, they are entitled to payments. We are in dispute
over the amount of savings we have been given. They say they have
delivered more than we think they have. We say they've not reached
that level and won't pay."
pioneering shared services partnership, which reported an £8.7m
operating loss this week, had promised to deliver £195m
of savings over 10 years, on £585m of revenues from the
sale of back-office services and gains made from consolidating
purchases made by Somerset and its other joint venture partners,
Taunton Deane District Council and Avon and Somerset Police Authority.
halfway through the contract period, the latest accounts showed
savings of £13.5m to date on £287m turnover, according
to accounts over the four years to the end of Southwest One's
2011 fiscal year. Some £7.6m of the saving went to Somerset,
which contributes nearly half of Southwest One's fees.
Pretty, chairman of Southwest One, said in his annual director's
report that it and Somerset had an ongoing dispute they failed
to resolve after mediation meetings in July.
settlement has been reached and accordingly the board will be
reviewing which of the remaining options in the contractual procedure
should now be pursued," he said.
One, which is 75% owned by IBM, said it expected to continue making
a loss over the next three years and set aside a £6.2m provision
in its accounts. IBM had promised ongoing support for the venture,
to underwrite its debts, and in February provided a £10m
emergency loan at below market rates.
Pretty said Southwest One was through the worst of its troubles
but had still not reached the point where it could deliver its
company is still working on reaching the efficiency levels that
are required to fund the savings which have been committed to
the joint venture partners through service improvements, procurement
savings and operation costs reductions," said his statement.
One's turnover has fallen by 39% since its first year of operation,
according to the accounts over that time. It attributed its troubles
to a drop in government spending that meant its joint venture
partners were spending less and therefore saving less than had
been anticipated when the contract was drawn up. But the organisation
had also counted on bringing other local authorities in on the
venture, only to find none where interested.
Somerset has been taking services back in-house from Southwest
One, its model is being replicated in other areas of the public
sector, with London Metropolitan University seeking to form a
joint venture with an IT company that will also depend on procurement
and efficiency savings and persuading other universities to replace
their own back-offices with its rented services.