Walsall Council kicked Fujitsu Services out of negotiations for a £500m outsourcing deal because it was jaded by the IT supplier's "brinkmanship" and exasperated by disagreements over contractual liability, it has emerged.
Councillors wanting to know why a three-year procurement process had failed, attended a council meeting on Monday night where they were given edited minutes from a January 18 meeting of the Conservative Cabinet - which runs the council - at which the decision was taken to tear up the troublesome draft contract.
The Fujitsu deal was meant to deliver the transformation programme "Putting the Citizen First" that would rescue the council from its official status as a "weak" authority and see it on its way to attaining "excellence" by 2008.
Instead, Fujitsu squeezed so many concessions out of the council during negotiations, and was pressing for more, that the Cabinet deemed the deal to be no longer in the public good.
Yet, the report stressed the deal would otherwise have been unaffordable for Fujitsu. The failure to find a compromise will be a useful lesson to other councils, in particular those such as Birmingham, itself considering a similar outsourcing arrangement. Walsall's deal would have been the biggest of its kind in local government.
Labour leader Counsillor Tim Oliver said the meeting was told: "Cabinet said it was an issue of trust and that had been broken."
Fujitsu's game of "brinkmanship" during the last weeks of delicate negotiation "was unacceptable", he said.
According to the report, the council had conceded in protracted negotiations to forgo savings that had motivated the private sector deal and "reinvest these in the partnership". These concessions were made after Fujitsu had made its best and final offer in December 2004.
These concessions put the council under pressure. The savings were intended for investment in those council services, including under-performing areas such as social care, that had not been earmarked for the private sector.
But the concessions had to be funded from these retained needy services. "Flagship projects", such as a new business centre, would also have had to be cut back. The contested figure is thought to have been over £1m a year.
Walsall's funding concerns were exacerbated by a shortfall in central government funding and restrictions on council tax that, though minor compared to the overall budgets involved, heightened feelings of trepidation about the deal.
On advice, the council sought to trim back the concessions it had made with Fujitsu. But a series of revised offers from the IT supplier presented another set of problems.
In exchange for relinquishing the late financial sweeteners it had won, Fujitsu insisted Walsall accept a greater share of risk for the project.
Fujitsu's revised contractual terms would have made the council accept "increasingly higher than appropriate risks" that would have belied any ground the council regained on the finances.
The disagreement over contractual liability will also be of broad interest to industry and all levels of government, as senior representatives from both sides, including Fujitsu, have been engaged in a stand-off over the issue for the last 18 months. Government had been accused from all quarters of shirking its contractual responsibilities to such a degree that it increased the chances of failure in major IT projects. It now appears that both sides might in some cases wear the same accusation as well.
Fujitsu refused to comment. ®
The reports presented to council on Monday can be found here.