Capita's woes: what could they mean for UK IT?

The outsourcing giant's profit warning is ringing alarm bells for public and private sector IT

Outsourcing giant Capita saw its shares drop by 47.5 per cent Wednesday after it gave a profit warning and announced that it will attempt to raise £700m on the stock market.

The news inevitably prompted comparisons with Carillion, the outsourcer that went into liquidation in January. The government moved quickly to quash such talk, with a Number 10 spokesperson saying that none of its strategic suppliers "including Capita, are in a comparable position to Carillion."

Nevertheless, the news has prompted more calls for a thorough review of outsourcing policy.

"We need a proper government review of the outsourcing model and assurances from ministers that they are factoring in any risk on Capita projects," said Liberal Democtrat leader Vince Cable.

Capita employees 67,000 people, mostly in the UK and 2016 revenues were £4.9bn, with 47 per cent of that business coming from the public sector. The company runs a wide range of outsourcing contracts - too wide according to CEO Jon Lewis, who said that the company would be divesting itself of some of its diverse businesses such as carpark management and a construction register in the next couple of years.

"We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time," Lewis said.

He blamed unfavourable "headwinds" that he said would "impact upon the financial performance of the private sector partnerships, in both insurance services and customer management, public services partnerships and IT services divisions".

Like Carillion, Capita's finances have been under pressure for some time. Its decline could have a serious impact on the UK, due to the large number of public and private projects it runs.

A big presence

As far as technology services go, Capita is a big presence in both public and private outsourcing.

In the NHS, for example, the firm provides blood transfusion systems to some hospitals and operates online payment system to a number of NHS trusts. Recently NHS digital announced it would be running an academy to train 300 CIOs and CCIOs.

Capita's role in transport includes operating the London Congestion Charge and Low Emission Zone and a Transport for London scheme to upgrade the organisation's IT networks including the equipment used to provide free Wi-Fi at London Underground stations. It is also part of a consortium that's rolling out HS2.

The firm has been heavily involved in many shared services deals between London councils, including Richmond and Wandsworth, and Westminster, Hammersmith & Fulham and Kensington & Chelsea, while the entire running of Barnet Council was outsourced to Capita in a 10-year deal in 2012. Meanwhile, In Birmingham the City Council extended a deal to provide ICT and contact centre services to 2021. Leeds, Glasgow and Bury contact centres are run by Capita too.

The provision of contact centres is also a mainstay of its work in the private sector. In July 2017 after a catastrophic IT failure that caused major delays and cancellations, BA announced that Capita would be taking over its call centres. The firm also provides IT infrastructure services for UK air traffic control.

Elsewhere in the private sector Capita won a £325m 10-year contract with Co-operative Bank in 2016, a deal that was later cut to four years over concerns about costs, HSBC is a major customer of its financial software. The charity NSPCC contracted the firm to run its data centre.

In energy, Capita is part of a consortium that is rolling out smart meters. It also operates the Gas Safe register of trusted suppliers.

In education, it provides the teachers' pension scheme and runs ICT services in 1,100 schools in Northern Ireland.

Elsewhere, in social services Capita administers the Job Seekers Allowance phone helplines, organises disability work placements; in the field of justice it operates the offender tagging scheme, and it is also responsible for collecting and administering the BBC licence fee. Capita has been working with the Department for Work and Pensions on a data management system for the past 12 years.

Clearly, the fate of large swathes of the UK's infrastructure is tied up with that of Capita and other outsourcing firms, which has led to calls for a review.

General secretary of the TUC Frances O'Grady said: "We can't afford another Carillion. The TUC is calling for an urgent risk assessment of all large outsourcing firms. It's essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk."