Capita and Balfour Beatty role reversal at North Tyneside

In what must be a first in the UK BPS market, construction and support services giant Balfour Beatty has been selected as preferred supplier to provide North Tyneside Council white collar business process services (BPS). BPS market leader Capita meanwhile is preferred supplier for professional support services at the council.

Capita was selected for the ‘technical package’ at North Tyneside - a 15-year, £152m deal covering highways engineering, traffic and transportation planning, properties and facilities management, planning and building control, consumer protections and environmental health services. It will see some 335 council staff transfer to Capita’s property and infrastructure consultancy Capita Symonds, and a further 58 FTEs seconded. Balfour Beatty meanwhile is the preferred partner for the ‘business package’, covering finance, procurement, revenues and benefits, ICT, customer services and HR, and will involve 420 people being TUPE’d over to BB.

Capita Symonds does already deliver professional support services to Blackburn, Salford and Swindon councils, so this type of work is nothing new. The real 'blue collar' work like bin collections or road cleaning is delivered via partners. Nonetheless this is still lower margin business for Capita – property services made a 6.5% underlying margin in H112 vs. 13.5% for the group as a whole. Ordinarily, Capita swallows the low margins in the hope of more lucrative IT-enabled BPS business further down the line (see Capita on track, but problem areas still need addressing). On this ocassion however that opportunity will be going to BB.

IT-enabled BPS is Capita’s core business and where it is the clear market leader in UK local government. BB meanwhile is not known for its capabilities here, although it has been attempting to break into this market for some time. We suspect the decision had a lot more to do with the cost of a Capita vs. BB proposition. The different margin expectations and deep pockets of the construction/support services players certainly helps (see Construction companies: the unusual suspects in UK BPS). And North Tyneside does need to make £47m in savings over the next four years.

We are likely to see more such deals in the future as this tussle between support services and BPS plays out in the market to drive down costs for the client (see Lincolnshire Police signs £200m deal with G4S). How this impacts on the overall quality of service however yet remains to be seen.