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December 1, 2005

Capita beats IBM to Birmingham outsourcing deal

Capita Group Plc is finalizing a major outsourcing contract with Birmingham City Council after beating a rival bid from IBM Global Services.

By CBR Staff Writer

London, UK-based Capita has been named as the preferred strategic partner by the council and is negotiating the terms of a 10-year deal which will see the two parties set up a joint venture vehicle to provide IT and business services.

The largest local authority in Europe plans to second 450 internal staff to the venture, which will be called the Service Birmingham Partnership and will be majority-owned by Capita. The deal will include an initial IT and communications services deal worth 424m pounds ($732m).

Consulting firm Axon Group Plc will work alongside Capita on the project. The council has existing contracts with IT services vendors ITnet and Specialist Computer Centre for server management and desktop support respectively. Once the deal is signed, these relationships will be managed by Capita.

Capita had gone head-to-head against IBM Global Services in the final stages of bidding, after the council had earlier dropped bids from EDS Corp and Specialist Computer Centre.

Capita has been criticized for its role on some high-profile UK government projects, notably with the Department for Education and Skills and the Criminal Records Bureau.

However, it continues to capture major public-sector deals, including a 100m-pound ($170m) IT modernization deal with the London Borough of Harrow in July, and a 17.7m-pound ($30m) contract extension to manage London’s congestion charge scheme in October.

Joint venture outsourcing contracts are rare in the private sector, but continue to be popular among UK government organizations that feel the model gives them greater control over their relationship with external contractors.

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Although Birmingham claims that the Capita outsourcing venture is innovative, it bears a close resemblance to a 650m-pound ($1.1bn) joint venture outsourcing deal announced by Walsall Council with Fujitsu Services in December 2004.

Earlier this year, The UK National Health Service set up a joint venture with Xansa Plc to provide finance and accounting services, while BT Group Plc has JV deals with councils in Rotherham and Liverpool.

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