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A new report by the National Audit Office suggests that, while the government’s relationship with Capita was a major factor in the scheme’s failure, it’s the Department of Education and Skills, and not Capita, that should shoulder most of the blame.

The NAO finds that the government regarded the relationship with Capita as a “partnership”, even though the truth was that it was nothing of the kind. Despite the department claiming that its contract with Capita represented the most up-to-date PFI contract at the time, Capita was not allowed to join the project board and was left to implement decisions in which it had no say.

“In our view,” the report states, “this was a major factor that resulted in Capita having to act as a contractor bound by the terms and conditions of the contract, executing decisions by the department, rather than working together to develop and operate the scheme as it would have preferred to do.”

That’s not to say that Capita comes out squeaky clean. “Financial controls were inadequate, both at the department and Capita, and some which were planned were never implemented.” the study states.

Previously, in May 2002, a report of the education and skills select committee criticised Capita for not taking the initiative to stop the fraud. “Surprisingly, the potential expertise of Capita in designing systems to be fraud-resistant was neither called upon, nor offered. The opportunity to use private sector expertise in policy design fell between the two stools of policy (retained in-house by civil servants) and delivery (narrowly defined by the contract as performing operations to a required standard),” it said.

The contract between the government and Capita was valued at £55m and provided for Capita to be paid for setting up the systems and for the number of accounts opened. But, “Capita was not required under the contract to carry out any spot checks on eligibility,” the NAO report states. And, even though Capita provided the department with a range of “management information” on service provision, “the department did not have resource to study those reports.”

In conclusion the NAO recommends that any future PFI contracts should be based upon the benefits of both the department and the supplier and the “aims, objectives and common goals of the relationship.” Furthermore, if bidders drop out of the tendering process, the government department should revisit the design of the scheme, taking into account any bidder concerns. Most importantly, government and the private company involved should work on “risk registers” that should be actively managed and counter-measures considered.