SMEs seek legal advice over controversial Capita contracts with government

A group of small businesses that claim to have lost significant amounts of revenue through two controversial government contracts are seeking legal advice over alleged breaches of competition law.

The consortium consists of more than a dozen small and medium-sized enterprises (SMEs), all of which are sub-contractors to one of two framework agreements won by Capita – Civil Service Learning (CSL) and Contingent Labour One (CL1) – set up to source training services and temporary workers respectively across the public sector.

Both deals have come under scrutiny recently. Computer Weekly revealed last week that small and medium-sized IT services suppliers have lost tens of millions of pounds in business after refusing to sign up to the £2.45bn CL1 agreement. 

The Independent newspaper revealed the previous week that Capita had been accused of similar behaviour over the smaller, £250m CSL contract, with some SMEs allegedly being forced out of business.

The National Audit Office has already announced a formal review of CSL, due to take place in spring 2015.

The SMEs on CL1 cite contractual clauses they say allow Capita to poach staff by banning restrictive covenants; prevent them from competing for business through non-compete terms; and could eliminate them from the market for government temporary staff altogether. CSL suppliers also cite late payments and the amount of services put out to open competition as problems.

Capita has said that all the clauses were approved by the Cabinet Office.

Christine Archer, director of consultancy The Faraday Partnership, said her firm has lost 95% of its £3m revenue since CSL was let to Capita by the Crown Commercial Service, the Cabinet Office agency responsible for central government purchasing.

“We have retained the services of Mark Brealey, QC, to examine the terms of the contract further, within the context of UK and EU competition law,” she said.

One supplier claimed to have lost more than £20m in revenue as a result of CL1, and to have been forced to lay off 10 staff. Another firm estimated it has lost out on £12m of sales opportunities, and other SMEs are also believed to have missed out on tens of millions of pounds in potential revenue.

Capita last week said of the CL1 contract: "Capita has an excellent track record of working with and engaging SMEs. We refute any suggestions of wrong-doing regarding this recruitment framework. 

"More than 60% of the work under CL1 has been awarded to SMEs. Of the 302 suppliers on the framework, 274 are SMEs. The framework has been designed, and is run, in the manner required by government to ensure a level playing field and best value for money.”