November 27, 2012 7:28 pm

Capita poised for £1.7bn schools contract

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The outsourcing to the private sector of government services in UK schools and academies is expanding after Capita was named preferred bidder for a £1.7bn contract to run educational services in Staffordshire.

The 20-year contract – subject to council approval on December 5 – would be the biggest ever won by Capita, already a major supplier of services to the UK government.

It would see 3,800 staff transfer to a joint venture between the FTSE 100 company and the local authority, with Capita holding a majority stake.

The company would use the joint venture to bid for more educational services contracts across Britain, which it expects to be a growth market for outsourcing in the next couple of years. It estimated the education support services market to be worth about £16bn a year.

Under the agreement, Capita would take responsibility for improving schools, with ground maintenance, catering and additional educational subjects, such as performing arts, provided by the group.

“With changes in government policy giving education establishments greater freedom of choice over where and how they buy services, there is a significant opportunity for the provision of quality, industry-leading support services on a national level,” Capita said.

Under the terms of the deal Capita would invest £24.9m in the first year and a further £6.6m over the following three years. Staffordshire county council said the money would create 1,613 additional jobs and provide funding for a wide range of services, including educational projects and support for the elderly and children in care.

The council said: “The deal will bring about vital investment and commercial expertise, meaning services to schools are sustained and around 4,000 jobs are protected. These would otherwise be lost in the face of reduced funding to schools and growing competition from the private sector.”

Council contracts account for about 18 per cent of Capita’s revenues, with the group winning four local authority deals in the past four months. Last Thursday it was named preferred bidder for a £320m contract over 10 years to run back-office services for Barnet council, which had been dubbed “EasyCouncil” for its aggressive cost-cutting measures.

Robert Plant, analyst at JPMorgan Cazenove, said in a note: “We think the market should benefit from the coalition government’s moves to give greater freedom to schools, away from local education authorities, which may also mean that they need more support.”

He added: “We believe the next few years could see a very busy period for contract wins and the [Capita] shares are towards the lower end of their historical valuation, albeit now a little higher than their nearest peers.”

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