The majority of our organic growth comes through securing high quality, recurring revenues from long term contracts delivering multiple, integrated administration and customer services. These contracts have been consistently increasing in length as clients seek longer lasting partnerships to deliver more complex service transformation: they currently average 9 years.
We also seek single service business that rolls over annually, has a high repeat rate or is secured under medium to long term contracts of 2 to 7 years.
The combination of long term contracts and recurrent business ensures highly visible future revenues.
In 2009 our sales performance was satisfactory. We secured and extended 15 major contracts with a total value of £1bn (2008: 17 contracts totalling £1.24bn).
Alongside these contract wins our pipeline is constantly replenished reflecting the quality of business opportunities across our markets. In February 2010, our bid pipeline was £3.7bn (Feb 2009: £3.1bn).
We report on the pipeline twice a year in our half year and full year results. It contains contracts of £10m or above, where we have been shortlisted to the last 4 or fewer: all bids are capped at £500m to prevent very large individual contracts distorting the total.
Setting our bid success rate against our bid pipeline provides a useful indicator of likely future sales growth. Historically we have maintained a win rate of 1 in 2; in 2009 this reduced slightly to 1 in 3 as we gained important insight and started to establish key new relationships in new markets, such as defence.
Behind our bid pipeline is an active ‘prospect list’ of opportunities where the bidding process is underway but we have yet to reach a shortlist or final bidding stage. This prospect list is in turn supported by a list of ‘suspects’ – relationships which we are nurturing to generate future bid opportunities.
We constantly identify areas of opportunity and potential clients across all our chosen markets. We actively engage with potential clients to demonstrate the benefits and added value that outsourcing offers to their organisations and customers.
In the private sector we seek out opportunities through business intelligence and existing relationships; increasingly, we are also approached directly by organisations. The procurement process is determined by each individual client, often working with advisers.
UK public sector contracts are subject to defined procurement processes. EU policy requires ‘fair and open competition’ and opportunities are formally advertised and notified. In addition, under EU competition law, public sector outsourcing contracts that are already in place must be offered for tender when the initial contract term is complete.
Procurement processes on major bids, particularly in the public sector, may take up to 2 years to complete. They can be costly in both time and resources. So we are highly selective and disciplined throughout the bid process, only bidding where we see realistic opportunity for a sensible working relationship that benefits both the client and the Group. We look for:
- clients with whom we can build a strong relationship and deliver real benefits
- clients whose operations or services to be outsourced are primarily UK based
- a defined bid process with clear decision criteria
- fit with our core competencies in service transformation
- a fair risk/reward balance
- limited requirement for capital investment, unless there is a real value proposition for the Group
- acceptable contractual obligations.
If at any stage we feel that conditions have shifted significantly or that any of these criteria are no longer met, we will, after detailed consultation, withdraw from the process. It is essential for us to pursue only those contracts that can both meet the client’s expectations and generate reasonable returns for Capita.
We manage procurements either centrally or at business level, depending on the size and complexity of the opportunity. Our major sales team pursues complex, long term contracts. It can draw on the resources of the whole Group to tailor solutions to each client’s requirements.
Sales teams in each business unit of each division pursue smaller or less complex contracts, usually focused on a single service. Where these are worth over £10m, the major sales team may provide extra support.
As well as securing new business from new clients, we work to renew or expand existing client relationships.We concentrate on generating client satisfaction by meeting expectations and delivering value.
We agree detailed service standards and key performance indicators to measure progress and improvements. On our largest contracts, strategic partnership boards help both parties understand each other’s needs better. As a result, clients find that outsourcing gives them more control over support operations, not less.
By delivering operational excellence and adding value for our clients and their customers, we achieve high client retention rates. In our 26 years of operation we have only failed to renew 3 of our material contracts (defined as generating more than 1% of the previous year’s revenue). The most recent of these contracts was the London congestion charging scheme, which ended in November 2009. We have no material contracts due for renewal in 2010 and 2011, 2 rebids in 2012 and none in the following 2 years.
We aim not just to keep our relationships, but also where possible to grow them through supporting further areas of our clients’ operations.
Impending rebids of existing material contracts*
| Year |
Contract |
Value per annum (£m) |
| 2010 |
None |
|
| 2011 |
None |
|
| 2012 |
TV Licensing |
50 |
| |
Criminal Records Bureau |
40 |
| 2013 |
None |
|
| 2014 |
None |
|
Our major contracts are long term commitments. It is therefore essential to get our pricing and contract terms correct from the start, to deliver value to both the Group and our clients.
To ensure prudent pricing, we clearly separate responsibilities:
- sales teams: client relationships
- sales support teams: pricing and risk models
- Group Board: solution and pricing approval (major bids).
We undertake extensive due diligence to build detailed service, risk and pricing models. We often share these openly with our prospective clients to ensure that all our assumptions for delivering successfully on the project are robust and that the benefits generated to both parties are fully understood.
Our contract price is generally made up of a base cost that covers the transformation and normal running costs of the service. Where demand on the service infrastructure fluctuates, the pricing will include a variable volume-related element. All contracts include a related basket of indices that reflect the cost elements of the service (such as wage inflation and RPI).
Our track record in pricing contracts correctly enables us to offer clients sensible and realistic proposals while robustly managing and mitigating risk. Once agreed, the terms of our contracts are fixed. This means we have a good view of stable, long term contracted revenues.
Outsourcing has evolved rapidly from delivering cost driven, single service solutions to creating long term, multi-service partnerships focused on business transformation and added value. Many of our clients regard us as an integral part of their business. Cost efficiency remains an important reason for outsourcing, but it is equally important to consider how outsourcing can add more value to
clients’ operations and help them to increase effectiveness and maintain competitiveness.
We are the clear market leader in BPO in the UK, with an excellent track record of service delivery and a strong set of satisfied client referees. We have consistently led and helped shape the market by developing our outsourcing offering.
Our knowledge and skill base and extensive operational and technical infrastructure is unrivalled. As a UK based business serving an almost exclusively UK based clientele, we have a detailed knowledge of our market;and our management team is highly accessible and swift to respond to our clients’ needs.
We maintain open and honest discussions with our clients, which allow us to develop a detailed understanding of their business and challenges. We respond to clients’ specified requirements but always seek to propose alternative service models that deliver even greater benefits.
Our clients are highly selective. Increasingly, they seek outsourcing partners who have not just the expertise and capacity to support them but also the financial strength and stability essential to building a long term partnership. We, too, must be selective and we undertake detailed due diligence of potential clients.
Capita’s strong balance sheet and
cash flow reassure clients that their
service is in the hands of a stable
partner. Our proven record of strong
governance and ethical, socially
responsible behaviour is also a
competitive strength. Together, these
elements clearly differentiate us
from competitors and are significant
barriers to entry for new participants
in all our markets.