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Capita Gears up for London Congestion Charging Contract but at What Price?

Earlier this month Capita confirmed that it had won back the London congestion charging contract from IBM. The contract with TfL is for £145m for five years starting from November 2015, with an additional five-year extension option. The scope of the new contract has expanded to include traffic enforcement notice processing for penalty charge notices for bus lane and yellow box junction contraventions. Yet, we estimate that the value of the contract has shrunk by >40% since the previous tender.

This week Capita acquired Liberty Services, a parking and penalty notice ticket printing company. The purchase price was not disclosed but media reports indicate that PHD, the investment company that sold Liberty to Capita, stands to make 9.2 times its original investment in Liberty, which was around £1m. PHD has also stated that it had grown Liberty’s sales from £6.9m to £10.5m with a fivefold increase in EBITDA since it acquired the company in 2008.

The acquisition of Liberty further enhances Capita’s ability to deliver the congestion charging service and to expand its car park-related services. It can now produce some of the raw material of the congestion charging service for itself at cost, rather than pay a premium to a sub-contractor. This is the second acquisition by Capita to enhance its capabilities for the TfL contract; the first was that of Parking Eye for £57.5m in October 2013.  That means that Capita has invested at least £66.7m to enhance its ability to deliver the congestion charging services. So not only does Capita have to work hard to deliver against lowered contract revenues, it will have the double whammy of having to generate a return on its £66.7m investment.  

This clearly increases financial as well as service quality risks. We will watch this space with interest to see whether Capita also leverages these newly acquired capabilities in other outsourcing contracts.

For more details about the TfL contract see Capita Clears the Way to Win Back Congestion Contract

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