North Tyneside Council has awarded Balfour Beatty a contract to provide ‘white collar’ business services, whilst Capita Symonds has been selected to provide the lower margin technical package, in a move that has surprised the analyst community.

Balfour’s package incorporates ICT, finance, revenues and benefits, customer services and HR, while Capita will be responsible for property services, planning, engineering services, consumer protection and environment health services.

The contracts will last for an initial term of 10 years with the option to extend for a further five, and hope to help the council work towards the £47 million savings it is required to make over the next four years.

North Tyneside's elected mayor, Linda Arkley, said: "The partnership with external providers is the best solution for the council, its taxpayers, its staff and the borough.

"The partnership options we have selected are by far the most advantageous for North Tyneside. They will enable the council to invest in services, safeguard employee jobs and deliver further growth and investment for the borough, as well as achieve the stringent efficient targets we have set."

The decision will also see the TUPE transfer of 420 employees to Balfour, and 335 staff to Capita.

However, despite Arkley’s optimism, analysts have commented that as this is the first white collar multi-process BPO contract of its kind for Balfour, and as a result it may experience some challenges.

Sarah Burnett, research director at NelsonHall, said: “Balfour Beatty launched a UK shared service centre in Newcastle in October 2010 for its own accounting, payroll and procurement processes. The company intends to use the capability to sell services to external clients. The proximity of the centre makes it a good fit for service delivery to North Tyneside.

“However, it is not clear how this can satisfy the council's requirements to bring employment to its local area. Presumably, cost was the deciding factor in the final selection.”

She added: “With no prior experience of taking over back-office operations from external clients and transforming them, Balfour Beatty may find it difficult to generate the required efficiencies without impacting service quality. We believe that initially, the company will have to subcontract some of the more specialist work, for example revenues and benefits administration.”

John O’Brien, research director at analyst firm TechMarketView, echoed Burnett’s sentiments and said that this win is lower margin business for Capita, and not what it usually targets. This is reflected in the fact that property services made a 6.5 percent underlying margin in H1 2012 for Capita, versus 13.5 percent for the group as a whole.

O’Brien said: “Ordinarily, Capita swallows the low margins in the hope of more lucrative IT-enabled BPS business further down the line. On this occasion, however, that opportunity will be going to Balfour.”

“IT-enabled BPS is Capita’s core business and where it is the clear market leader in UK local government. Balfour, meanwhile, is not known for its capabilities here, although it has been attempting to break into this market for some time.”

He added: “We suspect the decision had a lot more to do with the cost of a Capita versus a Balfour proposition.”

Computerworld UK contacted North Tyneside Council to establish the total value of the contracts but had not received a response at time of publication.