Capita's £325m Co-op Bank IT transformation scrapped

Public dispute resolved but IT transformation shelved as contract cut short by five years

Capita's disputed IT transformation deal with The Co-operative Bank has been scrapped, the outsourcing giant confirmed today.

Capita and The Co-op Bank signed a £325m agreement in July 2015 that would see Capita transform the bank's mortgage servicing system, with Capita also acquiring the bank's mortgage administration business Western Mortgage Services for £25m as part of the deal.

However the relationship soured last year after a string public announcements from the pair revealed a dispute regarding the progress of the transformation project, which was sub-contracted to Unisys.

In a statement today, Capita said that an agreement has been reached with The Co-op Bank which sees the IT transformation scrapped and the mortgage servicing deal shortened by five years.

"Capita plc and The Co-operative Bank plc have resolved their contractual differences," the announcement stated.

"Western Mortgage Services, part of Capita, will continue to provide mortgage administration services and new mortgage application processing for The Co-operative Bank and its clients.

"Work on the IT system transformation will cease. The amended contract will run until December 2020 with an option to extend.

"Capita is pleased to have resolved this issue and importantly secured the jobs of our 740 employees on this contract in Plymouth, Leek and London."

Crossed wires

The dispute first became public when Capita blamed The Co-op Bank for contributing to the firm's weaker-than-expected full-year figures, revealing there was "a risk of litigation in respect of the transformation".

The Co-op Bank responded soon after, claiming that Capita had fallen behind schedule with the transformation project and in fact owed the bank money as a result of this.

The bank said in September, in response to comments made on a Capital earnings call: "The bank strongly refutes Capita's suggestion that they have delivered an element of the transformation programme which the bank has not paid for. In addition, there are amounts which the Bank regards as owing to it by Capita.

"The bank continues to work through the issues surrounding this transformation programme with Capita. The existing outsourcing of mortgage processing to Capita both for new and existing Bank customers continues to operate in a satisfactory manner and the bank is committed to ensuring that this remains the case going forward."

Up for sale

The announcement of a ceasefire between the pair comes on the same day that The Co-op Bank announced it will be putting itself up for sale.

The bank said it needs to "build its capital and meet longer-term UK bank regulatory capital requirements" as it prepares to report "significant" losses for 2016 when its figures are released next month.