Capita set to win record council tie-up

LONDON Tue Nov 27, 2012 4:08pm GMT

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LONDON (Reuters) - British outsourcing firm Capita (CPI.L) said on Tuesday it was set to win its biggest contract ever after it became the preferred bidder to run education services with Staffordshire county council for the next 20 years.

The joint venture with the council is expected to generate revenues of around 85 million pounds ($136 million)a year, with Capita holding a majority stake, subject to the approval of the local elected cabinet.

The news, which comes just a week after it was announced the preferred bidder for a 320 million pound tie-up to run back office functions for Barnet council, sent its shares up 3.2 percent by 1530 GMT.

In a trading update earlier in November, Capita Chief Executive Paul Pindar said that he anticipated a pick up in UK public sector outsourcing as the government tried to slash costs to reduce the national deficit. L5E8MD1V3

Local government has been hit particularly hard in Britain's austerity drive, with all councils facing cuts of around 27 percent.

"They are withering on the vine," Staffordshire council Cabinet Member for Education Ian Parry told Reuters.

"But we're not saying goodbye services, we're saying hello to new investment," he added.

Schools in Britain receive the majority of their funding from central government and then buy services from their local council, and Parry said that many have already been cutting back on services.

Capita will acquire a majority stake in the joint venture with an initial investment of 24.9 million pounds in the first year and a further 6.6 million over the following 3 years.

It hopes to generate revenues of at least 2 billion pounds in the first 10 years of the contract by offering its services beyond Staffordshire to schools across Britain.

Capita beat off fellow outsourcer Carillion (CLLN.L) to win the deal, its fourth local council contract in as many months.

(Reporting By Christine Murray; editing by Kate Holton)

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