Birmingham’s City Council bosses made a costly mistake when they handed the authority’s technical expertise to its IT and call centre contractor Capita, an inquiry has heard.

The council’s governance scrutiny committee heard evidence on the Service Birmingham contract which was set up to save the council £1 billion over ten years.

It follows a health check review of the joint venture between the city council and public sector outsourcing specialist Capita in which consultants concluded that although the deal had proved value for money it was at risk due to high levels of suspicion and a lack of trust between the two organisations.

The suspicion increased after a cut-price contract was negotiated last year which involved, among hundreds of cost-cutting measures, the outsourcing of IT development jobs to India, which once public, forced the council into a hasty and costly deal to keep the jobs in Birmingham.

Appearing before the committee Coun Barry Henley (Lab Brandwood), a non-executive director of Service Birmingham and IT industry expert, said that council bosses in renegotiating the contract, had handed 557 key items over to the contractor for which the taxpayer is now charged.

He pointed out that he had read all 1,000-plus pages of the contract and said the council had transferred too many IT experts to Service Birmingham and now had to go cap in hand any time there was a problem.

He said: “We used to have IT developers paid about £25,000 a year who we could go to if a piece of software was needed. Now that software is developed by people who cost us up to £2,164 per day.

“And when we buy a piece of equipment we send the invoice to Service Birmingham who send it back marked up by 17 per cent.”

They were part of a list of charges which he believed should have been avoided.

“We gave up the IT function to Service Birmingham who are being paid to do the work. That function should be taken back in-house. The council has delegated too much and lost the ability to control projects.”

He suggested the Capita deal could be renegotiated while maintaining a healthy profit for the company.

Council officers defended last year’s re-negotiation, pointing out that the items were removed from the contract to achieve an annual cost saving and then would be charged on a pay-as-you-go basis.

The committee heard that the now finished business transformation side of the deal, in which council IT was brought kicking and screaming into the 21st century, old offices were disposed of and the call centre set up had delivered the promised savings.

But it is the ongoing IT and, in particular, the call centre which is causing most anxiety – not least because on a payment by volume system it is in the interests of Service Birmingham to maximise complaints and enquiries.

The committee agreed there had been no monitoring of how complaints or requests taken by the call centre were then handled by council departments to see if the call centre is being unfairly blamed, when it might be a housing repair contractor or council waste collector who had not responded. Under severe criticism Service Birmingham chief executive Stewart Wren said the problem was that few council staff, councillors or members of the public understood which services the organisation is responsible for.

“Service Birmingham gets the blame,’’ he said. ‘‘Yet we should be proud of what we have achieved.”

He also complained the council had been politically resistent to some changes, such as voice recognition phone systems, partly because while it may be acceptable for a cinema booking line, it is not necessarily suitable for council services accessed by vulnerable people. He said: “Voice recognition would have saved the council £250,000 a year. Now there is such a need to save money that although we would not have looked at this years ago, we may have to now.”