Sponsored article: Back to the future for public services

23 Aug 11
Councils feel they are being transported back to the 1980s, as severe grant and budget cuts pile on the pressure to contract out services to save money. But they can gain or lose from the experience, says Matt Humphrey
23 August 2011 | By Matt Humphrey

Councils feel they are being transported back to the 1980s, as severe grant and budget cuts pile on the pressure to contract out services to save money. But they can gain or lose from the experience, says Matt Humphrey


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The Comprehensive Spending Review in 2010 hit the public sector hard, with many organisations now planning and executing unparalleled budget cuts.

The time has come for all parts of the public sector to look more closely at what they do and how they do it. Cost reduction will still play a key part in future decision-making but it cannot remain the driver for actions into the future. Organisations need to look beyond retaining as much of the status quo as possible if they are to sustain service quality and prioritise the continuous improvement expected by the communities they serve. There is an opportunity for local government to lead the charge and do, rather than have things done to you.

Cost-cutting in context

Before the Labour Party took power in 1997, financial managers in local government had become used to year-on-year cuts in their budget and in government grant. During that era local government had a statutory duty, through Compulsory Competitive Tendering, to market test its services. However, there was no great appetite to outsource local government services to help achieve the savings targets and many managers adopted strategies that sought to avoid competition where possible.

Consultants and local government finance practitioners looked for imaginative solutions to demonstrate that they had worked within the spirit of the legislation – but the potential for service improvement and cost savings were less important than the need to retain these services in-house, particularly the ‘white collar’ back-office functions.

CSR 2010 and the subsequent financial settlement was the toughest local government had been subject to in years – and councils again face significant financial challenges and front-loaded reductions in government grant. Many who worked to retain frontline and back-office functions in-house in the 1980s and 1990s are now being challenged to genuinely embrace and promote alternative service provision models.

But some councils have long been exploring alternative ways to run services, believing they can offer improvements, add social value and address wider corporate aims, such as regeneration, better community health and an increase in employment. When others were resisting CCT in the 1990s, these people oversaw the emergence of not-for-profit organisations – social enterprises as we would now call them – to take over provision of in-house services in areas such as social care, leisure and cultural facilities. Councils invited the private sector in to help run some of their functions and assets transferred from local authorities to other sectors.

Alternative service delivery models – a quick way to cut costs?


The latest round of grant cuts has significantly accelerated the pace of change and a far greater number of local authorities are now considering other models of service provision as the main way to make savings. But the wide variance in experience to date means that expected cost savings – and the investment required to achieve them – vary greatly. It is essential that managers understand the context when setting cost savings targets around different models service provision.

For experienced local authorities, the challenge is how best to build on established outsourcing arrangements and existing procurement and commissioning processes. At the other end of the spectrum, council that have kept everything in-house will need to explore alternative models in a rigorous manner and manage substantial change programmes.

Change of this significance should not be a knee-jerk reaction to the magnitude of budgetary pressures. Unless local authorities are highly inefficient, it is likely that the majority of cost savings will be achieved in the middle to longer term after the costs of transformation are taken into account. If the focus is simply on savings, there is a danger that local authorities will lose the quality that has taken a long time to create and which is core in good public services.

Savings are, of course, an important issue and a key driver – but done well, alternative forms of service provision can also add value in areas such as investment, innovation, transformation and resilience. They can also offer genuine social value to local communities. Local authorities need to form a dedicated team that includes procurement expertise, financial advisers, risk managers and legal support, established explicitly with the task of facilitating the process from design to delivery and enablement so that any new models can operate effectively from day one.

Preparation, scoping and planning are vital, along with the genuine and sustained involvement of all stakeholders. No alternative model of service provision can work without the support of those running and receiving it.

Even the most experienced outsourcing authorities can run into difficulties with public procurement rules, legal challenges from bidders to the procurement process and the award of a contract so it is important to identify the risks and properly manage these throughout the whole project from inception to execution.

Shared services – an underdeveloped alternative?


Many local authorities will be considering shared services arrangements as another way to save costs. The sharing spectrum is wide and deep, ranging from internal projects to pooling resources or knowledge, to a formal collaboration with partners to deliver a service, to wholesale partnering, perhaps with the private or third sector.

The sheer range of options and concepts has meant that the idea of shared services has been talked about for some time. However, the success of such initiatives has been patchy and the broad concept is still largely undeveloped. There is a lack of clear language and shared understanding of what the sector means when it talks of shared services, making it difficult to commit to and subsequently develop a replicable model that provides good services and lower costs.

Pioneers have claimed significant savings and service improvements, but these have not been instantly realised. It still seems too early to judge whether authorities can pin their hopes on shared services to balance their budgets. At this stage, it is easy for detractors to point to the number of attempts of sharing services that have failed and the resources that have been wasted on ‘considering’ this agenda.

In many cases, lack of success is due to services being shared without a clear strategy to provide savings and share the trust and knowledge developed. Managers considering sharing services should look closely at existing schemes to establish a clear strategy.

The spending cuts are making shared services look a lot more attractive to local government and there is plenty of activity going on, particularly around back-office services. Many of these models involve several authorities joining together with a private sector supplier. However, there are some well published exceptions such as Cambridgeshire/Northamptonshire county councils and the recent proposal from three London councils – Kensington & Chelsea, Hammersmith & Fulham and Westminster – to share management and a number of services in both the back office and, more radically, in frontline services.

Why share?

A number of sharing success stories have been promoted by local government and picked up by ministers, but many are smaller scale examples where savings have not always been seen as the main driver. In these cases, services have often been shared for reasons to do with resilience and capacity, particularly in district councils. Some districts have used this initial sharing as a base to develop trust and confidence and then built on the success to secure savings.

Districts are starting to take a more strategic approach, with much wider packages of work being shared with the explicit aim of reducing costs. Those that believe they have ‘done’ shared services and found it wanting might need to re-examine their strategies and look to be bigger and bolder, particularly in the back office. Districts have an opportunity to evolve their shared services programmes by, for example, sharing chief executives and senior managers – but time is against them if budget savings are needed. Shared services might still need to be a process of revolution rather than evolution for many.

Councils could also piggyback on existing models and vehicles put in place by upper-tier authorities. There has been little recent evidence of districts joining together complementary services such as trading standards and environmental health or sharing back-office services with their county, although it was common for areas such as ICT 15 years or so ago. Even for the smaller authorities, opportunities still exist to save money and improve services through sharing. Even if they are not convinced about the savings, as more authorities include this option in their financial strategy for tackling their longer-term budget reductions, managers will need to find ways to make it work in the future.

Social enterprises – the perfect partners?

The government is encouraging local authorities to transfer service provision to social enterprises, co-operatives and mutuals. It has said it wants a million people from the public sector to transfer into social enterprises or mutuals over the next four years. For local government, that means about 230,000 workers.

The attractions to government and local politicians of an organisation with a social and/or environmental objective that is core to what it does combined with the enterprise of business are obvious. Many councillors who were against outsourcing to the private sector have happily transferred some functions to social enterprises in return for savings and those organisations have been allowed to flourish and grow. In our experience, successful social enterprises complement the objectives of the local authority and wider public sector in the areas in which they operate, strengthening community infrastructure and contributing to social and economic good. Greenwich Primary Care Consortium case study is an example of this.

Alternative services – the future

Although some would argue that the government should force a structural solution on local government, alternative service provision models will not be imposed. As the government of the 1980d and 1990s found with CCT, if you mandate such change people will often look to fight against it and work around it. This time, the government can see greater potential than savings from other ways of providing services and it is working hard to encourage local authorities to deliver that potential. The challenge for managers is to learn from each other to find the strategies that will provide both the short-term cost savings that the CSR 2010 demands and the longer-term advantages on offer.

Matt Humphrey is the local government and emergency services lead at RSM Tenon

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