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Mutuals could fail without tender reforms

By Richard Johnstone | 7 November 2011

Plans to encourage employee-owned mutuals in the public sector will not succeed without changes in the way outsourcing contracts are awarded, a Cabinet Office adviser has warned.

Speaking at a conference on October 28, the director of the Employee Ownership Association, Patrick Burns, said that without such reforms, spun-off mutuals could fail within five years.

Burns, who sits on the Cabinet Office’s Mutual Taskforce, said new staff organisations would start by taking on their existing public sector work. However, when they started bidding for additional contracts, they would be assessed based on their finances. This would put them at a disadvantage compared with private rivals.

He highlighted Central Surrey Health, one of the first public sector mutuals formed in 2006. It recently lost out on bidding for a five-year contract for NHS community services in Southwest and Northwest Surrey. The contract was won by a private company, Assure Medical, which is majority-owned by Virgin Healthcare.

Burns said decisions like this would blow a ‘fault line all the way down the mutual programme’ if they continued to be applied to all service tenders. ‘They [Central Surrey Health] were judged on matters of balance sheet soundness, which will disadvantage every small and medium-sized mutual that exists in the public sector. If that isn’t addressed, then the possibility for success, as envisioned by the government at scale, becomes negligible. The scope for mutuals becomes much narrower.’

He added: ‘If you don’t do something with the commissioning environment, then in five or ten years time you will not be dealing with mutuals, you will be dealing with [outsourcing companies] Serco, Capita and Virgin. Not that they are bad companies, but it’s not the point.’

He added that the early spin-offs ‘do give a lot of grounds for hope’ that mutualisation can improve the performance of services.

These 21 pathfinder mutuals were announced last August. They include the Department of Health’s London and Southeast learning disability team, which is forming a community interest company, and a social enterprise set up to provide housing support services to vulnerable people in Mansfield.

NHS employees have also formed a social enterprise to provide joined-up services for homeless people in Leicester.

These early examples do provide ‘inspirational stories’, Burns said.

‘It’s really impressive how much more innovation is happening across these organisations.’

The pathfinders are part of the government’s policy to encourage more staff-owned mutuals under a ‘right to provide’. Last year, Cabinet Office minister Francis Maude announced that employers were expected to accept suitable proposals from frontline members of staff who want to take over and run their services as mutual organisations.

In February, a mutuals taskforce was launched to ensure that the plans were implemented in government. The idea is also included the government’s Open public services white paper, launched in July, which aims to increase competition.

The Cabinet Office said the government would announce further measures to support public sector mutuals soon.

A spokesman told Public Finance that this would be part of ‘ambitious plans to support frontline staff who want to form mutual organisations and take control of the services they provide’. 

He added that steps had already been taken to ensure that mutuals could bid on ‘a level playing field’. This included encouraging public service commissioners to disclose any Tupe (Transfer of Undertakings) liabilities at an early stage when the right to provide has been invoked.

‘Departments have published a set of specific, targeted actions to increase their proportion of the value of contracts made with small and medium-sized enterprises,’ he said.

‘We currently have 21 pathfinder mutuals which are supported by 20 expert mentors, including John Lewis, A4e, KPMG and PricewaterhouseCoopers. The Mutuals Taskforce is in place to champion spin-outs across public services and, along with the pathfinder programme, identify and remove barriers that disadvantage staff mutuals.’



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