‘Partnerships’ between councils and private suppliers seem to have reverted to adversarial contractual relationships. Perhaps some collective action by local government is necessary
For many local authorities, signing a long-term outsourcing contract to save money and enhance service performance made a great deal of sense – at the time. However, ‘times’ have changed. In particular, the financial prospects of every local authority have worsened dramatically in the past two years, with each having to make significant cuts across a range of services and activities – and, in some cases, reducing the entire profile of services offered to their local communities.
Making cuts is never easy or painless. However, where there is a relatively inflexible, long-term contract in place to deliver some or many of these services, local authorities are discovering that they are not always in control of their own destiny. It has been a surprise to find private sector ‘partners’ suddenly reverting to ‘contractor’ cultures, only willing to entertain changes to contracts if the local authority is willing to compensate them in some other way – or even refusing to negotiate any change at all that will reduce their revenue and profits.
Consequently, some local authorities are now finding themselves with large proportions of their annual budgets in effect ‘outside’ of the budget planning and cuts process, and thus dramatically distorting and restricting their short- and long-term strategic planning.
The implications are clear: specific groups of services users, citizens and communities are going to be unduly and unfairly disadvantaged if the cuts have to be concentrated in those few service areas that are still under the direct control of the local authority; the resultant cuts may well not be consistent with political or community priorities and needs; and, of course, it also means that directly employed staff will be at greater risk of redundancy.
In addition, as local authorities consider and/or implement measures such as pay freezes and reductions to terms and conditions for their own staff, those employees working alongside the council staff who are employed by the contractor will not be affected in the same way. Indeed, in some cases, contractor employees are being awarded pay increases. Now there is nothing wrong with that in one sense, but it does create a reverse kind of ‘two-tier’ workforce practice and can lead to resentment, which in turn makes management of the local authority more difficult.
In my discussions with local authority leaders and chief executives, some have expressed the view that in raising these issues and seeking a renegotiation of contract payments, they feel like ‘David facing Goliath’. This is particularly the case for smaller district councils, but the problems and challenges are not unique to them and apply equally to larger authorities.
It does indeed seem that the private sector suppliers hold most of the aces. If a contract is not material to a major supplier, the latter’s need and inclination to negotiate or to treat the local authority as a partner is likely to be low. And where the contract is material, there will be internal pressure not to reduce the profit contribution it makes to the company.
And finally, since every local authority has its own contract, even those companies with a relatively large local government market share can simply face off against individual authorities and refuse to budge. Some suppliers are willing to share some of the pain but they would appear to be a small minority.
So what is to be done?
- there could be some collective action by local authorities, but this will probably need to be co-ordinated by their trade body, the LGA Group, since it will not be easy for any one authority to be seen as leading a collective action.
- there could be opportunities for fundamental reviews of contracts rather than piecemeal changes which could result in win-win solutions for client and contractor.
- contractors could be held to account as partners and their responses made known to the wider market – for those wanting more local government business this ‘might’ be an incentive to assist beleaguered clients by sharing their financial hardships.
- the end game is that in the longer term we should and must have more flexible, partnership-based contracts.
This is a big, important and immediate UK-wide problem to which there are no easy answers, and to which I shall return in future articles. Meanwhile, I am keen to hear from those affected – councils, contractors, unions and others.
