How to be successful with shared services

10 May 13

Attempts to share or outsource public services often end in tears. So how can councils avoid negative headlines and ensure that their projects deliver the projected savings and objectives?

Local authorities that have been encouraged towards sharing or outsourcing back-office services, such as facilities management, finance and human resources, are being forced to look wider and go deeper in the pursuit of future savings.

You would be forgiven for thinking that this was the worst mistake ever, as the press is full of stories of shared arrangements that end up costing more or joint arrangements that have fallen apart. Vivienne Russell pointed out some of the problems in her recent article for Public Finance magazine.

Perhaps it is these kinds of anxieties that encourage the public to voice opposition to such proposals. Indeed, just before Easter, a disabled campaigner, Maria Nash backed by the Barnet Alliance for Public Services, challenged in the High Court Barnet Council’s ‘EasyCouncil’ plan to outsource almost £700m of public services. The High Court ruled that the application was out of time, but given that this is the equivalent to losing on a technicality, it will probably only serve to strengthen the opposition.

And yet it does not have to be this way. If critical areas are addressed appropriately, the risk can be reduced of a contract ending up as headline news.

When considering the future delivery of services, it is imperative to identify the objectives of the exercise: are they to reduce the cost base or to produce a revenue stream, or both? Is there currently a fragmented service delivery model that needs bringing together? Are there long-term strategic objectives that are not being met currently? Does the authority want to encourage more of a corporate culture from in-house services?

By identifying the objectives, it will be possible to plot options for alternative delivery models that can then be consulted on with stakeholders, and structure the contract accordingly.

Of course, a project’s objectives cannot be looked at in isolation. Likely delivery models will also help inform the shape of the project. If there is a mature market for the services, some involvement from the private sector might be beneficial, ranging from an outsourcing to some kind of joint venture. If the services are specialised, assisting the existing staff to set up a community interest company might be the most appropriate route.

Perhaps there are other public bodies that would be interested in pooling their skills and expertise. In 2011 the councils in Hertfordshire wanted to combine the delivery of their internal audit services. The objectives of the project were to increase the level of specialist resource that would be available to each council and to reduce the overall cost base. No private sector involvement was necessary and the project proceeded by way of a collaboration between the various authorities with the service being hosted by the county council.

Collaborations are useful when the objective involves sharing services to reduce the cost base. It is important to consider the inter-authority governance carefully. This should include talking about the difficult issues and any ‘elephants in the room’ as well as assuring that the documentation is clear to anyone reading them. This is vital because, during the life of a project, it is likely that the authors of it will move on.

If a partnership with the private sector is being considered, how can it be structured to maximise benefits while allowing the contracting authority to retain control? The private sector is accustomed to evaluating the risk profile of an activity. It therefore follows that if a supplier is given more control over the risk factors, or the project includes a wider mix of inter-related services, the supplier should be able to offer financial savings to the contracting authority as it will have more control over risk and be able to take a strategic approach to delivering the services.

This sort of approach works best in a longer-term arrangement. Giving a supplier more responsibility clearly creates a different risk for the contracting authority – the loss of control. It is therefore fundamental that appropriate governance arrangements are put in place that enable the supplier to deliver the services without being micro-managed but ensure that the authority has the ultimate say on key issues.

In June 2012, Oxfordshire County Council commenced a strategic partnership with Carillion that operates very much in this way. The project covered every aspect of property service from asset management, repairs and maintenance and facilities management to construction. By allowing Carillion input into the design and construction of a building, efficiencies and ways of working could be incorporated into the service delivery that would result in a reduction in the costs of facilities management, repairs and maintenance.

If input from the private sector is required, it is likely that a European-wide procurement will need to be undertaken. Most contracting authorities inwardly groan at the thought. However, the European Union estimates that EU tendering procedures end up saving contracting authorities between five and eight per cent when compared with non-competed services.

Having accepted that a procurement is necessary, some authorities commence a restricted procedure without giving much thought to whether one of the other EU procurement options would be more appropriate. Authorities have tended to shy away from competitive dialogue, due to it having a reputation for being resource-intensive, expensive and long-winded. However, used for the right project and if dialogue is focused, it is more than possible to run a dialogue programme that enables the project to go from publication of the OJEU (Official Journal of the European Union) notice to close in a more manageable period of time.

How will the project achieve the savings targets set out in the business case? The main cost drivers include bringing together the delivery of fragmented services; the new supplier using their commercial acumen to deliver services in a more efficient way; and the management of risk.

Payment needs to be linked to performance, with performance levels set so that the service they incentivise is at exactly the standard required – not gold-plated because that will automatically increase cost. The reward mechanism should encourage the supplier to achieve the required performance levels and include payment deductions that encourage the supplier to resolve matters appropriately when performance dips, but are not so draconian that the whole project is undermined.

Given the national debt, there can be no doubt that further public spending cuts need to be found. As such, the pressure to enter into shared services arrangement has intensified. Local authorities that have already addressed back-office services are being forced to re-consider delivery models for services such as child protection and adult social care, which have previously been off the agenda due to their politically sensitive nature.

The consequences of failure in these activities could quite literally be fatal, making careful consideration and planning even more essential.

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