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LGCplus.com 31 March 2011 Local Government Chronicle 1

Outsourcing

31.03.11 www.LGCplus.com

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Contents

Nic patoNsupplemeNt editorOutsourcing, especially in partnership with the private sector, has been a reality for many local authorities for some time now, with teams genuinely embracing the opportunities and benefits it can bring.

But, because of the government’s decision to front-load cuts, the scale and pace of outsourcing – as well as the models and variations being tested – are likely to accelerate sharply. This raises the question of what happens if there is just not enough outsourcing expertise or capacity to go round?

Against this backdrop, a number of key themes have emerged from our chapters on outsourcing the back office, outsourcing front-line services, the value of partnerships, the challenges posed to leadership and management and our snapshot poll of local authority leaders.

The first is that outsourcing has to be a partnership of equals, with private sector or community-based partners needing to learn and imbibe local government priorities and expertise as well as the other way around.

Second, as outsourcing becomes more visible within the local community, it will have to move beyond efficiencies and simple service delivery.

David Lloyd, deputy leader of Hertfordshire CC, in our front-line services chapter has, for me, got it spot on. Yes, the coming 12 to 18 months will be challenging but there are also huge opportunities opening up for councils to re-evaluate what they do, their priorities and their role within the community.

No one expects it to be an easy journey, but it may yet have the potential to be an exhilarating ride.

THe BACkGrOuND Outsourcing firms may face an embarrassment of riches in the autumn when many cash-strapped councils will be looking for different ways to deliver services. Do they have the capacity to cope, asks Mark Smulian

SurveY A snapshot of views from those working in local government offers an insight into what the sector considers are the main issues around outsourcing, and they feel needs to be tackled. Alex Blyth reports

the chapters

LeADerSHip Richard Crouch of Somerset CC is no stranger to the concept of ‘transformational leadership’. He explains why it has taken on a different dimension because of the magnitude of the challenges ahead

BACk OffiCe South Derbyshire DC decided to outsource many of its back-office functions last August. Jayne Jones explains what the council was looking for when it chose a partner and how it came to its decision

pArTNerSHipS An outsourcing partnership may be a contract but it is also a relationship, and it needs flexibility, trust and a willingness to tackle problems collaboratively if it is to flourish, writes Sheffield City Council’s Paul Green

frONT OffiCe Outsourcing front-line services can be tricky – these are the ones that are the public face of the council, so any changes need to be managed with extra care. Hertfordshire CC’s David Lloyd shares his experiences

2 Local Government Chronicle 31 March 2011 LGCplus.com

We all know that faint pit-of-the-stomach feeling when you’ve

blitzed the house, set the drinks and glasses, put out some nibbles, stuck some nice music on and … nothing happens. The clock ticks loudly and you’re waiting for the doorbell to ring.

Without wanting to push the analogy to breaking point, this is pretty much where large portions of local government are at today: frantic table setting and sprucing up in the hope that some nice, friendly outsourcing firms are going to come to their party and take lots of expensive stuff off their hands.

But what if nobody comes? It may sound unlikely and in normal times such invitations would, of course, be manna from heaven for outsourcing firms. But, from next autumn, as a clutch of large councils try to outsource most, or all, of their services, real fears are growing that a sudden glut of tenders could exceed the industry’s capacity to respond.

This could leave councils with fewer options to choose from than they would like, or even with no suitable bidder.

The problem has arisen because of the government’s decision to front-load cuts in local government spending into the first half of the four-year spending review period.

Yet outsourcing numerous services from any all-purpose

Don’t all try to find a partner at once…A potential spike in outsourcing contracts may limit councils’ options, writes Mark sMulian

become a torrent and the challenge is bidders being able to respond to those.”

The Treasury is the ultimate driver of this round of outsourcing, and it has failed to think through how it can be made to work, worries Martyn Hart, director of the National Outsourcing Association, the industry trade association.

He notes that the Treasury is expecting hard-pressed officers and councillors to go through complex outsourcings while doing their own jobs and without the benefit of consultants,

‘‘ There has been a steady trickle of contracts but that will become a torrent David Clark, director general, the society of local authority Chief Executives & senior Managers

The background

council – or from a combination of districts – requires a lengthy tendering process, and so any council that wants to make savings two years from now must go to market in the autumn.

Council outsourcings are highly complex and the tenders require bidders to invest significant sums just to prepare their responses. Clearly, too, there is a limit to how many bids each firm can handle at any one time, which is why a sudden spike in attempted outsourcings in the autumn may limit the response each receives.

And, worryingly for local authorities, while the industry does not exactly think it has councils over a barrel, it does think it can afford to be choosy.

David Clark, director general of the Society of Local Authority Chief Executives & Senior Managers, has talked to councils that are about to go through this process and are concerned about whether the glut will prevent them getting a sufficient selection of high-quality bids.

He says government ministers are convinced that councils can easily make efficiency savings by outsourcing and that the market will have no trouble in providing this.

“The concern will be over the complexity of contracts,” he says. “The issue is them all coming out at once; there has been a steady trickle of contracts but that will

Will local authorities find no one wants to come to their party?


Don’t all try to find a partner at once…

whose use is frowned on by central government.

“If the Treasury was really totally serious about it you would have thought it would have geared up to spread best practice and offer its own consultancy,” he says.

The Treasury and the Office of Government Commerce neglected to set up framework contracts for approved outsourcing companies that would have given councils a choice of, say, five to ten without the need to launch a complex tendering from scratch, Mr Hart points out.

As it is, he says many public sector bodies have no experience of outsourcing – at least not on a large scale – “and so they do not know how to do it, which is not a criticism, but now the government has told them they cannot employ consultants to tell them how to do it either”.

Mr Hart adds: “That means they are on their own. If you do outsourcing properly there are a million and one things to consider and you have to be doing your own job at the same time, so there are inevitably problems that are not foreseen.”

A deal can take 18 months to negotiate and in the public sector “the difference is the politics in it, but even in private industry no negotiation over something this big is going to be quick”.

Equally worrying, Mr Hart expects established outsourcing companies to “cherry-pick the deals they like, as bidding is an expensive process”.

But will they? Capita is one of the largest players and Richard Marchant, its local government strategic partnerships director, says: “We won’t go for every opportunity.”

He points out Capita already has ample options. “Our annual results in February noted that we saw a pipeline of opportunities so we’ve already got quite a strong visibility of councils that are coming

down the line,” he says.Suffolk CC attracted

attention last year with its intention to become “a commissioning council”, with almost all its services outsourced. Bury MBC followed suit in March and Mr Marchant expects many councils that previously shunned outsourcing will now look at it, given the pressures to make savings.

He thinks most councils would want around six initial bids, and “time will tell if in the autumn there will be enough companies with the capacity to bid”.

Jonathan Prew, managing director, business solutions, in the local government division of Serco, also thinks the “autumn glut” could well be an issue and that selective responses will come through.

“There are quite a number we are planning to respond to and tender costs are a factor, but we have strong selection criteria as to which we go for,” he emphasises.

Mr Prew says Serco has enough people with local government backgrounds to put in the management skills needed in any contract it does win, and that contracts can be structured so that councils gain the savings they need over the next two years.

He explains: “I think councils that are clear about what their requirements are can get upfront savings.

“We often use guarantees that say they get savings from the start and the risk passes

to the private sector, which gets its reward later,” he adds.

Two Lincolnshire districts, East Lindsey and South Holland, have formed Compass Point Business Services (see back-office outsourcing chapter) to handle their back-office work, and while this is publicly owned, its managing director Stephen Bayliffe is a veteran of many private outsourcing firms.

He says: “Some operators will be concerned about tender costs and whether what councils ask for is doable, but I think you have the capacity there, though some of the solutions used by the private sector just won’t fit the stresses and strains of something with democratic accountability.”

One route to savings, particularly favoured by new entrants to the outsourcing market, is probably closed.

“The strategy for 10 years has been to move services to cheaper locations in India or eastern Europe, and clearly politically that would cause huge tensions in the public sector,” Mr Bayliffe points out.

The government has set great store by efficiency savings and appears wedded to the idea that the private sector will provide them for councils.

But any “autumn glut” will mean a seller’s market for outsourcing firms. And a seller’s market, of course, is never the best climate in which to buy.


Anyone working in local government, from the most junior to the most

senior, will be well aware of the extremely difficult circle local authorities need to square over the coming years: cutting their budgets by 7.1% every year for each of the next four but protecting front-line services at the same time.

It is also well documented that the government views outsourcing as a key mechanism in achieving this objective. What is less clear is exactly what those working in local government think of this aspiration.

The first thing to stress, of course, is that outsourcing as a concept is by no means new to local government. It is something that, by now, many councils are very familiar with. After all, outsourced work accounted for an estimated 22% of local authorities’ £169bn operating expenditure in 2008-09, according to the consultancy Credo.

But in the new, post-comprehensive spending review landscape, how much more does the sector now expect to outsource? What challenges will this bring? And what impact will it have on those trying to deliver public services?

To get an insight to these questions and more, LGC commissioned a survey in conjunction with law firm Walker Morris, which gathered views from 167

Creating gain from the painOutsourcing may by now be familiar to many, but its use is set to accelerate, reports Alex blyth

Foreword DAviD KilDuff Partner and head of the commercial public sector and projects group at Walker Morris

After all the grim headlines and media discussion, it is only now, as council chambers across the country have been setting their council tax for the financial year ahead, that the scale of the challenge facing local government is beginning to be appreciated by the public.

Politicians and officers have worked overtime to deliver budgets, addressing both national requirements as well as local priorities. Whether services are mandatory or discretionary, councils have been rising to the challenge of needing to plan effectively to maximise the value of the funds available.

One of the positive, albeit anecdotal, messages that has been coming through to us over the past weeks and months is that there is a clear appetite to seize this challenge: to regard it not just as about coping with cuts but as an opportunity to re-engineer and revitalise the face of public services. There is a real determination to deliver cultural change within the sector, to blend a valued public service ethos with commercialism and emphasise accountability.

Councils have experienced some tough and expensive lessons in the past from a lack of strategic thinking to the delivery of services across traditional boundaries. Poorly scoped, planned, resourced and executed procurement or internal change management exercises can significantly affect the delivery of long-term service improvement, accountability and cost reduction. Within this context, and given the future challenges many councils face, the LGC/Walker Morris outsourcing survey (see right) provides fascinating insights into the minds of senior managers as they wrestle with the future shaping of public services.

The clear message for us is the importance for councils to have, or to establish, dedicated resources to unlock the potential of this process. The more strategic, forward-thinking councils have already identified the need for this – the imperative of not just relying on ad hoc teams who may struggle to manage services while delivering change at the same time.

It goes without saying that commercial legal support has to be a vital component of this and must form part of the project team tasked with delivery. Councils have many complex responsibilities, including the obligation to consider an equality impact assessment, the possibility of a legitimate expectation or statutory obligation to consult on service changes and the commercial and property context within which service provision is delivered.

None of this may make headlines – until it goes wrong, of course. So effective preparation is the key – robust options appraisals of delivery mechanisms, early due diligence, effective scoping, procurement planning and ensuring a choice of contractual approach are all vital ingredients that must not be overlooked if councils are to capture the benefits and harness the vitality inherent in any change.

An appetite to seize the challenge ahead

fOReWORD SuPPlieD by WAlKeR MORRiS

LGC/Walker Morris survey t

officers in a range of councils. More than 80% of those

who responded were chief executives, deputy chief executives, directors or heads of service.

While the results are, of course, simply a snapshot, they nevertheless provide a fascinating perspective on how local government is changing, the challenges and opportunities leaders within the sector are facing and how they are responding.

The first notable finding is that nearly half of councils are discussing outsourcing less or just as much as they were before last October’s spending review.

This emphasises that, while in the pages of the mainstream media there is often a perception that councils are venturing into uncharted waters, in fact for many local authorities the challenge is simply how to build on well-established outsourcing activities and contracts.

And, when it comes to functions or areas our respondents view as being ripe for outsourcing, parking is one many local authorities appear to have their eye on.

One player already well established in this area is VINCI Park. Commercial director Phillip Herring says: “Since the introduction of compulsory competitive tendering in the 1980s and the best value process in 2000, outsourcing has been firmly on the agenda for local


Creating gain from the pain

authorities. Services such as building and infrastructure maintenance, waste collection, community healthcare and transport services are often the first candidates to be considered.”

He continues: “However, last October’s comprehensive spending review hit local authorities hard, and many are having to plan for and make significant reductions in their annual expenditure. For many, this means looking into outsourcing in a more rigorous manner than ever before.”

Acceleration in outsourcing Our survey leaves little room for doubt that a sizeable chunk of local authority work is poised to be outsourced. A

quarter of respondents expect that by 2014 more than 40% of their services will go down that route.

The most obvious potential benefit of doing this is to reduce the cost of service delivery. However, Steve McKenzie, a director at global outsourcing firm Vertex, argues that there are many more benefits to consider.

“Cost reduction is only part of the story,” he says. “Local authorities have been set a wider challenge to improve their commissioning capabilities and to create the conditions for private sector, community and other third sector bodies to take on service delivery responsibilities.

“Outsourcing is the way they can make that shift from supplier to commissioner of services, while at the same time delivering savings.”

It will not happen automatically, however, and Mr McKenzie recommends local authorities need to have a logical thought process in place to make a success of outsourcing projects.

“They will need a cohesive strategy. This means avoiding knee-jerk market interventions and thinking carefully about their objectives.

“They will also need to have a team of people who have experience of the outsourcing procurement process,” he advises.

What is also clear from the survey is that, for many, the

‘‘ outsourcing is the way they can make the shift from supplier to commissioner, while at the same time delivering savings Steve McKenzie, director, vertex

expectation is there will be major change, whether we like it or not.

Half of our cohort expected to be outsourcing at least 10% more of their services than they already do by 2014. For some, albeit a minority, it will be a massive increase of more than 40%.

Whatever the scale of change, what is most important is that local authorities approach this change carefully, making proper long-term plans and doing all they can to minimise the impact on front-line services, argues Andrew Uprichard, a partner at Walker Morris.

“People tend to get bogged down in the details of outsourcing deals. It’s more important to have clear objectives and the right partners. Also, the worst decisions on outsourcing tend to be made when cost is the only factor considered.

“Certainly it is one factor but there are many others which must be brought into the equation,” he explains.

Within these issues of change and transition, one of the most significant, and one of the most challenging to manage, will be the effect on the workforce. Nearly half of our respondents were reckoning on a workforce reduction of more than 15%.

“One of the biggest hurdles will be how to manage the cultural and staff implications of change. Communicating with staff t

where would you draw the line when it comes to outsourcing front-line services?

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every step of the way clearly is a must,” agrees Vertex’s Mr McKenzie.

Controlling costsIntriguingly, given that outsourcing is generally regarded as a cost-reduction exercise, 18% of respondents to our poll cited prohibitive cost as the primary obstacle to greater outsourcing.

But drill down and it is not so hard to see why this might be the case. As Thomas Senger, senior vice-president at business process automation company Kofax, points out: “It’s naive to expect outsourcing to deliver cost savings from day one. The initial set-up costs are often significant.”

Such concern over set-up costs is especially relevant to smaller authorities. Indeed, one respondent to the survey remarked that outsourcing is “not cost-effective for a small local authority”. For this reason, more and more councils are looking to collaborate or work within some form of shared or joint venture, especially when it comes to outsourcing back-office functions.

But there are ways to minimise the upfront cost of outsourcing, advises Walker Morris’ Mr Uprichard.

“First, bring in your outsourcing partners early. This allows them to plan effectively and so provide the best solution rather than the quickest,” he recommends.

“Second, do as much of the work as you can yourself. Certainly, you should be able to do the initial scoping out of the project in question and to make many of the strategic decisions about what is to be outsourced.

“Once you are clear about why to outsource and you have a clear view of what to outsource, your partner will be able to give you focused advice on how to outsource.

“Getting them to do the

strategic thinking as well as the tactical can get very expensive,” he adds.

Sharing servicesWithin the poll, there were clear differences of opinion about the ideal model for sharing service provision with a third party.

A total of 40% of respondents said they would prefer to share services with another local authority; a third said a public service organisation such as fire, police or schools would be their preferred option; and 27% said they would ideally prefer to share services with a private sector organisation.

What this also indicates is the importance of not assuming that outsourcing has to be “one size fits all”.

There are many models out there and, as time goes on and the outsourcing market matures, it is more than likely the models will continue to change and evolve.

But, given the wider climate, whatever routes or models councils decide are best for them, what does seem likely is that we will see more and more deals coming to the fore.

Jon Leary, public sector

and with their selected contractors – to radically reduce costs and share best practice. Of course, we are talking about big, challenging projects and to be successful they will require a very high level of political support, a bit of inspiration and a real appetite for change.”

So, where will this all end? Strikingly, our survey would seem to suggest there is a real, genuine appetite for change, with 89% believing there should be no limits – no line in the sand – to outsourcing: that each decision must be

LGC/Walker Morris survey

0-5%

0% 5% 10% 15% 20% 25%

7%

6-10%

11-15% 10%

10%

11%

8%

25%

16-20%

21-25% 5%

26-30%

31-35%

36-40%

Morethan 40%

7%

16%

sales manager at IT infrastructure supplier CSA Waverley, gives an example: “Rather than facing the cost of replacing existing IT systems, or losing control of infrastructure and applications through outsourcing, public sector organisations are increasingly considering cutting the cost of this ownership by sharing with another organisation.”

He continues: “Web-based technology, coupled with software delivered as a service, will allow these organisations to operate in partnership – both together

t

Extent of outsourcing: what percentage of services/functions do you expect to be located within an outsourced model by 2014?

All things being equal, what would be your preferred model when moving to a shared services platform?

As above, but also involving a joint venture with a private sector partner (27%)

As above, but with a range of public sector organisations, eg, police, health, fire (33%)

Common services to other local authorities in the area in a local authority-managed arrangement (40%)


taken on its own merits. This is an outlook Vertex’s

Mr McKenzie applauds. “Most aspects of service delivery have been outsourced somewhere, albeit not always wisely or successfully. That is why each decision must be taken carefully on its own merits.

“Officers need to be sure that the outsourcing deal will unambiguously translate the political objectives of elected members and the needs of citizens into service requirements,” he says.

“There are also specialist services that the market has yet to prove it is best placed to provide and where internal providers have proven themselves to be both efficient and adept.

“It wouldn’t make sense to contract them out. And there will always be a need for a core policy and commissioning role – the future question will be around how big this role has to be,” he adds.

But one significant issue councils may need to be starting to consider more seriously as outsourcing becomes more ‘mainstream’ is the possibility of legal challenges.

In our poll, just 23% of respondents said they were concerned about outsourcing decisions being challenged, something that worries Walker Morris’ Mr Uprichard.

“There will be challenges,” he cautions. “The remedies directive means that if you don’t follow a proper procurement process you could have it challenged and so lose the contract you’ve

agreed, have to pay a penalty to that contractor, and even be required to pay damages to bidders.”

In fact this is already happening. One respondent to our survey said: “We have already been challenged regarding the award of a contract and an injunction granted to halt contract award.”

Mr Uprichard also reports he is receiving a growing number of enquiries, both from local authorities facing challenges and from private companies exploring whether they have grounds to mount a challenge.

The other cautionary note being sounded is that outsourcing is not the answer to all the challenges being faced by local authorities, and therefore council leaders and executives should, yes, examine it carefully as an option, but not get too carried away.

As one survey respondent put it: “Outsourcing is not a panacea in itself but it can

LGC/Walker Morris survey This survey was sponsored by Walker Morris. Questions were drafted by LGC with input from Walker Morris. The report was independently written and edited. Walker

Morris is a national law firm that advises both public and private sector clients. It supports many local authorities and has a long track record of advising authorities on the best way to strategically outsource or manage existing contracts to deliver cost savings across a wide range of situations.

deliver some cost reductions while maintaining services. It can also deliver some innovation but it depends on the right partner for the right solution.”

The challenges for local authorities in the current climate are many. If managed correctly, outsourcing can take away much of the pain of the budget cuts while preserving and protecting (and sometimes even improving on) service and delivery.

Private sector expertise can be a valuable resource in terms of helping to introduce efficiencies, provide scale-based savings or do away with tiers of unproductive management.

If local authorities can strike the right strategic balance between service provision and service commission, acquire the necessary procurement skills and expertise and, within this, pick the right delivery partners, perhaps there may be gain as well as pain.

‘‘ Once you are clear about why to outsource, and you have a clear view of what to outsource, your partner will be able to give you focused advice on how to outsource Andrew Uprichard, partner, Walker Morris

‘‘ Rather than facing the cost of replacing existing IT systems, public sector organisations are increasingly considering cutting the cost of ownership by sharing Joe Leary, public sector sales manager, CSA Waverley

Compared with where you are now as an authority, how much of an increase in outsourced provision will this be?

0-5%

6-10%

11-15% 16-20%

21-25%

26-30%

31-35%

36-40%

More than 40%


When it comes to back-office outsourcing, a lot of the focus

and discussion in recent years – and certainly since the comprehensive spending review – has been about its role in generating efficiencies and cost savings for local authorities.

That is, of course, a vitally important part of back-office outsourcing, and will often be one of the key drivers for councils to go down the outsourcing route in the first place.

But what we have found since agreeing our contract with Northgate Public Services last August (a contract that covers finance, IT, human resources, policy, business improvement, customer services, revenues and benefits), is that whether you are outsourcing back office or front office, it has to be about much more than savings or cost cutting.

Yes, councils may want to save money via outsourcing and, yes, private sector providers will conversely want to make money: they will want to be getting a return on their investment. But outsourcing will not, and cannot, work unless a good job is being done on both sides and tangible benefits being added.

Councils need to recognise that while savings will, of course, be an issue on the table, there is a lot more that private sector partners can

Keep the community satisfiedJayne Jones explains what her council looked for when it sought a back-office outsourcing partner

Forewordsue holloway local government directornorthgate Public services

In a recent article in the Harvard Business Review, Michael Porter and Mark Kramer argued that the private sector must reconnect company success with social success. They put forward the principle of shared value which involves creating economic value in a way that also delivers value for society.

This idea runs parallel to David Cameron’s vision of the Big Society. Its success is dependent on the private sector working with others to deliver social success. Embracing the concept of shared value is critical to achieving the government’s vision.

Traditionally, debates around private sector involvement in the design and delivery of public services have focused on economic issues rather than social value. All too often these have shaped the nature of procurement and the expectations of those involved. While this may have led to cost reductions, it has not necessarily delivered the significant service improvements that the public rightly demands.

If we are to get better services for less we need new ways of working. For us, shared value outsourcing is the critical way forward. Our success as a business is based on the successful social outcomes we achieve. Once that principle is accepted, six key points naturally follow. 1. Shared value outsourcing requires a greater understanding of people’s needs and the problems facing local communities. As a public services provider, our primary objective is to share that public service ethos.2. We believe that our payment should be based clearly on the outcomes that we achieve. We work with clients on a risk-reward basis in which our fees are funded from cashable savings. 3. We focus on value creation. Transformation needs to include technology alongside people and improved processes. Sustainable solutions go beyond the terms of any paper contract.4. Innovation must be a constant part of service partnerships in order to respond to new requirements by winding down old services and developing new ones. We must constantly challenge the basis of our success to deliver bigger and better social outcomes. 5. High performance requires flexible, agile partnerships and a desire to collaborate. Our national network of local government centres of excellence have opened up their doors to social enterprise and the not for profit sector.6. We have to give individuals and local communities more control over how their services are delivered. Our focus is on putting people at the heart of service delivery and on promoting active citizens.

Whether the Big Society can be achieved, one thing is certain, the shape of public service delivery is set to change in the coming years. For us, shared value is key to its future.

Shared values create successful partnership

FoRewoRD suPPlIeD By noRThGaTe PuBlIC seRVICes

Back office t

potentially offer. They can bring investment that might not have been possible before, owing to budget constraints, as well as potentially offer innovation around delivery of services.

When we decided we needed to outsource services (or partner, as I prefer to call it) I had to ensure the business case was robust but, critically, that it was about much more than savings. This was essential to make it appealing to colleagues, council members and the community. al

aMy

Part of south Derbyshire DC’s outsourcing aim was to ‘sell’ the area as a centre of excellence


Keep the community satisfied

At South Derbyshire we are a relatively small council and have already made many savings and efficiencies ourselves over the years.

Although our contract will help us make significant further savings, what we wanted was very much a model of outsourcing that could “sell” South Derbyshire as a centre of excellence, that recognised us as a growth area and very much complemented the fact we are, in fact, a very good council.

For example, the contract

will create a regional business centre in Swadlincote, which will help to encourage investment and further job growth in the area.

We invited a range of private sector providers to come and see us. What we were looking for was an organisation that had the same mutual objectives and the same public service ethos as us, that really “got it” in terms of what we were trying to achieve.

We wanted a lot – savings, resilience, improvements, investment, innovation and

‘‘ although our contract will help us make significant further savings, what we wanted was very much a model of outsourcing that could ‘sell’ South derbyshire as a place of excellence

growth in jobs, a big ask. It was also important to me

that we would have regular contact with their senior team. With Northgate this includes the managing director and chief executive, who are fully committed to our partnership.

As time goes on, the private sector is developing more and more expertise in areas such as IT, customer services, specialist areas such as finance and (my favourite) transformation.

These are all skills councils, especially smaller ones, can benefit from. But it has to be a partnership of equals. Yes, we may need them when it comes to effecting change and transformation, but we should never forget they also need us.

Just because they are coming from the private sector and bringing different skill sets or a different outlook does not mean councils should feel intimidated.

We also have a lot to offer, for example our extensive knowledge of local governance and politics and our community.

It can also help, and was something we did before we even formally started down the outsourcing road, to have a lot of informal discussions with providers and other councils who have already pioneered this method of service delivery.

There is a lot of knowledge out there that can be sourced and that can really help with every aspect of any outsourcing project – I’m a great believer in not reinventing the wheel.

For example, English Partnerships has an excellent model contract on their website for all to use.

It is important to see everything from both sides – what are the benefits for them as well as for us. You need to be very clear what it is you want from the contract.

Ultimately, don’t be afraid to lay down the law about what it is you really want to achieve; be bold, because you really can cut costs yet improve services with a successful partnership.

Jayne Jones is director of corporate services at south Derbyshire DC


Compass Point Business ServicesThis company was set up last year by East Lindsey and South Holland DCs to save money now through sharing back-office services but also to make them money in the future by selling its expertise to other organisations.

The two councils oversee large rural districts on the Lincolnshire coast separated by Boston BC, which is not involved.

CPBS is providing human resources, information technology, finance, revenues and benefits and customer services – such as call centres – to its owners and is expected to save East Lindsey £19.3m over 10 years and the smaller South Holland about £11m.

Of course, one of the challenges for councils in the current climate is that many hope to sell their expertise in back-office services to others, but few are showing keenness to buy these services.

CPBS managing director Stephen Bayliffe, however, remains adamant what it is selling will be of value. “I think what we offer to other councils is deep local government knowledge, and we fit in the traditions of local government,” he emphasises.

The intention at present is to keep CPBS owned by public bodies without private partners, though it may buy-in specialist skills

Across the country, a range of joint ventures are providing efficient back-office services and saving money, writes mark smulian

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from the private sector.It has already struck a deal

with Hitachi Consulting to provide the Microsoft Dynamics AX system.

Mr Bayliffe says this will help in the quest for customers: “Microsoft Dynamics AX system integrates HR, payroll and finance, with things only entered once, and this is one of only three places in the world to have it operational so far.

“It has been really important that the councils had the foresight to go for leading-edge technology,” he adds. Savings have come mainly from the parent councils no longer “having two of everything”.

Sharing is well advanced in Lincolnshire among different combinations of districts.

All seven district councils are exploring a joint ICT project, says North Kesteven DC chief executive Ian Fytch “but we have not decided whether that would involve setting up a new body or one council hosting it for others”.

All the districts also collaborate on procurement and most on legal services, while North Kesteven, Lincoln City Council and West Lindsey DC expects to have a joint revenues and benefits service in place by June.l For more information, visit www.compasspointbusiness. co.uk

Case studies: VenturinG into fresh territory

Herefordshire CouncilThis as-yet unnamed venture will see Herefordshire Council and the county’s primary care trust (PCT) and hospitals trust share human resources, payroll, finance, procurement, ICT and revenues and benefits in a publicly-owned joint venture with an initial £19m budget.

The council says it is the first such venture to span local government and health, but unlike some other back-office shared services projects it will not seek to sell its services externally.

The council and PCT already share a chief executive in Chris Bull and this history of collaboration made shared services a logical step, says Eric Bohl, interim transformation director for shared services.

“The intention is to improve co-ordination of services in health and social care and so offer both better services and value for money through economies of scale,” he says.

Mr Bohl says savings will be some 20%, equivalent to £4.3m, by 2016. Much of this is expected to come from new technology, which will cater for human resources, finance and procurement from April.

“It allows more people internally to do things by self-service, and brings greater savings from working on a common platform and not having to maintain three systems,” he says.

Back office

local authorities are creating efficiencies by finding partners to help with their back-office operations

“It will standardise work and we will give people the tools and training to be more self-reliant,” he adds.

Staff numbers are expected to fall by about 10% over three years.

Sharing services with a PCT may appear a brave step with the NHS in flux as it makes its expected move into commissioning by general practitioners by 2013.

But a council report from alaM

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Cambridgeshire/Northamptonshire CCsDespite the withdrawal of a third intended partner (Slough BC), Local Government Shared Services was successfully set up by the two county councils last year.

The joint venture provides the pair with finance, human resources, procurement and legal services and is expected to save them some £25m over 10 years.

Northamptonshire chief executive Paul Blantern stresses: “This is a public service for public services, and is local authority owned.”

LGSS looked at, but rejected, models such as Somerset CC’s Southwest One and Suffolk CC’s joint venture for back-office services, which respectively involve partnerships with IBM and BT.

It decided instead to create an alternative to traditional outsourcing. “We

decided that having a private partner wasn’t for us and that our USP would be that we can tell public clients ‘we know your business because we are in it’,” Mr Blantern says.

LGSS was three years in the planning and employs some 850 people, “so it’s a big business”, he adds.

Mr Blantern concedes it is “a really interesting point whether we can sell to other public bodies when many of them have set up similar operations and want to sell to others, too”.

Some of these hopes rest on a deal with Fujitsu to provide technology for the IT behind the human resources, procurement and finance services.

“There are opportunities for expansion and we’re talking to a lot of councils, not districts but London boroughs and other counties,” Mr Blantern adds.

LGSS was designed to be flexible enough for other public sector bodies to use all or any of its services. It already has contracts from some schools and expects income from external public bodies to make up some 30% of its gross turnover of £56m.

It has a single management team but has deferred the intended appointment of a managing director, a role Mr Blantern is fulfilling in the meantime.l For more information, contact [email protected]

Case studies: VenturinG into fresh territory

October said this could be accommodated: “These changes are compatible with Herefordshire’s approach to integration, which will evolve to ensure that adequate support is in place for the emerging GP consortia. This may also present an opportunity for shared services to develop further.”

A statement to staff elaborates: “Discussions have taken place with GPs, who have an interest in sharing some functions, too, as they prepare to take the lead in planning and purchasing healthcare.”

Yet the joint venture also seeks to involve staff and reassure them, despite the uncertainty over jobs.

They have been told its success will “depend totally on employees and their involvement”, and that they will move to the joint venture under the Transfer of Undertakings regulations.

Asset management and transport lie outside the joint venture and the organisations may seek external partners for these.l For more information, contact [email protected]

Back office

‘‘ We decided that our USP would be that we can tell public clients ‘we know your business because we are in it’ Paul Blantern, chief executive, northamptonshire CC


It’s probably fair to say that most first-generation public sector outsourcing contracts

were along the lines of “deliver this service, against this service level, for this fixed price”. The question today, and with the stakes now so high, is whether this is really the sort of model local government wants from private sector outsourcers.

Critical to any successful outsourcing partnership is the detailed thinking and pre-planning done in advance of going to the market. Future partnership arrangements will increasingly need to be considered as part of a sourcing strategy rather than simply a procurement exercise, one of the first mistakes organisations commonly make when looking at outsourcing.

Another all-too common error is that contracts end up being too rigid and restrictive, which inevitably creates tension between the organisation and the supplier.

A proper, genuine partnership arrangement, conversely, is about establishing a relationship where flexibility, trust and a wish to work together to meet both known and unknown challenges are core values.

Of course, there is still a contract, but there is also an expectation that where a requirement no longer meets the needs of the organisation or an amendment needs to

It really is about teamworkOutsourcing contracts work best when they are genuinely collaborative, explains PAUL GREEN

ForewordNICOLE FRANCE Head of regional and local government marketingFujitsu

The thing about all great partnerships is they simply don’t work without both halves of the whole. Imagine Torvill with no Dean, Morecambe with no Wise, fish with no chips. Yet, for all the many years of cumulative experience we have with outsourcing in local government, this bit of wisdom often seems to be overlooked.

Certainly, suppliers bear a major responsibility in any outsourcing agreement – after all, we are obliged to deliver our part of the bargain over the length of the contract. But equally important to the success of an outsourcing deal – if not more so – is the need for customers to be active, engaged participants in what is not just a contract, but a relationship.

There is a reason for the emphasis on partnership in outsourcing: those of us who have seen it work well know how much more can be delivered than just the letter of the contract. In a time of unprecedented challenges, the ability to draw on the strength and support of a strong partnership is even more important. It is not just a question of sharing the pain or spreading the budget cuts, but of tapping into a different perspective, finding new ways of working, accessing additional resources. So, here are some of our observations on what makes a good customer partner:Be demanding, but be clear. Odd though it may sound, some of our best customers are the ones who have the highest expectations of us. Articulating exactly what is on the line for you helps to make our priorities crystal clear.Make sure you are sending consistent messages. Although contracts rarely succeed in succinctly communicating your biggest priorities, they should at least attempt to reflect them. For example, if we all agree the supplier’s focus should be on helping to achieve the customer’s business priorities, make the outcomes the focus of the contract, not the means through which they will be achieved.Keep up the dialogue. Anyone who has been on either side of procurement can attest to the high volume of conversation that goes on during that process. All too often, however, we consider the discussion complete once the contract is signed. Ongoing dialogue, especially the less formal variety, is usually the best way to ensure both sides are aware of any changes in priorities, or new ideas.Sing from the same hymn sheet. There will always be disagreements of some description. As long as we are both working to the same goals, or at least the same priorities, there will be reconciliation. Indeed, you may even begin to see these differing opinions as a sign the relationship is adapting to changing conditions.

However brilliant a five-year plan might be, the circumstances at the beginning are rarely the same as those at the end of it. Unless both partners anticipate change and accommodate it within the outsourcing relationship, success is unlikely.

It takes two – like any other relationship

FOREWORD SUPPLIED BY FUJITSU

Partnerships t

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It really is about teamwork

Similarly, if an internal client team is challenged should problems occur, it’s all too easy to blame the outsourcer. But they are part of the problem, as their role is to assure service delivery and performance. What works, and has to be a key element in any partnership, is collaborative, joint responsibility and trust.

So, what should a council look for from a partner, as opposed to a mere contractor?

Here are some questions we believe need asking:• Do they have the capability, skills, experience and capacity to deliver further services, either directly or via other partners the council may require in the future, and similarly business transformation and change programmes?• Are they willing to make investments local authorities are unable to make? How can they accelerate and support the organisation in achieving savings?• Why do they want to partner with the council and why do they feel there is a cultural fit that would create value to the organisation and its citizens?• How will they contribute in assisting the local authority with economic regeneration? What can they bring in terms of innovative thinking?• Do they have a well-developed corporate social responsibility agenda that can actively contribute to the authority’s community objectives?

• Are they in talks with any other private sector organisations relating to takeover or mergers? What lessons have they learned from previous partnerships?

I believe partnerships will become more widely adopted in the future as shared services and collaboration move from workshop-based discussion to actual implementation and delivery.

There could also be models with an interesting mix of partnerships, between public sector organisations only (which could include councils, health and blue-light services, for example) or a mix of public and private sector outsourced partner(s).

To embrace the opportunities partnership working can bring will require a mindset and culture change for most local authorities and politicians. New ideas and ways of working will need to be embraced, as will a willingness to think ‘outside the box’.

But what is clear is that, when it comes to outsourcing models for the future, in many local authorities we are past the service improvement stage – what is needed is fundamental service redesign. Only this will truly deliver the type of savings most of us need to balance our future budgets.

Paul Green is director of information services at Sheffield City Council

‘‘ New ideas and ways of working will need to be embraced, as will a willingness to think ‘outside the box’

be made, both sides will get round the table to discuss it openly and quickly and implement the change in the most effective and cost-efficient way.

Another key difference – and expectation – in a partnership arrangement is the willingness of the local authority to allow and encourage the outsourced partner proactively to challenge them (in a constructive way!) where they feel improvements can be made and they can be part of future shaping and strategic planning activities.

To this end, the private sector partner must be a genuine part of the important discussions to help with new thinking and bring that added value the local authority did not have before.


Shared services at Vale of White Horse and South Oxfordshire DCsIt has a strong claim to be the oldest continuously occupied town in Britain, and Abingdon remains a site of new developments. As the seat of Vale of White Horse DC, it is in the vanguard of moves by local authorities to share services with their neighbours, in its case with South Oxfordshire DC.

The councils started working together through a joint financial contract in 2006. But the relationship has developed quickly since then, with more than 100 staff now working jointly across the two authorities and many more expected to follow this year.

Matt Prosser, one of the councils’ strategic directors, says plans for shared management accelerated in 2007-08 when the councils realised the level of financial gains they could achieve.

This led to the appointment of a single chief executive in place of two, the number of directors being reduced from five to three, and 14 service head positions becoming eight (now seven after a retirement).

At the same time, the councils decided to award a joint waste services contract to Verdant.

Shared managers are now in place in planning, finance, economy, leisure and property, to name just a few services.

There are an increasing number of innovative ways to deliver service improvements and also save money, reports Gordon CArson

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Staff responsibilities are shared according to individual roles. In some cases this may mean a 50/50 split between the two councils; in others, 60/40 in favour of one.

In addition, the councils share staff terms and conditions, human resources and management processes, and Mr Prosser says they are “not far away from harmonised pay”.

As well as the waste contract, the councils have just tendered for a shared grounds maintenance deal, while the next ‘big ticket’ contract, for leisure services, is due for retendering in 2014.

“We are working on the presumption that, if nothing else changes, we would be looking at a shared contract,” adds Mr Prosser.

All of this joint working will save £4m across the two councils in 2011-12, while business process re-engineering should deliver further savings of £500,000.

The commitment to shared services has been developed despite different political leadership: Vale of White Horse DC is controlled by the Liberal Democrats and South Oxfordshire DC by the Conservatives.

“Some people looking from the outside might have thought that would be a bit of a problem, but it’s not been an issue,” says Mr Prosser.

Cultural differences between the two authorities were noticeable, he adds, so

Case studies: showinG what Can be done

managers have attempted to create a ‘new culture’ through communications, including a single, shared internal ‘e-zine’.

A development programme has also been put in place with the aim of creating a “single body of knowledge and culture” for middle managers.

Mr Prosser says one of the key issues for councils considering sharing services is harmonising IT systems and other essential business platforms.

Regular communication with backbench councillors, who are only in the council office infrequently, is also important, to allay any fears they might have about proposals.

But one thing other councils should not be too concerned about is the potential savings that shared services can deliver, says Mr Prosser.

“Don’t spend lots of money putting together a business case,” he advises. “[Moving from] two to one definitely saves money.”l For more information, visit www.southoxon.gov.uk/about-us/who-we-are/south-and-vale-joint-working

Social Impact BondHelping to prepare short-term prisoners for release may not immediately seem relevant to local government services, but the approach taken to deliver this intervention at Peterborough

Partnerships

Partnerships can work across a wide range of services, as shared services director Matt Prosser (top) explains

Prison could point to a future model of funding for councils based on greater partnership working towards long-term outcomes.

A key policy for the delivery of some local government services is payment by results. It’s been used in the NHS for a decade and new payment-by-results models are being developed in fields such as drug treatment services and youth justice.


Essex CC about developing an SIB for children’s services.

The SIB encourages upfront investment from non-government sources, such as charitable foundations and private individuals (the £5m Peterborough bond was backed by the Esmée Fairbairn Foundation, among others).

Investors receive a return from the government according to the outcomes achieved by the service and savings made to the public purse (in the case of Peterborough, if reoffending drops by more than 7.5% within six years).

Toby Eccles, Social Finance’s development director, says the SIB model encourages partnership working because all parties continuously analyse the information that flows from services, enabling them to adapt during the course of the arrangement.

Rob Owen, the chief executive of St Giles Trust,

says the SIB approach is a good way of obtaining “pump-priming” investment to deliver preventative work, and could “change the landscape about how society funds preventative services”.

To start with, he says, it’s a better funding mechanism for voluntary sector providers, because they receive full funding for the services they deliver and investors take the risk of not receiving a return if results are not achieved.

This tackles the potential problem in payment-by-results systems of voluntary providers only receiving a proportion of their total payment, say 70%, at the start of the contract or in instalments, and the remainder depending on results, meaning they might struggle to secure working capital.

It could also enable local government to secure additional investment to fund services that work with troubled families, says Mr Owen.

“Every local authority has a few really problematic families who cause a disproportionate amount of stress in their areas, and you could create Social Impact Bonds to work with those people,” he adds.

The Peterborough partnership may face some difficulties as it progresses through its six-year term.

However, as a model of outsourcing service clients

Case studies: showinG what Can be done

They are also being promoted as a mechanism to deliver adult and children’s care.

This approach will have significant implications for service commissioners, bringing with it a greater focus on outcomes, rather than inputs.

It may also encourage more strategic partnership working as commissioners and providers aim to achieve long-term results over several years, as opposed to the provision of services through contracts that could be granted for as little as six months.

A payment-by-results model that could be of interest to local government is the Social Impact Bond (SIB). This is already being applied in a prisoner rehabilitation pilot scheme at Peterborough Prison. Over the six years of the scheme, a total of 3,000 short-term prisoners will receive intensive interventions both in prison and in the community, delivered by specialist organisations such as the St Giles Trust charity.

Social Finance, the company that developed the bond, is also in talks with

Partnerships

‘‘ Some might have thought having shared services alongside different political leadership would be a bit of a problem, but it’s not been an issue Matt Prosser, strategic director, south oxfordshire and Vale of White Horse dCs

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Sponsored by Fujitsu. The case study subjects were agreed in partnership with LGC, which independently commissioned and edited the report. Fujitsu

is a leading provider of IT systems, services, industry consulting, management and outsourcing for large-scale clients in both the public and private sectors.


provision it seems in principle that it offers a range of benefits to all partners, and could have widespread applications in local government, too.

Education BradfordA decade on from formal government intervention in Bradford MBC’s education services, academic achievement in the city has markedly improved: the proportion of pupils gaining five or more GSCEs at grades A* to C has more than doubled to 72%, while 1,000 more pupils per day are regularly attending school.

The council says these improvements have been delivered thanks to an entrenched professional and personal commitment to partnership working between the local authority, Bradford’s schools, and Serco, the private sector organisation brought in on a 10-year, £360m contract to manage support services for Bradford’s schools.

Education Bradford employs 800 staff and is responsible for support services for 205 Bradford district schools (including academies, pupil referral units and two hospital teaching centres) with more than 84,000 children.

The contract extends to running the West Yorkshire Transport Service, which employs 600 staff and uses adapted minibuses to take children with special educational needs to schools,

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and social services’ adult clients to day centres.

The partnership faced some initial difficulties due to the “inflexibility” of the contract approved by the government, says Kath Tunstall, Bradford City MBC’s strategic director for children and young people’s services.

“It was very broad and not too detailed though it was terribly long,” she says.

“If any issue comes up and you take it back to the contract it’s not very helpful, so you have to make sure you develop strong relationships with your partners and understand each other’s role.”

Denise Faulconbridge, managing director of Education Bradford, says it is crucial that all partners have been focused on their shared objective: improving outcomes for children and young people.

Underpinning the overarching strategic objectives are extensive

Case studies: from the next Generation to reGeneration

monitoring arrangements. A contract monitoring board, chaired by Bradford council’s chief executive and attended by its lead members for education, meets six to eight times a year.

In addition, a performance monitoring group, which is chaired by Ms Tunstall, looks in more detail at particular aspects of performance, while Ms Tunstall and Ms Faulconbridge hold regular joint leadership team meetings and one-to-one problem-solving meetings.

“It is important to have the right structures in place so it isn’t personality driven, but it is people who are committed to partnership working as a concept who will make it work,” says Ms Tunstall.

Ms Faulconbridge adds: “We both know that if something happens, the first person I pick up the phone to is Kath, and vice versa.”

The contract ends in July, but this will have been preceded by two years of planning for the transition.

This has been led by a strategic partnering board, which, with head teachers, has assessed and agreed the best options for the future management of 14 education-related workstreams.

Almost all of those examined, including human resources, ICT and transport, are likely to transfer straight to the local authority, as will the statutory duty to provide education services. Ms Tunstall also says national

Partnerships

‘‘ A payment-by-results model that could be of interest to local government is the Social Impact Bond

Blackburn with Darwin has benefited from its partnership, says John Slee (bottom right); above right, Kath Tunstall

changes in school improvement policy create further opportunities for agreement between schools and the local authority.

Both Ms Tunstall and Ms Faulconbridge say other authorities considering a similar partnership should ensure that contracts are properly understood by both parties from the outset.

Most important is the ability to “sit down together

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John Slee, Capita’s business centre director for the Blackburn with Darwen strategic partnership, says the key issue at the start of the contract was for the partners to build a “solid foundation of trust, commitment and honesty”.

He adds: “You have to be realistic about what’s deliverable. For example, the aspirations of the borough, how the private sector can complement some of these, and wrapping it together in a model that works for both parties.”

The council was, of course, hoping to save money by bringing in a private sector partner, and Capita says it has achieved efficiency savings of £24m, including the costs of risk transfer and investment savings.

Mr Slee is well aware, though, of the extra financial pressures councils are facing. Blackburn with Darwen has just approved a new budget that includes plans to make £25m of savings, and Capita has agreed to take a cut of 10% in its core fee, equating to about £900,000 a year.

“We could have hidden behind the contract but we took a proactive approach and said we believed we could do things to help the council,” says Mr Slee.

He is also aware of the cultural differences between the public and private sectors, having spent 22 years working for Cumbria CC before transferring to the

private sector in 2001. “Like any partnership, there will be times when there are challenges,” he says. “The main thing is having ongoing honesty and clear governance.”

In the case of Blackburn with Darwen, this includes maintaining regular dialogue with the council’s elected members, who can contact a dedicated member of staff if they have any enquiries about the partnership.

An executive board, strategic working group, operations board and service operational groups are in place to oversee the partnership as it progresses.

Mr Slee also says it’s crucial to keep the partnership “alive” by ensuring that it responds to changing political and strategic objectives. This is especially important in the final years of any long-term partnership.

“It’s very easy to become complacent or the relationship becomes stale,” he says. “So we are now going to look at a development plan for the next three years.”

Blackburn with Darwen BC is clearly happy with the results achieved so far. Andrew Lightfoot, its managing director for local government services, says the partnership has resulted in “welcome investment and jobs to the area”. l For more information, visit www.capitasymonds.co.uk/partnerships/blackburn_with_darwen.aspx

Case studies: from the next Generation to reGeneration

to talk about things when they don’t seem to be working”, says Ms Tunstall.l For more information, visit www.educationbradford.com

Blackburn with Darwen BC/Capita SymondsLong-term service outsourcing contracts are one thing, but bringing in a private sector partner to help transform a former industrial powerhouse is quite another.

This is what Blackburn with Darwen BC set out to achieve when it awarded Capita a 15-year, £210m-plus deal in 2001 to assist in the

regeneration of the area as part of the council’s 2020 Vision to tackle deprivation.

As well as providing back-office services, including human resources and payroll, Capita has provided consultancy for property and infrastructure services through its Capita Symonds division, which was charged with bringing about a major regeneration of the area.

Its work so far includes a £10.5m leisure centre, a £5m business centre, a customer contact centre for TV Licensing, and the creation of 620 jobs.

Partnerships

‘‘ You have to make sure you develop strong relationships with your partners and understand each other’s role Kath Tunstall, strategic director, Bradford City MBC

Sponsored by Fujitsu. The case study subjects were agreed in partnership with LGC, which independently commissioned and edited the report. Fujitsu

is a leading provider of IT systems, services, industry consulting, management and outsourcing for large-scale clients in both the public and private sectors.


For Hertfordshire CC, as I am sure will be the case for most councils, the bottom

line when it comes to outsourcing front-line services has to be maintaining services at an appropriate level.

So, although we have made it clear that we want to generate £200m of efficiencies over the next four years, we have also worked hard to ensure the public understands these are efficiencies, and not necessarily cuts.

It is understandable that residents are concerned when they hear you intend to spend £200m less than you were, and they will naturally assume it is going to mean far-reaching changes to services.

So it is important to stress the difference and what in reality will be changing.

If you can say, for example, as we have in Hertfordshire, that actually we are not going to be closing any libraries at all – they may not be open for quite as many hours a day but they will not be closing, then that can be quite a powerful message.

Choosing the right partner was a key decision for us. We had a shortlist of four before we decided on Serco. What was always critical in the negotiations was that we could be confident they would be able to deliver the required level of services as well as offering us

Getting your message acrossdavid lloyd explains why the public has to be in the loop when front-line services are outsourced

ForewordRaineR Majcen Managing director, public sectorarvato UK & ireland

One of the most emotive issues surrounding outsourcing is that of front-line services. This is only natural, since these are the visible, tangible services with which local citizens come into direct contact. As a result, what the outsourcing of front-line services throws into sharp relief for local authorities is having the right outsourcing partner.

When going through the tender process, there is a tendency, quite understandably, to focus on the deliverables, such as the efficiency savings. However, it is equally important to make sure the potential

outsourcing partner is able to deliver the required results in a way that matches the council’s ethos and values.

Tendering should be deeper and wider than a procurement exercise because when supplying the front-line services, the outsourcing partner will represent the new public face of the council, so it is vital it is one that the council is proud to call its own.

Therefore, during the lead-up to the bid, a council should seriously consider the type of partner that would best fit its individual culture and make sure this is reflected in the bid document. It should also think about how it can use the bidding process to refine its definition of its ideal partner and to test the prospect’s partnering qualities – it is possible to create a mechanism by which these can be measured. Then once the appointment has been made, like any relationship, both partners need to be willing to listen and able to change to make it succeed.

What should also be borne in mind, particularly by the outsourcing provider, is that public sector front-line services are distinct from private sector services in that the customers – the residents – often have no real choice in who delivers them. It is therefore incumbent on the partnership to ensure that it provides the front-line services in as fair and equitable a way as possible, ensuring that all its citizens, especially its most vulnerable, are served.

The raison d’être of the partnership might be about optimising efficiencies and improving services but it must never be forgotten that what the partnership is ultimately about is providing a public service. Fortunately for those councils seeking an outsourcing partner, private sector efficiency and a public sector ethos are not mutually exclusive – not in our view, anyway.

Why it’s more than just procurement

FoReWoRd SUPPlied By aRvaTo

Front office t

guaranteed savings. The fact they are also

taking on some of our back-office functions and that we have a single provider has also helped.

It means the process is simpler and there is a single chief executive accountable for the delivery of these services.

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‘‘ when supplying front-line services, the outsourcing partner will represent the new public face of the council, so it is vital it is one the council is proud to call its own

Hertfordshire cc wanted its residents to understand what was changing and why


Getting your message across

have, of course, is that one part of the contract will not perform as well as another.

So we made sure we agreed a contract that had provision for breaks within it to cover the eventuality of performance failing in one area.

It is important in this context that you have someone on your team who

can structure the contract to ensure it has the flexibility to allow you to pull out from or change something if you need to.

We firmly believe that this outsourcing process could result in genuine savings. The private sector can often help public sector organisations look at things differently,

‘‘ The challenge for local authorities moving into front-line outsourcing is that it is that much more visible. when it is just back office, no one really sees the change, except internally

especially in finding ways to drive value from what might be repetitive processes.

You often find there has been overlap in certain processes or you have different processes being operated for similar functions – and in both cases efficiencies can be made.

But the debate always has to be how to ensure you are delivering the same (or even possibly better) levels of service. We have a level of service that we know we require, so it is simply about how we can get that for the best possible price.

The challenge for local authorities moving into front-line outsourcing is that it is that much more visible. When it is just back office, no one really sees the change, except internally within the council.

But when it is front line there will often be quite public changes, so the imperative is to ensure you are handling and managing those changes smoothly.

With Transfer of Undertakings regulations it should be the case that the

same people are delivering the services, so change should not be that great.

However, you will still need to decide what level of service will be required and you may need to manage the apprehension that can come from the prospect of such change. It is important to recognise and address those concerns and communicate the benefits as well as the challenges.

I have been working in local government since 1992 and, in many respects, while the circumstances are challenging, it is one of the most stimulating times I can remember.

When you have to take difficult decisions you really have to think about what is important. For almost the first time, we have permission to sit down and really evaluate the services we run, look at what is important and what our role needs to be within the local community.

I think that is a refreshing process to be involved in.

david lloyd is deputy leader of Hertfordshire cc


Hart DC/CapitaHart DC is one of the smallest councils in the country. Many of its services are outsourced or shared with neighbouring authorities, leaving little the council does on its own.

Revenues, benefits and council tax collection were the first to be outsourced, with Capita, in 2008. Low grant allocations, the capping of its budget and other financial pressures all nudged the council to look at outsourcing as a way to save money, says chief executive Geoff Bonner.

All the services’ 20 or so staff were taken on, and there were no changes to people’s terms and conditions.

As Southampton City Council’s framework contract (see below) was used, there were no delays or extra costs to the tendering process.

“It went very smoothly and very fast: it has been a quick and easy way of making savings and there have been performance improvements each year,” says Mr Bonner.

“Capita bring economies of scale, and they have got all the systems ready and working. It’s very easy for them to take on and show improvements – the experience has been almost entirely without negatives.”

Since implementation, the time taken to deal with new benefit claimants has been reduced from 25 days to 17, and the council has earned a £45,000 subsidy for reducing its administrative errors

Outsourcing front-office services is a big step but it can be a great success for both councils and residents, reports robert bullard

t

associated with wrong payments. “I don’t understand why more councils don’t go down this route,” says Mr Bonner. “From my point of view it’s a ‘no brainer’.”

Some councils’ reluctance can be explained, he admits. Staff may not be keen, for example. And not every council enjoys the same political support, or is driven by the same financial pressures as Hart was.

But Mr Bonner believes too often there is inertia about keeping services in-house. “Even when councils want to make changes they tend to go for sharing services – which I suspect is much harder work.”

Buoyed by its experience, the council has now outsourced several back-office functions as well, including finance, human resources and IT.

Here, however, the process has been less smooth. “Some of our systems in these areas weren’t working well beforehand, so we were starting from a very low base,” explains Mr Bonner. l For more information, contact Geoff bonner at [email protected]

Southampton City Council/CapitaThe decision to outsource Southampton City Council’s customer services was “primarily an investment project – about the transfer of new technology”, says Jeremy Moulton (Con), the council’s

Case studies: it’s more straiGhtforward than you miGht think

deputy leader. “We had a very out-of-date infrastructure and front end to our customer services – for example no ‘gateway’ or call centre technology,” he says.

After several years’ research, the council decided it could either borrow the money and do the job itself, or work with a partner. And after a competitive tendering process, which included an in-house comparator, it decided to work with Capita.

A 10-year contract – which also covers many of Southampton’s back-office services – was signed in 2007.

Now, a gateway reception area has been set up for handling all contacts apart from housing, and back-office telephone numbers have been consolidated into a single telephone number.

“The primary objective was about service enhancement,” says Mr Moulton. “Multi-skilled people now deal with queries and a customer relation management system has improved staff access to information, so they are now able to help callers rather than passing them on.”

In total, 650 staff were transferred – although they remain part of the Local Government Pension Scheme.

The contract meant unions were worked with closely to ensure people’s concerns were met, says Mr Moulton. A big breakfast meeting helped create a fresh start, and Capita’s expansion into

Front office

Southampton CC chose to outsource its customer services because it wanted investment in the latest technology

working with some of Hampshire’s district councils helped it win further acceptance.

There have been other benefits as well. The council stipulated that Capita’s offices should be in Southampton to ensure it created local jobs. And the framework contract was made available to local councils – offering them lower procurement costs (see Hart DC, above). Finally, a


landfill tax was financially not possible for us to tolerate, so we went through a long process to reduce the costs and give the public the new recycling facilities they were asking for,” says Katherine Sokol, the council’s head of resources and performance.

In one of the most recent changes, the fortnightly recycling collection was made weekly and extended to items such as plastics, that the public expressly wanted.

In the six months since, recycling rates have improved sharply: from 37% to nearer 50%. The council hopes that after 12 months the rate will be nearer 60%, which would be one of the highest among unitary councils.

Teething problems are inevitable when introducing a new set of services and asking people to change their behaviour – such as the move from weekly refuse collections in black sacks to fortnightly collections of wheelie bins – admits Mrs

Sokol. Last winter’s bad weather didn’t help and a new contractor needed time to get bedded into the job.

But overall the council is pleased with the results. “The outsourcing gives us what we want in terms of recycling rates, it gives residents what they were asking for, and it has saved us a load of money – about £20m over seven years,” says Mrs Sokol.

Residents are also positive about the changes. North Somerset’s Citizens’ Panel recently gave the service satisfaction rates of more than 80%, and more people are committed to recycling, says Mrs Sokol. “It’s good news all round.”

Now the council is preparing to outsource operation of its Playhouse Theatre, Winter Gardens and tourist information to Parkwood Leisure. One aim is to save management and support services costs – £500,000 has been identified. There will also be savings from co-location and the better integration of these leisure services.

“But it isn’t necessarily about saving money – that isn’t the primary aim,” stresses Mrs Sokol. “Every year people wonder if we can afford these services. We wanted to avoid these annual discussions, and to secure their future.” l For more information, contact Katherine Sokol at [email protected]

Case studies: it’s more straiGhtforward than you miGht think

new shared office block has helped regenerate the surrounding area.

“The customer service side has been the most effective part of our partnership,” says Mr Moulton. “We had no experience of doing this in-house, but it is bread and butter for Capita. They are a proven organisation in this area, so there was low risk in taking them on.”

Key performance indicators have also been met. The proportion of one-stop-shop customers seen within 10 minutes has more than doubled to 85%, and the

percentage of people waiting more than 30 seconds for a reply on the phone has been reduced from nearly half to just 15%. l For more information, contact Jeremy Moulton at [email protected]

North Somerset Council/May Gurney North Somerset Council has been outsourcing services for many years, including its waste collection and recycling, which are operated by May Gurney.

“We got to the point that

Front office

‘‘ I don’t know why more councils don’t go down this route. From my point of view it’s a ‘no brainer’ Geoff bonner, chief executive, Hart dC

Sponsored by arvato. The case study subjects were agreed in partnership with LGC, which independently commissioned and edited the report. arvato is a trusted global business outsourcing partner to pioneering public sector organisations

and some of the world’s most respected private sector companies.


Local government has long been versed in the use of such terms as ‘transformation’

and ‘leadership’, especially in the context of outsourcing.

If we step back in time to the comprehensive performance assessment (CPA) era, leadership and transformation tended to be linked to such CPA-led qualities as ‘corporatism’, ‘service excellence’ and ‘partnerships’.

How many of us have, for example, striven to follow the CPA inspectors’ recommendations to drive out our silos or even the ‘drain pipes’ in our silos, through ‘transformational leadership initiatives’?

Many of us also realised at an early stage that to support local government transformation and to tackle the Gershon savings, as well as meeting the ever-increasing demand on our services, we were going to have to do things differently.

As a result, a plethora of partnership models have developed – trusts, joint ventures, strategic partnerships and plain outsourcing, to name but a few.

So, transformational leadership within outsourcing shouldn’t be new … or is it? In a way it’s not so much that it is new, as that in today’s climate the concept has taken on a different dimension because of the scale of the demands and the

A safe pair of hands at the tillerThe rise in outsourcing means a qualitative difference in leadership styles, says RichaRd cRouch

Foreword Jan PaRkinson Managing director Local Government Employers

We’ve all known for a long time that the job for life, if it ever really existed in any great quantity, is disappearing fast from the public sector. As outsourcing, as both a concept and a reality, accelerates, so people’s perceptions of a ‘career’ in local government are changing.

People are increasingly accepting that, even if they are making a commitment to serving a local community, it is likely they are going to be employed by different employers at different times in their career. It could mean they work with a private sector employer, a social enterprise or a partnership, or even transfer back and forth.

While Transfer of Undertakings regulations do, of course, protect people’s terms and conditions when transferring from one organisation to another, the wider implications of what this transition will mean in terms of the skills councils require and the leadership they will need to be providing are in some respects unclear.

While the outsourcing of services to the private sector is something many local authorities are relatively familiar with, the scale of the activity between now and 2015 is likely to be unprecedented.

There may, for example, be issues that need to be addressed about the interface between the public and the provider – will it, for example, be local government employees who will still be at the sharp end of complaints from the community about services, even when they are now being provided by an outsourced provider?

There is a valuable debate that needs to be had about what is actually meant by collaborative working and the acceptance of risk and responsibility (on both sides).

As more and more functions become outsourced, councils are going to need to ensure they retain a core of skills around which these activities will revolve and be managed – commissioning, project management and so forth. It may be that we end up with smaller core teams, but also teams that are better qualified and – who knows? – even better rewarded.

Another key challenge will be the leadership implications surrounding outsourcing to social enterprises, partnerships and mutuals. The government has set a target of wanting about a million people from the public sector transferred into social enterprises by 2015, some 15% of the public sector workforce.

For councils and local government this will potentially equate to some 230,000 people moving across in some shape or form to such social enterprises.

Councils will need to look very carefully at who they are partnering with, what resources they have and how these organisations are going to support the staff that go to work for them. Local authorities may find, especially at the beginning, an element of needing to nurture and manage these partnerships; to ensure they are not left to sail off into the unknown unsupported.

A different world needs different skills

Leadership t

magnitude of the challenges.Prior to the comprehensive

spending review in October, outsourcing contracts tended to concentrate on improved service delivery at a slightly lower cost.

Post-spending review, contracts are focusing more on retaining the quality of services as much as possible – but for a lot less.

In addition, there is a significant shift in the ideology surrounding what al

aMy


A safe pair of hands at the tiller

‘‘ Transformational leadership within outsourcing shouldn’t be new … or is it?

local government does and what it’s for.

Many councils, for example, are shifting their position from being large complex organisations that deliver numerous and disparate services to as much of the community as possible, to being ones that deliver very little but enable others to do it on their behalf.

What all this boils down to is a shift in the leadership of local government, whereby

outsourcing (through whatever form) has become the core leadership activity of the organisation.

Today, the sheer size of outsourcing means huge organisational change, and local government executives are having to lead and manage this change in double-quick time.

There are some fundamental issues that surround such change, and that will require effective

leadership if their full challenges are to be met.

The more obvious ones are those surrounding the organisational ‘hardware’. This would involve procurement, governance, legal and contractual frameworks, the people management aspects of any transfer, client functions, restructurings and so on.

Such issues serve as the foundations for any outsourcing arrangement and if these are not led on and managed correctly the outsourcing arrangement is almost inevitably bound to fail, as will the reputation of the outsourcing organisation.

Yet it is also the ‘software’ elements of such change that are often the most difficult to lead and manage, and sometimes forgotten in the change process. Such elements would include perceptions, satisfaction, behaviour, values, style,

psychological contracts and so on.

The critical importance of such software elements is not just in relation to our employees but also our other stakeholders, whether our customers, our ‘partner/s’ in the outsourcing arrangement or others within the supply chain.

All this means the onus on transformational leadership in local government has probably never been higher. The greater the degree of change the greater the exposure to risk, and with risk goes reputation.

Local government executives have a difficult job to do. On the one hand they must ensure business continuity in service delivery during a period of substantial budget reduction.

On the other, they have to lead in the fundamental ‘deconstruction’ of what is a very mature business.

It is the sort of challenge the troubleshooter Sir John Harvey-Jones would have relished. So far at least, from what seems to be evident around the country, it is a challenge many local government executives appear to be rising to meet as well.

Richard crouch is director of hR and organisation development at somerset cc, and lead officer for leadership and organisation development, Public sector People Managers’ association


Essex Cares When Essex CC decided it wanted to be a commissioning body only, it looked at various options for the future of adult social care. It eventually settled on a local authority trading company, Essex Cares, which was born in July 2009 with the transfer of 850 council staff.

From the initial decision to set up the company to it formally trading took 18 months, says Mark Lloyd, the company’s managing director. “The trading company [is] the best option as it enables Essex Cares to be independent, but the council retains the ownership. Being a trading company gives members control as shareholders, so they have an investment in the business.”

But it also brought with it a number of management and leadership challenges. “The most important stage was when officers and members were looking at the options. The key statutory instrument was the business model and we had to demonstrate that this was value for money.

“Once that was signed off it was a process of disengaging services from the council. There was a lot of complexity about how you disengage the corporate costs from the council,” Mr Lloyd explains.

“You must get all your key stakeholders engaged – members, corporate officers, service users, staff. The changes do impact on the wider priorities of the council

Guiding an organisation through fundamental change demands strong management, writes Anne GullAnd

t

so corporate ownership was essential,” he adds.

Communicating the vision was paramount, emphasises Mr Lloyd, as there was concern among staff about terms and conditions and pension entitlement. Once they were reassured these would be safe, staff were fully behind the new venture.

“We had a very good communications strategy and we ran roadshows across the county and we met every single employee.”

Because of budget cuts and the increasing personalisation of adult social care, the council could not have continued running services the way it had done, so it was important to explain to staff that the new company was the only future.

“We have a can-do attitude. Staff are more accountable and they are rewarded. When we transferred we did dismiss a number of staff who were poor performers – we are firm but fair.

“Staff can see they have a great future and if the service had stayed with the council it would not have survived. By coming with us they had a new opportunity,” points out Mr Lloyd.l For more information, contact [email protected]

Rotherham MBC/BTIn 2003, when Rotherham MBC launched its joint venture with BT, the practice

Case studies: transformation Can happen anywhere

was still fairly innovative. The council wanted to

make efficiency savings and, realising that it could not afford to replace its ageing IT system, decided the best option was to join with a private company who could provide investment, both financially and in terms of expertise.

The venture covers procurement, finance, revenues and benefits, payroll and human resources and runs until 2015.

Simon Cooper, strategic human resources manager, explains: “We wanted to transform the delivery of human resources services as they were different in different parts of the council. We wanted to unify and equalise that provision and we were keen to see where technology could be brought in to transform HR.”

Liverpool City Council was one of the few places that had a joint venture at the time so the council took staff and unions there for an exploratory visit. “We arranged visits to BT offices to look at their innovative work styles and arrangements. We also wanted to demonstrate some of the benefits technology was going to bring,” says Mr Cooper.

The new HR system is fully automated and enables managers to do a whole host of functions without needing to involve the HR department.

“Before the new system

Leadership

‘‘ We have a can-do attitude. Staff are more accountable and they are rewarded Simon Cooper, strategic human resources manager at Rotherham MBC (pictured)

alaM

y


“The business process re-engineering was about bringing in people who had done this in other organisations and had expertise. They came in to work on specific projects and transfer learning to council employees to develop this expertise,” he says. l For more information, email simon.cooper@rotherham. gov.uk

Conwy CBC and Denbighshire CCThe Welsh Assembly Government was keen to promote collaboration between councils and when two similar head of highways posts at Conwy CBC and Denbighshire CC became vacant in 2007, it seemed an ideal opportunity to create a joint position.

Ken Finch, acting chief executive at Conway CBC, says creating a post of head of highways and infrastructure made sense because of the natural overlap between the two councils and because most of the workforce under that post was contracted out.

“The councils have different cultures, different ways of working, and members and officers have different mindsets but we concluded that because of the way our highway functions were working a joint post would be a good idea,” he says.

The first step was to gain approval from both sets of councillors and decide which

would be the employing authority – the councils settled on Denbighshire.

Once the decision had been taken, staff were informed and the councils kept them updated on progress. Mr Finch believes that the key to establishing joint posts is being clear about what you want to achieve – in this case it was value for money.

“It’s also about having an open mind and transparency,” he adds.

Mohammed Mehmet, chief executive of Denbighshire, agrees that the collaboration needs to go further down to the lower tiers.“We have a joint head of service but he is managing two distinct services. We haven’t fully integrated the services lower down yet,” he says.

The councils have recently established a joint collaboration board to streamline reporting lines so that the head of highways does not have to report to two different line managers and to two sets of councillors.

Formal and informal communication between the councils is important and the two chief executives and senior managers talk frequently.

“We’re close but not slavishly so. But we do have meetings with both senior management teams,” says Mr Finch.l For more information, email [email protected]

Case studies: transformation Can happen anywhere

was put in place everything was very labour intensive and paper based. We needed to support managers to become more empowered and confident in tackling HR issues and processes,” adds Mr Cooper.

The communication process involved all the council’s managers, not just those working in the joint venture. And this process of communication is ongoing, eight years after the joint venture’s launch.

“It was a gradual change and as you go through this change you need to take people with you. You have to invest a lot of time explaining

the changes to managers who are used to doing things in a different way. We constantly review feedback, respond to problems. It’s an ongoing process – making people aware of what developments are coming up. We’re continuing to change things,” says Mr Cooper.

There has also been an element of knowledge and skills transfer in both directions.

When, for example, BT and council employees came together to work on the new project it was not about private sector employees telling council staff what to do, stresses Mr Cooper.

Leadership

essex CC’s Mark lloyd (top) and Ken Finch from Conwy CBC have overseen some demanding changes

Outsourcing

www.walkermorris.co.uk

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