Commercial Models and the Commissioning CouncilClaire Taylor and Amardeep Gill

8 September 2015

Overview

1. A little bit of context2. CDC SNC SDC – our experiences (and challenges)3. Our model – confederation 4. How does commercialisation fit in?5. What does this mean for us (commissioning) 6. Practical examples, lessons and considerations

Devolution & regional collaboration

Economic climate and austerity

Changing citizen demand

A generational shift in the role and operating landscape of the public sector?

Context and focus

LAs as active investors and enablers not just

passive purchasers or default providers

Commissioning (in collaboration)

Alternative models of service delivery

Organisational change: typical scenarios

● Sharing service with another LA (various forms)● Establishment of arms’ length trading arm● Setting up, employee-led mutual for leisure/cultural/

care services● Developing property for private rent● Regenerating activities to shape place● Investing in enterprise● Renegotiating outsourcing / PPP contracts to achieve

savings and update specification

The CDC SNC SDC challenge

● Two way shared services – savings of circa 20% (management, efficiencies etc.) but…

● Traditional democratic decision making processes are slow and if/as we move to include other partners (DCs or other public bodies) they will become unwieldy

● Current delivery arrangements limit trading, and are especially complex across more than one partner

● Developing a new form of collaborative partnership (we called it a confederation) that will enable us to get the maximum benefit from the array of alternative delivery vehicles available to us without losing control or handing value out of the districts

A permanent union of public authorities, united in an alliance for a common purpose.

To deliver effective services to communities, as near to the community as possible whilst maintaining sovereignty of its members.

Maximising the economic and transformational opportunities provided through operating on a multi local authority area basis and returning trading surpluses and efficiency benefits to the controlling partners.

Why a ‘confederation’?

Confederation model: South Northamptonshire & Cherwell

mixed economy of service delivery

Board with responsibility for commissioning services, performance management, client

side, commercial direction, member leadership. The parent body for delivery

vehicles drawn from the mixed economy. Local Authority Trading

Company Delivery of

support services, e.g.

HR, ICT, Finance,

democratic

With ‘golden shares’ these founder LA partners set strategic direction for

confederation and reserve right to admit additional partners.

Network of service delivery vehicles using the most appropriate commercial/business/ corporate form for trading, freedom to

innovate and drive efficiencies.

LLP

Legal Services

Partnership

Social Enterprise

Economic dev inward

investment and district promotion

Trusts

Leisure Trusts

Co-ordinating Entity

Founding Partners

How do we envisage it working?

● A parent body owned by the founding local authorities, but where other public sector bodies could own a stake

● Shareholder Agreement – including an exit strategy ● A number of delivery entities, part of the confederation family

that are not restricted like councils● Benefits to local communities generated as opposed to

private sector profit● Wholly owned by the public sector, but still can have JVC

This requires a commercial ‘strategy’

● Commercial development programme ● Guiding principles ● Commercial opportunities in three areas:

• Trading services• Developing new services (which are income

generators)• Assets / major projects

Alignment● Strategic priorities ● Savings model

What does this mean for the founding partners?

● Small retained core – focused on commissioning services from the ‘mixed economy’

● Strategic leadership focused on outcomes for place● New skill sets: collaborative leadership, commercial development,

managing complexity ● Mix of public and private financial skills and perspectives● Different requirements for democratic, legal and HR advice

Beginning with new management structure and OD strategy

Organisational Challenge: issues to consider

● Where are we as an organisation?● Political and citizen views● What works well and what needs to change?● What are our peers doing – scope for collaboration?

● What is the primary purpose of change● What are the most important benefits we hope to achieve – and are these

realistic?● What are the economic and legal constraints? ● What business environment will we operate in?

Organisational change: overview

Strategic Issues:

• Objectives

• Business model – market norms and conditions

• Business plan and viability assessment vital pre-requisite

Structural Issues:

• Ownership and governance

• Legal form (contractual, joint venture)

• Appetite and experience of personnel to participate

Typical Legal Issues

● Legal powers/challenge proofing● Corporate and funding structures● Governance/conflict of interest prevention● New Public Contracts Regulations 2015

• New procedures, timescales, exemptions and rules● State Aid● TUPE/secondment/preventing equal pay claims● Pensions

Incorporating a Company

● Required for commercial trading (s4 Localism Act 2011)● Type of company:

• Limited by shares• Limited by guarantee• Co-operative/Community Benefit Society• Community Interest Company

● Pros and cons:• Mutual• Charitable/tax exempt• Teckal status• Profit distributing

● Governance issues• Director appointments• Conflicts of interest

Examples of alternative models

One Barnet: Commissioning Council Wellingborough: New ways of workingCroydon Education: Charitable Mutual

Commissioning Council: One Barnet

Customer Services:● Revs & Ben, Finance, IT,

C. tax, HR, Procurement● 10 + 5 years● £320m Value● £125m Savings

Regulatory Services:• Building Control • Planning• Regeneration• Environmental Health• £39m Savings and

guaranteed profit share

LB Harrow

Barnet Cares Adult Care LATC

Barnet Homes ALMO

Barnet Hold Co

Ltd

HB Law ABS

LB Barnet “Commissioning

Council”

Capita Services

Ltd

Capita Group PLC

RE LtdCapita

Property Ltd

Joint Venture

Agreement (IPPP)

PCG PCG

Shared service procurement exemption

Competitive dialogue

Interface Provisions

Teckal

Teckal

Teckal

100% S/H

100% S/H100%

S/H

Competitive dialogue

51% S/H

49% S/H

IAA

Wellingborough – New Ways of Working

Service Delivery Company (crematorium services) Property Management Company

Waste Services (outsourced to Norse) Residential Management Company

Revenues and Benefits (potential shared service)Car Park Development (either by way of establishing

of a separate company or via contractual arrangement)

Services Assets

Council Commissioning Hub

Property Joint Venture

Investment Partner

Town Centre SPV

Retail & ResidentialScheme SPV

JVCO

Access to 142 other sites on completion

of 3 projectsResidential SPV

Council

+

Profit ProfitProf

it

Procured

Land

Land

Land

Land

Working capital

Equity investment, repression, returns

Equity investment, (land) repression, returns

JVCo provides Master planning, Development Management, Investment Advice and Administrative Services to JVCo for a set fee under separate agreement

Charitable Mutual: Croydon Education Services

Summary: Issues when considering organisational change

● Does the business proposition work● Are there ingredients to create a sustainable business● Ensuring the contractual matrix works● Understanding risk and how to manage it● Be aware of legal reforms/changes● Manage political aspirations● Be aware of governance change● Understanding the commercial view point● Understanding citizen need● Cater for changes on the horizon

5 Lessons Learnt and 3 Takeaways

1. Local Vision 2. Build in flexibility3. A coherent business model 4. All partners share the same aspirations 5. Engage widely

6. Design for what works – what are you trying to achieve? 7. Communicate, communicate and communicate8. Training and development

Contacts

© Trowers & Hamlins LLP 2015

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Amardeep Gill, Partner Public Sector Commercial

d +44 (0)121 214 8838e agill@trowers.com www.trowers.com

Claire Taylor, Business Transformation Manager, Cherwell, South Northants and Stratford Councils

d +44 (0)300 0030113e claire.taylor@cherwellandsouthnorthants.gov.uk