Latest Public Sector News

19.04.16

Power in numbers

Source: PSE - April/ May 16

Steve Bishop, strategic director for South Oxfordshire and Vale of White Horse district councils, talks to PSE’s David Stevenson about an innovative procurement contract aimed at saving five local authorities at least £50m over the next decade.

There is an old rule of thumb that says there is ‘power in numbers’ when organisations come together to buy products and services, and this is what five district councils in the south of England have done in order to save £50m. 

In a UK first, the five local authorities, despite being widely separated geographically, drew up a shared contract for two companies to run a number of their back-office services.

Purchasing power as one 

The development work, which started back in 2014, has seen Hart District Council and Havant Borough Council in Hampshire, Mendip District Council in Somerset and South Oxfordshire and the Vale of White Horse district councils in Oxfordshire embark on an ambitious project to consolidate their purchasing power into one entity. 

Following a competitive OJEU process, the coalition of councils has awarded a £139m contract to Capita to deliver a range of corporate services including HR, IT and finance, and a £30m deal to Vinci to provide facilities management and property services. 

Steve Bishop, strategic director for South Oxfordshire and Vale of White Horse District Councils, said that the latest development extends a business model that South Oxfordshire and Vale embarked on 10 years ago when they set up a shared service partnership. 

That earlier project, which was also facilitated by Capita, has generated the local authorities over £6m of savings through a fully-merged joint finance department. 

“We knew that the South and Vale financial services contract with Capita was coming to an end this year,” said Bishop. “We thought we’d get better savings with multiple councils. So, we thought, why not expand the project with more partners and more services, which should also generate more market interest?”

He added that by adopting this collective approach, bidders brought their A-teams to the table in order to land the nine-year outsourcing contracts. 

In agreeing the deals it looks as though the five councils have broken the mould for outsourcing, with this being the first to involve councils from very different parts of the country coming together to procure services. 

Service innovation 

As well as delivering financial savings, at a time when funding streams for local councils are being tightened considerably, the new contracts are expected to improve services for residents. 

“The whole nature of the deal this time around is completely different to what we got 10 years ago. Because the local government landscape is changing faster than it ever has, the last thing we want is a fixed-in-stone, steady state contract. 

“We wanted to incentivise the private sector for innovation and transformation throughout the whole nine-year life of the contracts. The contracts we’ve ended up with should encourage Capita and Vinci to keep hammering our door down with innovation and great ideas.  The additional savings from subsequent innovative and transformational ventures could dwarf the operational service delivery savings. 

“We’ve also given them permission to look over the fence at our remaining retained council services, which they will not be delivering, to suggest where other efficiencies could be made. It is bigger, delivering greater savings and resilience, and gets the service investment which one council wouldn’t get on its own.” 

The contracts are expected to start in South Oxfordshire and the Vale of White Horse in August 2016, and for the remaining councils between July and October 2017. 

“South and Vale are going to be the guinea pigs to create the five-council solution,” said Bishop. “So that when the other partners come on board they get the benefits much more quickly and more smoothly. We know that South and Vale are, potentially, going to get more pain.” 

Leap of faith

Reflecting on the risks that this change can bring, and past experience with the shared service partnership, Bishop admitted that 10 years ago there were some “teething problems” when there was a failure with the financial management system.

“We are trying to manage the risks, but there is a leap of faith element to this,” he said. “No amount of pre-planning can completely de-risk it. 

“We are doing much better risk management, but as well as the pre-planning we are also going to provide enough resources to deal with the problems in a clear and transparent way. For instance, all five councils have agreed to create a joint-committee to take the executive decisions as ‘one client’, not five separate clients; there is also going to be a joint overview and scrutiny committee.” 

The new contract management is a move that’s being closely observed by central government and many local authorities across the country as it proves that if partners are committed to joint working and share the same goals, location is no longer a barrier to achieving great savings. 

Reducing unnecessary duplication 

For the staff affected by the deals, the councils said this could mean relocating to ‘centres of excellence’ operated by the two companies in order to improve resilience in service delivery. 

Bishop noted that, while there are likely to be some redundancies across the local authorities, the contracts will help to reduce “unnecessary duplication” of services and deliver major savings. 

He also noted that back in 2005 Sir Peter Gershon, in his capacity as the head of the Office of Government Commerce, estimated this unnecessary and inefficient duplication across the UK cost the country approximately £6bn each year. And despite central and local government assertions to the contrary, most of those duplicated costs remain. 

“That was a product of 1970s local government design, when there wasn’t the technological arrangements available we have today,” said Bishop. “We still have way too many councils. The norm is still for everyone to have a bespoke building, CEO, a management team, a 151 officer, Microsoft licences, subscription to law books, etc.” 

He added that by taking the “leap of faith” with the new type of contract management, it could encourage other councils to pursue similar types of shared service arrangements. In the meantime, the councils and both companies will be providing support, advice and training to staff throughout the transition to the new contracts.

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