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Background:
10. Cornwall Council already has in place the foundations of large and
very innovative Shared Service function which undertakes routine ‘white
collar’ transactional work in areas which are commonly termed ‘back
office’ (activities that customers don’t experience themselves e.g. salary
payments to staff) and ‘front office’ (activities that customers do
experience e.g. making a council tax enquiry at a ‘one stop shop’ or
telephoning the contact centre).
12. The Gateway Panel met in November 2010 and considered four
options for Shared Services:
i.in house delivery – continuing with the current delivery model with
no trading;
ii. establishing a Cornwall Council owned company that delivers
services back to the Council and potentially operates under the
‘Teckal’ exemption. This exemption allows the company to
undertake a small amount of trading with other parties;
iii. forming a partnership with a strategic partner who would invest
skills and capital in Cornwall in return for some sort of benefit
(e.g. profit share or services) secured through a contract;
iv. traditional outsourcing – contracting work out to an external
organisation.
13. Officers presenting at the Gateway Panel in November put forward
the option of the partnership as the option most likely to deliver jobs,
investment, lower costs and higher performance. However, as there was
limited information about what the market felt about this option, the Panel
recommended that a ‘market assessment’ be carried out to investigate the
strategic partnership option. The Panel asked for further work to be
carried out on possible legal structures and the potential benefits of such
a partnership. This recommendation subsequently went to Joint
Corporate Resources and Communities Overview and Scrutiny Committees
meeting on 9 December 2010 and to Cabinet on 12 January, 2011.
14. This detailed ‘market assessment’ was carried out between February
and May 2011. The assessment included the publication of a Prior
Information Notice in the European Union ‘Journal’ in March 2011. The
Council received expressions of interest from 59 suppliers. An information
pack was provided to all these suppliers. This pack invited them to
respond in writing to a series of questions. 24 responses were received,
representing a 40% return rate. To explore these ideas further, 10 of the
24 organisations were invited to a further workshop involving officers and
Members. Each supplier made a presentation and discussions were held
on a range of topics. Following the workshop all suppliers were sent the
results of the market assessment work and were subsequently asked
some further questions. 21 responses to these questions were received
and these informed a further workshop involving Chief Officers and key
project staff on 11 May. Evidence from the market assessment is used in
this report and a summary of the results is included under ‘Analysis’
below.
Issues:
The following key issues / questions were explored with the market
16. How to trade: If Cornwall Council wishes to try and sell shared
services for others then it needs to take one of two routes. It can either
set up a wholly owned company or it could enter into a joint venture
arrangement with a company interested in investing skills, commercial
expertise and capital in return for the opportunity to earn a profit margin.
The legal power for both these approaches comes from Section 95 of the
Local Government Act 2003. The Gateway Review Panel considered the
advantages and disadvantages of these approaches and this is set out in
Analysis below.
i.through procurement;
ii.Cornwall Council setting up the trading venture on its own and
then seeking a partner to buy shares (a trade sale).
The advantages and disadvantages of these approaches are
considered in the Analysis section below.
21. Partnering with Cornwall’s public sector: Cornwall’s vision is for the
local public sector to work more closely together to improve the services
and value for money provided to the public. The extent to which the
Council is able to include partners such as Health Trusts, Colleges and
Schools – which operate within Cornwall - within the further development
of Shared Services and within the scope of any procurement needs to be
considered.
22. Cost-benefit: The Council needs to make sure that the likely costs of
investment (primarily the procurement or the preparation for and
execution of a trade sale) are significantly less than the value of the
benefits that Cornwall receives.
Analysis of issues:
24. Whether to trade: The results of the first phase of the market
assessment showed that there is a considerable appetite to work with
Cornwall from a wide range of companies including those established in
the market and new entrants. The scale, breadth, experience and vision
of the Council’s Shared Services offering plus the investment being made
and the Cornwall ‘brand’ are attractive to potential new entrants. Key
themes from these discussions were as follows:
25. As part of the options appraisal a financial model has been developed
which estimates ‘Net Present Values’ and the job creation potential of each
of the following options over a seven year period: in house delivery; in
house delivery with a wholly owned trading company; strategic
partnership for a ‘Thick Joint Venture’; strategic partnership for a ‘Trading
Joint Venture’. The main assumptions made are that:
27. How to trade: The Gateway Review Panel considered the advantages
and disadvantages of the Council establishing a ‘section 95’ company. The
advantages and disadvantages are set out below:
28. The Gateway Review Panel was not attracted to this option because it
was seen as wrong, in principle, to put a high level of Cornwall Council
taxpayer funds ‘at risk’. It was also seen as the least likely option to be
successful in generating jobs in the short term as there would be no
possibility of jobs being transferred in from elsewhere and neither would
there be the benefit of leveraging in a partner’s commercial expertise and
brand.
29. The Gateway Review Panel then considered the option of partnering
with a private sector company to make an investment of skills and
expertise in Cornwall to seek to retain and create jobs. In return it was
accepted that the company would expect control or influence over a
number of assets and would expect to be able to generate a profit margin.
30. Types of joint venture: There are different ways of forming a joint
venture with a private sector company. The second phase of the market
assessment work therefore asked suppliers for their thoughts in relation
to three key themes. These themes are set out below along with the
majority view from the 21 respondents:
31. Two options were presented to the Gateway Review Panel on 19 May,
2011: a ‘Thick Joint Venture’; and, a ‘Trading Joint Venture’. In the Thick
Joint Venture the partner would have the majority stake and Cornwall
Council would hold a service contract for the delivery of services in
Cornwall. This model would typically see staff transfer in large numbers
to the partner. In the Trading Joint Venture, Cornwall Council would
continue to manage shared service staff. A partner would be appointed to
lead the ‘go to market’ trading company and would also be engaged to
support service improvement and provide other services back to the
Council.
33. The Gateway Review Panel also considered the advantages and
disadvantages of establishing a Trading Joint Venture. The advantages and
disadvantages are set out below:
34. The Gateway Review Panel felt that although the Thick Joint Venture
offered a greater likelihood of more jobs the Panel had concerns about
this option because of the possible reduction in accountability and control
and the risk of causing concern among staff. This was particularly likely
to focus on possible future changes to terms and conditions. The Panel
felt that the Trading Joint Venture may result in fewer jobs but was less
likely to cause organisational concerns. The Trading Joint Venture also
had the advantage that there could be an incremental move of staff into
this vehicle – to create a ‘thicker’ Joint Venture – over time, if the
partnership proved itself and conditional on Member approval of business
cases.
35. The table below therefore summarises the Gateway Review Panel’s
view of the three options:
i.Service desk;
ii. Data-centres;
iii. Networks;
iv. Personal computers and other hardware provision.
38. In phase two the Council may look to extend shared services into the
following areas: analytical services, accounts production and specialist HR.
40. Extending the potential scope of the deal increases the complexity
and cost of the procurement but also increases its attractiveness to the
market. It also potentially reduces the need for future procurements. If
there is anything that is definitely excluded from scope then this should be
made clear in the Contract Notice as this simplifies the procurement.
41. Partnering with Cornwall’s public sector: the view of the Gateway
Review Panel and Senior Officers is that that Cornwall Council should seek
public sector partners for this venture. Herefordshire has already
travelled in this direction and West Sussex’s current procurement (see
above) involves local hospitals. This partnership approach potentially
increases the risk and complexity of the procurement but also increases
the size of the opportunity for the strategic partner and the size of the
‘potential market’ that the Trading Company could reach. There has been
a workshop of Cornwall’s Public Sector Group focused on the opportunity
as well as separate discussions with organisations including Cornwall
College, the Primary Care Trust and Cornwall’s three health delivery
organisations (Royal Cornwall Hospital Trust, Cornwall Foundation
Partnership Trust and Community Health Services). Follow up meetings
are scheduled for June 2011.
Consultation:
44. With Members: As described above, the option of establishing a joint
venture arrangement to support the delivery and marketing of Shared
Services has been discussed with the Gateway Review Panel on three
occasions since November 2010. The other main discussion with Members
has been at the combined Corporate Resources and Communities
Overview and Scrutiny Committee meeting in December 2010 and at the
Shared Services Single Issue Panel in April 2011. In addition the Leader of
the Council, the Chair of Corporate Resources OSC and the Cabinet
Member for Resources all participated in the market assessment
workshops with potential suppliers in April 2011.
ii. The strategic partner must be willing and able to work with
Cornwall Council and other public sector bodies;
iii. Council funding should not be used for the costs of bidding for
contracts;
46. With staff and unions: Engagement of the staff side about the
possibility of an alternative form of service delivery for shared services is
underway. Unions have been briefed at their regular weekly meeting with
colleagues from Human Resources. Unions are also represented on the
Gateway Review Panel. Staff in Shared Services have been briefed as part
of the Director’s and Heads of Service engagement plans. To date
however, this engagement has been very broad. As part of the proposed
governance of the project a ‘staff reference group’ will be established
which would nominate a representative to sit on the Project Board. This
would give staff genuine involvement in the project including, for
example, contributing to the evaluation of supplier proposals. This is
important because although there are no proposals to transfer staff this
could be part of the scope of Phase 2, subject to Member approval of a full
business case.
Conclusions:
50. Type of Joint Venture: Due to Senior Officer and staff side concerns
the recommended way forward is to procure a partner who can provide
consulting support on a risk-reward basis and also establish a Trading
Joint Venture. If the partnership proves itself successful there could be a
longer term transition towards a ‘Thick Joint Venture’. This will be subject
to a detailed business case, developed through the governance group and
approved by Members.
v. additional projects.
54. The scope of services that the trading joint venture company can
trade in and which may eventually transfer to the trading joint venture
should include Shared Services and aspects of Information Services. It
should be made clear in the Contract Notice that there is the potential for
Shared Services to grow into other areas of white collar transactional
activities and those areas listed above should be named. It should be
made explicit that areas such as facilities management, property
rationalisation and all other areas of Alternative Service Delivery
(Neighbourhood Services, Housing and Leisure) are outside scope.
58.Principles: It is also proposed that the Cabinet report should ask for
approval of the principles set out under the ‘Consultation’ section.
59.Glossary of Terms
Term Explanation
ASD Alternative Service Delivery - the name of a programme Cornwall
Council has put in place to assess the advantages and
disadvantages of different methods of delivering services. The
process compares the existing method against a spectrum of
options such as in-house delivery, forming external
organisations, joint delivery with partners and outsourcing.
CRM Customer Relationship Management – business software that
supports the efficient processing and management of information
about customers of the Council. This makes handling customer
contacts easier and more effective. The Council has purchased
Lagan software.
ERP Enterprise Resource Planning – integrated business software
which supports efficient processing and management of the
organisation across areas such as budgeting, finance, people,
payroll, procurement, assets and business intelligence. An ERP
system such as Oracle (which Cornwall Council has purchased
and is currently implementing) supports more efficient
processing and better informed forecasting, planning and
decision making.
Joint Venture Two or more parties forming a new company to deliver a
Company common project or series of projects. In this context a company
in which a private sector partner forms a company in which the
Council will hold some shares and which is intended to trade
widely in the field of Shared Services.
Net Present The value today of future cash flows. This is a standard financial
Value tool to compare different projects.
Outsourcing Contracting a business function or certain services to an external
organisation to deliver on the Council’s behalf.
Partnering means the activities of the members of the Public Sector Group
in Cornwall to work more closely together to improve services to
the public and value for money. Includes health organisations,
Colleges etc
Risk-reward Projects are let on the basis that the provider of consultancy
Consulting services is rewarded largely or partly on the basis of results (in
this case results are likely to be focused on either identifying or
delivering savings).
Shared Services The provision of services by one single part of the Authority
where those services had previously been found in several parts
of the Authority. It is a service delivery model which improves
the efficiency and effectiveness of transactions (including
customer contact) through a channel and skills based model. It is
underpinned by investments in Information Systems such as ERP
(see above) and CRM (see below).
Strategic The relationship between the Council (and potentially public
Partnership sector partners) and an external organisation(s) where the
parties work together to achieve agreed purposes and undertake
certain tasks, whilst ensuring, where ever possible, the genuine
flexibility in the relationship to adjust to changing circumstances.
Term Explanation
‘Thick’ Joint Term used to describe a Joint Venture arrangement where a
Venture significant number of staff from Cornwall Council are transferred
Company into a Joint Venture Company and the company provides services
back to the Council under a service delivery agreement.
Cornwall Council would have to charge market rates for services
provided to this Company.
‘Trading’ Joint Term used to describe a Joint Venture arrangement where
Venture Cornwall Council’s strategic partner establishes a company in
Company order to trade services with other parties. There is no significant
transfer of staff into this Joint Venture – hence it is seen as
‘thinner’ than the ‘thick’ Joint Venture described above. Cornwall
Council would have to charge market rates for services provided
to this Company.
Working capital Cash required to run a business – (for example to pay salaries
and to meet redundancy costs if a Cornwall Council wholly owned
company won a contract to deliver services for a London borough
but staff decided not to transfer to Cornwall and this was not
deemed suitable alternative employment and the company was
obliged to make redundancy payments.)
END
Supporting Documentation:
Appendices:
Background Papers
[under provisions of the Local Government Act 1972]
Not Applicable
Report Text
b) Resource Implications:
There are also other significant financial implications that will need
to be addressed in the detailed process and implementation
planning i.e. pension costs, vat etc..
(ii) Staffing
(iii) Risk(s)
(v) Legal
There are a number of significant legal implications to be
considered as this project progresses and which have been
identified in the report. Key examples are the procurement process
and the governance arrangements for the proposed company, both
of which are likely to be complex.
This report has been cleared by Richard Williams, Head of Legal and
Democratic Services
(vi) Property
None
None
None
f) Partnerships:
The report sets out how we want to get public sector partners in
Cornwall – in particular Health Trusts and Colleges – involved in the
project. Options for partners include being named as potential
equity partners or being named as potential beneficiaries.