News feature: Outsourcing contract with Capita highlights the promise, and potential pitfalls, of bringing more councils under a single umbrella
A handful of councils in southern England are pushing the envelope on shared service outsourcing. Five of them, not all geographical neighbours, are planning to sign a contract with Capita to run services including IT, HR and finance in a move that has already tested their ability to speak with one voice, and will demand some shifts in thinking to ensure it works to everyone's benefit.
The headline is that South Oxfordshire, Vale of White Horse, Mendip and Hart District Councils are joining Havant Borough Council in a nine-year deal with an estimated value of £139 million and projected savings of at least £50 million.
Subject to the contracts being signed on 31 March, the first two are expected to come into effect in August, with the others set to follow between July and October of next year.
The Capital deal will all run alongside an additional contract with Vinci for facilities management and property services.
Brian Burchfield, Hart's deputy leader, says: “Once we analysed the impact of the savings potential, as well as an improvement to the services we deliver to our residents, we were delighted to take this opportunity forward. This is a ground breaking contract and I invite other councils across the country to come speak to us about joining our group to discover savings for themselves.”
10 year roots
The deal has its roots in an earlier arrangement, dating back 10 years, in which South Oxfordshire and Vale of White Horse have shared services from Capita for functions such as council tax and housing benefit. This has worked well enough for the two councils to have gone looking for partners in a wider shared service, with the view that they did not have to be the authorities next door.
They received some Government support in funds from the Transformation Challenge Award, and despite finding that some of the early expressions of support went cold, they have been able to put together the group for two deals. Steve Bishop, strategic director at South Oxfordshire and Vale of White Horse, says this has broken down one of the barriers that is often erected in the way of sharing services.
“The innovation this time around is not just there are several councils joining up, but that we are geographically separate,” he says, adding: “One of the arguments councils put up for not sharing services is that they ask their nearest neighbours and they're not interested, so they say they can't do shared services.
“This project demonstrates that you don't need to be near each other to set up, and if it succeeds no council in the country that can say it would like to share services but can't find a willing partner near by. You won't need to be near by.
“Most of the services can be done remotely, which is why we attracted plenty of interest from the market, and clustered up so it doesn't matter if we're not geographically together.”
Give and take
He does not, however, hide the fact that it has been a difficult process. Cultivating the give and take between the different partners often goes against the grain of many council members and senior officials treasuring their sense of local autonomy.
While South Oxfordshire was formally the contract lead, a step taken to comply with EU procurement rules, the councils acted collaboratively in the negotiations, voting on the different elements of the deal. Bishop says South Oxfordshire and Vale of White Horse shared a vote to demonstrate to the others that they were not going to try to dominate the partnership.
This was an early part of the effort to ensure they deal with bidders as a single force, a process he portrays as very demanding.
“The only way we were going to get the economies of scale, service improvements and investment from the private sector, was by convincing the bidders we were going to act as one client. The biggest risk was that we would pull them in five different ways and all those savings and efficiencies would evaporate.
“The biggest problem we had was agreeing single specifications for the 13 services across the two lots…. Even for the most heavily regulated services, the 2% or 3% difference between councils is often the deal breaker, as each fills it has to cling to them.
“To say we were going to chuck these out and harmonise was always going to be tough, and it took months longer than we anticipated brokering those different deals. But we got there, and the crucial thing was that we didn't get dragged down to the lowest common denominator. When there were different standards we agreed we would pick the highest as the harmonised standard, even though it would give the bidders challenges.
“There were minor concessions, but generally we overcame local resistance by always putting the bigger picture first.”
Another difficulty has been working out the contractual terms between the councils. Bishop has long standing reservations about memorandums of understanding on the grounds they can drive a wedge between the parties at an early stage, but the lawyers said it has to be clear what would happen if one council wishes to pull out of the contract. This led to some sensitive negotiations, but he now believes they have a robust agreement in place.
A joint monitoring team is being set up to manage the contract, led by a client relationship manager, with Havant taking the lead on the recruitment. Bishop said the team will probably consist of just over 20 people dispersed around the five councils with the members working together virtually, and its leader will report to second tier officers in the councils.
The geographical separation is expected to create some problems, but “we're mature enough now to appreciate that with the right performance management and metrics we don't all have to be able to see one another”.
Despite this, acting as a single client is also going to be a challenge for managing the contract. Bishop says there are always going to be different ideas about the best solutions for individual services, reflecting not just egos but genuine beliefs that individual councils have the best approaches. With every new party joining a service it makes it harder to ensure they find common ground and speak with one voice.
This becomes more challenging when the shared service takes over, jobs are transferred and management structures have to change. Bishop says he expects that all five councils will have some degree of restructuring over the next couple of years.
There are also issues to resolve on how the two companies will work together. For example, Capita is to deliver a financial management system for the five councils, raising a question as to whether Vinci will also use it or another of its own choosing. Bishop says there a lot of such overlaps and potential gaps in their services, and the councils are making it clear that they should be addressed by the contractors as soon as possible.
“In the next few weeks we're going to get Capita and Vinci in a room and bust our way through all the anomalies, overlaps and clarifications on which we need to agree. It's always going to be the golden rule that, whatever the most efficient sway of doing it is, we're not going to let egos, corporate or personal, get in the way.”
All this prompts the thought there might be too much angst pitched against benefits that are yet to be delivered, but Bishop insists that the prize is worth the effort, being much greater than the headline £50 million in savings.
“The reports we've published show that the money we're saving, the services we're protecting, the investment we're getting is huge. But that's just the tip of the iceberg,” he says.
“One of the main principles around the cluster of services was not just to get someone in to deliver them better, but to get HR, IT and procurement together as transformational services. They either enable transformation and continuous improvement or hinder it.”
He cites the potential for using these as the foundation of transforming the planning service, working with a partner that has done a similar job elsewhere. The councils are giving Capita licence to act as a transformation partner and come up with ideas to improve the wide range of services.
“That's where the big savings and non-financial benefits are going to come over the next nine years. Potentially they are way bigger than anything you see advertised as part of the new contract benefits, and it is where the leaders and chief executives of the councils have to remember that is the bigger prize.”
This bigger prize could be worth hundreds of millions according to some of the early ideas being exchanged. Bishop takes a realistic line in saying not all of them will be realised, but he is confident that the deal will give the councils their best chance of preserving services in the bleak financial landscape.
He sums it up as: “The best of the public and private sector coming together to future proof local government services.”