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Structuring for success and survival

Rob Bailey, APSE principal advisor

1. DOES THE GENERAL POWER OF COMPETENCE HELP OR HINDER?

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Localism Act 2011 – Are there opportunities/threats for front-line service providers• General power of competence – Linked to trading and charging a

potential to provide services, create partnerships, innovate and collaborate to deliver more efficient and effective services.

• Transfer of powers to major cities – Ability to collaborate and to take wider decisions affecting the locality.

• Planning enforcement powers – fly posting, graffitti removal, abuses of planning powers.

• Right to bid – powers for communities to take over and run local assets.

• Right to challenge – Expressions of interest in running local services.

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General Power of Competence -background

• Ultra vires doctrine – Identify the power to act and exercise the power properly for the proper purposes.

• Wellbeing power under the Local Government Act 2000 - It allows principal local authorities in England and Wales to do anything they consider likely to promote the economic, social and environmental well-being of their area unless explicitly prohibited elsewhere in legislation.

• Conservative Party Policy document in February 2009 – “Control shift”.• Local Democracy Economic Development & Construction Act

2009. They put forward amendments to wellbeing to read “Every local authority has full powers and capacity to carry on or undertake any activity or business, do any act, or enter into any transaction with full rights, powers and privileges for so doing”.

• London Authorities Mutuals Ltd. (LAML) Court of Appeal judgement in July 2009.

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Localism Act 2011 – Section 1 General Power of Competence

• The Act enables a local authority to do anything “that individuals generally may do”, including “things unlike anything that other public bodies do.”

• The section goes on to say that the power may be exercised:– anywhere; – for a commercial purpose or otherwise; – for a charge or without charge; – for the benefit of the authority, its area or persons resident or present – or

otherwise.

• Section 1(5) says that the general power “is not limited by the existence of any other power which (to any extent) overlaps the general power”; and any other such power is not limited by the existence of the general power.

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Restrictions on the power –Section 2

• England only!!!• Where the general power overlaps a “pre-commencement

power”.• Extending the delegation of functions to others – LGA

1972, LGA 2000, Deregulation and Contracting out Act.• Secretary of State may “By order amend, repeal, revoke or

dis-apply” a statutory provision, whenever passed or made, that prevents or restricts local authorities from exercising the general power.

• But not....... the delegation or transfer of any “function of legislating” or “to abolish or vary any tax”.

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Charging and trading – Additional powers

• Section 3 introduces the power to charge where it does not fall within any other charging power e.g. S.93 of the Local Government Act 2003.

• Section 4 provides a power to trade where local authorities wish to trade commercially in the market place.

• Needs to be distinguished from trading under the Local Authority (Goods and Services) Act 1970 and S.95 of the Local Government Act 2003 “for a commercial purpose”.

• Also separate from using “surplus capacity” or other statutory powers e.g. Civic Restaurants Act 1947.

• Trading must be through a company or a society registered or deemed to be registered under the Co-operative and Community Benefits Societies and Credit Unions Act 1965

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Involvement in Companies and Trusts

Can the general power be used to form companies, LLPs and other bodies –since the form of a commercial purpose body is restricted?

Issues to consider: – the purposes for which the Council proposes to act – i.e. its objectives and

what it is hoping to achieve/secure;

– the relevant powers of the Council to enter into the arrangements which link back to the purposes;

– what the Council’s relationship will be with the body and how governance and accountability will be assured; and

– where the money will come from and how it will operate.

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Help or hinderence

• Useful clarifying power – legal certainty.• Positive for local authorities linked to other

powers and duties.• Proof of the pudding!!! – Use by local

authorities i.e. Wellbeing power not used to push the boundaries.

• Subject to further interpretation and clarification – Secretary of State and the courts.

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2. STRUCTURES AND CONSTRAINTS

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The new ‘commonsense’

• Who delivers public services unimportant – what matters is they are delivered to acceptable costs/standards.

• Local government recast as ‘leader’, ‘enabler’, ‘commissioner’ or ‘regulator’ of services

• ‘Deficit reduction’ key symbol of government purpose

• ‘Big citizens’ ready and waiting to make use of mechanisms for them to identify priorities, seek out potential providers, organise delivery, establish performance framework

Professor Helen Sullivan now of the University of Melbourne and formerly the University of Birmingham,

Open Public Services White Paper (July 2011)

“In the services amenable to commissioning, the principles of open public services will switch the default from one where the state provides the service itself to one where the state commissions the service from a range of diverse providers”

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Francis Maude, Cabinet Office Minister – evidence to the Public Administration Committee on “Smaller Government: bigger society” (12 October 2011)

• “there is a need for culture change in the civil service and different capabilities across the public sector, which is about moving from being bureaucratic hierarchical line managers to being commissioners and contract managers; it is a different set of skills.”

• “The point I have been making is that we have moved away from the old model where there is a binary choice between public services being provided by monopoly, in-house public sector providers, or by fully for-profit commercial providers. There is a much more mixed economy and a more sophisticated array of providers, which includes social enterprises, VCS organisations and mutuals.”

• “We need to be much more in the realm of specifying the outcomes, prescribing what the outcomes are and allowing the bidders and providers to find innovative ways of providing those outcomes.”

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Have we been here before?

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“For the services which will be subject to competitive tendering, that process, providing the council sets and monitors performance standards properly, will guarantee the customer value for money..... In all these cases the emphasis shifts from the council as a monopoly provider and manager to the council as enabler and monitor, and casts the spotlight on its role as the maintainer of high standards”

Nicholas Ridley, the former Conservative Secretary of State for the Environment in his 1988 Policy Studies Pamphlet “The Local Right”

Alternative Service delivery options

• Joint local authority management structures.• Reorganisation of local authorities.• Expenditure freeze.• Outsourcing – CBI and private sector solution.• Competitive dialogue.• Insourcing – APSE report.• Total place.• Shared services/joint working.• In-house Service Improvement Plan – APSE’s Competitiveness

Continuum.• LEAN/Systems/Six Sigma approach – Improvement plan linked to

competitiveness and efficiency.• Or arms length...........www.apse.org.uk

Forms of service delivery vehicle• Informal

– Sharing of information– Sharing of management resources

• Administrative – Joint committee/board – Delegated power (agency agreement)

• Contractual– 100% public owned company (or LLP?)– Public/private partnership (or LLP?)– Public to public service delivery contracts

There are lots of variations! • Jointly procured contract with private provider• Jointly procured contract with public provider• Jointly delivered under contract with merged service provider –

separate clients• Joint delivery with SLAs• Jointly delivered with merged clients• Jointly delivered with private partner• Internal service delivery company with Teckal exception • Internal service/external trading company – no Teckal exception• Joint board/committee delivery and/or procurement models• Lead authority model• Secondment models• Transfer models• Delegation of service delivery

Examples of alternative service delivery models

• ‘Teckal’ Service delivery companies – Swindon Commercial Services (SCS).

• Limited Liability Partnerships – Cordia Services (Glasgow).• Joint Venture Company – North Lanarkshire JVCo with

Morrisons.• Trading Companies – Norse (Norfolk County Services).• Section 95 Companies – Solutions SK a Stockport Council

Company.• Joint Committee – Tayside Contracts

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Some important legal issues

• General power of competence• Doctrine of ultra vires

– Must be able to point to a power• To be involved with chosen delivery model• To provide services to others

• Trading and charging – Trading through a company – Charging for discretionary services

• Public contract regulations – European rules– Requirement for competition where contracts is let

• State Aid rules– To ensure open and fair competition amongst providers

OFT guidance on public bodies and Competition law• Is the public body supplying or purchasing goods or

services on a market (as opposed to exercising a public function)?

• If so, are the goods or services being supplied on an exclusively social basis?

• If not, are there other available exemptions and exclusions that would dis-apply competition law in this particular instance?

• If not, what impact will the conduct have on competition, and could the public body be running the risk of a finding of infringement?

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Evolution or revolution

Evolution• Flexible, pragmatic

approach• Control over process• Managing the risks• Taking stakeholders

along • Relatively straight forward

to procure external input if needed

• Can it deliver cultural change?

Revolution• Big bang all at once• Loss of control• High risk strategy• Risk of alienating stakeholders

– particularly workforce• Difficult to make changes or go

back if unforeseen problems• Complex, lengthy, expensive

procurement process if external input needed

• May force cultural change

A basic model for option appraisal

Public/private company Public/public company Joint board/committee

Potential for savings High but some savings lost as profit to partner

High but some savings will stay with company

High but all savings accrueto councils

Risk Highest as long term contract with low level of control – budgets ring fenced for term

Medium but still a contractual environment and budgets ring fenced

Lowest as no contracts and high level of flexibility

Impact on service delivery Highest risk of disruptionand financial risk

Medium as still contractualenvironment

Lowest as high level of flexibility and capacity to tailor to needs

Acceptability Lowest as unlikely to be acceptable to workforce and may alienate members and public

Lower as services retainedin public interest

Highest

Implementability Complex, lengthy,expensive

Less complex but will still need contract – may result in increased transactional costs

Easiest option to implement

Control/Governance Contract overtakes member control

Contract/ legal obligations to company - conflict of interest

Retain member control –but still potential for conflict of interest

Moving forward• Business case

– Aims and objectives• Service case• Commercial case• Financial case• Legal case

– Option appraisal– Legal/risk assessment

• Detailed design of preferred solution– Stakeholder input– Workforce/TU consultation – Final proposal

• Implementation– Due diligence– Action plan

3. ARE CO-OPS AND MUTUALS A REAL ALTERNATIVE?

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Policy objectives Co-Ops and mutuals

“Ownership and control through mutualisation, empower employees to innovate and redesign services around service users and communities driving up quality”

Open Public Services White Paper –Ensuring diversity of provision (July 2011)

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David Cameron announces a new Co-Operatives Bill

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In a speech on the economy on 19 January 2012 the Prime Minister announced that:

• A consolidated Co-Operatives Bill would be introduced in the current Parliament.

• Simplify the legislation governing Co-Ops and allow employees to take a greater stake in their companies.

• “Popular capitalism”

• "where they work properly, open markets and free enterprise can actually promote morality" by creating "a direct link between contribution and reward; between effort and outcome".

Origins and values – What are Co-Ops and Mutuals for?

Localism Act 2011 – Community Right to Challenge

Section 81 requires a relevant authority to consider an expression of interest submitted by a voluntary or community body, charity, parish council, or employees of the authority in relation to providing or assisting in providing a service provided by or on behalf of the local authority.

The Secretary of State may specify what an expression of interest should contain and which services may be excluded from the Right.

The Secretary of State may specify other persons as relevant authorities or relevant bodies and make changes to defined terms and other amendments.

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Is this just CCT???Compulsory Competitive Tendering• Defined activities.• In-house bids.• Private sector• Client/contractor split.• Trading accounts.• Anti-Competitive behaviour.• Statutory guidance.• Price/quality.• Unintended consequences –

TUPE/Equal Pay

Community Right to Challenge• Relevant service.• Expressions of interest.• Voluntary groups,Co-ops and

mutuals• Commissioning.• Time periods.• Statutory guidance.• Economic, social and

environmental wellbeing.• Unintended consequences???

Experiences of working with the social economy• July 2006 – Scottish Government paper - Better value –

purchasing public services from the social economy.

• Public bodies need to ensure their procurement processes give social economy organisations the opportunity to bid for contracts. Accessing the innovation and experience of the social economy can help achieve our shared aim of delivering world class public services and help address key objectives of Efficient Government and Best Value.

• But!!!! – It’s not about procurement, it’s about collaboration.

Better Value Services – Case Studies “niche provision”

What are the key success factors?1. Contract or asset “lock in”.2. Stakeholder “buy in” – Citizens,

councillors, staff.3. Public sector capacity building and

support – Advocacy, expert knowledge, subsidy, active involvement and collaboration.The evidence suggests that there has to be an ongoing and active relationship between the public and social economy sectors. It is not about public service divestment.

Putting it into practice –successful collaboration

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Co-operation – lessons from history

“In their first objective, the Pioneers were completely successful, opening their first store in Toad Lane, Rochdale.......the opening of this store was intended to raise the curtain on a much grander scheme. In 1854, the Co-operative Manufacturing Society was formed as an offshoot of the store. A mill for the manufacture of calico was opened. Shareholding in the new enterprise was open to both outside individuals and employees, with a higher dividend being paid on wages than on ordinary shares. The mill was a commercial success, and the need to expand meant an increasing reliance on outside shareholders for capital to fund the growth. Many of these shareholders had no interest in the values of co-operation, being more concerned with maximising the return on their investments. Employees began to be excluded from decision-making and by 1862 the mill had reverted to a conventional ownership structure.”

Martin Purvis, the Rochdale Pioneers 2004www.apse.org.uk

Management and Employee buyouts

• Audit Commission – Public Interest or Private gain? (January 1990).

• To September 1994 there were 38 buyouts from local authorities, 26 of which had been completed between 1988 and 1990. After this period the number of transactions fell because of bad publicity over problem cases and the Audit Commission report.

• Where are they now???

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Lessons from the past

• CCT – Management Buy Outs (MBOs).• Bus Deregulation – Employee Stock

Ownership Plans(ESOPS).• Building Societies de-mutualisation

(Northern Rock!!!!!).• Local Authority Leisure Trusts – Success or

failure.• Community Management schemes –

Probity issues.

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Contact details

Rob Bailey, Principal Advisor

Email: rbailey@apse.org.uk

Association for Public Service Excellence2nd floor Washbrook House, Lancastrian Office Centre, Talbot Road,

Old Trafford, Manchester M32 0FP.telephone: 0161 772 1810

fax: 0161 772 1811web:www.apse.org.uk