With continuous financial constraints, growing demand and citizens' rising service expectations, public services are increasingly being delivered through new and complex vehicles. However, it's worth pointing out that this sudden emergence of entrepreneurial activity, which is resulting in wide-scale production of business cases in many public sector offices, is not a response to the recent financial depression affecting the sector.
There are wide choices available to public sector organisations for alternative service delivery, from a staff mutual to joint ventures. Decisions will depend a lot on the size of your organisation and with each choice the appetite for risk. A small district's journey to being more commercial could be to set up a trading company or a staff mutual might deliver services like meals on wheels or care provision. Larger organisations have more services to deliver and so the choices to being more commercial are wider. Outsourcing whole services, creating joint ventures with private companies to deliver better services for a reduced cost is the aspiration that some organisations should be looking for.
Public bodies have had the powers to commercially trade for a number of years (even before the enactment of the Localism Act 2011 or Local Government Act 2003). Leeds Bradford Airport which was converted to a limited company in 1987 was actually co-owned by the five surrounding West Yorkshire Councils until it was sold to an equity group in 2007 in a multi-million pound deal.
Over the next few years, we expect significant changes to the way public services are delivered. While this will offer opportunities in some cases for public bodies to generate additional revenues, it will also allow staff personal development, and deliver better quality and personalised services to citizens. But undoubtedly it also carries huge risks – where authorities take the wrong turn, it could end up costing the organisation more, if they are forced to bring the services back in-house in the future.
Setting up new commercial delivery models or service options can offer practitioners an exciting journey to introduce innovation and make the services fit for the future. This can be achieved with careful planning and ensuring that the authority has a robust business case. The real difficulty is to ensure that the newly created entity is able to survive after the honeymoon period of the first couple of years.
From the initial research undertaken by the CIPFA Alternative Service Delivery Network, experiences of success vary considerably between the different types of delivery models being set up, and a lot will also depend on the nature of the services being offered. While some areas of trading will prove an instant hit and attract new clientèle, allow diversification and less reliance on loan notes from the host authority, many trading entities are finding out the realities of the commercial world is much harsher than merely changing a few job titles.
Onerous obligations under the Companies Act 2006, as well as the new way of operating and managing conflicts of interests can also be a daunting task and can lead to closing down the shutters much earlier than expected. There have also been a number of outsourcing and joint venture agreements which have had to be terminated as the original foundation has moved due to changing economic conditions and increased competition.
CIPFA Networks is launching a new Alternative Service Delivery Network from April 2016 to respond to the ever increasing requests it is getting from practitioners who need support from a reliable and independent source. Our networks have a long track record of helping public bodies keep up-to-date with new legislation, ways of working and transfer of knowledge
For further enquiries, please contact Mohamed Hans, Advisor, CIPFA Alternative Service Delivery Network. E: Mohamed Hans; T: 020 7543 5600.