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Cornwall Council

Committee: Joint Corporate Resources and Communities


Overview and Scrutiny Committee

Date: 2 June 2011

Title: Alternative Service Delivery for Shared Services

Cabinet Member(s) Leader, Cabinet Support Member for Alternative


Service Delivery & Shared Services

Divisions Affected All

Relevant Overview And Scrutiny Committee:


Corporate Resources and Communities Overview and Scrutiny Committees

Key Decision: N/A Checklist Compliant: Y/N

Urgent Decision: N/A Implementation Date: N/A

Authors: Gill Steward and Role: Director of Communities and


Denbigh Cowley Head of Service, Transformation

Contact: gsteward@cornwall.gov.uk ; 01872-32-2582


dcowley@cornwall.gov.uk ; 01872-32-2426
Cornwall Council

Subject to Recommendation 6, Recommendations 1 to 5 be made to


Cabinet, namely that:
the Council’s Shared Service platform be used to retain and create jobs
in Cornwall.
the Council should aim to enter into joint arrangements with a private
sector partner that has complementary skills and can support the Council
in selling those services into a wider market.
the Council seek to procure a strategic partner to provide services for
the Council for a defined range of projects and with whom a Joint Venture
company (“the Company”) will be established. .
The Company will be established in accordance with the following
principles:
(a) The Council will provide services (yet to be defined) to the
Company
(b) The Company will recruit its own staff and provide services to other
public and private sector customers
(c) Jobs created by the Company will be based in Cornwall
Any changes in the structure and objects of the Company will be
conditional on appropriate business cases being fully approved by
Members.
Before Recommendations 1 to 5 are submitted to Cabinet for approval,
officers shall identify the most cost-effective approach to the procurement
of the strategic partner and a budget for undertaking the said
procurement.
Executive Summary:

1. Background: This update report follows on from a report that came


to the joint meeting of the Corporate Resources and Communities
Overview and Scrutiny Committees in December 2010. The report pulls
together additional work that has been done since that time. It builds on
the work of the Shared Services Single Issue Panel and a market
assessment that has been carried out. The market assessment looked at
the appetite, costs, benefits, mechanisms and options for setting up a
strategic partnership between Cornwall Council and a partner to use
Cornwall’s Shared Service platform and investments in order to create
jobs in Cornwall.

2. Recommendation: It is recommended that the Council enter into a


procurement to select a strategic partner who would provide consultancy
services to support transformation and who would also establish a Joint
Venture Trading Company. The Council will supply some staff and services
to the Joint Venture and any jobs created – that can be delivered remotely
- will be located in Cornwall. Any services provided by the Council to the
Joint Venture shall be charged at a ‘market rate’. In the future there may
be further involvement by public sector partners in the Joint Venture
Company and a transfer of Cornwall Council staff into this company.
However, such transfers will be conditional on full business cases put
before Members

3. Benefits: The key potential benefits of a strategic partnership are


creating jobs and making additional savings:

· Jobs: It is estimated that the establishment of a trading Joint


Venture Company (“the Company”) with a strategic partner
could result in the creation of between 391 and 1,174
sustainable, non-seasonal, white-collar jobs in Cornwall by
2018. These jobs would offer opportunities for career
progression in a reasonably paid sector of the economy.

· Additional savings: The initial estimate, based on a very rough


calculation, is that a framework for risk-reward consultancy
work should be able to generate net revenue savings of
between £1million to £5million over the period of the initiative
from the Council’s Shared Services and Information Services.
The scale of saving opportunities will depend on the scope of
the project and the breadth of the partnership with local public
sector organisations.

4. Costs: the main cost of the recommended option is procurement.


Initial estimates are that the external costs of this could vary between
£200,000 and £500,000 depending on how much external support is
used. Further work will be carried out before the recommendations are
considered by Cabinet to fully profile these costs.
5. Cost-benefits: The modelling shows that the benefits of the project
are expected to significantly exceed its costs. The cost of the Company is
lower over a seven year period than the in-house delivery option. Of
course this modelling is based on a series of assumptions. The most
important assumption is that Cornwall and its strategic partner would
make further efficiency savings and would be able to win one contract per
year for seven years.

6. It is estimated that savings from the consultancy element of the


contract will vary between £1million and £5million. The intention is that
this work will be paid for on a ‘reward basis’ so costs will only be incurred
as savings are agreed and realised. This sum will exceed the costs of the
procurement. In addition it is estimated that Cornwall will benefit from
the creation of 783 jobs by 2018. This gives an external procurement
cost, per job created, of between £255 and £638.

7. Next steps: This is a significant project and further work is required


on each of the following areas:

· considering options for reducing the costs of procurement;


· developing detailed proposals for governance of both the
procurement and the Company;
· further work to seek firm commitments from potential public sector
partners – in particular colleges and health delivery
organisations;
· drafting a report for Cabinet on 13 July;
· preparing for procurement.

This work will be taken forward primarily by the in-house project


team that has been established.

Background:

8. This is a follow up report to the one which came to the Corporate


Resources and Communities Overview and Scrutiny Committees on 9
December 2010 and was developed into a report for Cabinet on 12
January, 2011. It also builds on the work of the Corporate Resources
Single Issue Panel on Shared Services which delivered its final report to
the Corporate Resources Overview and Scrutiny Committee on 14 April
2011. One recommendation from the first of these papers was that the
Alternative Service Delivery (ASD) programme for Shared Services should
conduct ‘soft market testing’ (a market assessment) to inform the option
appraisal process. This market assessment has now been completed and
the results are summarised below. This work also informed an Option
Appraisal Process which took place at the most recent Gateway Review
Panel which met on 19 May, 2011. This Panel has previously discussed
Shared Services on 18 November 2010 and 18 March 2011.

9. The Council Business Plan sets the direction of travel for a


commissioning Council that seeks opportunities to work more closely with
Cornwall’s public sector and delivers more services jointly with a range of
other partners. The ASD programme is looking at different service
delivery options for a number of areas of activity. One of the areas within
the scope of this programme is Shared Services.

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).

11. The shared services structure currently covers six areas:

· Human Resources and Finance Transactional (Payroll, invoice


processing);
· Income (billing and collection of council tax, business rates and
other sundry debts);
· Assessment (housing/council tax benefit, care assessments, free
school meals);
· Customer Contact (telephony and web enhancement);
· Face to Face (Libraries, One Stop Shops, Registration);
· Operational Support (training, systems and general administration).

Shared Services has a budget savings target of £5m out of a total


budget of £18.7m in 2011/12. The implementation of Enterprise
Resource Planning (ERP) and Customer Relationship Management
(CRM) software are key enablers for the Shared Services
programme. Training and developing the staff is a key element in
the development of Shared Services and there are already tangible
results coming from major investments in this area. Over the next 12
months further Council services will be migrated into Shared
Services. This will increase the size and scope of the Service and
increase the potential to achieve greater savings.

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

15. Whether to trade: Cornwall Council has to decide whether it wants to


develop shared services solely for itself (and possibly its local partners) or
whether it wants to use the platform it has built – and the considerable
investments it has made - to attract investment and jobs into Cornwall.
By selling shared services to others the Council could potentially increase
the size of its operations to retain and create jobs in Cornwall. The Council
asked the market how they saw this opportunity and also asked their
views on how any partnership could best be structured to ensure Cornwall
could achieve its objectives of retaining and creating jobs. A financial
model has also been developed to test how many jobs might be created
over a seven year period.

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.

17. Types of joint venture: If Cornwall Council chooses to establish a joint


venture partnership arrangement then there is a wide spectrum of what
this partnership could look like. This ranges from what is termed a ‘Thick
Joint Venture’ to a much thinner ‘Trading Joint Venture’. Cornwall Council
would need to charge a market rate for any services provided to a Joint
Venture Company. The two types of Joint Venture are described below:

i.The ‘Thick Joint Venture’ would be a new company with ownership


shared between Cornwall Council and its partner. There would be
an early, large scale transfer of Cornwall Council staff into this
new Joint Venture Company which would provide services to
Cornwall Council under a service delivery agreement. The Joint
Venture Company would also seek to trade services with other
parties.
ii. The thin ‘Trading Joint Venture’ would be a new company with
ownership shared between Cornwall Council and its partner. There
would be no early, large scale, transfer of Cornwall Council staff
into this new Company. Cornwall Council would continue to
receive its shared services internally. The Joint Venture Company
would seek to trade services with other parties and as it won work
staff would be transferred into, or employed within, the Company.

18. The Gateway Review Panel considered the advantages and


disadvantages of these different approaches and a summary is set out in
the Analysis section below.

19. Approach to establishing a joint venture: There are two ways of


establishing a Trading Joint Venture jointly owned by Cornwall Council and
a strategic partner:

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.

20. Scope of services: Cornwall’s Shared Service function is now in place


as set out above. However this function has the potential to grow to
include other areas of white collar transactional activities. There is also a
need to improve the management of Information Services. Any
procurement activity has to be clear about the scope of services so
consequently recommendations for scope have been developed. These are
set out 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.

23. Governance: Appropriate governance arrangements need to be put


in place so that Cornwall Council Members and Officers retain an
appropriate level of scrutiny of and control over: the procurement of a
strategic partner; the oversight of consulting work; the oversight of
arrangements for establishing, directing and scrutinising the Trading Joint
Venture. This will need to include consideration of what veto powers the
Council requires. In addition governance arrangements will need to be
carefully worked out for scrutinising business cases for any possible future
transfer of staff into the Joint Venture. Key mechanisms that will be used
to deliver this governance include the establishment of a Project Board
and a Steering Group as well as the appropriate development of Articles of
Association, Shareholder Agreements and other contractual arrangements
(including performance indicators and service level agreements).

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:

i.There is a wide consensus that in order to gain ‘first mover’


advantage the deal has to be done quickly to take advantage of
spending pressures and legislative change;
ii. There are major potential ‘new entrants’ to this market who
would commit to a significant people resource and / or financial
investment in Cornwall in order to establish a presence in the
Shared Services market. These companies would be unlikely to
compete equally in a traditional approach to the market focused
on prior experience;
iii. Some see the market for a broad range of Shared Services as
primarily local government while others see a wider market
opportunity either in terms of ‘industries’ and /or ‘geography’;
iv. All companies would welcome a phased or incremental approach
to the partnership;
v. Most companies would like a wide scope. Common suggestions
were to include: aspects of procurement, enabling mobile working
and a wide range of professional services;
vi. There is consensus that a ‘lean’ competitive dialogue is the most
appropriate procurement route but that this has to be well
planned, properly resourced and the Council has to be clear about
what is wanted (job creation) and then stick to that;
vii. Different approaches were proposed including ‘profit sharing’, and
the ‘re-location’ of existing work;
viii. In order to make a significant investment companies would
expect an appropriate degree of control;
ix. The strategic partnership could be secured either through a
procurement to establish a joint venture company with a service
contract or through the sale of shares in a company created by
Cornwall Council.

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:

i.With a wholly owned trading company Cornwall Council would win


one significant new contract every two years. The initial contract
would be worth 117 jobs but each year economies of scale would
reduce the number of jobs required to deliver each contract by
10%.
ii. With either form of strategic partnership the Joint Venture
Company would win one significant new contract a year worth
150 jobs but that each year economies of scale would reduce the
number of jobs required to deliver each new contract by 10%.
iii. Only the ‘Thick Joint Venture’ – because of the incentive of a
major boost to the company’s turnover with a service contract
worth several hundred million - would be able to transfer 250 jobs
into Cornwall by the end of year one and 250 additional jobs by
the end of year 2.
iv. The results of this modelling are summarised below:

Option Net PresentEstimated jobsEstimated jobs


Value of costs tocreated at endcreated at end of year
Council overof year 1 7
seven years [Assume 50% margin
of error]
In house delivery -£84.6m 0 0
Wholly owned -£86.6m 0 317
company [Low estimate 159,
high estimate 476]
Thick Joint Venture -£80.8m 150 783
[Low estimate 391,
high estimate 1,174]
Option Net PresentEstimated jobsEstimated jobs
Value of costs tocreated at endcreated at end of year
Council overof year 1 7
seven years [Assume 50% margin
of error]
Trading Joint Venture -£80.8m 400 1,283
[Low estimate 641,
high estimate 1,924]

26. In parallel to the market assessment and financial modelling work,


the Council has started monitoring related procurement activity in other
Councils. Within the last few weeks, the London Borough of Tower
Hamlets and West Sussex Council have both gone to market for 7 and 10
year contracts for the management, delivery and transformation of
Information Services and aspects of what The Council term “Shared
Services.” Lancashire County Council has just signed a 10 year £400m
partnership deal to form a Joint Venture into which 800 staff will transfer
to deliver back-office and front-line services. The view of the Gateway
Review Panel was that the market assessment and level of procurement
activity supported the view that Cornwall Council has a timely opportunity
to optimise its considerable investment in Shared Services by competing
in a competitive market and that it should therefore identify the best way
to move forward.

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:

Topic Advantages Disadvantages


Jobs and investment Some new jobs (estimate No jobs transferred in by
for Cornwall 317 by year 7) partner and no external
investment into Cornwall
Financial risk - Cornwall Council needs to
fund working capital
(estimate of exposure is
about £2m) and under-
write contract risks from
reserves. This includes
funding unsuccessful bids
and redundancies outside
Cornwall when contracts
are won and staff won’t
transfer.
Surplus for Council Retain 100 % of any -
surplus
Trading - No commercial expertise
transferred in and no
added credibility of trading
with a partner
Topic Advantages Disadvantages
Set up costs No procurement costs - -
some costs establishing
Company
Control for Council No loss of control -
Ease Straightforward approach -

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:

Theme Summary of market response

Views of different types of Most suppliers preferred a simple deal with


commercial deal a service delivery contract between
Cornwall Council and a ‘Thick Joint
Venture’ which they would control in return
for their investment.
Scale and timing of staff Most suppliers preferred an early large
transfer scale transfer of staff to give certainty,
clarity and control.
The balance of advantages Most suppliers saw the potential in a wider
and disadvantages about public sector shared service partnership
Cornwall Council seeking but warned that the increase in risk and
public sector partner complexity was considerable
involvement

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.

32. The Gateway Review Panel considered the advantages and


disadvantages of establishing a Thick Joint Venture. The advantages and
disadvantages are set out below:

Topic Advantages Disadvantages


Jobs and investment Likely high level of interest -
for Cornwall from market and potential
for significant investment in
Cornwall including the
transfer of jobs into the
county (estimate 1,283 by
2018-19).
Financial risk Partner underwrites -
financial risk including
funding working capital.
Surplus for Council - Only retain a % of any
surplus.
Trading Commercial expertise is -
transferred in along with
the credibility of a major
trading partner.
Set up costs - Significant procurement
costs need to be
incurred by Cornwall
Council.
Control for Council - Some loss of control and
possible concern from
staff.
Ease Relatively straightforward -
procurement approach.

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:

Topic Advantages Disadvantages


Jobs and investment Likely moderate level of Little leverage to secure
for Cornwall interest from market and transfer of jobs into
some investment in Cornwall.
Cornwall including an
estimated 783 jobs by
2018-19.
Financial risk Partner underwrites -
financial risk including
funding working capital.
Topic Advantages Disadvantages
Surplus for Council - Only retain a % of any
surplus.
Trading Commercial expertise is -
transferred along with the
credibility of a major
trading partner.
Set up costs - Significant procurement
costs need to be
incurred by Cornwall
Council.
Control for Council Little loss of control and -
unlikely to be as much
concern from staff as and
significant transfer would
be subject to business case
and Member approval.
Ease - Fairly complex
procurement approach.

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:

Option Likelihood of success; Estimate of new


jobs at end of
Likely level of acceptability.
year 7

Wholly Least likely to be successful in terms of 317


owned creating jobs
company
Unlikely to be acceptable (scale of Council
working capital required and needing to be
put at risk)

Thick Joint Likely to be successful 1,283


Venture
Less likely to be seen as acceptable (scale
of early staff transfer)
Option Likelihood of success; Estimate of new
jobs at end of
Likely level of acceptability.
year 7

Trading Quite likely to be successful 783


Joint
Likely to be acceptable.
Venture

36. Approach to establishing a joint venture: A Trading Joint Venture


could be established either through ‘procurement’ or through a ‘trade
sale’. The advantages of procurement are that it is: well-understood by
the market; possible to complete in 9 months; and, if the competitive
dialogue approach is followed, it lets Cornwall Council develop potential
solutions with providers. The advantage of a trade sale is that, at the
point of sale, Cornwall Council has certainty about the value of the asset it
is selling. The disadvantage of this approach is that Cornwall Council
would have to establish the Trading Company on its own and runs the risk
of establishing a company in which there is limited market interest.

37. Scope of services: There is considerable potential for extending the


scope of ‘shared services’ into other types of routine transactional
services. This offers the prospect of further opportunities to reduce
transactional costs and improve performance. In phase one there is
interest in working with a strategic partner to look at possible different
delivery models for the following aspects of Information Services:

i.Service desk;
ii. Data-centres;
iii. Networks;
iv. Personal computers and other hardware provision.

Solutions could include a transfer of staff to a separate delivery


organisation and / or the procurement of management expertise and
capacity along with associated technology.

38. In phase two the Council may look to extend shared services into the
following areas: analytical services, accounts production and specialist HR.

39. In the longer term, if the partnership proved successful then


subsequent phases could be agreed through a business case process and
might extend the scope to:

i.aspects of procurement (strategic sourcing and category


management);
ii. enabling mobile working (to underpin property rationalisation);
iii. a wide range of professional support services such as absence
management; accounts production; application development;
enforcement services (e.g. building control, trading services,
design services etc); and some elements of legal services.

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.

42. Cost-benefits: The estimated external cost of the procurement


process (including internal charging for a project team) is between
£200,000 and £500,000. The main external cost will be legal support.
Further work will be undertaken in the next few weeks to look at how this
sum can be reduced. A draft procurement plan has been developed which
shows that if a decision is made at the July 2011 Cabinet meeting then a
strategic partner could be appointed by March 2012 the Trading Venture
Company beginning to operate in July, 2012. As explained above it is
estimated that savings are likely to be between £1million and £5million
from the risk-reward element of the contract. In addition it is estimated
that Cornwall will benefit from the creation of 783 jobs. Focusing solely on
jobs the forecast external cost per job will be between £638 and £255.

43. Governance: If agreed by Cabinet appropriate governance for the


procurement of a strategic partner will be set up. Key to this will be the
establishment of a small Project Board with delegated authority to run the
procurement up until the recommended award of a contract. Award of any
contract will be a Cabinet decision. It is recommended that the Board
should include key Members, Chief Officers and the Council’s Monitoring
Officer. It should also include partner representatives if they have made a
firm commitment to being part of the project. It is also recommended
that consideration be given to the establishment of a wider Steering
Group which could include wider Member and union representation and a
Staff Reference Group. Further work on establishing governance will take
place over the next few weeks in preparation for the meeting of Cabinet
on 13 July, 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.

45. A recurrent theme from consultation is that a set of clear principles is


needed to steer the project. The proposed principles are set out below:

i. Cornwall Council must retain strategic control and oversight of


services for Cornwall residents. Operational control of staff may be
transferred to a new company over time but will be subject to a
full Business Case and Member approval.

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;

iv. The partner should be a company with a demonstrable track record


and a commitment to good industrial relations and valuing its
employees;

v. The partner is entitled to profit in return for its investment.

vi. Existing and new business should be located in Cornwall where


services can be delivered remotely;

vii. Employees should be incentivised to work for the success of their


employer;

viii. There will be no transfer of ownership of assets (for example land


and buildings) unless there is a tangible return of equal or greater
value to the Council.

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.

47. With partners: The possibility of alternative service delivery for


Shared Services was raised at the Public Sector Group in April and this
was followed up by a workshop with senior staff from each of Cornwall’s
health organisations, Cornwall’s two Further Education Colleges,
Cornwall’s Association of Primary Heads, Cornwall’s Association of
Secondary Heads and the Combined University of Cornwall. This took
place on 19 May 2011. In addition, there have been ‘one to one’
discussions at Chief Executive level with the Chief Executives of each of
the health organisations in Cornwall and Cornwall College. Follow up
sessions with each of the health delivery organisations are being
organised for June 2011.

Conclusions:

48. Whether to trade: The recommendation is that Cornwall Council


should seek to exploit its Shared Service platform in a competitive market
in order to seek to retain and create jobs in Cornwall. Evidence to back
this conclusion comes from the market assessment, financial modelling
and the current level of activity in the market. To exploit this opportunity
the Council needs to move swiftly and effectively.

49. How to trade: The recommendation is that Cornwall Council should


seek a strategic partner to form a Joint Venture arrangement in order to
retain and create employment in Cornwall. Any credible partner must
accept the Council’s principles and be prepared to make a significant
investment in Cornwall in terms of skills, capital and intangibles. The
approach will be to make a prudent investment against the potential
gains. The primary investment will be the procurement costs.

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.

51. Approach to establishing a Joint Venture: Due to the inclusion of


consultancy services and the potential supply of services to public sector
partners, a European Union compliant procurement process will be
necessary. Due to the complexity of the project, this will be via a
competitive dialogue.

52. Scope of services: The procurement should be structured so that


Phase 1 of the project comprises two elements:

i.The delivery of consultancy services, which include aspects of


Information Services (see above) and a number of other key
projects (e.g. scanning);
ii. The setting up of the Trading Joint Venture Company.

53. Phase 2 of the project will be conditional upon the performance of


the strategic partner/Trading Joint Venture Company and should be linked
to a business case approval process. Phase 2 potentially involves three
elements:

iii. the transfer(s) of Council (and / or partner) staff to the Trading


Joint Venture Company;

iv. the inclusion of named partners as equity holders in the Joint


Venture Company;

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.

55. Partnering with Cornwall’s public sector: It is important to seek to


involve partners either as potential beneficiaries of the arrangement or as
potential equity partners. Because the project is currently being driven by
Cornwall Council there are inevitably questions about whether any
partners will be ready in time. For this reason it is important that the
Contract Notice is structured so as to enable partners to join at a later
date.

56. Cost-benefits: There is a strong business case for progressing


because the additional savings from the partnership will exceed the cost
of the procurement. In addition, it is estimated that a Trading Joint
Venture will generate 783 additional jobs in Cornwall within 7 years.
However it is important to do further work before reporting to Cabinet
which includes looking at options to reduce the external costs of the
procurement while taking care not to reduce capacity to a level where the
quality and timeliness of the process is compromised.

57. Governance: A detailed proposal for the governance of the


procurement will be developed before the July Cabinet report is
submitted. This should build on the proposals set out above. Detailed
governance arrangements for the oversight of the contract, including the
Trading Joint Venture, need to be worked out as part of the competitive
dialogue process.

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

(For the purposes of this report only)

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:

Appendix 1 - Alternative Service Delivery Shared Services options - score


sheet (this is an important appendix from the Outline Business Case which
is available on request and has been summarised in this report).

Background Papers
[under provisions of the Local Government Act 1972]

Division Member(s) comments

Not Applicable

Implications and Impacts

a) Cornwall Council Priorities:

Report Text

b) Resource Implications:

Further work on the cost of the procurement will be carried out


before the cabinet report.

(i) Financial and Value for Money:


There are financial implications arising from this report as set out
below:

The initial work estimates net savings of somewhere between £1m


and £5m over the period of the initiative. This is based on some
extremely simplistic calculations and will need significantly more
work to provide more robust figures before the procurement is
undertaken.

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..

The cost of procurement, estimated at between £0.2m and £0.5m,


is not currently budgeted for within the Council’s agreed budget.
The final report to Cabinet will have to identify a source of funding
to cover this cost.

This report has been cleared by Russell Ashman, Assistant Head of


Finance

(ii) Staffing

The proposal is that staff would be unaffected during Phase 1 of the


partnership. Phase 2 could potentially involve the transfer of staff
currently employed by the Council to the Trading Joint Venture.
Any movement of staff would be conditional upon a business case
and Member approval.

(iii) Risk(s)

Risk Register Reference: N/A


Overall Risk Register Green Key risks needing managing:
Rating: - procurement timescales
and costs;
- supplier relationships;
- partner relationships;
- communications.

(iv) Opportunity / Opportunities

Exploiting existing investment in Shared Services to build a shared


service industry in Cornwall

(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 will require significant internal and external resources

This report has been cleared by Richard Williams, Head of Legal and
Democratic Services

(vi) Property

None [OR set out implications].

c) Equality and Diversity:

None

d) Children and Young People:

None

e) Crime and Disorder:

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.