Grant Thornton has advised many local authorities regarding the identification and selection of alternative models for service delivery across all their services. Our clients regularly ask us to explore the 'art of the possible' with them, whether that might be to deliver more efficient services, enable speedier and easier decision making, or developing income streams. Each individual authority will, or should, have its own priorities and objectives that will drive the strategy and most appropriate route. For example, more 'paternalistic' political administrations often prefer retaining staffing within the authority, even if this does not address staffing costs as effectively as other models. In reality, most solutions typically fall into one of the following models:
- Local authority trading companies (LATCs)
- Joint ventures (JVs) or
- Community interest companies (CICs).
LATCs - wholly owned by the Council with the ability to make profits that could be returned to it as the sole shareholder. A subset of this is a LATC with a Teckal exemption which enables a LATC to trade directly with its host authority without following competitive procurement procedures and allows 20% of turnover to be traded commercially. This facilitates expansion and the ability to create profits which may be passed back to the authority. In our experience, these take at least two to three years to deliver such returns because, unless already operated as trading services, they typically have limited commercial skills and staff costs via TUPE mean that cost savings are not quickly realisable.
JVs - the creation of a commercial company in partnership with an experienced provider. This may be a wholly commercial entity or one that is in itself spun-out from a local authority and is looking to expand in the public sector market through a JV model. This model avoids set up costs to an extent, because the infrastructure is already in place. Other advantages of this model are that returns are more quickly realised due to the experience and commerciality of the partner. A key disadvantage is that the authority does not retain full control which can be a negative, especially for elected members.
CICs - which would be non-profit making and as such, could not deliver savings back the host council: these would be retained within the company for community benefit. These typically have a similar lead-time for producing efficiencies as LATCs because of the lack of commercial input from a partner, but have the advantage of being more politically attractive for some local authorities.
Some of the issues that will need to be considered in exploring alternate delivery models are:
- How and who provides the existing service – if keeping staff costs down is a priority, then, if the staff are TUPE’d from an outsourced provider into a new LATC, this is an option, but probably very challenging if current provision is in-house.
- The appetite and opportunity to develop commercial operations – e.g. in the case of waste services, if there is no market or the market is saturated, then developing a business is going to be challenging. Even where there are opportunities there clearly need to be USPs to be successful – is this quality or price?
- Financing for any required capital investment
- Capability to manage the service(s)
- Sourcing of administration and back office services - if the Council’s resources are not used, then this will place a greater overhead burden on other Council services, at least in the short term.
Our experience suggests every Council and every situation is different, so there needs to be a clear rationale and objective for, and from, change otherwise it can be a long and potentially painful journey.
For more information, contact Mike Read,
Director, Head of Energy & Environment, GIA, for Grant Thornton UK LLP
T: +44 (0)7971 409 287
Principal Consultant, Resource Efficiency and Waste Management,
Ricardo Energy & Environment
T: +44 (0)1235 753 424