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CARDIFF COUNCILCYNGOR CAERDYDD

EXECUTIVE BUSINESS MEETING: 8 MAY 2007

CONNECTING SOUTH EAST WALES SHARED SERVICESPROJECT REPORT ON STRATEGIC OUTLINE CASE

REPORT OF CORPORATE DIRECTOR AGENDA ITEM: 5

PORTFOLIO: CORPORATE

Reason for this Report

1. This report has been prepared to advise the Executive of the outcome ofthe initial feasibility study on sharing certain back office functionsacross ten South East Wales local authorities. The report serves as acovering report for a more detailed position statement (Appendix 1),which is being considered by each of the ten authorities involved in theShared Services project.

Background

2. The Welsh Assembly Governments Making the Connections agendaaims to bring about improvement across the whole range of publicservices. Specifically, it aims to make services more responsive,accessible, coherent, effective and efficient. Local Government inWales, like many other public services, faces rising demands for higherquality services at the same time as increasing budgetary pressures.New ways of working are needed to cope with these demands andenable opportunities for efficiency savings to release resources for frontline public service delivery.

3. In response to the Making the Connections agenda, the Leaders andChief Executives of ten local authorities in South East Wales have beenmeeting as the Connecting South East Wales Board. The Board, whichis serviced by the WLGA, includes Blaenau Gwent, Bridgend, Cardiff,Caerphilly, Merthyr, Monmouthshire, Newport, Rhondda Cynon, Torfaen,and Vale of Glamorgan. The group commissioned a Feasibility Studyforthe provision of shared back office services across the ten Authorities.The functions included in the study were Payroll and HR; Training;Council Tax and NNDR; Internal Audit; Procurement; ICT; and DebtRecovery. The study was overseen by a steering group withrepresentatives of the ten authorities, was project managed by Cardiff

Council, with the actual evaluation of the potential to share undertakenby Pricewaterhouse Coopers (PwC).

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4. The feasibility study has been designed to be undertaken in threephases:

Phase 1 - To develop a Strategic Outline Case (SOC) examiningall seven of the functions outlined above to determine whichpresented the greatest potential for sharing essentially a fairlyhigh level analysis of cost, performance, opportunities and barriersacross the 7 functions and 10 authorities;Phase 2 - To develop an Outline Business Case for those serviceswith the greatest potential for sharing essentially a much moredetailed analysis of one or two areas;Phase 3 - To produce an Outline Implementation Plan forconsultation essentially a road map which would allow theauthorities to progress to sharing selected functions.

5. Phase 1 was completed at the beginning of April and this report sets outthe findings and advises Executive on those functions being progressedto Phase 2.

Issues

6. Based on their analysis of the seven functions across the ten authorities,PwC concluded that:

even without sharing services, there is scope for improvements andefficiency savings by learning from the best practices in South EastWales and elsewhere and standardising and streamlining existingprocesses;

there is scope for sharing across all seven of the services considered;

the largest scope (i.e. with the greatest potential for improvement andefficiency savings) falls within HR/Payroll including Training, CouncilTax/NNDR and Internal Audit;

There is a need for up-front investment in order for savings to berealised in the longer term.

7. The Steering Group conducted a risk assessment on PwCs findings inrelation to each of the functions, examining issues such as thecomplexity of the barriers to sharing, the investment required, thesavings predicted, the opportunities for service improvements andexternal factors which might influence the likelihood of success. Basedon this assessment the Steering Group made its recommendations to theBoard on 5 April.

8. PwCs analysis, and the Steering Groups assessment are set out inmore detail in the attached Position Statement. At the Board meeting onthe 5 April the Board endorsed the Steering Groups recommendations,key among which are:

Proceed to the Outline Business Case (Phase 2), reconfirming thescope for Training and, HR & Payroll services with external support;

Proceed to the Outline Business Case for Internal Audit services. Weproposed that this project is sponsored by a Chief Executive and

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supported by a member of the Steering Group but with no externalsupport.

9. The remaining recommendations, which place further work on theremaining functions on the back burner are:

Wait for the outcomes and learn the lessons from the North WalesBoard Council Tax and Benefits shared services review beforeprogressing to the Outline Business Case. Nevertheless, werecommend a Chief Executive sponsors Council Tax/ NNDR, workinggroup to identify opportunities for each council to benefit from sharingbest practice, improving the quality of management information andundertaking joint projects of mutual benefit, such as increasingcouncil tax benefit take up;

Do not progress the Procurement services project any further until thevarious national studies are completed;

Ensure that the ICT working group continues to meet, sponsored by aChief Executive and supported by a member of the Steering Group,to identify opportunities to simplify and standardise the current ICTinfrastructure, software and hardware and improve working practices;

Do not continue to explore the opportunity of sharing Debt Recoveryservices as part of this project. The group may wish to continue tomeet to learn from best practice;

Continue to instruct a consultant to support the project on Phase 2,

and for the Steering Group to review the performance of PwC;

Review the management and delivery of Phase 1 of the project todate and ensure we learn from the experience.

10. Critically, progressing to Phase 2 does not commit any of theparticipating authorities to share services at the end of the process.Phase 2 is merely a more detailed study of the selected functions tocreate a clearer understanding of the feasibility of sharing, the barriers tobe overcome, and the likely savings achievable at the end. The Phase 2study would aim to provide sufficient detail to enable participatingauthorities to assess the attractiveness of sharing services in practice onan individual basis.

11. The outcome of Phase 2 is expected to be reporting in June or July2007. At this time the Executives consideration of the report can beinformed by work of the Specialist Independent Advisor supporting theFundamental Operational Review, who will advise on the Councilpriorities at around the same time.

Reasons for Recommendations

12. The recommendations are to keep the Executive informed on theprogress of the Connecting South East Wales Shared Services project.

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Legal Implications

13. This is an information report. There are no legal implications at thisstage. Further advice will be required dependent on the options that maybe considered in the future.

Financial Implications

14. The project has been part-funded by the Local Authorities in South EastWales, who have committed 10,000 each plus staff resources. It hasalso received a grant of (135,800) from the Making the Connectionsfund in the Welsh Assembly. Cardiff has provided Project Managementsupport from its Centre of Excellence, but this support will cease at theend of Phase 2 (approximately June 2007) to allow this resource to beredirected to other projects within Cardiff, including the FundamentalOperational Review.

15. Progressing to Phase 2 does not place any additional financial burden onthe Council, although a significant amount of staff resource will berequired to collect information required for the feasibility study and toengage with colleagues in other authorities to evaluate the emergingfindings.

Any other Implications

16. Progressing to Phase 2 will require the development and implementationof a communications plan across the ten authorities to ensure that staff inthe selected functions, and the Trades Unions locally, are kept informed

about the project and its development.

RECOMMENDATIONS

The Executive is recommended to

(1) note the Connecting South East Wales Boards agreement to the actionsset out in paragraphs 7 & 8 of this report;

(2) receive further reports on this matter, in the light of the FundamentalOperational Review

STEVEN PHILLIPSCorporate Director16 April 2007

The following Appendix is attached: South East Wales Shared Services Project Position Statement

The following Background Papers have been taken into account: ConnectingSE Wales Strategic Outline Case Shared Services Final Report

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APPENDIX

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Project Steering Group

Position Statement

Recommendations from Phase 1

March 2007

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Contents ___

Position Statement 3

Jo Farrar on behalf of the SEWSS Project Steering Group

Background 3

Benefits identified to date 4

Strategic Outline Case- Findings 4

Comments from Consultation 4

Risk Assessment 5

Steering Group Recommendations 6

Next Steps 6

Recommendations 7

Appendices

Appendix 1

Strategic Outline Case Executive Summary i

Conclusions from the Strategic Outline Case ii

Appendix 2

Risk Assessment iii

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Position Statement

Background

The Connecting South East Wales Board, comprising Leaders and ChiefExecutives of the ten Local Authorities in South East Wales, agreed a projectto investigate the potential for sharing various back-office functions, with aview to releasing resources to invest in frontline services.

The project has been part-funded by the Local Authorities in South EastWales, who have committed 100,000 plus staff resources (approximately113,670 to the end of February 2007). It has also received a grant of

(135,800) from the Making the Connections fund in the Welsh Assembly.

The project is due to be completed by July 2007 and is divided into threestages.

Phase 1 - To develop a Strategic Outline Case (SOC) examiningseven functional areas with a view to sharing: Payroll and HR;Training; Council Tax and NNDR; Internal Audit; Procurement; ICT;and Debt Recovery

Phase 2 - To develop an Outline Business Case for services with

the greatest potential for sharing.

Phase 3 - To produce an Outline Implementation Plan forconsultation.

The project is being overseen by a Steering Group, comprising seniormanagers from the ten authorities and the WLGA. The Steering Group hasprocured PricewaterhouseCoopers LLP (PwC), a consultancy with abackground knowledge and expertise in shared services, to help with thefeasibility study.

Cross-cutting functional groups of Local Authority Officers and Directors of HRand Finance have been involved in discussions as the project hasprogressed. In addition, Visioning Workshops have been held with keyofficers and Members in all Authorities and update reports have been sent toCouncil Cabinets and Executives. The Connecting South East Wales Boardhas been regularly informed of progress.

The project is now approaching the end of Phase 1. The Executive Summaryand conclusions from the first phase of the Feasibility Study (Strategic Outline

Case) prepared by PwC is attached at Appendix 1.

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Benefits identified to date

A full Lessons Learned Review will be carried out at the end of the project butthe Steering Group have already identified a number of benefits that haveemerged as a result of the work carried out in Phase 1. These include:

Recognition of successful shared service relationships and bestpractice methodology currently undertaken by LAs. All authorities haveexisting collaborations that share services. The project has reiteratedthe ability of LAs to work with and alongside each other effectively,producing excellent achievements.

Improved communications between colleagues, counterparts and LAs

through various methods. The project has provided invaluableopportunities to meet and network with representatives from other LAs.These relationships developed, or furthered, have already extendedbeyond the project.

Challenges to current status quos within councils. Project hashighlighted areas within LAs where efficiencies, and better practice,can be driven out. Data gathered and compared has givenopportunities to evaluate current working methods, beyond the scopesand service areas of this project.

Embedding of staff skills in the Shared Service sphere that can beutilised in further projects and data gathering exercises.

Strategic Outline Case - Findings

The findings of the feasibility study, led by PwC, are set out in more detail inthe Strategic Outline Case Executive Summary (Appendix 1). The mainconclusions are:

even without sharing services, there is scope for improvements andefficiency savings by learning from the best practices in South EastWales and elsewhere and standardising and streamlining existingprocesses;

there is scope for sharing across all seven of the services considered;

the largest scope (i.e. with the greatest potential for improvement andefficiency savings) falls within HR/Payroll including Training, CouncilTax/NNDR and Internal Audit;

There is a need for up-front investment in order for savings to berealised in the longer term.

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Comments from Consultation

Before concluding the Strategic Outline Case, and the Steering Group

agreeing recommendations for the way forward, considerable consultationhas been undertaken with: Directors of HR, Finance and ICT; Regional TradeUnions Representatives; lead officers from the service areas beingconsidered; and key officers and Members from each Authority.

The main comments from this exercise relate to the accuracy of data. As aresult, the Strategic Outline Case was altered to take account of the latestinformation received from Authorities. However, there is an issue about theconsistency of data as a result of Authorities collecting data in different waysand/or providing different levels of detail.

The Steering Group has considered this and has concluded that the data issufficiently robust for a decision to be made about which services shouldprogress to Phase 2.

Phase 2 will allow a further study of a narrower range of services, including amore detailed analysis of data with a view to making this consistent, before adecision is made on how to progress to Phase 3.

Risk Assessment

A risk assessment has been carried out by members of the Steering Group todetermine the risks in taking forward each function to Phase 2 - OutlineBusiness Case. This is attached in Appendix 2. This included a sensitivityanalysis against the following criteria:

- Potential Savings from sharing the function- The level of investment required and the potential payback period.- External Factors including good practice initiatives across service

sectors; other potential providers; existence of other studies; potentialsignificant changes affecting service.

- Potential service improvements limited to the scope of each function.

- The level of political support for sharing. This was determined fromdiscussions at the Visioning Workshops.

- The opportunities for the recommended model to be used across arange of public sector bodies and services.

- The impact of operational factors including reliability of initial data, theability to provide additional/better data, scalability, time to realisebenefits, flexibility. The impact of implications such as a dip inperformance (financial and otherwise) was also assessed.

- Current similarities between LAs. This included ICT dependency,hardware/software used, benchmarking/unit costs and levels ofperformance.

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- The complexity of the function including estimated timescales forimplementation.

- Operational willingness to share including the extent of existing

collaboration and feedback from functional workshops, and thewillingness to fundamentally change approach to service delivery.

The Steering Group accept that there will be an element of risk in takingforward any shared services option to release benefits. The functions thatpresent the lowest risk are: Training; Internal Audit and Procurement

The two functions that were identified as having the greatest potential forsharing i.e Payroll/ HR and Council Tax /NNDR presented medium and highrisk respectively.

Steering Group Recommendations

In summary, the Steering Group recommends that we:

Proceed to the Outline Business Case (Phase 2), reconfirming thescope for Training and, HR & Payroll services with external support;

Proceed to the Outline Business Case for Internal Audit services. Weproposed that this project is sponsored by a Chief Executive andsupported by a member of the Steering Group but with no externalsupport;

Wait for the outcomes and learn the lessons from the North Wales

Board Council Tax and Benefits shared services review beforeprogressing to the Outline Business Case. Nevertheless, werecommend a Chief Executive sponsors Council Tax/ NNDR, workinggroup to identify opportunities for each council to benefit from sharingbest practice, improving the quality of management information andundertaking joint projects of mutual benefit, such as increasing counciltax benefit take up;

Do not progress the Procurement services project any further until thevarious national studies are completed;

Ensure that the ICT working group continues to meet, sponsored by a

Chief Executive and supported by a member of the Steering Group, toidentify opportunities to simplify and standardise the current ICTinfrastructure, software and hardware and improve working practices;

Do not continue to explore the opportunity of sharing Debt Recoveryservices as part of this project. The group may wish to continue to meetto learn from best practice;

Continue to instruct a consultant to support the project on Phase 2, andfor the Steering Group to review the performance of PwC;

Review the management and delivery of Phase 1 of the project to dateand ensure we learn from the experience.

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As part of the business case, the Steering Group will explore the amount ofinitial investment needed in order to break-even and consider approaches toaccelerate the payback periods.

Next Steps

If the recommendations of the Steering Group are agreed at the ConnectingSouth East Wales Board on 5 April, LAs will need to take:

Recommendations with Cabinets/Executives in each Local Authorityand with representatives from the Trades Unions, Local AuthorityManagement Boards and Directors and Lead Officers from the relevantservice areas.

update the Welsh Assembly Government, Making the Connectionsteam on emerging findings and decisions for Phase 2;

discuss and agree remit of PwC in relation to Phase 2; aim to commence Phase 2 by 23rd April 2007, to conclude 30th June

07.

Recommendations

For the Connecting South East Wales Board to agree to proceed withSteering Group recommendations outlined above

JO FARRAROn behalf of the Steering Group

Date 29th March 2007

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Appendix 2

Functional Risk Assessment iii

Scoring Bandings

High 31 60 Red

Medium 22 30 Amber

Low 10 21 Green

No Criteria WeightingPayroll &

HRTraining

Ctax &NNDR

InternalAudit

ICT ProcurementDebt

recovery

1 Potential Savings 15 L H M H H H H

2 Investment required 15 H L H M L L H

3 External Factors 5 M L M L L M L

4 Service Improvements 15 L L L M M L M

5 Political Support 10 L L M L L L M

6Pan Public Sectoropportunities

10 L L H L L L L

7 Operational Factors 10 M M M L M L M

8Similarities between

LA's10 M L M L H M M

9Estimated timescale forimplementation/complexity

5 H L H L H L M

10Operational willingnessto share

5 M M M L M L M

TOTAL 28 21 37 21 31 21 36

RISK Amber Green Red Green Red Green Red

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Government and Public SectorMarch 2007

Connecting SE Wales

Strategic Outline Case SharedServices

FINAL REPORT

Version 3.0 Final

Author MK

Date 20 March 2007

Our report is addressed to, and prepared for, SE Wales councils and we do not accept any duty orresponsibility to any other party. On this basis, this report should not be disclosed to any third party orbe quoted or referred to without our prior written consent. Such consent will be granted only on thebasis that such reports are not prepared with the interests of anyone other than SE Wales councils inmind and that we do not accept any duty or responsibility to any other party.

Any oral comments made in discussions with you relating to this report are not intended to have anygreater significance than explanations of matters contained in the report. Any oral comments that wemake do not constitute oral advice unless we confirm any such advice formally in writing.

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DRAFT PricewaterhouseCoopers LLP2

Executive summary

1. Summary findings

1 This strategic outline case demonstrates:

That there is a strong strategic case for implementing shared services in Wales not just froma functional perspective (Council Tax, NNDR, HR etc) but also from a pan-public sectorperspective as espoused by WAG in its recent paper on LSBs. We consider that it is in this

area that most citizen (and ultimately) financial benefits would accrue.

The seven functions in question include 2,036 FTEs and budgets of 92m per annum theyare large in scale.

There is not one model or solution for all of the functions within scope our proposals at thisstage are based on a mixture of simplification, standardisation and shared services. In someareas we are suggesting that the option with the greatest potential is more based onsimplification and standardisation (such as in the case of ICT) and in others we are suggestinga more shared approach (such as for Council Tax). This would need further exploration in theOutline Business Case (OBC).

The potential cashable savings for the majority of the functions provide reasonable paybackperiods, however, exploration of alternative investment models will need to be analysed aspart of the OBC to identify if the speed of payback can be improved with greater up-frontinvestment.

The potential benefits from sharing are as follows:

Function 10-year grosssavings before

investmentrequirement (cash

m)

10-year grosssavings after


m)

Annual steadystate % saving(compared to

annual cost ofservice)b

Training

Payroll and HRemployee Records

17.550m 12.295m 7.9%

Council Tax andNNDR

11.212m 7.829m 12%

Debt Recovery(Accounts Receivable)

1.834m (1.911m) 7.5%

Internal Audit 4.136m 1.925m 11.4%

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Function 10-year grosssavings before


m)

10-year grosssavings after


m)

Annual steadystate % saving(compared to

annual cost ofservice)b

ICT 0.438m (0.234m) 0.2%

Procurement 2.306m 0.954m 7.9%

Totals 37.476m 20.858m 5.6%

Improved performance is expected from the shared services however, these will need to bedefined during the development of the OBC.

There are a variety of governance models that can be utilised within a shared servicesarrangement, for the purposes of the SOC we are recommending a joint committeearrangement initially with the potential to move to a more formal entity arrangement subject to

certain criteria being met.

The councils need to consider which services move forward to the next stage taking intoaccount the costs, benefits and risks for each of the services.

2. Introduction

2 This SOC has been prepared in accordance with our engagement letter dated 13 November 2006.It discharges PricewaterhouseCoopers deliverables in relation to Phase 1 of the project.

Project vision

3 This project seeks to explore whether a meaningful partnership between the 10 local authorities inthe South East W ales region could be developed based on sharing back office services, to improvepublic service delivery.

Strategic context

4 The strategic context to this study includes:

Local Government in Wales faces rising demands for higher quality of services at the sametime as increasing budgetary pressures and requires means of releasing resources for frontline public service delivery.

The potential for sharing corporate and support services between organisations has been

widely discussed on the basis of Gershon and the Welsh Assembly Government reportMaking the Connections (October 2004) which states that The greatest gains are likely tocome from organisations introducing shared support functions.

The recent review of service delivery (Beecham July 2006) recommends that public sectororganisations in W ales should address capacity gaps and achieve improvements throughshared services.

WAGs paper on Local Service Boards (LSBs) suggests that in order to secure real publicservice improvement, there is a need to think on a pan-public sector basis joining up publicservices around the citizen.

5 This project is about functional shared services potentially bringing together 7 functions (somewith an external customer facing perspective, others more internal support services). But it isimportant in our considerations that we have regard for the bigger picture espoused by the WAG

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around one public service rather than one local authority.

6 The Connecting South East Wales Board (the Board), includes the Leaders and Chief Executivesof the ten local authorities in the South East Wales region, as listed below, and is administered bythe WLGA.

Blaenau Gwent County Borough Council

Bridgend County Borough Council

Cardiff Council

Caerphilly County Borough Council

Merthyr Tydfil County Borough Council

Monmouthshire County Council

Newport City Council

Rhondda Cynon Taf County Borough Council

Torfaen County Borough Council

Vale of Glamorgan County Borough Council

7 The Board has agreed to a project that will investigate the potential for sharing various services.The jointly agreed PID currently applies to Phase 1 of the Shared Services Study, which in total willcomprise three phases. This first phase is a Feasibility Study limited to seven service areas.Phase two of the project will develop business cases for services that have the best potential forsharing. Phase three will produce an Outline Implementation Plan for consultation.

Project purpose and outcomes

8 The jointly agreed PID and Project currently applies to Phase 1 of the Shared Services Study. TheProject purpose is to establish the Strategic Outline Business Case to identify need, scope and fit,determining the potential value and extent of joint working between the 10 member councils of theConnecting South East Wales Board. More detailed desired outcomes are set out in the body ofthe report.

9 There is a potential benefit that, irrespective of whether a strategic case is proven for sharedservices in any functional service area, individual Councils may identify cost savings, efficiencygains, etc., through other means (e.g. process standardisation). The project does not aim to

identify these benefits, but where they become apparent and no additional work is required,they will be logged by the Project Office.

10 The desired outcomes of sharing services between local authorities can be summarised asdelivering Improved service delivery to citizens and employees more efficiently whilst having regardfor the wider socio-economic and governance considerations applicable in Wales.

Background

11 PwC have assisted the S E Wales Project Team to identify an approach for collaborative workingacross seven functional service areas:

Training

Payroll and HR employee Records

Council Tax and NNDR

Debt Recovery (Accounts Receivable)

Internal Audit

ICT

Procurement.

12 These functions include 2,036 FTEs and budgets of 92m per annum.

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13 The study has three phases:

Phase 1, (this phase) Feasibility Study, which will produce a Strategic Outline Case (SOC) foreach of the seven functional service areas. This will capture high level baseline costs, sharedservices implementation costs and benefits, to a level of detail necessary to contribute to theprioritisation and identification of opportunities which will progress to Phase 2 of the study identifying which service areas should be progressed and for which councils.

Phase 2, Outline Business Case (OBC)

Phase 3, an Outline Implementation Plan and framework for the first wave implementation.

14 The overall desired outcomes will only be achieved following successful completion of all threephases.

The purpose of this document

15 It is very important to understand the nature of this document. This Strategic Outline Case (SOC) isthe outcome of Phase 1 of the study and is intended to provide:

An overview of the strategic context for the project and an assessment of whether theproposal would demonstrate strategic fit

An assessment of each of the seven functions in terms of their suitability for sharing and whatthe high level costs and benefits of that might be in practice.

An objective assessment of each of the services against pre-determined criteria as to theirsuitability for sharing

Enough information to allow the Board to decide whether it wishes to continue with theinvestigation and which, if any, functions it would like to be the subject of more detailedbusiness cases.

16 It is not the intention of this document to provide all the answers. In relation to each of the functionsthat are selected, the Outline Business Cases will flesh out what proposals would be in more detail.The SOC is a wide-ranging (from a functional perspective) assessment of whether there is thepotential to share. It is not intended to finalise how that sharing might work in practice thatis for later phases to explore. For information, the then Office of the Deputy Prime Ministers

Strategic Partnering Taskforce report included the following definitions:

Strategic Outline Case (SOC) - A planning and scoping document that contains the results ofa business review

Outline Business Case (OBC) A combination of business analysis and investment appraisal

to conclude on a way forward.

Agreements reached and positions adopted

17 We have worked closely with your project team including your project manager and the chieffinancial officers from each of the councils. This includes the format of the SOC and theassumptions made in the financial modelling and analysis.

3. Strategic Case

18 We have set out much of the strategic background earlier in this Executive Summary.

19 Making the Connections outlines four main principles:

Citizens at the Centre

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Equality and Social Justice

Working together as the Welsh Public Service

Value for Money

20 The efficient government outlined by Making the Connections - Delivering Beyond Boundaries:

Transforming Public Services in Wales is a step-change approach to the way public services aredelivered.

21 WAGs response includes a commitment to engage with all parts of the public service to establishLocal Service Boards (on a local authority area basis) and to work with Local Service Boards todevelop, initially in selected areas, Local Service Agreements on service improvement. Thepurpose of establishing Local Service Boards is to strengthen local public service leadership sothat it can tackle fundamental and unmet challenges from a citizen, not a sector, perspective. Oursense is that for this to be a success, it requires collective understanding of demand, collectivecommissioning or supply and collective performance management based on outputs and outcomesrather than inputs and processes.

22 Exploring these themes, as part of the visioning workshops we used the following slide:

23 This picture anticipated some of the LSB consultation paper thinking and was debated at each ofthe authorities visioning workshops. Our sense is that the LSB vision is a challenging agenda thatwill take time to deliver but that this aspiration is one that should be pursued. We consider that thisagenda should be pursued but that the challenges should not be underestimated.

24 The work currently being undertaken across Wales on the shared services agenda will feed intothis thinking, but also has the potential to undermine a more cohesive and long-term vision forservice delivery that is truly customer focused. There is a risk that by concentrating the effort oflocal public delivery organisations on functional solutions for mainly back office shared servicesthat the bigger picture of better more efficient delivery of services to customers will not happen formany years. So, we would conclude that any shared services activity needs to consider the biggerpicture of how public services will look in five or ten years time.

White MailWhite Mail TelephoneTelephone SMSSMS

Sharedservices

Councils

Health Boards

Police

Others

3rd Sector

Frontoffice:

contactcentre

(CRM)

JSC

JSC

Shared premises

Ext School

Smallback office

Corporatecore

Middleoffice

JSC

Schools

Direct services

Social care

Back office Middle office Front office

E-MailE -M ai l I n te rn etInternet

Face-to-faceFace-to-face

Face-to-faceFace-to-face

Commoditised delivery

Jointcommissioning

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Strategic context for functional shared services

25 Whilst the bigger picture represents what the public sector is seeking to pursue across Wales,there is no doubt that this will take significant time to address and in the mean time, there is an on-going requirement to secure efficiencies and service improvements. This is the main focus of thisaspect of the work.

26 The strategic challenge asks:

Is there a way to deliver these functions with improved performance and greater efficiency whilsthaving the regard for the special circumstances in SE Wales?

27 What is clear from the visioning workshops and the more detailed work with authorities is that theremust be a demonstrable business case for change. Councils are not about doing shared servicesfor the sake of it or as an end in itself.

28 It is clear that in terms of the functions in question, some are more transactional and many have acustomer interface, some external. Councils were of the view that where there was an externalcustomer interface this should be dealt with locally. However, the fundamental point here is that

just because certain aspects of a service require local input and local integration it should not mean

that the whole service cannot be shared. We need to think about parts of functions as well aswhole functions.

Key stakeholders and nature of their interest

29 The key stakeholders in this project are as follows: Local citizens; local businesses, Electedmembers; employees; trades unions; WAG and the WLGA.

Strategic visioning

30 As part of this project we have run 10 workshops (one in each authority) aimed at developingthinking in authorities around the strategic vision that they are seeking to pursue. As part of thisexercise, we explored the following spectrum of possible approaches:

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31 The purpose of this exercise was to explore authorities thinking around where they saw each ofthe seven functions as potentially benefiting from a shared approach. More detail is contained inthe main report but it is probably fair to say that in many cases (authorities and functions) theconsensus was around Multi-site SSO sharing but on a more virtual basis that co-location.

32 We also explored a range of other guiding principles or key features of the potential SSO (covered

in the main report) issues like location, investment funding, governance etc) and the views weremore mixed at that early stage.

So, what are the key strategic messages that we need to take forward?

33 There is a strong desire on the part of WAG and some local authorities to consider sharing ofservices on a pan-public sector and citizen centric model rather than from a purely functionalperspective. Any solution therefore needs to consider this desired medium-term outcome.

34 Notwithstanding this point, there is a belief or hypothesis within WAG (and in some authorities) andechoing Beechams thinking that there are significant financial benefits that could accrue throughmore sharing and collaboration within the local authority community.

35 There is a range of desired outcomes of sharing services between local authorities but these reallycentre on improved service delivery to citizens and employees, efficiency and appropriateness onsolution.

36 There are some fundamental issues and principles that were repeated in all authorities the factthat local government is local and that insomuch as this is perceived by local people it shouldreflect local priorities, tailoring and approaches.

37 That the councils are not about shared services for shared services sake there must be ademonstrable business case to proceed.

38 Visioning workshops suggested consensus around a multi-site SO but there was much lessconsensus around some of the key features of that SSO.

39 There is a broad range of stakeholders whose views must be considered.

Cost base

Duplicated systems /interfaces

Multiple processes little standardisation

Multiple customer

interfaces

Multiple locations

Status quo

Cost base


Multiple processes little standardisation

Multiple customer

interfaces

Multiple locations

Status quo

Investment required?

Cost base

Collaboration

Joint working around

certain agendas; Somestandardisation;

Common approachesScale economies

Multiple costs of

accommodation &management


Scale economies etcnot fully exploited

Cost base

Collaboration

Joint working around

certain agendas; Somestandardisation;

Common approachesScale economies

Multiple costs of

accommodation &management


Scale economies etcnot fully exploited

Cost base

Multi-site SSO

Shared services

Some shared locations

Some shared functionsCommon processesCommon front office

Common management

& governance

Multiple costs of

accommodation

Duplicated systems /

interfaces

Residual costs from

partial solutions

Cost base

Multi-site SSO

Shared services

Some shared locations

Some shared functionsCommon processesCommon front office

Common management

& governance

Multiple costs of

accommodation

Duplicated systems /

interfaces

Residual costs from

partial solutions

Cost base

Single site SSC

Shared services

Shared locationsShared functions

Common systemsSingle source supportservices

Common processesCommon front office

Common

management &governance

Requirement to

implement medium to

long term solutions

Cost base

Single site SSC

Shared services




Common


Requirement to

implement medium to

long term solutions

Cost base

Private partnering

Shared services




Common


Risk transfer

Requirement to

implement medium to

long term solutions

Cost base

Private partnering

Shared services




Common


Risk transfer

Requirement to

implement medium to

long term solutions

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4. Customer case

40 The customer case for change is, in many ways, the most important aspect of addressing servicedelivery and defining new ways of working. Local government is there to serve its citizens, just asbusiness is there to serve its clients. In developing this SOC for the SE Wales shared services, wehave reflected on the customers and the role of the different stakeholders whose interests must betaken into account in any proposed changes.

41 The stakeholders comprise many different groups of people, all of whom will have concerns aboutchange and for whom the ten councils will need to develop strategies for addressing their issuesthroughout any transitional phase and on into the shared service operation going live. W eunderstand that the Councils are keen to preserve and build on the sense of face to face servicesdelivered locally, whilst creating synergies and other benefits which arise from co-location of staffand services in the back office. The ambition is therefore, for services to look the same to thecustomer, but to feel different in terms of the benefits and value which is being driven throughchanges in the back office. We have therefore considered the stakeholder and customer base asinternal and external as follows:

External stakeholders and customers Internal stakeholders and customers

External service users Council taxpayers, Businesses for NNDR, othersundry debtor activities

Internal services users all otherinternal departments within the councils

Precepting bodies such as the Fire,Police and Parishes

Elected members

Government departments and otheragencies in contact with council tax

42 We have included an analysis of each of the customer groups in the main report.

43 For service users the experience of dealing with the council will be critical. A key requirement is fora customer centric front office and an efficient and effective back office (the SSO) all operatingwithin the context of agreed strategy and policy (from the councils). Service users have a right toexpect a single and transparent process reflected in a symbiotic relationship between the front,middle and back office. Typically, they are not interested in internal complexities except wheresuch complexity or transaction processing impact adversely upon the services being delivered.

44 Elected members see some of the functions (such as council tax, benefits (affected even thoughout of scope) and debt recovery) as a key service for councils that impact upon the entireelectorate. In moving to an SSO approach, members accountability and responsibility for servicesmust be reflected and embraced in new governance and operational model. This would be effectedthrough the SSO board and performance management arrangements.

45 Efficient and effective support services are key to delivering success in the cross cutting corporateprocesses and front line services which deliver to the customer. Improvements driven through theSSO will need to be seen in the corporate context, however, if internal and external customerbenefit is to be realised, and for this to occur, efficient and knowledgeable administration is key tothe success of shared services, regardless of how provided, in the public or private sectors.Hence, contract management of a shared service operation will be of some significant importance,both as a means of ensuring that the service is supplied in accordance with the SLA between theindividual councils and the shared service operation, but also to discharge the councilsaccountability for the service, something that must always remain with the individual council.

46 For customer satisfaction to be successful there are a significant number of critical success factors a framework is suggested as a starting point in this section. Fundamentally, there will be a need

to engage customers in the establishment and ongoing operation of the SSO to ensure that theirneeds are being met.

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47 We have included some critical success factors for customer satisfaction in the body of the reportand this should be used as a check-list going forward.

5. Economic case

48 The economic case is the backbone of the SOC, setting out the key options appraisal that hasbeen conducted for each of the seven functions under review. This options appraisal looks at

where the service is now, what could be achieved as best practice, how current arrangementscompare with this and what is the recommended option. This section links closely with theFinancial case which looks at the financial implications of the recommended option as comparedwith the status quo all over a 10-year time horizon.

49 The Economic case is broken down into three main areas, the second of which has a number ofsub-elements to represent each of the functional areas. This section of the SOC thereforecomprises:

Approach and generic case

Functional case

Summary and conclusions

Approach and generic case

Methodology

50 The approach we have taken in developing the economic and financial case for each of thefunctional areas is represented schematically in the diagram below

Baseline

51 In carrying out an assessment of the baseline we have undertaken a number of key tasks, with aview to establishing where services are currently in terms of cost and performance.

Options appraisal

52 In this section of the SOC we examine in more detail whether there is an economic case forestablishing an SSO or whether any form of sharing would be appropriate. This is based on thefollowing approach and analysis:

Scope - What services should be included withinthe shared services operation?

Baseline - What are the current activity levels

and costs of delivering these services?

Options - How may services be reconfiguredif that is appropriate?

Solution - What could the new operating model

for these shared services?

What are the implications in terms of people,technology and accommodation?

The thinking hereis to review the

Scope as agreedby SE Walescouncil first then toexplore the currentservice Baseline,then to developthe options fordelivery, proposea solution andunderstand theimplications of thesolution.

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Options or issues Analysis

WHAT?

(the scope of services to be

included within the SSO)

The scope of the services to be included with the shared service could be

significant, medium or minimal the question therefore is to what extent the

existing services should be delivered through the shared service.

HOW?

(the delivery model for the

service)

The service could be implemented on either a deep, (highly integrated with

shared accommodation, systems and generic case load) or shallow

(collaborative working, separate systems, individual council based work load)

basis or some middle ground between the two.

WHEN?

(timescales for

implementation)

The consideration here is whether the implementation is big bang or on an

incremental basis.

GOVERNANCE?

(model for strategic decision

making and accountability)

This requires an understanding of the outcomes required by the councils in

delivering the shared service operation e.g. level of risk transfer, level of

decision making across democratic boundaries, wider trading opportunities

etc.

Solution and implications of the solution

53 Having identified our preferred solution for the what, how, when and governance methodologiesabove, we then developed further the detail of the preferred solution delivery model of the sharedservices operation, this includes:

The staffing requirements for the functional service including the business process re-engineering and transitional resource requirements

the ICT options and recommendations for achieving the shared services operation

the accommodation requirements for the shared service operation.

Overriding approach and assumptions

54 We have utilised a number of assumptions in developing the modelled solution for each of theservices including, but not limited to:

Development of a best practice model our best practice models has been developed fromhands-on experience with a large number of councils throughout the UK, and our experiencewith Private Sector organisations that have implemented the simplification, standardisationand sharing of services. We have undertaken a comparison between the councils and our best

practice models utilising a traffic light system to highlight where councils are on the scale of abest practice model

BPR assumptions - whilst we have made assumptions around process improvement and theBPR savings that might accrue we have not undertaken detailed process review however, ourunderstanding of councils and best practice models have led us to believe the savings weidentify are achievable.

We have relied on data provided by the councils to derive the overall solution which is drivenby scale and BPR efficiencies as a consequence of the shared service solution. At this stage,the assumptions we have made in relation to the extent of the efficiency savings which can beleveraged is cautious because our assessment of the data is at a high level. As a result we

would not expect the overall impact of the efficiency savings to be reduced but to improve asthe proposition is worked up in the OBC.

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Whilst the SOC sets out an example scenario of how efficiencies and added value servicesolutions can be leveraged from the shared service, this is indicative. There may be otherways the councils may wish to configure the services and the phasing of the solution. This willbe developed in more detail at the OBC stage.

Specific functions economic cases

55 There is a large volume of analysis in the main body of the report that is difficult to summarisemeaningfully here. We have therefore included the following table that includes both the nature ofthe proposed solution and its financial impact:

Function Proposed solution Nature of thesolution

Phasing Indicative netfinancial benefit

over 10 years(cash) m

Training; Set up of a full SSOwith a clear split offunctions betweenthe shared service

and the councils.The councils delivertraining with theSSO undertakingthe administration ofthe training.

Common ICTplatform

Simplification,standardisationleading toshared services

4 councils in Year 1

Further 3 councils inYear 2

Final 3 councilsadded in Year 3

Payroll andHR

employeeRecords;

Set up of a full SSOwith a clear split of

functions betweenthe shared serviceand the councils.The councils deliverstrategy with theSSO undertakingthe operations.

Common ICTplatform

Simplification,standardisation

leading toshared services




12.3m

Council Tax

and NNDR;

One shared service

centre for the backoffice processingsupported by home-working. Front officeprovides the localdelivery tocustomers

Common ICTsolution.

Simplification,

standardisationleading toshared services




7.8m (plus the

impact ofincreasingcollection ratesand cash-flow)

DebtRecovery

(Accounts

Full SSO based ona Hub and spoke

model based onsundry debt.

Simplification,standardisation

leading to

Phase eachconsisting of 5

councils moving intoa shared service

Additional cost of1.9m however,

there will beadditional

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Receivable); Social services debtdealt with by the

local authorities.

One ICT solution

shared services centre.

Implementationtakes 18months foreach phase butbenefits realisationis 6 months postimplementation ofeach stage.

benefits from:

the reductionin aged debtacross theauthoritieswhich is a oneoff benefit and

theimprovementsin year onyear currentdebt collection

Internal

Audit;

Collaboration of

specialist resourcesthen moving to a fullSSO.

Common ICTsolution

Simplification,

standardisationleading toshared services

Year 1 Schools

audit specialistresource

Month 19 Contractaudit specialism

Month 25 ICTaudit specialism

Beginning of Year 4 Full SSO

1.9m

ICT; and Collaboration forICT procurementssolely due to thewide range ofsystems currently inplace across theboard. We haveidentified a numberof business casesfor collaborativeworking.

Potential to exploreand ICT sharedservices in thefuture based onother sharedservicesimplementation e.g.CTax and NNDRwhere common ICTplatforms areutilised

Simplification Inclusion of BPRresource for the first2 years to work withthe councils todevelop thebusiness cases forcollaboration.

Additional cost of237k

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Procurement Hub and spokemodel where there

is a central Hubhandling certainprocesses such assuppliermanagement,benefits realisationprocesses, sourcingof corporatecategories with thespoke providinglocal support to thecouncils on strategic

procurement.

Simplificationand

standardisation.

3 phases:

Phase 1 set upSSO arrangement,undertake spendanalysis, agreebenefits realisationapproach

Phase 2 corporatecategories andsuppliermanagement

Phase 3 serviceexpenditurereviews

0.954m

56 From this economic case we can draw the following conclusions:

The strategic outline case is, as the name suggests, a case that will require a lot more work atthe next stage (outline business case) and future stages.

We have reviewed the data for each of the functional services and found a number ofinstances where there is an inconsistency in the data provided by councils, this will need to be

resolved at the next stage.

We have considered options in relation to the what, how, when and governance implicationsfor how the SSO might work for each of the services and we summarise below the what, howand when for the functional services:

57 In summary, we have identified the following with regards to the What for the functional areas:

Small scope for the ICT service, based on ICT procurement solely

Medium scope for the debt recovery and procurement services. Debt recovery is based onsundry debtors whilst the procurement service is based on sharing of supplier management,benefits realisation approach etc.

What

How

When

Model

LargeScope

Full

SSO

Big

Bang

Smallscope

Collab-

oration

Incre-

mental

Mod

el

Model

LargeScope

Full

SS

Big

Bang

Smallscope

Collab-

oration

Incre-

mental

C

Ta

x

&

NND

R,

Debt

Recove

ry,

HR

&IntA

udit

ICT&Int

Audit(3ys)

C

Tax

&

NNDR,

HR

&IntAudit

ICT

C

Tax&

NNDR,Debt

recovery,HR

/

Payrolland

training,

Internal

Audit&

Procurement

ICT

Debt

Recovery&

procurement

What

How

When

Model

LargeScope

Full

SSO

Big

Bang

Smallscope

Collab-

oration

Incre-

mental

Mod

el

Model

LargeScope

Full

SS

Big

Bang

Smallscope

Collab-

oration

Incre-

mental

C

Ta

x

&

NND

R,

Debt

Recove

ry,

HR

&IntA

udit

ICT&Int

Audit(3ys)

C

Tax

&

NNDR,

HR

&IntAudit

ICT

C

Tax&

NNDR,Debt

recovery,HR

/

Payrolland

training,

Internal

Audit&

Procurement

ICT

Debt

Recovery&

procurement

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Large scope for Council tax and NNDR, HR / payroll and training and Internal audit with themajority of these services transferring into a shared services arrangement.

58 We have identified the following with regards to the How for the functional areas:

A collaboration approach for the ICT service for ICT procurement based on simplification andstandardisation rather than sharing per se

A specialist resource approach for the internal audit service until there is a move to a fullshared service in year 3.

A full shared service for Debt recovery, Council Tax and NNDR, subject to the front officeproviding the customer interface. A full shared service for HR, payroll and training whichprovides activities which are high volume, repetitive, transactional in nature, automated andstandardised, with the councils providing activities / services which are unique to theorganisation, potentially high risk, support development of Business / HR strategy.

59 We have identified the following with regards to the When for the functional areas:

An incremental approach for the ICT service based on the development of business cases forcollaborative working on ICT procurements.

A big bang and incremental approach for all other service areas, big bang meaning all councilssign up to the shared service arrangement however, the implementation of the shared serviceis on an incremental basis. The below summarises the approach per service:

Internal audit is based on a 4 stage process. Stage 1 to 3 is based on specialist audit functionsand stage 4 is the move to the full shared service arrangement.

Council Tax and NNDR is based on a 3 stage process. Stage 1 includes all the processes for4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds thefinal 3 councils to the shared service.

Procurement is based on three phases of implementation involving all councils, at each phasethere will be more functions added to the shared services arrangement

Debt recovery is based on two phases of implementation. Phase 1 includes 5 councils movingto a shared services arrangement and phase 2 adds the final 5 councils

HR, payroll and training is based on a 3 stage process. Stage 1 includes all the processes for4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds thefinal 3 councils to the shared service.

6. Financial Case

60 The economic case provided a modelled / proposed approach for each of the functional serviceareas. This section of the SOC supports the economic case in that it presents the financial case forestablishing the modelled / preferred approach for each of the functional service areas SSO.

61 In the time and budget available to conduct this review, and in accordance with scope, we were notable to undertake a detailed and in-depth audit of the finances. We have reviewed and analysed awide range of financial information provided to us by all councils.

Discussions with finance directors

62 We have met with the finance cross cutting team twice during the Strategic Outline Casedevelopment and agreed the basis on which this financial analysis will be completed further

details are in the main report.

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63 The approach for determining the price to be paid by each council within the shared servicearrangement will be explored as part of the next stage. However, discussions have taken place ona cost sharing or benefit sharing basis.

Assessment of costs and benefits that would accrue, financial and non-financialfrom the SSO

64 Many factors will influence the costs and benefits to each council (see the main report), however, itis anticipated that the following general costs and benefits will apply

Costs Benefits

Set-up costs for implementing the project

including council staff time and shadow

management arrangements.

Related overhead costs production of any

procurement documentation for example.

New ICT for a common technology base

New management structures, and

recruitment for new skill sets Accommodation for the shared service

operation

Performance management systems

Training for all staff for new systems and

related work processes

Advisers costs.

Senior management monitoring of project

performance.

Redeployment and severance costs for staff

Better collection of debt current and previous

years debt (these havent been quantified or

factored into the financial case)

Reduced costs longer-term and increased

value for money.

Common systems providing easier installation

of updates, training, and problem resolution

Better utilisation of council assets including theability to trade and deliver services to other

councils, improving sustainability.

Improved service standards and a contractual

obligation to each council to realise continuous

service improvements.

Meeting objectives in relation to being seen as

a modern deliverer of services.

Greater career opportunities for staff in a larger

enterprise with a wider market share.

Commonality of approaches to areas of

discretion across the councils, addressing

equalities.

Efficiency Review (cashable Gershon)

Approach to the modelled financial case

65 The approach we have taken in developing the financial case for each of the functional areas is:

Assessment of the current annual cost for delivering the service by council and in totality

The annual and the total cost of the modelled / preferred approach

The assumptions used in developing the modelled / preferred approach

Sensitivity analysis on the basis agreed with the finance cross cutting team on the modelled /preferred approach.

66 For the purposes of evaluating the financial case for each of the functional areas we have madethe following generic assumptions with regards to the budget information:

All staff included within the individual structure charts provided by the councils are includedwithin the above budgets

All contracts can be terminated without penalty or transferred to the SSO

The costs stay static over the 10 year period of our evaluation of the SSO

We have not taken into account any capital budgets or other allowances the councils may

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have set aside.

The investment figures provided within the business case are deemed to be prudent.

The staff efficiencies built into the modelled solution are on the basis of the average salary forthe service.

We have not included any redundancy / redeployment costs within the financial case.

We believe that each of the modelled approaches are a prudent assessment of the cost of theservice.

67 All figures are calculated in cash rather than an NPV basis.

68 The financial case improves significantly for all councils if further savings for support service costscan be achieved

69 The financial case is impacted if only half of the councils participate in the shared servicearrangement

70 The table and chart below summarises the 10 year financial (cost) / savings for each of thefunctional areas based on the core model and the sensitivity analysis:

Summary 10 year

positionall figures in 000's Core

5

Councils

10%

support

services

20%

support

services

HR

efficiencies

ICT (234) (285) 1,181 2,595

Internal Audit 1,925 288 2,235 2,545

Procurement 954 453 1,306 1,658

Council Tax and NNDR 7,829 1,171 10,220 12,610

Debt recovery (1,911) (2,115) (1,128) (345)HR / Payroll and training 12,295 5,059 14,343 16,390 7,920

Summary 10 year financial position for each functional area

(5,000)

0

5,000

10,000

15,000

20,000

ICT Internal Audit Procurement Council Tax and

NNDR

Debt recovery HR / Payroll and

training

Functional service

000's

Core 5 Councils 10% support services 20% support services HR efficiencies

71 The chart below summarises the cumulative net financial (cost) / savings for each of the functional

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areas based on the core model:

Cumulative cashflow benefits for each functional area

(20,000)

(15,000)

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

25,000

1 2 3 4 5 6 7 8 9 10

Year

000's

ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

72 The chart and table below illustrate the steady state savings for each of the shared servicesmodels, we have utilised the Year 6 annual savings position to represent the figures below:

AnnualBudget

Year 6Savings % saving

ICT 36,593 63 0.2%

Internal Audit 5,154 587 11.4%

Procurement 4,223 334 7.9%

Council Tax and NNDR 13,226 1,581 12.0%

Debt recovery 3,615 270 7.5%HR / Payroll and training 29,349 2,315 7.9%

The table identifies that the greatest value () savings are Council Tax and NNDR and HR,Payroll and training, However, from a % of the annual budget perspective, the greatest %savings are Council tax and NNDR and internal audit.

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0

500

1,000

1,500

2,000

2,500

ICT Internal Audit Procurement Council Tax andNNDR

Debt recovery HR / Payroll andtraining

Service

000's

Year 6 Savings

7. Commercial case

73 Many of the aspects of the Commercial case involve legal or pseudo legal issues that need to beresolved, including, inter alia, vires and EU procurement issues. PwC are not lawyers and cannotprovide legal advice in relation to this project. No actual or implied legal advice is given here andtherefore the councils would need to seek legal advice accordingly. Any views expressed beloware therefore for information purposes only.

74 In this section of the SOC we have addressed:

Issues to be considered in developing the governance model for the SSO.

Governance models for shared services the options.

A recommended approach to the governance model for the SSO.

75 Whilst formal objectives have not been set for governance of the partnership, based on ourunderstanding, they are on the lines that any new arrangement should be relatively straightforward,sustainable, cost effective and recognise that different councils may wish to be involved in different

ways.

76 The diagram below shows the options for SSO governance models as a continuum where thefurther the Councils move towards setting up a company or LLP, the more arms length it becomesto the decision making process.

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More arms length

Collaborativearrangements

JointCommittee

JointBoard(legality)

Contractualpartnership

JV/LLP JV/LLP withprivate input

77 Typically, but not always, the more arms length arrangements, could involve the private sector asa partner in the shared service context. This is, however, not an over-riding principle and it ispossible that a private partner could be involved in any of these options to potentially add valuearound:

Risk transfer

Input of innovation and capacity

Financial decoupling funding investment requirements

Changing the pace of change.

78 We have not undertaken an analysis of where this might help because this should be consideredas part of the OBC stage.

79 The criteria which must be taken into consideration in determining whether the governance modelwould be close to or arms length from - the councils decision making are:

Control

Risk transfer

Cost/ value for money

Trading

Flexibility/scalability

Financial decoupling

80 The main report provides greater explanation of these points and sets out the pros and cons of theoptions that we have considered for the governance of any shared services arrangements. Wehave set out below one approach to moving forward.

One suggested approach to governance

81 In considering the options for governance we have reflected upon the governance outcomes thatwould need to be delivered by the recommended or selected solution and how it would best fit withthe service solution being proposed. These can be summarised as follows:

We understand that the councils favour a solution which is a public sector solution for thepublic sector. This implies that, at least initially there will be no significant private sectorinvolvement in the delivery of the SSO services see our comments above about where theprivate sector may add value. . We emphasise delivery because it is inevitable that some

external support will be required in terms of ICT and transition management.

We have set out the advantages of an incremental approach to developing the governance

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model in particular that less formal structures, which have flexibility, and are less costly toestablish and amend in the early stages of the SSO can be advantageous. We understandthat the councils are attracted to this approach, and several have expressed willingness to actas lead authority if a Joint Committee were chosen as the model.

EU procurement laws must be considered carefully and we have strongly recommended thatthe councils seek legal advice on the implications of recent judgements in the European Court.

The councils would not at this stage want to go through a full EU procurement exercise inorder to have the SSO discharge functions on their behalf. This requirement alone makes itdifficult to establish a new body corporate from Day 1 because, were this to be, for example, a

joint venture company, that company would not be deemed an emanation of state and wouldrequire successful EU procurement in order to discharge functions on the councils behalfs

There is a real need to reflect the role of elected members and provide proper accountabilityand responsibility for how services are delivered. Any governance arrangement must thereforereflect and accommodate these needs.

82 We have therefore concluded that the best balance to address the above drivers would be twophases:

Phase 1 Joint Committee umbrella committee with all authority composition for all sharedservices see suggested governance format for roles and responsibilities below.

Phase 2 subject to certain criteria, and in particular taking account of significant procurementissues, having a review stage when the project as proposed in the Economic Case isoperational to assess whether further benefit could be driven by moving to a more formalentity structure.

8. Project management case

83 Developing a major project of this nature will require dedicated resources for project management,a sound project plan that is monitored and reported against, appropriate budget allocation and a

dynamic approach to overcome staff concerns that will only increase if development is tooprotracted.

84 The project should continue to be managed according to Cardiff Councils Project QualityAssurance (PQA) standards, based on the OGC best practice PRINCE2 and Managing SuccessfulProgrammes (MSP), to ensure all councils are directly and equally involved in any decision-makingto take the project forward.

85 The Project should therefore be managed and co-ordinated as follows:

Project Mandate to give overall direction for Project;

Project Manager & Senior Responsible Officer appointed;

Steering Group to determine scope;

Project Initiation Document updated for each phase to give direction; and

Project Team Identified.

86 Governance and decision making will be provided by the South East Wales Shared ServicesSteering Group, reporting to the Connecting South East Wales Board. Local Authority SteeringGroup members will provide the strategic input and direction for each Local Authority. The ProjectManager for the South East Wales project will be responsible for day to day management of theProject and contract management of the supporting consultants. Local Authority Project Managerswill be responsible for coordinating the provision of local information and consultation during phaseone.

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87 The following diagram provides a logical mapping of the project hierarchy:

Critical success factors

88 Based on our experience elsewhere, there are a number of critical success factors for thesuccessful implementation of the shared service arrangements. These include:

Buy-in from the councils to the overall strategy

A clear measure of what would make the shared service a success

Agreed methodology for dealing with issues, disputes, risk, and change

Engagement of staff in the project and an agreed joint approach to communication and

consultation

Delegation of decision making to the right people for the right situations

Appropriate resourcing provided and a budget for specialist resources as identified

A robust project plan that covers the detailed business case development through tocompletion of delivery of the shared service operation.

High-level risk assessment and risk management strategy

89 The main report outlines an initial assessment of the key strategic risks faced by the councils whenconsidering the development of any shared service. The report also provides details of actions

which could mitigate the risk. The assessment needs to be updated on a regular basis and a fullrisk management approach developed within the project.

Project development

90 There will need to be the creation of an implementation strategy that is robust and appropriate witha project plan that covers the period from detailed business case development through tocompletion of delivery of the shared service operation.

91 We would see the key issues going forward as being:

Signed commitment from all councils to the shared service project development to the nextphased agreement point

The business needs of all councils are fully reflected and articulated in the outline business

Shared ServicesProject Team

Shared ServicesSteering Group

Connecting South East Wales BoardConnecting South East Wales Board

Local Authority SharedServices Project

Procurementsub group

Stakeholdergroups

PwC

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case

If the partnership is to be addressed in incremental stages that the project is broken down intological, sequential steps

Keeping the project under control by sound project management techniques

Development of a structured business change management plan

Establishing value for money tests for both councils and confirmation that the project isaffordable

Development of appropriate joint risk management for the project and risk management withineach council

Tasking the suggested working groups in support of the issues highlighted in this strategiccase to a clear timetable of deliverables

Confirmation of project resources to allow it to be implemented, including estimates ofadvisers costs and access to other skills necessary for the implementation.

Recognition of the burden that moving forward will create for councils and the fact that theywill need additional capacity to take forward the shared service agenda

There will be many staff concerns and these will need to be well managed through a soundjoint communication and consultation strategy to ensure the continuation of the currentperformance standards,

9. Conclusion

92 The overall conclusion is that all of the functions in question can benefit from sharing either interms of greater process standardisation and collaboration

93 From the Strategic Case we can conclude that adopting a more standardised and shared

approach to public service delivery across Wales would enjoy strong strategic fit. It is consistentwith WAG thinking and with many of the councils stated aims and objectives. Whilst the focus ofthis review is the 7 functions in question, we are strongly of the view that shared services in Walesshould have wider regard for the pan-public-sector and citizen centricity agendas espoused byWAG and which would make a significant difference to citizens day to day lives we see this asthe UK and international direction of best practice travel.

94 As far as this case is concerned, the fundamental strategic question is whether there is a way todeliver these functions with improved performance and greater efficiency whilst having the regardfor the special circumstances in SE Wales. The SOC indicates that there is and that that solution

needs to be tailored to the functions in question some solutions focusing on standardisation,others with a focus on shared service operations typically based on virtual structures andorganisation.

95 In the Customer case we have seen that there is a wide range of stakeholders all of whose views

and expectations will need to be managed. Perhaps the most significant conclusion from thecustomer case is the need to be seen to be delivering local services locally. This means that wherethere is a significant external customer interface (and Council Tax would be the best example)these aspects of the service are more likely to be successful managed as part of the overallcustomer services function within those councils. This is about joining up around the customerrather than joining up across authorities. However, the fact that aspectsof a service require local

customer service does not mean that the others aspects (ie, the more commoditised aspects)cannot be shared, in fact, on the contrary. So, as a general rule, our conclusion here is that lesscustomer-intensive aspects are more suited to this functional sharing. All that said, we also reaffirmour view that there is a strong argument for both pan-public sector front and back offices to fully

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deliver more customer centric services.

96 In the Economic case we have assessed each function around the options available according to

what, how, and when. We can conclude from this assessment that:

Service What How When

ICT Small scope Collaborativebasis

Incremental basis

Internal audit Large scope Shared servicebasis

On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate

Procurement Mediumscope

Shared servicebasis


Council tax andNNDR

Large scope Shared servicebasis


Debt recovery Mediumscope

Shared servicebasis


Training Large scope Shared servicebasis


HR / Payroll Large scope Shared servicebasis


97 The Financial Case for each function presents opportunities for cashable savings. However, the

payback period for each function varies significantly due to the potential investment required to

obtain the savings. The table below outlines the potential steady state savings from each of thefunctions:

Annual

Budget

Year 6

Savings % saving

ICT 36,593 63 0.2%

Internal Audit 5,154 587 11.4%

Procurement 4,223 334 7.9%

Council Tax and NNDR 13,226 1,581 12.0%

Debt recovery 3,615 270 7.5%HR / Payroll and training 29,349 2,315 7.9%

98 The table identifies that the greatest value () savings are Council Tax and NNDR and HR, Payrolland training, However, from a % of the annual budget perspective, the greatest % savings are

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Council tax and NNDR and internal audit.

99 Our analysis shows that the payback periods start from year 6 onwards, therefore the councils willeither need to pump prime the investment and transitional costs or seek grants, utilise existingcapital resources to fund the shared services arrangements. The potential cashable savings forthe majority of the functions provide reasonable payback periods, however, exploration ofalternative investment models will need to be analysed as part of the OBC to identify if the speed of

payback can be improved with greater up-front investment.

100 In the Commercial case we explored the issues around governance of the proposed SSO and its

relationship with each Council. During our analysis there were a number of areas that influencedour recommendations:

In general, the Councils favour public sector solution for the public sector;

The Councils are attracted to an incremental approach to developing the governance model;

EU procurement laws must be carefully considered;

There is a real need to reflect the role of elected member.

101 We have concluded that the best balance to address the above drivers would be two phases:

Phase 1 Joint Committee umbrella committee with all authority composition for all sharedservices see suggested governance format for roles and responsibilities below.

Phase 2 subject to certain criteria, and in particular taking account of significant procurementissues, having a review stage when the project as proposed in the Economic Case isoperational to assess whether further benefit could be driven by moving to a more formalentity structure.

102 In the Project management case we have concluded that the Councils should continue manage

the project according to Cardiff Councils Project Quality Assurance (PQA) standards, to ensure allcouncils are directly and equally involved in any decision-making to take the project forward. Aspart of the next stages of the project there will need to be the creation of an implementationstrategy that is robust and appropriate with a project plan that covers the period from detailedbusiness case development through to completion of delivery of the shared service operation.

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