Scrutiny Report ASD for Shared Services v12 Final FINAL DRAFT-5

8/6/2019 Scrutiny Report ASD for Shared Services v12 Final FINAL DRAFT-5

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Cornwall Council

Committee: Joint Corporate Resources and CommunitiesOverview and Scrutiny Committee

Date: 2 June 2011

Title: Alternative Service Delivery for Shared Services

Cabinet Member(s) Leader, Cabinet Support Member for AlternativeService 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 andDenbigh Cowley

Role: Director of Communities andHead of Service, Transformation

Contact: [email protected] ; 01872-32-2582

[email protected] ; 01872-32-2426
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Cornwall Council

Subject to Recommendation 6, Recommendations 1 to 5 be made toCabinet, namely that:

the Councils Shared Service platform be used to retain and create jobsin Cornwall.

the Council should aim to enter into joint arrangements with a privatesector partner that has complementary skills and can support the Councilin selling those services into a wider market.

the Council seek to procure a strategic partner to provide services forthe Council for a defined range of projects and with whom a Joint Venturecompany (the Company) will be established. .

The Company will be established in accordance with the followingprinciples:

(a)The Council will provide services (yet to be defined) to theCompany

(b)The Company will recruit its own staff and provide services to otherpublic 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 beconditional on appropriate business cases being fully approved byMembers.

Before Recommendations 1 to 5 are submitted to Cabinet for approval,

officers shall identify the most cost-effective approach to the procurementof the strategic partner and a budget for undertaking the saidprocurement.


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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 pullstogether additional work that has been done since that time. It builds onthe work of the Shared Services Single Issue Panel and a marketassessment that has been carried out. The market assessment looked atthe appetite, costs, benefits, mechanisms and options for setting up astrategic partnership between Cornwall Council and a partner to useCornwalls 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 consultancyservices to support transformation and who would also establish a JointVenture Trading Company. The Council will supply some staff and servicesto the Joint Venture and any jobs created that can be delivered remotely- will be located in Cornwall. Any services provided by the Council to theJoint Venture shall be charged at a market rate. In the future there maybe further involvement by public sector partners in the Joint VentureCompany and a transfer of Cornwall Council staff into this company.However, such transfers will be conditional on full business cases putbefore 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 partnercould result in the creation of between 391 and 1,174sustainable, non-seasonal, white-collar jobs in Cornwall by2018. These jobs would offer opportunities for careerprogression 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 consultancywork should be able to generate net revenue savings of

between 1million to 5million over the period of the initiativefrom the Councils Shared Services and Information Services.The scale of saving opportunities will depend on the scope ofthe project and the breadth of the partnership with local publicsector organisations.

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

Initial estimates are that the external costs of this could vary between200,000 and 500,000 depending on how much external support isused. Further work will be carried out before the recommendations areconsidered by Cabinet to fully profile these costs.


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5. Cost-benefits: The modelling shows that the benefits of the project

are expected to significantly exceed its costs. The cost of the Company islower over a seven year period than the in-house delivery option. Ofcourse this modelling is based on a series of assumptions. The mostimportant assumption is that Cornwall and its strategic partner would

make further efficiency savings and would be able to win one contract peryear for seven years.

6. It is estimated that savings from the consultancy element of thecontract will vary between 1million and 5million. The intention is thatthis work will be paid for on a reward basis so costs will only be incurredas savings are agreed and realised. This sum will exceed the costs of theprocurement. In addition it is estimated that Cornwall will benefit fromthe creation of 783 jobs by 2018. This gives an external procurementcost, 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 deliveryorganisations;

drafting a report for Cabinet on 13 July;

preparing for procurement.

This work will be taken forward primarily by the in-house projectteam that has been established.

Background:

8. This is a follow up report to the one which came to the CorporateResources and Communities Overview and Scrutiny Committees on 9December 2010 and was developed into a report for Cabinet on 12January, 2011. It also builds on the work of the Corporate Resources

Single Issue Panel on Shared Services which delivered its final report tothe Corporate Resources Overview and Scrutiny Committee on 14 April2011. One recommendation from the first of these papers was that theAlternative Service Delivery (ASD) programme for Shared Services shouldconduct soft market testing (a market assessment) to inform the optionappraisal process. This market assessment has now been completed andthe results are summarised below. This work also informed an OptionAppraisal Process which took place at the most recent Gateway ReviewPanel which met on 19 May, 2011. This Panel has previously discussedShared Services on 18 November 2010 and 18 March 2011.

9. The Council Business Plan sets the direction of travel for acommissioning Council that seeks opportunities to work more closely withCornwalls public sector and delivers more services jointly with a range of


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other partners. The ASD programme is looking at different servicedelivery options for a number of areas of activity. One of the areas withinthe 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 whitecollar transactional work in areas which are commonly termed backoffice (activities that customers dont experience themselves e.g. salarypayments to staff) and front office (activities that customers doexperience e.g. making a council tax enquiry at a one stop shop ortelephoning 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 andother 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 totalbudget of 18.7m in 2011/12. The implementation of EnterpriseResource Planning (ERP) and Customer Relationship Management(CRM) software are key enablers for the Shared Servicesprogramme. Training and developing the staff is a key element inthe development of Shared Services and there are already tangibleresults coming from major investments in this area. Over the next 12months further Council services will be migrated into SharedServices. This will increase the size and scope of the Service andincrease the potential to achieve greater savings.

12. The Gateway Panel met in November 2010 and considered fouroptions for Shared Services:

i.in house delivery continuing with the current delivery model withno trading;

ii. establishing a Cornwall Council owned company that deliversservices back to the Council and potentially operates under the

Teckal exemption. This exemption allows the company toundertake a small amount of trading with other parties;

iii. forming a partnership with a strategic partner who would investskills 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 externalorganisation.


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13. Officers presenting at the Gateway Panel in November put forwardthe option of the partnership as the option most likely to deliver jobs,investment, lower costs and higher performance. However, as there waslimited information about what the market felt about this option, the Panelrecommended that a market assessment be carried out to investigate the

strategic partnership option. The Panel asked for further work to becarried out on possible legal structures and the potential benefits of sucha partnership. This recommendation subsequently went to JointCorporate Resources and Communities Overview and Scrutiny Committeesmeeting on 9 December 2010 and to Cabinet on 12 January, 2011.

14. This detailed market assessment was carried out between Februaryand May 2011. The assessment included the publication of a PriorInformation Notice in the European Union Journal in March 2011. TheCouncil received expressions of interest from 59 suppliers. An informationpack 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 the24 organisations were invited to a further workshop involving officers andMembers. Each supplier made a presentation and discussions were heldon a range of topics. Following the workshop all suppliers were sent theresults of the market assessment work and were subsequently askedsome further questions. 21 responses to these questions were receivedand these informed a further workshop involving Chief Officers and keyproject staff on 11 May. Evidence from the market assessment is used inthis report and a summary of the results is included under Analysisbelow.

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) orwhether it wants to use the platform it has built and the considerableinvestments it has made - to attract investment and jobs into Cornwall.By selling shared services to others the Council could potentially increasethe size of its operations to retain and create jobs in Cornwall. The Councilasked the market how they saw this opportunity and also asked their

views on how any partnership could best be structured to ensure Cornwallcould achieve its objectives of retaining and creating jobs. A financialmodel has also been developed to test how many jobs might be createdover 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 eitherset up a wholly owned company or it could enter into a joint venturearrangement with a company interested in investing skills, commercialexpertise 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


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advantages and disadvantages of these approaches and this is set out inAnalysis 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 ThickJoint Venture to a much thinner Trading Joint Venture. Cornwall Councilwould need to charge a market rate for any services provided to a JointVenture Company. The two types of Joint Venture are described below:

i.The Thick Joint Venture would be a new company with ownershipshared between Cornwall Council and its partner. There would bean early, large scale transfer of Cornwall Council staff into thisnew Joint Venture Company which would provide services toCornwall Council under a service delivery agreement. The JointVenture Company would also seek to trade services with otherparties.

ii. The thin Trading Joint Venture would be a new company withownership shared between Cornwall Council and its partner. Therewould be no early, large scale, transfer of Cornwall Council staffinto this new Company. Cornwall Council would continue toreceive its shared services internally. The Joint Venture Companywould seek to trade services with other parties and as it won workstaff would be transferred into, or employed within, the Company.

18. The Gateway Review Panel considered the advantages anddisadvantages 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 anda strategic partner:

i.through procurement;

ii.Cornwall Council setting up the trading venture on its own andthen seeking a partner to buy shares (a trade sale).

The advantages and disadvantages of these approaches areconsidered in the Analysis section below.

20. Scope of services: Cornwalls Shared Service function is now in place

as set out above. However this function has the potential to grow toinclude other areas of white collar transactional activities. There is also aneed to improve the management of Information Services. Anyprocurement activity has to be clear about the scope of services soconsequently recommendations for scope have been developed. These areset out in the Analysis section below.

21. Partnering with Cornwalls public sector: Cornwalls 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 theCouncil is able to include partners such as Health Trusts, Colleges and


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Schools which operate within Cornwall - within the further developmentof Shared Services and within the scope of any procurement needs to beconsidered.

22. Cost-benefit: The Council needs to make sure that the likely costs of

investment (primarily the procurement or the preparation for andexecution of a trade sale) are significantly less than the value of thebenefits that Cornwall receives.

23. Governance: Appropriate governance arrangements need to be put

in place so that Cornwall Council Members and Officers retain anappropriate level of scrutiny of and control over: the procurement of astrategic partner; the oversight of consulting work; the oversight ofarrangements for establishing, directing and scrutinising the Trading JointVenture. This will need to include consideration of what veto powers theCouncil requires. In addition governance arrangements will need to becarefully worked out for scrutinising business cases for any possible futuretransfer of staff into the Joint Venture. Key mechanisms that will be usedto deliver this governance include the establishment of a Project Boardand a Steering Group as well as the appropriate development of Articles ofAssociation, 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 withCornwall from a wide range of companies including those established in

the market and new entrants. The scale, breadth, experience and visionof the Councils Shared Services offering plus the investment being madeand the Cornwall brand are attractive to potential new entrants. Keythemes from these discussions were as follows:

i.There is a wide consensus that in order to gain first moveradvantage the deal has to be done quickly to take advantage ofspending pressures and legislative change;

ii. There are major potential new entrants to this market whowould commit to a significant people resource and / or financialinvestment in Cornwall in order to establish a presence in theShared Services market. These companies would be unlikely tocompete equally in a traditional approach to the market focusedon prior experience;

iii. Some see the market for a broad range of Shared Services asprimarily local government while others see a wider marketopportunity either in terms of industries and /or geography;

iv. All companies would welcome a phased or incremental approachto the partnership;

v. Most companies would like a wide scope. Common suggestions

were to include: aspects of procurement, enabling mobile workingand a wide range of professional services;


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vi. There is consensus that a lean competitive dialogue is the mostappropriate procurement route but that this has to be wellplanned, properly resourced and the Council has to be clear aboutwhat 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 wouldexpect an appropriate degree of control;

ix. The strategic partnership could be secured either through aprocurement to establish a joint venture company with a servicecontract or through the sale of shares in a company created byCornwall Council.

25. As part of the options appraisal a financial model has been developedwhich estimates Net Present Values and the job creation potential of each

of the following options over a seven year period: in house delivery; inhouse delivery with a wholly owned trading company; strategicpartnership for a Thick Joint Venture; strategic partnership for a TradingJoint Venture. The main assumptions made are that:

i.With a wholly owned trading company Cornwall Council would winone significant new contract every two years. The initial contractwould be worth 117 jobs but each year economies of scale wouldreduce the number of jobs required to deliver each contract by10%.

ii. With either form of strategic partnership the Joint Venture

Company would win one significant new contract a year worth150 jobs but that each year economies of scale would reduce thenumber of jobs required to deliver each new contract by 10%.

iii. Only the Thick Joint Venture because of the incentive of amajor boost to the companys turnover with a service contractworth several hundred million - would be able to transfer 250 jobsinto Cornwall by the end of year one and 250 additional jobs bythe end of year 2.

iv. The results of this modelling are summarised below:

Option Net PresentValue of costs toCouncil over

seven years

Estimated jobscreated at endof year 1

Estimated jobscreated at end of year7

[Assume 50% marginof error]

In house delivery -84.6m 0 0

Wholly ownedcompany

-86.6m 0 317

[Low estimate 159,high estimate 476]

Thick Joint Venture -80.8m 150 783

[Low estimate 391,

high estimate 1,174]


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Option Net PresentValue of costs toCouncil overseven years

Estimated jobscreated at endof year 1

Estimated jobscreated at end of year7

[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 otherCouncils. Within the last few weeks, the London Borough of TowerHamlets and West Sussex Council have both gone to market for 7 and 10year contracts for the management, delivery and transformation of

Information Services and aspects of what The Council term SharedServices. Lancashire County Council has just signed a 10 year 400mpartnership deal to form a Joint Venture into which 800 staff will transferto deliver back-office and front-line services. The view of the GatewayReview Panel was that the market assessment and level of procurementactivity supported the view that Cornwall Council has a timely opportunityto optimise its considerable investment in Shared Services by competingin a competitive market and that it should therefore identify the best wayto move forward.

27. How to trade: The Gateway Review Panel considered the advantages

and disadvantages of the Council establishing a section 95 company. Theadvantages and disadvantages are set out below:

Topic Advantages Disadvantages

Jobs and investmentfor Cornwall

Some new jobs (estimate317 by year 7)

No jobs transferred in bypartner and no externalinvestment into Cornwall

Financial risk - Cornwall Council needs tofund working capital

(estimate of exposure isabout 2m) and under-write contract risks from

reserves. This includesfunding unsuccessful bidsand redundancies outsideCornwall when contractsare won and staff wont

transfer.

Surplus for Council Retain 100 % of any

surplus

-

Trading - No commercial expertisetransferred in and noadded credibility of trading

with a partner


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lead the go to market trading company and would also be engaged tosupport service improvement and provide other services back to theCouncil.

32. The Gateway Review Panel considered the advantages and

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



Likely high level of interestfrom market and potentialfor significant investment inCornwall including the

transfer of jobs into thecounty (estimate 1,283 by

2018-19).

-

Financial risk Partner underwritesfinancial risk includingfunding working capital.

-

Surplus for Council - Only retain a % of anysurplus.

Trading Commercial expertise istransferred in along with

the credibility of a majortrading partner.

-

Set up costs - Significant procurementcosts need to beincurred by CornwallCouncil.

Control for Council - Some loss of control andpossible concern from

staff.

Ease Relatively straightforwardprocurement approach.

-

33. The Gateway Review Panel also considered the advantages anddisadvantages of establishing a Trading Joint Venture. The advantages anddisadvantages are set out below:



Likely moderate level ofinterest from market and

some investment inCornwall including anestimated 783 jobs by2018-19.

Little leverage to securetransfer of jobs into

Cornwall.

Financial risk Partner underwritesfinancial risk including

funding working capital.

-


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Surplus for Council - Only retain a % of anysurplus.

Trading Commercial expertise istransferred along with the

credibility of a majortrading partner.

-

Set up costs - Significant procurement

costs need to beincurred by CornwallCouncil.

Control for Council Little loss of control andunlikely to be as muchconcern from staff as and

significant transfer wouldbe subject to business case

and Member approval.

-

Ease - Fairly complexprocurement approach.

34. The Gateway Review Panel felt that although the Thick Joint Ventureoffered a greater likelihood of more jobs the Panel had concerns aboutthis option because of the possible reduction in accountability and controland the risk of causing concern among staff. This was particularly likelyto focus on possible future changes to terms and conditions. The Panelfelt that the Trading Joint Venture may result in fewer jobs but was less

likely to cause organisational concerns. The Trading Joint Venture alsohad the advantage that there could be an incremental move of staff intothis vehicle to create a thicker Joint Venture over time, if thepartnership proved itself and conditional on Member approval of businesscases.

35. The table below therefore summarises the Gateway Review Panelsview of the three options:

Option Likelihood of success;

Likely level of acceptability.

Estimate of newjobs at end of

year 7

Whollyownedcompany

Least likely to be successful in terms ofcreating jobs

Unlikely to be acceptable (scale of Councilworking capital required and needing to beput at risk)

317

Thick Joint

Venture

Likely to be successful

Less likely to be seen as acceptable (scaleof early staff transfer)

1,283


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Option Likelihood of success;

Likely level of acceptability.

Estimate of newjobs at end ofyear 7

Trading

JointVenture

Quite likely to be successful

Likely to be acceptable.

783

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

could be established either through procurement or through a tradesale. The advantages of procurement are that it is: well-understood bythe market; possible to complete in 9 months; and, if the competitivedialogue approach is followed, it lets Cornwall Council develop potentialsolutions 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 itis selling. The disadvantage of this approach is that Cornwall Councilwould have to establish the Trading Company on its own and runs the riskof 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 transactionalservices. This offers the prospect of further opportunities to reducetransactional costs and improve performance. In phase one there isinterest in working with a strategic partner to look at possible differentdelivery 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 deliveryorganisation and / or the procurement of management expertise andcapacity along with associated technology.

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

39. In the longer term, if the partnership proved successful thensubsequent phases could be agreed through a business case process andmight extend the scope to:

i.aspects of procurement (strategic sourcing and categorymanagement);

ii. enabling mobile working (to underpin property rationalisation);

iii. a wide range of professional support services such as absence

management; accounts production; application development;


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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 complexityand cost of the procurement but also increases its attractiveness to the

market. It also potentially reduces the need for future procurements. Ifthere is anything that is definitely excluded from scope then this should bemade clear in the Contract Notice as this simplifies the procurement.

41. Partnering with Cornwalls public sector: the view of the Gateway

Review Panel and Senior Officers is that that Cornwall Council should seekpublic sector partners for this venture. Herefordshire has alreadytravelled in this direction and West Sussexs current procurement (seeabove) involves local hospitals. This partnership approach potentiallyincreases the risk and complexity of the procurement but also increasesthe size of the opportunity for the strategic partner and the size of the

potential market that the Trading Company could reach. There has beena workshop of Cornwalls Public Sector Group focused on the opportunityas well as separate discussions with organisations including CornwallCollege, the Primary Care Trust and Cornwalls three health deliveryorganisations (Royal Cornwall Hospital Trust, Cornwall FoundationPartnership Trust and Community Health Services). Follow up meetingsare scheduled for June 2011.

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

process (including internal charging for a project team) is between200,000 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 whichshows that if a decision is made at the July 2011 Cabinet meeting then astrategic partner could be appointed by March 2012 the Trading VentureCompany beginning to operate in July, 2012. As explained above it isestimated that savings are likely to be between 1million and 5millionfrom the risk-reward element of the contract. In addition it is estimatedthat 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 theprocurement up until the recommended award of a contract. Award of anycontract will be a Cabinet decision. It is recommended that the Boardshould include key Members, Chief Officers and the Councils MonitoringOfficer. It should also include partner representatives if they have made afirm commitment to being part of the project. It is also recommendedthat consideration be given to the establishment of a wider SteeringGroup which could include wider Member and union representation and aStaff Reference Group. Further work on establishing governance will takeplace over the next few weeks in preparation for the meeting of Cabineton 13 July, 2011.

Consultation:


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44. With Members: As described above, the option of establishing a joint

venture arrangement to support the delivery and marketing of SharedServices has been discussed with the Gateway Review Panel on threeoccasions since November 2010. The other main discussion with Membershas been at the combined Corporate Resources and Communities

Overview and Scrutiny Committee meeting in December 2010 and at theShared Services Single Issue Panel in April 2011. In addition the Leader ofthe Council, the Chair of Corporate Resources OSC and the CabinetMember for Resources all participated in the market assessmentworkshops with potential suppliers in April 2011.

45. A recurrent theme from consultation is that a set of clear principles isneeded to steer the project. The proposed principles are set out below:

i. Cornwall Council must retain strategic control and oversight ofservices for Cornwall residents. Operational control of staff may betransferred to a new company over time but will be subject to afull Business Case and Member approval.

ii. The strategic partner must be willing and able to work withCornwall Council and other public sector bodies;

iii. Council funding should not be used for the costs of bidding forcontracts;

iv. The partner should be a company with a demonstrable track recordand a commitment to good industrial relations and valuing itsemployees;

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

vi. Existing and new business should be located in Cornwall whereservices can be delivered remotely;

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

viii. There will be no transfer of ownership of assets (for example landand buildings) unless there is a tangible return of equal or greatervalue 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 isunderway. Unions have been briefed at their regular weekly meeting withcolleagues from Human Resources. Unions are also represented on theGateway Review Panel. Staff in Shared Services have been briefed as partof the Directors and Heads of Service engagement plans. To datehowever, this engagement has been very broad. As part of the proposedgovernance of the project a staff reference group will be establishedwhich would nominate a representative to sit on the Project Board. Thiswould give staff genuine involvement in the project including, for

example, contributing to the evaluation of supplier proposals. This isimportant because although there are no proposals to transfer staff this


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could be part of the scope of Phase 2, subject to Member approval of a fullbusiness 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 Cornwallshealth organisations, Cornwalls two Further Education Colleges,Cornwalls Association of Primary Heads, Cornwalls Association ofSecondary Heads and the Combined University of Cornwall. This tookplace on 19 May 2011. In addition, there have been one to onediscussions at Chief Executive level with the Chief Executives of each ofthe health organisations in Cornwall and Cornwall College. Follow upsessions with each of the health delivery organisations are beingorganised 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 marketin order to seek to retain and create jobs in Cornwall. Evidence to backthis conclusion comes from the market assessment, financial modellingand the current level of activity in the market. To exploit this opportunitythe 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 toretain and create employment in Cornwall. Any credible partner mustaccept the Councils principles and be prepared to make a significant

investment in Cornwall in terms of skills, capital and intangibles. Theapproach will be to make a prudent investment against the potentialgains. 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 provideconsulting support on a risk-reward basis and also establish a TradingJoint Venture. If the partnership proves itself successful there could be alonger term transition towards a Thick Joint Venture. This will be subjectto a detailed business case, developed through the governance group andapproved by Members.

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

consultancy services and the potential supply of services to public sectorpartners, a European Union compliant procurement process will benecessary. Due to the complexity of the project, this will be via acompetitive 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 keyprojects (e.g. scanning);


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ii. The setting up of the Trading Joint Venture Company.

53. Phase 2 of the project will be conditional upon the performance ofthe strategic partner/Trading Joint Venture Company and should be linkedto a business case approval process. Phase 2 potentially involves three

elements:

iii. the transfer(s) of Council (and / or partner) staff to the TradingJoint Venture Company;

iv. the inclusion of named partners as equity holders in the JointVenture Company;

v. additional projects.

54. The scope of services that the trading joint venture company cantrade in and which may eventually transfer to the trading joint venture

should include Shared Services and aspects of Information Services. Itshould be made clear in the Contract Notice that there is the potential forShared Services to grow into other areas of white collar transactionalactivities and those areas listed above should be named. It should bemade explicit that areas such as facilities management, propertyrationalisation and all other areas of Alternative Service Delivery(Neighbourhood Services, Housing and Leisure) are outside scope.

55. Partnering with Cornwalls public sector: It is important to seek to

involve partners either as potential beneficiaries of the arrangement or aspotential equity partners. Because the project is currently being driven by

Cornwall Council there are inevitably questions about whether anypartners will be ready in time. For this reason it is important that theContract Notice is structured so as to enable partners to join at a laterdate.

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

because the additional savings from the partnership will exceed the costof the procurement. In addition, it is estimated that a Trading JointVenture will generate 783 additional jobs in Cornwall within 7 years.However it is important to do further work before reporting to Cabinetwhich includes looking at options to reduce the external costs of the

procurement while taking care not to reduce capacity to a level where thequality 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 issubmitted. This should build on the proposals set out above. Detailedgovernance arrangements for the oversight of the contract, including theTrading Joint Venture, need to be worked out as part of the competitivedialogue process.

58.Principles: It is also proposed that the Cabinet report should ask for

approval of the principles set out under the Consultation section.


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59.Glossary of Terms

(For the purposes of this report only)

Term Explanation

ASD Alternative Service Delivery - the name of a programme CornwallCouncil has put in place to assess the advantages and

disadvantages of different methods of delivering services. Theprocess compares the existing method against a spectrum ofoptions such as in-house delivery, forming externalorganisations, joint delivery with partners and outsourcing.

CRM Customer Relationship Management business software thatsupports the efficient processing and management of informationabout customers of the Council. This makes handling customercontacts easier and more effective. The Council has purchasedLagan software.

ERP Enterprise Resource Planning integrated business softwarewhich supports efficient processing and management of theorganisation across areas such as budgeting, finance, people,

payroll, procurement, assets and business intelligence. An ERPsystem such as Oracle (which Cornwall Council has purchased

and is currently implementing) supports more efficientprocessing and better informed forecasting, planning and

decision making.

Joint Venture

Company

Two or more parties forming a new company to deliver a

common project or series of projects. In this context a companyin which a private sector partner forms a company in which theCouncil will hold some shares and which is intended to tradewidely in the field of Shared Services.

Net PresentValue

The value today of future cash flows. This is a standard financialtool to compare different projects.

Outsourcing Contracting a business function or certain services to an externalorganisation to deliver on the Councils behalf.

Partnering means the activities of the members of the Public Sector Groupin Cornwall to work more closely together to improve services tothe public and value for money. Includes health organisations,Colleges etc

Risk-rewardConsulting

Projects are let on the basis that the provider of consultancyservices is rewarded largely or partly on the basis of results (inthis case results are likely to be focused on either identifying ordelivering savings).

Shared Services The provision of services by one single part of the Authoritywhere those services had previously been found in several parts

of the Authority. It is a service delivery model which improvesthe efficiency and effectiveness of transactions (including

customer contact) through a channel and skills based model. It isunderpinned by investments in Information Systems such as ERP(see above) and CRM (see below).

Strategic

Partnership

The relationship between the Council (and potentially public

sector partners) and an external organisation(s) where theparties work together to achieve agreed purposes and undertakecertain tasks, whilst ensuring, where ever possible, the genuineflexibility in the relationship to adjust to changing circumstances.


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Term Explanation

Thick JointVentureCompany

Term used to describe a Joint Venture arrangement where asignificant number of staff from Cornwall Council are transferredinto a Joint Venture Company and the company provides servicesback to the Council under a service delivery agreement.

Cornwall Council would have to charge market rates for servicesprovided to this Company.

Trading JointVenture

Company

Term used to describe a Joint Venture arrangement whereCornwall Councils strategic partner establishes a company in

order to trade services with other parties. There is no significanttransfer of staff into this Joint Venture hence it is seen as

thinner than the thick Joint Venture described above. CornwallCouncil would have to charge market rates for services providedto this Company.

Working capital Cash required to run a business (for example to pay salariesand to meet redundancy costs if a Cornwall Council wholly ownedcompany won a contract to deliver services for a London boroughbut staff decided not to transfer to Cornwall and this was notdeemed suitable alternative employment and the company wasobliged to make redundancy payments.)

END

Supporting Documentation:

Appendices:

Appendix 1 - Alternative Service Delivery Shared Services options - scoresheet (this is an important appendix from the Outline Business Case whichis 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 outbefore the cabinet report.

(i) Financial and Value for Money:


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There are financial implications arising from this report as set outbelow:

The initial work estimates net savings of somewhere between 1mand 5m over the period of the initiative. This is based on someextremely simplistic calculations and will need significantly morework to provide more robust figures before the procurement isundertaken.

There are also other significant financial implications that will needto be addressed in the detailed process and implementationplanning 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 Councils agreed budget.The final report to Cabinet will have to identify a source of fundingto cover this cost.

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

(ii) Staffing

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

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

(iii) Risk(s)

Risk Register Reference: N/A

Overall Risk RegisterRating:

Green Key risks needing managing:- procurement timescalesand costs;

- supplier relationships;- partner relationships;- communications.

(iv) Opportunity / Opportunities

Exploiting existing investment in Shared Services to build a sharedservice industry in Cornwall

(v) Legal


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There are a number of significant legal implications to beconsidered as this project progresses and which have beenidentified in the report. Key examples are the procurement processand the governance arrangements for the proposed company, bothof 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 andDemocratic 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 inCornwall in particular Health Trusts and Colleges involved in theproject. Options for partners include being named as potentialequity partners or being named as potential beneficiaries.

Documents

Scrutiny Report ASD for Shared Services v12 Final FINAL DRAFT-5