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Making the most of the market

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Councils should have a more open-minded and creative approach to the market if they are to realise the government’s efficiency savings.

Test private provision

When the contract for providing East Cambridgeshire DC’s revenues and benefits services came up for renewal in 2004, the council felt it needed to weigh up the different options for delivery.

Over the preceding years the market for privately operated revenues and benefits services had shrunk, explains Alex Colyer, the council’s director of finance. Large companies, which might once have been interested in contracting with the council, had now moved on to bigger things and few would have responded to a council tender.

So the council asked the existing private provider to come up with its proposed price and service improvements, but at the same time decided to examine taking the service back in-house, something it is also now doing for its contracted-out office cleaning service.

“We started with some preliminary calculations and ended up doing a fully costed appraisal, including structure and delivery options,” says Mr Colyer. “The process provided a way of challenging the existing private-sector provider.” In the end the council has pursued a third alternative, a partnership with two neighbouring councils. “Traditional market testing would not have been successful,” says Mr Colyer. “It might have tied our hands to a cost and service that we would not have rated in the future.”

Scrutinise council services

Warrington BC was not satisfied with being rated as ‘excellent’, according to Yvonne Bottomley, the council’s strategic director of corporate services. “We needed to be far more business-focused and wanted to become ‘outstanding’,” she says.

To make the changes needed the council felt that the Audit Commission’s value for money profiles were not sufficient for the job in particular they could not be applied to all council services so it decided to work with consultant Deloitte and to adapt a planning tool from the private sector. This would also allow the council to compare its cost of service delivery with those in the private sector.

The resulting ‘business intelligence framework’ was used to review the council’s top 90 services, examining their cost and performance; whether they could be delivered more efficiently, for example by someone else; and what was their contribution to the council’s overall ambitions.

“Putting the tool together and adapting it for the public sector was not easy,” says Ms Bottomley. “And taking the organisation with us was a difficult journey.”

But the impact has been “quite dramatic”, she says. Overall, the initiative has produced efficiency savings for each service of 3-10%. And the decision to create a central business support centre serving all directorates resulted in a 20% reduction in costs, equivalent to savings worth£1m.

Make suppliers compete

When Croydon LBC first gave out its contract for installing new kitchens and bathrooms, as part of the government’s Decent Homes initiative, it proceeded cautiously.

“We wanted to spread the risks,” explains Bob Richardson, the council’s programme works manager.

Sharing the annual contract of£10m between two suppliers would provide the council with a fall back if either supplier became overstretched or failed to deliver.

By year three of the project, however, the council wanted to drive down costs faster. So it told the two suppliers that they would be operating in competition with each other.

“Performance went through the roof,” says Mr Richardson. “Every property was delivered without defects, costs fell by six percent, and there were virtually no complaints from residents.”

What was more, both of the suppliers were getting the work done within 12 days compared to their target of 20.

In 2007-08 the council was tempted to change the contract arrangements again; it wanted to know if it could achieve savings in council overheads by using one supplier, or whether this supplier would then become complacent.

After an evaluation of the two contractors, the council gave the majority of work to the best performer, but continued to work with both of them.

This has secured further benefits, explains Mr Richardson: “We have made savings in overheads, the second supplier still has a presence in Croydon, and the primary supplier is motivated by feeling someone else is looking over their shoulder.”

Enter into direct competition

Before 2000, Norfolk CC’s education department contracted its own transport arrangements, but this had negative results.

“There was a complete lack of competition in certain parts of the county,” says the council’s head of passenger transport, Tracy Jessop. “They [the operators] virtually had a licence to print money.”

Following a council-wide review, the departmental transport arrangements were brought together under one contract, with some work going to Norfolk County Services (NCS), a wholly owned council subsidiary.

NCS did the same work with fewer but larger buses. Where previous operators took the view ‘why invest in buses if children will damage them?’, NCS was willing to purchase a new fleet and work with schools to make sure they didn’t.

A recent review has concluded that NCS’s lower costs, compared to other transport operators in the county, are making savings for the council of£134,000 per annum.

But using NCS is not just about efficiency, its also about instilling parent and passenger confidence. “With an in-house fleet of our own we can clearly state the quality in terms of seat belts and CCTV that we want to see from other providers,” says Ms Jessop.

Review procurement policies

In the last financial year, 2006-07, Camden LBC secured£17.5m of savings with its efficiency programme. This year the council added its procurement practices into the programme, and set a target of saving£2m.

First it allocated its£400m spending into ‘buckets’, such as construction, care, corporate services, then it made a detailed examination of what savings could be made.

“We had 11,000 suppliers almost two for every member of staff,” says Deborah Day, head of corporate efficiency and procurement. Having 80 different security services was too many, and the council’s plan to reduce them to two or three who were then in competition with each other, and from whom the council can ask for improvements made obvious sense.

The review has also identified a number of strategic suppliers those who get significant work from the council and/or operate key services and in the future the council plans to make further savings by helping these suppliers with their own purchases.

“We are a leading council, we want to work with the best suppliers and we want to be more commercially focused,” says Ms Day.

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