Externalisation of public services



Local Authorities’ funding allocation from Central Government has continued to be reduced in real terms whilst the costs of statutory service provision requirements ( Education, Social Services etc.) are rising The authorities are having to make hard decisions about which services are to be provided and how the provision is to be structured.

The Compulsory Competitive Tendering ( introduced by the previous Government) and Best Value regime (brought in by the present Government) has lead to public services being delivered on a contract basis, often by for profit companies not necessarily employing local people, not necessarily having long term commitment to development of local services and often failing to provide decent employment conditions for their staff. Profits from these contracts are extracted to remote shareholders.

One of the alternative options for local authorities is to externalise the management and operation of the service to an employee controlled not for profit organisation.

  • Key issues for the Local Authority
  • Keeping the service operational
  • Cost savings
  • Political acceptability
  • Reduced demand on central services
  • Ownership
  • Meeting Best Value criteria
  • Long term control over quality of service delivery
  • Staff consultation
  • Transfer of undertakings
  • Trade Unions
  • Acceptability to the users.
  • Key issues for Staff
  • Job security
  • Employment conditions & pensions
  • Training needs
  • Commitment to service.

Potential Opportunities and Benefits for the Local Authority:

  • Avoid spiral of cuts and long term decline of services to the community
  • Financial savings though taxation
  • Surpluses can be reinvested (ring fenced budgets)
  • Council can retain assets
  • Independent organisation can attract external funding and act as partner with authority in bidding
  • Jobs are retained and kept local
  • Ideology fits with council commitment to services, employee empowerment and customer focused service provision.

for the Staff:

  • Retaining jobs
  • Empowerment and ownership
  • Better training and development opportunities
  • Faster and more flexible decision making
  • Necessary conditions
  • Need for change (catalyst e.g. funding cuts, redundancies, reorganisation)
  • LA members and lead officers commitment to finding alternative ways for service delivery
  • Business viability of service as independent operation
  • Staff and Trade Unions’ commitment
  • User acceptability
  • Ability of the organisation and the people to change and to deliver
  • Availability of advice
  • Process
  • Committee agreement to investigate option
  • Feasibility study
  • Initial staff consultation
  • Trade Union consultation
  • Committee agreement in principle
  • Detailed Proposal including Business Plan
  • Staff and management skills analysis
  • Comprehensive staff consultation
  • Indicative balloting of staff
  • Agreement with Trade Unions
  • Detailed Committee agreement to go ahead
  • Secret ballot of all staff
  • Staff and management training programmes
  • Legal structure in place
  • Contractual arrangements in place
  • Management of seamless transfer
  • Role of Advisors

The transfer team would use both internal and external advisors during the process. Main areas where advice would be required:

  • Business development
  • Legal issues, including suitable legal structure, contracts, transfer of undertakings
  • Taxation & VAT
  • Pensions
  • Participative management models
  • Staff and management training and development