All eyes are on the groundbreaking multiservice contracts being pioneered by a handful of local authorities. Success could mean more money for cash-strapped public services, but there are no guarantees

The saying ‘don’t put all your eggs in one basket’ is a cliché that some local authorities appear not to have heard. Or perhaps they are simply choosing to ignore it as the number of procurement notices seeking partners for a new kind of broad-ranging multi-service contract begins to grow.

These new contracts, covering services considered outside the council’s core activities, package the commonly outsourced – information technology, catering and cleaning – together with new entrants to the outsourcing scene – human resources and finance, for example.

And there is no shortage of bidders.

Their emergence has coincided with the advent of the government’s best value regime under which councils have been told they should not be delivering services directly if other more efficient and effective means are available. Unlike the old adversarial regime of compulsory competitive tendering, best value allows authorities to make up their own minds about whether a service can be better provided by the private sector.

It seems already that a number are convinced that the greater economies of scale promised by broad-based contractors should be explored.

Eyes opened

It was during negotiations over a smaller outsourcing contract three years ago that Bedfordshire County Council had its eyes opened to the potential benefits of including more non-core services. The ‘partnership programme’ started out as the simple transfer of old people’s homes to an independent provider and finding partners to take over payroll and property services.

Discussions with bidders, however, revealed how including more services and placing them under one contract would introduce economies of scale and make the package far more interesting from the private contractor’s perspective.

How would councillors prefer to spend cash, on backroom services or on putting a teacher in a classroom. The answer is obvious

Tony Lubman, Capita

At the beginning of this year the council put out to tender a strategic partnering contract, worth £25 million, to provide a range of facilities, IT, finance and personnel management services.

‘We want to direct as much of our budget as possible to frontline services which means our support services have to be financially viable,’ says Hywel Jarman, a spokesman for and a member of the strategic partnering project team. ‘Therefore councils need to look at more creative ways of investing in those support services, something we cannot do as well as the private sector.’

The contract prompted 15 expressions of interest, with three companies shortlisted: Capita, Ensign and Hyder Business Services. The preferred bidder will be announced in October, further negotiations will then follow, with the contract expected to start in April 2001.

Multi-service interest

In Middlesbrough, the response to the council’s invitation to tender for a £17 million a year contract to provide services from facilities management to IT, accounting and personnel, was equally encouraging. More than 40 firms put their names in the hat to be considered for the role of strategic partner. On the shortlist now are: Amey Vectra, Capita, Hyder Business Services and PriceWaterhouseCoopers.

To Tony Lubman, director of business development in local government at Capita, it is no surprise that councils are keen to explore multi-service contracts.

‘If you ask council members how they would prefer to spend their money, on backroom services or on putting a teacher in a classroom, the answer is obvious,’ says Lubman, who has 17-years’ experience in local government on his CV.

Middlesbrough’s decision to package together a whole host of services under one contract came from a consultation exercise looking into its business processes and how the council’s ‘customers’ access services. It found room for improvement on both fronts. Partnerships with the private sector were considered to be the best route to achieving those improvements.

Councils need to look at more creative ways of investing in support services, something we cannot do as well as the private sector Howel Jarman, Bedfordshire’s strategic project team

‘We have chosen this route because we want a step-change in the quality of our services, the ability of people to access those services and the level of investment in those services,’ explains Peter Gould, corporate director in charge of Service Middlesbrough, the strategic partnership project. ‘Our customers’ priorities are quality and price, not who delivers the service. And we have deliberately sought partners who can show innovation and creativity in delivering those services.’

History lessons

With all this talk of savings, investment and innovation, it is hard to see where the downside of these strategic partnerships could be. But there are lessons to be learned from some of the forerunners to these multi-service contracts – the outsourced IT deals, specifically those to administer housing benefit services.

Serious delays in assessing claims occurred after Capita took over the service for London’s Lambeth Council. The London Borough of Hackney reported difficulties with its service provider ITNet, as did Sheffield City Council with CSL, while down in Somerset Taunton Deane Borough Council has come to a mutual agreement with CSL for the service to be returned to the in-house team.

A variety of reasons have been given for the problems with these deals. Housing benefit is a notoriously difficult service to provide and contractors claim they have often been brought in to salvage an already troubled situation. Problems also arise when they are faced with taking on contracts designed around old-style adversarial CCT deals. Contractors also claim that they are subjected to a level of scrutiny far in excess of that aimed at in-house providers. In addition, they are being judged on their performance in the early days of what are generally long-term contracts.

But contractors may have to accept a degree of blame after some among their ranks have admitted under-estimating the task ahead. A spokesman for ITNet recently admitted that the company had under-estimated the work involved in the Hackney contract.

The lesson from these contracts then is that evaluation and preparation are crucial to a successfully outsourced service.

This is a lesson both Bedfordshire and Middlesbrough councils have taken on board. Both have opened their doors to all the shortlisted bidders and given them access to staff, data and business processes. Bedfordshire has also brought in a team of external advisers – for example, KPMG to examine the arrangements for the financial part of the contract, and law firm Eversheds to examine the personnel provisions.

You are handing over total responsibility for the management of a range of services. If you pick the wrong animal you have got a major problem on your hands

David Pearson, DJP Consultancy

‘We are not going into this blind,’ says Jarman. ‘By the time we get to the preferred bidder stage we [the council and the contractor] will have a very good understanding of each other’s business and a lot of time will have been saved by going through the nitty-gritty in advance. The invitation to negotiate will be a huge document, probing every imaginable area of the contract that the preferred bidder needs to answer. We are really putting them through the mill.’

Going into detail

A detailed consultation and negotiation period is also essential from the contractors’ perspective. Local government does not operate under the same rules, regulations and practices as the private sector and an understanding of its particular pressures and idiosyncrasies could make or break a contract.

‘It is crucial from the provider’s side to understand the democratic and service culture that exists on the client’s side,’ explains John Graveling, public sector accounts director at Amey Vectra. ‘Traditionally, the private sector has been able to choose its clients but the public sector does not have that choice.’

One notable factor in the handful of multi-service contracts out to tender or already awarded is a preference for the well-known, large, broad based contractors. The same names appear on the shortlists – Capita, Hyder, Amey. Middlesbrough weeded out the smaller more specialised companies from the 40-plus that initially tendered and has made no secret of its preference for a bidder with clout, which means, according to Gould, ‘a substantial track record in the field of public and private sector partnerships and the ability to deliver a range of services’.

This preference could bode ill for smaller, more specialised contractors, unless they join a consortium bid to exploit a unique or niche expertise or service.

Handle carefully

Although only a few multi-service contracts have gone out to tender so far, many are predicting that this is the future for non-core services in local government. But despite their promises of economies of scale, innovation and capital investment, not everyone is convinced they are the perfect answer to the prayers of cash strapped local authorities.

‘You are handing over total responsibility for the management of a range of services. If you pick the wrong animal you have got a major problem on your hands,’ warns David Pearson, procurement specialist and managing partner of DJP Consultancy. Pearson believes that councils may be guilty of jumping on the latest bandwagon. ‘Councils may be getting into ‘total FM’, as it has always been known, because they see it as a panacea to all their management problems. But it is a sophisticated animal, which will require careful handling,’ he warns.