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Outsource magazine: thought-leadership and outsourcing strategy | August 20, 2017

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One Barnet: the inside story of a game-changing and controversial public sector outsourcing

One Barnet: the inside story of a game-changing and controversial public sector outsourcing
Outsource Magazine

On the 5th August 2013, the London Borough of Barnet entered into contractual arrangements for two major outsourcing contracts which will redefine the way in which public bodies deliver services and act as a commissioning template for the future. The two projects, one for the outsourcing of support and customer services and the other a joint venture for development and regulatory services, were key components in the Council’s One Barnet programme – which involved several large-scale change projects and major procurements.

It also changes how the private sector will interact with public bodies who are commissioning authorities.

These outsourcings will be of interest to readers not only because of the value – approximately half a billion pounds of services in two simultaneous contract awards – the varied range of services from environmental health and licensing through to cemetery management, together with more run-of-the-mill services, such as IT and HR; the fact that the Council’s private sector partners will be acting as the Council’s agent and managing some existing partnerships with the private sector (for example, property development and regeneration agreements) – but also because the legalities of the outsourcings have been twice tested and survived reviews in the High Court and the Court of Appeal.

One Barnet was conceived against too familiar a backdrop of increasing service demands and continued decreases in funding. Barnet found itself faced with a difficult choice of surrendering to severe cutbacks or to look at new ways in delivering services. The programme has at its heart three overarching aims: to build a new relationship with citizens, shape a one-public-sector approach, and stimulate a relentless drive for efficiency.

The two outsourcing contracts are an important part of One Barnet but are not the only projects involved. The One Barnet programme involves a number of other major change projects which run across the Council, including a Local Authority Trading Company for adult and social care (“Barnet Cares”), the joint legal services with the London Borough of Harrow, a new parking services contract, community coaches and passenger transport projects.

The Support and Customer Service Outsourcing (NSCSO)

The first contract covered the outsourcing of customer services, estates, finance, human resources, information systems, procurement and revenues and benefits.  The drivers behind the NSCSO outsourcing were the need to reduce operating costs for these services by at least 45 per cent to save approximately £125.4 million over the next ten years.

It was seen as a chance to share opportunities and responsibilities by significantly enhancing the ability of Council customers to access and engage with the Council, whilst also giving them greater control through self-service, self-help and opportunities to co-design the services with a private sector partner. The provision of an enhanced “insight” function would enable the Council to better analyse the needs of the Borough and commission services which are targeted to specific needs.

The NSCSO procurement resulted in final bids being submitted from BT and Capita Business Services Limited, with the latter ultimately winning a £350-million, ten-year contract (with the potential to extend by another five years).

The Development and Regulatory Services Joint Venture (DRS)

The second contract was a joint venture set up to provide development and regulatory services comprising planning, environmental health, trading standards, licensing, building controls, highways network management, regeneration, land charges, cemetery and crematorium management.

Prior to the procurement, the Council had found itself in the same position as many other authorities in that it had already delivered a number of internal improvement and transformation initiatives for these services but felt it had reached the limits of its ability to deliver further savings without significant costs and reductions in service levels or major investment to deliver efficiencies.

Following an internal appraisal of the different options available, it was felt that a long-term partnership with a private sector partner would deliver the greatest benefit to the Council and its residents.

The DRS procurement which ran alongside (but was separate from) the NSCSO procurement, resulted in final bids being submitted by EC Harris and Capita Symonds Limited. The project was won by Capita Symonds Limited which led to the formation of a joint venture (Capita BDRS Limited) with a 49 and 51 per cent ownership reflecting the shares held by Barnet Council and Capita Symonds Limited respectively.

The ten-year contract, with opportunity for a five-year extension, has a value of £150 million, with guaranteed cashable financial benefits to the Council of £39 million across the life of the contract, delivered through a combination of cost reductions and net income growth.  As a result, it is anticipated that the net cost of these Council services will be reduced from £45 million to £6 million over the full contract term, following an estimate of £4.5 million to £600,000 per annum.

The DRS joint venture will promote a guaranteed investment of £8.2 million in IT, infrastructure and training plus potential further financial benefits through increased revenue (delivered through a series of Council approved business cases). Capita BDRS Limited will also maintain a dedicated customer services team to provide quicker access to services for Barnet residents and improve co-ordination of local service delivery.

The partnership also promises funding of an ‘observatory’ to understand and chart social and economic trends and better meet local needs and significant investment in “best-in-class” technology and staff capability to provide services more responsively than hither to.

Why are these contracts different?

Both contracts involve an innovative allocation of risk, with safeguards put in place to ensure a lawful externalisation of council functions. The new customer support organisation should share the burdens of fluctuating demand, reduce over-dependency on procurement savings, protect against financial distress and insolvency and ensure on-going value for money. The development and regulatory services venture is also geared to respond positively to changes in volumes of demand, budgetary restrictions and changes in the law, whilst increasing income generation.

Specific contractual protections (through audit and access) were built into the contracts to establish transparency and prioritise the public interest, ensuring that Barnet will fulfill those statutory obligations which would not be mandatory for an external provider.  A streamlined governance process in each contract alongside an updated Barnet constitution to codify the allocation of responsibility has helped to prepare and protect the council going forward. Importantly, both contracts contain interface provisions in order to prevent risk ricocheting back to the council where one contractor’s default has an adverse impact on the other.

What really makes these contracts stand out and mark such a change in public sector outsourcing is the bold scale of the projects, the nature of the outsourced services (some of which have never been externalised before), and the ensuing shift in role for the council and its elected Councillors from a provider to a strategic commissioner of services.

How it may change the Council’s existing contractual relationships

Given the strategic role and the breadth of services that both the DRS and NSCSO contractors will be providing – inevitably, the contractors will be acting in a managing agent role on behalf of the Council and discharging some client-side responsibilities, for example, in relation to the management of major regeneration agreements with property developers and in relation to the NSCSO contractor’s responsibility for the Council’s procurement functions. In effect, it may subtly alter the relationship those companies previously had with their client authority and considerable thought has been given to the appropriate specification of the managing agent role and the prevention of conflicts of interest arising through commonality or affiliation between the contractor in its managing agent role as purchaser and any supply chain.

For businesses that are currently supplying the public sector, it is worthwhile to bear in mind that the nature of your relationship with your public sector client may change in the event they become a commissioning authority and choose a private sector partner to manage their contract with you.

The judicial review

It is fair to say that the two projects have attracted controversy and opposition from some residents and in the local press. This culminated in an application for judicial review by a resident which stirred up significant debate on the wider public versus private sector delivery of governmental services, testing the extent to which outsourcing can be utilised in an increasingly streamlined economic environment without becoming unlawful.

Earlier this month, Barnet successfully defended a judicial review of its procurement in the Court of Appeal. The action was initially brought over alleged non-compliance with the local authority statutory duty to consult under best value legislation, addressing the issue of whether a council should consult before it makes its initial decision to embark on an outsourcing programme, or consult at the end of a procurement process before making its final decision as to who is the successful tenderer.

The other grounds of claim were alleged non-compliance with the public sector equality duty, breach of the value for money duty and breach of public procurement rules.

At first instance, Lord Justice Underhill ruled consultation should occur at the formative stage before the onset of procurement, also finding that the council had not breached its public sector equality duty or fiduciary duty to taxpayers. However, the claim relating to consultation lost because it had been brought too late in the process and because there is no continuing council duty to undertake full consultation before choosing its preferred bidder.

The three-month time limit for judicial review claims starts to run from the first moment a ground of challenge arises. Even if the application had not been out of time, the court affirmed that it would have contravened the principles of good administration to allow the council’s decision to be quashed and hence, have wasted the time and cost expended by the parties in going through a competitive dialogue process. The Court of Appeal confirmed this approach, dismissing the challenge as out of time.

If Barnet had not won at the Court of Appeal, this would not only have had severe financial consequences for the Council, but it would have also had a significant impact on all public bodies planning to outsource, potentially opening the floodgates for a range of claims should a public body not consult at each and every stage of its procurement process.

The commercial impact for private sector partners would also have been considerable, given there would then be no guarantee in the future that a procurement process would not be derailed should there be an adverse response to consultation exercises before the appointment of a preferred bidder. Given the chequered history of recent procurements involving proposed large-scale outsourcings (in Suffolk, Cornwall and Edinburgh, for example), the potential impact of this, both for local government internally and on the outsourcing services market, could not be underestimated.

Conclusion

The fact that these large-scale outsourcings have reached contractual close – despite the considerable obstacle of a judicial review which went to the Court of Appeal and the fact that some of the services were previously perceived by some as un-outsourceable – should be regarded as a green light for public sector outsourcing in the UK. This model is potentially replicable in other parts of the country with other parts of government, in other jurisdictions and regardless of political ideology because it is basically about providing services more efficiently where there is an ever-growing demand.


About the Authors

Helen Randall 150Helen Randall is the Head of Trowers & Hamlins’ Public Sector Commercial Department. Trowers has been rated as the leading law firm for local government by the independent Chambers and Legal 500 Guides for the last nine years.  Helen advises the public and private sectors on outsourcings, joint ventures, mutuals, strategic partnerships, shared services and PPPs across all service areas ranging from customer services and social care to regeneration and waste management. She also advises on procurement and bidding strategies and governance issues.

Lucy Doran 150Lucy Doran is a Senior Associate who specialises in PFI/PPP projects and procurement, particularly in the areas of regeneration, outsourcing, leisure and education. She also advises both public and private sector clients on innovative models and partnerships designed to deliver improvements to public services. She regularly advises on procurement compliance issues such as evaluation criteria, de-selection, scoping of OJEU notices and the interpretation and implementation of recent case-law, guidance and legislation.

Comments

  1. barnet 4ever

    this will be a disaster

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