Page 167 Agenda Item 7

Report to: Strategy and Resources Committee Date: 8 February 2016

Report title: Memorandum of Cooperation between Royal Borough of Kingston and Borough of Sutton and Next Steps for Shared Services

Report from: Jessica Crowe, Executive Head - Customers Commissioning & Governance Ward/Areas affected: Borough wide

Chair of Committee/Lead Councillor Ruth Dombey, Leader of the Council and Councillor Simon Member: Wales Lead member for Finance, Assets and the Voluntary Sector

Author(s)/Contact Jessica Crowe (Executive Head - Customers Commissioning & Number(s): Governance) 020 8770 6519 Alison Venning (Shared Services Programme Manager) 07500 968708

Corporate Plan Priorities: ● A Smart Council

Open/Exempt: Open

Signed: Date: 25 January 2016

1. Summary

This report sets out proposals for a strategic partnership between the and the Royal Borough of , building on existing shared service arrangements. It seeks authorisation to explore setting up a jointly owned company structure from which to run shared services and the approval of a revised Memorandum of Cooperation between the two Boroughs.

2. Recommendations

2.1 That the Committee approves the revised Memorandum of Cooperation between the two Boroughs (Appendix A).

2.2 That the Committee instructs officers to examine the business case for the establishment of a jointly owned company by the London Borough of Sutton and the Royal Borough of Kingston, as a vehicle for delivering current and future shared services, including options for joint Member oversight of these arrangements, and to report back on the business case and delivery options in the next cycle of this committee.

2.3 That the Committee notes that the same proposal and recommendations will be presented to the Treasury Committee of the Royal Borough of Kingston on 11 February 2016. Agenda Item 7 Page 168

3. Background

3.1 The Council already works in partnership with Kingston and other local authorities and organisations in order to deliver services. The benefits of such working have delivered cost savings (helping the Council to continue to provide services given decreasing funds) and other advantages such as service resilience, the pooling of ideas and innovations and career development for staff. Services shared (or planned to be shared) include:

● ICT with Kingston ● Highways, Transport & Enforcement Services with Kingston ● Legal Services, Counter Fraud and Payroll with Kingston and other councils (principally with LB , LB Richmond) ● HR and Pensions Administration planned to be shared with Kingston in 2016 ● Internal Audit to join 4-borough shared service in 2016.

3.2 In addition to these services, the Waste Partnership provides waste disposal services for Sutton, Kingson, Merton and . A major joint procurement exercise is currently underway to procure a waste collection services contract for all four boroughs and a parks and grounds maintenance contract for Merton and Sutton.

3.3 With the success of these existing partnerships, a number of other services are undergoing review of their delivery models to establish whether there is a business case to support sharing. These services include:

● Finance, Customer Contact and Revenues & Benefits (with Kingston) ● Town Planning Services (with Kingston and Merton).

3.4 For all of the existing or planned shared services involving both Sutton and Kingston, the staffing arrangements are the same: one out of the two or more partners is the “employing authority” and the staff who are to provide the service all become (or remain) employees of that authority. Although employed by a single authority the service is run in partnership with decision making by all partners for the benefit of all partners.

3.5 There are differing governance arrangements in place for each of the services but all with the intent of ensuring that each participating Council receives appropriate services and plays an equal part in determining the strategy and direction of that service. There is a variability in the arrangements given that each of the shared services has developed on the basis of individual business cases. This has led to a range of different oversight and governance arrangement at officer and member level.

3.6 Although Sutton and Kingston have different political administrations, sharing services where there is a business case to do so has worked well, delivering cost savings and service resilience whilst still supporting the distinct needs of each Council. Experience has shown that officers in these arrangements have been adaptable and flexible to the needs of both boroughs and there Page 169 Agenda Item 7

has been both revenue savings and service improvements in the arrangements, and greater resilience as a result.

3.7 The proposals discussed in this report are not intended to impact on any of our existing multi- partner sharing arrangements (both the wider South London Partnership and other service- specific partnerships such as the South London Legal Partnership and the South London Waste Partnership), but will concentrate on those services which are currently and proposed to be jointly delivered solely by Sutton and Kingston. Nor is this about exclusivity: as ever, Sutton’s aim is to continue to work pragmatically, co-operatively and collaboratively with any and all partners where this makes business sense and is beneficial for our residents.

3.8 It should be noted that the wide range of shared service arrangements in place at present have not impinged on the sovereignty and autonomy of either Council. This will continue to be the case, as local authorities with distinct identities, serving communities with proud and singular histories.

4. Issues

4.1 The choice of employing authority and the governance arrangements for each service shared to date has been determined during the development and implementation of that shared service. Whilst for each, the decisions have been based upon sound logic, the volume of services now being shared and planned means that the time is right to consider whether a cumulative impact is emerging which requires a more co-ordinated and strategic approach. The current arrangements have served the Councils well, but there is a concern that there may be unintended complexity as a result of the increasing number of services being shared.

4.2 At present, for the current and planned services between Sutton and Kingston, the employing authority has been determined as Kingston for all bar the Pensions Service following a thorough business case for each service. Each service has its intent and focus upon providing services and benefits for both Boroughs and doing so in true partnership. Both Sutton and Kingston play a full and equal part in the governance of these services to date, although there is no reason where there could not be a differently-balanced model in the future if the ratio of investment or services were to change.

4.3 However, the employment choice combined with a mix of governance models across multiple services has led to some challenges and missed opportunities:

● Employing, hosting or lead authority status could be seen as unevenly balanced and could lead to perceptions of loss of control ● The above issue is leading to a focus on “next off the rank” for future services, which may undermine intent of jointly running a service for the benefit of both Councils ● Differing governance models reporting up to multiple different committees in each Council ● A variety of approaches so far to current and future sharing, causing uncertainty amongst staff and repeated implementation activities that might be better streamlined under an overarching model Agenda Item 7 Page 170

● Taking a more joined up approach could provide greater opportunities to exploit the further potential benefits which having all these shared services might offer, beyond initial upfront savings, for example cultural and organisational change, more strategic integration and exploring trading activities.

4.4 With an increasing number of services shared (or potentially to be shared) between Sutton and Kingston, continuing to decide upon employing authority and governance on a per service basis brings a level of challenge and duplication which means that both Councils may be better served by considering an alternative delivery mechanism. Additionally, both Sutton and Kingston wish to retain the flexibility within their shared services to admit additional partners (broadening the share for greater cost and service benefits) and to trade (offering services to generate a surplus to be returned back to the partner Councils).

4.5 Taking into account the existing, scheduled and potential services to be shared between Sutton and Kingston, the combined annual budgets and staffing could be significant: initial estimates based on current and original business case budgets and staff numbers suggest that the annual budget for eight services could be as much as £38m between the two authorities, with a staff of over 700.

4.6 With these challenges and opportunities in mind, possible options have been discussed by senior officers in both Councils, including at a joint meeting of the two senior management teams held in November 2015 – see below for the options considered.

4.7 The joint meeting came to 2 key recommendations.

4.7.1 Recommendation 1: Given the continued and increasing level of collaboration, re-affirm the two Councils’ commitment to working in strategic partnership by refreshing the Memorandum of Cooperation (the text of this can be found at Appendix A). 4.7.2 Recommendation 2: Explore the potential for creating a separate company structure to run shared services, to be jointly-owned by Sutton and Kingston: ▪ Company to exist primarily to deliver cost-effective, resilient and innovative services to its partner Councils ▪ Company structure to allow admission of other partners to share in all/some services ▪ Company structure to allow for the services to trade ▪ Company to be represented under a brand or family of brands ▪ Include services currently shared, planned or potential between Sutton and Kingston ▪ Company NOT to include wider shared services such as Legal, Fraud and Internal Audit, whose employing authority is neither Sutton nor Kingston.

5. Options Considered

5.1 In consideration of the Memorandum of Cooperation, the original reference was the two Memoranda agreed between Sutton and Kingston (2010, attached as Appendix B), and between all the South London Partnership Boroughs (2011). It is strongly acknowledged by both councils that nothing that Sutton and Kingston do together should be taken as replacing or seeking to undermine the wider collaboration between all the South London boroughs and the Page 171 Agenda Item 7

2011 Memorandum is felt to have served all boroughs well and to remain relevant to our collective work as the South London Partnership.

5.2 While the option of developing a joint vehicle with more than two boroughs was considered and remains open for the future, it is felt that Sutton and Kingston are well-placed to move forward now and that refreshing the two Boroughs’ bilateral Memorandum would usefully signal our intent to do so.

5.3 In consideration of the Employment Model for the new vehicle to be explored, four principal options were discussed: ● Single Council employer (the model currently used for our shared services) ● Original employer (staff remain employed by their original hiring Council but operate a shared service delivering to both/all partners) ● Co-employment (staff jointly employed by both/all Councils) ● Separate company structure (staff employed by a separate entity owned by and providing services to the partners). A table at Appendix C gives details of how each option could work and their pros and cons.

5.3.1 Single Council employer (per service). This is the status quo – given the issues outlined, it was felt that a move away from this option may give the Councils additional benefits. However, until such time as an alternative method is selected and implemented, this remains a viable option that is known to be effective. 5.3.2 Original employer. A number of local government shared services in the UK successfully use this option. It addresses the perceived imbalance of employer, but can lack clarity over reporting structures and control, as well as not capitalising on the opportunity for culture change and innovation, an aspect the joint management team felt was critical to maximising the success of a shared service. This option was therefore discounted. 5.3.3 Co-employment. This model is being explored by Richmond and , who will apply it as an overall shared staffing model. No examples of individual or groups of shared services were found that currently work in this way. Whilst it was felt that it could potentially address the perceived imbalance of employer, its lack of wider usage increased risk and it was felt that for the short to medium term, this option should be discounted. 5.3.4 Separate company structure. There are examples of public sector bodies successfully using this model. Although there are increased costs in implementation and operation of a separate company, it was felt that these costs could be offset to some degree by the increased simplicity of transitioning services to a shared model. The biggest benefits identified with this model were that it: ▪ Addressed the perceived imbalance of employer ▪ Was a clear structure that gave the best opportunity for culture change and innovation ▪ Paved the way for trading where appropriate ▪ Would logically and physically be managed as a group of services, with clear benefits tracking ▪ May allow the shared services over time to realise cross-service savings or commissioning opportunities ▪ Would lend itself to streamlined governance arrangements ▪ Could be structured to admit further partners for some or all services. Agenda Item 7 Page 172

This option was considered to have the greatest potential to replace the current “Single Council employer” by addressing some of its issues and by providing increased opportunities for transforming the services and creating a revised governance model. This option is therefore the one that it is recommended to explore further in order to develop a full business case.

5.4 The next steps in developing a proposal for a separate shared services company structure, for which this report seeks authorisation, broadly constitute the following activities:

5.4.1 Legal. Seek legal advice on the most appropriate company set-up, procurement (including Teckal) considerations, the admission of partners, trading, subsidiaries, governance and the relationship between any new company and Sutton and Kingston’s existing delivery vehicles. It is anticipated at this point that any shared service company would operate separately from other companies in the Sutton and Kingston families:

5.4.2 Governance. Map existing governance for shared and potentially-shared services. Propose a shared governance model. Set up a Shadow Executive Group during the development and possible implementation of the new company. 5.4.3 Financial. Gather the likely costs of implementation and operation. Consider how cost and saving should be split across the partners. Consider the tax implications and overall business benefit. 5.4.4 Branding. Develop a name and brand for the new company structure. This may include sub-brands for certain services. 5.4.5 Project Management. Set out the proposed implementation timeline and milestones and create a project management board. 5.4.6 Communication. Communicate back to Committees, senior management and service teams in both councils in a consistent and timely way.

6. Impacts and Implications

Financial

6.1 There will be no financial implications in revising the Memorandum of Cooperation. There will be limited financial implications in developing the proposal, with the largest expenditures likely to Page 173 Agenda Item 7

come from legal advice and branding work. Quotes will be sought for this external input and the costs shared between Sutton and Kingston, met out of their shared DCLG funds.

6.2 Other costs in developing the proposal will be largely staff-based, needing input from the relevant officers in both Councils and the Programme Manager role which is covered by DCLG funding (and also managing individual service share implementations).

6.3 There are likely to be financial implications to implement and operate any proposal and these will be explored during development and presented within that proposal when it returns to committee for approval. The business case will need to demonstrate that there is a genuine benefit in this potential company proposal over and above the existing arrangements.

Legal

6.4 There will be no legal implications from revising the Memorandum of Cooperation as it is a statement of strategic intent, not a legally binding agreement.

6.5 Developing the proposal will not have legal implications (although it will incur legal costs).

6.6 Any resulting proposal is likely to have notable legal implications and these will be explored fully during development and presented within that proposal when it returns to committee for approval.

Equalities

6.7 An Integrated Impact Assessment (IIA) has not been carried out to revise the Memorandum of Understanding or to explore the creation of a shared services company. It will be carried out as part of the development of any proposal and will include consideration of the two Councils’ levels of control and sovereignty for services delivered through this mechanism.

Risk

6.8 There is no identified risk in revising the Memorandum of Understanding or to exploring the creation of a shared services company. However, there is likely to be risk associated with the implementation of any resulting proposal and key risks will be presented within that proposal when it returns to committee for approval.

Procurement

6.9 One of the areas that the proposal must explore fully is the legal basis on which the Council is able to procure services from any proposed new company and vice versa. This advice will be sought from legal and procurement experts and presented within that proposal when it returns to committee for approval.

Agenda Item 7 Page 174

Accommodation

6.10 Approval to revise the Memorandum of Cooperation and explore creating a shared services company has no accommodation implications. However, any resulting proposal will need to consider how and where the new company will be accommodated, including costs, location(s) of staff and any impact on existing Council accommodation strategies and assumptions. It is likely that this would be covered as a separate workstream within any implementation programme.

7. Appendices and Background Documents

Appendix Letter Title A Revised Memorandum of Cooperation B Original Memorandum of Understanding C Employment models comparison

Background Documents There are no background documents

Audit Trail

Version: Final Date: 25 January 2016

Consultation with other officers

Finance Yes Gerald Almeroth, Strategic Director of Resources

Legal Yes Paul Evans, Head of South London Legal Partnership