ALTERNATIVE SERVICE DELIVERY MODELS IN LOCAL GOVERNMENT Better together Building a successful joint venture company Contents Executive summary 1 Deciding to set up a JV 6 Setting up the JV 16 Making the JV successful 23 About us 29 Executive summary Local government is continuing to innovate and change as it looks for ways to protect front line services. The changes are picking up pace as more local government bodies innovate by introducing alternative delivery models to generate additional income and save costs. While these new models are not a There are well-publicised cautionary solution by themselves they do add to tales of public-private JVs that have Overall, JVs remain a viable ADM for local authorities. We have set the wider solutions being explored by attracted attention and debate; some out below our insight, based on our local government such as devolution, have ended earlier than planned research, that councils may wish to or have not delivered the intended collaboration and integration. take into account when setting up benefits. While this can detract from In September 2014 we published their own JVs. our first report on alternative delivery their potential as a viable model, many models (ADMs), ‘Responding to the councils are continuing to use this Our research indicates that the number of JVs will continue to rise, in challenge’, which examined a variety type of JV because they recognise that particular public-public partnerships of models that local councils were experienced commercial partners bring cost effective solutions. We agree with as proven models are replicated. JVs looking at to tackle the financial offer great opportunities for savings this, but only if the JV moves away challenges. Our next report ‘Spreading and income generation and can make from the traditional model of inflexible their wings: Building a successful more sense in some circumstances and complex contracts and both the local authority trading company’, than a LATC if the council feels it council and its partners are clear on published in April 2015, built on cannot operate alone. the objectives. Moving to a more this by exploring the use of trading collaborative JV partnership model can, If procured with enough innovation, companies. This is the next report if managed well, provide councils with creativity and collaboration in in the series and focuses on joint the commercial edge over any of the mind, they may also be capable of ventures (JVs) for service delivery. ADMs we have looked at, including delivering more than just profit, such JVs have been in use for many as wider community benefits. This local authority companies. years in local government and remain will be important as more councils There is also an emerging breed of a common means of delivering services seek to identify social as well as JV in which councils partner with other differently. They offer the opportunity financial returns. public sector bodies or commercial to deliver services with partners who, companies that are wholly-owned by the Treading the line between contract more often than not, bring something public sector: public-public JVs. They management and partnership working new to the table. Many of the JVs used offer the opportunity to benefit from may be a challenge, but the selection by local government have been public- scale and experience while being more of partner and building of trust will private collaborations, providing closely aligned to public sector values. be key. Our research has found that in many cases councils believe that either front or back office services. Our experience is that these types of JV they work better in a commercial While some have been successful, it are more aligned to partnership working, setting when working in partnership, is true to say that they have a mixed by offering a better cultural alignment rather than operating alone. As one reputation, particularly where they and a focus on community benefits as observer noted: “it is better to have have focused on the contractual well as profits. As these are relatively 50% of something rather than 100% aspects of the relationship rather than new, the partnership and commerciality of nothing”. the partnership element. outcomes have yet to be proven. Building a successful joint venture company 1 We have researched a range of JVs for But not all public-private JVs this report to provide inspiring ideas have been successful Capita from those that have been a success There is also reason to be cautious. The London Borough of Barnet and lessons learnt from those that have Our research found a number of JVs has an outsourced contract with between public and private bodies encountered challenges. The report also Capita for the delivery of some of had mixed success in achieving provides information about the key its services but the two partners areas to consider when: outcomes for councils. In particular, have also set up Regional Enterprise • deciding to set up a JV JVs involving multiple back office (Re), a JV for the development • setting it up services were prone to difficulties. and regulatory services in the • making it successful. Similarly, we have seen that JVs used borough, to enable the council to in transformational programmes have benefit financially from the profits Key messages not always delivered intended benefits. anticipated from the commercial Success stories are more common in opportunity that the partners have Public-private JVs can bring JVs that have a narrow remit – for identified, as it has a 49% stake in significant benefit example one service rather than a range the business and representation on the JV board. JVs continue to be a viable option. of services – or focus on a front line Where they have been successful they service such as catering. have supported councils to improve A key reason for failure is service delivery, reduce costs, bring objectives lacking alignment, which We identified a number of JVs, set up investment and expertise and generate is particularly prevalent in public to to deliver services in a particular way, income. In our experience a JV can be private JVs. This is primarily because that hadn’t been responsive to the the right model when a council does the private sector partner’s primary council’s changing agenda, objectives not think it can achieve its particular focus is always profit, whereas the or circumstances. This had resulted in objectives alone, for example when it local authority often has a range of both sides reaching for the contract and needs particular expertise or investment objectives. If councils are looking to set the JV ultimately failing. such as improvements to IT systems. up a JV it should have a blended set of Usually, councils are the minority Successes include: CATERed, objectives covering income generation, partner in these JVs. While this brings which has reduced costs for Plymouth service improvement, cost cutting, less risk it also brings less control and City Council, and London Borough transfer of commercial skills and new ability to influence the partnering of Barnet’s JV (Regional Enterprise), investment. These need to be aligned company’s direction. An inflexible which generates profits for the council. to the objectives of its partner and response from the majority shareholder Similarly, Nottinghamshire County included in the articles of association can frustrate the council as it seeks Council has chosen a JV model for its of the JV. to respond to financial pressures and highways as it allowed retention of The cultural fit and responsiveness lead to a significant deterioration in control within the public sector and of the chosen partner are as important relationships between the partners. the future sustainability of the service. as any considerations about There can be a blurring of the roles So there are some clear reasons to be commerciality, as their omission can and responsibilities of the council in its optimistic about the future of JVs. negate the opportunities that scale, different capacities as both traditional expertise and investment bring. commissioner and strategic partner. 2 Building a successful joint venture company The correct governance architecture, If the key driver is cost reduction then beyond just the shareholding, is outsourcing or shared services may Civica paramount. This should strike the be a more appropriate model. Most The three South Worcestershire right balance between taking sufficient transactional services lend themselves districts’ outsourced contract with control to ensure the council’s needs more easily to these models because Civica has enabled benefits to be are met at a reasonable cost and they are easier to define and follow realised more quickly than any other allowing the partner the necessary a simpler set of key performance model, according to their business freedom to act to achieve them, such indicators (KPIs) that can easily be case. It enables the three authorities as working in a partnership rather than measured. In contrast, JVs are more to achieve bonuses when more solely enforcing a contractual model. successful if cost savings are combined contracts are signed, giving them In setting up the JV, there needs with a growth or income-generation some of the benefits of a JV through to be an awareness that the JV will objective. a contract with a private sector contract directly with the council to Being a commercial partner to a provider rather than a separate provide services. Our discussions public sector body is not always easy. company model. indicated that contract development The commercial partner will need to and negotiation were both complex make a profit to satisfy shareholders and costly. When difficulties arose with and will want to maintain commercial performance, or changes were needed confidentiality. As the council is both a to the service, there was a tendency partner and a purchaser of services this from both parties to ‘reach for the can create tensions.