Appendix 2

Borough of Poole

Solely Owned LATC for In-House Adult Social Care Services

Business Case November 2014 (v1.3) Solely Owned LATC for Borough of Poole – Business Case

Table of contents

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1 Executive summary

1.1 Introduction and Background In September 2014 the Borough of Poole (BoP) considered a report on an Options Appraisal into the potential future delivery models for the Council’s adult social care provider services. Council requested further analysis of the options including a business case for a wholly owned Local Authority Trading Company (LATC). The key drivers in commissioning the appraisal were:  Unprecedented financial and demographic challenges on top of its existing service challenges  Constraints from being able to be as flexible, adaptable and efficient as their independent sector counterparts  Limitations in terms of business opportunities, which can bring real benefits in terms of expansion of service delivery within a reduced budget envelope  Ongoing savings requirements which impact on the sustainability of current in-house provision and could compromise capacity and quality

Each option was assessed against evaluation criteria that took account of four key issues:  Quality  Acceptability to Stakeholders  Governance and Flexibility  Cost The original evaluation concluded that an LATC offered the following advantages:  Business Sustainability and Diversification. The LATC is able to pursue new business opportunity and income streams beyond the baseline services, which contributes to its sustainability  Service Quality. The LATC builds on existing service quality and continuously improves the service experience to customers through quality assurance programmes  Customer. The LATC is able to deliver services to more people in need of social care support, including customers in receipt of a direct payment, customers who are private funders and informal carers of people in need of social care support  Workforce Quality. The LATC retains and builds on the existing asset of experienced, committed and well-trained staff  Organisational Performance. The creation of an LATC results in driving overall organisational performance through greater entrepreneurship. This includes improvements in workforce practices, patterns and management  Innovation. The LATC stimulates entrepreneurship within the organisation and workforce in terms of service offerings to customers and commissioners

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 Cultural. The LATC as an externalised trading company creates a new culture based on greater autonomy, accountability and quicker decision - making  Reputation. The LATC is able to become a provider of choice for end users, carers and commissioners and the employer of choice within the recruitment market place  Council retention of control and flow back of the benefits. The legal structure of the LATC means that BoP retains control of the company and as a result benefits from the success of its trading activity  The Provider of Last Resort. The Care Act of 2014 imposes a statutory duty on local authorities to meet the needs of those services users affected by the business failure of a provider. The LATC can help ensure that the Council can meet this obligation by stepping in to support those individuals affected.

This business case explores the long-term sustainability of a single LATC.

1.2 Viability Factors The two viability factors that were reviewed before the business case was completed were:  Ability to make savings  The potential for new income streams

1.2.1 The ability to make savings The ability to make savings is a key factor for an LATC and this ability is governed by the size of the workforce and how well their budgets and working practices have been managed in the past to drive down costs. A review of the budgets and establishment confirmed that the cost base of the single LATC would be £2.3m with 64 FTEs as a workforce. 5 LATCs holding budgets of between £18m and £30m have been launched and are trading successfully. 3 other LATCs with budgets of £8m have faced financial challenges due to their small size. No Council has launched an LATC with a budget of less than £7m. Over recent years the management team in BoP has redesigned services and successfully achieved budget reductions without threatening services. This success in cost reduction and the relatively small cost base means that further efficiency savings available to the single LATC are limited as shown below: Borough of Poole Single LATC Potential supply savings Source of savings Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Running costs % savings 3.0% 4.0% 4.0% 4.0% 4.0% Seaview 3,798 5,064 5,064 5,064 5,064 Poole Day Centre 1,950 2,600 2,600 2,600 2,600 Transport Costs % savings 1% 1% 1% 1% 1% Seaview 2,890 2,890 2,890 2,890 2,890 Poole Day Centre 2,355 2,355 2,355 2,355 2,355

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10,99 12,90 12,90 Total Supply savings 3 9 12,909 9 12,909

These savings will form part of the financial results of the LATC, and their very low values mean that the company’s viability is in question and the trading ability of the LATC will have to play a significant role for it to be successful

1.2.2 New Income Streams The ability to generate the new income streams below can only come from being outside the Council, in a separate legal entity, such as the proposed LATC. This ability to trade and the resulting potential new income is the main driver for this proposal as it expands the current level of care available to Poole residents and provides a viable future for the existing council services. Both Poole Day Service and Seaview Day Service have the potential for new income streams. We have included the Seaview additional income patterns that form part of the CIC Business Case. Details of the income included can be found in section 8 and in the CIC Business Case The table below gives details of the value of the turnover provided by these new services and how much net profit they contribute to the LATC.

Borough of Poole LATC Analysis of Net Contribution Year 1 Year 2 Year 3 Year 4 Year 5 Service Area £ £ £ £ £

Poole Day centre 21,875 43,750 43,750 43,750 43,750 Seaview (113,307) 82,817 46,217 66,764 29,764 Non -BoP Contract Profit (91,432) 126,567 89,967 110,514 73,514 Contribution Rate -74% 31.71% 20.15% 24.63% 16.39%

The above contributions will be included in the financial results of the LATC, however, the contributions shown above are not sufficient to finance the running of the LATC, as will be illustrated by the financial results below.

1.3 Risks to a Single Poole LATC If the single Poole LATC is established, it will mean that the Pan-Dorset LATC has not been successfully created or that Borough of Poole members decided not to join it. This would result in Dorset County Council and potentially Bournemouth Borough Council establishing either a joint LATC or their own LATCs. This scenario will put two neighbouring newly created LATCs in direct competition with the Poole LATC and the tightly knit Poole conurbation will be a very attractive source of new wealthy and ageing clients for the Dorset or Bournemouth LATC. This competition is explored in more detail in section 4, where it will be highlighted that geographical position of Poole would make it very difficult to look for income from other authorities when it is surrounded by two authorities who may well have their own LATCs. This makes a solely owned Poole LATC very vulnerable to competition and therefore at financial risk

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1.4 How will the LATC work? An LATC is a company limited by shares and 100% owned by the Council. It is registered with Companies House and has to follow all statutory obligations of a limited company. The LATC will have the following aspects: Teckal Compliance It will be “Teckal” compliant and therefore have “teckal exemption”. This is a piece of European Union case law allowing Councils to transfer services into externally managed entities without having to follow competitive tendering rules and procedures. The Company must have at least 90% of its income derived from the provision of services to the Council, i.e. BoP. This figure is due to be reduced by EU legislation to 80%. Able to trade The LATC will be able to trade in the open market and charge for those services that currently, as an in-house provider, it cannot do. This ability will allow the LATC to market and sell its services to customers including SDS Direct payment holders, and private payers. The LATC will also be able to sell services to residents of other authorities and other public bodies including the NHS and CCGs.

Independent of the Council (Operationally) Whilst the council will have 100% ownership, the LATC will have an Executive Board as described below. This Board will have a legal responsibility to act in the best interest of the LATC; there will be no members on the Board

Rebate Surpluses and benefits back to the council As 100% shareholder, the Council has total control over the treatment and destination of all surpluses/losses generated by the LATC. This could mean deciding to invest in additional new LATC services, or rebating the surpluses back to BoP for the delivery of existing Council services. If there is a loss making position, the Council will eventually have to finance those losses, or transfer the services to another vehicle.

A contractual / commercial relationship with BoP and the LATC for the provision of care services In order to protect the Council’s current high-level of quality in service delivery, it will establish and enforce a supply contract with the LATC for all the social care services the company will provide. This contract will have quality requirements and Key performance Indicators (KPIs) that will need to be met on a monthly basis. This contract could have financial penalties included to ensure that BoP does receive best value for the services it receives.

Services and the Staff

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The services to be provided by the LATC will initially include the following transferred services Borough of Poole Services in Scope Services Cost Budget FTEs Seaview LD Day Centre 1,200,900 33.71 Poole OP Day Centre 730,100 20.20 Coast (Employment Svs) 342,100 10.48 64.3 Total for Transfer 2,273,100 8

The costs in the table above represent the current budgeted costs of providing these services from within the Council. These are the baseline costs that will be compared to how much the Company would charge to provide the same services to BoP.

The 64 FTEs equates to approximately 80 members of staff on either full-time or part-time contracts.  The current staff numbers of 64 FTEs will TUPE transfer into the company within the implementation phase of setting up the LATC. All staff will transfer over with the same current terms and conditions, this includes, pay rates, sickness policies and pension rights  The LATC will operate with a single tier workforce and new starter employees into the company will be on the same terms and conditions as transferring staff The LATC will be applying for admitted body status into the Local Government Pension Scheme (LGPS). The scheme will be an open scheme and new employees offered the same defined benefits pension. The company will follow auto-enrolment regulations, as applicable to a new company. Property The LATC will take on lease agreements for properties that relate to service provision but which also include operational and administrative bases. The lease arrangements between the LATC and BoP will include the charging of a market rent for each property. The table below lists out the principal properties and offices occupied solely or jointly by the LATC services in scope: Borough of Poole Properties in Scope Services Seaview LD Day Centre Poole OP Day Centre

Finances The Council will not be transferring any money or assets to the LATC, it will be paying for the services that the LATC will provide, and the basis of that cost of service to be paid will be 2014/15 service budgets, adjusted where appropriate.

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Section 7 shows in detail how the business case was formulated and how the LATC will operate.

1.5 How will the LATC be governed?

1.5.1 Internal Governance It is recommended that the LATC has an Executive Board independent of the Council and made up of the following positions:  Independent Chair – this could be the Member for Adult Social care in Poole who would bring a high level of knowledge of the services and the social care landscape  Managing Director – This role includes driving the cultural change of the organisation and so would be full-time, and should be filled by an experienced care professional  Finance Manager– with a strong commercial background and experience of managing a company of £5m+ turnover SMEs would be ideal. Initial structures have been based on the role being provided by a senior finance executive within adult social care on a part-time basis  Non-Executive Directors with skills that fill major gaps on the Board, such as legal and marketing, these would be selected from local candidates/applicants We recommend the only Member on the Executive Board is the Chair as described above. If there are additional members on the Board, in our view this distorts the commissioner/provider relationship with the LATC and creates potential for significant conflicts of interests for any Members on the LATC Board. It also creates legal responsibilities that Member and Officers may not want to take on. The governance mechanisms that we recommend The Council to adopt in managing the LATC can be found in Section 5. The LATC Executive Board would meet officially once every month and would deal with all aspects of the management of the LATC. The executive team of Managing Director, and Finance Manager would be expected to meet on a very regular basis, as one of the significant advantages for this type of organisation is its small size relative to the Council, enabling the executives to be based in the same building and so working together formally and informally on a regular basis. The key areas of responsibility for each executive post include the following:  Managing Director – Business strategy and planning; culture change; interface and reporting with management board  Financial Manager - responsibilities would cover Finance; I.T; Property; Procurement; commercial contracts Our experience has shown that changing culture and practice is a role that needs continual application and reinforcement on a full-time, lead by example basis. The MD will be expected to lead this cultural change.

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1.5.2 External Governance by BoP Effective governance is an essential component in creating the LATC in order to ensure the requirements of the Teckal Exemption are satisfied, for example the need for BoP to exert control and influence over the company. There is also a requirement to achieve a balance between the Council’s strategic control and influence and enabling the Directors of the company to have operational responsibility for delivering the strategic objectives of the Council. From experience with other LATCs, this business case recommends that the Council exert its control and influence through an LATC Shareholder Monitoring Group (SMG). The purpose of SMG is to act on behalf of the shareholder to scrutinise LATC performance against its service contract and Business Plan, and to review investment plans and risks. The SMG would be made up of Members and Officers of BoP, typically we would recommend 5 Members, and Officers from commissioning and finance. The executive board of the LATC will report quarterly through SMG meetings on the following areas:  Monthly financial performance including: o Sales o Savings and costs o Cash position o Overall profitability through Profit & Loss Accounts and Balance Sheets  Monthly service performance including: o Staff and absence data o Client numbers and hours of service delivered o Service issues The SMG will also receive and ratify the annual 5-year business plan for the LATC as presented by the Board. The SMG will also review any ad-hoc business cases presented by the LATC Board for new products and projects that were not included in any business plans

1.6 Shareholder Agreement The shareholder agreement is a legal document that allows the shareholder, in this instance, the Council, to restrict what shareholders and Directors can do on behalf of the LATC. As there is only one shareholder, the aims of this agreement are to restrict the abilities and authority of the Directors, so that the Council and Members are satisfied that the assets and employees of the Company are adequately protected. We would recommend that the following restrictions are placed on the executive Directors:  The Directors will be authorised to act and deliver the outcomes as defined by the latest Business Plan for the LATC that has been ratified and agreed by the SMG

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 The Directors cannot give themselves any form of payment or benefit outside that agreed in the ratified Business Plans  The Directors cannot commit the Company to any form of loan agreement without express agreement from the SMG  The Directors cannot remove any other directors without the agreement of the SMG  The Directors cannot pay themselves a bonus or any form of pay increase

1.7 5 Year Business Plan and Results The five-year business plan is designed to fulfil two major roles:  Provide a view of how the LATC will perform over 5 years with the benefits calculated and valued for the Council  Provide a performance template against which the LATC can be measured against. This is particularly relevant for the 1st two years when the future executive team of the company will still be developing its medium to longer- term direction and strategy. The Business Case has been validated and signed off by the Service Director of Adult Social Care.

The Value For Money Calculation below demonstrates how BoP will benefit financially from the LATC. This calculation takes the predicted cost of managing the services as they are for 5 years, and compares that to the net cost of the LATC’s 5 year contract with BoP:

Borough of Poole Single LATC Value for Money Comparison 5 Years 5 Years 5 Years BoP Contract Budgets no Description Receipts Spend Change £ £ £ Cost of current In-House Services 11,360,500

Cost of Contracts to BoP from the LATC 12,843,015 Income to Council from Charges to LATC Re- Corporate Support Services 652,750 Fixed Assets Purchased (Desks etc.) 20,000 Property Rental Income to BoP 500,000 Dividends/(losses) to BoP (312,731) Income and earnings available to BoP (860,019) Net Cost of Contract 11,982,996 11,360,500 (11,982,996) (Additional cost) to BoP over 5 years (£622,496)

The LATC is forecast to make this net cost to the Council because its efficiencies and new trading surpluses are not sufficient to finance the management of the Company. The above table shows that the solely owned LATC would cost BoP £622,496 more than if the services were left in-house.

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The Profit and Loss Forecast (P/L) below is where the elements of cost efficiencies, new management costs and additional income all come together to show how the company will perform in the market:

Borough of Poole Single LATC Profit and Loss Account for the First Five years Description Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Income Borough of Poole Contract 2,568,603 2,568,603 2,568,603 2,568,603 2,568,603 Other Income 121,613 400,162 447,404 449,621 449,621 Total Income 2,690,216 2,968,765 3,016,007 3,018,224 3,018,224 Expenditure Staff Costs 1,674,869 1,747,058 1,794,056 1,807,382 1,807,382 Rent for Properties 100,000 100,000 100,000 100,000 100,000 Supplies & Services 793,422 774,006 808,506 774,506 811,506 Total Service Expenditure 2,568,291 2,621,064 2,702,562 2,681,888 2,718,888 Contribution to Group 121,925 347,701 313,445 336,337 299,337 Executive Man & Board Costs 149,745 149,745 149,745 149,745 149,745 H.O. Property, Insurance etc 45,000 45,000 45,000 45,000 45,000 Marketing, Finance Support 0 25,000 25,000 25,000 25,000 Support Services 130,550 130,550 130,550 130,550 130,550 Total Head Office Function 325,295 350,295 350,295 350,295 350,295 Support Services % of Income 12.09% 11.80% 11.61% 11.61% 11.61% Profit/(Loss) before Int & Depr (203,370) (2,594) (36,850) (13,958) (50,958) Depreciation Chge @ 5% pa (1,000) (1,000) (1,000) (1,000) (1,000) Net Profit/(Loss) before Tax (204,370) (3,594) (37,850) (14,958) (51,958) Corp Tax rcble/(payable) 0 0 0 0 0 Annual Profit or (Loss) (204,370) (3,594) (37,850) (14,958) (51,958) Retained Profits/(Losses) (204,370) (207,964) (245,814) (260,772) (312,731)

The above table shows how the LATC is projected to perform poorly, with a loss of £313k after 5 years. This loss would be financed by the Council, who would be paying more to run the company than it would if it left the services in-house. The reason for the loss is that the costs of additional management (MD and FM) are far greater than the efficiencies and additional income generated by the Company. The key area for development over the contract life is the “Non BoP Income” or “Other Income” as it is called the above table. This income is important as it represents the growth of turnover through trading with self-funders, private payers and other public or private sector bodies. It is worth noting that this additional income generates over £309k in profit for the company over the 5 years. If only half the target turnover was reached, the company’s accumulated losses after 5 years would be increased to £466k, and the additional cost overall would increase to £776k from £622k. Moreover even if these targets are met, the income does not generate sufficient profits to finance the company. Details of the additional income are held in section 8.

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1.8 Risks and Risk Management The scope of all identified risks is addressed in section 9 of this business case. In summary the risks associated with the LATC include the following:  Teckal exemption cannot be maintained for the LATC as a result of over performance in terms of non- BoP income generation  Project delay impacting upon costs and staffing availability as a result of unrealistic planning and timescales for implementation  The potential competition that would occur in the long term from the Dorset and or Bournemouth single LATC  The under-performance of the private market sales, leaving the LATC with reduced income generation and losses These are not manageable risk issues in this situation because the services are too small to generate sufficient savings and income. These risks also need to be considered against the “do nothing” option. The “do nothing” option has been assessed as not feasible for BoP given the reduced financial position and the policy context around personalisation and Direct Payments which prevent people from using Direct Payments in Local Authority directly provided services. Due to the financial risks and losses illustrated above an alternative option needs to be considered for the future of these services

1.9 Conclusion Our recommendation to the Members of the Borough of Poole is that they:  Reject the option of a single LATC  Review the results of the enhanced options appraisal that is considering o Outsourcing to the market o Joining the Pan Dorset LATC with Bournemouth and Dorset o Allow the CIC at Seaview to be established

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2 Introduction In September 2014 Borough of Poole (BoP) considered a report on an Options Appraisal into the potential future delivery models for the Council’s adult social care provider services. Council accepted the recommendation to commission a Business Case into the potential to transfer these services into a Local Authority Trading Company (LATC). The Council also requested further analysis on the options of outsourcing the services, a Pan Dorset LATC and a community interest company (CIC) for Seaview Day Centre. The Options Appraisal considered the key drivers for transferring the services to another form of organisation, which in summary are:  Unprecedented financial and demographic challenges on top of its existing service challenges  Constraints from being able to be as flexible, adaptable and efficient as their independent sector counterparts  Limitations in terms of business opportunities, which can bring real benefits in terms of expansion of service delivery within a reduced budget envelope  Ongoing savings requirements which impact on the sustainability of current in-house provision and could compromise capacity and quality  A need to ensure that Council Tax payers and the Council can achieve the best value for money at a time of significant austerity and rapidly increasing demand – getting the most out of a reducing budget to achieve sustainability  Ensuring the Council’s statutory duty to provide services for people with an assessed need can continue to be achieved  Providing an effective delivery vehicle that will complement the drive for integration of health and social care services

2.1 Appraisal methodology The LATC option was appraised using the following methodology: Each option was assessed against evaluation criteria which took account of four key issues:  Quality  Acceptability to Stakeholders  Governance and Flexibility  Cost In addition, the appraisal also undertook the following assessments in order to reach its conclusions:  Stakeholder Analysis  Qualitative Assessment  Financial Implications The outcome of the appraisal was that the LATC was the option that met all the criteria and provides a mechanism that enables the Council to achieve significant benefits from a transfer to independence whilst reducing the inherent risks of other forms of transfer. Such a vehicle will have greater autonomy than a department of the

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Council, but Council ownership provides control, thereby mitigating potential risks related to quality, cost, workforce and, importantly, the capability to be the provider of last resort and satisfying the Council’s statutory duties. The Borough of Poole is in the so far unique position of being able to look at two possible forms of LATC. The solely owned LATC and the jointly owned LATC. This business case is concentrating on the solely owned LATC, and the enhanced options appraisal will also look at the jointly owned Pan Dorset LATC, and compare the relative benefits of both options. At this point in the analysis we would typically develop a 5-year business case for a single LATC to test the financial and other benefits that BoP would enjoy. However, in this instance we have included an additional step in the analysis – a review of the viability factors of a solely owned LATC. This review examines in detail the BoP LATC’s ability to compete and survive in the marketplace with only the services that have been included in the potential transfer.

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3 The Two Viability Factors for a Single LATC

3.1 Ability to generate sufficient savings A fundamental factor in the success of an LATC is its ability to make efficiency savings. These savings have to be sufficient to pay for all additional management and governance costs of running an independent company and to provide net savings, one of BoP’s key drivers for change. There are two major factors that shape the scope and value of available efficiency savings:  The overall size of the organisation, its workforce numbers and budgeted spend. The bigger the budget spend, the higher the potential savings values  How efficiently the services have been managed before transfer into the LATC. If services have already taken out significant costs, the ability to achieve further savings without threatening services is diminished A review of the 2014/15 expenditure budgets and the budgeted establishment staffing for the services in scope provided the following picture:  A cost budget of £2.3m and 62 FTEs  Services that had successfully reduced its cost base through re-design and effective staff management The cost base of £2.3m is very small compared to 5 of the LATCs that CHS has been involved in and these all had budgets of between £18m and £30m. Another 3 LATCs that we have helped implement have budgets of £8m-£9m, these have continued to trade since implementation, but their size and restricted savings potential, have resulted in them facing financial challenges. BoP’s LATC would be the smallest LATC in the country making it a very high-risk enterprise. The savings available to it are not sufficient on their own to finance the management of the company, putting greater pressure on its ability to increase its income streams. The size and scope of the forecast savings potential for the single LATC are shown below:

Borough of Poole Single LATC Potential Savings Source of savings Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Efficiency Savings 5,861 11,722 14,066 16,410 16,410 Supply Savings 10,993 12,909 12,909 12,909 12,909

Total Savings 16,854 24,631 26,975 29,319 29,319

More detail as to how these savings have been forecast and valued can be found in section 7 below. Our conclusion is that the very limited size of the services in scope and the previously successful staff and budget management initiatives has limited the value of savings available to the single LATC.

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The risk to the LATC is that the low number of services in scope does not provide any margin of error when it comes to not making forecast savings. The most successful LATCs have upwards of 20 different services and this allows a couple of services to fall short of their targets as others may over achieve and therefore subsidise the others. This lack of size threatens the viability of the LATC, as well as limits the financial rewards available to the shareholder – BoP and this puts pressure on the final value of net benefits that can be derived from the LATC.

3.2 Additional Income Opportunities One of the major attractions of the single LATC is its ability to trade its services to residents who are currently unable or unwilling to pay for services provided by Council services. This ability cannot legally be available to Council managed services, so the development of the LATC as an externalised vehicle from the Council provides the following benefits:  More Poole residents will have the opportunity to buy more services  The current Council services will have a more secure and vibrant future As an area, Poole has a unique demographic that has higher than average numbers of older people living alone or with partners and who have retired into a “comfortable and well financed lifestyle”. However, the services in scope, two day services are not the services that could best serve the older population as they are both buildings based and Seaview is predominantly for clients with learning difficulties. Borough of Poole LATC Analysis of Non BoP Turnover by Service Service Area Year 1 Year 2 Year 3 Year 4 Year 5 Income £ £ £ £ £ New Service Income -Seaview Direct Payment clients 39,312 72,072 98,280 104,832 104,832 Clients with medium support needs 18,144 58,800 68,544 66,528 66,528 Clients with high support needs 21,420 68,040 79,632 77,616 77,616 Therapeutic services - 100,800 100,800 100,800 100,800 Bathing service 7,862 7,560 7,258 6,955 6,955 Rental Recharge 12,000 - - - - Training - 48,140 48,140 48,140 48,140 Poole Day centre 21,875 43,750 43,750 43,750 43,750 Total New Service Income 120,613 399,162 446,404 448,621 448,621 Existing Income Meals and Catering 1,000 1,000 1,000 1,000 1,000 Total Existing Income 1,000 1,000 1,000 1,000 1,000

Non -BoP Contract income 121,613 400,162 447,404 449,621 449,621

Our opinion is that the additional streams included in the above table are not sufficient to generate enough net contribution to finance the company. This is a consequence of only including two services in the scope of the LATC.

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The next section looks at the two services in scope with their limited additional income potential Poole Day Centre Although the above is true of the market, only the Poole Day Centre is designed for older people. So whilst the Poole Day Centre does have a large market available to it, its own limited size and service offer make its additional income potential insufficient to meet the needs of the BoP LATC. We have included income from filling some of the current voids in the service Seaview Day Centre Seaview Day Centre has a client base of service users with learning disabilities and behavioural issues, and the demand for this type of service in Poole is not affected by the demographics of the area. The nature of the client base means that the vast majority of service users are eligible for Council support as they often have no income as they cannot work and have no capital at all as they have been cared for by their parents who may own the home that the service user lives in. This client profile means that the self-funder market for this service is limited and Seaview would have to widen its geographical market area to try and attract greater numbers.

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4 Risks of a Single Poole LATC On top of the financial risk that is caused by a loss-making organisation, as in this case, there is also the market and competition risk that could forever limit the sole LATC from expanding sufficiently to break-even. As a commercial organisation the LATC will face the usual risks that any company trading in a competitive environment will have to deal with. In adult social care the LATCs that transferred out of their Councils have been generally limited to their original areas of activity, and Poole will be no different. Staff and service users are typically Poole residents and all buildings based services are situated in Poole. This geographical dependency brings an additional risk to the single LATC that has not been faced by any other. There is the risk of at least one other LATC being launched and trading in a neighbouring authority and geographical area, and this LATC would be over 10 times bigger than the Poole LATC. Dorset County Council members have ratified a paper in October that recommends the establishment of a single LATC for all its in-house provider services in Dorset, this will create a company with over 1,200 staff and a turnover of £28m. Bournemouth Borough Council are preparing a paper to be reviewed by Members in December that offers the option of a Bournemouth solely owned LATC or a pan Dorset LATC. If the solely owned LATC is adopted, that would mean that a Poole LATC would have two competing LATCs to deal with. If the pan Dorset LATC is accepted by Bournemouth, Dorset would join it, leaving the Poole solely owned LATC to compete with a company with a joint turnover of £36m and a geographical spread that totally surrounds Poole itself. All of the scenarios above will involve a BoP LATC competing with a much larger LATC on its borders. As stated above this will be a unique scenario within adult social care within the UK, so there is no statistical or historical data that we can call on to predict how this scenario will develop. What we do know is that both competing LATCs will be providing similar and additional services across a border that surrounds Poole as a market area. They will both have a mandate from their respective Council owners to develop new income streams and to compete with the private market for self-funders and personal budget holders. This will mean that each LATC will inevitably look at the other LATC as a competitor and this competition will be all the more intense because of the following similarities:  Staff will be broadly on the same pay rates and terms and conditions  These pay rates will be higher than those paid by true private market providers  Both LATCs will be offering premium services at premium rates to self- funders  Alternative neighbouring authorities ie Dorset and Bournemouth will look to use their own OP and LD Day services, leaving only Hampshire, Devon and Wiltshire as potential customers  Poole will not be able to find lucrative alternative markets in Dorset due to the geographical spread of the population centres and residents and the nature of its services This intense competition will not be in the best interests of both councils, and more importantly service users as the following scenarios could occur:

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 Duplication of service offer in the same location to the same market segment resulting in incoherent resource management. Duplicate services being provided in the same location  Competing marketing strategies that effectively cancel each other out at a high cost  Competition could lead to a price-war that would threaten the stability and quality of future services  Competition over staff recruitment with the possible result of increasing staffing costs as pay rates and terms and conditions are improved to attract or poach staff  No ability to offer strategic partnership with Health bodies across the region Seaview Day Centre’s new income streams are particularly vulnerable to a neighbouring LATC as one of its new income streams is from new clients from neighbouring authorities being brought to the centre for daily attendance. If a neighbouring authority has its own LATC it will surely look to that for its services before going outside the boundary. This would then force Seaview to look even further afield to authorities to the north and west of Dorset for its new clients, and the long travelling day would not make particularly attractive on a financial level and for time wasted travelling. Our conclusion is that the Poole LATC, with its significantly smaller cost base and geographically limited market would be at a disadvantage immediately. The best mitigation of this risk is to investigate and participate in the 3-way Pan- Dorset LATC with joint ownership between the three authorities.

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5 The LATC – how will it look?

5.1 What is an LATC? An LATC is a company limited by shares and 100% owned by the Council. It is registered with Companies House and has to follow all statutory obligations of a limited company. A LATC will have the following key characteristics:

5.1.1 Teckal Compliance It will be “Teckal” compliant and therefore have “teckal exemption”. This is a piece of European Union case law allowing Councils to transfer services into externally managed entities without having to follow competitive tendering rules and procedures. To qualify for “Teckal exemption”, the Company has to be under the control and influence of the Authority, in this case BoP. This is achieved by BoP ultimately owning 100% of the shares and having a strong governance structure as detailed in section 5 of this business case. The Company must also provide services that were provided while inside the Authority and must be in the same economic arena, in this case the provision of social care. The Company must have at least 90% of its income derived from the provision of services to the Council, i.e. BoP. This figure is due to be reduced by EU legislation to 80% at the time of externalisation. Once services have been externalised, there is legal debate as to whether “Teckal” still applies, and there is at least one trading LATC whose stated ambition is to have 50% of its income from outside its shareholder Council contract.

5.1.2 Able to trade The LATC will be able to trade in the open market and charge for those services that currently, as an in-house provider, it cannot do. This ability will allow the LATC to market and sell its services to customers including SDS Direct payment holders, and private payers. The LATC will also be able to sell services to residents of other authorities and other public bodies including the NHS and CCGs.

5.1.3 Independent of the Council (Operationally) Whilst the council will have 100% ownership, the LATC will have an Executive Board as described in detail in section 4.3. This Board will have a legal responsibility to act in the best interest of the LATC. The Executive Board and management team will follow its own internal governance processes rather than having to follow Council- wide processes and procedures. This will speed up decision-making processes, allowing the LATC to react quickly to market changes and service user demands.

5.1.4 Rebate Surpluses and benefits back to the council As 100% shareholder, the Council has total control over the treatment and destination of all surpluses generated by the LATC. This could mean deciding to invest in additional new LATC services, or rebating the surpluses back to BoP for the delivery of existing Council services.

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5.1.5 A contractual / commercial relationship with BoP and the LATC for the provision of care services In order to protect the Council’s current high-level of quality in service delivery, it will establish and enforce a supply contract with the LATC for all the social care services the company will provide. This contract will have quality requirements and Key performance Indicators (KPIs) that will need to be met on a monthly basis. This contract could have financial penalties included to ensure that BoP does receive best value for the services it receives.

5.1.6 Use of the Council’s current corporate services This includes services such as ICT, HR and Financial Transactions processing. The LATC will need to maintain the current support services that the Directorate currently enjoys, to ensure that services are provided as they are now. There will need to be a service contract between the Council and the LATC, where the LATC agree and define the range of services and service levels that the Council should deliver. Just as in the service contract described above, this contract should allow the LATC to receive good value for money and high quality services.

5.1.7 What are the benefits of the LATC? The benefits of establishing the LATC are listed below and relate to service users, staff, the Council and other stakeholders including Poole residents who currently do not deal with BoP in this arena.  Service Quality – The LATC builds on existing service quality and continuously improves the service experience to customers through quality assurance programmes, for example service excellence assurance models  Customer – The LATC is able to deliver services to more people in need of social care support, including customers in receipt of a direct payment, customers who are private funders and informal carers of people in need of social care support. Whilst at the same time the LATC creates more customer choice in the market place for services. The Council currently cannot “sell” its services to private individuals who wish to purchase some care provision  Workforce Quality - The LATC retains and builds on the existing asset of experienced, committed and well-trained staff. For example working towards and achieving nationally recognised accreditations, such as the Investors in People Award, enhance the development of the workforce including boosting leadership skills and management effectiveness  Organisational Performance – The creation of an LATC results in driving overall organisational performance through commercialisation. This includes improvements in workforce practices, patterns and management. This translates into greater overall efficiency savings for BoP  Innovation - The LATC stimulates entrepreneurship within the organisation and workforce in terms of service offerings to customers and commissioners for example the design of services that encourage independence, enable greater focus on prevention and avoidance of high cost long - term provision  Cultural – The LATC as an externalised trading company, creates a new culture based on greater autonomy, accountability and quicker decision - making. It shapes a whole new identity based on quality provision, which encourages workforce pride in the new company and a sense of a vested interest in its future success. In effect it creates the ethos of the public sector environment with the commerciality of the independent sector

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 Business Sustainability and Diversification – The LATC is able to pursue new business opportunity and income streams beyond the baseline services, which contributes to its sustainability. For example, bidding for new business and penetrating new health and social care markets  Reputation – The LATC is able to become a provider of choice for end users, carers and commissioners and the employer of choice within the recruitment market place, for example being in the Times 100 Best Companies to Work For. (This happened to Sandwell Community Trust)  Council retention of control and flow back of the benefits. – The legal structure of the LATC means that BoP retains control of the company and as a result benefits from the success of its trading activity. This includes flow back of benefits associated with efficiency savings and income growth  The Provider of Last Resort – The Council has a statutory duty to provide care when the assessed needs are critical and substantial. The LATC can help ensure that the Council can meet that obligation by being contracted to provide expert management and service provision when private sector providers fail in the level of quality delivered or leave the market altogether  Partnerships – The LATC is able to support local third sector organisations through partnership working. This includes for example provision of back office functions by the LATC, economies of scales and the design of service offerings that utilise third sector specialism  The Care Act – as the implementation of the provisions of the Care Act proceeds, the LATC provides the opportunity to support this. For example shaping service offers to respond to people with personal budgets and supporting the provision of preventative services

5.1.8 What Services, properties and finances are within scope of the LATC? Services and the Staff The services to be provided by the LATC will initially include the following transferred services Borough of Poole Services in Scope Services Cost Budget FTEs Seaview LD Day Centre 1,200,900 33.71 Poole OP Day Centre 730,100 20.20 Coast (Employment Svs) 342,100 10.48 64.3 Total for Transfer 2,273,100 8

The costs in the table above represent the current budgeted costs of providing these services from within the Council. These are the baseline costs that will be compared to how much the Company would charge to provide the same services to BoP. The cost of the services charged by the Company will depend on the following factors:  The savings it can make in delivering services more efficiently  The net profit it can make from new services and additional clients  The additional costs it incurs in employing an MD and fin mgr  The support service costs it has to pay to BoP

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 The rent it has to pay to BoP to be able to legally occupy the two day centres.

The 64.38 FTEs equates to approximately 80 members of staff on either full-time or part-time contracts:  The current staff numbers of 64.38 FTEs will TUPE transfer into the company within the implementation phase of setting up the LATC. All staff will transfer over with the same current terms and conditions, this includes, y rates, sickness policies and pension rights  The LATC will operate with a single tier workforce and new starter employees into the company will be on the same terms and conditions as transferring staff  The LATC will be applying for admitted body status into the Local Government Pension Scheme (LGPS). The scheme will be an open scheme and new employees offered the same defined benefits pension. The company will follow auto-enrolment regulations, as applicable to a new company

Property The LATC will take on lease agreements for the two BoP properties, which primarily relate to service provision. The lease arrangements between the LATC and BoP will include the charging of a market rent for each property. The market rent included in the Business Case has been estimated only as all parties wanted to avoid the cost of commissioning external surveyors to provide accurate predictions. This lack of precise rental values does not affect the calculation of the net benefit of the LATC to the Council. The table below lists out the principal properties and offices occupied solely by the LATC services in scope:

Borough of Poole Properties in Scope Services Seaview LD Day Centre Poole OP Day Centre

Finances The Council will not be transferring any money or assets to the LATC, it will be paying for the services that the LATC will provide, and the basis of that cost of service to be paid will be 2014/15 service budgets, adjusted where appropriate. Section 7 shows in detail how the business case was formulated and how the LATC will operate.

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5.2 How will the LATC Operate Internally?

5.2.1 LATC Internal Governance It is recommended that the LATC has an Executive Board independent of the Council and made up of the following positions:  Independent Chair – the current for adults would be a good choice of Chair, bringing a wealth of knowledge and experience in this area  Managing Director – the combination of leading and managing care services experience, as well as successful and substantial commercial experience will be essential. This role will include driving through the cultural change needed and would be a full time role  Finance Manager – with a strong commercial background and experience of managing a company of £5m+ turnover SMEs would be ideal. Initial structures have been based on the role being provided by a senior finance executive within adult social care on a part-time basis  Non-Executive Directors with skills that fill major gaps on the Board, such as legal and marketing, these would be selected from local candidates/applicants We recommend that there are no Members on the Executive Board as described above. If there are additional members on the Board, in our view this distorts the commissioner/provider relationship with the LATC and creates potential for significant conflicts of interests for any Members on the LATC Board. It also creates legal responsibilities that Member and Officers may not want to take on. The governance mechanisms that we recommend The Council to adopt in managing the LATC can be found in Section 6. The LATC Executive Board would meet officially once every month and would deal with all aspects of the management of the LATC. The executive team of Managing Director and Financial Manager would be expected to meet on a very regular basis, as one of the significant advantages for this type of organisation is its small size relative to the Council, enabling the executives to be based in the same building and so working together formally and informally on a regular basis. The key areas of responsibility for each executive post include the following:  Managing Director – Business strategy and Delivery of all services and quality planning; culture change; HR New income generation; bids and tenders; marketing and sales; development partnerships, interface and reporting with management board and with the Council  Financial Manager responsibilities would cover Finance; I.T; Property; Procurement; commercial contract website

Our experience has shown that changing culture and practice is a role that needs continual application and reinforcement on a full-time, lead by example basis. The MD will be expected to lead this cultural change. The new LATC will need to understand and monitor its performance financially and qualitatively as soon as it can. A finance manager may well be able to provide the minimum financial information required but the job role also includes ICT, property and supplier responsibilities.

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The table below illustrates the indicative costs of the Executive Board along with additional posts enabling the LATC to govern itself, meet its statutory obligations as well as growing and prospering with additional new income streams. We have also used our recent experience in identifying and estimating the additional costs that the LATC will incur that are either unnecessary as a part of a Council, such as audit fees, or are usually covered by corporate provision such as insurance:

Borough of Poole Single LATC Board, Executive and External Service Costs Total Tfrring Additional Cost Summary Posts No’s Budget Costs s £ £ £ Board Chair Person New 1 0 1,200 1,200 78,12 Managing Director New 1 0 78,120 0 65,62 Finance & Commercial Manager New 1 0 65,625 5 Non Executive Directors New 4 0 4,800 4,800 149,7 Total Board Costs 0 149,745 45 Management 25,00 Marketing Support New 1 0 25,000 0 25,00 Management Support 0 25,000 0 External Services purchased 20,00 Insurance Premiums New 20,000 0 Bank Charges New 5,000 5,000 15,00 External Audit New 15,000 0 Legal Advice New 5,000 5,000 45,00 45,000 0 219,7 Total HO and Business Support function 8 0 219,745 45

5.3 LATC Business Support Services As mentioned in section 5.1 the support services will continue to be provided by the Council.

5.4 LATC Properties The LATC would be expected to have a Head Office so that its own sense of identity and independence from the Council can be engendered. To avoid additional costs the LATC would look to occupy an existing Council facility that was centrally located in Poole. Identification and selection of suitable premises will be carried out within the implementation phase of setting up the new company.

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In order to save additional expense, it has been assumed that the head office will be situated in one of the existing service buildings. All the operational services in scope will continue to occupy their current buildings and locations. The Council will lease to the LATC all the properties with sole occupation. The property and legal departments within BoP recommend that the occupied properties be leased at market rent rates. These have been estimated at £50k per annum per property. 1 Governance Effective governance is an essential component in creating the LATC in order to ensure the requirements of the Teckal Exemption are satisfied, for example the need for BoP to exert control and influence over the company. There is also a requirement to achieve a balance between the Council’s strategic control and influence and enabling the Directors of the company to have operational responsibility for delivering the strategic objectives of the Council. It is anticipated that the company will have a structure and relationship to the Council as set out in the following sections:

1.1 The LATC and the Borough of Poole The LATC will hold a number of key relationships, governance and contractual arrangements with the Council that will give BoP complete access to all financial and performance data and to exert the control and influence it needs to.

There are four main relationships that the BoP will have with the Company:

 As the 100% shareholder with monitoring arrangements via the Poole Group.  As the commissioner with a contract for service delivery by the LATC  As an operational partner with the LATC in the delivery of strategically important services that form part of the Council’s access pathway  As a part-contract holder for delivering business support services to the Company.

1.2 Council Member Relationship with the LATC Shareholder governance is an essential component in order to ensure the Council is strategically in control of the LATC and thereby meets one of the requirements of the Teckal Exemption (i.e. the need for the Council to exert control and influence over the Company). There is a need however, to achieve a balance between the Teckal requirement of ‘control and influence’ and the space the Company needs to be able to develop as a business. It is possible that too much control and influence (over and above Teckal) will create the risk of recreating a Council Directorate and not enough may mean that the Council cannot demonstrate the control required. From experience with other LATCs, this business case recommends that the Council exert its control and influence through an LATC Shareholder Monitoring Group (SMG). The purpose of SMG is to act on behalf of the shareholder to scrutinise LATC performance against its service contract and Business Plan, and to review investment plans and risks.

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The Shareholder Monitoring Group will typically have the following membership:  5 Council Members including a Chair, the Member for Adult Social Care.  Chief Financial Officer.  Director of Adult and Community Services;  Head of Commissioning and Improvements (Adult Social Care); and  Contracts Manager.  Service User representative - to maintain customer influence in terms of the strategic direction and performance of the LATC.

Selecting Members with business experience and commercial acumen on the SMG will help to provide scrutiny and constructive challenge to the LATC Board. It is suggested that the SMG meets every quarter with the LATC Executive Board reporting on the following:  Financial performance – matched against latest Business Plan  Service and Quality performance – matched against contractually agreed service levels, using Key Performance Indicators (KPIs) as a summary guide  New and Additional Income returns and plans  Annual presentation in November/December of the next year’s Business Plan and strategic direction of the LATC

One of these quarterly meetings will act as the Annual General Meeting. It is possible for Council Members to be appointed to the LATC Executive Board, however this is not recommended for the following reasons:  There are significant conflicts of interest as they would be both the shareholder and commissioner.  Legally, LATC Board Members have to do what is in the best interests of the Company, which may place them in conflict with the Council.  Members are best placed to scrutinise and hold the company to account rather than have a role in managing services, which is similar to the role that is defined in other outsourced or internally provided relationships. This can be most appropriately achieved through involvement with on-going commissioning and contract management and the shareholding governance exerted through the SMG rather than direct LATC Board membership.

1.1 Shareholder Agreement The shareholder agreement is a legal document that allows the shareholder, in this instance, the Council, to restrict what shareholders and Directors can do on behalf of the LATC. As there is only one shareholder, the aims of this agreement are to restrict the abilities and authority of the Directors, so that the Council and Members are satisfied that the assets and employees of the Company are adequately protected. We would recommend that the following restrictions are placed on the executive Directors:  The Directors will be authorised to act and deliver the outcomes as defined by the latest Business Plan for the LATC that has been ratified and agreed by BoP  The Directors cannot give themselves any form of payment or benefit outside that agreed in the ratified Business Plans

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 The Directors cannot commit the Company to any form of loan agreement without express agreement from BoP  The Directors cannot remove any other directors without the agreement of BoP  The Directors cannot pay themselves a bonus or any form of pay increase

1.2 Other Contractual Relationships between BoP and the LATC The other three relationships between the Council and the LATC are:

1.2.1 The Service contract with the LATC This is where BoP commissioners of adult services monitor on a monthly basis contractual performance of the LATC. This allows continual scrutiny of service delivery levels and gives commissioners significant ability to fully understand their commissioned services and the factors that affect performance. There can be penalty clauses inserted to ensure that poor performance is discouraged and financially penalised. This monitoring would involve a contracts manager who would ensure that all contractual aspects of the service were being adhered to. Operational Partner The LATC will be strategically positioned to work closely with the assessment and care management function of the Council. This should encourage the development of a clear pathway for potential service users to follow that ensures that all eligible needs are met and that any ineligible service users are given the opportunity to look at the services offered by the LATC on self-funder basis. The BoP provision of support services This is where BoP will be the provider of business support services to the LATC including:  HR providing transactional processing, payroll and advice  ICT providing all hardware, networks and software on an on-going basis including daily support  Financial Transaction Processing providing systems and processing for purchase orders, purchase invoices, payments, sales invoicing and receipts and treasury  This provision will be supported by service level agreements (SLAs) for each area that will detail the performance requirements of the LATC. The monitoring of the performance against the SLAs will give BoP greater clarity and knowledge of the actual levels of service provided. This additional performance reporting will aid BoP in any future contract negotiations

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2 Five year business plan

7.1 Methodology used in developing the Business Case The purpose of the business plan is to provide BoP Members with a financial picture of how the LATC will perform over a 5 year period, and what the overall financial benefit could be to BoP. In developing this plan a number of processes, methodologies and assumptions were adopted which are set out in the following sub sections.

7.1.1 Analyse and review 14/15 budgets for services in scope All relevant service budgets were collated and totalled for the 2014/15 financial period. These budgets were matched against the actual expenditure for 2013/14 to identify any significant variances that would indicate major budget inaccuracies. Budgeted establishment details and costs were analysed and matched against budgets, along with 12 months of absence history broken down by service and month. The cost base was examined to identify and calculate the following:  Staffing costs including pension contributions  Supply costs  Utility costs  Rental costs  Support service allocation costs  Internal recharge costs  Repair and maintenance costs  Training costs  Senior management costs not held in service budgets

7.1.2 Identify income currently with BoP that will move over to the LATC All income relating to current client contributions and Public Sector bodies such as the NHS and other local authorities will continue to be collected and accounted for by BoP. Income the LATC will be responsible for will typically be the following:-  Activity Fees  Room rental income

7.1.3 Design Structure of the new company After identifying all the services and the direct reporting lines to be included in the LATC, an executive management board has been designed. All other functions and capacities required to run an LATC have been included and costed in the structure. The structure and its costs can be found in Section 5.2.

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7.1.4 Forecast the additional running costs of the new LATC All costs that will be incurred by an LATC have been identified and valued. These costs are not typically held in Council service budgets as they are not required. Examples of these costs include:  Bank charges  Some insurance premiums  Marketing and business development costs The above costs can be found in section 5.2.

7.1.5 Analyse and quantify potential efficiencies Once the cost base of all the services has been identified, analysed and matched with the establishment, potential efficiencies were forecast based on CHS experience in the trading performances of other similar trading entities. This experience has been taken from earlier implementations of LATCs including Essex Cares, Olympus Care Services in Northamptonshire and Buckinghamshire Care. Details of the savings achieved are shown in Sect 7.4

7.1.6 Review of potential new income sources and values Each of the services in scope was visited and their managers interviewed to obtain their views on where they would be able to sell their services to a new client base. This also covered any potential creation of a brand new service, or the reconfiguration of an existing one. The current and historical under-utilisation of in-house services was analysed to identify where new clients could be attracted to the services to fill existing empty places. Full details can be found below in Section 8 that deals with:  Current market competition  Business opportunities for new services The Business Case for the Sea View CIC was reviewed and the potential income streams were adopted and amended to match our market research and conclusions.

7.1.7 Construct 5 year Profit and Loss Account and Balance Sheets The Business Case includes a five-year performance timeframe so that the LATC’s medium term performance can be determined. The LATC‘s performance is forecast and measured through a profit and loss account that includes the following elements:  BoP contract income  Additional Income that increases over the 5 year period  Latest agreed service budgets for 2014/15 used as the cost base for all services in scope  The costs of services provided by BoP but not included in service budgets  Forecast savings available to the LATC  Additional costs required to run and manage the LATC  Any tax implications and costs that may apply

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In addition to the Profit and Loss Account there are forecast Balance Sheet statements that illustrate the financial position of the LATC at the end of each year. These can be found in Section 7.3.

7.1.8 Construct a Value for Money formula to provide BoP with a potential financial benefit or not Ultimately the Members and Officers of BoP need to have a financial measure of the net benefit of this project over the first 5 years of its trading life. This model will forecast the financial position of the Council with the new entity in existence, and compare it to the Council’s’ forecast position if it did nothing and continued on with the services exactly as they are now. This can be found in section 7.3.3.

7.2 Financial Assumptions included in the Business Case The assumptions below have been agreed by the relevant officers of BoP. The details of these assumptions are as follows:

1) All financial and other consequences of planned or proposed property reconfigurations have not been included the Value for Money (VFM) comparison as they will be applied with or without the establishment of an LATC 2) Inflation assumed to be ZERO for all costs for comparison purposes only 3) The Business Case will be evaluated over a 5 year period 4) Any efficiency savings in the LATC will be reflected in a reduced cost of service to BoP or as retained profit available for dividend/rebated contract price with BoP 5) Service budgets for the LATC will be taken from agreed 14/15 budget costs for the relevant services and will include historically agreed overspends (e.g. agency staff) 6) Required budget savings will be included in the VFM comparison for the LATC over the 5 year period 7) Support Services will be provided by BoP, as is the case now. The aim is to avoid any additional costs of provision to be charged by the provider. Services would include: a. HR, Payroll, Employee management and advice b. ICT provision for hardware and current software support c. Financial Transaction Processing – Creditors, Debtors, Purchase Ordering, Treasury posting and control The above services will be managed through an SLA on a monthly basis and contracted for 5 years with breaks where appropriate. The LATC will follow BoP future service decisions. Other corporate services such as legal, procurement and marketing will be purchased on an “as and when” basis with an agreed fee structure: 8) BoP will cover any pension deficit at the point of transfer to the LATC. 9) Any post transfer pension deficit will be responsibility of the new LATC 10) Budgeted/forecast pension contributions for transferring staff will be at a sufficient level to support the new pension provision for the LATC. BoP will look for the most cost-effective structure to provide current pension provision.

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At implementation an actuary’s report will be needed to calculate the new level of contributions for the LATC 11) Current income from service users and from other Government bodies will remain with the Council. The LATC will be a provider of services, not a collector of income on behalf of BoP. Local income for meals, activities, etc will be LATC income 12) New self-funder income and other new income streams will be included as LATC income, but will be administered and collected by BoP as part of the financial service support package 13) Cashflow calculations will be based on normal payment days – 30/60 days 14) Working Capital will be financed by early payment of the monthly contract price provided by the Council 15) FF&E assumed transfer value of NRV. This does not include any IT equipment 16) IT equipment will be provided as part of fully costed service delivery provided by the Council 17) FF&E depreciated straight line over 10 years (or as per BoP policy) 18) Corporation Tax liability set at zero for profits generated by BoP contracts, following “mutual trading” status, but at 20% on all other profits 19) VAT to be levied at 20% with no future increases 20) Savings to be achieved by LATC will be through: a. Increased efficiencies b. Reduced cost and consumption of supplies and services 21) Assumed all surplus available for distribution to BoP 22) Additional Insurance costs will be estimated (if not covered by BoP policies) – experienced LATC insurance broker will be used to provide quotes/estimates 23) Ops Mgr costs plus their support costs will be transferred from BoP budgets. Method/justification for transfer will be TUPE where applicable 24) Managing Director and Finance Manager roles will incur additional costs for the LATC 25) Additional banking costs will be included in the costs of the company 26) Property occupied by services will be provided through lease at an agreed market rental value. This market value to be obtained during implementation. These have been estimated at £50k per annum for each day centre 27) BoP as the landlord will be responsible for all major repairs and maintenance as there are no budgets for this in services to be transferred cost to be reflected in lease values 28) There may be the need to occupy a BoP building for the H.O. this may well be one of the existing buildings to keep costs at a minimum

7.3 Summary of Financial Results The Profit and Loss Forecast (P/L) is where the elements of cost efficiencies, new management costs and additional income all come together to show how the company will perform in the market and still deliver the cost savings required by the Council.

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We have produced a full set of financial results that include balance sheets, a value for money comparison, extracts from which are below: Borough of Poole Single LATC Profit and Loss Account for the First Five years Description Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Income Borough of Poole Contract 2,568,603 2,568,603 2,568,603 2,568,603 2,568,603 Other Income 121,613 400,162 447,404 449,621 449,621 Total Income 2,690,216 2,968,765 3,016,007 3,018,224 3,018,224 Expenditure Staff Costs 1,674,869 1,747,058 1,794,056 1,807,382 1,807,382 Rent for Properties 100,000 100,000 100,000 100,000 100,000 Supplies & Services 793,422 774,006 808,506 774,506 811,506 Total Service Expenditure 2,568,291 2,621,064 2,702,562 2,681,888 2,718,888 Contribution to Group 121,925 347,701 313,445 336,337 299,337 Executive Man & Board Costs 149,745 149,745 149,745 149,745 149,745 H.O. Property, Insurance etc 45,000 45,000 45,000 45,000 45,000 Marketing, Finance Support 0 25,000 25,000 25,000 25,000 Support Services 130,550 130,550 130,550 130,550 130,550 Total Head Office Function 325,295 350,295 350,295 350,295 350,295 Support Services % of Income 12.09% 11.80% 11.61% 11.61% 11.61% Profit/(Loss) before Int & Depr (203,370) (2,594) (36,850) (13,958) (50,958) Depreciation Chge @ 5% pa (1,000) (1,000) (1,000) (1,000) (1,000) Net Profit/(Loss) before Tax (204,370) (3,594) (37,850) (14,958) (51,958) Corp Tax rcble/(payable) 0 0 0 0 0 Annual Profit or (Loss) (204,370) (3,594) (37,850) (14,958) (51,958) Retained Profits/(Losses) (204,370) (207,964) (245,814) (260,772) (312,731)

The contract price charged to BoP of £2,568,603 is higher than the budget costs of £2,273,100 (sect 5.1.8) because this contract has to pay for the following costs that the company must incur:  Rent for properties £100,000  Executive and management costs £149,745  Insurance etc. £45,000  Support Service costs from BoP £130,550 Two of the above costs, Rent and Support Services, will be charged by BoP, as they are the landlord of the properties and the provider of the support services. These have to be charged at market rates so that BoP cannot be challenged by “State Aid” rules. This means that the receipts offset the contract price of £2,568,603 for rent and supports services, this offset is shown in section 7.3.2 under the Value for Money Comparison The above table also shows how the LATC is not performing well financially, with a cumulated loss of £313k after 5 years, which will not contribute to the Council’s savings. This is the disadvantage of the Council being the controlling shareholder in that all the profits or losses, whatever the value, are directly in its control and responsibility. In this situation the LATC will eventually run out of money, and the Council will then have to make a decision as to the future of the Company. This is shown in the next Section 7.1.3 in the balance sheet.

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The key area for development over the contract life is the “Non BoP Income” or “Other Income” as it is called the above table. This income is important as it represents the growth of turnover through trading with self-funders, private payers and other public or private sector bodies. This is one of the real benefits of creating the LATC, as this income cannot legally be generated at all when the services are still in the Council. However in this instance the additional net contribution from Seaview and Poole Day Centre are not sufficient to bring the company into profit. It is worth noting that this additional income generates over £309k in profit for the company over the 5 years. If only half the target turnover was reached, the company’s accumulated losses after 5 years would be increased to £466k, and the additional cost overall would increase to £776k from £622k. A principal aim of the LATC is to develop new services that generate a net contribution to the company. The development of these new services should create the following benefits:  The LATC will be providing more capacity to Poole residents  More service users will be receiving care – reducing need elsewhere, such as the NHS  The contributions earned could be used to reduce the Council’s care costs  More high quality services will drive up quality in the market through competition The detail of the existing and new non-BoP income can be found in Section 8 below.

7.3.1 Retained Loss to BoP At the end of year 5 the company has built up negative reserves of £313k, as shown in the Balance Sheet table below. It also has a bank overdraft in year 1 of £116.8k. This overdraft is a result of a loss making in all year’s trading. This is not unusual in start-up organisations, however the loss making continues into the following years, and the company does not achieve a profit making position in any of the following years. Borough of Poole Single LATC Balance Sheets for the First 5 years Description Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Net Fixed Assets 19,000 18,000 17,000 16,000 15,000 Debtors 12,161 40,016 44,740 44,962 44,962 Bank account (3,426) (19,525) (52,734) (68,563) (116,438) Current assets 8,736 20,491 (7,993) (23,601) (71,476) Supplier Creditors (59,407) (57,789) (60,664) (57,830) (60,914) Creditors VAT (126,983) (136,935) (138,510) (138,584) (138,584) Creditors Income Tax & NI (45,615) (51,631) (55,548) (56,658) (56,658) Corp Tax debtor/(creditor) 0 0 0 0 0 Current Liabilities (232,005) (246,355) (254,721) (253,072) (256,155)

Total Net Assets (204,270) (207,864) (245,714) (260,672) (312,631) Capital and Reserves Share Capital 100 100 100 100 100 Retained Profit/(Loss) (204,370) (207,964) (245,814) (260,772) (312,731) Shareholders' Funds (204,270) (207,864) (245,714) (260,672) (312,631)

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The net Fixed Asset value in the first line of the balance sheet represents the net realisable value of the furniture, fittings and equipment that will be physically in the services on the day of transfer to the LATC. All of this equipment will be used/second hand and has been estimated based on past experience of six earlier LATC transfers.

7.3.2 Value for Money Comparison This section deals with the financial effect the LATC could have on the BoP’s financial position in relation to its adult social care budgets. The next table holds the value for money calculation that illustrates how much net benefit or loss the Council would see if the LATC were adopted. This calculation measures the financial benefit by comparing the cost of the services if nothing changed over the next five years with the net cost the Council would pay to the LATC for providing those same services. As referred to before, as the ultimate 100% shareholder of the LATC, the Council has complete control over the destiny of the accumulated profits and losses. The model above has assumed that the Council has not taken any income out of the LATC. The table below shows that the Council is spending an additional £622k over 5 years by establishing and commissioning the LATC to provide its services and to sell additional services to SDS clients and other self-funders in Poole:

Borough of Poole Single LATC Value for Money Comparison 5 Years 5 Years 5 Years BoP Contract Budgets no Description Receipts Spend Change £ £ £ Cost of current In-House Services 11,360,500

Cost of Contracts to BoP from the LATC 12,843,015 Income to Council from Charges to LATC Re- Corporate Support Services 652,750 Fixed Assets Purchased (Desks etc.) 20,000 Property Rental Income to BoP 500,000 Dividends/(losses) to BoP (312,731) Income and earnings available to BoP (860,019) Net Cost of Contract 11,982,996 11,360,500 (11,982,996) (Additional cost) to BoP over 5 years (£622,496)

The LATC is forecast to make this additional cost to the Council because it is not big enough to generate enough efficiency savings and provide enough additional services at a net profit so that the profits can contribute to the overall reduction in the Council’s cost of service. This lack of value to the Council is not a function of the management or staff, but a result of the small size of the services in scope and their lack of size to be able to generate a large of volume of savings and additional income. The next section looks at how these services do generate a level of savings, even though they are not sufficient to fully finance the company

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7.3.3 Introduction One of the cornerstone reasons for creating the LATC is its ability to provide services in a more efficient and flexible manner, thus reducing costs and providing the Council with services at a lower price even after covering the costs of managing and governing the business outside of the Council. The services in scope employ 64 FTEs relating to 94 staff with employment costs of around £1.5m per annum. BoP is facing increasing cost saving requirements and have used re-organisations, introduced technology and reduced management costs to help achieve these savings. These initiatives have been successful so the cost base to be inherited by the LATC has already had efficiencies squeezed out. This has had the effect of limiting the additional efficiencies that have been forecast for the LATC. The LATC is the preferred option because this model has an historic track record of success of increasing efficiency, capacity and cost reduction. Individual case studies can be found later in this section as exemplars. The table below outlines indicative savings that could be achieved by adopting the specific strategies below and by allowing the LATC to be a catalyst for cultural and organisational change within the services:

Borough of Poole Single LATC Potential Savings Source of savings Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Efficiency Savings 5,861 11,722 14,066 16,410 16,410 Supply Savings 10,993 12,909 12,909 12,909 12,909

Total Savings 16,854 24,631 26,975 29,319 29,319

In our view the savings above do not provide sufficient value to justify the creation of a solely owned LATC. The savings initiatives have been broken down into several strands and each one is discussed below: Better Working Savings The LATC management team will be expected to continue the excellent work done to increase efficiency and reduce budget costs. This work will involve:  Continue the reduction in absence across the services  Increase in efficiency of staff deployment e.g. the increase in the amount of staff contact time with service users  Minimise staff downtime by more effective management of rosters across services We have recognised that the savings will not be achievable from the 1st day of trading, but will take time to filter through from the changes to attitude and working practices, which have been gained by allowing the company to use its staff to the best of their ability, and this in the first year represents less than one half day per month per employee. Borough of Poole Single LATC

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Potential efficiency savings Source of savings Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Efficiency % savings 5.0% 10.0% 12.0% 14.0% 14.0% Seaview 4,381 8,762 10,514 12,267 12,267 Poole Day Centre 1,480 2,960 3,552 4,144 4,144 COAST 0 0 0 0 0

Total Supply savings 5,861 11,722 14,066 16,410 16,410

These savings are based on our experience in managing and implementing earlier LATCs in Essex, Aberdeen and Buckinghamshire as illustrated later in this section. Importantly the resultant saving in working days will not lead to a reduction in the workforce. On the contrary, the expectation is that the staff establishment will expand over the life of the contract, as increased capacity will be used to provide more of the services in demand from new clients or to supplement the new workforce to be recruited to provide brand new services, currently not available from the Council. Our experience in implementing and managing transferred services in other Authorities evidences a cultural change in the new organisation that leads to an improved “team environment” and a sense of individual responsibility towards colleagues, service users and the organisation as a whole. This is linked to:  A sense of a new beginning with concomitant improvement in morale  A smaller organisation with closer links and influence to the top of the organisation  The removal of restrictions of a large corporate local authority body and an assertive commercial focus  The ability to develop the business and expand rather than continually look for further savings, leading to attrition of services and jobs, provides a significant morale boost This is coupled with the recruitment of an executive team with commercial acumen, principles and practices. Flatter management hierarchies, quicker decision-making processes and more responsive senior management all help staff to feel empowered and galvanised into developing better and more efficient ways of working whilst retaining quality. This is especially true of middle management where they often have had good working ideas, but have been unable to implement them because of the limitations of working within a local authority environment. A new company also frees-up significant amounts of time for all levels of management in not having to be engaged in the wider Council business, allowing managers to focus purely on the delivery of service to customers and developing more efficient ways of working and looking at new services to deliver and generate income/contribution. The most common and valuable manifestations of this change in culture centre on more effective use of resources, including the workforce and workforce management:  More flexible and efficient work practices and patterns  Reduced usage of agency staff and overtime payments

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 More assertive HR practice

Supply Savings The new cultural shift engendered by the establishment of a new company encourages staff to be more conscientious and careful with the supplies they consume in their daily work. The sense of a team environment and that everybody’s actions make a difference encourage staff to use less as they go about their duties. The new organisation also has the ability to purchase supplies and services from the most appropriate and cost efficient sources, and the management will be tasked with reviewing usage and activity patterns to identify ways of saving resources. This may involve purchasing from more local and immediate suppliers who are prepared to be more flexible in the value of minimum order levels and delivery quantities. Unit prices may not be any lower than those offered by the current Council procurement contracts, but the order levels, locality and flexibility of deliveries can encourage smaller order quantities and less usage. The services in scope typically spend only 20% of their service budget on supplies and consumables, and they can suffer from having to purchase items with minimum order levels that are far in excess of their actual needs. This is because by being part of the Council they may be compelled to purchase from council-wide contracts, which are designed to service very large, multi-department organisations where reducing administration is a major cost-cutting tool. The table below illustrates the value of savings as calculated on the budgets for 2014/15. Borough of Poole Single LATC Potential supply savings Source of savings Year 1 Year 2 Year 3 Year 4 Year 5 £ £ £ £ £ Running costs % savings 3.0% 4.0% 4.0% 4.0% 4.0% Seaview 3,798 5,064 5,064 5,064 5,064 Poole Day Centre 1,950 2,600 2,600 2,600 2,600 Transport Costs % savings 1% 1% 1% 1% 1% Seaview 2,890 2,890 2,890 2,890 2,890 Poole Day Centre 2,355 2,355 2,355 2,355 2,355

Total Supply savings 10,993 12,909 12,909 12,909 12,909

These savings values are severely limited by the lack of size of the services, therefore limiting the opportunities to save more costs. In our experience some of the savings ideas that have been introduced have been conceived whilst the services were in the Council but the administrative constraints and processes of the Council prevented their adoption.

7.4 Financial Risk and the Consequences of Failure The two fundamental factors in the success of the LATC are:  The achievement of efficiency savings  The development of profitable new services and income streams

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This means reducing the cost of providing services as well as generating profitable additional income from new customer bases outside the Council, delivered by existing and additionally recruited staff managed and directed to be more efficient and productive. These positive financial results are needed to finance the costs that are incurred in running and governing an independent LATC that is outside the Council’s direct remit. The immediate financial risk is that the LATC does not meet its efficiency or new income targets. The early consequence will be a reduction in the working capital of the LATC, and a possible trading loss at the end of the financial year. In itself a short term trading loss is not a serious issue as long as the performance can be turned around in the short to medium term. Our medium term forecasts show that the LATC does not achieve a profitable position and therefore does not provide any financial value to BoP. If in the long-term the LATC fails to deliver its financial targets, the Council has three principal options once it has thoroughly reviewed the performance of the LATC and understands what mistakes or omissions were made: 1) Accept that the LATC is still the best vehicle to provide these services and look to join an existing LATC that has been established by a neighbouring authority/(ies) 2) Close the LATC down and transfer the staff back into the Council 3) Close the LATC down and organise a controlled transfer to the private market where it is available Options 2 and 3 are particularly unpalatable, as No 2 would involve the Council becoming a provider again, which would require new management responsibilities for senior staff and new posts for managing the services. This would involve additional costs that could possibly offset any reduced contract costs. Option 3 would not guarantee that every service user would be cared for by the private market. This would be unacceptable to the Council, as it has a statutory duty to provide assessed care needs, so it would either have to persuade a private provider to take on specific clients by paying whatever is required, or it has two other difficult options of: 4) Keeping the LATC as a much smaller unit, that just cares for the service users who have no provision. This would be very expensive 5) Transfer a small cohort of staff back into the Council to care for the un- provided service users. This would again be very expensive and would also involve more senior Council management involvement

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8 New business opportunities

8.1 Summary of new business opportunities A key factor in the LATC Business Plan is the generation of additional income opportunities. There are opportunities for the LATC to develop its business by providing service solutions to customers, including both local authority commissioners and individual consumers of care and support. Currently the Council services cannot legally sell their services to individual customers, so there is a small market opportunity in Poole for the LATC, which is explored below. The services transferring into the LATC are strategically relevant and can be offered to private payers and direct payment holders, this is on a limited scale as they are day services that are currently buildings based. A clear advantage that the LATC will have within the independent sector market is its ownership by BoP. From experience of other LATCs this is a unique selling point and one, which is extremely important to individual consumers when deciding to purchase services. Developing the BoP LATC as a trusted brand that is underpinned by a high quality front line work force is again something that would position it strongly in the open market place. It is well documented that such a workforce is at a premium for most providers of health and social care services, brought into sharper focus by challenges to recruit and retain quality staff. In achieving its income targets there are a number of dependencies inherent in the business planning. These include financial investment, service competitiveness, workforce development and business development resources.

8.1.1 Competing with Dorset’s or Bournemouth’s own LATCs Section 4 of this Business Case details the risks and challenges that the solely owned Poole LATC would face due to the existence of at least one other LATC in neighbouring authorities. In our opinion this is an unacceptable risk and this potential competition is a fundamental threat to any single LATC in the region.

8.1.2 Additional Income Opportunities Day services retained “in-house” by local authorities rely exclusively on referrals from adult social care. Even though they may have capacity, these in-house day services cannot sell services to direct payment holders or private -payers. This limitation exposes day services to significant risk of decline as the take up of direct payments increases and the eligibility for state funded services tightens. This is the apparent position currently affecting Seaview and Poole Day Centre. Where day services are externalised there is the potential to generate new income through existing physical and staff capacity. Opportunity is dependent upon the extent of such capacity and the demand for the services offered to the direct payment and private payer markets.

Both Seaview and Poole Day Centre have significant shortfalls in occupancy. The table below sets out the approximate occupancy rates as at December 20131

1 HSCO&SC 1 July 2014 Review of Day Services Report- Final Version BoP.

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Day Service Capacity per Actual Occupancy Shortfall day Attendance per rate Per day day Sea View 220 140 64% 80

Poole Day 90 40 44% 50 Centre

Occupancy has recently increased in Poole Day Centre due to the consolidation of Garland Road and Dorset House day services. The potential market Older People

The older people’s population in Poole is projected to be 33,500 in 20152. Based on national research, approximately 13.2% will have funded care, of which 25% will be private -payers3 Therefore it is likely that a total older people private - payer market of 1,105 people will exist in 2015 rising to 1,200 in 2020. This market is likely to be made up of older people who are relatively affluent, not qualifying for local authority funded services, and those choosing to purchase privately anyway. In respect of BoP day services, it is documented that the largest proportion of attendees are those aged between 81 and 90 years. This group represents approximately 31% of the older people population. Targeting only this market segment could reduce the potential private market to only 343 older people per year. Targeting the whole of the private market, however, would be unrealistic as levels of dependency within the over 65 age group lend themselves predominantly to more intensive forms of support such as domiciliary care and residential care, rather than day service provision. It would therefore be more commercially realistic to target at least 5% (55 customers) of this market as long – term (12months) private payers of the Poole Day Centre. This percentage however is based on an assumption that the day service is able to also attract customers outside of its traditional age group and respond for example to people between 65 and 80 years of age. In calculating additional income expectations, it is assumed that the customer base will be targeted to purchase at least one session per week for 12 months. This means that sessional income is based on the sale of 55 sessions per week and an annual sale of 2,640 sessions (based on 48 weeks). The direct payment market for older people is more limited. Where an older person qualifies for local authority funded support, this is most likely managed by BoP on their behalf. The latest data from BoP highlights take up of direct payments with older people representing only 5% of total payments issued4. Over the course of the

2 Projecting Older People Population Information System (POPPI) www.poppi.org.uk 3 People who pay for care, Putting People First - quantitative & qualitative analysis of self- funders in the social care market January 2011. 4 HSCO&SC 1 July 2014 Review of Day Services Report- Final Version BoP.

Page 41 of 54 Solely Owned LATC for Borough of Poole – Business Case financial years 13/14 and 14/15 the average number of direct payment holders was 78. Taking private and direct payment targets into account, the table below sets out the expected income generation over the first five years of trading. Income projection is based upon a prudent forecast that the current number of voids is reduced without having to increase staffing levels at an assumed price point per session of £35.00. This level of growth may appear unambitious, but the key to making the most out of the existing facilities and capacity is to fill existing voids without employing additional staff and therefore increasing costs that eat up all the additional income generated.

Purchase Year 1 Year 2 Year 3 Year 4 Year 5 r Private 6 12.5 12.5 12.5 12.5 Purchase Direct Payment 6.5 12.5 12.5 12.5 12.5 Purchase

The above session numbers filled by new clients are spread over 50 weeks in the year and it has been recognised that in the first year there may be a slow take up of spaces as the marketing campaign gets under way.

Working age adults with a disability Data projections for BoP highlight relatively small populations (compared to older people) of people with moderate and severe learning disabilities and physical disabilities5. These projections are set out in the table below: Customer Group 2015 projection 2020 projection Moderate and Severe 489 498 learning disability Moderate and severe 9,233 9,622 physical disability

Furthermore there is a limited projected increase over a five-year period from 2015 to 2020 representing between 2 and 4% Market data demonstrates that private customers of care services are predominantly older people who have accumulated capital or have sufficient income. The majority of other client groups such as learning disability and physical disability are local authority funded as, due to their age and circumstances, they generally have insufficient capital or income to privately pay for services6.

5 Projecting Adult Needs and Service Information (PANSI) www.pansi.org.uk 6 Laing & Buisson Domiciliary UK Market Survey 2013, page 102.

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In this context it is unlikely that sufficient private payers will exist within Poole to provide a significant additional income stream. Instead it is likely that any private sales will be exceptional, over and above state funded referrals. Where local authority eligibility criteria is met, the uptake of direct payments for social care is significantly higher amongst working age adults than older people. BoP report that 55% of total direct payment uptake comes from people with a learning disability and 33% from people with a long -term physical disability. The result of this uptake is that more working age adults with a disability have far greater control over how social care support is organised and delivered. In effect direct payments support the shift towards a consumer of social care rather than a passive recipient of state funded services. As this evolution takes place so too is there a change in demand for the type of service offered by the market. As a result it is likely those people with greater control of their care will assess and explore alternatives to traditional models of support such as building based day care. This includes choosing to access wider and more mainstream community based services. As a result there may only exist a narrow band of customers at the higher end of the acuity scale for whom a form of specialist day care is essential both to themselves and their informal carers. It is understood that the strategic vision for day services for working age adults is to remodel Seaview to offer a wider range of activities, moving to a “Resource Centre” that can maximise the buildings capacity to generate additional income.7 The Seaview management team have developed a Business Case for the establishment of a Community Interest Company (CIC) based on the Seaview day centre and all its existing staff and services. We have reviewed the additional income forecasts for the CIC and they are shown below. The table below illustrates how the management team envisage the increase in activity over the first five years. Whilst some of the additional client numbers look ambitious we have left these values in the solely owned LATC business case.

Seaview Day Services Year 1 Year 2 Year 3 Year 4 Year 5 Income from new sources £ £ £ £ £ Direct Payment clients 4 6 8 8 8 Cost per Client £52 £52 £52 £52 £52 Annual Turnover 39,312 72,072 98,280 104,832 104,832 Clients with medium support needs 2 4 4 4 4 Cost per Client £72 £70 £68 £66 £66 Annual Turnover 18,144 58,800 68,544 66,528 66,528 Clients with high support needs 2 4 4 4 4 Cost per Client £85 £81 £79 £77 £77 Annual Turnover 21,420 68,040 79,632 77,616 77,616 Therapeutic services 16 16 16 16 Cost per Client £25 £25 £25 £25

7 HSCO&SC 1 July 2014 Review of Day Services Report- Final Version BoP.

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Annual Turnover - 100,800 100,800 100,800 100,800 Bathing service 1 1 1 1 1 Cost per Client £52 £50 £48 £46 £46 Annual Turnover 7,862 7,560 7,258 6,955 6,955 Rental Recharge 12,000 Annual Turnover 12,000 - - - - Training 58 58 58 58 Cost per Client £830 £830 £830 £830 Annual Turnover - 48,140 48,140 48,140 48,140

Total new Service Income 98,738 355,412 402,654 404,871 404,871

Total Number of additional Clients 17 47 57 57 57 Additional Training Clients 0 58 58 58 58 Tot Number of New Clients and Students 17 105 115 115 115

Borough of Poole LATC Analysis of Net Contribution Year 1 Year 2 Year 3 Year 4 Year 5 Service Area £ £ £ £ £

Poole Day centre 21,875 43,750 43,750 43,750 43,750 Seaview (113,307) 82,817 46,217 66,764 29,764 Non -BoP Contract Profit (91,432) 126,567 89,967 110,514 73,514 Contribution Rate -74% 31.71% 20.15% 24.63% 16.39% The net contribution, a result of the inclusion of the above numbers in the solely owned LATC Business Case is illustrated below.

What the table shows us is that the filling of voids in Poole Day Centre, without increasing any staffing levels is a very effective way of generating net contribution to the company. The additional income from new services at Seaview do generate significant amounts of turnover, but that turnover can only be delivered by recruiting and employing additional staff, leading to a lower % net contribution. The conclusion we have drawn from this analysis is that even after including the ambitious new service turnover from the Seaview CIC business case, there is not enough potential income in the two services to finance the company’s future.

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9 Risks and Risk Management We have included the following section in the Business Case so that the reader can see what the generic risks are to the implementation and future trading of an LATC. We have already highlighted the risks inherent in a solely owned Poole LATC, so we have not included them in this section.

9.1 Identifying and managing risks in Implementation Listed below are the key risks and mitigating actions identified at the beginning of the Business Case development that will carry over into the Implementation:

Risk Mitigating Actions

Lack of availability of Council officers to  Prioritisation of participant’s/supporters participate in and support the delivery of workload by senior management the project and lack of officer time at the right moment  Understand the capacity to change and provide change management support as required  Clear project plan with milestones and dependencies on BoP identified  Business Case assumptions have been signed off by the relevant leads confirming ability to deliver the project Lack of engagement and delivery from  Ensure all relevant support services staff support services in the development of and their senior management are aware systems and support services for the of their tasks and assignments from the LATC very beginning  Obtain high-level sponsorship from support services at Director level  Monitor engagement on a weekly basis  Lack of clarity of the services in scope  Robust project planning  Early engagement with key stakeholders Service user and/or staff groups opposed Continued targeted communications to solution programme throughout implementation  Promote anticipated benefits of the changes  Provide mechanisms for questions and feedback Political sign-off for LATC not achieved  Early engagement with Members to provide information and opportunities for questions, identify particular areas of concern and understand actions which will address these

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Project delay impacting on cost and  Ensure realistic planning and timescales staffing availability are agreed and quantify costs of delay Lack of access to or availability of  Specific data requests distributed to required BoP data identified individuals at earliest opportunity with reasonable timescales for response

9.2 Managing risks during the establishment of the LATC post implementation Some of the key risks that are likely to arise are:  Delayed income generation due to service disruption  Bad press/communications both internally and externally  Lack of staff “buy-in” to change  Changes in Government policy  Disruption to business continuity  Service improvement/disruption  Lack of BoP resource particularly around Support Services

Further detailed risks and mitigating actions are set out below. Risk Mitigation Residual Risk ‘Getting more of the same’ -  Recruit an executive team that Medium not achieving improvements in creates a culture of innovation and creativity, flexibility and commercialism adaptability required in the new self-directed support market Significant overheads - the  Drive efficiencies through better High relatively higher costs of working practices, reduced staff TUPE’ed staff make may absenteeism and greater staff achieving market motivation competitiveness more challenging Dependencies with other  A final decision on whether the High Council Initiatives LATC should commence operations The Council is undertaking a will be taken by Council and will be number of transformation based on a Transition Plan and the projects with potential high Council will map the levels of dependencies interdependencies especially in relation to other  Resourcing needs to be realistic Councils

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Supplier issues  BoP and new organisation to Medium The trading company agrees to identify, prior to start-up, what purchase support services support services are needed by the from the Council. This limits the LATC, and ensure that they can be possibility of cost savings from offered by BoP as fit for purpose, alternative suppliers efficient and at a market cost  LATC to understand what is required prior to start up, understand the costs and offers available from competitors Market issues  Strategy and programme for Medium LATC is uncompetitive due to reducing costs the cost of its workforce  Service development based on New entrants move into market specialist services that attract more quickly than LATC higher costs. Market analysis anticipated and offer continually reviewed competitive rates  Budget allocated for development LATC will not have the staff or and sales resources to develop and sell  Managers understand different role new services LATC anticipated of manager of privately held and offer competitive rates company VAT  Work with existing advisors to Medium The LATC will be subject to provide advice and guidance to VAT ensure an appropriate and efficient VAT treatment

The LATC provides a mechanism that enables the Council to achieve significant benefits from transferring its services to a new organisation whilst reducing the inherent risks. The LATC will have greater autonomy than a department of the Council, but the maintained ownership means that the Council will retain ultimate control reducing the risks related to:  Quality of Service  Cost of Service  Over/Under Pricing of Contract with LATC  Retaining a highly skilled workforce  Provision of ‘service of last resort’ The areas of risk that are not mitigated by the transfer of the services relate to more over-arching issues such as:  Pension under-funding  Redundancy and pension strain  Uncompetitive service provision  Financial and reputational impact of organisational failure

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Current in-house services are more expensive to run because staffing levels and costs are higher than is typical in the private sector market. These running costs will have to be reduced otherwise increasing demand is likely to follow the cheaper providers, leaving the transferred service with reducing numbers of customers. Increased efficiencies and reduced costs may well be achieved through more motivated and engaged staff, better management etc. and the strategic focus of the new organisation will need to be on niche services that requires a more highly trained staff group that can attract higher levels of contract prices. Ultimately the success of most businesses comes down to the quality of the leadership and ensuring that a suitably skilled and experienced management team is in place will be a key priority of the implementation process. A robust risk management plan will be developed to support the Implementation Programme Plan. This will form the basis of the risk register managed by the newly formed Board of the LATC.

9.3 Exit strategy Whilst the likelihood of failure of the new organisation may be small it is still important to understand how the Council would deal with such an outcome. There are three fundamental reasons to consider an exit strategy:

9.3.1 Transition of LATC services into the independent market Whilst it has been accepted that it is not appropriate at this stage to transfer these services to a fully independent state, the Council could transfer some or all of the services after an initial contract(s); thereby transferring a successful enterprise to independence. Fundamentally all of the options explored in the initial options appraisal will still be open to the Council and different market conditions or policy requirements. The LATC is not necessarily a final destination for the services, but could be a transition process leading to another form of organisation.

9.3.2 Breaching the conditions of the Teckal Exemption If the LATC over-performs in generating additional income outside of the original contract with the Council, it would become an issue where additional new income generation becomes more than 10% (due to increase to 20% by statute) of the contract sum with the Council, as this would mean that the Teckal exemption can no longer be applied. Where this is the case the Council has three options:  To go to procurement on the original services and thereby open up the opportunity to the whole market as well as the LATC or  To undertake another options appraisal on transferring the business to greater independence in line with the paragraph above  Incorporate a third company that does not inherit any Council contracts and therefore does not have to comply with any Teckal rules. This would allow the company to take on any amount on non-Poole turnover The Council would be able to continue to own the LATC and therefore continue to benefit from the profits generated as well as other benefits previously described. It is unlikely that the Council would breach the other main condition of the Teckal exemption, i.e. it is unable to demonstrate that it has effective control of the organisation.

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9.3.3 Failure of the LATC to deliver the proposed business plan In the event of business failure or very poor performance, the Council would need to consider alternative arrangements. There are two solutions:  Bringing the services back in to the Council. This would be a relative quick and inexpensive solution. Whilst it would be a retrograde step it may provide confidence to service users, carers, staff and unions and help to manage risk but it will involve additional costs and the services may need additional funding  Move services to the independent sector. Alternatively the Council could look to the market to take on these services although this would take some time to achieve and incur significant procurement costs. The reasons for the potential failure of the LATC as a business may also have an impact on the interest and response of the market and push up the costs. Therefore, an analysis of the costs of either bolstering the services or the Board versus making them attractive to independent providers would need to be undertaken The level of scrutiny of the performance of a Council owned independent organisation is much greater than that of any other independent provider and as shareholder the Council would have plenty of warning if the LATC is not achieving its planned performance or is likely to become unviable. There will therefore be an opportunity to implement an improvement plan to bring the performance back in to line or if it is felt that this is unlikely, to look at the other alternatives discussed above.

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10 Conclusion and Recommendation Our conclusion is that the solely owned Poole LATC does not provide BoP with sufficient financial value to merit its establishment. In fact a solely owned Poole LATC would represent a significant increase in financial risk, to the point where the Borough of Poole would be financially worse off. Our recommendation to the Members of Borough of Poole is that they:  Do not consider the establishment of a solely owned LATC  Review the benefits and risks of the Pan-Dorset or a jointly-owned LATC through the recently commissioned high level business case  If the benefits of a Pan Dorset LATC were only marginally positive to BoP, it would still provide a better future for the services than leaving them as in-house services or putting them to the market.

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11.Implementation This section is included in Business Cases where the recommendation is to establish an LATC. Our conclusion and recommendation in section 10 does not advocate the establishment of a solely owned LATC. The sections below have been included to inform the reader of the generic process of implementation which has been tailored to match a theoretical Poole LATC.

11.1 Timeline for establishment This section outlines the key activities and high-level approach for implementation. It is subject to Council approval of the full Business Case. Based on the Council approving the business case in December 2014. We envisage the comprehensive implementation will be completed by the end of September 2015. This change has been recommended based on our previous implementation experience with 5 earlier LATCs, all of which took between 8 and 10 months to deliver. We believe there is no value in presenting an implementation target that is setting the project to fail, or be delivered late. The revising of the go-live date is partly in recognition of the risks inherent in the implementation process. BoP Officers have not implemented an LATC before, and therefore there is a risk that the resource requirements are underestimated in time and financial terms. To mitigate this risk corporate support teams need to be engaged so that they can assess the implications and requirements of the process, and then be involved in the actual implementation itself.

11.2 Overview of structure for implementation Concurrently with Council agreement at the end of December 2014, preparatory work will be undertaken to ensure that the implementation phase can commence in January and will run to go-live in September 2015. The implementation phase will be underpinned by the following workstreams:  Future State - includes developing the operating model, service redesign and governance  Commercial and Legal - includes statutory registration, establishing service specifications and the tax & cost implications  Systems and Infrastructure - establishing and implementing the approach to finance, operations, property and HR  Communications and marketing - engaging key stakeholders and ensuring effective communication with staff & service users Each of the above workstreams will at some point involve the creation of “Chinese walls”, which will prevent any conflicts of interest occurring in the negotiation and delivery stages of the implementation. As an example, commissioning officers who will manage the future service contract for BoP cannot act on behalf of the LATC in the drafting of service contract. To facilitate the avoidance of any conflicts of interest it is recommended that legal advice for the LATC is procured from outside the Council legal department and from lawyers with no previous relationships with BoP.

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Experienced implementation experts should be used to represent the LATC in all negotiation and service delivery designs, this again will avoid any form of conflict of interest and provide knowledge and insight not available from within BoP.

11.3 Key stages for implementation roadmap The implementation phase will be split into 3 discrete stages – mobilisation, service specification and transition: Mobilisation Stage - January 2015 to February 2015 Mobilisation will enable the detailed design of the LATC to be developed, based on finalising governance arrangements, establishing the Commissioning Statement for the Council and developing strategies for the support services for the LATC. This stage will typically take 12 weeks and the output will be a detailed Transition Plan to inform the next stages. Service Specification Stage - March 2015 to May 2015 Subject to approval of the Transition Plan, Service Specification stage will be concerned with preparing staff for the transition and finalising the service specifications that will underpin the relationship between the LATC and the Council. It is likely that during this period there will be intense negotiations between the ‘shadow’ management team of the LATC and the Council. The outcome of this stage will be a set of service specifications that are broadly agreed by the LATC and the Council. This stage will include certain key outcomes that need to be in place:  Incorporation of one company  Establishment of bank accounts  Registration with HMRC as employers and for VAT and corporation tax  Application for admitted body status with the pension fund

Transition Stage - June 2015 – September 2015 The final stage is focussed on the transition to the new organisation. The Service Contracts will be finalised and new management and service structures will be formally put in place, ready to go live. The proposed approach gives the Council an opportunity, if needed, during the implementation to make a decision whether to proceed with the final stage of transfer of staff and services to the LATC in order to commence operations. The recruitment process of the Chairperson and the non-executive directors would start in this period. The issue that At the end of this stage the following documents will have to be in place and signed by BoP representatives:  Memoranda and Articles of Association for 1 company and all statutory registers  Transfer Agreement  Shareholder Agreement  TUPE consultation documents

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 Pension Transfer agreement  Risk Register  Impact Assessment on BoP Service Contracts between the LATC and BoP for the delivery and management of all services provided to BoP and their service users, including detailed service specifications and KPIs. Leases to allow the LATC to use the current buildings and will include:  Sole Occupancy leases  Serviced desk agreements  Support Services contracts for services provided back to the LATC by the Council, these will include: o ICT o HR o Financial Transaction Processing o Treasury

11.4 Key considerations for implementation roadmap

11.4.1 Programme management Implementation will involve a complex programme of work involving a number of the Council’s Directorates as set-out in the workstreams outlined above. This will involve the utilisation of a programme and project management approach with a dedicated project manager and dedicated personnel from each of the identified Directorates as follows:  Communications and marketing  Finance  HR  IT  Legal  Operations  Procurement and supplies contracts  Property  Service contracts and commissioning The Programme will be overseen by an experienced consultancy. An indicative project resource plan has been developed and this should be firmed-up as part of the mobilisation phase. Strong sponsorship of this programme will be important to ensure that BoP resources are available to deliver the required outcomes and outputs on time. It is expected that the Programme has a governance structure that drives the programme forward and is able to make decisions, support the mitigation of risks and issues and approve any change requirements as the Programme continues to be delivered.

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11.4.2 Stakeholder engagement Stakeholder engagement is critical to the success of the LATC. Ensuring operational staff, service users and carers and trade unions are engaged with and support the LATC not only lends itself to an easier transition but also to a more successful organisation. At the Business Case stage the views of a number of key stakeholders has been considered. These include the leads of corporate services as well as a range of staff tiers within provider services.

11.4.3 Change management A clear change management strategy will be designed at the beginning of the implementation phase. Service areas should feel engaged with the process and operational managers need to have ownership of the programme. Articulating clear goals and delivery plan as well leadership from above are critical success factors. Communication activities with service users and carers will involve regular briefings and opportunities for service users and carers to voice any concerns. As part of this process BoP communications will implement a detailed communications plan. The executive team will play a key role in moving the culture of the new organisation through change management and their recruitment and appointment are essential elements in this process.

11.4.4 TUPE The transfer of staff under TUPE will require an appropriate staff consultation period (usually between 6 weeks and 3 months) and will also require dedicated HR project resource throughout the implementation phase (pre-transfer) and immediately following the transfer.

10.1.1 Post go-live The new organisation is not expected to begin new trading immediately. Services and staff will need time to grow accustomed to their new identity and relationship to the Council. At post go-live the LATC may wish to consider the potential for future income generation in terms of business planning and measuring additional capacity requirements. This timeline has been assumed in the financial case for the LATC. We recommend that once the executives are in their part-time posts there is an agreed hand-over period of one month between any interim or implementation management and the new executive team. This hand-over period will be designed to deliver the following:  Implications and requirements of the Business Case  Cultural change expectations  Detailed knowledge of adapted systems The above outcomes are designed to prevent the new executives from “re-inventing the wheel” and wasting valuable time trying to understand system processes and procedures.

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