Steve Bishop on savings, saboteurs & the magical ingredient to shared services

Steven Bishop is strategic director at South Oxfordshire and Vale of White Horse District Councils. He is Section 151 officer and is responsible for finance, HR, IT and customer service. He was previously head of finance and finance director for the council and was the architect of the shared services between the two district councils.

Room 151: You share services with a fellow district council. How does the county/district question play on shared services?

Steven Bishop: I’m a bit outspoken on this subject. Turning all two tier areas into unitaries is something that my district colleagues are reluctant to talk about. Every few years the government looks at the two-tier areas and thinks, ‘we could make a lot of saving here because there is obviously a lot of management duplication’. There’s no duplication in terms of services but a lot of infrastructure is duplicated. We all have our own finance, IT, HR departments. So this artificial split between counties and districts in any given area means that there is a lot of duplicated cost in the form of support services.

You’ve also got confusion with the public saying that they haven’t got a clue which service is carried out by which council. Every day we get phone calls from members of the public asking about highways or social services or education. Well we don’t do any of those in a district council. Similarly the county council gets phone calls from residents about housing, planning, council tax bills. None of those are county services, they’re district services.

So understandably after about 40 years of two-tier working, the British public still doesn’t understand which council does what and as far as they are concerned everything is just ‘the council’.

A unitary addresses all that, brings everything together, the public better understands that as there is only one council. However in Oxfordshire and lots of other parts of the country when the last local government review was carried out, the existing counties and districts did a good job of saying they didn’t agree that a unitary was the best way forward and there was a lot of fighting between unitary and district. In the end it was as if the Government had to choose between competing bids, with counties saying they could do a county unitary and districts saying they could do it based on district boundaries. So the government gave up. They just said keep it how it is.

That’s probably the single biggest source of saving in local government that isn’t shared services – reorganising us and turning us into unitaries. Potentially if the government gets a second term they’ll look at turning two-tier areas back into unitaries. That’s always been a second term agenda item, but that’s beyond our control.

Room 151: So who should be sharing?

SB: The next biggest source of saving in local government is doing shared services between councils of the same ilk. District councils can do services together and county councils can do services together. In fact there is nothing to stop districts and councils working together. But because this unitary battle is always on the horizon, Oxfordshire councils in particular, and other two-tier areas, don’t tend to get on particularly well.

I’ve approached Oxfordshire County Council in the past and said could we share HR, IT and it has never come to anything because there isn’t a big appetite strategically at the councillor level. They’d rather be seen as being independent of the county in case there is another unitary vote and the county says ‘haha, we’re already providing services for the district so you might as well turn this into a unitary’.

So strategically there is not a lot of appetite for doing shared services between county and district and operationally there didn’t seem to be. I spoke to officers at the county saying you could do our services, provide economies of scale, just give us a quote that is less than our current costs and we could probably do a deal. But we just didn’t get a very attractive price from the county so that told me there didn’t seem to be appetite at the officer level either.

Room 151: How did you come to start sharing services with South Oxfordshire?

SB: What we did instead is, six years ago South and Vale had nothing to do with each other: they were competitors like most district councils are competitors with each other, there’s always competition to recruit staff, retain them, not to poach each other’s staff. There were no hard links between one and the other but then I got a promotion from head of finance to director. I wanted to save money because the Vale is a very poor council. South Oxfordshire is a very rich council so the two are chalk and cheese. So I became director of Vale and didn’t fill the head of finance vacancy that I had just left because I thought we could try and save some money if I covered both jobs.

Then I noticed that South Oxfordshire down the road had a head of finance and was just about to come to the end of its ten year outsourcing contract on financial services (mostly revenues and benefits, the high volume, repetitive processes that lend themselves to outsourcing to the private sector).

So South Oxfordshire were going to re-tender that contract when I went over there to see my counterpart there and said how about Vale piggybacking on what you’re doing so we go out to the market as two district councils? We’ll offer the market twice as much business still at a single specification. Now that is the magic ingredient to shared services: two or more councils need to agree on a single specification.

Sure enough, we had the same problem that every other shared services idea has which is that I had a very strong view on what I thought finance should look like and my counterpart at South also had a very clear idea. It’s the same if you put two lawyers into a room, they’ll give slightly different advice. Two accountants, two HR people … professionals love to be different to one another.

However that gets in the way of sharing services and so in nearly all times we had disagreements I recognised that Vale was the junior partner. We were coming to the party fairly late and South was the senior partner. Therefore I conceded in most places. So the specification in the end was a compromise. I won a few of the battles but the majority I conceded on and so it was very much a South-flavoured specification. Not that that should matter: finance is finance at the end of the day.

Then I had to go out to my chief exec and councillors to convince them that this was a good thing to do. We worked on this without prior approval and worked up a business case to show that there would be significant savings if we were to do this together. My chief exec was a bit skeptical, South Oxfordshire’s chief exec was a bit skeptical, so they both said OK finance officers, this is your baby, if it all goes wrong it’s down to you guys but yes, take it on another stage and see if you can get political agreement.

Councillors at both councils were also skeptical, the councillors at South had a fairly dim view of the Vale, we were the lower-performing council down the road and South was an excellent council, it was one of the few that had put itself forward for excellence under the old Comprehensive Performance Assessment regime under the Audit Commission and actually got it. Whereas Vale, two categories below, was seen as fairly low performing.

So South didn’t want to get dragged down. Vale had its revenues and benefits in-house and they were seen as two of best performing services at the Vale. To voluntarily outsource that to the big, bad, scary private sector was quite a difficult decision for the Lib Dem administration of the time to make.

Room 151: It was basically fraught with difficulties then?

SB: It took me two and a half hours in a cabinet meeting to convince them. We also managed to get South to agree that the Vale in-house team would be one of the bidders. We’d go out to market and contractors like Capita would be able to bid, but also the Vale’s team could bid for the work and do the South work as well.

I was fairly naive and assumed that Vale’s would be the best bid because there’s no profit leakage, what we’d charge the two councils would purely be the cost. Economies of scale should apply so we should be able to put in a good bid. As it was the Vale’s bid was poor in terms of quality, the information provided with the tender was poor, and the actual financial bid itself was beaten by the private sector.

In the end Capita won it and so there was another major decision-making meeting where they could have said no, we’re not doing it. I think that South and Vale officers thought that was going to happen but to their credit the politicians said let’s go for it.

Room 151: How did things then grow from just finance to fuller shared services between the councils?

SB: That was the first service the two councils did together. In parallel with that when we’d seen we were getting the amber light from the politicians months before, we said well – all of the finance services that aren’t going outsourced, like internal audit, revenues and benefits and accounting, why don’t we put into a shared finance department?

We were able to encourage and reassure the market by creating that single finance department to serve the two councils. That was probably as innovative as the fact that we could agree a single specification on a three-way contract with Capita, Vale and South.

Room 151: Were there any more problems on start up?

SB: Once it went live it is fair to say we had huge teething problems. One of the bits of Capita software fell over straight away and for a year the two councils were struggling in terms of a failing computer system.

We had to overcome things like that – but we did a damn good recovery job and were able to demonstrate we were doing good work there.

Then Capita put in a big claim for extra costs associated with that. We robustly defended it and so even though we were having operational problems in those first two years it didn’t cost the taxpayer extra. We were getting the savings from the shared outsource contract and the shared finance department but we had a lot of problems that needing solving. By the end of year-two though, the chief execs could see it was fine, we were saving money and doing a more efficient job with a resilient service. Areas that had been weak in service performance were increasing in performance indicators because we built in a payment/ performance mechanism.

The chief execs then thought – ‘why not look beyond finance?’ – and took the brave step of putting an idea for a shared management team on paper. So it was going from two to one chief execs, from five directors across the two councils to three shared, 14 heads of service to eight (that’s now seven). It took three attempts to get consensus across the councils but eventually the business case for taking out the duplication was convincing.

Room 151: So the chief execs proposed that one would go?

SB: Yes, they took the brave step of putting themselves in the firing line. The politicians said yes, we want to be more efficient so let’s go for this and they set in motion a recruitment process where people went head to head and some were unsuccessful. The chief exec at Vale, for example, was one of the directors who was made redundant.

That cascaded down to my level and to heads of service. Once that was completed successfully we put another case forward for doing the same at service manager level. We went from something like 42 shared managers to around 30. We took out a lot of those from middle-level posts.

At the same time we joined the waste departments up and went to the market with a single spec contract. We got much bigger savings in waste because it is a more expensive service. We made six figure annual savings on just the refuse collection.

Next we got political agreement to join up the service teams.

Room 151: Where are things now?

SB: That has taken about four years since the start of the shared management team and we’re now in a position where virtually every team across the councils are joined up and we have made head count reductions at every stage. So the recent LGA report was talking about £4m that we have saved there without cutting services.

Room 151: What is the lesson you would share with councils thinking about sharing, having gone through all that?

SB: The lesson for other councils is that it is easy and common sense. For any district councils in the country to not be looking at sharing services is just wasting public money. Criminal is too strong a word I know, but it is often the word I use. It is criminal that for so many councils (district councils are the ones I am familiar with, county councils are much bigger beasts and it’s more complicated, but even so) –support services could be joined up and are not. Certainly at district council level, for the several hundred district councils there is no reason at all why they shouldn’t be looking at sharing.

The reason why most councils are not doing so is purely the sovereignty issue. They don’t want to give up control. We had to overcome that and there were a lot of opponents at both officer and councillor level. We needed to get the momentum up and we’ve done these changes faster than any other pair of councils. One of the reasons is we were impatient to start getting the benefits but also, you have to do it quick to prevent potential saboteurs; people resisting the change who might be scared for their jobs and can marshal ammunition to blow holes in the business case.

The business case was robust but if enough people pick holes in it the politicians start to get more cautious and backtrack. Crucially we overachieved on every business case too. We were growing pedigree and credibility so that, and the speed of it, was enough to overcome those small voices worrying that we were going too far.

This is public money. It shouldn’t be the case that because councillors or officers don’t want to compromise their particular flavour of local government that they take a decision not to share services at the cost of the public purse.

The other area is joint procurement. Going to the market as two or three councils on waste saves millions and the same is true of any of your big outsourcing contracts like grounds maintenance and leisure centre management. Leisure is the last one we need to do and we’re convinced that we’ll make bigger savings there.

There’s plenty of warning that funding is going to dry up so we have to look at ways of delivering the same quality of service more efficiently and more cheaply. Shared services is easy. You don’t have to cut services, you just make savings in terms of bureaucracy and administration. But I know that people are saying we don’t want to compromise with some other council down the road and it is just so short sighted.

When they’re faced with the stark financial reality, are they really going to cut services to their residents rather than team up with another council and maybe compromise around the edges in order to keep 100% control of their destiny? It’s ridiculous. I don’t think council tax payers are particularly interested in the flavour of planning and housing, and all that, but people passionately believe they have to do it just their way and not compromise.

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The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
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