Public: Finance + Comment | Public

A ray of hope

Mon, 06 Sep 2010 11:10:10 GMT

The Association for Public Service Excellence says that despite heavy financial cuts, councils are managing to make savings though innovative, environmentally friendly measures

Councils are under pressure to save money and are also committed to tackling climate change. Fortunately many are finding ways of doing both simultaneously.

The Association for Public Service Excellence (APSE) has 260 members from councils providing frontline services across the UK and we have been looking at ways in which public services can deliver efficiency savings in the face of huge budget cuts. We have been impressed by positive stories of financial as well as environmental benefits being delivered through projects to reduce energy use, carbon emissions and landfill.

While local government's green initiatives are born out of a desire to do the best for communities and the planet, there is undeniably a budgetary imperative. With the looming comprehensive spending review (CSR) likely to mean 25% reductions in funding, councils can't risk penalties for failing to meet targets under the carbon reduction commitment, the national mandatory carbon trading scheme that came into effect in April. Nor can they incur additional charges under a Landfill Tax set to reach £80 per tonne by 2014.

Best practice examples

Just a dozen examples of green schemes cited in our recent briefing on maximizing economic and environmental performance have saved £1.6m a year and cut 2,700 tonnes of CO2 collectively. These best practice examples include Calderdale Council, which has converted 1,000 tonnes of leaf waste from street cleansing into compost used by its grounds maintenance staff – saving the authority £70k a year. Aberdeen City Council has reduced carbon emissions from its vehicles by 76% as a result of reprocessing used vegetable oils to produce biodiesel to run its fleet. The previous 33p per litre cost of collecting the waste oil has been saved and running the vehicles on biodiesel is 10p per litre cheaper.

A1 Housing, which manages Bassetlaw District Council's homes, is installing renewable energy systems in 20% of its stock as a means of cutting both emissions and fuel bills. Ground source heat pumps, which use solar energy naturally stored in the ground, are reducing CO2 and an air source system currently being piloted is achieving 60% CO2 emissions savings and reducing tenants' fuel bills by up to £6 each week. The planned installation of wind turbines will also save on electricity bills by generating 25% of the energy required for A1's offices and maintenance depot.

Staffordshire County Council's new gully waste treatment facility cut down on transport costs, diverted 432 tonnes of waste from landfill and generated carbon reduction savings of 34 tonnes in one year alone. Total cost savings of £60k have been identified as a result. Other authorities are finding inspiring ways of reducing the amount of energy they use, improving the energy efficiency of their buildings and turning their waste into a resource.

As well as immediate financial benefits stemming from innovative green solutions locally, further national investment in environmentally friendly technologies and skills could make the UK more competitive internationally. Local government has a leading role to play in meeting environmental targets and continued investment in a green public sector infrastructure should be a foundation for lifting us beyond the current austerity.

With a tough CSR round the corner, these approaches offer a glimmer of hope in showing how transforming services to make them more efficient and sustainable for the longer term offers a better way forward than simply slashing to the core public provision upon which we all rely.

Paul O'Brien is chief executive of the Association for Public Service Excellence (APSE), which has 260 members from councils providing frontline services across the UK

Shared services, shared objectives

Wed, 01 Sep 2010 14:51:16 GMT

Collaboration is key to delivering more for less and outsourcing of delivery methods is one of the options open to government departments

The results of the government's comprehensive spending review are due next month and both the public and private sector are bracing themselves to deliver 'more for less'. How this will be achieved is under much debate, but outsourcing is one of the service delivery methods under consideration.

A recent survey conducted by Capita and Dod's among 1,400 civil servants revealed the perception that the government can only reduce departmental budgets by an average of 11% without affecting services.

This suggests that to achieve the 40% savings as set out in the budget, greater innovation and cross sector collaboration is required. Central government has historically used outsourcing to deliver new services, rather than to reform or modernise existing ones. The shared focus for both public and private sectors to improve services while reducing costs presents an opportunity to play on each other's strengths, bridging the gap in delivering quality services efficiently.

The survey revealed that civil servants are concerned about working with, or moving across into, the private sector. A lack of trust towards the private sector was raised by 38% of respondents and 25% perceived there to be poor management of staff.

There are, however, many examples of successful public/private collaborations, such as Capita and Birmingham city council's joint venture company Service Birmingham. This venture has delivered £152m in savings since the start of its partnership in 2006 through improvements including network management and communications infrastructure. This is a clear demonstration of a collaboration working well and is a model that could be deployed across central government with equal success.

Weakness

The survey highlighted that 26% of respondents perceived central government to be lacking in innovation, but 25% felt that the sector is strong on diversity. Conversely, innovation was perceived by 41% of respondents as a strength of the private sector, although 25% cited their weakness to be a lack of diversity. Regardless of whether these perceptions are the case, it can be inferred that where one sector has a weakness, it can be complemented by the other through collaboration.

Civil service customer insight, motivation and experience for example are skills to tap into and strengthen with the private sector's experience and skills in technology, process and financial management.

Another important factor in successful collaboration is for partners to agree shared objectives that reflect the strengths of the respective parties. This will ensure clarity regarding accountability, performance criteria in working together and transparency.

Cross-sector collaboration can help to drive change, transform services while remaining flexible to market needs. Importantly, it can meet the brief of delivering more for less during this period of austerity without negating the quality of service delivery.

Patrick Smith is Capita's market director, central government

Reforming a state of reliance

Fri, 27 Aug 2010 07:00:00 GMT

Previous initiatives to tackle poverty and the socially excluded have expanded the public sector and increased bureacracy but it isn't only benefit claimants who have benefitted – civil servants too have enjoyed far too much, says Floyd Millen

Over the last 13 years – as a response to the plethora of initiatives and government intervention – the public sector has grown disproportionately in relation to the private sector.

Whether in response to school places, planning restrictions, waste, recycling, health, transport, libraries or parking concerns, this growth has failed to usher in significant innovation in practices or behaviours which tangibly demonstrate any real advantages to the average citizen.

To many people our oversized public sector is seen as distant, punitive, petty, risk averse, defensive and unnecessarily procedural. This is why – at the current time – many people are ambivalent about certain public sector job losses.

In recent years, the predisposition of politicians has been to manage, control and direct the life of the citizen. This has resulted in the inevitable public sector growth.

Three things have emanated from this: there has been a perceptible shift-loss of power, control and influence from politicians who have become increasingly irrelevant decision makers, having placed increasing powers in the hands of public servants, quangos and Europe.

Secondly, due to a very little tangible link between performance, pay and promotion, public sector performance has at best been patchy and at worst life threatening, as seen in the cases of Baby P and Victoria Climbié.

Thirdly, any attempt at innovation has been stymied through a culture that is risk averse and preoccupied with form ticking and overbearing, though necessary, targets.

The plethora of (well meaning) government interventions, initiatives and schemes to reduce disadvantage and lift more and more people out of poverty has enabled and facilitated a culture of high-level dependency. We are now reaping the benefit of an expanded welfare state providing support to a recalcitrant core of long-term unemployed.

We are also reaping the affects of a whole tranche of employees who, while not on benefits, are totally reliant on the state for an income.

The welfare state

Over the last decade, 5 million Britons have been out of work benefits. In 2008-09 the cost of welfare benefits reached £170bn and projections suggest that it is likely to approach £200bn within three years. In 2008-09 the Department for Work and Pensions spent more than £135bn on benefit payments, a rise of £40bn in a decade.

However, the largest single spend was on pensions (£62.7bn).

The public sector

Even though economic growth last quarter was better than expected (1.1%), the £6.2bn of spending cuts is beginning to have an impact. October's comprehensive spending reviewis already having a deleterious effect on sentiment, the financial markets and the assumption of businesses.

According to the Chartered Institute of Personnel and Development the recovery in the jobs market will stall as a third of employers expect to cut jobs over the next quarter.

Their survey of 600 companies suggests that the size of the cuts now being considered has increased and across all sectors employers are expecting to make an average of 5.5% of their workforces redundant, up from the 3.6% average cut being considered three months ago.

The severity of the financial crisis makes it categorically imperative for radical action to rein in the burgeoning cost of the welfare state and the bloated public sector. The question is how radical and how quickly this is done.

What the government can do

Historically politicians have felt they have the solution to all of society's problems. This hasinvolved increasing welfare support to those on the margins, new legislation, new processes and tools for measurement, new systems and organisations to create and manage society and people's choices.

Government cannot solve every problem. In attempting to do so the previous administration created a few problems as it took strident steps to address poverty and the socially excluded. Inevitable consequences of these initiatives have been an increase in government spending and the huge growth of the public sector.

I agree with Eric Pickles MP and his war on non-jobs and the government's plans to cut red tape. Even in the late 1980's there was systemic problems – I know many people who made the decision not to work in the public sector, and in particular for local authorities, because they felt it was overly bureaucratic.

But the twin goals of the coalition government ought to be to make the public sector more efficient – not simply shrinking it. On welfare, the focus should not primarily be about reducing welfare payments but about ensuring that welfare is a safety net which encourages and promotes work.

Floyd Millen is the Director and founder of the public affairs think tank Yes Minister

Procurement for the age of austerity

Tue, 17 Aug 2010 10:51:40 GMT

With reduced budgets and tougher times ahead, many public sector organisations will need to re-think their procurement strategies

The coalition government's 'emergency budget' has left the country in no doubt that we all face an age of austerity.

The most obvious target has been public sector expenditure, where non ring-fenced departments may see budget cuts of 25% or more over the next five years, bringing every item of public expenditure under scrutiny.

The future of major capital development programmes, such as schools in the BSF programme, eco-towns, new hospitals and cultural centres are all at risk.

It would seem logical, therefore, that the next five years will see a switch from expenditure on new build to the four Rs - repairs, renovations, remodeling and refurbishment, possibly with consideration being given to extensions.

However, these more modest scale projects will undoubtedly be at least, if not more challenging and time consuming in the procurement of the necessary building products and services than even larger programmes, such as BSF, and the responsibility is likely to fall on in-house technical and procurement teams.

The need to remain compliant with EU public sector procurement directives and stringent UK public contracts regulations must be balanced while ensuring that long term quality and best value efficiency principles are maintained, together with due consideration for sustainability and the carbon reduction agenda.

Improve communities

In addition, current improvement works need to be fast tracked on to site to complete decent homes initiatives and improve communities, to meet government deadlines and achieve social return in addition to financial return on investment.

This is a tough predicament for already stretched departments, which are likely to lose even more staff and resource in the near future, in line with public sector cut backs, and public sector procurement for building products and services is a complex task.

For this reason, public sector officers are increasingly considering outsourcing procurement activity to the private sector. But the risks associated with such a strategy are already well documented by the National Audit Office.

Another way is for public sector officers to cooperate and use existing proven methodologies, especially for procurement of technically complex building products and services.

One example is use of OJEU compliant, pre-tendered framework arrangements created by LHC, a not-for-profit public sector organisation, which has been helping public sector bodies procure building products and services for over 44 years.

Framework arrangements are a proven tool to fast track procurement, and offer significant real time benefits and a smoother path from inception to contract completion, with due consideration given to working in the unique environments of the public sector.

Social landlords

To date, LHC has helped over 500 social landlords to achieve the decent homes objectives before the 2010 deadline and is already working with many more to incorporate sustainable solutions and, with site liaison officers, ensure the standard of work is maintained.

LHC is also working closely with many local authorities, using its EF1 framework arrangement for education contractors, to help repair and maintain existing school buildings to improve learning environments across the UK.

This process of working together and avoiding waste is also in line with the operational efficiency programme's aims to share good practice and avoid duplication. Examples such as use of framework arrangements demonstrate how the public sector can work in a collaborative fashion to drive efficiency.

So, buildings can be developed, communities can be improved and schools can be enhanced even in the new age of austerity.

However, this can only occur if public sector bodies are willing to work together to acknowledge and promote existing arrangements, and not be sidetracked by wastefully reinventing the procurement wheel, which may risk non-compliance and a compromise on quality.

Tim Oakley is head of technical at LHC

Maintain balance and avoid the traps

Mon, 16 Aug 2010 07:00:00 GMT

In the most significant state-level restructuring since the second world war the public expenditure committee will need to master a great balancing act while avoiding traps

The public expenditure committee, comprising five senior cabinet ministers chaired by the chancellor, has embarked on a major prioritisation of the UK's most important capital investment programmes.

It is the most significant state-level restructuring exercise of its kind since the second world war. The decisions that will be made over the coming months will be critical to the determination of the UK's return to economic prosperity, as well as to the level of public asset and service we can expect for our taxes in years to come.

There are numerous traps ahead on the path to success, and the chancellor and his team would do well to bear in mind the following key principles of portfolio management as they embark on their journey:

Beware the psychological traps and games

There are many psychological traps inherent in prioritisation processes that they need to be aware of. To name but a few, there is the "sunk cost trap" – where historical spend is used to justify forward continuation of a poor investment, the "confirming evidence trap" – which has decision makers ignoring all contrary evidence, and the "status-quo trap" – in which leaders make decisions that perpetuate the natural order of things. One of the most interesting of these traps is referred to by academics as strategic misrepresentation.

Simply put, when you set up any system to apply for scarce resource (in this instance cash) at a state, organisation or department level, all players seek to "game the competition" in pursuit of the prize of programme continuation. They will, therefore, overestimate the benefits the programme will bring, and underestimate the costs.

To counter, the public expenditure committee (PEX) will need to ruthlessly interrogate the data they receive in every business case, and validate information against "reference class" comparisons of typical, actual delivery results.

Challenge and support – the great balancing act

The PEX needs to be able to trust the data it receives, and the only way the information can be truly validated is with independent scrutiny – by qualified parties that are genuinely neutral regarding the outcome. A "challenge group of experts" from inside and outside government has already been set up, and there are two key areas that will determine its success. Firstly, data challenge requires time to counter the 'garbage in, poor decision out' scenario; this team does not, however, have the luxury of ample time.

In my experience it is far better, therefore, to achieve 80% certainty, and make some sound decisions with tempo, than procrastinate in the pursuit of excellence. Secondly, while the need to interrogate such business cases is accepted, senior ministers will want to avoid eroding trust between central government and the departments in doing so.

To mitigate, the PEX will need to deal consistently and transparently with all, with a demeanor that is challenging and supportive in equal measure.

Ask the right questions of the right people

This exercise faces the enormous challenge of cross, multiple issue comparison. How many units of value does an aircraft carrier represent relative to a cluster of new schools or a more secure border system? Clearly in current times there should be a focus on what brings the biggest cashable bang for the buck, but that shouldn't be at the absence of assessing strategic alignment (how does the programme support the UK's long term objectives?), important societal benefits that might be difficult to monetise, and finally, an appreciation of the risks involved when it comes to stopping, or starting, large scale programme activity.

This exercise will ultimately come down to human judgment and it is imperative that the PEX recognise the need for a rounded set of appraisal skills and experiences to make those decisions. Finance experts, those with the relevant technical background, plus a set of battle hardened programme vets should all be considered essential for their inner circle.

Dom Moorhouse is the managing director of programme delivery specialist Moorhouse

New contracts for the next generation

Fri, 06 Aug 2010 08:00:00 GMT

Innovative ideas and engagement with the wider public sector will help the MoD estate negotiate the next round of commercial contracts, delivering better support for the frontline

Our country's defence estate is vital to military effectiveness - whether for training units deploying to Afghanistan, maintaining essential operational facilities like airfields and barracks or providing homes for service personnel and their families.

Current commercial contracts for the UK military estate come to an end in 2013/14. Against the backdrop of military operations and the current fiscal situation, Defence Estates, the MoD's land and property organisation, is working hard to develop truly cost-effective new contracts with industry.

The Next Generation Estate Contracts (NGEC) programme seeks to ensure continuity of that essential support to the frontline – whatever the evolving requirements from this autumn's strategic defence and security review.

As we develop the shape of our future estates contracts, we recognise that austerity measures are essential and are working to minimise the impact on our armed forces. But we also recognise that examples of best practice – and to some extent the solutions – are already out there, within the MoD and wider government and across industry.

Since late 2008, Defence Estates has been working closely with our armed forces to gather their views on the current arrangements. One recurring issue, for example, is the need for improved estate condition data so we can better prioritise where to allocate resources.

Across industry, we have engaged an ever-growing number of interested stakeholders through a series of events to update and consult. We have also engaged more than 60 companies through focus groups on key areas of contract development, such as incentivisation, pricing, and energy and sustainability.

Our engagement with the wider public sector is equally important. We have worked with organisations such as the Highways Agency, Home Office, NHS, Hampshire county council, British Airports Authority, Ministry of Justice, Department for Work and Pensions and many others. They have provided valuable ideas, lessons learned, and best practice from their own commercial experiences in construction and facilities management.

Flexibility will be the key to dealing with uncertain future funding. Like every other government department and agency, we expect tight constraints for the foreseeable future, but it is harder to predict accurately the funding levels – or estate requirements – in five or 10 years' time. Contracts and contractors will need to be adaptable to changing levels of work and revenue.

Meanwhile, the imperative to deliver value for money presents as much a challenge for the MoD as it does for its suppliers. We must work with industry to decide how best to drive good performance.

For these reasons, we are looking at innovative ways to do business in the future. Could the contractor fund work to produce low-carbon facilities and recover their costs through the energy savings? Could they secure the necessary planning permission to allow the disposal of surplus estate and be paid out of the sales proceeds?

NGEC offers a real challenge and opportunity for industry – particularly for those companies with an innovative, flexible approach to working with the MoD. Together with such companies, we can find solutions for managing a diverse and complex operational estate which fits the future needs of UK defence.

Steve Rice is head of the Next Generation Estate Contracts programme at Defence Estates

Public and private: a collaborative approach

Wed, 28 Jul 2010 09:01:02 GMT

Place-based budgeting is seen by the government as one of the ways to save money while maintaining frontline services the question is: how to make joint working work?

According to the National Institute for Economic and Social Research, the cut in real government consumption will amount to 10% between now and 2015. This compares with cuts in the 1930s, 1950s and 1970s of about 1.5%.

The recent Emergency Budget mapped out various policy measures which demonstrate the direction of travel for the new government. A key challenge for the public sector is to find savings in service delivery while at the same time minimising the effect on frontline services.

Potential solutions, HM Treasury's March 2010 report on the initial Total Place pilots, claims that there are real service improvements and savings to be made from a "Total Place approach".

A key feature of this is to find ways for public and private organisations to work together more collaboratively to find efficiencies.

Some types of joint working are simple and do not require much engineering. Others require an "externalisation" of services, including:
• shared service arrangements between one or more public sector bodies and a private sector provider for the provision of services
• the outsourcing of services such as ICT, HR, finance, administration and asset management to deliver economies of scale, drive efficiencies, and deliver new investment, with a greater attention to operational costs, a tighter performance regime and some sharing of risk
• the adoption of a "whole systems" or "pooled budget" approach between a council and a PCT

Successful joint working, particularly where services are to be externalised, depends to a large degree on how well the joint working model is put together from both a financial and legal perspective.

10 Do's and Don'ts
Successful collaborative working is more likely to be achieved if certain rules are followed. Here are our 'top 10':

1. Be crystal clear on the specific objectives and what "success" looks like
2. Work out what level of investment and budget is required to deliver the success – delivering something new to save costs is rarely free
3. Identify and deal with the specific key cultural/organisational barriers that may prevent success being achieved – for example, resource constraints, cultural/political resistance, an "us and them" mentality", weak local management, fear of the new
4. Identify and deal with the specific key legal barriers that may prevent success being delivered – for example powers/vires issues; contractual/structural complexity, public procurement issues, pensions/employment considerations
5. Identify with precision the assets and services that are relevant for the joint working – isolate any interfaces and overlaps and determine any cost implications that may complicate or otherwise affect delivery
6. Irrespective of the particular governance requirements of the chosen way of joint working, identify who should "control" the joint working and the final say in making decisions – the answer may be linked to relative contribution levels (see 7 below)
7. Work out and agree upfront who is contributing what to the joint working and the relative value of each contribution – this will drive the discussion as to the proportions in which the profits/costs savings delivered by the joint working should be shared (which is often contentious)
8. Think about what will happen if the proposed joint working arrangements break down — make sure that you are not creating something that will be a nightmare to unravel either legally or financially
9. Particularly with public/private joint working models where a separate entity is being created to deliver the joint working, carefully consider the tax implications and obtain advice at the outset
10. Where the joint working involves a contract, identify at the outset how it will be managed and operated – bearing in mind that it is in the period after the contract is signed where success will be delivered

Andrew Pettinger and Paul Bentham, are partners in Addleshaw Goddard, a UK law firm

Public managers: your sector needs you

Thu, 22 Jul 2010 09:41:22 GMT

When it comes down to the nitty-gritty of local cuts, who will councillors turn to? Not expensive interim managers, says Blair McPherson, but someone who is politically sensitive to understand all the issues

'The interim manager will save the day and deliver those big savings because they are brave and not afraid to make cuts in services and jobs. Good riddance to those public sector managers too unimaginative to come up with creative alternatives and too timid to act'.

I wrote this in anger. I was responding to an article on Guardian Public written by a senior manager from a management consultancy firm basically saying public sector managers are not up to the task of delivering challenging budget cuts so interim managers should be brought in to do the job.

But wait a minute. If we are talking about local government then how radical, how bold, or how innovative the response is will depend on elected members not managers.

Once the management structure has been streamlined and back-office services rationalised, members will realise that the size of the savings required means cutting frontline services.

Cutting frontline services means closing libraries and day centres, taking home helps from elderly people and removing grants from cherished voluntary groups - all of which will be very unpopular with local people, as will the increasing number of potholes in the roads, the less frequently emptied rubbish bins and the disrepair of local schools.

Once they realise, this it will not be the resolve of managers that is tested. And I don't think members will be inclined to look to expensive interim managers who will not be around to rebuild the trust in local politicians.

I think public sector managers do have what it takes to identify and deliver big savings. They certainly don't lack the" balls" or the ability to be innovative but they do operate in a political environment where decision are not simply based on a strong business case.

Accountable

This is something that those from outside local government often fail to appreciate. Local elected members/councillors are locally accountable to local people. Elections in local government take place more frequently than general elections. In a large county council, for instance, a third of the seats are up for reelection in three years out of four.

The good thing is that it makes councillors sensitive to local options, but it can also inhibit them from taking unpopular decisions that may cost them votes.

Despite this, local councils have shown themselves willing to take unpopular decisions. You only have to look at the closure of local authority residential homes to appreciate the strength of public opinion, the level of interest from the local media and the willingness of pressure groups to resort to the courts in the form of judicial reviews. And yet homes have been closed.

Politics is not simply about following the best financial advice but a judgment about steering a course between conflicting interest groups which inevitably means negotiating a compromise.

Rural libraries may be expensive to operate and the numbers of users compared to urban areas may mean they are not cost-effective but what about wider issues? What if a village school and bank has closed and the village post office is under threat; and what if a political party has come to power on a promise to tackle rural poverty and shift the balance of resources from inner city areas?

Alternatives

It may mean looking at alternatives. A mobile library service can replace the existing service; or the library could be re-housed in a community centre and run by volunteers; or a self-service system could be introduced based in the village supermarket.

Local authority managers need to be politically sensitive and appreciate that they do not simply work to the bottom line. This does not mean that they do not have the wit, the balls or the know how to deliver big budget cuts and radical changes.

Rather than talk of bringing in interim managers as hired guns who will slash and burn - and then leave - we need managers with the skills to influence and negotiate, who will retain the trust of staff and service users through the difficult times ahead.

Blair McPherson was until recently a senior manager in a large local authority

The most cost-effective way to making cuts

Wed, 21 Jul 2010 10:00:44 GMT

Can the deficit be cut without killing the patient, asks Tony Grundy

The financial pressure on the public sector over the next three to five years will be unprecedented, with annual cuts of £80bn a year likely.

Conventional cost management techniques which involve incremental thinking are unlikely to be effective in this context.

At the onset of the private sector recession, I argued that to survive and be successful, private sector organisations needed to manage costs in a challenging but also in a strategic way.

The same message should be made now in the context of public sector cuts.

In the theory of strategic cost management, costs must never be managed in isolation, and the aim should be to target long-term effectiveness and efficiency, not merely short-term and often non-sustainable benefits.

Cuts should not undermine the strategy, unless that strategy needs changing anyway.

In the private sector, savings of up to 20% can often be made through innovative thinking about the cost and the value drivers in the business.

But this requires radical rethinking about the "structural" cost drivers, ie the design of the organisation, the focus and prioritisation of the businesses it is in, and its mindset and assumptions.

Without such radical thinking, which entails fundamental long-term change, cuts of this order will be damaging, unproductive and not sustainable.

To manage public sector costs strategically one needs to:

• define how the current deployment of resources adds value, to which stakeholders, and where value is diluted or even being destroyed (the "value audit")

• diagnose areas of current inefficiency in the acquisition and deployment of current resource; to do this, time travel (imaginatively) to the future to assess future organisational demands and what future value will be added by public sector services, using some "scenario story telling"

• in this imaginary time travel, try to visualise the target future unit costs that one might strive to achieve with truly radical thinking: this entails coming up with a "cunning plan", based on redesigning from sctach the organisation, the value it adds, and its processes, skills and mindset

• prioritise these ideas, flesh out implementation strategies and estimate the cost of breakthrough projects, as well as overcoming stakeholder resistance; the aim is to work out the value of a services against the cost of change

In conclusion, the public sector will need to get far more astute and sophisticated in getting the best value out of increasingly scarce resources and this will require quite a fresh, value–led and strategic approach to cost management.

Dr Tony Grundy is director of Cambridge Corporate Development, and visiting lecturer in strategy and corporate finance at Henley Business School

Cut costs by cutting external spending first

Wed, 07 Jul 2010 09:42:30 GMT

Most of local government external expense is on commodities from pencils to refuse vehicles. By adopting basic price check facilities, as we do at home, and using greater transparency departments can make significant savings

Over the past five years councils have experimented with new ways of working. Nationally there have been more than 1,000 efficiency projects.

If the government now wants to cut costs by 25% then the logic based on this learning is clear: do the basics to reduce third party costs; re-engineer your business to be leaner and fitter and release assets; share services between councils and between the public sector and release more assets; stop doing things and where possible get the customer to do them for themselves or the community on their behalf.

Cumulative effect

The easiest place to start and the quickest to show results, is "external" spend on bought in goods and services. The cumulative effect of saving more quickly means we need to cut less. In total, public sector external spend is £220bn. Some £50bn of this is spent by local government – half its total spend, and more than double the £20bn spent by Whitehall departments.

A third of local government's external spend is on simple commodities from pencils to refuse vehicles. At a basic level we can use transparency in the same way that we do at home to get the best deal.

The tools to do this exist, including a "price check" facility and electronic procurement systems, are cheap to implement and are largely underused.

Lowering our commodity pricing by about 10% is essential but will deliver only about 2% of the 25% savings we need. Lowering our partners' commodity costs will help more, but to make major savings we need to reshape the major markets. Over 96% of local government's external spend is in four areas: construction; corporate services; adult and children care services; and waste management.

Major success has been achieved in reshaping the construction market.
An understanding of our spend and the state of the market has led to codesigning new ways of working with other public bodies and the private sector.

This has delivered a minimum of 5% savings and, as we collaborate and coordinate our efforts, has the potential for up to 25% savings. Our next challenge is to bring these savings to corporate services and waste management.

Back office and frontline

The other half of spending is on the services, back office and frontline, that councils still deliver themselves. Whether or not these are outsourced, the start point is to make the existing business leaner, followed by doing this in partnership with other public bodies. The evidence is that simply making what we currently do leaner can reduce costs by up to 10%.

If done by redesigning the business around the customer and, even better, with other public partners, council services become simple and transparent to the customer and property assets are released.

However, costs can go up as well as down.

In social care and waste, costs are doubling. The reality is that while local authorities can reduce prices, reshape markets and redesign services, ultimately councils will need to stop doing things and the resident and community groups will need to fill the gap.

One large area of cost we can get the public to do is the audit and inspection of public service. Opening up the costs of the public sector to the public and business has the benefit of reducing the need for inspection.

A reduction in the costs of audit will save money and help us engage with the public on how we prioritise our spending.

But the biggest potential area in which responsibility and money could be transferred to the customer is adult social care. This would give the customer real choice but means they need the knowledge to get the best deal. Transparency in this area will also help the service users, often the majority, who fund their own care.

Comparison sites are already starting to emerge. Beyond this, web portals for making offers to provide services, from formal to informal care, are already being piloted in two areas of the south east: a kind of eBay for care services. But most of these services avoid the thorny question of what is a fair price.

However, it is possible to put this knowledge, currently the domain of the professional, in the hands of the customer. The "care funding calculator" allows the customer to simply calculate the fair price for a tailored package of care in a specific part of the country.

Undoubtedly the financial challenge before us is huge. However, local government is far better prepared to meet this challenge than it has ever been.

Andrew Larner is managing director, Improvement & Efficiency South East, one of the sponsors of the Future of Public Services supplement

Protecting charities and social enterprises

Fri, 25 Jun 2010 09:10:00 GMT

Swingeing cuts of 25% in most government departments' budgets will have already placed enormous pressure on financially frail community organisations, so how can we help them now?

The Budget announced numerous cost-cutting measures, including that most government spending departments will see 25% reductions in their budgets over the next four years. As well as protecting business and stewarding public services through these tough times, the government must be mindful of the challenges a recession poses to small local charities and social enterprises.

Especially as they will play a greater role in delivering public services.

Many community organisations are financially frail, and don't have budget contingencies or the access to credit that will see well prepared businesses, schools or hospitals weather the financial storm ahead.

But the needs of the people who charities support are constant, and indeed increase during times of economic hardship. Individuals and families who depend on the support of charities and local services need to know that they can trust those organisations to be there for them for life.

I welcome the new government's ambitious plans for growing and strengthening the third sector, and their enthusiasm for the great work that charities, social enterprises and co-operatives can do to build thriving communities. But the vision is also easier than the challenge of making something real.

Loans and business support

Building a stronger sector can't happen spontaneously and it won't happen without government help. Government will always subsidise the sector in one way or another and to ensure best value for public money I want to see policy-makers consider whether money currently distributed as grants could be redirected into programmes that combine them with loans and business support.

That mix is the unique model of investment we have used to support over 1,000 local community organisations – providing them with seed money, credit they can't get from high street banks and help developing business plans so they can become financially sustainable and fulfil their missions of supporting local people in need for the long term.

And as the money is lent and then repaid with interest it can be re-lent leading to an evergreen fund.

Of course the biggest source of potential investment exists in the form of public service contracts – but to tap into that resource the sector needs to organise itself better.

The current commissioning environment makes it hard for civil society organisations to participate: they are small and lack the specific experience of writing tenders that established public and private sector providers have whole departments of staff to handle.

But it is possible to overcome the problem of pitting the smallest against biggest. We are working to realise the 'Big Society' vision by developing a model whereby a third sector management company bids for large government tenders on behalf of the sector and then brings together a consortia of community organisations to deliver the services.

Not only does this allow the tiniest to participate, but instead of profits being given to shareholders, instead they go to building sustainability in the very organisations providing the services; a virtuous circle whereby the charities and social enterprises that deliver the profit get stronger as a result of delivering effective public services.

Community organisations coming together

We've helped achieve this at the national level with a consortia of small community organisations coming together to win a large welfare to work contract. Now we want to expand it to other service areas and we are already talking to several local authorities about how we can help them harness the expertise and efficiency of community organisations in their areas to deliver local services.

Empowering civil society organisations to protect the people they help from budget cuts to frontline services will require big changes – from government, from commissioners and from the organisations themselves.

Innovative ways to fund and organise the sector are what's needed to make that happen.

Jonathan Lewis is chief executive of The Social Investment Business

A perfect storm, but all is not lost

Thu, 24 Jun 2010 10:16:50 GMT

A stark message for the community sector from John Tizard - engage 'heart' and 'head' to survive the tempest

The next few years – and potentially the next decade – will be extraordinarily challenging for the community sector as public expenditure cuts hit income from grants, contracts, funding for capacity building and donations.

The sector relies heavily on local authorities – and most commentators expect local government to be particularly impacted by current/future public expenditure reductions.

Accordingly, there is a serious risk that local authorities will seek to offset their reduced revenues by cutting funding to or via the community sector. And if we are realistic, the NHS and other public sector agencies are likely to adopt similar tactics.

The 'cuts' are already biting

There is already evidence that funding has been cut as area based grant, LAA reward monies and the Future Jobs Fund are aborted. And the public sector is attempting to renegotiate or, in some cases, simply to impose changes to contracts with voluntary and community organisations to reduce payments. Many community organisations are already experiencing cuts in their support from the public sector.

Unlike many business sector providers of public services, the community sector will find it harder to resist the contractual squeeze given that they are committed to support their members and beneficiaries, and will usually not have the necessary contract negotiating capacity.

That said, there are lessons to be learnt from the business sector – check contracts and see if they allow for unilateral or negotiated changes and if they don't, point this out to those who want to impose changes; say no to reductions in payments which would make service quality unsustainable; and in return for anything given up, secure something in return.

Intermediary and infrastructure groups in particular will need to explore how they can provide contract support to local groups facing the pressures of contract renegotiation.

Time for a reality check

Grants and new contracts are going to be offered on lower levels of payment – that much is certain. In their hearts, trustees and staff will want to continue existing service levels for beneficiaries.

Being candid, however, those in charge must also engage 'heads' and be very clear about their organisations sustainability and what can be delivered for the available money. Now is the time for the sector as a whole and organisations in it to seek to influence the decisions of commissioners and the political and managerial leaders in local government and other local agencies.

At the same time, the sector must explain to users and members why any service reductions have to be made - and to clients, the consequences of its financial position. Truthfully, if the funding is unrealistic, organisations will have to be prepared to stop delivering a service.

The challenge and the risks are serious

Previous periods of public expenditure restraint and cuts – and there has not been anything comparable with what the government now plans since the 1930s – have seen the public sector seek to: protect "in house" provision; pressurise the third sector to accept payments for services which fall well short of "full cost recovery"; exclude the cost of capital from fees; and expect the sector to make up the short fall in revenue by dipping further into charitable funds (and where are these to come from?) - and/or by the use of volunteers.

All this at the same time as conveniently ignoring the fact that good volunteering comes at a cost. The sector must deploy every effort to prevent a repeat of these behaviours – but I accept that this will be an uphill task.

The community sector is about to be caught in a 'perfect storm'

It is simply stating a bald fact that the users and beneficiaries of many community and other third sector groups are unfortunately more prone to being the victims of the economic conditions now prevailing, and are also those who are most vulnerable to public expenditure cuts.

This puts more pressure on the sector to provide services and to meet need through services and advocacy – at exactly the moment when the sector faces the severest of financial pressures.

While any organisation has to respond to this challenge in a way that is consistent with its values and principles, its trustees must avoid jeopardising financial viability. These are easy words to type but much more difficult to enact.

And what of 'Big Society'?

The concept of "Big Society" offers great opportunities for the community sector – and indeed this sector more than any other can claim to be the heart of the "Big Society".

It is still not clear what it will mean in practice and where the resources to develop community and voluntary action are going to come from. It is even less clear what the government expects local government's role to be in respect of developing and supporting community and neighbourhood action.

It is even conceivable that it does not see a major role for local government and this manifestation of 'localism' is one that will by-passes town halls. The Coalition Agreement set out a raft of policy commitments to extend social action but how these will be funded remains obscure.

The fact is that many community groups require capital investment to enable them to be in a position to grow their services and to bid and contract with the public sector. This at a time when government policies and decisions in respect of funds such as Future Builders indicates that access to such capital will be even less easy than hitherto.

And all against a backdrop when it has never been easy to raise capital, especially for bodies that are commonly regarded as being "un-bankable" and given the banks are inadequately investing in the business sector, so there is surely little prospect that they will invest in the community sector.

Being optimistic, they could be further 'encouraged' to do so by government, and the moves towards social investment bonds and socially responsive ISAs are to be welcomed as is the idea of the "Big Society Bank".

And the harsh truth is that even volunteering comes at a cost

Volunteering undoubtedly has a major contribution to make but 'effective' volunteering requires investment in selection, training, appraisal and support. The community sector relies hugely on a mix of volunteers and paid staff. The balance may change but volunteering should never be regarded as a substitute for employed activity – rather, it should be seen as a means of complementing it.

And there is no need for conflict between the sector and trade unions on this or other matters. The two sectors should be united by their shared sense of voluntary collectivism and their pursuit of social justice and advancement.

Personalisation and individual budgets offers opportunities for the community sector to be the providers of services, to act as brokers and advocates, and to represent user interests. Again, however, these activities will need to be funded so yet another pressure emerges.

The next decade can be "the decade of the community sector" – but only if the sector balances its "head" and "heart".

England and its thousands of communities benefit from the social capital and contribution of the community sector. The next decade has the potential to be the "decade of the community sector": as we redefine the relationship between the state, individual, and communities; as the state becomes smaller in terms of service provider and even service commissioner; as there is a move away from large providers in the public, third or business sector; and as voluntary collectivism to some extent replaces state collectivism.

The community sector has an enormous opportunity but it has to be ready to apply both its heart and more critically, its 'head' to ensure that it can take advantage and not lose out.

John Tizard is director, Centre for Public Service Partnerships (CPSP@LGiU) and trustee designate NACVA

This article is based on his presentation to the NACVA Chief Officers' conference on 15 June 2010

A monumental challenge for GPs

Tue, 22 Jun 2010 09:13:25 GMT

Moving health spending from PCTs to doctors is a brave and bold move, but with the change not due to happen until 2012 at the earliest how will the NHS cope with more imminent funding issues?

There is no doubt that Andrew Lansley's plans for the health service are radical. Shifting responsibility for marshalling £60bn of health service expenditure from statutory NHS bodies to GPs is a bold move.

Opinion is divided on whether the plans will be effective. Many would agree that GPs are well placed to take on this role as they know their patients well, understand the health service and already directly influence hospital resource usage through making referrals.

Others raise concerns about how motivated GPs will be to take on the role and whether they really have the necessary skills – being a good doctor does not necessarily make you a good budget manager.

There are many details still to be resolved. For example how GPs will be held to account for commissioning, what happens if they overspend, will they be allowed to make a profit and whether the approach is voluntary or mandatory. No doubt the details will become clearer over the coming weeks and months.

Financial challenge

What has been less discussed is the transition. Whether GP-led commissioning works well or not, it will take time to put in place (probably until 2012 at the earliest) and then will probably take two to three years to bed in. In the meantime the NHS is facing the largest financial challenge it has experienced in recent memory.

Although the new government has confirmed that the NHS will continue to receive above inflation funding increases, it will also continue to face cost pressures at an even higher rate due to increases in demand and costs of new drugs and technologies.

Andrew Lansley has confirmed the previous government's assessment that the NHS will need to make savings of £15-20bn over the next three to five years.

If the NHS does not deliver this level of efficiency and productivity gain, then by the time GP commissioning takes up the rein, the NHS could well be already in significant deficit. At which point the already tricky challenge of motivating GPs to take on this responsibility, starts to look monumental.

Managing the transition

So we need the current NHS systems to deliver at the same time as the new systems are being developed. Currently Primary Care Trusts (PCTs) are responsible for commissioning health services. Much rests on their shoulders. Not only do PCTs have to help to manage the transition to allow the GPs to pick up the mantle, but at the same time have to deliver probably the most complex and challenging change agenda faced by the NHS in years as their spending power effectively reduces.

PCTs have faced a lot of criticism in the past – sometimes fairly, often unfairly. But right now we cannot afford for them to fail or walk away from the job.

Fortunately most PCT leaders are experienced and capable, and are ready to meet these challenges. They are not afraid of change and are well placed to deliver what the new government is asking of them – a revolution in health care.

Will this revolution deliver? We don't know for sure. There are many risks involved but closer working now between PCTs and GPs should help to ensure that we are all well-prepared for the financial challenges that lay ahead.

The best PCT leaders are already working closely with their GP colleagues to build the foundations for a new model of clinically-led commissioning and ensure the existing system manages future financial pressures effectively. It is essential that we avoid a talent drain from PCTs over the next two years as now more than ever we need strong leadership at a local level.

David Stout is director of the PCT Network, NHS Confederation

We need to sing from the same hymn sheet

Wed, 09 Jun 2010 09:14:00 GMT

Rather than simply ripping IT contracts up in an order to save money, organisations and suppliers should talk it through in order to identify true cost savings and recognise the challenges facing them

There has been a lot of scaremongering over the past couple of weeks concerning the cull of IT projects and supplier contracts by government departments under the new regime. The tone has focused on the impossibility of the task, with an underlying soundtrack of contracts being ripped to the notes of The Funeral March.

The Treasury's aim is to save almost £100m across departments by delaying IT projects or stopping and renegotiating supplier contracts. But in my view, an objective of getting out of existing contracts with as little damage as possible, or driving down costs to unrealistic levels, is starting from the wrong place and is not the desired outcome.

In reality, the drive for public sector cost savings should reflect the nature of the new political climate: coalition. The process may be challenging, but it should neither be combative nor confrontational. It can also generate both significant savings and greater return on investment, if both the departments and their suppliers come at the re-negotiation process from a pragmatic and realistic angle.

Let's look at this from the supplier's perspective. What right-minded business is going to respond positively to the suggestion that they should just drop their prices? Why should they if they have a pre-agreed contract in place? The only possible winner is the customer but even that is only true in the short term. If a suppler agrees to drop its prices, they will try to regain their return, and the easiest target for this is to pare down service quality.

It's also not true that you have to give something away to receive something. A contract extension, or delivering a reduced service, will certainly incentivise a supplier to reconsider their position, but that means giving away something when the cupboard is already largely bare.

From the customer's perspective, government departments have gone from newly-merged, inexperienced clients, running some of the largest integrated IT projects in the UK (maybe even the world), to organisations with enough experience to recognise areas of overspend, poor return on investment, or service levels which have headed south since initial agreements were signed.

The solution is dialogue; a genuine opportunity for two-way conversation. Many of the contracts are mature in their life cycle, when review and re-negotiation should be expected anyway. Because many of the government IT transformation projects undertaken over the last five to 10 years have been so innovative and complex, suppliers have naturally built in a degree of contingency, which the departments have willingly accepted.

Now, with experience on both sides, departments are in a position of being able to offer clarity and assistance in refining the supplier service offering; identifying true cost savings; and assisting in improving return on investment.

Both sides recognise the scale and scope of the challenges facing them. An honest conversation recognising both the areas of difference and similarity; identifying areas of compromise or where 'fat' can be trimmed from contracts; and readjusting expectations of outcomes and service levels, can lead to a successful and cost-saving IT coalition. Sound familiar?

David Yip is a director of Xantus Consulting

A dose of entrepreneurialism is just the cure for the NHS

Tue, 08 Jun 2010 10:43:46 GMT

With the NHS required to make £20bn of savings, managers need to show some creative flair - but how much business risk will they allow, or are there other ways to save cash?

Entrepreneurial is not a word you would normally associate with NHS management culture. Traditionally risk adverse, management has allowed budgets to spiral to avoid cutting needless costs and introducing efficiency. Yet, should this all change so that an increasing number of trusts are, like the definition of an entrepreneur,: 'organising business ventures and assuming risk for it'?

After all, risking and losing tax payers' money is not something NHS trust board members would want to be held accountable for.

The stark reality is that the NHS will have to make savings of more than £20bn. Health secretary Andrew Lansley recently said that almost every hospital chief executive is saying that they are going to have to achieve something like 4% to 5% efficiency savings each year over the next few years".

Chief executives of NHS trusts are now faced with a £100bn question: Just how can you do more with the service for less?

Clearly nothing should be done which jeopardises patients' welfare, but business risk is another matter. Senior management within the trusts needs to have more of the mindset of entrepreneurs in the corporate world.

That said, we have already seen some evidence of this occurring in the NHS, and with foundation trusts we have the perfect vehicle. With the benefit of financial autonomy and wider powers, these trusts are often larger than the average corporate business. In the north-east of England an enterprising foundation trust has linked up with a US IT provider to develop training software to use in the trust and sell on to other users in the NHS.

In the north-west of England we have seen two foundation trusts join together to form a venture to provide decontamination services. This will slash their own costs and create a service to market to other trusts. Profits from these ventures can be ploughed back into frontline services.

A few years ago in the Midlands, the Heart of England NHS Foundation Trust took over the Good Hope Hospital. Now we are moving to a model of integration, whereby many foundation trusts plan to host the community services arms of their local primary care trusts. This will increase income and help to save trusts as much as 30% of administration costs.

Improve accountability

However, foundation trusts will increasingly need to improve accountability by improving their engagement with their local communities. Some members feel that they are currently not given sufficient opportunity to question the directors, and the process for election of governors does not necessarily result in a board of governors that reflects the diverse membership.

There is also a new breed of entrepreneurialism on the block – the social enterprise. Whether these are set up as co-operatives or mutuals, these will see NHS staff forming themselves as owner managed businesses to compete for and run PCT contracts. We have seen the first wave of these enterprises set up ranging from primary care services for the homeless, to mental health services, dental services and services for children and young people.

The government may say an age of austerity is upon us but an age of entrepreneurialism within the NHS could finally see a change from an ailing organisation to one in good financial health.

Tim Care is a partner in the public services practice at law firm Dickinson Dees