Vivien Holland, associate director, public services advisory, Grant Thornton UK LLP explores the challenges of outsourcing contracts and how Local Authorities are re-thinking the way they deliver waste services.
There is a growing trend for Local Authorities to re-think the way they deliver their waste services. This has been driven by the challenges of outsourcing and contracts that no longer fit the new economic reality that local authorities operate in. Where contracts are coming to an end, many are deciding not to extend as they are no longer deliver the required outcomes.
Many feel that quality is being compromised as margins are squeezed harder than ever. If contracts are not renewed, the local authority has the option to bring the service back in house or transfer it into a local authority trading company. Using the company model has a number of advantages, including allowing the local authority to keep control as the shareholder and to generate additional revenue streams that wouldn’t otherwise be possible.
Many authorities like the company model but are not so keen on being the sole shareholder, particularly when it’s a service that they have not been directly involved with for several years. They prefer instead to share the risk and reward with an experienced partner. The Norse group, and others like them, provide one option for those who find themselves looking for such a partner. Although a commercial company, Norse is owned by Norfolk County Council so has a strong connection to the public sector. This also means it is covered by the Teckal exemption and can be directly engaged by a procuring authority.
Its operating model involves a Joint Venture (JV) company which is co-owned by the partner authority. Because Norse is experienced in delivering waste collection services (it now has nine such JVs) it brings the much-needed expertise to deliver services efficiently and economically, with an added upside that any additional income generated is shared with the local authority.
Many feel that quality is being compromised as margins are squeezed harder than ever. If contracts are not renewed, the local authority has the option to bring the service back in house or transfer it into a local authority trading company.
Contractual terms offer a good amount of flexibility to adapt to changes that may appear on the horizon e.g. an opt-out after five years should the authority want to continue as a sole shareholder after that time.
Local authority trading companies offer a viable alternative to the traditional outsourced model. However, they do have a few potential issues to bear in mind:
- Depots – when taking a service back from an outsourced supplier many local authorities will need to find their own depot, and quickly. These can take a while to procure.
- Vehicles – local authorities will also need to consider fleet and the lead times are long here too, at least six months and often longer. Leasing in the meantime is an option, but an expensive one.
- Income – to make the company sustainable, income will ideally need to be generated in addition to the household waste contract from the partnering authority. This might come from waste activities such as trade waste and street cleaning, which can both be good revenue generators, but the infrastructure needs to be there. Finding other tradable services may be a better option. Norse will look for contracts in markets with an easy entry point where it has knowledge, such as facilities management.
No option is perfect. It’s more of a balancing act between the right level of quality, cost and flexibility that delivers what stakeholders believe delivers value for money. It can be a difficult call, and with an election on the horizon, policy changes may mean re-thinking again.
