CABINET 7 January 2013

26/11/2013

CHESHIRE EAST COUNCIL
CABINET
Date of Meeting: 7 January 2013
Report of: Shared Services Joint Officer Board (Lisa Quinn)
Portfolio Holders:
Shared Services Joint Committee
(Cllrs David Brown, Barry Moran, Peter Raynes)
Subject/Title:
Shared Services Separate Legal Entity
1.0 Report Summary
1.1. This report concerns the future of the key Shared Services between Cheshire
East Council (CE) and Cheshire West and Chester Council (CWAC), namely
the ICT and HR and Finance Shared Services.
1.2. It proposes that a Teckal compliant Separate Legal Entity (SLE) be
established to enable greater efficiency, improve service quality and expand
commercial opportunities. The creation of the SLE is the critical first step to
drive the desired cultural change, service improvement and future business
optimisation.
1.3. The Shared Service Joint Committee and Joint Officer Board have considered
and debated an extensive Options Appraisal of shared services models and
the viability of an SLE. The Joint Committee have agreed with the Joint
Officer Boards’ recommendation that an SLE is the optimal delivery model for
the future of the Shared Services under consideration and requesting the
Executive Bodies from each Council to agree to this as the recommended
way forward.
1.4. The Strategic Options Appraisal and High Level Business Case are contained
in Appendix 1. An analysis of the current market is also attached as Appendix
2.
1.5. This report will also be presented to Cheshire West and Chester Executive on
9 January 2013. The project can only proceed if both Councils agree to the
recommendations set out below.
2. Decision Requested
2.1. That the Cabinet / Executive support the Shared Services Joint Committee’s
recommendations and agree:
2.1.1. The transition of the ICT Shared Service and HR and Finance Shared Service
to a Separate Legal Entity (SLE) as the future delivery model.
2.1.2. The establishment of a Teckal compliant SLE as a company limited by shares
wholly owned and controlled by the CE & CWaC Councils.
Agenda Item 8
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2.1.3. The development of the SLE on a phased basis (as detailed in Section 10).

Phase 1: Change Programme

Phase 2: Commercialisation
2.1.4. The dedication of resources to the establishment of the SLE as detailed in
Section 7. The pump prime funding required for the one-off set up costs are
estimated at £198,000 for each client Council. This funding is in part to recruit
the essential skills including an interim Managing Director to lead the
company. In Phase 1 there are additional on-going running costs of circa
£125,000 for each client Council largely relating to pensions and additional
salaries.
2.1.5. The decisions as set out in Section 8.12 regarding the SLE to be delegated to,
and undertaken by, the Joint Officer Board, in consultation with the Chairman
and Vice Chairman of the Joint Committee on behalf of the two Councils but
with regular reports being submitted to appropriate monitoring groups within
each authority (Cheshire East Executive Monitoring Board; Cheshire West
Capital Operations Programme Board).
3. Reasons for the recommendation
3.1. CE and CWaC have been sharing services for over 3 years and have realised
savings of in excess of £6.7m. It has built solid capability and intellectual
capacity during that time which can be capitalised upon. There is now
considerable scope to drive further efficiencies and create future value.
3.2. The creation of an SLE facilitates a clear separation between client and
supplier, enables capacity growth, and generates savings whilst retaining
Council control. Some modest start-up costs are involved, but savings can be
realised early and are not vitiated by a private partner. Furthermore, the
Teckal exemption permits parent Councils to commission services from the
SLE without going through a competitive procurement provided the parent
Councils retain ownership and strategic control of the SLE.
3.3. The Teckal exemption also allows the company to bring in another public
sector partner without undertaking a lengthy procurement and incurring the
sizeable associated costs.
3.4. The SLE is free to commercialise and market its services to customers, as
long as this remains the subsidiary portion of its activity in compliance with
Teckal. A properly developed SLE can provide all the benefits of
commercialisation without the loss of local government control.
3.5. The SLE can be mobilised reasonably quickly. Before an OJEU level
procurement exercise can be completed the SLE can start to create value
through:

Implementing an overarching business model

Developing a customer focused commercial culture
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Implementing the full target operating model

Exploiting opportunities to achieve further efficiencies by adding new
business units (factories)

Developing commercial value propositions to generate additional
income streams

Securing an additional partner
4.0 Wards Affected
4.1 This report relates to Shared Services that operate across both Cheshire East
and Cheshire West & Chester, so all wards are affected in both Councils.
5.0 Local Ward Members
5.1 Not applicable.
6.0 Policy Implications including - Carbon reduction
- Health
6.1 The report provides an overview of the Joint Officer Board recommendation
following an extensive review of alternative service delivery models as
summarised in Section 10. The outcomes from the review have determined
that the SLE is a viable delivery model which will enable the quality of service
provision to increase, whilst at the same time reducing costs and adopting
national best practise.
6.2 A full Equality Analysis (formerly known as Equality Impact Assessment) will
be carried out on the proposals to ensure due account is taken of the potential
impact on equality and diversity.
7.0 Financial Implications (Authorised by the Director of Finance and Business
Services)
7.1 The following table depicts a five year view of the gross expenditure of SLE
without any Phase 2 developments.
It assumes that the financial impact will commence mid financial year in
2013/14 and that any current overspends will be dealt with before "go-live".
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2013/14 2014/15 2015/16 2016/17 2017/18
£000 £000 £000 £000 £000
Gross expenditure (excl pensions
impact) 9,985 19,971 19,971 19,971 19,971
Less: Synergies from the
implementation of a single TOM for
HR/Finance/ICT -50 -100 -100 -100 -100
Pensions impact
Staged increase in employer’s future
service contribution
42 168 252 335 419
Less: Budget adjustment to reflect
historic pension deficit retained by
the Councils
-500 -500 -500 -500 -500
External income and charges -2,369 -4,738 -4,738 -4,738 -4,738
Net charge to client councils 7,109 14,801 14,885 14,969 15,053
Current budget provision
Charges to capital 1,121 2,241 2,241 2,241 2,241
HR/Finance budget 1,616 3,232 3,232 3,232 3,232
ICT revenue budget 3,887 7,774 7,774 7,774 7,774
Est Transfer from corporate budgets 736 1,471 1,471 1,471 1,471
Less: Budget adjustment to reflect
historic pension deficit retained by
the Councils -500 -500 -500 -500 -500
Total current budget provision 6,859 14,218 14,218 14,218 14,218
Net impact of establishing the SLE 250 583 667 751 834
Add: One-off set up costs 395
Total Year 1 impact of establishing
SLE 645
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7.2 Phase 2 developments are estimated to produce the following impact:
7.2.1 Adding an additional business unit (factory); for illustrative purposes
only the Revenues Service:
7.2.1.1 Projected one off costs(including CR & VR) of £500k
7.2.1.2 Year on year efficiency saving of £360k
7.2.2 Initial high level estimates of a partner joining is projected to realise a
further year on year efficiency of approx £1.477m.
7.2.3 A robust marketing strategy & plan will identify additional revenue
streams which will seek to generate surpluses for the shareholders.
8.0 Legal Implications (Authorised by the Borough Solicitor)
8.1 Final legal advice is being commissioned from external legal advisors who are
being recruited jointly by the two Councils to scrutinise and validate legal
decisions and documentation.
8.2 Legal Powers
The Localism Act 2011 introduced a general power of competence which
gave local authorities power to do anything that individuals may do. The
legislation was designed to remove uncertainty as to what local authorities
may do and to enable them to explore innovative solutions to deliver services.
The power includes the right to charge for discretionary services. However,
charges must be based on actual costs incurred by the Council in providing
the services and cannot include a profit element. Commercial trading must be
carried out via a company. As with the exercise of any local authority powers,
the Council is under a duty to act fairly and reasonably.
8.3 Local Authority companies
Part V of the Local Government and Housing Act 1989 and the Local
Authorities (Companies Order) 1995 introduced categories of local authority
companies and controls which apply to each type. For the purposes of Part V,
the SLE would be a “controlled” company given that the Councils will jointly
own more than 50% of the voting rights and so certain proprietary controls will
apply to the SLE. In addition the CIPFA/LASAAC Code of Practice on Local
Authority Accounting requires all local authorities that have “material” interests
in a company to produce Group accounts that will take and recognise the
Councils share of the results, assets and liabilities of the SLE.
8.4 State Aid
State aid involves giving financial assistance which may be seen as distorting
competition and could include granting leases rent free and providing
guarantees and other financial benefits which are not available to other
market providers. State aid which is above the de minimis level (E200, 000
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over a 3 year rolling period) and not otherwise exempt is unlawful. The rules
around state aid are very complex and further specialist advice will be sought
to ensure the rules are not breached.
8.5 Employment Perspective
8.5.1 If the decision to proceed with the SLE is made, then essentially those staff
providing the services immediately before transfer will follow the work and
transfer from both Councils to the SLE under the Transfer of Undertakings
(Protection of Employment) Regulations 2006
8.5..2 Approximately 330 staff (FTE) will be affected. They would transfer on their
current terms and conditions and continuity of service would be preserved.
Given the scale of the transfer being considered, there may be staff within
support services who could be within scope of a TUPE transfer but further
work is required to assess this potential impact. The Council will ensure it
complies with its information and consultation requirements set out in the
Regulations and allows sufficient time for this process to be completed.
8.5.3 A full consultation exercise will be carried out with all staff involved to comply
with statutory requirements, the Councils’ policies and best practice.
8.6 SLE & Pensions
8.6.1 Local authority staff are entitled to pension protection under the Best Value
Authorities Staff Transfer (Pensions) Direction 2007. The protection is such
that a new employer must provide all transferring staff who are members of
the LGPS or entitled to join with continued access to the LGPS or to a broadly
comparable pension scheme. Where a broadly comparable scheme is
provided it must be certified as such in accordance with guidance published
by the Government Actuary’s Department and accrued benefits will transfer
on a day for day basis.
8.6.2 As discussed above, as a company wholly owned by the Council the SLE will
be able to join the LGPS. In accordance with the Fund’s Admissions Policy,
the SLE would be required to provide either a pension bond or guarantor to
protect the Fund and the other employers within the Fund against the
consequences of pension default by the SLE. It is proposed that the Council
act as guarantor during the phases of the SLE’s development (for so long as
the SLE is owned and controlled by the Councils) therefore removing the
need for the bond. Initial estimates are that a bond in the region of £4m would
be required, but the councils will need to take actuarial advice before this
figure can be confirmed.
8.6.3 Each employer within the Pension Fund pays a standalone contribution rate
which reflects the demographic profile e.g. age, gender, salary, and accrued
LGPS service of their workforce. When a service ceases to be part of a
Council either through outsourcing or the establishment of a new SLE, the
Pension Fund’s Actuary will calculate a stand alone employer contribution rate
for the new body. The calculated employer’s contribution rate may vary (up or
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down) from that of the two Councils as it will refect the actual demographic
profile of the SLE’s workforce, which may differ from the demographic profile
of the two Councils’ wider workforces. At this stage the actual demographic
profile is not known.
8.6.4 The Councils’ current employer contribution rates in payment were last
formally reviewed and set at the 2010 triennial valuation. These are due to be
reviewed again in 2013 with any revisions to the rates coming into effect from
1 April 2014.
8.6.5 When the Fund’s actuary calculates a new stand alone contribution rate for
new employers, they will make certain assumptions regarding the expected
returns from the Fund’s assets. These assumptions are derived objectively
from the financial markets at the date of staff transfer. The financial markets
and hence the actuary’s assumptions for investment returns are currently
significantly lower than those assumed as part of the 2010 valuation.
8.6.6 This has the effect of increasing the employer contribution rate to compensate
for the reduced investment returns. This would result in the SLE paying a
different rate to that currently paid by the two Councils, and recent experience
is that the employer contribution rate for transferred staff can be substantially
higher over the short to medium term than the rate currently paid by the
Councils. All things being equal, the Councils’ own contribution rates will face
the same upwards pressure when they are reviewed in 2013. However, the
key difference is that local authorities will have more flexibility than a limited
company (even one wholly owned by local authorities) in terms of the phasing
of increases in contribution rates. Typically, a local authority could phase large
increases over a 20 year period, while a limited company would be expected
to move towards the correct contribution rate more quickly.
8.6.7 To avoid pension costs distorting the overall business case to establish an
SLE, the intention is to phase in any increase in equal instalments over the
development phases. All things being equal this approach is likely to result in
the creation of a further pensions deficit over the transition period as the
phasing in of the increased future service contribution rate means that the
SLE will have been underpaying compared to the full assessed rate.
8.6.8 However, as the Councils themselves are still paying contribution rates set at
the 2010 valuation, the phasing of any increases to the SLE’s rates would put
the Councils in no worse position than if staff had remained in-house.
8.6.9 It is proposed that the Council will support the SLE during the incubation
period by retaining the pension deficit accrued up to the date of transfer.
8.6.10 The financials set out in section 7 do not include any benefit from either
closing the LGPS to new members or the Hutton review. These options have
the potential to produce significant savings over the long term, and are
covered in more detail below:
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8.6.10.1 The SLE could decide to close access to the LGPS to new
employees. Typically the LGPS would be replaced by a defined
contribution scheme with a matched employer’s contribution of a
minimum of 6%.The rate at which savings were achieved would
depend on the level of staff turnover. In the short term, closing the
LGPS to new members could marginally increase costs as the existing
membership profile matured and the SLE had less time to benefit from
investment returns before paying pension benefits.
8.6.10.2 The impact of changes to the LGPS based on the Hutton
recommendations for public sector pensions which are due to take
effect from 1
st
April 2014 are currently unclear. The potential level and
timing of savings from this review are still uncertain as this will depend
heavily on the final protection arrangements and the demographic
profile of the staff in the SLE.
8.7 SLE & Procurement
8.7.1 The procurement of goods, services and works by the Councils are subject to
EU procurement rules. The regul
at
ions require certain services to be procured
via a competitive procurement process and in a manner which is open,
transparent and demonstrates equal treatment. However, the SLE will be
established to operate under the Teckal exemption meaning that the Council
will be able to award the contract for ICT and HR/Finance services without a
procurement exercise.
8.7.2 The Teckal exemption has developed from an ECJ decision in 1999 and is
sometimes referred to as the in-house exemption. For Teckal to apply, two
conditions must be satisfied; the contracting authority must exercise over the
service provider control which is similar to that which it exercises over its own
departments; and the service provider carries out the essential part of its
activities with the contracting authorities.
8.7.3 In respect of the control test it is not enough to simply own the SLE. The
Councils must retain the same degree of control as they have over their
internal departments such that they have “a power of decisive influence over
both strategic objectives and significant decisions” of the SLE. The SLE must
remain wholly owned by the Councils or the control test is not satisfied. The
Councils will therefore between them own 100% of the shares in the SLE.
Whilst the fact of ownership tends to indicate sufficient control, it is not
decisive and additional provisions will be included within the company articles
which reserve certain decisions to the Councils as shareholders. The control
test may be satisfied by the reservation to the Councils (as shareholders) of
the decisions listed below;

Appointment and removal of directors

approval of annual budgets and business plans

Approval of reserves strategy (for example covering policy on
distributing and retaining profits)

Approval of strategic objectives
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Changing the articles

Varying the share capital

Creating a charge

Issuing debentures

Creating or selling subsidiaries

Selling parts of the business

Entering into a contract which is not in the normal course of business

Changing the name or the registered office

Changing the nature of the business

Remuneration policies & pension matters
8.7.4 The Councils’ Section 151 Officers will recommend what other decisions will
be retained by the Councils such as approval of early or ill-health retirements,
the acquisition or disposal of material assets and a decision to enter into
partnership arrangements. Whilst the SLE is council owned we may wish to
put some limits on increases the company make that affect future pension
liabilities e.g. significant pay rises.
8.7.5 To meet the second test to the Teckal exemption, the SLE must carry out the
essential part of its activities for the Councils’ and other activities must be of
only marginal significance. The rationale is that EU public procurement law
remains applicable to an entity which is active in the market and therefore
likely to be in competition with other undertakings.
8.7.6 There is little case law on what is meant by marginal significance but it was
considered in the case of Tragsa, in which the ECJ concluded that a company
which carried out 90% of its activities for the owners and 10% of work for third
parties satisfied the Teckal exemption, as the 90% constituted the essential
part of its activities. "To trade more extensively could lead to the SLE losing
the benefit of the Teckal exemption and potential procurement challenges."
8.7.7 In terms of the geographic area of operation of the SLE, activities carried on
outside of the Councils’ administrative area would not amount to activities on
behalf of the Councils. It is likely that such activities would be viewed as
commercial activities within the 10% of marginal activity.
8.8 Shareholder agreement
8.7.1 As ownership of the SLE will be vested in the two Councils, the way in which
they deal with each other will be set out in a shareholder agreement The
matters covered by the shareholder agreement could include:

The issue of new shares – for example, to a new partner

Exit arrangements including provision for what happens if one
shareholder wants to sell their holding

Management of the SLE – for example rights to appoint directors
(although this will usually be covered in the articles as well)
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Appointment of external auditors and rights of access for the Councils’
auditors

Financial reporting arrangements

Future funding

Confidentiality

Deadlock provisions
This is a key area for discussion between the two Councils.
8.9 Property and Assets
8.9.1 The management of assets including ownership of the network will require
careful consideration taking into account any state aid issues and the
Councils’ exit strategy. Further work is required to develop an agreed
approach by the Councils.
8.9.2. The heads of terms of the licenses/leases in respect of premises required to
provide the service will be based on legal advice and will be agreed by the
Head of Property and Regeneration and on such detailed terms or conditions
as deemed appropriate by the Head of Legal and Democratic Services.
8.10 Corporate Support services
As parrt of its agreed corporate framework to SLE’s, the starting point for
corporate support services would be to require the SLE to purchase services
back from the Council for a large proportion of its support services unless
there is a compelling business case /reason to otherwise do so. However, this
requires further discussion and agreement with CE. Further work is required
on corporate services buyback and any additional requirements the SLE will
need to meet as a separate entity.
8.11 Tax & VAT
8.11.1 The Council does not pay income or corporation tax and there are special
statutory provisions that enable it to recover all its VAT. These benefits are
unlikely to be available in full to the new SLE. In particular, unless the SLE is
a registered charity it will have to pay income tax or corporation tax on its
taxable profits. Therefore any liability to tax would need to be included in the
business case.
8.11.2 HMRC have recently introduced new rules known as cost sharing
arrangements. The effect of these rules is that if certain conditions are met,
then the Teckal company cannot recover its VAT paid on purchases,
potentially increasing the company’s cost base. The cost sharing exemption
only applies to arrangements between two or more organisations. Further
guidance is being sought before a final assessment of the impact can be
made.
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8.11.3 Specialist external advice is being sought in relation to the SLE’s position on
Tax & VAT.
8.12 Other decisions
If the decision to create the SLE is made then the Section 151 Officer in
consultation with the Head of Finance and Head of Legal and Democratic
Services and the Chair & Vice Chair of the Shared Services Joint
Committee be authorised to do all things necessary to establish the SLE
including but not limited to the following:
8.12.1 To finalise the business case for the SLE.
8.12.2 To recruit and appoint an interim Managing Director for the SLE and
commence recruitment as soon as is practicable for the rest of the
board of Directors.
8.12.3 To finalise the form and structure of the company (including board of
Directors) following detailed legal and financial advice.
8.12.4 To develop the operation of the client side functions within existing
resources.
8.12.5 To agree the memorandum and articles of association based on the
principles outlined in this report including those matters to be reserved
to the Councils as shareholders.
8.12.6 To agree the scope of services to be commissioned from the SLE, the
performance management framework, the contract length, price and
payment mechanism.
8.12.7 To agree the terms of the shareholder agreement.
8.12.8 To oversee the completion of the due diligence work taking external
advice as appropriate.
8.12.9That the terms of the licenses/leases required be agreed by the Head of
Property and Regeneration and such detailed terms or conditions as
deemed appropriate by the Head of Legal and Democratic Services.
8.12.10 To agree the principle of the buyback of corporate services.
8.12.11 To agree the following financial provisions:
8.12.12.1 To agree in principle to guarantee pension liabilities for the
wholly owned company for the duration of the Contract in
respect of Council staff transferring to the company. The
scale of the guarantee is likely to be in the region of £4m.
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8.12.12.2 To agree in principle to provide such financial
guarantees as the company may reasonably require for
the duration of the Contract subject to the approval of
the Head of Finance (and subject to Standing Orders)
on a case by case basis including Parent Company
Guarantees and bank guarantees.
9.0 Risk Management
9.1 Taking the step to an SLE is a low strategic and financial risk. The high risk is
the loss of opportunity by taking a different route.
9.2 Set out below are some of the key challenges and risks to externalisation of
Council services:
9.2.1 Leadership – a key objective will be to develop the business and
develop new markets. Experienced commercial managers with sound
leadership skills will be required to drive the business forward and may
need to be recruited.
9.2.2 Staff – a major success factor will be winning the support of employees
and trade unions and managing the transition to the new organisation.
9.2.3 Competition – the SLE may find itself unable to expand by winning
new work or it may lose the initial contract with the Councils.
9.2.4 Risk of failure – as with any new business there is a risk of failure
because, for example, its business case is not robust enough, it does
not have sufficient resources or it develops poor relationships with
clients and suppliers. The Councils would have to consider whether
they would guarantee the company financially, at least initially.
9.2.5 Loss of Teckal exemption - If a significant number of the currently
maintained schools converted to Academy status, the 10% limit on
external trading income would be exceeded
9.3 Any of the above may lead to service failure and the need to run an
emergency procurement to put alternative arrangements in place at increased
costs and reputational damage.
9.4 An analysis of major risks associated with the SLE together with the proposed
mitigations is detailed in Appendix 1 - Section 4.9 pages 55 & 56.
10.0 Background and Options
A Separate Legal Entity is an appropriate delivery model where there is a
desire to trade commercially for a profit with other public & private sector
organisations. It involves establishing a separate legal entity (SLE) – i.e. a
company - which will deliver services back to the contracting authorities.
There are a number of different forms a company can take such as:company
limited by shares or guarantee (either of which may be charitable);
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community interest company (CIC);

industrial and provident society (IPS).
10.2 The most suitable structure depends on the key aims and objectives of the
SLE. A company limited by shares will tend to be appropriate where the SLE
is commercial in nature. A company limited by guarantee is the traditional
model for a non-profit distributing company where the intention is to reinvest
profits into the business. A CIC is designed for social enterprise which
operates as a business. An IPS is a form of employee mutual.
10.3 The most suitable structure for Cheshire Shared Services is a company that is
limited by shares and is Teckal compliant (Teckal is further explained in
Section 8.7).
10.4 The key drivers for creating an SLE are:

To create future value for the authorities that requires modest investment
and represents a low financial risk

Exploiting the Teckal exemption allows the shared services company to
be more agile in partnering with other local authorities

Desire to trade commercially for a profit with other public and private
sector organisations.
10.5 The desired outcomes / objectives for the SLE are:

To be the leading public sector shared company in the UK providing a
high quality, customer focused services, demonstrating value for money
and high levels of customer satisfaction.

To grow the shared service business by bringing in new partners and
customers to realise economies of scale and by trading key services on
a fully commercial basis with other organisations.

To meet and exceed client expectations of service delivery and quality
driven by internal transformation and standardisation of processes and
adoption of new technologies.
10.6 In order to ensure success the Councils will need to:

adopt a commercial business model which will exact commercial
behaviours (a proposed business model is explored further in Section 4.3
of Appendix 1). The SLE will need to be successful at “realising capacity
or releasing capacity”. The model needs to be aligned with a Business
Plan so as to constant flex to levels of growth, reinvestment opportunities
through efficiency realisation and management of risk.

invest in the current management structure which fully implements the
current Target Operating Model, to build a solid culture for the business
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to move forward. (the current target operating model is presented in
Section 4.4 of Appendix 1)

focus on Strategic Marketing activity, to develop & monetise the
company offering & propositions (a proposed approach is included in
Section 4.5 of Appendix 1)
10.7 Building upon the Options Appraisal & High-Level Business Case (Appendix
1), and the recommendations of the Joint Officer Board, the Joint Committee
requested that the implementation of the SLE commence, provided it be
developed via a phased change programme, the details of which are
summarised as follows:
10.7.1 Phase 1: Change Programme. This entails the creation of the
company, Shareholder Board and Management team. The new
company will be the change catalyst to drive the correct commercial
behaviours between Shareholder (client) and Company (Shared
Services SLE) – essentially building the structure, culture, and skills on
both sides. The business focus in this initial phase will concern
improving the quality of service provision within the new structure and
in accordance with the new culture – whilst continuing to develop the
future commercial company propositions.
10.7.2 Phase 2: Commercialisation Programme. Value is monetised as
services are evaluated and marketable packages take concrete form.
The company has a robust business plan detailing how it will grow the
business. Change management and cultural adaptation are
implemented and proposition branding is further developed. As the
SLE operates on a commercial basis, marketable service packages are
distilled and Unique Selling Points developed. The Council clients will
begin to feel the service benefits born of the greater commercialisation
of the SLE.
10.8 In summary, the Joint Committee recognises that unlocking the success of the
Shared Service is a lengthy change process. The creation of the SLE is the
critical first step, forging the vehicle in which the desired cultural change and
business optimisation can take place.
10.9 As set out in section 7, establishment of the SLE will incur some additional ongoing
costs. Given the financial pressures facing both councils, this cannot
be an open ended commitment. Therefore, both councils will be closely
monitoring progress of the SLE against its business plan. If it becomes
apparent that the commercial objectives are not going to be achieved, or will
not being achieved within an acceptable timescale, the alternative approaches
set out in section 10.10 would need to be reconsidered.
10.10 Options Appraisal
In August 2012, the Shared Service Joint Committee requested that the Joint
Officer Board revisit the range of strategic delivery options to determine
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whether an SLE remained the best delivery option for the future of Shared
Services. The conclusions of this options analysis were presented to the Joint
Committee at the workshop on 25 October 2012. These conclusions can be
summarised as follows:
10.10.1 Do nothing: Not considered a viable option for the future of CSS.
Prevailing negative perceptions surrounding the quality and parity of
the shared service arrangement could be compounded, whilst
business focus remains strained and core business continues to
decline. The boundaries between client and supplier remain
obscure, and shared services cannot drive expansion of customers
or capacity, lacking commercial grounding. Not recommended.
10.10.2 Disaggregation: This option is both costly and time-consuming. It
forfeits savings as efforts and infrastructures are duplicated, and
sacrifices accumulated experiential and intellectual assets. Not
recommended.
10.10.3 Transfer Model: In this option, hosting is balanced but the target
operating model is fragmented. A transfer model could represent
either a holding pattern or proto-disaggregation. Hosting equity will
be achieved but perceived bias could become realigned according
to reorganised service location. Would potentially involve protracted
and arduous decision-making. Not recommended.
10.10.4 In-House Trading: This option requires a similar level of
investment to an SLE with decreased scope to monetise offerings,
forge partnerships and trading opportunities, and create value. This
model will be more difficult to market to prospective customers and
partners, and could easily become a holding pattern. Not
recommended.
10.10.5 Outsourcing: Allows access to private sector acumen and delivery
capability, but entails forfeiting control and exposing the Councils to
rigid contracts and ‘one size fits all’ solutions. Moreover, whilst
some predictable efficiency can be achieved early, the true depths
of savings are largely handed over to the private partner and offset
by a costly procurement. There are plentiful examples in the market
that reveal tensions between client/supplier when the outsourcer
fails to deliver on the authority’s change agenda during a long-term
tenure arrangement. Not recommended.
10.10.6 Joint Venture: The assessment of ‘Outsourcing’ above equally
applies to Joint Ventures, but the latter have a few unique caveats.
Though they pledge open accounting, Joint Venture private
partners can still hide their costs, with some major providers having
a 48% profit margin on Joint Venture deals. This is often discovered
as a partnership develops, but the length of contract and the
infrastructural entanglement of the private partner makes ‘step-out’
from the contract costly and arduous. Conflicts of interest can also
Page 43
emerge if the local authority wants to move the Joint Venture into a
market that the private partner already dominates. A recent spate of
high-profile Joint Venture collapses have highlighted the many
pitfalls of this model, where once it was regarded as a silver bullet
to shared service savings and quality. Not recommended.
11.0 Access to Information
The background papers relating to this report can be inspected by contacting the
report writers:
Name: Sharon Barclay
Designation: Transformation Project Manager
Tel No: 01244 972005
Email: Sharon.Barclay@Cheshirewestandchester.gov.uk
Name: Jackie Gray
Designation: Shared Services Manager
Tel No: 01270 685868
Email: Jackie.Gray@cheshireeast.gov.uk
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