Insourcing for local authorities

For decades now, starting with the compulsory competitive tendering introduced by the Thatcher Government in the 1980s, fewer and fewer services provided by local authorities have been delivered directly by them.

Alternative delivery, largely through the private profit-driven sector, has increased hugely. Some councils went so far as to consider a model where they only retained a small corporate core to provide a level of democratic cover and sufficient skeleton resource to manage the contracts let to deliver services; although very few councils, if any, actually achieved this.

However, over the last couple of years, there are signs that this tide is changing. Councils such as Islington, Leicestershire, Stoke and others have started to bring more services in-house. The reasons for this vary. In many cases, the driver was political, in others the result was that the efficiencies and savings that were sought had failed to appear and the service quality left a feeling that delivery was disconnected from the citizen who paid for it – always more of a concern when delivery is poor. Councils found that their contracts tied them to a level of service or a quality standard that, while it might have felt appropriate when the contract was signed, was no longer optimum or desirable, let alone affordable, and so they wished to get out of them. It is also true that local government has changed significantly since the last century and it is no longer the case that only the private sector is seen as having the skills to run efficient, effective and accountable services.

It is up to each local authority, as an autonomous legal entity, to decide what it wants to do, both in terms of its current services, and indeed, when those existing contracts come to an end. All (affordable) options are open to them, including insourcing. The research recently published by the University of Liverpool and supported by the Association for Public Service Excellence (APSE), is an interesting, if lengthy, read through the current position. The driver of “competition”, powerful in the 1980s, has been proven not to necessarily deliver the advantages that were sought and promoted by the ideology of that time.

As well as the growing trend referred to above, the Labour Party recently announced an “insourcing revolution” that is intended to commit the Labour Party (should it get back in power) to forcibly promote the insourcing of the delivery of key public services by local government. The services included in their announcements cover construction and maintenance work, bin collections, cleaning, school dinners, playing field maintenance and the management of local leisure centres. In short, the policy intends to introduce a requirement for local authorities to review all service contracts when they expire, with a presumption that they will be brought back in-house and delivered by the public sector; unless certain conditions and exemptions are met. It’s worth remembering that not all of these outsourced arrangements are delivered by private companies – many are delivered through other mechanisms such as charitable trusts or not-for-profit companies.

Local government is to be supported in delivering these changes through a model contract; designed, it is said, to save councils time and resources, with access to the Government’s legal department to assist in contract management. Greater support for collaboration amongst councils is also promised.

In effect therefore, if Labour gets into power, the former presumption of outsourcing and the drive to competition is being turned on its head by a presumption of insourcing. Early responses indicate that a mandatory requirement to consider insourcing, and the offer of assistance in doing so from the Government’s legal department, has not been met with unbridled joy across the local government family.

However, in many ways, this announcement is already behind the existing trend of councils increasingly considering insourcing. The trend is here in many councils, and it promises to be a source of lively debate as contracts start to come to an end or questions are raised part way through; meaning local authority lawyers need to be alert to the issues involved in advising their colleagues and members.

What are the factors to consider? These range from examining the existing contract terms, identifying what is required in the future, and the nuts and bolts of transferring services from the current provider; either back into the council or to a vehicle owned or part-owned by the council. It may not be easy to do this, and many factors need to be taken into account when a contract either comes to an end, or there is a realisation part way though that the service provider is simply not delivering what the contract envisaged.

Looking at those issues in advance and in the round is particularly important; when lawyers are asked to advise their councils on the position of insourcing a contract, sufficient time and input needs to be allowed to get the necessary understanding of what is sought. To where will the services be insourced? Issues such as the Transfer of Undertakings (Protection of Employment) regulations (TUPE) and the application of the Local Government Pension Scheme (LGPS) are not necessarily easy, and the impact of this on staff and the rest of the council needs to be fully taken into account. The council must consider what they intend to do, in terms of managing the contract going forward when the council is delivering the service, as well as the ongoing management of the contract and the resource required to do this effectively.

Further information

We are hosting a one-day conference, ‘Legal insourcing for local government authorities – conference’ in Birmingham on 2 October. The conference will cover the key issues to consider before, during, and after the insourcing process, and includes advice from local authority speakers with practical experience, as well as lawyers from Anthony Collins Solicitors.

The event is open to lawyers and other officers in local authorities. If you would like to attend, please register here.

For more information on the issues covered in this e-briefing, please contact Olwen Brown.