Communities and Local Government Committee - Mutual and cooperative approaches to delivering local servicesWritten evidence from Oldham Council

Executive Summary

Oldham’s co-operative approach does not presume that its services will be delivered through third-party not-for-profit organisations. We believe that councils commissioning not-for-profit organisations to deliver services on their behalf with no other supporting changes are not necessarily co-operative councils, because we accept that there is more to being a co-operative council than commissioning the third sector to deliver services.

In contrast, the Oldham Model of the co-operative council is a whole-system approach geared towards fundamentally re-shaping the relationship between residents and public services. This will enable communities to become more resilient and self-reliant (therefore reducing dependency on public sector provision) and the council to deliver better social value and an enhanced leadership role.

Rather than simply commissioning the third sector to deliver services on our behalf, we are working with customers and partners to redesign services which are co-owned and delivered together. This co-production, supported by improved commissioning and procurement, drives efficiency, value-for-money, better outcomes, and enhanced social value. In respect of delivering services, there is no presumption that an outsourced model will be appropriate. Rather, a broad range of different types of delivery arrangements are considered.

We believe that, as a community leader, we have a duty to ensure the sustainability of local public services by promoting and incubating a mixed economy of service delivery models. This includes not-for-profit organisations.

The advantages of co-operative forms of service delivery, including working with residents and service users to design or co-produce services, as well as commissioning not-for-profit organisations to deliver services on our behalf, can include:

enhanced service user and staff engagement;

improved social value;

better value-for-money; and

greater flexibility to adopt a service model which reflects the needs of service users.

We are applying these principles internally as a business through the introduction of a “business unit” ethos and practice, whereby individual services and teams enjoy increased levels of autonomy and freedom to deliver services in innovative ways. Our co-operative principles are embedded into this approach, helping to ensure that our services maximise not only the financial value-for-money that they can deliver, but also the added social value that they can create through their business practices. This is further emphasised through our “Ethical Framework”—our approach to corporate social responsibility which is seeing us lend our resources to help build community capacity, resilience and self-reliance.

There are real challenges for local authorities when considering the delivery of core services through third-party organisations. Elected members and officers retain ultimate accountability and responsibility for such services, but their ability to influence decisions and the management of risk is more remote.

In addition, there are also challenges to the public sector in respect of governance when commissioning organisations to deliver services on our behalf.

Oldham is actively looking at new delivery mechanisms, including co-operatives and mutuals. One example of this is in Adult Social Care, where we are exploring the possibility of mutualising part of the service. As the issues are often complex we have had to seek external specialist expertise in considering these new approaches. This can be both time-consuming and costly as there is currently a lack of freely-available advice for local authorities looking to develop mutualised services.

1. Introduction: Oldham’s Co-operative Future

1.1 This background information sets the context for the remainder of this submission, which details Oldham Council’s unique approach to the co-operative council model and offers our response to the questions set out in the terms of reference for the Communities and Local Government Committee’s Inquiry into the Co-operative Council.

1.2 Oldham is committed to developing a co-operative future; one where citizens, partners and staff work together to improve the borough and create a confident and ambitious place. We want all members of the community to be able to play an active part in building our co-operative borough. Put simply, becoming a co-operative borough is about everybody doing their bit and everybody benefitting.

1.3 This is our opportunity to fundamentally reshape the relationship between the council and its residents. This will mean that the council will strengthen its civic leadership role, leading by example and enabling residents and communities to become more self-reliant. We will be working in ways which give residents the opportunity to shape how services are run and how decisions are made. We will be empowering local people to take greater control over their own lives by making positive decisions for their families and their neighbourhoods. Underpinning all of this, we will endeavour to run our own business in a way which delivers the greatest possible social value for our borough.

1.4 Far from simply managing decline in a context of increasing demand for public services and reducing funding, we are being radically ambitious for our borough. A co-operative council approach is our positive response to these challenges, enabling a bright future for Oldham’s communities by enabling everyone to do their bit to create a confident and ambitious borough.

2. What is the Difference between a Co-operative Council where Services are Supplied via Not-for-Profit Businesses, and other Local Authorities?

2.1 We believe that a co-operative council approach must be about far more than the delivery of services through not-for-profit businesses. The Oldham Model of the co-operative council is a whole-system approach which encompasses a broad spectrum of co-operative working.

2.2 In Oldham, working co-operatively is not just about delivering services through co-operatives or mutuals. The diagram overleaf (Figure 1, page 7), has been developed to demonstrate the broad spectrum of different ways in which Oldham Council is working co-operatively—delivering services through co-operatives, mutuals, or other not-for-profit third parties is only one part of this spectrum, which encompasses:

Working in line with co-operative values and principles—this means conducting our business in a way which helps to make the greatest possible positive difference to our borough. For example, we’ve developed enhanced procurement practices to maximise the social value that we can achieve through our contracts. This has meant re-shaping our processes to explore how potential suppliers can deliver added value by, for example, offering supply-chain opportunities to local SMEs, or generating long-term sustainable employment opportunities for local unemployed people.

Residents and service users actively informing decision-making—this means giving residents the opportunity to influence what we do. For example, when we were redesigning our “Aiming High” programme for children with disabilities and life-limiting health conditions, we invited services users, parents and carers to influence how we would shape the new service, helping to make sure that it better reflected their experiences, needs and expectations.

Co-producing services with communities—this means working in collaboration with residents to deliver our services together. For example, we are leasing one of our local community assets, Springhead Community Centre, to a community group for a nominal fee. In exchange, the community group deliver key services and family activities. Similarly, our Litter Watchers scheme enables communities to improve their local area by providing residents with the equipment, materials, and protective clothing they need in order to make environmental improvements such as planting new flower beds or running community clean-ups.

Services delivered through co-operatives and mutuals—this means using different methods of service delivery, including opportunities for employees to run their own co-operatives or mutuals. For example, we’re exploring whether we can transform part of our Adult Social Care service into a mutualised model of service delivery. As well as exemplifying the scale of our ambition by adopting this innovative delivery model in one of our largest and most essential service areas, this provides an opportunity for greater involvement from staff and residents, including plans to recruit a service-user as a non-executive director of the new company.

2.3 In addition, in Oldham we are adopting a “business unit” ethos and practice. This means that increasing numbers of our services and teams will enjoy increased levels of autonomy and freedom to innovate and improve efficiency. This business unit approach will help to deliver improved value-for-money by incentivising individual services to lower their costs whilst improving service quality. At the same time, our co-operative principles are embedded into this approach, helping to ensure that our services maximise not only the financial value-for-money that they can deliver, but also the added social value that they can create through their business practices.

2.4 Across the organisation, we’ve adopted an “Ethical Framework” which brings together our approach to corporate social responsibility (CSR). As well as conventional CSR initiatives such as payroll giving, our CSR model focused on using our resources in innovative ways in order to make a meaningful difference to people and communities across our borough. For example, our Employer-Supported Volunteering scheme is seeing our staff lend their specialist skills to help grow and develop the local community- and voluntary-sector by helping to develop marketing strategies, write business plans, improve HR practices, or improve funding revenue. Over the next three years, every member of staff will commit to three days of volunteering each year through this programme—that’s around 9,000 volunteering days per year. Similarly, our Community Dividend Fund is enabling us to lend financial support to community-led initiatives which deliver sustainable and ongoing social, economic and environmental benefits, such as Saddleworth Community Hydro—a community-run initiative to produce “green” hydroelectric energy for the local community, saving around 1,000 tonnes of carbon every year. Internally as a business, we’ve introduced the Living Wage, ensuring that no member of staff earns less than the local cost of living, and demonstrating our commitment to being a role model for fair and ethical business practices.

2.5 The diversity of our approach, therefore, demonstrates that the co-operative council model can have implications and benefits that reach far beyond the delivery of services through not-for-profit businesses.

2.6 Moreover, just as a co-operative council approach is not limited to the delivery of services through not-for-profit businesses, we believe that councils commissioning not-for-profit organisations to deliver services on their behalf with no other supporting changes are not necessarily co-operative councils, because we accept that there is more to being a co-operative council than commissioning the third sector to deliver services.

2.7 Our co-operative approach is not about favouring any one form of service delivery, but about empowering local people to take greater responsibility and to make positive choices, for themselves and for their communities. As a co-operative council, we are enabling, supporting and encouraging residents to become more self-reliant and better able to help themselves, whilst at the same time responding effectively to fiscal challenges and re-shaping our own organisation to ensure that we are a strong civic leader, delivering the greatest possible social outcomes through our business practices.

2.8 Therefore, co-operative working in Oldham is essentially about working in a way which changes the relationship between residents and public services by enabling residents and service users to become active participants rather than passive recipients of public services. This means helping to empower residents to take greater control of their own lives as well achieving the maximum social value from the resources that are available to the community and public sector.

2.9 This is fundamentally important because the ability to make further efficiencies and savings by outsourcing services will plateau. Therefore, there is a need to focus our drive for value and savings on reducing demand for services. This means supporting self-help and encouraging behaviour change, as well as exploring what new delivery vehicles could offer. Being a co-operative council enables us to address these opportunities and challenges by bringing about long-term and sustainable change.

Figure 1


3. Advantages and Drawbacks of Delivering Services through Not-for-Profit Organisations

3.1 Our commissioning approach

One of the core principles driving our co-operative approach is re-designing services with customers and partners. This co-production, supported by improved commissioning and procurement, drives efficiency, value-for-money, better outcomes, and enhanced social value. In terms of determining the delivery mechanism that follows each commissioning and procurement exercise, there is no presumption that an outsourced model will be appropriate, as explained above (see paras 3–5). Rather, a broad range of different types of delivery arrangements are considered. Many of the advantages and drawbacks of delivering services through not-for-profit organisations are equally applicable to delivering services through other forms of third-party organisations, including private-, public-, and third-sector providers.

3.2 Accountability, governance and risk

We are committed to delivering services which provide the best quality, best value-for-money, and best social value for local people, regardless of whether these services are directly delivered, delivered through private-sector partners, or delivered through not-for-profit organisations.

However, as a local authority, we are not only a statutory body, but we are also proud to be a democratically-led body, meaning that we are fully and directly accountable to local people. Where we do commission external providers to deliver services on our behalf—whether these are private-, public-, or third-sector organisations—we retain ultimate accountability and responsibility for such services.

There are potentially more risks in delivering services through third-party organisations in terms of the long-term viability and sustainability of such organisations. This poses real challenges for elected members and officers, as their ability to influence decisions and the management of risk is more remote when services are delivered through third-parties. It also presents the need for a robust system of checks and balances in awarding and monitoring contracts.

In Oldham, one of the ways we’re working to build resilience and capacity in the community sector is by helping to build consortia of small-scale community organisations in each district. By working collaboratively in this way, smaller community groups can pool their collective skills, expertise and resources, and potentially even bid for public sector service-delivery opportunities.

3.3 Service-user engagement and co-production

One of the advantages of our approach to commissioning is that it increases the number of opportunities for residents and service users to influence, co-produce and even deliver public services. Our co-operative council approach is working to transform the relationship between the public sector and the public, so that residents and service users are no longer passive recipients of public services, but active participants in the design and delivery of those services. For example, we are enabling local people to have a greater say over the services and decisions that affect them and their communities, as our work on the Aiming High programme and with Springhead Community Centre demonstrates (para 2.2 refers).

As well as engaging local people in the co-production of service design and delivery, we’re working in collaboration with residents and service users to move interventions and services “upstream”, to less reactive, more preventative level, helping to reduce demand for and dependency on the public sector. For example, our ongoing co-operative campaign, “Love Where You Live”, is working to positively reinforce positive choices and positive behaviours by bolstering local pride and championing community action. This is a key strand of our work to manage demand for public services in the long term by promoting responsibility and self-help in our communities. Building on this local work, one of our next steps will be the introduction of “neighbourhood standards”, whereby local residents and communities are asked to take pride in their neighbourhoods by taking responsibility for helping to make their local area a positive place to live.

3.4 Service quality and value-for-money

Our commissioning model, which includes working with not-for-profit organisations to co-produce or deliver services, can in many cases also bring improved value-for-money as well as better-quality services. This has been demonstrated in Oldham, where we have commissioned the Citizens Advice Bureau to provide legal and advice service. Previously delivered in Oldham town centre at an annual cost of over £380,000, the service have now been extended throughout the borough so that residents can access advice at local libraries, community centres and council buildings, whilst the overall cost of service provision has been reduced by nearly 40%, making a saving of £150,000.

In addition, Oldham’s children’s centres are delivered by third-sector providers on behalf of the council. These centres not only provide key community facilities and services, but also deliver localised District Partnership priorities and targeted work to support the troubled families agenda through a local payment-by-results methodology.

3.5 Summary of the key advantages of co-operative and mutual forms of service delivery:

The council is able to retain some level of influence through representation on the board of co-operatives and mutuals. This means that we are able to help provide strategic input regarding the priorities and direction of such organisations. In the model Oldham is proposing for Adult Social Care (a co-operative/local authority trading company hybrid), the council will be able to exercise a high degree of influence through its majority shareholding.

Equally, a co-operative model is able to offer opportunities to maximise service-user choice and control in services. There is some debate as to whether a defined group of members can always represent the interests of all service users, as this can be a highly heterogeneous group.

In some cases, co-operative and mutual forms of service delivery can offer opportunities to make savings by avoiding or reducing some of the costs which are incurred by in-house forms of service provision. This can be achieved through a variety of mechanisms including, for example, changing staff terms and conditions, reducing absence and a establishing more flexible or reduced levels of business support services.

There can be opportunities to trade services, thereby generating revenue and potentially utilising the profit as a dividend payment to members or reinvesting it in the business.

Like Social Enterprises, co-operatives and mutuals may be able to access forms of funding which are not available to statutory bodies such as local authorities.

There is an ability for the legal forms of governance and control to democratise stewardship of the organisation (especially where members are defined as, for example, staff or service users) and devolve decision making to communities.

Co-operatives and mutuals also tend to exhibit high level of workforce commitment and ownership.

3.6 Summary of the key drawbacks and challenges of co-operative and mutual forms of service delivery:

Like social enterprises, co-operatives and mutuals are not normally covered by the “Teckal” exemption; this means that services being transferred to a co-operative or mutual are subject to the requirement for a competitive procurement process, which can act as a major disincentive to staff looking to establish a co-operative or mutual to deliver services.

Procurement costs negatively impact any benefit to the council in the short term and, in addition, there can be significant set-up and transition costs involved.

When co-operatives and mutuals are established, there can be significant costs associated with setting-up the new organisation. This includes, for example, governance costs and implementation-related costs, such as procurement.

Co-operatives can be less agile in their decision-making due to the membership nature of their governance structure.

All small start-up organisations can be potentially vulnerable, particularly during the early stages of their development and implementation.

Securing external funding, including working capital, can be difficult.

The strategic direction of co-operative and mutual organisations is set by stakeholders who may, as a result, face a conflict of interest when making decisions relating to the future of the organisation.

4. What Arrangements need to be in place to Deliver Services through Not-for-Profit Organisations (including Employee-led Mutuals)?

4.1 For local authorities looking to commission or establish not-for-profit organisations to deliver services on their behalf:

Clear and easily-accessible guidance on governance, financial, human resources and legal issues.

Clear and effective commissioning cycle which delivers enhanced social and financial value.

Skills and capacity to redesign services effectively.

4.2 For employees and third-party organisations looking to deliver services on behalf of local authorities (including those looking to set up new not-for-profit organisations for that specific purpose):

Access to independent support and advice to reduce the potential for conflicts of interest.

Opportunities to explore the “right to challenge” in a constructive and collaborative way. This is currently being developed in Oldham.

Encouragement and support to network and collaborate with peers to develop their ideas.

Confidence and capacity to compete for contracts.

Ability to demonstrate their performance and capability (or to be part of a wider consortium that is able to do so).

4.3 General arrangements which need to be in place to deliver services through co-operative- and mutual-type organisations:

Ideally, a legal structure that enables newly established co-ops to deliver services on behalf of the Council without a full procurement process.

A leadership team for the new organisation that is commercially aware and has experience of operating in different sectors.

A shadow transition board to ensure that the new organisation is adequately supported in its new form.

A business plan that demonstrates an understanding of the market, revenue generation opportunities and key trends, and positions the organisation to respond to these.

It will be crucial to have the right skills and capacity in place to ensure that services can be transferred from the council to the new organisation effectively and with minimum disruption. This will involve:

Project management expertise to manage the business case and implementation process;

Legal advice from inception around the most efficient structure and incorporating the new organisation;

HR TUPE transfer process support (if appropriate); and

Financial advice to outline any tax implications.

5 Recommendations for Action

5.1 We welcome the opportunity to input Oldham’s approach to help inform and develop the Committee’s and the Government’s understanding of co-operative councils.

5.2 To further develop some of the issues raised by the Inquiry, we would recommend that areas for joint working between the Government and local authorities would be beneficial. These areas include:

Commissioning in the context of a co-operative council; and

Exploring the “right to challenge” in a constructive and collaborative way.

5.3 In addition, there is detailed advice that is currently freely available (via the Cabinet Office, for example) to third-sector organisations and small groups looking to deliver public services, whereas there is a comparative shortage of such advice available from the perspective of a local authority looking to commission such organisations. We would recommend that further robust and thorough advice was made freely available to local authorities looking to develop new and innovative delivery models (including co-operatives and mutuals).

May 2012

Prepared 6th December 2012