Communities and Local Government Committee - Mutual and cooperative approaches to delivering local servicesWritten evidence from Association for Public Service Excellence

I respond on behalf of APSE (Association for Public Service Excellence) which is a not for profit UK wide organisation owned by our member local authorities. APSE’s aims and values are to support and promote the delivery of excellence in frontline local government services. APSE works with over 300 local authorities, including police and fire authorities, throughout the UK specialising in frontline service delivery issues.

In responding to this consultation APSE has already issued a number of policy briefings on the new community right to challenge, including the implications of the route by which “two or more employees” may bid to provide a local authority service. APSE has also extensively consulted with its local authority membership about the role of third sector providers in local government service delivery, including a research survey and interviews conducted in 2010 resulting in an e-report “One Size Does Not Fit All” which explored the experiences of frontline service providers in working with the third sector and a further major piece of research, “Proof of Delivery? A review of the role of cooperatives and mutual in local public service provision”. This latest research was conducted by APSE in association with De Montfort University as part of a joint Knowledge Transfer Programme.

This response therefore summarises APSE’s views drawing on the opinions of its membership and the evidence based findings of recent APSE research. We have also referred to other APSE research and local authority data where appropriate.1

For ease of reference this response follows the headline questions raised by the Committee Inquiry and the APSE response is placed immediately below those questions. I would confirm that APSE is also willing to provide oral evidence to the committee should that be requested.

APSE Response to Key Questions and Supplementary Commentary

1. What is the difference between a co-operative council where services are supplied via not-for-profit businesses and other local authorities?

The committee has asked what differences there are in council services being supplied by for profit businesses and those supplied by cooperatives, mutuals and other forms of social enterprise.

APSE believes that it is important to clarify that there are numerous forms of cooperative, mutual or social enterprise models and the legal forms vary. Cooperatives and mutuals can take numerous forms including:

Unincorporated association;

Incorporated association;

Company limited by shares or company limited by guarantee;

A community interest company; and

An industrial and provident society.

It is not therefore exclusively the case that cooperatives, mutuals and social enterprise models are “not for profit”. Indeed in many cases profits can be an aim of that organisational form, supported by the legal structure, and such profits could be redistributed as share dividends to its members or reinvested to create access to capital. It is also fair to reflect that whilst legally cooperatives and mutual organisations can be “profit making” they are generally not set-up as “profit maximisers”.

The question does not extend to ask what is the difference between directly delivered services and those provided by cooperative forms and those of “for-profit” companies. In explaining APSE’s response to this question it is perhaps important to further clarify the distinctions between the three broad options for delivery rather than limiting consideration to a somewhat misleading distinction between just two options.

For the purposes of this response APSE is using the term “third sector” to encompass cooperative, mutual, social enterprise and charitable organisations. It is accepted that when we explore “third sector” delivery models these are often attributed to more altruistic aims; however this is not distinct from that of the directly provided public services. In-house public service delivery is governed of itself by guiding principles and are generally delivered:

Free at the point of need: For example in the case of statutory local government services (bin collections are free) and with non-statutory services generally delivered, if charged for at all on the basis of an affordability criteria (differential leisure pricing for say an older peoples’ swimming session).

Through means of equitable distribution: Services delivered upon the basis of need not ability to pay: As with NHS services priorities are based on clinical need or in local government housing is delivered based on a priority points system.

Rationed to accommodate service budgets: The levels of service available are accommodated by budget setting processes, in the case of local government through elected members who may determine, for example, the frequency of street-sweeping in a locality or in health, for example, the interventions necessary to “ration” the distribution of certain medications, taking into account costs against clinical efficacy.

Accountable nationally and locally for the quality and cost of the services delivered through democratic routes: In the case of “national public services” such as the NHS there are acknowledged difficulties in localised democratic accountability but in local government services there are direct routes through local elections. The 2009 local elections for example were dominated in many areas by so called “bin wars” with huge political debate at a local level about the frequency of refuse collection and recycling services.

In the case of for profit delivery of public services it is clear that companies who engage in the public sector marketplace intend to make a profit from those services. Indeed they are obligated to act in the best interests of their shareholders in order to maximise profit. The company forms of such organisations is most usually:

A company operating within a for-profit structure and legal framework;

Ability to raise investment capital and pay profits by way of dividend to its shareholders; and

Operating on cross-boundary arrangements, maximising the efficacy of its operations by winning contracts across a multiplicity of public sector providers.

The contrast between the differing models is therefore stark in that whilst directly provided public services are accountable to the whole of the general public through the ballot box the “third sector” forms of delivery, through the various legal forms, are accountable to those exclusive groups of members or co-operators—in a similar way in which for profit companies are answerable to their limited shareholders, rather than to the wider public. Moreover, in the same way that private companies are accountable to their client, through contract performance measurements, the necessity of such arrangements are not exempted simply because a third sector provider is operating on a “not for profit” basis since the local authority, or other public sector client, is still, by necessity, ultimately accountable for the contract or service performance when using public money in its’ provision.

The question also uses the term “co-operative council” in quite a definitive sense, which we presume by the question, would mean a council where its services are outsourced albeit to third sector providers. APSE would argue that this is not exclusively the understanding, or indeed intention, of so called “co-operative councils” and is one that may more accurately describe a developing concept and culture of cooperation. However whilst APSE would support a move towards a greater “co-operative” culture in public services this ought not to be about establishing contractual relationships with co-operatives and mutuals but about embedding and enhancing culture change within councils and other public services.

In many ways the traditions of municipality, going back to the early days of local authorities developing for example, social housing to address poverty and deprivation, and health issues, through local waterworks and public health provision, have encompassed localised and community based interventions in order to promote better lives and better communities. It would be wrong to tie such mammoth examples of both historic and on-going municipal entrepreneurship into a narrow definition that potentially seeks to exclude direct public service delivery. Public services were, and still are, a natural progression from the social developments which stemmed from early municipality, co-operatives and Victorian philanthropy. Whilst public services ought not to “squeeze out” the third sector UK public services remain amongst the best in the world and indeed enhance and develop the social outcomes that were initially envisaged through early municipal and co-operative developments.

2. What arrangements need to be put in place to deliver services by not-for-profit businesses such as employee-owned mutuals? More specifically, what are the barriers to establishing not-for-profit businesses to supply services; what role does the local authority have in promoting and incubating a not-for-profit business; and where does accountability lie?

Myths about public service delivery are often promulgated, in many cases by a hostile press, which tend to under-research issues prior to publication, that suggest or presume that public services operate on an ad-hoc and unplanned for basis. In the case of all public services this is simply not the case and in the context of local government APSE’s experience is one of high-level managerial control and decision making on future service plans. This is not optional, it is an absolute day to day necessity to both ensure services to vulnerable people, and the wider community, and to deliver against restricted budgets. Decision making and service planning in this context must go beyond considering benefits to one element of public service delivery or the desires of certain providers to deliver “parts of” a service. Councils are duty bound to consider the strategic role of public services delivered at a local level; they must ensure that all services are holistically integrated, wherever possible, to deliver the best outcomes. These aims are not always achieved but equally they cannot be abandoned to accommodate sector specific interests alone. Strategic alliances can of course be formed but only where such alliances meet the needs and interests of the local communities in the longer term and keep public service budgets in kilter.

Local government is often at the forefront of delivering on national policy objectives whether that is tackling climate change through recycling measures and waste to energy schemes, or through services responding to cross-cutting policy initiatives, such as child obesity through school meals, or physical activity through sports and leisure services and parks and open spaces. The cross-cutting planning of services, and expensive decisions such as investing in new fleet and technology, or in a new leisure centre, must be accountable and fit with overall service planning and budget availability, not to mention prudential planning and borrowing requirements. This helps local authorities deliver on national as well as local policy priorities, and indeed often in line with global priorities, such as action on climate change.

Therefore in the context of service planning the “community right to challenge” (which includes the right for two or more employees to bid to run a service as a worker-led co-operative) could in-fact be extremely problematic and frustrate investment plans and service development. Services operating to economies of scale could not readily be expected to snap-off chunks of plans without an impact on other areas of delivery, simply to meet a desire to enable more involvement of the third sector in public services. In the same way that there is a “rip effect” when services are outsourced to the private sector there is arguably a similar impact when services are outsourced to third sector providers. Local authorities must retain the ability to say “no” when proposals that are unsustainable are raised under the auspices of third sector involvement in service delivery. It ought not to be a case of “tail wagging the dog” when it comes down to service planning and budgets. Consequently when asking “what are the barriers to establishing not-for-profit businesses to supply services” we must first explore the broader issues that arise at service planning stage rather than seeking an answer to a question that presumes services can be outsourced, even if to not-for-profit organisations, without a broader impact.

The committee has also asked “what are the barriers to establishing not-for-profit businesses to supply services” and “what is the role of the local authority in promoting and incubating a not-for-profit business”. On the first point rather than barriers to establishing not for profit businesses it is perhaps more appropriate to explore the barriers to engaging existing not-for-profit businesses in local supply chains. APSE researched this matter in “More bang for the buck: Achieving community benefits through procurement” which was produced in association with the CLES (Centre for Local Economic Strategies). Barriers to not-for-profit or small businesses were cited, though not exclusively, as:

Complex tendering requirements geared towards larger rather than smaller business units;

Cultural barriers in not accommodating SME/third sector providers in tendering and procurement processes; and

A tendency towards larger block contracts rather than smaller contract lots.

In terms of the development of new not-for-profit suppliers, whilst clearly a local authority is able to take a facilitative approach, one is minded to consider carefully the implications of state aid issues and in any event the overarching requirement, whether through European or domestic requirements for transparency and fairness in tendering and procurement; there is a need to remain unbiased and in any event a statutory duty to consider “Best Value”.

Moreover APSE is concerned that the mechanistic approaches such as the “community right to challenge” could produce a perverse impact on local charities at the expense of contracts being awarded to newly formed “staff mutuals” or larger non-local or regionally based charities or third sector operators in aggressive “bidding wars”. Whilst the over-riding intention of the drive towards localism purports to support local user/provider engagement in public services, and a stronger role in developing this for the public sector, this is unchartered territory and there is a complex set of factors that requires more detailed and evidence based consideration, rather than policy being determined by an untested set of assumptions.

Inevitably barriers to the involvement of co-operatives and mutuals in public services will centre on procurement issues. Whilst moves are underway to amend the European public procurement rules, and the new Social Value Act 2012 attempts to embed consideration of social value in public procurement it is, and is likely to remain the case, that in order to safeguard public money local councils and other public services will be still be required to go through a procurement exercise. Risk of challenge is highlighted by recent threats of a judicial review in respect of a well-publicised NHS case, which sought to award a contract “as of right” to a staff mutual. Similarly the high profile attempts to establish a staff mutual from the remnants of the Audit Commission subsequently found the staff mutual was unsuccessful in bidding for contracts—as a consequence this embryonic staff mutual was found to be unsustainable as an enterprise with audit work being picked up by for-profit companies.

3. What are the advantages of and drawbacks to providing services via not-for-profit businesses?

There is little evidence about service delivery improvement (when services are delivered by not-for-profit businesses) so current public policy assumptions are being made on the basis of scant detailed policy evidence. This is a dangerous position for the public sector and for public service users. APSE would draw your attention to two pieces of APSE research. The first research paper “One size does not fit all” explored the perceptions and experiences of public sector managers in dealings with third sector providers. Key findings were; a lack of consistency in dealing with longer term contractual commitments and, in many cases, experience of third sector providers being wholly reliant upon public sector funding or simply “walking away” from contracts that became too difficult or where interest in providing a service had waned.

APSE carried out a further study in 2011 with De Montfort University, which explored over 1600 case studies, which sought to establish an evidence base of the success or otherwise of cooperatives and mutuals in public sector delivery. In spite of both a UK wide and international trawl for evidence many examples cited as “good practice” were not in fact meeting the test of cooperatives or mutuals and in many cases (even those cited by Ministers) were not in fact examples of public sector delivery models but of consumer or retail cooperatives. Moreover the evidence exposed:

A pattern of financial instability and cuts to terms and conditions of the workforce in order to meet the financial deficits;

Difficulties in raising capital were evidenced as was the inability to break away from financial reliance upon the public sector;

In those case studies where the model was found to be successful (just 12 of all case studies explored) a critical success factor was the continuation of a nurturing and supportive public sector; this was an essential factor to success; and

The availability of longer term contracts (at least 10 years) to support financial stability.

However, in the current climate the idea that longer term financial and non-financial support from the public sector will automatically be made available in an austere environment is questionably, more especially if co-operatives or mutuals are considered to be a route to saving money.

Whilst highlighting the potential drawbacks it is important to highlight a more positive experience of third sector involvement in public service delivery. For example, in the field of social care many niche providers are able to inject much needed bespoke support for specific needs, through specialist skills and knowledge, in areas such as parks and allotments the role of the local authority as a guardian of the public realm reveals detailed collaborative working with friends of parks groups, allotment societies and local litter campaigns.

The distinction appears to APSE to be that a more positive experience, and achievement of a social return on investment, can be extracted through the third and public sector working collaboratively rather than the third sector “replacing” the public sector.

4. Where services are delivered by not-for-profit businesses what difference will the local resident and local taxpayer see?

This question is posed on the assumption that “not for profit businesses” are unique and not the same as those services run directly by the council; however council run services are themselves not for profit. More accurately therefore we assume the committee is seeking views on differences in experience of service users where the service is run by a not-for-profit but nevertheless external organisation, a service which may be provided by a for-profit company, again as an external organisation and a council service which is directly provided. There are potentially more similarities than differences in the first two modes of delivery.

If a council chooses to appoint a third sector entity to deliver its service it will nevertheless need to put in place certain safeguards such as:

A contract or specification in exchange for contract payments or a grant arrangement;

The ability to monitor outcomes and achievements and record any money spent;

A process for intervention should the service fail; and

An analysis of risk and other matters such as insurance liabilities, competency, CRB checks and so forth.

These are similar measures that would apply if a service is outsourced to a for-profit delivery organisation. When using public money a local authority could not lessen its due processes to safeguard both citizens and service users as well the public purse. Directly provided services, whilst not through a contract or separate arrangement (as they do not operate as a separate legal personality to that of the council) are equally subject to internal monitoring and scrutiny as well as budgetary controls and other quality measures; however enforcement of non-performance issues is not frustrated by recourse to third parties and direct intervention is therefore possible.

In terms of user satisfaction and user experience surveys and analysis would provide a rich source of evidence to support effective performance indicators of differences experienced by residents, and taxpayers, in a scenario where a service provider has changed; however in the case of “not-for profit” service providers evidence is extremely limited. This is in part due to a lack of good data collection methods and the ad-hoc nature of not-for-profit provision in public services which does not easily lend itself to meaningful comparisons.

APSE research “Proof of Delivery: A review of the role of coops and mutual in public service provision” found that in spite of cooperatives and mutuals being cited as a means to deliver more efficient and bespoke public services, closer to the communities that they serve, there is no evidence base for these claims. As detailed above, of the 1600 case studies explored by APSE and De Montfort University, just 12 case studies met with the criteria and even amongst this sparse group quantifiable data was scant. Not all data, where quantified, supported assumptions of improved performance, whether that be in terms of finance, quality or user experience. There is therefore an acknowledged paucity of evidence to support very broad claims that suggest cooperative and mutual models will enhance or improve user experience.

APSE has also carried out a further piece of research “Insourcing: A guide to bringing local authority services back in-house” which explored the volume of insourcing services to local councils that had been outsourced, to private sector providers. The research explored reasons for services being brought back in-house or “insourced”. The most commonly cited reason for insourcing was poor contract performance and subsequent dissatisfaction amongst residents. The research found that case studies such as the London Borough of Southwark found resident satisfaction levels within street-scene services rose from a poorly performing 30% to over 70% when the service was returned to in-house provision. This may be considered to be a typical example, within the research study, of residents and taxpayers being dissatisfied with service delivery by for-profit providers.

APSE also holds the UK’s largest bank of benchmarking data for local authority frontline services. In services such as refuse collection, street cleansing, sports and leisure services, parks and grounds maintenance the performance data provides evidence of on-going improvements in customer satisfaction, cost and quality. Quality scores are applied for example to an indicative suite of indicators—such as response times on street lighting or fly-tipping removals, alongside indicators such as staff training and development and absence levels and other productivity indicators. There is no available comparable data for those services which are outsourced to third parties, whether those providers are not-for-profit or for-profit businesses.

Therefore to return to the question of will residents have a different experience (from a third sector provider) it is difficult and indeed wrong to make assumptions that cannot be supported by an evidence base. Anecdotal evidence from APSE members, through roundtable events and strategic forums, suggests that where there are multiple service providers, from whatever sector, frustration can result from service fragmentation and confusion about the role of the local authority. Elected members have also reported occasionally that they have felt fettered from intervening on behalf of residents in issues of service delivery complaints where their role has been one of referring to a contract provider rather than being able to “pick up the phone and get one of my officers to put it right for my constituent”.

Supplementary Commentary

The current policy debate implies that the public sector is a monolithic supplier of public services and that this creates a “top-down, get what you’re given” approach to public service delivery; it therefore follows in this debate that a more choice based, and bespoke, public service offering could be nurtured by involving the third sector in public services.

In reality the vast majority of local authorities already have active policies to engage citizens and communities. Many have adopted sustainable procurement policies that encourage and nurture local suppliers and SMEs. In-house services, on a daily basis, take on young apprentices and encourage sustainable local employment solutions and re-skilling their workforce. APSE research on the “The Role of the Local Authority in the Transition to a Green Economy” provides numerous case studies of local councils working with local SMEs and the third sector to develop renewable energy schemes, sustainable transport schemes and eco-housing developments. Therefore APSE would urge the committee to perhaps recalibrate the debate to a more measured appraisal of what in fact is already happening at a local authority level in respect of this agenda.

The third sector is of itself a powerful lobby group. APSE does not criticise the third sector for seeking to expand its role in service delivery. Equally we would urge the committee to recognise that perceptions of public service provision are often far removed from both the practical realities of delivery and the fact that public services are by default rationed. The often seductive language of “cooperatives and mutuals” as a morally superior form of delivery of public services can equally disguise the differing legal nature of such models; such language wrongly assumes them to be a more democratic form of public service delivery. APSE would urge the committee to ensure it takes cognisance of the differences between “democratic organisations”, which are embedded in cooperative values, and “accountable democracy” delivered through direct public services.

May 2012


Prepared 6th December 2012