This case study shows how East Cambridgeshire District Council reduced costs, improved quality and achieved innovation in its revenues and benefits service. It shows how the Council secured the best solution by engaging with the market, acting pragmatically and commissioning imaginatively.
The Council and its area
East Cambridgeshire District Council includes the city of Ely and a number of smaller market towns in rural Cambridgeshire. It has fewer staff than many other district councils responsible for similar levels of expenditure, mainly because it decided in the mid-1990s to outsource a wide range of services. This included transferring its housing stock, creating leisure trusts and using private suppliers for its IT and revenues and benefits services. The Council received a good CPA rating in 2004.
Phase 1: outsourcing the service
The revenues and benefits service is important for all district councils, given its scale relative to other council functions and its impact on virtually all members of the community.
The Council was one of the first to outsource its revenues and benefits service in the mid-1990s. The first contract period was very successful. Savings were made against the previous in-house arrangements and service quality improved. In April 2000 the proportion of council tax collected was the ninth highest in the country.
There were three bidders when the contract was renewed in 2000. The previous contractor was reappointed. However, shortly afterwards, the contractor moved transaction processing and customer engagement services to a call centre in another part of the country. Performance measures began to deteriorate, including council tax collection rates. Service delivery problems led to an increasing number of complaints. For example, customers reported that the service was now very distant from the local people; they would contact the call centre with queries and find that the person they were speaking to did not know the local area. Councillors faced pressure from disgruntled citizens. Senior officers spent a lot of time fixing problems because there was such a small client management team within the Council.
Phase 2: challenging the incumbent provider
Against this background, the Council conducted a best value review in 2004. It used the conventional four Cs approach:
- Compare
- It was difficult to draw comparisons because the mix of tasks undertaken by the contractor differed from those in other areas. Nine out of seventeen national performance indicators were in the top quartile, with most of the remainder in the second quartile. However, costs were relatively high.
- Consult
- The Council consulted stakeholders through a combination of questionnaires, a website survey, focus groups and a landlords' forum. It also considered the complaints history.
- Challenge
- The service was evaluated against the Benefit Fraud Inspection standards. The 'Fair to Good' result compared favourably with other councils. There was also good capacity to improve.
- Compete
- Two of the three bidders for the contract that had been re-let in 2000 were no longer in the market. The director of finance also looked at the bids in other councils. They suggested that the existing supplier might be the only bidder when the Council came to re-tender in 2005 or 2007. There may have been new entrants, but none with a significant track record.
- The Council also felt that a straightforward revenues and benefits service was no longer of great interest to the current contractor, in light of market and technological changes over the previous decade. Instead, it felt that the contractor would prefer to take over the running of all the Council's back office functions.
The contract was due to be renewed in 2007. Following the best value review, the Council decided not to exercise a break clause in the contract in 2005. It continued with the existing contract while it considered alternative solutions. At that stage, an outline of the in-house option had been prepared, but was not very robust. During 2005 the Council continued to develop the in-house option while negotiating with the contractor. The contractor was aware that the in-house option was being prepared during the negotiations.
The in-house option was not developed simply as a ruse to persuade the contractor to behave differently. The director of finance believed that might have led to poor behaviour by the contractor. But he hoped that he could use the threat of a credible in-house competitor to improve the contractor's offer during negotiations to re-let the contract.
The contractor had already offered a price reduction on the previous contract on the basis that there were no setup or transaction costs. It submitted a lower price in response to the development of the in-house option. However, the Council's prime motivation was not to reduce costs, but to improve customer responsiveness and innovation. Some members, motivated by citizens' concerns, wanted to bring the service back in-house regardless of alternative options. The contractor wanted to continue providing the revenues and benefits service at one price, while developing and charging for innovations on an ad hoc basis. However, the Council did not want to enter into this relational contracting approach.
Phase 3: adopting the partnership option
As it developed the in-house option, the Council explored the possibility of sharing an IT platform with two nearby district councils. This was an attempt to strengthen the in-house bid by giving it a stronger technology platform and exploring whether costs might be shared. These initial discussions about joint procurement led to the development of a third option for East Cambridgeshire's revenues and benefits services; to join the other councils in what would become the Anglia Revenues Partnership (ARP). This generated a further proposed price reduction from the existing contractor.
In 2006 the Council chose this partnership option. All three options were still realistically available until that point. However, the in-house option carried substantial setup costs and risk that the Council would have to bear on its own. By this stage, the two councils that East Cambridgeshire hoped to join were already operating a shared service in revenues and benefits with good performance standards.
By joining the ARP, the Council has secured a better service at a significantly lower cost than that proposed by the existing contractor - £220,000 on a £1.2 million contract. The service includes a local presence for dealing with customer queries, which was an issue of concern for members and residents. There are other potential benefits; for example, East Cambridgeshire has the option to participate in a trading company providing training and other services to other councils in due course.
East Cambridgeshire joined the ARP in 2007. Although the arrangement is in its early days, both members and officers are very happy with the initial performance. The director of finance's aspirations for service improvement and innovation are also moving forward; by the end of 2008 there will be improved online and front line services for customers.
One significant issue raised by entering the ARP was staffing. Staff transferred from a private contractor to a local authority joint committee on TUPE terms, so there was no change to terms and conditions. However, some staff had to change work location. Employees of the private contractor who were housed locally had to move to the new partnership's operations centre (none of the contractors' staff based in its call centres in London and the North West wanted to transfer). The trade union representatives therefore opposed the Council's decision because a number of staff would have to travel significantly longer distances to work. While understandable in terms of the interests of the staff affected, this was contrary to the general policy position of the union nationally which favours local, in-house delivery of services.
The lessons
The Council recognised the need to reflect on and challenge the existing service through a best value review. It tested the existing service against a variety of benchmarks and ensured they understood the service requirement and market well.
The original decision to outsource the revenues and benefits service in the mid- 1990s had been driven partly by political principle. But the Council learned from previous experience that outsourcing services simply as a matter of principle can create problems. As a result, the 2004 review was entirely pragmatic about the type of service provider. The Council's primary concern was to ensure that services were good value for money and innovative. It was comfortable in contemplating an in-house or outsourced solution.
The Council understood and actively managed the market in which it was operating. It recognised that its own market position had changed, and that it was no longer an attractive client for many potential suppliers. It also recognised that technology and markets had matured. Consequently, most likely contractors were now seeking something which they were not interested in: outsourcing the entire back-office function. Understanding that market conditions were unfavourable, the Council developed its own alternative to challenge the existing contractor.
Finally the Council did not employ any kind of ruse or subterfuge. It used contestability quite openly in developing a credible in-house option to challenge the existing contractor. This would have generated benefits for the Council through the keener price offered by the existing contractor, even if it had not adopted its preferred option of joining the Anglia Revenues Partnership.