Bringing your services in-house. Is it too good to be true?

Written by: Dr Adam Read | Published:
Dr Adam Read, practice director for resource efficiency & waste management at Ricardo Energy & Environment

Each month, Dr Adam Read, practice director for resource efficiency & waste management at Ricardo Energy & Environment discusses the big issues from his point of view, and this month reflects on the momentum which is still building behind the in-sourcing debate, something he first discussed on this blog in February 2016, and whether teckal companies are the saviour of municipal services or not

The trade press has been full of news stories identifying local authorities who are planning on bringing their services back ‘in house’ in the coming months. High profile authorities from the last 12 months that have openly stated their intention include – Liverpool, Slough, Hounslow and most recently Daventry, which until last year was where I called home. I am confident that many more are considering it, or have considered it, given the amount of air time and column inches this topic has received in the last two years, from my own report on behalf of the ESA Public realm services making the right choice to Letsrecycle.com’s one-day event on ‘remunicipalisation’ last Spring.

We have helped a number of authorities to consider the options and the ramifications of changing their service delivery approach, and are regularly asked to help assess the performance and cost profile of a DLO (direct labour operation), a teckal company (both an existing one and the creation of a new one), a contracted-out service, or a partnership approach between multiple councils and a private sector partner.

I have it on good authority that when councils are reviewing their service each year, and definitely when a contract is due to end, that they are uniformly having to address the teckal concept head-on, given the increasing number of these companies that now exist under local authority ownership – not only in waste management services, but across housing, highways and other community service areas. So are Teckal companies the answer to the insourcing debate?

Asking the right question?

As a humble servant of both local authorities and waste management contractors, I don’t have a strong preference for whether waste management services should be delivered in-house or by an external organisation, although in my experience it can be difficult for an in-sourced service to deliver the efficiency, innovation and quality protocols that one would expect from an externalised service provider. But a badly run procurement process with poorly defined specifications and payment mechanisms could easily result in an inefficient, and cumbersome solution. So knowing where you are starting from is key.

Firstly, have you analysed your baseline service provision? Do you know how much it is costing per property, per street or per tonne? Can you identify any problems that you want to address – contamination, complaints, speed of response etc and which bits of the service do you want to keep, develop or expand? Once you know what you have and what your priorities are in terms of improvement, you can then look at the service options available. But before deciding on how a service should be run/delivered, you need to decide on what that service should include/look like.

This is where the austerity agenda comes to the fore – what savings must you achieve and what are the priorities for the service for the next five or 10 years? Knowing this will then help you determine whether you should look at extended frequency collections, or partnership delivery options, or restricting HWRC opening times/sites etc. However, it seems that doing the baseline review and undertaking a full options appraisal is not as common practice as it should be with authorities taking non-technical (and sometimes non-financial decisions) to bring a service in-house in some form or another. And this is where local politics seems to be getting in the way of improving local sustainable waste management service design and delivery.

Public sector savings?

The common misconception is that insourced delivery is cheaper and more flexible. And as I said earlier, it really depends on how your contracts are designed and managed. How often have I heard from elected members that by bringing the service in-house we will save the 10% profits that the waste contracts are making - well, let’s set the record straight: hardly any UK waste collection contracts have a 10% profit margin, any that have been procured through a competitive process will ensure that sensible margins are the order of the day.

But even if a public sector delivered solution could be cheaper as it doesn’t need to generate any profits, are public sector bodies capable of identifying and implementing best practice as effectively as the private sector? Also can they innovate the same was as their private waste contractors can after years of not having to think that way, while contractors are constantly looking to improve their margins by doing sectoral benchmarking and internal reviews? I doubt it.

And what about local authority pensions, outsourcing your services releases you from this liability and cost, so would bringing the solution in-house really offer up any form of saving? These are the kinds of issues that any authority must consider before taking its decision to in-source, and I am concerned that not enough authorities are taking the time or effort to do this due diligence properly before embarking on their insourced solution.

I appreciate that the decision may be more about flexibility, where a DLO style workforce can be redeployed at short notice to deal with snow clearance, gritting or other weather induced local issues, but I expect you could work some of this flexibility into a well-conceived contract if you thought about it hard enough, I know we do with some of our public sector clients.

Are UK local authorities that have for many years been out to contract really prepared for all that is required with bringing a service back in-house? Do they have the operational staff capable of leading teams and driving performance, as opposed to being effective contract managers? I think the next 12 months will be quite telling, to see how some of the authorities fair with making this change work.

So what about Teckal?

Teckal companies are not new and their number, reach and visibility are growing. Ubico and Norse are both well-known brands operating in the waste sector, and there are numerous authorities now looking to work with these models in some form or another. Some are looking to create a new teckal company which they will own and will focus on direct delivery, while others are actively looking to use a teckal exemption to bring an existing teckal company into their area to take on their services. This is expected to be the case in Daventry and Peterborough for example. It almost seems too good to be true, and I remain sceptical about this as an approach that will be right for all authorities. My biggest concern is the degree to which each authority has tested the market to determine that a teckal approach is the right one or not.

By using the teckal exemption authorities can avoid any procurement process, so long as they can justify that they have market tested their decision and that this will deliver ‘best value’ or something similar. But I think they shouldn’t use this exemption. For all the scenario modelling and options appraisal work that an authority does, can you really determine the market price of your service without going to the market and getting them to quote for it?

In my opinion, local authorities should be free to choose to insource and to adopt a teckal approach if they believe it is right for them. As I say, I am not wedded to a contracting approach by any means. So long as they prepare a robust business case that outlines the benefits, the savings and the risk mitigation that they have factored in to their analysis. Too often this evidence is not available in any committee report, and I am worried that political decisions are being taken without appropriate evidence or consideration of the alternatives.

If the decision to in-source is a political one, with little or no evidence of the savings to be made or the greater flexibility and benefits it will offer, then the politicians should be upfront and share this with the customers (local residents) who may suffer from any planned change in the future. Authorities must be more accountable for their decisions, just as I have challenged authorities to explain to their residents why they aren’t using alternate weekly or extended weekly collections to help make better use of the limited budgets they have access to.

So what next?

We continue to watch and monitor what is happening in some of the authorities that have decided to make the change. We must learn the lessons and do so quickly, otherwise this could be just another false dawn in municipal waste management.

In parallel we will continue to support a number of authorities in assessing the options, modelling potential scenarios and benchmarking existing and potential services, so that they can the most informed choices in terms of both service design and management approach. But at the end of the day they will make their own decisions, and all we can do is help them ask (and answer) the key questions.

Also in a few weeks’ time the annual municipal collections conference will be hosted in London and I expect in-sourcing to receive as much attention as the other two main concerns of the moment – contamination and three-weekly collections. So register to join, or watch the press to see what the headlines are, I am sure they will prove more than interesting.

Finally, we will be hosting a webinar on insourcing opportunities and risks and the option of using a Teckal company in a few months, so if you are interested in taking part as a panellist or in pre-registering then please get in touch with me – adam.read@ricardo.com. At this session we will also be launching our latest member briefing note, this time considering insourcing and teckal type solutions, so watch this space, and don’t make any rash decisions too soon, or at least until you have got some third party advice (both technical and financial)......but I would say that wouldn’t I, after all I am a consultant.

As with all my ‘comments’ they are mine and mine alone. If you would like to get in touch or share your opinions then email me on adam.read@ricardo.com. For more of my blogs please refer to http://www.ricardo-aea.com/cms/resource-efficiency...

Ricardo will be hosting a series of webinars in the coming months in partnership with Recycling & Waste World addressing a range of key issues and hot topics.

Entitled Taking resources forward, the free webinar series being offered in comprise the following:

- 10 May - EfW solutions and risk

- 14 June - Three-weekly collections, they work!

- 20 September - City strategies and managing waste effectively

- 7 November - Real world circular economy solutions.

To register for any of the above, visit http://ee.ricardo.com/cms/Taking-resources-forward/

Ricardo is also running webinars with Simmons and Simmons. For more details, visit the Ricardo website.

Dr Read is global practice director for Ricardo Energy & Environment’s resource efficiency and waste management practice, and is a Fellow of the Chartered Institution of Wastes Management and the Royal Geographical Society. He has more than 20 years of waste sector strategy, service design, procurement and communications experience, both in the UK and overseas, and is a regular industry commentator, author and conference speaker, both in the UK and around the world.


This material is protected by MA Business Ltd copyright.
See Terms and Conditions.

Comments
Name
 
Email
 
Comments
 

Please view our Terms and Conditions before leaving a comment.