Overview
In our 'Enterprising Councils' publication we explored how councils are increasingly developing innovative commercial solutions to increase income whilst improving outcomes for local residents. Following the publication, we had much positive feedback which has led to the development of this follow up guidance which focuses on some of the practicalities of how councils can deliver social value through their commercial activity.
The best approaches ensure the generation of social value is the primary factor driving commercial activity; from the initial decision to develop a commercial vision to how the approach is developed, and implemented, councils which are pulling ahead ensure social value is placed centre stage.
The following guidance is structured to take you through a considered approach to ensure commercial activity drives social value. Through ‘key questions’ to ask, the guidance supports you to face the challenge of how to undertake commercial activity and achieve greater value for the public purse in ways that better meet society’s needs and outcomes for people and communities.
Starting with an overview of what we understand by ‘profit with a purpose’, the guidance explores different types of social value and the role of councils in driving social value alongside their commercial ambition.
We then progress to look at how consideration and delivery of social value should be practically considered when deciding on whether to embark on commercial activity, the need for social value to be prioritised alongside financial return and the key questions councils should consider when embarking on a commercial initiative.
Following on from this, there are specific chapters on; embedding social value in governance of alternative service delivery vehicles, the role of procurement in contracting services that deliver social value and finally how to contract and performance manage social value through your service providers.
Each chapter outlines the factors that need to be considered and the ‘key questions’ councils should be asking themselves.
In addition, a number of short case studies are provided to highlight some of the innovative commercial practice already achieving results for communities.
Councillor Peter Fleming OBE
Chairman, LGA Improvement and Innovation Board
Introduction
Social value through commercial activity
The funding constraints which councils have faced over the last few years have caused a significant number of challenges. Councils have been grappling with how to continue to deliver positive outcomes for local residents, delivering the services which residents want (as well as the statutory services required by law), whilst also balancing the books as government funding is reduced year on year.
This challenging environment has acted as a driver for creativity, entrepreneurialism and innovative solutions across the country. Local government is now one of the most efficient parts of the public sector. Efficiency, value for money reviews, new operating models, eliminating waste, better approaches to managing demand, and the adoption of new digital technologies are now mainstays across local government.
As funding continues to reduce, more commercial approaches are being adopted in order to protect local services. Many councils are looking beyond service efficiencies and actively seeking new revenue streams, recognising the ‘wider benefits’ this activity can bring.
As a concept for delivering public services and social value, ‘commercial activity’ is by no means a new idea.
Throughout the history of the public sector, local government has always used commercial approaches to meet local challenges head on. During the 19th and 20th centuries, councils invested in commercial activity across local areas to create jobs, improve living standards, and generate income to reinvest back into local services. From Manchester Police and Manchester Council opening the cities first gasworks way back in the 1800s enabling the rollout of streetlights, making the city safer, to Belfast Council funding the building of its Town Hall with two years’ worth of dividends from its gasworks. The concept is nothing new.
These operations were often run as separate companies (eg waterworks, gasworks, ports, tramways, markets, telephone exchanges, airports etc) and these companies stimulated new industries, or responded to market failure. The return on investment from these commercial enterprises funded public services, such as parks and libraries as well as helped to reduce local taxpayers’ rates. The legacy and outcomes they achieved increased life expectancy and improved the quality of people’s lives.
Fast forward to today, and we can see this commercial activity is still alive and well. After years of reductions in government grants, many councils are exploring how they can adopt commercial activity to stimulate local economies, increase jobs and deliver social value for their residents.
Councils are finding that commercial operating models can make services more responsive to residents’ needs whilst also improving the quality of the services provided. Commercial approaches can enable councils to facilitate the delivery of services that the market does not supply or provide services at risk of not being otherwise feasible. They can also allow councils to provide an affordable alternative for people if a lack of competition has inflated local prices or left gaps in the market. New discretionary income generating services can provide residents with more choice.
Councils’ commercial activity can provide a catalyst to bridge the increasing funding gap whilst also delivering ‘wider’ social value, providing that commercial initiatives create profit with a purpose. That profit is developed with due regard to supporting, enhancing and enabling the outcomes a council is trying to achieve for its residents. Purpose is realising this ‘wider’ social value, to enable savings across the whole system.
Case study: Nottinghamshire County Council
Futures – Advice, skills and employment service
The catalyst/driver for change After starting out in 1995 as a council careers service, Futures has responded to local need and evolved into an outcome-driven, all-age advice, employment and skills leader, delivering ‘outstanding’ Ofsted-rated services.
What is the council doing?
Futures is a not-for-profit company owned by Nottingham City Council and Nottinghamshire County Council and exists to make a positive difference to people’s lives by enabling them to realise their full potential in employment, education and training through increased confidence, awareness and skills. Their mission is “unlocking potential in people of all ages. Future thinking, focused on leading change in careers, advice, skills and training”.
Employment and skills are a cornerstone of the council plan ‘Your Nottinghamshire, Your Future‘ which is focussed on increasing the number of jobs in the economy and ensuring that businesses can access the skilled workers they need, both now and in the future.
The service was rated ’outstanding’ in its Ofsted inspection in 2017 for the delivery of the National Careers Service. Despite reductions in funding over recent years, Futures has been successful in winning external contracts to enable a high quality service for local residents to be protected.
In 2014, Futures successfully won the contract to deliver the National Careers Service for the East of England, during this time they also expanded and opened premises in Leicestershire.
Futures also provides support to local employers to unlock the full potential of the Apprentice Levy, securing funding, identifying the right training and approaches for the employer and employee to develop those skills for the individual and organisation.
Key benefits and results
Futures engages with 7,800 Nottinghamshire residents per year and has engaged with approx. 6,250 Nottinghamshire businesses/employers including SMEs/sole traders and large businesses.
Futures has implemented bespoke preventative measures that are helping behaviour change by tackling grass roots issues for individuals. There is clear evidence and figures showing the value Futures has had on the local economy and citizens and employment rates.
The three-month average for those not in education, employment or training (NEET) and ‘Not Known’ in Nottinghamshire (October-December 2018) was 5.7 per cent for the academic age years 12-13 cohort. This compared to 7.7 per cent for the East Midlands Region and 9.6 per cent for the England average.
Successfully opening doors and tapping into other funding opportunities to help support the funding and delivery of services.
Turnover of £17.7 million for year ending March 2017 and £18 million year ending March 2018.
Key learning points
- The need for strong governance and leadership that share a common sense of purpose. The right balance of political, business and outcomes focused model has enabled Futures success.
- The social enterprise model has helped with the barriers a council would encounter, so it is able to look to grow via other contracts and have more places to explore or tap into funding avenues that the it might not have been able to explore, expanding products to offer to individuals and to make a positive difference in Nottinghamshire.
Case study: City of Wolverhampton Council
WV Living
The catalyst/driver for change
The company was set up to help deliver the best outcomes for the council in terms of both strategic housing requirements for the area and also an income generation to help sustain the council going forward. The private market just wasn’t delivering at a quick enough pace to meet housing demand in the city, or providing affordable housing. The private market profit margins are around 20-25 per cent which squeezes viability on brownfield sites.
What is the council doing?
WV Living is a Wolverhampton-based and Wolverhampton-focused house building company owned by the city of Wolverhampton Council. It aims to deliver and design affordable and desirable homes across the city on well-positioned sites. Its mission is “to design and build homes you will love”.
WV Living’s aim was to tackle sites that the private sale and rent market were not delivering on, so council-backed intervention was needed within the city. The company runs on a number of internal service level agreement arrangements to ensure the company has the right experts and abilities within the team. Governance is provided by a Board of Directors made up of senior managers from the City of Wolverhampton Council.
To ensure the company’s value goes beyond the bricks and mortar, WV Living builds into its contracts that the selected contractor must employ local people, taking on apprenticeships to build up skills within the construction trades, and providing economic growth and employability back into the communities.
They have a five-year programme that aims to deliver:
- 1,000 units – increase new builds for the housing market
- market rent – to build up quality in a poor private market within the city
- building communities within areas where there is unmet demand for property, on land that is not viable for the private housing sector due to risk factors such as contaminated land
- seeking funding opportunities through the government such as Help to Buy, and working with the council on shared ownership schemes
- regeneration of neighbourhoods to build appeal and promote other investment opportunities for the city from local and national businesses.
Key benefits and results
- Pump prime the new build housing market in the city.
- Accelerate the development of much needed new homes.
- Provide additional council housing for the Housing Revenue Account (HRA).
- Provide new market rented homes for families who cannot afford deposit towards purchase, not currently available in the city in the quantities required.
- Opportunity to support regeneration programmes.
- Bring sites into use that might otherwise not be developed.
- Provide local jobs and training including work and opportunities for private sector builders and professional services.
- Provide and bid on Help to Buy grants for first time buyers.
- Develop homes on council owned land financed through prudential borrowing.
- Build new homes outside of the HRA.
- Generate revenue income to the general fund through lending at market rates.
- Ensure affordability and appropriate risk management through managing scheme viability and demand.
- Generate capital receipts for the general fund.
Key learning points
- It’s important to recognise this is an evolving process and it doesn’t happen overnight.
- Be willing to take some risk, as it’s not going to be perfect from the outset – so testing and learning is required through the journey that the business takes.
- Resources should be considered, to ensure you are fully aware of your business model and requirements, and those resources should be aligned internally or committed for example legal, estate, planning advice and building development.
- Knowing the line between council and company activities, and the relationship between the two, even though council officers are acting for both organisations.
Case study: Cheshire West and Chester Council
Cheshire West and Chester Council
Following a procurement exercise, a new joint venture (JV) was formed by the council and Engie. The JV went live in May 2015 trading as Qwest. Annual turnover is currently around £15.7 million per annum. The JV company delivers the following services to the council:
- cleaning and facilities management
- building maintenance
- property and project services
- customer services and business processes
- capital works
- energy management and innovation
- digital innovation and transformation.
What is the council doing?
Service delivery is set out in a ten year contract between the council and Qwest. The contract includes performance measures for all service areas and a value for money benchmarking mechanism.
Qwest is a framework service provider. Public bodies across the UK can purchase services from the company, confident they are getting value for money and quality service without the need to undertake a lengthy and expensive procurement exercise.
Legal and governance
Engie has effective day to day control of the company. The council can influence the strategic direction through the reserved matters. The company fully engages with the council’s reporting and scrutiny processes as well as those of Engie.
About Engie
ENGIE is one of the world’s leading energy and service providers. With annual revenues of over €69 billion and 155,000 people around the world, this means Qwest has the financial backing and scale to deliver on its commitment to investment in services, value for money and service quality.
Approach to contract and performance management
The council has a contract management team responsible for managing major contracts and partnerships. In contract management terms, Qwest is managed with the same rigour as any other major supplier.
The contract management team were part of the procurement process and led on the discussions and development of the performance management framework. This early engagement helped to ensure that the right contract mechanisms were in place from the beginning to ensure the company delivered the desired outcomes and that the contract could evolve with the council’s changing needs.
Key benefits and results
The JV is a good example of effective commissioning and procurement that enables the market to put forward its best offer, capturing commercial, quality and social value benefit.
The company has delivered the contractual savings targets and continues to consistently deliver against its performance targets. Qwest has developed a commercial framework that provides the council with additional flexibility to commission additional services from the company.
Key highlights
- Savings targets delivered.
- 92.5 per cent external customer satisfaction.
- Transformed and modernised the council’s business support operations.
- Driving the council’s digital programme. 50 per cent of services will be digital by 2020.
- A risk based approach to asset management.
- Delivered key capital projects such as street lighting replacement.
- Launch of Qwest Energy in September 2018 as a domestic energy supplier to local residents.
Social value elements delivered in 2018
- 10 per cent of capital work net profit allocated to social fund
- 906 volunteering hours
- 1,204 Work experience hours
- 10 apprentice roles created
- £14,044 raised for local and national charities.
Key learnings
There are a number of contributing factors to the success of the Qwest joint venture. Some of these include:
- Early engagement with the market – this is the most effective way to understand what your solution may look like and how best to achieve it. Engagement with the market is encouraged under the regulations, but it is still an area that some councils are apprehensive about.
- Collaborative procurement approach – the council used the competitive dialogue process. Under the 2015 regulations, there a several options. The key is choosing a process that enables you to secure the best deal from the market and ensuring you have the capabilities in place to manage the procurement.
- Effective contract management – the early involvement of the contract management team has been a key part of the success of Qwest. For councils that do not have a contract management function, this would need to be a key consideration in appraising delivery models.
- Social value outcomes – the market was able to propose its social value offering. This formed part of the contractual service to be delivered. This flexible approach has enabled Qwest to deliver a wide-ranging social value contribution, drawing on the different offerings that Engie could provide. It has given the partnership a really tangible way of sharing with residents and staff the additional benefits that it delivers.
- External growth – a realistic view of the ability of the company to generate new income streams.
Case study: East Hampshire District Council
Ethical enforcement
The catalyst/driver for change
England is a beautiful country, but it is tarnished by the persistent blight of litter. A clean, healthy environment is good for us and for our economy. It plays an important role in improving our wellbeing and it helps our businesses to be more successful.
Street cleaning in the UK costs the taxpayer almost £800 million a year. Imposing avoidable costs on the public purse and drawing money away from other priorities. Across the UK, 81 per cent of people are angry and frustrated by the amount of litter lying all over the country (Populus 2015).
Enforcement forms a key component of a wider strategy campaign that includes education, awareness, infrastructure and cleaning. Issuing fixed penalty notices (FPNs) is extremely challenging work; every ticket is issued face to face where the potential for conflict, verbal and occasional physical abuse is high.
Faced with difficult financial choices the council could not justify the cost of an in-house specialist service. Adding litter enforcement to the tasks of existing staff proved ineffective, partly due to the nature of the work and partly due to the need to focus on their core activities. Commercial providers, focussed on profit, sometimes result in dubious practices, generating high numbers of complaints and taking revenue away from the council. Areas that didn’t generate profits were ignored.
What is the council doing?
The need to think differently led East Hampshire District Council to establish its own trading company to deliver litter and dog fouling enforcement in 2016. Taking a commercial approach would enable a cultural change, allowing the team to develop its commercial skills while retaining a public service ethos.
The purpose of EH Commercial Services Ltd (EH) is ‘Improving the environment through ethical enforcement.’ Underpinned by values of fairness, honesty, integrity, accountability and community. Public accountability is assured through a shareholder committee consisting of council cabinet members, supported by key paid executives.
Having run a series of yearlong trials with the support of neighbouring councils, the service has continued to evolve. EH now delivers a high quality, cost neutral service to eight councils across the south; from Salisbury to Arun and Chichester to Hart.
Recruiting staff with the right attitude has been key to the company’s success. With clients frequently complimenting the team on the delivery of the service; from the firm and respectful way fixed penalty notices (FPNs) are issued, to the fair and considered way in which each representation is heard, to the quality of evidence produced for prosecutions.
Through this commercial activity East Hampshire District Council is delivering real social value, not just for itself but for other councils too. It provides a high quality, ethical and cost neutral service for all, making a real difference to the environment and communities across the south.
Key benefits and results
- A cost neural enforcement service to EHDC and seven other councils, and growing.
- £1.6 million estimated cost savings across the eight councils.
- 60 per cent reduction in on-street littering reported by a street cleaning contractor.
- Fifteen new local jobs and growing.
- Financially sustainable; a small profit and full contribution to council overheads.
- Circa 9,000 FPNs issued in 2019.
- Circa 87 per cent average payment rate.
- Circa 99 per cent conviction rate for non-payment of FPNs.
- Low volume of complaints.
- Recognised as best practice for single justice procedure by courts.
Key learning points
- Profit with a purpose is achievable and sustainable.
- Active councillor and executive support is vital.
- Time spent clearly defining a unifying purpose and shared values is seldom wasted.
- Good governance creates shareholder confidence, enabling entrepreneurship.
- Senior commercial skills and experience is key.
- Blending commercial acumen and a public service ethos is difficult but achievable.
- Recruit on attitude first.
- Build client relationship not just contract clauses.
- Revenue is vanity, profit is sanity, but cash is king.
Case study: Birmingham City Council
CityServe
The catalyst/driver for change
The journey started in 2014, when the service consisted of three separate components: catering, cleaning and caretaking; there had been a historic lack of investment including service modernisation and as a result, CityServe was running at substantial trading loss year on year and required full review. CityServe employs over 1,100 staff, service 50,000 meals daily across 220 schools and has a turnover of £33 million.
The main objectives of the new leadership team were to improve the business and deliver the service though an outsourcing option, removing it from the council’s control. Through turning the business outcomes around dramatically, from loss to a profit with a purpose making organisation, it began to emerge that there was a sound and sustainable model, for the service to remain as an in-sourced and council delivered service.
In 2018, the cleaning and caretaking service was migrated out to the schools, which gave head teachers more control locally and reduced their school costs; all members of staff, around 850 were transitioned to schools employ, with negligible early retirement/voluntary redundancy initiatives, no adverse effects and full support of trade unions.
What is the council doing?
CityServe, whilst still being a part of the council, operates under its own brand and identity. The services have gone from loss-making to returning a sustained income to Birmingham City Council.
An entrepreneurial approach has led to CityServe providing award-winning services which are competitive within the market, whilst still retaining value for money for the schools and citizens of Birmingham.
CityServe’s focus and ethos puts children at the heart of the business. This is demonstrated by their social-value focussed agenda. For instance, the catering offer within CityServe has intended outcomes relating to reducing obesity and promoting healthy eating. This means CityServe not only delivers a school catering service which provides circa 50,000 school meals to around 220 schools a day, but also, most notably in relation to social value, engages with children regarding menu design and what foods they wish to eat and also delivers prevention activities via interactive ‘life’ skills training which helps children gain transferable skills to be taken home and shared with their families.
Key benefits and results
- Services are co-designed with children and local schools, putting the children and the schools at the heart of the service and it core purpose and outcomes.
- Providing innovative, inclusive and engaging approaches to learning about food and its benefits to children’s health.
- Tackling diet-related illnesses, helping to reduce obesity figures within the area. This is being done by providing meals that are part of nutrient-based standards for example – 30 per cent sugar reduction in their meals.
- Nationally recognised award-winning business.
- Revenues comes back into the council, creating public value.
Key learning points
- Due to the initial focus being on improving the financial scenario to support a sustainable future for CityServe, there were gaps in the quantitative data collected initially which could have supported establishing SMARTER measures around social value. To address this going forward, a business intelligence team, supported by new IT/MI systems has been established to start gathering evidence for the future.
- Regeneration of the service helped to break-down barriers and remove a historical and slightly negative profile from the service, this was further addressed when CityServe achieved recognition in the form of both local and national awards.
Case study: St Albans City and District Council
Commercial development
The catalyst/driver for change
The council recognised the opportunity to improve outcomes for local residents, whilst also delivering a return to improve services. It set itself a goal of improving local outcomes whilst at the same time delivering an additional extra £2 million of revenue by 2022/23.
What is the council doing?
The council created a structured programme to deliver its commercial ambition.
It developed an evaluation framework to evaluate each opportunity against to ensure that only those opportunities which met the council’s objectives were taken forward through its project pipeline. The council was clear that the outcomes it was seeking needed to ensure that projects contributed to a more cost-effective council, ensure St Albans was a great place to live, and contribute to a vibrant local economy.
The first criteria which each commercial project was assessed against was whether it would deliver public good social value; this was important as the council was determined that each project must improve the lives of local residents first and foremost. Other guiding principles included whether it would enable the ability to invest in maintenance (whole life costs), the ability to sweat the asset, whether this is something the council is advocating others to do (leading by example), and whether it was an acceptable risk (with the risks being understood, defined and accepted).
The council developed a number of projects which were assessed against the criteria and those that met the thresholds became priority projects for the council. It is now mid-way through its pipeline of projects but it’s already having a material value on outcomes, residents’ lives and revenue.
Key projects achievements 2018 included:
- Transforming St Albans Old Town Hall into a new city centre museum and gallery, generating rental income, increasing town centre footfall and promoting tourism.
- Redeveloping the former Museum of St Albans site for housing that will be sold to help fund the new museum and art gallery project.
- Building 45 affordable homes on seven former garages sites; areas prone to anti-social behaviour (ASB) incidents were redeveloped, designing ASB out whilst at the same time creating affordable homes.
- The garage sites projects alone delivered 138 days of apprentice time spent on the project, work experience for the Princes Trust scheme for people with past convictions struggling to get back into work, 56 students attended the sites, 549 students attending workshops and several workshops to students promoting women into the construction industry.
- Redeveloping council owned leisure and cultural facilities to increase the number of people getting involved in sport. This built upon an extensive programme, which ensured sporting facilities were available in places where the market was not providing and that the offer in each centre reflected what the local community wanted in each area; this was achieved through adopting an approach based on insight and conversations with local communities.
- Developing various small sites for market rent housing, providing homes for local people whilst increasing the local tax-base.
- Purchasing the NHS City Centre building to develop their city centre redevelopment.
- Developing a business-friendly construction framework that will give local businesses the opportunity to work on council development projects.
Key learning points
- Clear and effective leadership is important. Both political and officer.
- Demonstrate strategic need including supply and demand analysis.
- The business case and detailed options appraisal is crucial.
- Use customer insight to shape service offerings so they reflect what local residents want.
- Consider the value of developments in neighbouring authorities.
- Stakeholder support is critical. Community consultation is important, as is the power of the internet.
- Invest in your capabilities such as; programme management, in house project managers, developing talent in commercial and programme management.
- Using leisure and culture as business drivers for the General Fund Medium Finance Term Strategy.
- Can do and will do personnel. Also to have a great team spirit, things will go wrong but focussed on the community outcomes.
- Working closely with colleagues in the Community Engagement team by utilising their expertise in engaging with in hard to reach communities.
Case study: Plymouth City Council
Plymouth Energy Community
The catalyst/driver for change
Plymouth County Council recognised the potential for community energy to help the 15,000 local households living in fuel poverty whilst also reducing carbon emissions within the Plymouth area. With these social values and drivers in mind, they provided an initial investment in 2013 to support the creation of Plymouth Energy Community (PEC).
What happened?
After significant community engagement to establish 100 founder members, the council passed entire control to a newly formed board of volunteer directors, ensuring that PEC became a standalone organisation in 2013.
Over the last five years, PEC has developed innovative and creative solutions to address fuel poverty and carbon emissions. Alongside a frontline advice service, PEC set up PEC Renewables to support community-owned renewable energy generation. Combining to deliver a new energy future for Plymouth residents.
Through funding opportunities, a public community shares scheme, and competitive loans from the council, these initiatives have provided 32 schools and local organisations with free solar panels, including the city’s busy leisure hub, Plymouth Life Centre. These panels are saving host organisations thousands of pounds each year. Collaboration with a local economic development trust resulted in turning derelict land in Ernesettle into a sixteen acre community-owned solar farm, generating enough clean energy to meet the annual need of 1,000 homes.
Services include an Energy Team of friendly advisors who provide free training, attend local groups and events and visit residents in their home, providing bespoke energy advice and installing energy efficiency measures.
PEC also runs a successful PEC Pals volunteer programme, affordable or free boiler and insulation schemes, LED retrofits for organisations, an art and energy group and participates in local and national campaigns around energy. PEC’s strong partner network allows collaborative funding bids for innovation and business development.
PEC’s current membership comprises around 2000 individual and organisation members and PEC Renewables has over 500 individual and organisation investor members.
Key benefits and results
- In 2019 PEC created a new charity to ensure maximum grant income and allow tax efficient donations from PEC Renewables and Ernesettle Community Solar.
- 1350 one to one home visits (over 18,000 households engaged in total).
- More than £1,100,000 savings made for residents in the first year after advice/energy saving measures installed.
- More than 100 volunteers trained.
- More than 15,000 MWh clean energy produced.
- More than £300,000 of savings for organisations and schools hosting solar.
- More than 9,000 tonnes of carbon saved through generation and retrofit.
Key learning points
- Council provided the opportunity and investment that was critical to establishing PEC.
- The council were brave enough to pass over control and empower the community to take the initiative forward – major contributor to its success.
- Mutual trust was formed by the council and the local community through this relationship.
- The delivery model helped remove ridged decision making and allowed the community to act independently. Providing the freedom to become more commercial and social commercial, removing red tape.
- Innovative shared service model allowing an independent community business to buy professional expertise, pay roll, HR, office and IT services, from the local authority. This allows PEC to avoid the time and expense of managing premises, IT, HR, etc and helps the council address revenue pressures and allows maintenance of expertise in a non-statutory function. This arrangement had grown from 1.5 fte to 10 fte over the last six years.
- Community involvement and passion wouldn’t have been successful on its own, the collaboration with the council is key to PECs rapid rate of achievement.
- As an independent organisation, PEC can tap into other funding opportunities not open to local authorities and be more dynamic to secure socially commercial opportunities that the council cannot.