Mutual benefit: austerity, waste partnerships and Teckal

The age of public sector austerity ushered in by the 2008 financial crisis has fallen with particular severity on local government. The Local Government Association (LGA) has calculated that the latest Local Government Finance Settlement announced on 18^th December 2014 represents an 8.8% cut to local government budgets from April 2015. This brings to 40% the total reduction in core government funding since 2010 – then typically around two thirds of a council’s budget. Yet the deficit remains obstinately large and whatever the complexion of central government after May’s general election it’s likely that we’ll see councils’ spending power continue to shrink.

Although by and large councils have managed to adjust to their straightened circumstances without proportionate service reductions, the idea that they can keep on “doing the same with less” is wearing thin. Councils are having to consider doing things very differently, not least where waste services are concerned. Some are dusting off ideas that have a lengthy lineage, while others are exploring opportunities presented by recent case law developments – but what approaches are likely to work best?

Better together

Partnership working has long been mooted as a way for councils to find efficiencies in waste services. It was promoted in Defra guidance on municipal waste management strategies dating back to 2005, which steered councils to produce a single waste strategy for each Waste Disposal Authority area. Partnership working received financial support through Pathfinder programme funding and funding to organisations such as Improvement & Efficiency Social Enterprise (IESE), which led to the development by Eunomia of a set of guidance and tools which together form the Waste Partnership Route Map.

Partnership working delivers savings mainly through scale economies resulting from co-ordinating services across a larger geographical area, such as:

• increased productivity (e.g. due to more efficient round routing across partners’ boundaries);
• avoided duplication of effort (e.g. by rationalising management and admin roles); and
• bulk-buying equipment leading to lower unit costs.

There are a number of examples where such savings have been made simply by two or more neighbouring councils coming together to deliver joint waste and recycling services, but more ambitious examples have brought together districts across whole counties.

For richer…

The Somerset Waste Partnership pioneered this area. In 2007, Somerset County Council and its five district councils formed a countywide waste partnership, with waste officers combining into a central team. A single, countywide waste and recycling collection contract was let, bringing consistent services across the districts. Overall, the partnership is estimated to have yielded annual efficiency savings of £1.7m.

A proliferation of waste partnerships has followed, each subtly different. The Dorset Waste Partnership formed in 2011 and, as with Somerset, resulted in the formation of a joint officer team. Again, a common, countywide waste and recycling collection service was rolled out, but in this case it was delivered through the formation of a joint in-house Direct Service Organisation. Annual efficiency savings of £1.4m resulted.

Now the majority of two-tier areas in England have a waste partnership in place, a total of around 50 partnerships at the last count. However, few have gone as far as Somerset and Dorset and formed what IESE calls “advanced waste partnerships” by developing fully joined-up services and teams. Indeed, one legislative tool by which this could be done, the Joint Waste Authorities (Proposals) Regulations (2009), was scrapped under the Government’s Red Tape Challenge in 2012 having never been used. Nevertheless, with such substantial savings on offer, why aren’t more following the “advanced” path?

Just impediments

We can perhaps best understand this by reflecting on local authorities’ starting positions. Many Waste Collection Authorities (WCAs) have already taken steps such as introducing alternate weekly collections of residual waste, food waste collections and improved dry recycling collection services: I estimate that the resultant decreases in residual waste treatment costs account for around half of the savings realised by early adopter partnerships like Somerset, and simply won’t be available to all potential partners now, making the partnership prize on offer smaller and less motivating.

Whilst that still leaves considerable scope for savings from partnership working in two-tier areas, a number of barriers make them tricky to realise. For many district councils, waste collection is the largest area of expenditure and their most visible service. Understandably, members and officers will have concerns about relinquishing local control over such a critical service area to a larger and wider grouping such as a waste partnership board. The formation of county-wide waste partnerships (most commonly achieved through the creation of joint committees) can also be perceived (incorrectly in my view) as complicated, bureaucratic and less accountable. Set up costs are not inconsiderable when set against uncertain future savings.

Hands up if you think partnerships are a good idea. Image by Alexandre-François Caminade, via Wikimedia Commons.

As a result, most waste partnerships have developed on a less formal basis, with fewer powers delegated to the partnership body. Typically, the partnership is responsible for the development of a joint waste strategy, coordinating activities and providing communications and marketing support functions. Responsibility for service delivery and associated budgets is more often retained by the individual councils. The appeal of this halfway house may be understandable, but does it represent a missed opportunity – and if so, is there another approach to partnership working that offers up efficiency savings, whilst also being more readily deliverable?

The LGA reports that at least 95% of all English councils have now engaged in some form of shared service delivery, with most of the focus on back office functions. This suggests that the greatest barrier to expanded waste partnership may be reluctance by elected members to relinquish local decision making and control of frontline services, rather than an aversion to the sharing of resources and combining efforts.

The challenge then is perhaps to deliver efficiencies (i.e. the same or improved outcomes at reduced cost) in a way that does not compromise local political control. Boosting income generation and increasing flexibility would also surely be a bonus.

Three’s company

An innovative approach is being taken by a group of Gloucestershire councils that have formed a jointly-owned company (Ubico Ltd) to deliver their waste management services. By operating under the Teckal exemption, founders Cheltenham BC and Cotswold DC, plus new joiners Tewkesbury BC, are able to procure services from Ubico directly.

In the Teckal case, which gave rise to the exemption, it was determined that a council can, under some circumstances, let a contract to a third party without it falling under normal public procurement rules. The possibility arises where the local authority exercises over the contractor “a control which is similar to that which it exercises over its own departments” while the company “carries out the essential part of its activities with the controlling local authority or authorities”.

As required by the Teckal rules, Ubico is set up so that the local authority partners have control over service delivery and operational management. Under the company’s articles of association and a shareholders agreement, each local authority owner appoints a non-executive director to the board, which oversees the work of the company’s Managing Director. Ubico delivers services under a contract with each of the owner authorities, but because the company is managed in the authorities’ interests it is arguably more agile and responsive to change and to the needs of residents than an out-sourced option, where service alterations would depend on being able to agree a potentially costly contract variation.

Teckal-ed pink

Overall, this structure seems to provide a great deal of control, which is valued by elected members, but also the flexibility to both reduce costs and increase income. For example, the Teckal exemption allows up to 10% of the company’s output to be focussed on commercial trading, providing an opportunity to develop competitive and profitable commercial waste services . Article 12 of the new EU procurement regulations (EU Directive 2014/24) will increase this to 20%.

A key benefit of the company structure is the greater flexibility it provides on pensions. Ubico has obtained admitted body status to the Local Government Pension Scheme, meaning that council employees that transfer to the company remain eligible for a local government pension. However, new joiners and staff transferring from private contractors can be offered a more affordable stakeholder pension. This flexibility helps to protect the interests of current staff, while overcoming one of the main barriers to in-sourcing waste collection services: increased pension costs.

Since its formation in 2012, the company has delivered £2.5m savings to its founding shareholders and is on track to deliver £5m by 2017. Levels of recycling are also healthy with Cotswold DC recycling over 58% in 2013 and its more urban neighbour, Cheltenham BC managing 45.6%. The success of the model is catching on, with Forest of Dean DC and West Oxfordshire DC set to join for grounds maintenance and street cleaning services from 2015. Stroud DC also plans to become a shareholder in 2016, when Ubico will take over waste and recycling collection services across the district.

With still more cuts in prospect and major progress on recycling still needed to reach the 50% EU target, it’s likely that more authorities will contemplate radical service delivery transformations. Partnership working has a strong track record where WCAs are willing to compromise on local control of services, but Teckal companies may be able to deliver similar benefits with less pain. However, for many councils, staying the same just won’t be an option.