The Scottish Government expects the shared services agenda to play a key role in its public sector efficiency drive, but the pace of progress in Scotland to date suggests that the concept has still to be embraced fully. The pace may now start to pick up though, given the challenge that local authorities face in managing the impact of real-term budget cuts.
Shared services models can take a variety of forms - from the rationalisation of services within a single organisation through to multiple organisations collaborating with a commercial partner to create a new joint venture service provider. The services typically affected are administrative in nature (back-office functions such as HR and IT) but in the current budgetary environment it is likely that shared service models involving front-line services will start to emerge. The Arbuthnott Review gives some food for thought on the scope for shared services in the Clyde Valley area (roads maintenance, for example).
There are some legal issues - around vires, procurement and trading restrictions - that create potential stumbling blocks to shared services initiatives. Whilst not insurmountable, these would benefit from some clarification or guidance from the Scottish Government to prevent unnecessary distractions or areas of challenge for those who wish to stop shared service projects in their tracks.
Vires
The 2009 case of Brent LBC v Risk Management Partners Ltd has cast some doubt over the powers that local authorities have to pursue shared services arrangements. The Court of Appeal held that Brent LBC had acted ultra vires in joining with other local authorities to set up a mutual insurance company to provide them with cheaper insurance. The decision rested on the view that local authorities' well-being powers do not support complex and speculative arrangements that are designed to save money and have no clear link to promoting or improving well being. The court also rejected the argument that Brent LBC could rely on the legislation that allows it to do anything that is incidental to its functions - a complicated and risky scheme such as this was considered too far removed from the authority's main functions to be described as incidental.
Whilst this is an English decision it is likely to have some persuasive effect in Scotland given the similarities in the legislation on both sides of the border. The case involved a particularly complex and elaborate scheme and so the precise reasoning may not apply to more straightforward, less commercially risky shared services arrangements involving, for example, back-office management services. At the very least, however, the decision does create some ambiguity as to the legitimacy of embarking on collaborative ventures that are simply about saving money.
The Local Government in Scotland Act 2003 gives Scottish Ministers the power to extend the meaning of local authority well-being powers. The Scottish Ministers could therefore put it beyond doubt that local authorities can enter into arrangements aimed at reducing costs and creating efficiencies, whether or not they also have a direct impact on well-being.
Procurement
The procurement law implications of any shared services deal will vary from case to case, depending on the precise structure and the parties involved. The procurement rules will most likely apply to any arrangement involving the private sector, but even a purely public sector shared services solution will give rise to procurement obligations if sufficiently contractual/commercial in nature or involving a number of public bodies.
The "Teckal" ECJ case established an important exemption from the public procurement rules, which could be relevant in the case of an authority creating a new service delivery vehicle. Two tests must be satisfied in order for this exemption to apply:
- The procuring authority exercises control over the service provider, similar to the control it exercises over its own departments
- The service provider carries out the principal part of its activities for or with the procuring authority.
The Teckal exemption was considered in the Brent LBC case. The court held that the exemption could apply to a contract with a vehicle established by more than one local authority, although in this instance it was not clear how the mutual insurance company could operate without freedom to manage its own affairs and so the "control" test was not satisfied.
This is a helpful acknowledgement that collaboration among authorities to set up shared service delivery vehicles could, in principle, be exempt from the procurement rules. The arrangements will, however, still need to satisfy the two "Teckal" tests.
Public procurement law is often complex and differing views and approaches can create confusion and cause delay. Clear guidance from the Scottish Government on procurement law and shared services would be of assistance to local authorities in negotiating their way through these issues.
Trading restrictions
The Local Government in Scotland Act 2003 widened local authorities' powers to trade and there are now no restrictions on commercial trading with local authorities, public bodies or organisations with a public nature. Trading with private sector bodies is also permitted, up to any statutory limit specified by the Scottish Ministers.
It is conceivable that some shared services solutions could involve local authorities providing goods and services to non public sector bodies. A public/private arrangement could, for example, see one local authority providing a service to a joint venture vehicle (public or private) that in turn provides that service on to a number of other local authorities. Guidance from the Scottish Government (for example on what bodies are considered to have a "public nature" and whether it intends to introduce any limit on trading with the private sector) would help to clarify the extent to which the legislation restricts such arrangements.
There is a role here for the Scottish Government in smoothing the path for shared services initiatives. Clarity on these issues is needed if local authorities are to be encouraged and given confidence to look at bold and innovative approaches to the way that they deliver services. The Scottish Government is producing an updated Shared Service Guidance Framework later this summer and will hopefully use that as an opportunity to provide greater direction.