The challenges faced by local government
What characterises current local government supplier markets?
Local government supplier markets are as diverse as the services they supply. Value for money and efficiency drivers apply across the variety of local government services, but variation in the provision of these services provides a number of different models for delivery. Characteristics of this market include:
- A wide range of statutory and discretionary services: These range from delivering adult social care and public health to highways, roads and transport.
- A drive for competition and efficiency: From 1999’s Best Value, to comprehensive performance assessments, the Gershon Review’s 2.5% p.a. efficiency target for councils up to the 2011 Localism Act, policy makers has sought to develop more joint working and new models of service delivery to boost the market’s performance.
- A mixed picture of market use: 98% of social housing management is delivered by the public sector or by an arm’s length body. Yet waste management services are split quite evenly between public and private sector management.
- There are a broad range of public-private partnership models: From straightforward contracts, to frameworks, through to joint ventures and private financing, authorities have significant choice of commercial models open to them.
- More opportunities for local and SME providers: There is a clear shift to encouraging smaller firms to bid for government contracts, boosting market diversity. While positive, commissioners will need to consider routes to building SME participation beyond simply contracting. In contracts where suppliers face considerable risks, SMEs can access contracts through participation in the supply chains of suppliers or through a prime contractor.
- A trend away from longer contracts: Shorter contracts are easier to manage, but they also mean that suppliers have a reduced incentive to invest in innovation and so may not always be appropriate. Short-term contracts provide short-term solutions, but will struggle to support the sort of transformative changes that many public services require
What are the priority goals for local government markets?
In a period of sustained financial constraint and increasing demand, local government must prioritise service efficiency, redesign, social value and user experience. Markets will need to reflect the priorities of a changing local government landscape. They must give all potential participants a clear picture of what a council wants to achieve and how the commercial success of the market will be assured.
Business believes local government commercial strategy must reflect these priorities:
- Local service integration is the big new game in town: Councils are placing stronger emphasis on improving services through working with other local public bodies, a process that began with local area agreements (LAA) via Total Place and recently Community Budgets. Service integration is vitally important to improving local services but has the potential to alter the shape of current supplier markets where multiple agencies, or councils sharing services, jointly develop markets and commission services.
- Shared services have come a long way: at least 95% of councils are sharing services with other councils. This means 210 new shared service arrangements since 2012, saving £83m.11
- Local authorities are seeking wider value from their markets: the Public Services (Social Value) Act 2012 requires public bodies to consider economic, social and environmental well-being in connection to a public service contract. Suppliers will need to consider the wider benefits they can offer. Similarly, there is a drive to provide opportunities to local suppliers and businesses: new regulations will give greater scope for authorities to make procurement decisions in favour of small and local suppliers, such as through breaking up large contracts into lots
- A sustained shift to online services: the ‘digital by default’ approach to public services challenges commissioners to rethink how established services are provided. This sort of transformation challenge requires a supplier market that is incentivised to create and invest in new approaches and to partner with government to manage this change. Increased financial and delivery risk associated with new services requires contracts that manage these risks effectively.
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