Be ready for legal hurdles over shared services, councils told

17 June 2010

17 June 2010 | Lindsay Clark

Local authorities considering developing shared service centres for public sector organisations should be prepared for large legal bills to guarantee compliance in the tendering process, a senior procurement professional has said.

Paul White, head of shared service and procurement at Northamptonshire County Council, told the Public Procurement Show in London this week that the shared service centre he is working on, which would also support neighbouring Cambridgeshire County Council, went through several options before settling on a publicly owned model.

“One of the concepts we looked at was a 50-50 joint venture between ourselves and the private sector,” he said.

A problem in developing this concept, however, was that the private sector wanted a majority share. Another was legal advice that said expanding the role of the centre once it had been built would require retendering the deal, White said.

The project was designed to develop a shared enterprise resource planning system for the councils, which would support HR, finance and procurement. “When we put that to the legal firms and the QC, the conclusion was that we would have to go through a separate procurement.”

Shared service centres are in the limelight as the government strives to slash the mounting public sector deficit by encouraging more joint buying.

While White said they could be successful, building them is far from simple. The group also considered using the Teckal exemption (where a public sector body sets up a third party organisation to provide goods and services, to sidestep public procurement rules) to ease the process.

“We had to back off because the QC advised that could be subject to a challenge,” White added, as it is difficult to legally justify that shared services benefit the well-being of the local community.

White said saving money was not in itself sufficient to pass this test. “The legislation has not caught up with what the government is saying (on shared services),” he said.

Instead the councils have used existing powers to set up a publicly owned joint venture and build a shared system, which they hope will save 11 per cent on staff costs alone. White described it as a “step on the way”.

The council issued a pre-tender notice in the spring and hoped to start the procurement process this summer. The shared service centre is expected to save around £3 million a year, according to its business case which was published in December.

* A legal update on considerations public sector bodies should take when establishing a shared service centre will appear in the 8 July issue of SM.

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