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Outsourcing in local government

Pat McLoughlin (sponsor banner) Pat McLoughlin, Chair of the Local Government Efficiency Implementation Group, detailed the experience of external service delivery in the local government sector at the eolas seminar on outsourcing.

Local government is undergoing considerable change. Pat McLoughlin, who has been involved in implementing many of the reforms, says that this should be the context for any outsourcing initiatives within the sector. “Outsourcing is not something you can do to a sector. You have to see what is already going on in that sector,” observes McLoughlin.

Changes affecting the sector include the formation of Irish Water which will have a “huge impact” with a lot of core services being transferred to the new semi-state entity. There will be continued pressures on reducing costs with expectations from the enterprise sector around the new economic development services being to local authorities. There will also be “paying customers” for water and property who, McLoughlin believes, will be more demanding in terms of “quality of service, responsiveness and availability of services … customers management will be one of the big challenges for local government.” He says that the structured political reforms, including a reduction in the number of local councillors and the merger of town councils into local authorities, will have a huge impact.

McLoughlin asks the question: “Is the term outsourcing a problem to be overcome? My own view is that it is”. He adds: “Our experience in local government has been that you have to change the way of thinking first and then the way of doing.”

The way of thinking is: “As long as I am running my own local authority, why should anyone interfere with me?” McLoughlin elaborates: “The situation was 34 singular local authorities doing their own thing. If it suited them, they would work together on issues. That has had to change. They now not only have to work together in a sectoral approach but they are going to have to work across the public sector. That is going to bring challenges.”

McLoughlin says that that local government has taken a structured approach to outsourcing. The local authority has to choose if it will take a strategic or tactical response. It then has to build the right team. The next step is to decide on the form of outsourcing and build a business case. Then, the local authority has to choose a partner to deliver the outsourced service. “That is the structured approach we are now taking in local government,” he remarks.

One issue for local government, or any sector, is around, the question of “have you considered other ways of providing a service rather than just saying to outsource it?” The service could be delivered by another local authority, another public body, by NGOs or by the private sector.

“For example, I have seen contracts awarded in the UK where the Health Service has gone out to tender for legal services and the contact has been won by a local authority,” McLoughlin says. “There were very good reasons for that – they were experts in public sector administration and law.”

Issues with which local authorities are grappling around outsourcing include what are you giving away, can you get it back, and will you need it back?

Lead authority approach

Local authorities have done a lot in terms of taking a ‘lead authority’ approach, whereby one of the local authorities will take the lead and co-ordinate local government efforts on a specific issue or service. Kerry County Council is taking the lead on national procurement, Dublin City Council on the movement of hazardous waste and Offaly County Council on waste collection permits.

The current outsourcing initiatives in the local government include shared payroll, transactional human resources, treasury management, accounts payable, and ICT front and back offices. “Nobody would establish an IT service with 34 heads of IT if they were starting from a greenfield situation so we have got to rethink that model,” adds McLoughlin.

Currently, 31 services are being examined for possible outsourcing and these include laboratory services, legal services and internal audit. McLoughlin, who is chair of the Local Government Efficiency Implementation Group, says that the group believes that the current governance arrangements have to be reviewed as there is not the ability to deliver shared services from existing local government structures. “The thinking needs to move from being internally focused to thinking more outside the box. Additionally, there needs to be implementation capability for outsourcing developed within the sector,” adds McLoughlin.

“We also need to critically evaluate the potential of the private sector and use industry experts with sufficient stature.” McLoughlin adds that there are many capable private sector companies with a track record in outsourcing. An example is Irish outsourcing company SouthWestern which has collaborated with UK local authorities in the areas of revenue and benefits, housing allowances, inspections and shared services. The company is also collaborating with Cork City Council in differential rent scheme assessments.

Pat McLoughlin The efficiency group’s work

Several reasons explain why local authorities were hit badly by the economic crisis. They were too dependent on the national grant, their income was not stable or broad-based and business income was volatile. There had also been little structural change in a century and the age structure of staff was unbalanced.

Reform was driven by the An Bord Snip Nua, the Commission on Taxation, the National Competitiveness Council and the Local Government Efficiency Review. The broad direction of reform involved the property tax, water metering, structural reform, a self-funded sector and a reduced cost to the economy.

The efficiency review found that management had grown, there were too many legal entities and staff costs varied significantly but there has been good progress on reducing the headcount. The Government responded in its ‘Putting People First’ paper in 2012 and is now legislating for the abolition of town councils, cutting the number of councillors from 1,627 to 949, and a national oversight and audit commission.

€830 million has been saved since 2008 and the full implementation of reform is expected to save a further €420 milion. The headcount fell from 37,243 to 28,344 between 2008 and 2012.

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