The rise of spinouts

The Conservatives’ general election victory could create further momentum in the move towards mutualisation and other spin-outs of public services. Bridgette Wilcox and Paul Pugh consider the implications.

With the dust settling after the recent General Election, it is possible to better speculate as to the likely direction of travel of the new Conservative government. The new administration has a slim majority, therefore, there still may be an element of internal horse-trading, but not the concessions required under a coalition.

One area which is likely to be progressed is the continued spin out of public services to employee–led mutuals and mutual joint ventures between staff and private sector or third sector organisations. This initiative was promoted during the Coalition government, largely championed by the Cabinet Office’s mutuals team, with examples such as MyCSP and the transformation of the probation service. In addition, the ''Delivering Differently” programmes provided 10 local authorities with up to £100,000 of support for improvement projects; a number of these related to spin out and mutualisation.   

The Conservative manifesto provides that: 

“We have supported the growth of public service mutuals – organisations that are owned by their staff and deliver public services. We want more of them, so we will guarantee a ‘right to mutualise’ within the public sector. This will free up the entrepreneurial spirit of public servants and yield better value for money for taxpayers.”

Linked to this is the relaxation of procurement rules in relation to the award of contracts to certain mutual groups.

Regulation 77 of the Public Contracts Regulations 2015 allows contracting authorities to reserve certain contracts for health, social and cultural services to certain suppliers without being subject to the full application of the regulations.

Whilst the direct award of contracts does not become permissible as a result, public bodies can restrict the type of organisations which participate in the bid process, provided that a number of conditions are met.

This means that contracting authorities will be able to reserve contracts for “employee mutuals” (the tests for which are set out in the regulation under qualifying organisations) if:

1. the contracting authority hasn’t awarded the mutual a contract for the same services within the past three years;
2. the contract award is for a maximum of three years;  and
3. the call for competition makes reference to Article 77 of the Public Contracts Directive and it isn’t a procurement for health services for the purposes of the NHS (within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013).

With significant further efficiencies being demanded by Government, there is likely to be increased pressure to consider the viability of mutualisation of services, both amongst local authorities and the wider public sector.

Bridgette Wilcox is Head of the Public Sector Group and Paul Pugh is Head of Third Sector Services at Eversheds. Bridgette can be contacted on 0845 498 7515 This email address is being protected from spambots. You need JavaScript enabled to view it., while Paul can be reached on 0845 498 7539 or by email.