At source

In the current economic climate, outsourcing is likely to become an increasingly attractive proposition to local authorities as a way of securing long-term savings. However, each contract requires careful preparation and planning in order to turn the project into a success. Sarah Bell reveals her top ten tips for outsourcing success.

Understand exactly what you want to achieve and set a strategic plan

It is crucial to understand the factors driving the outsourcing. Whilst savings are likely to be the key driver, improvement or transformation of service delivery over the term of the contract and the needs of all stakeholders likely to be affected by the outsourcing need to be factored in. Having a statement of your objectives, defining your requirements carefully at the outset and keeping them as a reference point ensures that the key drivers (such as service provider investment) do not get lost in the process.

Ignore procurement and vires issues at your peril

Be mindful of the public procurement framework within which you will need to operate and vires issues. An appropriately skilled and resourced legal team will be able to guide you through the procurement process, from start to finish, advising on the most appropriate procurement route, ensuring that the procurement is scoped widely enough to satisfy your requirements, that you are not "caught out" by recent trends towards challenges over evaluation, ensuring there are no vires or State Aid issues and ultimately ensuring that the local authority progresses in a way which benefits its stakeholders.

Have a clear specification

Once you know what it is you want to achieve, you need to communicate your aims clearly to the market so that service providers can present you with realistic proposals. Importantly, the more information you provide, the more accurate the proposals put forward will be. Have a well drafted, precise specification prepared early on in the project. This should hopefully save time in discussions later on.

Know your service providers

It is essential that you carry out extensive due diligence on proposed suppliers, particularly in the current economic climate. Having all relevant information available is crucial when undertaking your evaluation of bidders at the PQQ stage. Do not be afraid to probe for more information! Ensure you ask the right questions in the financial evaluation and look to bidders to provide references and arrange on-site visits.

Be organised!

It is surprising how much time and effort you can save during the outsourcing process if you are organised before you get underway. For example, if you know that a number of contracts will need to be taken over or managed by the service provider, get a head start in tracking them down and scheduling them in advance of starting the outsourcing process. This will save a lot of time in the due diligence stages. Setting up a virtual data room to display contracts is a great way of allowing numerous bidders access to them.

Handle personnel issues efficiently and sensitively

A workforce is bound to find the transition to working for a private sector organisation at least a little unsettling. Be as open as possible throughout the process and try and have a mechanism to deal with concerns and issues. Trade unions will be sensitive to outsourcing. It is important to be able to demonstrate that employee issues have been considered and appropriately addressed to avoid potential employee relations difficulties. Each of the other "Tips" in this communication apply equally to employment issues - it is important to have clear and articulated proposals as to personnel, an understanding of the impact of applicable regulations such as TUPE and have well drafted provisions for exit which include controls to ensure you get back the appropriate employees.

Consider pensions

Pensions can be a material aspect of the costs of the services being outsourced, as well as being important to the workforce and trade unions. Adopt a similar approach to pensions as with the other areas, bring in relevant parties (including the actuary and administering authority) early to agree an approach and collate relevant information. Service providers will then have a clear understanding of what they are being asked to take on from the outset and can price accordingly. There are various approaches that can be taken to pension risks and it is important that you agree the approach to risk with the service provider early on as it can impact on overall price (and therefore viability) of the project.

Make sure you have a well drafted contract

We would say that wouldn't we ... do not be surprised how detailed and extensive contracts of this nature are. The parties will spend a significant amount of time in commercial and legal discussions on areas such as service levels, liability, investment, interfaces, property issues, employment and pensions. Our clients often find that having a sense of humour helps when negotiating a point into the late hours of the night! Having put in the effort of scoping the project, selecting a service provider, agreeing a price and other essential areas relating to service delivery, it is crucial that the commercial agreement that the parties reach is accurately recorded in the contract.

Managing the relationship during the term

A local authority's requirements will change over the term, so the contract needs to be flexible enough to deal with these changes. Easy ways to "future proof" the contract include adopting change control procedures that will allow the contract to adapt as the requirements develop.

Clearly both sides will have invested a significant amount of time, effort and expense in conducting an outsourcing and you will want to ensure that it is worth it. The levels of performance of the outsourced services will need to be monitored and the parties need to meet at regular intervals to discuss progress and to keep the relationship on track. Having governance processes that operate at different levels can be very effective.

Exit

When the local authority takes back its functions, including assets and services, at the end of the term or indeed appoints a new service provider, it will need to ensure that it gets back or transfers on the assets that are needed to run the service and that they are in a condition which will enable this to happen effectively. Include obligations on the service provider to refresh assets during the term (this is usually priced in), make sure you (or the replacement service provider) have the know-how to continue to deliver the services and have the requisite intellectual property rights in licences and developments (amongst other things).

Sarah Bell is a partner at DLA Piper (www.dlapiper.com). She can be contacted on 0151 237 4861 or via This email address is being protected from spambots. You need JavaScript enabled to view it..