Putting theory into practice

Are ‘mutuals’/ ‘social enterprises’ and value for money mutually exclusive? asks Peter Smith.

The UK Government would like public servants to form themselves into mutual organisations or social enterprises and take on the work they currently carry out (and potentially more) as self-standing organisations. Politicians including Francis Maude believe this will lead to greater efficiency and better service for the citizen and happier, more innovative workers within those organisations.

The cynics see it as the first step towards privatisation of public service provision. The mutuals may be bought out by private providers, or turn themselves in time into private firms. Or this could just be a sop to public servants; as their jobs get outsourced, they will be told, “well, we gave you a chance to do this yourself; you didn’t take it, so the work is going to Capita/Serco/whoever”.

On the other hand, there are some positive success stories already, and perhaps this route will capture a combination of public service mentality with greater entrepreneurship, which would be a powerful combination.

But I’m interested here in exploring briefly some of the issues for procurement people who may be faced with mutuals as part of their landscape of potential suppliers. There are other major issues of course; for instance, how many people are actually likely to see this as a good option? We might assume that if people were hugely entrepreneurial, they probably wouldn’t be doing public sector jobs now, so it is unclear how many will want to go through the hassle of mutualisation – without even the prospect of major financial reward.

So, sticking to the procurement issues, let’s say that a group of staff announce that they are forming a social enterprise, and would like to be awarded a contract to basically continue doing what they are doing, but under a more commercial framework. What are the issues?

The first and probably the most critical of course is whether such a contract can be awarded without competition. I’m going to be cautious here, as a non-lawyer writing for a legal publication! And this has already hit the press, with complaints from private sector providers in the health area (see here for further discussion of this). The key issues may include whether there are other private sector providers in that market for that service; whether a social enterprise is considered to be acting as a commercial entity; and whether the ‘contract’ is in fact a contact or a ‘grant’.

The precedent so far seems unclear. Some mutuals in the health service appear to have ‘won’ contracts already without competition; Greenwich Leisure on the other hand appear to have won open tenders to build their social enterprise which runs 70 leisure facilities around the south of England. It may be that some of the issues here will only become clear once there are a few challenges and some case law.

I’m just as interested though in the general supplier management issues. Procurement people like to see vibrant, competitive markets with multiple competing suppliers. That is what drives performance and value for money. So how can I reconcile that with a mutual, made up of people who were my colleagues until last week? Is it feasible to manage them in the same way I would an external supplier, with robust key performance indicators, service levels, perhaps penalty clauses and even provision for damages? Can I sue them if they screw up?

And what happens if we put the work out to competition and they don’t win? Are they then redundant – with potentially a large liability to the council or Trust? Pensions are another issue that may come into play here.

I can see how this chimes with the Big Society concept, and I don’t perceive this is just a cynical strategy to drive private sector involvement. I do believe the politicians mean well and see that this could be good for the people involved and the wider community. But there are many practical considerations not yet resolved, and it is an example of a commercial naivety evident at the moment in some coalition initiatives. Some policies are being announced without it being obvious that the commercial or ‘management’ practicalities have been thought through – GP Commissioning being another classic example of this.

So, while this is all well-intentioned, it could mean problems ahead if this leads to botched implementation, threats to value for money, or legal challenges. Plenty of work I suspect for local government lawyers though!

Peter Smith is an ex President of the Chartered Institute of Purchasing and Supply, a consultant to public and private sector organisations, and editor of Spend Matters UK / Europe, the leading procurement blog.