Are staff-led mutuals for you?

Ministers are calling on local authority and other public sector employees to form mutuals. Elizabeth Cooper looks at the issues they will need to consider.

For some time now, the Government as part of its Big Society agenda has been promoting the concept of staff-led mutuals in the delivery of public services. The results and feedback to our survey give an indication of our respondents’ view on the increasing encouragement and pressures from ministers to consider how staff mutuals fit into local authorities’ vision for future service delivery.

Mutuals are seen by the Government as key enablers. It is intended that they will provide a more focused, efficient and localised means of public service delivery with autonomy on service delivery, operation and budgets. A mutual is a broad term for a business mostly owned by, and run for, the benefit of its members, who are actively and directly involved in the business – whether its employees, suppliers, or the community or consumers it serves, rather than being owned and controlled by outside investors.

Ministerial backing
In a speech to the Society of Local Authority Chief Executives (SOLACE) annual summit on 18 October 2012, Francis Maude, Minister for the Cabinet Office, confirmed central government’s commitment to providing strong support to staff and managers who want to set up mutuals through the implementation of a £10m Mutuals Support programme, a Mutuals Information Service website and dedicated helpline. The Cabinet Office is also appointing 15 Mutuals Ambassadors who will work free of charge to drive forward the public service mutuals movement.

While the majority of our respondents confirmed that their organisations had not set up a staff mutual or had ‘no current plans to do so’, interestingly 10% said their employers were actively considering the setting up of a staff mutual. Two respondents even confirmed that such a process is already underway.
Given the immense financial pressures faced by public bodies to deliver better services under increasingly tight budgets, it is unsurprising that innovative and different structures are being explored and contemplated by public bodies for contract delivery.

However, despite being heavily promoted by central government, public bodies will need to carefully consider the relevant legal issues when setting up a staff mutual and engaging them in public service delivery. This includes the legal status and form of the staff mutual, funding, initial start-up costs, premises, employment and pension liabilities, procurement and state aid.

There will also be a range of more practical issues, including whether there are adequate staff and stakeholder buy-ins for the mutual to take off. Deliberations may also include whether private sector involvement will be required to make the staff mutual successful, and if so, the resulting public procurement implications.

Out to tender?
In our survey we asked respondents whether their authorities had awarded any contracts to social enterprises or mutuals with half saying not and a quarter saying they had or a process is underway.

Before awarding contracts to staff mutuals and/or social enterprises, a local authority will need to understand and be clear on the legal status of the contracting parties. This is because staff mutuals and social enterprises are not required to adopt a prescribed legal form, so they may be set up as a registered private company, a form of co-operative, a charity or remain unincorporated.

As with any other economic operators performing public contracts, a staff mutual or a social enterprise will need to tender for and win public sector contracts. Depending on how the mutual or social enterprise is established, it may itself be a contracting authority subject to compliance with procurement rules.

The Government is continuing its lobbying for a temporary exemption from EU procurement for staff mutuals. But, for now, public bodies setting up staff mutuals will need to consider carefully whether contracts being transferred to the mutual will be subject to procurement.

With such hurdles to overcome authorities will be keen to see developments in this area and examples of how mutuals are being set up and run. In a year’s time our survey results may be very different.

Elizabeth Cooper is a partner at Bevan Brittan.