5

North Somerset Council

REPORT TO THE COUNCIL

Date of Meeting: 5^th August 2010

Subject of Report: internal support services review (ISSR) Outsource – Provisional contract award

Town or parish: All

Officer/Member presenting: Leader of the council

Key Decision: YES

RECOMMENDATIONS

Council is asked to:

a) Approve the award of contract to Agilisys Limited for the contract for the delivery of Support Services, Revenues and Benefits, Business Improvement and Procurement, subject to successful completion of due diligence and contract formalities.

b) Delegate authority to enter the contract, following successful completion of due diligence and the contract formalities, to the Leader of the Council and the Chief Executive Officer, within the contract parameters set out in this report.

c) Delegate authority to the Director of Finance and Resources to enter into an early delivery agreement/letter of intent with Agilisys Limited to allow it to contribute to these projects as early as possible, in view of the target dates the Council has for the implementation of a new Financial Management System (FMS) and the delivery of the Office Amalgamation programme.

1. Summary of Report

1.1 The report details the outcome of the ISSR procurement project and the procurement process undertaken in line with the project plan agreed by the Executive in June 2009.

1.2 The report recommends provisional contract award following evaluation of final tenders and seeks approval to delegate authority to enter the contract for the delivery of Support Services, Revenues and Benefits, Business Improvement and Procurement.

1.3 The report also provides an update on the original business case financial targets and a comparison with the financial impacts of the submission.

2. POLICY

2.1 The project is consistent with the broad financial planning objective, that the Council needs to reduce the proportion of its budget spent on support services, in order to release a greater proportion of the Council’s limited resource to the ‘front line’ services. Support services play a critical role in ensuring the organisational health, smooth running and continuous improvement of the Council. In this context, support services should be responsive and flexible and will be provided through a variety of different means at a consistently high standard.

2.2 The ISSR outsource procurement is being conducted in accordance with the Public Contracts Regulations 2006 under the Competitive Dialogue procedure.

3. INTRODUCTION

3.1 The focus of the Internal Support Services Review (ISSR) was to consider opportunities for more efficient and effective ways to deliver internal support services across all directorates as well as delivering savings over the medium (3-5 year) term. The primary objective of the ISSR was to ensure that the Council has sufficient capacity and flexibility in these service areas to meet the future requirements of our customers and the business as a whole.

3.2 With this mandate the ISSR has undertaken a detailed and complete review of support services. As a result of this work a set of objectives, a strategic approach and the initial target of maintaining or improving support services whilst delivering savings of at least 10% (£1.5million) over three years have been identified and approved by the Executive at its meeting on 28 October 2008.

3.3 On the 9th June 2009 the Executive agreed to seek greater assistance from the market, via an outsourcing contract, to deliver the objectives of the ISSR, integrate the contract with provision of revenues and benefits services and provide increased business improvement and procurement capability.

3.4 The Council approached the market with three very clear objectives:

· Maintained and improved services, particularly in terms of customer satisfaction

· Savings of at least 15% (£1.5 million) in the first two years

· Further savings are delivered over the life of the contract. These will be broadly in line with the Government’s efficiency requirements.

3.5 In addition, the project board identified 5 key outcomes for the Council as a result of the contract:

· Lower costs to the Council

· Provision of a catalyst for efficiency, cost reduction and continuous improvement across the Council

· Improved customer satisfaction

· Ability to anticipate and adapt to change and innovate, plan and invest for the future

· Reliable service delivery.

3.6 The ISSR outsource project is being conducted in accordance with the Public Contracts Regulations 2006 under the Competitive Dialogue procedure[1] and can be broken down into the following phases / milestones:

· Pre-qualification (July – November 2009)

· Outline Solutions (December 2009 – February 2010)

· Dialogue and Detailed Solutions (March – May 2010)

· Final Competitive Dialogue (May 2010 – June 2010)

· Final Tenders (June – July 2010)

· Alcatel Period [2] (August 2010)

· Due Diligence (August 2010)

· Contract Award (August 2010)

· Contracted services commencement date (October 2010)

3.7 These phases will be followed by a transition period for all in scope staff (excluding Revenues and Benefits where staff will start their transition in May 2011).

4. SCope of the procurement

4.1 The original scope of the contract included the following services[3]

In-scope services	Cost per annum £’000
Revenues and Benefits	4,251
ICT (excluding ASSH ICT)	2,590
HR / Payroll	756
Transactional Finance (Including schools)	871
Facilities Management	282
Total	8,750

4.2 Following market interest expressed via the outline solutions the Council asked for the following additional services to form part of detailed solutions:

· Contact Centre

· Financial Assessment and Benefits

· Print Unit

· ASSH ICT

4.3 The detailed solutions received from bidders on the 16th April provided sufficient evidence of viability and savings attributable to the additional scope, but did not demonstrate this with sufficient confidence in respect of the Financial Assessments & Benefits service currently operated in partnership with ASSH and the DWP.

4.4 In June 2010, the Executive approved the increased scope of proposed contract to include the Corporate Contact Centre, the Print Room and ASSH ICT. On this basis, the total annual cost of all in scope services is £10.38 million per annum.

Additional services	Cost per annum £’000
Contact Centre	1,137
Print Unit	258
ASSH ICT	234
Total	1,629

4.6 There is further opportunity for suppliers to unlock savings and efficiencies in retained services by replacing the Council’s Financial Management System (FMS) and increasing the capacity of Business Improvement and Procurement functions across the Council and both tenders put forward persuasive and realistic proposals for how they intend to achieve this.

4.7 The TUPE Regulations will apply to the transfer of this service provision. Staff have been briefed on the process relating to TUPE. The formal consultation and notification has been conducted and is ongoing.

5. PROCESS

5.1 Initial interest was received from twenty nine organisations, of which, seventeen attended a Bidders’ Conference held during the pre-qualification phase. Of the six companies who successfully completed pre qualification, three submitted outline solutions in January 2010.

5.2 Between March and April, the project team conducted 205 hours of competitive dialogue across 75 meetings and on 16th April 2010 the Council received three detailed submissions from very credible suppliers. All three of these submissions reflected a strong alignment to the Council’s corporate aims and objectives, ambition and aspirations as well as demonstrating the ability to deliver in scope services and savings and attract additional jobs to the area.

5.3 Following formal evaluation and in agreement with the Project Board, the Council, in early May 2010, down selected to two bidders, Agilisys Limited (partnered by Liberata Limited) and Steria Limited. The Council commenced the next round of competitive dialogue on 11th May to inform the Council’s final invitation to tender and the bidders’ final tenders.

5.4 An invitation to submit final tenders was made on the 25th June 2010 with final tenders, from each supplier, received by the Council on 9^th July 2010. Evaluation was carried out 12^th – 21^st July and the results were presented to the Project Board on 27^th July for consideration.

5.5 Both bids are considered to be strong:

· Both provide substantial savings to the Council against current budgets, in line with the business case that supported the Executive’s decision in June 2009 to initiate the procurement process

· Both provide the opportunity for additional savings to be secured by the Council through the delivery of business improvement and procurement initiatives

· Both provide investment in systems that would otherwise have had to be provided by the Council (eg Financial Management System)

· Both provide a strong offer to retain and develop transferring staff

· Both guarantee to rent office space from the Council and (by way of ancillary benefit) to provide a net increase of jobs to the district

5.6 Approval is now sought to provisionally award the contract (see Section 6) subject to successful completion of due diligence and contract formalities, and to delegate authority, to the Leader of the Council and the Chief Executive Officer, to enter the contract (within the parameters of the successful tender as set out in Appendix 1), following successful completion of due diligence and the contract formalities. In addition, in view of the target dates the Council has for the implementation of a new Financial Management System (FMS) by April 2011 and the delivery of the first phase of the Office Amalgamation programme in autumn 2010, approval is sought to delegate authority to the Director of Finance and Resources to enter into an early delivery agreement/letter of intent with Agilisys Limited to allow them to immediately contribute to these critical projects.

5.7 Subject to this provisional approval the key dates for next steps are:

· Early delivery agreement/letter of intent 6 August 2010

· Contract award 26 August 2010

· Service transfer (excluding Revenues and Benefits) 1 October 2010

· Revenues and Benefits Service transfer 1 May 2011

6 Evaluation RESULTS

6.1 The tender evaluation model adopted a cost and quality split of 60% and 40% respectively as agreed by the Project Board.

6.2 The details of the tender evaluation are attached at Appendix 1.

7. Consultation

7.1 Throughout this process, extensive consultation has been undertaken, actively seeking comments from trade unions, staff and managers at each stage.

7.2 Our approach to support services was developed as a result of a robust process of consultation and engagement which ran from December 2007 to October 2008. This was presented to staff as the strategic approach to support services and agreed by the Executive in October 2008.

7.3 Staff and trade unions continue to be informed via the intranet, The Knowledge, staff and management briefings and attendance at team meetings.

7.4 A staff consultative group has been established for engagement and consultation with staff who are in scope to keep them informed of progress and to provide the opportunity to influence associated staff issues

7.5 In November 2009 a survey was conducted with staff who are in-scope to understand their concerns. The results of the survey informed the communications plan and the staff consultative group forward agenda.

7.6 Employees who are expected to transfer to the supplier have been advised formally of the TUPE process and conditions for appeal. 184 NSC employees are currently expected to be subject to the TUPE transfer. All in scope staff have been invited to presentations given by each of the two bidders.

7.7 Consultation has been carried out with other affected stakeholders who are affected by the procurement including a cross-section of head teachers, governors and bursars from North Somerset's Primary, Secondary and Special schools, other internal Council departments, Citizens Advice Bureau, Registered Social Landlords and NSC Citizens panel.

7.8 Consultation with affected staff will continue in the period leading up to the transfer date.

8. Financial Implications

8.1 The details of the financial implications are attached at Appendix 1, below is a summary.

8.2 The Agilisys submission will realise and exceed the financial objectives as stated in the business case:

· Savings of at least 15% (£1.5 million) in the first two years

· Further savings are delivered over the life of the contract. These will be broadly in line with the Government’s efficiency requirements.

8.3 The contract offers North Somerset a significant opportunity to realise substantial savings and enable more than 200 new jobs to be created within the area over the next four years.

8.4 The headline opportunities include:

· A reduction of approximately £2 million in the annual cost of support services based on a volume driven price model. Note that annual savings in excess of £1.5 million will be achieved in the first two years

· More than £5 million of rental income for office space over the ten year life of the contract.

· Procurement projects that will reduce costs by more than £5 million a year.

· A programme of business improvement initiatives which will enable budget savings of more than £6.2 million within retained services, and a second programme which will realise savings of more than £1.6 million for schools.

8.5 These savings are achievable as a result of the significant investments being made be Agilisys. These include:

· More than £4 million in the development of transferring services.

· Substantial investment in the delivery of an improvement programme, this includes projects such as FMS replacement (£2.7 million) and EDRMS (£1.3 million).

8.6 The overall project is programmed to achieve £13.6m of savings against existing budgets, or £11.5m by 2014/15, when allowing for savings already assumed - either within MTFP or specific programmes such as office amalgamation.

8.7 Members will be fully aware of the likely implications of Government funding announcements both those all ready made or those likely to be announced in the Autumn when the Spending Review is published.

8.8 It is clear that the award of this contract will make a significant contribution towards any future target set by Government and is likely to place the Council in a strong position. Others, who may choose to follow a similar route in the medium term, may well encounter a market where demand outstrips supply as much of the public sector faces up to the ‘age of austerity’.

9. Equality Implications

9.1 All suppliers who wanted to be considered in the procurement were asked to provide evidence of compliance against equalities as part of the Pre Qualifying Questionnaire (PQQ).

9.2 An initial Equality Impact Assessment (EIA) on the recommendation to approach the market was completed in April 2009 and found no significant adverse equalities impact. A further assessment on the final scope was completed in April 2010 with no significant adverse impact identified.

9.3 Staff will continue to be consulted through the transition process and if any adverse equalities impacts are identified then means of reducing this impact will be discussed with individual staff (i.e. understanding access needs).

10. Corporate Implications

10.1 Internal support services need to strengthen the interface and relationship with their customers and ensure that the focus of any support is helping to deliver improvements in service delivery. Effective governance arrangements are critical and are being established as part of the outsourcing project through a client function.

10.2 The Council has commissioned a review of its contract management arrangements and findings from that review will inform the way we manage contracts in the future. In the meantime, an interim client structure within the Finance & Resources Directorate will manage the transition and early service delivery arrangements of this particular contract.

11. Options considered

11.1 Options were previously considered in 9 June report.

12. RISK MANAGEMENT

12.1 In pursuing the procurement a number of risks are being actively mitigated. The most significant ones identified in the June report include:

· Staff uncertainty – mitigated by good communications and staff engagement

· Organisational resistance – mitigated by strong leadership through CMT

· Failure to deliver benefits – mitigated by effective project management, use of good Business process improvement (BPI) skills, strong focus on benefits realisation and a clear procurement strategy.

· TUPE and pensions – mitigated by obtaining a good understanding of requirements and effective forward planning.

12.2 A Risk and Opportunities register is being developed for the next phases of the project

AuthorS

Phil Hall, Director of Finance and Resources (tel: 01275 884353)

Richard Penska, Assistant Director of Finance (tel: 01275 884256)

Fiona Venton Harvey, Business Improvement Manager (tel: 01934 426157)

Background Papers

Report to Executive, 9^th June 2009, and background papers to that report

Equality Impact Assessments referred to in report

Exempt Background Papers

Tender submissions

Evaluation papers

Independent financial status reports

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[1] Competitive dialogue is a series of formal communications held between the Council and bidders which gives all parties an opportunity to share detail and requirements around outline solutions to inform and shape solutions

[2] The Alcatel period lasts for ten working days following the notification of an award decision. Its purpose is to allow unsuccessful bidders to challenge the decision before the contract is signed.

[3] Includes schools