Commercialisation round tables

Details of the LGA’s recent commercial support pilots: commercialisation round tables.


Commercial support pilots

The LGA is committed to providing commercialisation support to councils based on the topics that councils tell us are the most important to them.

To ensure the LGA’s offer remains up to date and relevant to councils, the LGA pilots new support initiatives with councils to connect councils with each other and to gather market and local government insights that can be shared with other local authorities, to help improve sector resilience.

Commercialisation themed round tables

In September 2020 the LGA piloted two round tables: ‘What is the future of schools traded services post COVID-19?’ and ‘What is the future of local authority trading companies post COVID-19?’ The themes were suggested by the LGA’s Advanced Commercialisation Group, a network of council officers from councils trading at an advanced level. The round tables were formed of between 10 and 20 officers from councils across the country, all working in the topical area being discussed.

Commercialisation round table – What is the future of schools traded services post COVID-19?

Types of services

The range of services that councils told us they provide include:

  • HR – recruitment/payroll/advice/health and safety
  • IT
  • Catering services
  • Educational services/ welfare within are and or across UK
  • Early intervention team – educational psychology
  • Facilities management
  • Residential learning
  • In-house property service – cleaning/caretaking
  • School traded services
  • Finance
  • CPD
  • Back office functions
  • School improvement
  • Commercial waste
  • Management information and support
  • Legal services
  • School library service
  • Risk and insurance
  • Software support
Purpose

Officers told us that although schools traded services are focused on running financially viable services, their main purpose for the activity is not to generate income. Councils’ income generation activity for schools is focused on supporting schools to deliver outcomes for students. This is done by working with schools to understand their changing needs and delivering good quality, value-based services. Some councils considered there was a difference in purpose between teams working on commercial activity, who were working to achieve social value, and finance teams, who considered the purpose to be based on financial return.

The financial impact of COVID-19

As a result of COVID-19, customers’ needs and behaviours have changed – a key example is the way in which they need services to be delivered.

Services that have been particularly affected are catering and ad hoc or variable demand ‘pay as you go’ services. Remote learning and working has had a significant effect on services which have traditionally been delivered in person.

Participants discussed how private-sector competitors have been able to reduce their cost base by using practices that council services either cannot or will not. Examples of this include the need (and commitment by councils) to pay a living wage, the thresholds for which have changed since initial business-plan modelling. Councils also pay pension and employment related costs and many try to employ local people to keep money within the communities they serve. Councils also provide fully-costed, transparent responses to tenders and deliver against those contracts, whereas some private-sector competitors were considered on occasion to have submitted unnaturally low bids which were unrealistic and had subsequently either reduced the quality of the provision or were unable to meet contractual obligations. Interestingly, some councils found that where schools had left a local authority supplier for a private-sector competitor they had later returned to the council service, following negative experiences. However, it was acknowledged that schools are trying to balance budgets and quality to achieve value from their contracts.

Councils told us that in some instances they were hesitant to model financial performance in detail as projections had sometimes been committed to inflexible income targets within the Medium Term Financial Plan – a particular concern when income generation had been affected by COVID-19.

How have councils been managing COVID-19 challenges?

One council told the group it had worked closely with its schools and made a commitment that they would not suffer a loss. To ensure this, they agreed to refund a portion of the schools’ payments. Other councils mentioned how they were working within clear service level agreements for the year and were working with schools to deliver the requirements for the year.

Areas of support highlighted

Councils would value support in the following areas:

  • To move onto online platforms, building on existing channel shift work
  • To support teams to work in a more commercial way
  • To retain existing customer bases in the face of changing market conditions
  • Work more collaboratively with internal stakeholders

Commercialisation round table – What is the future of local authority trading companies post COVID-19? 

Types of services

Councils had a broad range of trading companies. Services delivered via trading companies included:

  • Regeneration joint ventures,
  • Solar farms House building companies,
  • Maintenance services
  • Waste collections (eg trade/ green)
  • School improvement services,
  • Commercial hubs (eg for schools),
  • Brokerage, Recruitment,
  • Operations,
  • Legal
  • ICT
  • School catering
Purpose

Participants discussed how several of the local authorities had set up companies to help them to do work that addressed market failure. Areas included housing development companies, energy companies and wider regeneration initiatives. As such, the primary driver was not profit, it was to improve outcomes and opportunities for residents and communities and to improve local economic regeneration. While some ancillary services had been identified as potentially profitable, the ultimate objective was generally to support client organisations to achieve their goals.

Commercial governance

Approaches varied between councils. One council mentioned it had invested in an end-to-end review of their governance processes, including independent board evaluations. As a result the council’s company board was comprised entirely of independent directors. For some councils there was a perceived potential tension between the role of board members and their role within the council, others considered council officers or elected members helped to bring valuable expertise to boards.

The financial impact of COVID-19

Councils told us that behaving competitively is difficult – private sector companies compete primarily on cost, whereas local authority trading companies also have to consider cost of living wages and pensions, commitments to employ local people and ensuring tenders are realistically costed and deliver quality outcomes. For some councils there was concern about the lack of flexibility of financial targets within the Medium Term Financial Plan, linked to business plan projections.

In addition, some officers discussed that it can be more difficult to articulate the non-financial benefits into meaningful impacts that would satisfy finance teams and senior stakeholders. It was considered that the financial pressures resulting from COVID-19 had exacerbated this point.

How have councils been managing COVID-19 challenges?

Where appropriate many councils had furloughed staff employed by their trading companies. Some work had taken place to understand the emerging needs of the markets, for example, some councils had worked with customers to arrange payment holidays, looking at income as deferred rather than lost.

Internally some commercial teams had experienced high expectations from their organisations about the potential return and growth rates for new commercial entities, which in turn was putting pressure on officers and teams.

For some councils COVID-19 had created new opportunities. Some had identified quick wins, or the longer-term opportunity to make services ready for when markets have stabilised and are ready to engage again.

For council services that were able to react and adapt quickly, such as cleaning services, there had been a positive impact on projections, though it was considered this was a time-specific opportunity, so in the longer term projections would reduce.

Areas of support highlighted

Councils would value support in the following areas:

  • Continued lobbying to recognise that commercial activity needs support as a result of COVID-19 losses
  • Governance training and support – keeping pace with the current climate of COVID-19 and changes in investment guidance from central government. Also ensuring officers have a sufficient understanding of the legal position regarding making commercial decisions.

Due to high levels of demand and interest, the LGA will run further round tables in 2021. The round tables are facilitated themed discussions, which combine sector and case study insights with networking. To suggest a future discussion topic or to join the waiting list to hear about future round tables please email productivity@local.gov.uk