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Appendix B

Best Value Guidance - Buying Best Value

Introduction

This paper aims to initiate a debate amongst relevant parties (members, managers and staff at all levels) about the way in which Bridgnorth District Council decides on methods of service delivery following Best Value Service Reviews. It describes a proposed approach which, we believe, will both meet the duty of Best Value and have a positive impact on the culture of the organisation.

Best Value and competition

The aim of Best Value is to improve services for the community and to ensure that this consideration takes precedence above all others in procurement decisions. 'What matters is what works' is one of the most popular quotations from Best Value literature. It states succinctly the challenge of Best Value and places an obligation on reviews to provide the evidence upon which a judgement about how (or whether) a service will be provided in the future.

The decision about whether to explore alternative options is linked to the service's performance. The reviews need to make two judgements: The first is about the services competitiveness: for what we put into this service and what we then get out, how competitive are we with others? The second judgement is how can the service best improve? In order to make such a judgement the Council should

'Use fair and open competition wherever practicable as a means of securing efficient and effective services.'

The use of the phrase 'wherever practicable' suggests that there is both an encouragement to use competition and an acknowledgement that this will not be necessary in all cases.

'The government views competition not as an end in itself but as a means of bringing about the continuous improvements that customers expect and best value demands...a requirement to use and develop competition as an essential management tool should not be interpreted as a requirement to put everything out to tender'

This paper will explore a process for deciding how much time and effort should go into the use of competition.

A question of culture

Deciding to stop providing a service, or to externalise it or improve it in-house are crucial decisions. They effect the community and the staff that currently serve them. How an organisation goes about making such decisions is a defining process in relation to the organisations culture. Employees, Members and the public need to see an open, transparent and fair process, one which has a clear link to the strategy of the organisation and an obvious benefit to the community.
Most authorities have taken the view that decisions about future service delivery are essentially political decisions. The job of the review team is guide decision makers as to the best option. We recommend that this debate should begin with members, as it is they who can give the clearest signal about the approach to competition.

Guiding principles

The Council should develop and communicate a clear set of criteria for deciding on future service delivery options. In doing so we suggest the following are considered:

• A sustainable, beneficial outcome for the community is the paramount consideration.
• Value for money is maximised in the long-term as well as the short-term.
• The skills of staff are developed and recognised.
• The service will continue to improve and to contribute to the achievement of the Council's objectives.
• Service outcomes are clearly specified and a way of measuring them is identified.
• Decisions are taken quickly and transparently.

The organisation needs to sustain a dialogue about the potential advantages and disadvantages of alternative service options, based on clearly agreed criteria.

The benefits and risks of the market place

The phrase 'market place' in Best Value terms refers not just to private companies but to voluntary bodies, and other authorities as well.

Benefits

In theory, the market place can offer a number benefits to a local authority.

• Economies of scope as commercial and not-for-profit organisations concentrate on their specialisms or areas of expertise.
• Economies of scale as commercial and not-for-profit organisations use their size and resources to cover variations in the level of work. A large organisation in the private sector, or a national non-profit organisation, may be able to use group resources (support services, supplies, assets, management) to support service delivery operations - thereby reducing unit costs.
• Access to greater innovation and investment through freedom from of local authority restraints, utilising the Public/Private finance for example
• The management of risk where the risks can be transferred to another organisation.

Risks

However Authorities should also be aware of some of the risks of the marketplace and should always consider;

• Is it legally possible to externalise the activity?
• Is the market really capable of providing the service?
• Will the new arrangement be able to meet all needs?
• Does transfer support other policy objectives?
• Do partners and competitors embrace continuous improvement?
• Are there appropriate 'vehicles' for managing the transferred activity?
• What type of competition is common in the market? Is it led by price or by service (quality)?
• What are the implications for staff?

	The Service
The Options		The Market
	The 'Best Fit'

The first consideration is the service itself. How good a service is it? How does it contribute to the community strategy? How important is its activity? How does it perform against indicators? How do the relevant stakeholders perceive it? What does it need to improve?

The second is the market that exists for the service. Is it a mature market? Is it a stable market? Are there many organisations providing services? How well does the market deliver?

The third consideration is the options for future service delivery and how applicable they are to the service under review.

The final and perhaps most important consideration is how to bring together the service, the market and the options to ensure the best fit and therefore decide on the method of delivery that would constitute Best Value for the community.

Steps in choosing the Best Value service option

1. Assess the performance of the service to determine the case for change.
2. Assess the capability and nature of the market place to determine the strength of the market.
3. Determine which service delivery options might be suitable.
4. Decide on the basis of steps 1,2 and 3 whether detailed consideration of the options is indicated.
5. Decide which option would give Best Value.

Let us take each of these in turn:

The Service

In analysing the service a number of judgements need to be made relating to the role it plays and how well it plays it.

Strategic Fit	Crucial part of the councils strategy					No strategic importance
		1	2	3	4

Performance	Performs well against all indicators					Performs poorly against all indicators
		1	2	3	4

Perception	Is highly regarded					Is poorly regarded
		1	2	3	4

Effectiveness	Evidence of tangible benefit to the community					No evidence of tangible benefit to the community
		1	2	3	4

Case for change	1-4				5-8				9-12				13-16
	Weak				Mild				Strong				Compelling

The Market

In considering the market we are primarily concerned with whether it could consistently and reliably deliver better services and continuously improve.

Amount of competition	No players in the market					A large number of players in the market
		1	2	3	4

Track record	Market provides poor services					Market provides high quality services
		1	2	3	4

Commitment to improvement	No commitment					Organisations have a demonstrable commitment
		1	2	3	4

Interest	Market is not interested					Organisations show keen interest
		1	2	3	4

Market Strength	1-4				5-8				9-12				13-16
	Weak				Risky				Favourable				Strong

Options

There are several potential choices, each of which may apply to all or part of a service:

1. Cessation of the service
2. Transfer
3. Externalisation without an in-house bid
4. Market testing
5. Renegotiating existing contracts
6. Partnership
7. Joint commissioning with other public sector organisations
8. Improved in-house service

1. Cessation of the Service

This option is appropriate where assessment shows that all or part of the service is no longer needed at all. It is unlikely to apply to major service areas, but is more likely to apply for part of a service or particular activities.

Cessation Option The Council decides it will no longer provide a service.
More suitable	No evidence of need or demand Service makes no contribution to corporate objectives Cost of the service clearly outweigh the benefits Other providers could continue without Council support or intervention
Less suitable	Evidence of need unclear Activity is integral part of whole service Other providers do not clearly meet existing needs There is potential for future service development

2. Transfer

This option is similar to cessation. The Council would no longer be involved in the provision of the service, but with this option the existing service transfers to another provider as a 'going concern'. The transfer of council housing to an independent organisation is an example. Transfer is a complex option legally and specialist advice is likely to be needed.

Transfer Option The Council transfers its provider role to another organisation. The service user is the client but the authority may retain a residual regulatory, strategic or influencing role.
More suitable	Market already provides service in competition with local authority Other providers policies fit with Council objectives Significant access to funding is released Council can specify minimum standards of service provision Sharing resources will improve service quality and cost
Less suitable	Council has clear service objectives it wants to achieve Service is personal and/or highly regulated Contracts or partnership arrangements would be a suitable means of provision There is no market or community interest in service management and delivery

3. Externalisation

This option also means the Council ceases to provide the service. In this case another organisation takes over as provider but the Council remains as the client under a formal contract. Private contractors are invited to bid against each other but there is no in-house bid. An example would be the management of a council service by a private company after a market tendering exercise.

Externalisation Option The Council transfers its provider role to another organisation. The authority remains as the client.
More suitable	In-house provision is demonstrably failing and improvement is unlikely Market offers service that meets council's requirements There is an active and competitive supply market Alternative suppliers offer cost savings and/or improved service delivery Costs of externalisation do not exceed potential benefits
Less suitable	Market is immature or without expertise in providing the service There are few competent and capable provider organisations The authority's main objective is to achieve savings In-house provider is capable of significant improvement

4. Market Testing

This option is most similar to CCT because there is a competitive process involving the in-house provider and external providers, which could be from the private, voluntary or public sector. In effect this is 'voluntary competitive tendering' with the process conducted in accordance with the Council's own procedures. The tendering of in-house grounds maintenance services against external providers would be an example of market testing.

Market Testing Option The in-house provider competes with external organisations to win the work - 'voluntary competitive tendering'.
More suitable	Competitive pressure is necessary to ensure improvements in in-house performance There is an active and competitive supply market It is not clear whether in-house or external provision would provide best value Costs of tendering and client supervision do not exceed potential benefits
Less suitable	External providers unwilling to tender against an in-house bid Costs of preparing for competition outweigh potential benefits Market testing is a means of avoiding the decision to externalise In-house team has no real chance of winning Cost of specifying the service outweighs likely benefit of reduced costs from external competition

5. Renegotiating Existing Contracts

If an existing provider has a service 'contract' with the Council, as with an internal DSO or external contractor, then it may be appropriate to re-negotiate terms and arrangements. Although an existing contract may have been the lowest-cost option it may not give best value. Where an external contractor refuses to negotiate, steps to develop new arrangements should be prepared for when the contract next comes up for renewal.

Renegotiate Existing Contracts Option An existing service contract is renegotiated to secure best value.
More suitable	Specification of an existing contract does not provide best value Performance objectives are absent from the contract or inappropriate There are no incentives for meeting high performance Inspection regime is expensive or ineffective
Less suitable	Service contract with an external provider is recently awarded Service is close to meeting national and local performance targets Costs of amending the contract would exceed potential benefits

6. Partnership

This option relates to circumstances when a Council service provider works with another provider, either private or voluntary sector, to enhance the value of in-house provision. There may not be a competitive process but a contract would still be required, although less formal than a traditional contract. One example would be the shared use with a private company of facilities and equipment. Another example of partnership is the Public/Private Partnerships that replaced the Private Finance initiative and concerned mainly with the financing of public sector assets by the market.

Partnership Option The Council works to provide services in partnership with other organisations.
More suitable	Service made up of component parts with different activities Clear areas of in-house strength and weakness Need to share financial and other risks High level of mutual trust between Council and partner Sharing resources will improve service quality and cost
Less suitable	There are no obvious or willing partners The authority's main objective is to achieve savings Economy and effectiveness are served best by single service delivery The 'business case' for PPP is finely balanced, particularly in respect of the pay back through SSA

7. Joint Commissioning

This option is where two or more public authorities agree to commission or provide a service jointly, working together for shared objectives. The organisations would need to agree on the form of the relationship and the service targets they will work to achieve. An example of this option would be two or more councils joining together to establish a call centre facility or to provide a joint refuse collection service.

Joint Commissioning Option Two or more public authorities agree to commission or provide services together
More suitable	Participating bodies are willing to pursue objectives jointly All organisations require the same or very similar services Financial and other risks can be shared equitably Sharing resources will improve service quality and cost
Less suitable	Council identity and specific requirements more important than service There are no obvious or willing partners Service is difficult to specify and monitor Economy and effectiveness are served best by single service delivery

8. Continuously Improving In-house Service

This option is the retention of in-house service provision. Where it is considered to be the most appropriate option, there will still be a need for initial improvement, including revised service standards and performance targets. In addition, all potential in-house providers will need to demonstrate clearly the capability for continuous improvement.

8(a)

Continuously Improving In-house Service Option Service is provided in-house and demonstrates high standards and continuous improvement.
More suitable	In-house service is close to meeting national and local performance targets Service can demonstrate high levels of satisfaction Service is competitive with the best external providers There is a limited supply market Costs of externalisation are likely to be high
Less suitable	In-house service is not meeting performance targets Need for external investment and/or expertise There is an active and competitive supply market Service is easy to specify and monitor

8 (b)

Return Service In-house to Enable Continuous Improvement Service is provided by an external provider but is failing to demonstrate high standards and continuous improvement.
More suitable	External provider is not meeting national and local performance targets. External provider cannot demonstrate high levels of satisfaction External Service is not competitive with the best external providers Costs of preparing for competition outweigh potential benefits There is a limited supply market Cost of continued externalisation is likely to be high A continued externalisation reduces options for cross cutting with other services The integration with other in-house services provides flexibility and better opportunities for Best Value and continuous improvement
Less suitable	There is an active and competitive supply market that meets council's requirements Alternative suppliers offer cost savings and/or improved service delivery Service contract with an external provider is recently awarded

Based on these descriptions the Best Value review team should analyse the suitability of each option for all or parts of the service.

Cessation	Unsuitable in the circumstances					Suitable
		1	2	3	4
Transfer	Unsuitable in the circumstances					Suitable
		1	2	3	4
Externalisation	Unsuitable in the circumstances					Suitable
		1	2	3	4
Market testing	Unsuitable in the circumstances					Suitable
		1	2	3	4
Renegotiating contracts	Unsuitable in the circumstances					Suitable
		1	2	3	4
Partnership	Unsuitable in the circumstances					Suitable
		1	2	3	4
Joint commissioning	Unsuitable in the circumstances					Suitable
		1	2	3	4
Improved in-house service	Unsuitable in the circumstances					Suitable
		1	2	3	4

Deciding whether to evaluate options in detail

Exploring options can take considerable time. The organisation needs to be able to estimate how much time should be spent on such investigations and have a way of predicting whether spending time is likely to lead to benefits. The diagram below therefore considers the case for change and the strength of the market together in order to enable the organisation to work out how much time it should invest in exploring appropriate options.

Where the case for change is weak and so is the market it would be a poor use of time to spend gathering information and comparing performance, if the benefits are unlikely to be great. However where the case is weak but the market strong it may still be worth exploring what benefits may accrue. Where the case is strong and so is the market it is likely that a more formal route should be taken.

Consideration would constitute a 'looksee' exercise of no more than one day's duration, which would be based on approximate or best available data.

Investigation requires a more in depth exercise of perhaps several days duration, where care is taken to gather detailed information and legal advice (where necessary) is sought. The options are considered and scored against criteria and negotiations are held with interested parties. A formal bidding or tendering exercise may result.

Detailed investigation would be a full-scale procurement exercise requiring the dedicated effort of senior managers. Care would be taken to ensure the accuracy of data. Specifications would be drawn up and formal negotiations entered into. Legal advice would be sought. Staff would be formally notified of the proceedings.

Options Template

Case for Change
1-4				5-8				9-12				13-16
Weak				Mild				Strong				Compelling

 

Options	1	2	3	4
Cessation
Transfer
Externalisation
Market testing
Renegotiation
Partnership
Joint Comm
Improve in house

Market Strength
1-4				5-8				9-12				13-16
Weak				Risky				Favourable				Strong

 

Depth of analysis required
Consideration	Investigation	Detailed investigation

Summary

Option	Key evidence to support
Cessation	Service is wasting public money.
Public-private partnership	Mixed evidence from the review. Mixed requirements from your authority and local communities. Clear contributions from both public and private sectors.
Transfer or externalisation	The service or activity can stand on its own feet. The externalisation marketplace offers better value than the in- house service could.
Market testing	In-house service needs the pressure of competition to force improvement. Or the review evidence is not clear whether the in-house team is competitive.
Re-organise in-house	No alternative can provide better value balance between cost and quality.
Renegotiate existing contract	Existing contractors are performing well and keen to continue to develop Best Value.
Joint commissioning or delivery	Willing partners, common objectives, and sustainability.