Public sector change killing private business

[FoolsErrand]

I'm guessing the answer to this is most probably 'tough luck', but it seemed worth canvassing views all the same.

I've tried to come up with a suitably PH analogy to the situation:

Currently:
Government funds are directed to local authorities for the purposes of fixing roads. Central government operate a pothole repair team but it is such a poor performer that the local authorities go to a number of private enterprises instead.

Proposal:
Central government no longer direct funds to local authorities but send it directly to their pothole repair team. Local authorities are told that they can use the gov repair team for free, though the performance will remain below that of the private businesses.

The change will remove a significant source of income to the private enterprises, all of which will shrink or cease trading. Do they have any recourse available to them?

[trickywoo]

FoolsErrand said:

Do they have any recourse available to them?

Only what the contract says.

If it’s mandated that they have to use a central provider there isn’t much you can do.

[GliderRider]

Potholes are a nationwide issue and the disruption and cost to British industry and its workforce is immense. This needs a national strategy to develop techniques and automated equipment for repairs that are robust, long lasting, and cause the minimum of disruption whilst they are being done. It is no good harping on about British Industry having low productivity unless issues like this are dealt with at a national level.

In 1933 a Road Research Laboratory was established. This later became the Transport & Road Research Laboratory. As is the way, this was sold off and became TRL Limited.

A nationwide taskforce with the scientific and engineering backing to develop the right technology for all aspects of the repair (road surface and pothole analysis, traffic management that is quick to install, remove and manages the traffic with minimum of delays) could make a huge difference compared to the haphazard and shortlived repairs we have now.

Companies such as JCB have produced pothole repair machines, so there is some progress.

In 1933 a Road Research Laboratory was established. This later became the Transport & Road Research Laboratory. As is the way this was sold off and became TRL Limited. TRRL did a lot of good work over the years, which is why our roads are some of the safest in the world, however pothole research and repair probably needs a Dragon's Den approach, open to more than one player.

Edited by GliderRider on Wednesday 3rd September 01:07

[Terminator X]

O/T I worked at TRL in the early 90's.

TX.

[Simpo Two]

We have lots of migrants. Give them a wheelbarrow of tarmac and get them to fix the potholes for £1 each if they want to stay.

Lots of labour, low cost, everybody wins - migrants, councils, government, taxpayers and road users.

[abzmike]

Simpo Two said:

We have lots of migrants. Give them a wheelbarrow of tarmac and get them to fix the potholes for £1 each if they want to stay.

Lots of labour, low cost, everybody wins - migrants, councils, government, taxpayers and road users.

Be careful.. someone will be along in a minute moaning about immigrants taking indigenous pothole fillers jobs…

[StevieBee]

trickywoo said:

FoolsErrand said:

Do they have any recourse available to them?

Only what the contract says.

If it’s mandated that they have to use a central provider there isn’t much you can do.

Yep. very much this.

The company that fix the potholes will not only be appointed to fix potholes but provide all manner of infrastructure services. These contracts are bid for against a clearly set out Terms of Reference which is legally binding on both sides and can run for 10 years or more.

If something changes to these Terms of References mid contract that materially affects the revenue the company gets, they are legally entitled to compensation and most likely to a level that would be higher that the intended savings.

This does sometimes happen (have a read up on Urbasser / Essex County Council / Coulthards Road) and rarely ends well for either party.

[StevieBee]

Simpo Two said:

We have lots of migrants. Give them a wheelbarrow of tarmac and get them to fix the potholes for £1 each if they want to stay.

Lots of labour, low cost, everybody wins - migrants, councils, government, taxpayers and road users.

I actually think this is a good idea.

We used to do this but Blair in a bid to woo the right put a stop to it.

Whilst their asylum or immigration claims are being processed - tag them and get the working in the sectors that struggle to find workers (roads, agriculture, etc). That way, they're able to pay for their own board and lodging and contribute to the economy for a bit.

Doesn't solve the wider issue but lessens the economic burden a bit.

[borcy]

I think the potholes is just an analogy, I'm guessing the op isn't in the business of pot hole repair.

[StevieBee]

borcy said:

I think the potholes is just an analogy, I'm guessing the op isn't in the business of pot hole repair.

OK. So lets then unpack the OP's idea - which is, in effect, the idea of nationalisation and its impact on incumbent private sector operators. Let's take one real example in one area:

Ringway Jacobs has just won a 10-year contract with Essex County Council to look after 5,000 mile of roads across the county. This contract is worth £3billion. If the OP's plan was enacted now, the government would be legally obliged to compensate Ringway Jacobs - theoretically the full value of the contract but in reality, likely a smaller but still very significant amount of money. For the sake of example, let's say £2billion.

In the short term, the impact of the company is actually advantageous. They get paid a very sizeable amount of money but not have to do any work. In the mid to long term though, it severely weakens the company. The share price will undoubtedly fall, cost of redundancy will be high and whilst not their fault, reputation may also be hit making it a bit more difficult to win more work.

The government however has just dug a very big pothole for themselves. A service that previously cost them £3b is now £5b taking into account the early contract compensation they made. So the question is, can the public sector provide a better service for £2b less than the private sector needed because that's the only way this scenario makes financial sense.

Essex is one of the better run councils (feint praise I know!) but I very much doubt this would be possible.

My guess is that the OP's gripe is the quality of work done by contractors for the public sector. He may have a point but this is less to do with how the money flows, or even the amount of money that flows and everything to do with contract management, planning, engineering, etc...

I work exclusively for public sector clients and it's said that when you do so, the aim is to do the best second-rate job you can. I choose not to but I do understand the theory. Perfection is rarely noticed, never requested, hardly ever paid for and the need to tender for work removes the opportunity to build lasting and loyal client/supplier relationships.

I'm currently working on a tender where our approach to the schedule of working and meeting deadlines is ranked and scored higher than quality and even credentials. There's no practical need for this, it's just the way the system is and the lack of anyone able or willing to say 'hang on a moment, isn't there a better way to do this'.

Not sure if that answers the OP or fully addresses the issue but my view from working for the public sector that it's much, much more about capacity, competency and mindset than it is about money.

[FoolsErrand]

Thanks for the replies and to those who spotted that the example is but an analogy so we don't need to go full smash the gangs.

The proposed changes will not encroach on any existing contracts, but the opportunity for subsequent work will be affected and the effective marketplace shrunk. The main gripe is not so much that the government provision is inferior, but that the funding and choice has been taken away from the local authorities to the significant detriment of several SMEs.

It very much seems that the central government offering will be the legal bare minimum, not even reaching 'best second rate service'. My impression is that the current service would be seen as positively luxurious by comparison, but it is not clear how the decision has been made, who controls the budgets, and if the end users are aware of what is to come.

[AndyAudi]

Unlikely the private sector has any claim to future work.
(Which would’ve likely gone to tender anyway & wasn’t guaranteed to the incumbent even if they considered themselves best placed

The central government team were also in the market just not being utilised, someone somewhere thinks it’s better public perception to use resources they are paying for & get an adequate job rather then paying twice.

Frustration is nearly always Joe Public generally seems to think public money shouldn’t be “wasted” on private business profits when authorities could do it themselves for “cost” , real world we know inefficiencies means their “cost” is very different & waste is different..

Actual pothole squad example.
Afternoons allocated to pothole patching
Lorry dispatched for for minimum order
Less then half tar used for an afternoon potholling, & dumped with appropriate waste transfer paperwork & associated cost
Repeat daily

Private sector squad operates using same standards & does a weeks worth of potholes in 1 day with same number of bodies (& they have one full lorry instead of 5min collections & subsequent 5 deliveries to waste transfer station using half the tar.

We all know the private sector makes sense, but no politician wants to pay off the government team & transfer the work to people making profits though.

Edited by AndyAudi on Wednesday 3rd September 10:57

[Simpo Two]

StevieBee said:

Ringway Jacobs has just won a 10-year contract with Essex County Council to look after 5,000 mile of roads across the county. This contract is worth £3billion

And that IMHO is indicative of the problem. By the time you've paid reams of supervisors, managers, company directors and shareholders in addition to a bloke with a wheelbarrow, how much is each pothole actually costing to fix? The roads are falling apart faster than we can fix them and costs will carry on spiralling upwards.

[borcy]

FoolsErrand said:

Thanks for the replies and to those who spotted that the example is but an analogy so we don't need to go full smash the gangs.

The proposed changes will not encroach on any existing contracts, but the opportunity for subsequent work will be affected and the effective marketplace shrunk. The main gripe is not so much that the government provision is inferior, but that the funding and choice has been taken away from the local authorities to the significant detriment of several SMEs.

It very much seems that the central government offering will be the legal bare minimum, not even reaching 'best second rate service'. My impression is that the current service would be seen as positively luxurious by comparison, but it is not clear how the decision has been made, who controls the budgets, and if the end users are aware of what is to come.

It'll have come from the treasury. They, culturally, dislike local govs from making any real decisions.
There's a push, and has been for a couple of years, to centralise spending through expanding existing central gov contracts.

[Geoffcapes]

To do council work you must be part of the council framework.

This costs time, effort (a lot) and money (also a lot).

This means that council contracts invariably go to the big boys.

As an example, I recommended (and sent a proposal) to my local council for CHP for their flagship sports centre and swimming pool.

I was told I couldn't tender as I wasn't part of the aforementioned framework. And to enter the framework it would cost roughly 3.5k (from memory) and you could enter every 3 years and pay a membership fee (can't remember how much but it wasn't cheap).
I sent them my proposal anyway. The facilities guy said it was exactly what they needed and priced well under what they were expecting to pay.

When the contractor who won the job submitted their proposal to the council and was therefore open to public scrutiny, I raised about 2 pages of concerns about the proposal (especially as I am also a tax payer of the council), basically saying it was over priced, half of the equipment was unnecessary, and that the project was doomed to failure.

The response was "we take your comments on board but disagree". I responded stating a number of technical issues with what they were suggesting (basically telling them they were wrong) and that the CHP (actually they installed 2) would breakdown and not work as they are not worked hard enough.
And that they would be stuck paying for something for 25 years that didn't work.

I was completely ignored, and the conceal went ahead with the plans submitted by one of the 'big boys' to a cost of around £1.2m plus the cost of the power the CHP generated. Which index linked would be around 24p today (not much of a saving eh?).

Both CHP's broke down within 8 months, and have not worked since. This was in 2024.

Yes this is a long winded rant, but basically council works are jobs for the boys, and save no one money, especially not the tax payers.

And that's before you get me started on Laser (Kent County Council's energy buying group!).

[Hoofy]

Simpo Two said:

We have lots of migrants. Give them a wheelbarrow of tarmac and get them to fix the potholes for £1 each if they want to stay.

Lots of labour, low cost, everybody wins - migrants, councils, government, taxpayers and road users.

I don't know why they're not given roles that nobody is doing if they're getting pocketmoney and free accommodation and they're allowed to go out. Fruitpickers were in short supply over summer, I heard? But also as you suggest, and doing things like cleaning graffiti.

[StevieBee]

Simpo Two said:

StevieBee said:

Ringway Jacobs has just won a 10-year contract with Essex County Council to look after 5,000 mile of roads across the county. This contract is worth £3billion

And that IMHO is indicative of the problem. By the time you've paid reams of supervisors, managers, company directors and shareholders in addition to a bloke with a wheelbarrow, how much is each pothole actually costing to fix? The roads are falling apart faster than we can fix them and costs will carry on spiralling upwards.

That is indeed true. But to be honest, I don't see it being much different if these services were brought in-house. There's several examples around the country where Local Authorities have set up commercial companies (normally jointly with neighbouring authorities) to deliver key services such as waste management, road maintenance and similar where the shareholders are, in effect, local residents. These seldom deliver any practical or cost benefit compared to outsourcing yet the financial risks are greater. Many such entities are often off-loaded to private sector operators.

At the moment, the way Local Authorities are set up and run makes them unsuitable to operate many of these types of services. That shouldn't be the case but it is and I fear the level of investment needed to change that means it unlikely we'll see much change anytime soon.

So it comes back to how these contracts and procured and then managed because here is where much of the issue stems from.

It is (or was) common practice for larger contractors to essentially 'buy' contracts by under pricing the bid. For many of the bigger companies, the number of contracts and turnover had a greater impact on share price than profit. So they'd win a bid on a price that would deliver them a loss - the share price would increase a bit as a result which keeps shareholders and investors happy, and then they'd try to recoup the loss over the duration of the contract by delivering low levels of service but just enough to comply with the contract terms. This is a practice that was stopped in theory but I'm certain still goes on in some way shape or form.

Comes down to price - v - value. A Council Member proclaiming they have saved local tax payers X£millions is more of a perceived win that them saying "we're paying a bit more but the pot holes will get fixed quicker and better". You and I know the latter is preferable but the rest of society just looks at how much!

Geoffcapes said:

To do council work you must be part of the council framework

Not always.

I'm on three frameworks which combined account for around 35% - 40% of my turnover. All my work is public sector and the majority is won by submitting proposals to published tenders or even direct award contracts where we can demonstrate a unique service.

But certainly on the bigger contracts which you may be referring to, your observations are correct.

I could write a book on why you should never do work for the public sector.

But I could also write a few volumes on why you should!

[borcy]

StevieBee said:

At the moment, the way Local Authorities are set up and run makes them unsuitable to operate many of these types of services. That shouldn't be the case but it is and I fear the level of investment needed to change that means it unlikely we'll see much change anytime soon.

In what way are they not set up to run things like bin collection etc?
Not having a go, just interested.

[StevieBee]

borcy said:

StevieBee said:

At the moment, the way Local Authorities are set up and run makes them unsuitable to operate many of these types of services. That shouldn't be the case but it is and I fear the level of investment needed to change that means it unlikely we'll see much change anytime soon.

In what way are they not set up to run things like bin collection etc?
Not having a go, just interested.

You can have a go if you like.... if you think you're 'ard enough!

My observations are based on 30 years of doing work for the public sector; 160 local authorities or there abouts!

Local Authorities use a process and procedure approach. This is to minimise, ideally avoid, all financial risk. This is a good thing because when they step away from this, bad things happen (see Thurrock Council for more information). However, over the past 20 years, the degree with which process and procedure impacts on what they do has grown exponentially to the point today where the emphasis is on 'doing things the right way' at the expense of 'doing the right things'. The capacity for local authorities to be imaginative, innovative and creative has diminished greatly, replaced with 'Best Practice' and 'Due Process'.

Now, that shouldn't be an issue. All we really want from the council are good quality public services provided at a decent price. But the problem is that the society a council serves has and continues to evolve at a pace they find exceptionally difficult to keep up with. Process and procedure gets in the way.

Let me give you one theoretical and one real example.

Let's say Ringway Jacobs attend a trade show for Road Maintenance equipment and stumble across a new bit of kit that, the maker says, will revolutionise pot-hole repair. £1m a piece! Ringway Jacobs may look at this, and consider that it's worth a punt. They go to the bar, do some sums, go back to the stand and place an order. The kit arrives a week later and they start using it. It works as described, happy days. If it doesn't, at least they tried.

Replace Ringway Jacobs with a Council of your choice; the decision whether to buy it or not would have followed months of cost analysis, risk assessment, business case writing, tendering, procurement process......

Again, I'm not saying this is a necessarily bad thing. We don't want councils spending £1m of our money on something that may or may not work but the process of determining that itself costs money - and time so in this scenario, a private company has the flexibility and capacity to try things out and move quicker without financial impact on the public purse.

Back in 2013, I and two other companies developed an innovative incentive scheme that had the potential to greatly increase the amount of recycling captured. Recyclable material generates a revenue and we figured out a way to tap into that revenue and divert a proportion of it to residents based upon the amount of recycling they put out in the form of incentive rewards, that were matched by retailers like Tesco, M&S, etc. The cost of implementing this scheme to local authorities was around £10k. The projected benefit to them based on a typical household count of 60,000 homes was around £250k each year. We pitched to a great many councils. All loved the idea. None of them committed because:

a) There was no competition to enable a proper tender to be conducted
b) Many wanted local independent retailers to participate rather than the nationals - but local indies wouldn't have been able to afford participation
c) The scheme needed access to household information and they couldn't work out how to accommodate GDPR (even though it didn't actually apply)
d) None of them could commit to something beyond a single financial year and the scheme would need at least two to start seeing returns.

In the end, we lobbied the Minister of Local Government at the time (Eric Pickles - what an interesting character he was!!) £40m was made available to councils to trial Recycling Incentive schemes which led to the emergence of two competing schemes. We got ours into 12 councils. They ran for several years and all but one demonstrated success. But as soon as the government funding stopped, they dropped the schemes. Recycling levels fell as did the revenue and to a level greater than would have been needed to maintain the schemes and the levels of recycling it achieved.

You mention Bin Collections. This is my main thing with Councils. Collection is one area Councils are generally very good at. I can say with certainty that where Councils use in-house services, those services are significantly more efficient compared to where they're contracted out. The back end of waste management is a different story. The entirety of the UK's waste sector is geared around disposal avoidance; so, composting, energy from waste and recycling. This means that materials become commodities which mean that those entities that manage that part of the process have to become commodity brokers and be exposed to the fluctuations in value that prevail. The private sector here acts as a buffer between those fluctuations and the local authority.

Bottom line is that the private sector can and should play a vital role in the delivery of public services. Not for everything. But, procurement practices and contract management (as in the management of relationships between client and provider) needs reform for this approach to be properly optimised (IMO).

[borcy]

Interesting thanks. I think the process driven thing is a concern about anyone getting anything wrong because they did something a bit different or that there's even a whiff of corruption.