A toolkit for insourcing in Wales: interim report - 3. Case studies
An interim report by The Centre for Local Economic Strategies (CLES) to explore insourcing in Wales.
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Wigan were one of the first local authorities to take advantage of the trust model, spinning out their leisure service provision from in-house into an independent charitable business that can access benefits of business rate relief, with the added mandate to reduce its £2 million subsidy from the council.
However, a schism emerged as the council began to have growing concerns about the lack of a public service mission and culture at the trust. Here, the council was particularly concerned that the surplus generated was not being reinvested, when 190 out of 300 of the trust staff were not paid the real living wage, with many on zero-hour contracts. Relations soured further when the trust furloughed staff meaning their low-paid staff lost 20% of their incomes. The council responded by offering all of the trust staff the opportunity to join their redeployment effort in care homes and homeless support services. 100 of the trust staff were redeployed and supported the council’s emergency efforts with great success – transferring their skills into care work, the staff have transformed the local care system. One example noted that some of the gym instructors were redeployed to a small, supported living scheme for adults with learning disabilities. The staff there noted that they have attempted commissioning services to influence active lifestyle orientated care for decades, without much impact. After the gym instructors were redeployed from the leisure centre, the lives of staff and residents were transformed. This showed the power of integrated services to deliver on wellbeing goals of local residents, in comparison to the extractive nature of the previous arrangement and the decision to insource leisure services was consolidated.
In total, the work to insource took a period of 4 months but this required significant efforts to achieve within that timeframe. Throughout this period, the main focus was ensuring staff satisfaction and trade unions were consulted early which enabled the council to move at pace – 259 members of staff received an uplift in pay and 255 took up the offer of transferring to Wigan council terms and conditions. One challenge emerged around senior staff exit, which proved to be a painful process, but no different from any other process of significant organisational change.
Neath Port Talbot
In 2003, Neath Port Talbot’s (NTB) leisure service span out into Celtic Leisure (CL), a mission and values orientated Industrial & Provident Society. In 2018/19, CL’s financial reports indicated that it was in financial difficulties and, even with use of reserves, would be insolvent within 18 months. Following this, the local authority had no desire to inject more funding into the current model and early assumptions noted that market provision would be more cost effective. However, COVID had arrived and political priorities shifted with a change of elected members and a sustained trade union campaign which impacted the council’s policy position – this resulted in a shift in emphasis from a financial bottom line to social justice, fair work, pay and terms and conditions. To deliver on broader social justice aims, it was also noted that arms-length service provision would frustrate the ability to exploit partnership working and service integration, as is also seen in the case study from Wigan leisure services, with hopes to integrate active lifestyle NHS schemes with leisure provision. In addition, staff were concerned about their futures with a private sector contractor in an increasingly unstable market.
There are advantages that NPT can exploit in their insourcing process. For example, CL retained the ability to access Welsh Government funding during the pandemic where other trusts could not, and this may have had influence on the insourcing process so far.
As the insourcing process is approaching completion by April 2023, challenges are emerging. The elected members have recognised a funding gap for in-house provision alongside commitments made for significant investment in facilities. This is not insurmountable, with plans to develop an improved service offer to meet the increasing demand for income. In addition, staff felt that CL had some better terms and conditions than the NPT could offer, particularly on redundancy pay commitments. While most are comparable, early and regular trade union engagement allowed for TUPE’d staff to maintain their original terms and conditions.
Housing and maintenance
Islington London Borough Council
After a decade of contracting housing repairs and maintenance with a relatively favourable joint venture agreement (JVA) with a private contractor, Islington embarked on an ‘in-sourcing first’ policy. With 32,000 homes within a small geography, initially they found that the scale of the task to set up an in-house service within the time available was challenging. Islington Council instead embarked on a small pilot, bringing the 10-person estates services in-house, while maintaining the JVA for another contract of 3 years. At the end of the pilot and the contract, it was advised that although it would cost £4 million per annum more to run the entire housing repairs and maintenance services in-house, with another £2-3 million in one off costs, the accrued benefits around customer service and satisfaction meant that in-house delivery would be a good deal for the council and residents. In addition, given current market instability, the move to insource has been deemed as “prophetic” – safeguarding against current and future cost and instability of private and JVA contracts.
The in-sourcing project took a year and has proven to be a very large operation, committing the in-house service to 75,000 repairs per year, and a turnover of £35 million. One key challenge was related to the council’s reasoning for pursing an in-sourcing policy resting on service quality, efficiency and customer satisfaction, there was an extensive operation required to retrain the insourced operatives around new sets of values and incentives as well as expanding skill sets. This has proven to be worthwhile, with customer satisfaction rising from circa 50%, under the old JVA, to approaching 90% undercurrent in-house provision.
Our consultee noted that, moving forward, their ability to insource is directly related to what else, and how much, they have already insourced. For example, the in-house building repairs and maintenance services has enabled the council to take on 4000 stret properties.
Stoke-Upon-Trent Unitas Ltd, Stoke-Upon-Trent City Council
In 2016, with the current joint venture agreement due to expire after 8 years, Stoke-Upon-Trent City Council’s political leadership asked for a review of contracts to compare costs, quality, and productivity. The review found that the current contract was more expensive on basic performance indicators, such as cost of repairs per property per annum. Due to austerity measures and year-on-year budget reductions, there was also a need to generate additional income streams to feed back into budgets, as well as support for local supply chains impacted by the recessionary environment.
Stoke Unitas was established as a wholly owned company founded in 2018 on the council’s vision “to provide a high-quality repairs and maintenance service as a reasonable cost, that meets the needs of tenants and public building users” (Presentation: The Road to Insourcing. Brazier, C. Wilson, S., City of Stoke-on-Trent City Council). Unitas provides repairs and maintenance services for over 17,500 homes and 600 public buildings (Unitas Stoke-On-Trent Ltd: About). Beyond the rationale of improving service quality and cost, Unitas has been reported to be on track to redirect 5 million pounds back to the council’s purse due to its ability to operate commercially, providing services to other public bodies (Rebuilding Capacity: The Case for insourcing Public Contracts. Hulston, M, 2019. APSE). Additionally, Unitas have embraced progressive spending practice and social value through gearing it’s procurement strategy towards broader social justice objectives, supporting local and generative suppliers wherever possible. At current, it is reported that Unitas is procuring 78% of its products within Stoke postcodes (ibid.).
At current, there are challenges emerging in this model. Speaking to stakeholders from Unitas’ trade union representation, we found that industrial relations have deteriorated over time from what was initially a harmonic start. We heard that the drivers of this were two-fold. Firstly, the organisation’s primary aim to generate surplus has been detrimental on workforce culture and employment practices. Secondly, the arms-length nature of the organisation means that internal priorities can be greatly influenced by key senior members of staff which, if these staff members change, the maintenance of healthy industrial relations can become de-prioritised.
University of Wales Trinity Saint David Group
University of Wales Trinity Saint David Group (UWTSD Group) is large, constituting of 2 FE colleges and a university of 5 campuses across Wales and England. The recent history of outsourcing and insourcing across the group, and indeed the sectors, is not consistent. Coleg Sigar, for example, has outsourced catering and cleaning for over 25 years and there is not much confidence that this will ever come back in-house. Here, there are efforts to contract their cleaning services with Welsh SMEs, but this effort is 15 years in the making. On the contrary, Coleg Caredigion has catering and cleaning in-house and is unlikely to be outsourced in the near future due to market instability. This is a similar story at the university, where most services are run in-house with exception to security, cleaning and catering.
Our stakeholder at UWTSD Group noted that the main driver behind insourcing and outsourcing decisions across the group is cost. However, they feel that the costs aren’t always fully understood and that there is a sense that some people do not understand the “real costs of doing things in-house and therefore tend to prefer in-house options”. Here, they specifically refer to the pressure of overheads in general administration, managing supply alongside navigating complex regulatory regimes and auditing requirements. Catering in particular stands out as a service where this pressure is particularly apparent. For HE and FE organisations, this can be a very difficult task for a non-specialist organisation and outsourcing has proven to be a means to ensuring expertise is available. However, this does not mean that contracts needed to be awarded to large, extractive firms – smaller and generative suppliers can be sourced to provide this service. However, as it stands, this practice ultimately rests on the shoulders of individual procurement officers that have personal interest in this agenda.
Hywel Dda University Health Board
Hywel Dda University Health Board (HDUHB) noted that a focus on insourcing might miss the opportunity to think more creatively about how to look at service provision. Given that there is a fixed cash flow from the public sector, HDUHB is keen to explore how best this spend is used to grow a more generative economy. As examples, HDUHB highlighted practices where spend is used to incubate ‘enterprises’ which can then be spun off as cooperatives or social enterprises, similar to the practice previously seen at Port Neath Talbot leisure services which saw Celtic Leisure become its own arms-length not-for-profit which, alike Wigan’s leisure services, were eventually brought back in house.
At current, HDUHB are exploring the role of food procurement, with an opportunity to establish a cook/freeze facility. This will be done in partnership with a locally rooted, family-run SME. This approach, they argue, supports the local economy in a way that whole-sale insourcing may not be able to. However, they noted that safeguards will need to be in place to insure against corporate capture by extractive capital.
Welsh School Catering
The landscape of food provision in schools is similar to Scotland - of 22 Welsh local authorities, 20 deliver school catering for their area through an in-house service and 2 provide it through a contract caterer. In contrast to what we have heard from UWTSD Group, this has proven to be a stable part of the Welsh public sector and fully compliant with regulatory requirements.
However, this can be proven to be more successful at larger footprints where whole local authority areas can provide a sizeable service with a central back-office support to meet the requirements of regulatory regimes. Where schools have tried to run in house catering themselves, they have found it difficult and have often returned to outsourcing or turned to the local authority for assistance. At current, there are 1,366 council-organised catering services for schools in Wales and 58 school-organised catering services. These figures have remained stable since 2015, showing the resilience of the larger footprint model of catering provision.
Streets and environment
COSLA, Glasgow City Council
Scotland, having not undergone large-scale outsourcing drives, still retains many in-house contracts including in environment and waste management.
Improving industrial relations is often framed as a key benefit to insourcing, due to services becoming democratically accountable and “run in the public interest, not in the interest of wealthy investors and shareholders” (Better Public Services: A Unite Toolkit for Insourcing in Local Government. Unite). However, there are lessons to be learnt from in-house contracts where deficiencies in industrial relations appear. A significant occurrence of a breakdown of industrial relations occurred when 13,000 Glasgow City Council employees announced strike action in late 2021 after staff, represented by general workers’ trade union GMB, rejected a pay proposal (Council chiefs plead with striking binmen in Glasgow to axe COP26 industrial action. Sutter, R., 2021. The Glasgow Times).
GMB notes that they are not ideological about particularities of public service delivery models, and fundamentally pay and conditions is what matters to them and their members. They noted that, generally, public industrial relations in public contracts are healthy, but issues are likely to occur when there are unclear lines of responsibility within councils for industrial relations and collective bargaining. In addition, improvements in industrial relations within public service delivery often has to wrestle with existing agreements which can frustrate those relations. For example, Glasgow City Council has committed to equal pay agreements across all service areas which makes it difficult to commit to pay increases in particular services without implications across the council’s service portfolio.
Derby City Council
From 1997 to 2019, highways maintenance operations in Derby were outsourced. Prior to 2013, the outsourced contractor was Carillion who was later subject to compulsory liquidation. Historically, the council has struggled to effectively manage outsourced contracts with a series of issues emerging with each retender. This was driven by the skills available at the council and meant that contractors were able to “play the game” in the tender process to maximise their revenue. Unscrupulous practices, such as loading rates for more lucrative work and increasing rates to make significant earnings from subcontracting, meant that disputes were common. In one instance, Derby City Council was awarded a one-off £500,000 from UK government for winter road repairs, Carillion subcontracted the job and extracted a 20% cut.
Ultimately, value for money was a key consideration in the decision to insource. This has been proven to be worthwhile, with Derby City Council citing a greater degree in operational flexibility and resilience to market instability through the ability to internally reallocate labour resource to meet demand. With a demonstrated greater value for money and bolstered through massive political support across the political spectrum, elected members have agreed to increase the budget by £9million over the last 2 years. Looking to the future, the council are looking to establish a trading company, similar to that of system exhibited by Stoke-Upon-Trent Unitas Ltd.
This has not been without its challenges. One specific key challenge was noted in the TUPE process, which created uncertainties about terms and conditions for transferring Carillion workers. A broader challenge that was noted by DCC was the significant investment of time and effort required to manage the process of insourcing, particularly in the level of staff engagement required to maintain high morale and productivity.
Other Welsh case studies
Wales Facilities Management
The Welsh Government carried out a review of soft Facilities Management services (mainly office cleaning, security guarding, reception services, pest control, waste management, grounds maintenance and certain other specialist services such as beekeeping, plus in-house catering and hospitality services at offices across the Welsh Government administrative estate) in 2019-20. This was in the context of the recent collapse of Carillion and Interserve and concerns that other large FM companies may also be facing financial pressures and could pose a threat to long term business continuity. There were also concerns about inequalities across the terms and conditions of staff.
The review considered 3 options – ‘do nothing’ (continue with the current outsourced provision), insourcing all the services to be provided in-house, and a hybrid, where the catering elements only would be insourced.
The review discounted both the in-house and hybrid options on the basis of cost and risk.
The business case was evaluated against affordability, economic best value for money, business continuity and staff inclusivity.
Of particular interest in this case study is that the evaluation approach (with the exception of the focus on staff inclusivity) largely centred on implications for the commissioning organisation and issues of service delivery as opposed to a broader framing through a Wellbeing of Future Generations lens. As such, wider socio-economic implications did not influence the decision-making, and the political aspirations were referenced only with respect to concerns about workforce inequality, and not to the broader strategic fit in the context of the Programme for Government.
Merthyr Valley Homes
Merthyr Valley Homes (MHV) is Wales’ only a tenant-employee mutual housing provider and were transferred 4000 properties from Merthyr Tydfil County Borough Council (MTCBC) in 2009. Since then, MHV have been guided by a drive for added value, service quality improvements and support for the Welsh foundational economy to insource elements of their business and service provision. This has included a shared auditing service, shared with two other housing providers, grounds maintenance and youth services.
For the development of the shared auditing service, MHV found that there was a need for this service to be delivered by a distinctively Welsh firm who was more familiar with Welsh regulatory and auditing regimes, with a public service ethos. The set up of this service has been successful, with the service growing into larger, separate independent organisation with their ethos and practices firmly retained and contributing to supporting the Welsh foundational economy.
MHV had inherited their grounds maintenance services from the council and this was generally good service quality and in-house council provision. However, the labour employed were agency staff with no full-time employment offer, poor terms and conditions and no pension offer. MHV judged that this was not offering value for money, so they insourced this service and offered all TUPE’d staff full time employment, on standard terms and conditions, incremental pay scales and substantial career development offers.
Prior to insourcing, MVH worked with Cwmpas to evaluate current service provision and alternatives, while considering impact on local social enterprises if insourcing options were pursued. Here, it became apparent that local generative providers didn’t have all the required skills and capacity to deliver the services that MVH required. MVH began to work with local suppliers to build skill sets for more holistic service offers than currently available.
Welsh Government ICT services were previously contracted with Merlin ICT, which expired on 11th January 2019. After extensive evaluation of the risk, economic and benefit appraisal an internal ICT with selective outsourcing was chosen as the model of choice. This hybrid model allows for Welsh Government to retain control of key functions and delivery, while considering the potential for strategically beneficial outsourcing. This hybrid model was prioritised over centralisation, despite the latter being potentially the cheapest option, due to risk and critical successes due to the size and complexity of brining the entire IT services into the Centre within a very short period of time.
Within the entirety of the ICT service, it was only professional and technical services that were ear-marked for potential supplementation with outsourcing. It was noted that this model could involve a TUPE transfer of up to 80 staff but would not require any additional costs for HR or accommodation.
While the motivations to insource and impact evaluation is primarily driven by the need for longer-term cost reductions through greater flexibility of service provision, the Well-being of Future Generations Act is noted as a point of reference within the evaluation criteria. In addition, there is a need for ICT to “achieve [a] citizen focussed model of service delivery … and any future WG ICT operating model will need to be interoperable with the wider public sector” through: taking control of WG ICT; modernising platforms; liberating from infrastructure refresh investment cycles; enabling greater flexibility for staff and; insourcing ICT as a means for job and apprenticeship creation for people in Wales.
Transport for Wales
Transport for Wales (TfW) is a wholly owned company of Welsh Government who, aside from rail, also hold a broader remit in consultancy for local authorities and Welsh Government on public transport provision and active travel. TfW was set up in 2016, under the remit of shortly after the introduction of the Well-being of Future Generations Act (2015), under the responsibility of the Ministry for Climate Change, which enables TfW to offer purpose and policy driven services.
Rail franchising has been, so far, the most significant example of insourcing at TfW but they have also engaged with insourcing of specific business areas such as catering and train cleaning, as well as purchasing a private sector rail maintenance company. Insourced catering services has enabled TfW to take control of supply chains in order to support Welsh generative enterprise, whereas insourcing of cleaning services have enabled fair work practices in line with the Welsh fair work agenda. Further, insourcing has enabled further partnership working with other public services, such as the Welsh Global Centre for Rail Excellence (GCRE).
TfW noted that while the long-term benefits of insourcing were clear, there are tensions that exist around budget management, cost evaluation and the need to deliver on longer-term goals as outlined in the Well-being of Future Generations Act. TfW also expressed that they felt support would be valuable regarding support for new supply chains. For example, when catering is insourced and there is an intention to localise supply chains with generative food enterprise, this may require new business functions in order to evaluate wider impacts of insourcing within the Welsh economy. Further, TfW noted challenges involved within the TUPE process when new staff are transferred when previous roles, pay and conditions are not comparable. This issue is exacerbated when staff are transferred from industries of low trade union density to high, such as public transport.
NHS Shared Services
As part of our stakeholder engagement with the trade unions, we have heard of examples of outsourcing decisions – for example, in relation to cleaning services for corporate headquarters – which have resulted pay and conditions for staff on less favourable terms than had these staff been employed in-house. The view was expressed that such outsourcing decisions can be made via internal governance arrangements that are out of view of public scrutiny.