Service Reviews â Outline Business Case - Somerset County Council

(Cabinet – 2 May 2012) 

Somerset County Council 

Paper A 

Cabinet Appendix 1 

Programme and Project Management Handbook 2011 

Service Reviews – Outline Business Case 

Service Review Title: 

Learning Disability Provider Service 

Version: 3.0 

Status Final 

Document Name: LDPS – OBC 3.0 

Author: Mel Lock/Stephen Miles 

Owner: 

Last Review: 

Next Review Due: 

Name Signature Title Revision history Date Version 

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Executive Summary 

The Learning Disability (LD) In-House service provides Care Quality Commission (CQC) 

regulated Residential, Supported Living, Shared Lives and domiciliary services. It also 

provides day and work services. The customers supported by the service are among the 

most vulnerable people in receipt of social care funding, and include individuals with 

complex physical needs, autistic spectrum conditions and those whose behaviour 

challenges services. These services are jointly funded via a pooled budget arrangement 

with NHS Somerset. The aim for this service is to deliver good, quality and sustainable, 

outcomes for customers that are value for money. 

The Learning Disability Provider Service (LDPS) is a jointly funded and commissioned 

service with the NHS with SCC acting as the lead commissioner. The service was set up 

between Somerset County Council (SCC) and the NHS in the early 1990’s. Any decision 

to change the service would therefore need to agreed by both the SCC Cabinet and the 

NHS Somerset Board. The outline business case will be considered by the new Somerset 

Clinical Commissioning Group who will make recommendations to the NHS Somerset 

Board. 

This service was subject to an options appraisal in 2010. The process previously 

undertaken was: 

• In March 2010 a Joint Commissioning Strategy was agreed by SCC Cabinet and 

NHS Somerset Board. 

• Between April and August 2010 a full options appraisal was developed which 

including soft market testing based on actual cases. 

• On the 20 th October 2010 the options appraisal was considered by SCC Cabinet 

and the NHS Somerset Board. The option selected was to remain in-house but 

redesign services to drive out inefficiencies. The savings target for this was £3.33m 

(including savings to be received by NHS Somerset as joint commissioner) by 

March 2014. 

• To date £730k of savings have been achieved and plans are in place to achieve 

the rest by a complete remodelling of the staffing structure, the Residential Short 

Break service and the Work Preparation Service. 

• We have also completed the review of 6 Supported Living services. The original 

expectation was that each review could lead to a small-scale outsourcing exercise. 

We have postponed this while we complete this Service Review. 

This outline business case considers whether: 

• The services delivered by the provider service are “need to do” want to do” or “nice 

to do” 

• The County Council has to commission these services 

• The County Council has to deliver the services directly 

• Alternative methods of delivery would be beneficial 

Somerset County Council is legally required to continue providing funding to those 

customers that meet or exceed the Fair Access to Care Services (FACS) eligibility 

threshold. As this customer group meet this threshold the County Council will need to 

maintain funding. It does not, however, have to provide the services directly. 

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Personalising care is seen as a critical change to deliver greater customer satisfaction 

and improved outcomes by offering more choice and control. It is the foundation of 

current national policy for adult social care and will continue to feature in the new Adult 

Social Care White Paper, to be published later in 2012. Personal Budgets will, over time, 

lead to people making different choices about the social care services that they receive, 

and will provide additional incentives for service providers to personalise their response to 

each individual. It will require providers to operate in a way that embraces and responds 

quickly to customer need and market changes. The LDPS cannot respond fully to these 

challenges in its current form as remaining as part of the county council precludes 

providing services funded Direct Payments. 

The options considered in this outline business case are 1 : 

1. To keep the services in-house, but continue to remodel them through a Service Plan 

2. To externalise the LDPS to a Local Authority Controlled Company 

3. To outsource the entire LD LDPS through a competitive process 

Summary of Advantages 

Summary of Disadvantages 

Remain in the county council and continue to redesign and deliver efficiencies. 

• Low or no short term impact on customers. 

• Retains skills, expertise, knowledge and 

existing service levels. 

• No additional or double funding of corporate 

overheads, including Southwest One 

• Retains direct provision within the public 

sector which many carers indicated a 

preference for as part of initial feedback 

events 

• Least likely to generate anxiety and change 

resistance. 

• Maintaining the in-house provision avoids 

the risk of market failure, with its consequent 

dangers for vulnerable people and SCC's 

ability to meet its statutory responsibilities, 

as well as cost and reputational implications. 

• Does not incur short term change costs 

Whole service externalisation 

• During the initial feedback meetings with 

family carers they expressed an 

overwhelming preference for a transfer to a 

“not for profit” organisation, should the 

service not be retained within SCC. This 

could be ensured through an externalisation 

process. 

• Unable to provide services funded by direct 

payments (DPs). As more customers take 

advantage of DPs there is significant risk to 

the County Council of them choosing 

alternative providers, therefore increasing 

unit costs. 

• Retaining the LDPS in-house would require 

significant investment particularly relating to 

capital spend. 

• Inflexibilities in SCC corporate overhead 

costs means that the potential to maximise 

long term revenue savings will be more 

limited than either externalisation or open 

market tender. 

• Limited flexibility as some SCC decision 

making processes reduce responsiveness, 

particularly around HR, recruitment and 

arranging appropriate accommodation to 

meet customer needs 

• Limited opportunities for capital investment, 

sharing overheads with independent 

provision or offering services to people 

using direct payments during the initial 

contract period of 3 years while subject to 

the Teckal exemption. As more customers 

take advantage of DPs there is significant 

1 Further consideration needs to be given to the model for employment support services as part of the 

development of a full business case for any option that is taken forward 

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• Could be implemented as part of a phased 

approach, allowing SCC to better manage 

risk through the transition phase. 

• Would allow the LDPS to build a strong 

brand identity and reputation ahead of any 

future open market tender exercise and 

could potentially enable current service to 

bid within any future tendering process. 

• Would allow the LDPS to develop a user 

centred and outcome focussed service 

delivery approach, in line with customer and 

commissioner expectations ahead of any 

open market tender exercise. 

• Would enable SCC to retain access to the 

capacity to tackle struggling providers for a 

given period and therefore discharge its 

statutory responsibilities with the new 

organisation acting as “provider of last 

resort” for adults with learning disabilities. 

• Would enable the service to become more 

responsive around issues such as staff 

recruitment and deployment. 

Whole service open market tender 

• At initial feedback meetings, a number of 

service users expressed a desire to direct 

their own care through a direct payment, 

which an outsourced organisation would be 

risk of them choosing alternative providers 

therefore increasing unit costs. 

• Carers could not see the benefit of a two 

step approach as legally we would probably 

need to tender the services within 3 years. 

• There would be extremely high levels of 

operational, financial and reputation risks to 

SCC should the new entity fail. 

• Initial financial and resource outlay will be 

high. 

• It is estimated that the implementation would 

take a minimum of 1 year due to the high 

level of complexity. 

• The level of risk could be high for an 

organisation of this (small) size until well 

established. This would be elevated risk 

during the first year unless skilled 

management with proven business acumen 

is embedded in advance of the 

externalisation. 

• Should the externalised organisation fail to 

win any tender at the end of the initial 

contract period SCC could be responsible 

for funding any resulting costs. It would also 

be responsible for funding any one-off costs 

as a result of service reconfiguration. 

• Contracting with a single provider for these 

services, which currently account for over 

half of the expenditure, may limit choice and 

service quality unless robust contract 

management processes are put in place and 

adequately resourced. 

• Costs are likely to remain higher than an 

outsourcing arrangement due to the need to 

the need to continue to procure back-office 

services from SCC and/or Southwest One or 

set them up from scratch. 

• A full reassessment of all residential care 

and supported living care packages will 

need to be undertaken in advance of any 

transfer in order to mitigate some, but not 

all, risks related to cost escalation. This will 

incur additional costs. 

• Two big changes in 3 years could generate 

unnecessary anxiety amongst vulnerable 

users. 

• Initial financial and resource outlay will be 

very high and this option would be likely to 

require a dedicated team to implement 

• Due to the size of the service, and the need 

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free to provide. 

• The entire service can be evaluated against 

current market rates, potentially resulting in 

the service being outsourced at a lower cost 

than the current LDPS budget. 

• There is a reduced risk of service failure 

subject to adopting a robust and wellmanaged 

tender process, eliminating any 

“weak” bidders at the outset. 

• Would be a single-step approach. 

• A lead provider could sub contact. This 

would facilitate the participation of small 

providers that might otherwise be “crowded 

out” by Option C, externalisation. 

• Would allow the service to rapidly adopt 

best practice from the successful bidder 

• Outsourcing the LDPS as a whole would 

provide opportunities to reduce operational 

overheads as bidders would be likely to 

already have resources that could be 

extended, allowing the overheads to be 

shared across a broader range of services, 

rather than newly established. 

• We would expect to favour bids that include 

opportunities for external capital investment. 

• While the tender process for a large 

outsourcing exercise is complex and time 

consuming SCC would avoid potential ongoing 

complications relating to the Teckal 

exemption. 

• A competitive tendering process should 

encourage cost efficient bids that drive out 

savings. The tender and evaluation process 

would ensure that these were sustainable. 

to carefully involve people who use the 

service and carers at all stages of the tender 

and evaluation process, it is estimated that 

the implementation would take a minimum 

of 1 year 

• There are significant and complex property 

issues, and options to address the 

associated cost and risk factors need to be 

developed as part of the full business case. 

• Robust monitoring arrangements will need 

to be to be in place to protect vulnerable 

customers and provide reassurance to 

carers, many of whom expressed concern 

about the potential involvement of a “private 

for profit” provider in the provision of care 

and support for their loved ones during initial 

feedback meetings. 

• There is a potential risk of a service provider 

offering vacancies in supported living 

accommodation to people currently living 

outside of the County, ultimately leading to 

funding becoming SCC’s responsibility 

under ordinary residency rules. There could 

also be additional costs falling on NHS 

Somerset. There may be opportunities to 

mitigate these risks through SCC’s interest 

in the property assets utilised by the LDPS 

which need consideration within the 

development of the full business case. 

• Contracting with a single provider for these 

services, which currently account for over 

half of the expenditure, may limit choice and 

service quality unless robust contract 

management processes are put in place and 

adequately resourced. 

• A full reassessment of all residential care 

and supported living care packages will 

need to be undertaken in advance of any 

transfer in order to mitigate some, but not 

all, risks related to cost escalation. This will 

incur additional costs. 

• In the short-term at least there would be 

double funding of overheads, including 

some of those associated with Southwest 

One where they relate to activity that is not 

releasable. 

Stakeholder engagement activities have been held to inform the development of this 

Outline Business Case. The preferred option was:- 

• From service users: - There was no clear preferred option, however, the most 

important issue was that the staff that support them stay the same. 

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• From Carers: - To remain in the county council and continue to redesign. Carers 

were clear that they did not want to pursue the whole service externalisation 

option as they could not see the benefit of a two stage approach. 

• From Staff: - Remain in the county council and continue to redesign or whole 

service externalisation. 

Parents/carers and staff did however highlight a preference for a not for 

profit/charitable/social enterprise type organisation if we consider whole service open 

market tender. We will explore further how the new public services Act March 2012 could 

support this. 

The recommendation is to develop the whole service open tender option into a full 

business case, comparing this against remaining in the county council and continuing to 

redesign and deliver efficiencies. The full business case will need to be considered by 

Somerset County Council and NHS Somerset. 

In summary, the main benefits of this recommended option are 

• A greater opportunity for customers to exercise choice and control through Direct 

Payments. 

• Opening up opportunities for capital investment to improve and/or replace 

accommodation that supports quality care delivery. 

• To secure high quality provision with the potential for longer term efficiencies. 

. 

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1 Scope and context 

1.1 Background 

Somerset County Council’s (SCC’s) County Plan is to become a smaller, more 

enabling organisation focused on its customers, with a target operating model that 

ensures services are “right sourced”; i.e. that the most efficient and effective 

commissioning solution is applied to community needs. The expectation is largely 

that in future the Council will shape and influence service provision, rather than 

provide services directly. 

Unlike most other areas of adult social care provision across the country, Somerset 

County Council still has a large in-house provider service (the “LDPS”) that 

supports adults with learning disabilities who have a range of needs that meet Fair 

Access to Care Services (FACS) eligibility criteria. The customers supported by the 

service are among the most vulnerable people funded by SCC, and include 

individuals with complex physical needs, autistic spectrum conditions and those 

whose behaviour challenges. The LDPS accounts for 55% of the total spend 

against this customer group and supports approximately 900 of the 1600 adults 

with a learning disability across the county supported by SCC. The remaining 700 

customers are supported through spot or block contracts with external providers or 

via Direct Payments. These customers and suppliers are out of scope for this 

service review. 

It is anticipated that the growing use of Personal Budgets will, over time, lead to 

people making different choices about the social care services that they receive, 

and will provide additional incentives for service providers to personalise their 

response to each individual. It will require providers to operate in a way that 

embraces and responds quickly to customer need and market changes. The LDPS 

cannot respond fully to these challenges in its current form. 

The main issues that the LDPS currently experiences, through being an in-house 

service are: 

• It is unable to deliver services that are paid for using direct payments. 2 

• Its ability to invest in existing properties and source new accommodation in 

a timely fashion is restricted. 

• It is unable to attract new business other than from the County Council. 

• There is inflexibility in staff terms and conditions. 

2 Department of Health, A Guide to Receiving Direct Payments From Your Local Council: A Route to 

Independent Living, 2009, p16: Question: “Can I purchase services from my local council “ 

Answer: “You cannot buy services from your local council as it is not allowed to sell its services in this way.” 

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1.2 Key Service Information 

The key information used in the development of this Outline Business Case is 

shown in Table 1, below: 

Funding arrangements 

Commissioning arrangements 

Pooled budget with NHS. Funding ratio is 75% SCC and 

25% NHS. 

Commissioned in-house through SLA 

2012/13 Gross Budget/net Gross £32,219,090 

Net £28,480,100 

2012/13 Direct delivery costs £26,438,080 

2012/13 Operational 

overheads 

£2,042,020 

Customers Approximately 908 adults with learning disabilities and 800 

carers 

Summary of customer views 

Number of staff delivering 

service 

Potential pensions 

crystallisation costs 

Key partners 

Statutory basis of services 

Demographic context 

Policy context 

Constraints 

Outlined within paper 

1,218 staff (965.95 FTE) employed by Somerset County 

Council 

Awaiting figure following analysis of current staff 

NHS Somerset/Clinical Commissioning Group, Somerset 

Partnership NHS Foundation Trust 

The main acts are listed below, please see Appendix B for 

further details: 

• The National Assistance Act 1948 

• The Chronically Sick and Disabled Persons Act 1970 

• The NHS and Community Care Act 1990 

• The Mental Capacity Act 2005 

• The Carers and Disabled Children Act 2000 

• The Carers (Equal Opportunities) Act 2004 

• Health and Social Care Act 2008 

The number of adults with learning disabilities is projected 

to increase by 4.15% by 2014 and by 15.74% in those 

aged 65 and over. The improved survival rates of people 

with severe disabilities will have an impact and it will be 

important to develop an appropriate response to improving 

services for people with autism 

Valuing People (2001) 3 and Valuing People Now (2009) 4 

New white paper for Adult Social Care and revised 

legislation later in 2012 

Restrictions to the use of Direct Payments linked to the 

3 http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_4009153 

4 http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_093377 

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personalisation agenda 

Under the Health and Social Care Act 2008 the following 

types of service that are provided by the LDPS are 

regulated by the Care Quality Commission (CQC): 

• The provision of personal care for people who are 

unable to provide it for themselves, because of old age, 

illness or disability, in the place where they are living, 

for example, by a domiciliary care agency 5 . This 

includes domiciliary care provided as part of the 

“Supported Living” model of provision 

• Adult placement schemes 6 . 

• Accommodation for people who require nursing or 

personal care 7 . This includes residential care and 

residential short breaks 

2012/13 LD Employers 

Superannuation contribution 

Fees and charges 

This means that all services, other than day and work 

preparation, are subject to statutory regulation 

£4,656,600 

Adult Social Care fees and charges may apply to services 

provided by the LDPS depending on individual 

circumstances. As part of the Medium Term Financial 

Plan (MTFP), fees and charges are updated annually and 

adjusted to take account of cost of living and annual 

benefit increases, market factors, legislation, national 

guidance, demand and local policy requirements. Adult 

Social Care fees and charges for 2012/13 were set by 

SCC’s Cabinet on 1 st February 2012 8 . 

In terms of SCC statutory duties the following applies in terms of funding services 

to meet FACS eligible needs, irrespective of the type of provider: 

• Must do: Funding of Adult Social Care services to meet eligible needs under 

Fair Access to Care Services. The types of service that meet these needs 

include residential care, nursing care, supported living, shared lives (adult 

“fostering”), respite services (including daytime respite) emergency assessment 

service for people experiencing a crisis and support to carers. There is currently 

no single modern statute which outlines the statutory framework for Adult Social 

Care services 9 ; however it is clear that the County Council’s responsibility for 

funding these and similar types of service are underpinned by legislation. See 

Appendix B for an overview of the legislative framework. 

5 Care Quality Commission, The scope of registration, Care Quality Commission, December 2011, p17 



8 Item 9, Community Directorate Fees and Charges 2012-13, Appendix A 

9 The Law Commission , Adult Social Care, 10 May 2011, LAW COM No 326 

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• Want to do: These would be services meeting needs that are not FACS 

eligible, but would be beneficial to provide for other reasons such as preventing 

future need. In LD services this tends to be employment support services. For 

the majority of customers these employment support services provide a cost 

effective alternative to Day /Respite services which would need to be provided 

to meet FACS eligible needs, and provides vital support for many carers. 

1.3 Comparison of current service costs with the market 

Soft market testing undertaken as part of the options appraisal conducted in 

2010 10 indicated that the LDPS offered good value for money for care and support 

for people with the most complex needs, but was potentially not as good value for 

people with less complex (but still FACS eligible) needs. 

We are undertaking a more detailed analysis of Supported Living and Residential 

services to compare both quality and value for money against the market. A full 

analysis of this data will inform the Full Business Case. We have begun this 

process and have looked at four individual supported living services, operated by 

the LDPS. Early indications suggest that: 

• The current hourly rate for care and support is higher for the LDPS than that 

currently charged by existing external providers of similar services. The 

difference in rates, including an overhead rate of 15% 11 added to the LDPS 

(SCC) rate to enable comparison, is summarised in the following table. 

SCC 12 SCC 13 2012 2012 2012 2012 

2012 2014 Provider 1 Provider 2 Provider 3 Provider 4 

£17.18 £16.85 £14.85 £16.10 £15.82 £15.93 

Table 1 

• The future hourly rate that could be achieved once all planned service redesign 

is completed indicates that SCC may reduce their rate to £16.85 (£16.50 

removing the SCC pension’s shortfall liability). 

• We are currently discussing the likely timeframe to achieve this rate with the 

provider service but it is likely to take until 2014 as a result of changes being 

made through staff turnover. 

• The Supported Living service represents 47% of the LDPS spend. 

10 SCC Cabinet meeting held on 20/10/2010. Paper C, Appendix E “Soft Market Testing Analysis” 

11 External partner rates include all overheads, where as the in-house rate does not include SCC corporate 

overheads. Although a 15% rate was used to enable a comparison the actual SCC overheads rate applied 

to the LD Service is likely to be higher. 

12 Note: removing the SCC pension fund shortfall liability (enabled through externalisation) reduces the SCC 

rate in 2012 to £16.76. 

13 Projected hourly rate based on structural changes already in progress. Note: removing the pension’s 

shortfall liability reduces the projected SCC rate in 2014 to £16.50. 

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2 Options for Change 

The options that have been considered are 14 : 

A. Redesign services in line with the Localism Bill. The majority of expenditure 

(75% of the budget) is used to provide residential care, supported living and 

domiciliary care services. These would be difficult to deliver at a local level whilst 

maintaining a cost effective and equitable service. Mencap have been vocal in their 

concern about devolving this type of service to the community as, although they 

believe in greater devolution of power, they continue to highlight the risks that with 

increased local decision-making comes less cost effective services that will be 

subject to a ‘postcode lottery’. However some services, primarily respite day 

services and work preparation services may, in part, be better delivered at a local 

level. This option has been rejected for the whole service; however we could 

consider alternative models of delivery for day/work services as part of the full 

business case. 

B. Remain in the county council and continue to redesign and deliver 

efficiencies. Under this option we would continue with the existing programme of 

change, and develop a Service Plan to restructure and to meet the challenges of 

the Medium Term Financial Plan (MTFP), demographic trends and increased use 

of Direct Payments (DP). 

This option does not fit well with the high level design principles of the Target 

Operating Model and exposes SCC to escalated levels of financial risk as more 

people choose to personalise their services. Retaining the direct provision of these 

services was part of the options appraisal considered by SCC’s Cabinet in October 

2010. As a result of the Cabinet decision, the in-house service has been reshaping 

to ensure that it is outcome driven, streamlined and more cost effective, with £730k 

(including QIPP 15 ) of savings having already delivered and a further £2.6m in the 

pipeline. This has enabled the LDPS to begin to provide services that are more 

aligned with market costs and which are more flexible and responsive to customer 

need. This option is considered further in section 3. 

C. Whole service externalisation. Under this option the service would be moved 

out of the County Council without a competitive process. There are a number of 

different legal vehicles that need to be explored further in the full business case if a 

decision is taken to pursue this option, however in order to comply with European 

Union procurement regulations it is likely to take the form of a Local Authority 

Controlled Company. This option is considered further in section 3. 

D. Whole service open market tender. Under this option the whole service would 

be subject to an open market tender compliant with SCC contract standing orders 

14 Further consideration needs to be given to the model for employment support services as part of the 

development of a full business case for any option that is taken forward 

15 QIPP (Quality, Innovation, Productivity and Prevention) is a large scale transformational programme for 

the NHS, involving all NHS staff, clinicians, patients and the voluntary sector and will improve the quality of 

care the NHS delivers whilst making up to £20billion of efficiency savings by 2014-15, which will be 

reinvested in frontline care. http://www.dh.gov.uk/en/Healthcare/Qualityandproductivity/QIPP/index.htm 

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and European Union procurement regulations (Part B). This option is considered 

further in section 3. 

3 Options Appraisal 

3.1 Option B: Remain in the county council and continue to redesign and deliver 

efficiencies 16 

3.1.1 Overview 

Under this option we would continue with the existing programme of change, and 

develop a Service Plan to restructure and to meet the dual challenges of the 

Medium Term Financial Plan (MTFP) and increased use of direct payments. The 

vision for adult social care 17 clearly indicates that the preferred method for 

delivering choice and control to service users is through a direct payment which 

would create significant risks for in-house delivered services. 

As an in-house service the LDPS would not enjoy the benefits or legal freedom to 

trade commercially with the wider population, or in a manner which would allow 

more radical service redesign and response to personalisation and customer 

expectations. Remaining in-house would result in services becoming increasingly 

economically unviable and uncompetitive as, over time, elements of the LDPS are 

either “parcelled” off, closed or become outdated. This is likely to lead to increased 

costs to the Council as the consequences of running down services would result in 

higher unit costs, as overheads and fixed costs would be spread across reducing 

activity levels. 

Reviews of four services undertaken as part of the existing programme of change 

have indicated that, as current work to drive out efficiencies reaches fruition, the 

LDPS is likely to become increasingly competitive when compared to both 

independent and not-for-profit sectors (as summarised on p14) . However, as 

increasing numbers of people choose to direct their own care, the LDPS will be 

unable to respond where the mechanism used is a direct payment. As part of the 

full business case we will need to profile the likely demand for direct payments in 

the LDPS and the impact on this option. If the demand for direct payments is 

greater than 5-10% of the overall cost then this is likely to lead to a long term trend 

of reducing activity and increasing unit costs. This would mean that the overheads 

and fixed costs are spread over a shrinking volume of care delivery and the risk of 

16 Further consideration would need to be given to the model for employment support services as part of the 

development of a full business case should this option be taken forward 

17 Department of Heath, “A vision for adult social care: Capable communities and active citizens”, 

16/10/2010, p15. Available from: 

http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_121508 

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securing quality care may increase, In addition retention of the service does not fit 

with the Council’s aspirations to be a commissioning led organisation and a smaller 

more enabling authority. 

3.1.2 Benefits 

• Low or no short term impact on customers. 

• Retains skills, expertise, knowledge and existing service levels. 

• No additional or double funding of corporate overheads, including Southwest 

One 

• Retains direct provision within the public sector which many carers indicated a 

preference for as part of initial feedback events, citing recent criticism of 

independent sector services following the BBC Panorama investigation into 

Winterbourne View, and the failure of Southern Cross. However it should be 

noted that this preference was less prominent in feedback from people who use 

services. 

• Least likely to generate anxiety and resistance. 

• Maintaining the in-house provision avoids the risk of market failure, with its 

consequent dangers for vulnerable people and SCC's ability to meet its 

statutory responsibilities, as well as cost and reputational implications. 

• Allows SCC to retain the skills and experience necessary to tackle struggling 

providers in-house to ensure it meets its statutory obligations and gives it more 

control to respond to emergency situations 

3.1.3 Disbenefits and any potential mitigations 

• Unable to provide services funded by direct payments (which a number of 

people who used services expressed a preference for at initial feedback 

events). As more customers take advantage of DP’s there is significant risk to 

the County Council of them choosing alternative providers, therefore increasing 

unit costs. Even if this barrier was removed it is likely that the in-house service 

would find it difficult to develop new revenue streams as, once SCC corporate 

overheads are incorporated, hourly rates are unlikely to be competitive when 

compared to independent and not-for-profit providers 

• Retaining the LDPS in-house would require significant investment particularly 

relating to capital spend. Although projected future rates will bring the service 

more in-line with independent and not-for-profit providers this is expected to 

take 2 years, while a transfer to a different organisational model has the 

potential to release costs more quickly under the right conditions. 

• Inflexibilities in SCC corporate overheads costs means that the potential to 

maximise long term revenue savings will be more limited than options C and D. 

• There could be an “opportunity lost” with regard to introducing a step change 

through major service reconfiguration. 

• There would continue to be significant limitations in capital investment into the 

property portfolio due to on-going pubic sector austerity measures. Some 

properties are no longer “fit for purpose”, in terms of living (but not the care 

quality) environments. This increases the risk that customers who are directing 

their own care may choose independent sector providers over the in-house 

service, resulting in increased vacancies and therefore higher unit costs. 

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• Limited flexibility in comparison to all other options as some SCC decision 

making processes reduce responsiveness, particularly around HR and 

recruitment and arranging appropriate accommodation to meet customer needs 

• May lack business acumen / skills to compete with independent sector. 

• Some service costs are likely to remain higher than the independent sector for 

the foreseeable future, particularly in relation to SCC pension costs and terms 

and conditions in comparison to independent and non-for profit competitors. 

• Potentially limited opportunities for capital investment, although the Cabinet 

decision made on 20 th October 2010 and subsequent Section 28a agreement 

with NHS Somerset requires that any receipts from the sale of property to be 

reinvested in services for people with LD. 

3.1.4 Risks associated with this option 18 

Option Description of Risk 

Likelihood Mitigation 

B 

B 

The service fails to meet the 

requirements of the Service Plan 

resulting in another option having to 

be considered and the benefits 

resulting from it being realised at a 

later date than had the option been 

pursued in the first instance 

Staff terms and conditions, including 

shift patterns to meet customer 

needs, are unable to be varied 

sufficiently resulting in the service 

failing to meet the Service Plan 

and/or with unexpected 

consequences to the operational 

delivery of services 

3 Develop a robust and realistic 

Service Pan as part of a full 

business case if this option is 

taken forward 

3 Some aspects will need to be 

taken forward as part of wider 

work on staff terms and 

conditions across SCC 

3.1.5 Conclusion 

While this option may initially appear to be the lowest risk, as the number of people 

choosing to direct their own care through direct payments increases, the costs to 

SCC of providing services to people who do not choose this route, are also likely to 

increase. While carers have expressed concern about for-profit providers of 

services following the Winterbourne View scandal, poor care and abuse is not 

limited to the independent sector, and it is not recommended that the default 

position should be to retain the service in-house on this basis alone. While the 

LDPS is considered to be providing good quality services by many of the 

customers and carers from which initial feedback has been sought, it will become 

increasingly challenging to sustain this in the medium-long term within the current 

environment. A move away for direct provision of theses services has the potential 

to allow the LDPS to directly compete with other providers in the areas in which it 

A - 18


excels rather than be subject to a possible future of long term decline which would 

neither benefit its customers, its staff or the County Council. 

3.1.6 Recommendation 

As this option has a number of disadvantages, it is recommended that other 

options are actively considered and compared against it in the detailed business 

case, unless the problems around flexing corporate overheads cannot be resolved. 

3.2 Common Themes for Options C and D (Whole service externalisation/open 

market tender) 

Options C and D have some commonality. Both models of service naturally drive 

efficiency and transparency, both in terms of process and overall costs. 

Continuing efficiencies could be delivered at the start of the contract as the level of 

assessed need is mapped to hours delivered. The current market has a number of 

private and not-for-independent suppliers offering good quality care and support. 

However, whole service externalisation or outsourcing could result in a single 

supplier receiving over half of all funding for services for adults with learning 

disabilities in Somerset. Contracting with a single provider for such a large 

proportion of the current expenditure could stifle competition, may reduce choice 

and could affect service quality unless robust contract management processes are 

put in place. However, this is not an uncommon supplier model and indeed the 

elderly care market in Somerset has been well served using a fairly similar model. 

A well designed contract that allows volumes to taper as people choose to direct 

their own care would help mitigate these risks and it would be possible to go to the 

market e.g. for work preparation services separately from regulated care services. 

In the interest of avoiding repetition the following areas, though varying in the 

magnitude of their impact, need to be carefully considered across both options C 

and D: 

• Pensions deficit crystallisation. The benefits and disbenefits of these 

options are outlined in Appendix A and would require further exploration as part 

of the development of a full business case should either of the externalisation 

or outsourcing option be taken forward. However, in summary unless there is a 

change to CLG Pensions Direction Order 2007 the effect in all cases would be 

to add an additional cost burden to the Authority. 

Advice received indicates that to plan and implement the changes to pension 

arrangements required by options C and D arrangement takes approximately 

six months to complete. Therefore, the points raised in Appendix A and the 

additional costs need to be considered and planned as part of the development 

of a full business case. 

A - 19


• SCC corporate overheads. The LDPS for 12/13 has £3.80m of corporate 

overheads apportioned. 

These can be broken down as follows: 

Capital Charges 

£1.56m 

Carbon Reduction £0.02m 

SCC Support Services £0.35m 

Accommodation 

£0.06m 

SWOne Fixed Charges £0.93m 

SCC & SWOne Charges £0.70m 19 

Pension Deficit 

£0.18m 

Total 

£3.80m 

If externalising services, it should be done on the basis of new overheads being 

funded. The Authority will bear the cost of any existing arrangements as it 

endeavours to manage down (SWOne) costs. MTFP pressures would need to 

take this cost into account and will impact in the short to medium term on 

savings delivery. 

• Assets. The LDPS currently utilises a number of assets. These range from 

day centres to residential homes where people with learning disabilities live. 

Care and support services which are provided though the “supported living” 20 

model separate housing and care and support through the customer holding a 

tenancy with a Registered Social Landlord (RSL) as a result of arrangements 

put in place in the 1990s. The asset position is complex and often involves 

properties that are people’s homes. Future arrangements will need to be 

considered as part of the full business case. 

Many of the properties utilised, including 44 of those managed by RSLs, were 

originally purchased through funding made available by the NHS when longstay 

hospitals closed. The total value of these assets is £17.13m 21 including a 

Section 28a investment of £10.3m, and the NHS will continue to maintain a 

legal charge on the properties. NHS Somerset is in the process of transferring 

these properties to SCC on the condition that the asset or the capital value, if 

disposed of, continue to be utilised for the benefit of individuals with a learning 

disability. Any transfer of the LDPS out of SCC therefore needs to ensure that 

the assets are configured in a way that is financially sustainable and provides a 

sound base for capital reinvestment. It also needs to maintain a clear 

separation between the housing and care and support provider for supported 

19 Includes advisory and other services that will be retained by SCC 

20 The supported living model, as defined by the care Quality Commission, requires that care and support 

services are provided separately to housing/landlord functions. These are a number of mechanisms for 

achieving his including the introduction of a 3 rd party to perform the function of landlord or by devolving this 

responsibility to a separate legal entity within a larger organisation that also provides care and support 

21 As at 22/02/2012. The difference in value between the original Section 28a investment and current 

valuation includes where the there is part ownership by RSLs. 

A - 20


living services. Some of the current assets are not fit for purpose for the 

delivery model that will meet the future needs of the customers and both 

options C and D will require a clear asset plan to future proof the service. 

• Critical systems/ Information governance: 

Any new organisation will be required to register with the Information 

Commissioner and be set up its own data controller. This process involves 

one off fees as well as annual subscription fees. 

Information sharing protocols need to be agreed and put into operation with 

SCC 

Some of the services are currently provided by Southwest One (i.e. 

Specialist applications i.e. SAP / data secure storage etc). It is possible to 

procure similar services from an alternative provider although SCC is 

unlikely to recover Southwest One contract costs. 

Locally held confidential data will require the agreeing and setting up of 

security and access authorisation protocols – therefore incurring further 

costs. 

• TUPE. The Transfer of Undertakings (Protection of Employment) Regulations 

2006 apply to what are known as ‘relevant transfers’, the definition of which 

would include both the outsourcing and transfer of the LDPS. The TUPE 

regulations are intended to safeguard employee rights and terms and 

conditions when the business in which they are employed transfers. The TUPE 

process would need to be appropriately planned with adequate time for 

determining which posts are/are not included for transfer. Consultation with 

staff is required for a minimum formal period of 90 days given the number of 

staff affected, which would include staff in a range of corporate functions i.e. 

finance, HR, some of whom may be seconded to South West One Ltd. 

• Value Added Tax (VAT). For an explanation of potential impacts, against a 

variety of service delivery mechanisms, please see Appendix A 

• Business continuity. There is a business continuity plan in place for the 

LDPS that was reviewed in 2011. Should the service be externalised (Option 

C) this would need to be updated by the new organisation to take account of 

the impact of the change. If the LDPS were to be outsourced (Option D) then a 

review of business continuity plans would need to take place as part of the 

tender evaluation process. 

• Management of personal finances. SCC has a legal obligation to undertake 

the administration of personal finances for people who are either under a 

‘Deputyship’ order or for those service users for whom SCC are the ‘Appointee’. 

This includes 196 adults with learning disabilities supported by the LDPS. 

These arrangements are administered by the Client Finances Team which 

currently consists of 4.52 WTE staff. Currently, because LDPS staff are SCC 

employees, much of the day-to-day administration is able to be undertaken at a 

local level within individual supported living and residential locations. However, 

should the LDPS be outsourced or externalised then the role that could be 

undertaken at a local level would be much more limited. This means that large 

A - 21


proportions of this work would instead need to be undertaken by the Client 

Finances Team in the same way as it does for any other external provider. 

This would have a significant impact on the team during both the transition and 

over the long term. A small number of staff support may need to be redeployed 

from the LDPS to the Client Finances Team. 

3.3 Option C: Externalisation 22 


Under this option, the in-house service would be externalised to a new 

organisation, specifically created for the purpose and awarded a contract to 

provide services for an initial period (typically 3 years). The key difference 

between “outsourcing” and “externalisation” is that an externalised organisation 

would be awarded a contract without a competitive procurement process. This 

process would need to be undertaken in a way that mitigates the risk of legal 

challenge. A full market tender would then need to take place at the end of the 

initial contract and therefore this model could therefore only be an interim, time 

limited arrangement. 

Potential legal vehicles include: 

• Company Limited by Guarantee 

• Company Limited by Shares 

• Community Interest Company 

• Industrial and Provident Society 

• Charitable Status 

• Mutual 

• Local Authority Trading Company (LATC) 

Further exploration of the “best fit” legal vehicles would need to take place as part 

of the development of a full business case, should this option be taken forward. 

Early indications however are that it would need to take the form of a Local 

Authority controlled company in order to best comply with European Procurement 

law. 

Legal advice received in 2010 indicated that the externalised organisation could be 

set up in partnership with one or more other public sector organisation(s) (including 

other Councils, but not NHS organisations 23 or the independent sector) under the 

Teckal exemption to European Union procurement law. The Teckal exemption 

applies where a contracting authority (in this case the County Council) contracts 

with a legally distinct entity for administrative purposes without undertaking a 

competitive procurement exercise. Usually this will be a company that the 

contracting authority has set up, either on its own or in partnership with others to 

provide services. The conditions for the Teckal exemption to apply are that: 



23 The legal opinion received was that, while related, health and social care services are sufficiently different 

to be at risk of challenge 

A - 22


• The service provider carries out the “essential” part of its activities with the 

contracting authority. Legal advice received is that this would represent 

approximately 95%. 

• The authority exercises the same kind of control over the service provider as it 

does over its own departments. This means that control would need to extend 

beyond the County Council simply maintaining a shareholding, and would 

preclude the external organisation subcontracting without careful consideration 

of the legal implications of doing so on both a case-by-case and cumulative 

basis. 

• There is neither private sector ownership of the service provider, nor any 

intention that there should be any. 

Legal advice obtained in 2010 and updated in 2012 (see Appendix D) indicates 

that any services purchased by the customer through a direct payment would not 

be considered to have been purchased by the contracting authority due to the 

introduction of a third party (the customer). This would mean that any significant 

expansion of direct payments in Somerset would impact on the viability of the 

provider and/or trigger a competitive procurement, as it could not undertake more 

than 5% of its business in this way, without risking legal change and potential 

compensation. 

Although the establishment of the organisation itself would have relatively limited 

costs associated with it, the process of awarding the contract would be likely to 

attract significant legal costs in order to ensure that SCC did not leave itself open 

to legal challenge and potential damages. The cost for a similarly sized County 

Council to create a similarly sized organisation providing social care services was 

approximately £600,000. However we have no information regarding the make up 

of this figure. 


• During the initial meetings with carers they expressed an overwhelming 

preference for a transfer to a “not for profit” organisation, should the service not 

be retained within SCC. This option would therefore be potentially less likely 

(than an outsourcing approach) to encounter resistance from carers, and other 

stakeholders. 

• This can be implemented as part of a phased approach, allowing SCC to better 

manage risk through the transition phase. The first phase would involve setting 

up a local authority controlled company. During this phase, the new 

organisation would develop internal infrastructure and consolidate its financial 

and legal position. Following the expiry of the initial contract period an open 

market tender exercise would need to take place for the service to move 

outside of the limitations imposed by complying with the Teckal exemption. 

• This would allow the LDPS the potential to build a strong brand identity and 

reputation ahead of any open market tender exercise. 

• This would allow the LDPS to further develop a user centred and outcome 

focussed service delivery approach, in line with customer and commissioner 

expectations ahead of any open market tender exercise. 

A - 23


• This would enable SCC to retain access to the capacity to tackle struggling 

providers for a given period and therefore discharge its statutory responsibilities 

with the new organisation acting as “provider of last resort” for adults with 

learning disabilities. 


• During the initial feedback meetings a number of people who used services 

expressed a preference for directing their own care using a Direct Payment. 

Legal advice received is that there would be a risk of legal challenge if the 

LDPS were to undertake more than 5% of its business in the form of services to 

individuals in receipt of a direct payment, while subject to any contract awarded 

under the Teckal exemption. 

• There is potential for legal challenge if an organisation awarded a contract 

under the Teckal exemption was invited to participate in the market testing of 

new business from SCC and was awarded this business in a way that could be 

viewed as being anti-competitive or favouring the organisation 

• Initial financial and resource outlay will be high. While the formation of the legal 

entity itself is relatively simple, significant work will be required in relation to the 

transfer of business and staff, and to ensure the awarding of the contract is not 

open to challenge. Potential costs include pension related work, legal work, 

registration, consultation, infrastructure and the procurement of external 

business expertise. 

• The level of risk could be high for an organisation of this (small) size until well 

established. 

• There is an elevated risk of organisational failure in the first year unless skilled 

management with proven business acumen is embedded in advance of the 

externalisation. There would be extremely high levels of operational, financial 

and reputation risks to SCC should the new entity fail. This is due to the 

specialist nature of the services provided and the limited capacity within the 

market for other providers to “step in” in a timely manner. 

• It is estimated that the process of setting up the entity would take a minimum of 

12 months, based on the operational status of the in-house service at this point 

in time. 

• There would be very limited opportunities for external capital investment during 

the initial contract period as any independent sector investment is likely to be in 

breach of the Teckal exemption. This could potentially be mitigated by the 

separation of the assets into a separate legally distinct entity to that providing 

care and support, but this would need further exploration as part of the 

development of the full business case, should this option be taken forward. 

• Should the externalised organisation fail to win any tender at the end of the 

initial contract period SCC could be responsible for funding any resultant 

redundancy costs. It would also be responsible for funding any one-off costs as 

a result of service reconfiguration as part of the transfer process. 

• Costs are likely to remain higher than an outsourcing arrangement due to the 

need to the need to continue to procure back-office services from SCC and/or 

Southwest One or set them up from scratch. There would also only be very 

limited opportunities to share fixed and management overheads with privately 

funded provision while complying with the Teckal exemption. 

A - 24





C 

C 

C 

C 

C 

C and 

D 

C and 

D 

It becomes apparent that service 

cannot provide services funded by 

Direct Payments and remain within 

the protection of the Teckal 

exemption leading to this option 

becoming unviable 

Failure to follow due process could 

lead to a legal challenge to the 

externalisation of the service by an 

existing provider in the market which 

delays the process of externalisation 

and/or results in it being abandoned 

and/or results in substantial costs 

The organisation is externalised but 

fails and services need to be 

brought back in-house and/or 

outsourced with significant costs and 

reputation damage to SCC 

The service is externalised as a 

LATC but fails to win a tender at the 

end of the initial period resulting in 

significant wind-up costs to SCC 

The externalised organisation does 

not fully understand its cost base or 

is unable to procure appropriate 

business/commercial expertise 

resulting in benefits being unrealised 

or with unexpected consequences to 

the operational delivery of services 

There is significant opposition from 

customers, staff and unions to the 

externalisation/outsourcing which 

effects resource requirements, and 

timescales. 

There is double funding of 

overheads/back office services due 

to the externalised /outsourced 

organisation deciding to make its 

own arrangements for services while 

costs to SCC remain 

4 Currently seeking updated legal 

advice. If confirmed this could 

result in this option being 

recommended for rejection 

2 Examine in detail at an early 

stage as part of full business 

case development if this option is 

taken forward 

3 Examine the potential of 

embedding proven business 

acumen ahead of externalisation 

as part of full business case 

development if this option is 

taken forward 

3 Examine risk and potential 

consequences in detail at an 

early stage as part of full 

business case development if this 

option is taken forward 

3 Examine the potential of 

embedding proven business 

acumen ahead of externalisation 



taken forward 

4 If a decision is taken not to 

pursue an externalisation option 

then the rationale will need to be 

clearly communicated through a 

set of key messages to ensure 

consistency 

4 Advice received corporately is 

that some double funding may be 

necessary in the short term 

24 This is an initial list of the main potential risks and full risk profiling exercise would need to be undertaken 

as part of the development of a full business case to identify the full scope of the risks associated with any 

one particular option 

A - 25


C and 

D 

C and 

D 

C and 

D 

C and 

D 

C and 

D 

The effect of funding the pensions 

deficit results in the 

externalisation/outsourcing being 

unaffordable 

The VAT implications of 

externalisation/ outsourcing makes 

one or both of these options 

unviable 

Insufficient attention and investment 

in the client function results in quality 

failure for customers. 

The externalised (at the end of the 

initial period) or outsourced 

organisation uses excess capacity in 

the service to accept placements 

from outside of Somerset which 

become SCC’s responsibility under 

Ordinary Residency rules. This can 

also increase primary care and 

specialised NHS costs 

Funding available for programme is 

insufficient to meet the cost of 

procurement/ transfer 


stage of full business case 

development if these options are 

taken forward 




taken forward 

2 Examine contract monitoring 

capacity requirements in detail at 



taken forward 

3 Examine in detail as part of full 

business case development if 

these option are taken forward. 

Risk already exists within current 

market place but will increase 

under both scenarios, although 

will be mitigated while an external 

organisation is operating within 

Teckal and there may be 

opportunities to mitigate across 

both options through SCC’s 

interest in property assets. This 

will need further consideration as 

part of the development of the full 

business case should this option 

be taken forward. 

2 Examine in likely costs in detail 



taken forward 


This can only be viewed as a medium term option, requiring a competitive 

procurement to be undertaken at the end of the initial contract. Updated legal 

advice also calls into question its viability should there be any significant expansion 

of the number of people directing their own care. Whilst it would provide a 

“stepping stone” between the existing arrangements and a fully outsourced 

solution, thereby potentially reducing opposition, it potentially carries a higher risk 

for SCC than undertaking a competitive procurement process. 

While the basic set-up costs are relatively small, the process of awarding the 

contract and transferring the business is likely to incur significant costs while the 

risk of legal challenge cannot be completely discounted. In addition skilled 

management with proven business acumen would need to be embedded in 

advance of any externalisation, to mitigate the high levels of operational, financial 

and risks to SCC. 

A - 26



To reject this option at the Outline Business Case stage and develop a full 

business case to outsource the LDPS. 

3.4 Option D: Outsourcing 25 


Outsourcing refers to initiating a tender process leading to a transfer of the whole 

of the LDPS to independent provision. This could include bids from the 

independent sector, a social enterprise, existing third sector providers, consortia, 

or the current LDPS management team. 


• At initial feedback meetings, a number of service users expressed a desire to 

direct their own care thorough a direct payment, which an outsourced 

organisation would be free to provide. 

• Consortium bids could be encouraged that would facilitate the participation of 

small providers that might otherwise be “crowded out” by Option C, 

externalisation. In addition, multiple service providers in a consortium could 

reduce the risks associated with a single provider failure. 

• We would expect to favour bids that include opportunities for external capital 

investment. 

• Outsourcing the LDPS as a whole would provide opportunities to reduce/share 

operational overheads as bidders would be likely to already have resources 

that could be extended, allowing the overheads to be shared across a broader 

range of services, rather than newly established. 

• The entire service can be evaluated against current market rates, potentially 

resulting in the service being outsourced at a lower cost than the current LDPS 

budget. While the LDPS is in the process of reducing costs, this is expected to 

take two years without incurring potentially significant one-off costs, while a 

transfer to a different organisational model has the potential to release them 

more quickly, under the right conditions. However, it should be noted that 

some of the costs associated with being part of SCC will not be releasable. 

• There is a reduced risk of service failure subject to adopting a robust and wellmanaged 

tender process, eliminating any “weak” providers at the outset. 

• The full outsourcing option would be achieved through a single-step approach. 

• This would allow the service to rapidly adopt best practice from the successful 

bidder 

• While the tender process for a large outsourcing exercise is complex and time 

consuming SCC would avoid potential on-going complications relating to the 

Teckal exemption. 

• A competitive tendering process should encourage cost efficient bids that drive 

out savings. The tender and evaluation process would ensure that these were 

sustainable. 



A - 27



• Initial resource requirements will be high. Due to the complexity of the service 

and the high levels of operational risk involved in service provision there would 

be significant costs involved in a competitive tender process, although the 

tender would be subject to a Part B procurement process. Estimates received 

from the Strategic Procurement Service are that the costs would be in the 

region of £1.5m (+/- 500k) and that the process would require a dedicated team 

of 6 staff. 

• Due to the size of the service and the need to carefully involve service users 

and carers at all stages of the tender and evaluation process is estimated that it 

would take in excess of six months. 

• There are significant and complex property issue (see page 12 for background), 

and options to address the associated cost and risk factors need to be 

developed as part of the full business case. 

• Robust monitoring arrangements will need to be to be in place to protect 

vulnerable customers and provide reassurance to carers, many of whom 

expressed concern about the potential involvement of a “private for profit” 

provider in the provision of care and support for their loved ones during initial 

feedback meetings. Many carers indicated that the concept of “not for profit” 

provision was more acceptable. 

• There is a potential risk of a service provider offering vacancies in supported 

living accommodation to people currently living outside of the County, ultimately 

leading to funding becoming SCC’s responsibility under ordinary residency 

rules. There could also be additional costs falling on NHS Somerset. There 

may be opportunities to mitigate these risks through SCC’s interest in the 

property assets utilised by the LDPS, including those originally purchased using 

Section 28a funding. These opportunities will need to be considered further in 

the development of the full business case. 

• Contracting with a single provider for these services, which currently account 

for over half of the expenditure, may reduce choice and service quality unless 

robust contract management processes are put in place and adequately 

resourced. 

• The service, as it stands, is in the process of significant reconfiguration that is 

scheduled to be completed by March 2014, and potential bidders are likely to 

price the risks associated with completing this into any bid. In the medium to 

long-term, this would be expected to exceed the short-term costs of 

accelerating the process so it is completed before any transfer takes place. 

• A full reassessment of all residential care and supported living care packages is 

undertaken in advance of any transfer in order to mitigate some, but not all, 

risks related to cost escalation. This will need to be undertaken in addition to 

normal care management activity and will therefore incur additional costs. 

• In the short-term at least there would be double funding of overheads, including 

some of those associate with Southwest One where they relate to activity that 

is not releasable. 

• The risk of the new service provider(s) failing within the contract duration 

cannot be completely ignored. There would be extremely high levels of risks to 

vulnerable people as well as operational, financial and reputation risks to SCC 

should the new provider fail due to the specialist nature of the services provided 

A - 28


and the limited capacity in the market by other providers to “step in” in a timely 

manner. 

• Potential cost of warranties and indemnities provided by the council to the 

provider in relation to staff, assets and other resources. 




C and 

D 

C and 

D 

C and 

D 

C and 

D 

C and 

D 

C and 

D 

There is double funding of 

overheads/back office services due 

to the externalised /outsourced 

organisation deciding to make its 

own arrangements for services 

currently while costs to SCC remain 

The effect of the pensions deficit 

results in the 

externalisation/outsourcing makes 


unviable 

The VAT implications of 

externalisation/ outsourcing makes 


unviable 

Robust contract monitoring capacity 

is not put in place resulting in 

issues not being addressed at an 

early stage, and escalating to the 

point where there is financial or 

reputation damage to SCC 

The use of a single provider for 55% 

of SCC’s business in this area 

adversely impacts on competition in 

the local market for these services 

leading to escalating costs in the 

medium to long term 

The externalised (at the end of the 

initial period) or outsourced 

organisation uses excess capacity 

in the service to accept placements 

from outside of Somerset which 

become SCC’s responsibility under 

Ordinary Residency rules and also 

4 Advice received corporately is 

that some double funding may be 

necessary in the short term 




taken forward 




taken forward 

2 Examine contract monitoring 

capacity requirements in detail at 


development if this option is taken 

forward 




In the case of Option D the risk 

could be partially mitigated by 

undertaken market shaping to try 

encourage existing 

national/regional providers in the 

market not currently operating in 

Somerset to participate in the 

tender 




Risk already exists within current 

market place but will increase 

under both scenarios, although 

will be mitigated while an external 

organisation is operating within 

26 This is an initial list of the main potential risks and full risk profiling exercise would need to be undertaken 

as part of the development of a full business case to identify the full scope of the risks associated with any 

one particular option 

A - 29


C and 

D 

D 

increase NHS Somerset COSTS 

Funding available for programme is 

insufficient to meet the cost of 

procurement/ transfer 

Cost of reconfiguring the service is 

priced into bids resulting in a higher 

costs to SCC over the lifetime of the 

contract than if the reconfiguration 

was undertaken in-house 

Teckal and there may be 

opportunities to mitigate across 

both options through SCC’s 

interest in property assets. This 

will need further consideration as 

part of the development of the full 

business case should this option 

be taken forward. 

2 Examine in likely costs in detail 



taken forward 

2 Undertake as much 

reconfiguration as 

possible/viable/economic inhouse 

so that the service is 

outsourced with costs already 

reduced 


The main benefit of this option is that it can provide opportunities for customers to 

personalise their services through the use of Direct Payments which offer choice 

and control. Some of the properties are not fit for purpose and this option gives us 

an ability to favour bids that include capital investment to develop accommodation 

that supports quality care delivery. It would also allow the service to be transferred 

out of the County Council without the need to comply with Teckal and the 

restrictions that this imposes on providing services to a third party. While there is 

potential to realise some efficiencies and savings this is not considered to be 

significant as a result of on-going work to reconfigure services. Depending on the 

successful bidder there could be opportunities to share overheads across a wider 

range of services, including private provision. While the risk of an external provider 

failing cannot be completely discounted, this can be effectively mitigated through a 

robust procurement process that takes into account service quality as well as cost 

and supplier robustness. In addition, consortium bids could be encouraged that 

would facilitate the participation of small providers that might be “crowded out” by 

other options, 

There are two key risks that require further exploration as part of the full business 

case. The first relates to potential cost escalations following the transfer, which 

could be mitigated in part by undertaking full reassessments of all care packages. 

The second relates to any external partner offering spare capacity to people who 

live outside of Somerset who go on to become “ordinary residents” requiring SCC 

to fund their places as well as extra costs for NHS Somerset. This is a risk that 

could be mitigated though SCC’s interest in property assets along with robust and 

adequately resourced contract management. 


To develop this option into a full business case 

A - 30


4 Impacts of Options 

See Appendix C 

5 Interdependencies 

The LDPS is a jointly commissioned service with the NHS, with SCC acting as the 

lead commissioner. Any decision to externalise or outsource would therefore need 

to agreed by both the SCC Cabinet and the Somerset CCG/ NHS Somerset Board. 

The outline business case will be considered by the clinical commissioning group 

who will make recommendations to the NHS Board. 

6 Next Steps 

To develop full business case ahead of final decision, this will require: 

• Development of full business case incorporating: 

blueprint for each option taken forward 

the results of a full 12 week public consultation plus a minimum of 2 weeks 

either side to set up and analyse responses (depending on the volume of 

responses and the point in the processes when they are achieved, 

dedicated resources could be needed to achieve this turnaround) 

Consultation with partner agencies and the Clinical Commissioning Group 

Consultation with staff and unions 

Parallel work to identify best-fit legal vehicle for externalised service if this 

option is taken forward 

Parallel market testing and shaping to identify viability of whole service 

outsourcing, if this option is taken forward 

Parallel work to develop requirements for a Service Plan should the option 

for the service to remain in-house be taken forward 

Parallel detailed costing exercise 

Parallel work on VAT and pensions implications 

Parallel work to update impact assessment 

• During this period it is recommended that reviews of residential and supported 

living accommodation should continue to identify any “quick wins” in these 

areas which make up 75% of the service cost and to ensure that the services 

provided meet service needs 

We anticipate that a full business case could be competed by September should a 

decision be taken on the Outline Business Case by both SCC and the NHS by the 

beginning of the week commencing 7 th May, and the required resources being 

available to undertake the work outlined above. This would then need to be followed 

by consideration by the Clinical commissioning Group and NHS Somerset Board and 

constitutional consultation processes with elected members on the completed 

document and before a final decision is taken. 

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The resources required to undertake this work would be significant and while the 

process could be managed by the existing team, additional support would be needed 

to undertake specific elements. 

Stakeholder engagement 

Stakeholder engagement already taken place: 

22 nd Feb Carers meeting – East 

23 rd Feb Service user meeting – East 

27 th Feb Carers meeting – West 

29 th Feb Service user meeting – West 

29 th Feb Area Staff Forum – West 

5 th March Joint Consultative Committee 

5 th March Area Staff Forum – East 

7 th March Consultative Conference – Directorate Update 

Timescale for Outline Business Case: 

w/c 12 th 

March 

w/c 12 th 

March 

Somerset Partnership (contact Diana Rowe) 

Summary of feedback sent to stakeholder 

groups 

Mel Lock 

Fiona Kivett 

(David Dick and 

Mel Lock to 

sign off) 

12 th March Outline Business Case to Design Authority Mel Lock 

14 th March Design Authority Mel Lock and 

Martin Young 

15 th March 

(am) 

15 th March 

(pm) 

Briefing with Cllr Jimmy Zouche 

Mel Lock 

Members Workshop 

Miriam 

Maddison and 

Mel Lock 

21 st March Papers to Clinical Commissioning Group Stephen Miles 

March 

Telephone briefing to: 

David Rooke - CCG 

GP Lead for LD 

Mel Lock and 

Wayne Lewis 

27 th March Clinical Commissioning Group Trevor Gillham 

and Mel Lock 

End March Briefing with Cllr Christine Lawrence Trevor Gillham 

and Mel Lock 

2 nd April Cabinet Steering Group / Change 

Mel Lock 

Programme Board 

Early April Staff Briefing Sheet Fiona Kivett 

(David Dick and 

Mel Lock to 

sign off) 

Early April Briefing to Leader Cllr Christine 

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Lawrence and 

Trevor Gillham 

Early April Draft letter to key partners for sign-off Fiona Kivett 

(Mel Lock to 

sign off) 

11 th April Scrutiny Chair pre-meet 

(12.30pm – Hobhouse Room. 

Contact Jamie Jackson ext. 5032) 

11 th April Outline Business Case published for PCT 

Board/Scrutiny Committee 

Trevor Gillham 

and Mel Lock 

Fiona Kivett to 

link with Jamie 

Jackson 

11 th April Letter & report to key partners Fiona Kivett 

11 th April Briefing sheet & paper to Trade Unions Mel Lock and 

Stephen Miles 

13 th April Email & link to paper to staff Fiona Kivett 

(David Dick to 

sign off) 

18 th April PCT Board Wayne Lewis 

and Mel Lock 

24 th April Scrutiny Committee Trevor Gillham 

and Mel Lock 

2 nd May Cabinet Trevor Gillham 

and Mel Lock 

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Service Reviews â Outline Business Case - Somerset County Council

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Service Reviews â Outline Business Case - Somerset County Council