Service Reviews â Outline Business Case - Somerset County Council

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(Cabinet – 2 May 2012) 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 3.3.1 Overview 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: 22 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 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
(Cabinet – 2 May 2012) • 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. 3.3.2 Benefits • 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
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Service Reviews â Outline Business Case - Somerset County Council