Virtual Think Tank
‘Commissioning Sport and Leisure Services in a COVID / Post-COVID World’
4 November 2020
The Sport, Leisure and Culture Consultancy (SLC) facilitated an online Think Tank – ‘Commissioning Sport and Leisure Services in a COVID / Post-COVID World’ for local authority clients.
Facilitation was provided by Toby Kingsbury and David Rushton, SLC Directors, supported by Michelle Payne, SLC Consultant.
Representatives of eleven local authorities from across England participated in the Virtual Think Tank.
The following key questions were explored during the session:
- Can your local authority afford its current portfolio of leisure services now and in the future?
- How has COVID impacted on the strategic objectives of your services?
- How has COVID affected the relative merits of the different management models?
- In-sourcing vs out-sourcing – has COVID changed the balance of the argument?
- What is the optimal management model option for your local authority?
- How is the leisure operator market likely to respond through future tenders?
Two Key Messages
“A leisure contract/partnership will only be as good as the quality and sophistication of your commissioning.”
The COVID crisis has exposed issues with some partnerships and sometimes local authorities “blame” the leisure operator. However quite often problems are as a result of poor commissioning.
“The impact of COVID cannot be avoided by changing management arrangements.”
Some local authorities are looking at changing management arrangements to mitigate the impact of COVID. However, this is unlikely to solve the problem as there is no leisure service in the country that is currently running at a surplus.
Sport England’s Strategic Outcomes Planning Guidance – a good place to start
SLC Director Toby Kingsbury outlined the four stages of the Sport England Strategic Outcomes Planning Guidance, a good place to start before deciding on commissioning arrangements
The current circumstances and associated challenges faced by leisure services across the country present an opportunity to pause and reset services. Local authorities can ask themselves “What do we want our service to deliver?” For any local authority looking to review their leisure service, Stage 1 – develop shared local outcomes – is a good place to start, rather than jumping straight to Stage 3C – explore and identify effective management option(s) to deliver core facility and service interventions. Any changes to the service and commissioning approach should be informed by insight into the local community, to ensure that local area needs are understood.
Key considerations for delegates are:
- Exploring a cross-sector approach
- Having a formal strategy with political commitment e.g. Active Communities Strategy
- Undertaking financial modelling on the impact of COVID-19
- The potential cost of services – using market assessment tools to establish affordability
- The condition of assets – investment/divestment approaches
- The balance of assets and interventions – leisure facilities, community outreach and utilising the wider active environment such as parks and open spaces.
Delegates reported that there is currently a strong focus on access to leisure facilities, due to the closure and partial reopening of buildings over recent months. However, there is growing emphasis on being physically active without needing to use leisure facilities and how this can be endorsed by an Active Communities Strategy instead of a traditional Sport and Leisure Strategy. Several delegates expressed the need to provide physical activity interventions that deliver Public Health priorities.
Delegates also reported a requirement to present the cost of not investing in sport and physical activity by identifying their social value, to show the long term negative impact that inactivity would have on communities.
Many local authorities are committed to reducing carbon emissions. Energy saving measures for leisure facilities could serve a dual purpose, in that they contribute to environmental objectives and decrease operational expenditure.
Consulting with stakeholders across a community is more challenging under the present circumstances. Online options will be the main methods for gathering insight into the needs of communities for some time.
The Sport England Strategic Outcomes Planning Guidance is available online via the following link https://bit.ly/3ev9iQg.
Core Management Approaches in a COVID and Post-COVID World
SLC Director David Rushton outlined various approaches to managing services and provided insight into how the desirability and affordability of each option has changed due to the impact of COVID-19. The core management approaches explored included:
- Competitive procurement of a leisure operator – normally the lowest cost management option
- Local trusts and Community Interest Companies (CIC) – 2015 Public Procurement Regulations preclude authorities from being able to set up a trust or CIC and directly appoint them without going through procurement
- Local Authority Trading Companies (LATC) – councils can set up an LATC and directly award them services
- In-house management – normally the highest cost option due to higher staff costs and in many cases lower VAT recovery
- Contract extensions – several councils are extending contracts under COVID through emergency procurement powers.
In-Sourcing vs Out-Sourcing – has the balance of the argument changed?
- Loss of income has affected all public leisure services and deficit funding is the new norm. The gap in the financial advantage of out-sourcing compared to in-sourcing has narrowed under COVID, due to in-house services being eligible for loss of income funding from the government. Perceptions of external operators may have changed due to difficult negotiations on the impact of COVID – “Why are we taking all the pain?!”
- In-sourcing provides local authorities with the flexibility to make decisions and move quickly when council priorities change but it continues to be the most expensive management option.
- Leisure is non-statutory and could be subject to cuts if run in-house whereas an external contract, to a large degree, ringfences services for the period of the contract. Local authorities often aim for their leisure service to be community focussed by operating it in-house but paradoxically end up more concerned with its financial performance as they are taking all of the commercial risks.
- Out-sourcing provides local authorities with a more efficient management option when commissioned in an effective way. Flexibility and control can be achieved when outsourcing through a modern services specification. This is still the main option chosen by local authorities.
- The operator market has become increasingly risk averse and some operators are focusing on consolidating their current contracts and negotiating extensions rather than expending significantly more resource to bid for new contracts. As a result, there is likely to be less active bidders in the market.
- However, some operators are striving to get back to business as usual and some risk transfer will still be possible by out-sourcing.
- It is unlikely that the high management fee payments to some councils, seen prior to COVID, will resume in the foreseeable future.
Key Considerations when Deciding the Optimal Management Option for your Authority
Key considerations for an authority in understanding what it wants to achieve from its service:
- Deficit funding and open book approaches to leisure partnerships will continue for some time
- Deficit funding arrangements could be used as leverage to improve/alter contractual arrangements, e.g. transferring the ownership of data and equipment
- The future operator market may look very different – fewer bidders who are more risk averse
- Outsourcing will continue to offer economies of scale and risk transfer
- Outsourcing can ring fence services and protect them against future cuts
- An effective operator contract and specification can ensure a suitable level of control and influence over delivery
- Procurement regulations prevent local authorities from directly appointing a trust or CIC for a management contract
- Lease arrangements offer authorities very little control and prevent authorities from being able to provide financial support to local trusts and CICs
- A local authority can directly appoint an LATC for a management contract but 80% of turnover must relate to the host, which limits its growth
- It might be appropriate to operate through an LATC when transforming or rationalising services with a view to being ‘procurement ready’ in the future
- The in-house model will continue to be the most expensive option both during and post-COVID
- Bringing services in-house as a short term position will impact on long term cost as any subsequent procurement will be on the baseline of higher staff costs which transfer through TUPE
- Emergency procurement powers could be used to secure operators quickly, including extending contracts beyond the originally agreed timescales
- Contract extensions provide an opportunity for local authorities to refresh their specification with their operator partner and make improvements/alterations
- Extending a contract is less resource intensive than re-procurement or setting up an LATC but it is not a competitive process and operators are likely to be very cautious about any management fee offer.
How can COVID recovery be built into a new management contract / commissioning arrangements?
There are some key measures that will help maintain interest in a leisure contract during COVID-19:
- Soft market testing can provide a wealth of insight that will support any decision making around the level of risk transfer and overall interest in a contract
- An open book approach in the early stages of a new contract will de-risk the contract from a bidder’s point of view and crucially could mean the difference as to whether they will bid or not. It is unlikely that any operator will take on financial risk whilst the sector is still being impacted upon by COVID-19
- The possibility of similar events to COVID-19 occurring in the future need to be considered within contracts, as well as change of law responsibilities
- Local authorities may need to think about sharing more risk with operator partners – measures such as utility benchmarking might become popular in future contracts
- Commissioners could consider breaking contract terms down into smaller stages to allow more regular review and renegotiation e.g. five year break clauses.
SLC would like to thank all Virtual Think Tank participants for investing their time and providing insight and suggestions on how our sector can work through these difficult times.