Duncan Wood-Allum, Managing Director of SLC reflects on SLC’s recent experience of supporting Councils through their sport, physical activity and leisure procurements. In this blog he explores timing and planning procurements, risk transfer, changing realities and perceptions and offers some hope for the future.
Timing is everything
Unforeseen delays are inevitable within local government, particularly when taking into account changes in political administration, governance arrangements and key personnel. Taking this into account when planning any outsourcing or insourcing programme is critical to ensuring that you can deliver an optimal outcome. All too often we are seeing local authorities starting the procurement process too late and then putting themselves and the market under pressure to deliver to unrealistic timelines.
We often are asked to scope out what work is required to deliver an optimal outcome leading up to a new contract or service delivery arrangement. Our diagnostic work often highlights the need for:
- Establishing a clear strategic steer so that you can be clear on what objectives the Council wants the management contract to focus on delivering
- Commissioning up to date and comprehensive condition surveys so that you and bidders have clarity on the condition of assets and potential repair and maintenance costs
- Developing a clear investment / divestment strategy in order that the Council can be clear about the scope of facilities it wants to include in the contract and what investment in improving the facilities it will fund or would like bidders to deliver as part of a future contract
- Undertaking an options appraisal to establish the optimal management model with support from elected Members
- Developing a business case to progress the chosen solution
- Development of a pre procurement strategy to establish affordability.
In many cases – Councils quite simply have started the process too late – often by 1 to 3 years depending on their individual circumstances.
So, in a nutshell, start early, get organized, ask for the right support and resource the process properly – you may then actually enjoy the experience and be surprised at the positive outcomes that emerge through your new partnership / delivery model.
What risk transfer?
Pre-Covid, one of the real benefits of outsourcing leisure services apart from (in many cases) positive management fees was the transfer of risk from the local authority to the leisure operating partner.
This included areas such as: commercial risk – achieving required levels of income and expenditure, maintenance and utilities (usage and tariff).
This provided certainty for the local authority.
Given the challenges mentioned at the beginning of this blog, the transfer of risk has never been more complex and challenging to navigate for existing contracts and in establishing new contracts. The willingness of the operating market to take on risk in some areas has changed significantly, and what was considered standard practice only a few years ago is no longer acceptable to the market.
Through the many procurement exercises we are currently supporting, we are finding that many Councils, particularly their property, legal and procurement colleagues are seeking to transfer unreasonable or unrealistic levels of risk back to their operator in what is a dynamic operating environment.
Recent examples include Councils wanting to transfer unlimited liabilities for utility tariffs. The implications of this are significant. Firstly, its likely to put off a number of potential bidders reducing competition and choice. Secondly, it will increase the cost of the contract significantly because the leisure operating partner will need to factor in estimates (over a 10-15 year period potentially) for utility costs, building in substantial risk provision to protect them against high tariffs in the future. In the event that they stabilise, the risk to the Council is that they are paying over the odds for years.
A sensible way forward is where the risk to the operator partner is capped to a certain level, with the local authority underwriting the risk beyond the upper level of a set tariff rate. Additionally, there is an opportunity to undertake utility benchmarking to support reasonable adjustments to how this risk is managed by the partners together.
Looking ahead and with the benefit of hindsight, the transfer of risk arrangements linked to the operation of leisure services will change permanently and need to be more flexible than before.
We understand new updated national guidance will be developed later this year building on the Leisure Services Delivery Guidance we developed for Sport England in 2020.
There is a pressing need for the sector to come together to revisit its collective approach to standard industry positions on risk. Whilst this is yet to be established, SLC has developed what we believe to be an optimum and pragmatic balance of risk between local authority client and leisure operating partner and will be happy to discuss this with local authorities.
Ultimately, decisions on risk transfer as part of a procurement process must be taken by the local authority based on their specific circumstances, but it is vital that these decisions are made with full visibility over the potential implications.
The leisure cash cow is dead – for now
One thing we spend a lot of time on is managing expectation on the value of a leisure contract in this current environment and looking forwards.
Many elected Members and senior officers had, prior to Covid enjoyed the perception that ‘leisure makes money’.
Sadly, when proper lifecycle costs are taken into account and the risks of rising utility costs are factored in along with other factors such as demand due to the current economic crisis, sluggish recovery from Covid and behaviour change, the new financial reality is that these services need investment and only contracts with relatively modern portfolios are likely to deliver a management fee payments back to the local authority. Even in those cases, it is likely to be a more modest return than many authorities have grown accustomed to.
The focus needs from this point forward to be on the social value these services are delivering, rather than a financial return on investment. Again – a tough ask in this current environment where cash is king.
There is hope
Encouragingly, through recent procurements we are leading, we are seeing some really great solutions through the market, particularly where sensible risk positions are being adopted.
One client told us recently that they were genuinely excited about the potential transformation in services that would result through the procurement exercise. They were encouraged to see the innovations proposed within the bidders’ proposals and really well thought through active communities programmes hard baked into the specification.
Without focused investment to keep assets efficient, attractive and inclusive, positive procurement outcomes will be thin on the ground. But for those Councils who have invested or are prepared to invest, the future is still bright for active communities – particularly when linked to a wider pivot to wellness.
SLC is the leading adviser to local authorities in procurement and partnering. We are also leading thinking in supporting local authorities in pivoting their leisure services to wellness. SLC regularly run virtual Think Tank Seminars to share best practice, facilitate peer to peer learning and support.
www.slc.uk.com 01444 459927