Public Services Management: Financing path to the future: Berkshire means business, says Antonia Simkins

AS LOCAL authorities gear themselves to meet the Government's demand to put their central support services out to tender, the response from Berkshire County Council suggests that this initiative may survive the political and structural changes that are sweeping local government.

Berkshire has long been ahead of the field in using private contractors. It has 'outsourced' 22 services, most recently its highways and planning work. Politicians of all parties are keen on privatisation, and even before the recent local elections which swept the Tories from power in the shires, Berkshire was led by a Liberal Democrat/Labour/Independent administration which aspired to be the foremost enabling authority in this field.

It is against this background that the finance staff took their own initiative. Tired of being pawns waiting to be moved or sacrificed as the authority decided, the employees analysed their options and made an attempt to shape their own future by forming a company to tender for the county's finance function.

Despite Berkshire's proprivatisation stance, eyebrows have been raised at the scale of the contract they want to take on. Worth between pounds 8m and pounds 10m, it encompasses the whole of the finance function, including corporate accounting, internal audit, payroll, debt recovery, creditor payments, pensions, financial advice and consultancy services. Some 100 staff will transfer to the new company, leaving only five key posts in the employment of the council.

The lead role has been taken by the county treasurer, David Bowles, who has been heavily involved in many of Berkshire's outsourcing projects - writing specifications, drawing up contracts, interviewing contractors. Some of his own departmental functions have been put out to the private sector - IT, for example, has been provided externally for four years. But after the last general election, when it was clear that privatisation would be strongly pursued, he took stock.

'I thought that, as a finance team, we had two alternatives. We could go in for fragmentation - market test payroll, market test audit, market test accounting,' he says. 'But I didn't see that as being in the council's interest, because the more you fragment functions the more you lose the economies of scale, and such things as integration and training opportunities.

'I stood back and thought, why should people privatise this little bit and that little bit? Won't the council of the future increasingly be looking for organisations that that can provide one-stop shopping, or at least go a long way down that route?'

The finance department is already selling its services through contracts to some other small local authorities and to a few other organisations like opted-out schools. But the scope for expansion is limited. The District Auditor, who oversees the propriety and legality of all local authority spending, has ruled out what is known as cross-boundary tendering. No authority can provide services to any outside bodies on anything but a small scale.

'We'd got to a situation where Berkshire appeared to be on the leading edge of privatisation. We had the skills, knowledge and experience, but we could retain those skills only if we could spread our overheads and skill base across a much wider market,' says Mr Bowles.

He floated the idea of a contract for most of the finance function in May 1992, and a lot of the staff were keen to be part of the new company. This meant that Berkshire had to ensure that no conflict of interest occurred. The council appointed the accountants Ernst and Young to review the proposal and provide ongoing advice. To provide internal objectivity, the council appointed one of the in-house team to stay on a permanent basis.

Although the market is in such an early stage of development, 10 to 15 contractors made firm expressions of interest, either in an integrated contact embracing almost the whole finance department or in individual financial services. The bidders range from big accountancy firms to companies that provide individual finance functions such as payroll, computing and poll tax collection.

The four who made the final shortlist were: the staff buyout company, Total Resource Management (TRM); the accountants Price Waterhouse; the local government consultancy firm CSL; and the computer firm IT Net.

TRM is backed by one of the largest accountancy firms, Touche Ross, which will have a third of the share capital and will give the county council performance and financial guarantees. In April TRM was selected as the preferred supplier, and it has spent the past few weeks negotiating final details. The contract is expected to save the county up to pounds 1m over four years.

It puts Berkshire on course as the prototype of the 'enabling' local authority envisioned by Conservative governments in recent years. Virtually the only responsibility left at the centre will be that required by law: 'Every local authority shall make arrangements for the proper adminstration of their financial affairs and shall secure that one of their officers has responsibility for the administration of those affairs.'

While the concept of the enabling authority was pioneered by a Conservative government, local Liberal Democrat and Labour politicians have few problems with the idea. Dr Linda Murray is leader of the largest group, the Liberal Democrats, and joint leader of the council since the May election gave her party 33 seats. 'There was all-party support for the finance project,' she says, and that extends to what she terms 'externalisation' generally. 'It's a matter of managing the situation that national government legislation puts us in, in the best way,' she believes.

One development influencing the politicians is local government reorganisation, which could sweep away some county councils, transferring their services to existing or enlarged district councils. 'It's much easier to move a contract than all the people and so on,' Dr Murray points out.

Joint council leader Dr Lawrence Silverman, whose Labour group increased its seats from 18 to 24 this month, sees contracting out as a means of releasing cash from the central support services to fund direct services to the public. Those public services will remain firmly under council control, he stresses.

'For us it is enabling people to get services they want at the best price and higher quality. The only way to liberate sufficient funds for public services is to contract out these support services. With highways and planning we have managed to transfer pounds 1.5m this year. With finance and the IT component we hope to make about as much.'

Meanwhile TRM and the other bidders will be out in the market place selling services to local authorities, health authorities and trusts, and to the bodies that are emerging from new structures for providing magistrates and police services. And in the ultimate turning of the tendering tables, TRM aims to go further and provide financial services to private companies.

(Photograph omitted)