Exploring alternative service delivery models

When reviewing services, alternative models for delivering the services may be explored to ensure the most appropriate methods are employed. Effort should be focused on key opportunities that have the potential to generate significant service improvements, savings or income. The range of methods that are available for councils include:

  • Shared services or resources – typically with other councils or regional organisations of councils (ROCs)
  • Strategic relationships – with other levels of government or non-profit organisations
  • Use of ‘arms length entities’ to manage the service e.g. the corporatisation of parts of Council’s operations, or external boards for managing community facilities
  • New entrepreneurial ventures or enterprises – delivering services as an income source
  • Joint ventures or public/private partnerships – with external enterprises
  • Community run enterprises – including social enterprises such as charities
  • Outsourcing – through the use of external contractors.

Shared services and resources

The potential use of shared services has been considered in a number of national and state inquiries into local government. All identify that shared service models play a useful role in improving the financial sustainability of local government. They can be a cost-effective way for councils to share resources, tackle common tasks, or take advantage of economies of scale.
Many different kinds of shared service arrangements have been implemented across Australia. This includes a regional approach through the use of Regional Organisations of Councils.

As a guide, services meeting one or more of the following criteria may be suitable for service sharing:

  • Require high degree of expertise
  • Largely self-contained
  • Can realise economies of scale
  • Non-strategic, low risk, rule-based services
  • High volume transaction processing
  • Services requiring access to the latest technology

It is also useful to consider shared services where one council is unable to attract or retain staff skills in a particular discipline and another council has spare capacity, such as in engineering design or development assessment.

Strategic relationships with government or non-profit bodies

Research indicates that delivering services through a strategic relationship with other government or non-profit bodies is not regularly considered in service reviews. One reason for this may be that candidates for this type of arrangement tend to involve significant pieces of infrastructure, such as regional sporting or cultural facilities. The opportunities for these types of projects tend to be identified outside the service review process.

That said, there are opportunities that are worth exploration, particularly where additional or improved services are being considered. As with shared services, the key to the development of a successful strategic relationship lies in there being an opportunity where both parties are able to extract a benefit.

Arms length entities

Arms length entities are established with a clear separation from the council. An advantage is the increased opportunity to operate outside the local government framework and constraints associated with legislation. It is a method of reducing conflicts of interest between the regulatory and provider roles of a council. It may also reduce financial risk to public funds, and enable the engagement of the necessary commercial and corporate expertise.

Property leasing and land development are good examples where the establishment of an arms length entity can deliver an alternate income stream for a council. It is common practice for local authorities to place their commercial activities under separate companies that are controlled by external Boards.

When considering opportunities for the establishment of an arms length entity, the focus is generally on obtaining a commercial return on the investment, and does not necessarily rely upon expertise within the council.

Business enterprises

The consideration of opportunities for new council owned business enterprises may be included in service reviews where one of the objectives is to seek alternate sources of income to contribute to the council’s financial sustainability. As distinct from the arms length entity approach, these types of enterprises generally stem from the provision of an existing community service that is provided by the council.

When considering options for a new business enterprise, a feasibility assessment should be undertaken. Examples of criteria that can be used are provided below:

  • Is there a niche or emerging market with limited competition? Is the service different and easy to distinguish from what others provide? Does the council have a significant competitive advantage over other businesses such as technical expertise, or economies of scale?
  • Is it relatively easy and low cost to establish the business activity and enter the market? Are there minimal political barriers, low regulation, low capital outlay?
  • Is the business aligned with current council operations? Are there existing available council resources, for example facilities, property, skilled & experienced personnel, plant & equipment, systems?
  • Is the business likely to be financially sustainable? What are the long-term prospects of the business, taking into account future market potential and the impact of external factors?
  • Does the business provide an overall community benefit for the local government area (economic, social, environmental, wellbeing)? Does it support the area’s strategic objectives? Does it add value to services the council provides (expansion/improvement)?
  • Is there a relatively favourable level of risk exposure in entering or trading within a market e.g. technological, insurance, and legislative?

Public private partnerships (PPP’s)

PPP’s usually involve a partnership between the public sector and private sector for the purpose of designing, planning, financing, constructing and/or operating projects that would traditionally fall within the remit of the public sector (council). Infrastructure projects are prime examples.

Research has identified examples where service reviews have identified opportunities from PPP’s that are not as reliant upon the delivery of expensive infrastructure. As an example, one council was able to dispose of its sewage effluent through a PPP with an adjoining landowner who committed to reusing the effluent for irrigation.

Opportunities for efficiency improvements can arise from service reviews through exploring a joint venture approach. Viable opportunities tend to be borne from the ability of joint venture arrangements to deliver benefits from economies of scale, and examples have included:

  • Regional waste collection contracts (where neighbouring councils partner in a single contract)
  • Cooperative, joint tendering contracts

Community run services and enterprises

A community enterprise is a business owned, controlled and used by the people who live in a particular geographic area. Many community enterprises in Australia are incorporated as co-operatives. Membership of a community enterprise is voluntary and usually open to the general public.
Community enterprises have seen a resurgence in recent years. A growing number of rural towns across Australia are turning to community enterprises to provide new services, or to save an existing service that can no longer be supported by the council.

Examples of community run services include community gardens, nurseries, festivals, sports facilities, and cemetery operation. Often there are untapped commercial skills within a community that could be utilised to add value to council activities. Profits from community enterprises may also be ploughed back into the local community or reinvested in the businesses.

Outsource to external providers

There are internal and external influences when considering a viable outsourcing option, and these include: the senior management and political appetite for outsourcing, whether the council is a major employer in the community, the availability and competitiveness of external service providers, and the level of control that is required over the service, amongst others. These factors will determine whether ‘outsourcing’ can be genuinely considered in a service review.

The following criteria can be used as a guide when assessing the suitability of a service for outsourcing:

  • Largely self-contained – services not closely linked to other services or functions;
  • High economies of scale – services with high production volumes and highly standardised;
  • Non-strategic or ‘non-steering’ – services that do not have a high impact on strategic direction;
  • Low complexity and rule-based – services that are easy to specify and monitor;
  • Changing or specialised technology – services involving high capital and ongoing technology costs;
  • High supplier availability – services with large numbers of potential suppliers or contractors;
  • Cost competitiveness of the service.

Before making a decision to commit to outsourcing a service, consideration should be given to any social responsibility the council may have as a major employer in the community. This is particularly evident in remote and regional centres. The long-term costs and benefits should also be carefully considered, along with any loss of control (over future costs or quality) that may come once you have sold off assets and shed associated staff resources.

The SmartGov Team