Now Liverpool Direct is unwinding too…3 lessons learned to avoid the same thing happening to you

By Allan Watton on

It was only last week that we were (or so we thought) reporting on BT’s latest public sector partnership issues with One Connect and Lancashire County Council… and yet it’s BT’s relationship with Liverpool County Council that is in the spotlight today as Liverpool Direct has announced that it too is looking to wind down its operations.

They say that bad news comes in threes. If you include BT’s breakup with Sandwell Council just months ago, then Lancashire’s Once Connect partnership last month – and now Liverpool Direct, this does not seem to bode well for BT as a strategic partner on the face of it.

But there is more context. You should also consider the fact that BT had two other problematic strategic partnerships that decided to stop working with them in recent years: these being Suffolk County Council, amid allegations of a £100m overspend, and Essex County Council due to alleged service performance issues.

So, are there common denominators? And if so, are there lessons to be learned so that your own strategic partnerships not only survive the distance, but thrive for the duration?

Liverpool City Council have announced that the partnership won’t make it to 2017

Since its creation in 2001, Liverpool Direct Limited (LDL) has claimed to have created hundreds of jobs and generated millions of pounds of savings.

Three years ago, an option within the contract was exercised to extend the relationship until 2017. The deal was ‘refreshed’ to include a price reduction and additional investment. However, there were public rumblings in the background throughout the entire life of this relationship – most of which revolved around accusations of poor value for money. Most pertinent was an independent report commissioned by Colin Hilton, while he was still council chief executive, that claimed to have uncovered overcharging by BT of up to £10m a year.

Profits vs austerity. Were the partners pulling in different directions?

Liverpool’s Mayor Anderson recently said: “…as part of our three-year budget strategy – to find £156m of savings following government funding reductions – we are reviewing all the services. I believe it is now time to move LDL in a new direction.”

We all know that the government’s austerity measures have hit the public sector hard and savings need to be found, even when all avenues for cost reduction seem to have already been exhausted. Over the last few years, even maintaining service levels, never mind trying to increase them under growing pressure to cut costs, has driven the public sector to innovate very different ways of delivering (or not) public services. And, it is this potential for enhanced innovation from larger strategic partners such as BT, that the public sector has increasingly found themselves drawn to.

In our own experience, we see more and more that when private sector partners are pushing for greater profits – and public sector partners are insisting on cost savings – the strain is going to tell.

As with most situations that seem unsurmountable, there are usually proven solutions to these apparent dilemmas. Providing both partners are willing, these perspectives are usually not as opposed as they may at first seem. Ultimately, a clear understanding by the client of ‘what good looks like’, given its financial constraints and a willingness by the private sector partner to understand that the current austerity measures are here to stay, mean that innovative ways of working are vital to meet the aspirations of both sides in the partnership.

Public sector strategic partnerships must be transformational

Any strategic relationships of this nature need to have clearly quantified business outcomes, with flexible contractual and innovation governance structures updated at least every six months to stand the test of time. They must adapt and change to the needs of the parties and the environment in which they find themselves. The hope, with all of these partnerships between the public and private sector, is that the flexibilities they build, not just into their written contracts, but the on-the-ground behaviours of both sides will reflect both parties’ desire to transform the business outcomes in excess of original expectations.

Input cost, however, seems to have been the sticking point with LDL. It appears that as the pressure grew for Liverpool City Council to cut their service delivery costs still further, it seems BT found its limit. Mayor Anderson said: “Liverpool has been among the hardest hit by the reductions in government funding. Over the last three financial years up to and including 2013/14, Liverpool City Council has delivered £173m of budget savings.” He continued: “Unfortunately BT feels unable to commit to any further price reduction within the contract as they need to sustain their own financial position.”

This perception is a real blow for strategic partnerships. There are some strong examples of where good value has been, and continues to be driven by public and private sector strategic partnerships including the Prison Service, NHS Blood and Transplant Service and NHS Shared Business Services.

Private sector organisations often go into their partnerships with such a positive attitude, selling the dream of a transformational relationship in which the best aspects of both public and private sector worlds join together to weather any storm. But ultimately it is innovation that will get such relationships through tough times like these. Given the fact that there are now no less than five transformational partnerships with BT that have prematurely wound down, is this a result of the parties involved being unable to deliver the level of revolutionary thinking needed to deliver the dream between them?

The McElhinney factor

David McElhinney has been in charge of LDL almost since its inception back in 2001. He also spent a short time being responsible for One Connect, Lancashire County Council’s joint venture with BT that we reported on last week. Not only have both partnerships started wind down procedures and been plagued with accusations of poor value for money, but David McElhinney himself has been placed squarely in the spotlight for his role by the press.

Firstly, there is the matter of the significant income that he was paid to assist in the direction and management of One Connect; £500,000 for working two and a half days per week for 18 months or so. There is also the issue of the ongoing police investigation into ‘financial irregularities’. This became newsworthy when the police raided a property linked to him, and those of two other men: one being former Liverpool council colleague and CEO, Phil Halsall.

A Lancashire County Council spokesperson said: “The county council can confirm that, in the light of external legal advice, a number of issues arising from the recent disciplinary investigation into the conduct of a senior officer have now been referred to Lancashire Constabulary.”

What now for Liverpool Direct?

It has been suggested that BT will sell its 60% share of LDL to Liverpool County Council. It seems LCC believes that after more than a decade working with the telecommunications giant, they have the skills to run the organisation and achieve their cost-cutting goals internally. Liverpool Direct may retain its name, and likely many of its staff, but there are some key issues that will need to be addressed.

  1. Have the high-flyers flown the coop? It is common in such partnerships for the very effective people – those who excel in their service delivery and management roles – to be recognised and moved on within the private sector partner’s organisation. Some may well have been TUPEd from the council, but the lure of a company car, title, pension and bonuses beyond anything they have experienced to date is often enough for them to be tempted wholly into the private sector. When partnerships are wound down, and council staff are all taken back into the public sector fold, it is likely there will be skill gaps as a result, necessitating additional costs for training, promotion or recruitment. Though even with this, some knowledge of how to achieve the very best results can be lost along the way.
  2. Dated service specifications and operational process documentation. Over the years, processes change, people find better ways of doing things, technology moves on, and process documentation can quickly become out of date. In a relationship like the one BT and Liverpool County Council have with Liverpool Direct, which lasted almost 13 years, much is bound to be different from the way things were run, specified and contracted for back in 2001. Often people move on, paperwork is left unchanged and when services are brought back in-house, councils find that not only is there a skills gap due to loss of staff, but a significant knowledge gap due to lack of up-to-date process documentation. So, updating this process documentation is a key priority before in-sourcing or transferring any services to other providers.

What now for BT as a strategic partner?

It’s a big question, and one that public sector bodies such as Cornwall County Council that has only just signed up to their very own strategic partnership with BT will doubtless be asking themselves. But, despite BT’s record of 0:5 to the contrary, there may not be cause for concern if all parties can learn key lessons from how previous relationships have been run.

As mentioned earlier, there are examples of public sector partnerships that have bucked this trend and succeeded, such as the Prison Service, NHS Blood and Transplant and NHS Shared Business Services, though undoubtedly significant effort must be put into three key areas:

  1. Innovation. This needs to be not only built into the written contract but also governed, performance monitored, and rewarded.
  2. Operational governance. So everyone knows what is expected of them and ambiguity is banished in favour of crystal clarity.
  3. Clearly communicated and agreed social outcomes from the outset. Visible goals which, when accomplished, are publicly celebrated so all concerned are engaged in ensuring they are achieved.

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