In 2007, when Southwest One was formed as a joint venture between private sector Goliath IBM, Somerset County Council, Taunton Deane Borough Council, and Avon and Somerset Police, many pointed to it as a trailblazing move: an exemplar of how such partnerships should be created.
However, in March 2013 it was announced that not only had this £400m deal not achieved the expected outcomes of the public sector partners, but that FOI requests had revealed it had cost the public sector partners dearly in an out of court settlement.
This article looks at the official lessons learned and what others considering entering into large contracts can take from this to ensure their future commissioning models are successful.
Somerset County Council’s ‘lessons learnt’ report
Such was the publicity surrounding the creation of Southwest One, that the ripples from the decision to start its dismantling continue to travel across the public sector pond today. The fact that Somerset County Council has taken the positive step of carrying out a review of what they believe could have been undertaken differently, will assist other public and private sector enterprises to learn from the experience.
Their report ‘Lessons Learnt to inform future Commissioning from the experience of the Southwest One Contract’ is literally hot off the press. I think it would be fair to say that what has been published by Somerset County Council is more of an ‘executive summary’ rather than a long, introspective look at how both party’s actions and expectations had brought them to the point of disassembling the majority of the partnership.
As a result, we’ve taken elements of their report and added our commentary to it so you can get a clearer picture of what we believe needs to be taken from the Southwest One experience. The quotes in italics are directly from the original ‘lessons learned’ report:
1. Contract complications
“One of the most significant lessons learnt is not to make contracts overly complicated. Both the provider and the Council would agree that the contract is incredibly complicated. A contract with over 3,000 pages was drawn up back in 2007 which was considered necessary at the time given the range of services and the partnership and contractual arrangements created.”
Yes, you read that correctly. A 3,000 page contract was created by the legal representatives, no doubt at great expense. A document of such a size will present clear challenges for the individuals on the ground, from both public and private sector partners trying to positively manage such a wide breadth of service delivery across multiple organisational stakeholders.
While it is important to offer clarity and consider every eventuality, it is also essential that the legal documents that bind partners together are understood by all involved, are as concise as possible and focus on agreed business outcomes. Unnecessarily complicated paperwork will lead to misunderstandings, confusion, conflict and inefficiency, none of which are conducive to a good working relationship. The other point to note is the importance of the contract process map which lets everyone know what they should be doing and when, to achieve those agreed business outcomes. This is the guide all can refer to, in order that there is a continual drive for maximum value over the lifespan of the partnership.
2. Incentivised behaviour
“The partnership between the provider and the three clients has at times been adversarial and at times worked well. What has become clear over time is that any such partnership depends upon having similar incentives and an understanding of each partner’s requirements.”
This refers to the fundamental features of any partnership arrangement – for all those involved to understand and agree clear business objectives and outcomes right from the start, to incentivise those on the front line to achieve them and to regularly monitor service delivery and partnership progress to determine whether any contract or process refinement is necessary. This is all about cultivating the correct behaviours from all of the parties. It is a subject we covered in more detail in another article: ‘Back to basics, the importance of culture in a commissioning partnership’.
3. Built-in flexibility
“Of course, requirements change and the nature of local government changed considerably as a result of the national austerity programme. The well-documented financial difficulties faced by the provider early into the contract life also affected its ability to meet client expectations. The net effect is that at times the provider and partner aims in service delivery do not always match and discord and dissatisfaction can occur.”
The challenge here appears to be that not only was the written contract proving difficult to administer in a practical sense by not allowing for the degree of flexibility that the real world required of it, but there also seems to have been issues aligning performance monitoring to changing business outcomes. This last point is a contractual issue, which, if it did not exist, would have made it far more difficult for the parties to have the ability to recognise when, where and how to realign both side’s behaviours to drive maximum value. If a biannual review process had been built into the written contract to formally capture what was, or was not, working well, and what innovations could be implemented to fundamentally reshape how better value could have been achieved, then maybe warning signs could have been spotted earlier and actions taken to bring matters back into line.
4. The importance of ICF
“The Client function monitoring a major contract needs to be adequately resourced. At the outset the size of the client unit was deemed commensurate with the tasks ahead, such as monitoring a range of performance measures and reporting on such to various management and Member forums. Liaison between partners, approving service development plans and approval of payments under the contract were other significant roles performed by the client unit. However, as performance issues became evident and legal and other contractual disputes escalated, the team had to cope with increasing workloads and increasing pressure from service managers and Council Members to address these issues. This is a difficult balancing act. You do not want to assemble a large client function that in part duplicates the management of the services being provided nor overstaff to the extent that there is insufficient work if contract performance is such that no issues are created. With hindsight, the initial team was too small to manage the contract when SAP and other performance issues were not resolved quickly enough. Sizing the function is tricky but we do now have an extremely knowledgeable and experienced client team.”
As with any major contract, it is important that your Intelligent Client Function (ICF) is properly resourced with the manpower and skills that will help you to steer your way through any rocky waters and excel in your partnership. It would be nice to think that everyone involved in a contractual agreement would be dedicated individuals, all pulling in the same direction with common goals and values. But this is just not the case all of the time, which is why strong management is not only preferred but essential; something we recently wrote about in an article titled ‘Intelligent Client Function: The 8 best team skills to drive maximise value in complex vendor relationships‘.
5. Business objective-led KPIs
“Performance indicators need to be meaningful rather than simply what can be measured. Agreement between the provider and the SCC client of all the appropriate performance measures was a long and difficult exercise at the beginning of the contract. Early on in the first year of the contract, there were a large number of meetings held to agree how to record performance and what steps would be necessary should performance slip below targets. Internal audit advice was taken (and has been at least twice since under further reviews) on the quality and value of the performance indicator regime. It is regrettable and again with hindsight a learning point that too much attention was paid to these contractual mechanisms rather than ensuring the relationship between provider and SCC was positive. Perhaps the regime was too onerous for both sides to administer.”
It seems both parties spent a very long time setting out the KPIs in this relationship, but did they spend enough time quantifying the business objectives that each was aiming for to make sure that everyone was clear on the motivations and expectations of each of the other partners? Performance indicators are all well and good, but only if they align to the business outcomes that everyone is shooting for. In such a long relationship, realigning business objectives to KPIs has to become part of the normal service delivery and contractual reshaping process, and preferably, in six-month intervals. The ‘lessons learned’ quote from Somerset County Council seems to indicate that the partners found themselves being led by legal teams and the prerequisite to set measurable service level agreements, despite these service levels not being aligned to the business outcomes everyone was trying to achieve.
6. More appropriate contract periods
“Contract periods need to be different for different services as the pace of change is different. The range of services provided under the initial few years of the contract were quite extensive. On another related point the provider also had to manage different services for different clients. This level of complexity was perhaps too ambitious for all parties. Although there are many successful parts to the contract, it is inevitable that most will remember those that did not work so well. The contract period of 10 years is a long time for nine different services to change at the same pace. Of course, service development plans were agreed for each service to attempt to keep pace with service needs as they changed.”
What we have taken from this is their recognition that attempting to create a one-size-fits-all 10-year term contract was a major issue. We have to agree. Despite the legal representatives they had working with them in developing this contractual relationship, Somerset County Council still ended up with written contract terms they found very difficult to use in a practical sense to drive the right behaviours between all of the parties. With nine different services being managed by this contract, all with their own unique demands and resource needs, all changing and advancing at different paces, innovation and adaptation needed to be built in as part of the governance process, every six months. This process would help to quantify the changing business outcomes and make sure all partners are clear on what has to be achieved and by when.
7. Animosity and loyalty
“The secondment model introduced as part of the contract arrangements had been used elsewhere in the country before this contract used it. Nevertheless, it was the first time that three separate organisations had seconded staff into one provider. In many ways the model worked as staff felt both loyalty to their “home” employer, keeping the public service ethos we all felt to be important, and to Southwest One as they merged staff into a centre of excellence model. The disadvantage was that Southwest One was hampered by the terms and conditions staff kept as they tried to find savings for their business model and to provide savings to the Council in recent years given the changing financial conditions we now operate under.”
The new organisation, Southwest One, was made up of private sector individuals from IBM, and employees TUPEd, or seconded to the business from public sector departments. From the comments made in the ‘lessons learned’ report, it seems that these different groups found it very difficult to pull in the same direction. If, as the report suggests, there were issues with the contractual differences between staff with TUPEd public sector employees retaining many of the favourable terms in their employment contracts from with their previous employer, this was likely to lead to staff in the same departments doing similar jobs on very different benefit packages. In these circumstances, disquiet is bound to follow and make proactive management particularly challenging.
8. Cultural differences
“Another aspect of this contract in terms of complexity is the nature of the partnering arrangement. It is not easy for all partners to have exactly the same view or stance on an issue. Southwest One had to manage competing priorities from its clients and the partners also had varying opinions on the level of performance provided.”
It appears an area of contention between the private and public sector partners were their priorities. The private sector partner was likely focused on generating the highest profits for their majority shareholding in Southwest One, whereas the public sector partners were more focused on reducing the cost, and increasing the quality of service delivery. This difference of objectives is one which we often see as being an important factor contributing to the misalignment of both the cultures and the business expectations in a partnership. It is likely these issues could have been avoided if appropriately structured business outcomes, contract terms, innovation behaviours and suitable incentives were in place for both sides.
9. Learn not only from your mistakes, but also from what you do well
“In summary, this was a very ambitious venture. The service provided in some cases got off to an unfortunate start with the issues generated by SAP problems and relationships were strained and attracted much inside and outside attention. All parties have been working very hard to keep good relationships and to fix service issues as they arise. The sheer size and complexity of this contract has proven difficult to manage and future commissioning decisions will bear this in mind.”
Innovation and ambition should never be knocked, shackled or discouraged. The process of trying to get three very different public sector partners working together to agree outcomes is challenging enough; mix in a large private sector partner who will be paid for services and also a split of any surplus revenues from expanding service delivery into other public sector agencies, then matters become even more complicated. Though ambitious and daring, this example shows how important it is to focus on business outcomes rather than obsessing over contractual KPIs; the latter do not always result in the achievement of the former, and having the right people with the right skills in the right roles can make all the difference.
While this partnership did not live up to the grand expectations everyone had for it at the outset, it does serve as a good lesson for all those who follow. Credit should be given to Somerset County Council for reviewing what challenges they have experienced. If they do find the time, a more detailed and introspective view on the specifics would provide a much better ‘how to’ guide for other organisations that are thinking of either reshaping existing large-scale partnerships, or moving into new commissioning arrangements in the future.