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Everyone’s talking about: Insourcing

With local authority facility management companies and councils under financial pressure due to the pandemic and issues emerging around health inequalities, will we see a trend towards councils insourcing the management of facilities? Kath Hudson rounds up views

Published in Health Club Management 2021 issue 7
The pandemic is putting a strain on the public sector and forcing strategic decisions about facility provision / photo: shutterstock/Halfpoint
The pandemic is putting a strain on the public sector and forcing strategic decisions about facility provision/ photo: shutterstock/Halfpoint

For more than 30 years, outsourcing has worked well for local authorities and their leisure operating partners, but COVID-19 has provided a shake-up and made some councils question their priorities, while some operators are turning to councils for additional funds, creating a shake-up in parts of the contracting world.

With now being an unfavourable time to tender, with only a few contractors interested in launching into new partnerships, a desire to build back fairer to level out the inequalities exposed by the pandemic and with some council/contractor relationships under strain, a number of councils are considering bringing services back in-house or setting up Local Authority Trading Companies to take over the short- to medium-term management of facilities. We ask our experts for their comments.

Duncan Wood-Allum
SLC – The Sport, Leisure and Culture Consultancy
Services must be shaped around what councils prioritise and can afford, says Wood-Allum

Due to over-ambitious bidding in the past – often driven by financially-oriented procurement processes – some leisure operators were not achieving proposed income levels even before the pandemic, which has exacerbated the current problem.

In some cases, this has resulted in councils having to find c£2m-c£5m to temporarily support services since March 2020, sometimes for contracts that generated a surplus pre-pandemic.

As a result, some councils are reviewing arrangements with operating partners on the assumption there may be a better alternative. Often there is not.

Some are having to make quick decisions, which may not have been fully explored, as to the longer-term risks and benefits, however, changing management arrangements can’t negate the impact of COVID-19.

Councils need to consider what’s in the best interests of their community and ensure decisions are based on need and evidence and are strategically aligned. It’s essential not to overreact, but adopt a holding position to take stock, until the market has seen some recovery.

It’s also important to spend time considering the pros and cons of management options that have such long-term financial and social consequences.

Our advice to councils is often to stick with their current arrangements for the next 18 months, even if it’s been difficult for them and their operating partners to negotiate financial support since March 2020.

However, sometimes relationships have been damaged and one or both partners want to end the arrangement. In this case, transferring services into a LATC as a ‘holding position’ can be a pragmatic alternative to going out to tender in the current climate, which could result in a sub-optimal contract with considerable risk and cost being transferred to the council.

Bringing services in-house will be costly but does give control to the council, although we query the long-term benefits of this.

While insourcing can make future returns on investment hard to stack up, if the political will is there to invest in an in-house model, there’s nothing stopping that council doing a great job – but it will need significant resources to make a success of it at a time when budgets are under pressure.

The current crisis cannot be resolved solely by swapping from one model to another. There is no safe harbour

The current crisis cannot be resolved solely by swapping from one model to another – there is no safe harbour. The focus is to ensure the service offer is shaped around what councils prioritise and can afford. Addressing inequalities has never been more important – the risk is that finances will override this.

Now’s the time for councils to review objectives and the mix of interventions to achieve these. The delivery model is the last thing they should be focusing on right now.

Karen Whitfield
South Kesteven District Council
“Our motivations go beyond financial gain,” says Whitfield

In 2019, a robust management options appraisal was carried out and we decided the best course of action was to extend the agreement with our management contractor – which was due to end in December 2020 – by 15 months.

This would have allowed us enough time to go back out to tender for a new leisure contract. Ideally, we wanted a contract that would be income-generating and would transfer operational and financial risk to the successful bidder.

Unfortunately, after the Coronavirus outbreak, companies showed little or no interest in taking on new contracts, so we had to revisit our options appraisal.

Given the new circumstances we identified an opportunity to set up a Local Authority Trading Company. Our relationship with our previous contractor had been longstanding – more than 20 years – but it was no longer sustainable.

We were having to provide significant levels of financial support with no major say in how things were done; the contract was no longer offering the level of service we wanted to provide; many staff members were demotivated and we wanted to be more hands-on when it came to mobilising our communities to be more active.

Having made the decision in August 2020, we had only four months to set up the company, but we achieved that goal and now everyone is excited by the change.

With so many leisure centres under threat of closure, local authorities are the operators most passionate about keeping them open

Although the financial and operational risk now lies with the council, it’s great to be back in the driving seat. The contract is for three years, but there is the option to continue. According to our forecasts, we will be able to make a surplus in our second year of normal trading.

We have a clear vision about what we’d like to achieve and are planning significant improvements, including continuous professional development for staff, as well as looking at gaps in the provision and seeing how we can work collaboratively with other partners to persuade more people to improve their health and wellbeing.

We’ll be looking to make the most of the digital opportunities, as well as supporting informal exercise such as walking and cycling. We also plan to work with Lincolnshire County Council to improve infrastructure for these activities.

Now’s not a great time to tender for new contracts and judging by informal inquiries I’m getting from colleagues in the sector, I expect more local authorities to follow our lead.

During these tough times, with so many leisure centres under threat of closure, local authorities are the operators most passionate about keeping them open. Our motivations go far beyond financial gain.

Tara Dillon
Collaboration between operators and councils is the way forward, says Dillon

The pandemic has prompted a lot of soul searching and we’re definitely hearing more councils thinking about bringing leisure services back under their control. However, I think it’s a way off becoming a trend.

In a lot of cases where it does happen, I think it will prove difficult and expensive for councils and not something they’ll want to do long term, particularly given the competing priorities local authorities are facing.

My opinion is councils shouldn’t rush to take their leisure services back in-house. Local authorities and management contractors should work in unison to provide the best service possible for their location.

Councils should look at how they can leverage the best value out of their partnerships in order to make it work for their local priorities, such as inclusive communities, health inequalities and health priorities and when it comes to renewal, ensure those expectations and demands are written into the contract. For example, if the area is ethnically diverse, make sure there’s a joint purpose to focus initiatives to increase activity levels within these populations.

The industry does very well at providing facilities for a relatively small percentage of the population who have chosen to be active. For commercial operators, it’s fine to be chiefly targeting this population, but the public sector is paid for by the public purse and needs to do more to level up the health inequalities which have been made worse by the pandemic. This is where the opportunities lie for local authorities.

The public sector is paid for by the public purse and needs to do more to level up the health inequalities which have been made worse by the pandemic

Solutions need to be found to work out how what the public sector can do to reach the communities that don’t usually come into leisure centres – this will involve more meaningful contracts and services being taken out to the community and will require investment, not just financially but also by collaborative working.

Happily, we are starting to see this as a trend as well. CIMSPA is working on a skills pilot with some local authorities who have targeted services needed in their location and are then working with employers, active partnerships and local education providers to identify and provide the required skills in order for those programmes to be implemented. It’s a perfect collaboration.

Martyn Allison
Social change agent and influencer
Allison predicts a third of public sector operators will thrive, a third will survive and a third will cease to be

The shape of the sector in terms of facilities will look very different in a few years time from how it did before the pandemic.

We’ve already seen a few councils take the decision to bring their sport and leisure services back in house. Such a process must start with being very clear on the need for the service, the purpose of the service, the audience, the outcomes they want to achieve, the degree of influence and control the council wants to apply to how it operates and the financial objectives: whether they want to make a return on investment or are prepared to subsidise it to achieve certain social returns on the investment.

If we want to avoid unnecessary additional turbulence in the system it will require councils to be more realistic in terms of investing in value and not just focusing on the price of contracts. Equally, it will require all operators, including those in-house, to change how they work to achieve better social value, particularly in terms of addressing health inequality, rather than just health improvement. This will require far greater collaboration and much better leadership.

As a whole, the sector tends to be weaker at meeting the needs of those least well-off and with the biggest health needs, irrespective of the management model, so while we’ve been improving some people’s health, we’ve actually been making health inequalities worse.

While better off, white, able men are generally well served by all the management models, families and individuals living with multiple deprivations are generally poorly served by all the models excepting the more socially-minded trusts and some in-house services, where councils see the value not just the price.

The driver of inclusive service is not necessarily the management model but things such as the quality of managers providing the service, the quality of the client, the quality of both the specification and the contract and above all the quality of leadership across both.

The public sport and leisure sector is inevitably going to be reshaped by the pandemic, just as every other part of the economy will be reshaped. My prediction is it could be reduced by 20-30 per cent as an overall outcome.

The public sport and leisure sector is inevitably going to be reshaped by the pandemic, just as every other part of the economy will be reshaped

My experience of the sector shows it handles change in thirds. A third will relish the opportunity to change, reinvent itself, respond positively to the new landscape and build back better and fairer. A third will drag their feet and adapt slowly and incrementally. A third will resist change altogether and hang on to the hope that everything will go back to normal soon. This third will not be part of the future.

The third which will disappear will not be a result of the management model: it is the quality of management and leadership that will dictate the outcome. I don’t, therefore, believe there will be a rush back to in-house that will impact the sector; it will be their own ability and willingness to change that will dictate their future.

Guidance on optimising outcomes

Sport England has developed the Strategic Outcomes Planning Guidance, to support councils in establishing how they can shape their interventions through need, evidence and alignment with wider local strategic outcomes.

Complementing this, in consultation with the sector, Sport England is also developing the Leisure Services Delivery Guidance for sport, physical activity and wellbeing services relating to all forms of commissioning, whether in-sourced or out-sourced. It will be published this summer (2021) and will help councils navigate leisure services delivery issues being faced, by providing support on how to optimise their outcomes for whatever management model they choose. More:

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