Local authorities increasingly look to joint ventures but their success relies on shared.....
21 Apr 2016
Local authorities increasingly look to joint ventures but their success relies on shared objectives and good governance.
With many local government organisations looking to protect front-line services whilst facing significant financial pressure, some are looking to joint ventures (JVs) as a way to introduce innovation and change. However, a new report from Grant Thornton UK LLP, warns that as more local authorities adopt JVs in the future, they need to consider carefully the objectives and partnership arrangements of these models to ensure that they can survive and thrive.
Better together: Building a successful joint venture company is the latest in a series of reports looking at alternative service delivery models in local government. While there have been some high-profile failures of JVs, the report found that, with the right set of shared objectives, a culture of trust and the right governance, they can prove successful.
The analysis covered JVs delivering a range of council services, both back office and front line, at different stages in their lifecycle and found that the most common services provided through a JV are: IT; finance; human resources; payroll; road repairs and maintenance; revenues and benefits; schools catering; and property management.
JVs have traditionally seen local government partner with commercial organisations, but the report also found that a new breed of public-public joint ventures can be particularly effective. In part this is as a result of combining common cultures, but in many instances councils already have good collaborative relationships. There is also less tension for councils as a partner in a profit-making public-public JV, as ultimately all profits are returned to the public purse.
CATERed is an example of a public-public JV, 49% owned by 67 local schools and 51% by Plymouth City Council. It serves almost 2.5 million meals to Plymouth school children every year. The JV has a shared vision of delivering high quality affordable school meals, and the number of children taking school meals has increased significantly. This is allowing the council to reduce the subsidy it had historically contributed, meaning it is already reducing costs. The report includes several case studies of JVs.
In the report, Grant Thornton UK LLP sets out several critical factors for local councils to create a successful joint venture, including:
Be clear on your objectives. Your partner will need clear information about your requirements, and these should be shared and revisited on a regular basis to ensure all parties have a clear vision of the future.
Create a culture of trust and strong working relationships. There should be a ‘one team’ ethos between the council and the JV and an understanding of the importance of communication across all stakeholders.
Allow the JV to operate independently. The JV must be able to operate outside of the council focussing on income growth alongside improved service delivery and cost reduction for the council. The temptation to make the JV another corporate directorate that acts in the same way as others needs to be resisted
Ensure appropriate corporate structure and governance arrangements. The JV’s corporate structures should allow it to operate in a commercial manner with non-partners and in a partnership manner with the council.
Vivien Holland, Local Government Advisory at Grant Thornton, said:
“Overall, joint ventures can be a viable alternative delivery model for local authorities. Our research indicates that the numbers of joint ventures will continue to rise, and in particular we expect to see others follow examples of successful public-public partnerships.
“There are well-publicised cautionary tales of public-private JVs, however many councils are continuing to use this type of JV because they recognise that working with experienced commercial partners brings cost effective solutions. This can be the case, but relies on JVs moving away from the traditional model of inflexible and complex contracts and both the council and its partners being clear on the objectives. Moving to a more collaborative JV partnership model can, if managed well, provide councils with the commercial edge over other alternative delivery models.
“Joint ventures offer great opportunities for savings and income generation, and mean councils can bring in outside expertise rather than operating alone. If procured with enough innovation, creativity and collaboration in mind, they may also be capable of delivering more than just profit, such as wider community benefits. This will be important as more councils seek to identify social as well as financial returns.”
We have researched a range of JVs for this report to provide inspiring ideas – from those that have been a success as well as lessons learnt from those that have encountered challenges. The report also provides advice and information about the key areas to consider when deciding on a JV, setting it up and making it successful.
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