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ENGIE: Outsourcing of Municipal Services – Two Case Studies from the UK

ICLEI and ENGIE hosted a session at the Cities & Regions Pavilion – TAP2015 at COP21 on Wednesday, 2 December. Entitled “Outsourcing of municipal services – two case studies from the UK,” the session presented preliminary findings from two cases of public sector outsourcing and discussed them in terms of the opportunities and challenges of long-term partnerships with the private sector.

The session was opened by Gino Van Begin, Secretary General of ICLEI, who highlighted the ongoing cooperation between ICLEI and ENGIE as part of ICLEI’s work stream on city-business cooperation for sustainable urban development. This has enabled ICLEI to conduct research on two outsourcing contracts between ENGIE’s subsidiary Cofely UK and North East Lincolnshire and North Tyneside respectively.

Dr. Laurence Ferry, Associate Professor of Accounting at Durham University, provided the international audience with an overview of the national policy background on outsourcing in England. For over 30 years, contracting out municipal services has been promoted by the national government as a means to improve public administration efficiency and performance, and cut down on public spending. Outsourcing to the private sector has particularly increased over the past five years as a result of the 2008 financial crisis and the ensuing austerity program which has prompted local authorities to identify new ways of financing and managing public services.  

Against this backdrop,  Eamon Drumm, Project Officer at ENGIE, presented a brief overview of the two contractual arrangements between Cofely UK and their local government counterparts. Faced with a dwindling economy and deprivation, North East Lincolnshire council established an ambitious long-term Regeneration Partnership with Cofely UK (Cofely took over the contract from the original successful bidder Balfour Beatty) in 2010. Next to the transfer of traditional facilities management services, the private sector partner has been commissioned with regeneration and economic development.  Only five years into the contract, the partnership is well on track to meet its goals, particularly in terms of job creation and attracting inward investment. North Tyneside’s contract with Cofely UK – encompassing a range of back-office business services such as revenues and benefits, ICT, human resources and procurement – was signed in late 2012. Established in response to the national government’s austerity program, the partnership has enabled the council to ensure job protection and service delivery. The two councils and Cofely are thus operating in sense of a partnership, rather than mere contractual arrangements, Drumm emphasized.

Roman Mendle, Smart Cities Program Manager at ICLEI, presented 10 preliminary findings that emerged during the interviews conducted with the two councils and Cofely UK.  A key realization from the research was the importance of having a clear vision and organizational mandate on goals and transformative change the local council wants to achieve with public sector outsourcing as an institutional means. Clarity on transformative goals enables councils to move beyond baseline performance Key Performance Indicators and cost saving and put the service provider on track to work towards evolving achievements the council wants in the long run. Building flexibility, renegotiation mechanisms and change management into the partnership framework and contract can help to cut down transaction cost and supports later adjustments of the partnership goals and framework if council needs change or external shocks like unexpected spending cuts put pressure on contractually framed service delivery.

Carefully managing the organizational transition from in-house service delivery to a partnership arrangement with an external contractor was another important success factor. In an early period of partnership establishment, both partners have to undergo a learning curve. Private service providers have to learn how to operate in the local political environment, while councils need to build up commercial and legal expertise to handle contract arrangements and act as ‘good clients’. Mendle emphasized the importance of trust, transparency and stable relationships as a key success factor throughout the partnership. At the end of the day, partnerships and organizations are groups of people and depend on their interaction. Even with the right legal framework in place, trust and transparency are crucial to go beyond the mere specifications of the contract and to realize the full potential of the partnership, helping the local council to achieve its goals.

About ENGIE

ENGIE is a global energy player and an expert operator in the fields of electricity, natural gas and energy services. The Group develops its businesses around a model based on responsible growth to take on the major challenges of energy’s transition to a low-carbon economy: access to sustainable energy, climate-change mitigation and adaptation, security of supply and the rational use of resources.

In the build-up to COP21 ENGIE has worked alongside Comité 21 and Club France Développement Durable to bring forward practical solutions to combat climate change and its effects. These innovative processes, services and products form part of the Solutions COP21 action program. They cover a wide range of themes, including biodiversity, wind power, biomethane, fuels cells, energy upgrades and geothermal power.

This blog post was developed by ICLEI in collaboration with ENGIE.

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Featured image: Swan Hunters Dry Docks, Wallsend, North Tyneside, 1987. Via Wikimedia.