Shared Service

Shared services and other forms of collaborative inter-council endeavours exist in public authorities or local government across the world. They typically exist as some form of institutional mechanism for addressing disjointed problems in local government systems, or more simply separating production from provision (Dollery, Kortt & Drew 2016, p.229). The literature is showing shared services fits into a common form of more than one council with specified requirements of which service and aims are mutually shared with the

community. While this form meets all council requirements within the wording of specified service, it is commonly representative of advocacy processes particularly with government. Associations of Australian councils, locally known as local government associations (LGAs) are positioned in the literature with procurement mentioned as a fee for service (Dollery, Grant & Kortt 2012; Dollery, Kortt & Drew 2016). However there is no evidence of enhancing procurement professionalism.

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This research project has determined there are three specific shared service council institutional arrangements for procurement: those provided by an LGA, commercial aggregators and partnerships between councils. The LGAs are a form distinction raised by Doolery, Grant & Kortt (2012, p.5) regarding ‘for-profit’ as possessing individualities apart from efficiency enhancing and this distinction includes commercial aggregators . The authors determined the LGA shared services as a ‘vertical shared service model’ involving the requisite LGA with councils on a ‘fee-for-service’ basis (p.65). The findings of this research project is ‘for profit’ existing with the LGA vertical shared service model and with commercial aggregators, both being collators of council volume requirements for

collective tender. This research project, will use the terminology of LGA vertical shared services, aggregators and partnerships between councils.

It is not the purpose of this research project to enter a literature review or discussion on the taxonomy of shared services, a subject very adequately covered including Australian council shared services (Dollery, Grant & Kortt 2012; Dollery, Kortt & Drew 2016; Paagman et al. 2015; Richter & Bruhl 2017; Tammel 2017). A recent finding by Tammel (2017, p.792) that routine back-office functions including procurement can be standardised and offered as shared services by a dedicated provider. This research project has found standardised and commercial aggregation as unobtainable within Australian councils. This research project will address the barriers preventing a relationship between council e- Tender and executive strategy from a shared services perspective within the research data.

(i) Partnerships between councils – Four of the councils within this research project use a form of partnership being council Alpha, council Delta, council Echo and council Foxtrot (Refer Table 25, Table 26 & Table 27). All four councils could not provide any substantiated benefit from procurement shared services within these partnerships. This is contrary to the findings of (Dollery, Kortt & Drew 2016, p.230) using extant empirical evidence, aged in the 1990s and early 2000s. One study of particular interest is the Riverina Region of Councils (REROC) (Dollery, Grant & Kortt 2012, pp.178- 181) which has quantified savings of the 5 years period through to 2003 of $4.6m AU from a wide variety of council procurement tenders. This is an expected indicator of savings from partnerships, as Foxtrot 1 states ‘bulk

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buying power’. A barrier to this expectation is provided by Delta 2, ‘how do you really get serious about it? Surely there is a way to do this better’? An impacting response to Delta 2 is provided by Echo 2, ‘New life to be breathed into it, there have been a few retirements in the last few months. So, those people were fairly influential and fairly insular at the same time’. There is a distinction between LGA shared service, commercial aggregators and partnership between councils as explained by Foxtrot 1, ‘the

methodology of the two (shared service and partnerships – sic) is different. LGP cannot promise or guarantee buy in from individual councils … where as a Region of Councils (ROC), first of all gets agreement or buy in, a

commitment … before they try and negotiate and bind a supplier to a deal’.

(ii) LGA shared services – All seven councils stated participation within the respective state LGA shared service parameter of collation of volume for collective tender. All seven councils provided details of energy as a major saving from LGA shared services. Delta 1 commenting on the value of energy through the LGA shared service, ‘electricity utilities. You know pretty good pricing to be honest with you’. Council Charlie has a different view on competitiveness of the energy collective tender, ‘we actually had an energy consultant coming in, his conclusion was that going through LGAP and the amount of electricity we spend gave us no competitive advantage whatsoever’. A rhetorical standard exists with LGA shared services collation of volume for tender of a commission to be paid as a fee for service up to 2% of the invoiced value of the contract. Alpha 3

comments, ‘where LGAP trying to get that 1 or 2% to be viable (referring to their commercial operations – sic). This commission appears as a set fee and lucrative to the LGAs, particularly considering the energy contract is multiples of $100m AU.

(iii) Commercial Aggregators – These organisations mirror LGAs in collating volume council requirements for tender. There is no barrier to entry by any organisation or company with the capacity or intention to undertake aggregation services as a product line within a commercial environment.

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Aggregators range from joint ventures by councils to form a ‘for profit’ aggregator and commercial companies with a business purpose of aggregation. The payment of a commission as a fee for service does not appear to be a barrier to council’s use of aggregators. Generalised aggregators provide councils with choice, as Bravo 2 states ‘… we tap into Procurement Australia … we do look outside, we tap into Council Solutions … even look interstate’. Although Bravo may provide volume to the aggregators to collate pre tender, Bravo does not contract until a full evaluation of the selected tenderer occurs, in the words of Bravo 2 ‘if it doesn’t commercially seem viable to us then we do have the option to not to be going with them’. The ability to opt in or out may appear as awkward to both the aggregator and the potential supplier (who quotes on a volume but the volume may not eventuate): the risk factor to Bravo contracting before a confirmed cost is known is a breach of the council procurement governance framework.

Council Solutions is a joint venture by six councils, one of which is council Charlie, operating as a commercial company and a prescribed organisation under the SA LGAct requiring publication of an annual report inclusive of financial data39_{. This is a fee for service operation using Vendor Panel pre-} qualified panels and aggregation where a commission on both activities is paid. The commercial strategy of Council Solutions is now in question after the ACCC40 _{issued letters regarding the impact of aggregation on market} forces as uncompetitive.

The shared services used by the seven councils all have distinctive barriers to effectiveness with impacts on the relationship between council e-Tender and executive strategy. In the case of Council Solutions and this is just one of many mirrored organisations across Australia, it was a strategic decision by council Charlie to be an original investor, now with an obligation for support, provision of revenue for commercial viability. Considering all shared services, councils are struggling with the impact of commercial services and the

39 _{It is not the purpose of this research project to financially analyse Council Solutions.} 40 _{Australian Competition and Consumer Commission.}

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effectiveness is summed up by Delta 2, ‘how do you really get serious about it? Surely there is a way to do this better’?

Table 39 - Outcomes of shared services

Shared services Facilitation Barriers

How do you do it better? Executive strategy recognising procurement value

Drive to find the most appropriate outcome Procurement professionalism Procurement to provide quality

policy and procedures across the e- Tender operations

Council experience as the professionalism factor

Financial value of

procurement through shared services

Assessment of value at both monetary and service levels

Acceptance of what is - no motivation to investigate improved financial outcomes

Bold is the summarised outcome – the themes that fall naturally into explanation