Governance is a contact sport

In my previous post I mentioned the conference I attended last week on strategic partnering in the police service. One of the afternoon's speakers was Malcolm Burch, the chief executive of Lincolnshire Police Authority. His talk was about the specifics of the governance arrangements in connection with the procurement process they have undertaken but one thing he said has, I think, a general application. He referred to governance being a "contact sport". He was talking metaphorically, of course, and I think he meant contact sports like rugby rather than boxing or martial arts. The overall aim of governance, after all, is for the organisation to win not for one side to knock out the other.

Anyway, Malcolm's point was that it's not possible for governance to be carried out in isolation from the projects and activity of an organisation. Governors (ie those charged with governance of an organisation) have to get involved, they have to have conversations with people and if there are differences of opinion they have to find ways to resolve them. It would be easier for governors to say to the executive, "get on with the project and when you've finished we'll scrutinise what you've done" but that approach is not helpful to the executive and runs the risk of the project failing. There's not much comfort for governors to observe a project has failed when they might have been able to prevent it, or at least mitigated the failure.  It is tantamount to the old joke about an auditor being a person who hides in the hills until the battle is over and then bayonets the wounded. No-one needs governors like that.

12 golden rules for outsourcing

Yesterday I attended a national conference entitled Strategic Partnering in Policing. It was an interesting day where 35 of England's 43 police forces were represented and there were  presentations from four different police forces. The bulk of the presentations, though, were by Lincolnshire Police, who have recently begun a 10-year partnership with G4S.

One of the speakers was Lincolnshire's Chief Constable, Neil Rhodes. In his presentation he explained the twelve golden rules that he would have liked someone to share with him a year ago when Lincolnshire began the procurement process that led to the deal with G4S. With his permission I have listed the 12 rules below, with some brief explanations in brackets where needed. (In the interests of openness I should state I was an advisor to Lincolnshire Police during the procurement process.)

1. Have realistic expectations (about what the private sector can deliver for you given your starting position).
2. Get the metrics sorted out early (so you know where you are and how you will measure success in the future)
3. Don't be seduced by promises of "jam tomorrow" (by always asking yourself, "can we uplift this promise into the contract?")
4. Make sure you choose the right route to contract.
5. Plan the work, then work to the plan.
6. Chief officers get involved early and stay late (ie closely involve senior managers throughout the procurement process).
7. Bake the partnership's guiding principles into the contract.
8. Be balanced in your requirements because risk aversion is very expensive.
9. Set the structure for future projects (so that you know in principle how the partnership will adapt to changes in requirements over time).
10. Don't focus your evaluation scheme too heavily on price (because you don't want to sign a deal with a partner who will give you "a mess for less").
11. If something is not binding contractually it gains little credit in the evaluation.
12. Maintain the competitive tension (between bidders) until the very end.

Whilst the above rules have come from Neil's experience of a procurement process in the police service I think they are generally applicable to the procurement of strategic partnerships by any public body.

The US National Debt in real time

via usdebtclock.org

I haven't really got a comment on this. I know many people have said to me over the years that because I am an accountant I must avoid debt. Actually, I think that because I am an accountant I am in favour of debt, inasmuch as it matches the use of an asset with paying for it. Anyway, regardless of theories, there is something mesmerising about this set of numbers and the speed with which they are rising.

Minor roadworks

I live in the north west corner of Derbyshire where there aren't major roads or motorways. Over the last few weeks I have come across roadworks on lots of the local roads. Not major roadworks, just one of those machines that scrapes off the top few centimetres of the road surface so that it can be replaced with fresh, smooth tarmac. However, I am sure that I won't be seeing any more of these small schemes next week, or again until next March because it is the end of the financial year.

If I were being cynical I would suggest that these works were only being done to make sure that the budget for 2011/12 was as fully spent as possible. That might be the case but I don't know because I don't have the budgetary control report for Derbyshire County Council. What I do know, though, is that public managers still measure their importance and their success by how much money they spend. Until a few years ago the value of public service as measured in national statistics was deemed to be equal (exactly equal) to how much was spent. So, spending more on the roads (or in hospitals, schools, libraries, wherever) meant more value was created. That's changed now (but I won't go into the detail here) but for many managers it is still the case that if they spend more on their service, they deliver more outputs and that must mean they deliver more value for the public. Sounds fair enough, doesn't it?

If I were being more positive, though, I could suggest that these schemes are taking place now because the council's managers operate in the same way that most people do when faced with a deadline; they leave things until the last possible minute to start and then finish just in time.

Whatever the reason, there are several hundred metres of improved roads all around my neighbourhood and, as a cyclist I value it because it will make my riding in the summer a bit faster and a lot smoother and more comfortable. If they hadn't done it no value would have been created but the question is, would more value have been created if they spent the money on something else?

What's Brad Pitt got to do with managing public money?

I recently saw the film Moneyball and I enjoyed it. Brad certainly deserved the award nominations. I also like baseball (at least, I like it as much as a non-American might like it) but the film's not really about baseball. It's about how Billy Bean, the general manager of the Oakland A's, figures out how to make his team competitive even though he has a much smaller budget than the others. First, he does what anyone would do and asks the owner for more money. He's told he's got to live with the money he's got. He realises he can't carry on doing things the old way because he can't get players on high salaries. Instead, he looks for players who are cheap but good at getting on first base (ie they are undervalued). This is based on the idea that the more that players get on base the more runs will be scored and the more games won. There was no fairytale ending with the team winning the World Series but they came close and on the way they managed the longest winning streak in history.

So, what has all this got to do with managing public money. Well, public managers are in a similar position to Billy Bean. Their budgets aren't big enough. They've tried asking for more money but the government has been clear that it is not changing its spending limits. So now public managers have got to accept that they can't continue doing things as they've always done. If they were being asked to find efficiency savings or two or three percent then they might be able to meet the target by belt-tightening, etc but reductions of 10 to 20 percent require radical thinking.

In the film Brad Pitt is advised that he doesn't need to buy players, he needs to buy wins. Translated to public services, managers don't need to buy inputs, they need to buy results (outcomes is the usual jargon). When services are looked at from the point of view of the end user and results that are needed it becomes possible to think of alternative ways of achieving the results and some of those will be cheaper than others (ie undervalued).

There won't be any fairytale endings for public managers but I think it would be helpful for them to think in terms of buying results rather than just managing expenditure.

Interim Judgement

I've fallen out of the habit of writing for this blog and have been telling myself for weeks to write a new post. The furore about senior public sector managers being hired through service companies rather than as employees is something I really ought to write about. So I have ... By posting a comment on their blog entry. Here's what I wrote:

I am an accountant and I work as an interim manager through my own limited company. Without getting too technical about it, the potential for reducing my tax bill is not that great, not since the Inland Revenue introduced IR35. Prior to that people working through companies could pay themselves minimal salaries and take the rest of the money as dividends, upon which income tax is paid but not national insurance. Even with that device, you have to pay corporation tax on the profit before you can take the dividends.

There are other possible tax advantages one could implement. Eg the company could employ the interim’s spouse or offspring and thus take advantage of two or more people’s personal tax allowances, reducing the interim’s total tax paid at the higher rates. Dare I say it, this is something MPs have been doing with office allowances for years.

I think I should also mention the reason such companies are attractive to employers, especially for hiring interims: it reduces their liability as an employer. As far as the council or other body is concerned they have a service contract. That means they are not responsible for employment duties such as the working time directive, they don’t have to make national insurance contributions, they don’t have to pay for holidays, they don’t have to apply their equal pay scheme to the position, they can fire the person without having a long winded investigation and disciplinary hearing, and so on. They also don’t have to allow the person to join the pension scheme and thereby they can save themselves the pension contributions.

The downside is VAT is payable on the service contract. Local government and ministries don’t worry about that because they can reclaim it from the treasury. The picture is different in the NHS and I’d be surprised if the witch hunt uncovered the same sort of arrangements in the trusts and PCTs.

To see the full blog post and other comments go to http://welovelocalgovernment.wordpress.com/2012/02/20/interim-judgement/#comments.