APPENDIX 2

Report by W Roots--- Review of Partnership Thurrock Council and Vertex Ltd.May 2009

A. Introduction

1. I was commissioned by Bob Coomber (Interim) Chief Executive of Thurrock Council to carry out a review of the operation, effectiveness and scope for improvement as regards the partnership/contract with Vertex Ltd.

2. The terms of reference are essentially those considered by the Improvement Board on the 13th March 2009 and are reproduced at Appendix 1, 1a and 1b. I have also visited Westminster City Council to discuss, with their strategic and operational clients, their assessment of Vertex as a partner and their arrangements to manage the relationship.

3. The arrangement with Vertex commenced in April 2005 and is underpinned by a contract document of some 500 plus pages. Currently the annual payment to Vertex amounts to approximately £22m per annum, (nearly 20% of the Council’s net expenditure) and the services covered by the partnership are as follows:

a. Human resourcesb. Payroll and pensionsc. ICT (but in reality only part)d. Customer servicese. Administrationf. Financial administrationg. Procurementh. Revenues and benefitsi. Highwaysj. Property andk. Facilities Management

4. I shall refer to the arrangement as a partnership rather than a contract for ease of reference however a number of key changes are needed as set out below before the arrangement could be said to be a partnership in reality.

B. Approach

5. I have not sought to track the history of the relationship, costs or the service delivery performance except where germane to the current state of play extant in April/May 2009.

6. I have undertaken a broad analysis of the “good” points and where improvement is needed as expressed by the senior managers of the Council. I have also discussed the position with the Lead Members, Cllr Barry Johnson and Cllr Rob Gledhill.

7. I have also met the Management Team of Vertex to discuss their assessment of current arrangements and performance together with their informal reaction to the main points raised by Council officers. I have also established with them how they wish to proceed in the future.

C. Options available to the Council

8. The Council could:

a. Adopt a thorough but drawn out process to review and hopefully change matters over time but this would be unlikely to succeed given the current strength of feeling within the Council.

b. Seek to rescind the contract, which would be an expensive process and assuming success would require the Council to run the services directly. I personally doubt the Council’s ability to manage the services involved effectively in the short term.

c. Set out to make a substantial and rapid difference to the manner in which current arrangements operate in a sustained programme of change. This will include revising some of the basic contractual arrangements but is mainly about the need to adopt meaningful governance; clienting, financial and performance management arrangements

9. The only realistic option in my opinion is c. provided that both the Council and Vertex are willing and able to re-negotiate existing arrangements in terms that satisfy both parties’ needs. Some of the changes needed are in fact provided for in the existing contract but have not been followed effectively; been left to lapse or have been put to one side. Having met Vertex and had a frank discussion with them I am convinced that they want the partnership to work; be effective in terms of service delivery and are willing to negotiate changes which are, at least in part, inhibiting the current relationship. It is perhaps revealing that while initial misgivings did exist with some officers at Westminster City Council their arrangements with Vertex appear to work effectively. This largely stems from the rigorous clienting, at both a corporate and operational level, and performance management arrangements (including an element of the annual payment being performance related), put in place by that Council to which they consider that Vertex have responded well.

D. Areas for attention

10. The key areas for attention which need to be addressed, before an effective partnership can exist in Thurrock are summarised as follows:

a. Governance arrangements. Current arrangements are set out in Schedule 13 of the contract and comprise 5 tiers as reproduced at Appendix 2. They are overly complicated, inappropriate, lead to a lack of accountability and are not in practice followed. I suggest an

alternative approach, as set out in Appendix 3, that I consider will be more effective.

b. Service levels. In many instances the service levels being delivered are those set when the contract was let in 2005. Further because of the high level of delivery achieved by Vertex (average of 96% across some 70 indicators) compared with performance at contract inception they understandably consider that they are doing “a good job.” However many senior officers do not share this view because they consider that the wrong indicators are being measured and that there is insufficient flexibility to cope with changing needs. This issue simply should not be a problem since the contract documents clearly provide for both service levels and performance indicators to be amended each year on a rolling three-year basis. The Council has failed to exercise its right to make such vital changes each year and I believe that this factor is having a significant impact on the overall effective operation of the partnership. Further it leads to a misleading understanding as regards the ability of the contractual arrangements to deal with changing circumstances. In seeking to put this right the measures need to be meaningful and relevant to the managerial needs and practices of the Council’s service departments. Thus the onus to identify what measures should apply must rest with service managers. The relationship with Vertex should be one, which actively considers each year how, and to what extent service performance can be enhanced. In other words the performance level sought needs to be lifted over time.

c. Contract or Partnership. There are strong feelings on both sides re the nature of the arrangement between the Council and Vertex. There are a number of aspects to the arrangements as they operate to day that fall outside the contractual arrangements set in 2004. Ultimately what exists is a contract but if one wants to operate in the spirit of a partnership then flexibility is needed from both sides. Current relationships make this difficult to achieve and there is a good deal of misunderstanding. I consider this point further in d below.

d. Partnership Development. The contractual and governance arrangements provide for the partnership to develop (or expand) but this has not occurred in recent years. Vertex regards this issue as one of the reasons why they have not recouped their initial investment (but see my comments in paragraphs 11 and 12). The Governance arrangements provide for such development but in reality this has not been progressed and this represents a lost opportunity to both parties. A partnership is in my view a state of mind where the parties involved seek to resolve issues ands develop in a manner that is mutually advantageous including the taking and sharing of risks albeit that in legal terms their relationship is still a contract. I personally see little point in arguing semantics since at the end of the day it is the relationship established that makes for an effective partnership rather than the structure of the contract.

e. Base service review. The Council does need to restate its 2009/10 (and 2010/12) service expectations to Vertex in a form that can be measured by relevant PI’s and other outcomes. The affordability or saving compared to the current service level cost needs to be assessed by Vertex and an agreement reached with the Council. This could involve some tough negotiation. Having established this (new) base position the need to focus on rigorous periodic monitoring by the Council’s corporate client, its service departments and Vertex can proceed on an informed basis (see 10i below). Where differences cannot be readily resolved the revised governance arrangement allow for escalation (See Appendix 3).

f. Change Management. This activity currently causes offence or resentment on the part of some Council officers who believe in the main that a change request means that Vertex ask for additional payments. This is not surprising on the part of Vertex, if the request does mean additional work with no compensating reduction elsewhere. The position is sometimes exacerbated by the belief within the Council that its own staff would take on the work at no extra cost. This however is a false analysis since, while this might occur at the margin, if staffing levels are set accurately, additional demands mean overtime; additional staff or something stops or is delayed. Any change requests should initially be considered on this basis, both by Vertex and the Council. Any decision made of what compensating savings can be made needs to cover both the scope in the specific service area and also on a corporate basis. I have attended one meeting of the Partnerships Operation Board (a relatively new forum not provided for in the contract) where change requests were considered and witnessed such comments and a desire to operate in this manner by Vertex once they were questioned. The need to initially consider the prospect of a redirection of resources needs to be more evidently set out in the change request process.

g. Problem area reviews. There are a number of areas of activity or

functions, which have been highlighted by Thurrock’s Heads of Service and Directors as those of concern or where dissatisfaction with current arrangements exists. The principal ones are:

i. Propertyii. Procurement

iii. Strategic HRiv. Europav. Oracle/FAST

vi. Customer managementvii. IT

viii. HRix. System Interfaces

h. Vertex has already commenced a process of review in respect of IT and HR. However I think it vital that joint Council/Vertex teams

review all of these topic areas. The starting point is to be clear what the current concerns are exactly with both parties agreeing the terms of reference for each review. The range of concerns for each of these topic areas does vary across the Council and equally it is apparent that Vertex has concerns, which impact on their efficiency and effectiveness. Until improved working arrangements between the Council and Vertex are apparent these joint teams may need an independent chair to ensure progress is made in an evenhanded manner. I should add that day-to-day working arrangements between Council officers and Vertex staff appear to operate amicably at a personal level. The reviews undertaken will need to consider for each area whether the Council does or does not need a “professional” or functional client to be in its employment (see 10i below).

i. Clienting. I have commented above about my assessment that current governance arrangements leave a lot to be desired and have set out an alternative at Appendix 3. The team headed by Nigel Byatt is being strengthened (after 4 years of operation!!) which is vital for day-to-day control and regular routine performance assessment. There are other weaknesses, which also need to be addressed. The Council has effectively handed over (or does not have) a functional or “professional” client for some of its key support services e.g. HR; procurement; property management, etc. I consider this to be major weakness in the Council’s ability to operate corporately in these areas; to have established and owned policies and ensure the delivery of what it wants from Vertex. The “problem area” reviews (see 10g above) need to address this point recognising the pressure to minimise any additional cost implications. In addition until the arrangement with Vertex is hopefully restored to the original intention I believe that the Performance Board (see Appendix 3) needs to be chaired by the Council’s Chief Executive. While I am aware of the potential costs involved the Council also needs to assess whether it needs a separate Management Team member/ Head of Service whose prime role is to manage the relationship with Vertex. I should stress that in setting out the Governance arrangements I have sought to strengthen the corporate role within the Council. However I do not want to cut off the day-to-day liaison arrangements between Vertex and service departments and users, which I consider to be vital to improve both understanding and service performance. I do however wish to ensure that any changes sought in service needs and arrangements and dispute resolution are undertaken having regard to the corporate impact.

j. Knowledge. Many of the Council’s senior offices have changed in the last few years and it is noticeable that the activity undertaken through the partnership was initially vigorous in 2005 to 2007 and was almost non-existent in 2007 and 2008 but is picking up again currently. It is also likely that the poor quality of service levels initially taken on by Vertex from the Council is not recognised today. Two issues arise. Firstly the general culture as regards the ability of the Council to work effectively with Vertex has been negative for some time and this

continues to be the case on the part of a significant number of Council officers. Secondly there appears to be a lack of understanding about how contractual arrangements should operate in some quarters. It is very important that the Council and Vertex seek to win the hearts and minds of senior Council managers by presenting how the key elements of the Contract should work, why they have not and the intended future arrangements picking up the points set out above. The promises made for the future will have to be achieved to avoid further deterioration in service heads assessment of the impact of the partnership. An active and understood role for heads of Service as well as the corporate client will be a key driver for future performance improvement.

E. Value for Money

11. The current payment arrangements between the Council and Vertex are based on the original contract price as uplifted each year for inflation plus/less any changes agreed to service levels provided. Vertex is clear that they invested some £8/10m in the Council initially in the form of systems, equipment and additional accommodation. The plan was to recover this investment by additional work taken on and cost reductions. While figures have been produced to support Vertex’s analysis they do not in my opinion appear to have been rigorously assessed and challenged by the Council. I would have expected that the takeover of Council services in the condition that they were in, prior to the partnership coming into operation, would give the opportunity to make substantial efficiency gains which would have been more than sufficient to repay Vertex’s original investment. My previous experience suggests that a 15% reduction in costs would not be an unreasonable expectation. The contract provides for open book accounting, which has not been adequately pursued despite its importance in the contractual arrangements. A clear assessment of what has been invested and the return achieved is vital. I fail to see how the Council can assess whether it has achieved Value from Money from the arrangement with Vertex until this analysis is complete. In doing this there needs to be an account given of the level of efficiency gains made and why they are not sufficient over the life of the contract to meet Vertex’s investment costs. In particular Vertex argue that they have put in additional management support into the contract but the Council needs to be satisfied with the need for this and its cost.

12. From the Council’s view merely adjusting the contract price without achieving any demonstrable efficiency gains puts the Council at a disadvantage in the light of the requirement for local authorities to both make and demonstrate such gains. The position is made worse by the fact that the payment to Vertex represents some 20% of the Council’s net expenditure. A mechanism to enable the Council to both share in the financial benefits of efficiency gains and be able to demonstrate improved efficiency is vital. The need to address this point, apart from perception, is likely to even more pressing given the financial prospects likely to apply to the public sector as from 2011/12 arising from the need to rebalance the country’s economy. I can see no reason why a sharing of annual efficiency gains cannot take place over the remaining life of the contract; such an arrangement would of course need to reflect the

investment made by Vertex. . I note that in Westminster’s contract that the pricing/payment mechanisms employed effectively achieves such a sharing.

F. The way forward

13. I am convinced that Vertex wants to make the partnership effective and to operate to the benefit of the Council’s customers. I was also heartened by Westminster’s assessment of the company. So it is for the Council to determine how it wishes to proceed. For the reasons set out in paragraphs 8 and 9 I consider that the Council must seek to make the arrangements work. I should add at this point that doing nothing is not an option.

14. In the first instance the Council’s senior management teams and Cabinet must decide what position they wish to take. This then needs to be discussed at the Council’s Improvement Board.

15. On the basis that the Council does wish to proceed as I have suggested then adequate focused resources need to be deployed to tackle the issues involved. It is very unlikely that the solutions required, will be achieved by relying on existing structures and personnel to make the changes needed.

G. Conclusion

16. It is important that the changes sought are made rapidly if they are to impact positively on the manner in which the relationship between the Council and Vertex currently operates. Lost opportunities are occurring which is having an impact on both parties. While options do for the future do exist the only realistic one, certainly at this stage, is for the Council and Vertex to endeavour to make the contract/partnership work in the spirit originally intended. A number of the features set out in the original contract documentation have not been followed through, have changed or been allowed to lapse which has weakened the original intention.

17. Simply seeking to follow the original contractual arrangements will not work especially in areas such as governance and contract costs since changes to the formally contracted arrangements are needed. Equally adopting legalistic solutions based upon voluminous contract documentation will not prove productive. Tackling head on perceived problem areas in the spirit of co operation and joint problem solving will be important if future effective working arrangements are to be established and sustained.

18. The key changes needed are set out above in this report and both parties need to agree that this is a realistic and proper agenda to take matters forward.

19. The Council will need to determine its approach before proceeding to the next stage. The process to achieve the desired change would be best structured as follows:

a. The Council’s CMT need to decide whether they wish to proceed as set out in this report and discus their conclusions with the Cabinet.

b. The intended way forward is discussed with the Council’s Heads of Service since they are key to effective service clienting and achieving operational service delivery.

c. The Improvement Board is advised of the Council’s planned approach.d. The Council formally advises Vertex of its intentions and discussions

commence.

20. Resolution of the issues involved will not be achieved overnight and the Council, while adopting a realistic timescale, will need to ensure that progress is made in as quickly as possible.

H. Recommendation

21. That the Councila. Determine whether it wishes to proceed as set out in paragraph 19b. Agrees that the focus for attention is as set out in sections D and E of

this report.

WR 28th May 2009

Review of Vertex Contract/ Partnership

I have been asked to put a proposal together to undertake the review sought by the Council.

I have of course seen the papers that have been presented to the Council’s Improvement Board on the 13th March, which I attach, for ease of reference as Appendices 1a and 1b.

I am gaining access to the appendices referred to in the Improvement Board report and I am keen to look at the system interfaces with the Council as a result of the financial diagnostic work that I undertook and reported to the Improvement Board on the 8th April 2009.

The Council’s stated aims arising from the review, now sought, are clear.

I see three stages to the review

1. Understand how current arrangements were intended to operate and how they do in practice having regard to the issues identified by the Council in terms of

a. Current operational performanceb. The effectiveness of contractual arrangementsc. Service outcomes and performanced. Value for money;e. Service developmentf. Governanceg. Client managementh. System interfacesi. Flexibilityj. Partnership development

2. Identify the options open to the Council to enhance the value of the arrangements with Vertex and the performance achieved recognising the desire to sustain the partnership. To discuss these with the interim Chief Executive and Jeff Hawkins (who will continue to advise the Council) and in the light of legal advice as necessary; identify the options available to the Council as a basis for negotiation with Vertex.

3. Lead by working with senior Council officers the actual negotiations undertaken.

I will endeavour to complete the review by the end of May 2009.

W RootsW Roots Associates Limited8th April 2009

Governance Arrangements

Existing Governance arrangements are cumbersome; have too many layers and lead to poor accountability. Proposals for the future are:

Basic Contract Management Group (CMG) Steady State Service ManagementThurrock Business Managers and Vertex service sector-- (Daily) as neededNigel Byatt and Vertex contract manager— Weekly unless urgent then immediateTo identify emerging issues and deal with current operational problems from HoS

Service needs and performance measures once agreed to be monitored by Thurrock HoS./Vertex service manager.Problems that can not be solved at this level referred to CMG

Performance Management Board RoleComprises—Chief Executive (Chair) ---Director of Resources ---Head of Business Services ---Portfolio holder for the Partnership ---Two heads of Service ---Three Vertex representativesMeets monthly and reports quarterly to CMT and Cabinet

--Plan ahead (three years)-service needs and standards--Examine service performance (monthly)--Look at scope to develop and improve the effectiveness of the partnership--Set up ad hoc teams to troubleshoot and undertake research

Operational Performance Board RoleComprises—Nigel Byatt and Business managers --4 Vertex managers --Two Heads of serviceMeets Monthly

--Provide advice to PMB--Evaluate change control requests--Train Thurrock/ Vertex staff on the operation of the partnership--Consider reports from HoS/CMG on any concerns re steady state delivery