The government is encouraging public sector workers to hive off as mutual organisations. Stuart Watson listens in at a CSW round table convened to discuss how – and whether – the agenda can be made to work

Normally associated with the cooperative movement, the mutual model – under which organisations are owned by their employees, who help shape their management – has not previously excited the Tories. But a mutual structure doesn’t require a left-wing stance: retailer John Lewis uses the model, after all. And in recent months, Cabinet Office minister Francis Maude has launched a campaign to persuade public sector workers to hive off as employee-led, mutually-owned contractors to government.

Maude hopes that mutualisation will motivate and empower staff, encourage entrepreneurialism, drive down costs, and help government realise its localist aims. Given that mutuals will compete in the market for government contracts, mutualisation may also provide a way for the government to pursue outsourcing without prompting fierce political and media opposition.

In November, Maude announced a “right to provide”, under which public sector managers will have to approve reasonable requests from staff to mutualise, and made available £10m to support mutual start-up costs. He has since indicated to CSW that would-be mutuals should partner with the private sector for capital and management support.

A ‘mutuals taskforce’, led by Number 10 policy adviser Professor Julian Le Grand, has been put in place to ensure that the right to provide is being upheld, and 24 pathfinder projects are underway. The forthcoming open public services white paper (see news, p2) is also expected to push the mutualisation agenda. In the meantime, though, civil service managers are struggling to understand how best to support teams wishing to mutualise, or to take advantage of the potential benefits offered by mutualisation for providing services in a tough spending environment.

With this in mind Civil Service World, with the support of law firm Nabarro, gathered together a group of senior civil servants for a round table discussion. The resulting conversation revealed that while there is still considerable uncertainty over how mutuals can be made to work in the public sector, there is also some excitement about the possibilities that they open up for delivering public services in new and innovative ways.

Help and guidance

CSW publisher Kevin Sorkin opened up the discussion by asking whether any of the panel had received a request to set up a mutual, or were considering setting one up themselves. There was a long silence – this is still a very new idea within the civil service – before the communities department’s Claire Cooper revealed that one of the teams within her department is considering mutualisation. They’re interested in the idea, she explained, but have only just begun to explore the possibility as part of the restructuring process currently under way. “People aren’t quite sure where to get some advice or help to take this to the next stage and work out if it is a serious contender for them,” she said.

Present at the discussion was Phil Copestake from the Office of Public Management (OPM): an employee-owned not-for-profit social enterprise, the OPM is working with the Cabinet Office to mentor three mutual pathfinders, and recently published a guide to becoming a mutual. He admitted that the process is at an early stage: “Central departments, local authorities and other public services have a sense that this could be something worth exploring, but this is quite a different proposition; quite unusual – and risky,” he said.

There are pockets of expertise within the NHS, though – and Sue White from the Department of Health explained that she’s been involved in establishing NHS foundation trusts: ‘hybrid mutuals’ in which employees play a role in management. The Employee Ownership Association and Social Enterprise Foundation can both provide valuable information and support, she said. The foundation trust to which she is seconded, she said, has a partnership with the local John Lewis store to “really learn what mutuality means”. Nabarro’s Warren Taylor added that Spark, a public-private-voluntary sector initiative to support social enterprises, might also be able to help.

Structuring mutuals

Taylor introduced the subject of involving the private sector in mutuals through joint ventures: businesses can contribute capital, infrastructure, support services and management skills, while the public sector workers provide service provision expertise, client relationships and knowledge of local needs. He asked whether the Cabinet Office’s policy is clear on what structures would be favoured and what degree of private sector involvement would be allowed. An injection of private capital and support, he suggested, might make workers more confident in taking their fate in their hands and establishing a mutual.

The Department for Education’s Alan Krikorian responded: “I take it from what the Cabinet Office has said that they are very open to all the different types of structures, and that they think that the legal form and the structure should follow the function. Francis Maude has made it clear that the joint venture model is one that he thinks has merit”.

White turned the question around, asking Taylor whether he thought that the private sector has an appetite for involvement in mutuals. He answered that big outsourcers such as Serco have already shown a strong desire to explore this kind of joint venture.

“In the budget, one of the key strategies for growth was inputting some sort of private finance to how we are going to pay for services,” said Carol Tullo, a director at the National Archives. “None of us want to stop delivering services, but there is a real issue of how that is going to be financed. This is about financing the services we provide in the most durable and robust way and doing it with a 21st century approach.”

However, Copestake identified a potential tension in the joint venture model, concerning what success looks like. He cited the example of a joint venture where the mutual’s desire to create jobs in the local area had come into conflict with the private sector partner’s drive to cut costs, leading to the dissolution of the contract. “You have to ask: are these mutually compatible ends?” he quipped.

White suggested that conflicts of interest might also arise where both service providers and customers are involved in mutual structures; the balance between them will have to be carefully considered, she said. Copestake agreed that there are few examples of hybrids of this kind, but Krikorian named one: the Millmead Children’s Centre in Kent, he said, is a successful structure involving staff and the community.

Suitability

When Maude announced the right to provide, he said that departments will decide which areas are suitable for mutualisation. And several panellists cited types of work that might have to remain fully in public hands.

“On the social care side, we struggled with this at [the Department for] Education,” said deputy director Helen Jeffrey. “There are particular responsibilities relating to children in care and being placed for adoption where it was quite difficult to see how those legal functions could be transferred to a privately-run body.” Health specialist White said it has been decided that secure psychiatric institutions will remain firmly under the control of the secretary of state, and Steve Kershaw from FCO Services added that there could be problems in the fields of defence and security.

John Quinn, chief operating officer of shared services at the Department for Work and Pensions, argued that mutuals might struggle to compete for back office work: “In areas like payroll, the reputational risk is significant,” he said. “If I had a choice of whether to give it to my senior executive officer and her team to run on a mutual basis or to give it to [outsourcer] Logica, I would probably give it to Logica, because if 150,000 civil servants don’t get paid that month it’s not going to be the SEO who has the problem.”

Tullo added that while she had originally thought that mutuals could operate at any scale, from large and national to small and local, she has since been persuaded that it might be better to experiment with the local side first. “Each local authority is their own legal master, and the models there are very different because they can go off and experiment, which [central departments] can’t,” she said.

Creating stable mutuals

Several members of the panel raised the question of how to create mutuals that are viable and stable over the long term: while new mutuals might initially be awarded a contract to continue the work done by that team, when that first contract expired they might well lose out to more experienced or bigger competitors.

“There’s a good chance that people in an organisation [that becomes a mutual] won’t win a competitive bid, so they are effectively writing their death warrant in five years’ time,” warned Quinn. Kershaw, however, responded that this competitive pressure would drive efficiencies and service improvements, as mutuals worked to ensure that they would be re-commissioned. And Tullo argued that “where a mutual has really delivered and performed, and where the localism agenda is writ large, it’s going to be very difficult to throw away an organisation with very good local links.”

In order to thrive, said Taylor, mutuals will have to expand and take on more than one contract. However, he also pointed out that local knowledge is important in many services; this key factor in underpinning a mutual’s competitiveness could dissipate if it started to work outside its original geographic area.

This need not be the case, though, said White: there are examples of mutual services being franchised. Mutually-run Sunderland Home Care manages local operations that know their patch intimately, but benefit from the wider organisation’s asset base, expertise and infrastructure. She added that it is vital that mutuals go through stringent financial and quality testing from the start in a similar way to foundation trusts, which are vetted by an independent regulator.

The commissioning problem

Several of the civil servants present at the discussion are involved in commissioning services for the public sector, and expressed interest in buying services from mutual organisations. “It’s part of a strategic toolkit we should have when evaluating how any form of service or function might best be delivered,” said Tullo.

However, it was agreed that existing procurement rules will make it difficult for commissioners to award contracts to mutuals because they are at a greater risk of failure than large commercial organisations. “One of the first things you prepare is a report on the financial viability of the outsource provider, their track record, and who their investors are,” said Quinn.

“If I have a mutual and [a commercial outsourcer such as] Capita, how do I do the evaluation? Do I risk having to bail the mutual out in two years’ time?” The government has not yet, he added, “created a framework for commissioning [mutuals] or removed the impediments. OJEU regulations [The Official Journal of the European Union, which lists public sector contract tenders and notices from all EU countries] and the controls on public spending still apply, and there is no guidance on how much of a punt I should take on this.”

Copestake agreed that uncertainty over how to respond to mutuals in the commissioning process must be addressed: “There is a lack of awareness among commissioners about what a mutual is, as opposed to a social enterprise or a joint venture, and what sort of commissioning relationship is allowed or desirable,” he said. “There’s a need for more awareness and support.”

Kershaw suggested that three or four standard models for commissioning mutuals should be produced, with enough flexibility to take account of variations in service delivery – a potential solution which, Copestake agreed, would give commissioners greater confidence about the approach that they should take.

Employment issues

The idea is that mutualisation will be driven by employees seeking greater empowerment through taking a direct stake in the success of their employer. However, some of the panel were concerned that civil servants will be reluctant to consider mutualisation because of fears that it might have a negative impact on their conditions of employment.

Taylor said that the issue of pensions must be addressed. He conjectured that if there is a risk that civil servants working in mutuals which were partnering with the private sector could lose their existing public sector pension arrangements, they might eschew the joint venture route.

Dave Wallbrook from the Identity and Passport Service agreed that if people have to leave their pension behind, they may be reluctant to sign up. And White argued that the attitude of trade unions has been a significant barrier to mutualisation in the health sector. If they could be persuaded to discuss mutuals in a non-confrontational way, she suggested, that would help the concept to spread.

The group also discussed some of the potential benefits of mutualisation for employees. Tullo said mutuals would encourage managers to think about the value that their colleagues bring to an organisation, rather than treating them as pawns to be moved around, while Taylor referred to studies that showed a link between employee ownership and increased productivity.

Mutualisation could clearly create benefits for public service employees and users alike – but mutual organisations will face many of the problems that have slowed progress in outsourcing public jobs and in commissioning more services from the voluntary sector, social enterprises and small businesses. “The pension and people issues are not new,” concluded the environment department’s Kay Margerison. “They are a challenge, but I’m not sure it’s a different challenge to that which exists in any outsourcing exercise.”

Around the table

Kevin Sorkin, managing director, Civil Service World (chair)
Claire Cooper, deputy director of community action, Department for Communities and Local Government
Phil Copestake, head of analytical studies, Office of Public Management
Helen Jeffrey, deputy director, safeguarding and early years team, Department for Education
Steve Kershaw, head of strategy, FCO services
Alan Krikorian, Big Society Unit, Department for Education
Kay Margerison, deputy director, business effectiveness, shared services, Department for the Environment, Food and Rural Affairs
John Quinn, chief operating officer, shared services, Department for Work and Pensions
Warren Taylor, partner, corporate (mutuals), Nabarro
Carol Tullo, director, information policy and services, National Archives
Dave Wallbrook, head of IT service delivery, Identity and Passport Service
Sue White, deputy director, Foundation Trust team, Department of Health

Written by Stuart Watson