Is Best Value really giving best value?

The economic crisis and the strictures placed on public spending have galvanised Councils into considering innovative ways to deliver front line services such as waste collection, more efficiently and at lower cost.

One such arrangement is collaborative working, whereby a Council procures collection services jointly with a number of neighbouring Councils, benefiting from economies of scale and shared procurement and management costs.

Joint working among Local Authorities was explored as far back as 2004, when an Innovation Forum report (Joint Working in Waste Management) identified potential savings of up to 25% depending on the degree to which Councils were prepared to work together and pool back-office resources.

But while this opportunity cost is belatedly being recognised and addressed, another, with more serious implications for the efficient operation of the market and value for money, is going a-begging the benefit to the public purse of fair competitive tendering.

Introduced in 1981, compulsory competitive tendering of public services was replaced in 1999 by Best Value, under which competition is but one of the four Cs for reviewing service performance, alongside Challenge, Compare and Consult.

Competitive tendering is now discretionary, so much so that according to the Audit Commission, competition has been consistently the least applied of the four Cs in Best Value (Healthy Competition, 2007). In essence, under Best Value, Councils have increasingly taken service provision back into their DSOs without first testing their service offer in fair and open competition.

Open to competition

The taxpayer can only be certain of obtaining best value for their Council Tax if the service provision is open to competition. Indeed, the Right to Challenge in the Localism Bill is a tacit acknowledgement by Government of the primacy of contestability and competition in public service provision.

As any private sector procurer will verify, competitive tendering is the cornerstone of service efficiency, and as a concept cannot be watered down to a weak discretionary option without impacting negatively on cost as well as on service quality.

But even when the service is competitively tendered, private sector bidders must be confident that they will be treated fairly. Whilst todays local authority evaluation models are far more developed than ever before, they still fail to recognize that self-performing through a DSO involves no transfer of risk by a local authority. When actual future costs or revenues differ to those forecast in a DSO bid, it is the local authority and the taxpayer that foots the bill.

In contrast, private sector contractors not only carry the risks passed to them, but also pick up penalties for non-compliance – for example compensating the local authority for landfill tax or LATS penalties in the event of failing to hit a landfill diversion target. No such provision applies to an equivalent DSO contract. Unsurprisingly, private sector contractors may be entitled to view a competitive head-to-head against a DSO with a degree of cynicism.

These in-built inefficiencies are magnified when individual collection contracts are not only bundled together by partnering Councils, but are then taken in-house in toto without recourse to competitive tendering.

Private sector contractors accept competition and its consequences as part of the normal cut and thrust of business, and indeed also accept the right, within the current system, of DSOs to operate in the market. What they ask for is that this competition is fair, and that the private sector provider does not have to enter into a bidding process against a DSO with one arm tied behind its back.

The forthcoming Waste Review would be missing a trick if it did not rebalance the Service Quality element of Best Value with a requirement for waste collection to be subject to compulsory competitive tendering, backed up with robust and even-handed evaluation models that account for issues such as risk transfer. Councils need to extract every last penny of value on behalf of their Council Tax payers.