Room for Improvement

The government's reforms to education have significant ramifications for local authority Schools Improvement Services. Carl Ludwig looks at their options.

The structure of education is changing very quickly under the coalition government. Both the Education Bill and the Schools White Paper signal a substantial change in the responsibilities of authorities and schools, with the transfer of budget and purchasing of support services from the authority to individual schools and colleges.

Authorities are also having to take into account the increasing diversity of education provision. The growing numbers of academies and free schools, which will not have a long history of working with the authority, may be more likely to look elsewhere for the provision of School Improvement Services.

At the very least, authorities will need to work with these bodies to persuade them of the value of purchasing services from them. In the worst case, fewer schools looking to the authority for School Improvement Services could mean that the provision of such services becomes uneconomic.

There are a number of models which authorities are can consider in the current climate:

Shared Services

Support services provided for schools by authorities are coming under great financial pressures. There is thus a particular driver for authorities to consider shared services in this area. The full range of shared services models is available, including informal sharing of expertise between authorities, one authority in an area taking over responsibility for a number of authorities (probably including a TUPE transfer of staff from those authorities), and outsourcing to an external provider.

There will inevitably be a range of challenges to overcome, not least cultural and political differences between authorities, and a fear that shared services may jeopardise their independence. One key issue for early consideration will be the complexity or formality of the proposed solution. Staffing and pension issues should also be considered at an early stage so that they do not inhibit either the transfer or the flexible use of staff.

Outsourcing (with or without a joint venture company)

The decision as to whether the authority retains a stake/interest in the organisation providing the services once outsourced is an important and topical issue. This can complicate the contractual arrangement and cause real conflicts of interest. Conversely it can, particularly for elected councillors, be attractive to see that they have a long term stake both in the delivery of important services to the authority, but also in the employment arrangements for staff.

There are a number of different legal forms for social enterprises and mutuals with quite different implications in terms of tax treatment, principles of staff engagement and regulation. From both the new organisation's and the authority’s perspective it will be important to have a model that has the buy-in of the transferring workforce and allows the new organisation to operate effectively in what will be a very competitive market.

It is important to structure any joint venture company in such a way so that the service it provides is able to change in line with the ever-changing needs of schools, the needs of a developing business and the changing legislative environment. Early consultation with stakeholders is particularly key if there is any intention to market a joint venture outside the procuring authority’s area.

Early consideration of shareholders’ agreement issues, and the JV business plan, is important from both a procurement and contractual perspective.

Employee Mutuals

Encouraging the School Improvement staff to establish an employee mutual is another route some authorities are considering. This option will be reinforced from April 2012 by the Community Right to Challenge under the Localism Bill. Once again, there are a number of options for the legal form for the mutual or co-operative. A co-operative or community benefit society, a partnership or company limited by shares may be the most appropriate option.

One potential difficultly with such a structure will be the difficulty in awarding a service contract to the new organisation without competition. It will not be able to take advantage of the “Teckal” exemption, as it will not be wholly owned by the authority and/or schools. There is therefore a clear risk to employees in agreeing to transfer over to such an organisation, and it is likely that that this will only happen if the organisation’s bid is actually successful, and if the authority is prepared to give the organisation some guarantee of exclusivity over the provision of services.

Trading Activity

Continuing to provide the service as a trading activity is also an option. Schools should bear in mind that, although the legal position is not entirely clear, the provisions of the Public Contracts Regulations 2006 probably require most schools to undertake a formal procurement process to purchase School Improvement Services from an authority if the value of those services is over £156,000.

Other than that, the main issue is probably whether schools will, in fact, continue to buy their School Improvement Services from the authority. To a certain extent, this can be judged through soft market testing. In the current climate, one challenge to be addressed will be the large number of academies and free schools which are likely to be set up in an authority’s area in the near future, with no tradition of working with the authority or buying its School Improvement Services from that source.

Schools Company

Schools have power under the Education Act 2002 and the Schools Companies Regulations 2002 to set up a company (with or without the authority) which will provide services or facilities to schools and exercise local education authority functions. Setting up the service as a schools company, jointly owned by the schools (including academies and free schools) and the authority, is a popular option. This gives the schools ownership of the service, so encouraging them to use it.

In addition, any school which is a shareholder (along with the authority if it is a shareholder) is then able to take advantage of the Teckal exception to award service contracts to the schools company without competition. This is a major advantage of this structure. The schools company is then able to provide a certain amount of services outside its own authority area, at profit rates, without losing its Teckal exemption.

There is clearly a cost attached to setting up a schools company, and an authority should be wary of investing time and funds into such a solution until it is satisfied that it has a suitably strong degree of support from schools.

Conclusion

There is no denying that the current landscape does provide a number of challenges for authorities in providing Schools Improvement Services, not least financial. However, the good news is that there is an encouragingly wide range of solutions which can be adopted to meet an authority’s needs. Authorities should consider their drivers carefully alongside all of the options set out above to decide which option will best meet their requirements.

Carl Ludwig is a Senior Associate Commercial & Infrastructure at Bevan Brittan.