The rise and rise of the shared services framework

This article was first published in Supply Management in July 2010

The use of shared services in the public sector is not new. However, the concept has recently attracted more attention, with the Conservatives referring to it in their technology manifesto and the Cabinet Office indicating that Government will push to reduce the cost of ICT procurement by utilising shared services.

A public sector body (Framework Authority) looking to offer shared services to other government bodies (service recipients) may be able to do so under an existing contract. Broadly speaking, whether this is possible will depend upon whether public procurement law permits the extended use of the contract and whether the contract itself permits such use.

The OJEU notice is key - if it does not adequately cover the scope of services or potential service recipients, such services cannot be offered under the existing contract without breaching public procurement law. Even with an adequately drafted OJEU notice, recent European case law suggests that further checks need to be made to minimise the risk of challenge.

Once a Framework Authority has successfully jumped through the public procurement law hoops, if the contract does not envisage a shared services environment, suppliers may be willing to renegotiate the scope of the services and potential service recipients. Often, a wider scope and greater number of service recipients will lead to the supplier receiving higher revenues without the expense and uncertainty of bidding for a new tender.

If the use of an existing contract is not possible, the Framework Authority may wish to create a new shared services framework by going out to the market. Care must be taken when drafting the OJEU notice to ensure it is broad enough to capture all potential service recipients and services whilst ensuring that it remains specific enough to attract appropriate bidders.

The relationship between the Framework Authority, service recipients and suppliers should also be carefully considered. For example, should the shared services framework anticipate contracts between just the Framework Authority (on behalf of each service recipient) and the supplier? Alternatively, can contracts be entered into between service recipients and suppliers directly?

Both structures are prevalent in IT procurements. For example, Firebuy, an NDPB set up by the Department for Communities & Local Government, uses both where appropriate to enable bulk savings of equipment for individual Fire and Rescue Authorities (predicted to be over £3 million in 2010).

For a Framework Authority, its decision will ultimately come down to its attitude to risk and control. Where a service recipient contracts directly with the supplier, there is minimal risk to the Framework Authority: risk lies between the supplier and the service recipient. However, what the Framework Authority gains in relation to a positive risk profile, it loses in terms of control.

If a Framework Authority contracts with the supplier on behalf of a service recipient, whilst it gains control, it also takes the contractual risk in the services being procured. The Framework Authority and the service recipient will then need to enter into a “non-legal” agreement (such as a Memorandum of Understanding) to back off the risk.

The implementation of a shared services framework is not a simple task and both the legal and commercial issues must be considered carefully. However, with spending cuts high on the new coalition Government’s agenda, their use in the public sector is likely to rise and rise.

For more information, please contact Rob Shooter or John Brunning.