Shared services in the Irish public sector

Arthur Cox’s Pearse Ryan and Aaron Boyle discuss some of the key issues to consider in implementation of a shared services programme in a public sector environment.

Shared services in a public sector context typically consist of a service delivery arrangement internal to the one or more participating public sector organisations. Participating organisations tend to be relatively proximate in organisational functions.

While a relationship of proximity is not an absolute necessity, it does tend to be the case that organisations, in order to achieve meaningful cost savings and operational efficiencies, must at least be similar in terms of business processes utilised, if not the actual software supporting these business processes. While business processes and underlying software can be changed, the less organisational change required to participate in a shared services project, the more likely it is to succeed.

Shared services in the public sector are a material component of the public sector reform agenda. We are all aware of the overall scope and schema of public sector reform. We assume here delivery of shared services by a form of shared services centre (“SSC”), whether a corporate entity, statutory body or contractual type joint venture. The structural aspects of shared services delivery are something the public sector and, in particular the Department of Public Expenditure and Reform (“DPER”), will require to deal with as part of large scale implementation of shared services.

Implementing shared services

We are aware that DPER is leading the shared service initiative and has expanded the competency of its reform delivery group. The personnel within that group are experienced in matters relating to shared services and external service delivery procurement, implementation and management, having private and public sector experience.

Within the overall public sector, the shared services delivery model has to date been little utilised, with a few exceptions. Accordingly, what we are seeing within the public sector is the early stages of a large scale organisational reform, consisting of a number of programmes, with individual projects or engagements below that.

Effectively, this programme is being implemented in what is not that far off a green-field site. Whilst this does increase the burden on the shared service delivery vehicle and on participating entities in terms of knowledge and competency levels, it does assist in terms of achieving meaningful results, given that there are limited incumbent suppliers and incumbent contract relationships to contend with.

Centralisation v. shared services

It is important to distinguish between shared services and centralisation, where services are funnelled into an existing organisation as a form of added-on responsibility. Shared services typically imply a separate and distinct shared service delivery vehicle, where delivery and performance of administrative and support functions are the main focus.

Moreover, shared services have a critical emphasis on shared responsibility for end results and on service for a high level of client satisfaction. Unlike centralised models, SSCs are typically responsible for providing services to an agreed service level and reporting on service effectiveness, which has positive implications both for bench marking and for determining the value of money spent on SSC service provision. Shared services utilise many of the structures and processes common in the outsourcing sector.

In order to succeed, a shared services programme and the SSC established to deliver the services must operate based on a high standard of competency, a high standard in terms of governance and, in addition, based on a rigorous contractual relationship between the centralised SSC and its outlying customers.

Essentially, the relationship between the SSC and participating entities should be contract-based and, apart from potential representation of participating entities at steering group or board level within the shared service delivery vehicle, the relationship should be akin to that seen in external service delivery transactions, which the public sector are used to concluding with the private sector.

Advantages v. disadvantages

Implementation of shared services delivers a number of advantages but is not without accompanying risks. The extent to which risks are managed and mitigated is likely to determine, to a large degree, the extent of the potential benefits realisable under a shared services structure. Key benefits and risks are summarised in Table A.

Procurement law issues

The concept of shared services or collaboration between public bodies has been the subject of debate in recent times in the area of procurement law. The concern being that notwithstanding that a service is being conducted between two public bodies (or by one public body for another) this could rise to a procurable contract which ought to be offered for tender.

Recent cases in this area have found that co-operation between two or more separate public bodies for the delivery of a common objective which is within the public interest and where there is no profit or private sector participation may fall outside the procurement rules. The forms of collaboration between public bodies which satisfy this test can have varying degrees of complexity. Shared services structures will need to be developed cognisant of procurement law concerns.

A key feature of the efficiencies generated by shared services is not only the ability to deliver services across a number of public sector organisations but also the creation of economies of scale should the public sector decide to use shared services structures as a means of leveraging the public sector buying powers in applicable areas. This may be an area for development once shared service delivery is established.

Status

Shared services are gaining greatest momentum within central government, with limited momentum within statutory agencies. Since 2012, we have moved from adoption of a shared services strategy, to implementation of People Point (HR and Pensions SSC) and a government decision to establish a payroll SSC. 2014 should see at least the establishment of a national shared service office (initially on an administrative basis), assessment of a range of shared service projects across the public sector (including financial management) and progress in relation to implementing payroll shared services.

Summary

Implementation of shared services is government policy and is being implemented at increasing speed. Shared services will have a significant impact on the manner in which the public sector organises itself. It is a long road and Ireland is beginning its journey. As we have seen over the years in the private sector, shared services have the potential to have an important positive impact on the delivery of services. Amongst a number of unresolved issues, it remains to be seen to what extent external service delivery will be a feature of the shared services landscape.

Table A

Shared Service Benefits

increased efficiency/reduced costs

• creation of economies of scale

• process standardisation

• improved levels of service

• increased professionalism

• improved staff prospects

• technology consolidation & improvement/investment

• allows participating agencies greater focus on core functions

Shared Services Risks

• operational risk for participating entities (e.g. SSC loss/corruption of data)

• legal issues for participating entities (e.g. power to participate in programme)

• supplier (SSC) lock-in and dependency

• public procurement obligations

• data protection/freedom of information obligations

• employment law, including TUPE, obligations

• enforcement of rights risk (e.g. can the participating agency effectively enforce rights against SSC?)

For further information, please contact:

Aaron Boyle, Partner
Tel: + 353 (0)1 618 0568
Email: aaron.boyle@arthurcox.com

Pearse Ryan, Partner
Tel: +353 (0)1 618 0518
Email: pearse.ryan@arthurcox.com
Web: www.arthurcox.com