Local government is having to make generationally significant spending reductions.

By the end of 2015/16 spending will have reduced by 35% since 2010.

Identifying and delivering savings and avoiding cutting services tends to get the lion’s share of attention but the flip side of the sector’s response to government funding reductions and demand pressures on service provision is innovation.

Innovation takes various forms and includes identifying new income generation opportunities and implementing new ways of working.

Arguably the most significant innovation trend relates to the introduction of alternative service delivery models (ADMs).

ADMs are not new to local government.

They can trace their roots back to Compulsory Competitive Tendering (CCT) in the 1980s and beyond.

What is different is the scale of their use across back office and frontline service delivery and - while the coalition government is certainly encouraging them with incentives such as the Cabinet Office’s Delivering Differently Challenge fund, DCLG’s Transformation Challenge fund, and the Department of Health’s Better Care Fund - there has been no primary legislation acting as an enabler.

Local government is driving this innovation.

ADMs include shared services, joint commissioning, shared management arrangements, outsourcing, joint ventures, and the establishment of trading companies, trusts and spin offs such as mutuals.

They also demonstrate the continuing rise of strategic commissioning as a corporate model being used by many councils in the sector.

A recent Grant Thornton survey of local government revealed clear ADM trends between different types of council.

District councils showed a tendency to look at partnerships with other local authorities as ways of reducing costs.

Larger county, unitary and metropolitan councils are more likely to consider local authority companies, outsourcing and joint ventures. 

This is likely to reflect the different responsibilities, activities and services carried out by the different types of authority, and reflect where they are on their respective change and restructuring journey.

The movement to ADMs is not all one way.

Our survey identified a number of services being brought back in house.

Reasons for this include a contract period ending and the council not wishing to extend or retender it, there has been poor performance, where the services are no longer a priority, or a decision is made to cease service provision.

ADMs do not always provide the right or simple answer to the financial and service challenges that local government faces.

They are rarely a quick fix. 

It is critical that there is strong managerial and strong political leadership and scrutiny.

This is particularly important where there are shared services or shared management arrangements with other local authorities or public bodies.

This leadership can be seriously tested following a change in political administration so cross-party political support is often a pre-requisite for the continued development of some ADMs.

The victory of Labour in Hammersmith and Fulham in the recent local elections poses some interesting challenges for the tri-borough model.

Councils also need to take care over contract and governance arrangements, conduct effective due diligence and thorough planning to ensure success.

This includes a thorough options appraisal and robust business case.

Where contracts form part of ADM arrangements councils need to ensure appropriate break clauses and an option to renegotiate as the circumstances change. 

Once approved, it will be critical for local authorities to commission and manage contracts efficiently if they are to fully realise financial and non-financial benefits. This focus must be maintained through the lifetime of a contract.

Contract management resource should not be seen as a back office extra but as a vital part of the delivery of frontline services.

The risks associated with ADMs should not stop local government from innovating. Indeed, the reason the sector is driving this change are the limited alternative options to meet the challenges being faced.

In our experience, councils can manage the risks if they think changes through properly and establish appropriate structures.

We anticipate that the number of services outsourced, provided in partnership or through joint ventures, and transferred into trusts will increase over the medium-term as local government continues to manage those generationally significant spending reductions.

Guy Clifton is head of local government advisory