By Bernard Hickey
Could councils avoid having to amalgamate into 'Super Cities' by instead saving money through the use of shared buying and services companies?
That's one avenue some councils may push down in the coming year as Local Government New Zealand (LGNZ) tries to build a platform for such procurement and group services companies.
Over the last six months LGNZ has launched a push for a Queensland-style approach to shared services and procurement that is already saving Queensland councils more than A$100 million per year.
LGNZ President and Hastings District Mayor Lawrence Yule told me at LGNZ's annual conference in Hamilton such savings could help councils respond to central government and ratepayer pushes towards Auckland-style amalgamated 'super cities' that aim to find economies of scale to control rates inflation.
Yule, who is in favour of a merger of the Hawkes Bay's five councils, said opinions were divided about the merits of amalgamations, but that shared services companies gave councils other ways to save money and respond to ratepayer unrest over rates rising faster than consumer price inflation.
"The shared services model is a way of delivering value without the amalgamation spectre," Yule said.
The Greater Wellington Regional Council has applied for the creation of a Wellington and Wairarapa 'Super City'.
The Local Government Commission is now assessing amalgamation proposals for Northland, Hawkes Bay and Wellington/Wairarapa.
Statistics NZ figures show property rates and related services costs have risen at an annual rate of 3.9% to 4.5% for the last five quarters to June, while the broader rate of consumer price inflation has run at an annual rate of 0.7% to 1.0%.
The Queensland story
Local Government Association of Queensland (LGAQ) chief executive Greg Hallam presented at the conference on Monday on the development of Queensland's various shared services operations. Hallam said they ranged from shared liability insurance, employment law advice, process improvement, cloud computing and procurement.
Hallam, a former Queensland rugby player, said KPMG had estimated current total savings of A$100 million a year out of council budgets in Queensland now at around A$9 billion a year. He said Queensland's 56 councils were broadly the same size in total as New Zealand's councils and had been driving towards shared services for the last 20 years. Statistics NZ figures showed New Zealand councils spent NZ$8.5 billion in the year to the end of March 2013, including NZ$4.43 billion on purchases and other operating expenditure, NZ$630 million on interest costs, and NZ$1.8 billion on employee costs.
Queensland had looked for guidance and precedents for shared local government services operations in Britain, Holland, Denmark and Sweden over the last 20 years. LGAQ had since transformed itself from a pure advocacy and representative body, similar to LGNZ now, into a coordinator and owner of shared services companies that were now subsidising membership fees.
The shared services push started with Local Government Mutual, which provided public liability and indemnity insurance to councils. It now collectively buys A$250 million of reinsurance cover through Lloyds of London behalf of councils. KPMG estimated it was delivering A$9.5 million of savings per annum.
LGAQ's Propel Partnerships worked with councils to improve their business processes, improve customer service, reduce duplication and cut costs. It had the capacity to generate savings of A$130-140 million a year. Propel's staff had come mostly from Capita Group, Hallam said, pointing to its success with the Ipswich Council in Queensland.
Queensland's Localbuy group procurement operation was now handling 40 different contracts with more than 300 suppliers and turned over A$500 million annually, out of total Queensland local government procurement of around A$3 billion per annum.
'We're on tap, but not on top'
Using the shared services and procurement services wasn't compulsory, he pointed out. "We have a saying: 'We are on tap, but not on top. We're not bigger or better than local government."
Hallam gave an example of a small council previously having to spend as much as A$20,000 arranging for the scoping, advertising and tendering for a single purchase of a piece of construction equipment, while a supplier such as Caterpillar's Queensland franchise was also having to spend A$20,000 preparing and tendering for the same purchase.
Localbuy instead handled the procurement. "There's a A$40,000 saving on a A$500,000 piece of equipment right there," he explained. LGAQ's 'hurdle rate' for deciding on whether to pursue shared savings was savings of at least 10%, he said.
LGAQ had also created GovCloud for cloud computing services, which allowed councils to rent rather than buy infrastructure, Resolute Information Technology for IT services, and Local Government Workcare, which was a workplace compensation scheme. Hallam said the combined savings these shared services and procurement companies was forecast to be around A$300-400 million a year within four years and to have been around A$2 billion over the last 20 years.
"Do you want to save yourself NZ$2 billion over the next 20 years?" Hellam asked the audience of hundreds of councillors, mayors and staff at Hamilton's Claudelands showgrounds.
LGNZ's Yule said the New Zealand councils had signed a Memorandum of Understanding with LGAQ six months ago to look at introducing a New Zealand version of Propel. Yule said his own Hastings Council would look to team up with four to five other councils over the next year to use such shared services, which would be branded as from LGNZ.
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