Hampshire County Council Item 16

Buildings, Land and Contracts Panel

Business Services Group - Report and Accounts 2002/03

25 July 2003

Report by the Director of Property, Business and Regulatory Services

1

Introduction

1.1

The main purpose of this report is to provide the Panel with a broad summary of the activities and results of the self-funding business units within the Property, Business and Regulatory Services Department. The businesses are:

· Hampshire County Council Catering Services (HC3S)

· Hampshire Transport Management (HTM)

· Hampshire Cleaning Services (HCS)

· Hampshire Printing Services (HPS)

· County Supplies (CS)

1.2

The report also reviews progress on a range of business issues and includes a short commentary on the extent of relationships with external customers, particularly with district councils.

2.

Financial Performance

2.1

The accounts for each business are shown in Appendix One together with a summary for the whole of the Business Services Group. Total income was £31.917 million in 2002/03 and the businesses achieved a total trading surplus of £409,000. This compares very favourably with a planned surplus of £288,000 and represents another successful year for the group as a whole. The financial position of the PBRS business units is, therefore very sound.

2.2

All of the businesses returned a performance that improved upon the year end forecasts included in the current business plans. The most significant improvement was recorded by HC3S where income was higher than expected in the closing months of the financial year as a result of increased pupil uptake. This improvement in the trading position more than offset the higher than expected costs of the 2002/03 pay award. The results of the individual businesses are summarised below:

2.3

The impact of these results on the accumulated surpluses of the PBRS businesses is shown below:

Accumulated Surpluses (£000's)

Surplus at 31/3/02

1,146

Trading surpluses 2002/03

409

Depreciation

195

Spending from surpluses

HPS relocation to Winnall

Secondary school catering

Closing balance at 31/3/03

(695)

(21)

1,035

2.4

The accumulated surpluses of the businesses provide a strategic reserve that will protect the County Council from financial risk in the event of unforeseen adverse trading conditions and make it possible for the businesses to invest in developing business and service improvement.

2.5

The results for 2002/03 include a number of exceptional items. The largest of these is the contribution made towards the relocation of Hampshire Printing Services to their new `owned' premises at Winnall. Other items include the writing down of the book value of the equipment used by Hampshire Cleaning Services (approximately £70,000 out of a total value of £90,000) and a provision in the accounts of County Supplies against some £39,000 of external debt, which relates to goods supplied after the implementation of SAP in September 2001.

2.6

As was previously forecast, the school catering budgets that are managed through Service Level Agreements (SLAs) by HC3S were underspent in 2002/03. Arrangements have been made with the County Treasurer for some £168,000 to be carried forward in a separate account for the benefit of the school meals service in line with the principles set out in the SLAs.

2.7

These accounts exclude the Hampshire Works residual account, which showed a deficit of £8,017 for 2002/03.

2.8

The trends in these accounts provide grounds for confidence that the overall trading surplus of £283,000 expected in 2003/04 will be achieved or exceeded.

3.

Business Performance and Issues

3.1

Performance issues and the recent achievements of the businesses were reviewed by the Panel at its meeting on 3 February 2003 and only the most significant items are described below.

Catering Services

3.2

Good progress has been previously reported on the implementation of the recommendations of the Best Value review that was completed in 2002. This work has been followed by a number of initiatives that are intended to modernise the service and increase the level of pupil uptake. The key initiatives are:

· `flagship' sites - major changes have already been implemented at two sites (Westfields Junior and Grateley) and a further five sites have been selected

· menu development - menus are now updated termly and work is

being undertaken in support of the Healthy Schools initiative and the

sustainability agenda

· `rewards' scheme and promotions - a method of encouraging schools

to support increased uptake by pupils has been devised and these reward points can be exchanged for activities and equipment that will be funded by HC3S, for example a County Wardrobe topic box, a class visit to a Hampshire farm or a new set of goalposts

· changes to the arrangements for cleaning days - the reorganisation of

cleaning is expected to reduce staff costs by some £30,000 in 2003/04

The main issue for the business is the Pay and Benefits Review and the way that the outcome and implementation of this is managed. The impact of this review is currently unknown, but the preparation of some `what if' scenarios suggests that a combination of significant growth in meal numbers and an additional increase in the meal price would be required to offset the effect of a pay rise equivalent to around 10%. It will be essential that the outcome of the corporate review is managed sensitively.

Hampshire Transport Management

3.3

HTM has successfully managed the ongoing reduction in hire income from Raynesway Construction Southern Limited and has maintained a very healthy trading position. The funding issues associated with the courier service have been substantially resolved and departments will contribute an additional £67,000 towards the operating costs of the service in 2003/04. HTM also continues to work with the Environment Department on sustainability issues and has met increased customer demand for fuel cards.

Hampshire Cleaning Services

3.4

In line with the strategy agreed by the Panel and approved by the Executive Member for Policy and Resources, the department has worked to scale down the operations of HCS. The managed withdrawal from contracts and service level agreements with schools and non-education offices in the Eastleigh area has progressed very smoothly and this is to the great credit of the staff involved. This business is now solely concerned with the headquarters offices in Winchester. A review of the current working practices at the Castle complex is now underway and the plan is to deliver a significant proportion of the work through staff who will be dedicated to individual buildings and who will work longer hours across the normal day.

Hampshire Printing Services

3.5

The last six months for HPS has been dominated by preparations for their relocation to new premises at Winnall and turnover for the year was slightly down on 2001/02. The move was recently completed and the staff are delighted with their new accommodation. County Supplies have also vacated space occupied in the HPS building at Bar End and the Council's lease arrangement with Store Properties, which carried an annual rental in excess of £100,000 has now terminated.

County Supplies and Corporate Procurement

3.6

The total value of contracts managed by County Supplies is now around £68 million. Some £22 million of this total is included in joint purchasing arrangements with other member authorities of the Central Buying Consortium (CBC). Significant savings were achieved on several major tendering exercises during 2002/03 particularly:

· office papers - a saving of around 10% worth £90,000 in 2003/04

was achieved with effect from February 2003

· small site electricity contracts - new fixed price contracts with

Scottish and Southern Plc will deliver savings of approximately

£335,000 to the County Council in 2003/04

· photocopying contracts - two existing contractors won a new contract

to supply approximately 3,000 new machines a year to members of

the CBC at a price reduction of around 17%

Inflationary pressure on office and educational supplies was again very weak during 2002/03 and this can be seen in the table below:

During the last financial year, County Supplies was heavily involved in a

number of corporate developments, particularly the preparation of the

corporate procurement strategy, an electronic procurement catalogue

(which currently features 44,000 items and 600 vendors) and the

sustainability agenda (through changes to the County Supplies catalogue,

staff training and the promotion of recycled papers). These activities are

expected to continue in 2003/04 and new contracting activity, such as the

corporate contract for agency staff (6 million per annum), is expected to

increase the value of County Supplies' overall portfolio of procurement

arrangements.

County Supplies also completed a self-assessment using the procurement

excellence model, (which is based closely on the European Foundation for

Quality Management (EFQM) Model, and this has been used to identify

several priorities for the improvement programme for this business.

Customer Relationships - Satisfaction Survey

3.7

A survey covering all the businesses was conducted with customers during November and December 2002. Some 630 responses were received and the replies provided useful information on perceptions about the standard of service, value for money, environment friendliness and the level of innovation. Although the number of replies about each business varied considerably, it was possible to draw out some interesting conclusions in each area of activity. On the whole, the ratings were in the medium to high range, but there is clearly a common perception that the businesses are strong on service and value for money with the scores for innovation being consistently lower. Staff have been briefed on the results and customers have been thanked for their participation. This exercise is part of an overall process intended to deliver regular feedback about the performance of the businesses.

4.

Business Development/External Customers

4.1

County Supplies has developed the most extensive relationships with external customers, both in terms of numbers and value of turnover. The customer database for the warehouse service shows that there are some 3,400 individual accounts and 2,300 (68%) of these are for external customers. These customers include establishments that transferred to Portsmouth and Southampton City Councils in 1997 and also colleges, independent schools, public authorities (districts, police etc) and a very wide range of voluntary and community organisations. Collectively these organisations account for some 40% of the turnover of the warehouse, which equates to approximately £3.2 million. It is difficult to make an accurate assessment of the use of non-stock contracts by external customers, but this is estimated to be some 25% of the total or around £16 million.

4.2

Two good examples of this third party expenditure are the contracts for computer and photocopying equipment. Turnover of £5.35 million was assigned to the County Council's contract with Dell for 2002 - an increase of around 20% on the previous year. Twenty four other local authorities access this contract against the County Council's account and they make up 60% of the turnover. The top spending `affiliate' organisations over the last two years have been Wiltshire and Gloucestershire with a combined expenditure of £2.5 million over this period. Spending by customers outside Hampshire on the photocopier contracts is some £760,000 each year and the principal customers are the Isle of Wight, the London boroughs of Ealing and Kingston, West Berkshire and Wokingham Councils.

4.3

Second tier authorities in Hampshire (that is, the district councils) account for stores turnover of around £60,000 and their participation in the County Council's energy contracts amounts to a value of around £1 million. Only Fareham, Gosport and Rushmoor do not participate in any of the energy contracts. Eight authorities also participate in the contract for photocopier equipment with an installed base of around 150 machines and expenditure of more than £200,000 annually. Regular contact is maintained with representatives from most districts at quarterly liaison meetings and this has resulted in a small number of specific commissions, including a recruitment advertising contract for Eastleigh Borough Council. A report on the level of active co-operation is being prepared for the Hampshire and Isle of Wight Chief Executive's Group.

4.4

County Supplies opened 144 new accounts for external customers in 2002/03 and there is clearly scope for this activity to be developed further. However, these opportunities will need to be evaluated carefully as many of the potential customers are relatively unattractive in commercial terms and income levels are set to achieve the recovery of costs rather than to deliver a surplus. It is believed that the most appropriate strategy will be for Supplies to continue to develop its range of activities with existing customers.

4.5

HC3S is currently focussed on the schools meals service within Hampshire and has not actively sought external opportunities. It has though been successful in recent weeks with a number of Secondary school contracts. HC3S was invited to tender for the provision of a catering service at Portsmouth College and is in discussion with West Berkshire Council regarding the provision of school meals. The opportunity in West Berkshire involves 67 schools and a complement of staff numbering around 200 and would increase turnover by more than £1 million. The contract for Portsmouth College was awarded to HC3S and the business has had other successes with the acquisition of contracts at the Hamble Community Sports College and Porchester Community School from the private sector. HC3S also retained the business at both The Clere and Mountbatten Schools where it is the current provider and tender exercises were mounted. However, the most important challenge for HC3S will be to continue to grow the level of uptake by pupils in Hampshire schools.

4.6

Neither HTM nor HPS have any direct trading links with the district authorities and there are only limited links with the police and the Hampshire Fire and Rescue Service (courier and print income of around £20,000 in 2001/02). HPS were recently visited by three Members of Winchester City Council. The City Councillors were on a conditional fact finding mission and were looking for options in respect of the authority's print requirements. HPS confirmed their willingness to take-on this activity and it is possible that the City Council Members will return at a later date to progress this matter. However, it is difficult at this stage to gauge the seriousness of this enquiry or to have a feel for the potential scale of the work involved. HTM do have extensive business interests with external customers; this work is dominated by relationships with the partners of the Environment Department, particularly with Raynesway Construction Southern (fleet maintenance agreement) and with Mott McDonald (approximately 35 vehicles). Other external customers include a number of colleges across Hampshire. There has been considerable growth in vehicle hire and this has offset the loss of the highways vehicles hired to Raynesway. However, there is potential for further expansion in this area. In the short term, the business will concentrate on developing additional maintenance activity in support of the workshops.

4.7

The Business Development Manager facilitated a workshop in May that provided the managers with an opportunity to consider the potential for additional business and the output from that session is summarised in Appendix Two. The PBRS businesses will approach these opportunities positively, but the guiding principle will continue to be that the greatest attention will be given to improving the services provided to the County Council from a secure self-funding position.

5

Summary

5.1

The businesses achieved a very positive financial performance during 2002/03 with an overall surplus of £409,000. After making a substantial contribution towards the purchase and conversion of new premises for Hampshire Printing Services, the PBRS businesses have retained a healthy accumulated surplus of £1,035,000. This surplus provides an opportunity for the businesses to undertake further investment whilst protecting the County Council from financial risk.

5.2

The businesses have made good progress on implementation of their business plans during 2002/03 and there is now a substantial body of improvement initiatives that will be carried forward into 2003/04.

5.3

In total, the businesses have significant relationships with external customers and there are clearly opportunities to expand these activities. However, careful judgement will have to be exercised as the primary requirement on these businesses must be to improve their contribution to the overall success of the County Council.

Recommendation(s)

That the Buildings, Land and Contracts Panel advise the Executive Member for Policy and Resources that:

1

The 2002/3 report and accounts for the Business Services Group be approved.

2

The approach taken towards developing new business with external customer groups be approved.

3.

The Director of Property, Business and Regulatory Services be authorised to conclude a formal agreement between Hampshire County Council and West Berkshire Council for the provision of a catering service to some 67 schools by Hampshire County Council Catering Services (HC3S).