With growing interest in the LATCo model, Norse Group CEO Justin Galliford explains how a trading company can succeed

In my discussions with local government leaders I have noticed that the LATCo model is back on the agenda. This rising interest stems I believe from the continuing pressure on finances, and in particular the impact of devolution and local government reorganisation: this has led councils to consider service delivery, and which model offers the flexibility needed to make significant structural changes.

For those councils which are slated to form the new unitary authorities in 2027, the need to look at their service delivery model is now pressing. While the focus will inevitably be on adult social services and in particular children’s services, major cost savings will be achieved by amalgamating frontline services such as waste and environmental, housing repairs and community equipment. But this will be far from easy. It is likely that merging councils will bring a range of existing delivery methods, and arrangements which are not coterminous.

Procuring these services – which will require major re-engineering to achieve economies of scale, and will happen over a number of years – will be extremely complex, and present significant risk, both financial and operational.

Many of the new authorities (and indeed those not involved in the first phase of LGR) will be considering bringing these services inhouse: this offers the flexibility and direct control which will be necessary for a successful transition. It also satisfies any ideological preference for insourcing. However, if this is the preferred route, it raises the question of the inhouse set-up – DLO or LATCo?

The LATCo model offers a range of advantages over both outsourcing and traditional insourcing by a DLO: the combination of commercial knowhow and public service values can provide cost efficiency without diluting social value; profits are returned to the public purse rather than to private shareholders; the council has control over the company; and, perhaps most importantly, the flexibility to implement major changes without the need for contract re-negotiation, and without the risk of financial penalty in the form of variation charges.

But there is a further benefit, which is often overlooked when the focus is on operational activities and service re-engineering – the development of a commercial culture, and the revenue growth which can result. At Norse we have invested heavily over the years, particularly in our local authority partnerships, to drive external sales as well as the revenues from delivering partner councils’ services. Over the years we have been able to win contracts in a range of services through competitive tendering.

This has the effect of increasing turnover and boosting profit share for our partner councils; reinvesting to provide security; protecting jobs and creating employment opportunities; helping the local economy; and increasing social value. Returning profits to the public purse rather than to private shareholders also means that vital services can be maintained and improved.

This exposure to market forces is also a key component in developing a commercial culture in the organisation, and is one of the ways in which a LATCo has the advantage over a traditional DLO, whilst retaining the benefits of insourcing. But in my experience it’s not enough on its own. At Norse we have identified other factors which drive success:

  • Empowering management teams
  • Investing in innovation
  • Hiring from the private sector
  • Service diversification
  • Cost control and operational efficiency
  • Support from the board and the council shareholders
  • Strong governance

I believe that this combination of factors can make a LATCo truly effective, able to reach its full potential and make a significant contribution to local government in difficult times.