Guidance

Stage 8: transition

Published 28 March 2017

1. Overview

This section provides a high level guide to planning for and undertaking the transition stage (which is sometimes also referred to as the implementation stage).

This section assumes that you have received authorisation to establish your preferred delivery model. For the purposes of this section we have assumed that your preferred delivery model option is a Public Service Mutual (PSM).

There is no one size fits all approach to transition and, depending on the type of transfer envisaged and where you are at in the transition process, you may need to consider different types of activities.

You should plan to access specialist legal advice regardless of the model you decide on. This is particularly important if you intend to apply for charitable status or CIC status.

A delivery model’s transition plan will depend on:

• its legal form and status - CIC, charities or a companies limited by shares or guarantee will all have very different implementation requirements
• the intended relationship with the council - Teckal implementation requirements are very different to non-Teckal
• the development of the necessary governance structures
• how your delivery model has been procured by the council - for example, direct award or procurement process

We have identified several important activities that most spin-outs will need to progress with. This is not intended to be a definitive list, rather high level guidance.

We have not specified timescales or the order in which these actions should be undertaken as this will vary between projects. We would recommend that you seek either expert professional advice and/or contact other library services that have previously undertaken the process prior to starting the transition stage.

2. Why undertake the transition stage?

The transition stage is designed to turn your business plan into reality. You will need to undertake a wide range of activities to ensure you successfully establish your new delivery model and the council’s services are smoothly transferred.

The following areas of activity will need to be undertaken, in addition to any other areas applicable to your specific situation. These are:

• establishing shadow governance arrangements (optional)
• incorporation of the new delivery model
• finalising your governance structure
• designing and establishing your future staffing structure
• confirming pension arrangements
• confirming asset and liability transfer arrangements
• arranging enabling infrastructure
• undertaking business development
• confirming contract documents with council
• undertaking staff transfer
• making applications and registrations
• go-live

Each of these areas are considered in detail in sections 6 to 17. We have created a (downloadable) outline transition plan template to help you plan the activities that you will need to undertake.

The process of transitioning to a new delivery model is underpinned by several important principles. The role of the council as a commissioner, staff engagement and stakeholder engagement are all important aspects of any transition process. These are considered in sections 3 to 5.

3. The council’s function as an expert commissioner

The council will play a critical role during the transition and post-establishment stages. The case study on expert commissioning provides further details, although it is based on a specific set of local circumstances (for example, the case for change and externalisation and the procurement route undertaken).

We set up a project board to govern the transition process and ensured that all council business support services were represented. The board met monthly to assess key progress and address any risks and issues. we reviewed the membership of the board after key milestones to ensure that the right people were there and that roles and responsibilities of board members were clear and relevant.

Having this corporate buy-in made the journey much smoother than it might have been. It was essential that we maintained a partnership approach throughout because the library service, whilst still part of the council, did not have independent advice on topics such as HR, communications, IT and property.

For the council, it’s essential that they consider the commissioning role and how it will be undertaken. For those in the council (whether councillors or senior officer), it’s essential that there is an understanding of the independence of the new organisation and their role in supporting and enabling the new entity to deliver the outcomes that both commissioner and provider are looking for.

Libraries Unlimited

4. Staff engagement

How you engage with staff throughout the investigation and establishment processes will be key to the success of your new delivery model. We have been clear throughout this toolkit that staff engagement is a critical success factor during each stage. The transition stage is about turning the business plan into a reality; staff are very well placed to support and inform this process.

We were very much staff led, with over 70% in active support at go-live. Our model allows for staff to own the organisation and elect a staff director to sit on the board.

We began as soon as we started looking at different models. We closed the service for 4 individual days over the year to allow staff to come together, talk to each other, ask questions and work together on what we wanted the new organisation to look like, what our values and mission should be. Also, how we wanted to work - so reduced bureaucracy and democratisation of management.

We produced a series of Q&A papers for staff to keep on top of questions and did extensive consultation with them. Staff were represented on the overall project board, in addition to Unison representation.

This was all supported by the establishment of a staff advisory group who worked on various aspects of the work and kept other staff up to date along the way. The group is a diagonal slice of the organisation with staff from every level and department.

The staff advisory group has redesigned our appraisal system in line with our values and objectives. They have conducted a staff wellbeing survey and drawn up a learning and development plan for the organisation. They report into the board as well as the Strategic Management Team so have a direct line to our directors and they continue to work across the organisation to embed our culture.

York Explore

Involving staff in progressing with the activities during transition is a very good way of ensuring that they help shape the new delivery model. It is important to set up the forums that allow staff to influence the service once it has formally established.

From the very beginning we engaged with staff on what their ambitions were, what they’d like to keep and what they’d like to leave behind. We initiated a leadership programme 2 years in to kick-start leadership for change at every level.

We developed a listening and advice forum called the staff advisory group and gave them observer seats on the board.

Suffolk Libraries IPS

Please refer to the staff engagement case study for further details.

5. Stakeholder engagement

Your business plan may be predicated on a requirement to involve a range of stakeholders within the ownership and governance of your new delivery model. Stakeholders may also be involved in the design and delivery of new services, helping the delivery model to deliver differently. Your stakeholder mapping and communication planning should provide details of how you plan to engage stakeholders during the transition and post-establishment stages.

Please refer to the stakeholder engagement case study for further details.

6. Establishing shadow governance arrangements (optional)

Once you have received authorisation to establish your organisation, you should consider establishing your board of directors in shadow form. This will allow the new delivery model to start negotiations with the council as it will create separation between the new delivery model and council and a clear commissioner/provider split.

A shadow board will also help the library service to project manage the transition stage, assessing progress against the transition plan and managing risks from a delivery model perspective. The shadow board should work directly with the council’s project board during the transition stage to ensure that tasks are completed and risks are managed.

We had to complete the transition process very quickly and we didn’t have sufficient resources to do it. A board member helped us with it but there were conflicts even on the shadow board on its purpose.

So be clear on whose plan it is, what it’s for and how it is owned. And then resource it.

Suffolk Libraries IPS

You should undertake a skills needs analysis for staff whose positions will automatically mean they are members of the board – referred to as ex-officio (for example CEO, finance manager and operations manager). This will allow you to understand the collective strengths and weaknesses of the shadow board. You may want to extend this process to your senior management team.

In most cases the senior management team of a public service spin-out are strong in terms of operational management, but do not possess the level of commercial, business development or marketing expertise and experience required by the new delivery model.

The intention may be to recruit other directors to the board with a view to bringing these skills and experience into the organisation, with the findings from the skills needs analysis being used to inform the job descriptions and personal specifications for any new roles. Your recruitment of new directors and/or non-executive directors should reflect your intended board structure, as outlined within your business plan.

Securing high quality financial experience and advice at an early stage is absolutely key. We were fortunate to secure an interim Head of Finance about 3 months prior to transfer. He has become our permanent Head of Finance and Operations and brings a range of relevant experience and perspective from previous roles in the housing and not for profit sectors.

As for managing the process itself, having excellent project management support is essential. We had one of our team who is a PRINCE2 and MSP qualified project and programme manager largely dedicated to the process for over 18 months.

Libraries Unlimited

This may mean that you will employ new members of the senior management team on a full time basis (for example a Commercial/Business Development Manager) or appoint non-executive directors who may assume the role on a voluntary basis.

The shadow board were appointed, and then replaced by an elected board in 2013.

Since then a refreshment cycle has been introduced which sees 2 or 3 new directors step down and a further 2 or 3 are elected at the AGM each year.

They are drawn from our membership and have to be nominated. The board can also co-opt additional members based on gaps and need. The Chief Executive is an ex-officio director with full voting rights. The Chair and Vice Chair are elected each year by the board at their first meeting.

Suffolk Libraries IPS

7. Incorporation of the new delivery model

Assuming your confirmed legal model involves an incorporated company, you will be required to incorporate your new company. The shadow board may be in a position to start developing the new delivery model’s constitution, including a Memorandum of Association and Articles of Association. We strongly recommend that you access expert legal advice when developing these documents.

8. Finalising your governance structure

Once your new delivery model is incorporated, you will be in a position to formally establish the governance structure outlined within your business plan. Directors can be appointed, while your shareholder or membership structure will be established (to reflect the ownership arrangements outlined within your business plan). We strongly recommend that you access expert legal advice at this stage of the process.

Please refer to the developing your governance structure case study for further details.

We recruited a Shadow Chair of the board in the summer of 2015. We felt we needed the Chair fairly early on to enable us to begin the negotiation with the council prior to transfer.

It was important to have a Shadow Chair in place to lead the recruitment of the other directors. We were fortunate in finding an extremely experienced Chair who is a lifelong user of libraries, a passionate reader and has a background of senior leadership in the NHS. We knew we had an ideal person to lead the board.

Subsequent to the Chair’s appointment, we sought a director with financial experience who could support the negotiations with the council during transition.

Once these 2 directors were in place, we recruited to the rest of the board. We reviewed board recruitment materials from a variety of other organisations and create role descriptions and a skills analysis. We advertised in libraries, via social media and through our networks.

In parallel, we sought nominations from our staff group and our Friends Groups fro the community director roles. We had 6 nominations for 2 staff places and 4 nominations for our Friends Groups so we held an election.

All trustees were interviewed prior to appointment.

Libraries Unlimited

9. Designing and establishing your future staffing structure

Your business plan may be predicated on the need to redesign your staffing structure. The majority of spin-outs will undertake any restructuring while still part of the council. You will need to work closely with the council during the transition period to ensure that your intended staffing structure is achieved by the go-live date.

10. Confirming pension arrangements

Your delivery model will be required to ensure that the necessary pension arrangements are in place. The issues to be considered are outlined within the commercial case sub-section of stage 6.

Should your new delivery model achieve Admitted Body Status, it will need to arrange for a body or indemnity to be in place. Several spin-outs have recently struggled to find cost effective bonds, leading to the council indemnifying the new delivery model. This requires the new delivery model to pay the council for the cover being provided, with this arrangement offering both parties a cost effective solution.

A similar arrangement with the council may be put in place in relation to the Teachers’ Pension Scheme, where the new delivery model is also required to provide a guarantee that is acceptable to the Department for Education.

The most challenging areas were around pensions property and agreeing a sum of money to enable us to develop our own independent infrastructure. As Libraries Unlimited is the first mutual the council has set up, everyone was learning during the process. The role of the project sponsor who was a senior and well regarded officer in the council was key to working steadily through all these issues.

The council’s processes tended to be framed around traditional outsourcing projects and were not always appropriate to mutualisation, particularly as there is not an incumbent organisation with an infrastructure that can managed the technical issues for itself.

The lesson was to allows sufficient time and resource to conclude discussions around support services.

Libraries Unlimited

11. Confirm asset and liability transfer arrangements

Your delivery model will be required to agree a risk share arrangement with the council. If your delivery model has been procured through a procurement process, the details of the risk sharing arrangements will have been detailed in the specification.

If your delivery model has been directly awarded the contract, the potential exists to negotiate a risk sharing arrangement.

Areas to discuss during the risk sharing negotiations include the treatment of pension deficit liabilities, redundancy liabilities and maintenance responsibilities, as well as any other liabilities outlined within the contractual documents (including leases).

Due diligence is absolutely essential, including the state of the IT, properties and any unresolved staffing issues. Make sure they are documented and get agreement in terms of their resolution. Make sure these details are included within the contract.

Suffolk Libraries IPS

It’s important to reach agreement with the council on the condition of buildings at the time of transfer. We had full condition surveys done of all buildings. We’re also very clear about our maintenance responsibilities and the associated costs.

York Explore

We recommend that you access expert legal advice and support during these negotiations.

12. Arranging enabling infrastructure

The role of an effective back-office support function is to provide the support and administrative services that are required to allow your new delivery model to operate efficiently and successfully.

The functions of back-office support will vary greatly in their composition, size, roles and responsibilities and also in terms of whether the activities are delivered by the council, carried out in-house or outsourced to third party organisations.

Within the council, your service will most likely have received back-office services from the council, or a third party working on behalf of the council. The council may require this arrangement to continue once your new delivery model has established. However, many PSMs negotiate an arrangement with the council which allows the new delivery model to procure some or all of its back-office support from the market if the PSM has evidence that the market can provide a better value for money alternative.

The HR system and finance system we inherited didn’t meet our requirements so we replaced them in year 2. The HR system was not flexible enough, it was designed around council procedures and we needed more control so we could manage our own payroll.

The finance package didn’t map to the charity SORP guidelines. Much of our IT estate was old and no longer fit for purpose.

Getting control of our own back office took 18 months, but was the best way to save money and free us from bureaucratic processes which slowed down the culture change.

Suffolk Libraries IPS

In other cases, the council and new delivery model may agree to the delivery model procuring some or all of its back-office support from the council for a given period. Once this period has ended, the delivery model may be free to procure back-office services from the market, potentially allowing the service to procure services that offer greater value for money.

We decided to procure a new payroll provider. Making sure everyone got paid at the end of the first month was one of our top priorities.

York Explore

You will also be required to consider other supplier contracts that the library service access while part of the council. The council may have a preferred position on whether the new delivery model continues to access these services (they may be part of a wider agreement between the council and third party).

13. Undertaking business development

Your business plan may be predicated on the need to establish new partnerships and generate new sources of income. The transition period provides you with the opportunity to develop these relationships and design/pilot the services identified within your growth strategy.

The transition stage is resource intensive and requires a lot of focus. While getting the process right will take up a lot of your time, it’s important to also pay attention to business development as this will help the new delivery model to generate new sources of income as soon as possible after the go-live date.

14. Confirming contract documents with council

Once negotiations between the council and new delivery model have ended, the new delivery model will be required to sign a number of contractual documents.

15. Undertaking staff transfer

Staff will transfer to the new delivery model under TUPE arrangement on the go-live date.

We advise you to contact your HR lead within the council once authorisation to establish has been received. The council will usually oversee the TUPE process, with the support and involvement of the new delivery model. Each council will have its own TUPE process, including engagement/consultation with staff and trade union representatives.

Making early contact with your HR lead will allow you time to understand the process and make arrangements to ensure that the TUPE process is designed to align with the go-live date. Staff engagement will play an important role in the TUPE process.

16. Making applications and registrations

Your new delivery model will be required to register for the following:

Corporation tax

After you’ve registered your company with Companies House, you’ll need to register it for Corporation Tax. You’ll need to do this within 3 months of starting to do business. This includes buying, selling, advertising, renting a property and employing someone.

VAT

You must register for VAT with HM Revenue and Customs if your new delivery models’ VAT taxable turnover is more than £83,000. Stage 7 recommended accessing specialist VAT advice during the business planning stage, so you should be well placed to understand your new delivery model’s VAT taxable turnover.

Your library service may currently hold various professional memberships and registrations that need to be transferred to the new delivery model. Identify which of these need to be transferred and which may need to be applied for by the new delivery model (for example. where membership or registration is non-transferable).

17. Go-live

Having worked with the council to ensure a comprehensive, legally compliant and timely transition, your new delivery model is ready to go-live in line with the contract start date.

The majority of new delivery models are required to continue to address some tasks that carry over from the transition stage although, in most cases, all of the critical tasks will have been completed.

The immediate issues (in the first few weeks after go-live) were around updating policies and agreeing the terms and conditions for recruitment so we could fill vacancies. A suite of council HR policies transferred to Libraries Unlimited as part of the TUPE process but we needed new policies for any new staff.

We also committed to undertaking appraisals with all staff within the first 3 months of transfer. It was an important way of signalling the change to the new organisation and we had to work swiftly to redesign our approach to appraisals to deliver on our commitment.

Recruiting to new posts (such as Head of IT and Digital and HR Manager) were a priority in the first few months as we needed these posts in place in order to fully establish our independence as a new organisation. Again we wanted to signal that were a new and ambitious organisation so there was an element of redesigning our approach to recruitment.

Early on it was important to establish a new type of relationship with the council; in particular to mark the difference from being part of the council to being independent. It was important to form a more formal, professional relationship with our commissioners than we would have had in the council.

Libraries Unlimited

The next section covers the ninth stage of the process - starting delivery and establishing the new organisation