WA councils get go-ahead for shared services after amalgamation retreat

By David Donaldson

May 25, 2016

Western Australia has given local government greater flexibility in delivering services such as ICT and tourism, allowing two or more councils to form a subsidiary body to deliver services jointly.

This follows the state government’s failure to convince ratepayers of a council amalgamation plan, with citizens voting down a proposal to slash the number of urban councils from 30 to 16 last year.

The new system will allow local governments to deliver services more efficiently and at a lower cost, argues Local Government Minister Tony Simpson, permitting collaboration on activities such as management of information technology, regional tourism, back office services or services to Aboriginal communities.

Though it won’t capture as many headlines as an amalgamation program — though as New South Wales’ recent experience shows, this might be a good thing — the shared services model might be a better idea anyway.

Shared services: an alternative to amalgamation?

The shared services approach is one that’s increasingly finding favour as a more nuanced way forward than simply forcing amalgamations.

Despite the common wisdom that bigger is better when it comes to local government areas, research shows that while some types of services are better delivered on a large scale, others are not. This means mergers bring both pros and cons.

“No group of councils to my knowledge have completely combined their back offices.”

Citizens, of course, tend to dislike the idea of larger council areas, given it’s generally easier to get the ear of a smaller council.

A compromise position can be councils forming subsidiary bodies to deliver those services that will be cheaper or higher quality by being delivered at a larger scale — typically back office jobs — while leaving broader council structures in place.

“Shared services centres” owned by multiple councils can deliver services that benefit from scale, while maintaining a smaller size that allows citizens a say in decisions, as former NSW Treasury secretary Percy Allan outlines in a paper for the Council for the Economic Development of Australia:

“Most council frontline services require very local attention, in which small councils excel. Urban planning and large developments need a regional focus through regional institutions. Routine corporate services and public works need scale to capture economies, which either outsourcing or SSCs do best.

” … The SSC would be jointly owned and governed by its member councils. It would be run strictly as a business providing works, maintenance, IT, financial services, planning, and so on.”

According to this “virtual council model”, Allan states that delivery contracts should be made contestible several years after shared services centres are set up. This would ensure a shared services centre “never took its clients for granted, thereby always giving them good service”.

It’s an idea yet to be properly road-tested, though most state governments have had mixed success trying out some version of shared services for themselves.

The key benefit of this approach, as opposed to amalgamation, is the flexibility to deliver some services on a regional scale and some at the individual council level. “The reality of council operations is that some services enjoy economies of scale while others suffer diseconomies from aggregation,” Allan says. “A one-size-fits-all approach is both crude and dangerous.”

There have been several examples of shared services tried by councils within defined regions, he explains. A well known one is Hunter Councils, a shared services centre owned as a co-op by councils in the Hunter Valley of NSW.

“But no group of councils to my knowledge have completely combined their back offices,” Allan notes.

It’s a much more nuanced tool than the blunt instrument of merging multiple councils.

“If we want true reform of local government then we need to recast it,” Allan argues, “not just reassemble what exists on a bigger scale.”

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