More Mutual News

With final bids having to be in by Monday, the following email gives a bit more of the background to the collapse of the bid involving the Cumbria, Lancashire and Merseyside mutual :-

Transforming Rehabilitation bid update

Date: Thursday, 26 June, 2014

With great disappointment, The Manchester College (TMC) and Innovo CLM have now reached a point where we are unable to pursue our bid in the Transforming Rehabilitation competition any further.

Over the last ten days we have brought together the key final elements of the bid and overlaid the legal warrants and guarantees required. The outcome of this activity brought us to a ‘go/no go’ decision on the final bid this week.

Back in October we agreed a Memorandum of Understanding (MOU) with Innovo CLM to jointly bid for the Transforming Rehabilitation work in Merseyside, Lancashire and Cumbria. There were a number of key principles set out in our ways of working. These were, that we wanted (after repayment of the working capital from TMC), to have a joint venture company split 51%/49% (TMC/Innovo CLM). We were also clear that we wanted the joint venture to operate along the lines of a staff mutual and the profits in time could be used to re-invest into the communities we serve. This meant a very high quality offer that allowed staff and stakeholder engagement in many areas.

The requirements at the time were that TMC would fund circa £4m of investment and needed to offer a deed of guarantee of circa £16m. Innovo CLM would bring their experience and development of the service, coupled with TMC’s experience of working with offenders in custody. Our working assumption was that we would not run the contract very aggressively like many private providers do, but that there would be at least sufficient profit opportunity to offset any possible risks.

In recent weeks it has become clear that changes to legal clauses could mean unlimited costs on the joint venture and its backers. In addition, the maximum cap for penalties developed to a point where that could be as high as £36m. What became very clear last week was that TMC would need to guarantee £36m of annual risk. Our board and our banks felt that the balance of risk and reward had shifted very considerably in recent weeks and that TMC would be shouldering far more risk as part of the joint venture than the original MOU had suggested.

To try to move the bid forward we considered a number of options, including, finally, a route which would alter the level of risk and control on the contract and on the joint venture in a way that could satisfy our financial backers. As a result, TMC put to Innovo CLM an ownership and profit share proposal at 80%/20% and outlined that our Board would also require us to have been able to negotiate on the legal points during due diligence.

Innovo CLM have advised that they have shared this proposal with their staff and stakeholders who understandably, felt that for them, this would be a significant departure from the original MOU and was a move away from the principles of a staff mutual.

As a result, on Tuesday this week, we realised that we could not find a way to move forward with a bid that our respective boards could approve or that our banks would warrant in case of loss. We have today announced the decision to the Ministry of Justice.

John Thornhill

Chairman, Innovo Rehabilitation
CEO, The Manchester College

Meanwhile, I notice that the following information on the London mutual RISE written by Dean Rogers, Napo Assistant General Secretary, has been circulated to staff:- 

What is a Mutual?
RISE is proposed as a mutual. Not all mutuals are the same or work in the same way, although most mutuals would aim to follow the Rochdale Co-Operative principles in some form – critically meaning input into important decision making from all members and potentially wider stakeholders (e.g. client groups); profit sharing between members (although many mutuals will consider themselves to be non-profit making bodies); and a high focus on ethical practice and values.

In RISE all transferring staff would have an opportunity (but could not be forced to) become members. Membership would be free, with the opportunity to join and participate in the decision making processes coming as part of working for RISE. Future employees would automatically be enrolled. Should RISE expand beyond London any new employees would also have the opportunity to join and participate. The leadership of RISE would propose its initial Constitution, setting out how it would be run and be accountable to members, with rules for how the Constitution could be changed by members in future; what should happen to profits; how salaries would be negotiated and structures for member engagement and consultation. Members would have to approve the initial Constitution. All terms and conditions at the point of transfer would be the same under TUPE but some softer aspects (like union recognition) could change by member agreement almost immediately in a mutual. However, RISE have indicated they want to recognise and work closely with Napo, as well as honouring key terms agreed as part of the National Transfer Agreement.

In Reality.....
In practice RISE will be a small player with relatively little spare capital for speculative adventures around pay or conditions. Nor will it have any great HR capacity. We anticipate this is part of why it is being positive and open about recognising Napo and is indicating it would want members of RISE to join the union.

RISE would also be further bound by the terms of the contract with NOMS via the prime provider, both in relation to terms and conditions of employment for members and to a degree frontline practice in that key performance priorities will need to be met for RISE to get paid and meet the terms of the contract. Whilst contractors may expect RISE to deliver work cheaply (to maximise the Prime’s scope for profit) RISE will need to retain staff and perform to high standards to meet NOMS requirements and triggers for payment by results (PbR) targets. The PbR is most likely to be where any potential RISE profit and scope for RISE to expand rests.

This is most likely to mean that little collectively changes in terms of pay, pensions, and wider terms and conditions at least initially. Concerns identified about individual flexibility or support for training and development will partly be met by TUPE. Afterwards it can be met by a combination of individual negotiations and/or collective assertion via members proactively taking a collective position to the Board, potentially supported and advised by Napo.

What is TUPE / COSOP? How does it protect transferring staff? 

Many questions have been asked around the nature of any transfer into RISE and what protections are genuinely (as opposed to theoretically) afforded staff in scope if RISE comes into existence. As ever in any privatisation the strength of TUPE is directly linked to the collective strength and unity of staff transferring to defend terms and protect them for new starters, as well as the economic reality around the contract. Any prime will seek to drive down costs, especially when letting work through 2nd tier providers. We can expect pressure to be exerted on RISE to either cut terms (for new starters if not existing staff) or posts. However, within a mutual staff members have a stronger say in how RISE respond , supported further by recognition for Napo.

It could also be argued that potentially, especially in a market where recruiting and retaining good quality staff is difficult RISE may even be able to get a bigger share of the cake and improve terms and conditions. This is what’s happened in the rail industry where Aslef and the RMT have exploited a shortage in trained staff and the public’s reliance on their service to drive up wages, etc. Equally, members could vote to simplify pay structures and increase transparency. However, with very tight budgets and Government under-investment likely to continue the starting point is likely to be more difficult times ahead regardless of how the share sale rolls forward. RISE can’t lose money or members risk not getting paid or losing their jobs and will be directly engaged in making these decisions to some extent.

What about future employees joining RISE? 

Future employees will almost certainly be automatically enrolled as RISE members upon joining, as a contractual expectation, although it is plausible that any additional benefits (e.g. voting rights, loyalty payments, etc ) maybe linked into service. Generally, it is more difficult to force a two-tier workforce into a mutual as everyone has equal voting rights. However, if management win the argument this can still happen on key policies – e.g. in John Lewis they have a two tier redundancy and pension scheme.

It is possible that RISE will seek to offer different terms and conditions for members in London if it expands outside of Capital to recognise higher costs of living and recruitment difficulties in London. It would need to do so in a clear, accountable, fair and transparent way or be left vulnerable to equal pay challenges. E.g. it couldn’t justify higher wages for staff in London doing essentially similar work based upon grade differences.

If regional bids emerge, as we think is probable, this area becomes even more complicated as the cost of living around London is also disproportionately high if not as high as the rest of the UK.

How could RISE fail?
RISE can fail in numerous ways. It can fail even before coming into existence if it is not part of a winning consortia for a CRC contract. It is feasible that RISE could be named as a potential partner in a winning bid for an area outside London but not in London itself. In this instance London staff would not transfer to RISE.

Moving forward RISE could fail by making a consistent loss that funding partners become unwilling to sustain. If RISE were to lose it’s capacity to borrow to fund paying staff, etc then it could dissolve and staff would then transfer again, either to the prime bidder or to another provider if the work was sublet. In this circumstance TUPE should remain in place again, although again the strength of the guaranteed rights will be directly linked to collective organisation and unity.

One particular worry for charities and small organisations in the contract is the likelihood that primes will pay RISE out of the PbR money, based upon result. This is hugely problematic as the PbR money isn’t guaranteed and only comes on stream after 3 years into the contract being operational. RISE maybe better placed to sustain this as a mutual being set up with funders understanding this reality, as opposed to charities competing for similar work but having to use reserves.

If RISE went bust members will not be individually liable, unless they choose to be so by adapting the RISE constitution. Nor do you lose or change any other employment rights by being a member of a mutual.

What happens to me if RISE isn’t successful?
If RISE don’t win in London you will either be transferred into the prime or whoever they let the work to instead of RISE. The National Agreement Napo has won protects you in the first instance in either scenario but the risks (e.g. job cuts and pressure to accept cuts; rise of a second tier workforce, etc) are also the same.

What choices do I have?
If the work you are doing is transferred to RISE or another company you have a false choice – resign or accept a transfer with TUPE protecting terms and conditions at the point of transfer, supported further by the terms of the national Agreement covering pensions, continuity of service and initial redundancy terms. You will not have a right to transfer into another CRC job unless this can be negotiated between RISE and the prime bidder in a situation where RISE needed to make staff cuts.