National Air Traffic Service (NATS) is the UK’s air traffic control organisation. In July 2001, it was privatised, with a controlling interest taken by seven airlines and the global airport operator, BAA. It now has a statutory duty to control air traffic, and also provides a commercial service to 14 airports across the country.
Last year, NATS controlled a record 2.2 million flights and reduced delays to a new low of less than 30 seconds per flight. It employs around 5,000 staff and has an HR department of about 50 people.
By 2012, it is estimated that there will be three million flights over the UK, and to accommodate this, the air traffic service is investing heavily in its infrastructure.
In June 2002, Christine Hyde, head of strategic procurement, decided that the organisation could improve the way it hires contractors.
“We had many contractors, spread out across various locations,” she explains. “Our process costs were high, we had little management information on what was happening, and we had IR35 concerns about the payment of tax by contractors. Furthermore, we weren’t developing our own core capabilities, as we were enhancing the CVs of our contractors.”
Hyde conducted some initial research into alternative procurement models, and discussed the options with Richard Wright, head of HR resourcing, development and delivery.
Wright says: “It didn’t take us long to realise we needed a managed service, where one company manages all of your supplier relationships.
Having seen how it operated elsewhere, it was clear it would save money, improve management information and enhance the entire process.”
While that decision was rapid, the next one took a year, says Hyde.
“Selecting a company to manage all supplier relationships is a big deal and we wanted to get it right,” she explains.
Questionnaires were sent out to suppliers, and a shortlist of six companies was drawn up. Each company was then sent terms and conditions and asked for fully-costed proposals. Capita was eventually chosen to run the supplier contracts.
The contract began in July 2003, and for the first three months, all Capita did was work out exactly how many contractors the organisation was actually using. At that stage, there were two members of Capita staff working on site, although there is now only one.
The NATS team ran about 12 workshops around the business, explaining the change to the workforce.
“Many of our colleagues were guarded,” says Hyde. “They had good relationships with existing suppliers and were worried about whether the new system would supply them with the skills and resources they needed.”
After a few managers had seen contractual terms with suppliers improving, it became easier to convince the business that the managed service option was the right one. The executive board was won over when, for the first time, it could get some management information about the company’s suppliers. The accounts department became enthusiastic when, rather than the 500 invoices a month it had typically received, it now got just one.
The changeover has been time-consuming, with only 40 suppliers migrated to the new system by October 2003. However, by February 2005, 160 had moved over to the new system and there is now only a handful still to transfer.
However, Wright is adamant that the transition has been worth it. “We’ve saved more than 1m through improved contractual terms. The process is now so simple that managers can do it much more rapidly, freeing them up for other tasks. We’ve completely addressed our IR35 concerns. We’ve also been able to move some contractor staff onto our payroll, thereby enhancing our core capabilities.”
Learning points for HR
Hyde and Wright have two pieces of advice for anyone considering the switch to a managed service. First, planning is essential, and to plan something of this complexity takes a long time. Second, it is essential to communicate the changes to everyone in the business.
Mark Flanigan is a resource manager at the National Air Traffic Service, supplying staff for the system engineering part of the business.
He was in a similar role when Capita began working with the organisation, and highlights three improvements that have resulted from the partnership.
“I now only have one person to deal with, whereas before I had around 10; I can trust that one person to give me the best deal on the contract; and I can also go to that person for employment advice.”
He believes there is still a lot of work to be done with Capita, such as getting clearer specifications and both organisations sharing information more effectively. But, overall, he is positive about the managed service solution.