Public-private partnerships and people issues: How HR can smooth the transition for staff

As any regular visitor to London knows, the capital’s Tube system faces a constant battle to cope with record numbers of travellers. The network, parts of which date back to the 1860s, carries more than three million passengers a day and vast sections require major surgery just to maintain current levels of service.

A huge factor in these problems, trade unions argue, is a 30-year public-private partnership (PPP) agreement set up in 2003 between state-run London Underground and two companies: Metronet – which is responsible for running most of the trains and infrastructure – and Tube Lines, which provides maintenance services for trains and infrastructure on certain lines.

Whatever the political arguments for or against PPP agreements like this one, integrating two sets of staff from such different backgrounds throws up a variety of challenges, not least for HR.

The first thing to ensure, according to Sue Loseby, an HR consultant at Price­waterhouseCoopers, is that HR is involved in any discussions at a very early stage. Many areas of the public sector are heavily unionised, for example, so she advises HR to try to replicate the relationship during and after any transfer period.

Negotiated terms

There are also legal issues. Many PPP agreements are governed not by law but by binding deals that have been thrashed out with unions – often along the lines of the Transfer of Undertakings (Protection of Employment) regulations that affect mergers.

These have an impact on issues such as salary, pensions and holidays. But the retention of employment model – where some employees effectively work for the company yet are still em­­ployed by the public sector – confuses things still further.

Consequently, HR professionals from both public and private sector backgrounds have to familiarise themselves with a whole new set of legal practices.

In the case of Metronet, the situation was made even more complex by the fact that the 5,000 staff being transferred were joining a totally new company with no established HR procedures.

It was also forced to address skills gaps in key areas, such as project management, which would prove critical to delivering profit as well as performance.

The biggest obstacle for HR was helping staff to overcome the cultural divide between working for the public sector and for a private company that would be judged primarily on its commercial results, says Nigel Hague, Metronet’s former senior vice president for HR.

Culture challenge

Culturally, staff from the public sector may struggle with working to strict deadlines and spending money wisely, he says.

The key to overcoming this opposition lay in creating a new employer brand that employees could associate with, says Hague. “The organisation they used to belong to had a very strong employer brand and this changed dramatically when they transferred to the new agreement.”

But in such a situation, once any transfer has gone through, it is the responsibility of HR to ensure that staff are coping with the new demands placed on them. Loseby warns HR professionals to consider the emotional impact of the change. “There’s a feeling of being let down when you’ve been sold off,” she points out.

She advises taking a number of practical steps, such as holding team briefings and one-to-one interviews with all staff, conducting an induction on their first day in the new company, and even appointing a mentor to show managers how things work in a private firm during their first few weeks in the job. Loseby also warns against over-selling the prospects for promotion and career development to staff who are being transferred, as this can lead to initial mistrust and cause resentment further down the line.

But while the key drivers behind PPPs may revolve around improving efficiency and reducing costs, they can have a positive impact on HR.

Middlesbrough Council, for example, is halfway through a 10-year PPP deal with HBS Employee Services, which handles a range of non-core activities including the council’s HR operation.

Grey areas

Initially, the council handed over total control of its HR department, including responsibility for strategic development to HBS. But later it brought this back in-house. “Sometimes the dividing line can be quite a grey area,” admits Linda Maughan, customer HR director at Middlesbrough council. “But it does help you to try and separate the operational matters from policy issues.”

Day-to-day administration has become easier, for example. The issuing of employment contracts has been reduced from an average of eight weeks after a new person started, to every contract being sent out before the start date.

Westminster City Council entered a public-private arrangement to improve its overall service. Almost 500 staff transferred to Vertex, the business process outsourcing arm of United Utilities, in a contract worth £1bn over 15 years.

The council had already outsourced its back-office functions several years previously. Now Vertex handles all of its front-office activities, including its HR operations, although Westminster has been careful to retain an HR team of 25 people to manage policy and strategic decisions.

According to Jonathan Evans, head of HR at Westminster, the key to making PPPs work is to ensure your internal processes are working properly before they are transferred and to have regular communication between the two bodies once the transfer has taken place.

“Time spent planning will pay off later on,” he says. Any uncertainties about who does what diminish over time, he adds.

Whatever the size or complexity of the deal, it can be daunting for any HR professional to enter into a PPP agreement.

But overcome the political issues and partnerships can be a success, as Maughan concludes: “Before I came here I would probably have said that I didn’t think it would be a good idea to work like this, but there are some very clear benefits. The anticipation can be worse than the actuality of the change.”

What is a public-private partnership?

Over the past decade, the Labour government has aggressively pushed public-private partnerships (PPPs) as a means of injecting public sector organisations with the commercial mentality and expertise of private enterprises.

Such agreements tend to take the form of long-term contracts under which the state will pay a private company, or companies, a set sum every year in return for a guaranteed level of service and investment from the successful bidder. Partnerships are normally policed by rigorous service level agreements with financial penalties if deadlines are missed or standards not met.

The theory is that the commercial organisation is better suited to getting value for money while the public organisation acts in a supervisory capacity to ensure standards and services are not sacrificed in the drive for profit. If a company can deliver the efficiencies promised when bidding for the contract, it stands to make a healthy profit while the state benefits from a more efficient service run by industry specialists.

But the trade union movement has consistently opposed such partnerships, arguing that they are effectively back-door privatisation and often result in staff cuts or, at the very least, more accountability and less favourable working conditions for former public sector employees.


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