SCL Meeting Report: ‘Mutuals and Joint Ventures in the Public Sector’

June 27, 2012

On 13 June, Morrison & Foerster hosted a seminar arranged by SCL’s Public Sector Group examining the development of mutuals and joint ventures as delivery vehicles for public sector projects.  The meeting, chaired by Alistair Maughan (a partner in Morrison & Foerster’s Global Sourcing Group, well-known for his work on a number of high-profile public sector services-related projects), included presentations from speakers who have been at the heart of the implementation of this key development in public sector services delivery. 

The speakers were:

·        Stephen Kelly: a Crown Commercial Representative in the Efficiency and Reform Group at the Cabinet Office supporting the program to target deficit reduction and stimulate UK growth through public service;

·        Stephen Rayfield: Partner at Herbert Smith, who advised the Cabinet Office on its pathfinder mutualisation project in relation to MyCSP;

·        Richard Bonnar: Partner and UK Group Head of the Intellectual Property & Technology group at DLA Piper, who also leads DLA Piper’s Public Sector practice in the UK – Richard advised the key private sector partner on the MyCSP project;

·        Julian Blake, co-head of the Charity and Social Enterprise Department at Bates Wells & Braithwaite London LLP.

The range of terms used to describe mutual societies, co-operatives, social enterprises and employee-owned businesses can be confusing and often overlapping.  At its essence, ‘mutual ownership’ simply means that an organization is owned by its ‘members’ – who could be its employees, customers or a combination of both.  Making a profit is not the sole purpose of a mutual.  The idea is to provide mechanisms of accountability and governance to ensure that the members of the mutual have some degree of control over the direction and decision-making of the company. 

Until recently, the adoption of a mutual ownership structure had been mainly the preserve of private sector organizations: it had not been taken up as a means of service delivery by the UK public sector. However, since the general election in May 2010, one of the approaches of the coalition government has been to re-think the relationship between central government and its key service providers.  The Cabinet Office, acting through the Efficiency and Reform Group, has been at the forefront of this activity.

The government has actively promoted the use of mutuals within the public sector culminating in the launch of the ‘first John Lewis-style central Government mutual’, MyCSP Limited on 30 April 2012.  The Mutual Joint Venture gives employees a 25% ownership stake in the new mutual, 40% is owned by Equiniti Group’s Paymaster business, a private sector ‘business service provider’, and the government retains 35%.

The purpose of the SCL seminar on 13 June was to:

  • explain the policy considerations behind the mutual model;
  • consider other new commercial models applicable to the public sector;
  • explain the mutual model by reference to the MyCSP Pathfinder;
  • consider lessons learnt and the potential application of the model to other areas of central Government and the wider public sector.

Stephen Kelly discussed the trends at a macro-economic level regarding the advantages of using a mutual structure in achieving the government’s aims in this area.  The Cabinet Office Commercial Models team is set up to identify where a change to a commercial model will best deliver the government’s objectives, provide commercial expertise to implement any change to the commercial model and provide professional shareholders to sit on new organisations’ governance boards.  There is a recognition that a mutual structure can have benefits for employees, taxpayers and external service providers.

Stephen Rayfield spoke about mutual joint ventures as a new commercial model for the public sector.  He outlined some of the key principles and benefits behind mutualisations and joint ventures, including providing better customer service, motivating employees and reducing public sector costs and risks.  He also addressed the complex relationships each of the parties have in their respective capacities in the MyCSP transaction as well as the challenges faced by mutual joint ventures more generally.

Richard Bonnar spoke about some of the mutual principles that the government was hoping to achieve by launching the MyCSP mutual structure as well as some of the key issues faced by the private sector partner when the deal was structured, including protecting its value and limiting liability.

Julian Blake spoke about his perspective as a social enterprise practitioner on the use of mutuals and joint ventures in the public sector.  He outlined some of the public sector reforms initiated by the ‘Big Society’ concept and specific examples outside the public sector of where mutualisation has been successful.

Thanks go to Morrison & Foerster for hosting and sponsoring the event, to the chairman, and to the speakers for such an interesting meeting.

David Varney is an associate in the Technology Transactions Group at Morrison & Foerster LLP.