Municipal focus: Opportunity knocks

How can your plant company get a slice of all the available business from the multitude of UK local authorities? Colin Sowman, editor of Plant Manager's Journal reports.

Municipal focus: Opportunity knocks

There are more than 350 different local authorities in the UK and all have responsibilities that involve using plant and vehicles: road maintenance, refuse collection and waste transfer, street lighting, keeping parks and playing fields, street sweeping… the list goes on.

In the past, councils have purchased the kit, maintained it in-house and then sold it off at the appropriate time – but that is all changing.

Steven McInroy managing director of specialist ground care equipment hirer SGM (Scottish Grass Machinery) predicts a big swing towards contract hire and contracting out. "Pressure on council budgets continues to increase and purchasing equipment ties up a lot of capital they could be spending on other services," he says. This has caused a number of councils to source their kit through a less capital-intensive means or to subcontract complete services.

McInroy reckons councils currently source 10% to 15% of their kit using contract hire, but continuing constraints on budgets will see this rise to 75% within the next three years. And the sums of money involved are not small – SGM recently secured £4.3m of business to supply, service and maintain groundcare equipment to five local authorities.

Rule changes

Nigel Greenaway, marketing manager at JCB Finance, echoes that sentiment, albeit for a different reason. He highlights changes in the rules governing operating leases which will see the end user, rather than the leasing company, claiming the capital allowances. However, he says councils cannot claim capital allowances and therefore operating leases will become less attractive, so they will be looking to explore new forms of procurement.

How does your company get a slice of this business? The first thing to determine is which of three categories (regional, borough or unitary) a councils fall into. In Surrey, where PMJ’s offices are situated, there is a two-tier system whereby Surrey County Council deals with the likes of road maintenance, maintaining schools and repairing streetlighting. Eleven borough councils then deal with refuse collection and waster transfer stations, street cleaning and local parks. In the metropolitan areas there tends to be a unitary authority that deals with everything.

Councils may, because of their political persuasion, outsource all of their work under framework agreements or may retain a direct services organisation. The former offers the opportunity to bid for large contracts to, say, maintain roads throughout the region. With the latter, the individual deals are smaller but collectively still well worth having.

Where a council wants to place a large contract, be it for equipment or a framework agreement, it has to put that out to tender – usually via OJEU (official journal of the European Union). For instance Salford City Council is currently tendering for contract hire and maintenance of small sweepers.

On smaller, almost spot hire work, councils will have a list of preferred suppliers who pre-qualify by completing all the council’s paperwork. And as councils have to be seen to uphold the highest environmental standards and treat their staff in a reasonable fashion, any firm wanting to deal with the authorities must offer the latest kit that is well maintained.

"Councils are very conscious about quality and want to know about our internal procedures, health and safety, vibration data and so on. Some questionnaires can be 30 to 60 pages long," says Chris Nixon, director of plant hire with John Nixon Plant Hire. But once approved as a supplier, when the council wants a piece of equipment, your company is at least on the starting blocks to quote for the business.

Local support

All councils want to support local businesses wherever possible. This is not just about looking good for the voters (although that aspect won’t have gone unnoticed), but also because the closer the supplier is to the council, the faster and cheaper the delivery and backup. As one council worker told us: "When we need an item of plant or a vehicle for delivery tomorrow, we ring round our suppliers to see who has got what we want. The closer the supplier, the cheaper and easier it is for them to deliver."

While this may also be true for firms supplying machinery to companies winning framework agreements, it is probably true to say that councils and utilities with direct labour organisations may look for equipment on a job-by-job basis and probably represent a better opportunity for smaller plant hirers.

"Identifying the correct person is key to winning work from local authorities," says McInroy. That is not as easy as it may appear because there is not one job title used throughout the councils – in all probability there are as many job titles for the person placing this work as there are councils.

Having identified the correct person it is worth taking a trip to the council offices, or inviting the person to your depot, to put your case in person. Our council worker said: "Once a firm is on the list, when some work comes up we might give them a ring. From that point on it is a case of ‘did the company deliver good, reliable kit at the right time to the right place?’."

Fixed-price contracts

Budgetary constraints mean councils they may want to place long term contracts at a set price (often with an annual inflation allowance). Companies bidding for this work must calculate their costs very carefully if they are to be both competitive and profitable. If the costs turn out to be higher than expected, councils may allow a rate increase where it is deemed reasonable. If the gap is too large, it may be possible to terminate the contract with, say, six months notice to allow the contract to be put out to tender again.

There are other opportunities where a council or utility decides to privatise its direct labour organisation but this can mean taking on machinery, staff and even workshops, which is not a step to be taken lightly. McInroy sums up the situation: "Outsourcing means the council’s responsibilities for health and safety, training and machine maintenance fall on our shoulders. It has to be done correctly." However, he has turned this situation to his company’s advantage: "We have taken over machinery, workshops and staff from local authorities and contractors using TUPE (Transfer of Undertakings for Public Employees) and then used that as a base to bid for work in adjacent councils," he says.

Even where a council wants to hire just the equipment the situation is not without potential pitfalls, as Nixon explains. "Some councils won’t accept responsibility for loss or damage to a machine if they have taken ‘reasonable care’ of the machine," he says. The definition of reasonable care is open to debate as Nixon’s experience has shown. "We had hired a £20,000 roller to a council who parked for a weekend in a container by the side of a little-used country road." When the roller was stolen the council said it had taken reasonable care and Nixon was therefore liable, and it asked for a replacement to finish the job. "The thieves had the entire weekend to steal the roller," Nixon says with more than a tinge of bitterness: "I don’t call that reasonable care."

He says some councils even refuse to pay for damage: "If there is a clause in the contract saying the council isn’t liable for damage, then the workforce just doesn’t care."

Unacceptable clauses

The company still hires to councils – indeed around 20% of its business is with councils supplying rollers, welfare units, drills, dumpers, skid steer loaders and excavators. But it takes care to read the contracts, to avoid unacceptable clauses and to point out that in the event of loss or damage it will hold the council responsible.

According to Nixon councils pay undisputed bills promptly, but are very slow at sorting out queries. "You have to give the correct order number, damage has to be invoiced separately and they have to be sent to the right person at the right time.

"You also have to listen, read and take note of information coming from the authority. For instance, a memo may say that all order numbers must begin with XYZ123… or only a certain person can authorise an order." To cope with these demands Nixon has invested heavily in new computer systems that prompt the hire desk and accounts department to make the necessary checks before a machine is released or an invoice is sent.

For many plant hire companies, most of this is ‘business as usual’, so why not make the effort to get on the starting blocks for council work– the prize could be well worth while.

First published in Plant Manager's Journal, July 2006, pp.19-20.