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Puzzle graphic - Shared Services - How to Put the Pieces Together

The following article is an abbreviated version of “Shared Services Themes: A publication of the Local Unit Alignment, Reorganization and Consolidation Commission.” The complete version can be found at www.njslom.org/interlocaladvisorycenter or www.state.nj.us/dca/affiliates/luarcc.

Chairman, Local Unit Alignment, Reorganization and Consolidation Commission (LUARCC). Managing Director, Tri Statre Strategies NJ, LLC John Fisher, III

In July of 2010, the Local Unit Alignment, Reorganization and Consolidation Commission (LUARCC) interviewed a number of elected officials and consultants who have been actively involved in developing shared service projects. This article summarizes 16 major “themes” that ran throughout these discussions. We hope you will be able to benefit from their experiences.

1. The Political Will The key ingredient to creating a
successful shared service project is the political will of the elected officials. Their willingness to consider proposals for change—and if the proposal is in the best long term interest of the affected municipalities—to proceed with implementation, despite local opposition, is essential.

To succeed, the process must involve all participants directly, especially the elected officials and the local department heads who manage the service being shared.

Direct participation by the elected leaders leads to their acceptance of the final proposal as “their proposal” and not a proposal of some other third party or agency. It is easy to dismiss the proposal of others when opposition evolves; however there is a tendency to continue the discussions despite the opposition when one is directly involved in crafting the final end product.

Although saving money is a prime motivator behind sharing services, a secondary motive is having a problem to solve. In all of the successful major shared service activities, the shared service agreement addressed a common concern that the elected officials and others recognized had to be resolved to improve the service being provided.

2. Incrementalism and Co-optation Two key concepts in developing shared service projects are incrementalism and co-optation.

Incrementalism describes the need to develop “trust” among the participants through a number of smaller projects or activities, leading to acceptance of a larger scale operation. If you believe there will be opposition to a major activity, then consider doing it incrementally. Visit the LUARCC website (nj.gov/dca/affiliates/luarcc) for a list of activities that are common to municipal operations that can serve as potential incremental shared activities.

Co-optation refers to the need to involve everyone affected in the exploratory and planning process, especially the elected leaders and department heads.This will ensure that the final proposal is “our proposal” and not “their proposal.” The way to get people to identify with the end result is to involve them in its creation.

It is important to also involve potential opponents so that their concerns are known, accounted for, resolved, or negated in the final proposal.

3. Avoid Emotional Terminology People may object to the term “consolidated operations” because it evokes a permanence and loss of identity. In contrast, the term “shared operations” connotes continuation of existing good will.

4. Think Long Term A successful shared service project has a term of at least five, but preferably seven to 10 years, and includes good participatory management and opt out clauses. (See the “Service Provider Continuum” at nj.gov/dca/affiliates/luarcc for further information.)

Shared services are easy to get into but equally easy to get out of. This is both a strength and major weakness. A successful shared service agreement allows for an orderly and thoughtful withdrawal process, as well as a term that is long enough to have a fair evaluation of its performance.

During the life of a successful shared service agreement, there is a need to continue to educate people on the operation so it continues to be accepted.

5. Two Way Street For a shared service contract to be successful in the long term it cannot be a simple “provider/receiver relationship,” similar to the standard private sector contract operation.

Each side must see benefits to the agreement, such as cost savings, improved services by one and the expanded operation with economies of scale, or access to technology and/or equipment, etc. These goals should be set out in the final contract so that future reviewers can see why the agreement was created.

6. Ongoing Participation and Ongoing Communications These concepts are essential to the survival of the shared service activity. An effective agreement must include procedures to continue effective communication between the main parties and a participatory process for joint management or advisory review and consultation of the actual operations.

The agreement must set in place the minimum schedule for the review committee and reporting guidelines. The committee should meet on at least a quarterly basis. All participants must feel that they have a direct and ongoing role in the operation, even if this role is advisory. Participatory involvement either through joint advisory or management committees of key leaders on both sides maintains the involvement of the decision makers and encourages their continued support.

7. Write a Good Contract The agreement should be very specific in work performance requirements. This means including detailed cost data and guidelines on how future costs are to be recognized. The agreement should have a defined process to handle unanticipated costs, service requests, changing requirements and needs. Also critical is a user friendly, multi-level conflict resolution process. The process should encourage resolution at the lowest level of involvement, with an escalation up the hierarchy thru mediation and non-legal confrontations. Legal action should be the final step.

8. Outline Detailed Service Expectations The agreement for services must set forth exactly what services are expected and how they will be paid for. If there is no clear method of initial cost sharing, then use historic data to define service needs and workloads. As information is developed, a more specific cost sharing process can be developed (if possible, this methodology should be set forth in the original agreement).

The agreement must include a specific method to change the scope of services and/or the cost structure to reflect changing conditions.

9. Termination Contract for five to seven years and include an “opt out clause.“ To give the shared operation time to adjust, allow no opt out in the first 24 to 36 months, except for specific failure to perform the specified services or other significant “good cause” (related to services, not personality conflicts).

The opt out clause should provide a minimum of six months notice of intent to allow the “participation committee” to meet and confer. If possible, put a specific mediation and fact finding process in the contract to take effect during this timeframe.

The goal is to avoid opting out due to a short term political disagreement, emotional issue or other non-service related matter.

10. Contract Renewal Have a provision that the parties must notify each other at least one year prior to renewal that they intend not to renew. If the agreement’s renewal is in doubt, this provision will allow time for disputes to be resolved and /or for alternate arrangements to be made.

11. Expect Opposition Change is difficult, especially when it directly involves employees and other officials. Fear of the “unknown” is difficult to overcome—hence the need for as much detail in the proposed contract as possible. Do not assume that a very vocal group of those impacted (employees, relatives and friends) represent the entire municipality.

12. Where Are the Cost Savings Shared services usually eliminate duplication-–especially in upper ranks and processing functions. Normally there is a better span of control for management and supervision.

Generally, the participating communities can make better use of consolidated manpower. This results from the greater flexibility of larger organizations to respond to needs.

Under the new, larger entity, there is better use of technology, equipment, and specialization. For example, more equipment provides more flexibility in adjusting to downtime, etc. There can be savings in cost avoidance in needed or required upgrades, facility improvements and in other areas. Finally, there is the potential for increased services due to the greater amount of manpower available in the larger department.

13. How to Start—Look for Golden Opportunities Carefully consider issues that must be addressed either singularly or jointly. Often upcoming changes, such as retirements, pending costs or regulations that will dramatically impact existing operations, the need for facility expansion or improvements, and non-compliance with state or federal regulations can provide the impetus for shared services.

Obviously the need to meet state restrictions on budget growth can be a primary justification for changing the way services are provided. Explain to the public that it may not be financially possible to continue all activities as in previous years. The message is: change is coming. The only issue is choosing where and how.

14. Obstacles—Legal Unfortunately state law often provides some legal challenges to shared services—and there have been some recent changes. Take the time to review state law NJSA 40A: 65-et seq—Chapter 63 of the Laws of 2007, known as “the new Consolidated Shared Services and Consolidation statute.” In matters that effect the police, see Subsection 8—Preservation of Seniority, Tenure, and Pension Rights for Law Enforcement Officers. Civil Service laws also impact the establishment of “combined” work forces, layoff plans, county-wide reemployment lists, bumping rights, provisional employees and other areas. Civil Service requirements are cited in the new Consolidated Shared Services and Consolidation Statute.

15. Obstacles—Financial Shared services planners need to take into consideration the long-term impact of the 2 percent tax levy cap. If the shared service agreement has cost escalation clauses that may be greater than any of the Tax Levy or Appropriation Caps, then the “cost savings” in the initial years to reduce budget revenues/appropriations may lead to future problems.

16. Obstacles—Other The elected officials and consultants who have been actively involved in developing shared service projects that we spoke with emphasized the importance of being prepared to meet a wide variety of obstacles. Some they encountered were:

• Excessively high expectations by local officials and the public;
• the public’s fear of the unknown;
• scare tactics by those who have benefited (rightly or wrongly) from the old system;
• leaders who object to their “loss of control.”

In any case, you’ll be swimming against the tide of inertia. Often you’ll encounter opposition that is not rational—so accept the fact that you cannot overcome it thru facts, etc.

 

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