Ian Parry, Deputy Leader and Cabinet Member for Strategy, Finance and Corporate Issues said,

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1 Cabinet Meeting on Wednesday 16 December 2015 Support Services Service and System Replacement Ian Parry, Deputy Leader and Cabinet Member for Strategy, Finance and Corporate Issues said, As a well-run council, we continuously challenge ourselves over how we do business to ensure that we are effective and efficient. The end of current arrangements to provide back office services to Entrust and schools, coupled with the changing shape of the council as a commissioning authority have provided an opportunity to review the services and systems we currently use to manage the council s HR and finance functions. The recommendations within this paper will ensure that the county council can continue to manage its business effectively at less cost to the county council and the Staffordshire taxpayer. Report Summary: The report sets out the analysis undertaken on a number of offers from Entrust to provide systems, managed HR and Payroll Services or a HR and Payroll system to the county council, including considerations for schools and makes recommendations regarding each system/service. Recommendation(s) I recommend that: a. The county council agree in principle to purchase a finance system through Entrust that will be used by the county council to manage its business, which will also be marketed to schools via Entrust, subject to a further detailed due diligence exercise being completed. b. The final decision regarding the purchase of the finance system, including any necessary amendments to the Entrust contract, be delegated to the Deputy Leader and Cabinet Member for Strategy, Finance and Corporate Issues in consultation with the Director of Finance and Resources. c. The county council go to tender to confirm the availability and cost of HR and Payroll Managed services in the market and at the same time invite quotes for a HR and Payroll system only. d. A data archiving project is started immediately so that the transition to the new system/s can be undertaken without incurring unnecessary delay and costs in decommissioning the current system.

2 .Local Members Interest N/A Cabinet Wednesday 16 December 2015 Support Services Service and System Replacement Recommendations of the Deputy Leader and Cabinet Member for Strategy, Finance and Corporate Issues a. The county council agree in principle to purchase a finance system through Entrust that will be used by the county council to manage its business, which will also be marketed to schools via Entrust, subject to a further detailed due diligence exercise being completed. b. The final decision regarding the purchase of the finance system, including any necessary amendments to the Entrust contract, be delegated to the Deputy Leader and Cabinet Member for Strategy, Finance and Corporate Issues in consultation with the Director of Finance and Resources. c. The county council go to tender to confirm the availability and cost of HR and Payroll Managed services in the market and at the same time invite quotes for a HR and Payroll system only. d. A data archiving project is started immediately so that the transition to the new system/s can be undertaken without incurring unnecessary delay and costs in decommissioning the current system. Report of the Director for Finance and Resources Reasons for Recommendations: To report on the options available to the council regarding the provision of a finance system and a managed service for HR and payroll. Background 1. The county council continually reviews back office arrangements to ensure they are fit for purpose for a commissioning authority and to ensure that they offer best value for money for the taxpayer. 2. In addition to managing its own back office services, the county council currently provides back office services to schools on behalf of Entrust (c 5m) as well as to Entrust themselves (c 3m). 3. The service level agreement (SLA) that underpins this arrangement comes to an end on 31 March 2016, after which Entrust is responsible for delivering the offer to schools. However, services will continue to be provided by the county council until a new solution has been safely put in place in conjunction with schools. 4. In preparation for the end of the SLA, Entrust have reviewed the market to identify how back office services that they will offer to schools in the future will

3 continue to meet their needs and represent value for money. As part of this offer the county council s statutory and regulatory requirements regarding schools finance must be met. Also from 31 March 2016 Entrust is responsible for providing support services for the running of the company which are currently provided as part of another SLA with the county council. 5. The county council currently uses a system called SAP to manage its finance, HR and payroll functions at a considerable cost. The majority of Staffordshire s schools also use SAP and Entrust currently market SAP to schools. The current SAP solution was implemented in 2003 and contractually a replacement now needs to be considered. Since then the council s own requirements have reduced dramatically in terms of the overall numbers of staff it employs and transactions that it undertakes directly. In addition, in the near future the current SAP solution would require a major technical upgrade and incur a considerable cost. 6. A soft market test for alternative systems was conducted. The results of this exercise indicated that numerous, more cost effective options exist in the current marketplace. 7. This has led to an opportunity for the county council and Entrust to work together to see if there are benefits to the county council, to schools and to the taxpayer in the county council procuring a new finance/hr and payroll system from Entrust. Entrust offer Finance system. 8. The proposal from Entrust is to utilise IBS s Integra system for finance and procurement, which is a Capita provided and hosted solution. This solution would also be offered to schools which would mean that complicated reconciliation and consolidation arrangements with the county council would be avoided. Under this joint arrangement the county council could continue to undertake a range of control arrangements for schools as well as SCC e.g. creditor payment processing, bank reconciliations, balance sheet management as it does with SAP currently. This would involve a continuation of some services under an amended SLA with Entrust. 9. It is proposed that the system is purchased for a period to coincide with the break point of the Entrust contract, 7 years from 31 st March 2016 so to 31 st March Managed Service for HR transactions and payroll. 10. The proposal from Entrust for HR and payroll is twofold: a fully managed HR transaction and payroll processing service including the system or a system only offer. In terms of the systems proposed the offer involves a choice between two leading providers.

4 Evaluation approach 11. The systems included in the offer from Entrust have been evaluated at an initial high level, using a range of criteria: Software Suitability, incorporating: o Functionality o Flexibility o Technology Proven and Future Proofed o Ability to Implement o Ease of Ongoing Relationship o Reliability and Resilience Value for Money Considerations for Schools Procurement implications Impact of going to Tender 12. If it is decided to proceed with the offer from Entrust for a finance system, then a detailed due diligence exercise, involving internal audit, will be undertaken to confirm points of detail and implement the required changes to the Entrust contract. Similar due diligence will be required for the HR and payroll managed service and/or system following the tender exercise. The proposals in this report will be considered by the Corporate Review Select Committee, mostly probably by the Medium Term Financial Strategy Working roup, in January with the result of the tender exercise considered at an appropriate point next year. Results of Evaluation - Finance and Procurement System 13. The results of the evaluation for the finance and procurement, fully hosted, system offer from Entrust is as follows: Finance System Evaluation Analysis Criteria Software Suitability Value for Money Consideration for Schools Procurement implications Impact of oing to Tender Score Further detail regarding the software suitability evaluation is attached as Appendix The system cost compares favourably to alternatives considered as part of the soft market test exercise. The system cost is less than the direct to market price for the same system gathered during the soft market test. 15. As part of the proposal the one-off system setup costs have been split equally between the county council and Entrust. The annual cost is significantly cheaper than the current system (SAP) for both the county council and the alternative options available to schools. Once initial set up costs have been taken into account this results in an annual saving for the council in the order of 0.250m.

5 16. The system has been assessed at a high level following demonstrations by the supplier together with a functional assessment undertaken with the council s IT Change consultants. Following this high level assessment it is concluded that the Integra finance solution is suitable for both the council and school s needs. Furthermore: There are significant benefits to sharing a system with schools The cost of the system provides value for money for both SCC and Schools Procuring a finance system via this route is low risk Results of the Evaluation - HR and Payroll Managed Service 17. The needs of the county council and schools with regards to transactional HR and payroll are very different. 18. Entrust provided a quote for a managed HR and Payroll Service for the county council. This is different to the offer that will be marketed to schools in the future. 19. The results of the evaluation of the offer for a managed transactional HR and payroll service to the county council is as follows: HR & Payroll Service Evaluation Analysis Criteria Software Suitability Value for Money Consideration for Schools Procurement Implications Impact of oing to Tender Score R NA Further detail regarding the software suitability evaluation for the system only is attached as Appendix Over 7 years this quote is around 0.7m more expensive than the estimated inhouse provision. Furthermore it is expected that this gap would be larger following significant additional efficiency savings which should arise following the transition to more standardised processes and procedures for the in-house provision. 21. A fully managed HR & Payroll service has not been market tested. Providers other than that quoted by Entrust could be cheaper. Results of Evaluation - HR and Payroll System Only 22. In addition to providing a quote for a managed HR and payroll service, Entrust provided quotes for a system only. The results of the evaluation for the HR and Payroll System only offer from Entrust is as follows:

6 HR & Payroll System Evaluation Analysis Criteria Software Suitability Value for Money Consideration for Schools Procurement Implications Impact of oing to Tender Score A NA Further detail regarding the software suitability evaluation is attached as Appendix The Entrust prices compare favourably to solutions of a similar level of functionality. However, the soft market test found that cheaper solutions exist, that should still meet the county council s core needs. The cheaper solutions are unlikely to provide any additional functionality for organisation development needs that the council may have. The full tender exercise will clarify the results obtained during the soft market test exercise. 24. The indicative annual cost is significantly cheaper than the current system. Considerations for Schools Finance System 25. The total proposed annual cost for the finance system has the potential to offer savings to schools. Sharing a joint finance solution would be cost effective for both schools and the county council and avoid additional costs associated with consolidation, reporting and control functionality. 26. The current SAP system has a contribution from schools funding for the schools element of the service as agreed with the Schools Forum. Details of the funding mechanism for the new joint finance system will be agreed with the council, Entrust and the Schools Forum. 27. Based on the findings of the high level assessment, the proposed Integra solution would meet the county council and school requirements. There should be no reduced functionality as a result of the reduced cost. HR and Payroll Service/System 28. Entrust are currently reviewing the delivery of transactional HR and payroll services to schools. These will continue to be provided by the county council until a new solution has been safely put in place in conjunction with schools albeit that there is an increasing risk associated with this arrangement in the longer term. 29. The next steps are to agree the engagement plan, implementation plan and cost sharing mechanism with Entrust.

7 Staff Implications 30. There are currently 61 full time equivalent (FTE) staff employed in the Shared Service Centre. The staff are organised in an efficient way for the joint delivery of schools and council functions. A number of these staff only work to support schools with the remainder of staff used flexibly. Some of these staff spend a significant amount of their time supporting the schools payroll. When the accountability for the schools work transfers to Entrust the staff will TUPE in line with the new service provision to schools. 31. There are 19FTE staff involved in the running of the SAP system in Staffordshire ICT. Some staff will be required for the running of the new finance system and potentially for an HR and Payroll system but the specific requirements are not yet known. TUPE implications for these staff when the accountability for the schools work transfers to Entrust will be considered once more detail becomes available. 32. The appropriate consultations with trade unions and staff will take place through the process and as more detail becomes available on the proposals and timescales involved. Legal Implications 33. The Public Contract Regulations 2015 Regulation 72 allows the council to vary the Entrust contract to include provision of the joint council and schools finance system. 34. TUPE will apply to the end of the HR and Payroll services provided to schools. Jointly with Entrust the county council will work with trade unions and staff to manage the staff implications. Risks 35. The SAP maintenance contract is paid for annually. The earliest SAP could cease to be used is January 2018 due to tender timescales and termination notice requirements. All new systems must be fully implemented before SAP can be switched off. This includes the transfer of working data to the new systems and archiving or destruction of all other data. 36. The 2 years until then are considered sufficient to allow for a tender for an HR and Payroll system or alternatively an HR and Payroll managed service but this tender must proceed immediately. 37. There is a risk that a tender exercise will demonstrate that an HR and Payroll managed service is less efficient than the county council internal operation with associated efficiency saving arising from implementing a new system. This exercise will allow full market comparisons of HR software at the right level of functionality for the council s business. 38. There is a risk that the due diligence exercises could result in any of the options not being suitable and the process to acquire new systems will need to be started again.

8 Conclusions 39. At a high level the offer from Entrust for a joint provided finance and procurement system for the council and for schools represents value for money. Further due diligence is required to confirm points of detail and implement the required changes to the Entrust contract and it is proposed that the Deputy Leader and Cabinet Member for Strategy, Finance and Corporate Issues in consultation with the Director of Finance and Resources be authorised to do this. The next steps will then be to agree the engagement plan, implementation plan and cost sharing mechanism with Entrust. 40. For a suitable managed transactional HR and payroll service to the county council, the indications are that there is potential for wider efficiency savings and it is therefore proposed that a tender exercise is conducted to test the market. As part of the same process system-only quotes will be invited. 41. It is proposed that a data archiving and decommissioning project is established immediately to enable a smooth transition from the existing systems and service provision. List of Background Documents: N/A Report Commissioner: Rob Salmon Job Title: Chief Accountant Telephone No: rob.salmon@staffordshire.gov.uk

9 Once you have a completed your CIA you will need to complete this précis for all Cabinet reports and Cabinet Member Delegated Decisions. Name of Policy/Project/Proposal: Responsible officer: Commencement date & expected duration: Impact Assessment +ve/neutral/ Further information -ve degree of impact and signpost to where implications reflected within the report / main assessment Impact on access to more good jobs and increased economic growth Supporting healthier living and independence Impact on feeling safer, happier and more supported in and by the community Maximising the opportunities for a good quality physical environment Maximising the use of community property portfolio Addressing issues affecting rural areas? Equalities impact Age Disability Ethnicity ender Religion/Belief Sexuality ender-reassignment Pregnancy/maternity Resource and Value for money Risks identified and mitigation offered Legal imperative to change/implications (including the Social Value Act 2012) -ve Contained in the report Contained in the report Contained in the report The continued success of Entrust makes a significant contribution to jobs and growth in the county. Changes to jobs in support services arrangements will be mitigated wherever possible. No direct impact regarding support services. No direct impact regarding support services. No direct impact regarding support services. Any impact on property is expected to be small and will be managed as part of the councils overall [property management arrangements. N/A No impact identified as part of the analysis undertaken. Author: Rob Salmon