Page 131. London Borough of Sutton The Executive - 6 July 2010 Report of the Chief Executive and the Strategic Director - Resources

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1 Page 131 Agenda Item 14 London Borough of Sutton The Executive - 6 July 2010 Report of the Chief Executive and the Strategic Director - Resources Re-commissioning and amalgamation of Sutton and Merton Payroll Services and HR/ Payroll systems Ward Location: Not Applicable Author(s) and Contact Phone Number(s): Julie Turner, Executive Head of Business Services (Interim) (020) Dean Shoesmith, Joint Executive Head of Sutton and Merton Shared HR Services (020) Area Served: Borough-wide Executive Member: Cllr John Drage Key Decision Report Summary This report seeks to gain the Executive agreement for the recommissioning of an HR/Payroll System and Payroll Service. The recommended approach is a recommissioning of a joint HR/Payroll system with e- hr functionality and a payroll service to meet Sutton s and Merton s needs, with the option of including an in-house payroll service proposal. Full realisation of recommissioning savings and future efficiency savings can only be achieved through re-configuration of HR/Payroll transactional process with maximisation of direct input by managers and employees. This will require a significant cultural change, moving HR teams away from transactional processing to concentrate on adding value as business partners. It will change the way managers work with more direct control over day to day processes and direct access to management information, contributing to the wider Smarter Sutton transformation agenda. Recommendations: 1. The Executive approve the recommissioning of the HR/Payroll system and payroll service in partnership with London Borough Merton and, subject to an acceptable collaboration agreement, Royal Borough of Kingston with tenders to be issued in summer 2010, working on the basis of option 5.5 or, if Kingston choose not to participate, option In addition, the Executive approve the development of a fully costed in-house payroll option on the basis of Option The Executive approve recommissioning on the basis of a longer-term contract of years to secure maximum per annum cost savings and return on investment.

2 Agenda Item 14 Page Background 1.1 Sutton s Human Resources/Payroll system is Northgate Arinso Resourcelink and is maintained by Group HR teams managing the information input and updating employee records. The system provides the basis of strategic workforce planning data and business-critical management information. 1.2 The Sutton payroll service is provided partly in-house via the Group HR teams inputting permanent data, and partly through an off-site managed service contract with Northgate Arinso. This is managed by an in-house payroll client team. 1.3 The 7-year contract with Northgate Arinso for the provision of both Sutton s payroll service and the HR/Payroll system expired on 31 March 2010; the option to extend the contract by 12 months to 31 March 2011 has been taken. There is a final option to extend a further 12 months to 31 March In October 2009 Sutton and Merton formally merged their HR functions into an HR Shared Service. Merton s staff TUPE transferred to Sutton s employment, including their in-house payroll team. Sutton has its own payroll service provided by an external service provider, yet employs a team providing Merton s payroll service. 1.5 The HR new Shared Service needs to align its computer systems, processes and structure to gain maximum efficiency. 1.6 Merton operates Northgate Arinso s PaHRIS HR and Payroll system on a twelve-month rolling contract. The in-house payroll service is regarded as efficient and providing good value for money. The system meets Merton s current needs, however the supplier has stopped developing the system and provides only maintenance and necessary legislative changes. This could eventually pose a significant risk and may lead to service disruption or even failure should the support be withdrawn. At some point Merton will have to move to another system to provide greater resilience and, if not project managed within timescales, may lead to additional (but avoidable) costs. 1.7 The report to Sutton s Executive on 14 September 2009 and Merton s Cabinet on 21 September 2009 approving the HR shared services arrangement between Sutton and Merton identified expected savings of 500k per annum to be shared between the two authorities. A saving of 150k for shared service working has been included in LBS estimates for 2010/11 and 250K for Merton. This project will help enable Sutton and Merton Shared HR service to achieve additional efficiencies through re-engineering business processes and greater manager and employee self service. 2. Current cost of service 2.1 Due to the way in which Sutton and Merton s HR and Payroll systems and payroll services are being provided it has proved difficult to draw an exact comparison of charges, but we have undertaken as accurate an assessment as possible. 2.2 Current costs for the Sutton payroll service, the HR/ payroll system, the payroll client team and the local systems administration officer are 561k. This

3 Page 133 Agenda Item 14 includes database administration and hardware support, which cannot be fully separated from the cost of the payroll service. 2.3 The equivalent estimated costs for Merton per annum are 554k. This includes costs of the in-house payroll team and systems management and an estimate for Merton s HR hardware and support costs which are not readily separated from their general IT recharge. 2.4 Sutton and Merton s combined HR and payroll service (including systems software) cost is 1,115k per annum. The combined cost of this service for Sutton, Merton and Kingston is estimated as 1,559k per annum. 2.5 An earlier Merton benchmarking exercise comparing a number of London authorities gave an estimated annual median cost over 5 years of 270,000 for HR/Payroll systems. A further two authorities costs were cited at 300,000 per annum. 3. Soft Marketing 3.1 A soft marketing exercise was held on 11th May to gain possible supplier costs, based on joint procurement with Merton and Kingston. Supplier costs were provided in strict confidence and are commercially sensitive, and should be treated with caution as they were provided on a non-binding basis with a number of caveats. Three direct suppliers of HR/Payroll systems and Payroll services responded and provided informal cost data, summarised in Appendix A) [Exempt]. 3.2 to 3.5 [Exempt] 4. Issues 4.1 The two boroughs currently use separate HR/Payroll systems. This is limiting the scope for Sutton and Merton Shared HR service to achieve full efficiencies through integrated working and integrated transactional workflows. Sutton has an outsourced payroll service, managed internally by the payroll client team, whereas Merton has a separate in-house payroll service provided by Sutton. 4.2 For Sutton, where e-hr functionality has not been implemented, workflows and authorisation processes are still heavily paper-based and require a high degree of HR and payroll administrative intervention. Future efficiency savings in HR transactional roles and reconfiguration of HR services can be achieved if a system is procured which streamlines workflows. This would allow direct input and direct access to real-time information (for example, sickness absence data) by officers in the groups. Supplier costs from soft marketing also show payroll service costs can also be drastically reduced through maximum use of direct input of transactional data. 4.3 This will require investment in e-hr technology and would involve a radically different but smarter approach to collating and managing HR/Payroll transactional data, with a high degree of direct input and control by managers and employees. This change process would be supported by training and briefing sessions, online help and support in the months up to and following go

4 Agenda Item 14 Page 134 live. The e-hr technology would be based on web-access, ideally allowing staff to access the system remotely. 4.4 Merton has introduced some self-service elements but there is considerable scope to enhance this capability whilst realising greater economy of scale and efficiency through a shared service approach. 4.5 Currently skills and resource (system administration) are required to operate, support, manage and develop two different systems and two different applications. 4.6 Any future procurement of HR/Payroll system and Payroll Service must meet the requirements of the recently formed joint HR service. The system must have the functionality to meet these needs and add value, with any selection decision balancing these requirements against cost. In the interests of maximising efficiency gains from the shared service, a common integrated HR/Payroll system is required (the two boroughs data would remain discrete and separate). One option is to use the current Merton HR/Payroll system, but this would probably not be contractually viable and (as noted at 1.7 above) presents future risks. 4.7 Consideration has been given to joint procurement of the system/service with other boroughs (Kingston and Richmond) in order to secure further economies of scale. To avoid delay, which could affect the success of the project, partners would need to commit by the end of June. Kingston s Executive have approved their participation in joint procurement, but Richmond is not a firm partner. 4.8 Longer term contracts can deliver cheaper annual costs as contractors can spread their costs over a longer period of time. The current contract is for 7 years (plus 2 years extension) but a better option would be for 10 years (plus 2 years extension) which would allow for maximisation of return on investment. (See comment at 7.9) 4.9 Any commissioned system must have proven interfaces with financial systems, in Sutton s case this will be Agresso 4.10 This could be a model for good practice for future ICT systems where jointly procured systems with access through a web portal can offer economies of scale and greater flexibility for users. 5. Options 5.1 Do nothing. The current Sutton HR/Payroll systems and Payroll service contract cannot be extended beyond 31 March Re-commissioning of the HR/Payroll system and payroll service is therefore compulsory for Sutton for go live by 1 April Merton can extend their annual arrangements with Northgate but with the risks set out in 1.6 above. 5.2 Enter into an already existing framework agreement Procurement colleagues have researched this option and currently no such framework

5 Page 135 Agenda Item 14 exists. 5.3 Sutton and Merton commission a formal Framework this allows greater scope for more partners and could afford the greatest economies of scale. However any framework contract is limited to a maximum of 4 years, which is considered to be too short a period for an HR/Payroll system or Payroll Service contract, given the considerable resource required to implement new systems and time to see a return on investment. 5.4 In-house payroll option - the soft-marketing exercise suggests an in-house Payroll service option may be competitive, building on the existing Merton payroll service and the Sutton Payroll Client team. TUPE would apply in relation to the existing Northgate payroll team with potential redundancy costs and there may also be accommodation/infrastructure costs. An HR/Payroll system would still need to be re-commissioned. Any in-house option would have to be further developed and could only progress if full recommissioning shows a significant cost saving over out-sourced payroll service options. 5.5 Re-commission (with partners) a joint HR/Payroll system and Payroll Service. The multi-borough option (though an inter-authority agreement, with participating boroughs joining at the outset) will place Sutton and Merton in a strong position to achieve an enhanced system at a good rate, based on economies of scale, which would otherwise be unachievable. 5.6 Sutton and Merton (without partners) re-commission a joint HR/Payroll system and Payroll Service. This minimises any potential risk of delay in trying to sign and specify for additional authorities. 6 Proposed scope and timescales 6.1 Secure commitment to recommissioning the HR/Payroll system and payroll service in partnership with London Borough Merton and, if possible, Royal Borough of Kingston with tenders to be issued in summer 2010 (Options 5.5 or 5.6). These actions would be completed by approval of the recommendations contained in this report. 6.2 Engage with and secure firm commitment from Merton and Kingston by entering into an inter-authority agreement by mid-july A full specification is required to cover each borough requirements. If other boroughs join our re-commission process the specification will need to include their requirements by end of July All boroughs joining our tender process to be committed to a proportionate share of the associated costs, including any ongoing contract management and development costs. 6.5 Re-commission an HR/Payroll System to provide, as a minimum, the same core functionality as the current system(s) from the outset. The system must include full Self Service functionality to meet both Boroughs needs and aid the efficiency initiatives identified for the HR Shared Service. We further need

6 Agenda Item 14 Page 136 to ensure the evaluation and selection criterion meets all the boroughs requirements for this to take place by mid-july The draft project timetable provides for the selection interviews and appointment of a successful commissioning company in late October / beginning of November The project team will use the new e- procurement portal to maximise interest and to improve the evaluation and selection process. 6.7 Re-commissioning and implementation of system/service to current service level to be completed for Sutton no later than March 2012 Merton would likely run to a similar time scale. Implementation, training and testing of core systems/service and e-hr, interfaces and management information reporting in 2011/12 for go-live by 1 April 2012 at the latest. 6.8 Agree phased implementation for the other boroughs and progress phased implementation of the Self Service and other enhancement modules to be run in parallel to the implementation of the core system. 7 Financial Implications 7.1 It is anticipated that the project will achieve significant cashable savings and non-cashable benefits that will improve the efficiency of the authorities as a whole and provide a strong foundation to secure additional savings required as part of the Smarter Services Sutton and Merton s Transformation programme. 7.2 The report to Sutton s Executive on 14 September 2009 and Merton s Cabinet on 21 September 2009 approving the HR shared services arrangement between Sutton and Merton identified expected savings of 500k per annum to be shared between the two authorities. A saving of 150k for shared service working has been included in LBS estimates for 2010/11 and 250K for Merton. The project will help enable Sutton and Merton Shared HR service to achieve additional efficiencies through integrated working and transactional workflows. 7.3 Should RB Kingston join Sutton and Merton in a joint re-commissioning of the HR / Payroll system and service this could yield additional overall savings that would be shared between the three participant boroughs. 7.4 A full business case and costings will need to be prepared to compare an inhouse payroll service option and an externalised service retaining a payroll client function. 7.5 [Exempt] 7.6 These quotes include some highly speculative assumptions and estimates and should not be used to anticipate likely actual savings. However, there would appear to be some potential for significant savings for a service shared between three boroughs. Changes to assumptions will have varying effects e.g. a two borough solution would reduce savings but a ten year contract period could reduce costs further. The costs above are also based on quotes

7 Page 137 Agenda Item 14 for a five year contract period so annual operating costs could also reduce for a longer contract period. 7.7 An important caveat is that current costs include estimated central support cost recharges. Some of these costs are historic and are charged on a percentage basis and may not accurately reflect the true costs to the service. Also it should be noted that not all of these central support costs, particularly at Merton, will be saved immediately, if at all, if the service is outsourced. Some of the costs may therefore ultimately be retained and will offset the savings achievable although every effort should be made to realise indirect savings in support services. 7.8 A further caveat is that any solution would also need to cater for a payroll costing module that links the agreed payroll system with the respective corporate financial systems (e.g. Agresso/Proactis) used by Sutton and Merton and potentially Kingston. This is likely to require separate development and interface work and costs and will be critical to maintenance of correct financial information and monitoring by each borough. Associated costs will need to be included in the evaluation of the different proposed solutions. 7.9 A five-year break clause will be built into any contract to ensure that the authorities are able to react positively should the market change within the contract period. This will help protect and minimise the effect of any negative impact of a rapidly changing IT or commercial environment It should be noted that under Sutton s Financial Regulations, the Strategic Director Resources is responsible for the approval of arrangements for the payment of all salaries, wages, pensions and other payments. Any interagency agreement will need to be mindful that the appropriate permissions are obtained. 8 Influence of the Council s Core Values 8.1 Re-commissioning the service with partners helps us to gain maximum economies of scale and will contribute directly towards the council s ambitions to be efficient and effective. 9 Equality impact assessment 9.1 There should be no negative impact on any groups of people. However any new systems must meet standards for people with visual impairments. 9.2 The HR/Payroll system provides all employment equalities management information. In order that we can meet our statutory and local equalities duties and commitments any successor system must be able to perform the same function. 9.3 Any system of service provider must meet suitable standards and demonstrate their commitment to equalities as part of the tender submission and selection process.

8 Agenda Item 14 Page Background Papers Held by Executive Head of Business Services (Interim) and Joint Executive Head of HR Shared Service.

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