APPENDIX 2

· This will lead to a forecast loss of £12,608 in 2004/5. It is unlikely that this situation can be reversed by redirection of copies from other machines.

· To recoup the financial loss would require a 29% increase in copier charges

· A market testing exercise suggested that the NHS Trust may be able to offer a more competitive price on copying

2. Litho printing

· The charges for litho printing work are generally at the upper end of standard commercial rates.

· Low productivity and asset utilisation are contributing to the financial shortfall which the Unit is incurring. A projected loss of £11,043 is projected for 2004/5

· This was confirmed by a market testing exercise. Whilst the Unit is competitive for small quantities of commodity items (letterheads, compliment slips, etc) it could not compete so successfully for larger quantities or one-off items

· Competitiveness is affected by the industry norm of operating double shift working with which the Council cannot compete

· The Unit is dependent upon 2-colour equipment nearing the end of its useful life. To upgrade the equipment to current industry standards would cost between £150 – 250k.

3. Other findings

Except for the recent implementation of the Print Protocol, few of the recommendations from the 2001 review have been implemented – no attempt has been made to use the facilities to create new cost rates, monitor the recharges for photocopying, or address the anomaly of the recharges for double-sided copying
staff productivity is low (at 65%) when compared with industry norms (75%)
The impact of an increase in leave entitlements and the loss of one member of staff following an earlier review in 2001, has reduced chargeable staff hours by 25%
No charge is currently being made for the costs of procurement under the Print Protocol ; a fixed charge of £62 would secure an estimated additional £4k per year.
Asset utilisation rates for some of the equipment is inefficient
The copy service is valued by key internal customers, especially Committee Services. The experience of the Electoral Registration Service was not so favourable.

4. Financial issues

The out-turn budget, prepared after the first half-years results shows a reduction in overall recharges from £265k to £233k and a forecast deficit / under-recovery of £23,561. This is due to a combination of the fall in the copier volumes and the under-utilisation of design and litho operations (productivity is 65% compared an industry norm of 75%).
Recharges would need to be increased by 10% to cover this deficit at a time when the Unit is already operating at the upper margins of competitiveness

4. Procurement Options

4.1. The consultant was asked to assess all print procurement options ranging from retention of an internal service to full externalisation. Key findings from this exercise were as follows :

1. All departments procure their own print & copy needs

- this was not recommended as a viable option since it would depend upon individual service departments having the expertise and capacity to procure print work,

2. Central procurement via a Print Buyer

- it was concluded that this could be a viable option which offers the potential to secure net savings of approx. £45k on print procurement after salary costs for such a post were taken into account. It was, however, recommended that this option be deferred until the outcome of an external market testing exercise was known.

3. External print procurement

- it was concluded that there was potential to secure significant savings by externalising all the Council’s print procurement. It was proposed that this be explored further through inviting “Expressions of Interest” from external suppliers. Experience elsewhere suggests savings of approx. 10% which could yield savings of up to £75k on total spend of £750k. It should, though, be noted that the majority of Council printing is already externally procured and that savings may therefore be less.

4. Internal print procurement

- the consultant assessed the range of internal services currently offered and determined which could potentially be retained on a cost-effective basis. If the full range of existing copy and print services were to be retained the Unit could operate on a break-even basis if the team manager post were removed and the duties assigned to other staff. Alternatively, litho printing could be terminated and a copy / finish / design service retained; this would require the removal of the team manager and one print operative post. This second option is to be favoured since termination of litho printing would remove the need for significant investment to upgrade equipment.

5. Consultants Recommendations

5.1. In summary, and in priority order, the recommendations made by the consultant were as follows :

1. The Council should undertake an exercise to test the market’s response to supplying all print and copy requirements.

2. On the basis that it is not practical to divert copying work from elsewhere to meet the specified lease volumes, it is proposed that the Council seek to renegotiate the contract to reflect the lower levels of activity.

3. The Council should explore the potential offered for joint print and copy procurement with the PCT and NHS Trust. Particular scope appears to exist to reduce spend on copying activity through sourcing via the NHS Trust.

4. If there is real pressure to achieve immediate savings, deletion of the team manager post would enable the Unit to achieve its recovery target.

5. The consultant recommended that beyond item 4 (above) no further reduction in the size of the Unit be made until the external print options have been assessed.

6. A fixed charge of £62 should be made on jobs procured from external print suppliers

6. Assessment of Consultants Review

6.1. The consultancy review has been a useful exercise which has served to highlight a number of issues :

· Falling copier volumes have led to a situation where full-cost recovery for this work is not being achieved. A forecast loss of £13k will be incurred in 2004/5.

· Internal litho printing is becoming less competitive, a situation compounded by the fact that significant investment in new equipment is required. A loss of £11k is forecast for 2004/5.

· Unit competitiveness is weak. By operating at a productivity level 10% below the industry norm of 75% and only working a single shift, the Unit has real difficulties in matching prices from external competitors who benefit from both these positive features (more hours per shift and more shifts)

· There is potential to achieve significant savings through externalisation of part or all of the Council’s print and copy needs. This was confirmed by a market testing exercise. This exercise particularly highlighted the potential for significant savings on photocopying by using the NHS Trust.

· To achieve the Unit recovery target with no change in current service activities would require an increase in copier charges of 29% and litho print charges of 10%. Whilst copier charges would remain relatively competitive even at the higher level, litho print charges would then be at the margins of competitiveness

6.2. The main recommendation from the consultancy review (see Section 5 above) is to undertake a market testing exercise. The review also proposes that the team manager post could be removed if immediate savings are required but recommends that any further changes to the role and structure of the Unit be deferred pending the outcome of that exercise.

6.3. The Council is, however, tied into binding contractual agreements for copiers until November 2006 (at a cost of £76,000 from April 2005 to contract end) ie. it may be more practical to restrict the market testing exercise to litho print activities only. This would, by extension, suggest that the Council could pursue a mixed economy approach to meeting its future procurement needs ie. retain an internal copy facility but externalise all litho printing.

6.4. Crucial to the future of the Unit is agreement as to whether the Unit provides a “service” or whether it is a “business” which has to operate on a full-recovery basis If it is the former, members have the option to agree that that the additional costs of operating such a service are outweighed by the benefits. Should there be a wish to maintain an internal service there would be little reason to pursue a market testing exercise.

6.5. The consultants review clearly highlights that it is the litho printing area that is particularly vulnerable to external competition. The copy service is also recognised as being of particular value to Committee Services. This would suggest that a further option which merits consideration is the externalisation of litho print activities whilst maintaining an internal copy service.

6.6. Following further discussions with the consultant, and using the findings of his review, three alternative options have been identified for the Council to meet its future print and copy needs. These are detailed below with each being assessed in Section 7 (following). The review consultant concurs with the view that these are the key options available to the Council and represent a reasoned approach to future print procurement.

7. Options for consideration

7.1. Three options are presented for meeting the Council’s future print and copy needs.

Option 1 : Retention of existing service

Proposal : Retain full range of existing services ie. procurement, design, print, copying and finishing. For this option to be cost-effective it would be necessary to increase internal charges (by 10% for litho printing and 29% for photocopying).

A fixed handling charge of £62 would also be levied for all procurement tasks generating approx. £4k per year. Service departments would also be charged for direct assistance with design work which is currently provided free of charge.

Staffing levels could either remain unchanged or the team manager post removed to achieve efficiency savings. Whilst under the latter option the full range of services could continue to be provided, the Unit recovery target would need to be adjusted to reflect the loss of productive resources. If the team manager post were to be removed, alternative line management arrangements would be required.

Option 2 : Retention of limited internal service (design, copy and finish)

Proposal : Retain a procurement, design, copy and finish service and externalise all litho printing work. The Design/Admin officer would transfer to the Publications and Design Team where responsibility for all design work would rest; this would leave a staff team of 2 to provide a copy and limited finishing service. Line management responsibility for the copy element would be taken on by the Council’s Procurement Manager who would also manage the external print contract and co-ordinate all print procurement in line with the Print Protocol.

This option would require loss of two posts - the team manager and one print operative post. TUPE regulations would be applied, as appropriate, in dealing with such staff changes

It is anticipated that this option would also free-up 30-50% of the floorspace currently occupied by the Unit.

Under the terms of the existing copier lease, internal charges would have to be increased by 29% to achieve full-cost recovery. It may, however, be possible to renegotiate the terms of the lease particularly if the provider were interested in bidding to undertake the Council’s litho printing work. Even if increased by 29% copy costs would remain relatively competitive against commercial suppliers.

A fixed handling charge of £62 would also be levied for all procurement tasks generating approx. £4k per year. Service departments would also be charged for direct assistance with design work.

Disposal of litho printing equipment is expected to generate a capital receipt of £50 - 60,000.

Option 3 : Externalise all of the service

Proposal : All print and copy needs to be sourced externally with the existing Print Unit staff being transferred to the new employer under TUPE regulations. Management of an external print and copy supply contract would rest with the Procurement Manager.

The lease contracts for the copiers run until May 2006 for the colour copier and November 2006 for the black and white copier - contractually the Council is thus committed to further expenditure of £76,000 (April 2005 to contract end). The terms of the lease do allow for a 5% discount for early payment ie. if the Council elected to return the equipment early and pay the balance due this sum would reduce by approx. £3,800. It may be possible to negotiate a more favourable release from the contract should the present copier supplier be interested in bidding to provide for all the Council’s print and copy needs; the advice of the external consultant is that the company is likely to be interested.

If it is assumed that ALL Council print requirements (including Tourism and Wight Leisure) are included within the contract, it is estimated that savings of £75k (10%) could be achieved on total current print expenditure levels across the authority

It is possible, though, that external charges for photocopying work may be higher than current internal rates – commercial suppliers tend to charge out at rates 25-50% higher.

Disposal of litho printing equipment is expected to generate a capital receipt of £50 - 60,000.

8. Options Assessment

8.1 There are two main options available to the Council for meeting future print and copy needs :

i) Retention of an internal service (Option 1)

ii) Partial or full externalisation of the service (Options 1 and 2)

Each of the 3 options has been assessed for overall viability and achievability. Key findings are as follows :

Option 1 : only viable if the Print Unit is viewed as a service not a business

The service is currently expected to operate on a full cost-recovery basis. Unless there is shift in this operating basis and agreement that the Unit provides an internal service not a business, it is not viable to retain the full range of existing services. If internal charges were to be increased as proposed this would mean that both copying and litho printing charges would be at the margins of commercial competitiveness. Litho printing in particular is an established market regularly working two shifts and willing to take marginally priced work from financially reliable customers, such as local authorities, where that activity will fill currently under-utilised equipment.

In addition, the Unit’s litho equipment is nearing the end of its useful life and is only capable of 2-colour printing as compared to the industry norm of 4-colour. A financial investment in new equipment of between £150-250k would be required to offer a competitive litho printing service – although a limited repairs and renewals fund does exist, there is no provision for investment of this scale.

Option 2 : this is a viable option

The copying facility is considered to be the more essential service to retain in-house. Committee Services in particular have an on-going need for a reliable, responsive and locally accessible copy service to meet their needs. Externalising the copy service is unlikely to secure significant savings and may lead to concerns about reduced reliability and convenience. Photocopying is also an activity which would remain relatively competitive even if charges were increased by the 29% necessary to achieve full cost-recovery under the current lease terms.

It is also possible that the copier company would be prepared to renegotiate the terms of the lease contract particularly as they are likely to be interested in bidding to meet the Council’s litho print needs

Option 3 : this is a viable option

This may be a viable option since it could secure savings of up to £75k if the Council were to source ALL its print needs (including those of Tourism and Wight Leisure) via an external supplier and through a framework agreement. Although savings could be secured on litho printing work, the cost of copying is unlikely to be lower than current internal charges.

The one area of possible concern is the loss of an internal copy service which is viewed by Committee Services in particular as a valuable and effective service.

8.2. Given the Council’s established policy of seeking closer service integration with the PCT and NHS Trust, pursuit of a joint approach to meeting print and copy procurement needs also merits investigation as part of Options 2 and 3 above.

9. Next Steps

9.1. The key issue of principle to be determined is whether the Print Unit is a service or a business – if it is deemed to be a service it could be considered that the benefits outweigh the extra costs involved in maintaining the Unit and increasing the charges to internal users ie. Option 1 could be approved. If it is viewed as a business and expected to operate on a full cost-recovery basis, full or partial externalisation of the service is a natural consequence since the Unit already operates at the margins of commercial competitiveness ie. Option 2 or 3 should be pursued.

9.2. Prior to determining which of the available options the Council wishes to pursue, it is recommended that a formal market testing exercise be undertaken to assess the financial and operational implications of full or partial externalisation. It is anticipated that such an exercise would take 2-3 months to complete and involve two stages :

Stage 1 : Expressions of Interest – following the drafting of a service specification, the Council would invite outline expressions of interest from commercial suppliers for the meeting of the authority’s print and copy needs. In order to maximise potential savings it is proposed that the service specification include ALL the Council’s print and copy needs including Tourism and Wight Leisure.

Consideration would be given to a joint exercise with the PCT and NHS Trust.

Stage 2 : Tender exercise – following identification of prospective suppliers from Stage 1, a formal tender exercise would be undertaken. This would invite separate bids for copying and litho printing and would ultimately lead to a formal contract for supply. Consultancy advice suggests that it is likely that a contract would be for an initial 1 year period with an option for a further 2 years.

9.3. The following recommendations are made to the Executive :

1. That the Council undertake a market testing exercise to assess the implications of a full or partial externalisation of the services currently provided by the Print Unit. This exercise will include consideration of a joint procurement exercise with the PCT and NHS Trust.

2. That agreement on which of the 3 options for on-going procurement of the Council’s print and copy needs be determined when the results of the market testing exercise are available. This is expected to take 2-3 months.

3. That, whilst the market testing exercise is underway, the Resources Select Committee be invited to comment on the report and contribute to the debate on how best to meet the Council’s future print and copy needs.

10. Conclusion

10.1 Despite the growing use and dependence upon electronic means of communication and information sharing, it is likely that the Council will continue to have a need for a significant volume of photocopying and litho printing. The market for sourcing these needs is, however, changing. In its present form the Print Unit faces on-going difficulties in attaining its cost-recovery target – whilst this is due in large part to the decline in copier volumes the litho printing service is also becoming less competitive and will require significant investment in new equipment for which there is insufficient provision.

10.2 Change in the way the Council procures its print and copy needs is consequently inevitable. This report has outlined a proposed means of achieving such change.