COURTING... Mao
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401 worm
Transfleet has been very successful in winning local authority transport services deals, inspiring other companies, such as TNT and Wincanton, to follow in its footsteps. But who will be the most successful predator for this potentially very lucrative business?
• The big boys are queueing up for their slice of the juicy municipal pie, previously monopolised by Transfleet. TNT and Wincanton launched public-sector divisions within a week of each other in September, in the wake of the Local Government Act 1988 which forces those municipal authorities which currently provide their own transport services, such as refuse collection or vehicle maintenance, to consider tenders from outside operators when the contract is due for renewal.
Critics are asking whether these newcomers are out to make a quick killing, on the back of the Thatcher revolution, or if they really want to develop municipal work as an integral part of their business strategy.
The bottom line is that the pie on offer is so big — El billion is spent by local government on transport services every year — that the private companies want to stay in the game for a long time. Why go for short-term profit when long-term profit is on offer?
ACCUSATION
Frank Miley, head of marketing at TNT's public sector division, refutes the accusation that the contract companies are feeding off the corpse of local government power: "We are not out for a quick buck," he says. "TNT has been involved in public sector business for many years in Australia and we will adopt the same approach in the UK. A big company like TNT simply does not go into a new area of business on a snap decision."
It's a sentiment echoed by the commercial director of Wincanton Vehicle Rental, Mark De'Ath. "People who go crashing in and tell municipal authorities how to run their business, or who think in the shortterm, will fall down badly," he says.
With over four years' experience in dealing with local authorities, Transfleet Services is the yardstick by which the newcomers must judge their own performance. Wincanton has started off on the right foot by following Tranfleet's example of recruiting staff with intimate knowlege of the public sector.
The secret is to have a gamekeeper turned poacher on your side, it seems.
Transfleet hired Rob Kerridge as public sector services contracts manager when it won its first local authority deal in August 1984 with Three Rivers District Council. Kerridge had been Three Rivers' services manager. Wincanton lured Barrie Doddington from his post as transport manager for Hampshire County Council to become public sector development manager.
PROFITABLE
"The public sector is there solely to provide a service," says Doddington. "The commercial sector exists to make a return for the shareholders by providing a profitable service. There in lies the key for companies going into municipal work. They are entering an environment in which the profit motive is non-existent, and both parties will have to adapt and compromise if successful relationships are to be formed."
Gaining the trust of local authorities forced by law to consider bids from outside contractors is one of the biggest hurdles facing companies in the battle for tenders. Kerridge predicted in August (CM 25-31 August) that the new legislation could lead to reluctant customers. It's a problem that De'Ath and Doddington are well aware of.
"Part of the tendering process in this sector is a period of courtship to overcome suspicion." says De'Ath. According to Doddington, there are some unwilling parties about.
"The aim of the Act is to provide value for money for ratepayers. When 1 see some of the tenders, I wonder whether the message has got through because they are deliberately unworkable. We do understand, however, that this situation has been forced on municipals, and there are many authorities prepared to talk to us on a sensible basis," he explains.
The private companies argue that local authorities must now concentrate on the benefits contracting out can bring, rather than the political background to the situation. So just what are the advantages of using the private sector?
"We can offer predictable transport costs, the ability to up-grade fleets without the handicap of short-term financial restraints (a vital consideration for financially-squeezed authorities desperate to maintain captial reserves), and the benefit of people dedicated solely to giving a vehicle service," says WVR operations director Norman Shurrock.
Alan Bishop, the company's senior workshop manager, cites Wincanton's value in the consultative role and its nationwide back-up network. "In the area of specialist vehicles, like refuse lorries, local authorities probably know more than we do, but we have expertise over the whole range of transport and I'm confiden we can deliver the goods."
Wincanton's network of depots and workshops, controlled centrally by compu ter from VVVR's Camberley headquarters, is also a major factor in the equation, Bishop believes.
Despite all of this, Kerridge has stated that a well-run local authority transport department is unbeatable: "They haven't got the profit motive," he says. "They ca fix their transport costs and they often only have to make a return 5%."
Doddington disagrees: "We can compete — even with a well-run local authority service. Municipal transport managers have big overheads over which they have no control, such as over-staffing. Also, the Goods and Services Act restricts their ability to look for outside business. Transport managers trying to run an efficient operation find this terribly frustrating."
DISADVANTAGE
De'Ath also believes that the Goods and Services Act puts the public sector at a major disadvantage and that its possible amendment could have serious implications for the firms now entering the market. "I think the Act may be changed in the near future," he says, "and this will really sort out the men from the boys."
The fate of municipal employees whose department has been disbanded is an issue which De'Ath takes very seriously. However careful the transition, he knows that people are going to get hurt. "We have got to provide a service at least as good or better than the local authorities already run, and we have got to save them money while making a profit for nurselves. To achieve that, something has to give."
This delicate matter of possible job losses needs a softly-softly approach to negotiations with municipals. TNT is on the verge of winning its first major publicsector contract, and WVR has just done so (see Business News, page 14). De'Ath is adamant that Wincanton will do its level-best to integrate suitable municipal staff into its operation.
"Prior to any real business talk, the local authorities invariably want to know about our industrial relations record. They want to know how we treat our existing staff. Anyone who avoids this issue is killing themselves. If we need staff, we will give those people already in place with the authority the first option," he promises.
Wincanton is confident it can deal with the increasingly-competitive public-sector transport business. "If somebody like Transfleet is involved, we are happy," says De'Ath. "It's when we encounter no opposition on a tender that we begin to worry that perhaps they have seen something we have missed. Make no mistake about it, this is not a sector where profit can be had easily. Local authority tenders are the most detailed and demanding I have ever come across".
If is difficult to make predictions as to who will win and who will lose. This is a' new type of business partnership for most of those involved in it and there are bound to be teething problems. For Transfleet, municipal contracts have proved a boon. For TNT and WVR, the proof of the pudding will be in the eating.
0 by Paul Fisher