The city of Manningham, Victoria, Australia, a leafy band of suburbs in Melbourne’s outer east, is not the sort of place one usually associates with cutting-edge reform. Its council, however, is fast earning a reputation as one of the country’s most progressive. But not all of its reforms have been met with enthusiasm at the outset.

When the Victorian government forced compulsory competitive tendering (CCT) on Australian councils in 1997, the concept was met with suspicion and apprehension. Many councillors feared that the almighty dollar would rule and that the quality and quantity of services would be slashed. Instead, CCT has brought great benefits for councils and ratepayers alike.

In fact, at Manningham, CCT has been the catalyst for a far more radical transformation of the way the local government does business. Calling the initiative Manningham’s Corporatization Model, the city believes that it is the way forward for Australia’s councils as they approach the new millennium.

Manningham’s Experience
Early on, staff members decided that every single council service should be tendered (put out for bids), ensuring an organization free of any fat. Next, results-based job specifications were drawn up for every council employee to guarantee that operations were transparent and that both councillors and public knew who did what.

The benefits came quickly, with independent surveys revealing a 23 percent jump in customer satisfaction under the new regime and a cost savings of  $2.1 million, or 7.5 percent of all rate revenues.

The workplace culture also was turned on its head. Absenteeism was halved, and work cover premiums were slashed from 11 percent to just 1.7 percent. Ratepayers also reaped benefits. It used to take 14 days to turn around a building permit; now, it takes three. Planning permit turnarounds were also cut in half, to just 33 days.

The city soon realized, however, that CCT was not an end in itself. The question that elected officials and staff were left asking was: Where to now? They had to come up with a big-picture vision that could sustain the benefits of CCT into the next century. So the Manningham Council devised its own unique Corporatization Model, which would make the council run more like a corporation. It would mean a more productive and accountable council that gave ratepayers the best service at the best price.

Subsidiaries
Manningham’s Corporatization Model first saw the light of day in late 1997 when the executive management team recognized that 19 in-house teams were essentially “wholly owned subsidiaries” of the council. It followed, then, that the directors (councillors) of the parent company (council) had not only a legitimate right to oversee the subsidiaries but also the right to ensure their growth and prosperity for the benefit of the shareholders (ratepayers).

The extrapolation from this point was obvious. If the local government was going to look like a business, then it should be run like a business. Boards were established for all in-house teams over a six-month period. These boards were among the keys to the success of the model. Each one was composed of two councillors, the chief executive, and two directors.

It is at the board level that the struggle between community governance and the bottom line is balanced out. The board is the guiding hand behind the service divisions. It establishes policy and direction, approves business plans and strategies, oversees budgetary matters, and monitors performance. It is the board that ensures that the service units perform at their best and don’t simply conform to workplace job specifications and requirements.

The councillors’ presence ensures that the service unit managers keep in touch with ratepayers. After all, councillors are the face of the council. They—as well as the managers—are the ones stopped in the street and asked about the new rubbish bins, the state of the local park, or the increase in fees at the refuse stations. They are the ones who need to bring community governance to the table to ensure that the Corporatization Model doesn’t become a purely academic business exercise.

To this end, Manningham’s in-house teams are not allowed to tender for similar projects at other councils unless they receive special permission from their board and council. The city also has ruled out full legal corporatization of the units, as this would result in a loss of control over all operational aspects.

Nineteen board meetings, with 19 boards of directors, every three months, sounds like a long-winded activity, but Manningham has streamlined the process by introducing standardized reporting. The service divisions and their boards work in step with one another, and board meetings are limited to one hour.

What the Model Does and Does Not Do
At the outset, Manningham Council realized that this bold new plan would come to nothing if it did not bring people with it. Before embarking on the reform process, the council did a lot of soul searching. How could it best prepare staff for the challenges ahead? How would its own in-house teams perform in the world of CCT?

How should it best communicate the impending organizational restructure? The council acted swiftly and ordered a comprehensive quality assurance program that focused on process improvement. At the end of the CCT procedure, $700,000 had been spent on workplace reform, specification preparation, customer satisfaction surveys, and quality assurance programs. It was the best money ever spent, with all of the original 19 in-house teams successful in their tender bids despite stiff competition from the private sector.

One of the most important aspects of Manningham’s model has been the sense of ownership it has engendered in staff. Not only are they working for the council but also they are working for themselves. Under the profit-sharing arrangement, the better, the smarter, the more efficient an in-house team performs, the more rewards it enjoys. The team takes 60 percent of every dollar saved under the budget allocation for that team’s work.

Critics soon found fault with this new business ethos, but after two years under the model, only three services have been lost. Manningham no longer distributes free baby capsules, and it no longer tests the Yarra River’s water quality. The state government has taken over the distribution of the baby capsules.

Corporatization now is a well-entrenched system, but this did not happen before numerous concerns had been raised and worked through. These concerns focused on four issues: What effect would CCT have on the council’s service obligations, particularly to the disadvantaged and the aged? How could the council deal with exposure to unacceptable risks by its own service units’ pursuing contract work with other local governments? How would it get the best from staff who faced limited competition in the tendering process? And how would the Corporatization Model contribute to the council’s long-term organizational goals into the next millennium?

These questions gave the council good reason to pause and reflect after the first year of life under the new regime. A thorough review of the process was ordered and a blueprint for the future prepared that would address any concerns.

From this review emerged Manningham’s Competitive Business Practice Policy, which reaffirmed the importance of community governance and ensured that ratepayers were always kept foremost in the mind in all board deliberations.

Manningham now faces the challenge, like any other company, of “growing” its business. In the context of the tough National Tendering Policy, Manningham is continually reviewing competitive performance criteria for staff and always striving for best practice at a competitive price. Motivation is not a problem. In-house teams know that if they slacken in their pace or lag in their performance indicators, this will count against them when it comes time to tender for another contract.

The Corporatization Model has proved a winner for Manningham. The figures don’t lie: customer satisfaction is up 23 percent; a record $76 million has been spent on capital works over the past three years; and a $ 2.1 million annual savings has accrued in just the first year of operation.

The Victorian government set local government on the path of competitive tendering, and while some have accepted this move begrudgingly, Manningham has embraced it and proceeded further down this path. The high success rate of its in-house teams begs the question of whether these positive outcomes can be sustained. After employing the Corporatization Model, Manningham believes that they can. By adopting a business culture—treating council service units as wholly owned subsidiaries of a wider parent company, with councils acting as boards—councils can grow and nurture their companies to the ultimate benefit of the people who really matter at the end of the day: the ratepayers.

Noel McMahon is public relations officer, Manningham City Council, Manningham, Victoria, Australia.