The benefits of setting up a successful joint venture

Vivien Holland, associate director, public services advisory at Grant Thornton UK LLP, explores the common model for success in joint ventures.

While wholly owned local authority trading companies (LATCs) are an increasingly common model for delivering waste services, so too are joint venture companies (JVs). Alliance Environmental Services Ltd (AES) is one such example.

The story began in 2014 when Ansa Environmental Services, a wholly owned company of Cheshire East Council, was set up as a means of responding to the funding challenges it was facing.

In the following two years, Ansa’s remit was predominantly to deliver services on behalf of the Council, which it achieved successfully. It developed the scale and expertise to enable it to think about the next stage in its evolution – growth.

This could be achieved through several means including contracting for services. But setting up a JV has some key advantages including each partner having a stake in the business. It also benefits from the Teckal exemption, which enables direct service contract awards between publicly owned entities, thus avoiding the costly and time-consuming process of public procurement.

Ansa decided that the next phase of growth could be via the JV route. The opportunity presented itself when neighbouring authorities, High Peak Borough Council and Staffordshire Moorlands District Council, decided to review the way that they delivered waste services to bring alignment.

While wholly owned local authority trading companies (LATCs) are an increasingly common model for delivering waste services, so too are joint venture companies (JVs)

They operate as a Strategic Alliance but were operating different models – with one outsourced and the other in-house. Having seen how well Ansa had been running, they could see the benefits of tapping into this established company. When the existing outsourced contract was reaching its end date, this was the catalyst for change and discussions to form a JV between the three councils began.

An options appraisal to determine the most appropriate model (a company limited by shares as a subsidiary of Ansa with a three-way ownership) and a detailed business case, to set out the proposed cost reduction and revenue returns by way of dividend, were carried out.

It was critical to ensure that the JV could deliver the savings challenge of £1.25 million on ongoing service delivery over the course of its ten-year operating agreement.

Following this work, AES was set up and began trading in 2017. Two years on, all three councils are pleased that the benefits of the company are already being realised. One success has been the reduction in cost as a result of reviewing the fleet, which led to the decision to purchase rather than lease vehicles.

Kevin Melling, the company’s managing director, notes that the benefits of this model include the collaboration of entities with a similar ethos, all with a stake in the business, which provides greater control and flexibility compared to a purely contractual arrangement. Interest in this model is growing as a viable alternative to traditional outsourced models.

On the strength of this success, Ansa is now looking to extend this JV model and look further afield for opportunities to collaborate with other councils who may be interested in this alternative approach to delivering environmental services.

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