1. Project Daedalus:
Creation of a scalable framework agreement covering
outsourced back office services in the FE sector
INDEPENDENT PROJECT SUMMARY FOR THE
ASSOCIATION OF COLLEGES
March 2013
1

2. Contents
1. Executive Summary...................................................................................................................................................... 2
2. Introduction to Project Daedalus............................................................................................................................... 5
2.1 Background and Project Summary..................................................................................................................... 5
2.2 Objectives and Outputs........................................................................................................................................ 7
2.3 Structure of Report Explained............................................................................................................................. 8
2.4 Overview of Sections............................................................................................................................................. 9
3. Working Practices and Principles.............................................................................................................................. 9
3.1 Management of Project.......................................................................................................................................... 9
3.2 Working Principles................................................................................................................................................ 10
4. Developing the Target Operating Model................................................................................................................. 11
4.1 Overview................................................................................................................................................................. 11
4.2 Approach Summary.............................................................................................................................................. 12
4.3 Baseline Operating Model.................................................................................................................................... 13
4.4 Developing the Target Operating Model – High Level.................................................................................... 15
4.5 SWOT Analysis of Proposed Target Operating Model.................................................................................... 17
4.6 Developing the Target Operating Model - Level 2........................................................................................... 18
4.7 Target Operating Model Level 3 and Detailed Process Work......................................................................... 20
4.8 Retained Organisation.......................................................................................................................................... 23
4.9 Section Conclusion ................................................................................................................................................ 24
5. Business Case and Project Benefits........................................................................................................................... 24
5.2 Summary of Key Benefits..................................................................................................................................... 25
5.3 Project Economics.................................................................................................................................................. 26
5.4 Key Uncertainties................................................................................................................................................... 27
5.5 Conclusions............................................................................................................................................................. 27
6. Additional Considerations.......................................................................................................................................... 28
6.1 Governance............................................................................................................................................................. 29
6.2 Staffing.................................................................................................................................................................... 30
6.3 Procurement and Commercial............................................................................................................................. 33
6.4 Implementation Readiness................................................................................................................................... 35
6.5 Wider Public Sector Experience of Shared Services......................................................................................... 37
7. Market Demand............................................................................................................................................................. 40
7.1 Introduction............................................................................................................................................................. 40
7.2 Market Testing Approach..................................................................................................................................... 40
7.3 Market Testing Outcomes..................................................................................................................................... 41
7.4 Conclusions............................................................................................................................................................. 41
8. Overall Conclusions..................................................................................................................................................... 43
8.1 Summary................................................................................................................................................................... 43
8.2 A Challenge to the Existing Approach................................................................................................................. 44
8.3 The Need for a Strategic Decision......................................................................................................................... 44
8.4 Way Forward Comments........................................................................................................................................ 45
8.5 Explanation of Why Daedalus Has Not Progressed........................................................................................... 46
Annexes............................................................................................................................................................................... 47
Annex 1 - Strategic Risk Register for Procurement and Implementation of Contract...................................... 47
Annex 2 - Business Intelligence................................................................................................................................. 49
Annex 3 - The Colleges Involved in the Daedalus Project and Main Output Documents............................... 51
Note
This is a summary produced through an independent review of the extensive work that was
undertaken on Project Daedalus. The report has been produced on behalf of the Association of
Colleges, who supported the project through the Collaboration and Shared Service Fund. The aim
is to help provide lessons for a wider audience on the opportunities and challenges associated with
shared services by testing an innovative model.
2

3. 1. Executive Summary
Project Daedalus examined The project had a three-phase design to provide a logical
the potential for support examination and progression of the opportunity:
services outsourcing
across the 12 participating
Colleges to achieve Phase 1 - Business Case: confirmation of project scope,
significant savings; improve development of operating model, financial appraisal and
the quality and timeliness market review.
of business intelligence;
strengthen organisational
resilience; and enable
Colleges to focus energy Phase 2 - Procurement Readiness: design of procurement
and resources on core process and development of associated documentation
business. including legal review, output specification and key
commercial principles.
The aim of this report is
to provide a summary
that shows the approach
used, why that approach Phase 3 - Procurement Process: Undertaking the tendering
was taken, the potential and contract award for the agreed requirements.
outcomes and benefits, plus
the key considerations.
This could then be This report summarises key aspects of the extensive set
helpful for other Colleges of outputs and level of detail around the steps towards
considering outsourcing, outsourcing of back-office functions that were produced in
and support an aim of the Phases 1 and 2. The project has not progressed to Phase 3
Collaboration and Shared and key reasons for this - resourcing, governance, and the
Services Grant Fund in method for sharing savings - are included in Section 8.
providing lessons for other
Colleges wishing to make
similar arrangements.
3

4. Developing the Proposed Operating Model
Project Daedalus put significant effort into developing a more efficient operating model for back-office
functions. It was seen as providing the foundation for the business case as the work examined how
back-office services can be provided in the future, by whom, and the performance standards that
would govern their operation.
The baseline position for developing the model was that all of the Colleges operated as separate
entities. This meant that all activities and associated processes were managed and executed separately
within each College.
The work covered 16 main functions and, using staff directly from a number of different Colleges,
showed that a standard process could be adopted for the processes assessed. This was fundamental
for underpinning the achievement of key project objectives as once the standard process had been
created work could be more easily undertaken to improve the efficiency and effectiveness of the
process and its outputs.
Business Case and Key Considerations
The outsourcing envisaged by this project represented a major step change in the way Colleges run
their back-office functions and manage their businesses. This work aimed to give a balanced view
of the opportunities and challenges. The idea was not to recommend that Colleges continue through
to implementation of the project – this properly being a local decision – but to recommend how the
project would be transacted for those that wish to implement.
As generating savings was a core aim of the project, the business case received closed attention and
the following high-level summary was underpinned by a detailed financial model that assessed
savings at an overall and individual College level.
The project identified that if sufficient Colleges commit to a process that leads to the appointment of
an outsourcing partner the potential benefits include:
On average across the Colleges, post-tax annual savings of 27% - 33% are achievable (for the back-
office areas covered), including the costs of restructuring, and new investment in systems and
processes.
An increase in business continuity and organisational resilience.
Improved and real-time business intelligence to help more effectively manage Colleges.
The ability to capitalise on strong market interest in Daedalus to shape market investments in FE
systems around our needs.
Improved learner experience through better follow up, less data duplication, and quicker
response times.
The proposed operational model was developed in consultation with key service managers, however,
it should be noted that there were very significant variations in the modelled savings per College
based on the charging principles used.
The significant variance in expected savings per College was seen as partly due to the savings
apportionment methodology (using transactional volumes), but may also reflect concerns as to data
integrity on baseline costs and volumes - the data provided by Colleges did not appear consistent,
particularly in the treatment of non-pay costs.
4

5. A number of additional considerations – governance, staffing, procurement and commercial
considerations, and implementation readiness – have been highlighted as areas to be addressed by any
organisation looking to implement a shared services solution.
Staffing implications in particular are important. Project benefits are dependent upon reducing
College headcount, and implementing a shared services solution is a major business change that will
affect staff beyond just the functions in scope. How Colleges deal with their staff will be the critical
determinant of whether this type of project is successful.
Implementation readiness, from a process and cultural change perspective, was assessed for the
processes under consideration. Most areas had no major issues and process issues were generally
limited, however, cultural issues were identified as potentially significant in three sub-processes.
The Supply Market
Market testing showed that a strong potential market was there if the project progressed. There was a
large potential market capable of responding and the organisations included in the initial marketing
campaign expressed strong interest in the opportunity.
Scale, consistency of requirement and governance, and flexibility around how the solution is delivered
were noted as key to building and sustaining competitive tension. The feedback suggested eight-ten
Colleges would need to complete the Daedalus transformation programme to make the amortisation
of fixed costs affordable, with higher numbers improving the market interest and the business case.
Conclusions
Project Daedalus showed that while delivering some processes via a shared service arrangement
might be complex and require careful planning, no legal, technical or other reasons became evident
that would prevent the transfer of the processes in scope.
A project like Daedalus does come with some considerable challenges in making sure the approach
will work in delivering the benefits of lower costs and improved processes. It is a major change
programme and therefore this means managing the impact of a lot of people exiting the organisation
and on those staying in the organisation. This includes the need to invest to change behaviours to get
the most out of the new service and ensuring continuity of service throughout to maintain student
satisfaction during transition.
If the challenges can be overcome this report shows that the potential benefits perceived by Project
Daedalus through a shared service solution could be significant.
5

6. 2. Introduction to Project Daedalus
2.1 Background and Project Summary
Project Daedalus was a proposal examining the potential for support services outsourcing to achieve
significant savings in FE; improve the quality and timeliness of business intelligence; strengthen
organisational resilience; and enable Colleges to focus energy and resources on core business.
The Colleges involved in the Daedalus project comprised of 11 members of London Capital Colleges
and one other FE College operating within Greater London. The project was awarded a grant of
£1.785m through the Collaboration and Shared Services Grant Fund (the largest from the fund), of
which £0.6m was used for the first two phases that this report is based on.
The project assessed the potential for structural solutions to achieve a step change in performance and
cost in the short term across London Colleges, and considered the role of back-office transformation as
a key stage in achieving both objectives.
The project had a three-phase design to provide a logical examination and progression of the
opportunity:
Phase 1 - Business Case: confirmation of project scope, development of operating model,
financial appraisal and market review.
Phase 2 - Procurement Readiness: design of procurement process and development of
associated documentation including legal review, output specification and key commercial
principles.
Phase 3 - Procurement Process: Undertaking the tendering and contract award for the agreed
requirements.
This report covers the initial two phases of the project to help share the experience, approach and
learning for other organisations considering the outsourcing of back-office services.
The project scope covered back-office functions around the administration and reporting of FE activity
(including Finance, HR, Registry and Management Information). It built upon a study funded by the
AoC Efficiency & Innovation Fund, conducted between December 2010 and June 2011. This original
study had indicated the potential for FE Colleges to run their back-office processes to a common
specification and the potential to drive material financial savings were they to do so. Key areas from
this original study were revisited and developed as part of the extensive work under Project Daedalus.
6

7. An outsourcing model best satisfied the key evaluation criteria for use within FE, when tested against
the realistic alternative models. This is summarised in the following table:
Main Potential Models
Evaluation criteria for sharing services Bench- Informal FE Shared Outsourcing
marking Collaboration Services
Enhance, not detract from learner
Low Low Medium High
experience
Facilitate wider curriculum
collaboration, where this benefits Low Low Medium Medium
learners
Achieve material savings quickly to
create space for the curriculum to
Low Low Medium High
respond to emerging opportunities and
challenges
Be sustainable No Low Medium High
Be scaleable, allowing benefits across
No No Medium High
the sector
Achieve a step change in the reliability,
timeliness and accuracy of Business Low Low High High
Intelligence
Cap the investments required to deliver
N/A N/A No Yes
change
Achieve appropriate risk transfer N/A No No Yes
Be deliverable within a firm timeline N/A Low Medium High
Have the skills to manage successful
N/A N/A Low High
implementation
The outsourcing envisaged by this project represents a major step change in the way Colleges run
their back-office functions and manage their businesses, and any decision to proceed requires careful
consideration by executive teams and their governing bodies. Phase 1 developed the potential
operating model to help shape the project and develop the business case. The aim of Phase 2 was
to recommend how the project is transacted for those that wish to continue - not to recommend that
Colleges continue with this project, this properly being a local decision.
7

8. 2.2 Objectives and Outputs
The project looked to provide a balanced view of opportunities and challenges, and had the following
stated aims:
To improve the quality and timeliness of the data and business intelligence available to Colleges,
staff and learners through more consistent processes, and better and more integrated IT systems
To deliver material cost savings through improved process efficiency
Improve organisational resilience for many back-office functions which are often carried out by
only a handful of people at each College
Increase investment in IT systems for a lower overall cost for the individual Colleges, for both
self-service and back-office functions, which in turn will drive further efficiency savings
An ability to focus on the core activities of each College – improved curriculum delivery
To create a Shared Services Centre (SSC) which can be extended to support more Colleges and
drive further savings.
Phase 1 (Business Case) Outputs:
The Phase 1 Business Case aimed to present the evidence base for the Colleges involved to further
explore the potential for outsourcing back-office functions. Outputs covered:
Creation of a standardised, simplified and aggregated operating model for how back-office
functions would be delivered, and by whom, under an outsourced scenario
Acceptance of this specification by the Colleges as the basis for taking the project forward
Examination of the potential to mitigate the VAT charge that would otherwise be levied on shared
or outsourced services
Evidence of market demand from key outsourcing suppliers, and
Commitment and buy-in from the participating Colleges to explore this commercial proposition
in further detail in a second, pre-procurement, phase of the project.
Phase 2 (Procurement Readiness) Outputs:
The objective of the second phase was to create an evidence base that would support Colleges in their
decision over whether to participate in a formal procurement process to select an outsourced delivery
partner. The key areas addressed were:
What functions will be retained in Colleges; what will transfer; and how these work together
What the economics look like on a College-by-College basis, as well as in aggregate
How more Colleges can join over time; and
The key commercial and service principles that would underpin any procurement process, and
form the basis on which bids would be evaluated and the service contracts awarded.
8

9. 2.3 Structure of Report Explained
The aim of this report is to provide a summary that shows the approach used, why that approach was
taken, the potential outcomes and benefits, plus the key considerations. This could then be helpful for
other Colleges considering outsourcing, and support an aim of the Collaboration and Shared Services
Grant Fund in providing lessons for other Colleges wishing to make similar arrangements.
Significant effort went into Project Daedalus to produce an extensive set of outputs and a level
of detail around the steps towards outsourcing of back-office functions. Clearly the volume of
outputs produced by a project cannot be taken as a measure of value of those outputs, however, by
understanding the quantity of documentation produced it helps to explain the reason for a summary
report.
Overall the project contained over 200 documents as part of developing the initial two phases of the
project. The main output report for Phase 1 contained ten documents and 291 pages. The main output
report for Phase 2, including appendices, was 362 pages. These totals exclude supporting detail work
to help create these outputs – for example the Finance, Procurement and Payroll Process, and Hand-
Off Mapping covered over 100 pages in detailing key aspects of these areas that were developed with
the Colleges through the project work.
This document therefore looks to summarise key areas that may be useful to other organisations by
focusing on the more generic findings (e.g. the progressive steps taken in developing the approach
and business case), rather than focusing on the areas that may be more specific and/or sensitive to an
individual College involved in the Daedalus project (e.g. headcount impacts for specific Colleges).
2.4 Overview of Sections
Section 3. Working Practices and Principles – looks at how the project was managed.
Section 4. Developing the Target Operating Model – summarises key areas of the significant amount
of work undertaken to develop and assess a new operating model for back-office activities. This
includes high-level process structures and diagrams showing the targeted processes for a shared
services centre.
Section 5. Business Case and Project Benefits – covers the financial and performance benefits
identified in the detailed project work while noting key factors that could impact the business case.
Section 6. Additional Considerations – highlights four important areas that are recommended to be
addressed by any organisation looking to implement a shared service solution, and also summarises
findings from two reports into wider public sector experience of shared services.
Section 7. Market Demand – review of activities to identify the potential supply base, and understand
the level of interest and views from suppliers.
Section 8. Overall Conclusions – includes general conclusions alongside sub-sections on the need for
senior level direction and challenging the current approach.
This report contains more on the approach and important considerations than on the benefits. It was
felt that the benefits can be summarised fairly quickly, while the financial model details were based on
specific information from participating Colleges and therefore were less applicable to a wider audience
while also being sensitive. The approach is to support the report objective of covering methods and
information that will be useful for other organisations considering their own shared services.
9

10. 3. Working Practices and Principles
3.1 Management of Project
Both Phase 1 and Phase 2 of the project were delivered on time and within budget. Management of
the project was principally at two levels – the Project Board and the Steering Group. External advisers
were appointed to support the project.
Project Board
The project was governed by a Project Board comprising 12 Principals from the partnership Colleges,
each of whom signed a Memorandum of Understanding setting out their rights and responsibilities.
The Association of Colleges (AoC) had an observer seat on the Project Board and the AoC Innovations
Committee monitored the Project.
The operational management of the Project was delegated by the Project Board to a Steering Group,
comprising of the senior financial representatives of the Colleges involved in the Daedalus project,
under the leadership of the Director of Finance at Westminster Kingsway College (WKC).
Of the Colleges involved, 11 were shareholders of London Capital Colleges (LCC) and there was an
additional smaller London College to help test and ensure the outsourced procurement solution
acquired meets the needs of smaller Colleges in the sector.
Steering Group
Operating at a detailed level the Steering Group managed the initiating stages of the project while
representing the interests of stakeholders.
The Steering Group in Phase 1 was comprised of six Financial Directors with a ‘buddy’ system in
place that kept the peer group informed. However as Phase 2 of the project looked at key commercial
issues that would affect individual Colleges as well as the collective, membership was extended to all
College Financial Directors/Vice Principals Resources.
The Steering Group met fortnightly to review progress of the programme and critically evaluate
scenarios, proposals, options and recommendations by the advisers on the key deliverables of the
Phase 2 workstreams.
Appointment of Advisers
The Steering Group made three appointments to support and advise on the main areas of the
project. A major consultancy firm was appointed to advise on the refinement of the shared services
solution and provide commercial and financial advice; a legal firm was appointed for legal advice
on procurement, TUPE and pensions; and a project resource was appointed to support the Project
Director.
Risk Management
The risks associated with the initial stages of the project have all been managed. As with all
transformation projects, however, there are considerable risks associated with running a procurement
exercise and managing the subsequent implementation. These key risks are summarised in Annex 1 –
Strategic Risk Register for Procurement and Implementation of Contract.
10

11. 3.2 Working Principles
The Steering Group agreed the following principles, endorsed through an open workshop with
colleagues, to help steer the project and solution development:
Process
Standardisation – FE Colleges are required to report common data in a common format to
their funding bodies. Standardised processes should be optimised with minimal scope for
‘customisation’.
Maintaining brand and identity – Colleges must be able to maintain their unique branding and
identity but not to the detriment of standardisation.
The Shared Services Centre should deliver a core set of standardised processes with a further
menu of additional services available.
Technology
Automation – exploit technology to deliver efficient, effective and learner/customer-focused
services.
Self‐service – optimising the level of self‐service for learners and staff in the processes.
Data
Timely and accurate data – electronic data captured at source, entered once, used many times.
Ownership – Colleges must be able to access the underlying data.
People
Flexible resourcing –use flexible management and resourcing structures that enable staff to be
appropriately deployed to meet changing needs and seasonal variations within the organisation.
Creating professional teams – use dedicated teams for specialist, common corporate services, and
develop administration and business support as a profession with career structures and job roles
that harness the skills, aspirations and enthusiasm of administration and business support staff.
Learner focused – putting the learner and prospective learner at the heart of our processes to
secure sustainable financial viability through attracting and retaining learners.
Participating Colleges provided source data on volumes of student and financial data handled, and
the resources (staffing and spend levels) needed to process these. These data sets were reconfirmed or
updated by each of the Colleges as part of this business case.
11

12. 4. Developing the Target Operating Model
4.1 Overview
Project Daedalus put significant effort into developing a Target Operating Model (TOM). It was seen
as providing the foundation for the business case as the work examined how back-office services
can be provided in the future, by whom, and the performance standards that would govern their
operation.
The Steering Group appointed external advisers to support the development of the Target Operating
Model. The model described how the services required to deliver a FE College’s back-office functions
would work, and where responsibility for these would lie. This series of flow charts set out all the
key processes and tasks that constitute each component of service delivery, and details regarding
responsibility.
A Target Operating Model is effectively a way of illustrating the processes by which data is generated,
captured, analysed and reported. The work then looked at where these processes would be handled
in an outsourced scenario. Some would be generated through self‐service (staff and students); some by
the staff retained within the Colleges; and some by an outsourced service provider.
The work progressed to three levels of detail. The most detailed work (Level 3) assessed 16 processes
to cover aspects such as where responsibility lies; the key assumptions; benefits of the approach;
associated risks and issues; key performance indicators; and behavioural and cultural impacts.
The work concluded by converting the Target Operating Model into a 34-page, high-level output
specification. This document could then be used in a formal procurement to set out, for each business
process, the specific service requirements; performance indicators; constraints; and volumetric.
Responses from bidders could then be assessed to see the extent to which bidders’ proposals met the
Colleges’ requirements.
The Potential for Standardisation
The baseline position for developing the model was that all the Colleges involved in the project
operated as separate entities. This meant all activities and associated processes were managed and
executed separately within each College. Many of the activities carried out by each of them were the
same, for example learner applications and enrolments, processing of bills and invoices, and payroll.
The premise was that if the processes supporting those activities could be standardised they could be
shared across the Colleges, allowing for economies of scale and implementation of best practice across
all of them.
It was recognised that some activities will always need to be carried out by the individual Colleges
themselves. Core curriculum delivery, i.e. teaching, Information, Advice and Guidance (IAG), and
pastoral support, will always be conducted by individual Colleges. Project Daedalus was concerned
with whether the generic business support functions, such as HR and Finance, and learner
administration and registry processes such as application, enrolment and student record management,
could be shared by the Colleges in order to deliver benefits to the Colleges and their learners.
As a result, the Colleges were looking to reduce the amount of back-office support and administration
tasks that took place in each individual College and move that activity to a shared delivery vehicle
in order to realise their core objectives of improved data and business intelligence, reduced costs
and increased organisational resilience. In turn it was anticipated that this would reduce the
administrative burden on College staff so they could focus on delivering the value-added activities of
providing excellent learning delivery for their respective learners.
12

13. 4.2 Approach Summary
The operating model is the representation of how an organisation operates across all of its dimensions
in order to deliver value. Recognising that any organisation is a complex system consisting of several
different interlinked logical components, the operating model therefore looked to break this complex
machinery down into its logical components. This included showing how functions interacted,
what the underlying model was for delivery of those functions, and then designing ways for each
component to deliver better value.
The work assessed where the process should be undertaken (in-house or outsourced, centrally co-
ordinated or devolved through the organisation) and assessed processes to three levels:
Level 1: Function - A high-level description of the functions (e.g. Finance, HR, Registry and
Management Information) and their location within the new arrangements
Level 2: Process - A more detailed description of the individual processes within each function
(e.g. learner applications, leavers, payroll) and where and how they would take place within the
new arrangements
Level 3: Activity - A detailed list of activities that would be conducted within each of the
functions and processes listed above (e.g. application screening, raising an invoice). At this level
we used three core locations for where activities were to be carried out: self-service (both for
learners and staff), retained in College, and a Shared Services Centre.
The project went into significant detail, with the above areas being covered in a 106-page report.
Further granularity of the activities was produced through detailed process and hand-off mapping
documents that covered process schematics and hand-off tables. For example, on key Finance,
Procurement, and Payroll processes this saw a further 122 pages of detail to help understand the
operational level, and the potential for standardisation and improvement of processes.
Functions in Scope:
• Student applications • Student credit control
• Student assessments • Accounts receivable and payable
• Student enrolments • Staff records and payroll
• Student attendance • Enquiries
• Leavers • Procurement
• Transfers • HR
• Completers • Financial management
• Exam administration • Business intelligence
It was important to ensure that the development of the Target Operating Model was a collaborative
exercise with the Colleges to help enable them to gain the required understanding and buy-in for a
solution that was suitable for all interested parties. Therefore at key stages in the project, outputs and
options were presented to the Steering Group for agreement on behalf of the Colleges, including a
large workshop to discuss and agree the straw-man of the Level 3 model.
13

14. 4.3 Baseline Operating Model
The baseline position for the project was that all the Colleges operated as separate entities. This meant
all processes were managed separately within each College. This is shown in the below diagram:
The above illustrates, at the highest level, the functional areas forming part of the baseline operating
model. Within the baseline model there are two ‘delivery channels’ – ‘self-service’ and ‘College’. In
this model each individual College is responsible for operating both of these channels.
Self-Service: Each College provides different levels of self-service functionality depending on how
much each organisation has invested in this. Functional activity which occurs in self-service is
typically split into learner (also potential learner) and staff self-service, and includes activities such
as applications, learner record management, billing and receiving payments, HR self-service and
e-procurement. The amount of self-service provided by each organisation is different across different
Colleges. The pooling of College resources could facilitate a single, shared self-service channel,
delivered across all of the Colleges, which would deliver a much richer self-service channel for a lower
level of individual investment. This investment would be repaid with reduced burdens on the back-
office of individual Colleges.
College: the ‘College’ delivery channel is the more traditional way of delivering services. In the
baseline operating model the Colleges deliver a number of functional areas:
Curriculum Delivery: includes delivery of teaching, IAG, curriculum development etc. It was
proposed that each College would continue to deliver these services individually and therefore
curriculum delivery was outside the scope of Project Daedalus.
14

15. Enquiry Handling: including course, assessment and eligibility enquires. Many of these processes
are similar and a consolidated contact centre could potentially provide cost savings, while
allowing retention of the individual character of each of the Colleges.
Learner Administration and Registry: including management of student applications,
assessments, enrolment, timetabling, examinations, management of leavers and completers,
attendance, learner information, and business intelligence and data.
Corporate Core: the strategic direction setting and managerial functions of the Colleges. These
functions are intrinsic to the governance and identity of each College and set the core objectives
for each one. It was therefore proposed that this would remain within each organisation.
Business Support Functions: Functional areas, such as HR, Finance and Procurement, could be
shared across the Colleges and indeed these functions are well tried and tested in the shared
service market place, so this could be achieved rapidly, with the benefit of both reduced operating
costs, and improved capability and capacity.
4.4 Developing the Target Operating Model – High Level
The first stage of developing the Target Operating Model was to agree a set of design principles
(as shown in section 3.2). These principles provided an anchor around which all design effort was
centred and were used as a guide when making decisions about potential options for designing the
new operating model. It is important that these are underpinned by the key drivers for change and an
understanding of the elements of the existing arrangements that need to be improved.
For the Colleges involved, a number of key issues with existing arrangements were identified for
consideration in developing the operating model:
An inconsistency of key common processes across the Colleges
A need for more timely and more accurate data, and more effective business intelligence
Varied levels of use of technology to improve accuracy, speed and quality of service and learner
experience, and a lack of available investment funds
A desire to deliver a better learner experience, leading to improved conversion and retention rates
of learners, but a lack of business process engineering capabilities within Colleges to ensure the
most effective learner journeys
Difficulties in recruiting specialist staff and expense of training them
A desire to create more rewarding career paths and opportunities for non-teaching staff
The approach agreed by the Steering Group for detailed development included significant elements
of both back-office functions, many of which are transactional in nature, and more directly learner-
related activities, such as enquiry handling and learner administration and registry. This second
type includes activities such as enrolment, managing the interface with awarding bodies and learner-
specific finance activities.
Key features of the approach were:
Curriculum delivery, IAG, strategic governance and some learner administration activity were
retained in the Colleges.
Expansion of self-service activities was possible as learner administration and registry activities
were moved into a Shared Services Centre, making it possible to provide extra functionality from
a learner self-service perspective.
15

16. All transactional activities associated with operational support (e.g. HR, Finance and
Procurement) would be part of the Shared Services Centre.
A small number of support staff would be retained within the College where they would be
required to interface with the Shared Services Centre.
The functions included as part of the Shared Services Centre are summarised in the diagram below
and explained in the subsequent bullet points ( 1 relates to the number bullet below).
16

17. Self-service channel - increasing the amount of activity carried out via self-service mechanisms
enables the Target Operating Model to be more efficient as it reduces the amount of information that
needs to be provided / entered more than once, speeds up access to that information, and reduces
the amount of activity that some back-office staff have to undertake. The proposed operating model
includes two self-service lines:
1. Learner Self-Service – as learner data will be moved into the Shared Services Centre they will
have greater freedom to view their records, e.g. monitor their attendance records, view personal
learner records, make payments through the use of a self-service portal which will provide
increased interaction between the learner, potential learner and Colleges, and help to improve the
quality of curriculum delivery and the overall experience for the learners.
2. Staff Self-Service – there are two dimensions to the staff self-service portal. Firstly it will provide
functionality to College staff to view and update their own personal information, pay slips etc.
Perhaps more importantly it will also enable staff to update and manage learner records, access
business intelligence dashboards and manage key processes electronically, such a transfer requests
and electronic attendance registers.
Shared Services Centre – a single entity would be responsible for providing a wide range of back-
office and learner administration and registry functions for all of the Colleges. It would be able
to achieve economies of scale making significant investment in technology solutions possible, and
delivering a more consistent and improved quality of service to the Colleges and learners.
3. Learner Administration and Registry - this includes activities such as processing applications,
enrolment activities, ILR returns, and learner scheduling activities such as appointments. It would
also include registers, follow-up of leavers and awarding body administration. Some of this
activity will be retained within the Colleges when it is important to retain brand differentiation or
a personal touch, for example interviews or enrolment in cases where anticipated grades haven’t
been achieved.
4. Enquiry Handling - the majority of enquiries will be handled by the Shared Services Centre, with
only specialist and more complex enquiries retained within the College. This includes activities
such as financial assessment for overseas learners, specialist advice and career guidance.
5. Business Support Functions - largely transactional business support activity delivered via the
Shared Services Centre.
6. Business Intelligence and Data Management - moving both business support, and learner
administration and registry into the Shared Services Centre will help to ensure that the two
key reporting data sets are in one place resulting in more accurate and up-to-date data. More
importantly perhaps it will enable this data (both around learners and business processes) to be
analysed to become business intelligence – insight into how each College is performing across a
range of areas – that can then be used to help Colleges plan their future activities and strategies,
and benchmarking their performance against each other to drive continual improvement.
[Annex 2 contains a specific section on Business Intelligence.]
17

18. 4.5 SWOT Analysis of Proposed Target Operating Model
The project produced the following table to help summarise key points on the approach:
Strengths Weaknesses
ƒƒ Greater absolute levels of efficiency ƒƒ Trying to move all non-learning delivery to
an Shared Services Centre could be costly,
ƒƒ All administration and support will be
complex and difficult to implement
within the Shared Services Centre allowing
greater focus on core activities ƒƒ Will require strong contract management
in order to ensure service standards are
ƒƒ Potential to leverage current investments in
maintained
IT and standardise the systems landscape
ƒƒ Issues around TUPE may make the
ƒƒ Improved business intelligence capability
proposition less attractive to third party
ƒƒ Standardised and improved learner suppliers
administration processes delivered by self-
ƒƒ Immaturity of the market in supporting
service functionality
learner admin and registry functions
ƒƒ Potential improvement in service quality
and learner learning experience - a single
source of learner data in resulting in effective
management and availability of learner data
ƒƒ Increased organisational resilience through
larger workforces and greater opportunities
for multi- skilling of the workforce
Opportunities Threats
ƒƒ Opportunity to adopt standardised best ƒƒ Perception of loss of control may deter
practice processes across all Colleges for Colleges
learner administration, HR, Procurement and
ƒƒ Concerns over ability to retain distinct brand
Finance
and identify for individual Colleges
ƒƒ Potential to standardise the use of systems
ƒƒ The processes may not be adopted in the most
ƒƒ Opportunity to outsource the Shared Services appropriate manner leading to inefficiencies
Centre
ƒƒ Too much ‘picking and choosing’ may lead to
ƒƒ Potential to outsource expert functions to a reduction in standardisation
external providers
18

19. 4.6 Developing the Target Operating Model - Level 2
Level 2 - Target Operating Model
The Level 2 activities provided a further detail and refinement of the Target Operating Model. The
following breakdown was agreed by the Daedalus Steering Group (note: some processes will occur in
more than one channel and the split of activities within each of these processes is described later as
part of the Level 3 Target Operating Model).
Level 2 - Target Operating Model
The Target Operating Model presents the full picture of those processes that will be carried out, not
just those that are being considered for inclusion in the Shared Services Centre. At Level 2 the Target
Operating Model, as agreed by the Steering Group, provides more detail as to where within the three
‘delivery channels’ of self-service, College and shared service, the key processes are expected to take
place in the new model.
19

20. The delivery channels identified at Level 1 were further refined during Level 2 work. The following
summarises these and the potential benefits from the approach:
1. Self-Service: there are two types of self-service that are envisaged. One is for learners (existing
and potential), the other for College staff (teaching and non-teaching). This function will provide
both the learners and staff with the increased ability to view, update and monitor their personal
records, as well as allowing them to access information pertinent to their learning and delivery
of learning respectively. In the case of some staff members, this relates to monitoring and
managing the performance of the learners and staff they manage. It will also create a channel for
staff, primarily teaching staff, to manage electronically key processes at the interface between
curriculum delivery and learner administration, such as updating learner information, processing
learner requests (e.g. for course transfers), and managing attendance registers. It will also provide
them with access to improved relevant business intelligence.
The desired result is to simplify and standardise processes, and create efficiencies in the way
of working by encouraging users to become self-reliant through providing them with access to
relevant information, minimising the need for human interaction and increasing automation for
carrying out simple tasks. This will help to improve the overall learning experience by giving the
learners enough information and the necessary tools to enable them to take more responsibility
for their learning, e.g. learners will have the ability to view their student records, make transfer
requests, make enquiries etc. The self-service may also be made available, as appropriate, to other
stakeholders, such as parents and employers.
2. College: From a staff perspective, there is also a shift in focus to remove the burden of carrying out
a large number of administration related tasks by pushing them to be carried out by the Shared
Services Centre, and through the self- service channel outlined above reducing the efforts involved
in the remaining administrative tasks they are required to conduct. This will allow teaching staff
to focus more of their time and effort on value added activities i.e. delivering excellent learning.
Irrespective of how the activities and responsibilities are split, the Colleges will need to maintain
some specialist learner-facing and back-office processes (e.g. IAG, corporate strategy) and also a
level of residual support for processes that have been moved to the Shared Services Centre. This
is to ensure effective liaison with, and management of, the Shared Services Centre and ensure that
adequate skills are retained to conduct all the various activities.
3. Shared Services Centre: The Shared Services Centre, in whatever structural and commercial form
it takes, will look to deliver the majority of the administration related, high-volume activities that
can sensibly be delivered in a standardised and consolidated manner.
4.7 Target Operating Model Level 3 and Detailed Process Work
The Level 3 Target Operating Model describes in detail the split of process activities that will need to
be delivered through each of the three delivery channels, self-service, College and the Shared Services
Centre. This model was developed through direct working with representatives from the Colleges.
As such it is believed that this created a good level of buy-in to the proposed model and distribution of
activities.
At this stage the Level 3 analysis has been limited to the processes outlined earlier. At a future date
the Colleges may wish to consider other processes that could be carried out using a self-service
channel and/or a shared service approach – for example legal services or facilities management
services, including catering, security and cleaning etc.
20

21. Although there are processes not included in the analysis, most of those relate to those activities
that are largely the core activities of an FE College, e.g. direct and supporting curriculum delivery
– teaching, advice and guidance, timetabling, curriculum development etc, and strategic corporate
functions, e.g. governance, business strategy, policy.
It is important to recognise that Colleges should continue to conduct these processes shown to ensure
that where there are interactions with the Shared Services Centre, and/or self-serve channels, these
interactions are clearly understood.
The diagram on the following page sets out the Target Operating Model for each of the processes in
scope, outlining where the activities that are part of those processes are expected to take place. The
processes and activities within the red boxes are those which were in scope for Project Daedalus.
Those outside of the boxes, as mentioned above, were not in scope, but are key activities for the
Colleges.
Detailed Target Operating Models for each of the in-scope processes were produced. For each
process there was a description of how they envisaged the split of activities across the three delivery
channels and an assessment of some of the key assumptions, benefits, risks and mitigating activities,
performance metrics, and links to data and systems.
21

22. 22

23. The above diagram showing
Levels 2 and 3 provided a useful
high-level view of the Target
Operating Model. However,
in developing standardised
processes a much greater
level of detail was needed to
ensure that, at a working level,
a standard approach could be
agreed. As evidence to the type
of significant detail of a low-
level sub-process produced by
the team, the diagram on this
page shows the Invoice/Credit
Matching Process as part of the
Invoice and Payment Processing
functions under Purchase
to Pay. The table covers the
handover points to the Shared
Services Centre (SSC). This
23
level of detailed was replicated
across a wide range of sub- Handover to SSC
processes.
Process Input by Input Manual/ Output by Output Manual/
automated automated
A Non- SSC Request to College Automated College Decision on Manual
matchedinvoice to approve invoice whether to
approval approve
B Invoice not College Invoice not Manual SSC Invoice Manual
approved approved retrrned to
supplier
C Invoice College Invoice approved Manual SSC Payment Manual
approved processed
D Confirmation SSC Request to Colleeg Automated College Good/ Manual
of receipt of to confirm whether service
goods/service goods/service have receipt
been received confirm

24. 4.8 Retained Organisation
The retained organisation is what would be left after staff and activities have transitioned across to the
provider. By quantifying the size of the retained organisation, it was possible to understand the cost of
the retained function and therefore the potential saving available to the Colleges. As such the retained
organisation design was a key input to the overarching business case for Project Daedalus.
Both the level of resource recommended to perform the retained functions – on average and at
College level – and the relative readiness of Colleges to make this transition were assessed.
The calculation of the retained size for each College was based on the volume of activity (primarily
learner numbers) managed by the most efficient Colleges, extrapolated across each College, and then
sense checked against data gathered in workshops with the Colleges.
Reduction in staff levels (initial versus retained organisation) for the areas proposed varied from 35%
to 77%. Across the 12 Colleges where data was collected the average reduction was 62%. This analysis
is used in the following section to show the overall benefits from the proposed changes.
4.9 Section Conclusion
Having staff directly from a number of different Colleges showed that a standard process could be
adopted for the processes assessed. This was fundamental for underpinning the achievement of
key project objectives as once the standard process had been created then work can be more easily
undertaken to improve the efficiency and effectiveness of the process and its outputs.
The work on the Target Operating Model contained a lot of information. However, further work
should be undertaken to produce a more complete model. Proposed next steps would include
producing the following:
ICT Target Operating Model – a mapping of the systems that will support each of the processes
and how they should interact
Data Target Operating Model – a mapping of the information and data requirements that will
underpin the processes and where that data will be recorded, stored and reported.
24

25. 5. Business Case and Project Benefits
5.1 Introduction
As generating savings was a core aim of the project, the business case received close attention and the
following high-level summary was underpinned by a detailed financial model that assessed savings
at an overall and individual College level. However, the benefits from the project were expected to be
more than just direct cash savings.
The outsourcing envisaged by this project represents a major step change in the way Colleges run
their back-office functions and manage their businesses, and any decision to proceed requires careful
consideration by executive teams and their governing bodies.
The aim of the work was not to recommend that Colleges continue through to implementation of the
project – this properly being a local decision – but to recommend how the project is transacted for
those that wish to implement.
This work aimed to give a balanced view of the opportunities and challenges of continuing with this
project. The business case was therefore created for information purposes rather than as a sales pitch
for a shared service solution.
Note that savings levels and benefits for individual Colleges are not shown due to confidentiality and
because of the bespoke nature of these savings makes this low level of detail less applicable to a wider
audience.
The significant amount of detail produced through developing the Target Operating Model and the
standardised sub-processes enabled work on the business case to be more than a simple top-down
estimate. This meant that for the headcount savings a bottom-up consideration of what could be
expected, looking at the retained organisation size and learner volumes, could be produced.
5.2 Summary of Key Benefits
If sufficient Colleges commit to a process that leads to the appointment of an outsourcing partner the
work has shown that potential benefits include the following:
On average across the Colleges, post-tax annual savings of 27% - 33% are achievable (for
the back-office areas covered), including the costs of restructuring and new investment in
systems and processes. [It should be noted that there were significant variations in savings per
College based on the charging principles used in the model.]
A more efficient operating model that has the potential to improve data quality and
business intelligence; improve the learner experience; and release savings.
An increase in business continuity and organisational resilience.
Improved and real-time business intelligence to help more effectively manage Colleges.
The ability to capitalise on strong market interest in Daedalus to shape market investments
in FE systems around our needs.
Improved learner experience through better follow up, less data duplication, and quicker
response times.
25

26. The operational benefits of the Target Operating Model were set out in an earlier section and are
summarised below:
Benefit Description
Non‐cashable financial savings Increased investment in IT systems for a lower overall cost for
(potential to become cashable the individual Colleges for both self-service and back-office
over time) functions. This in turn will drive further efficiency savings
Creation of a Shared Services Centre which can be extended
to support more Colleges and drive further savings
Reduction in space requirements – either cashable or can be
released back to front line curriculum delivery
Learner benefits An ability to focus on the core activities of each College –
improved learner delivery
A smoother learner journey achieved through better follow
up, less data duplication, quicker response times
Improved quality and timeliness of information available to
learners and staff through more consistent processes and IT
systems
Operational benefits Catalyse wider cultural change programmes
Management benefits Business Intelligence – the right information at the right time
in the right format, leading to better business decisions
Organisational resilience for back-office functions where
expertise lies in a handful of people at each organisation
Outsourcing the common specification offers the potential to deliver post-tax, steady state annual
savings. Taking into account the initial investment in underlying systems this could equate to an
estimated £42m - £70m efficiency gain over a ten year period for redirecting into front line curriculum
delivery in London.
5.3 Project Economics
The financial model was created to help illustrate the potential financial benefits in aggregate and at
individual College level. The cost of the retained organisation was modelled in some detail through
the interactive workshops. The outsourcing cost assumptions were developed by the external advisers
with reference to other transactions on which they had worked, and sense tested with three business
process outsourcing companies. It should be noted that the financial analysis remains indicative and
actual cost savings can only be established through a competitive procurement process culminating in
service offers that are capable of contractual acceptance.
26

27. A view on Daedalus was that the understanding of staff/payroll costs was generally good, but the
understanding and capturing of non-payroll costs wasn’t. It is important that Colleges review and
validate their data to ensure that the “as is” staffing levels are accurate; there is no double counting;
and that all relevant staff and costs involved in delivering the in-scope functions are captured,
especially the full non-payroll costs (e.g. full accommodation costs, and systems costs such as
data storage and software licences). The view was that non-payroll costs are likely to have been
understated as they are harder to identify. However, it is important to ensure that these types of costs
could actually be reduced, e.g. can reduced accommodation /space requirements be realised into
cashable savings.
On the base case assumptions there was a very significant variance in expected savings per College.
This is partly down to the savings apportionment methodology used (using transactional volumes),
but may also reflect concerns as to data integrity on baseline costs and volumes. It was, however,
clear that the analysis supported the proposition that there are material savings to be achieved from
the approach. Again, for illustrative purposes only, if the modelled benefit was split equally per
College in cash terms, the steady state, business-as-usual annual saving would be around £900k per
College; and if the modelled benefit was split equally per College in percentage terms, the steady state,
business-as-usual annual saving would be around 29% below baseline costs per College.
Key input assumptions were subjected to sensitivity testing, indicating that the modelling has a
reasonable level of resilience against the potential for overstating savings and understating costs.
5.4 Key Uncertainties
While the Steering Group considered that significant progress had been made in Phase 2 to translate
the high-level aggregated assumptions modelled in Phase 1 to more granular, bottom up costings,
there remained a number of key uncertainties at the end of Phase 2:
A procurement process would flush out detailed pricing proposals, but must be predicated on a
common set of shared principles. At this stage the project could not be certain how the market
would price the project and its approach may vary widely from that modelled in Phase 2.
The data provided by Colleges did not appear consistent, particularly in the treatment of non-pay
costs. Reliable baseline data is required to make meaningful judgements on value for money, and
Colleges continuing to Phase 3 would need to ensure they have fully validated their own data.
The relationship between fixed and variable costs was indicative, as was the level of investment
required to upgrade systems and processes. At this stage the model provided weak evidence
around the economies of scale needed for this project to be viable, although market testing in
Phase 1 suggested eight-ten Colleges would need to complete the Daedalus transformation
programme to make the amortisation of fixed costs affordable.
The model assumed that Colleges would accept the size of the retained organisation
recommended. The key operational challenge was to agree on a substantially standardised
solution as opposed to a modularised model. Compromise and commercial pragmatism would
be required to constrain investment costs and achieve economies of scale.
There were important staffing and Trade Union considerations, supported by full and open
communication once the Colleges made the decision to proceed to Phase 3. The financial base
case assumed that continued local employment will not be a key driver, and that Fair Deal would
not apply.
Irrecoverable VAT was deemed payable (at an effective rate of c15%).
27

28. 5.5 Conclusions
The financial analysis suggested that on average the Colleges could make cash savings of around 27%
– 33% on the in-scope areas, with significant variations between Colleges depending on the way in
which benefits are allocated / how the charging method operates.
Additionally significant non-cashable benefits were identified that could help to improve performance
and lead to further cashable savings over time. The value of these benefits were clearly more
subjective and therefore likely to rely more heavily on the strategic view of individual Colleges.
The proposed operational model went into a significant level of detail to test the potential for
standardisation and help provide better information for the business case. The model was developed
in consultation with key service managers, and the savings were based on key inputs and assumptions
included in the model that needed validation and acceptance from Colleges. However, there were
a number of uncertainties - including potentially inconsistent data around costs – and the ability
to capture savings would be clearly dependent upon being offered that potential by the successful
supplier in a competitive procurement process.
Before progressing to procurement, participating Colleges would need to ensure they understood
and accepted the basis on which the financial business case was made, that the key considerations
raised above were covered, and that they accepted the proposals for how costs would be shared and
apportioned.
28

29. 6. Additional Considerations
The previous sections have highlighted a number of areas for consideration in progressing a potential
shared services solution, with points that are specific to the operating model or business case being
noted in the relevant sections.
This section includes a number of additional areas that should be covered in the assessment and
development of a similar shared services project. They are:
6.1 Governance
6.2 Staffing
6.3 Procurement and Commercial
6.4 Implementation Readiness
6.5 Wider Public Sector Experience of Shared Services
6.1 Governance
Governance is a key issue during the development, procurement and implementation phases of a
project. Different governance arrangements are likely to be required during the different phases to
make sure appropriate management and decision-making can take place.
Before a shared service is procured two key questions will need to have been resolved - who will own
the contract(s) and who will manage the contract(s). This section briefly looks at the role of contracting
authority and intelligent customer.
The Contracting Authority and Intelligent Customer
Significant work was undertaken to assess two important governance issues – who owned the
contract; and how would its operations be managed and overseen. Under EU law a framework
contract must be let by a recognised Contracting Authority. Since the Colleges participating in the
project were not a collective legal entity they would have to use either an existing company, create a
new Special Purpose Vehicle, or use a third party (e.g. a specialist procurement “hub”) to conduct and
consummate a procurement process.
In addition to the role of awarding a framework contract, there is also a requirement to ensure that the
framework operates as intended and that the individual call off contracts are optimised. Examples of
this “intelligent customer” role would include:
promoting take-up of the framework agreement among other Colleges to increase economies of
scale
policing compliance with the framework by both individual Colleges and the provider to ensure
that contracted efficiencies are achieved in practice, and
negotiating cost-effective variations to the contract on behalf of all customers where changes are
desired or become necessary through statutory or regulatory direction.
29

30. There are pros and cons to performing the role of contracting authority and intelligent customer “in-
house” as opposed to transferring such responsibilities to a third party. The Daedalus Project Director
spoke to a number of organisations that might be considered suitable for the roles, to test the potential
merits of different approaches. The following were considered key evaluation criteria for selecting the
Contracting Authority:
Control by members (e.g. participating Colleges)
Trusted to represent London Capital Colleges’ interests
Trusted to represent wider FE interests
Established networks across the sector
Core business
Have the skills to manage successful implementation
Appetite and capacity
Credibility
Value for money
Governance arrangements to protect members
Daedalus assumed that the participating Colleges would wish to control the Contracting Authority,
but there remained some key questions as to whether they second or directly employ staff to run the
procurement and framework agreement, or sub-contract elements of procurement advice and contract
management to specialist third parties. This latter approach might enable the Colleges to combine
control with the expertise necessary to be a credible and effective Contracting Authority / Intelligent
Customer. The relative availability and commitment of skilled resource across the Colleges needs to
be balanced against the cost and potential dilution associated with bringing in a third party.
The benefits of a single function for managing the delivery contract with the Shared Service Centre
include a greater resource saving since each College would not need to employ such resources, a more
consistent level of service for each College and more consistent relationship with the provider. The
benefits of each College managing its own contract include greater control (or at least a perception of
this), a more immediate relationship between College and provider, and a greater ability to negotiate
flexibilities. Depending on the final model chosen, the Colleges would need to agree how the
contract(s) are managed.
A decision on governance and resource commitments from initial participants before the procurement
process starts is key. If a third party is selected, it should be recognised that they would need to get
up to speed with the project and gain their own internal approval to participate, therefore an early
decision is important.
6.2 Staffing
Headcount reductions were identified as by far the greatest source of financial value in Project
Daedalus. Identified savings were supported through technology investment and business process
efficiencies, but without the commensurate reduction in labour that these facilitated, there would be
no efficiency case to pay for new systems and processes; contractor profit; and redistribution of back-
office costs to the front line.
How Colleges deal with their staff is the critical determinant of whether this type of project is
successful. Open and timely communication, alongside fair treatment of staff leaving the organisation
are both best practice and a legal requirement. There are important choices to be made in respect of
30

31. “fair treatment” that will impact both the financial savings case and staff attitude to the transition
plan.
Employment Issues and Recommendations
Legal advisers were appointed to consider the employment implications and their conclusions are
summarised below:
Issue Advice
TUPE Assume TUPE applies.
Determine whether all back-office staff transfer – or just those involved
in the “in-scope” activities associated with data capture, processing and
reporting.
Determine which employees are assigned to each part of the College as
this will determine whether or not they TUPE transfer.
Communication Start early informal information/consultation as soon as the proposed
outsourcing becomes public knowledge, i.e. no later than the time
when the Invitation To Tender or Invitation to Participate in Dialogue
is published. This informal consultation can continue during the
procurement process.
Commence formal TUPE consultation (if required) once contracts have
been signed with the provider. Such consultation will need to be with all
affected employees. This is likely to include academic staff.
Daedalus will require a culture shift in terms of compliance with the
processing of student activity. The greater emphasis on academic
compliance will require particular attention in consultation with
University and College Union (UCU).
Consult beyond the statutory minimum – e.g. staff briefings, information
on the individual Colleges’ intranets, question and answer sessions etc.
Consider the cost versus transition benefits of offering a voluntary
severance scheme to employees who do not want to TUPE transfer.
Transfer process Commence formal TUPE consultation (if required) once contracts have
been signed with the provider.
Transfer all employees (other than those who opt out through voluntary
severance) to the provider.
The provider would carry out redundancy consultations and make those
employees it does not require redundant.
The provider would consider what changes are needed to terms and
conditions, and implement those if permissible.
The Colleges are likely to need to agree to reimburse/indemnify the
provider in respect of all or some of the redundancy costs associated with
TUPE. An evaluation should be carried out of the likely pass through
costs and those the Colleges would be prepared to meet, as well as a
calculation of likely redundancy costs particularly bearing in mind the
early retirement provisions under the Local Government Pension Scheme.
31

32. Issue Advice
Pension Colleges can limit pension protection for future service to a money
purchase scheme under which the employer matches employee
contributions of up to 6%.
Fair Deal does not apply to FE Colleges. There will be expectations –
externally and potentially internally – that Colleges should be more
generous, and we will need to balance the savings case against employee
relations and transition planning. Fair Deal could add on costs of 20‐25%
depending on the age profile of transferring staff.
Employment of Retained (site dependent) Staff
Project Daedalus assumed that the members of the retained organisation would continue to be
directly employed by their own Colleges. There are a number of reasons why Colleges should
continue to employ the retained staff - retaining some expertise in-house, and ensuring staff working
in the College are employed by the College and are committed to the College rather than a third party.
However, there may be advantages of TUPE transferring the retained staff to the provider –
particularly those involved in on-site transactional duties associated with assessments and student
contact. The transfer of site-based transactional staff to the provider, potentially under a joint contract
of employment, could potentially create a more seamless service and ensure that local staff are fully
integrated into service delivery.
The pros and cons of transferring all back-office staff to the outsourcer – both those based locally
engaged in face-to-face functions and those working remotely – are summarised below:
Pros Cons
A seamless service – the same party is Transition process is more difficult because
responsible for local interfaces and remote key process champions have less job security
data processes
Negation of blame factors / single Reduced staff loyalty / allegiance
accountability of provider for back-office / engagement and weaker internal
communication, “them and us”
Sharing of local and specialist knowledge Creates different interface issues - less of a
“buffer” between curriculum and support
functions
Local choice around staff terms and Potential future loss of control over staffing
conditions retained on-site levels and recruitment
May facilitate termination scenarios - Potential VAT charge may be mitigated
retained staff understand outsourcer through joint contracts of employment
processes
For Project Daedalus the decision was seen as unlikely to be a deal-breaker, but a decision would need
to be made before progressing to procurement.
32

33. Other Employment Considerations
The potential location of the shared services centre needs consideration. There has been a trend
within UK outsourcing to create service centres in low cost geographies. While bidders may propose a
variety of service delivery models, Colleges need to be mindful that very few staff currently employed
who are eligible under TUPE to transfer to the new provider may be likely to do so.
Being a major local employer was noted as an important issue for some of the Colleges. An
outsourcing transaction is likely to reduce direct local employment, but has the potential to increase
local jobs by diverting resources from internal, back-office functions to the core business of running
additional skills and employability programmes. The balance between being a major local employer
versus being the creator of large scale employment opportunities through education and training is a
material factor that the Project Board was asked to consider.
It is also important to recognise that changing the operating model does not guarantee success. In
order to deliver the Target Operating Model there would be a need for some staff in each College to
change what they do in their day jobs and how they do it. Thus changes in behaviour and culture
need to take place in order for Colleges to deliver services as part of a Shared Services Centre. For
example course information will need to be provided and updated regularly, diaries/calendars will
need to be kept up-to-date and lecturers will need to amend relevant student details in a timely
manner.
All shared services projects have material staffing consequences, the impact of which will vary by
College. Should a project proceed to the procurement phase, there will need to be full and open
consultation with Trade Unions. Given the number of organisations involved, the need for consistency
going forwards, and the important nature of the change it should be considered that project
communications and staff negotiations are co-ordinated centrally.
6.3 Procurement and Commercial
The procurement process followed to select the shared service provider may be standard. However,
given the breadth of requirements, the number of organisations involved, the range of commercial
considerations, the potential timescales in which contracts could run, and the limited precedence for
this requirement, executing a successful procurement could be complex.
This section covers some key points on the procurement process, and identifies a number of
commercial issues that need to be understood and addressed. It also briefly covers VAT treatment as
this was a specific area of review in Phase 1.
Procurement
Legal advisers reviewed the project and points on the general procurement approach are summarised
below:
Official Journal of the European Union (OJEU) procurement regulations would apply.
The objective of the procurement process is to award a framework agreement that allows
the Colleges to procure the pilot project and additional Colleges to call-off services using the
framework’s terms, payment mechanism and standard service specifications in the future.
A framework agreement lasting up to ten years is likely to be justifiable. This would enable call‐
off contracts of 14‐17 years to be awarded, enabling both Colleges and the market to gain value
from their investment.
33

34. The Colleges should award a framework agreement to a single supplier with the “pilot” project
being the first call off under the framework. The Colleges should incorporate evaluation of the
pilot project call off as part of the evaluation for the award of the framework itself.
Use of the competitive dialogue procedure is most appropriate, following suitable pre‐
procurement engagement with the market place.
The procurement should be run by a single contracting authority than can act both as the
authority party and intelligent client. This could be an existing organisation or a Special Purpose
Vehicle established for the purpose.
Key Commercial Principles
The most material of the key commercial principles were deemed to be:
How Colleges would pay for the new service, including the extent to which benefits are ring-
fenced or standardised.
How initial investment costs are recovered, both from the Colleges involved in the Daedalus
project and subsequent joiners.
How the consequences of exit and termination are managed.
The key commercial recommendations made are summarised below:
Issue Advice
Pricing Colleges should aggregate volumes to drive the lowest unit cost for the benefit of all.
The base case assumption is that Colleges will pay for the new service on the basis of
transaction pricing. This is predominantly based on learner numbers and the model
assumes a weighting of 80% enrolments; 10% finance transaction volumes; and 10%
staff numbers.
Certain costs – e.g. the cost of the Intelligent Customer role and set up costs should
be borne equally, as all benefit equally from the service provided.
The sharing of pricing risk around volumes will need to be tested through
competitive dialogue.
While each College should make its own investment case, the Project Board should
reserve the right to consider some element of benefit standardisation if this is in the
common interest.
Investments Bidders are likely to adopt very different solutions requiring different levels of
investment.
The procurement process will need to ensure that cost, timing and functionality
risk is transferred to the Contractor. There may be an affordability argument for
Colleges to finance the investment up‐front.
Any up‐front investment will be recovered pro‐rata from Colleges joining the
framework agreement.
New joiners New joiners will be encouraged to join, and will have equal rights and
responsibilities in the governance of the framework agreement.
Pricing will be on the same basis as the “founding fathers” – i.e. a transactional
pricing model reflecting aggregated volume discounts.
New joiners will reimburse “founding fathers” in respect of any up‐front investment
made.
34

35. Issue Advice
Exit/termination Colleges will always have the right to walk away from the deal and recover their
data. The contract will require bidders to submit exit plans that will need to be
refreshed annually over the call‐off contract.
Where Colleges choose to exit “for convenience” they will need to compensate the
contractor (and potentially the remaining Colleges) for any adverse financial impact.
At termination, the Colleges will have the right to extend the contract; re‐tender
the contract; or bring the services back in-house. The mechanics for achieving this
should be tested through competitive dialogue.
Given the potential contract length some aspects, such as the charging model, may need flexibility
and regular review over time to make sure they are still appropriate for the services provided. As the
services required, the approach to providing services, and the number of Colleges using the services
all evolves it is important that the charging mechanism remains valid and doesn’t incentivise the
wrong behaviours for users or the supplier - or inappropriately reward Colleges that are large and/or
inefficient. If charging is based on a number of different transaction types, tests should be undertaken
to see if those transactions are still appropriate as the basis for total charges and are those charges still
appropriate for the service delivered/received.
The above assessment of key commercial principles remains high level and would require further
refinement. Daedalus challenged the advisers to produce recommendations given the project
assumptions since there are so few precedent deals involving multiple autonomous clients operating
to a standard specification delivered by a single supplier. Many of these commercial principles would
need to be further established through competitive dialogue, and potentially in consultation with
other shared services examples in the public sector that may have similar issues.
VAT
Advice in respect of Project Daedalus noted that outsourcing and shared services would create
an irrecoverable VAT charge when the new entity invoiced the customer for these services. This
primarily affects staffing costs, as VAT is already borne on systems and software. During Phase 1
the Government was introducing legislation that, in certain circumstances, may enable Cost Sharing
Groups to deliver services without charging VAT. The project sought advice from accounting
specialists to help understand the position, particularly in relation to the potential for some of the
on-site staff either being transferred to the shared service provider or working under joint contracts of
employment.
HMRC’s attitude was seen to change during the project following a consultation period and, given the
potential changing nature of this area, the Steering Group recommended that VAT should be treated
as one of several commercial considerations and that opportunities for VAT mitigation continued to be
explored.
6.4 Implementation Readiness
Daedalus considered processes through three increasingly detailed levels in order to test the feasibility
further, and to identify the specific activities that would be carried out by a Shared Services Centre or
the College under such an arrangement.
35