Struggling firm in line for huge outsourcing deal

The local authority expects to save £71.6 million if councillors agree at a meeting on Thursday to award a seven-year, £30m a year contract to outsource its environmental services to Lancashire-based Enterprise.

Unions have reacted with outrage over the proposal which could see as many as 800 council jobs transferred to Enterprise, which has been struggling this year to reduce the impact of a £761m debt pile.

The firm, which employs 13,000 workers across the UK, was bought out by private equity firm 3i in a £500m deal in 2007 and delisted from the London Stock Exchange.

Earlier this year the firm announced it had agreed a deal to sell its debt to a consortium of banks specialising in distressed debt, including Goldman Sachs, KKR, Angelo Gordon, Centerbridge Partners, Davidson Kempner and Sankaty Advisors, after majority shareholder 3i wrote down the value of its stake by £200m.

At the end of 2010, the firm made a pre-tax loss of £135m, which drove it to embark on a cost-cutting exercise which at the half-year amounted to 200 lost jobs. Stripping out exceptional items, group operating profit during the year came in at £61m, down from £77m for the same period last year.

The outsourcing giant is currently led by its chairman, Alan Peterson, a corporate turnaround specialist, who has been taking a “hands-on” role following the departure of the firm’s chief executive, Neil Kirkby, in March. The firm has not found a replacement.

In a half-year report in July, the firm said its had grown its order book to £1.5 billion since the beginning of the year and made cost reductions of £10.5m.

The group – which has also recently agreed a 23-year contract for environmental and facilities management with Peterborough Council – said its margins had continued to fall short of its profit target of 7.3 per cent.

Edinburgh Council said the deal would offer “improved service at a lower cost”. The deal will include street cleaning, grounds maintenance, fleet services, waste collection and recycling.

Trade union Unison condemned the council for “gambling with jobs and services”, but business leaders and other sources cautiously welcomed the move as a means to cut costs and settle long-standing disputes, particularly with waste services employees.

Graham Birse, deputy chief executive of the Edinburgh Chamber of Commerce, said: “One of the most important services the council provides are the basics like collecting bins and keeping streets clean.

“In our view, the most efficient way from the taxpayers’ perspective of collecting and dealing with waste and recycling is the best way to do it, and if that involves outsourcing that service … then that represents better value for the taxpayer.

“We would expect the council will follow due diligence procedures and ensure the company that it is outsourcing its services to fully complies with all the tests that are inherent in their very thorough procurement process.”

Council leader Jenny Dawe said: “In these challenging times it is essential that the council critically examines every opportunity to enhance services and improve efficiency.

“That’s why we embarked on a detailed exploration of alternative models of business for the council to engage in.

“I appreciate that this is a difficult time for staff. It is important to emphasise that no decision has been taken on the proposal at this stage.”