Rotherham Metropolitan Borough Council has opted for a joint venture with BT to avoid the upheaval of outsourcing.
The local authority needs to bring its back-end administration and management, as well as its front end services, up to date.
The council said the joint venture will generate £150m in turnover over the next 12 years. The joint venture, a limited company, is called Rotherham Brought Together (RBT) Connect. The council predicts it will save £50m over the period.
BT will contribute £30m towards technology and training, with the council predicting £50m in savings over the period.
The partnership was preferred to outsourcing because council staff will remain in place and can use their experience in providing services.
This will maintain the standard of service the council offers to its citizens, while improving efficiency through the use of technology, according to Jonathan Prew, strategic services director at the council.
As well as reducing costs, the new company will become a profit centre in the future by offering its services to others.
Prew explained that the resources acquired through the partnership are essential in helping the council to improve efficiency and services.
"We knew where we wanted to get to and that needed extra investment, skills and expertise," he said. "We did not have all three so the BT partnership brought the IT equipment and training."
Meeting Tony Blair's 2005 online services target will also be more achievable, according to Prew.
Front line services to citizens will be improved through Siebel's E-City CRM system designed for local government use, while BT will re-engineer the front- and back-office systems.
Liverpool City Council has a similar partnership with BT in Liverpool Direct, a joint venture in which the council has a 20 per cent stake.
Rob McVicker, commercial director at the company, said that the system was preferred to outsourcing "because the city council wanted to be part of the solution".
He cited the advantages as local authority influence on policy, worker terms and conditions remaining unchanged, and council staff knowledge and skills ensuring best practice for services.
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