Date post: | 01-Apr-2015 |
Category: |
Documents |
Upload: | quinton-dock |
View: | 215 times |
Download: | 0 times |
Public Service Contracts – Challenges and Opportunities
David HunterConsultant
• New EU procurement directive
• Payment by results contracting
• Social impact bonds
What we will cover
EU procurement directive – the background
• European Commission’s Europe 2020 Strategy
– “to enable procurers to make better use of public procurement in support of common societal goals”
• EU Directive 2014/24 in force on 17 April
• UK seeking to implement this autumn
• (Fleeting) consultation imminent
EU procurement directive – different regimes
• Bye Bye Part B
– “light touch regime for social and other services”
– Higher threshold of EUR750,000
– An example of an issue where Member States have some discretion in implementation
• The Employee Mutual Exemption
– For certain health, social and cultural services, procurers may limit the competition to organisations satisfying relevant conditions and award a contract for not more than 3 years
• Innovation Partnerships
– A mechanism for a procurer to work collaboratively with one or more bidders to develop new products, services or works
EU procurement directive – simpler processes
• Financial standing: required minimum yearly turnover not to exceed 2x estimated contract value
• European Single Procurement Document: a self declaration and sufficient evidence (at least till selection of successful bidder)
• Division into lots: an option for the procurer, but if it does not do this, it must explain its decision
• Conditions for participation: can only be from an exhaustive list and only then if relevant
EU procurement directive – the specification
• Specific processes can be required if they are linked to the subject matter of the contract and are proportionate to its value and objectives
• Labels can be used as proof that the works, supplies or services achieve particular environmental, social or other characteristics (subject to conditions)
• Compliance with environmental, social and labour laws in the performance of public contracts has to be ensured by measures to be introduced by member states
EU procurement directive – award criteria
• MEAT
– As defined, still allows scope for a contracting authority to select on price alone
– This can be prohibited by member states, or limited to certain contracts
• Price – quality ratio
– Another way to establish MEAT
– Based on criteria, including qualitative, environmental and/or social aspects linked to the subject matter of the contract
• Life cycle costs
– Form part of the price – quality assessment
– Can cover costs borne by the contracting authority or other users
– Can cover costs imputed to environmental externalities
– Need to be objective, verifiable, accessible
EU procurement directive – contract performance
• Special conditions around economic, innovation-related, environmental, social or employment-related considerations linked to the subject matter of the contract
• Identification of subcontracted elements: member states may require procurers to ask tenderers to indicate any share of the contract to be subcontracted and to whom
• Direct payment of subcontractors: member states may provide direct payment of subcontractors by procurer is possible in relevant circumstances
So what difference will it make?
• Depends on how introduced to UK law
• Depends on how implemented by procurers
• Depends on how much trouble people are prepared to make if it is ignored
• But another positive step in the right direction
Payment by Results
• A seductive concept
• Lost in translation
• Creating unintended consequences
Payment by results – incompatible aspirations
• Two of the heralded benefits of PbR
– it passes performance risk to the provider
– it allows the space for innovation
Payment by results - risk
• Financial risks
• Delivery risks
• External risks
• Reputational risks
• Constitutional risks
• Commissioner risks
Payment by results - innovation
• Tends to arise where new challenges emerge
• Tends to arise where little to lose
• Tends to arise in unconstrained situations
Payment by results – characteristics (1)
• Payment mechanism
– are targets realistic?
– are volumes guaranteed?
– are payments being made for what would happen anyway?
– are the measures binary?
– is it simple to implement?
– are the right behaviours being encouraged?
– who has created it?
– are the timing of payments commercially feasible and financially desirable?
– is it distorting the market?
Payment by results - characteristics (2)
• Measurement
– a baseline has to be established
– targets have to be identified and calibrated
– have to be fair and realistic and incentivising
– mechanisms have to be introduced to record the data
– processes have to be introduced to assess the data
– bureaucracy increases on all sides
– has to be worth it
Payment by results – characteristics (3)
• Specifications and contracts
– in theory, should be light touch, leaving provider free to deliver the outcomes however they choose
– in practice, procurer often has statutory duties and responsibilities to the public which sit uncomfortably with the theory
– requires more than using the same documents with a different payment clause
– requires a new approach to commissioning and to contract management
How might commissioners use PbR more effectively?
• Start with asking what they are trying to achieve and why
• Then assess whether and how PbR will assist in that
• Involve service users pre procurement to help identify the desired outcomes
• Involve providers pre procurement to input into contract design
• Develop a coherent specification and contract
• Implement the contract flexibly, encouraging collaborative approaches
What can the not for profit sector do to engage more effectively with PbR?
• Don’t disengage with PbR as a matter of course
• Invest time in engaging with commissioners pre procurement
• Assess the ability of the commissioner to procure and manage a successful PbR contract
• Assess whether what the commissioner is asking for is consistent with your own mission
• Think creatively … maybe consider …
Social Impact Bonds – what are they?
• Projects with the following characteristics:
– a commissioner looking to achieve significant social outcomes and financial savings at the same time
– use of payment by results contracting
– a civil society sector provider applying innovative interventions to deliver the desired outcomes
– investors funding the work of the provider in the first instance and taking the risk of the interventions’ success, accepting a relatively modest financial return accompanied by a social one
– robust metrics and data capture to evidence the impact
– (often) the involvement of several commissioners
SIBs – why are they attracting so much interest?
• Address some of the problems with PbR
– Risk
• Risk still not with commissioner, but passes now from provider to investor (to a large degree)
– Innovation
• Greater scope for providers to explore genuinely new approaches to service delivery (part of the attraction to investors to a degree)
– New way of commissioning and contracting
• Potentially introduces a more explorative and collaborative relationship between commissioner and provider that can be replicated
– More systemic solutions
• Potentially introduces preventative service provision creating benefits beyond the life of the immediate contract and template for future service provision
SIBs – why are they attracting so much interest? (2)
• Potentially bring new money into the sector at a time of cuts
• Introduce additional rigour with investors’ due diligence of proposals and operations
• Build on the commonalities of interest between public service and public benefit organisations
SIBs – why aren’t there more of them?
• They are complicated
• They require a lot of preparatory work
– to identify suitable outcomes; the means to measure them; the savings that could be delivered, other commissioners that could benefit
– to be sure there are providers and investors with the ability and interest in delivering those outcomes
– to develop a payment mechanism that works commercially and financially and operationally
– to run a procurement process
• They take up time and resource and money and attention when all in short supply
• There are perceptions they are expensive
SIBs – what is being done to address this?
• Centre of Excellence
• Social Outcomes Fund
• Commissioning Better Outcomes Fund
• Providers taking initiative
• New models being developed