New Developments in Commissioning and Procurement (13 Nov 14)

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New Developments within
Commissioning and Procurement
Neil Coulson Associates
What will be covered?
• New EU Procurement Directives
• Alliance Contracting
New EU Procurement Directives
• Council of the European Union - new
directives came into force on 17 April 2014
• Nation states have up to 2 years to transpose
them into national law
• New Public Contracts Regulations 2015
• Opening up public contracts for SMEs
(including VCSE organisations)
Definition of SME’s
Company
category
Employees Turnover or
Balance
sheet total
Mediumsized
< 250
≤ € 50 m
≤ € 43 m
Small
< 50
≤ € 10 m
≤ € 10 m
Micro
< 10
≤€2m
≤€2m
Dividing large contracts into smaller
lots
• New turnover cap - contracting authorities will
not be able to set company turnover
requirements at more than two times contract
value except where there is a specific
justification
• If contracting authorities decide not to break
contract into smaller lots, they have to state
their reasoning in writing, but it could include
issues of expense or complexity
‘Innovation Partnerships’
• Commissioners able to publish a notice
outlining a need to be met by an innovative
product or service not currently available on
the market, stating minimum qualitative
requirements
• One or more respondents then selected to
become the commissioner's innovation
partner(s)
‘Innovation Partnerships’...cont
• IP engages with commissioner to develop
service that best meets the commissioner's
requirements (encompassing cost
negotiations)
• Peterborough Plus VCSE Consortium?
New ‘light touch’ approach to smaller
contracts
• The current Part A/Part B services distinction
has been removed
• Replaced by new light touch regime for
health, social and educational contracts below
a new €750,000 threshold (equivalent to
around £635,000).
Ring-fencing of certain contracts
• Certain health, social and cultural services
may be reserved to employee-owned mutuals
or social enterprises for a period of up to
three years
Alliance Contracting: Context
• Fragmentation of health and social care
services
• Competition between providers is often
detrimental to the end user
• Need for new, more integrated approach
• Both main political parties are showing
growing interest in it
Form of Outcomes Based
Commissioning (OBC)
Inputs/
resources
Deliverables/
activities
Outputs
Outcomes
Focus of OBC
What is it?
• Encourages the buyer and suppliers to work as
an integrated team
• Ties the commercial objectives (e.g.
profit/performance payments) of all the
parties to the actual outcome of the project –
‘best for project’ and ‘not best for individual’
• The alliance either wins or loses as a group
Potted History
• Originated within heavy engineering in the 1990’s
• British Petroleum introduced it in the North Sea
oil platforms in response to a range of problems
in working with suppliers: escalating costs, delays
in project completion, dispute and litigation
• Australia and New Zealand have subsequently
used it extensively within the public sector
• Now coming into the UK
How does contracting work?
Traditional Contracting
Commissioner
Provider
Provider
Provider
Provider
Lead Contractor or SPV model
Commissioner
Lead Contractor/SPV
Provider
Provider
Provider
Provider
Alliance Contracting: single contract
with a group of suppliers
Commissioner
Provider
Provider
Provider
Alliance
Provider
Shared risk and reward
• ‘gainshare painshare’ compensation model
• Each party’s commercial interest is expressly
tied to the actual whole system outcomes
• The commissioner, as the ‘owner’ of the
contract, drives this shared risk and reward
approach
Process involved in setting up
‘gainshare painshare’ system
• Set initial target cost, generated by the whole project team
(commissioner working alongside providers)
• The target cost is then compared to the final cost and the
resultant cost under or over-runs are then shared by all
participants – team wins or loses as a group depending on
project performance
• The comparison of target to actual cost is done through ‘open
book accounting’ (each supplier has to show actual records of
expenditure against the project to the other participants in
the contract – commissioner and other suppliers).
• NB needs to be competition law compliant
• The split of gains and losses between the commissioner and
providers is agreed by the parties to the alliance at the outset
of the project
Alliance Contracting Target Cost
Model
Contribution to
corporate overheads
plus operating surplus
Direct Costs
Subject to Project
Performance/
gainshare painshare
system
Automatically
Reimbursable
Key differences between alliance contracting
and traditional contracting
Traditional Contracting
Alliance Contracting
 Commissioner is separate
 Commissioner is part of
from delivery process
integrated delivery team
 Based on risk
 Based on risk sharing
transference
 Exculpatory approach
 ‘No blame’ culture
within risk management
framework
 Responsibility for
 Everyone works towards
outcome delivery is
whole system outcomes
apportioned across
separate providers
 Encourages decision
 Encourages decision making
making founded on ‘best
founded on ‘best for project’
for self’
 Closed book accounting
 Open book accounting
Key ingredients of effective alliancing
• Small number of participants (alliance contracting is based on
relationship development and management so the larger the
team, the more difficult and problematic this becomes);
evidence suggests a maximum of 8 partners
• There is a need for equality between the team members –
the presence of a large, dominant provider could skew the
consensual decision-making processes that alliance
contracting is based on
• Therefore, alliance team members need to be carefully
selected
• The alliance has to be based on clearly documented
principles to which all members of the alliance are completely
agreed
• People need to behave like grown-ups!!
Why is the interest in Alliance
Contracting growing?
• Focus on outcomes
• Within Health & Social Care - a way of
facilitating integration across the care cycle
• Monitor – formally recognises “contracting an
alliance of providers” as a possible approach
for CCGs
Case study: Stockport Metropolitan
Borough Council
• Mental health reablement and recovery service – 2
VCSE providers plus commissioner in alliance team
• Seen as opportunity to link collaborative approach
embedded in alliance contracting with the principle
and practice of co-production
• ‘...a maturity of approach and manner and a willingness
to take some risks is required; collaboration is very
different in my eyes to partnership, captured I think
with the idea of aligning your organisation’s future
success or failure with that of former competitors’
(Nick Dixon, Commissioning Manager, Stockport
Metropolitan Borough Council).
Challenges
• Legislation – Competition Law
• Demand side - appetite for risk, skills and
knowledge of commissioners
• Supply side – limited knowledge of alliance
contracting within VCSE, issues with sharing
risk
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