Commercial Skills Development Programme. Module 2 Effective Procurement. Page 1

Transcription

1 Commercial Skills Development Programme Module 2 Effective Procurement Page 1

2 Roadmap for Developing Commercial Skills Module 1 Module 1 Module 2 Module 3 Using Markets to Improve the Health System Using Markets to Improve the Health System Effective Procurement Managing Performance PLAN (and manage market) (the system) Module 4 CREATING THE COMMERCIAL CULTURE Page 2

3 Module 2 Effective Procurement This module will explore what constitutes an effective procurement strategy, set out criteria for commissioners to follow before they engage in the procurement process, and provide advice on the key steps to undertake during the procurement process. By the end of this module you should be able to prepare a specification, assess affordability, value for money, manage procurement, evaluate tenders and close deals effectively. Page 3

4 NHS wastes millions by overpaying for supplies -The Times, 3 January 2011 More than 1 billion a year of taxpayers money is being wasted as health service managers spend wildly different amounts on the same supplies, the head of a government-backed efficiency drive has told The Times. Eight NHS trusts are routinely paying 19 different prices for the same pacemaker, wasting up to 750 a time, in one of many examples of how money is squandered when equipment is bought at needlessly high prices. John Neilson, managing director of NHS Shared Business Services, said that managers sitting just a few desks away from each other in the same NHS trust could be paying vastly different sums for everything from stationery to surgical instruments. It s scary. We actually have multiple prices being paid for the same item in the same trust, in the same month, he said, at a time when the health service has been told to save up to 20 billion Page 4

5 Where are we now? What are some of the major challenges facing you? Page 5

6 Module 2 Effective Procurement Designing Your Organisation s Procurement Strategy Page 6

7 Designing Your Organisation s Procurement Strategy The Commercial Aspects 1. Establish the specification 2. The Commercial Framework 3. Designing the Contract 4. Procurement Management 5. Economic Viability 6. Impact Assessment 7. Evaluation 8. Due Diligence 9. The Business Case 10. Closing the Deal Page 7

8 Designing Your Organisation s Procurement Strategy Months 1-3m 1-3m 2-3m 1-2m 3-4m 2m plus Procurement Strategy Specification Commercial Framework Total 12m plus Designing the Contract Procurement Management Economic Viability Tender docs out Impact Assessment Evaluation Due Diligence Minimum time: 6 months - this is perfection More likely: 9 to 12 months Something has gone wrong (internally or externally): >12 months The Business Case Closing the Deal Page 8

9 Any Willing Provider The Government will create a presumption that all patients will have a choice and control over their care and treatment, and choice of any willing provider where relevant. How AWP differs from normal process? Competition within a market not for a market Commissioner approves a number of willing providers for the same service who meet clinical standards and tariff Providers are paid for work undertaken there are no guaranteed volumes Works in tandem with Choose & Book White Paper Equity and Excellence: Liberating the NHS AWP frameworks offer rapid procurement without lengthy tendering processes (10-12 weeks) AWPP (Any Willing PCT approved Provider) offers opportunity to develop local framework and tariff for selected services and to manage accreditation windows. Page 9

10 Any Willing Provider AWP works best where: Demand is manageable There are no economies of scale Applied to Routine Elective Services There are low barriers to market entry A service will not create a monopoly there needs to be many providers willing to compete AWP does not work where: High value, low volume or specialised services There is no control over demand There is a very limited market few providers / high barriers to market entry A service is new and has not been commissioned before There is a need for high levels of control to mitigate financial & reputational risk There is Unplanned Care / Complex Medical Conditions Page 10

11 Designing your Organisation s Procurement Strategy What is Procurement? Procurement is the planning, design and implementation of a process to enable an organisation to acquire defined goods and/or services covering both acquisition from third parties and from in-house providers The process spans the whole life cycle from identification of needs, through to the end of a services contract or the end of the useful life of an asset. It involves options appraisal and the critical make or buy decision it includes development of the procurement strategy, preparation of contracts, selection and acquisition of suppliers, and management of the contracts which ensure the availability of the services in the desired quality, quantity, place and time it ensures that the wider market for service provision is engaged to ensure contestability and innovation, and drives the delivery of value for money Page 11

12 Designing your Organisation s Procurement Strategy Why Procure? Market management interventions through your Commercial Strategy must align with your strategic plans In the same way as market engagement and development (Module 1) is a key tool by which you can achieve the objectives and outcomes of your strategic plan, procurement is also used: As a lever to improve quality, drive efficiency, improve costs, value for money, productivity, health inequalities.. To introduce new services / service models Where diversity of supply spreads risk Where additional supply is required (as one-off or on an ad-hoc basis) To provide consistent commercial tension to maintain high quality, good value for money To provide long term sustainability To meet changing needs To stimulate innovation and change Because competition drives quality, efficiency and value for money Procurement delivers commercially robust contractual arrangements Page 12

13 Designing your Organisation s Procurement Strategy PLAN Remember the importance of your Plan and Engage activities (Module 1) Are you ready to procure? Have you carried out significant analyses and options appraisal to be confident that procurement is the right route to securing your health outcomes Do you know the specification, pathways and quality standards? Do you have sufficient certainty about volumes / demand? What currency are you intending on using? Have you designed your future market state? (e.g. no. of providers, size of individual contract(s), what sectors you wish to attract, market share) Have you defined your contestability pipeline? Have you carried out market testing (a dry run pre procurement)? Economic viability Pricing vs affordability Volumes Case mix Currency Page 13

14 Designing your Organisation s Procurement Strategy PLAN A thorough strategic planning and options appraisal process is the key to informing an effective procurement Your procurement strategy should include: G ov e r n a n ce Compelling practical, clinical and commercial rationale the why? Need Affordability Value for money Proportionate response Appropriate resourcing Strategic alignment Approval board approval and initial sponsorship Clinical leadership and engagement Ongoing sponsorship and commitment Public and patient views Defined future market state Risks, challenges and mitigation plans Page 14

15 Designing your Organisation s Procurement Strategy Ensure your procurement strategy passes the commercial test Commissioning is the assessment and prioritisation of population needs which is secured by the practical delivery and continued monitoring of improved health outcomes through value for money solutions balancing clinical quality, robustness, safety and patient experience with affordability Commercial skills are the tools by which you as a commissioner use, manage and work effectively with the market and providers and where appropriate by preference with existing providers to achieve this Page 15

16 Designing your Organisation s Procurement Strategy Your procurement strategy must also follow the rules and guidance: Principles and Rules for Cooperation and Competition (10 principles revised PRCC Oct 2010) Guidance/DH_ Equal treatment Non-discrimination Mutual recognition Proportionality Transparency EU Legislation, Directives and other procurement legislation based on Treaty of Rome Principles Freedom of movement of goods Freedom of establishment Freedom to provide services Office of Government Commerce ( OGC ) Supply2Health Department of Health Guidance (PCT Procurement Guide / Commercial Skills for the NHS) Page 16

17 Designing your Organisation s Procurement Strategy What are the outcomes of effective procurement? Examples include: Delivering better quality, value for money for the procured services for a certain price Delivering change and innovation Enhancing sustainable supply Rebalancing risk and reward between commissioners and providers Delivering improved commercially robust contracts Raising the market standards, and reducing complacency Encouraging a continual cycle of improvement and innovation Page 17

18 Page 18 Designing your Organisation s Procurement Strategy When might procurement not be appropriate? Undeveloped, very immature market Critical, high risk, highly complex services requiring scarce highly skilled resources When it s not value for money on a whole health economy basis Clinical robustness and quality cannot be balanced with affordability When options appraisal and business planning shows that it is unlikely to create the desired and intended competitive tension Not a proportionate response (for example proposed contract values do not justify the resource investment) Existing providers have been inadequately performance managed and therefore quality / price / performance has not yet been fully tested Existing providers have not yet been offered the opportunity for service improvement / redesign / change within the existing contractual arrangements and competition rules

19 Designing your Organisation s Procurement Strategy If you do not procure is your argument against procurement robust? Your decision may be subject to a challenge Remember market management work Module 1 Evidence your decision process thoroughly Page 19

20 Designing your Organisation s Procurement Strategy How long might it take to develop your procurement strategy? 3 6 months depending on scale and complexity Plan, plan, plan Support with good documentation Page 20

21 Designing your Organisation s Procurement Strategy Contestability Pipeline Drivers are: Strategic plan, priority commissioning intentions Outcomes required some are suitable for procurement, and some are not Commissioning outcomes, for example; value for money, cost, access Health outcomes, health equality Choice agenda Definition of future market state Sequencing priorities QIPP Healthcare White Paper UK plc economic agenda: efficiency, driving down costs, better value for money Proportionality Page 21

22 Designing your Organisation s Procurement Strategy Contestability Pipeline Inputs Improving understanding Prioritisation through strategic plan Engage and consult with patients Develop Stakeholder Plans Identify system levers Clinical engagement Contents Market stimulation interventions Market testing interventions Market development interventions by sector, even coverage Risk and risk mitigation plan Roadmap for strategy Use of choice agenda Related Requirements Organisational development to underpin Integration of structures into commissioning cycle Outputs Stronger relationships (clinicians, patients, providers) Better understanding of existing and how to improve Improved contracts & ability to performance manage What success will look like Page 22

23 Module 2 Effective Procurement Step 2: The Commercial Framework (to a Procurement) Page 23

24 Step 2: The Commercial Framework What is it? A documented approach / suite of documents, containing: The procurement route The specification and clinical pathways Practical aspects and proposed solutions to be able to deliver the services Commercial sense tests Overview principles of contract as a sense check to market deliverability It is the procurement strategy for a particular circumstance It revalidates and sense checks your commercial and procurement strategy at the individual project level Page 24

25 Step 2: The Commercial Framework The Commercial Framework is the Dress Rehearsal for: Road testing the procurement route Road testing the procurement negotiations Road testing what happens during the contract management phase This generally takes 2 to 3 months if there is focus and the required subject matter experts ( SMEs ) are involved. Page 25

26 Step 2: The Commercial Framework RECAP: Commissioning Commissioning is the assessment and prioritisation of population needs which is secured by the practical delivery and continued monitoring of improved health outcomes through value for money solutions balancing clinical quality, robustness, safety and patient experience with affordability. Commercial Skills Commercial skills are the tools by which you as a commissioner use, manage and work effectively with the market and, where appropriate by preference with existing providers, and providers to achieve this. SO The Commercial Framework combines the route to procurement and the what to procure in such a way as to be capable of delivering your commissioning intention practical delivery..improved health outcomes.through vfm solutions..balancing clinical criteria with affordability. Page 26

27 Step 2: The Commercial Framework The Building Blocks Health Outcomes Evaluation criteria and methodologies Designing the Contract (inc. specifications) Health Outcomes Procurement Route Quality Economic Viability for: Patient Taxpayer Provider Page 27

28 Step 2: The Commercial Framework Procurement Routes Open Restricted Competitive Dialogue Competitive Negotiated OJEU OJEU OJEU OJEU Evaluation EOI and PQQ EOI and PQQ EOI and PQQ Typically used for goods rather than services Absolute spec required Commodity approach ITT to short list No negotiation of final bids EU preferred option Needs absolute specification definition Limits commissioners scope at start Dialogue phase ( collective and quasi negotiation) Short list Issue final ITT (no further negotiation) Introduced to end abuse of negotiated procedure ITN to short list Negotiation (e.g. on variant bids) Page 28

29 Step 2: The Commercial Framework Procurement Routes when to use? Open Completely defined specification Restricted Completely defined specification Competitive Dialogue Incompletely defined specification Competitive Negotiated Completely defined specification Very clear knowledge of price Clear knowledge of price Any innovation occurs pre procurement Commissioner actively seeks input from bidders on informing specification Lack of clarity on elements of pricing/commercial risks i.e. needs to be negotiated Multiple providers Sufficient providers exist to comprise an efficient market Moving towards mature market where good dialogue possible Sufficient providers exist to provide appropriate competitive tension Only simple evaluation required Focuses on quality, price, value for money (vfm) Bidders pricing likely to vary with different approaches Focus on new services, substantive changes / innovation during procurement Tends to focus on price / changes in commercial risks Some (but limited innovation) Simple procurements Complex procurements Complex procurements Exceptional circumstances only Examples: Any Willing Provider; goods (rather than services); local choice menus Examples: Equitable Access Programme, diagnostics procurement Examples: Mental Health, Community Services Examples: ISTC and PFIs where market making required Page 29

30 Step 2: The Commercial Framework Procurement Routes Open Restricted Competitive Dialogue Competitive Negotiated Market test OJEU Notice Issue Tender Docs N/A N/A PQQ and evaluate N/A Short list N/A Dialogue Issue Final Tender N/A (ITT) (ITT) (ITN) Negotiation Evaluation Pre mobilisation planning Contract award Contract manage Page 30

31 Step 2: The Commercial Framework Recap: The Commercial Framework combines the route to procurement and the what to procure in such a way as to be capable of practical delivery. Part 2 of the Commercial Framework focuses on the practical aspects which scope the contract..before you engage your lawyers Page 31

32 Step 2: The Commercial Framework Market Phase Contracting Environment 1. Developing market i. Second Phase ii. Third Phase 2. Mature market (e.g. AWP) Accredited Lists Frameworks with some variability of pricing acceptable Frameworks with standardised pricing Standard contracts Input specifications not sufficiently well defined Where commissioner requires/accepts/permits multiple providers output specs to have some variation and standard contracts do not exist; seeks to limit choice of providers to specified standard Where market has accepted the defined spec at defined price and commissioner needs multiple/different service models from which to choose; limits choice of providers Frameworks are time consuming to set up make sure you will definitely use them and they are capable of having longevity can be useful on a collaborative commissioning basis Page 32

33 Step 2: The Commercial Framework Practical aspects Patient Patient safety Patient reported outcome Measures (PROMS) Patient experience Recording patient experience Continuity of services and during post contract end Money Revenue implications Cost of achieving objectives Affordability Marginal vs full costing models Premium pricing Double counting on pathways PbR Tariff Capex Investment required? Availability of funding Who funds Payback period ROI Specification Input vs output Delivery requirements Quality standards Inclusions vs exclusions Entry and exit points Exceptions Protocols Clinical assumptions Stipulations Fragmented pathways Clinical requirements Estate and facilities Who builds? Who funds? Who retains at end of contract? Residual values to purchase? Lease/licensing Building costs Who maintains equipment? Commercial Pricing model activity based, block, outcome based - all inclusive vs piece meal - guaranteed income models Performance regime - recording - monitoring - penalties - corrective and remedial actions Risk sharing - during build and mobilisation - during contract - during demobilisation SOR-CPs Contract length Structures JV, sub-contracting Workforce TUPE at start/end? Redundancy costs at start/end? Secondments Agenda for change implications Workforce models received during contract Page 33

34 Module 2 Effective Procurement Step 3: Designing the Contract and The Role of Lawyers Page 34

35 Step 3: Designing the Contract When? How? In time to send out with the rest of the initial tender documents Start early they are time consuming Allows consortium to control process if contract is fully formed It could take 2-3 months if there is little existing base from which to crib Identify all internal experts who will inform process: Clinicians, workforce, PbC, IM+T, finance, estates, commercial, procurement Create the Commercial Framework (see Step 2) it secures a disciplined holistic approach Obtain/identify precedents and existing examples Use the DH standard contracts as a template Steal shamelessly Page 35

36 Step 3: Designing the Contract Contract Life Cycle Performance checking Performance Issues Financial Consequences Warning Notices i. Corrective Action ii. Remedial Action Material Breach Termination for Provider Default Contract Award Conditions Precedent Mobilisation Service Commencement Performance management i. Contract management ii. KPIs iii. Regular reporting Ongoing successful contract/no changes required Expiry / Renewal PCT Voluntary Termination Change Mechanism Ongoing Contract EXPIRY Changes Required PASS Dispute Resolution FAIL Termination Page 36

37 Step 3: Designing the Contract Areas of Focus Birth to Death Conditions Precedent Mobilisation, Statement of readiness and risk sharing during mobilisation Price and performance during ramp-up Price and payment mechanism Risk sharing Performance regime KPIs ( SMART ) Financial vs non financial regime Warning points/notices Corrective and remedial action plans Reporting regime inc. patient information Change mechanism v bidding variants Continuity of service during contract Page 37

38 Step 3: Designing the Contract Areas of Focus Birth to Death ; cont. Provisions for transparency / benchmarking Escalation & dispute resolution Material breaches Force majeure Partial termination Full termination Termination / exit plans and behaviour Consequences of termination inc. costs & assets: - Commissioner - Provider - Force majeure Continuity of service post expiry / termination And not to forget.. Contract length, and impacts on bidder pricing Long stops Intellectual property the lawyers domain The Information, Management and Technology Schedule (Schedule 5) Staffing matters (e.g. TUPE, training) Page 38

39 Step 3: Designing the Contract Dos Be prepared and resource up Involve clinicians early and throughout Ensure the contract aligns with how you are evaluating; e.g. if quality is an important evaluation criteria it should feature prominently in the contract Take control of the contract design process Be clear and detailed Be sure the performance regime reflects the clinical and other outcomes you want to achieve Accommodate expected changes over time e.g. more progressive KPIs as performance improves, adaptations for changes in guidance Accommodate patient reported outcome measures and patient experience Set achievable but stretch targets Design to allow for future innovation Design to allow controlled change Don ts Produce Heads of Terms / other forms of compromise if you can avoid they add to time in the long run Put off making difficult decisions it allows bidders to propose their requirements and take control Involve lawyers too early Create administrative burdens / analysis paralysis Produce deliverables outside provider control Offer incentives that can have major adverse behavioural effects Include too many KPIs that the effect is diluted Set unachievable or undeliverable performance regimes Set contract management regimes that are administratively burdensome Page 39

40 Step 3: The Role Of Lawyers Why? Procurement is regulated by law EU Directives are incorporated into UK law via Regulations OGC is responsible for process Other laws apply P World Trade Organisation ( WTO ) P Contract law P Competition law P State aid P Domestic legislation UK domestic policy is based on achieving value for money P Chapter 22 Accounting officer responsibilities P Achieving vfm, normally through competition Page 40

41 Step 3: The Role Of Lawyers When to engage? A lawyer is only as good as the information he/she is provided with He/she is a technical expert who translates commissioners needs and objectives from layspeak into technical language If you talk in pigeon language you will get a pigeon contract or a very hefty legal bill to help you speak full English So P Know and be able to articulate your inputs and outputs P Spend time before lawyer engagement constructing a first draft of your commercial framework P Steal shamelessly obtain existing examples of contracts / contract provisions that you know work P Engage well in advance of tender documents being issued P Engage to finalise procurement documents and final contract P Engage on each occasion and before you want to make significant changes to the procurement process and/or documents if they have already been published It can take up to a month to get a lawyer engaged Page 41

42 Step 3: The Role Of Lawyers Remember the DH contract What is the brief? Define as much as you can upfront: P Preparing an initial draft contract P Involvement in negotiations, or otherwise, or at specific stages P Drafting changes, or reviewing changes P Final review P Gathering related documents, or otherwise P Assessing risk of challenge as procurement progresses must be done in conjunction with commercial experts Obtain a fee quote/estimate hours and rates Ask to be kept informed on a specified regular basis (e.g. fortnightly) so you can monitor scope and cost creep Page 42

43 Step 3: The Role Of Lawyers Hints and Tips Do engage when: P P P P P P Procurement process may need to change Significant commercial issues are being discussed, e.g. risk sharing, termination You are in a position to reach final agreement There are potential risks and issues There is potential for challenge process or scope changes Technical drafting is required Building your commercial confidence will help to reduce the need for constant legal input Use existing DH standard contract templates / contract provisions and schedules as a base where relevant Ensure your procurement team contains high quality word processing resource so that you can use your lawyers for their technical, not their typing, skills Page 43

44 Module 2 Effective Procurement Step 4: Procurement Management Page 44

45 Step 4: Procurement Management What is it? Project Implementation Plan ( PIP ) / Project Initiation Document ( PID ) setting out: Procurement strategy Procurement route (e.g. open, restricted, competitive dialogue, negotiated) Risks and challenges of deliverability and mitigation Project team (evaluators, negotiators, reviewers and approvers) Specialists clinical, commercial/financial, procurement, legal, workforce, other Governance, terms of reference and escalation Key stakeholders Timescales, timetables, milestones Reporting, monitoring and review Page 45

46 Step 4: Procurement Management Awareness and Availability Stakeholders Bidders Resourcing - Capability - Capacity - Professional and technical advisors Bid costs, milestones, gateways and timetables Documentation Approval process Business Case Need Affordability Procurement route Commercial Framework Economic viability Impact assessment Evaluation Criteria Value for money Governance Risk register Page 46

47 Step 4: Procurement Management Why? Secures proper process and discipline Audit trail Information available in light of challenge Ensures respective roles and responsibilities understood Identifies and manages conflicts of interest Identifies who needs to be involved early on and an engagement plan Page 47

48 Recap on Day 1 of Module 2 Steps covered today: 1. Establish the specification 2. The Commercial Framework 3. Designing the Contract 4. Procurement Management 5. Economic Viability 6. Impact Assessment 7. Evaluation 8. Due Diligence 9. The Business Case 10. Closing the Deal Page 48

49 Recap on Day 1 of Module 2 Remember Plan and Engage : a strong strategic plan and options appraisal will inform effective procurement. Engage with clinicians, patients and stake holders Define your specification and price it before you go to the market the intelligent commissioner Consider which of the available procurement routes is most appropriate for your procurement Ensure all key subject matter experts are engaged early the Practical Aspects A well considered commercial framework is key to avoiding procurement failures A well designed contract will allow you to better control the process; draft your contract (use standard DH contracts as a template) before consulting a lawyer: their technical advice can further ground your scheme. Employ good project management techniques Page 49

50 Commercial Skills Development Programme Welcome Back Effective Procurement Day 2 Page 50

51 Recap on Day 1 of Module 2 Remember Plan and Engage : a strong strategic plan and options appraisal will inform effective procurement. Engage with clinicians, patients and stake holders Define your specification and price it before you go to the market the intelligent commissioner Consider which of the available procurement routes is most appropriate for your procurement Ensure all key subject matter experts are engaged early the Practical Aspects A well considered commercial framework is key to avoiding procurement failures A well designed contract will allow you to better control the process; draft your contract (use standard DH contracts as a template) before consulting a lawyer: their technical advice can further ground your scheme. Employ good project management techniques Page 51

52 Designing Your Organisation s Procurement Strategy The Commercial Aspects 1. Establish the specification 2. The Commercial Framework 3. Designing the Contract 4. Procurement Management 5. Economic Viability 6. Impact Assessment 7. Evaluation 8. Due Diligence 9. The Business Case 10. Closing the Deal Page 52

53 Module 2 Effective Procurement Step 5: Economic Viability and Step 6: Impact Assessments Page 53

54 Step 5: Economic Viability Step 6: Impact Assessments Economic viability is when it makes economic sense ( ) to all parties Impact assessments are required to identify who is affected, how they are impacted and what the options are for those impacted ( ) Impact assessments will involve Public Consultation and engagement Both economic viability and impact assessments are performed with due regard to the whole health economy All major procurements would be expected to involve both economic viability testing and impact assessments Page 54

55 Step 5: Economic Viability and Step 6: Impact Assessments These steps derive directly from the HMT Green Book ( Outputs include: Business cases (preliminary, outline, full): Strategic Case Economic Case / Option appraisal Financial Case / Affordability Commercial Case Programme Project Management Case / Achievability Regulatory Impact Assessment Health Impact Assessment Environmental Appraisal Health and Safety Impact Appraisal Consumer Impact Assessment Integrated Policy Appraisal Evaluation and audit reports Page 55

56 Step 5: Economic Viability Economic viability (or otherwise!) is a direct consequence of the inter - relationships between value for money and affordability on a whole health economy basis and across all parties who are either directly involved in or impacted by the transaction. i.e. does it make commercial sense when it is all packaged together? Page 56

57 Step 5: Economic Viability How do you go about testing economic viability? Test your own affordability and value for money Put yourself in the shoes of the provider is your procurement attractive to bidders? 9 Are they likely to be able to afford it, want it, and think it s a good deal? 9 Given the specification and other delivery requirements, is the service likely to have a good utilisation rate or will there be lots of downtime / surplus capacity / wasted assets? 9 Are you asking for a Rolls Royce on a Skoda budget? 9 Is the risk sharing balanced? 9 Does the provider have or have access to sufficient skilled resource to run the service? 9 Is the provider impacted by non-nhs factors, e.g. tax, profits, shareholder returns, different regulatory regimes? 9 Has the provider got unusually high funding costs that will impact price? Page 57

58 Step 5: Economic Viability Continued 9 Can you as commissioners clearly articulate what you want? 9 Do you as commissioners listen to all bidders equally? (but not indecisively nor are easily influenced) 9 Is there a clear realistic timetable? 9 Is there adequate information in place to provide the bid? 9 Is the size of the opportunity proportionate to the compensation? 9 Is there a clearly defined need? 9 Is the pricing mechanism clear? 9 What does the current service look like and what are the desired changes and why? 9 Is there a sufficiently fair level playing field? Put yourself in the shoes of those impacted 9 Existing local providers who are likely to lose income / staff TUPEs 9 Have you offered the proposed opportunity to existing providers? 9 Other healthcare providers and professionals Page 58

59 Step 5: Economic Viability Hints and Tips Know your numbers staffing required, skills mixes, equipment capacity & utilisation, available money Identify all the experts that will be required to contribute to the economic assessment P Clinical P Finance P Workforce/HR P Infrastructure, facilities, estate P Information, Management and Technology Does it make sense! Consider value for money and affordability for all parties is it commercially sensible for the provider Assess procurement in the wider context of the whole health economy Identify all parties involved, particularly those indirectly impacted If some parties will / are likely to be adversely affected, even if not directly involved, engage early; you may need their staff, equipment, changed clinical practice / pathways Page 59

60 Step 6: Impact Assessments What are they? OGC Guidance Required for proposals that: P P P Are regulatory and are not regulatory in source but impose costs on public, private or third sector organisations that deliver public services Wherever it is likely to attract high levels of political or media interest Would not yield an overall net change in costs and benefits but there is some kind of redistribution Be proportionate in approach < 5m cost impact, development / options stage Impact Assessment Provides an assessment of the costs, benefits and risks of a proposal Identifies all the options, both regulatory and non regulatory and determines whether the benefits justify the costs Give affected parties an opportunity to identify potential unintended consequences Seek expert guidance if you are unsure Page 60

61 Step 6: Impact Assessments When are they carried out? Continuous process from: P Early identification of policy challenge 1. Development P Development of policy challenge 6. Review 2. Options P Public consultation P P Final decision-making Review of implementation 5. Implementation 3. Consultation P When review leads to identification of new policy challenges 4. Final Proposal Page 61

62 Step 6: Impact Assessments Three compulsory components P P P Summary: Interventions and Options Summary: Analysis and Evidence Evidence Base The focus is on: Costs and benefits accrued over and above the status quo or do minimum options All monetised costs must be captured: economic, social, environmental, governmental, administrative All costs which cannot be monetised but can be qualified Risks, key assumptions, sensitivities and risks Impacts on competition Race, Disability and Gender Impact Assessments Page 62

63 Module 2 Effective Procurement Step 7: Evaluation Slide 63 Page 63

64 Step 7: Evaluation Components of Award Criteria: 1. Cost (Price) 2. Monetised benefits 3. Non monetised benefits 4. Quality 5. Service delivery ability 6. Affordability Total Value for Money = the optimum combination of whole life cost, quality, or fitness for purpose to meet patients needs, and does not always mean choosing the lowest cost 7. Recheck Need, if protracted procurement Slide 64 Page 64

65 Step 7: Evaluation Selection of Award Criteria: 1. Lowest Price OR 2. Most Economically Advantageous Tender, i.e. Best Value for Money If option 2 is selected evaluation components, criteria and weightings must be devised and documented before bidder responses are opened. Page 65

66 Step 7: Evaluation Value for Money Methodologies and Assessment 1. Cost-Benefit Analysis Analysis that quantifies in monetary terms as many of the costs and benefits of a proposal as is feasible, including items for which the market does not provide* a satisfactory measure of economic value 2. Cost-Effectiveness Analysis Analysis that compares the costs of alternative ways of producing the same or similar outputs *May be of use: i. Willingness to Pay for a benefit determined by inferring price from consumer behaviour, or ii. Willingness to Pay by asking what they would be willing to pay for, or iii. Amount of compensation consumers would demand in order to accept it Page 66

67 Step 7: Evaluation Value for Money Methodologies and Assessment Value for money methodologies should: Value risks Seek to create a level playing field, i.e. from the Treasury s purse point of view Be on a whole life, discounted cost, basis Be on a whole health economy basis, i.e. from NHS Budget Holder perspective Have a well understood base case position (for example upsides and downsides more or less equal, base case = worst case) Include evidence based assumptions* Include clinically sourced data and assumptions* Financially assess uncertainty and incorporate sensitivity analyses *i.e. be capable of being independently validated Page 67

68 Step 7: Evaluation Value for Money Methodologies and Assessment Non Monetary Quantification Is used to compare both unvalued costs and benefits Weighting and scoring (multi-criteria analysis) Performance criteria met or not, i.e. threshold scoring Experts inform the non monetary quantification, but Final evaluation methodology and structure is based on Commissioners, Clinicians and commercial judgement Page 68

69 Step 7: Evaluation Value for Money Methodologies and Assessment Illustrative Examples of Evaluation Methodologies Method 1. Threshold scoring then lowest price 2. All in scoring combining quality, service, etc and price 3. Contract price per benefit point analysis Illustrative Scenarios Where lowest price is important / limited affordability envelope available Overall package is important where price and quality may play significant parts and may need to be balanced Where innovation is required to be financially evaluated 4. Any of the above plus variant bids Where there are several possible solutions, one or more of which could be offered uniquely by the bidders All require separate Value for Money assessment Page 69

70 Step 7: Evaluation Value for Money Methodologies and Assessment Illustrative Examples of Evaluation Methodologies Experience of: Future proofing PBC effectiveness Clinical integration & redesign Delivering new services Management capability & capacity: Leadership Governance Risk management, mitigation planning & effectiveness Recruitment and training Financial robustness: Quality of forecasting / modelling Robustness of assumptions Profit and shareholder return requirements Access to funding, and quality of funding Hidden costs and contingencies in the bid Page 70

71 Step 7: Evaluation Value for Money Methodologies and Assessment Best Practice, Hints & Tips for Evaluations Evaluation methodologies and criteria must be: - Communicated to bidders prior to bids being received - Planned and documented before bids are opened Check that your evaluation aligns with your original strategic plans and commissioning intentions ( golden threads ); you could buy something you didn t need Beware selecting an inappropriate methodology which unwittingly selects the wrong bidder; you could select the wrong provider with the wrong price Methodology is as important as the criteria themselves; if you don t need a gold plated service, don t seek to evaluate and select one (choose threshold method) Calculate your affordability robustly before starting a procurement; if you can t afford it don t buy it Your value for money methodology is not the same as your affordability; you may be able to afford it, but is it money well spent? Beware of conflicts of interest and when they are not Page 71

72 Module 2 Effective Procurement Step 8: Due Diligence Page 72

73 Module 2 Effective Procurement Step 9: The Business Case and Step 10: Closing the Deal Page 73

74 Step 9: The Business Case Hints and Tips For Cost-Benefit analysis the best option is the highest risk adjusted net value Robustly value all cost benefits and risks For Cost-Effectiveness analysis, the best option is the lowest net cost Maximise benefits for affordability envelope if using cost per benefit point Minimise spend if using a threshold scoring system Ensure affordability in all years, not just year one Secure or understand where there are contingencies, assumptions in the bid model, and where future funding is required Page 74

75 Step 9: The Business Case Hints and Tips, cont.. Articulate the commercial case Document risks and risk mitigation plans for delivery or otherwise of the project Assess and evaluate mobilisation and planning risks and delivery Assess and evaluate risk sharing of commercial position Understand the commercial aspects of the contract and implications, especially for performance regime and termination* Document the Benefits Realisation Plan* Document the Performance Management regime* Ensure Business Case approval to finalise the procurement * Module 3 Page 75

76 Step 10: Closing The Deal Setting the Negotiating Strategy Stance Style Model Soft Principled Hard Blue Style Cooperative Cool rather than emotional More means more Believe in negotiable tradeables Relaxed Flexible entry and exit Interested in longer term Red Style One off contests Dominates Determined to win Indifferent to losing Usually aggressive Stick to entry points Win Lose Win P? Lose? x Not interested in long term relationship Slide 76 Page 76

77 Step 10: Closing The Deal Setting the Negotiating Strategy Continual Cycle Throughout Prepare Discuss Propose Bargain Set ideal, realistic, fall back positions Aim high, stay credible Assess opposition Identify advantages, positions Tactics planning Allocate roles Plan escalation Set objectives Identify decision makers Be focused Build agendas State opening position Clarify understanding Seek other positions Look for and make verbal indications of intentions Build rapport What could we trade Evaluate offers Respond with counter offers Watch for reactions Give and Take Decisions Trade offs Progress vs Stalling Use silence Document proposals Trade vs Exchange Agree what has been agreed Document agreement Reaching agreement - You set out what you want - They set out what they want - You both get some of what you want Have a back-up plan Page 77

78 Step 10: Closing The Deal Do s Ideally have a preferred and reserve provider Get someone who likes negotiating to negotiate; hunt in a pack if need be Set the negotiation timetable and stick to it Establish your bottom line internally Identify win/wins Create the internal escalation process for negotiations Resource up for the final push Prepare for some late nights Take your time, go silent if need be Provide time for Alcatel Rule Provide feedback to bidders Keep focused Don t s Get overcome with deal fever Compromise your evaluation criteria Allow deal creep scope, price, risk shares Let the lawyers take over you know your commercial framework and you ve tested economic viability Don t rush Page 78

79 Recap on Day 2 of Module 2 Steps covered today: 1. Establish the specification 2. The Commercial Framework 3. Designing the Contract 4. Procurement Management 5. Economic Viability 6. Impact Assessment 7. Evaluation 8. Due Diligence 9. The Business Case 10. Closing the Deal Page 79

80 Recap on Day 2 of Module 2 All ten steps secure effective procurement Engage with clinicians, patients and stake holders Refine your specification and price before going to market Select your procurement route A well considered commercial framework will avoid procurement failure Use lawyers wisely Project manage effectively Economic Viability: does it make commercial sense put your self in the providers shoes Assess who will be impacted, how and what their options are Choose the most appropriate Award Criteria and methodology for your evaluation process Final Business case approval Closing the Deal: Stance, Style, Award Closing the Deal: Prepare, Discuss, Propose, Bargain Page 80

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