The Business Services Association. Driving efficiencies in outsourced services delivered to the NHS. August 2014

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1 The Business Services Association Driving efficiencies in outsourced services delivered to the NHS August 2014 The BSA the Business Services Association is a policy and research organisation. It brings together all those who are interested in delivering efficient, flexible and cost-effective service and infrastructure projects across the private and public sectors. Ours is an important sector, accounting as it does for 8 per cent of the UK economy and employing 3.3 million people across the UK. Our members have a wealth of experience working in partnership with the NHS. They provide a range of services in the health and care sector, from catering, cleaning, estates and building maintenance and security, to back-office functions, ICT, customer contact centres, telehealth and community and home-based care services. A full list of members is included as an appendix. We welcome the opportunity to continue our engagement with the Department of Health regarding the implementation of Better Procurement, Better Value, Better Care. To inform this paper, the BSA held a discussion with our Health Committee on the questions posed by the Department. The discussion with members focused on hard and soft facilities management services in the first instance, as requested. However, given the breadth of services BSA members deliver, we also consider wider service delivery, including middle and back-office functions, in this paper. In many cases, the ideas raised apply to the range of non-clinical support services delivered in hospitals. In this response, we have identified areas where reform could unlock savings: Open up non-clinical support services that have not been subject to competition Look at supplier-enabled savings as well as supplier-delivered savings Procure for outcomes Move from transactional relationships to partnerships Improve procurement processes and contract design Open up non-clinical support services that have not been subject to competition No sector has a monopoly of wisdom in terms of service delivery; we should be harnessing the best of what all sectors have to offer. However, the NHS may be missing out on opportunities to explore where services could be delivered more efficiently by not testing the market. The market for FM services in the health sector has been stagnating. As Figure 1 shows, the proportion of hard and soft FM services which are outsourced has remained largely unchanged since this data was first published ten years ago, sitting at around 40 per cent. If it is the case that these services are being delivered in-house without being subject to competition, it is difficult to know whether the remaining 60 per cent of FM services are being delivered in the most efficient ways or whether there are efficiency gains to be made. The BSA estimates that by opening up the remaining 60 per cent, based on levels of spend, up to 1 billion savings could be achieved. 1 1 BSA Saving the NHS 1 billion by outsourcing support services April 2011 BSA The Business Services Association 2nd Floor, 130 Fleet Street, London, EC4A 2BH T: W: The Business Services Association Limited is registered in England No Registered office as above.

2 Figure 1 Percentage of hard and soft FM services contracted out /5 2005/6 2006/7 2007/8 2008/9 2009/ / / /13 Furthermore, in terms of middle and back office services, a QIPP National Workstream project in 2010 identified that a minimum of 616 million savings could be realised in the NHS without adversely impacting on service delivery across finance, HR, Information Management and Technology, procurement, estates management, payroll and governance and risk, through greater use of shared services and outsourcing. 2 More widely, in administration services such as appointment bookings, it is thought that around two thirds of spend is untouched in terms of potential for efficiency savings. We believe that market testing such services and subjecting them to competitive challenge can help to identify whether these services are delivering value for money. This will allow Trusts to explore different approaches to service delivery, both within the NHS and across other sectors. In members experience, services being outsourced for the first time have most scope for achieving efficiency savings, if the right contractual arrangements are in place. Taking FM, middle and back office services together, there is huge potential for savings if approached in the right way. One of the barriers to this is the risk-averse culture within some parts of the NHS to implementing new approaches to service delivery as well as to the way procurement processes are run and how contracts are structured and managed. Achieving change in this area will require strong leadership and guidance from the Department, Monitor and the TDA. There may also be a role for Monitor and the TDA overseeing financially challenged Trusts to query whether Trusts do market test delivery of their non-clinical support services, using that as an indicator Trusts as to whether they are securing all available savings. Recommendations: Trusts should open up FM services that remain in-house to competitive processes. Trusts should explore areas of the back and middle office where efficiencies could be driven, especially those areas that remain largely untouched. 2 Department of Health and NHS QIPP national workstream: Back office efficiency and management optimisation November

3 In overseeing financially-challenged Trusts, Monitor and the TDA should ensure Trusts are securing all available savings in the delivery of non-clinical support services, for example, by querying whether a Trust has market tested it s non-clinical support services. The Department should provide leadership and guidance to support procurers to take new approaches to procurement and service delivery. Look at supplier-enabled savings as well as supplier-delivered savings The delivery of non-clinical services of the type delivered by BSA members enable wider savings beyond those achieved through the service itself. For example, a good catering service will reduce food waste and help give patients the nutrients they need to help them recover quickly and reduce readmissions. Worldwide studies have shown that per cent of patients have some degree of malnutrition, leading to increased length of stay, weight loss and increased likelihood of complications. As Acute Trusts do not receive payment for emergency readmissions within 30 days of discharge, there are likely to be savings in reducing readmissions. Importantly, there is also a greater value here in terms of patient recovery and health and wellbeing, beyond cost savings. Looking at a catering service in terms of nutrition, and not just meals, will help procurers to recognise the savings that enabled more widely rather than focusing on the cost per patient per meal. Therefore, it is important that Trusts invest in these types of services and that procurers develop how they think about the wider impacts of the delivery of non-clinical services in their hospitals and how these can be measured. Contracts should be drafted in a way that allows wider savings to be achieved. This is especially important for services in their second or third round of outsourcing. In these cases, much of the low-hanging fruit in terms of efficiency savings achievable through the delivery of a service will have been picked. The sustainability of these savings should also be considered. In the example given above, the savings from reducing readmissions will be realised over a long period of time. Procurers should also be encouraged to design contracts in a way that encourages innovation to enable wider savings. Often, overly prescriptive contract specifications, restrictive KPIs and taking a short-term approach prevent providers from introducing innovation into contract delivery which could unlock additional savings. Introducing more flexibility into contracts, and working in partnership with providers, can help to foster innovation. In this context, innovation refers to both new service delivery methods and technological innovation, such as using tablet computers for patients to order their own meals, reducing errors and waste and giving patients more control over their meals. In managing contracts, both the provider and procurer need to have the confidence that each is delivering on its commitments. This is especially true for those who may be new to working in this way. One idea which the Trusts may wish to explore further is to have an independent assessor coming in on a regular basis to ensure both parties are accountable for their areas of responsibility in enable savings. This could be jointly funded by both parties and its remit would be agreed by both as well. Another idea, which already happens on some contracts, is to establish joint operational boards, with key representatives from both parties meeting regularly to discuss progress with the contract and where additional flexibilities may be beneficial. It is also useful to have one accountable person within each organisation to jointly take ownership of what the Trust is trying to achieve and to take key decisions, which helps with co-operation. 3

4 Engagement with suppliers should also be encouraged, and the myth busted that engagement of any kind breaches EU rules. Pre-procurement engagement can help to inform procurers of the different approaches that are available to them, as well as communicating to the market what it is that procurers are looking for. Procurers should also bear in mind that, in some cases, advice from external consultants and advisers can conflict with the view from the market. Recommendations: Procurers should look at savings enables by delivery of a service, as well as savings in the delivery of the service itself, and design contracts and contract management accordingly. Procurers should design contracts that allow flexibilities and encourage innovation. The Department should encourage procurers to engage early with providers. Procure for outcomes In the same way as CCGs are being asked to commission for outcomes, procurers of non-clinical services should be encouraged to procure for outcomes. This requires procurers to start by thinking about the objectives of services, with contract management tools, including KPIs, shaped around progress towards, and achievement of, these objectives. For example, cleaning services are vital to prevent the spread of infection in a hospital setting. Therefore, instead of procuring a cleaning service based on floor area and specifying how often areas should be cleaned, procurers could procure on the basis of keeping infection rates low. This approach would give the provider flexibility to introduce the methods that it knows work. This also provides more value to the Trust than a traditional contract to clean floors a set number of times over a certain length of time. Procuring for outcomes shifts the focus of service delivery away from the service itself to the benefits that it has for patients. It gives procurers a much better focus from the outset on what they want to achieve and gives providers the opportunity to work with procurers to find the best ways to achieve their goals. To support this approach, objectives and expected outcomes need to be clearly defined by procurers, supported by appropriate, measurable indicators to monitor delivery. Contract management is of upmost importance if this approach is to deliver the new ways of working which lead to efficiency savings. To support the NHS to move towards procuring for outcomes, we suggest that the Department could undertake an exercise with procurers and providers to identify what these outcomes might look like and how non-clinical support services relate to delivery of that outcome. Procurers may also benefit from guidance on measuring outcomes. Focusing on outcomes can also help to identify where services can be aggregated to drive efficiencies. For example, energy wastage could be caused by leaks or poor maintenance. Therefore, aggregating energy and hard FM services with an objective to reduce energy waste would enable a more joined up approach than delivering these service separately with different objectives. Recommendations: Procurers should move towards procuring for outcomes. The Department should work with procurers and providers to explore what some of the outcomes might be, and how these might be measured. 4

5 Move from transactional relationships to partnerships Introducing flexibility into contracts and procuring for outcomes lead to more partnership approaches, moving beyond transactional relationships, which can bring many benefits for both partners. It enables a longer-term, strategic view of service transformation to be taken and means both parties have a vested interest in the service. It helps to increase focus on the importance of procurement, which is often seen as a technical process rather than an opportunity to shape the delivery of non-clinical support services, and align service delivery to the Trust s strategic direction. This is important as estates and facilities services can represent over 10 per cent of a Trust s operating budget. Entering into partnerships with providers also helps to facilitate the use of different contracting arrangements, such as joint ventures and risk/profit sharing arrangements. Risk sharing, rather than risk allocation, is an important characteristic to maintaining successful partnerships and allowing partners to work effectively together, as risk should sit with the organisation best able to manage it. A partnership approach allows an open discussion about risk allocation and exploration of risk-sharing measures to suit the contract and both partners. Currently, most Trusts use such contracting arrangements less than 25 per cent of the time. 3 A recent report found that 24 per cent of NHS respondents and 25 per cent of private sector respondents said that they conduct all of their contracting through traditional supplier relationships. 4 There is not a single definition of what a partnership is, however there are generally agreed principles of what real partnerships look like. Research conducted on this topic found that 70 to 80 per cent of respondents from the NHS and private sector felt that shared objectives and senior level involvement are important elements to partnerships. 5 This could include both board members, who can help align procurement of such services to the Trust s strategic direction, as well as clinicians, who will have experience and views on the delivery of non-clinical support services in their hospital. Beyond this, partnerships should, by their nature, be flexible to the objectives of the Trust and will be different in each case. Figure 2 on the next page demonstrates the progression from traditional contracts towards strategic partnerships and key characteristics of different contracting models. Partnerships help to build trust between both parties and increase understanding between providers and procurers. At the moment, there is a perceived cultural difference between the NHS and external providers, which is proving to be an obstacle to cross-sector working. For example, a recent survey found that 37 per cent of private sector respondents think that NHS CEOs take the final decision on high value contracts, compared to only 6 per cent of NHS respondents thinking that the CEO takes this decision. Partnership arrangements lead to a better understanding of organisations from different sectors, including their culture, ethos and objectives, which can help to ensure services meet procurers expectations and procurers have a better understanding of the commercial aspects of service delivery. 3 Ibid. 4 Sir William Wells Partnerships for healthy outcomes: Modernising health sector procurement, making partnerships work between the public, private and third sectors November Ibid. 5

6 Recommendations: Procurers should look to enter into partnerships with providers, moving away from purely transactional relationships, with support and guidance from the Department. Through partnership arrangements, procurers should work with providers to take a strategic overview of delivery of non-clinical support services. Through partnership arrangements, procurers should explore different contracting models and look at how risk is shared most appropriately. Figure 2 Strategic Partnership Evolves over contract period to meet changing needs Shared risks and benefits, shared skills and resource Transformational approach Can deliver retained side savings and benefits to client s front line services Provides step-change efficiency gains Integrated service delivery Develops model below to secure benefits of integrating across workstreams Accommodates lower volume and/or less standardisation Traditional outsourcing / shared services Services transferred singly or as separate workstreams Effective for high volume, repeatable transactional services Improve procurement processes and contract design The most commonly cited barrier to achieving efficiency savings in the provision of outsourced services are the commissioning and procurement processes themselves. This is not unique to the health sector. A government report on trends from the first eighteen months of the Cabinet Office s Mystery Shopper Service found that 81 per cent of all cases were concerned with the procurement process. 6 Often, the concern is that the contract being procured over-specifies delivery, which hinders innovation, is inflexible and is restrictive to making savings within the service, rather than enabling wider savings. In the face of huge financial pressures on all NHS Trusts, there is an understandable tendency to focus on short-term cuts rather than savings achieved by making services more efficient. 6 Cabinet Office Mystery Shopper Service Progress Report: Trends from the First 18 Months June ogress_report_18-dec _.pdf 6

7 There is a key difference. Driving efficiencies entails looking to deliver services in a different way to identify where savings can be made through a process of transformation. Cuts simply means providers having less funding with which to deliver a service, which can have unintended consequences. An example of this is reports that the sector is increasingly seeing perennial deflators in prescriptively defined FM contracts. This erodes competition as it deters some organisations from bidding, and can lead to unsustainable contracts. During operational phases, deflators can be achievable in the initial years of the contract, especially if it is a first generation outsourced contract, but will be increasingly difficult to deliver year on year. Also, there are a large number of different procurement frameworks which can be adopted. This can hinder rather than help procurers. Clarity and guidance around a set number of frameworks could be beneficial in assisting procurers to know which procurement vehicle to use. Procurers in some parts of the NHS, can in some cases be reticent to taking different approaches to procurement or implementing new contractual models. It is the experience of some that procurers take approaches that they are familiar with or that they have done before. This is a cultural issue which will take time to change and will require early adopters within the NHS to take the lead, as we are starting to see happening in some areas of clinical commissioning and with the integration pilots. As recognised in Better Procurement, Better Value, Better Care, building the confidence of procurers and developing their skills and capabilities, is key. There may also be a role for the Department, Monitor or the TDA to assist Trusts who are struggling with procurement or who are new to this type of procurement. Guidance, practical advice and assistance, and secondments to other Trusts will help in this regard. In terms of skills, increased commercial knowledge would help procurers to understand better the motivations and objectives of organisations they are looking to contract with. There is also a perception that procurers often go to market without having a clear idea of what they want delivered or without a clear strategy. For bidders, this makes it difficult to accurately price a service and put a plan in place to deliver savings. Delivery of service should be aligned with Trusts overarching strategy as well. To address this, early engagement with providers is key to communicate what it is that the contracting authority wants delivered, or to help shape thinking around what is achievable through the delivery of such services. This also helps to ensure that procurement is not rushed, which often results in faults which then have to be addressed at a later stage. Recommendations: The Department should work with procurers to ensure savings are driven through efficiencies rather than through cuts. The Department should identify Trusts to act as early adopters of new procurement approaches and contractual models, to give other Trusts the confidence to follow suit. The Department should help to develop the skills and capabilities of procurers in the NHS and work with Monitor and the TDA to provide guidance, practical advice and assistance. 7

8 Conclusion and recommendations We believe there is potential to drive efficiency savings in the delivery of non-clinical services for the NHS. Much of what has been discussed in this paper is already happening in pockets of the NHS and in other parts of the public sector, but this needs to be replicated across the NHS to achieve potential savings. There may be some merit in the Department undertaking some work to identify areas of best practice and share these across the NHS to give procurers some guidance as to how it can be done and the confidence that it works. Seeing the benefits replicated across the NHS will require some exemplar Trusts to lead the way and be early adopters, as we have seen in other areas such as the integration of health and social care. We would suggest that the Department should identify a small number of Trusts to pilot new approaches in different areas, including largely untouched areas such as administrative spend, procuring for outcomes and more collaborative, partnership approaches. If the Department were able to sponsor these and report on the Trusts journey over time, the rest of the NHS will follow. 8

9 List of BSA Members Full Members: Amey plc ARAMARK Ltd Atos Babcock International Group plc Balfour Beatty plc Bellrock Ltd Berendsen plc Bouygues Energies and Services Ltd British Telecommunications plc Capita plc Carillion plc Cofely UK Compass Group plc Costain Group plc Elior UK Ltd G4S plc Interserve plc ISS UK Ltd Kier Group plc Laing O Rourke plc Maximus UK Ltd Mitie Group plc MYFM Ltd OCS Group UK Ltd Pinnacle PSG Ltd Prospects Services Ltd Serco Group plc Skanska UK plc Sodexo Ltd Steria Ltd TerraQuest Solutions Ltd URS Corporation Ltd Vinci UK Ltd Associate Members: Barclays Corporate Berwin Leighton Paisner LLP Bevan Brittan LLP Deloitte LLP Drax Executive Ltd DWF LLP ECI Partners LLP ERSA - Employment Related Services Association Expert Patients Programme Community Interest Company Grant Thornton LLP Interim Partners Ltd KPMG LLP Metzger Ltd Navigant Consulting Ltd Nicholas Moore PA Consulting Ltd Pinsent Masons LLP PricewaterhouseCoopers UK LLP Reynolds Porter Chamberlain LLP Royal Bank of Scotland Group Plc Sharpe Pritchard LLP Trowers & Hamlins LLP Warren Partners Ltd 9