A Guide to Reviewing Outsourced Contracts. By James Milner - Ember Public Sector Solutions

Transcription

1 A Guide to Reviewing Outsourced Contracts By James Milner - Ember Public Sector Solutions

2 Introduction from James Milner, Director EPSS Outsourced contracts in the public sector are now commonplace. Unfortunately some are not delivering the best value for money or the best service. When these contracts go wrong and stories are picked up by the press about vast amounts of money wasted, it can take a long time to recover the situation and by then reputations are damaged and services disrupted. It doesn t have to be like that! With a pre-emptive approach, positive and sensitive handling, it is possible to turn failing contracts around, to move from gloom to glory, and even introduce a culture shift. This ebook tells you how to assess whether an outsourced contract is flawed or failing and explains steps you can take to start the review process. I have years of experience of reviewing outsourced contracts and procuring the best possible deals. I m passionate about making sure we taxpayers get great services and the best bang for our buck. James Milner, Director EPSS 2

3 Contents 1. Why review outsourced contracts? 2. The warning signs - Lack of structure for service improvement - Relationships are breaking down - Governance is poor - Service to the public is suffering - Not getting value for money 3. Addressing the problems - Planning an internal review - The benefits of an external party assisting with the review 4. About James Milner 5. About Ember PSS 3

4 1. Why review outsourced contracts? Signing a contract to outsource services is only the beginning. It takes a great deal of effort to get to this point and it s all too easy to lose momentum and focus during the transition and day to day delivery. Another common mistake is to replace the high calibre staff who negotiated the contract with less experienced people and to reduce the amount of executive time and attention. Does the day to day management of the service reflect the level of expenditure committed to it? Before long the emphasis is about delivering a low cost service for minimal effort. Batting responsibility and cost, back and forth, between parties can quickly become the daily grind of contract management. More often than not, no flexibility has not been built into the contract even though the reality is that circumstances change, for example: - Budgets change, usually downwards - Needs and requirements change, e.g. citizens expectations - Organisations get restructured, this affects processes - Communications channels change, such as the rise in social media and website use - Technology changes, e.g. cloud applications and associated cost reductions These changes lead to a lot of stress on contracts that were designed for business as usual. When there s no structure, provision or process for change in place, people and organisations tend to pull in different directions. Unfortunately, unless this is recognised and remedied, the outlook is pretty gloomy. 4

5 2. The warning signs Whether you are the senior executive responsible for one or more contracts, or your role is to either manage or deliver a contract, it s important to remember that human nature tends to be optimistic and hope that things are not as bad as they seem. Try to stand back and take an impartial view of the contract in question. There are five warning signs to help you critically evaluate your contract: lack of structure for service improvement; relationships are breaking down; service to the public is suffering; governance is poor; not getting value for money. a. Lack of structure for service improvement Service delivery and service improvement are two very different agendas. They have different objectives, processes and cultures. Service delivery wants stability, zero change, does not welcome new ideas, so consequently has no desire to have a process to handle new ideas. Service improvement welcomes ideas, is receptive to change, is prepared to challenge the status quo, and welcomes a process to evaluate, agree and implement change. Example: There is no incentive to improve a service if the supplier could incur a financial loss when improvements or alternative approaches are taken. For instance, if a call centre supplier is paid on the number of calls answered there is no incentive to move people towards a self-service, web-based system. Service Improvement checklist: 1. Is the need for change and flexibility recognised and understood by all parties? 2. Is the culture biased towards improvement? 3. Do people pull in different directions? 4. Is there a clear mechanism for negotiating how a financial impact (positive or negative) will be shared between the parties? 5

6 b. Relationships are breaking down Contract management is tough, it can get bogged down in inter-personal conflicts, finger-pointing and point-scoring. It doesn t have to work like that. Contract management can be conducted in a positive and professional way. But swapping experienced staff out and putting inexperienced staff in, having people of unequal rank and experience on different sides of the table and being unprepared for meetings are some of the potential issues. Example: If a significant meeting is set up, with objectives and agenda and at the last minute an important member of either team does not attend, or is unprepared and it results in a failure to reach a meaningful decision, this wastes time and extends delays to whatever agreement was being sought. Relationship checklist: 1. Do client and supplier teams have respect for each other? 2. Are conversations about the right topics, i.e. about delivery & improvement rather than excuses and blame? 3. Are minutes of meetings predominantly about progress and delivery or are they dominated by negative and defensive point-scoring? 6

7 c. Governance is poor When there s a lot of public money, private sector revenue and profit at stake, governance must be robust. Example: When a contract is going well it is rare that senior management hear about it. They may get informal feedback but there won t be anything on executive meeting agendas. When a contract is not well governed senior executives get to hear about it sometimes it s the relatively minor issues, sometimes the major disputes. Also, in some instances the executive to executive contact is very friendly and positive, while less senior members of the team are at loggerheads. Governance checklist: 1. Is governance geared to optimise service delivery and improvement, with processes in place for both activities? 2. Is there clarity about roles, accountability, and escalation procedures? 3. Is responsibility delegated effectively, and are staff adequately trained and supported? 7

8 d. Service to the public is suffering Some contracts end up with too much focus on activity rather than outcomes. Example: If hospital cleaners are measured on how often they clean the toilets they consider themselves to be janitors. However, the important outcome is to reduce crosscontamination and when the outcome is medical this can raise morale and standards of the cleaning staff who now feel part of the care team. Renegotiating and retraining based on outcomes, not just tasks can bring teams together. Service delivery checklist: 1. Is there clarity about business outcomes, not just requirements and tasks, and is that understood by all parties? 2. Are there proper measures and associated incentives which are aligned to outcomes and organisational goals? 3. Is the service level being benchmarked appropriately to peer organisations and citizen expectation? 8

9 e. Not getting value for money The measures set out in outsourcing contracts awarded several years ago may no longer align with the current goals of the awarding body. Example: In a call centre, if one party (the awarding body) is primarily interested in resolution of issues, but the measurement is about time taken to answer the phone, then there s a disconnect. If difficult calls are bounced around because no-one in the call centre wants to take the hit for a long call, there s a customer service issue at the very least. Renegotiating performance measures may be sufficient to resolve this issue. Value for money checklist: 1. Does your service benchmark well against other organisations? 2. Are there clear and well understood commercial principles? 3. Is profit only made when operational service delivery is acceptable? 9

10 3. Addressing the problem a. Planning an Internal Review The objective is to create a business case which will help you decide whether a full-scale review is justified. Here s eight things to consider: 1. Define scope: look wider than a specific contract - consider the eco-system it now resides in, including touch-points to citizens, other departments and other organisations 2. Identify what s changed since the contract was put in place: budgets; internal 3. needs; citizen needs & expectations; costs; technology; processes; organisation structure 4. Identify organisations to benchmark against: review what they measure and what their metrics are 5. Identify stakeholders who will be involved and or impacted by a review 6. Get input from internal stakeholders: what improvements can they suggest? 7. Approach external stakeholders: get them on-side from the start 8. Identify 3 scenarios: best, middle, worst case with ballpark benefits and costs 9. Gain sponsorship and buy-in at the highest appropriate level 10

11 b. The benefits of an external party assisting with the review There are significant benefits of using an external body to help with your review and business case, including: Methodology: external specialists will have proven experience in conducting reviews Benchmarking: knowing what to benchmark and what to benchmark against will be second nature to a specialist organisation Impartiality: an external body will be more able to give an honest appraisal of the existing contract and its execution Judgment: experience to identify the crucial issues and provide professional advice in what is often a sensitive situation Credentials: an external specialist will have a track record in improving failing contracts, renegotiating terms or even closing poor contracts down Knowledge Transfer: imparting skills and approaches to your in-house team for them to apply in future. The hardest part of a journey is often the first few steps. Having an experienced guide beside you and your team will increase the quality of the review, reduce the effort, and inspire confidence. Don t forget you don t have to accept failing, flawed and out-dated contracts that are no longer delivering either good service or value for money! 11

12 About James Milner I am a co-founder and the Managing Director of Ember PSS. As a client of Ember Services, I was impressed by their professionalism and rigour, so when they approached me to set-up a specialist Public Sector Outsourcing Consultancy I jumped at the chance. I advise and represent central government, local authorities and charities to secure outsource contract improvements, transform service delivery and save money for the ultimate benefit of tax payers and citizens. Previously, as Head of Contracts and Programmes at the BBC, I led a team to manage the revenue collection contracts and associated change programmes. As Programme Director I led a procurement that was recognised by the National Outsourcing Association (NOA) as the 2012 Public Sector Outsourcing Project of the Year. Prior to that, as Head of Operations - Revenue Management at the BBC I led a team managing outsourced partners responsible for collecting 3.5bn of revenue for the BBC. About Ember PSS Ember PSS advises and represents central government departments, local authorities and charities to secure outsource contract improvements, transform service delivery and save money. As Independent Outsource Advisors Ember PSS are passionate about finding ways to deliver best value to taxpayers and citizens by optimizing service delivery contracts and relationships between public bodies and service providers. Our interventions are primarily around: - Fixing failing outsourcing contracts - Adding value to existing relationships - Managing world class procurements Major clients include: Birmingham City Council BBC Post Office Student Loans 12

13 If you d like to discuss any of the subjects raised in this ebook, or find out more about the range of services we have to offer please get in touch Phone: [email protected] Office: Ember Public Sector Solutions Chandos Place Covent Garden London WC2N 4HS 13