The solution to increasing performance, encouraging new providers into the sector and supporting the supply chain can be achieved by placing an OBLIGATION on PRIMES to contract with particular providers. In our opinion this will strengthen the sector and increase performance exponentially!
Question:
- How do you reduce the upfront costs for existing providers wishing to undertake delivery in particular lots?
- How can we guarantee continuity, consistency and good delivery?
- How does DWP do all of the above whilst securing increased performance and maintaining a competitive market?
Answer:
By the introduction of “Threshold Providers”.
Quite rightly, there is concern about what the Work Programme will look like in relation to delivery, milestones, unit costs, and sustainability. There is also fear and concern around what the tendering process and lot allocation will look like for providers who have;
- Invested considerable resources in previous tender rounds,
- Have a good track record of delivery,
- Have positive historical links in an area,
- Good performance but they are small,
Invariably they also fell unrepresented and trodden on by a predisposition to market considerations.
The obvious questions are;
- Who will be the successful PRIMES (or Super PRIMES)?
- What does this mean for smaller providers?
- Will the PRIMES merely subcontract with each other? (see our blog on the Work and Pensions Committee report findings which found that this was indeed the case in Scotland).
At Yes Minister we have been meeting and speaking with a large number of individuals and organisations. We have come up with what we think is a viable solution to sustaining delivery, supporting quality provision whilst facilitating a proactive mix of new and existing providers into the sector. We propose that DWP should;
- Establish a performance threshold based on a league table of provider performance over the last few years. Providers who achieve the median threshold plus – say – 5% should form a new category of provider called ‘Threshold Providers’.
- The threshold could be based on an amalgamation of performance offers and historic delivery.
- These ‘Threshold Providers’ should automatically retain contracts if they are already delivering within a Lot or they should have preferred status for delivery in Lots with similar demographics.
- PRIMES should be placed under an obligation – subject to due diligence and verification etc.. to enter into contract with these ‘Threshold Providers’.
- Even if a new PRIME takes over a lot this principle should still apply until such time as the providers performance dips below the agreed threshold for 2 quarters or by more than 15%,
- The introduction of ‘Threshold Providers’ will mitigate losses for those good performers who are already delivering and have invested in areas and it will provide an opportunity for continuity and for them to embed and improve their performance.
PRIMES may not like this, however if PRIMES are committed – and they all say that they are – to working with the best then this should facilitate that process whilst enhancing DWP’s Stewardship role!!
The idea of ‘Threshold Providers’ is interesting with some obvious benefits. HOWEVER – there are some fundamental failings that likely make the idea unworkable.
I’m unsure how you could / would mandate that a Prime takes on particular providers. Primes will already have established their own supplier networks and have agreements in principle. These agreements will likely contain details of the rates that Primes will pay to providers (can’t just assume they are the same as DWP. There will be numerous differences). For some services a Prime may accept paying a premium for a partiular speciality service, for some there may have been agreements for Primes to provide financing (banking type facilities) – all of these variable will have been negotiated and Primes will have taken the financing and risk profiles to their Boards for approval. To then impose Threshold Providers potentially means Primes being forced to accept completely different financing agreements and terms – none of which their Directors have had a view of. It is hard to imagine this being acceptable and if it were forced it would be diffiocult to speculate just how much risk contingency would end up being added.
Hi Richard, yes indeed; your observations are correct.
My first response is that our proposal for ‘Threshold Providers’ is not the panacea and whilst there maybe/are aspects within it that needs reconciling it is a significant step forward.
‘Threshold Providers’ clearly addresses some of the fundamental issues affecting the sector and it bridges the gap between a purely outcomes approach which speculates on who will be the best providers going forward with a model which embraces this approach whilst also capturing good practice and ensuring sustainability. The introduction of Threshold Providers;
– does not dissuade new innovative & financially robust providers participating,
– it supports existing high performing providers who do not have the financial clout,
– it builds on historical knowledge and experience whilst still rewarding good performance,
– it lays the groundwork for capacity building and inevitably allows for the pooling of third sector funding and European Structural & Convergence funding.
Let me however address your point more directly.
What is clear is that whilst negotiations and discussions between PRIMEs and their supply chains have been ongoing, the decision by the Coalition government to terminate a sleuth of existing programmes and to put FND1 on notice means that all prior deals are now subject to change; i.e the previous arrangements can no longer apply.
Going forward, all PRIMES will need to negotiate and renegotiate terms based on the fact that the previous programmes they were discussing no longer exist and that it is highly likely that the specifics and the details of the new Work Programme will be very different.
WE now have a CLEAN SLATE…….It is for this reason that ‘Threshold Provision’ properly aligned to PRIME – or SUPER PRIME – provision is an innovative and workable solution.
Later this week I will be outlining further specific thoughts around unit costs, and discussing what outcome payments really mean.
Dr Millen
My point was more about the supply chains and negotiations that would take place as part of the Work Programme tender.
I don’t believe that DWP will be able to tell all the Primes exactly what suppliers and terms they would inherit should they be successful with the WP tender.
How can Primes factor in the associated risk and cash requirements for a supply chain that they have not negotiated and agreed but will potentially be compelled to accept ?
The really big concern is the cash flow requirements – which will vary considerably between the supplier base with large organisations / charities potentially able to provide most / all of the upfront cash flow requirements and some smaller niche players unable to provide very much at all. You can not have a procurment that may ultimately compel Primes to accept a supplier network with potentially onerous financing requirements. Primes may find themselves simply unable to take the business on and may end up in breach of banking covenants.
Perhaps if DWP could negotiate with all of the Threshold Providers to be able to detail cash fow requirements, prices (reflecting MSF’s for Primes) and be able to be clear how the framework will work within a Lot, such that Primes could understand who they would ultimately be compelled to work with versus who they need to include in their own supplier network within their bids…. Needless to say that DWP are unlikely to want to take on a role anything like this – not least because it would be unworkable and miss the point.
Per previous – I like some of the benefits but fear the approach simply cannot work.
You are right when you say…
“You can not have a procurement that may ultimately compel Primes to accept a supplier network with potentially onerous financing requirements. Primes may find themselves simply unable to take the business on and may end up in breach of banking covenants”
However, due Diligence would still apply; Threshold Providers would still need to demonstrate that – in addition to their performance – they had the wherewith-all to not only deliver but that they were viable; they would need to demonstrate financial robustness.
Also the status of ‘Threshold Provider’ would apply to those already delivering (successfully to the Threshold) in an area/Lot. Therefore the presumption would be around working with what works – within specific performance margins- and enfranchising the third sector and SME providers as opposed to the emphasis being the other way.
There are indeed challenges, I can only hope that DWP is open to discussing and developing this idea further.
PEACE
What has happened to the concept of blackbox procurement?
Hi Stephen the ‘Black Box’ remains intact. The proposal I have suggested moves away from a wholly Laissez-faire approach to one where a), DWP fulfills it’s ‘Stewardship’ role and b), providers and the department collaboratively build on their extensive knowledge and data to ensure that what works – based on the threshold – is supported and where possible replicated.
Primes will be free to make representation to DWP where they wish to adopt a different approach/provider: however the presumption must be that where a provider has achieved the Threshold -within specific areas, zones, wards, neighbourhoods etc.. – and can demonstrate appropriate scaling up then it must be worthy of delivery.