A GUIDE TO REVIEWING OUTSOURCED CONTRACTS

Transcription

1 A GUIDE TO REVIEWING OUTSOURCED CONTRACTS By James Milner Ember Public Sector Solutions A refreshingly different consultancy improving services and saving money

2 INTRODUCTION FROM JAMES MILNER, MANAGING DIRECTOR EMBER PSS 2 Thank you for taking the time to look at this guide. Outsourcing as the preferred method of delivering services and saving money has dramatically increased. Furthermore, 63% of all outsourcing deals in the first half of 2015 were first time agreements compared to 25% in the same period in 2014, i.e. not renewals or work transferring between suppliers. (Source: Arvato & Nelson Hall) However, signing the contract is only the beginning. Contracts need to be closely managed in order to deliver the services our citizens deserve and also to continuously improve them. In my experience it s incredibly easy for these contracts to go wrong quite quickly, so it s vital that they re regularly reviewed to keep them on track. This shift from service provider to commissioner of services is a huge change for many local authorities and it s the right moment to ask if you have all the skills required to commission services, negotiate and manage contracts, manage suppliers and take a long-term strategic view. This is where Ember PSS can really provide help as a critical friend. My team have many years of experience in this field and can provide you with the confidence to make sure your outsourced contracts are delivering the best services and best value for your citizens. This guide will tell you how to assess whether an outsourced contract is flawed or failing and explains steps you can take to start the review process. After you ve read this guide please get in touch and we can work with you to deliver a short, sharp review of your outsourced contracts. This will give you the reassurance that your contracts are delivering or provide the evidence that you need to improve, re-negotiate or change your supplier. I look forward to hearing from you, James Milner, Managing Director Ember PSS More information about how we can advise on sourcing issues

3 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

4 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. Frequently we find the organisation replaces the high calibre staff who negotiated the contract with less experienced people and the amount of executive time and attention reduces quickly and dramatically. 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, 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 which are typically 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.

5 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: a. Lack of structure for service improvement b. Relationships are breaking down c. Governance is poor d. Service to the public is suffering e. 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. Do client and supplier teams understand their purpose and know where to go to raise issues or share good news? 3. Are meetings focused on joint problem solving, progress and delivery, or are they dominated by negative and defensive point scoring? 4. Is there a clear mechanism for negotiating how a financial impact (positive or negative) will be shared between the parties?

6 6 b. Relationships are breaking down Contract management is tough, it can get bogged down in inter-personal conflicts, fingerpointing 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?

7 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, but usually when it s too late and the service fails. The warning signs are easily lost or ignored. 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?

8 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 cross-contamination 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, will 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?

9 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?

10 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 ecosystem 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 needs; citizen needs & expectations; costs; technology; processes; organisationstructure 3. Identify organisationsto benchmark against: review what they measure and what their metrics are 4. Identify stakeholders who will be involved and or impacted by a review 5. Get input from internal stakeholders: what improvements can they suggest? 6. Approach external stakeholders: get them on-side from the start 7. Identify 3 scenarios: best, middle, worst case with ballpark benefits and costs 8. Gain sponsorship and buy-in at the highest appropriate level

11 11 b. The benefits of an external party assisting with the review There are significant benefits of using an independent, external body to help with your business case and review: Methodology: external specialists will have proven experience in conducting reviews Benchmarking: knowing what to benchmark and the data 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 Confidence: an experienced, independent external partner with a track record of reviewing, challenging and re-procuring contracts will give you and your team the confidence you need to create a business case for a review The hardest part of a journey is often the first few steps. Having an experienced guide and critical friend 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!

12 12 4. ABOUT JAMES MILNER James is the co-founder and Managing Director of Ember PSS. As a client of Ember Services he was impressed with their professionalism and rigour, so when they approached him to set up a consultancy specialising in working with the public sector he jumped at the chance. James is committed to applying his skills and those of his team to working with public bodies to help deliver the best possible outcomes improving services and delivering value for money. He s dedicated to delivering the highest standard of work and passionate about Ember s independence. While the current trend is to outsource services, James is mindful that 50% of all outsourcing agreements fail or fail to meet expectations. (Source: Aberdeen Group) So, rather than risk failure, it makes sense to get some help from independent and experienced practitioners. The Ember PSS team can reduce risk, making sure: you are buying the best value solution (not necessarily the cheapest); the outsourcer is incentivised to deliver your objectives; you have all the right skills in place. James has over twenty years experience of working in the public sector in procurement, outsourcing, bringing services in-house and setting up successful partnerships. 5. ABOUT EMBER PSS Ember PSS is a refreshingly different consultancy, passionate about public service. We advise our clients on how to deliver more with less. We then help implement the required changes. We pride ourselves on developing client teams, building capability and leaving a culture of continuous improvement. We can deliver: SOURCING ADVICE: whether it s to share, outsource or bring services back in-house PROGRAMME, PROJECT & CHANGE MANAGEMENT: to help your organisation transition, transform and realise tangible benefits DIGITAL TRANSFORMATION: creating a Digital Review and Strategy and leveraging Social Media CUSTOMER EFFORT DASHBOARD: our online dashboard to help increase efficiency and reduce customer effort

13 Working together with Ember PSS has ensured Birmingham City council can deliver the maximum benefit for citizens. Chris Gibbs, Service Director, Customer Services, Birmingham City council Clients include: Please find out how we can help you... Contact Us Phone: Office: Ember PSS Ltd, Faraday Wharf, Holt Street, Birmingham B7 4BB Ember Public Sector Solutions A refreshingly different consultancy improving services and saving money