Testing the savings around contract compliance and negotiation

Through the LGA Productivity Experts Programme, expert advice was sought around the methodology and development of approaches, processes and skills for contract audit of contracts, recovery of overpayments, contract management and financial procedures to test for potential savings.

Efficiency and income generation

Through a Public Sector Reform, Sefton Council is implementing new models of service delivery, demand management methods, operating models and revenue streams driven by a series of frameworks for change projects.  Project 10: Commissioning and Shared Services aims to embed a commissioning mind-set, culture and effective practice, whilst improving the alignment of intelligence, commissioning support, procurement and performance activities around commissioning decisions. Through the LGA Productivity Expert Programme, expert advice was sought around the methodology and development of approaches, processes and skills for contract audit of contracts, recovery of overpayments, contract management and financial procedures to test for potential savings.

The challenge

As part of the Outline Business Case for Project 10, one project workstream based on research indicated that other authorities have had success in recovering excess expenditure which was not properly incurred and potential savings of £0.5m were identified.  During the full Business Case, analysis was carried out which suggested 6% of contracts may have potential for cost recovery based on the nature of payment structure.  During implementation, however, an internal audit was conducted on a small sample of these contracts to provide an opinion of the likelihood of savings.  This showed that payments and any variations relating to these contracts were fully compliant and a clear management trail existed to support the document and work done.

Another project workstream included a major contract review.  An analysis of contracts carried out and contracts considered in scope for delivering savings were identified.  Following implementation, a major review of contracts was carried out with improvements made to contractual processes, including the development of a new forward commissioning plan.   However, when client officers were invited to attend a contract workshop to share ideas for successful negotiation and identify how the potential savings could be achieved, concerns were raised as many felt that contract values had already been driven down to their lowest value point.

The solution

Following selection of a public sector expert through the LGA Productivity Expert programme, three main objectives were set:

  1. To critique the current contract management methodology and test it to identify potential weaknesses around the over payment of suppliers and duplicate payments, in order to make a recommendation on whether or not to pursue a full contract compliance audit through an external partner;
  2. To identify potential opportunities for making savings;
  3. To deliver training in negotiation skills and supplier relationship management to better equip Sefton with the capability to secure any savings. 

1) Critique of current contract management methodology
Five areas were selected from the contracts register to form the basis of the review. 
Interviews were arranged with managers from each service with the aim of testing relevant parts of standard contract management process through a common set of questions.  Documents and data were reviewed with identified price anomalies and possible cost savings tested using a range of data analysis techniques.  A RAG status summary was then compiled around the key elements of the contract management processed, based on information provided within the interviews.

Sefton Council already utilises software which checks for supplicate payments. However, this relies on the same invoice number or the same amount with the same supplier being processed.  It cannot identify payments where the amount charged is different to the terms of the contract.  Methodology was introduced which enabled a measure to be applied to the cost per unit to provide a comparison.  This produces average costs, allowing anomalies to be identified for further investigation.

2) Opportunities for cost savings
The methodology described above was applied to compare price benchmarking for adult social care contracts, using a summary of the cost per client for the different types of service provided.  A similar process was applied to energy usage against building size bandings.  Findings were presented back to service areas for further investigation and comment. 

Other recommendations included the use of ‘competitive dialogue with negotiation’. Through this process, suppliers develop alternative service and price combinations in response to the outline requirements.  Once detailed proposals have been developed, suppliers are invited to submit competitive bids.  This approach encourages innovation, provides greater potential for added value and maintains competitive pressure in the bidding for complex contracts.

It was also recommended to explore service and price combinations with suppliers prior to finalising bids in a ‘best and final offer’ and the use of social investment bonds to bring a service back in-house were also suggested.

Findings were then presented back to the service areas as the purpose of this benchmarking was to identify differences in spend for further investigation. 

3) Contract Negotiation Skills and Supplier Relationship Management Training
To enhance the planned programme of development for client officers, it was agreed that the Productivity Expert would run two workshops around contract Negotiation Skills and Supplier Relationship Management.

Within his final report, the Productivity Expert presented a number of contract specific recommendations, including:

Outcome based specifications - Based on evidence collated from interviews and a review of contracts, it was suggested that the services involved may benefit from developing a more outcome-based approach to specification to enable suppliers to develop a greater understanding of the service area’s need resulting in better results with more risk passed to suppliers.  This would also facilitate a payment regime where a fixed amount could be agreed for the year and a monthly pro-rata payment made which would reduce the risk of incorrect payments.

Early supplier involvement – The introduction of a two stage process, based on an Innovation Partnership model, to enable partnership working with a shortlisted group of suppliers to design services and products that do not currently exist and develop a solution which all shortlisted suppliers can bid for.

Supplier profitability – asking for cost breakdowns at tender stage to provide a baseline for comparing suppliers and testing the margin which the suppliers make.

Contract risk – prior to allocating the contract, assess the contractual risk of anything that may go wrong, including service delivery and financial costs and monitor this during the term of the contract.

Supplier Relationship Management - Improving supplier relationship management to create the right environment to:

  • Tackle immediate issues with contract/service delivery;
  • Lay the foundations for continuous improvement and enable good service delivery;
  • Encourage suppliers to consider Sefton as a ‘customer of first choice’ for innovations;
  • Create a framework for managing supply risk;
  • Enable costs to be strategically managed rather than victims of market forces.

Key Performance Indicators and Reporting – It was noted that not all areas conduct regular, formal and documented supplier reviews on contract performance and opportunities to improve.  It was recommended that supplier performance reports are introduced to enable Sefton to track the performance on all major contracts.

The impact

  1. Based on the assessments already carried out by Sefton’s Internal Audit, together with the data analysis carried out as part of this project, and as a consequence of the systems, the Council already has in place, it was felt that the probability of a full contract compliance audit finding any significant savings, is low. While it would be possible for Sefton to commission this on a shared savings basis, the disruption to the day to day operations in providing data and answering enquires, then recovering any overpayments resulted in a recommendation not to continue with this work stream.
     
  2. Potential savings of £1.7m were identified, based on the data analysis and benchmarking exercises, however it was recognised that further investigation would be necessary to produce a more accurate savings potential as this process is designed to raise questions rather than answer them.  Further investigation has now been completed and while it is still too early to provide an accurate savings potential, this has significantly reduced the suggested scope of potential savings to potentially nil savings.  In the case of Adult Social Care, legitimate reasons existed for the outlying costs, including jointly funded individual packages of care with health, short-term respite provision for carers and residential placements for complex individuals.  With regards the Energy findings, the methodology was too broad to recognise the variance in building types and usage.   Instead, the Council uses an industry recognised energy benchmark assessment of all assets and has also participated in an APSE national benchmarking exercise since the visit of the Productivity Expert.
     
  3. Training was provided and positive feedback has been received from client officers.  The training was undertaken on a ‘train the trainer’ basis to enable Sefton to roll out delivery of this learning across other client officers within Sefton.  Response from the client officers involved is currently being collated and evaluated to inform our approach.

How is the new approach being sustained?:

The programme has been useful to confirm the findings of our own internal audit team in relation to contract compliance and overpayments.

Service areas will be asked to apply the provided contract management checklist and undertake a RAG status against their existing and any new contractual arrangements to develop and drive best practice.

Service areas will continue to investigate potential savings in relation to the data analysis benchmarking undertaken. The methodology applied will be included as part of future contract negotiation skills training.  

Sefton is currently reviewing how best to roll out the learning provided from both workshops with a number of options being considered, including challenge and coaching sessions, e-training and face to face delivery.  The training completed compliments a further training session provided by Sefton’s external auditors and together this will form a suite of training around effective contract management. 

Lessons learned

No.
Lesson Description
Suggested Future Action

1

Better planning around access to files by external ‘Expert’/consultant

  • Ensuring confidentiality clauses are fit for purpose and data analysis falls within the boundaries of GDPR.
  • Ensuring generic log in details and IT equipment are available in advance. 
  • Utilising Share Point to enable limited access to relevant files, as required, and remove access when no longer required.

2

Process may have been enhanced by including client officers/managers in planning outcomes and developing a programme of work.

  • Pre-programme workshop with relevant officers for a widened perspective and to ensure clarity of understanding around programme objectives and assist the information gathering process.

3

It would have been useful to plan an additional session with the ‘Expert’ to facilitate the adaptation of training materials to enable an easier roll out of training.

  • Earlier sharing of training materials to identify areas reliant on ‘Expert’ experience or
  • Use of video/narration to facilitate eLearning or share examples based on experience.
  • Formulate a working party to draw on collective experience to include relevant examples of practice within Sefton to enhance the programmed delivery of contract manager training.

 

Sefton contact:  Sandra Coventry, Telephone: 0151 934 4004 Sandra.coventry@sefton.gov.uk
LGA contact:     Grace Abel, Advisor – Productivity, grace.abel@local.gov.uk