alternative service delivery models october 2013
TRANSCRIPT
PwC
Alternative Service Delivery Models
Background and Context
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Blurring the boundariesDelivering public services
• Prioritisation of activities in the context of cost efficiency drives the need to consider a wider range of delivery methods. These include not delivering the service at all and letting the market deliver it, if the need is there.
• Third parties (e.g. private sector, social enterprise, communities) can be involved in the delivery of public services to achieve better value for money where appropriate. Where the decision is to involve a third party, the underlying commercial reality of the deal (e.g. value, governance, operations, risk transfer and staff) will drive the use of different commercial delivery models.
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Choosing the right model for your needs Influences and pressures
Risk Efficiency
CostCommerciali
ty
Provider
Control
Benefits
Governance
Commissioner
Policy
Community
InfluenceStrategy
Localism
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Choosing the right model for your needs Process
Strategy Feasibility Structuring Implementation
Objectives
Vision
Policy
Optional appraisalBusiness CaseStakeholder managementBenefits analysisRisk assessments
Structuring
Vesting/Reform/ transaction
Capability
Capacity
Implement
Project Plan
Benefit realisation
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Reviewing service delivery models…
Options Analysis
Increasing demand and
shrinking resources
Financial Pressures
Collaboration Agenda
Pressure on Partner
Organisations
Big Society and Localism
Place Based Budgets
Public-Public Partnerships Public-Social PartnershipsRetain In-House Private Sector Partnerships
NO “ONE SIZE FITS ALL” SOLUTION
RiskControl
Benefits
Governance
Policy
Strategy
Commissioner vs.
Provider
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Key features
The organisation retains all responsibility for delivering the service.
- outsourced entirely, or a joint venture setup with a partner;
- For outsourcing, an external private sector partner is paid to provide the service to or on behalf of the organisation;
- For Joint ventures, a legal entity is setup between the parties to jointly deliver the service for a finite period of time. Typically, the private sector partner is the majority shareholder in these arrangements.
The partnership can operate on a contractual basis, via SLAs, on a constitutional basis, or a joint venture can be setup.
For SLAs, the relationship is contractual with one public sector organisation delivering service to another.
A shared service is where the delivery of a service is shared between public sector organisations using a constitutional arrangement for governance and equity.
For Joint ventures, a legal entity is setup between the parties to jointly deliver the service via contracts.
There are a number of potential vehicles, the main ones being Social Enterprise, Mutuals or Cooperatives.
A Social Enterprise is a socially-oriented venture created with other organisations , often involving local communities on a not-for-profit basis.
A mutual is an enterprise which is owned by those who do business with it.
A cooperative is similar to a mutual as it is owned by those who do business with it, but generally deals in goods and products rather than services.
Retain In-House
Public-Private
Public-Public
Public-Social
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Alternative Service Delivery Models
Impact on Internal Audit
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Case Study 1 – Private Sector Provider - Outsourcing
ServiceAgreement
Objective Key IssuesMaximising cost effectiveness and delivering a return on investment
• Contractual arrangement between the LA and a private provider to deliver an agreed service.
• Able to obtain value from scale advantages of existing providers, flexible pricing, reduced upfront costs and output-based incentives.
• Typically requires setup costs to cover any procurement, the TUPE of staff and potentially the redesign of the retained organisation.
Maintaining or improving service quality
• Able to access skills available in the wider market and to contract for defined outcomes.
• Can be sufficiently flexible to allow for services to be changed over time.
• Contract management is important to maintain overall service quality.
Strategic Fit • Enables strategic control of service whilst transferring operational control.
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Outsourcing – Risks and Impact on IA
ServiceAgreement
Skills and capability to
effectively manage the contract?
Service delivery risks – reputation risks cannot be
transferred
Do internal audit….
‘duck the bullet’ ?
Or
Look to drive more assurance from more sources?
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Robust contract management
More Assurance
– More Sources
Align and focus risk management activity
Clarify and define the risk and audit universe. Identify the gap between proposed audit areas and total risk universe.
Independent third party assurance over design and operation of key controls for outsourced contracts and shared services.
1st & 2nd LoD
1st & 2nd LoD
3rd LoD
Outsourcing – Risks and Impact on IA
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PwC
ServiceAgreement
Objective Key IssuesMaximising cost effectiveness and delivering a return on investment
• No legal construct. Organisation can take different corporate forms (society, company). Can trade for profit, but any surplus is returned to the members.
• Could achieve cost reductions in service due to scale increase or sharing of expertise with other public sector partners.
• Does not allow the Council to benefit from any additional revenues as any profit could not be redistributed. Vesting costs could be significant.
Maintaining or improving service quality
• The ability to reward clients and employees directly through their shareholding or membership may improve services through incentivising them to accurately reflect user needs.
• The reduced ability to attract external private sector partners may limit the ability to provide service improvements.
Strategic Fit • Strategic control of the company is difficult for the Council to maintain as the shares would typically be owned by its employees or the users of the service.
Local Authority
X% Ownership
Y% Ownership
Employees/Clients
Mutual
Council/Clients
Case Study 2 – Mutual
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Mutual – Risks and Impact on IA
Succession planning and investment to
remain upskilled
Operational risk - transfer of people to a new company
under new management
Do internal audit….
Adopt the same approach?
Or
Adopt a more collaborative approach?
ServiceAgreement
Local Authority
X% Ownership
Y% Ownership
Employees/Clients
Mutual
Council/Clients
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Mutual – Risks and Impact on IA
What does good governance look
like?
Where do
boundary lines
lie?
Controls optimisati
on
Policies, procedure
s
Clarify risk appetite
Advise on risk profile
Embedding key
controls
Support&
collaborate
Trainand involve
Clarify risk strategy
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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
Adding value for our clients
Chris Gallagher
Director – PwC
Tel: +44(0)161-245 2484
Mobile: +44(0)7801-823 290