background to tendering for nhs services tim parsons business adviser

Background to Tendering for NHS Services

Tim Parsons

Business Adviser

Outline for this evening

● Background to tendering – when, why etc

● The process involved

● What are PCOs looking for?

● Pricing your services and understanding costs

● Putting together a good case

When PCOs tender

● When practices are sold

● When practices go private

● Patient Charge Revenue

● When dental budget increases (9% increase in 2008/09)

● Capital budgets

● Budget has to be spent!

Why PCOs will tender

Achieve particular outcomes:

● Improve oral health for a particular group or within a particular locality

● Improve access for a particular group

● Use a new form of GDS contract/PDS agreement

● Establish a new practice in a particular location

Why PCOs will tender

Legal/governance reasons:

● The NHS is not legally required to put dental services out to tender but

● A PCO’s Standing Financial Instructions will have a term that says that medical services above £x should be tendered although the Board/PCO CEO/Chair may override this

● Recent EU ruling muddying the waters

Why PCOs tender

Transparency:

● Provide fairness and help protect the PCO from legal action

● Sets clear quality criteria

● Puts the provision of dental services on a commercial footing

Why PCOs will tender

Promote competition:

● Create a market

● Increase value for money

● Improve quality by providing a specification and preventing providers that do not reach the minimum quality requirements from tendering

Most importantly it is now the norm for PCOs

Who is going to tender?

● Large corporate bodies with managers whose job is to win new business

● Associates wanting to have their own practice

● Established commercially focussed practices wanting to expand

● New providers, for example not for profit organisations and medical corporate bodies

● And the people sitting around you now!

NHS tendering process must ensure.

● Fair competition and that no potential supplier is disadvantaged by the process

● Contract decision is based on evaluation criteria linked to specification requirements

● Specification must include all technical and professional requirements

● Award notice is placed in the OJEU

Restricted tendering

● Advertisement for expressions of interest

● There may be an information event to explain the process and answer question

● Screening against pre-qualification questionnaire to obtain a shortlist

● Short listed providers (normally four to eight) given full tender documents and invited to submit a tender

● Short-listed providers invited to interview

Open tendering

● Advertisements appear and providers invited to apply for tender documents

● Applicants submit full tenders

● Award is made or shortlisting occurs and an interview process is held

May be used for awarding capital grants

Negotiation

● More rarely used

● PCO draws up a list of preferred providers using a tendering process

● Negotiates contracts with providers who wish to take part, there may be another tendering process if only one contract is to be awarded

Components of the tendering process: Example quality criteria

● A track record in the provision of primary care dental services under GDS or PDS

● Provide evidence of the following: eligibility to hold a GDS contract/PDS agreement and entitlement to carry on a business in the UK

● For specialist services, specialist qualifications● A reference from an NHS commissioner, no breach or remedial notices

issued● On target with current contracts

Components of the tendering process: Example quality criteria (cont’d)

● More than one dentist within the practice ● Experience of setting up a brand new dental practice● Experience of recruiting, inducting and supporting dentists and dental care

professionals● Ability to implement the new service within the minimum timescales● Clinical governance systems● IT

Components of the tendering process: Service specification might contain

● Amount of UDAs to be provided● Contract value available● Oral health outcomes expected● Clinical processes for example fluoride varnishes, diet advice● Practice location for a new practice● Commencement date ● Clinical governance system

Components of the tendering process: Service specification might contain (cont’d)

● Business continuity plan● Opening hours● Number of patients to be seen● Identification of performers● Patient involvement and patient satisfaction● Ensuring equality and diversity● IT

Contract that is offered

● May not be the standard GDS contract/PDS agreement

● May contain specific additional conditions such as access sessions, opening hours from 8am to 18.30pm, provision for efficiency savings

● May be fixed term but could be a rolling PDS

Components of the tendering process: Evaluation

● Panel will evaluate offers according to written criteria that tie in with the specification

● Mark scheme may be given

● Panel members will be identified and will include a financial, commissioning and public health representation

● Economic criteria may include price, quality, delivery performance, risk and overall cost effectiveness

Components of the tendering process: Interviews

● Where there is restricted tendering short listed providers may be asked to submit a draft proposal

● Interviews by the Panel with detailed and possibly difficult questions

● May have to make a presentation of 10-15 minutes

What are PCOs looking for?

● Value for money innovation

● Certainty of supply

● Good relationships

● Evidence based practice

● Practice organisation tailored to patient need

Final Legal Issues

● Freedom of Information Act applies PCO should have a policy on FOIA and tenders

● Competition Law and price fixing. Suppliers must not share information about prices and LDCs must not pass on information

● Suppliers cannot act together to prevent, restrict or distort competition● TUPE if UDAs are tendered which previously belonged to a practice with

employees, these employees may have the right to transfer to the winner of the tendering process under TUPE: take advice from the BDA

Pricing your Services

Firstly…

Be realistic when tendering! Can you:

● Deliver UDAs

● On time

● Whilst making a profit

Overheads, Breakeven and Price Setting

● The Basic Financial Statements

● Overheads and Costs

● Fixed and Variable, Direct and Indirect

● Breaking Even

● The impact of changing costs and overheads

● The impact of changing contract values

● How to decide what your price is

The Basic Financial Statements

Rank the following in terms of day to day running of a small business:

● Balance Sheet

● Cashflow Statement

● Profit & Loss Account

The Basic Financial Statements

And the answer is:

● Cashflow Statement

● Profit & Loss Account

● Balance Sheet

Cashflow Statement

“A statement that shows the sources and uses of cash for a period”

● In short, the statement that shows you whether you have access to real funds and whether you are living within your means

Cashflow Statement

£ £

Net cash inflows from operating activities 55

Returns on investments and servicing of finance

Interest received 1

Interest paid (2)

Net cash outflow (1)

Taxation

Corporation tax paid (4)

Net cash outflow (4)

Capital expenditure

Payments to acquire intangible fixed assets (6)

Payments to acquire tangible fixed assets (23)

Receipts from sales of tangible fixed assets 4

Net cash outflow (25)

Etc., etc.,etc.,

Increase in cash 25

Profit & Loss Account

“A financial statement that measures and reports the profit (or loss) the business has generated during a period. It is derived by deducting from the total revenues for a period, the total expenses associated with those revenues”

● A tool to help you understand what your earnings are and what it is costing you to generate them. Something you can work with

Profit & Loss Account

£ £

Turnover 126,000

Less Cost of Sales 68,000

Gross Profit 58,000

Less Distribution Costs 10,000

Administrative Expenses 8,000 18,000

40,000

Other operating income 13,000

Operating Profit 53,000

Interest receivable and similar income 4,800

57,800

Less Interest payable and similar charges 7,600

Profit on ordinary activities before taxation 52,200

Less Tax on profit on ordinary activities 17,600

Profit on ordinary activities after taxation 34,600

Balance Sheet

“A statement of financial position that shows the assets of a business and the claims on those assets”

● Shows who has contributed what to the business and how the investments have been distributed – and importantly the value of the business at a given point in time

Balance Sheet

£ £ £

Fixed Assets Capital

Freehold premises 45,000 Opening Balance 50,000

Plant and Machinery 30,000 Add Profit 14,000

Motor Vehicles 19,000 64,000

94,000 Less Drawings (4,000)

60,000

Long-Term Liabilities

Loan 50,000

Current Assets Current Liabilities

Stock-in-trade 23,000 Trade Creditors 37,000

Trade Debtors 18,000

Cash at Bank 12,000

53,000 147,000 147,000

Overheads and Costs

● Fixed cost – “A cost that stays the same when changes occur in volumes of activity”

● Variable cost – “A cost that varies according to volume of activity”

● Direct costs – “Costs that can be identified with specific cost units, to the extent that the cost can be measured in respect of each particular unit of output”

● Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output” - OVERHEADS

Overheads and Costs

● Fixed cost – e.g. Property, Rent ● Variable cost – “A cost that varies according to volume of activity”● Direct costs – “Costs that can be identified with specific cost units, to the extent

that the cost can be measured in respect of each particular unit of output”● Indirect costs – “All costs except direct costs, i.e. all those that cannot be

measured in respect of each particular unit of output”

Overheads and Costs

● Fixed cost – e.g. Property Rent

● Variable cost – e.g. Electricity, Phone Bills

● Direct costs – “Costs that can be identified with specific cost units, to the extent that the cost can be measured in respect of each particular unit of output”

● Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output”

Overheads and Costs

● Fixed cost – e.g. Property Rent

● Variable cost – e.g. Electricity / Phone Bills

● Direct costs – e.g. Consumable Materials

● Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output”

Overheads and Costs

● Fixed cost – e.g. Property Rent

● Variable cost – e.g. Electricity / Phone Bills

● Direct costs – e.g. Consumable Materials

● Indirect costs – e.g. Utilities, Depreciation Charges etc.

The Relationship Between Costs and Overheads

Indirect costs

Direct costs

Fixed costs

Variable costs

TOTAL OR FULL COST OF A PARTICULAR JOB

Break Even Point

Fixed Costs

Break Even Point

Variable Costs

Break Even Point

Incremental Income

Break Even Point

Break Even Point

Break Even Point

More Expensive Materials

Fixed Costs remain the same

Variable Costs Move Up

Break Even Point Moves Up

Break Even Point

New Equipment

Break Even Point Moves Up

Fixed Cost Base Moves Up

Cost of Production Moves Up

Break Even Point

Fixed Price Contracts

Break Even Point

Fixed Price Contracts (UDA) Value Increases

Break Even Point

Break even point comes earlier

Profit improves

Fixed Price Contracts (UDA) Value Increases

Break Even Point

Fixed Price Contracts (UDA) Value Decreases

Break Even Point

Break even point takes longer to achieve

Profit reduces

Fixed Price Contracts (UDA) Value Decreases

How to decide what your price should be

● Relating the price to your running costs

● Relating the price to your earning expectations

● Relating the price to how hard you want to work

● Relating the price to how long you want to work

● Relating the price to what the market will stand

How to decide what your price should be

So what do you do?

1. Gather information

2. Allocate expenses

3. Express preferences

4. Relate realities to desires

5. Factor-in downtime

6. Factor-in lower value time

7. Review the price produced

8. Iterate!

General process

● Advert

● Reply

● PQQ

● ITT - Business Plan/Further information

● Panel Presentation and Questions

● Decision

● Win - hard work starts from here!

READ THE DOCUMENTATION

CAREFULLY

When looking at tender docs

● What is the length of the contract?

● What services are they asking for?

● What is the timescale for opening?

● Where do they want services to be provided?

● Are there any penalties built into contract?

● £/UDA

● Who will patients be – where will they come from?

Consider:

● Does it make economic sense given the contract conditions and oral health of the population?

● Can you compete on price and how will this effect profits given that quality criteria must be met?

● What are the contract terms are they more onerous than the present standard GDS contract?

● Is it a useful exercise to go through to establish a practice in the NHS market?

● Can you form a corporate consortium with other practices?

Detail

Research:

● Go visit area – Ferrari or Fiesta?

● Use internet

● Get costings:— Staff— Property

● Potential for private practice

● Would you want to live/work there

● Area on up?

● How many dentists in area?

Detail

● Take time over documentation!

● Time shows, rush shows

● Ensure all formatted correctly

● Easy to read?

● Friends/family to check (not partner!)

● Deadline is exactly that!

● Have you answered all the points?

● Use photos/maps/appendices

● Contents = actual titles

● KISS

PCOs also like…

● Quality awards (e.g. IIP, BDA Good Practice Scheme)

● Early/late opening hours

● Weekend opening

● Access for all

● Wide skill mix within dental team

● Experience in setting up/running of practices

● Contingency plans

● High NHS mix

● NHS branding

● Low staff turnover

● Innovative ideas

Business Case – Responding to ITT

● Title page

● Contents page

● Business case

● Appendices

Title Page

● Title

● Include PCO and Business name

● Contact details - address, telephone, email, website

● Who proposal is written for

● Logos?

● Don’t overcomplicate

Contents page

● Leave until last

● Ensure accurate page numbering

● Just main headings – not all subtitles

Business Case

● Overview of tender application

● Current practice situation

● Proposed solution

● Financial requirements

● Implementation schedule

Business Case - Overview

● Reason behind proposal

● Breakdown of oral heath need

● Key PCO drivers

● Key PCO criteria

Business Case - Practice Situation

● Experience of Management Team

● Type of dentistry

● Number and location of practices/surgeries

● Number of dentists, DCPs and other staff

● Ownership Structure

● Patient base

● UDAs delivered annually (and on target?)

● Additional services currently delivered

● Explain Unique Selling Points (USPs)

● How long established? Did you set up?

● Awards – BDA Good Practice Scheme?

Business Case - Proposed Services

● What are you offering to undertake - Details of services (e.g. full mandatory NHS dental services) - How much – X UDAs

● How will services be marketed

● Relate back to oral health of population

● Benefits of solution and USPs

● Demonstrate that tender priorities have been met

● Demonstrate commitment to NHS

● Demonstrate quality service provision and clinical governance

● Innovative ideas

● Quote information back at them

● SELL YOUR CONCEPT

Business Case - Financial Requirements

● Detail total contract value and how this will be broken down for expenses

● Detail investment into practice

● Capital Funding - Don’t assume you are going to be awarded - Show improvements if won

● Don’t show profit

● Ensure that income will sustain business though

Business Case - Implementation Schedule

● Outline timescales for implementation, including: - Acquisition of premises - Planning permission - Renovation and instillation of equipment - Marketing - Recruitment

● Steps taken to speed up implementation

● Timeline

● Requirements from PCO

● Day one date

● Be realistic

Business Case - Summary

● Review benefits

● Stress experience

● Emphasise USPs

● Demonstrate ability to meet PCO’s requirements

● Show commitment

● Demonstrate desire to fulfil contract

Business Case – Appendices

● Maps

● Photos

● CVs

● Policies

● Marketing material

● Letters/references from PCOs

● Any other information required from PCO

Implementation

● Ensure requirements are met

● Deliver what you said you are going to deliver

● Communicate with PCO at all times: - Problems - Successes - Innovations - Key milestones - Marketing

● Keep good relationship with PCO – repeat business?

● Request feedback from PCO

A blatant plug…

BDA Tender Training Workshops

● £550+VAT for BDA members

● 2 day workshop

● Held in association with Henry Schein

● 5/6 June

Thank you for listening

● Any questions?

Tim Parsons

020 7563 4159

t.parsons@bda.org