Statement on planned Learning Disabilities Service Outsourcing,
Somerset County Council, July 2016 to Dimensions (UK) Limited.
X Flawed risk assessment
X Dangerous reliance on business growth
X Ignore market message of one bidder at your peril
X Dimensions contract losses
X High transaction and upfront contractual costs
X Questionable value for money
X Democratic accountability and transparency
X In-house option and capability sidelined at the start
X The public cost of ideology
X Objectives ignore reality and make sweeping assumptions
X User/community preference ignored
X Quality of jobs, terms and conditions
X Sustainability of a social enterprise model
X Overall impact on users, Council and economy not assessed
Flawed risk assessment
The nine-risk assessment (Appendix G) is fundamentally inadequate in scope, because it is focused on procurement. It excludes strategic, transition/rationalisation, democratic governance, contract management and important operational risks, such as quality of service, performance, financial sustainability, business expansion and employment policies. Furthermore, the allocation, likelihood and impact of risks, essential for good practice risk management, are absent.
I do not accept that the risk assessment is flawed. The Risk appendix attached to the Cabinet report was a summary of the risk log kept by the programme. This document does follow the accepted practice referred to in the question. The risks are primarily focused on the procurement and establishment of a social enterprise but do also include other potential risk areas. The programme manager has briefed trade union representatives on the risks of the programme earlier this year and went through each risk in detail.
Dangerous reliance on business growth
It is a grave mistake to assume business growth and income generation. It has been an abysmal failure in 65 PPP Strategic Partnership contracts (£14.2bn value) and in care trusts and arms length companies. It was a prime reason why savings targets were not achieved by transnational and national companies or local non-profit organisations. There is also a common mistaken belief that there are multiple sources or ‘pots of money’ that a social enterprise will be able to access.
I do not accept this is a fair comparison to make. The decision taken by Cabinet was about creating new social enterprise, not a Public Private Partnership (PPP). This social enterprise will be free to trade with the wider population, which will be an additional source of income to it, however in terms of business growth we have taken a cautious approach and only assumed new business in terms of replacing any business lost – i.e. a steady state. If the new social enterprise wins additional new business over and above this, this can only increase the savings value, not reduce it.
Ignore market message of one bidder at your peril
The fact that the Council received only one bid is, in effect, a signal that the market considered the proposed contract to be too large and/or complex. It eliminates competition, because the Council does not even have a comparator improved in-house option as this was rejected two years ago. It places the Council in an uncompetitive and weak negotiating position, which gets weaker as the project proceeds, because the County Council needs Dimensions more than it needs the Council.
This has been a unique procurement in that stakeholders were very clear in their feedback in 2014 that the new organisation needed to be a social enterprise and that they did not wish to see the service “broken up”, which would have resulted in multiple smaller contracts. This inevitably limited the number organisations that were likely or able to respond. Although the number of organisations involved reduced during the process following the initial Pre-Qualification Questionnaire, at each point this was for reasons outside of the control of the Council. It was not as a result of the way the procurement was undertaken, beyond the contract size and social enterprise requirement. It did not place the Council in a weakened negotiating position as, while a competitive procedure with negotiation was used, at the points at which these negotiations took place there were two organisations within the process. The fact that only one bidder remained at the very last stage did not affect the pricing as this had already been submitted at the point at which the field was reduced to a single bidder, and the subsequent reductions referred to by Stephen Chandler at the Cabinet meeting were as a result of the clarification process.
Dimensions contract losses
Dimensions lost contracts in Doncaster and Windsor and Maidenhead in 2013/14 and Wakefield in 2014/15. It took a singularly financial approach to the Wakefield loss – “This contract was loss-making so the loss did not significantly reduce surplus” (Dimensions
(UK) Limited, Annual Report 2014-15). Somerset’s risk assessment does not even mention contract termination or contract renewal issues.
While the Council cannot comment on procurement exercises undertaken by other Local Authorities which are, by their very nature, commercially confidential it is not a cause for concern that an incumbent organisation has lost some business elsewhere. Dimensions is a significant provider of services for customers with learning disabilities and autism nationally and will inevitably not retain every contract it holds when a retender happens, in the same way as not every incumbent provider retains a contract retendered by Somerset County Council. The statement regarding the Wakefield loss has been taken from page 6 of the publicly available “Dimensions Accounts 2014/15”, and therefore it is neither a surprise or concern that a statement of this type has been made in a what is formal financial report.
High transaction and upfront contractual costs
We have seen no evidence of actual transaction and contractual costs, but they will be significant. They must include procurement costs up to contract signing (3%-5% of contract value); mobilisation of the contract and staff transfer costs; investment/rationalisation costs included in the contract; and annual contract management and monitoring costs (1%-3% of annual contract value).
The overall cost stated at the Cabinet meeting is based on activity levels supplied by the Council to Dimensions. With the exception of the crisis support and employment support services the Council will only be paying for actual activity that is delivered by the new social enterprise at the rates including in the commercial submission from Dimensions. These rates include all costs, including those referred to in Mr Behan’s question, which were rigorously checked by Somerset County Council finance staff.
Questionable value for money
“The bid received from Dimensions is forecast to provide a lower overall cost than the cost of continuing with the service provided by SCC, but in the early years of the contracts there is a higher profile of cost whilst the service modernises and undergoes transition to the social enterprise” (Cabinet report, 11 July 2016).
- This confirms the comparison with the current SCC service was not a like-for-like comparison between an improved in-house service and a proposal from an external bidder.
- It is not a rigorous and transparent value for money assessment.
- The lack of savings suggests the Council is funding the rationalisation programme.
- The attempt to fund a social enterprise provider is almost certain to lead to
increased public costs in the short term, opening the Council to challenge on
grounds of value for money, flawed options appraisal and/or fiduciary duty.
- In these circumstances, rationalisation will be ‘financed’ by cuts in services, job losses and changes to terms and conditions.
It does not mean that the comparison with the current SCC service was not a like-for-like comparison as suggested by Mr Behan. All known costs, plus a realistic and objective assessment of potential in-house service modernisation costs, were included in this comparison which was rigorously undertaken in order to fully and objectively test the submission from Dimensions in comparison with continuing to retain the LDPS in-house. The result of this work was that, based on maintaining not rationalising or cutting current levels of activity, it was concluded that moving these service to a new social enterprise was likely to result in a modest financial saving in addition to the broad range of other benefits outlined in the report to Cabinet for customers, carers, staff and the Council of transferring these services to a new social enterprise. While we have always said that some customers may see changes delivered by the new social enterprise, this is because these changes would need to have been made regardless of the outcome of this procurement process, and we have repeatedly emphasised at every opportunity that the services the LDPS provides would need to evolve over time, in the same way in which they always have.
While, as stated in the Cabinet papers considered on 11/07/2016, there is expected to be an increase in the costs in the early years of the contract, the whole life costs of the contract have been assessed as lower than continuing to provide these services directly. In undertaking this comparison over the life of the contract the Council has not left itself open to challenge, and has fulfilled its fiduciary duty.
Mr Behan also makes reference to a “flawed options appraisal” and lack of “transparency”, and both of these statements are flawed in themselves. Firstly, there is no new options appraisal to be flawed as the continuance of delivering these services in-house was explicitly rejected by Cabinet in February 2014 ,and the decision taken on 11/07/2016 was to award contracts, not reconsider this previous decision. Secondly, in terms of transparently, we have shared significantly more information than would normally be the case where we are procuring a service. Where we have not shared information it relates either to commercial aspects of the Dimensions bid and/or approach to bidding that could adversely affect either the new social enterprise or Dimension’s ability to retain or compete for future work locally and/or nationally given the competitive nature of the market for these services. Included within this commercially confidential information is the detailed cost comparison between the new social enterprise and continuing to provide these services in house as, while we have stated the overall difference, the detailed information would immediately give the new social enterprise’s competitors an advantage in this highly competitive market.
Democratic accountability and transparency
Somerset County Council should be acutely aware that outsourcing erodes democratic accountability and transparency and limits effective public scrutiny of contracts and contractor performance. There is a danger that a social enterprise is not regarded as a ‘contractor’, but legally, financially and operationally that is precisely what it is. Comprehensive governance, contract management, monitoring and scrutiny arrangements must be put in place and costed.
The majority of Adult Social Care services commissioned by the Council, including those for customers with learning disabilities are already provided by external organisations. The Council has significant long term experience of successfully managing a broad range of contracts for the delivery of these services with provided large and small, with officers accountable to members for their management.
In-house option and capability sidelined at the start
The Council was negligent in failing to prepare a forward-looking in-house proposal inclusive of a Public Service Innovation and Improvement Plan. This should have been jointly prepared by the Council, staff, trade unions, families, service users, carers and community organisations and would have cost a fraction of the procurement costs. It could have better addressed needs, improved capabilities, increased effectiveness and efficiency and enhanced public service operational delivery.
The Council has not been negligent as suggested by Mr Behan. A comprehensive options appraisal was considered by Cabinet in February 2014 and this explicitly rejected the option of retaining the LDPS within the Council for a wide range of reasons which were stated in the Cabinet paper and appendices.
The public cost of ideology
The Cabinet and public appendices (11 July 2016) confirm the absence of savings and the potential increased costs. The continuation of austerity policies, increased poverty and inequalities are likely to increase demand for Learning Disability services. Meanwhile, Dimensions increased its ‘cash at bank and in hand’ by 28% to £18.2m in the 2014-15 financial year, which raises the question why it holds large reserves of cash?
As previously stated, while savings are expected to be modest, they are not absent as Mr Behan suggests. In terms of the ‘cash at bank and in hand’ held by Dimensions that Mr Behan refers to, this statement is potentially misleading when quoted out of context. As stated in the publicly available accounts to which Mr Behan refers, Dimensions prudently has a policy of retaining two months payroll costs in cash reserves, and on checking these accounts it is these reserves to which this figure relates with a statement in the text below the table that “Cash reserves represent approximately two months of payroll costs”.
Objectives ignore reality and make sweeping assumptions
There is a fundamental gap between the Council’s aspirational objectives (Appendix A) and the second column that describes Dimension’s plans, proposals and statements as facts, but devoid of any awareness that they may not be achieved or fulfilled. It indicates a bonded and trusted relationship between Somerset managers and the contractor, which is usually regarded as poor procurement practice.
The Council’s objectives both accept the reality of the position we are starting from, and are rightly aspirational as to how we wish to see the way we support customers with learning disabilities developing in the future – anything else would be a disservice to them. The appendix makes clear statements that “the proposal from Dimensions was evaluated as meeting” each objective in question, and then goes on to summarise what the proposals were. This neither represents poor procurement practice, nor is there any inference in anything that is stated in this appendix that the Council will not be monitoring whether the proposals by Dimensions are fulfilled, as it will.
User/community preference ignored
90% of responses to the Learning Disability consultation in 2013 said they preferred
Option 1 – “Leave things as they are. The Learning Disabilities Provider Service would continue to be owned and run by the County Council” (Learning Disability Services in
Somerset: Summary of Responses, 2013). The percentage in favour would have been even higher if it had been presented as a ‘new, improved in-house service’ instead of a negative ‘business as usual’ approach. Responses to the transfer of all or some services to a new publicly owned trust or not for profit organisation (76%) or to other care providers (56%) would have obtained even less support.
The “User/community preference” has not been ignored, and the figure of 90% quoted by Mr Behan is factually incorrect. The Business Case considered by Cabinet in February 2014 objectively compared a range of options, including the Council retaining the LDPS within the Council to alternatives, outlining both the benefits and limitations of each option. The fact that this objective assessment did not reach a conclusion that Mr Behan agrees with does not make it invalid. Neither did this option describe this as a ‘no change’ option as it clearly stated that “this would not be a ‘no change’ option as the Service would continue to need to change and develop over time in order to meet the challenges of demographic changes and the increased personalisation of services.”
Quality of jobs, terms and conditions
A common pattern is evident in outsourcing adult social care services irrespective of the organisational status of the contractor (for example, Your Choice Barnet). It consists of cuts in service provision despite assurances; new or increased user charges; job losses in direct provision and support services; downward regrading of jobs for existing and new staff; reduction in earnings; enforced switch from defined benefit to defined contribution
At no point has there been any statement from the Council that the services that customers receive will be cut as a result of this decision. While we expect services to evolve over time, this is something that would have had to happen anyway in response to customer demand.
For example, the new service specification for day time support that was coproduced with customers and carers in advance of the procurement is very clear that they wanted to see change in a service that was offering limited operating hours and activities, and was often delivering these in segregated environments. In some parts of Somerset services are already being delivered in different ways that enable people to access other facilities that are available to the general public, and this is how we wish to see services evolve in the future. However, it is our expectation that buildings will continue to play a part for the foreseeable future, particularly where someone needs specially adapted facilities. While we can’t guarantee that these will be the same buildings as now in every case, where changes are made we want them to be for the right reasons, and for customers and carers to be involved throughout.
In terms of pensions the paper considered by Cabinet, clearly states that “The new Social Enterprise will become an Admitted Body of The Somerset Pension Fund. This will mean that SCC staff transfer to the Social Enterprise and will be able to continue their membership within the Local Government Pension Scheme.”
Sustainability of a social enterprise model
Outsourcing does not secure the long-term sustainability of the services. It does so only for the contract period and sustainability is highly dependent on contractor performance. What happens if the social enterprise fails to retain the contract when it is retendered and it is left with significant pension liabilities? Will there be clarity over the ownership and 4 revaluation of assets after the rationalisation programme is completed? These are
important issues that must not be lost in political expediency to outsource the service.
As previously stated we are not expecting services to be rationalised, and have taken a cautious approach to potential growth by assuming that business levels will be maintained rather than increased during the contractual period. In terms of contract end all of the areas raised by Mr Behan have been considered and addressed where appropriate, and while it is difficult to foresee how both the local and national the health and social care market will look at the end of the contractual periods the new social enterprise will be providing services to meet customers assessed eligible needs under the Care Act (2014). It is therefore possible that the Council will need to re-commission some of the services provided by the new social enterprise at the end of the contracts. However, as the services delivered are expected to have been transformed during this period, with significantly increased numbers of customers commissioning their own services, any re-commissioning exercise would be likely to very different to the one undertaken to create the new social enterprise.
Overall impact on users, Council and economy not assessed
Outsourcing/privatisation of Learning Disabilities will involve 1,200 staff, the largest transfer undertaken by the County Council to date. Except for a very limited equalities impact assessment, there is no evidence that the Council has taken account of the potential impact on the Somerset economy. For example, job losses and reduced earnings will have a negative impact on local economies; the proportion of the rationalisation programme expenditure spent locally; changes in supply chains; and the extent to which Learning Disability surplus/profits remain in Somerset.
The paper considered by Cabinet on 11/07/2016 included a comprehensive equalities impact assessment in relation to the awarding of this contract. As previously stated, we are not expecting services to be rationalised, and organisations were required to submit detailed proposals for organisational sustainability and supply chain management as part of their bids. The submission from Dimensions was evaluated and scored well in this area.
In terms of any surplus generate the accounts of the new social enterprise will identify any surplus generated. As a holder of the Social Enterprise Mark a minimum of 50% of the surplus generated will then be transferred to a designated reserve for the purpose of achieving the social objectives of the organisations. In order to ensure that this money is put to the very best possible use, Dimensions will establish a Strategic Partnership Board to provide thorough local governance of how any surplus is managed. The Strategic Partnership Board will comprise of a selection of local stakeholders from the Board of the new social enterprise and Management, Customers and Families (Friends) as well as the Council, Clinical Commissioning Group and any other local stakeholders that the Board wants to involve. The Strategic Partnership Board will be responsible for designing a Social Value Return Plan for the new social enterprise, and then make grants from the designated reserve to support local social objectives that it identifies in-line with the Social Value Return Plan. The remaining reserves will either remain within the new social enterprise to support its on-going operation and investment in services, or be used to support the social objectives of the not for profit Dimensions group of organisations, of which it will be a member and which, due to the nature of both organisations, we expect to consistent with the social objects of the new social enterprise.
- Elected Members should call in the Learning Disability report to Cabinet, 11 July 2016.
- Adopt a much more rigorous negotiating position supported by critical analysis and
Gateway reviews at key stages.
- Immediately draw up an in-house Public Service Innovation and Improvement Plan to provide an alternative strategy.
Professor Dexter Whitfield