CIRCULAR SWSG19/91

SWSG Guidance Package, Index Ref: F4

22 November 1991

Dear Colleague

COMMISSIONING AND PURCHASING

Summary

1. This circular outlines the issues which local authorities need to consider when purchasing community care services provided by the voluntary and private sectors and authorities themselves.

Introduction

2. Purchasing care services is not new to local authorities. But the White Paper "Caring for People" envisaged a substantial increase in this type of activity. When funds are transferred to local authorities from the Department of Social Security in 1993, Social Work Departments will need to commission not only residential but nursing home care, day care and packages of domiciliary care. These services will be provided in a "mixed economy of care" by the private and voluntary sectors and by local authorities themselves.

3. The circular’s focus is on the general principles of commissioning and purchasing care services and the need to ensure quality, consumer choice and value for money as part of this process. Purchasing is part of the wider commissioning role which is the function of specifying what services are required and then conferring upon a provider the duty to provide these services. The provider can be the local authority itself or an outside body. The local authority may therefore commission and provide services itself; or may commission and purchase services from an outside body.

4. Services will be purchased within the context of local authorities’ community care plans. Those plans will identify the care needs of the local population and set out proposals for meeting those needs. The Scottish Office expects local authorities to indicate in community care plans, how they intend to obtain services, how they propose to develop commissioning and purchasing arrangements and how they will further stimulate and encourage the contribution of voluntary

and private organisations to the provision of community care services. Progress on these matters will be specifically discussed with local authorities when community care plans are being monitored.

5. Though the terms of this circular relate primarily to community care, local authorities should also apply commissioning and purchasing to child care services, in ways which are consistent with their statutory responsibilities. Some authorities already look to voluntary agencies to provide various specialist services on their behalf - for example for children disabled in different ways. There is scope to build on that tradition by extending commissioning and purchasing more widely through the range of services for children.

The Enabler Role

6. The White Paper "Caring for People" stated that local authorities would continue to play a valuable role in the provision of services but that they should develop further an enabling role. Thus the White Paper set out proposals under which local authorities will increasingly become commissioners and purchasers of care services. This concept of "the enabling authority" is also central to the reforms of the NHS as set out in "Working for Patients".

7. The enabling role is already familiar to local authorities and of crucial importance. Its tasks are to identify the needs for care among the population it serves, plan how best to meet those needs, set overall strategies, priorities and targets, commission and purchase necessary services and ensure their quality and value for money. Within this framework, "Caring for People" emphasised the importance of developing a mixed economy of care, seeking out and purchasing services from a range of providers in the voluntary and private sectors as well as the public sector.

8. The enabling role requires those commissioning services to specify what needs they are proposing to meet and potential providers to show how they will develop relevant services and the cost and quality of such services. Arrangements have to be made between purchaser and provider to ensure that what is agreed is delivered, monitored, reviewed and adjusted as priorities develop and change. These arrangements form a service agreement or contract between purchaser and provider.

9. To development the enabling role, in practical terms, requires authorities to distinguish between aspects of work which, on the one hand, are concerned with the assessment of individuals’ needs and the arrangement and purchase of services to meet them and, on the other hand, the provision of services. This should facilitate a needs-led approach to assessment and planning and objective judgements about the most appropriate way of meeting needs. The distinction enables different functions to be effectively managed and monitored and the people involved to be clear about their own role. It should encourage those commissioning services to look at all available options from which to obtain optimum services, rather than tying them to particular providers and should prevent potential conflicts of interest. The Government advocates a similar approach to all commissioned services, whether they are provided by the local authority’s own services or by other independent agencies.

10. In order to develop the purchasing function it is necessary to distinguish "purchasing" and "providing" tasks of existing staff. Many staff currently carry out both functions whereas others are only responsible for one or the other. There is inevitably some overlap between some "purchasing" and "providing" tasks. It may not be realistic in practice always to have separate staff for each function but it is useful for staff to distinguish the 2 sets of tasks and to be clear about the potential difficulties of holding responsibility for both.

11. It is important that this distinction of roles is reflected within the local authority’s management structure at both the "macro" level involving plans to meet strategic priorities as a whole and at the "micro" level where services are being arranged for individuals. Local authorities already have considerable experience of this distinction in other areas of activity. Application of these principles at the "micro" level is discussed in The Scottish Office circular on Assessment and Care Management (SW11/1991) and in the practice guidance on Care Management and Assessment issued by the Department of Health and The Scottish Office in October 1991. In responding to guidance on commissioning and purchasing, local authorities should also refer to the report "Purchaser, Commissioner and Provider Roles" published by Price Waterhouse and the Department of Health, and circulated to Directors of Social Work in Scotland.

12. In extending their "enabling" role authorities will need to maintain continuity of service provision and introduce changes at a pace appropriate to their organisation. The Scottish Office will expect to see evidence in community care plans of the further development of a mixed economy of care, and will monitor the amount of services purchased by authorities. In moving in this direction local authorities will need to continue to work closely with care providers in the voluntary and private sectors as well as with Health Board and housing authorities. This will enable them to develop the necessary experience and expertise in utilising and, if necessary, stimulating a wide range of service provision.

Working with Health boards

13. Local authorities are required to work closely with Health Boards in planning community care services. As "enablers" they may also wish to act jointly in commissioning care services. This is one of the key elements in planning agreements - reaching agreement on responsibilities and the level of funds each authority will allocate to the joint purchase of care. In doing so they should learn from each other’s experience of "enabling". They will need to agree on common service specifications, especially quality standards, conditions governing agreements or contracts with service providers and on how much each will pay towards services being purchased. The basic principles of seeking to provide good quality care responsible to the preferences of service users and offering good value for money should be followed in any joint arrangements. Local authorities will also have to work closely with other agencies in their purchasing role, especially housing and education authorities.

Increased Consumer Choice

14. Under section 12A of the Social Work (Scotland) Act 1968, as inserted by section 55 of the National Health Service and Community Care Act 1990, local authorities will have a responsibility to assess the community care needs of those who request assistance. Assessment will take into account the views of the individuals being assessed and their carers. Decisions about the care to be provided should also take into account the preferences of users and carers. It will therefore be necessary for local authorities to plan for a range of services to be available to ensure that individual choice of service can be exercised whenever possible. This could mean more flexible use of existing services as well as the development of new services.

Value for Money

15. The development of the enabling role should help resources to be used more effectively by improving arrangements for assessing needs and obtaining services tailored to meet those needs. Improved value for money should also arise from more flexible use of the full range of services which are available and from the use of a range of means of procuring services. Negotiations for care services and monitoring and review arrangements should lead to improvements in the quality of service. As sizeable buyers of services local authorities should be able to seek efficiency improvements, which, if cash releasing, should be reflected in the price of services. Efficiency improvements can free resources for other purposes or can produce higher quality outcomes from available resources.

Timescale

16. By 1 April 1993, the date of the transfer of funds from the DSS, authorities will need to develop arrangements for purchasing residential and nursing home care, day care and domiciliary care. They should do this building on existing good practice and operational experience and in relation to the identification of community care needs exemplified in their community care plans. It is recognised that authorities will develop their purchasing abilities over a period of time. Stability in the supply of care services for individuals is extremely important and this should be taken into account in the process of developing a mixed economy of care.

Developing a Mixed Economy of Care

17. A mixed economy of social care services using the private and voluntary sectors as well as their own directly provided services has always existed and local authorities are accustomed to planning and delivering services accordingly. In developing this further local authorities will require relevant information about current and prospective needs and demands for care. They will also need to know about the supply of services in their locality. This information should be available as a result of the planning process in which they will have collaborated closely with Health Boards and consulted service providers and users. The information should be refined and improved as the outcomes of care assessments of individuals, feed into the planning system.

18. The development of an environment where a number of high quality providers are available to offer a choice of service provision is important. This will enable local authorities to seek services on favourable financial terms and create pressure for maximum efficiency and effectiveness in the provision of services. It should also widen the range of choice for service users. This type of environment depends not just on the number of existing providers but also on the ease with which new suppliers can enter the market. In many cases the prospect of competition can have a beneficial effect on the behaviour of existing providers and promote more efficient and effective service provision.

Voluntary and Private Organisations

19. The voluntary sector already provides many services used by social work departments and it will play an important part in the mixed economy of care. The development of more formal service specifications and contracts will only relate to those aspects of voluntary organisations’ work in service provision. Local authorities will still be able to support other aspects of their work, such as advocacy and campaigning, through existing arrangements for providing grants. In some cases, local authorities may wish to support voluntary bodies who can put them in touch with users and carers.

20. In some circumstances it may be more appropriate for services provided by voluntary organisations to be supported by grant-aid. This might be suitable for low intensity services, for small organisations or where small sums of money are involved. Local authorities will have to use their discretion and it will remain important that the grant is paid for a service which is specified in terms of outputs and outcomes.

21. The Scottish Council for Voluntary Organisations has produced a Code of Practice which sets out practical principles for voluntary organisations to observe when exploring and entering contracts to provide services. [ Scottish Council for Voluntary Organisations "Community Care Contracting: A Voluntary Sector Code of Practice"]

22. Voluntary and private providers have often filled gaps in existing service provision and thereby made important contributions to community care. They have also developed specialist and innovatory services. Frequently these developments have taken place in partnership with local authorities. These roles should be expanded with the extension of service purchasing by local authorities.

23. In areas where there is little existing choice in service provision or where a need has been identified for a service which is not available, local authorities should consider ways in which the range of service options can be increased. They should develop strategies which will enable them to provide appropriate information and a supportive climate in order to encourage and facilitate the creation of new services by private and voluntary providers. Voluntary and private providers will be consulted about community care plans. This process will enable an exchange of information about local authority needs and potential serviced provision by voluntary and private bodies.

24. A number of different forms of encouragement can be given to voluntary and private organisations. Local authorities may wish to encourage smaller organisations to form consortia in order to reduce overheads and increase viability. Or they may wish to enter into partnership arrangements with voluntary organisations or to stimulate involvement in the provision of care services by actively seeking out and offering support to organisations, eg in terms of training or by inviting local minority ethnic community organisations to make a contribution. All of these methods of promoting the independent sector are currently being pursued by local authorities.

25. In seeking to promote alternative forms of provision authorities should seek to avoid the prospect of either elected members or officials facing conflicts of interest. Such persons’ knowledge and experience may be an invaluable resource in helping new bodies get off the ground, but any continuing direct involvement, either in management or direction or in the capacity of a consultant, could make for difficulties should the body seek to contract with the authority for the supply of a care service. This advice is intended to apply to persons in a position to influence either the policy of an authority or the selection of contractors. It is not intended to inhibit co-operation at a professional level between the statutory and other sectors. Making the position clear from the outset should reduce the risk of problems at a later stage.

Local Authority Provision

26. Local authorities’ own service provision will continue to play an important part in the mixed economy environment. They should continue to provide direct services when this remains the best way of meeting needs. However, with the emphasis on quality, choice for service users and value for money, local authorities should aim to treat their own services no differently from others which are contracted. This will require some changes in both organisation and attitudes. An example would be the need for information systems which provide reliable performance data, including costs, to enable comparisons between different services. Authorities should consider how to manage these changes as part of the planning process and describe their proposals in community care plans.

MANAGING THE PURCHASING PROCESS

Quality

27. Social work departments will need to ensure that they are aware of the quality of services which service users expect. This information can be obtained in a variety of ways which can include monitoring the satisfaction with services of existing users, arrangements for inspection and reviewing services, lessons from research, and information obtained through the complaints procedure, from inspection units and from individual assessments. Local authorities will be responsible for ensuring that quality standards are built in to service specifications. A critical issue in commissioning care services identified in community care plans will be the agreement of quality standards which meet the requirements of the care purchaser and the service user and to which the service provider is committed. This does not mean that quality is solely the commissioner’s responsibility. Providers are responsible for the delivery of quality and the onus should be placed on them to demonstrate the quality standards they propose and what systems will be in place to assure this provision.

Service Specifications

28. A broad service specification should be prepared for all services to be commissioned or purchased. It should describe the elements of the services required and should include sufficient details on the quantity and quality of care to provide a basis for negotiation with providers. It should also indicate how these will be monitored. This task is considerable but the aim should be to have such specifications as an integral part of good management practice regardless of whether a service is to be contracted out, supplied by a statutory body or a voluntary organisation. Without such specifications providers will not know what it is they are being asked to provide and cannot therefore assess the costs, nor the staff or other resources required to meet purchasers’ needs.

29. Social work departments should involve service users, carers and other relevant bodies or individuals in determining service specifications, setting out the terms and conditions of this involvement at an early stage. Providers should also be involved in the definition of specifications. Discussions with potential providers before issuing formal documentation can enable the social work department to test ideas with those knowledgeable in the particular field. A number of service providers, especially in the voluntary field, will already have service specifications which should be taken into account. All service specifications should include information about the complaints and grievance procedures of service providers and social work departments and how to use them. Service users and carers should be informed of the contents of service specifications. It is important, for example, that residents of care homes (and their relatives) should know what care the home is contracted to provide and what the obligations of landlords and residents are.

30. The specification must be appropriate to the serviced involved. Some services are amenable to detailed specification whilst those entailing flexibility and discretion might be specified more loosely. Service specification is discussed in some detail in the Department of Health Social Service Inspectorate Practice Guidance "Purchase of Service" which is available from HMSO and which has been sent to Directors of Social Work.

Selecting Providers and Arranging Contracts

31. Having specified the range, volume, level and quality of services which are required the local authority has to decide who should provide the service. In doing this the local authority should consider the quality and cost-effectiveness of the service irrespective of the sector to which providers belong. Local authorities should ensure that their service needs are widely known so that relevant voluntary and private organisations have the opportunity to be considered as potential providers. Annex A provides guidance on procedures for selecting providers and negotiating contracts.

Information and Budgetary Requirements

32. Information will be required for assessing the care needs of the resident population to inform purchasing and to verify that contracts are being met in terms of both quality and quantity. Social work departments will need to identify their information requirements and ensure that, where information is not available, they plan for its future provision.

33. To ensure the delivery of good quality local services in line with national policy objectives social work departments will need to ensure that they have in place an integrated system for assessment and decision making within a clear budgetary framework. They will therefore need to have a financial and managerial framework which will help to secure this objective. Systems should encourage the flexible use of devolved budgets at the local care management level while facilitating planning and management for the social work department as a whole. The Financial Management Partnership (formed by CIPFA and the Association of Directors of Social Services) has produced advisory and training material which social work departments should find helpful in addressing information and financial management requirements.

Resources

34. There will be resource implications for local authorities in developing commissioning and purchasing. In the long run these arrangements should improve value for money but initial investment will be necessary for staff to develop service specifications, purchasing and contracting procedures and information systems. There will be associated training costs and it is also likely that local authorities will want to support voluntary bodies in developing their capacity for relevant service provision.

35. The Government has indicated that adequate resources will be made available for community care. In 1991-92 a figure of £10m and in 1992-93 a further £11m were taken into account in setting the level of Aggregate External Finance in support of local authority expenditure. These sums include allowances for the development of commissioning and purchasing.

Action

36. social work departments should work towards:

- the further development of the mixed economy of care which meets the care needs of local communities as identified in community care plans

- developing their ability to draw up specifications for different care services

- placing appropriate contracts for different care services with providers of care

- ensuring that quality standards are specified in contracts and that these are monitored and met in all care packages.

Yours faithfully

GAVIN ANDERSON

Social Work Services Group

ANNEX A

SELECTING PROVIDERS AND ARRANGING CONTRACTS

37. This Annex describes the principles to be followed during contracting. They are covered in more detail in the Practice Guidance on "Purchase of Service" published by the Social Services Inspectorate of the Department of Health. That document discusses the mixed economy of care, service specifications, contracts and quality assurance in purchase of service. It includes illustrations of service specifications from a number of English Social Services Departments. This practice guidance and practice material is commended to authorities. It will be supplemented by further practice material derived from experience in Scotland.

Selecting Providers

38. Local authorities have wide experience of selecting service providers both for social work services and in other areas. There are a range of options for selecting providers of service: open tendering; select list tendering; direct negotiation with one or more independent supplier; or, as in the case of "tailor made" schemes or management/worker buy-outs, setting up a new organisation. Costs will be incurred by agencies involved in tendering. These may be particularly significant for small voluntary and private bodies. There are advantages and disadvantages to each method of selecting a provider and these are examined in the SSI practice guidance mentioned in the previous paragraph.

Arranging Contracts

39. Clear service specifications are the first requirement in the process of contracting. Contracting entails considering the options for how and from whom a service can be obtained; inviting and vetting applications and checking the credentials of applicants (ie their professional/technical and financial standing). In managing this process social work departments will be able to draw on existing expertise in other local authority departments, although they should recognise that there will be differences between community care and other service areas. They may also wish to consider the experience now being gained in the NHS.

40. Contracts with outside bodies are agreements which are enforceable in law by or against the parties concerned. In drawing up contracts social work departments should take into account the provisions contained in Part II of the Local Government Act 1988 which relate to non-commercial considerations in contracts. Scottish Development Department Circular No 7/1988, issued to local authorities on 6 April 1988, gave guidance on the Part II provisions of the 1988 act. Authorities may also find helpful the further guidance on competition in the provision of local authority services contained in The Scottish Office Environment Department Circular No 6/1991 issued on 8 March 1991.

41. In negotiating contracts local authorities should bear in mind the nature of the providers from whom they are seeking to obtain services (for example small voluntary organisations may lack the expertise and resources to engage in detailed or technical procurement procedures) and should be flexible in their approach. In introducing a system of contracting the aim is to safeguard and improve standards of service and as such the process should complement good management practice and underpin the work of independent inspection units. Authorities should obtain legal advice when entering into any type of contract with outside bodies because, in the absence of the kind of line management links which exist with in-house providers, contracts with outside bodies can only be enforced ultimately by legal action. Authorities may also wish to take advice on effective procurement procedures before entering any type of contract.

Choosing the Right Type of Contract

42. In contracting, the relationship between purchasers and providers of services is likely to be influenced by the values that the organisations are perceived to hold, the quality of service on offer, the size of the organisations, the scale of the service to be contracted out and by the prevailing market conditions. For example, those contracts which are based on partnership arrangements are likely to be strong on intended outputs and outcomes for clients, and to be flexible: those contracts covering highly standardised activities are likely to contain more detailed specifications in terms of inputs and process and to leave less scope for flexibility.

43. Many variations are possible between these 2 extremes, but the important point is that authorities do not enter into inappropriate relationships, eg very tightly specified arrangements when a flexible service is required, and the reverse when a tight specification is needed. Generally speaking, the more trust that can be built into a relationship, the more productive and innovative it is likely to be.

Length of Contract

44. Contracts can be of variable duration, eg fixed term or renewable on a rolling basis. The contracts entered into should reflect the change in the pattern of service provision which the authority is intending to create. Time-limited or renewable contracts will allow the necessary scope for a flexible and evolving process. However the need to maintain stability of service provision to users should also be considered in determining the duration of contracts. Longer contract periods may be appropriate for organisations new to a particular function in order to establish themselves in the new field. In longer term contracts termination clauses to allow for breaches of contract or poor service become essential.

Pricing

45. Contracts should be for the delivery of an agreed level and quality of service for a specified price, usually for a defined period. Agreeing prices, defining service and monitoring the delivery of both will be necessary both during the contract and on its completion. This will provide a framework within which social work departments and other providers should be able to

- live within allocated resources;

- deliver continuing improvements in quality and cost and hence in value for money;

- cope with uncertainty over pay and price levels.

46. Both purchasers and providers will need to have regard to current price and pay levels and to prospective increases during the contract period. There should be no automatic assumption that such increases will be passed through from provider to purchaser. From a conventional purchasing point of view one-year and two-year contracts would not usually include provision for inflation indexed price increases. Contracts should include clauses which address the impact of pay and price increases and how this is to be handled.

47. Where there is a rolling contract there should be provision for a periodic review (at intervals no shorter than a year) of all aspects of performance including price. The point of rolling contracts is to give stability to the provider for serving planning. However, affordability will be of vital importance to the purchaser. The contract should therefore allow for adjustment of its terms and assumptions by a negotiated mixture of alterations to prices, efficiency savings or service volumes. Some form of price indexation is often appropriate but purchaser should be wary of any mechanism which automatically grants price increases.