Local authority budgets, much like that of households, are under pressure from the rising cost of living, whether that be utility bills, staff wages or purchasing services. But there are some relatively straightforward changes authorities can make in purchasing residential and foster care services for children from the independent sector that can deliver savings in the short term – and some more complex but still achievable measures to consider in the longer term. The objectives of both are to improve availability, achieve better value for money and improve outcomes for local authorities and their vulnerable children.
The suggestions should deliver savings and benefits within current commissioning and governance models of sub-regional consortia and individual local authority purchasing, rather than being reliant on future unknowns such as the regional care co-operatives, which will not be on stream in most areas until 2025 and may not deliver savings anyway.
The short-term options can be delivered with a minimum of difficulty (although local authorities should check how far their current contract terms allows for these). Longer term options include initiatives which could grow existing residential and foster care resources for example by supporting better staff recruitment and retention. Again, all ought to be achievable within the current law, with an experienced delivery team.
The suggestions are based on my own experience of delivering efficient and effective commissioning and procurement in this and other sectors.
QUICK HITS
Improved payment terms
Flexing payment arrangements will cost the local authority nothing. Forward funding can reduce providers’ cashflow uncertainty, a costly concern for the private and voluntary sector. Local authorities could agree to automatic mid-month payments with two weeks in arrears and monthly or quarterly financial reconciliations thereafter. Some do but not the majority. This is of tangible financial benefit for providers. Local authorities have limited risk especially where providers regularly provide services for more than one of a local authority's children. Where bills are paid in arrear and on submission of fee notes, offer a guarantee that uncontested bills will be paid within 14 days (rather than the statutory 30 days) and offer payment on account where part of a bill is contested rather than paying nothing until the whole bill is agreed.
All too often local authorities take a long time to pay even routine bills and uncertainty about when payments will arrive and/or the amount make cash management difficult. A beneficial payment profile will avoid providers having to borrow to pay for staffing and other revenue costs such as mortgages. At a time of high borrowing costs, an overdraft is expensive and its cost will be built into the company's overheads and therefore its fee levels. These initiatives are also important in building relationships and to avoid a “poor payer premium” being added to your local authority's purchases.
Fee increases
Another regular problem for providers is late settlement of requests for annual or other fee increases. Sometimes these are not settled until well into the claim year after months of discussion and negotiation. Local authorities may require extensive information from providers which is time consuming to produce and may not be used because the authority decides to cap the inflationary payment at a sum well below inflation. Settling requests for fee increases more quickly, without requiring extensive customised and pointless financial information and paying a proper inflationary sum can be quick wins.
Providers who have been bruised by a local authority's treatment of requests for fee increases may not be willing to do business with that authority in the future or may add a premium to initial fee levels as a cushion against the future – so the authority cannot access the places it needs and may pay more in the longer term from existing providers or by having to purchase expensive care from the unregulated market.
Staff management
A slightly longer-term option is working with providers to examine ways to avoid such extensive use of expensive agency staff in placements and support recruitment and retention of more and experienced staff/foster families. Currently, urgent placements especially of hard-to-place children mean that agency staff are essential or foster referrals are refused. If emergencies are avoided by better planning and providers can agree a pathway to future placements, this allied to them offering training and a career path for new staff/foster families may pay dividends. This could be delivered in parallel with split fees which separate staffing and other costs.
Payment mechanisms
Local authorities rightly resent making an inflationary payment or buying an expensive service where the benefit goes towards provider profits and does not increase the salaries of low paid staff, income of foster parents or improve recruitment. Without transparency, fee management is difficult. With the staffing element separated, a commitment to offer an inflationary payment can be linked to the delivery of quality outcomes via quality assurance approaches including guarantees of staff pay increases plus training schemes to support recruitment, retention and development. This approach has a track record of success in other local authority marketplaces where providers have reduced their dependence on agency staff. In this marketplace – with examples of mothballed homes and difficulty recruiting foster families – growing the current marketplace through maximising use of existing resources and assets is a “no brainer”.
More transparent payment mechanisms with costs based on delivery needs mean that if a child's needs reduce the staffing requirements may reduce and the payment to the provider can also reduce. This is best done within collaborative partnership working rather than the current spot purchasing market though it may be possible to begin to do so now.
Long-term initiatives
Longer term, the way forward is collaborative and partnership working allied to a more flexible approach to procurement and to the documents underpinning this.
Local authorities must urgently reconsider their current approaches moving from a restrictive to a flexible model, that is based on an ability to agree fee and other variations which change with market conditions and offering committed purchase models. Refusing to accept bids outside unrealistic fee envelopes, no guarantee of inflationary pay increases, no guarantee of any purchases and very complicated bid documents are dysfunctional and ineffective. Providers are walking away from these – for example, more than half of new residential care placements are outside the extensive and expensively procured solutions and recent evidence gathered by Revolution Consulting suggests this percentage is increasing. Shortage of supply allows providers to rely on local authorities offering spot purchases where they can negotiate fee levels.
Collaboration and working together and longer-term contracts and trusting partnerships are essential. So too is “commitment purchasing” – a model whereby a consortium or individual local authority agrees to work collaboratively in partnership via a contract with several providers to purchase care packages over a multi-year period. This approach should offer savings though advantageous fee levels are just one component. Added value will include development of more sophisticated assessment and delivery tools for agreed aspirations and outcomes, improved approaches to referrals and a pathway from high support and expensive care to a less expensive package. There should be a commitment to offer either or both an agreed number of placements and an agreed contract value of placements each year (to be discussed and flexed regularly) with the possibility of ‘first refusal’ for new places. Increased price transparency, the possibility of a more extensive partnership if the relationship is successful or a reduction if it is not successful can be included.
This approach is possible even within current public procurement law. It may become easier when the law changes next year. Commitment purchasing is wider than simply soft or variable blocks and requires a new mindset – working together in a more equal relationship where the authority relies on the expertise of the provider and the provider feels valued with regular meetings to support vulnerable children, rather than an adversarial, untrusting approach. Partner providers would be chosen because they are willing to work with and support the local authority in an open way, allowing mutual trust to develop. These partnerships will be flexible and augmented by approved lists and other initiatives.
Next steps
It is time to think out of the box as the current market is unaffordable, expensive and failing to deliver enough provision. It fails vulnerable children. At present, there is a risk that the national shortage of places, especially for more complex children, will worsen and costs will continue to increase above inflation. Urgent short-term action and a longer-term change in approach towards models of commissioning and procurement are required. These must be based on flexible, collaborative approaches with longer term relationships, less complex more sophisticated documents, including specifications reflecting the highly regulated nature of this marketplace.
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Léonie Cowen & Associates is a specialist law firm working in the social care and other local authority sectors
