alternative service delivery models october 2013

Alternative Service Delivery Models

October 2013

www.pwc.com

PwC


Background and Context

2October 2013ASDN - Impact on Internal Audit

PwC

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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Impact on Internal Audit


PwC

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

11

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

12ASDN - Impact on Internal Audit

PwC

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


PwC

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


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

alternative service delivery models october 2013

Documents

internal auditasdn impact

internal auditpwcchoosing

internal auditpwcblurring

shared service

internal auditthe organisation

delivery of public services

public sector organisations

joint venture setup