Alternative Service Delivery Models Enhanced Options Appraisal

Alternative Service Delivery Models – Enhanced Options Appraisal

Appendix 1

Borough of Poole

Options Appraisal for Alternative Service Delivery Modelsfor In-House Adult Social Care Services

November 2014 (v1.6)

Table of contents

1Introduction and Objectives……………………….……………………………………………..3

2 Executive Summary………………………….…………..……………………………………….5

3Outsourcing to the Market…………………………...…………………………7

4Solely Owned Poole LATC

5Pan Dorset LATC

6CIC for Seaview

7Conclusion and Recommendation

Introduction and Objective

1.1Background

In August 2014 the Borough of Poole (BoP) considered a report on an Options Appraisal into the potential future delivery models for the Council’s adult social care provider services.

After review of the appraisal Council Members requested further enhanced analysis of the options as follows:

Outsourcing the services to the market
A business case for a wholly owned Poole Local Authority Trading Company (LATC).
Joining a Pan Dorset LATC with Bournemouth and Dorset
The Community Interest Company for Seaview and the futures of Poole Day Services and COAST

The key drivers in commissioning the appraisal were:

Unprecedented financial and demographic challenges on top of its existing service challenges
On-going savings requirements which impact on the sustainability of current in-house provision and could compromise capacity and quality

1.2 Criteria used in Enhanced Appraisal

The criteria in this enhanced appraisal have been selected after considering that the options under scrutiny have already been appraised once. The key criteria are:

Provides a medium to long term financial benefit to the Borough of Poole (BoP) through a viable future
Enables the services to thrive and develop new income streams and provide more services to the residents of Poole
Provides Bop with the security that there is a provider of last resort in case of failure in the private market

It is important to remember that the options under scrutiny must meet all three criteria before being acceptable in the final comparison. If none of the options can meet all three criteria, then the Council would look again at other options.

1.3 The Scoring system for the Appraisal

The scoring will be straightforward and simple because there are limited options and three main criteria.

All options will be appraised on their ability to meet the three criteria and so will be scored in the following manner:

YES – means that the option can achieve the objective of the criteria
UNCERTAIN – means that the forecast performance is not strong enough to assure delivery of the objectives
NO – means that the option cannot deliver the objectives for specific structural or legal reasons

1.4The Services included in the Appraisal

The services included in all the options that have been appraised are in the table below and they include details of the budgeted establishment and budgeted cost base for 2014/15

Borough of Poole
Services in Scope
Services / Cost Budget / FTEs
Seaview LD Day Centre / 1,200,900 / 33.71
Poole OP Day Centre / 730,100 / 20.20
Coast (Employment Svs) / 342,100 / 10.48
Total for Transfer / 2,273,100 / 64.38

The two day-services occupy two properties in Poole, both of which would be leased back from the Council.

2Executive Summary

2.1The services in scope

The services are all based in Poole and

2.2Options and Criteria used and scoring methodology

The options available for the services are:

Outsourcing the services to the market
A business case for a wholly owned Poole Local Authority Trading Company (LATC).
Joining a Pan Dorset LATC with Bournemouth and Dorset
The Community Interest Company for Seaview and the futures of Poole Day Services and COAST

The key criteria are:

Provides a medium to long term financial benefit to the Borough of Poole (BoP) through a viable future
Enables the services to thrive and develop new income streams and provide more services to the residents of Poole
Provides Bop with the security that there is a provider of last resort in case of failure in the private market

All options will be appraised on their ability to meet the three criteria and so will be scored in the following manner:

YES – means that the option can achieve the objective of the criteria
UNCERTAIN – means that the forecast performance is not strong enough to assure delivery of the objectives
NO – means that the option cannot deliver the objectives for specific structural or legal reasons

2.3Summary of analysis of the options

2.3.1Outsourcing the services to the market

Our research into the provider market for Poole has led us to conclude that there are not enough providers of day services and employment services to provide a procurement process with sufficient choice and opportunities.

This lack of choice would lead to poor value for money providers who may not be able to sustain the services over the medium to long term.

The commissioners for services in BoP would not have a “Provider of Last Resort” option available from within BoP services.

2.3.2Solely owned Poole LATC

The very limited size of the services in scope prevents the single LATC from becoming viable financially.

The savings and additional income opportunities do not provide sufficient funds to pay for the additional costs of running and managing a separate legal entity such as an LATC.

The LATC would be making losses for its first 5 years and would have a deficit after 5 years.

The Borough of Poole would pay more to run the LATC than it would if it left the services in-house, as shown by the table below.

Borough of Poole Single LATC
Value for Money Comparison
Description / 5 Years BoP Receipts / 5 Years Contract Spend / 5 Years Budgets no Change
£ / £ / £
Cost of current In-House Services / 11,360,500
Cost of Contracts to BoP from the LATC / 12,843,015
Income to Council from Charges to LATC
Re- Corporate Support Services / 652,750
Fixed Assets Purchased (Desks etc) / 20,000
Property Rental Income to BoP / 500,000
Dividends/(losses) to BoP / (312,731)
Income and earnings available to BoP / (860,019)
Net Cost of Contract / 11,982,996 / 11,360,500
(11,982,996)
(Additional cost) to BoP over 5 years / (£622,496)

The table shows that BoP would be £622k worse off by establishing and running the single LATC.

The single LATC would have to compete with at least one other LATC from a neighbouring authority, limiting its ability to attract out of area clients.

This does not provide a financially viable future for these services, thus leaving the future of the services uncertain.

Theoretically the LATC could be the “Provider of Last Resort”, but if it cannot survive financially it will not be there to provide that service.

2.3.3Pan Dorset LATC (PDL)

The three services would be part of a care company that has a turnover of over £38m and employs over 1,400 staff. The LATC would have Bournemouth Dorset and Poole authorities as the only shareholders.

The size and scale of the PDL will give the services the management support and infrastructure they need to develop their service offers and increase their client base by attracting high needs clients from Bournemouth and Dorset.

A retained profit of £4.0m after 5 years gives the PDL a firm financial foundation for the medium to long term.

The Value for Money comparison below shows that the three authorities could share a net benefit of £8.9m over 5 years. Borough of Poole’s share in that benefit is £232k.

Pan Dorset LATC Value for Money Comparison
Description / 5 Years Receipts / 5 Years Contract Spend / 5 Years Budgets no Change
£ / £ / £
Cost of current In-House Services / 181,477,031
Cost of Contracts to 3 Authorities from the LATC / 185,200,141
Income to Council from Charges to LATC
Re- Corporate Support Services / 2,600,000
Fixed Assets Purchased (Desks etc) / 220,000
Property Rental Income / 5,800,000
Dividends available to three authorities / 4,058,147
Income and earnings available to 3 authorities / (12,678,147)
Net Cost of Contract / 172,521,994 / (172,521,994)
Saving on all 5 year Budgets / £8,955,038
Share of Net Benefit to each Authority / Sgle LATC / Joint Share / Incr in Benefit
Bournemouth Borough Council / 828,014 / 1,154,524 / 326,510
Dorset County Council / 6,855,129 / 7,568,302 / 713,173
Borough of Poole / 232,212 / 232,212
Total net benefit / 7,683,143 / 8,955,038 / 1,271,895

The net benefit, the size and nature of the company and its profitability provide the services with a financially viable and certain future. The PDL provides BoP with all of the soft benefits of an LATC, theoretically available from the single LATC, but instead of costing £622k, BoP would benefit by £232k.

The services would have a stable future inside the PDL and would benefit from cross-subsidisation of surpluses and possible investment in services.

The PDL would be able to offer the “Provider of Last Resort” service to the three partner authorities.

This option meets all the option appraisal criteria.

2.3.4The Seaview Community Interest Company (CIC)

The management team of Seaview Day Service, with support from qualified advisors, has produced a Business Case to support the establishment of a CIC from the Seaview Day Service.

After reviewing the Business Case and its assumptions, we have several concerns over the ambitious nature of the income targets and the effect of a neighbouring LATC would have on the CIC’s ability to attract new clients from outside the Borough of Poole.

Forecast Sales in the Business Case

Analysis of the new client forecasts for the CIC shows that the new income has been classified into two broad areas. :

Additional clients from the Borough of Poole, which increases the current client base and service delivery
New services to be developed for personal budget holders with medium and high support needs, including therapeutic sessions and a bathing service. Another service to be offered to other providers and cares is training.

Additional clients commissioned by Borough of Poole

The analysis forecasts that the commissioners will refer an additional 8 clients every year for three years, so that by the start of year 4, Seaview will have an additional 24 clients, all asking for 5 days care per week for over 50 weeks of the year.

We found no evidence that this growth in referred clients is taking place, and we question whether all of the 24 clients would want a full care day every day of the week.

We are also concerned that the future budgets for these services do not cover this increase in cost and clients.

New services

The table below outlines the new services offered in the Business Case and the number of new clients it is forecasting will want the services.

The bottom of the table summarises how many new clients the CIC needs to attract and keep as clients over the next 5 years. By year 3 the CIC will be expected to find 57 new clients on top of the 24 that have been commissioned by BoP, making a total 81 new clients, all asking for 5 days care per week for 50 weeks of the year.

Projected Additional income
Seaview Community Interest Company
Seaview Day Services / Year 1 / Year 2 / Year 3 / Year 4 / Year 5
Income from new sources / £ / £ / £ / £ / £
Direct Payment clients / 4 / 6 / 8 / 8 / 8
Daily Charge per Client / £52 / £52 / £52 / £52 / £52
Annual Turnover / 39,312 / 72,072 / 98,280 / 104,832 / 104,832
Clients with medium support needs / 2 / 4 / 4 / 4 / 4
Daily Charge per Client / £72 / £70 / £68 / £66 / £66
Annual Turnover / 18,144 / 58,800 / 68,544 / 66,528 / 66,528
Clients with high support needs / 2 / 4 / 4 / 4 / 4
Daily Charge per Client / £85 / £81 / £79 / £77 / £77
Annual Turnover / 21,420 / 68,040 / 79,632 / 77,616 / 77,616
Therapeutic services / 16 / 16 / 16 / 16
Daily Charge per Client / £25 / £25 / £25 / £25
Annual Turnover / - / 100,800 / 100,800 / 100,800 / 100,800
Bathing service / 1 / 1 / 1 / 1 / 1
Daily Charge per Client / £52 / £50 / £48 / £46 / £46
Annual Turnover / 7,862 / 7,560 / 7,258 / 6,955 / 6,955
Rental Recharge / 12,000
Annual Turnover / 12,000 / - / - / - / -
Training / 58 / 58 / 58 / 58
Daily Charge per Client / £830 / £830 / £830 / £830
Annual Turnover / - / 48,140 / 48,140 / 48,140 / 48,140
Total new Service Income / 98,738 / 355,412 / 402,654 / 404,871 / 404,871
Total Number of additional Clients / 17 / 47 / 57 / 57 / 57
Additional Training Clients / 0 / 58 / 58 / 58 / 58
Total of New Clients and Students / 17 / 105 / 115 / 115 / 115

In addition to services for clients with care needs, the CIC is looking to start a training programme for other care organisations and carers. This new service is forecast to attract 58 new customers every year for a training session costing £830.

Our overall conclusion is that the targets above are ambitious and challenging if this CIC was the only transformation of services taking place in the area. Our next section looks at the possible impact on the CIC of other developments in Dorset and Bournemouth.

The effect of a neighbouring LATC

It is a matter of public record that Dorset County Council (DCC) has agreed to establish its own LATC to start trading from July 2015.

Bournemouth Borough Council (BBC) is actively investigating the option of an LATC.

BBC, DCC and the Borough of Poole, as part of the “Better Together” programme are investigating a Pan Dorset LATC as described in the section above.

Any one of the projects listed above would have a detrimental effect on the CIC, as any LATC would become a competitor, and more importantly, their Council shareholders would look to refer their own clients to their own LATC before looking to the independent CIC.

This would directly affect the CIC’s ability to build up its client base as it quite rightly recognises that Bournemouth and Dorset represent a source of potential clients, see page 21 of the CIC Business Case in the appendices.

The Business Case was conceived and written before some of the LATC options had been fully explored, so it is a valid assumption that there would not be this type of competitor in the area, however, that will not be the case. So our conclusion is that the CIC Business Case is threatened by the emergence of at least one LATC in the area.

It is also our conclusion that Seaview would benefit significantly if it was part of the Pan Dorset LATC, as all the competition issues narrated above would disappear and the two neighbouring authorities would have an incentive to refer their clients to a service that was part of their own Pan Dorset LATC.

An LATC offers all of the cultural and commercial advantages given by a CIC, with the added benefit of 100% ownership by the Authorities.

2.3.5Conclusion and Recommendation

Based on the scoring matrix below, the Pan Dorset LATC meets all the criteria used in the appraisal and is the best option.

Option / Financially Viable / Financial Benefit / Future / Provider of last resort
Outsource to the market / No / £0 / No / No
Single LATC / No / - £622k / No / Yes (part)
Pan Dorset LATC / Yes / £232k / Yes / Yes
Seaview CIC / Uncertain / £0 / Uncertain / No

The conclusion is that the Pan Dorset LATC is the best option for the services in scope in the Borough of Poole. The financial benefits, the future provision of services and the new opportunities that would be available are a compelling argument for this option.

Our recommendation is that the Borough of Poole joins the Pan Dorset LATC, whether it involves both Bournemouth and Dorset, or just Dorset, the future of Poole’s services is much better as part of a joint LATC.

3Outsourcing to the market

3.1Outsourcing Context

In adult social care, outsourcing is almost universal nationwide. For BoP effective outsourcing could allow it to lose the infrastructure costs of providing services while creating a market that enables bargaining on contracts. The same services could then be delivered at a lower cost, thereby potentially generating significant savings.

Across England the main areas of social care outsourcing have been in home care and residential care services. For example in 2011/12 89% of homecare hours across England were delivered by the independent sector[1].

However a similar outsourcing trend has not occurred in local authority day service provision. Rather than outsourcing, the strategic commissioning direction of travel has been to remain with Council controlled services, and to move away from traditional forms of building based day-centre provision and develop a greater range of mainstream alternatives found within the community. As a result social care provider markets are not always conducive to the successful outsourcing of more traditional building based day services.

3.2Assessment of the Provider Market

The nature of social care services operated by the independent sector in Poole itself is narrow and does not lend itself to enabling the outsourcing of day services. There is the option of looking to providers outside the immediate area in Bournemouth and Dorset however, this is contrary to reducing costs of travel by looking for local based services, which save transport time and costs.

In summary there are very few comparable services currently delivered by providers. Instead organisations operating in Poole are predominantly residential care home and domiciliary care providers. There are however a small number of providers operating low level or informal day services such as clubs and cafes (please see Appendix A) There are no supported employment schemes in operation other than that provided by COAST. [2]

3.3Market testing

BoP could test the above assessment of the market through a “soft” market testing exercise. However it is predicted there will be limited interest in the three BoP services. The reasons for this are as follows:

There is not the requisite skill base within the independent sector market to take on the services.

Providers identified through research do not have a track record of delivering day services, especially to those with complex needs. For example other providers identified offered day activities focused on lower level needs within informal community settings.

Most providers of scale concentrate on more commercially viable service categories such as residential and domiciliary care. These types of services are experiencing up turns in demand due demographic change and the growing number of private paying customers.

Providers are likely to question the medium and long - term viability of the day service market in view of the sustained reduction in provision over time, in conjunction with agendas of modernisation and self directed support.

The trend within local authorities is to move away from block purchasing arrangements with the independent sector. Instead the preference is for day services to be part of spot purchase arrangements and developed within the context of direct payments. In view of BoP’s day services operating significantly below capacity levels, for example Seaview at 64%, it is likely that providers will see an immediate commercial risk in looking at contracting for such services. This will be further compounded should occupancy rate forecasts show an increasingly downward trend in the number of local authority referrals.

3.4Financial Viability and Value to Borough of Poole

The context and assessment work above leads us to conclude that an outsourcing exercise, may not be successful as the provider market does not see social care contracts as financially attractive, and instead looks to the self-funder market.