Slide Pack

13/02/2014
10th February 2014, Birmingham Presented by Lev Pedro (NCVO) and David Wood (Capita) Written by ACEVO, AVANTA, Capita, Ingeus, NAVCA, NCVO, Serco and Social Enterprise UK With additional support from Aylesbury Partnerships and James Barrett Consulting
Introductions
The trainers Housekeeping Introductory exercise
2 Commercial Masterclass, Day One
Information links (I)

Payment by Results
https://www.gov.uk/government/collections/payment-by-results-2013-14 http://www.ncvo-vol.org.uk/commissioning/paymentbyresults
Open Public Services (spin outs etc)

http://www.openpublicservices.cabinetoffice.gov.uk/
Social Value Act

http://www.legislation.gov.uk/ukpga/2012/3/enacted http://www.socialenterprise.org.uk/policy-campaigns/we-create-social-value
Right to Challenge + Localism

http://locality.org.uk/projects/community-contracting-unit/community-challengesupport-programme/
3 Commercial Masterclasses Day one
13/02/2014
Information links (II)

SROI and impact measurement
http://www.thesroinetwork.org/ http://www.thinknpc.org/our-work/our-services/measuring-impact-2/
Big Society Capital

http://www.bigsocietycapital.com/
Merlin Standard
http://www.merlinstandard.co.uk/
Social Impact Bond

http://knowhownonprofit.org/funding/social-investment-1
Peterborough Prison - http://www.socialfinance.org.uk/resources/socialfinance/SF_Peterborough_SIB.pdf

4 Commercial Masterclasses Day one
Style of training
What do we mean by a masterclass?
Translating your existing expertise Learning from outside our sector Discussion-based learning making the most of delegates
What additional support is there?

Toolkit Website materials
How do we put this into practice?

Discussion and exercises Competencies to measure progress
Agreements for working together

Confidentiality: Chatham House rules The masterclass format means everyone has something to contribute Respectful challenge Respect for diversity of needs Allow the facilitator to move discussion on Time given to reflect and test learning Phones turned off
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Objectives
Confident knowledge on
- The emerging context for public service delivery - The role and mission of your organisation within this context - The emerging options for partnership - The role and quality of governance
Skill competencies to
- Identify and build appropriate relationships - Assess opportunities in supply chains - Manage efficient bidding processes - Recognise and manage financial risks - Negotiate effectively
Sector
Organisaton
Me
Timetable day one

Introductions and objectives Policy and procurement context and local picture Understanding supply chains and the commercial sector Lunch Building relationships To bid or not to bid? Managing bids Summary and reflections
13/02/2014
Timetable day two

Recap Risk Mobilisation Lunch Negotiation Governance and performance management Summary, reflections and evaluation
Context: Policy and Procurement
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Government Expenditure on the VCSE 2009/2010
Policy Context
Open Public Services Personalisation and choice Changing funding environment and structures New investors Outcomes focus Integrated commissioning Payment by Results
Localism new commissioners (e.g. PCCs, CCGs, HWBs) Information and accountability
Procurement context
Now Evolving
13/02/2014
Local / regional commissioning environment

Brian Carr
the centre for voluntary action
Understanding supply chains and the commercial sector
Commissioning system model

Commissioner
Commercial Prime
VCSE Prime
VCSE Specialist
VCSE Specialist
VCSE Specialist
VCSE Specialist
VCSE Specialist
VCSE Specialist
13/02/2014
Exercise one: perceptions and motivations

As a group, in your role discuss and write down: a. How do you see yourselves? (Your culture, values, concerns, attitude towards getting involved?) b. What are your motivations for taking part? c. d. How do you see the other groups? (Their culture, values, concerns, attitude towards getting involved?) What are their motivations for taking part?
Be prepared to feed back to the whole group
Private Sector Expectations

Why they are involved
1. 2. 3. 4. 5. 6. 7. 8. Shareholder value Deliver quality and value Improve Outcomes End to end oversight Risk placement Commercial best practice e.g. transformation capability, performance management etc. Meet CSR objectives Mission e.g. find employment for people
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Commercial Masterclass, Day Onei
Me in my big commercial organisation down from London
YOU
Multitude of Service Users in places I have never even heard of
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Presentation title - edit in Header and Footer
13/02/2014
Private Sector Expectations

What they want from the VCSE (and vice versa)
1.Able to bring insight and expertise 2.Evidence competence and achievement 3.Open, realistic and motivated 4.Commercially attuned 5.Able to help us to help you 6.Aligned governance/decision making 7.People who are easy to work with
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Commercial Masterclass, Day Onei
LUNCH
Building Relationships
13/02/2014
Why do relationships matter?

Indicative Timeline
-Y3
Commissioner/Client
-Y2
-Y1
Go live
Recognising needs
Private Sector
Formulating strategy
Evaluating options
Procurement strategy
Procuring
Horizon Scanning Shaping Pre-bid Engagement Bidding
Ongoing Qualification
Go-live
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Mapping Stakeholders
Actions Required from Stakeholder Stakeholder Name Stakeholder Owner Desired Project role Actions and Comms Messages Needed Project Area Desired Status
(2)
Interest
(1)
(1)
Key Issues
(2)
(1) High, Medium, Low (2) Advocate, Supporter, Neutral, Critic, Blocker
Selling: the negative connotations

Cold calling Selling is the process by which you persuade people to buy things they dont want or need Win at all costs Selling short Loss leader Hard selling
Power
Current Status
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.a more positive view of selling

Insight Selling is the way that you help customers to buy products or services from your organisation Consultative Customer-centric Solution Relationship
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Good selling is about

Building the right relationships Being clear about what differentiates you/your services Adding value by the way you engage Being able to evidence your capabilities Listening and being responsive to your customer Tenacity Closing Having a win plan
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To bid or not to bid?
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Mission-Money Matrix
on mission
majority activity prime target (love it here)
stay out!
proceed with caution
less money off mission

more money
To bid or not to bid?

1. Suitability of contract terms, specification and payment
Supply chain conditions
2. Market positioning (relationship building)

Future opportunities Practice in the new market Competition and partnership options? Viability next time round? Provider and/or influencer On-going suitability for mission and business
3. Portfolio (cross-subsidy; core funding)

Sustainable funding (non-statutory options) Investment of funding
Commercial Sufficiency and suitability 32 Masterclass, Day One
Managing Bids Effectively
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The four elements of a good bid

Effective sales campaign
Strong service solution
Compelling commercial proposition
Well managed and executed bid
34 Commercial Masterclass, Day Two
Bid Roles
Bid Director Bid Manager/Co-Ordinator Commercial Lead Financial Lead Operational Lead Bid Writer Subject Matter Expert
The Importance of good Information

Centrally managed information
Held by the lead Everyone feeds in and takes ownership (TACT)
Suitable formats Different channels

Use third parties
Know it well
Mission driven Key messages Successes, not just activity
Quantitative evidence
SROI and other peer-assessed impact evidence
Do something different, that stands out

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Bid gates: the importance of critical review

Decision points gates
Gate 0 Internal qualification Gate 1 Go Get Gate 2 Bid/No Bid (PQQ Stage) Gate 3 Internal re-qualification (ITT Received) Gate 4* Approval to submit bid Gate 5 Contract Signature Gate 6 Contract Start-up Gate 7 Transition Close Gate 8 Service Delivery/Transformation Gate 9 Rebid/Contract Close Down * Gate 4 approval is required every time a detailed solution design or priced proposal is submitted to the client.
37 Commercial PresentationMasterclass, title - edit in Header Day Two and Footer
Summary and reflections
What we covered today

Policy and procurement context and local picture Understanding supply chains and the commercial sector Building relationships To bid or not to bid? Managing bids
39
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13/02/2014
Tomorrow
Recap Risk Mobilisation Negotiation Governance and performance management Summary, reflections and evaluation
18th February 2014, Birmingham Presented by Lev Pedro (NCVO) and David Wood (Capita) Written by ACEVO, AVANTA, Capita, Ingeus, NAVCA, NCVO, Serco and Social Enterprise UK With additional support from Aylesbury Partnerships and James Barrett Consulting
Welcome back!
Yesterday we covered
Policy and procurement context and local picture Understanding supply chains and the commercial sector Building relationships To bid or not to bid? Managing bids
14
13/02/2014
Timetable day two

Recap Risk Mobilisation Lunch Negotiation Governance and performance management Summary, reflections and evaluation
Understanding and managing risk
Procurement context
Now Evolving
15
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Exercise 2: Understanding the risks

As a group, in your role discuss and write down:
1. What are the risks for you in this model? 2. What do you need most from the other groups to make this model work? 3. What might they need most from you?
Be prepared to feed back to the whole group
Working with a prime: things to consider

Relationship: values fit? What role do you want to (& can you) play? Can you meet the requirements of the Commissioner? Can you meet the specific requirements of the Prime Contractor? Review all the terms Minimum delivery & performance expectations Financial modelling Key contractual requirements Information Security TUPE Implementation timescale
Dont be afraid to ask questions!
Uncomfortable
Comfortable
Clear What to do with risk: 1 Price for it 2 Pass it to someone else 3 Live with it, change your processes 4 Qualify out
Unclear
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Risk Categories
Volume/Demand Specification (complete? Accuracy?) Service transfer or implementation Cost overrun Timescale overrun Obsolescence Termination and Exit
49 Commercial Masterclasses May 2013
Volume and demand risks

How good are projections? What are the factors affecting volume that will reach you? What proportion if any is guaranteed? What demand is there? How will policy or other external changes affect this? How will competition affect volume and demand reaching you? What other commissioning changes will effect either category?
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Specification
Consider the suitability, viability and rationale behind: Specification (use your knowledge of what works is this best practice? Are they listing outputs or outcomes or both?)
Do the results tally with the specification? Does the monitoring intelligently relate to the specification?
Payment terms and schedule Contract terms proportionate, relevant? What opportunity is there to adjust and amend? What would trigger changes? Does this shield you sufficiently?
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Service implementation
Often gets forgotten How realistic are the assumptions? Can you get a suitable plan in place? If youre taking on a service and/or assets from an incumbent provider, what challenges may you need to plan for? What role will the commissioner or the contract play in safeguarding you and managing this transfer? Is TUPE involved? If so, is ELI sufficient and timely?
52
Cost overruns
What costs would you be liable for if your budget is insufficient? What will happen to your cost assumptions if the contract can be extended indefinitely? Do you have a contract clause on inflation? Are any of your significant costs set to rise who will pay, you or the commissioner?
53
Timescale over runs and Obsolescence

What would be the effect of it running over time?
What would costs be per day, week, month etc? Would this affect other budgets / core costs / other activities?
Obsolescence
How may custom and practice of service delivery change during the contract? What costs may I have to provision for changing aspects of the service/infrastructure?
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Termination and exit

Triggers Process Transfer of assets inc TUPE? Recommissioning opportunity? Length of exit period? Resource requirements and costshow are these priced in?
55
4 things we can DO with risk .

1. Price for it 2. Pass it on
Subcontractor Partner Back to client
3. Control / absorb it 4. Qualify out
56
Modelling Financial Risk
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Assessing Probability and Impact

Severity/Consequence
Insignificant
Minor
Low
Moderate
Moderate
Major
High
Catastrophic
Almost Certain
Low
High
Likelihood
Likely Possible Unlikely Rare
Low
Low
Moderate
High
High
V. Low
Low
Moderate
High
High
V. Low
V. Low
Low
Moderate
High
V. Low
V. Low
Low
Moderate
High
58
Identifying and managing risks

Risk Initial RAG Dip in service performance during transfer and transition period Red Number of transactions may be higher than forecast Cost of solution higher than anticipated Mitigation Due diligence. Detailed planning of transition. Consultation and communication with stakeholders Agree price bandings for additional volumes and trigger for change control Due diligence and review of design. Seek to agree acceptable assumptions Flow down key contractual terms. Ensure liabilities are broad enough to include losses suffered due to failure. Establish performance mgt process Agree termination triggers. Ensure clarity on costs that can be recovered in diferent scenarios. Post Mitigation RAG Commercial Treatment Set out in transition/implementation Green schedule
Red
Green
Bandings in Pricing Schedule Limited protection on Due Diligence through a 'True Up'
Red
Amber
Sub-contractor fails to meet milestones/service performance targets Contract may be terminated before natural expiry
Red
Green
Sub-contract and management arrangements Specify termination provisions in main contract
Red
Green
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Commercial Masterclasses May 2013
Financial Model
Profit and Loss Summary Contract Total '000 60 55 0 115 70 6 76 320 325 10 655 395 36 431 Year Revenue Fixed Fee Outcome fee Transition Fee Total revenue Employee costs Payroll Other staff-related costs Total Employee costs IT IT Business as Usual IT Transformation Total IT Other costs Premises Transport Total Other Costs Risk Total operating costs (A) Gross Margin Gross Margin % Cost of money Central overheads Net Margin Net Margin % 2013 '000 70 70 10 150 90 10 100 2014 '000 70 70 0 140 80 8 88 2015 '000 60 70 0 130 80 6 86 2016 '000 60 60 0 120 75 6 81 2017 '000
12 3 15
12 7 19
11 0 11
10 0 10
9 0 9
54 10 64
10 8 18 3 136 14 9% 1 6 7 4.7%
10 8 18 2 127 13 9% 1 5 7 5.0%
10 8 18 2 117 13 10% 1 5 7 5.4%
10 8 18 1 110 10 8% 1 5 4 3.3%
8 8 16 1 102 13 11% 1 5 7 6.1%
48 40 88 9 592 63 10% 5 26 32 4.9%
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The Work Programme payment structure

Payment ()
X weeks Y weeks
Attachment Fee
Job Outcome Payment
Sustainment payments
Time on Programme (Weeks) Start on Programme Job Start Payment trigger point
Cash Flow and scenario modelling

Scenario Analysis and cash-flow modelling helps identify pinch-points At what point do you breach your reserve policy? Is that a problem? What if your organisations other contracts perform worse than expected
Shows example working capital requirements & break even point by month
Financial risk modelling best practice (I)

Risk framework
Content Management
Information:
Check quality and gaps Check veracity Remember predictions are no guarantee
Variables:
What factors can vary What do you control What is the range of variation, and what can you bear
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13/02/2014
Financial risk modelling best practice (II)

Risk in the supply chain
Where is risk sitting? What motivations (gaming) might this produce?
Governance:
Checks and decision processes around variations Capacity to negotiate Accessibility of information; ability to analyse Exit plan: red lines
Mobilisation
Mobilisation from winning to delivery

Often an afterthought Consequences of not getting ready What needs to happen and when Exercise in groups to identify the different aspects of delivery readiness you would consider important What good mobilisation looks like
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13/02/2014
Example Mobilisation Plan
Adjusting Capabilities
Are you ready for the challenge? What capabilities will you need to develop to bid for and manage contracts?
LUNCH
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Negotiation
Exercise 3: negotiation role-play
Negotiation
Negotiation should aim to achieve: Consensus of purpose and approach to the contract Proportionate, relevant and sustainable terms Transparent review, management and resolution processes Synchronicity between contract, spec and payment A good foundation for future communications and partnership WIN-WIN
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Principles of negotiation
Be prepared Know what you want to achieve
Know your absolutes: when will you walk away Know points you can vary on Know how this fits with / subsidises the rest of your portfolio of work
Know what the other party wishes to achieve

The same questions as for yourself
Understand the power balance

Is any imbalance real or perceived?
Trade, dont give

Wait til you have two points to discuss and balance them out
Stay solution focused It is sales, not funding Remember your long-term relationship building objectives
If you do walk away, do so carefully
Working out your approach: MoSCow

Negotiating point 1. Dream scenario 2. Outcome where 3. Outcome you might where you might proceed walk away
MUST
Payments terms, need money up front for cash flow Quantity
SHOULD Price
(you have some flexibility)
Monitoring Approach COULD Brand Flow

(you would prefer a steady flow of demand but could live with more in year 2 than year 1 of this contract)
Communications IP
Governance and Performance
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13/02/2014
Good Governance
What systems and information do you need?
Principles from code of good governance
1. 2. 3. 4. 5. 6. Understanding the boards role Doing what the organisation was set up to do Working effectively Effective control Behaving with integrity Openness and accountability
http://www.governancecode.org
What does good governance look like?

Commissioner
Commercial Prime
VCSE Prime
VCSE Specialist
VCSE Specialist
VCSE Specialist
VCSE Specialist
VCSE Specialist
VCSE Specialist
Challenges? Skills and capacity? Effective methods and tools?

What is performance management?

In competitive markets performance is crucial In publicly-funded markets performance is crucial In outcomes markets performance is crucial What drives the need for performance management? Performance management is:
Monitoring against contract terms The systems / information required to prove your work The corrective steps taken The rewards offered The comparison with other providers / the wider market
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Complexities for Performance

If it isnt proven, it doesnt count Move to results oriented monitoring Tools to capture and analyse outcomes / rather than outputs Performance managing staff Aligning systems e.g.
data capture with prime/contractor IT systems Governance decision timetable Performance management
Build in flexibility (e.g. staff) to deal with fluctuating demand Maximise performance by utilising the full portfolio of contracts you deliver
Summary Reflections Evaluation
What we covered
DAY ONE Policy and procurement context and local picture Understanding supply chains and the commercial sector Building relationships To bid or not to bid? Managing bids DAY TWO Risk Mobilisation Negotiation Governance and performance management
81
Commercial Masterclass, Day Two
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13/02/2014
Day two reflections

What has made the biggest impact on you? What was less helpful (and how could we change it)? What are you inspired to explore further? What will you do differently as a result of the Masterclass?
Please fill in and leave the evaluation forms !
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Commercial Masterclass, Day Two
Sector
Organisaton
Me
Thank you from:
And to the Office for Civil Society, Cabinet Office for funding this programme.
28

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13/02/2014

2 Commercial Masterclass, Day One

Information links (I)

Open Public Services (spin outs etc)

Social Value Act

Right to Challenge + Localism

Information links (II)

Big Society Capital

Social Impact Bond

Peterborough Prison - http://www.socialfinance.org.uk/resources/socialfinance/SF_Peterborough_SIB.pdf

What additional support is there?

How do we put this into practice?

5 Commercial Masterclass, Day One

Agreements for working together

6 Commercial Masterclass, Day One

Timetable day one

9 Commercial Masterclass, Day One

Timetable day two

10 Commercial Masterclass, Day One

Context: Policy and Procurement

12 Commercial Masterclass, Day One

Government Expenditure on the VCSE 2009/2010

13 Commercial Masterclass, Day One

15 Commercial Masterclass, Day One

Local / regional commissioning environment

the centre for voluntary action

Understanding supply chains and the commercial sector

Commissioning system model

18 Commercial Masterclass, Day One

Exercise one: perceptions and motivations

Be prepared to feed back to the whole group

19 Commercial Masterclass, Day One

Private Sector Expectations

Commercial Masterclass, Day Onei

Me in my big commercial organisation down from London

Multitude of Service Users in places I have never even heard of

Presentation title - edit in Header and Footer

Private Sector Expectations

Commercial Masterclass, Day Onei

Why do relationships matter?

Horizon Scanning Shaping Pre-bid Engagement Bidding

25 Commercial Masterclass, Day One

Selling: the negative connotations

27 Commercial Masterclass, Day One

.a more positive view of selling

28 Commercial Masterclass, Day One

Good selling is about

Presentation title - edit in Header and Footer

To bid or not to bid?

proceed with caution

less money off mission

To bid or not to bid?

2. Market positioning (relationship building)

3. Portfolio (cross-subsidy; core funding)

Commercial Sufficiency and suitability 32 Masterclass, Day One

Managing Bids Effectively

The four elements of a good bid

Strong service solution

Compelling commercial proposition

Well managed and executed bid

34 Commercial Masterclass, Day Two

35 Commercial Masterclass, Day Two

The Importance of good Information