NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

NHS SOUTH EAST ESSEX COMMERCIAL STRATEGY

Date: August 2009

Author: Margaret Hathaway Associate Director of Commercial Services Owner: Russ Platt Director of Commissioning and Contracting Version Number: 0.2

NHS South East Essex Commercial Strategy Page 1

NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Background and purpose Vision The Commercial Environment (current position) Commercial Principles Commercial Objectives (future position) High level indicators of success Ownership of the strategy Commercial Governance Collaboration Skills and Capability Innovation Procurement Plan Environmental Sustainability Implementation of the Commercial Strategy Procurement Policy and Procedures Commercial and procurement risks 3 3 4 5 6 8 8 9 9 10 10 10 11 11 12

NHS South East Essex Commercial Strategy Page 2

NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

1.

Background and purpose

This commercial strategy has been developed to demonstrate the fact that South East Essex PCT is committed to ensure that commercial activity plays an integral part in the support and delivery of the PCTs objectives. The commercial approach adopted is necessary to ensure that the services commissioned by the PCT are delivered to high standard in terms of quality and best value. This will be achieved by having strong and robust contracts in place which include clearly specified outcome and quality metrics, with a transparent arbitration process to follow when these are not achieved. A strong commercial approach to procurement and contracting can drive innovation, sustainability, value for money and the quality of services commissioned. For this to be realised procurement and contracting issues need to be considered at the very early stages of service development. In developing this strategy, the PCT has paid due attention to the principles of World Class Commissioning and the East of England Commissioning Framework to ensure appropriate emphasis on market intelligence, development and consultation prior to instigation of market interventions. This strategy reflects the national guidance that is currently in place. However it is clear that there is emerging guidance regarding the commercial principles PCTs should adopt particularly regarding the use of NHS providers and this strategy will need to be reviewed at least annually to reflect new guidance as it is developed. To encourage efficiency the PCT is seeking to bring competition in the community care marketplace and at the same time, increase information collation to ensure that resources are allocated to the most needy areas in the most effective way. The PCT has established a service re design team that is looking at all pathways of care in order to inform which services can be delivered in a different way whilst ensuring that the quality of care to the patient is maintained or improved.

2.

Vision

The vision of the PCT as a whole is: Delivering Together: Better Health, Better Care, Better Value" Commercially the PCT is seeking to improve the services in a number of ways to the population of South-East Essex and use the resources that are allocated to it in the most efficient manner. Therefore the vision of this strategy is: To demonstrate commercial excellence that underpins the successful delivery of the PCTs objectives whilst achieving best value for money and continuous improvement in order to become a world class commissioner.

NHS South East Essex Commercial Strategy Page 3

NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

3.

The Commercial Environment (current position)

The PCTs main principle is to conduct business in a robust and commercial way to ensure a range of properly constructed contracts with commercial levers in place. In so doing, the PCT aims to manage the market for services to enable competition for contracts to ensure good quality services at competitive prices. The PCT is also mindful of its position as a public body, so whilst ensuring public funds flow in an appropriate manner, it is also key to ensure these funds are spent legally, morally and responsibly. In procuring new services for South East Essex, the PCT seeks to employ principles from Cooperation and Competition the recent report from the Department of Health. Although striving for efficiencies in its service, the PCT must be mindful to foster growth in the provider market to enable competition: For all new services, once the commissioning decision has been made, a paper is presented to the Procurement Group to approve the most appropriate procurement route. The purpose of this group is to evaluate what is appropriate for a particular case taking account of any particular circumstances and how they may apply to procurement law. There is a particular emphasis on value creation and ensuring there is a competitive market; The PCT will seek to develop, where appropriate, services with current providers within the contractual constraints, which may result in not following a competitive process. The PCT will ensure there is a range of willing providers for some services where there are a lack of quality providers and therefore limited choice to the patient and the PCT may agree Any willing provider contracts. Before these contracts are signed the provider is assessed to ensure they reach the required standard to deliver the service proposed. The issue with any willing provider contracts is whether the provider is confident of capturing sufficient market share to make the investment worthwhile. Where significant investment is needed, providers may be less inclined to apply under an Any Willing Provider tender because they cannot guarantee securing sufficient market share to get a decent return on this investment, depending on competition. Therefore where barriers to entry are high in terms of capital investment the PCT would be more inclined to go down the competitive tendering route. Based on feedback from the market analysis the procurement group pay due regard to the need for contracts to be commercially viable to providers. The PCT will utilise contract management regimes and information to help support market analysis and capability.

Each of the commissioning teams is responsible for their own contract development and performance management. Therefore contracting function of the PCT is spread across the organisation which can create inconsistency with regards to how contracts are written and managed. The establishment of the central contracts register, which is maintained in the procurement team, will assist in reducing this risk.

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009 The PCT has a procurement team which is responsible for ensuring that all procurements are carried out correctly and all bidders and processes are open, transparent and non discriminatory to minimise any risk of challenge. The procurement team is headed up by the Associate Director of Commercial Services, who is also responsible for ensuring that contracts are logged at a central point and reviewed in a timely fashion before the term of the contract ends. As part of driving efficiency and improving contracts the PCT recognises that efficiencies will also arise from collaborating and working with other PCTs. Where possible, the PCT will collaborate and work with other PCTs in the provision and procurement of services. The PCT is currently working towards the development of the following areas, which will improve commercial astuteness and ensure robust commercial processes are consistent throughout the PCT: Development of single contracts register for the whole PCT; Work plans for future procurements to enable sufficient time for best outcome; Standardised contracts where appropriate to ensure consistency across contracts words and performance management; Clear processes and ownership for the development and signing of contracts; Clear processes for the review of contracts at correct point many contracts just rolled over; Good planning processes to understand commercial viability at the initial stages of service developments; Better planning of future work to allow for market understanding and stimulation; Defined processes for all commercial activity to ensure consistency across the PCT; Development of tools and information awareness on current providers and potential future providers; and Contract development to balance risk share in clauses for all contracts.

4.

Commercial Principles
Value for Money outcomes - value for money and added value will be achieved through competitive and effective commercial procedures, including outcome specifications, objective evaluations, use of framework agreements, strong clarification processes and short negotiation periods prior to contract award. Capability commercial skills and resources will be available through the PCT commercial services team, the commercial services unit and a training programme for all staff involved in the commissioning of new services. Collaboration Wherever possible the PCT will collaborate with other organisations to achieve efficiencies and consistency across the NHS.

The commercial principles that the PCT will adopt are:

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009 Process and governance commercial policies and processes will be efficient, effective and provide appropriate control, ensuring compliance with legislation, regulation and EU directives. Public money will be managed appropriately ensuring that all providers are treated fairly and equitably. Probity and propriety commercial policies, processes and procedures will be enforced and monitored to deter fraud, theft, corruption or mismanagement. All staff with contractual authority will be required to act with the highest standards of honesty, integrity, impartiality, and objectivity. Tools and systems A system will be adopted to manage the commissioning and procurement cycle as well as storing the central database of contracts, current providers and possible future providers. This will provide the necessary data and information for successful decision-making. Environmental sustainability All PCT activity should incorporate principles of sustainability. Innovation the commercial strategy should not restrict the ability for services to be innovative and flexible. Commissioning and procurement activities commercial policies cover the whole delivery life cycle, including commissioning, procurement, approach to market, negotiation practice, strategic supplier management and contract management. It is essential that commercial awareness is embedded into all processes at the earliest stage. Project and Programme Management particular focus on projects and programmes that are vital to the delivery of the PCTs strategic plan and objectives. Spend Analysis understanding PCT contractual spend and ongoing review of current contractual arrangements to identify best practice and reduce maverick spending.

5.

Commercial Objectives (future position)

The objectives of this commercial strategy will be to: Continue to implement and embed procurement and commercial principles across the PCT to be adopted throughout the entire commissioning cycle from idea to delivery. Roll out the procurement framework and toolkit to all employees Develop the Internet and Intranet sites to support procurement development for providers and employees; Create consistency across the PCT when undertaking negotiation processes, ensuring establishing BATNA (Best Alternative To Negotiated Agreement). Create consistency across all contracts by way of some standard terms and conditions to cover obligations that the PCT expect all providers to adhere to such

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009 as health and safety, sustainability requirements, standard of premises and information governance. Create a central control within the PCT to overview and log all contracts. Ensure consistency across the organisation with regards to the risk share clauses with providers and the performance management of contracts. Ensure that contracts are reviewed in a timely fashion prior to the end date and the necessary process followed for the continuation of the service to avoid unnecessary frequent rollovers of contracts. Review and tighten the terms of current contracts particularly with regards to risk share and performance metrics. Ensure contract management gathers and analyses data on a monthly basis (where appropriate on major contracts) and contract terms include clear intervention process to improve performance and service quality. Stimulate the market to encourage new providers to bid for services tendered in South East Essex and ensure specifications and processes are clear to help attract all potential providers to participate in procurement activity. To work with users, patients and clinicians to develop service requirements and selection of providers and to identify best pathways and service need for future commissioning. To ensure all contracts include clear key performance indicators to capture performance across all levels (clinical, quality, access and workforce) and all data is proactively discussed with providers Develop partnership working between the PCT and provider to ensure contracts continually deliver highest quality of service and continue to achieve best value through the term of the contract Ensure existing providers are aware of the new commercial landscape and have the tools to allow them to bid for new services. Significantly improve the quality and range of services available for the local population by the procurement of new community based services. Create vibrant commercially astute practice based commissioning groups that are geographically based across south east Essex. Drive more efficiency through current contracts by improving the performance indicators and monitoring the providers much more regularly taking action where necessary. Ensure there is clinical leadership involved in the review and finalisation of all healthcare contracts. Allow full market participation in procurement processes by ensuring clear specification requirements, open advertising and Develop real time feedback from users of services and ensure available support to rectify issues as soon as possible. Understand and develop market capability, working with other PCTs and authorities to improve competition, quality of service and best value. Identify collaborative working with neighbouring PCTs, Council and EoE, where appropriate to help establish greater value for money.

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

6.

High level indicators of success

If the commercial strategy is implemented successfully across the organisation the following will be achieved: The PCT will improve its levels across all world class commissioning competencies but particularly on: o Competency 7 Effectively stimulate the market to meet demand and secure required clinical and health and wellbeing outcomes o Competency 9 secure procurement skills that ensure robust and viable contract o Competency 10 Effectively manage systems and work in partnership with providers to ensure contract compliance and continuous improvement in quality and outcomes and value for money A more diverse range of providers will be delivering services in south east Essex. More information will be available regarding our providers and the services they deliver. A robust work plan will be in place detailing all the new services to be commissioned and decommissioned within the next 3-5 years. The regular review of current contracts will drive efficiencies and improve quality of services delivered. Having improved and more robust levers in contracts will give commissioners more flexibility to bring about innovation and change in service delivery. Less time will be wasted on the development of ideas that are not commercially viable. Procurement processes will become more efficient and timely as lessons will be learnt by a wide range of staff from experience. More framework agreements will be in place which will bring about efficiency freeing up resources. Maverick spending will be reduced by use of frameworks and robust contracts to meet the needs of the PCT and its customers. Clearer contractual requirements will be in place in terms of performance management, data collection and intervention working to ensure ongoing best quality and value for money. Clearer audit trails, will be available, of resolutions to contractual issues demonstrating proactive action on all contracts for non performance. There will be better understanding of markets and capability levels, which will provide greater quality of service and value for money.

7.

Ownership of the strategy

This strategy is owned by the Director of Commissioning and Contracting and operationally managed by the Associate Director of Commercial Services.

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

8.

Commercial Governance

There are a number of principles that should be articulated, for example: The most senior commercial person is at or near the Departments board, governance structures should be clear, understandable, proportionate and integrated Board ownership and formal review The Board should set strategic objectives for commercial outcomes set out in the strategy. There should be clear reporting lines, risk management, change control and escalation procedures. A certain amount of governance, influence, support and advice around the wider network should be covered by the Department centre. There should be a clear owner and leader of the commercial strategy and effective relationship management to ensure it is implemented across the organisation. The procurement teams within the department should engage with policy and operational delivery directorates, agencies and other bodies to ensure procurement supports organisational and operational business plans. The impact the commercial strategy has an on the organisations risk management structure needs to be identified. The Governance including cross-functional collaboration and the effective prioritisation, deployment, control and monitoring of spend across the procurement and PPPM spectrum. The Governance structures need to provide complete clarity on the decision making process and the relationship between all relevant stakeholders including the ultimate point of responsibility and final decision making The role of the wider network and delineation of responsibility with the central commercial team must be clear The commercial organisation chart could be published, naming the key senior commercial people and their responsibilities

9.

Collaboration

The PCT is committed to collaboration wherever it is possible and produces better ways of delivering services or efficiencies. Examples of this could be: Jointly procuring and contracting with other PCTs for specific services, where viable. Jointly managing a procurement process with another organisation but with separate contracts in place with the successful provider(s) Use of framework agreements for the supply of goods and services. Use of centrally procured services such as FESC. Use of central advice and expertise from the procurement hub of commercial services unit.

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009 The PCT is committed to developing and being part of a central commercial services unit across the East of England to bring about efficiencies wherever possible. The exact scope of this service and the impact on the PCTs internal structure is still being assessed and clarified.

10. Skills and Capability

For specific commercial advice and expertise there is a procurement team headed up by the Associate Director of Commercial Services and contract managers within the commissioning teams. Additionally the finance directorate offer commercial guidance and support where appropriate and possible. Additional capacity can be obtained from the newly formed commercial services unit based at the East of England Strategic Health Authority or from the procurement hub. However the PCT recognises the need for all staff involved in the commissioning of new services to have a basic understanding of the commercial issues that may affect the decision making process. Therefore a training and development programme is to be set up to create this learning across the organisation.

11. Innovation Procurement Plan

As a subsidiary to the Commercial guidance Strategy the PCT have developed a Procurement framework, which provides a common framework for the acquisition of goods, works and services within the PCT in order to deliver high quality healthcare to patients and the community, through a philosophy of best value and practice. The PCT wants to positively influence the procurement of Healthcare and Non Healthcare services to deliver demonstrable value for money, quality, governance and probity. Innovation is a core principle that will underwrite all procurement activity to ensure services are able to adapt to incorporate new ways of working to improve the quality of patient care.

12. Environmental Sustainability

The PCT endorses the the Governments policy on environmental issues in procurement that requires the promotion of sustainable development objectives through procurement. This is consistent with Government policy on value for money, as environmental and other sustainability costs and benefits are an important part of the value for money obtained by the buyer. Sustainable development encompasses environmental, social and economic issues. It is often defined as development which meets the needs of the present without compromising the ability of future generations to meet their own needs.

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009 Generally, the most effective way to incorporate environmental issues in procurement is to consider them at the earliest stage of the procurement process, in defining the user requirement.

13. Implementation of the Commercial Strategy

The implementation of the principles contained in this commercial strategy has already commenced by Development of the procurement framework and toolkit; Rollout of commercial awareness training; Development of contracts register; Agreement and adoption of commissioning and procurement process.

This will be further built on by Market development and analysis and performance management systems put in place; Development of contracting and performance management framework; Review of whole commissioning cycle from needs analysis through to contract signature; Roll out of training in developing specifications and contracts; Rollout of negotiation training; Installation of electronic system to manage procurement activity and to keep record of contracts; Development of a central commercial services unit.

This Strategy will be supporting by the following detailed frameworks which will need to be developed as follows: Procurement Framework approved by PCT Board September 2009 Contracting and Performance Management Framework Market Development and Stimulation Framework Negotiation Framework

14. Procurement Policy and Procedures

The PCT is developing a procurement framework and toolkit to assist staff in carrying out procurements following the correct process and fulfilling the governance obligations of the PCT. This framework will be overseen by the procurement group who will monitor all procurement activity of the PCT, including those led by other organisation on behalf of the PCT.

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NHS SOUTH EAST ESSEX

Commercial Strategy
Date: 17 December 2009

15. Commercial and procurement risks

The commercial risks of the PCT are detailed in the table below:
Risk
No formal contract register in place therefore lack of understanding on whether contracts exists

High/med/low

Mitigation
Development of a PCT wide contracts register. Spend analysis work to identify maverick spending and need for framework contracts etc Identification of providers to ascertain market need, development and stimulation Procurement framework, Contract Management framework and Procurement Toolkit in place for all PCT staff to ensure processes are followed Commercial process training programme for all PCT Review of current services Where appropriate timed contracts will be put in place to allow for service review and continual market testing to ensure best value and quality Public consultation and market involvement to be used, where appropriate in the development service requirements Early commercial planning to allow for market development and stimulation Support to local and small businesses through supplier development to help market competition , Development of How to do Business with the PCT through the website to allow all suppliers to understand PCT processes for procurement Open and fair advertising utilising the Supply2Health national website Robust and clear performance management requirements, KPIs are included in all contracts Mobilisation periods are set following contract signature and before contract commencement and will include contract management requirements and roles and responsibilities are understood by all parties. Development of the contracts register Open and fair advertising utilising the Supply2Health national website

Consistent commercial processes are not maintained throughout the PCT

Lack of market development impacts on service quality

Suppliers do not wish to compete for PCT work due to not understanding the process

Quality of contracts are not maintained and managed throughout the life of the contract

Lack of commercial planning and work plans to allow for process and resource management

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