6. Commercial case
6. This section contains the commercial case for the agency. It focuses on the commercial risks of each of the options in order to help decision making. As the procurement path will be significantly different depending on the option chosen it does not go into significant detail on the potential procurement strategy for each option.
6.1. An initial piece of work was undertaken to examine the existing delivery landscape in Scotland in order to better understand what is already delivered in Scotland. This work is detailed in section 6.2. Section 6.3 examines the commercial risks of the options in detail.
6.2 Summary of comparator agencies work
6.2. The full report can be found in Annex C. The focused upon public bodies' operating costs (staff costs and other operating costs, excluding depreciation) ranged from £12.7m to £630.4m. This illustrates the wide ranging scale of operations across even a small sample of Scottish public bodies.
6.3. Staff numbers reported throughout the study are for FTE in 2014/15 or 2015/16. Comparing these shows the wide variety of employment sizes within these bodies which range from under 300 to over 4,000. See Table 13.
Table 13 - Size of comparator bodies
|Body||Staff ( FTE) including both permanent and non-permanent staff groups|
|NSS Practitioner Services||545|
6.4. Most of the bodies in the study use temporary and agency staff. One of the reasons for using temporary staff was to provide a continuous service within a landscape of highly variable demands (such as peak times in the year of applications being received).
6.5. Some, but not all, of the organisations provide an out of hours service. In the case of SAAS, this service is primarily during the peak application period. Disclosure Scotland currently operate 24/7 for virtually the whole year using shift patterns, though it is anticipated that this will end in 2017 (as discussed above). SLAB provides a contact centre help line 24/7.
6.6. Disclosure Scotland is the only one of the examined organisations in Scotland to have some of its key operations provided by others, in their case through their agreement with BT to provide a range of core operational services. NI SSA however has a range of its key functions supported by DWP and services for Health Care assessments are provided by CAPITA / ATOS.
6.2.2 How the organisations are structured
6.7. Although delivering very different services, the three Executive Agencies (Disclosure Scotland, SAAS, SPPA) have similar functional structures comprising a Chief Executive Office and four or five directorates, such as "Operations" and "Corporate Services". As might be expected of agencies making large volumes and values of payments, SAAS and SPPA each have a significant Finance Directorate, while Disclosure Scotland does not have a separate Finance Directorate.
6.8. The location of IT services varies across the bodies, with some but not all of these associating IT services with Corporate Services.
6.9. NSS - a much larger body - separates its diverse array of shared service functions into six Strategic Business Units (one of which is IT services, another Practitioner and Counter Fraud Services) as well as five Supporting Business Units / Corporate Directorates, including HR and Workforce Development.
6.2.3 How the organisations are set up geographically
6.10. The public bodies have very different footprints across Scotland, varying from one central location (like Disclosure Scotland and SAAS) to the hub and spoke model of NSS (7 key sites and other sites throughout Scotland).
6.2.4 Volume of work
6.11. The volume of work of the comparator agencies is shown in Table 14.
Table 14 - Volume of work of comparator agencies
|Name||Transaction or Number of Clients Served||Number of transactions (approx.)|
|2. SAAS||Award Applications||Over 250,000|
|4. NSS Practitioner Services||Clients||8,500|
|6. NI SSA||Transactions||2,720,000|
6.2.5 Conclusions of comparator agencies work
6.12. The comparator agencies work provides comfort that the scale of the challenge faced by the formation of a social security agency in Scotland is manageable in that other areas perform functions of broadly similar scale.
6.3 Commercial risks
6.13. This section of the outline business case compares the commercial risks for each of the 6 options and the Do-Minimum or option 0. Input to the commercial case is based on what is currently known of the options under consideration. The commercial case does not validate the costings attributed to each of the options within the financial case detailed at part 5 of section c.
6.14. The commercial case does not specifically address all of the commercial risks relating to the future arrangements for delivery of assessments currently provided under DWP contracts by Atos and Maximus. A further analysis of these risks will be required following confirmation of policy intentions for the future delivery assessments.
The overall risk rating for each of the options is shown in Table 15 below.
Table 15 - Overall risk rating for each of the options
|Option||Commercial Risk Rating|
|Option 0 - DWP continues/Do nothing.||High|
|Option 1 - The Agency centrally delivers social security in Scotland.||Medium|
|Option 2 - The agency delivers social security in Scotland through local offices.||Medium - High|
|Option 3 - The agency delivers most benefits, but local authorities provide the face to face contact for the social security system and additional benefits based on local need.||Medium - High|
|Option 4 - The agency delivers cash and benefits in kind as goods, services or concessions.||Medium|
|Option 5 - The agency provides governance but the delivery of social security is done by others e.g. via procurement or a service level agreement.||Very High|
|Option 6 - Social security is embedded in a range of existing public services with the agency providing governance.||Medium - High|
6.3.1 Option 0 - DWP continues / Do nothing / Do minimum.
6.15. Doing nothing to commence the devolution changes would disrespect the political agreement reached and endorsed by the Parliaments. A "do nothing" option would therefore require Scottish Ministers to assume devolved responsibilities for benefits but seek to negotiate agency agreements with the Secretary of State for Work & Pensions to continue to deliver them as per current arrangements for their delivery.
6.16. This would be complex, time-consuming and require extensive resource input. This option presents significant political, reputational, financial and delivery risks presented by a continuing reliance on DWP systems and processes which would place significant constraints on the Scottish Parliament's ability to vary benefits without incurring substantial commercial costs for changes to DWP systems.
6.17. Under this option Scottish Ministers would have no control over commercial risks e.g. financial / pricing, award of contracts, contract variations, strategic contract management, and performance of contractors all of which would continue to be owned by DWP as the contracting authority.
6.18. Specifically, with the Scottish Ministers being tied to an agency-based delivery, and a single agent would could provide that delivery, it is unlikely that Scottish Ministers would be able significantly to influence or leverage strategic commercial decision making by DWP in development of its systems which may present politically challenging commercial outcomes for Scottish Ministers particularly in relation to decisions on any future out-sourced delivery of medical assessments.
Overall Commercial Risk rating: High.
6.3.1 Option 1 - The Agency centrally delivers social security in Scotland.
6.19. Central control and commercial governance will reduce commercial risks relative to the other options under consideration. The most significant commercial risk would be financial / budgetary presented by the need to ensure that the commercial costs, including set -up, implementation and potential staff TUPE costs could be met within the allocated funding.
6.20. The procurement of business critical IT / systems is likely to be commercially complex, time-consuming & costly with significant delivery, reputational and political risks if the specification is not robust or there is a delay in finalising commercial agreements.
6.21. Delivery of assessments by a mobile workforce would be low risk if the Agency is the employer of health care professionals. This risk would increase if the health care professionals are employees of a third party e.g. contractor, health board/trust.
6.22. The agency would be able to access support from Scottish Procurement & Commercial Directorate via the Central Government Procurement Shared Service and the Collaborative & Scottish Government Capability team which would further reduce commercial risks.
Overall Commercial Risk rating: Medium.
6.3.2 Option 2 - The agency delivers social security in Scotland through local offices.
6.23. Commercial risks are identical to option 1, local delivery would not impact significantly on the business critical IT contracts which the agency would require, though may increase delivery costs. There is potential for some increased commercial costs relating to set up/implementation though these would not be significant
Overall Commercial Risk rating: Medium-High.
6.3.3 Option 3 - The agency delivers most benefits, but local authorities provide the face to face contact for the social security system and additional benefits based on local need.
6.24. The most significant commercial risk would be financial / budgetary issues presented by the need to ensure that the commercial agreements with local authorities would provide a comprehensive, consistently high quality of service and support across 32 local authority areas. Central control and commercial governance will reduce commercial risks relative to this option, however, is likely to be a consequential impact on commercial costs, including setup, and implementation.
6.25. Face to face contact across 32 Local Authorities will further complicate the procurement of business critical IT / systems with significant implementation, service commencement, delivery, reputational and political risks.
6.26. This option would require robust commercial governance and performance management of overarching service level agreements with 32 local authorities which would be time-consuming and potentially difficult to negotiate.
Overall Commercial Risk rating: Medium-High.
6.3.4 Option 4 - The agency delivers cash and benefits in kind as goods, services or concessions.
6.27. Option 4 would require procurement of contracts to provide goods and services and concessions; the value of these contracts may be significant. The commercial strategy would require detailed consideration of the cost / benefits of the various delivery models including private, third and voluntary sectors.
6.28. Management / overhead / IT costs included in the contracts could be significant thus reducing the spend on front line delivery. This may be mitigated by seeking a just in time model for delivery of goods to avoid ware-housing costs and utilisation of contractors existing IT systems
6.29. There are potential risks of political leverage presented by media comparisons of high street v contractual price for goods and services. The contracts would require ongoing performance and commercial management to minimise political, reputational and delivery risks.
Overall Commercial Risk rating: Medium.
6.3.5 Option 5 - The agency provides governance but the delivery of social security is done by others e.g. via procurement or a service level agreement.
6.30. Commercial agreements for outsourced services tend to be for a longer duration (up to 20 years) to spread the significant costs associated with set-up, TUPE etc. there are very significant pricing / value for money risks associated with this approach which may not be affordable in the long term.
6.31. The level of understanding of the current delivery model & future delivery options present significant scoping issues e.g. Information sharing IT etc. which would not support any decision to outsource at this stage or in the medium term.
6.32. Allocation of risk is critical in pricing out-sourced services, currently it would not be possible to make any determination on the risk allocation underpinning a decision to outsource until the delivery challenges & current commercial arrangements underpinning delivery are known & understood. Private sector providers would accept these risks but will seek to mitigate perceived financial, delivery and reputational risks through the inclusion of risk premia, the costs of which would be met by Scottish Ministers and would be commercially difficult to negotiate.
6.33. There is a significant risk that any outsourced delivery model would constrain any changes required to the delivery of social security (scope of services) during the contract term as these would be prohibitive in terms of cost. The financial cost of contract variations resulting from future changes to social security delivery during the term of the contract would effectively constrain Scottish Ministers ability to vary benefits.
6.34. Commercial costs resulting from early exit on the grounds of performance could be prohibitive and further constrained by the absence of an alternative delivery model.
6.35. This option is very high risk financially and would be extremely difficult to demonstrate value for money in the absence of current commercial costs on which to base any benchmark.
6.36. Commercial challenges presented by this option would include significant political constraints and presentational issues on the social security budget supporting private sector profit margins.
Overall Commercial Risk rating: Very High.
6.3.6 Option 6 - Social security is embedded in a range of existing public services with the agency providing governance.
6.37. This option would require robust effective governance with strong strategic decision making. Commercial governance would remain with the agency with delivery spread across the agencies / public bodies providing the service.
6.38. Effective commercial governance over a number of public bodies may be challenging to secure and maintain and would require a high degree of transparency of commercial decision making. This option may present otherwise avoidable political risks resulting from commercial decisions made by the public bodies i.e. partial or complete outsourcing of commercial agreements.
6.39. Commercial costs may be difficult to attribute, monitor, forecast or control in the medium / long term. Commercial costs for systems / IT for this option are likely to be higher depending on the number and range of public bodies operating under this option.
6.40. Commercial impact of a devolved delivery model across Scotland may be significant with variations in the quality of service experienced by service users.
6.41. Under option 6 assessments will be delivered by the NHS which is low risk commercially; consideration would be required in relation to the strategic approach i.e. national, board/trust level commercial arrangements.
Overall Commercial Risk rating: Medium - High.
Email: Andy Park
Phone: 0300 244 4000 – Central Enquiry Unit
The Scottish Government
St Andrew's House