Getting transition right when outsourcing public services is hard, but of critical importance for setting your project up for success. Those early days set the tone for the working relationship between the Department and the supplier going forward, as well as ways of working.
It can be tempting to view transition as a side act, but to do so is a mistake. In this insight, we share the legal and practical issues that we commonly encounter in relation to transition and how you might seek to tackle them.
This is the first in a series of insights designed to give you an understanding of the key legal issues that commonly arise in public sector outsourcing and to help you navigate some of the pitfalls.
What are the issues that commonly occur?
Lack of existing data
Having detailed, quality data on existing service delivery provision is vital - not only for ensuring a smooth service handover but also for establishing the correct procurement strategy, creating healthy competitions and securing value for money. Bidders need good data to be able to price competitively, including data on costs, employees, the condition and ownership of assets (including IPRs) and historic service performance. Obtaining this data is often not easy. Where services are being outsourced for the first time, this data may not exist or may be held in a number of different teams. On second or subsequent generation outsourcing projects, Departments are heavily reliant on data provided by the incumbent. Without the data, the Department risks the supplier pricing the risk in and so not getting value for money. It also risks service continuity issues, and potentially service failure.
Phased service commencement
Public services are often complex by nature and provided through a network of different suppliers. With transformation being increasingly on the agenda, services are also frequently being consolidated, disaggregated or completely restructured. As a result, there can be a complex web of incumbent service provision, with the incumbent contracts expiring at different times. There can be an operational advantage to the staggered transfer of service as it may allow for a smoother transition. However, it will need to be reflected in the contract and procurement documents, with mechanism built in for the phased transfer of assets, employees etc.
During transition, the operational and commercial teams of the Department will be simultaneously managing the existing contract(s), procuring the replacement contract(s), on-boarding the new supplier(s) and off-boarding the incumbent(s). It can also be a period of change and uncertainty for staff who may be facing redundancy or having their employment transfer to a new supplier.
Our six top tips for resolving common issues
Leverage what you have
One of our first tasks on a new outsourcing instruction is usually a review of the existing contract - and in particular, the exit provisions in order to understand the Department's contractual rights to extract service delivery information from their incumbent(s). To the extent that co-operation is not forthcoming, it can help to know your legal rights.
On a second generation outsourcing, good contract management throughout the life of the contract is essential to ensure that the incumbent consistently provides and updates this information. On a first generation outsourcing, you might consider running a pilot to generate data. Guidance on doing this can be found in the Sourcing Playbook.
Give the 'future you' a hand
There are things that you can do to help the 'future you' in relation to transition. Exit is one of those areas that does not receive a lot of focus during negotiations, but is really important. Make sure that you build in sufficient exit periods in the contract that you are letting, together with clear data access rights. The Model Services Contract now contains an obligation on the Supplier to create and maintain a virtual library throughout the life of contract, containing detailed delivery information. If included, monitored and enforced, this should prove helpful for procurements down the line.
Use allowable assumptions to fill gaps
Whilst having good quality data will always be the best solution, where the data is simply not available, you may want to consider giving bidders some allowable assumptions regarding the missing data which are then verified (and the price adjusted accordingly) once the contract is signed. The trick here is to (a) keep the number of allowable assumptions to the minimum; (b) ensure that the assumptions are bounded; and (c) have a clear time-limited mechanism for verifying the assumptions post contract award. The Model Services Contract is a good starting point. You do not want to still be verifying assumptions 10 years in!
If having a staggered service transfer creates issues, we can support you in understanding whether your existing contracts have options to extend (and how these are to be exercised) and, if not, the procurement justifications and risk associated with an extension.
Give it time
Transition is hard and it can often get squeezed as a result of slippage in the procurement timetable. Don't underestimate the time and the resource that is required to get it right.
Want to know more?
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