BCM Workbook 4 2022

BUSINESS AND CHANGE MANAGEMENT
COMMISSIONING CHANGE
WORKBOOK 4
Updated December 2021

Valid for exams from June 2022 to March 2023
Business and Change Management
First published 2016
CIPFA
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4: Commissioning change
Table of contents
The syllabus ............................................................................. 1
Learning outcomes and content .................................................. 1
4 Introduction to Workbook ........................................................ 3
4.1 Commissioning change ......................................................... 3
4.2 Topic diagram ..................................................................... 4
4.3 Outsourcing ........................................................................ 5
4.4 The need for commissioning ................................................. 6
4.4.1 The meaning of commissioning ....................................... 7
4.4.2 When commissioning is used ........................................ 10
4.4.3 Commissioning organisations ........................................ 11
4.5 The commissioning cycle .................................................... 11
4.6 Stakeholder engagement and consultation ............................ 13
4.7 Commissioning cycle – the analysis stage ............................. 14
4.7.1 Needs and demands assessment ................................... 14
4.7.2 Service provision review ............................................... 18
4.8 Commissioning cycle – planning phase ................................. 21
4.9 Gap analysis ..................................................................... 22
4.10 Commissioning strategy ................................................... 24
4.11 Service design ................................................................. 26
4.11.1 Stakeholder engagement ............................................ 26
4.11.2 Approaches to service design ...................................... 27
4.11.3 Service design stages ................................................. 28
4.12 Commissioning cycle – Securing services ............................ 28
4.12.1 Why facilitation is needed ........................................... 30
4.12.2 The process of market facilitation ................................ 31
4.12.3 Market position statement (MPS) ................................. 32
4.12.4 Shaping the market ................................................... 32
4.12.5 Market intervention.................................................... 33
4.12.6 Procurement and contract management ....................... 34
4.13 Commissioning cycle – Review phase ................................. 34
4.13.1 Measuring outcomes .................................................. 35
4.13.2 Approaches to managing poor performance .................. 37
4.13.3 Decommissioning ...................................................... 39
4.13.4 Review ..................................................................... 39
4.14 Procurement: an overview ................................................ 40
4.15 Procurement ................................................................... 41
4.16 Ensuring integrity in the procurement process ..................... 42
4.17 Procuring sustainably ....................................................... 43
4.17.1 The importance of sustainability .................................. 44
4.17.2 Achieving sustainability .............................................. 44
4.17.3 Examples of sustainability reporting ............................. 45
4.18 Strategic procurement activities ........................................ 47
4.18.1 Drawing up a procurement strategy ............................. 47
4.18.2 Supply market analysis .............................................. 48
4.18.3 Category management ............................................... 50
4.19 Tactical procurement activities .......................................... 51
4.20 Supplier selection ............................................................ 51
4.20.1 Preferred suppliers..................................................... 53
4.20.2 Internal suppliers ...................................................... 54
4.21 The tender process .......................................................... 55
4.22 Contract / service specification .......................................... 56
4.22.1 Pricing basis.............................................................. 57
4.22.2 Cost estimates .......................................................... 59
4.22.3 Evaluating the tenders ............................................... 59
4.23 Contract negotiation ........................................................ 61
4.23.1 Gain or reward sharing ............................................... 62
4.23.2 Retentions ................................................................ 64
4.24 Contract monitoring ......................................................... 64
4.24.1 Effective contract monitoring....................................... 66
4.25 E-procurement ................................................................ 67
4.25.1 E-procurement technologies ........................................ 68
4.25.2 Why E-procurement matters ....................................... 68
4.25.3 Potential drawbacks of e-procurement .......................... 69
4.25.4 Reverse or e-auctions ................................................ 70
4.25.5 e-tendering ............................................................... 71
Summary ......................................................................... 73
Quiz questions..................................................................... 75
Quiz answers ..................................................................... 76
Scenarios.......................................................................... 78
Exercise solutions ............................................................... 88
The syllabus
Syllabus aim
Discuss, evaluate and apply techniques to commission services to
bring about change and achieve strategic outcomes, and to procure
the goods, works and services required by a business.
Learning outcomes and content

Discuss, evaluate and apply techniques to commission services to
bring about change and achieve strategic outcomes
▪ The meaning of and need for commissioning
▪ Commissioning organisations
▪ The commissioning cycle
▪ The importance of stakeholder engagement
▪ Analysis phase
− Needs and demands assessment
− Service provision review
▪ Planning phase
− Gap analysis
− Commissioning strategy
− Service design
▪ Securing services
− Market facilitation
− Market position statement
− Shaping the market
− Market intervention
▪ Review phase
− Measuring performance
− Managing poor performance
▪ Decommissioning
1
Discuss, evaluate and apply techniques to procure the goods, works

and services required by a business
▪ Ensuring integrity in the procurement process
▪ Procuring sustainably
▪ Strategic procurement activities

− Procurement strategy
− Supply market analysis
− Category management
▪ Tactical procurement activities

− Supplier selection including preferred and internal suppliers
− The tender process
− Contract specification including pricing bases, cost
estimates and evaluation criteria
− Contract negotiation including gain sharing and retentions
− Contract monitoring
▪ E-procurement
− Advantages and drawbacks
− Reverse auctions
− E-tendering
Note
All CIPFA learning materials and examinations use £ (pounds) and
p (pence) as the designated currency.
2
4 Introduction to Workbook
So far we have considered change in the context of an organisation
transforming itself in order to achieve its strategic goals. In this
workbook we will look at those situations where strategic goals are
instead achieved through a commissioning process.
We will then look at the related task of ensuring a successful
procurement process. Procurement involves selecting and appointing
the providers of goods, works and services required by an
organisation. Procurement is an essential function within any
business, whether or not they carry out commissioning activities,
and we will consider its importance in this wider context.
4.1 Commissioning change

The strategic goals of many public bodies are centred on improving
outcomes for the segment(s) of the population for which they are
responsible. These outcomes are achieved by the provision of
appropriate services (from education provision to medical care).
However increasingly publically funded organisations do not actually
perform the services that will need to be changed if they are to
achieve their strategic goals. Rather they either
▪ purchase the services from other providers or
▪ ensure that there is sufficient, appropriate provision in the

market (where those using the service are provided with the
funds to meet their own needs).
To achieve its desired outcomes a public body cannot therefore
make the changes itself but must bring together a suitable range of
providers (from the public or private sector) who between them can
deliver the benefits needed. The process of deciding what is needed,
and then choosing, appointing and/or coordinating these providers is
known as commissioning.
An integral part of commissioning is procuring the goods, works and
services needed in a way that maximises efficiency and value for
money. However procurement is a vital business function in all
organisations, whether public or private sector. Known in the private
sector as supply chain management we will look at the strategic and
practical tasks involved in ensuring a successful procurement
process from the initial search for suppliers to the final contract
monitoring arrangements.
3
4.2 Topic diagram
CHANGE
Why
Decommissioning
Meaning Stakeholder Commissioning

engagement cycle
Commissioning
organisations
Analysis Plan Secure Review

services
Needs and Service

provision Measuring
demands
assessment review outcomes
Managing
poor
Gap Service
analysis design
Commissioning Market Procurement

strategy facilitation and contract
management
Stakeholder Approaches to
engagement service design
Need for Market Shaping Market

facilitation position the market intervention
4
4.3 Outsourcing
Before looking at commissioning in detail it is worth looking at two
other terms often used in the context of commissioning: outsourcing
and privatisation.
Key definition
Outsourcing:
Contracting with an external supplier for the provision of a service or
a business process rather than providing it internally.
The term outsourcing is usually used to describe situations where
the organisation previously carried out the process or service
internally.
A small firm which has always used an external accountant is
unlikely to be described as outsourcing its finance function. However
if a large company which currently has a finance department decides
change to an external provider it would be described as outsourcing
the service.
The meaning of the term outsourcing is even more limited in the
case of public bodies; it tends to be used only in situations where
the service is bought in from a private provider (rather than from
another public body).
With funding cuts across many public sectors and central
governments focussing on value for money, outsourcing has been
seen as offering an efficient solution. At first, the common feature of
the services being outsourced was that they did not represent a core
competence. Services such as facilities management, IT support and
payroll for example were outsourced to specialist firms which could
provide the service more cost effectively or to a better standard.
This allowed public bodies to focus on core areas (such as teaching
and policing) and the use of private companies to provide back office
services became well established.
However there has been a more recent global trend towards
outsourcing front line services traditionally provided directly by
public bodies, from residential care for older people to medical care
to prisons. Many of the providers which have been awarded the
contracts are private sector organisations. This trend has been far
more controversial and has given rise to the claims that the public
sector is being privatised.
5
The arguments for and against outsourcing are discussed in detail in

CIPFA’s Strategy and Policy Development module and will not be
rehearsed here.
In this workbook we will use the term ‘securing services’ to describe
all situations in which an organisation is contracting for services to
be delivered by an external provider.
4.4 The need for commissioning

The need for a robust and effective commissioning process has come
about as a result of two key changes in the way public services are
provided.
The first is that, in many areas, public bodies have ceased to be
direct service providers:
‘During the last few years the roles and functions of public bodies
have been changing. Increasingly, instead of providing many
services directly, public bodies are now looking to external
organisations and companies to provide services on their behalf.
Public bodies have been moving in the direction of becoming
purchasers, rather than direct providers of services. 1‘
The second change is new and evolving and in the UK, most
developed in the provision of social care, where rather than direct
provision, care budgets are devolved to individuals to buy the care
they need:
‘Traditionally councils have purchased services on behalf of their
communities…[however] the transformation of social care demands
that councils ensure the supply of the types of services and support
that people need and want to buy, without the same degree of
comfort from contractual arrangements.2’
1
Dawson J (2011) A beginner’s guide to commissioning NAVCA [Online] Available
http://www.navca.org.uk/publications [12th August 2015]
2
Bennett, Sam (2008), Commissioning for Personalisation, A Framework for Local Authority
Commissioners London: DH
6
EXAMPLE1
The decisions made by Colswell City Council reflect both of these
changes:
▪ It has decided to put its meal delivery service out to tender

which may mean that it will no longer be provided directly by
council staff but will instead be purchased from an external
provider.
▪ Rather than provide all the home care facilities for its aging
population, it provides financial assistance for residents to buy
the care they need. It therefore has to ensure that there is
sufficient care provision within the city to meet those needs.
These changes have meant that new skills are needed – rather than
managing the provision of a service, public bodies must instead
coordinate its delivery by others. Those involved in making
commissioning decisions must therefore understand how best to
achieve the outcomes they desire whilst delivering value for money.
Understanding the commissioning process and the expectations of
the commissioners is also vital for those working in the increasing
number of private and voluntary organisations involved in bidding
for and providing services to or on behalf of PSOs (the UK
government spent £187 billion on contracting services in 2013-43).
4.4.1 The meaning of commissioning

The starting point for understanding the commissioning process is to
look in detail at what commissioning actually means.
3
House of Commons, Committee of Public Accounts (2013-14), Contracting out public services to the
private sector London: The Stationary Office Ltd.
7
Key definition
Commissioning:
The process of achieving appropriate outcomes by assessing the
needs of people or users in an area, designing and specifying the
services to meet those needs, and choosing the delivery mechanism
to secure an appropriate service whilst making best use of total
available resources45.
Key points to note about the definition:
▪ Achieving appropriate outcomes – commissioning is focused on

outcomes – i.e. delivering services which will make
improvements to the lives of people in need.
This might involve improving their skills (e.g. higher levels of
literacy), their behaviour (e.g. reduction in smoking), their
circumstances (e.g. higher numbers in work) or their level of
satisfaction with a service. This can be compared with the more
traditional focus on simply increasing the level of service
outputs (e.g. more patients treated) or reducing the inputs
required to provide it (e.g. lower cost per treatment provided).
In Colswell the aim is to improve the circumstances of older
people (by increasing their control over their residential choices
and enabling them to live in their own homes where possible).
▪ The needs of people or users – commissioning activities are

directed towards meeting the particular needs of an identified
section of the public, referred to as service users.
Colswell council has identified older people unable to look after
themselves at home as a particular group of service users for
whom services will need to be commissioned.
▪ In an area – commissioning may be undertaken at a range of

levels from national or regional (such as where a government
must meet the needs of those with complex and rare medical
condition) to local (such as a city council commissioning
education provision for its children).
4
Gash et al, (2013) Making public service markets work – Professionalising government’s approach to
commissioning and market stewardship [Online] www.instituteforgovernment.org.uk [12th August
2015]
5
Cabinet Office, (2011) British Government’s Modernising Commissioning Green Paper [Online]
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/78924/commissioni
ng-green-paper.pdf [12th August 2015]
8
▪ Designing and specifying the services – at the start of the

commissioning process there may be no clear idea about how
the desired outcomes will be achieved. A range of solutions may
be discussed before a solution emerges.
For example, reducing rates of death from heart disease may
involve a solution combining better education, earlier detection,
changes in treatment etc. This is similar to the start of a change
programme in which a vision of the future is used as the
starting point for the development of a portfolio of projects to
achieve the goal.
▪ Choosing the delivery mechanism – the organisation charged

with meeting the needs of the service users will not be the one
providing the service – instead it will be responsible for securing
service provision from one or more public, private or voluntary
partners.
The commissioning group within the SCHOP division at Colswell
Council will not be building and running care homes. However
working with council owned homes, external private providers
and not-for-profit organisations they will aim to develop the
additional provision needed for the growing older population.
▪ Appropriate service – the commissioning role does not stop

once the service providers are appointed. Managing contracts
and monitoring performance to ensure the outcomes are
achieved are key elements of the commissioning process.
▪ Best use of resources – finite funds and high demand for the
services provided will make it essential that the solution chosen
and the providers selected offer real value for money.
Key definition
Joint commissioning:
Where two organisations or two parts of the same organisation work
together to deliver the required outcomes.
Some outcomes will require a joint approach. For example improving
the outcomes for children with special educational needs may
require a coordinated approach from partners responsible for the
provision of education, health care and social care. We will look at
the process of joint commissioning later in this workbook.
9
4.4.2 When commissioning is used

Commissioning is a response to the need to achieve specific
outcomes. These outcomes may result from national policies or
locally agreed targets. In the same way as a programme is devised
to achieve a strategic goal set by a private company, so a
commissioning process may be carried out to achieve the outcomes
set as priorities by public bodies.
Not every service provided by PSOs is subject to a commissioning
process. Commissioning is used where:
▪ There is a need for change resulting from:

− a clear indication of growing need or
− performance data which shows that current services are
not achieving the outcomes desired
▪ The services are provided by a complex market (i.e. private,

public, charitable and/or voluntary sectors offer a range of
services) which will need to be coordinated.
EXAMPLE2
The provision of housing services for the elderly in Colswell City
Council is a good example of where a commissioning process should
be carried out:
▪ There is a need for change – the council anticipates a 30%

increase in the number of over 75s living in the city. Given the
higher prevalence of illness in this age group it is clear that the
provision of supported housing will become an increasingly
pressing problem for the council.
▪ Housing for this group of service users is delivered by a range

of providers (private sector, public sector and charities) and
some coordination of the market will be required to ensure the
right mix and quantity of care is available.
10
By contrast, a decision to use external contractors to provide a local

refuse collection service is unlikely to give rise to commissioning
activities:
▪ The targets set for refuse collection are likely to be input based
(the cost of the provision) or output based (a greater area to be
serviced) rather than outcome based (there is little in the way
the service is delivered that will make an improvement to
people’s lives).
▪ There may be a need for change (whether to save money or to

improve efficiency) but the market is likely to be
straightforward (there is not likely to be a range of service
models for meeting the need to collect refuse) and no
coordinated response is required.
The contracting out of such services is therefore a procurement
decision but not a commissioning one.
4.4.3 Commissioning organisations

Commissioning activities may be carried out by any public body
which is responsible for the provision of services to a section of the
population. However in some countries specific commissioning
organisations have been set up to manage the commissioning of
particular services.
For example in the UK, whilst local councils commission services
such as education and social care, commissioning of health services
throughout the country is carried out by NHS England, a quasi-
autonomous non-governmental organisation which is independent
from, but responsible directly to, Parliament.
4.5 The commissioning cycle

The commissioning process is an ongoing cyclical process, made up
of four key stages:
▪ Analysis – understanding the needs to be addressed and the

environment in which service providers must operate.
▪ Plan – identifying the gaps between the current level of

provision and what is needed and planning how to address the
difference. A range of service models and options may be
considered and evaluated to determine the best approach.
11
▪ Secure services – ensuring the services needed are delivered in

accordance with the plan to deliver the outcomes required. This
may include:
− Direct provision
− Procurement from external providers (in which case a
procurement process will then be undertaken)
− Market facilitation to develop local markets (where there is
not sufficient appropriate service provision currently
available).
▪ Review – monitoring the service delivery provided and

measuring achievement of the outcomes. This will require the
selection of suitable KPIs and the setup of relevant data
collection systems. The information is used to manage the
contracts with service providers and determine the ongoing
desirability of the service design.
The way in which public bodies commission services has been
subject to considerable criticism within the media and in reports
undertaken on behalf of the government. We will therefore consider
what is involved in each stage of the cycle and discuss how current
practices may be improved.
One of the main criticisms levelled at the process is that it is both
too time consuming and too expensive – using funds which would be
better spent on the delivery of services. One UK government report6
quoted a Ministry of Justice process where just securing the
suppliers ‘took more than 18 months, and bidders were required to
provide the equivalent of 12 A4 boxes of information’.
The IPC has stated that:
‘Public care tends to have had a rich history of producing strategic
documents that, in terms of their size and content, are often in an
inverse relationship to their usefulness.7’
It is therefore essential that the process of commissioning is seen in
its entirety – ensuring that a balance is found between doing
sufficient work that the outcomes are delivered and carrying out the
process in an efficient, economical way so that money is not wasted.
6
7 Institute of Public Care (2014) Commissioning for Health and Social Care London: Sage Publications
12
4.6 Stakeholder engagement and consultation

You will remember from workbooks 1 and 2 that stakeholder
engagement is a crucial factor in achieving project and programme
success.
Involving stakeholders from the beginning is equally vital when
undertaking a commissioning process. All key stakeholders must
have an agreed and consistent vision for:
▪ The outcomes to be secured
▪ The services needed to meet users’ needs
▪ The efficiency or effectiveness improvements required.

One of the most important stakeholder groups too often left out of
the commissioning process is service providers. They, often better
than the commissioners, understand the market, what can be
achieved and how services should best be structured. They should
be seen as partners in the process rather than adversaries.
In 2013-14, the UK Committee of Public Accounts produced a report
called Contracting Out Services to the Public Sector8. The report
analysed why so many attempts at using private sector providers for
public services in the UK had been beset with problems. One of the
key reasons given was that those responsible ‘regard contract
management as an exercise in catching people out, rather than
working closely with contractors to improve the quality of services’.
This attitude, along with ‘excessive bureaucracy’ in the appointment
and monitoring processes, had deterred many suppliers from getting
involved, and led to poor service delivery from those who did.
We will return to the issue of engaging with suppliers as we cover
the commissioning cycle below.
Exercise 4.1
Who are the stakeholders who should be involved in the decisions
being taken by Colswell about future residential options for the
elderly?
8
8
4.7 Commissioning cycle – the analysis stage

The analysis stage of the commissioning cycle is focussed on gaining
an understanding of the issues facing service users and the possible
solutions available to meet those needs. It is essentially a pre-
planning stage in which information is gathered so that the best
strategy for improving outcomes can be determined.
There are two key elements:
▪ A needs and demands assessment – to identify what is lacking

in the provision of services for users and what is it that they
would like to see.
▪ Service provision review – to assess the standard of current

service provision and research what could be made available.
4.7.1 Needs and demands assessment

‘The foundation of the commissioning process is a picture of the
population, its local communities and their …needs’9
The picture should facilitate an assessment of needs by:
▪ Describing those whose needs should be met
▪ Detailing the extent of the need
▪ Clarifying the main factors that contribute to the need
▪ Predicting likely future demand for services.

This assessment is often referred to as a strategic needs analysis or
SNA. The term strategic here refers to the fact that it is the needs of
a segment of the population that are being analysed (rather than
those of any one individual). One additional term you are may come
across is a joint strategic needs assessment.
15
Key definition
Joint strategic needs assessment (JSNA):
The means by which two commissioning bodies work together to
describe the future needs of local populations and develop a strategy
for delivering services to meet those needs.
JSNAs are a major feature of UK commissioning because of the way
commissioning of services has been split; health care for the
population is commissioned via a national body whilst social care is
commissioned at a local level by local authorities. Yet the two sets of
activities often overlap when trying to achieve improvements in the
future health, care and wellbeing of the population. Local authority
commissioners therefore need to conduct joint needs assessments
and work together with NHS England to commission appropriate
services.
EXAMPLE3
For Colswell City Council to achieve the outcome of improving the
health of older people, they will need to review the provision of
transport, leisure, learning and exercise activities for older people as
well as the configuration of health services and individual care
support. This will require the joint involvement of a number of
different departments and public bodies, all responsible for a
different service:
It is also important to distinguish between needs and demands in

the context of a SNA.
Key definition
Needs:
A judgement that individuals or groups lack something that they
ought to have, or that they have fallen below some minimum
standard.
Demands:
Users’ wants or requests for service or support
This distinction is important.
9
Institute of Public Care (2014) Commissioning for Health and Social Care London: Sage Publications
14
One report by the IPC10 documents user’s views on dementia care. It

had been assumed that after a diagnosis of dementia older people
would need greater levels of care and support so that they could
continue living in their own homes. However consultation with older
people showed that what they wanted after a dementia diagnosis
was to be moved to residential care to avoid responsibility for their
care falling on other family members.
Equally there may be a clearly articulated demand for services
amongst the population but that does not necessarily mean that
providing it will fully meet their needs. For example, patients with
some chronic conditions may demand greater access to medical staff
in order to improve their health outcomes. However research may
identify an equal need for education about what causes the condition
and advice about how to make life style changes to reduce the need
for medical interventions.
Needs and demands may be identified in one of four ways11:
▪ Population needs assessment – assumes that the presence of

certain characteristics or conditions is a reliable indicator of the
need for services.
The UK government provides local authorities with data on the
local population ‘by age band, gender, ethnic group, religion,
tenure, transport, living with no central heating, household
growth and ... state pension.
Calculations can then be applied to population figures to
estimate projected numbers of older people by; those living
alone, living in care home, receiving unpaid care, their ability to
carry out domestic tasks and self-care etc.12.
▪ Surveys of anticipated future need – assumes that people know

what they want now and in the future and so can be actively
involved in providing the information needed.
▪ Information can be gathered via engagement directly with

service users and other key stakeholders via workshops, focus
groups, questionnaires etc. The focus should be on discussing
how outcomes can best be achieved and not limited to an
analysis of existing service provision.
10
IPC (2007) Care Service Efficiency Delivery Anticipating Future Needs [Online] Available
http://ipc.brookes.ac.uk/publications/pdf/Anticipating_Future_Needs.pdf [28th August 2015]
11
12
IPC (2015) Projecting Older People Population Information [Online} Available
http://www.poppi.org.uk/ [28th August 2015]
16
▪ Service user profiling – defines need based on current take-up

of services multiplied by anticipated changes in the population
The number of care home places needed for older people
Colswell over the next decade can be predicted by taking the
current percentage of the city’s older people not living in their
own homes and applying it to the expected numbers of older
people in the city over the period.
▪ Analysis of met but unsatisfied demand – redefines need by

looking at where demand appears to have been met but
outcomes are not being achieved.
EXAMPLE4
A council’s desired outcome was a 3% increase in the number of
adults participating in regular activity over the next 12 months. The
identified demand was for the provision of free access to the city’s
swimming pools and a leisure pass scheme for sports facilities was
provided to the elderly, disabled and those on low incomes.
However, a year later, despite these changes being implemented the
outcome was not achieved. This suggests that the solutions were not
the right ones.
This could be, for example, because the need was not for cheaper
access to exercise opportunities but the provision of a greater range
of activities (perhaps by developing more sports clubs, working with
further education colleges to allow access to their facilities, offering
funding to increase the number of coaches and trainers etc.).
Types of information
Information collected for analysis will need to be both:
▪ Quantitative, in order to
− Answer factual questions (such as ‘how many heavy
smokers in the population’ or ‘how long do patients
currently wait to be seen by a medical professional’)
− Profile current service users in terms of their demographic
(and so make predictions about future need)
− Identify trends (such as an increase in alcohol related
hospital admissions)
17
− Draw statistical generalisations about the population based

on samples (the likelihood that people aged over 75 will
need to be moved from their own homes into supported or
sheltered housing).
▪ Qualitative, in order to
− Understand experiences (such as the extent to which
service users feel supported or cared about by providers)
− Gather opinions (such as how the service could be
improved or why certain services are not used)
− Predict behaviours (such as the impact of introducing a
smoke free work zone on the smoking habits of smokers).
Involving stakeholders
It is essential that service users are actively involved in the needs
analysis. There are two key routes:
▪ Engagement through input – collecting information from service

users by directly engaging with them in workshops, discussion
groups, on-line forums, social networks etc. This involvement
should be facilitated where necessary by providing practical
support such as transportation, interpreters etc.
▪ Engagement through shared contribution – involving the users

in the analysis of the data collected and the assessment of
future needs – this should ensure a more informed outcome and
at the same time help to increase the buy-in for strategies
developed to achieve the outcomes sought.
Exercise 4.2
In the context of the needs assessment to be carried out by Colswell
council as a result of their decision to commission residential
services for older people suggest
i) What information will be needed
ii) What challenges may be faced in ensuring the inclusion of
service users in the process.
4.7.2 Service provision review

Once a good understanding of the needs of the population has been
gained, the focus must then turn to understanding what services are
currently available and what could be provided in the future.
18
The aim is to:
▪ Describe the current model of service provision
▪ Determine whether services are currently well aligned with

needs and of good enough quality – that is whether they are:
− Accessible to those who need them
− Acceptable to those who use them
− Effective at delivering the aimed for outcomes
▪ Determine whether the service provides value for money
▪ Assess the risk that current service provision will not be

sufficient in the future (owing to growing need, reductions in
available funding or other resources, changes in guidance about
how to best achieve outcomes etc.)
▪ Discover alternative ways of meeting user’s needs which have

not been explored
One of the difficulties inherent in performing a service review is the
need to develop a complete picture of the services that could be
available to achieve the desired outcomes. Existing services can be
uncoordinated and have often grown in a piecemeal fashion to meet
specific needs. Potential providers may be ignored as commissioners
are not aware of what they offer, and alternative ways to achieve
outcomes may not be readily identifiable as current users and
providers are unable to see beyond the services currently provided.
As with the needs assessment, the best way to overcome these
difficulties is to consult with a sufficient range of stakeholders
including:
▪ Service users and their carers (where relevant)
▪ Referral agencies (those people or groups that direct or advise

others towards obtaining a service). Referral agencies will know
what services they do draw on to achieve given outcomes but
also what services they wish they had available
19
EXAMPLE5
Medical professionals13 caring for older people being discharged from
hospital referred patients to a follow up service focussed on helping
them get better. However they suggested that if would be helpful to
provide a follow up service based around helping the older people to
accommodate their condition and learn the skills needed to manage
independently in future.
▪ Current providers of the service – this should include not just

those who manage the service but the workforce who deliver
the service day to day
▪ Partner organisations – this is particularly important where the

needs of users cross organisational boundaries (such as
understanding how those working in the criminal justice system
manage the mental health needs of the people they deal with)
▪ Potential providers of the service (including voluntary and

private sector organisations) – for example when commissioning
a service to transport non-urgent patients to hospital
appointments, one supplier consulted was the courier firm that
worked with the hospital to transport medical products and was
an expert in matters such as route planning and collection and
delivery timing.
Process mapping
One useful tool for analysing how a service is currently delivered is
to construct a process map which shows the sequence of events and
activities which occur as a user moves through the service from
referral to discharge. This can be performed at a high level (a cancer
patient’s journey from diagnosis to treatment and aftercare
depending on the different outcomes at each stage) or a very
detailed level (the physical movement of a patient through a hospital
during one visit to emergency via waiting rooms, consultations, x-
ray, pharmacy etc.).
The mapping process should help to identify bottlenecks, wasted
activities, duplication of provision and areas where service is poor
13 Department of Health, 2007, Home Re-ablement London: HMSO
20
because two parts of the system do not act in a coordinated way. It

is important that users, carers and providers are all involved in the
process, as there are likely to be significant differences in both
knowledge and perception between the different stakeholder groups.
In addition to consulting stakeholders, information should be
gathered from existing secondary information sources:
Exercise 4.3
Suggest the secondary sources of information which will be needed
to evaluate the current service provision for meeting the residential
needs of older people in Colswell.
As with the needs and demands analysis, it is important that the

review of service provision does not become an end in its own right.
The aim is not to gather all the information available, but to focus on
having sufficient high quality information to answer the questions
which form the basis of the review.
Once the needs of the users have been identified and a clear picture
of the current service provision has been obtained, the
commissioners can begin to plan the changes needed.
4.8 Commissioning cycle – planning phase

During the planning phase, the aim is to:
▪ Identify the gaps between existing provision and identified

needs based on findings from the analysis phase
▪ Agree and communicate a commissioning strategy
▪ Design (or redesign) service provision
21
4.9 Gap analysis

At the end of the analysis phase, the commissioning organisation
should have completed:
▪ An analysis of the needs of the relevant population, and how

these are likely to change in future
▪ An analysis of current and potential services and resources, and

the extent to which they are likely to meet future needs
▪ An analysis of additional relevant information such as:

− Legislation and national guidance
− Current research and examples of best practice.
These findings must now be pulled together to determine what
changes will be needed to improve outcomes. The aim is to identify
gaps between existing provision and identified needs, looking
specifically at:
▪ Gaps in the provision of specific services
▪ A failure to provide services to particular sections of the

relevant population
▪ Poor quality services
▪ Services which are inaccessible or delivered in inappropriate

locations
▪ Under-utilised or over-provided services
▪ The sustainability of funding for particular services.

The Institute of Public Care14 (IPC) has devised a template for
recording and developing the gap analysis performed to identify the
commissioning implications:
14
22
Strategic The gap – Rationale Commissioning

objectives service implications
development
▪ Describes the ▪ Specific ▪ Why the ▪ Disinvestment/
overall service service decommissioning
outcomes for developments developments /remodelling or
the population needed to meet are needed, renegotiation
strategic based on required
objectives guidance,
research,
needs, service
and market
analysis
▪7 – 8 ▪ Based on the ▪ Why existing ▪ Procurement
maximum evidence arrangements and contracting
collected in the will not meet with providers
needs user needs /
assessment carers’ needs in
the future
▪ Derived from ▪ Which patients ▪ Redistribution
the / service users of resources
organisation the service required
purpose, developments
national are for
guidance
▪ 5-10 year ▪ Where the ▪ Interim /
timescales services are transition costs
needed
▪ 2 – 3 year
timescales
The table is completed from left to right, and at each stage
stakeholders are consulted so that the rationale for the service
development is based on the analysis performed, and the
commissioning implications are derived from consultation which
follows.
The commissioning implications of the analysis can then be used to
develop the organisation’s commissioning strategy.
23
4.10 Commissioning strategy

Key definition
Commissioning strategy:
A high-level strategic statement about how an organisation intends
to specify, secure and monitor services to deliver future outcomes
for citizens.
It will be used to:
▪ Communicate the vision to stakeholders
▪ Provide clear, long term goals to provide a focus for future

decisions
▪ Link service development with business cases and investment

plans
A commissioning strategy is not a detailed statement of specific
spending plans or planned contracts; rather it offers a long-term,
wide ranging overview of commissioning intentions as developed
from the gap analysis performed.
The strategy is likely to identify changes needed in services such as:
▪ Location – e.g. facilitating care provision in user’s homes rather

than requiring them to move into supported housing.
▪ Method of delivery – e.g. medical care being offered using

telephone rather than face to face appointments.
▪ Skills needed – e.g. moving to multidisciplinary teams to

provide a comprehensive care package.
▪ Co-production (treating users as agents in their own care) –

e.g. providing direct payments to so users can buy their own
services or increasing the availability of properties suitable for
older people to buy and so make it easier for them to live
independently.
▪ Improving access – e.g. providing opportunities for self-referral,

or integrating services so that users can access all the services
they need no matter which service they are first involved with.
▪ Targeting – e.g. redirecting attention towards early intervention

by targeting those with particular risk factors.
24
▪ Integration of services – e.g. ensuring that young people are

moved smoothly from child to adult care services without the
need to be reassessed and effectively ‘start again’.
EXAMPLE6
The 2014-2017 mental health joint commissioning strategy for
Devon, Plymouth and Torbay15 (developed by five public bodies
working together) identified six key areas for development which are
summarised below.
As you read, note how they describe the types of services that will
be required and how, in principle, they will be delivered. The full
document is over 20 pages, but the summary provided here gives an
indication of the role a commissioning strategy plays in directing
service design:
▪ Prevention - A move from responding to need to prevention by

improving early intervention, referrals and rapid response and
so addressing mental health issues before symptoms develop
or worsen.
▪ Personalisation – Greater support for people to take control
over their own care by developing person-centred processes
and providing personalised budgets, ensuring there is a
market of suitable providers to respond to individual
requirements.
▪ Integration – Providing coordinated and fully informed support
for each patient by better integrating mental health systems
between:
– Health and social care systems
– Children’s and young people’s and adults’ systems
– General hospitals and mental health hospitals
– Service providers (voluntary, charitable, public and
private).
▪ Improving health and wellbeing – Reducing rates of death and

illness amongst mental health patients by improving access to
high quality health care and including health reviews as part of
15
Devon, Plymouth and Torbay councils and NEW Devon and South Devon and Torbay clinical
commissioning groups (2013), A mental health commissioning strategy for Devon, Plymouth and
Torbay 2014-2017 [Online] Available:
http://www.recoverydevon.co.uk/download/Devon_Mental Health_Joint_Commissioning_Strategy_
DRAFT.pdf [17th August 2015]
25
the treatment of mental health patients.

▪ Supporting recovery – Offering ongoing support via the
provision of appropriate treatment, therapies and activities
which will help patients improve their resilience and maintain
or regain their place in society, not just during the process of
recovery but afterwards to keep them well
▪ Improving access to services – By increasing the visibility of

mental health specialists, improving out-of-hours provision,
developing crisis response teams etc.
4.11 Service design

Once a commissioning strategy has been agreed, the commissioners
can begin to design a new service model to deliver the envisaged
outcomes.
4.11.1 Stakeholder engagement

It is critical that the process is not carried out in isolation from
stakeholders. If it is to be successful, the design should be devised
by the commissioners in collaboration with all key stakeholders
including users, carers, referral agencies, partner organisations,
current providers (from management to operational staff) and
potential providers. Collaboration is more than simply consultation –
stakeholders should be actively involved in all the stages of the
design.
To ensure effective collaboration, communication channels must be
set up between the commissioners and all the relevant stakeholders
to ensure that they are kept up to date with timescales and
deadlines and understand their role in the process as it evolves.
Many user groups will have little experience of service design or
problem solving. Training should be provided to help them
understand what can be achieved and meetings and workshops
should be run by a trained facilitator who can help them to develop
their ideas.
It may seem counterintuitive to include providers in the service
design process. However it is often service providers that best
understand what can be achieved and if a plan is put together
without their involvement there is a real risk that what is designed in
theory cannot be delivered in practice.
26
Their involvement does not necessarily mean they will be selected to

provide the services during the later procurement process. However
providers are usually willing to assist in the service design process,
as time and expense invested at this stage will be recouped when
they are able to put together a more efficient, informed and accurate
tender later on.
4.11.2 Approaches to service design

Traditionally service design focused on achieving standardised forms
of delivery. However modern service design is more person centred.
There are three main approaches:
▪ Outcome focused – working to ensure the service provided

improves an individual’s quality of life and helps them reach
their desired outcomes
EXAMPLE7
Colswell council has recognised that social isolation has a major
impact on health outcomes for older people. Traditional approaches
have included the provision of day care centres where older people
could congregate. Analysis of their needs and wants has identified a
preference for volunteer projects and third age learning
opportunities supported by transport there and back. Services are
therefore redesigned around creating opportunities to become
involved in community activities and so improve social welfare.
▪ Pathways – focused on improving an individual’s journey

through the service, ensuring it is accessible and easy to use
from initial referral to final discharge
The process mapping technique described in the analysis phase
above should help to redesign service pathways.
▪ Whole systems – cutting across professional disciplines and

organisational boundaries to pool resources, and avoid service
gaps and duplication.
An aim to improve access to mental health services could
involve setting up a network of trained liaison staff and
specialist advisors to develop links with areas such as the
criminal justice system, drug and alcohol dependency units,
homelessness charities etc.
27
4.11.3 Service design stages

Undertaking a service design process is effectively a project for the
commissioners and should be run as such - properly planned and
managed at every stage. The four stages are:
▪ Pre-design – agreeing the design principles and desired

outcomes for the service based on the principles outlined in the
commissioning strategy
▪ Design – creation of a target operating model (TOM) which

describes how the new service will work. The TOM created
should not be seen as a fixed or perfect model, but as a working
design to be amended and adjusted as it develops.
▪ Testing – much of the testing will be theoretical such as the use

of scenario testing – workshopping how different real life
scenarios would play out to identify unforeseen problems or
gaps. However where the new design is complex, could have far
reaching consequences, or will be costly and difficult to reverse,
a decision may be taken to run a pilot service to test how well it
works before rolling it out to all users.
▪ Implementation – The implementation of the design is dealt

with in the next section (secure services). In practice it is likely
that some further adjustments to the service design will be
made to deal with issues as they emerge.
One final point to be made about the planning stage is that there is
a very real danger it becomes an end in itself rather than a means to
achieve specific outcomes. Within the practical time restrictions
involved in bringing relevant stakeholders together to develop and
evaluate a TOM, the process should not be allowed to run on for
many months. The aim is not to devise a perfect model but a
workable one.
4.12 Commissioning cycle – Securing services

We mentioned above that the way social care in the UK is funded
has changed over the past decade. In 2008 the government
explained:
‘In the future, all individuals eligible for publicly-funded adult social
care will have a personal budget (other than in circumstances where
people require emergency access to provision); a clear, upfront
allocation of funding to enable them to make informed choices about
28
how best to meet their needs, including their broader health and
wellbeing16’
This means that those who need social care services have now
become the purchasers, buying them direct from the providers. The
problem for those responsible for health and social care
commissioning is that, for this to work, the market must offer the
services required.
Key definition
Market:
The total of service provision in a specific area including services
arranged and paid for by the commissioning organisation itself,
those services paid by the state through direct payments, those
services arranged and paid for by individuals from whatever sources
(sometimes called ‘self-funders’), and services paid for by a
combination of these sources.
The task of ensuring there is a market in the services required is
known as market facilitation.
Key definition
Market facilitation:
Based on a good understanding of need and demand, market
facilitation is the process by which strategic commissioners ensure
there is sufficient appropriate provision available at the right price to
meet needs and deliver effective outcomes both now and in the
future.
Key points to note about the definition:
▪ Sufficient appropriate provision

Sufficient in this context does not mean simply enough, but
requires that there is a choice of providers, or where that is not
possible (such as in rural locations), a choice about the type of
service that might be provided.
Appropriate means that individual needs must be
accommodated (such as dietary restrictions when providing a
meals service or age related needs when offering rehabilitation
services to those with disabilities).
16
Department of Health (2008), LAC (DH) (2008) 1Transforming Social Care , London: HMSO
29
▪ The right price

To determine the right price requires striking a balancing
between affordability on the one hand and quality and
accessibility on the other. If prices are too low, suppliers may be
disincentivised from entering the market or be unable to sustain
a position within it.
▪ Now and in the future

In order to provide a consistent supply, and to encourage
investment in service provision, the market must be facilitated
not just to meet present need but also over the longer term.
4.12.1 Why facilitation is needed:

The IPC17 has put forward a number of arguments for the
involvement of commissioners in the process of market facilitation:
▪ The high profile collapse of a private care home provider in the

UK in 2011 left 30 000 older people at risk of homelessness. It
was only the intervention of public bodies such as local
government and social services working to coordinate the care
homes, other care providers, and the collapsed company that
ensured continuing provision and security for the future. It was
clear that the ‘free market’ could not be left to provide services
without being monitored and subject to regular review18.
▪ Where market forces are left to determine supply, larger

providers tend to dominate as they attain greater economies of
scale. However smaller local organisations can often provide
more specialised care and should be protected.
▪ The majority of care purchases are made using state funding so

there is a strong case for public oversight of the value for
money provided.
▪ Many service users (from children to older people with

dementia) cannot make purchase decisions for themselves, and
others, who may need to make the decision at a time of crisis,
would prefer that the market were coordinated and managed on
their behalf.
17
18
IPC (2014) Care Quality Commission The Stability of the Care Market and Market Oversight in
England Oxford: Oxford Brookes University
30
▪ To ensure provision is available in all locations and that service

is of a suitable standard even for those with limited funds, it will
be important that there is public sector support for the delivery
of the service. This may involve tendering and contracting for a
minimum level of service provision, to provide a guaranteed
income for providers and so ensure the service is available. This
is known as a block contract.
Key definitions
Block contract:
Where commissioners contract in advance to buy a specified amount
of service provision. Providers then have a guaranteed minimum
income and hence the security needed to invest in the service.
Payments from service users who use their personal budget to select
the service will effectively be recouped by the commissioning
organisation against the cost of the contract.
Spot contract:
Buying a service at the point when it is needed.
▪ To these points may be added another. Some aspects of service

provision are simpler to provide and likely to be more profitable
for suppliers. Without intervention the market may become
unbalanced – with limited availability in key areas and
oversupply in others.
4.12.2 The process of market facilitation

Market facilitation is a collaborative process in which the
commissioning organisations work with the providers in the market
place to ensure that the market can meet user’s needs. The aim is to
supply providers with information about what is needed and how it
will be paid for, work with them to develop the services required and
provide them with the support they need to operate effectively. It
therefore involves three major activities:
▪ Developing a market position statement
▪ Helping to shape the market
▪ Intervening where necessary to encourage innovation and

development
31
4.12.3 Market position statement (MPS)

The aim of an MPS is to provide information for those who provide
services in the market to assist them in planning their business. It
should identify current stakeholder perceptions of the services
offered, gaps in current provision, trends in demand and how
provision is envisaged in the future.
It should be structured to reflect how the service providers define
the market rather than based around user groups defined by the
commissioners. For example Colswell council has identified a need to
provide better social opportunities for older people. The MPS should
therefore be split to explain what is required in each of the different
supply markets from which provision will be required: third age
education, community transport, exercise classes etc.
An MPS should be a concise, analytical document which explains
clearly what is important.
Contents of an MPS:
▪ The outcomes desired and the commissioning strategy being

pursued
▪ Predictions of future demand
▪ The strengths and weaknesses of the current supply market
▪ Models of service provision desired
▪ Likely levels of funding
▪ Support to be provided by the commissioning organisation in

the development of the services or the purchasing of services
by service users
4.12.4 Shaping the market

Once an MPS has been agreed and disseminated, the commissioners
need to work to encourage sufficient providers to enter into or
remain in the market.
‘Market shaping activity should stimulate a diverse range of
appropriate high quality services (both in terms of the types,
volumes and quality of services and the types of provider
32
organisation), and ensure the market as a whole remains vibrant

and sustainable19.’
The activities involved in market shaping include:
▪ Ensuring an equal playing field between those public bodies

involved in delivering services (who may be perceived to be set
lower standards or offered a simpler tendering process) and
other external providers.
▪ Agreeing a structure for calculating the price to be paid for

services so that providers know what to expect when calculating
costs and planning for the future.
▪ Making the tender process as simple and clear as possible and

clarifying minimum or maximum provision levels when offering
block contracts.
▪ Sharing commissioning plans with providers on an ongoing basis

and helping them adapt their businesses so that they can
continue to operate as needs change.
▪ Working with providers to develop choice for users and to find

innovative solutions to issues as they arise.
▪ Encouraging diversification to extend the services available (for

example, those providing care homes could expand into offering
home care provision for those remaining in their own homes).
4.12.5 Market intervention

There may be times when commissioners need to take a more active
role in ensuring the market offers the quantity and diversity of
service provision needed. For example:
▪ Supporting planning applications for the conversion or

construction of relevant properties
▪ Providing or financing training in skills needed to support the

achievement of outcomes
▪ Brokering shared working between smaller providers to help

them operate at the capacity needed to achieve economies of
scale
19
Department of Health (2014) Market shaping and commissioning of adult care and support
London:HMSO
33
▪ Acting as the information conduit for service users to find and

buy from suitable providers
Exercise 4.4
Colswell City Council believe that the lack of suitable sheltered
housing is forcing older people to move into purpose built care
homes before they are ready. It therefore wishes to increase the
availability of private housing suitable for older people.
Suggest how the commissioning team could stimulate the market to
encourage such housing to be provided.
4.12.6 Procurement and contract management

Securing services, whether block contracts offered as part of a
market facilitation exercise, or the wholesale purchase of the
services to be provided to users, requires the instigation of a
procurement and contract management process.
However procurement is not just part of the commissioning process.
It is a key function undertaken throughout the public and private
sectors when securing works, goods and services. The process will
be covered in detail in the Procurement section of the workbook
below.
4.13 Commissioning cycle – Review phase

It is key component of business decision making in all organisations
that once a system or plan has been put in place, performance is
then measured and monitored. In principle this is done by
comparing expected results with what happens in practice. This
allows the organisation to:
▪ Take action to deal with poor performance
▪ Make good on contractual obligations to reward good

performance
▪ Learn lessons to inform future activities

The detailed mechanics of setting performance targets are covered
in CIPFA’s Strategy and Policy Development module and the
evaluation of performance within the public service arena is covered
in detail in CIPFA’s Strategic Public Finance module. Our aim here is
to identify the specific issues that will need to be addressed in the
context of commissioning.
34
The key points are to note about performance measures are that:
They can be grouped into two categories:
(a) Financial measures – traditional measures of monitoring
performance used widely to measure cost, profitability and
efficiency.
(b) Non-financial measures – incorporating aspects such as
motivation, brand image, quality, competitiveness, user
satisfaction, innovation and an ability to respond to changes in
demand.
The first stage in measuring performance is any organisation is the
design of Key Performance Indicators (KPIs). These KPIs will
represent the specific quantifiable objectives of the organisation and
will be used to judge performance.
KPIs must be clear and unambiguous. It is not enough for a council
to state that it wishes to ‘improve the position of children in care’. It
must decide exactly what it wants to achieve, for example; an x%
reduction in the percentage of children who have been moved more
than 3 times in the year, or an x% increase in the number who have
achieved at least 1 exam pass in national exams.
A mnemonic for the quantification of KPIs is that they must be
SMART:
Specific – unambiguous
Measurable – quantifiable
Achievable – within reach
Relevant – focused on stakeholder satisfaction
Timebound – with a completion date
4.13.1 Measuring outcomes

Within the context of commissioning, performance can be measured
from three distinct perspectives20:
▪ How much was done (meals delivered, counselling hours

provided, older people housed)
20
Friedman, Mark (2005) Trying hard is not good enough: How to produce measureable improvements
for customers and communities Oxford: Trafford Publications
35
▪ How well it was done (user or carer satisfaction ratings,

percentage of meals delivered on time, percentage reduction in
incidence of infection, cost per unit delivered)
▪ Whether anyone is actually better off (whether the outcomes

were achieved). This may be in relation to:
− Skills / knowledge (increase in student exam passes, staff
able to deliver new services)
− Attitudes / opinion (greater levels of user satisfaction,
reduction in stigma associated with certain conditions)
− Behaviour (reduction in criminal activity, increase in
physical activity)
− Circumstances (reduction in numbers of children living in
poverty, increase in proportion of older people able to stay
in their own homes).
One complicating factor which affects performance measurement
when applied to commissioning is that the achievement of desired
outcomes can be hard to map directly to any particular service
provision. Improvements in the health outcomes of older people are
likely to be the result of improved housing, better medical
treatment, greater opportunities for social inclusion, increased
nutritional levels in home food deliveries etc. Determining which
factors are bringing about any changes in the outcomes being
measured can be complex.
There is therefore a need to distinguish between outcomes
measurement at the level of:
▪ The individual - to ensure services are meeting the needs of

users rather than just delivering in accordance with the contract
specification (home meals delivery may be timely and nutritious
but if the person receiving the dinner cannot open the package
and isn’t eating, their needs are not being met).
▪ Operations – to ensure services are accessible and efficiently

provided and delivering outcomes appropriate to users’ needs
(home care services could be of good quality but failing to help
users learn to develop greater independence which was a key
outcome)
▪ Strategy – to ensure that the services provided are being

delivered as envisaged by the commissioning strategy and
achieving the broader outcomes set for that segment of the
population.
36
The specific way in which measurement frameworks should be

developed and applied will be covered in CIPFA’s Strategic Public
Finance module.
However care must be taken not to overly complicate performance
measurement:
‘Government has a tendency to make managing contractors’
performance overly complicated, and not always focused on the
most important issues – we heard of one example where a
department had put in place 150 performance indicators.
Government needs to have information on contractors’ performance
and the way they manage public services across government.
However, data collection comes at a cost and too often government
has not demonstrated that it knows what it is asking for, or why.
This leads to poor information and waste. Information needs to be
focused, proportionate and relevant, coupled with performance
indicators that are linked to appropriate penalties for failure and to
rewards for excellence.21’
4.13.2 Approaches to managing poor performance

Where performance measures indicate the service provided is not
achieving the targets set, action must be taken.
The way in which this is approached can have a significant impact on
the way the service is delivered in the future. We will look at two
alternatives put forward for dealing with contract performance
issues22:
▪ Traditional punitive approach
▪ Developmental approach
Traditional punitive approach
The principles of the punitive approach are:
▪ Performance should never fall below agreed standards.
▪ Links between performance and payments should be explicit

from the outset.
21
private sector London: The Stationary Office Ltd
22
Gosling G, (2006), Improving performance through effective contract monitoring, Commissioning e-
book: CSIP
37
▪ Punishments such as fines, restrictions on new business or

removal from preferred supplier lists should be built into
contracts and used to prevent recurrent failures
This approach has some merits. In cases where a provider is
unwilling to fully investigate or explain why a problem has arisen, or
has a history of contract failure, a punitive approach may be the
only option. There are also many arguments in favour of payments
being linked to results – in particular the sharing of efficiency gains
(which we will explore further in the section on procurement below).
However we mentioned above the report from the UK Committee of
Public Accounts which referred to the tendency within public bodies
to treat contract management as an ‘exercise in catching people
out23’. The difficulty with this punitive approach is that it can lead
quickly to the breakdown of the relationship with the supplier and an
early termination of the contract.
Where there have been serious breaches of contract terms, this may
be the only option, but:
▪ Identifying a failure in performance does not explain why the

failure occurred.
▪ To address poor performance it will be necessary to first

understand the causes.
This thinking has led to the development of an alternative, more
collaborative, approach to dealing with poor performance.
Developmental approach
This approach starts with the understanding that the commissioners
and the service providers are working together to ensure that users’
needs are met and recommends a ‘spirit of cooperation and
openness24’. The approach considers that:
▪ Service provision is a partnership between the commissioning

organisation and the service providers
▪ Mistakes are inevitable
▪ Both parties should investigate to agree what went wrong
23
24
38
▪ An action plan should be jointly developed to ensure the

mistake cannot reoccur
▪ No immediate action will be taken against the provider.

Ideally the developmental approach should be adopted in the first
instance, and a punitive approach only taken where the provider
▪ Denies the problem, offers excuses or fails to investigate
▪ Has a poor track record
▪ Is failing to supply a service putting users at risk.

This focus is likely to lead to better supplier relationships and
ultimately a better performing service.
4.13.3 Decommissioning
A final point to bear in mind when discussing the commissioning
cycle is that in the process of redesigning service models it is likely
that some existing services will no longer be required. They will
therefore need to be decommissioned.
4.13.4 Review
The review phase has one other important purpose - to review the
activities carried out during the commissioning process and
determine how efficient and effective they were and the extent to
which they successfully achieved their goals. This is equivalent to
the post project (and post programme) review stages. The aim is to
identify the lessons learned and so inform and improve future
commissioning activities.
Key definition
Decommissioning:
The process of planning and managing changes in service, usually
either a reduction or a termination, in line with commissioning
objectives.
Consideration must be given to factors such as:
▪ How the transition between one service model and another is to

be carried out to ensure that vulnerable users do not suffer
when a service is decommissioned
▪ Maintaining good relationships with providers during the transition

▪ Ensuring all stakeholders are kept fully informed at all stages of
the process.
39
4.14 Procurement: an overview
PROCUREMENT
Procurement Strategic Tactical E-procurement

principles activities activities
Integrity
Sustainability
Procurement Analysing the Category

strategy supply management
market
Supplier The tender Contract Contract

selection process negotiation monitoring
Internal Gain/reward Retentions

suppliers sharing
Preferred
suppliers Evaluating
tenders
Contract/
service
Cost
specification
estimates
Pricing
basis
▪
40
4.15 Procurement
We have discussed in detail how goods and services may be
commissioned by an organisation. We will now turn to the process of
procuring specific goods and services from suppliers.
Key definition
Procurement:
The process of acquiring goods, works or services from, usually,
external providers and managing these through to the end of the
contract.25 .
Securing those services required to meet user’s needs is an intrinsic
part of the commissioning cycle. Specific service providers must be
found, chosen and contracted with and their performance must then
be monitored and action taken should it fall below the required
standard.
However, as explained above, procurement is not simply a stage in
commissioning but an essential business function for all
organisations. In many businesses, the strategic activities involved
in the procurement process are part of the function known as supply
chain management.
In this section we will be looking at the following aspects of this
function:
▪ Strategic activities
− Drawing up a procurement strategy
− Analysing the supply market
− Category management
▪ Tactical activities
− Supplier selection
− The tender process
− Contract negotiation
− Contract monitoring
25
IPC (2014) Commissioning for Health and Social Care, London: Sage Publishing
41
However before we look in detail at the activities involved in the

procurement process we will first consider some of the principles
which apply to all procurement systems:
▪ Ensuring integrity in the process
▪ Procuring sustainably
4.16 Ensuring integrity in the procurement

process
Any organisational system may be vulnerable to abuse, but
procurement activities are often seen as being at particular risk.
The OECD (Organisation for Economic Co-operation and
Development) estimates that public procurement accounts for 16%
of GDP, on average, in OECD member countries. This is channelled
through public sector organisations purchasing goods, services and
works from contractors.26
However, it also claims that public procurement is the government
activity most vulnerable to waste, fraud and corruption due to its
complexity, the size of the financial flows it generates and the close
interaction between the public and the private sectors. Risks include:
▪ Fraud and theft of resources, for example through product

substitution in the delivery which results in lower quality
materials;
▪ Corruption including bribery, kickbacks (money paid to those

who assist in frauds), nepotism (favouring relatives), cronyism
(favouring friends) and clientelism (exchanging goods and
services for political support), collusion (working together to
cover evidence of wrong doing) and bid rigging (to ensure
favoured parties are awarded contracts);
▪ Abuse and manipulation of information and discriminatory

treatment in the public procurement process
To enhance the integrity of public procurement, it states that the
following four fundamental principles should be upheld:
▪ Transparency
26
OECD 2009 OECD Principles for Integrity in Public Procurement [Online] Available
http://www.oecd.org/gov/ethics/48994520.pdf [24th August 2015]
42
▪ Good management
▪ Prevention of misconduct, compliance and monitoring
▪ Accountability and control.

To achieve this requires the development and implementation of
robust procurement systems with clear guidance and procedures at
all stages of the procurement cycle.
The OECD has developed principles and tools which are used by
member and non-member countries as the basis of their own
national guidance on procurement and the procurement principles
detailed in this workbook are therefore based on the CIPFA UK Guide
to procurement27.
4.17 Procuring sustainably

Key definition
Sustainable commissioning and procurement:
A process whereby organisations meet their needs for goods,
services, works and utilities in a way that achieves value for money
on a whole life basis in terms of generating benefits not only to the
organisation, but also to society and the economy, while minimising
damage to the environment. 28” .
Selecting contractors on the basis of sustainability means that in
addition to the two key selection criteria of price and quality a third
is added: third-party consequences. These consequences can be
broken down into:
▪ Social consequences – considering matters such as

inclusiveness, equality, diversity, regeneration and integration
▪ Environmental consequences – avoiding over-exploitation of

scarce resources and addressing climate change
▪ Economic consequences – for example; directing investment

towards areas such as developing economies and fair trade
providers and creating jobs in regeneration areas
27
LGA (2014) National procurement strategy for local government in England 2014, London: HMSO
28
Procuring the Future (Sustainable Procurement Task Force), June 2006
43
4.17.1 The importance of sustainability

A wide variety of stakeholders have a vested interest in the activities
of private and public sector organisations. One of the consequences
of this is that organisations are often held responsible for the
sustainability not just of their direct activities but of their entire
supply chain. And in the current political climate, with the spotlight
turned on all aspects of public sector service provision, national
governments are often keen to demonstrate their commitment to
sustainability.
However there are also a number of compelling business reasons for
businesses to ensure that their procurement is sustainable29:
▪ Financial benefits
− Buildings are designed to have lower through-life operating
costs.
− Better demand management reduces costs via recycling,
reusing and standardisation.
− Products acquired are more efficient in their use of energy
and other resources and cheaper to dispose of.
▪ Clear environmental imperatives on issues such as reducing

carbon emissions and waste going to landfill are supported by
national and international targets.
▪ Socio-economic benefits in creating training and employment

opportunities for the long-term unemployed and people with
disabilities.
▪ Coordinated demand across the public sector, engaging with

key suppliers at a strategic level, should harness public
purchasing power to stimulate product and process innovations
that deliver improved environmental performance and further
savings.
4.17.2 Achieving sustainability

Sustainable procurement and commissioning involves collaboration
and engagement between all the parties in a supply chain. For the
procuring organisation this means only entering into arrangements
29
Improvement and development agency (2007) Local government sustainable procurement strategy
London: HMSO
44
with organisations which can establish their sustainability

credentials.
In order to demonstrate a commitment to sustainability, many
organisations use what has become known as triple bottom line
(TBL) reporting, providing data on the social, environmental and
economic consequences of their activities. This is a form of social
accounting; communicating the third party consequences of their
actions to particular interest groups and society at large as part of
their larger corporate social responsibility (CSR).
Key definition
Corporate social responsibility30:
A continuing commitment to behave ethically and contribute to
economic development while improving the quality of life of the
workforce and their families as well as of the local community and
society at large.
Organisations such as the Global Reporting Initiative31 (a non-profit
organisation that promotes economic, environmental and social
sustainability) produce a comprehensive sustainability reporting
framework that is widely used around the world. In addition, in
many countries, national governments have developed a range of
suitable KPIs to assist private firms and PSOs in this process.
Where a supplier can provide evidence of their record on
sustainability, it is a less complex task for the procuring organisation
to ensure the integrity of their supply chain. However, social
accounting is not yet fully established, and even where it is used,
KPIs may not be directly comparable between organisations. One
alternative is that the PSO may build specific sustainability targets
into any supply agreement. The supplier will have to provide
feedback on performance and improvements as part of the ongoing
management of the supply relationship.
4.17.3 Examples of sustainability reporting

Some firms have well established sustainability reporting
procedures. The Co-op for example, provides a yearly report into the
30
WBCSD (1998) Corporate Social Responsibility - Meeting Changing Expectations Stakeholder
Dialogue on CSR, The Netherlands, Sept 6-8, 1998 Geneva: WBCSD Publications
31
GRI (2014) Sustainability reporting [Online] Available:
https://www.globalreporting.org/information/sustainability-reporting/Pages/gri-standards.aspx [24th
August 2015]
45
company’s impact on the environment and community initiatives,

which is available from their website32.
In response to the UK government’s ‘framework for sustainable
development’, and European Directives on strategic environmental
assessments, UK public sector organisations are also reporting on
sustainability’ using the framework developed by CIPFA. A good
example can be found on the website of Woking Borough Council33
which lists amongst its sustainability themes:
▪ Use of energy, water, minerals and materials
▪ Waste generation / sustainable waste management
▪ Pollution to air, land and water
▪ Factors that contribute to climate change
▪ Protection of and access to the natural environment
▪ Travel choices that do not rely on the car
▪ A strong, diverse and sustainable local economy
▪ Meet local needs locally
▪ Opportunities for education and information
▪ Provision of appropriate and sustainable housing

CIPFA has a list of useful links and resources on sustainability
available on its website34, and the Global Reporting Initiative
website35 contains guidelines and reporting frameworks.
Exercise 4.5
Cloud Airlines is selecting a contractor to build the roads to and from
the new airport terminal at Tadnow airport. It considers
sustainability to be an important factor in any procurement decision.
▪ Requirement
Suggest specific sustainability factors which it should consider when
choosing an appropriate contractor.
32
http://www.co-operative.coop/corporate/sustainability/
33
http://www.woking.gov.uk/environment/climate/Greeninitiatives/sustain
34
http://www.cipfa.org.uk/sustainability/links.cfm#government
35
https://www.globalreporting.org/Pages/default.aspx
46
4.18 Strategic procurement activities

In recent years the procurement function within private and public
sector bodies has grown in importance and now plays a key role in
supporting organisational performance. Most large organisations will
have a procurement role at board level and even smaller ones firms
are taking a more strategic approach to procurement decisions.
4.18.1 Drawing up a procurement strategy

The first stage in ensuring successful procurement is the
development of a procurement strategy.
Key definition
Procurement strategy:
A procurement strategy should determine and direct an
organisation’s procurement activities to ensure the long term supply
of the goods and services needed to achieve its strategic goals.
The strategy should:
▪ Link procurement to the organisation’s strategic aims (an

intention to expand may lead to a strategic decision to appoint
only suppliers with the capacity to deal in large volumes, a
decision to become more sustainable may require greater
investigation into the whole of a supplier’s supply chain before
awarding a contract)
▪ Clarify the role and remit of procurement within the

organisation structure (from the head of procurement through
to the role of the finance, legal and IT departments in assisting
in the procurement process)
▪ Clearly explain the application of all relevant procurement

policies and procedures including regulatory frameworks (for
example public bodies in Europe have to adhere to EU
procurement regulations), sustainability policies and ethical
considerations
▪ Be linked to a detailed procurement guide to be followed by all

staff
▪ set out arrangements for ensuring continuous improvement.
47
Once established the strategy should be used to guide all future

procurement activities and help to ensure value for money is
achieved.
The 2014 National Procurement Strategy for Local Government in
England36 sets out the following strategic aims for procurement in
the future:
▪ Making savings though greater use of

− Category management - developing and using more
standard specifications for appropriate goods and services
− Partnering and collaboration
− Improved contract management, performance monitoring
and transparency
− Risk management processes
− Demand management to meet needs more efficiently.
▪ Supporting local economies by

− Applying sustainability criteria when awarding contracts
− Encouraging small and medium enterprises (SMEs) and
voluntary, community and social enterprises (VCSEs) to
work together to bid for contracts
4.18.2 Supply market analysis

To make efficient procurement decisions, it is important to
understand how the supply market works.
Key definition
Supply market analysis:
The gathering of facts, data, observations and trends about the
marketplace in which suppliers conduct business37.
Conducting research
To gather the information required about the supply market will
involve talking to:
▪ Current suppliers
▪ Other selected suppliers
36
LGA (2014) National procurement strategy for local government in England 2014, London: HMSO
37
Chartered Institute of Procurement and Supply (2011), Supply Market Analysis, [Online] Available
www.cips.org [25th August 2015]
48
▪ Buyers from other organisations using similar products or

services
▪ Trade bodies
The aim at this stage is not to enter into a contract with a supplier
but to build a picture of how the supply market operates i.e. to
determine:
▪ The existence of a market for goods or services which will meet

organisational needs.
The focus must be on the needs to be met rather than the
goods or services to be obtained. This helps to avoid missing
opportunities for innovation. You may remember the need for
non-urgent patient transport to hospital mentioned in the
commissioning section. Focusing on the need – timely
transportation of patients – rather than the service helped to
develop a solution which came not from a travel provider but
from a package courier that had the logistics skills and applied
them in a new way.
▪ How the market is structured (the range of products typically

held by individual suppliers, the size of suppliers within the
market, the number of links in the supply chain etc.)
▪ The maturity and capacity of the market (range of products

offered, geographical reach of suppliers, level of supplier
flexibility)
▪ The basis on which it competes (price, service, brand)
▪ The willingness of suppliers to work with the organisation

(attitudes towards their tendering process, risks perceived in
the buyer’s business model)
▪ The factors which influence supplier’s costs (number of orders

placed, speed of delivery required) and how these can be
minimised
▪ Whether there are other, more innovative ways of meeting the

organisation’s needs.
49
EXAMPLE8
The office supply firm Staples undertook a procurement exercise to
find a supplier for the packaging it used to deliver its products to
customers38. Working in collaboration with the packaging firm
Packsize it has implemented a revolutionary system that tailors
packaging to the size of the parcel to be delivered. This led to
significant savings (such as 15% less cardboard and 60% fewer
airbags needed) and a more efficient packing process.
Once the organisation has a clear picture of the supply market it can
organise its procurement activities to fit to it. This is the process of
category management.
4.18.3 Category management
Key definition
Category management:
The practice of segmenting the main areas of organisational spend
on bought-in goods and services into discrete groups of products
and services according to [their] function … to mirror how individual
marketplaces are organised. Using this segmentation organisations
work cross functionally on individual categories, examining the entire
category spend, how the organisation uses its products and services
within the category, the marketplace and individual suppliers39’.
In practice this means that an organisation will need to review how it
makes purchasing decisions across the business as a whole rather
than thinking departmentally. Purchasing requirements should be
grouped into categories of similar or related products reflecting how
the supply market is structured. For example, categories could
include items which can be sourced:
▪ From the same supplier or type of supplier (office supplies,

bedroom furniture, travel arrangements)
▪ From the same region (food or wine imports)
38
SupplyChainBrain (2015) Staples takes top prize with move to smart packaging [Online] Available
http://www.supplychainbrain.com/content/nc/research-analysis/supply-chain-innovators [25th
August 2015]
39
O’Brien J (2012), Category Management in Purchasing, 2nd ed. Kogan Page: London
50
▪ Using the same delivery mechanism (chilled or frozen foods)
▪ From the same part of the supply chain (producer, wholesaler,

retailer)
Once the categories have been determined, the supply market
analysis performed can be used to identify preferred suppliers for
each category.
Exercise 4.6
What are the potential benefits of category management?
4.19 Tactical procurement activities

Developing a procurement strategy, analysing the supply market
and organising organisation-wide procurement needs into logical
categories are high level strategic activities. They provide the
framework within which practical procurement takes place.
We will now look at four key stages in procuring goods and services:
▪ Supplier selection
▪ The tender process
▪ Contract negotiation
▪ Contract monitoring
4.20 Supplier selection

Selection of suppliers should be carried out in a way which ensures
genuine competition; providing transparency and fair treatment for
all potential bidders. It is therefore important that a formal process
is undertaken which complies with the client organisation’s
procurement policy and its financial control framework.
Many countries institute regulations which apply to the tendering
process within public bodies and produce standard templates for
every stage to simplify and standardise the procedures used to
select suppliers. The specific details of the process and the terms
used will vary from country to country but the key considerations for
all organisations remain the same.
51
Suppliers may be selected in one of four ways. The terms used are
based on the regulations governing procurement by public bodies in
the EU40 but the same basic methods are used by all organisations:
▪ Competitive negotiation – discussions with a single supplier or a

few selected bidders leading to award of the contract
▪ Competitive dialogue procedure – used for complex contracts

where the organisation has identified a need but is not sure of
the best way to meet it. Following a pre-qualification process,
short listed candidates are asked to discuss aspects of the
project and help to develop solutions to meet the need. Once
potential solutions emerge, the dialogue is closed and the
candidates are asked to tender for the work on the basis of their
proposed solutions.
EXAMPLE9
In the UK, the publically owned BBC (British Broadcasting Company)
instigated41 a project to assist customers as it turned off analogue
television signals and replaced them with a digital signal across the
UK. The contract to carry out the project was considered to be highly
complex because:
▪ It was substantial in scale and scope – affecting over seven

million customers
▪ The unique nature of the requirement – the BBC had a clear

idea of what it wanted to achieve but no understanding of how
to specify the way in which the service should be delivered
▪ There was no established market place for providing the service
▪ It was impossible to know how the end to end model might

operate until it was explored with bidders.
40
Office for Government Commerce (2008) Procurement Guidance: Introduction to EU procurement
rules Norwich: OGC
41
OGC Policy and Standards Division, Competitive Dialogue Case Study BBC’s Digital Switchover Help
Scheme [Online] Available
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/62046/competitive-
dialogue-resources.pdf [31st August 2015]
52
In order to have exploratory and ongoing dialogue with bidders, it

was therefore decided to instigate a competitive dialogue procedure.
Four bidders were invited to enter into talks. After the talks closed
the bidders tendered for the work. Two contracts were then
awarded, one for the pilot and one to roll out the full service.
▪ Restricted procedure – an advert is placed and the firms that

respond are sent a pre-qualification questionnaire (PQQ). The
PQQ is used to draw up a short list of suitable suppliers which
are then invited to tender for the work. Many public bodies use
standard PQQs to reduce the administrative burden on smaller
firms that may otherwise be put off applying.
▪ Open procedure – any interested party is invited by advert to

tender for the contract and there is no short list stage. All
contracts are evaluated on an equal basis.
Most organisations have financial regulations which indicate the
circumstances under which a restricted or open tendering process is
required, in contrast to simply negotiating with a few suppliers.
Many public bodies are subject to national and international
procurement regulations which attempt to encourage competition
and prevent discrimination by requiring the use of an open
procedure unless certain strict criteria are met.
Other factors to be considered would be the complexity of the
procurement needs, the size of the supply market (and the number
of bids that may need to be evaluated) and the level of competition
in the market.
4.20.1 Preferred suppliers

Many organisations prefer not to be limited to a choice of just one
supplier to satisfy their day to day procurement needs as this would
make them vulnerable if that supply failed. Instead they draw up a
preferred supplier list from which an individual supplier may be
selected when a specific procurement need arises.
In this case, instead of being asked to tender for a specific contract
to deliver the goods, works or services, a supplier may be asked to
tender for inclusion on the preferred supplier list.
53
Exercise 4.7
What are the pros and cons of using a preferred supplier list?
4.20.2 Internal suppliers

In some instances, it is another part of the organisation which
currently provides the service in-house and is asked to tender for
the work in competition with external firms. This may occur where
management considers that an element of competition will improve
the efficiency and effectiveness of the service.
E X A M P L E 10
Hartshap Hotels has its own IT department. It has always provided
the IT services for the group and takes for granted that it will be
awarded the contracts in the future.
The board believe that such a shortage of competition has brought
about a lack of interest in efficiency and effectiveness. It has
therefore decided that it will invite both the internal department and
a range of external contractors to bid for future service provision.
The internal IT department will need to consider how best to provide
the quality of service required in the most cost-effective manner. If
they win the tender it will be because they are able to provide better
value for money than they do at present.
54
E X A M P L E 11
In 2008, a state healthcare provider decided to re-commission the
provision of non-urgent patient transport services after ‘a significant
period of seeking, but failing, to achieve the required improvements
in quality, efficiency and information flows42’ from the current in-
house providers.
After the tender process was completed, the in-house team were
again awarded the contract. However to ensure they won the tender,
they had substantially redesigned and modernised the service and
were able to provide additional services and enhanced service level
agreements at far better value for money than before.
4.21 The tender process

In a tender process firms are invited to submit competitive bids to
undertake the work. As part of the development of their
procurement strategy, every organisation should draw up and
communicate the specific tender process to be followed. For many
public bodies the process will be governed in part by national or
international regulations. However there are four key issues that will
need to be addressed by all firms:
▪ Drawing up the contract or service specification
▪ Determining the pricing basis to be used
▪ Estimating the likely cost
▪ Evaluating tenders
42
Willcox, D (2009), Recommissioning Non-Urgent Patient Transport Services (PTS), [Online] Available
http://apps.n-somerset.gov.uk/cairo/docs/doc18867.htm [26th August 2015]
55
4.22 Contract / service specification

Key definition
Contract specification:
A document that provides potential contractors with a statement of
the client’s requirements. When the arrangement is between two
parts of the same organisation it is known as a service level
agreement (SLA). A contract specification provides the information
on which contractors will produce their tender and therefore must be
clear and comprehensive.
In order to allow potential suppliers to submit appropriate tenders,
the organisation will draw up a contract specification for the goods,
work or services it requires. The specification will become the legally
binding document (or service agreement if an in-house provider)
governing the responsibilities and legal liabilities of both the supplier
and the organisation when the contract is awarded.
(It is not possible for two departments within the same organisation
to enter into a legally binding contract unless one of them has been
incorporated as a separate legal entity. In this situation it is
therefore more appropriate to refer to the specification as an
agreement rather than a contract. The term service level agreement
or SLA is sometimes used to indicate that the agreement specifies
precisely what level of service is expected.)
Where the organisation has a large number of requirements it may
be more effective to break the overall procurement contract down
into a number of packages so that smaller contractors can also be
included in the tendering process.
Each specification should include:
▪ The purchaser’s objectives in procuring the goods or services
▪ Details of the provision required including minimum service /

product / input standards: this should be unambiguous and
comprehensive – if a task or item is not included or ill-defined it
may not be delivered.
▪ The pricing basis to be used (see below)
▪ Performance measures: detailing outputs or outcomes (when

commissioning services, targets should be set in collaboration
with service users). Recognition should also be given to any
established accreditation standards that exist. Measures should
56
be consistent with strategic objectives and take account of

current performance levels.
▪ Contract conditions: these provide the legal framework for the

delivery of the service, for example financial penalties where
performance is below prescribed limits and possibly financial
rewards where performance is above expected limits (see gain
sharing below)
▪ Identify any income that may be derived from the consumers of

the service together with the pattern of usage (such as where
commissioning services using a block contract to guarantee a
minimum income with additional income coming direct from
service users)
▪ Guidance to tenderers to ensure that they all prepare their bids

in a comparable manner. It should include
− the level of detail required on the costing of the contract
− the basis that the client will use to evaluate the tenders
(such as a weighted points system) on price, quality and
technical performance criteria.
Ideally a contract team including lawyers, finance staff who can
advise on costing and pricing, and service specialists who
understand the service levels needed should liaise when drawing up
the content of the contract specification.
4.22.1 Pricing basis

The organisation must decide on the most appropriate pricing basis
for the contract to be included in the contract specification.
The three bases for pricing are:
▪ Lump sum contract supported by bills of quantities
▪ Schedule of rates contract
▪ Lump sum contracts

Lump sum contract supported by bills of quantities
These contracts are common in construction projects.
The organisation produces a bill of quantities. This specifies the
specific number needed of each of the items to be supplied. In a
construction contract this may be the number of roof tiles, bags of
cement, standard windows etc. The contractors then price each
57
element within the bill of quantities and the prices are aggregated to
arrive at the total bid price. The contract may specify that any
subsequent variations in physical quantities be priced at these same
rates.
Schedule of rates contracts
This is an ‘open-ended’ contract used when the nature of work is
known but the amount that is required cannot be quantified at the
outset. Indicative quantities may be given to tenderers but do not
form part of the contract. In the absence of an estimate, suppliers
quote unit rates for each of the items required.
This pricing basis may be used:
▪ Where there is considerable uncertainty in the overall demand

for the service, for example where new or revised legislation is
likely to affect the client’s responsibilities, or the number of
school meals needed depends on enrolments for an unfinished
school.
▪ Where the organisation wishes to make internal departments

aware of the cost of a service to encourage efficient use - the
supplier’s unit cost can be recharged to the department’s using
the service
This method can cause problems for suppliers. Uncertainty over
quantities makes it difficult for them to estimate the economies of
scale they will achieve. They may therefore be tempted to produce
higher tender offers to cover themselves against low demand. This
can be avoided by agreeing percentage additions or deductions to
tendered rates depending on the final work volume.
Schedules of rates have been used for vehicle maintenance (e.g. the
price for maintaining specific vehicles per annum); floor cleaning
(price per square metre); catering (price per meal); refuse collection
(price per household) and building maintenance (e.g. the price for
installing a standard door).
Lump sum contracts
This is generally the most suitable pricing basis for service contracts.
The specification details the job to be done or service to be provided.
The tenderer submits a lump sum price, sometimes referred to as a
bulk estimate, for delivery of all the work specified. Outputs (e.g.
calories per meal), or outcomes (e.g. reduced infection rates) are
incorporated into the contract, to ensure quality is maintained. Some
flexibility may be built in to deal with variations in demand.
58
Lump sum contracts have been used for services such as garden
maintenance, catering services and running care homes.
4.22.2 Cost estimates

Having specified the pricing basis to be applied, the organisation will
need to produce a realistic cost estimate for the goods or services to
be provided. The estimate
▪ Allows it to ensure that the quantity of goods or level of services

it is requesting will be affordable within the current budget
▪ Should be used as a benchmark to evaluate the price quoted by

the suppliers in their tenders.
When estimating the cost of service provision, the estimate should
be based on the full cost of providing the service on a commercial
basis, recognising the supplier’s need to build a sufficient profit
margin into the contract.
Where the present provision is in-house, systems should already be
operating with time sheets and material specifications recording the
expenditure incurred. Overhead absorption techniques such as ABC
should also be applied to charge overheads appropriately.
4.22.3 Evaluating the tenders

Once the tenders have been received, and checked for accuracy they
must be evaluated by the organisation and (assuming a satisfactory
offer has been submitted) a supplier appointed. The evaluation
criteria to be used will have been specified during the tender process
and must be strictly applied.
Most public contracting regulations state that the client may accept
the tender on either of two bases:
▪ Lowest price tender, or

▪ Best value tender, considering quality criteria as well as cost.
Lowest price tender
Historically successful contractors were chosen on the basis of cost
alone where the successful contractor is the one that submitted the
lowest tender offer.
If this basis is used the organisation must be aware of:
▪ Price escalation formula
▪ Total costs of ownership
59
▪ Predatory pricing.
Price escalation formula
Since many tenders are for the provision of services over a number
of years it is common to include a price escalation formula to take
account of inflation. Care must be taken to evaluate the impact of
the formula on the overall cost of the contract when comparing bids.
Total costs of ownership
It is essential when comparing costs that the total costs of
ownership (TCO) over the whole period of the contract are taken into
account including:
▪ The total cost of the initial acquisition including administration,

delivery, checking, making ready, setting up of associated
supply chains etc.
▪ Using the service or goods or operating the asset including the

costs of support services, maintenance and repair costs incurred
over its life
▪ Ending the provision or disposing of an asset

Predatory pricing
Often prospective contractors will form a view of the price needed to
win the contract, and will then work backwards to see how they can
fulfil the contract at that price, taking into account labour and
material input and so on.
The organisation should be alert to the risk of predatory pricing
where a very low price is quoted to win the contract. Contractors
may look favourable when evaluated but then cut corners to keep
costs down and protect their margin in line with their original price.
Lowest price is still used for tenders to provide a standard product or
service where there is likely to be little difference in terms of quality
(comparing bids for the provision of photocopy equipment (including
whether to lease or buy) or window cleaning for example).
Best value tender
Using cost alone is not always the best method of choosing between
bids. Whilst price is important, quality is also a key aspect of many
contracts and so tenders are usually evaluated on the basis of which
provides the best value.
This can include consideration of aspects such as quality, price,
technical merit, aesthetic and functional characteristics,
60
environmental characteristics, running costs, cost effectiveness,

after sales service, technical assistance, delivery date and delivery
period and period of completion.
Quality will often be judged not just from the contents of the tender
document but by obtaining references from a contractor’s previous
clients.
A point-scoring system weighting the importance of the different
aspects of the bids is normally used to evaluate a tender. This
scoring system will include cost as one of the factors (often heavily
weighted) but also include a range of performance criteria.
The evaluation of a contract for the provision of vehicles to a local
authority may weigh cost considerations highly because the make
and model, and hence the quality of the vehicle has been specified in
advance by the client. However an evaluation of the contract for the
provision of meals to the elderly in Colswell is likely to rate quality
considerations more highly because there is a greater risk of
variability between the suppliers.
Where a public body chooses to evaluate tenders using the best
value rather than least cost approach it is important that the process
is documented to provide evidence in any later value for money
audit.
4.23 Contract negotiation

Once the successful contractor has been chosen, the contract (or
SLA) must be negotiated and drawn up.
Where the contract has been awarded on the basis of a tender bid,
the price will have been included in the tender and the terms of the
contract will be based on the contract specification against which the
supplier originally tendered. In other situations there is likely to be
greater scope for negotiation over both price and delivery
requirements. However in both cases the final contract will need to
be sufficiently flexible that it can be adapted to cope with unforeseen
events or changing business needs.
It is important that the negotiation process is not seen as an
opportunity to drive a really hard bargain and get the lowest possible
price at any cost. Developing a good relationship with a supplier
involves adopting a collaborative approach and working to ensure
both parties are happy with the final contract details.
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4.23.1 Gain or reward sharing

Where the goods or services provided by a supplier are a key
component in achieving organisational targets, the supplier may be
incentivised to help achieve the targets by the inclusion in the
contract of gain or reward sharing arrangements.
This involves contracting to pay the supplier an additional amount
over the standard contract cost if, as a result of their actions, costs
are saved (or profits earned) or outcomes achieved over a pre-set
minimum.
For such a strategy to be successful the organisation will have to be
willing to share detailed organisational or confidential information
with the supplier. This is essential in order to:
▪ Agree a baseline from which gains or outcomes can be

calculated
▪ Provide the supplier with a sufficient understanding of the

business (or user group) that they can deliver their goods or
services in a way that will improve the organisation’s efficiency
or effectiveness (or improve outcomes for the service users)
▪ Measure and agree the gains achieved.

For an organisation to be willing to share confidential data with
suppliers will require a high level of trust (whether in the competitive
private sector, or the sensitive health and social care public sector).
It will also require a collaborative approach to problem solving.
Public sector defence contracts (where there is little competitive
pressure) often include gain sharing arrangements.
There are a number of benefits of such arrangements which can:
▪ Incentivise the supplier to improve quality of goods or services

delivered
▪ Deliver innovative solutions to improve performance (or

outcomes in a commissioning setting) through supplier
collaboration
▪ Obligate organisations to track savings (or benefits) from

procurement decisions leading to more informed future decision
making
▪ Overcome situations where capital to undertake a project is in

short supply. The contractor may agree to provide the initial
investment themselves, and then be paid out of the gains until
62
the cost is recovered. Any additional gains will then be split

between the supplier and the organisation.
However there are a number of problems with such a system:
▪ If the targets are not set at an appropriate level the supplier

may benefit from ‘easy gains’ and earn a disproportionate sum
▪ The supplier will be focused on maximising its own gains across

a portfolio of clients. It may be unwilling to invest the time and
resources needed to deliver benefits to one specific organisation
if it can find easy gains in another client instead.
▪ As with all target setting, the supplier will be incentivised to

focus on the targets to which the gain sharing relates, perhaps
at the expense of other targets (such as quality of care or
customer satisfaction). To avoid this, a balanced scorecard of
targets may be required.
▪ Suppliers can only deliver savings in areas of the business they

understand. Insufficient information sharing will mean that
significant savings requiring more complex solutions will not be
identified.
▪ The procurement function agreeing the arrangement is unlikely

to own the functional budget from which the savings must be
made. Once the savings have been measured and the gain
share agreed, the budget owners may have already spent the
cash required to pay the supplier.
▪ Long standing collaboration between suppliers and the

organisation produces the best outcomes for the business.
However a need to attribute responsibility for particular gains or
benefits may reduce the willingness to share ideas and work
together.
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4.23.2 Retentions
Another common contractual device used to ensure quality is a
retention clause.
Key definition
Retention clause:
A provision in a contract which allows the purchaser to withhold part
of the contract price until a particular requirement has been satisfied
(such as the completion of a building or the quality control check of
goods supplied).
Such clauses are commonplace in the construction industry. A
retention of say 3% of the final contract price may be withheld, with
half paid over on certified completion and half paid a year later to
provide an incentive for contractors to return to put right any defects
identified in the meantime.
However critics of such clauses complain that funds are often
withheld for spurious reasons, or paid late causing great financial
difficulty to the contractor. It is argued43 that the development of
long-term collaborative supplier relationships should eliminate the
need for such clauses, as the supplier will wish to correct any
problems in order to preserve the relationship and its professional
integrity.
In practice the key to avoiding the need for such clauses is careful
supplier selection from the outset.
4.24 Contract monitoring

Once a contract has been signed and the supplier has begun to
perform the services or deliver the works or goods required, the
organisation will need to monitor the supplier’s performance. The
aim should be to develop and implement a monitoring procedure
that works for both parties and avoids short term adversarial
responses to problems which obstruct the development of solutions.
43
National Specialist Contractors Council (2007) Retentions: Striking out cash retentions London: NSCC
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Key definition
Contract monitoring:
Any planned, ongoing, or periodic activity that measures and
ensures contractor compliance with the terms, conditions, and
requirements of a contract.
It is important to have a formal system in place for monitoring
contracts. The system may be contained in an organisation’s
financial regulations or in the procurement strategy. A contract
monitoring system needs to:
▪ Ensure the contractor is complying with the terms and

conditions of the contract
▪ Prevent non-compliance by identifying and resolving potential

problems in a timely fashion
▪ Identify ways of improving contractor performance
▪ Monitor costs
▪ Ensure progress is made towards the contract’s expected

outcomes
When considering commissioning we discussed two approaches to
dealing with poor performance: the punitive and developmental
approaches.
The same arguments apply here and the developmental approach
would usually be recommended unless the supplier had already
failed to respond positively, in which case a punitive approach may
be unavoidable.
The Chartered Institute of Purchasing and Supply (CIPS),
recommend44 that contract monitoring should be an ongoing and
collaborative process between the organisation and the supplier. It
should consist of:
▪ The setting of joint goals with both parties committed to

achieving the defined targets
44
CIPS (2013) Monitoring the Performance of Suppliers [Online] Available
http://www.cips.org/Documents/Knowledge/Procurement-Topics-and-Skills/9-Supplier-Bid-Tender-
Evaluation/Supplier-Evaluation-and-Appraisal/POP-Monitoring_the_Performance_of_Suppliers.pdf
[27th August 2015]
65
▪ Regular review meeting where both sides work to find ways of

improving performance (obstacles to improvement are just as
likely to be found in the purchasing organisation as in the
supplier’s)
▪ A willingness to be honest about forthcoming problems and so

deal with problems as they arise (whilst they are still relatively
easy to resolve).
CIPS suggests that there are three key aspects to monitoring
supplier performance post-contract:
▪ ‘Gathering factual, and therefore objective, information about

their performance such as lead-times from order, quality
standards being met, pricing compliance and whatever else is
laid out in the contract. This type of information can usually be
obtained from IT systems within the organisation in the form of
management information.
▪ Obtaining the experiences of the customers (for example, in

respect of service, attitude and response rates). This should be
as objective as possible, although in some cases it may,
inevitably, be subjective. One way to collect information on
performance is by individual interview against a defined set of
questions. This can be face-to-face or on the phone but needs
to be interactive so that the interviewer can explore the
background when necessary. Another way is to undertake
customer satisfaction surveys, which can be quite short and
distributed by email.
▪ The supplier's experience of working with the buying

organisation must be considered in the evaluation, as it might
be the case that they are facing unnecessary obstacles or
dealing with difficult people.’
4.24.1 Effective contract monitoring

The components of an effective contract monitoring system are:
▪ Training in contract monitoring for staff responsible
▪ Written policies and procedures to formalise and standardise the

monitoring process
▪ Communicating clear expectations to the contractor including

holding a post-award meeting with staff not involved in the
tender process
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▪ A rolling contract administration plan detailing planned and

completed activities submitted by contractor and approved by
client
▪ Regular supplier meetings to deal with issues as they arise
▪ On-site monitoring visits to confirm actual performance matches

reported performance
▪ Customer satisfaction measurement to assess users’ experience

of the service provided
▪ Contingency plans to be enacted if the contractor defaults
▪ Payments clearly linked to satisfactory performance measures
▪ Clear incentives for good performance (such as sharing in

savings made) and consequences for poor performance (such as
reduced payments)
▪ Facility to review and audit relevant contractor records (such as

payments made and subsequently rebilled to the client)
▪ Dispute resolution procedures
▪ Formal closeout procedures to ensure nothing is overlooked at

completion of the contract
4.25 E-procurement
The final aspect of procurement we will consider is the growing
importance of e-procurement.
E-procurement describes a range of technologies that can be used to
automate both the internal and external processes associated with
strategic sourcing and purchasing: examples are
▪ E-tendering
▪ E-auctions
▪ Purchase cards (p-cards)

E-Procurement enables organisations to automate procurement
activities, including sourcing, ordering and commissioning, receipting
and making payments for the whole spectrum of goods and services
that they purchase.
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4.25.1 E-procurement technologies

The use of e-procurement technologies is growing worldwide in both
the private and public sectors. You should keep up-to-date with
developments and investigate what is happening in your own
organisation. We will look at three technologies currently growing in
popularity:
▪ E-auction: the means by which a supplier can place bids for a

contract via the internet
▪ E-tendering: undertaking tasks such as advertising the

requirement for goods or services, registering suppliers, issuing
and receiving tender documents via the internet, and
automating the evaluation of responses to a tender.
▪ Purchase cards or p-cards: work in a similar way to credit cards

and can be used to purchase goods or services. The transaction
value and type of expenditure can be controlled in advance.
4.25.2 Why E-procurement matters

E-procurement is important both to meet government targets and
because of the direct benefits gained.
Government targets
Targets related both to the use of electronic methods of doing
business and to the speed with which transactions must take place
have made e-business a high priority across the public sector.
Benefits
The benefits that accrue from e-procurement include
▪ Less work (because less staff time is needed as tasks are

automated or eliminated)
▪ Cost and efficiency savings

▪ Better management information
▪ More robust audit trails
▪ Increased compliance with regulations
The National e-Procurement Project (NePP)45 run by and for local
authorities in the UK gives the following list of advantages:
45
http://www.localtgov.org.uk/defaultb6f9.html
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Good procurement practice Advantage of e-procurement

Reducing the number of suppliers Enforces use of approved
to secure more competitive deals suppliers by only allowing orders
with each supplier and reduce to be raised against these
the administration in processing suppliers
invoices, payments etc.
Consolidating orders across E-procurement provides detailed
different departments within the management information about
organisation allows exploitation purchases across the
of economies of scale organisation so that common
needs can be identified.
Improved information about
contract renewal dates allow for
co-ordinated contract
renegotiations
Market analysis to identify those E-tendering advertises all tenders
suppliers who offer the best on-line allowing all potential
value for money suppliers to see the opportunity
Streamlined processes to E-procurement automates the
improve efficiency and purchasing tasks (such as raising
effectiveness a purchase order, matching
orders to invoices) thereby
reducing cost and time taken to
complete the purchasing task
4.25.3 Potential drawbacks of e-procurement

There are drawbacks associated with the e-procurement process:
▪ The major drawback is the cost associated with buying,

installing and operating the software necessary to operate the
process
▪ It can be difficult to persuade staff to use the process when

they are used to dealing with suppliers by phone or e-mail
▪ Potential suppliers may be put off applying because the process

is perceived as too complex; for example, when one civic
council in the UK introduced e-procurement systems it found
that whilst bigger companies had no problems with the process,
small and medium firms found the process difficult. This was
significant because at that time 90% of their supplier base was
made up of smaller companies.
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▪ The lack of personalisation can make it difficult for potential

suppliers to tailor their offer to the specific requirements of the
buyer
▪ Unfamiliarity with the e-process can lead to errors in the orders
▪ Some promised efficiencies fail to materialise because the

software used does not support the full range of client
requirements
4.25.4 Reverse or e-auctions

An e-auction allows an organisation to set up a scheduled event
where companies can bid against each other to win contracts against
a published specification. They are also known as reverse auctions
(in a normal auction buyers compete to obtain something, in a
reverse auction, suppliers compete to provide it).
Buyer and suppliers access the event via the web. They can log in
and out of the event to view and place bids. The event can last from
two hours to a few days. Suppliers bid anonymously against each
other. There is no limit to the number of individual bids.
In order to ensure only suitable suppliers bid, some organisations go
through a pre-selection process and only approved suppliers are able
to join the event.
After the e-auction closes the bids are analysed using pre-set
criteria. Some e- auction systems provide bid evaluation tools and
assessment engines, which automate the evaluation process.
Benefits of using e-auctions:
▪ Elimination of paper and streamlined processes
▪ Short negotiation cycle
▪ Better value for money procurement resulting from increased

competition
▪ Increased transparency of the contract award process

Effort and cost involved in the e-auction process
The main effort is in setting up the auction process. E-auction
service providers can provide assistance as required in:
▪ Setting up the e-auction site (the organisation may choose to

buy e-auction software for regular use, or to buy an individual
event from a third party provider)
70
▪ Preparing detailed specifications
▪ Supporting potential suppliers in understanding and using an e-

auction site
4.25.5 e-tendering
E- tendering allows for the entire tendering process, from
advertising a statement of requirement through to the placing of the
contract to be done electronically, with all relevant documents being
exchanged in an electronic format.
The e-tender process would include the following activities:
▪ Staff can collaborate on-line to create the electronic invitation to

tender (ITT) document
▪ The workflow functionality of the e-tendering system can be

used to route the ITT document to all the parties involved in the
approval process such as finance and legal departments
▪ The ITT is published via the e-tendering system and is available

online for interested suppliers to view. Suppliers would normally
access the e-tendering system to view the ITT via the
organisation’s website
▪ Suppliers respond to the ITT by sending their bids using secure

e-mail to the e-tendering system’s ‘electronic vault’. In-built
security features prohibit access by staff to any of the tender
responses until a specified time
▪ Once the tender deadline has been reached the users of the
system can view the tenders and collaborate on-line to evaluate
the submitted bids. In the case of e-tendering systems, which
include bid evaluation tools, much of the evaluation analysis can
be automated.
▪ The supplier of the winning bid can be automatically notified of

the award via the e-tendering system.
▪ In the case of integrated systems, the award automatically

becomes a commitment in the buyer’s accounts system.
Benefits of e-tendering
▪ Reduced tender cycle-time
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▪ Fast and accurate pre-qualification and evaluation, which

enables the automatic rejection of suppliers that fail to meet the
tender specification
▪ Faster response to questions and points of clarification during

the tender period
▪ Reduction in the labour intensive tasks of receipt, recording and

distribution of tender submissions. Buyers can cut and paste
data from tender documents onto spreadsheets for ease of
comparison.
▪ Reduction of the paper trail on tendering exercises, reducing

costs to both councils and suppliers
▪ Improved audit trail increasing integrity and transparency of the

tendering process
▪ Improved quality of tender specification and supplier response
▪ Provision of quality management information
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Summary
▪ Commissioning is the process of achieving appropriate

outcomes by assessing the needs of people or users in an area,
designing and specifying the services to meet those needs, and
choosing the delivery mechanism to secure an appropriate
service whilst making best use of total available resources.
▪ Stakeholder engagement is the key to successful

commissioning.
▪ The commissioning cycle has four stages – analysis, planning,

securing of services and review.
▪ Analysis involves assessing the needs and wants of service

users and reviewing the current service provision to determine
whether it is accessible, acceptable and effective and whether it
provides value for money. A wide range of stakeholders should
be involved in the process.
▪ During the planning phase, the gap between current provision

and what is needed should be analysed to determine the
commissioning implications and the commissioning strategy.
▪ Service design can be outcome focused, pathways based or

whole system based. Designs should be tested before
implementation.
▪ Services may be secured through a process of market

facilitation, working with suppliers to ensure sufficient provision
in the market. Suppliers will be provided with a market position
statement (MPS) to assist them to develop services.
▪ Commissioners may work to shape the market to encourage

providers or even actively intervene to provide incentives.
▪ The performance of service providers should be measured to

determine how much was done, how well it was done and
whether anyone is actually better off.
▪ A collaborative developmental approach to dealing with poor

performance is usually better than a punitive one.
▪ Procurement is a key business function.
73
▪ Procurement is vulnerable to waste, fraud and corruption and a

procurement policy should ensure transparency, good
management, and prevention of misconduct, accountability and
control.
▪ Procuring sustainably involves taking into account third party

consequences (social, environmental and economic) as well as
cost and quality issues.
▪ A procurement strategy should determine and direct an

organisation’s procurement activities to ensure the long term
supply of the goods and services needed to achieve its strategic
goals.
▪ Analysis of the supply market helps the organisation to

categorise its procurement needs to improve the efficiency and
effectiveness of its procurement process.
▪ Supplier selection should be fair and transparent. Public bodies

usually have to use open procedures to select suppliers unless
very specific criteria apply.
▪ So that bidders understand what is needed, a contract

specification must be drawn up which explains, amongst other
things, the pricing basis to be used.
▪ Tenders should be evaluated against predetermined cost

estimates. Lowest cost may be used but best value is usually
better.
▪ When contracts are negotiated, gain sharing or retentions may

be used to ensure compliance. Compliance must then be
monitored and action taken where performance falls short of
the required standard.
▪ E-procurement is growing in importance and can bring great

benefits.
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Quiz questions
1. Name three ways in which a commissioning organisation might

secure services.
2. Distinguish between needs and demands in the context of a
needs assessment.
3. Name two ways in which stakeholders could be actively involved
in the needs analysis.
4. How can process mapping help with evaluating service
provision?
5. Give two uses of a commissioning strategy
6. What is a block contract?
7. What is the purpose of a market position statement?
8. What are the three types of third-party consequences?
9. What is meant by category management?
10. What is the name given to the contract between two parts of
the same organisation where one agrees to provide a service to
the other?
75
Quiz answers
1. Direct provision, Procurement from external providers (in which

case a procurement process will then be undertaken), Market
facilitation to develop local markets (where there is not
sufficient appropriate service provision currently available).
2. Needs: A judgement that individuals or groups lack something
that they ought to have, or that they have fallen below some
minimum standard. Demands: Users’ wants or requests for
service or support.
3. Engagement through input – providing information through
consultation. Engagement through shared contribution –
involving the users in the analysis of the data collected and the
assessment of future needs.
4. The mapping process should help to identify bottlenecks,
wasted activities, duplication of provision and areas where
service is poor because two parts of the system do not act in a
coordinated way.
5. Communicate the vision to stakeholders Provide clear, long
term goals to provide a focus for future decisions, Link service
development with business cases and investment plans.
6. Where commissioners contract in advance to buy a specified
amount of service provision. Providers then have a guaranteed
minimum income and hence the security needed to invest in the
service.
7. The aim of an MPS is to provide information for those who
provide services in the market to assist them in planning their
business. It should identify current stakeholder perceptions of
the services offered, gaps in current provision, trends in
demand and how provision is envisaged in the future.
8. Social consequences – considering matters such as
inclusiveness, equality, diversity, regeneration and integration.
Environmental consequences – avoiding over-exploitation of
scarce resources and addressing climate change. Economic
consequences – for example; directing investment towards
areas such as developing economies and fair trade providers
and creating jobs in regeneration areas.
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9. The practice of segmenting the main areas of organisational

spend on bought-in goods and services into discrete groups of
products and services according to their function to mirror how
individual marketplaces are organised.
10. A service level agreement (SLA).
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Scenarios
Scenario: Cloud airlines

Cloud Airlines (CA) is the national flag carrier airline of Shanland, a
medium sized European country. Its head office is based in the
capital city of Tadnow. The airline serves Northern Europe, North
Africa and the Mediterranean and has a strong record on safety,
reliability, value for money and good customer care.
The company is largely privately owned, although the state
government still holds 28% of the shares (down from its original
85% after floating much of its holding in 2002).
The company is divided into three wholly owned subsidiaries; Cloud
Airlines Europe (CAE), Cloud Airlines Africa (CAA), Cloud Airlines
Mediterranean (CAM).
To increase profitability, the executive board of CA is planning an
ambitious expansion programme into North America. Their aim is to
be one of the top fifteen transatlantic airlines within the next ten
years. They intend to offer a competitive service, and maximise
revenues by pricing to attract market share from established market
players whilst maintaining their reputation as an excellent provider.
They are aware that to achieve this they will need to focus on quality
and efficiency throughout the development.
To achieve this goal will involve, amongst other things, building a
new transatlantic terminal building at Tadnow airport, increasing
their fleet of aircraft and upscaling their capacity in terms of
bookings, in-flight catering, baggage handling etc. They will also
need to open up at least two commercial bases in the US, probably
in New York and Washington. The business will be run by a new
subsidiary Cloud Airlines US (CAU).
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Tadnow transatlantic terminal

The new terminal building is scheduled to open in 2020 and is
expected to cost in the region of £2.3 billion (i.e. £2 300 million). In
addition to the national Cloud airline, the terminal will be used by a
number of independent airlines and one major customer, the
Songline Alliance, a group of airlines working together to provide
international air transport under one banner.
79
Scenario: Hartshap Hotels Chain
History
The Hartshap Hotels Chain (HHC) opened its first hotel in France in
1964. Over the past fifty years it has expanded across Europe and
now owns 30 hotels in ten countries and employs over 4 000 people.
It has traditionally targeted the lower end of the luxury market,
offering a stylish stay at affordable prices.
Each hotel is run by a designated hotel manager accountable to one
of the four regional directors all of whom sit on the executive board.
The company is run by the executive board based in France, headed
by the new CEO, Jeanette Dupont.
Recent performance
The CEO until last year, Jacques Robert, was a firm believer in hands
off management and under his leadership the chain’s fortunes began
to falter. Over the past decade profits have been falling and market
share has diminished. A dividend has not been paid for the past two
years and after pressure from shareholders the old CEO resigned
and was replaced by Ms Dupont. She has worked with the executive
board to agree a demanding five year plan to revive the company’s
fortunes and return it to profitability.
Current problems
The Hartshap brand is not well known. Traditionally hotel managers
have been encouraged to make their own stamp on the hotels they
run and the different hotels within the chain are not consistent with
each other in terms of style, service or standard of service.
Performance goals were based on budgets submitted by the
managers themselves and were rarely challenged. Many hotels are
dilapidated, service can be poor and the food offering is variable,
dependent on the chef’s preferences, and poorly rated by guests.
The chain’s rating on Tell Me – the holiday review website has fallen
considerably, and Qualhol, the exclusive high end holiday magazine,
no longer features their hotels.
The new strategic aims
The company wishes to reinvent itself as a hotel chain providing ‘a
five star luxury experience offering the best of local culture and the
finest European cuisine’. It hopes to reposition itself as an upmarket
brand and recover profitability. The initial budget estimate for the
plan is £85m of which a significant proportion is to be spent on the
building of a new hotel.
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How the aims will be achieved

The approach to the planned change will include the following:
1. The existing hotels are to be fully refurbished in the new luxury
‘house style’. This should improve margins and increase
customer numbers. The aim is to refurbish the hotels several at
a time but never more than two in the same country at once.
They will be closed, refurbished and relaunched as part of the
new brand image.
2. A new flagship hotel is to be opened in Kravej, a European city
currently developing into a major tourist destination. It is
hoped that the publicity will help to revitalise the Hartshap
brand. The hotel project is expected to cost approximately
£40 million. The planned opening date is May 2018. The
director in charge of the project is Louis Augustin, director of
development who will move to Kravej to oversee the build.
3. The hotel restaurants are to be redesigned and reimagined to
offer a gourmet dining experience in keeping with the luxury
refit. Experienced local chefs will be recruited and encouraged
to devise menus which meet the exacting standards of the
Qualhol restaurant reviewers whilst making the best of local
ingredients.
4. An advertising company has been appointed to launch a new
marketing campaign is to be launched to strengthen the brand
and clearly position the hotel chain at the luxury end of the
market.
5. The marketing campaign will be combined with a new website
which will offer an integrated booking system and a loyalty
scheme although the detailed requirements are not yet clear.
An IT contractor has not yet been selected.
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Scenario: Pawton fire and rescue service

There is no centralised firefighting and rescue provision in the
country of Pawton. Instead there are 46 separate fire and rescue
services each responsible for up to thirty fire stations in their local
area. Some of the services cover large metropolitan areas, others
extensive rural areas whilst others cover a mix of towns, cities and
countryside villages. Each service is accountable to an autonomous
local fire authority. The authority collects funding for the service
from all the councils in the local area and pays it over to the service
to spend as needed.
Each fire and rescue service is responsible for operating its own
control room which accepts and directs emergency calls and
coordinates a response from the fire stations within the local area.
The control rooms have also developed systems for answering calls
on behalf of neighbouring areas and coordinating responses with
them during busy periods.
The processes and systems used vary between individual fire and
rescue services and between control rooms as they have evolved to
meet local needs. Even within one control room there is no standard
agreed approach to responding to emergency calls. Call handlers use
their expertise to process calls, using a range of different methods
depending on the need arising and the other demands currently
being made on the system. Currently local fire and rescue services,
their controlling authorities, and the fire stations within each service
have a good working relationship and are happy with the systems
they use.
However, the government does not directly control the services and
there is currently no way to coordinate a national response to
emergency situations. After several national disasters including
terrorist attacks and widespread flooding following severe storms,
the Pawton government department responsible for supporting fire
and rescue authorities within Pawton has decided to implement a
major reorganisation programme to be started immediately.
The 46 control rooms are to be replaced with a network of nine
purpose-built regional control centres using an integrated national
computer system. A national control framework will be developed
governing the whole country and all 46 local fire and rescue services
will use the new system.
82
The aim of the department is to facilitate an effective national

response to major disasters and in the process:
6. Increase efficiency and ensure faster response times to local
emergency calls
7. Upgrade response and deployment capacity through new
technology
Projects include:
8. Building nine state of the art regional control centres which will
be networked to share information.
9. Developing and building a new IT system to handle incoming
calls and redirect them to the correct fire and rescue service.
The system will incorporate caller location technology, satellite
tracking of vehicles and mobile data terminals in each vehicle to
communicate with firefighters on the ground.
10. Moving the emergency call operations from the existing 46 local
control centres to the new regional control centres.
11. Redesigning ways of working to align with the new technology
and provide coordinated responses including introducing
standardised policies and procedures across all services.
12. Developing and delivering specialist training for all services to
deal with major incidents.
The government minister in charge of the department is very keen
to see the programme implemented and has already made an
announcement to the press about the plans. It is expected to take
five years and the estimated cost of the programme has been
budgeted at £120 million. It is believed that the overall savings in
national fire and rescue could be as much as £86 million.
83
Scenario: Colswell City Council

Colswell is a small city of approximately 225 000 people, although
the population is expected to grow by 9% over the next 15 years
with the largest increase in the over 45 age group. In particular the
over 75 age group is expected to increase by 30% (67 500).
Colswell City Council
The council is run by a city cabinet of elected councillors who take
most of the strategic decisions. The cabinet leader is Sam
Beechwood. He has a reputation for decisiveness and has little time
for people who challenge him. He sets high standards and can be
unsympathetic towards those who make mistakes.
The council is currently divided into five separate directorates each
on a separate floor of the main council building. The offices are
computerised although each directorate has its own separate IT
system. The council is run by an executive team made up of the five
directorate heads and Mick Hartford the CEO.
13. Housing and Adult Social Care
14. Children, Schools and Families
15. Culture and Environment
16. Central Services
17. Chief Executive’s Department
Promotion within the council has traditionally been based on length of
service and evidence of consistent, reliable adherence to duty. Staff
are expected to work within the existing systems, defer to those
above them in the hierarchy and dress formally at all times. Senior
staff are provided with reserved parking places and private offices
and mainly communicate with their teams by email. There is little
communication between the directorates below the executive level
and most decisions have to be authorised by senior management.
Care for older people
Colswell City Council is aware of the growing importance of the
provision of services for older people within the city. Government
statistics show that an ageing population tends to have a higher
prevalence of chronic diseases, physical disabilities, mental health
problems and other medical disorders.
The Housing and Adult Social Care directorate is under increasing
pressure as the numbers of older people increase and the funds
available are squeezed further. Staff are overworked and have little
84
time for individual clients. The cabinet has therefore decided to form
a specific Social Care and Housing for Older People (SCHOP) division
within the Housing and Adult Social Care directorate. It is to be fully
operational by the end of the financial year.
The need to achieve more with less will require innovative solutions
to the problems faced by the division. Its role will be to control the
expenditure budgets for social care and housing for older people and
ensure they are helped to live fulfilling daily lives.
The division will be run by David Elsworth, currently a senior staff
member within the Housing and Adult Social Care directorate. It will
be staffed by a mix of existing directorate staff and new employees
and will need to work in partnership with other parts of the council
as well as other organisations within the city. The intention is to
locate the division in a recently acquired office block next door to the
main council offices.
The budget for the reorganisation is £200 000 and the new division
is to be fully operational by December 2016.
The council strategy for older people (based on the government’s
national health and wellbeing outcomes) is to improve the health of
older people and to reduce the inequalities they experience.
Stated outcomes include:
18. Greater empowerment and independence for older people
19. Greater access to all services and equality of access for older
people
20. Greater social inclusion of older people
One particular area of the strategy concerns the living arrangements
of older people:
21. Older people, including those with disabilities or long term
conditions, or who are frail, should be able to live, as far as
reasonably practicable, independently and at home or in a
homely setting in their community.
22. Older people should retain as much control of their own lives as
possible including in decisions about their care and support.
Living at home
For those who wish to remain in their own homes, the council need
to ensure that there is a wide enough range of support services
available to facilitate their wish. This would include services such as
85
home adaptations, home care visits by medical professionals and

community transport.
One service which is currently provided directly by the council is the
‘meals on wheels’ service. The catering service cooks, packages and
delivers a hot daily meal to each eligible household in the city. In a
bid to save money, Colswell Council is now planning to put the
service up for tender. The in-house service intends to bid for the
work but is aware that it may be awarded to an external provider.
Frailty, ill health and dementia
For older people living in Colswell who are unable to look after
themselves at home as a result of frailty, ill health or dementia, the
council has to ensure that there is an appropriate range of
residential care available in the city to suit their differing needs.
Some may require residential support only, some also need nursing
care and whilst others require specialist dementia care.
Funding
The council provides financial assistance for the elderly residents
requiring a care-home place at a rate dependent on their level of
financial capital. Older people are free to select their own nursing
home from those available in the city and their funding allowance is
paid by the council direct to the provider. If the cost of the home
they choose exceeds the level of assistance provided by the council
they will need to pay the additional costs from their own funds.
Current provision
There a number of care homes in the city, many run and managed
by the council. The council holds a list of the non-council run homes
it has vetted and approved although older people are free to choose
any care home they wish. Of these, some are privately run, some
are council run, some are run by independent not-for-profit
organisations and some are run by specific charities (such as the war
veterans society).
However the current level of provision is insufficient for the growing
numbers of older people in Colswell. A commissioning group has
been set up within the SCHOP division to look at how the home care
needs of the older population can be best met over the coming years.
86
87
Exercise solutions
Exercise Solution 4.1
▪ Members of the SCHOP
▪ Younger people who will be reach old age within the next
decade
▪ Older people in care homes and their families and carers
▪ Older people currently managing in their own homes and their

carers
▪ Doctors, hospitals, social care service providers currently

providing care to those at home and in care homes
▪ Charities with specialist knowledge of the conditions associated

with older people e.g. dementia care
▪ Current local care home providers (staff delivering the care as

well as managers)
▪ National care home providers without a presence in Colswell.
88
Exercise Solution 4.
89
(i) Information needed
▪ Current housing arrangements for city’s over 70s split by

demographic profile including financial status
▪ Predicted increase in each demographic group for which

differences are identified
▪ Views on and preferences for the different types of housing

provided – from living experience to value for money
assessments
▪ Suggestions about alternative options for providing housing

support
▪ Impact of service availability on decisions about whether to stay

in own home and likely behavioural changes as a result of
changes in provision
(ii) Challenges
▪ Ensuring that those with communication difficulties can be

understood / physical disabilities can be present / mental health
issues feel supported etc.
▪ Assuring them that their opinions will be taken into account and
that any criticism will be viewed as constructive
▪ Helping them to understand the range of options that may be

available when seeking their input
▪ Ensuring a representative selection is consulted
89
▪ Current service level agreements / contracts with care home

providers
▪ Current spending levels nationally and locally on care home

provision
▪ Available funding for providing financial support from budgets /

forecasts etc.
▪ Performance indicators on services currently provided
▪ Results of contract monitoring exercises / performance reviews

/ vetting activities
▪ Trends on relevant issues (demographics, health patterns,

changing perceptions etc.)
▪ Solutions implemented by other councils with similar

demographics to determine best practice (in terms of split
between types of providers / types of care offered within homes
/ support services offered to those wishing to stay in their own
homes etc.
▪ Legislation and guidance relating to

1 services which must be provided
2 standards to be applied
3 outputs required
4 outcomes to be achieved etc.
90
91
Your answer46 will depend on the specific conditions in your country
but might include:
▪ Working with current providers of sheltered housing to review

existing housing stock and produce a redevelopment plan
▪ Offer interest free loans on borrowing to fund appropriate

redevelopment
▪ Facilitate capital purchase of suitable land owned by the council

to be used to build suitable properties (such as staggered
repayment)
▪ Disseminate information amongst local architects and

developers about the level of demand and so encourage
independent providers to build suitable property
▪ Work with the city’s planning authority to ensure they

understand what will be required and are minded to approve the
relevant planning applications
46
Based on an example in Institute of Public Care (2014) Commissioning for Health and Social Care
London: Sage Publications
91

The sustainability credentials of the contractor chosen to build the
roads will depend on their record on the third party consequences of
their actions in respect of social, economic and environmental
factors. For example:
Social consequences:
▪ They were equal opportunity employers
▪ All staff were paid a fair wage
▪ Health and safety was given a high priority

Environmental consequences:
▪ Materials used were sourced from responsible suppliers and

where possible low carbon emission products are used as an
alternative to cement
▪ Waste products were disposed of responsibly
▪ A good track record on protecting the environment when

working on roads in open country areas
Economic consequences:
▪ Company makes itself makes procurement decisions which

direct funds towards regeneration areas
▪ Purchases from developing economies are paid for at a fair price

and care is taken to ensure local workers have not been
exploited
92
93
▪ Consolidate suppliers – simplifying processes such as ordering,
billing, delivery scheduling etc.
▪ Improve opportunities for economies of scale and increase

bargaining power with suppliers
▪ Help to develop long-term supplier relationships facilitating

innovation and efficiency
93

Advantages of using a preferred supplier list
▪ Simplifies administration
▪ Greater control over supply relationship
▪ Allows for the building of long term relationships
▪ Avoids reliance on one supplier

Disadvantages of using a preferred supplier list
▪ Smaller firms put off from applying – tendering is an expensive

process but the end result will not necessarily be the award of a
contract but only appointment to the preferred supplier list
▪ It can be inflexible as some one-off needs may be difficult to

meet using existing suppliers – if suppliers can only be used if
they are already on an approved supplier list procurement may
be significantly delayed
▪ A lack of competitive pressure on firms once they have been

appointed can lead over time to poorer quality and higher costs
▪ The list can become set in stone and therefore increasingly out
of touch with the organisation’s needs – it should be regularly
reviewed and updated
94
77 Mansell Street
London E1 8AN
+ 44 (0)20 75435600
Email: studentsupport@cipfa.org
Website: www.cipfa.org

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BUSINESS AND CHANGE MANAGEMENT

Updated December 2021

First published 2016

Copyright © 2020 Chartered Institute of Public Finance and Accountancy

Learning outcomes and content

▪ The meaning of and need for commissioning

▪ The commissioning cycle

▪ The importance of stakeholder engagement

Discuss, evaluate and apply techniques to procure the goods, works

▪ Ensuring integrity in the procurement process

▪ Strategic procurement activities

▪ Tactical procurement activities

4.1 Commissioning change

▪ purchase the services from other providers or

▪ ensure that there is sufficient, appropriate provision in the

4.2 Topic diagram

Meaning Stakeholder Commissioning

Analysis Plan Secure Review

Needs and Service

Commissioning Market Procurement

Need for Market Shaping Market

The arguments for and against outsourcing are discussed in detail in

4.4 The need for commissioning

▪ It has decided to put its meal delivery service out to tender

4.4.1 The meaning of commissioning

▪ Achieving appropriate outcomes – commissioning is focused on

▪ The needs of people or users – commissioning activities are

▪ In an area – commissioning may be undertaken at a range of

▪ Designing and specifying the services – at the start of the

▪ Choosing the delivery mechanism – the organisation charged

▪ Appropriate service – the commissioning role does not stop

4.4.2 When commissioning is used

▪ There is a need for change resulting from:

▪ The services are provided by a complex market (i.e. private,

▪ There is a need for change – the council anticipates a 30%

▪ Housing for this group of service users is delivered by a range

By contrast, a decision to use external contractors to provide a local

▪ There may be a need for change (whether to save money or to

4.4.3 Commissioning organisations

4.5 The commissioning cycle

▪ Analysis – understanding the needs to be addressed and the

▪ Plan – identifying the gaps between the current level of

▪ Secure services – ensuring the services needed are delivered in

▪ Review – monitoring the service delivery provided and

4.6 Stakeholder engagement and consultation

▪ The outcomes to be secured

▪ The services needed to meet users’ needs

▪ The efficiency or effectiveness improvements required.

4.7 Commissioning cycle – the analysis stage

▪ A needs and demands assessment – to identify what is lacking

▪ Service provision review – to assess the standard of current

4.7.1 Needs and demands assessment

▪ Describing those whose needs should be met

▪ Detailing the extent of the need

▪ Clarifying the main factors that contribute to the need

▪ Predicting likely future demand for services.

It is also important to distinguish between needs and demands in

One report by the IPC10 documents user’s views on dementia care. It

▪ Population needs assessment – assumes that the presence of

▪ Surveys of anticipated future need – assumes that people know

▪ Information can be gathered via engagement directly with

▪ Service user profiling – defines need based on current take-up

▪ Analysis of met but unsatisfied demand – redefines need by

− Draw statistical generalisations about the population based