How can the NHS cut interim rates and maintain quality?

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It’s a tricky topic and the cause of much debate: how does the NHS get better value from its Contractors without simply going the cheapest option? Resident PMO expert, David Walton, takes a look at some of the NHS Procurement challenges and shares some methods from the private sector that have reduced costs whilst adding real value to the organisations in question.

In recent years organisations have realized that they need to improve purchasing to save money and get better value from their suppliers. This has led to an increase in the power and prevalence of procurement professionals.

Procurement teams are often rewarded on how much money they save on contracts. This, in my view, is too narrow a measure as anyone can buy from a cheaper supplier but if that supplier is cheap because they provide poor quality goods or services then this usually costs money rather than saving money.

Most organisations rely on contractors or interim staff to supplement their permanent staff. This is sensible as long as the contractors do not represent too high a percentage of the overall department or organisation. In the NHS, there are large numbers of interim consultants or contractors which represent a significant cost.

To reduce costs, the typical approach for Procurement is to rationalize the supplier base and to reduce overall agency fees. This is a sensible approach but can have unintended consequences.

The NHS has recently announced a cap on agency fees which has reportedly saved £600 million:
www.theguardian.com/society/2016/oct/15/nhs-funding-staff-agencies-600-million-pounds-crackdown

However, this has largely been achieved by the agency retaining its margin and driving down contractor rates. This often has the consequence of driving away the top contractors who know they can achieve their current rates in other sectors. So although the NHS may have saved a headline figure of £ 600 million, it may receive poorer service from its agency workers or contractors. I have also seen this scenario in private sector organisations where ‘good contractors’ refuse to work for an organisation because the rates are too low. The agency margin is usually maintained.

Reduce Cost, Share Pain and Retain Quality of Service

The overall goal of working with Contractors should be to reduce overall costs but maintain, or even improve, the quality of Contractors.

A blanket cap on agency fees can be too simplistic an approach to reduce interim or contractor costs. One of our Private Sector clients uses a different approach to reduce contractor costs and improve quality.

This client insists that all contractors fill in their timesheet system. The timesheet system, which happens to be Bestoutcome’s, PM3time, contains details of the contractor’s role, rate charged by the Contractor to the Agency and the rate charged by the Agency to the Client. Naturally, the agencies are loathe to share this information on margin, but they are required to do so otherwise they are removed from the list of contract agencies that the client can use.

Who Owns the Data?

The Client is not interested in whether the agency requires the contractor to fill in their own timesheet. That data is not owned by the Client whereas the information they have in pm3time is owned by the Client who can then analyse and mine the data. With this data you can see the different rates over time from different agencies for similar roles. You can also see the different margins that the agencies employ.

Using this information you can remove the agencies who are charging higher margins for similar skilled contractors or renegotiate their margin. This will result in a cost reduction for no reduction in the quality of service.

You can also use pm3time to run reports showing a list of the highest paid contractors or consultants and also show how long they have been at the organisation. An example of this standard report from pm3ime is shown below. A contractor or consultant who has been at an organisation for many years should be converted to a permanent resource. Without a timesheet system that flags this up, these long-stay and expensive contractors can slip through the net.

PM3time screenshot showing contractor rates and hours billable

Conclusion

Getting better value for the NHS is really important and if the ‘pain’ is shared equally between the agency and the contractor then you should achieve significant cost savings with no reduction in quality. To achieve this outcome, you need visibility of the data including the margins that are charged by interim agencies. Using a simple, low-cost tool like pm3time will give you the data transparency that you need to reduce cost and maintain quality.

For more information on our work in the NHS, please visit:
http://bestoutcome.com/products/sectors/nhs-pmo-tool/

David Walton
About the author
David Walton

I am David Walton, Programme,Project and Portfolio Management specialist and director of Bestoutcome here in the UK. We make the PMO tools PM3, PM3time and PM3change, the only PMO tools designed by practitioners for practitioners.

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