Risks in public contracts: Surer funding, a framework for improved public services
Based on research by NPC, published by acevo.
The solution: the Surer Funding Framework
NPC and acevo propose a Surer Funding Framework to bring about change.
The Surer Funding Framework provides a structure to improve services based on a series of seven principles.
The principles are accompanied by a process for implementation, centred on the discussion of issues in a 'risk meeting'.
If funders persist with an inappropriate allocation of risk, the Surer Funding Framework proposes a system of incentives to encourage change.
Principles
There are seven Surer Funding Principles that funders should follow to achieve most efficient funding practice.
Three relate to the allocation of risk. These are:
Principle I
The risks to service delivery, and the mechanisms used to distribute those risks, need to be recognised and understood.
Principle II
Risks should be discussed upfront when negotiating funding agreements, recognising that risk has a cost.
Principle III
Risks should be placed with the party best able to manage them, at the lowest cost.
Four relate to ensuring costs of transaction and reporting are appropriate. These are:
Principle IV
Reducing the number of funding bodies the provider has to deal with
Principle V
Increasing efforts to ensure consistency between funders
Principle VI
Increasing flexibility in the procurement process to avoid unnecessary procedure
Principle VII
Ensuring that regulatory procedures are fit for purpose and proportionate
The Surer Funding Framework suggests a process for implementing these principles, centering on the concept of a 'risk meeting' between provider and funder. The meeting is to examine the most effective allocation of risk and which reporting mechanisms best suit the needs of both parties.
Funders who successfully practice these principles as well as full cost recovery could be rewarded with a kitemark.
Incentives
For funders who still fail to allocate risk effectively, Surer Funding Incentives provide financial incentives to encourage better funding.
It offers funders a choice between managing uncertainties more effectively, and paying a 'risk premium'. Funders can either accept the risks they are best placed to manage according to the outcome of the risk meeting, or pay an additional premium to shift them onto providers. The premiums contribute to a risk pool, which would compensate organisations for any losses caused by the risks passed to them.
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