Background to Tendering for NHS Services

1. Background to Tendering for NHS Services Tim Parsons Business Adviser

2. Outline for this evening • Background to tendering – when, why etc • The process involved • What are PCOs looking for? • Pricing your services and understanding costs • Putting together a good case

3. When PCOs tender When practices are sold When practices go private Patient Charge Revenue When dental budget increases (9% increase in 2008/09) Capital budgets Budget has to be spent!

4. Why PCOs will tender Achieve particular outcomes: • Improve oral health for a particular group or within a particular locality • Improve access for a particular group • Use a new form of GDS contract/PDS agreement • Establish a new practice in a particular location

5. Why PCOs will tender Legal/governance reasons: • The NHS is not legally required to put dental services out to tender but • A PCO’s Standing Financial Instructions will have a term that says that medical services above £x should be tendered although the Board/PCO CEO/Chair may override this • Recent EU ruling muddying the waters

6. Why PCOs tender Transparency: • Provide fairness and help protect the PCO from legal action • Sets clear quality criteria • Puts the provision of dental services on a commercial footing

7. Why PCOs will tender Promote competition: • Create a market • Increase value for money • Improve quality by providing a specification and preventing providers that do not reach the minimum quality requirements from tendering Most importantly it is now the norm for PCOs

8. Who is going to tender? • Large corporate bodies with managers whose job is to win new business • Associates wanting to have their own practice • Established commercially focussed practices wanting to expand • New providers, for example not for profit organisations and medical corporate bodies • And the people sitting around you now!

9. NHS tendering process must ensure. • Fair competition and that no potential supplier is disadvantaged by the process • Contract decision is based on evaluation criteria linked to specification requirements • Specification must include all technical and professional requirements • Award notice is placed in the OJEU

10. Restricted tendering • Advertisement for expressions of interest • There may be an information event to explain the process and answer question • Screening against pre-qualification questionnaire to obtain a shortlist • Short listed providers (normally four to eight) given full tender documents and invited to submit a tender • Short-listed providers invited to interview

11. Open tendering • Advertisements appear and providers invited to apply for tender documents • Applicants submit full tenders • Award is made or shortlisting occurs and an interview process is held May be used for awarding capital grants

12. Negotiation • More rarely used • PCO draws up a list of preferred providers using a tendering process • Negotiates contracts with providers who wish to take part, there may be another tendering process if only one contract is to be awarded

13. Components of the tendering process: Example quality criteria • A track record in the provision of primary care dental services under GDS or PDS • Provide evidence of the following: eligibility to hold a GDS contract/PDS agreement and entitlement to carry on a business in the UK • For specialist services, specialist qualifications • A reference from an NHS commissioner, no breach or remedial notices issued • On target with current contracts

14. Components of the tendering process: Example quality criteria (cont’d) More than one dentist within the practice Experience of setting up a brand new dental practice Experience of recruiting, inducting and supporting dentists and dental care professionals Ability to implement the new service within the minimum timescales Clinical governance systems IT

15. Components of the tendering process: Service specification might contain • Amount of UDAs to be provided • Contract value available • Oral health outcomes expected • Clinical processes for example fluoride varnishes, diet advice • Practice location for a new practice • Commencement date • Clinical governance system

16. Components of the tendering process: Service specification might contain (cont’d) Business continuity plan Opening hours Number of patients to be seen Identification of performers Patient involvement and patient satisfaction Ensuring equality and diversity IT

17. Contract that is offered • May not be the standard GDS contract/PDS agreement • May contain specific additional conditions such as access sessions, opening hours from 8am to 18.30pm, provision for efficiency savings • May be fixed term but could be a rolling PDS

18. Components of the tendering process: Evaluation • Panel will evaluate offers according to written criteria that tie in with the specification • Mark scheme may be given • Panel members will be identified and will include a financial, commissioning and public health representation • Economic criteria may include price, quality, delivery performance, risk and overall cost effectiveness

19. Components of the tendering process: Interviews • Where there is restricted tendering short listed providers may be asked to submit a draft proposal • Interviews by the Panel with detailed and possibly difficult questions • May have to make a presentation of 10-15 minutes

20. What are PCOs looking for? • Value for money innovation • Certainty of supply • Good relationships • Evidence based practice • Practice organisation tailored to patient need

21. Final Legal Issues • Freedom of Information Act applies PCO should have a policy on FOIA and tenders • Competition Law and price fixing. Suppliers must not share information about prices and LDCs must not pass on information • Suppliers cannot act together to prevent, restrict or distort competition • TUPE if UDAs are tendered which previously belonged to a practice with employees, these employees may have the right to transfer to the winner of the tendering process under TUPE: take advice from the BDA

22. Pricing your Services

23. Firstly… Be realistic when tendering! Can you: • Deliver UDAs • On time • Whilst making a profit

24. Overheads, Breakeven and Price Setting • The Basic Financial Statements • Overheads and Costs • Fixed and Variable, Direct and Indirect • Breaking Even • The impact of changing costs and overheads • The impact of changing contract values • How to decide what your price is

25. The Basic Financial Statements Rank the following in terms of day to day running of a small business: • Balance Sheet • Cashflow Statement • Profit & Loss Account

26. The Basic Financial Statements And the answer is: • Cashflow Statement • Profit & Loss Account • Balance Sheet

27. Cashflow Statement “A statement that shows the sources and uses of cash for a period” • In short, the statement that shows you whether you have access to real funds and whether you are living within your means

28. Cashflow Statement £ £ Net cash inflows from operating activities 55 Returns on investments and servicing of finance Interest received 1 Interest paid (2) Net cash outflow (1) Taxation Corporation tax paid (4) Net cash outflow (4) Capital expenditure Payments to acquire intangible fixed assets (6) Payments to acquire tangible fixed assets (23) Receipts from sales of tangible fixed assets 4 Net cash outflow (25) Etc., etc.,etc., Increase in cash 25

29. Profit & Loss Account “A financial statement that measures and reports the profit (or loss) the business has generated during a period. It is derived by deducting from the total revenues for a period, the total expenses associated with those revenues” • A tool to help you understand what your earnings are and what it is costing you to generate them. Something you can work with

30. Profit & Loss Account £ £ Turnover 126,000 Less Cost of Sales 68,000 Gross Profit 58,000 Less Distribution Costs 10,000 Administrative Expenses 8,00018,000 40,000 Other operating income 13,000 Operating Profit 53,000 Interest receivable and similar income 4,800 57,800 Less Interest payable and similar charges 7,600 Profit on ordinary activities before taxation 52,200 Less Tax on profit on ordinary activities 17,600 Profit on ordinary activities after taxation 34,600

31. Balance Sheet “A statement of financial position that shows the assets of a business and the claims on those assets” • Shows who has contributed what to the business and how the investments have been distributed – and importantly the value of the business at a given point in time

32. Balance Sheet £ £ £ Fixed Assets Capital Freehold premises 45,000 Opening Balance 50,000 Plant and Machinery 30,000 Add Profit 14,000 Motor Vehicles19,000 64,000 94,000 Less Drawings (4,000) 60,000 Long-Term Liabilities Loan 50,000 Current Assets Current Liabilities Stock-in-trade 23,000 Trade Creditors 37,000 Trade Debtors 18,000 Cash at Bank 12,000 53,000147,000147,000

33. Overheads and Costs • Fixed cost – “A cost that stays the same when changes occur in volumes of activity” • Variable cost – “A cost that varies according to volume of activity” • Direct costs – “Costs that can be identified with specific cost units, to the extent that the cost can be measured in respect of each particular unit of output” • Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output” - OVERHEADS

34. Overheads and Costs • Fixed cost – e.g. Property, Rent • Variable cost – “A cost that varies according to volume of activity” • Direct costs – “Costs that can be identified with specific cost units, to the extent that the cost can be measured in respect of each particular unit of output” • Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output”

35. Overheads and Costs • Fixed cost – e.g. Property Rent • Variable cost – e.g. Electricity, Phone Bills • Direct costs – “Costs that can be identified with specific cost units, to the extent that the cost can be measured in respect of each particular unit of output” • Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output”

36. Overheads and Costs • Fixed cost – e.g. Property Rent • Variable cost – e.g. Electricity / Phone Bills • Direct costs – e.g. Consumable Materials • Indirect costs – “All costs except direct costs, i.e. all those that cannot be measured in respect of each particular unit of output”

37. Overheads and Costs • Fixed cost – e.g. Property Rent • Variable cost – e.g. Electricity / Phone Bills • Direct costs – e.g. Consumable Materials • Indirect costs – e.g. Utilities, Depreciation Charges etc.

38. The Relationship Between Costs and Overheads Fixed costs Variable costs Indirect costs TOTAL OR FULL COST OF A PARTICULAR JOB Direct costs

39. Fixed Costs

40. Variable Costs

41. Incremental Income

42. Break Even Point

43. More Expensive Materials Break Even Point Moves Up Variable Costs Move Up Fixed Costs remain the same

44. New Equipment Cost of Production Moves Up Break Even Point Moves Up Fixed Cost Base Moves Up

45. Fixed Price Contracts

46. Fixed Price Contracts (UDA) Value Increases

47. Fixed Price Contracts (UDA) Value Increases Profit improves Break even point comes earlier

48. Fixed Price Contracts (UDA) Value Decreases

49. Fixed Price Contracts (UDA) Value Decreases Profit reduces Break even point takes longer to achieve

50. How to decide what your price should be • Relating the price to your running costs • Relating the price to your earning expectations • Relating the price to how hard you want to work • Relating the price to how long you want to work • Relating the price to what the market will stand