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Supply management: opportunities for a new landscape in children's commissioning post crisis

Jenny Coles, the new President of the Association of Directors of Children’s Services, has warned of “huge spikes in demand across the children’s social care spectrum” as a result of the Coronavirus outbreak. If this forecast turns out to be true it will have a huge impact on a children’s services sector already in financial crisis before the virus struck. There may be little or no capacity for additional funding for local authorities and further forms of austerity cannot be ruled out.

What does the commissioning of placements look like currently?

Spending by local authorities on the 45% of residential and fostering placements that are commissioned from the independent sector now exceeds £2bn per annum.

Over the last two decades a variety of commissioning and procurement approaches have emerged. Almost every Dynamic Purchasing Vehicle, regional framework, or tiered preferred provider system that operates in the sector is, in effect, a variation of a controlled spot market purchasing system. Providers registered to these systems are not guaranteed revenue from them and there is an increasing trend of providers opting out of these arrangements altogether, with little visible impact.

At times when demand was more limited, commissioners could control price levels to some extent. However, now that demand has increased above the ability or willingness of the supply side to grow to meet that demand (and procurement tools offering little or no incentive to providers to make the investments needed to grow capacity), then increasingly placements are purchased in an open spot market where price rises by independent providers are unconstrained by procurement systems. In residential care in particular around half of all placements are bought outside of commissioned frameworks. Notably only 2% of external residential placements are on a fixed or block contract basis.

What does the supply of placements look like?

As demand has outstripped supply provider organisations have been able to match more placements to their service offerings and thereby achieved operational efficiencies from higher occupancy and utilisation levels, alongside being able to increase prices. In our February 2020 study for the LGA Profit making and risk in independent children’s social care placement providers Revolution Consulting describes aspects of the provider-side that result from this current state of the sector:

  • More dominant large-scale national providers driving further consolidation
  • Involvement of private equity and stock market investors bringing models of increased levels of debt and financial gearing risk
  • Higher profit levels than in previous historical studies
  • Above average returns for investors and owners that are a clear indication of market imbalance in favour of supply side providers

What should local authorities be doing now to manage supply?

Financial constraints will likely engage elected members and senior leadership of councils as a matter of high priority. This is the opportunity to move away from “doing more of the same” into a more effective re-analysis and re-design.

This will involve social work, education, health and commissioning colleagues but will also require new approaches to commercial, legal and risk arrangements and a new set of market monitoring and influencing skills. This is a big agenda, covering all four of the following major areas:

  1. Analysis and forecasting
  2. Strategy and policy
  3. Commissioner-provider relations
  4. Commissioning partnerships

Analysis and forecasting involves detailed data analysis, consideration of existing child assessment and outcome evidence tools, strategic mapping of supply and development of forecasts of future demand. Strategy and policy: challenging and reframing of intentions including role of in house services and creative use of capital budgets. Redesign of processes and re-engagement with supply to understand the complexities of risk are part of transforming commissioner-provider relations. Commissioning partnerships involve relationship-based approaches, regional approaches and co-ordination and monitoring across the sector.

There is insightful learning from some projects around the country that will be relevant to bring to bear on councils’ redesign processes (see below) but there is also recognition of the complexity of the task. For example, intelligent use of existing data about needs, demand, placements, spending patterns and partnerships will be essential.

Examples of new approaches

The Commissioning Alliance (CA) is the ex-West London Alliance and provides a range of tools and services for local authority commissioning. There is a recognition that the amount of procurement going out on behalf of individual or groups of local authorities to individual providers generates complexity and cost in the market that ultimately comes back to the local authority.

Sir Martin Narey’s 2016 reportResidential Care in England” highlighted the Cross Regional Residential Project. Six local authorities aggregate demand to de-risk commitments through sharing. An offer of guaranteed income across a multiple-year contract to providers brought pricing to levels materially lower than that in spot markets.

Lancashire County Council and five private sector agencies are piloting a project to offer specialist fostering placements to prepare children with complex needs for mainstream fostering. The focus is on children with more complex needs for whom a suitable fostering placement was not available when needed and who were therefore placed unnecessarily into residential settings. Eight out of twelve successful re-placements are estimated to have saved £750,000.

Keith Moultrie, Emeritus Professor
Keith Moultrie, Emeritus Professor

Contact Keith for more information

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