Seminar on Latest Trends in Outsourcing and Innovation by nfj14094

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									Seminar on Latest Trends in
Outsourcing and Innovation
            Outsourcing Review in
         Major Procuring Departments

                Ms Kitty Choi
             Head, Efficiency Unit
               9 August 2006
                                           2



Outline of Presentation


              Background

              Labour exploitation issue

              Outsourcing effectiveness

              Good outsourcing practices

              Way forward
1. Background

2. Labour exploitation issue


3. Outsourcing effectiveness


4. Good outsourcing practices


5. Way forward
                                                         4




Outsourcing Policy




  Use the private sector to achieve value for money in
       delivery of public services where possible
                                                           5



Concerns on Outsourcing

 Wide media coverage of contractor malpractices
 Common concerns on contract preparation and management
 Staffing issues
     Union concerns
     Impact on establishment and promotion
     Contract management skills and efforts
                                                                               6



The Outsourcing Review

Main study objective: to improve outsourcing effectiveness
  To address issues and concerns faced by departments
  To develop solutions/recommendations for participating departments
  To draw wider lessons for dissemination
  To establish objective data on outsourcing
  To help find practical and cost-effective means of enforcing control over
   exploitation of non-skilled workers
                                                                     7



The Outsourcing Review

Participating departments took up about 21% of total value of non-
works contracts in 2004




Outsourced services studied
  Cleansing services
  Security services
  Horticultural maintenance services
  Property management services
  Sports centre management services
1. Background


2. Labour exploitation issue

3. Outsourcing effectiveness


4. Good outsourcing practices


5. Way forward
                                                                                         9



Service-wide Measures

                                    FC No. 3/2004
       FC No. 3/2001
                                    Mandatory requirements on      Standard
       Marking scheme to take
                                    tender assessment              Employment
       account of proposed
                                      - Demerit Point System       Contract
       wages and working hours
                                      - Conviction records




2001                  2002        2004                  2005                2006



                                                                FC No. 4/2006
                                 FC No. 5/2004                  Tightened mandatory
                                 Mandatory wage level           requirements on tender
                                                                assessment
                                                   10



Common Departmental Measures

Procuring departments
  Posting notice on employment conditions
  Interviewing workers
  Checking payroll records
  Deducting payment for wage shortfall
  Setting up complaint / enquiry hotlines
  Central investigation team

Enforcement departments
  Stepped up enforcement by LD, ICAC, MPFA, etc
                                                                                    11



Extent of Problem

Departments under study
                           Distribution of No. of Substantiated Cases
                    50                       (as at 30.6.2006)
                           40        (including cases under appeal)
                    40
                                      31
     No. of cases




                    30                                            27
                                                    21                     20
                    20

                    10

                     0
                         1H, 2004   2H, 2004     1H, 2005     2H, 2005   1H, 2006
                                                                                                              12



Extent of Problem

Convicted summons by Labour Department

                                         No. of convicted summons (all gov't contractors)
                                         (under Employment Ordinance and Employee Compensation Ordinance)

                                 50
      No. of convicted summons




                                                                                       40
                                 40                                    33
                                 30

                                 20                                                                    14

                                 10      3              1
                                  0
                                      2004, 1H     2004, 2H        2005, 1H        2005, 2H        2006, 1H
                                                                       13



Extent of Problem

Service-wide Demerit point statistics (for post-DPS contracts only)
  DPS implemented for over 2 years
  About 3,600 non-works contracts in 2004
  17 demerit points awarded so far (including 5 cases under appeal)
  1 company debarred from tendering in the next 5 years
                                                            14



EU’s Observations – Extent of Problem

 Problem seems under control
 Current measures seem to work
 The media, staff union and public may think differently
                                                                    15



EU’s Observations – Effectiveness of Measures

Existing measures are generally effective except payroll check
  Time consuming but not very effective
  May spot technical errors / irregularities
  Wilful contractors unlikely to submit incriminating records
  Cannot detect wage rebate
  If payroll checks are to be continued
       Adopt a risk management approach to conduct sample checks
       Don’t over-do it
                                                         16



EU’s Observations – Impact of Measures

On workers – better working conditions
  Standard Employment Contract + Mandatory wage level
  Generally higher wages
     Vary among departments
     From no significant change to +33% in wages
                                                                                                    17


EU’s Observations – Impact of Measures

On departments
  Generally raised contract price


                                         Comparison of Unit Contract Price in One Dept.

                                  $52                                    $51
                                  $50
            Unit contract price




                                  $48
                                                                                           +17%
                                  $46
                                                $44                                       for one
                                  $44                                                      dept.
                                  $42
                                  $40
                                        Before implementation    After implementation
                                                                 18

Good Labour Protection Practices Identified


Centralise management information
  Better understanding of extent of problem
  Help formulate appropriate measures
  Timely awareness, speedy response, directorate steer

Well-structured contract and robust tender evaluation
  Attract capable tenderers
  Help select honest and reputable contractors
  Greatly reduce subsequent monitoring and enforcement effort
                                                           19



Good Labour Protection Practices Identified

Raising awareness on employment conditions
  Posting notices on employment conditions in workplace
  Briefing contractors and in-house staff

Partnership with enforcement agencies
  Early detection of problematic cases
  Timely advice on evidence gathering
  Enable conviction of unscrupulous contractors
                                                                   20



Suggested Additional Practices

Responsive complaint system
  Proactive investigation of complaint cases
  Build up confidence in department’s complaint handling system

Wage calculation
  Online computer program for wage calculation
  Prevent unnecessary complaints on wage exploitation

Risk management
  Measures/effort commensurate with the extent of problem
  Focus on bad apples
1. Background


2. Labour exploitation issue


3. Outsourcing effectiveness

4. Good outsourcing practices


5. Way forward
                                                         22



Outsourcing Achievements – FEHD


 Street cleansing services

 Long outsourcing history
 No formal mechanism to gauge public views but
    Past survey
                     Higher cleanliness level achieved
    Staff opinion
 Substantial cost saving achieved
                                                                                                                23



Outsourcing Achievements – HD

 Estate management and maintenance services
                                                       % of very satisfied / satisfied rating

                                                                      23%                  Before outsourcing
                                   Maintenance                                   35%       After outsourcing
                                                                               33%
   Marked improvement in            Cleansing                                                  50%

    service quality                    Security                                    37%
                                                                                                   54%
                                    Estate mgt.                                      39%
                                                                                                      55%

                                                  0%   10%      20%      30%       40%       50%       60%

                                                                Tenant satisfaction level
                                          80%
                                                        Contractor-managed estates
   Increasing trend of tenant                                                                          70.8%
                                          70%
    satisfaction level                                                                                 69.8%
                                          60%
   Drove up service standard of                                                     HD-managed estates
                                          50%
    in-house services
                                          40%
                                                   Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
                                                  2002        2003        2004        2005
                                             24



Outsourcing Achievements – HD


Estate management and maintenance services


Cost saving
  Substantial cost saving achieved
                                                                                                            25



Outsourcing Achievements – GPA

 Property management services

 Reformed outsourcing model in 2001-2002
 Steady increase in customer satisfaction level
 Achieved cost savings

                                                                Customer Satisfaction Level
                                                                                                     95.5
                                         96                                                   95
            % of somewhat satisfied or




                                         94                                      93.5
                                              Baseline              93
                   above rating




                                               survey
                                         92

                                                                    Full implementation of
                                         90   89                   outcome-based contracts

                                         88
                                              2000       2001      2002          2003         2004   2005
                                                              26



Outsourcing Achievements – LCSD

 Cleansing, security and horticultural maintenance services
 Long history of outsourcing
 Significant cost saving achieved



 Sports centre management services

 Outsourced progressively since 2000
 Service quality largely maintained
 Substantial cost saving achieved
                                                             27




Conclusion


         Clear evidence of improved quality of service and
         cost savings




          Competition from contractors has driven up the
          service standard of remaining in-house services
                                                               28


EU’s Observation - Outsourcing Effectiveness

General lack of documented data on outsourcing effectiveness
  Business case documentation
  Cost figures before and after outsourcing
     Service delivery cost
     Contract management cost
  Service levels before and after outsourcing
     User satisfaction levels and views
1. Background


2. Labour exploitation issue


3. Outsourcing effectiveness


4. Good outsourcing practices

5. Way forward
                                                          30



Good Outsourcing Practices


                    Contract preparation
                    • Contract development
                    • Service specifications
                    • Contract structuring
                    • Commercial arrangements


                              Contract management
        Tendering & selection • Relationship management
         • Tender evaluation  • Performance monitoring
                              • Review
                              • others
                                                                                                      31
                                                                      Contract preparation


Contract Development
                                                                        •   Contract development
                                                                        •   Service specifications
                                                                        •   Contract structuring
                                                                        •   Commercial arrangements




Centralised contract development
  A central unit to develop standard contract terms and conditions
  Benefits
     Facilitate development of outsourcing expertise
     More effective and efficient in preparing, processing and refining tenders
     Maintain a consistent approach
                                                                                                32
                                                                Contract preparation


Service Specifications
                                                                  •   Contract development
                                                                  •   Service specifications
                                                                  •   Contract structuring
                                                                  •   Commercial arrangements




Outcome-based specifications
  More outcome focus to encourage innovation and flexibility
  Some input specifications inevitable
  Department A adopts a performance-based approach and achieves the
   following benefits:
      More customer focused
      Both parties focus on ensuring delivery of quality services
      Flexible deployment of resources by contractors
      Reduced contract management effort
                                                                                      33
                                                      Contract preparation


Service Specifications
                                                        •   Contract development
                                                        •   Service specifications
                                                        •   Contract structuring
                                                        •   Commercial arrangements




Appropriate service levels
  Avoid “gold-plated” service level specifications
  Nonetheless, seek continuous improvement
  Avoid under specifications
                                                                                                   34
                                                                   Contract preparation


Contract Structuring
                                                                     •   Contract development
                                                                     •   Service specifications
                                                                     •   Contract structuring
                                                                     •   Commercial arrangements




Bundle small contracts and related services
                 Large number of
                 • Cleansing contracts           4 property mgt. contracts with
     Dept. A     • Security contracts            more comprehensive services
                 • Property mgt. contracts


                                                 Estate mgt. and maintenance
                 • Cleansing contracts           contracts covering cleansing,
     Dept. B                                     security, frontline tenancy mgt.
                 • Security contracts
                                                 and maintenance services

  Benefits
     Enjoy synergies and economies of scale  cost savings, improved service
     Reduced tendering and contract management effort
                                                                                                35
                                                                Contract preparation


Commercial Arrangements
                                                                  •   Contract development
                                                                  •   Service specifications
                                                                  •   Contract structuring
                                                                  •   Commercial arrangements




Encourage good performance
  Link payment with performance level (Department A)
      Min. 95% payment
      96% payment for 82% performance level
      97% payment for 84% performance level ...
      100% payment for >= 90% performance level
  Extend contracts of good performers (Department B)
     Invite contract renewal for performance exceeding pre-set level
     Other departments may consider awarding a longer term contract with
       break clause(s) in between on achievement of performance targets for
       continuation of services
                                                                                                      36
                                                                      Contract preparation


Commercial Arrangements
                                                                        •   Contract development
                                                                        •   Service specifications
                                                                        •   Contract structuring
                                                                        •   Commercial arrangements




Optimal risk allocation
  Allocate risk to the party best able to manage it
  Private sector best at managing operational and life-cycle risks

Mitigating price risk in longer term contracts
  2 departments have contracts with 3-year term + extension option
  Adjust contract price annually according to CCPI movement
  Adjust committed wage level annually by CCPI/NWI movement
  Benefits
     Reduce price risk to both departments and contractors
      more realistic bid price
                                                                              37



Tender Evaluation
                                                        Tendering
                                                        & selection
                                                        • Tender evaluation

 Take due consideration of performance track records
 Balance technical capability and price evaluation
 Provide sufficient information to tenderers
 Enhance transparency in tender evaluation
                                                                                         38



Contract Management
                                                               Contract management
                                                                  •   Relationship management
                                                                  •   Performance monitoring
                                                                  •   Review
                                                                  •   others
Contractor relationship management (Department A)

        Annual tea                    ☺ Appreciate concerns and
        gathering                       expectation of each others
                                      ☺ Major issues be brought to
                                        the direct attention of top
         Tripartite                     management
         meeting                      ☺ Collect views on outsourcing
                                        arrangements
                                      ☺ Identify improvement
                                        opportunities
         Operation
                                      ☺ Timely rectification of
          meeting                       contractual irregularities
                                                                                                  39



Contract Management
                                                                         Contract management
                                                                          •   Relationship management
                                                                          •   Performance monitoring
                                                                          •   Review
                                                                          •   others
Self-reporting of performance
  Department A requires contractors to submit performance reports

Involving service recipients
  Department A: Take account of consumer satisfaction levels in considering
   contract extension
  Department B: tenant satisfaction survey results form part of contractors’
   performance scores
                                                                                            40



Contract Management
                                                                  Contract management
                                                                    •   Relationship management
                                                                    •   Performance monitoring
                                                                    •   Review
                                                                    •   others
Ongoing review (Department A)
  Outsourcing arrangement constantly reviewed by
     Working Group on Contract Management
     Supplies Section, Contracts Unit, Outsourcing Section
  Major improvements made
     Standardisation of core terms and conditions and marking schemes
     Alignment of service specifications
     Bundling of contracts to achieve economies of scale
     Establishment of a document library in Intranet
     Coordinated approach in quest for further outsourcing
                                                                                               41



Contract Management
                                                                      Contract management
                                                                       •   Relationship management
                                                                       •   Performance monitoring
                                                                       •   Review
                                                                       •   others
 Allow sufficient time for contract transition
 Adopt partnership approach and provide sufficient support to contractors
 Focus on monitoring performance
 Adopt risk management approach
 Maintain consistency and transparency in performance assessment
1. Background


2. Labour exploitation issue


3. Outsourcing effectiveness


4. Good outsourcing practices


5. Way forward
                                                                          43



Challenges Ahead

 Rising contract price
 Outcome vs output
 Contract management a new skill to acquire
 How does outsourcing fit into the overall departmental strategic plan
 Outsourcing vs staff commitment
 Tendering criteria
 Handling of surplus staff
 Public perception on outsourcing
                                                      44



What’s Next

 Disseminate good outsourcing practices
 User guide to contract preparation and management
 Outsourcing Survey 2006
 Training on contract preparation and management
 New edition of Outsourcing Guide
The EU stands to help
    Contact us
    Help desk:   2165 7255
    E-mail:      euwm@eu.gov.hk
    Website:     http://www.eu.gov.hk

								
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