10 considerations

Public service commissioning: a catalyst for change

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Experience with commissioning at a local and international level has revealed 10 essential steps and key learnings.

[1] Tailor the service model to the outcome

Governments can learn from recent best practice examples to create a tailored approach to conceiving, commissioning, contracting, designing, accessing, delivering and managing a service.

Questions to ask are:

  • What do we want to achieve?
  • Who is best placed to achieve these outcomes?
  • How can we ensure they are achieved in the most cost effective manner?

[2] Rethink the service model

It’s often assumed that the start or end of the interaction is within the boundaries of an agency or a program area when in reality there are multiple parties involved.

Using customer journey or pathway mapping exposes these inefficiencies and also allows public service commissioners to conceive the service from the outside in, rather than the traditional, inside out, unlocking new ways to deliver better outcomes.

[3] Understand the demand model

Is demand for services known or unknown and who drives the demand? Is the service mandated by government — as when toll road management is contracted to a single provider — or can the consumer choose the services and providers they can access?

If, as in the case of the NDIS, participants are able to choose their providers, this will require a very different contracting mechanism, as demand will be highly unpredictable.

The government needs to give more open minded consideration as to where demand risk should sit – within or with the service provider.

[4] When demand exceeds affordability, seek new funding models

In many sectors, governments can no longer afford to deliver services to meet total demand. By focusing on developing new approaches to funding and operating services, governments are able to open up opportunities for the public sector, private sector, not for profit organisations and financiers to combine their collective expertise and ideas to create entirely new business models, for example Social Bonds.

[5] Understand the limitations of consumer behaviour

When it comes to public services, informed consumers who react to poor performing providers by shifting to another are the exception, not the norm. Consumers are busy and tend to stick to what they know, especially where choice and information is overwhelming.

Regulators must be more proactive in making markets work properly for consumers by making the price, quality of products and performance of service providers clear and understandable, so consumers can easily compare. This requires conscious effort and proactive market management.

[6] Make markets work

The more mixed public service markets become, the more focus governments and public servants need to place on overall market stewardship, regulation and management. Policy makers also need to be careful to create a sustainable market in the way they fund and incentivise providers, and understand the nature, dynamics and performance of the existing market.

[7] Understand the real costs

While other sectors may deliver some services more cost effectively, when it comes to not-for-profits, it’s hard to establish what the real costs are. This is because not-for-profits attract volunteers and charitable donations, which end up being negotiated into service agreements, thus subsidising service delivery – an inherently unstable and unsustainable situation. Public servants also need to better understand the cost and profit drivers of the for profit sector. Where private sector operators can deliver services at lower cost this is often by leveraging economies of scale and skill, standardisation, lower cost service delivery channels and using alternative employment and workforce arrangements.

These cost advantages can however be eroded by public servants imposing unnecessary constraints, which ultimately results in higher costs.

[8] Use price to drive efficiency

Establishing a consistent efficient price is an essential feature of public service markets to ensure services are equitably and appropriately funded, especially where markets offer widely varying prices to consumers for equivalent services. This is even more important where the end consumer or citizen is going to buy their services directly and would therefore benefit from knowing what the services should typically cost.

Doing this however is not straightforward, especially where funding and pricing have to take into account multiple variables. It is critical that pricing and funding models take account of these variables and do not dis-incentivise providers, or conversely encourage perverse outcomes.

[9] Manage performance and incentives

Simply having multiple providers doesn’t always lead to better results. Failing to manage under-performance can also dis-incentivise better performing service providers and lead to customer and community disillusionment.

To avoid this issue, clear mechanisms for periodic performance reporting and evaluating the performance of providers need to be developed, as well as the payment and incentive structures used to fund them.

[10] Invest in new capabilities and knowledge management

Commissioning requires public servants to shift their thinking and traditional roles and develop new core capabilities. It also requires a pro-active approach to knowledge management and experience based learning to build on the experience of others and create new communities of practice.

Our commissioning experience over the past decade in the UK suggests there are five key capabilities which the public service needs to strengthen:

  • Customer engagement
  • Market stewardship
  • Commercial management
  • Risk management
  • Value management