sally.readshaw@act.gov.au

This Policy Paper sets out a new approach to the funding relationship between the

ACT Government and the ACT community sector, based on the spirit of The Compact. It builds on the useful aspects of the service purchasing arrangements introduced from 1996, and proposes reforms aimed to enhance the effectiveness of service provision, and the viability of the community sector.

The choice of the term "Working Together" is more than symbolic:

1. The Compact between the community sector and ACT Government sets out the broader principles for the relationship. These point to a stronger interface between the parties than was envisaged when service purchasing was first introduced. It is time for service purchasing to catch up to the vision set out in The Compact.
2. The Government recognises that service purchasing arrangements have been particularly focused on the selection of providers and establishment of contracts. Greater attention needs to be given to the other aspects of the funding relationship; policy development and planning, and contract management. Evidence from interstate and overseas increasingly points to the critical links between these elements, if the mutual goal of addressing community need is to be achieved.

Given the scope of the proposed reforms, they will need to be phased in over a year or more, with detailed consultation with the community sector on implementation. However the ACT Government recognises that clarity about funding is required in the short-term, as most contracts are due to expire on 30 June 2003. Accordingly, a systematic way forward is proposed for the lead up to the next financial year, and beyond.

This Policy Paper will be the subject of consultation with the community sector and trade unions in April and May 2003.

This policy approach aims to ensure that the ACT Government is better able to:

1. allocate resources on the basis of identified need;
2. work with the community sector and consumers to develop the most appropriate services and service mix;
3. fund services with clear and consistent agreements on outcomes, outputs and quality;
4. contribute to the long-term viability of the community sector; and
5. contribute to positive and sustainable relationships with – and within - community sector organisations.

By 30 June 2003:

1. Funding Plans could be developed for bundles of contracts on a sub-sector basis (eg youth services, alcohol and drug services, disability services), using consistent cross-government criteria, enabling 3 year service agreements.
2. Where it is not possible to develop Funding Plans within the next few months, individual service agreements will be reviewed for renewal for up to one year, using consistent performance-based criteria.
3. Application will be made to the ACT Government Procurement Board for the establishment of a cross-government Approved Purchasing Unit for Human Services, to enhance the skills in this area and ensure a more consistent approach.
4. A circular, providing clear guidance on processes relating to the funding of services through the community sector, is also intended to be issued.

By 30 June 2004:

1. Consumers and community organisations will be routinely involved in the policy development and planning which will inform Funding Plans.
2. Contestability will be applied in clearly specified and limited circumstances (as above).
3. Three year service agreements will be the norm, where Budget appropriations and service performance allow for these commitments.
4. Quality will be a primary consideration in funding decisions, service delivery, and performance monitoring. An implementation plan for Raising the Standard will be in place.
5. There will be much greater consistency and transparency in how Government contract managers handle the funding relationship.
6. Service agreement specifications will be simpler and more consistent.
7. Performance monitoring will be more useful to all parties, and regularly fed back in to the policy/planning process.
8. The standard form contract/service agreement will be reviewed for potential simplification, in consultation with the community sector.
9. Government accountability to the community sector will be enhanced, eg through Guidelines for Contract/Service Agreement Managers.
10. A joint community-government monitoring mechanism will be in place to assist with monitoring of the implementation of this Policy.

To work towards the achievement of the objectives and the specific changes stated above, fundamental principles will be applied across government. These are based in part on

The Compact:

1. Optimal funding arrangements depend on community needs being accurately determined and longer term planning arrangements being in place.
2. Consumer outcomes are paramount, including joint commitment to improve consumer input to policy, needs assessment and planning, and evaluation.
3. Implementation occurs within a common ACT Government policy and administrative framework.
4. Government support for community sector development and sustainability.
5. Focus on quality in all aspects of the funding relationship.
6. Communication is open, regular, and documented.
7. Clarity, consistency and proportionality in service agreement/contracts and service agreement/contract management.
8. Relevant and well targeted performance reporting.
9. Data from performance reporting is shared.
10. Compliance costs are kept to a minimum.
11. Government provides a clear position on costs and pricing.
12. Transparent decision-making and administrative processes.
13. Clear and balanced accountability in the funding relationship.

The ACT Procurement Principles also apply:

1. value for money,
2. open and effective competition,
3. probity and ethical behaviour,
4. environmental sustainability,
5. local industry development, and
6. management of risk.

Community services worth around $65m p.a are purchased by government, and are overwhelmingly provided by the non-government sector. A smaller but significant range of activity is funded through various grant programs. Examples include the Community Foundation, Healthpact, and various programs in arts, sports and environment.

The distinction between the sorts of activities funded through grants as opposed to service purchasing has not been clear to date, and is not absolute. The aim should be that the purpose of the funding determines the mechanisms for funding.

For instance the UK Funding Code of Good Practice distinguishes broadly between "strategic" funding (generally for ongoing service provision, and similar to purchased services), and "project" funding, which is usually time-limited and focused on a specific deliverable (similar to most grant programs).

A grant is legally enforceable to the extent that the recipient has to fulfil certain conditions to receive or retain it. However these conditions will generally be less rigorous than for a purchased service.

This Policy Paper does not propose any short-term changes affecting which activities and services are funded through particular funding mechanisms. The goal will be to ensure that there is a transparent process in place for every funding arrangement, regardless of the mechanism. Decisions on which mechanism to use will be in accordance with the above principles of clarity, consistency and proportionality.

Once the final policy is in place, there will be full consultation and reasonable notice before any proposed changes are made which may affect the method of funding for grant recipients.

This policy approach is about properly and consistently implementing many of the measures from the 1997 Service Purchasing Review.

The previous policy did not make clear the limits of contestability for community services on a whole-of-government basis, but left it to individual departments to separately determine. As indicated in Attachment B, decisions about what to fund should be well informed by planning. This has not always occurred. As this issue is of particular concern to funded services in the lead up to the 2003/04 financial year, the next section addresses the way forward.

"Funding Plans" would be developed on a sub-sector basis (eg Home and Community Care services) and would be essentially the same as the procurement plans under the Approved Purchasing Unit (APU) Guideline 2002. To date, procurement plans have not been widely taken up in community sector funding, but offer great potential to provide:

1. a systematic link between sub-sector policy/planning and individual service specification, and
2. a sector-wide or "bundling" approach to procurement, which could justify not having to put forward a separate procurement proposal to an APU for each service over $50,000.

This mechanism would be useful where government agencies are purchasing a number of services of a similar nature concurrently from the community sector. A "market analysis" would be undertaken involving a review of the sub-sector (eg disability services, aged care services), based on policy and planning information.

The Government has a range of policy development and strategic planning processes underway, and in some cases recently completed. These will identify priority needs and service gaps, which will inform program objectives. In turn, this provides guidance for new or revised funding, or confirms existing arrangements as optimal.

A decision not to seek Expressions of Interest or tenders could result if the following criteria apply to a Funding Plan:

1. consumers will be at risk of experiencing interruptions to service delivery, or a change in the ethos which characterises existing providers;
2. collaboration among existing providers is critical for consumer outcomes
3. contractual performance has been achieved and is delivering value for money;
4. the "market" is of insufficient size or too specialized to warrant seeking new entrants;
5. the amount of money involved is small;
6. transaction costs of a competitive process outweigh any advantages;
7. such other criterion as is relevant to the particular proposal, for example, where accreditation is required in the provision of services;
8. where there is a high level authorisation, such as by virtue of a Ministerial decision to fund particular organisations;
9. where the risk associated with the provision of services is low or moderate.

Funding Plans would document consideration of the purchase of human services from non-government organisations against the above criteria, as well as in accordance with applicable procurement principles. For example, it would be essential to ensure probity and ethical behaviour and to have regard to the management of risks identified in relation to the services which are the subject of a Funding Plan.

Following this process is likely to mean that open tendering only needs to be used in clearly limited and predictable circumstances.

Approval of a Funding Plan by an APU (and where applicable, by the Procurement Board) would allow individual services to be provided with multi-year funding (generally three years), subject to annual reviews of performance, against criteria set out in service agreements. A Funding Plan would not only aid purchasing decisions, but assist with consistent performance monitoring and input back into the policy/planning cycle.

Currently, APUs are established for each department. The establishment of a specialist cross-government human services APU, either as a separate entity, or with representatives from existing agency APUs, would assist in developing both the necessary expertise and a consistent approach. The establishment of such a body would need to be in accordance with the APU Guideline. Consideration would be given to seeking consultation with the community sector in the work of such an APU.

Where any new or expanded services are to be funded within the sub-sector (or existing funds become available), a separate Funding Plan would normally need to be developed, with an expression of interest (EOI) and/or tender process deployed. This will maintain transparency in decision-making for uncommitted funds, and allow opportunities for potential new providers.

Where a pre-qualified panel of providers has been developed, new funds may be directed towards one or several members of the panel without going through a further competitive process.

Most contract management areas across government will not have the capacity to undertake the development of Funding Plans in the short term. In some cases, this is simply because there has been no recent policy/planning process to allow a well-informed sub-sector review. Realistically, this would need to be done by May 2003, to enable a clear decision to be given to providers and their staff and consumers about funding continuity into the new financial year.

So where a Funding Plan is not possible before May 2003, it is proposed that currently funded providers will be granted an extended or renewed contract for a maximum of one year on a case-by-case basis following assessment against consistently-applied criteria; ie the provider is:

1. satisfactorily meeting all performance measures and other contractual requirements;
2. likely to be able to maintain performance for the next twelve months;
3. actively engaged in quality improvement; and
4. continuing to meet priority needs.

It would be anticipated that all services that required this case-by-case assessment would be subject to sub-sector Funding Plans by April 2004, in preparation for the 2004/05 financial year.

If all these criteria are not met, and there are other potential providers, an EOI or tender process would be implemented.

An application to the ACT Government Procurement Board for a Human Services APU is intended as is the issue of a circular, including guidance as to how the above criteria are to be specifically applied. For instance, the quality improvement criterion could be referenced to the relevant national standards, or the recently introduced generic standards for non-government services, "Raising the Standard".

The point has often been made that this task can be particularly difficult in human services, given the often highly personalised nature of the "product". A number of submissions to the Quinlan Committee in 1999 suggested that this may have been made even more complex by the way in which the setting of service specifications and performance measures has varied between - and even within - ACT Government departments.

The 1997 Strategic Framework put an emphasis on individual government agencies negotiating individual contract arrangements with providers. However this was not complemented by the development of cross-government approaches to underpin negotiations, eg by providing some guidance on minimising compliance costs and maximising useful information for all parties.

Quantitative outputs have generally been the main way services have been specified. If well selected, these can provide an important measure. However, they often say little about how well a service is delivered. Purchasing and measuring quantitative outputs (eg no. of clients seen, or occasions of service provided) gives something that is readily measurable, but says little about the effectiveness of the service or consumer outcomes, especially as there is often significant variation in the needs of consumers.

Current contract performance is generally monitored through:

1. 6 monthly or annual reporting against outputs;
2. statistical returns on client data;
3. quarterly or six monthly financial reports, with audited reports at the end of the financial year; and
4. in some cases, information about quality improvement processes.

There is a lot of variation as to how these requirements are applied. This can be due to agreements with the Commonwealth, but this only partially explains the lack of consistency across the ACT.

Service specification will generally be in terms of outcomes, outputs and quality improvement expectations. There will be a greater emphasis on the latter than has occurred to date, but the emphasis will be on encouraging quality improvement, rather than "compliance". The outcomes will be directly related to the goals of the program that funds the service, and should be taken from the relevant Funding Plan.

Service Agreement outputs should be:

1. relevant to the broader program outcomes sought;
2. practical in terms of the service to be provided;
3. readily measurable, without unreasonable compliance costs;
4. effective in minimising risks to the funder and consumers; and
5. as far as possible, standardised across government for like services.

Performance monitoring regimes require similar reforms:

1. Content, frequency and format of performance information should be streamlined to the key matters. The question contract/service agreement managers need to ask themselves is "why do I need this information, and how will the Government use it?"
2. Reporting should reflect the risks associated with particular contracts (eg lesser requirements for lower value contracts). This reflects the ‘proportionality’ principle. Within this ‘horses for courses’ approach, reporting templates should be standardised.
3. As far as possible, monitoring and reporting should make as much use as possible of the information that NGOs develop for their own accountability purposes, or already have in place due to Commonwealth/ACT arrangements.
4. There needs to be regular feedback to providers on the information submitted to the funder.

There are a number of other ways that unnecessary compliance costs can be reduced:

1. Ensuring that a 3 year service agreement term is the usual position, to avoid the annual renegotiation cycle where possible.
2. Development of protocols for early consultation with other government agencies who also have service agreements with the same organisations (as well as aiding a consistent approach, this also helps avoid the risk of unplanned gaps or overlaps in service provision).
3. Consistently applied criteria as to when "long form" and "short form" service agreements are used (eg according to value and risk).

Information collected from service providers has generally been limited to assessing individual service performance. An additional use for the information is as input to the next policy/planning cycle. There could be regular analysis of aggregated, de-identified information from individual services within a funding program or sector, to indicate trends in consumer needs.

Some government contract managers areas have commenced this on an ad-hoc basis, and are beginning to feed back this information to the sector to assist with their service planning. Another useful approach is to seek service comments about perceived emerging trends, beyond the specifics of the service activity reported. Such comments may be considered anecdotal or one-off when coming from a single service, but there is potential to see possible shifts in service provision if this information is being routinely provided across a program.

The service agreement is the mechanism for government and community organisations to meet the needs of service delivery to consumers. So it is incumbent on both parties to:

• ensure there is full understanding and agreement to the specifications, outputs and performance monitoring, and
• have the ability to negotiate in good faith about any areas of difference. This requires actively consulting and providing information that may assist the other party to approach issues in an informed manner; ie a "no surprises" approach which will help build trust.

Government agencies need to have a strong understanding of the nature of the organisations they contract with. More specifically, because service agreement management is core business for line departments, they need to ensure they have in place:

• an organisational culture committed to high quality funding/service agreement management; and
• sound systems related to, and integrated with, funding/service agreement management; eg planning, quality assurance, procurement, contract negotiation and drafting, monitoring and evaluation, and relationship management.

All this suggests that government officers negotiating and managing service agreements must have a level of skill and knowledge to understand the broader context of the sector, and its policy environment, and be effectively linked to other staff who have strong skills in related areas.

A relatively strong training and development effort was put in place when procurement guidelines were first introduced, to enable government staff to receive training, including accreditation to certain levels of purchasing skill. A similar system needs to be considered for funding/service agreement management for community services.

This could include the development of Standards for Service Agreement Management, to assist with achieving consistency and quality in this area. Given the importance of the relationship between contact/service agreement managers and community services, it would be useful for the sector to be involved in developing and monitoring of such standards.

The standard contract has assisted in contract management across government. However there appears to be some areas of misunderstanding of some of the provisions, and the degree of scope available for parties to agree on their own approaches (eg the "Special Conditions" in Schedule 6). This partly relates to the lack of a systematic approach to contract manager training, and has resulted in a tendency to ‘blame the contract’ for alleged inflexibility.

Service Agreement managers need to better understand the service agreements they are managing and communicate more effectively with organisations providing services. Some of this is simply about sharing good practice examples. But it is also about improving the basic understanding of how documentation will be used, which will be a priority for training.

There may also be scope for streamlining the format, particularly the Schedules, which both allow and require careful negotiation.

There has been much work in other jurisdictions recently to develop simple contract or service agreement formats, and it would be timely to review what works elsewhere. A process of involving contract/service agreement managers and NGOs in such a review would help engender shared ownership and understanding of the document, and assist it to be used as an enabling document rather than being seen as a constraint.

Quality is a key consideration in service delivery, funding decisions, and community sector development:

1. All organisations (including government agencies) should be using systemic self-assessment and management processes directed to service improvement, whether or not they have a contractual relationship with a "purchaser".
2. In so far as quality relates to service funding, it is not just about inserting an appropriate clause into the contract; it should also should inform policy development and planning, service specification, pricing, selecting organisations as providers (through whatever process), and reviewing performance.
3. The Compact includes a government undertaking to "support the sustainability and long-term capacity of the community sector." (p.11)

A major development in the past few years that potentially underpins these areas was the development of generic quality standards.

A range of work was undertaken from 1998 on quality improvement in community services, which resulted in the late 2002 launch of Raising the Standard. This is a set of generic quality improvement standards and associated self-assessment tools for the community sector. The sector was heavily involved in the development of Raising the Standard, and this partnership approach was a strong demonstration of The Compact in action.

This project was underpinned by broadly agreed principles; that standards:

1. are concerned with quality and good practice and as such are aspirational rather than minimum contract requirements;
2. should be comprehensive and cover matters relating to consumer outcomes, service delivery and organisational management;
3. are of little value unless accompanied by a process that puts them to work as part of internal management of organizations; and
4. should be used as a guide to service improvement and a basis for assessing quality (internally and externally).

Development of Raising the Standard was always intended to be followed up by an implementation phase, and review. However apart from some initial training in 2002, the process for these phases has not been determined. Some community organisations are already using Raising the Standard, and they have been incorporated into some contracts, on an ad hoc basis.

The Government has accepted the RPR Consulting recommendation that while standards are mainly about quality improvement through self-assessment, "it is reasonable that organisations receiving public funds be required to demonstrate and understanding and commitment to quality improvement processes in their management and service delivery practices." The important distinction was made that this was about encouraging and measuring quality improvement, not imposing compliance with fixed standards; ie "a tool, not a test".

Several contract managers and their NGO counterparts have negotiated clauses under Schedule 2 item 4 Performance Standards – generally on a sub-sector basis - such as "The organisation will provide a report demonstrating progress on implementing Raising the Standard [or the appropriate agreed National Standards, eg HACC, Disability, Mental Health]". There are currently no protocols for how such reports are used, or how feedback on quality improvement is provided to organisations.

Prominent issues such as the Gallop Inquiry into Disability Services 2002 have put a stronger spotlight on quality assurance. Better information about quality improvement is also essential for sound funding decisions. Its absence reduces the scope to make informed value-for-money assessments when purchasing, and by default puts too much focus on price alone.

These issues will need to be addressed systematically, to ensure that the work in developing Raising the Standard, and the broader Quality Framework, is not dissipated, or at best applied inconsistently. An implementation plan on quality improvement will be developed by June 2004 covering at least these elements:

1. Facilitating the widespread use of Raising the Standard, and the various standards applying to human services sectors.
2. Training on the practical application of quality improvement principles and standards, with consideration to joint training between government and sector.
3. Promulgation of good practice, particular concerning governance, performance monitoring, and consumer participation and feedback.
4. Consideration of the role of external evaluation.

The Compact’s Principles for Working Together include several which refer to joint accountability:

• Taking responsibility in the relationship and being accountable for the process and outcomes.
• Consumer and community participation in planning, policy development and other decision making processes.
• Innovation and continuous improvement in community and government processes and in the planning and delivery of services.

The reference to consumer participation is critical. The concentration to date on the contract has partially obscured a focus on those who are not formally a party to any agreement; service recipients and users.

There are also specific government undertakings in The Compact to:

• Strive for high standards of management and accountability in the public sector, and
• Encourage and expand opportunities for joint work on policy review and development and planning.

The community sector and consumers have often been critical of the performance monitoring and accountability imposed on non-government service providers, and noted that there have been only limited avenues to monitor and give feedback on government’s performance as planner and funder.

Implementation of many of the reforms proposed in this Policy Paper will increase transparency and consistency in government funding practice. However more explicit accountability mechanisms are also required:

1. Funding Plans will be publicly available documents.
2. Guidelines for Service Agreement Managers will be produced, which will set clear benchmarks to assess government performance.
3. Specific opportunities will be provided for input and feedback on whether the funding relationship is being applied to achieve optimum outcomes for consumers and services.
4. Consideration will be given to developing consumer participation policies for specific sub-sectors, with an emphasis on input to policy development and planning.

Both the Government and the community sector are entitled to be informed of any concerns the other has about the funding relationship, reflecting the same principles that should apply at individual service agreement level.

Senior level groups with government and community membership were established to oversee implementation of the service purchasing reforms from 1997 – 1999. This was a useful mechanism, but participants have suggested that the focus was largely on implementation of reforms (eg the standard contract, and the quality framework), with insufficient attention to monitoring the effectiveness of these changes, or the skills required to follow through.

The Joint Community Government Reference Group – established as a result of The Compact – is the obvious body to monitor the broad implementation and effectiveness of this Policy. This is more likely to be effective - and seen as such – if the deliberations of the body are open to wider scrutiny and participation, and routinely published. A key milestone for the body could be the oversight of a major evaluation of the Policy, say in three years.

Nevertheless it is important to recognise that Government agencies would remain ultimately responsible for Funding Plans and individual Service Agreements on behalf of the broader ACT community.

The Policy Paper moves away from the philosophy of purchaser/provider to more of a partnership approach with the community sector. This is reflected in the title of the Policy Paper - From Purchaser/Provider to Partnerships - Working Together to Maximise Outcomes.

Accordingly, the Policy Paper reflects the principles in The Compact [Statement of Partnership between the Community Sector and ACT Government], while remaining within the ACT Government Procurement Framework. This reflects recent policy shifts in most other jurisdictions, as well as New Zealand, Canada and the UK.

Many of the proposed reforms involve standardizing the way line agencies approach the funding relationship, as far as practical; eg moving to three year contracts as the norm, common output specification and performance measures for like services, and establishing a cross-government Approved Procurement Unit for community/human services. These measures would assist in reducing transaction costs for both community sector and government.

A centrepiece of the policy approach is the widespread adoption of "Funding Plans", which would allow bundling of contracts on a sub-sector basis (eg all youth services, disability services, HACC services etc.) for procurement purposes. They would also provide a systematic link between broad policy directions and planning information, and specific funding decisions, by specifying the optimal mix of service types to meet needs. Similar mechanisms are now in place and working well in other jurisdictions that have gone through recent NGO funding reforms, eg NT and Victoria.

The framework for Funding Plans already exists in the ACT, through the Procurement Plan template developed by the Procurement Board. The Service Purchasing Working Group has commenced work with Procurement Board staff to design a user-friendly version for use with community services. It is intended that this would be promulgated through a Procurement Circular.

Community organisations have often expressed concerns about compliance costs related to the nature and frequency of performance reporting, particularly where it is not clear how government agencies use the information. The approach proposed would result in performance reporting which is as far as possible standardized, more clearly proportional to risk and value, and useful to both parties. Information will be used not just for assessing individual service performance, but aggregated to help identify needs and fed back into the planning/funding cycle.

The Policy Paper notes the need for clearer accountabilities from government to both community organisations and the consumers of their services. This includes more systematic participation in policy development, aggregated performance information to be regularly fed back, greater transparency in how government manages the funding relationship (eg through the production of Guidelines for Contract Managers), and oversight of the Policy’s implementation through the Joint Community-Government Reference Group.

Recent inquiries into service delivery in the disability and mental health sectors have highlighted the need for a stronger focus on quality. Better information about quality is also critical for sound funding decisions. To date, price has often been the default criterion, where information about value was lacking. Much developmental work has been undertaken in the last few years, including the launch of the generic standards package for community services – Raising the Standard – in late 2002.

Several human services areas have national standards, however there remains a strong need to improve the understanding and practice on quality service delivery. To ensure this work is advanced, the Policy Paper proposes an implementation plan on quality improvement, and enhanced training for government and community sector.