Pricing, procuring and contracting human services
Last published 17 Aug 2020
An overview of DCJ’s standard practices for engaging service providers to deliver human services that meet the needs of individuals, families and communities in NSW.
DCJ engages service providers to deliver human services across a range of funded programs.
When pricing, procuring and contracting these services, we apply standard practices across most of our programs to ensure that individuals, families and communities receive the services they need, the service system has ongoing capacity and capability, and there is accountability for how funding is used.
The standard practices are aspects of our broader approach to commissioning human services in NSW and include:
- how we price service delivery
- how we procure human services
- how we contract service providers
- our payment process, and
- how we manage performance
These standard practices may not apply to some bespoke contract arrangements such as Corrective Services and the Social Affordable Housing Fund, or they may be applied differently.
How we price service delivery
DCJ, not the market, sets the price for most of its funded programs. This enables a more straightforward, transparent and equitable approach to funding, and:
- avoids service providers proposing to deliver services at lower prices, which may introduce risk to either the quality of their service delivery or viability of their organisations
- reduces the risk of unanticipated factors influencing the cost of services. For example, an increase to wage levels, or changes in government policy settings. In these circumstances, we have the option of increasing the service price or decreasing the volume of services to be delivered to relieve pressure on service providers
What’s more, without the influence of price comparisons, we can focus on the quality of service delivery when evaluating proposals and tenders.
We analyse multiple factors to determine the cost of services. These include expectations of staffing levels, known staffing costs, service level intensity, geographical location and spread, and establishment and operating costs (including rent, utilities, administration, insurance, accounting and legal expenses). We also take into account increases to the cost of delivering services over the term of the contract.
However, in some situations DCJ wants the market to set the price. For example, when:
- developing new and complex programs aimed at delivering innovative service solutions
- the market is not established or known
- service providers are requested to offer assets as part of a service offering.
How we procure services
DCJ is an accredited government procurement agency.
We conduct our procurement activities in line with the NSW Government Procurement Policy Framework and within legislated procurement limits. This means we follow robust processes that:
- ensure our procurement activities deliver best value for money
- operate with probity, transparency and fairness
- and, above all, deliver desirable outcomes for clients and communities.
DCJ uses several procurement methods across its funded programs. The most commonly used methods include::
- open tender – a funding opportunity is advertised and open to any eligible service
- select tender - a limited number of prospective service providers are invited to submit a proposal in response to specified criteria.
- direct negotiation - one prospective service provider is approached
We decide the most efficient method to use given the specific circumstances of the service to be funded, considering:
- the nature and complexity of the services to be procured
- the diversity of client and community needs
- the size of the market; that is, the number of service providers with the capacity and capability to deliver the outcomes being procured
- the number of service providers interested in providing the services
- our knowledge of markets in the applicable geographic locations
- the value of the contract and level of program funding
- the length of the contract’s term.
DCJ is committed to working in partnership with Aboriginal communities, providers and key stakeholders to build an Aboriginal human services sector that is viable and delivers desirable outcomes for Aboriginal children, families, and communities.
We operate in line with the NSW Government’s Aboriginal Procurement Policy which aims to create opportunities for Aboriginal owned businesses and employment opportunities for Aboriginal people.
Our procurement processes prioritise:
- identifying and developing Aboriginal service providers
- what opportunities exist to support employment for Aboriginal people
- whether potential service providers are culturally competent and can meet the needs of Aboriginal clients and communities
- what strengths, needs and opportunities are identified through engagement with Aboriginal clients and communities.
How we contract service providers
DCJ enters into a funding agreement with a service provider following a successful procurement process.
We both sign a contract or other agreement that sets out the terms and conditions of the funding arrangement; and how the contracted amount will be paid, received, managed and acquitted.
DCJ uses funding agreements that are enforceable as contracts, because:
- contracts protect the interests of both parties by clearly stating the obligations of each party
- the contract outlines DCJ payment and service provider reporting requirements which:
- supports clear accountability in line with public expectations about the administration of public money
- provides rigour required for payments in advance
- clearly details service levels and quality requirements.
The type of funding agreement used depends on the value of the contract, its length, the type of service being delivered, the nature of the contracted organisation, and the outcomes to be achieved.
Program specifications form part of the contract
Our funding agreements are supplemented by program guidelines or specifications. These explain the purpose, parameters and deliverables of a funded program, and provide an overview of how the services are to be implemented, so that service providers understand their obligations for:
- service delivery activities
- required outcomes and performance measures
- performance reporting.
The contract requires compliance with the guidelines or specifications, and service providers are assessed against the specified performance measures.
Sometimes, funding is allocated for a specified purpose, project or activity that does not fall within an existing program and is not subject to specific program guidelines or specifications. In these cases, the contract itself includes the required activities and outcomes.
DCJ typically offers three or five year contracts for most of its funded human services programs, because:
- this supports the stability of service provision and better outcomes, allowing providers to engage in longer-term planning and embedding service provision models
- it aligns with NSW Government budget allocations
- it reduces the administrative burden for both us and our service providers.
We apply shorter or longer contract terms:
- where there are one-off, specific initiatives, with outcomes expected to be achieved within a short timeframe; for example, one year
- for trial and pilot programs and services, where outcomes will be reviewed within a shorter specified timeframe
- for complex programs and initiatives, where financial and social outcomes are expected to be achieved over a longer timeframe
- as part of reform implementation, where short-term contracts are entered into, to allow us to work in partnership with service providers to embed new initiatives.
Once a contract ends, the funding ends. If DCJ commits to further funding for a program or initiative, a procurement process and new contracts apply. In some circumstances, a contract may be extended, depending on the specific provisions in the contract.
Our payment process
DCJ pays funds to service providers quarterly in advance for most programs.
We do this because paying in advance:
- gives service providers surety of income within the funding cycle. This is particularly important for smaller organisations who may have tight margins and may be placed under financial pressure by payment in arrears
- costs less for government than it would cost for service providers to support their business cash flow through financing
- is straightforward for DCJ and service providers to administer and monitor.
Sometimes, we do not pay in advance. For example, when:
- there are very specific agreements, with complex commercial arrangements between parties
- funding arrangements are performance-based and a component of funding is paid following achievement of agreed performance targets and/or client outcomes.
How we manage performance
DCJ monitors and evaluate the performance of service providers to ensure contracted services are delivered as agreed, risks to service delivery are managed and public funds are used appropriately.
In line with our Charter for working with contracted service providers, we use a strengths-based approach to performance management. This enables us to work in partnership with service providers to address service delivery issues and risks, strengthen the service system and improve outcomes for clients and communities.
We identify performance monitoring and reporting requirements in the program design process. These are specified in procurement, contract and program specification documents.
Our reporting requirements differ depending on the type and value of services being funded. At a minimum, service providers:
- provide data and/or reports to DCJ that demonstrate they have met agreed targets, deliverables or milestones
- acquit funding they have received, including providing corporate financial statements based on the organisation’s legal status, and an income and expenditure statement for contracts valued above $25,000.
Additionally, some contracts include reward and abatement provisions to drive good performance.