There is no question that this Request for Proposals (RFP) spells big trouble.
While the words “public private partnership” are not used in the RFP this is clearly a PPP and the CHR is looking for a “total solution” partner. That means that they are looking for a partner to provide capital financing for the project and to contract services. The contract is to be a long term one.
Specifically the CHR is asking bidders to submit proposals to
- Invest in, implement and manage a state of the art integrated human resources and payroll management system within 24 months of winning the contract. The CHR is planning to award the contract by June 14, 2002.
- Assume risks associated with the financing of the project
- Take over the operations of the Human Resources and payroll functions including all staff
- Make a significant investment in securing a human resources management system and fund all project costs. This includes cost of the new technology. Transform the way services are carried out such that there are greater levels of satisfaction, effectiveness and efficiency.
An important feature of the RFP is that the compensation for the successful bidder will be determined, at least in part, on a performance basis and there will be “gain sharing.” Gain sharing is a calculation of documented operational cost savings and benefits and the private partner will be paid a proportion of that figure. It is up to the private sector bidders to propose the specifics of the gain sharing plan in their proposals.
“Business transformation” is the term used in the RFP to refer to performance improvements on which compensation will be based. It is expected that performance improvements will result from the introduction of new technologies (probably both hardware and software), improvements in the way the work is performed and changes in organizational behaviour. Changes in organizational behaviour could mean anything from changes in employee relations to changes in management style to changes in how various parts of the organization interact with each other.
See the Section on the Ontario Business Transformation Project below for the many shortcomings of the “business transformation” approach.
The RFP asks for bidders to treat the existing CHR employees openly and fairly and that they be given an opportunity to continue with the successful company.
This essentially says that there is no job security for existing employees outside of any provisions the existing collective agreement provides and whatever the Alberta labour Code provides in terms of successor rights. The CHR is not requiring the successful company to hire existing employees nor to keep them in their current areas of employment, although they do ask the bidders to submit their plans for employee transfer.
It is quite likely that the “business transformation” will mean that the work will change substantially and some areas of work will disappear and some new areas of work will be created. Layoffs or loss of staff by attrition will be inevitable if the private partner is to realize enough savings to make a profit.
While there is a requirement in the RFP for bidders to provide information on new salaries, equivalent benefits, training, guaranteed employment periods, etc., there is no guarantee the successful bidder will provide any training or other accommodation to existing employees under a new system.
Technology and Protection of Privacy
The private partner will be expected to invest in new technology for the system. It is expected that the computing environment will be off-site i.e., all computer technology will be housed at the corporation’s facility and not at the CHR. This has implications for the confidentiality of information as per the Freedom of Information and Protection of Privacy Act and the Health Information Act. The private contractor and its employees cannot use any of the information for any purpose other than that for which they have contracted with the CHR. The RFP requires that all bidders demonstrate how they will ensure that information is not misused, sold or released contrary to legislation and that privacy legislation is not contravened.
In point of fact it will be very difficult if not impossible for the private sector to guarantee that the confidentiality of information will neither be compromised nor jeopardized. How will the CHR be able to monitor this requirement? How will the CHR hold the private partner accountable for the protection of information?
While the RFP says that it is preferable for the data to remain in the province of Alberta, there is no requirement to do so. Data could be stored in other provinces or off-shore where security may be not as stringent.
Assumption of Risk Transfer
The RFP is explicit that there must be a transfer of risk from the CHR to the private partner i.e., the private partner will assume risk for financing and for areas of work which it contracts.
All the studies of PPPs carried out by Prof. John Loxley demonstrate that this transfer of risk is more illusory than real. Any risk they accept on the financial investment side is more than covered in their arrangements on the compensation side. Profits are often guaranteed. If something goes wrong e.g., there is a massive problem with the new technology, it is likely that the contract will be re-negotiated or the public sector will be left to sort out the financial problems.
Shared Services: Marketing to other Regional Health Authorities
The CHR is requesting that bidders submit proposals outlining how a shared services arrangement might exist if the new system were marketed and sold to other Regional Health Authorities. This point is important because it indicates that the CHR is gearing up to sell this new arrangement to other Health Authorities and CUPE members in other Regions should not only be prepared but should take an active interest in fighting back against this proposal in the CHR.
There are other issues as well. Who would own the application software and the licences? Where would the proceeds from the sale of the system go? To the contractor? To the CHR? To both? In the end, this process is one where public infrastructure is gradually privatized using existing public infrastructure and resources.
Contracting Out Collective Bargaining and Negotiations
It is interesting to note that collective bargaining and negotiations are listed as one area that that they will consider contracting out. It is listed as optional. This means that a corporation could include it in their proposal and the CHR would consider it. One hesitates to think how the corporation would be compensated on the basis of gain sharing under this proposal – savings from negotiations could be paid to the corporation contracting this work. Concessions from employees could be transferred to the private partner to become profits.
The Ontario Business Transformation Project: A Cautionary Tale
The Ontario Business Transformation case is one with many parallels to the RFP issued by the CHR. It provides many good reasons why the process can become a gigantic boondoogle and a windfall for the private sector.
In 1995-96 the Ontario Ministry of Community and Social Services began a “Business Transformation Project” to transform the existing Family Benefit and General Welfare Assistance programs into a new single-tier system. The Ministry entered into a “Common Purpose Procurement” agreement with Andersen Consulting (now Accenture) to accomplish this task. Under this agreement Andersen Consulting would pay some, or all, of the up front costs in exchange for a share of the cost savings realized.
The result was disastrous and cost more money than it saved. The Ontario government (and Ontario taxpayers) shouldered the cost while Andersen Consulting made off with substantial profits. The case attracted the attention of the Ontario Auditor General who uncovered many irregularities.
Some of these were
- the Ministry had not clearly defined the scope or results from the project
- the Ministry had not considered maximizing its own resources in carrying out the project
- because no desired business results were established, the Ministry could not determine if there was progress in meeting them
- the Ministry could not demonstrate that they had selected the most cost-effective proposal
- the Ministry did not demonstrate any cost/benefit implications or any overall value for money objectives
- it could not provide the basis on which to pay Andersen Consulting a minimum of $180 million out of future savings
- the Ministry agreed to reimburse Andersen Consulting for certain project costs over and above the $180 million fee.
- Andersen shares disproportionately in the cost savings because it’s billing rates were almost six times higher than the rates charged by comparable Ministry staff
- at the time of the audit (1997-98), Andersen’s Consulting rates exceeded the rates quoted in 1995 by 65% on average.
- the Ministry did not charge all of its costs to project expenditures for future recovery from savings
- the Ministry did not require receipts from Andersen Consulting for more than $41.4 million in out-of-pocket expenses.
- the Ministry paid Andersen Consulting $10.3 million to December 1997 and $15.5 million to March 31, 1998. These payments were clearly attributable to Andersen under the terms of the agreement and resulted in Andersen being paid $13.1 million more than its costs to march 31, 1998.
- the project was considerably behind schedule.
The 1998 Auditor General’s report made numerous recommendations to the Ministry. In 2000 the Ontario Auditor General issued a special report on accountability and value for money. The Business Transformation Project was one of the projects examined.
The Auditor General found that while the government had implemented many recommendations, it still did not identify alternative, more cost-effective ways of doing the work. Instead, it simply decided to pursue the arrangement with Andersen. Similarly, the Ministry was still not adding all of its costs to the cost pool even though associated benefits from those costs were added to the benefit side and would be redistributed to Andersen. Andersen has not been penalized even though the project has fallen significantly behind schedule.
As of March 31, 2000 the project cost $146.7 million ($117.4 million from Andersen Consulting and $29.3 million from the Ministry). Benefits from the project totalled $116.2 million so the cost exceeded the benefits by $30.5 million. Payments to Andersen totalled $95.6 million.
The entire project should be classified as massive failure of the Common Purpose Procurement approach to privatizing public services.
Lessons for the CHR
The Ontario Business Transformation Project contains many lessons for the CHR. The most important of these is that PPPs for these types of services simply are too risky. They cost more than they save and there is tremendous potential to lose control of the service and the taxpayers are left picking up the pieces, paying the bills and paying for additional unexpected costs.
The Ontario Business transformation Project corroborates all the other studies we have done on PPPs. They do not save money, they do not improve service, and they endanger public accountability.
Areas of Work to be Contracted Out as per the Calgary Health Region Request for Proposals
- Workforce Planning and Staffing
- Workforce costing and analysis
- Applicant tracking
- Optional - competition process
- Job analysis, evaluation and classification
- Salary market surveys
- Total compensation framework design and planning
- Salary design and planning
- Executive compensation data management
- Organization structure reporting
- Benefits and Pension
- Benefit carriers contract management
- Benefits call centre (new enrolments, staffing changes inquiries)
- Process basic data for benefits admin and statements
- Process payment data for benefits admin and reconciliation
- Benefit plan costing and analysis
- Benefit plan evaluation and design
- Pension administration
- Pension counselling
- Staff Recognition
- Develop, implement and evaluate programs
- Negotiate and manage provider contracts
- Respond to inquiries
- HR Systems
- System revisions, updates and changes
- System-related cost and impact analysis to implement new collective agreements
- Design and produce custom reports
- Design and maintain custom programs and processes
- Data integrity management (audits, error, reports, etc.)
- Employee Relations
- Optional - Collective bargaining and negotiations
- Learning and development
- Compulsory training delivery
- Optional – library services admin and maintenance
- Optional – educational design and production
- Optional – learning management registration function
- Occupational Health and Safety
- Wellness and fitness program delivery (already contracted out)
- Employee Family Assistance program delivery (already contracted out)
- Optional – disability and rehabilitation case management (STD, LTD, sick time)
- Optional – WCB management and administration
- HR Operations
- Optional – Entitlement inquiries
- Process pay
- Manual adjustment calculations
- Maintenance of employee payroll specific information
- Pension administration
- Payroll inquiries
- Payroll reporting and systems development
- Payroll training and education
- Costing analysis
- Optional – time collection method
- Workforce Planning and Staffing