What is Alliance Contracting?

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What is an alliance contract?

An alliance contract is one contract between the owner/financier/commissioner and an alliance of parties who deliver the project or service.

There is a risk share across all parties and collective ownership of opportunities and responsibilites associated with delivery of the project or service. Any ‘gain’ or ‘pain’ is linked with good or poor performance overall and not to the performance of individual parties.

An alliance contract creates a collaborative environment without the need for new organisational forms. By having one alliance contract, all parties are working to the same outcomes and are signed up to the same success measures. There is a strong sense of your problem is my problem, your success is my success.

The distinctions between alliance contracts and traditional contracts are broken down in the diagram below.

How do alliance contracts differ from prime contractor, joint ventures or outcome based contracts?

A prime contractor model means one provider is the contracted party, who the commissioner communicates with, and other providers are subcontractors. In an alliance there is also a single point of communication, with the Alliance Leadership Team, but all members are equally valued and have equal say in significant collective decisions.

An alliance may be similar to an informal joint venture or consortia where no new legal entity is created. A joint venture is often, although not always, provider determined. An alliance contract is commissioner led and the commissioner is part of the alliance and shares in the risk.

An alliance contract is a form of outcome based contract. An alliance approach brings additional elements including proactive relationship management and alignment of values and drivers. This maximises the chance of success; contracts by themselves will not change behaviours and culture.

How do alliance contracts fit with the National Standard Contract?

NHS England are supportive of alliance contracts that sit alongside existing NHS contracts. The NHS England Standard Contract Team are planning to create a template Alliance Agreement

How is sub-contracting managed within an alliance agreement?

In an alliance those contractors that are significant to the achievement of the alliance objectives are usually included as full alliance members. Other providers can be subcontractors to one or more of the alliance members.

Building the necessary trust and relationships is a key challenge. How best might this be done in respect of GPs and non-mainstream service providers?

Building trust is fairly universal in terms of effective methods. Being reliable, being honest, being open, keeping confidences and showing your integrity are typical building blocks. The key to building trust is to live and demonstrate these values in the way we make decisions, the way we communicate and the way we behave all the time.

Different groups such as GPs and non-mainstream providers will have different experiences that make them more or less suspicious of a different way of working. Building trust with them is the same – it starts with you. You have to demonstrate at all times your integrity, honesty and reliability. Trust has to be won as well as given.

Trust is not a ‘nice to have’. It is essential to high performing teams who are responsible for large amounts of public funds and are expected to use them to deliver transformed services. Investment in time to establish new productive relationships is exactly that – an investment for future return.

What are the implications for organisations that could be part of more than one alliance agreement, for example those that cross local authority and CCG boundaries?

There is no reason why organisations can’t or shouldn’t be part of more than one alliance agreement. This would require flexibility of approach on the part of the organisation but so does entering into contracts with more than one commissioner where there are often different requirements in terms of standards, monitoring, reporting and partnership working.

When developing an alliance the parties need to give consideration to the optimum level for the contract and its geographical cover to maximise the benefits and minimise complexity wherever possible. Each organisation then needs to take a view as to which alliances and contracts merit their involvement.

A network of alliances could potentially be very powerful and provide strong cross fertilisation with rapid spread of innovation.

How do incentives and sanctions help alignment?

Incentives and sanctions are usually finalised once all the alliance members are agreed. The gainshare and painshare provides a mechanism to manage some potential misalignments.

For instance, reduction in hospital utilisation is a typical strategic objective for a commissioner but, as this leads to loss of income, it is a fundamental misalignment. Success for the whole will not feel like success for the hospital. It is imperative to address this and find a way that the hospital ‘wins’ from the overall success. This might be by pacing change in a way that allows them to take out fixed and other costs that mean their income and expenditure ratio remains stable. It might be through change of usage of estate or staff. It might be through using the gainshare and painshare to weight the gainshare towards the hospital so it has a ‘soft’ landing as the activity is reduced.

The important point is the collective commitment to finding win:win wherever possible and finding solutions that are acceptable to all.

How is dispute resolution undertaken within an alliance approach?

Alliances are described as No Dispute. In reality there is a simple dispute resolution process – with an emphasis on prevention and early resolution. Anything not resolved by the Alliance Management Team can be escalated to the Alliance Leadership Team. If resolution cannot be achieved by the Alliance Director, the Alliance Management Team or the Alliance Leadership Team then the alliance is dissolved.

The benefit of keeping dispute resolution within the alliance is that it forces all parties to keep a perspective on the dispute (given that dissolution would be a serious step) and to keep people generating creative solutions and discussing them.

There is a provision in an alliance contract for addressing ‘wilful default’. This separates out poor performance despite trying one’s best from deliberate action. In these circumstances the provider demonstrating wilful default can be excluded.

What happens if one of the partners becomes insolvent?

Insolvency is one of the triggers for automatic exclusion from the Alliance. The others are termination of any underlying Service Contract (for example for regulatory registration removal) and wilful default.

The impact of an exclusion on the other members in the alliance would need to be assessed. The remaining members of the Alliance Leadership Team would meet urgently to agree the best course of action: termination, continue without the skills or capacity the provider supplied or seek alternative provider member.

How should a shared performance framework be structured, and how should financial incentives be incorporated?

The alliance performance framework should be based on the strategic objectives set for the alliance by the commissioners.

The financial incentives are embedded within this performance framework and linked to the outcome metrics for each strategic objective. The agreed pain share/gain share sets out the proportion of reward allocated to each party if a performance threshold is achieved. Thresholds along a spectrum from poor to game breaking (outstanding) mean there is no single ‘target’.

Is there an appropriate value of contact that alliance agreements should be used for?

Alliance contracts in other sectors have typically been large (multimillion pound or dollar) contracts with one or more public and private sector ‘owners’ and 2-5 providers.

Enquires about using alliance contracts range from grant funded organisations, local authorities, CCGs and government departments. Contract values range from £100,000 to hundreds of millions.

If the contract is of relatively small value then the commissioner is more likely to want to keep arrangements as simple as possible and may not want to invest too much time in changing governance and building new relationships and trust.

How do local authorities ensure they retain responsibility for their statutory (adult social care) responsibilities within an alliance agreement?

All statutory and mandatory requirements need to be included in the alliance contract/agreement and where there are specific standards or requirements to be met these should be included in the alliance contract/agreement or any supporting service contracts. Local authority statutory responsibilities will need to be worked through to see what is possible and acceptable to delegate and what will need to be retained separately.

How does the alliance approach deal with conflict of interest issues where GPs and local authorities are both commissioner and provider?

Conflicts of interest must be very carefully managed through the whole commissioning process including the establishment and management of alliance contracts.

Once in place, the alliance can accommodate dual roles of the commissioners. Alliance contracts in other sectors often include ‘in house teams’ from the commissioners in the same way that GPs and social care can be viewed as ‘in house teams’. The concept of the dual roles of owner (commissioner) as client as well as owner (commissioner) as alliance participant is well established. Governance arrangements and the contracts describe this clearly.

How long does it take to establish an alliance?

The fastest establishment of an alliance is 9 months. It depends partly on the processes you decide to use (such as a procurement – which can often speed things up due to the discipline required and the deadlines set in advance). It also depends partly on how much work has already been done locally in developing shared objectives and building relationships and trust.

What is Monitor’s position on alliance contracting?

· Monitor is supportive of new ways of contracting where these are compatible with the Procurement, Patient Choice and Competition Regulations and will deliver better outcomes for patients.

· Monitor does not have a preference for particular contracting models or a view on which models are likely to be best for patients. The Substantive Guidance document The Procurement, Patient Choice and Competition Regulations: guidance and hypothetical case scenarios published Dec 2013 includes “contracting an alliance of providers” as one of the innovations that Clinical Commissioning Groups may wish to consider [see page 34].

· Commissioners should use the framework of the Regulations to decide what approach is likely to achieve the best outcome for their local population. The Substantive Guidance provides advice on this. Commissioners should ensure their rationale is available.

· Commissioners and providers need to make sure that whatever contracting models they use, patient choice is protected where required. This is important where a referring party is part of the alliance. For example, patients requiring an elective referral should be offered choice for their first outpatient appointment for consultant-led care.

· Transparency between members is a core principle of an alliance. However, if data is likely to be commercially sensitive the commissioner should collect the data from each provider individually rather than share it between all the providers.

· Commissioners and providers should be careful to make sure that any collaboration between providers that belong to an alliance for a particular service does not make it easier for them to coordinate how they deliver other services, where this would reduce the incentives they have to improve those other services to attract patients.

· If the commercial framework for the alliance means moving away from tariff then this must follow the rules for Local Payment Variations.

Are we mature enough as a sector? Do we have strong enough leadership?

We need mature approaches to business relations and great leadership whatever contracting method is used. People are already starting to use risk sharing approaches and whole system incentives.

Can a pooled budget arrangement work with an alliance contract?

Yes a pooled budget arrangement is the usual way to finance an alliance contract. There is an agreed financial envelope for an alliance contract which includes the cost of providing the services and the pre-agreed gain share element.

Is a lead provider model possible within an alliance to avoid too many parties being involved?

A lead provider model is not an alliance approach. An alliance is a partnership of equals where all parties have the same level of influence in the decision making process and no one party is judging the performance of another and allocating rewards or penalties.

However, one of the parties to the alliance may be a group of similar providers. This is common with GPs or with smaller, local third sector organisations. In these situations we say that those groups must be represented by a ‘single voice’ at the Alliance Leadership and Management Teams and it is for them to decide how to achieve this. Where the ‘single voice’ is not a legal entity (eg. not a partnership, formal joint venture, special purpose vehicle for a consortium, etc) then there will be multiple signatories to the alliance contract even though there is a collective representation.

Alignment of partners’ goals and outcomes is central to the concept of alliance contracting. How is this achieved in practice?

The starting point is the commissioners’ set of strategic objectives or outcomes, developed with wide engagement with those they are buying services for. This gives a strong mandate.

In addition, the commissioners’ values or principles are important elements. Public sector commissioners have a duty to promote social value through the Public Services (Social Value) Act 2012 so this will need to be considered in choosing providers who are aligned.

If a procurement exercise is to be undertaken, it must include criteria and processes that test the providers’ alignment with those objectives, outcomes and values.

What are the providers’ business drivers? Do they align with your values and objectives? Can you do business with this organisation?

If the alliance is being put together with existing providers as the decision has been made that they are the most capable of achieving your objectives, then you still need to check alignment. As with building trust, be honest about alignment and, even more so, the misalignments.

There is interesting research into alignment in health alliances which highlights key features of alliances which have managed to align effectively: leadership credibility and stability; trust; and proactive approaches to communicating as vital for success.

How do alliance models deal with risk, especially overspends?

Alliance models put in place a risk management process in the same way other organisational arrangements do to ensure all risks are identified, scored, monitored and mitigated. Financial risk and its impact on the alliance members is a key risk and the scenarios of overspend need to be identified early on with a plan in place. Open book accounting will help clarify where pressures are coming from.

If previous experience has highlighted weaknesses in the system (failing to resolve overspends satisfactorily) then this provides an ideal opportunity to consider what would a satisfactory way of resolving overspends look like to all partners, to describe this in as much detail as possible and construct a process to follow if and when this problem arises again.

The no blame culture is important. If any of the performance against the outcomes is off track (including the cost one) the first question should be ‘how do we fix this?’ Second question is ‘what can we learn from this?’ Time spent on identification of blame, raising, recording and handling disputes is wasted time.

What happens when one partner is failing?

The starting point in alliances is to give each member the benefit of the doubt and any ‘failure’ will be a collective one. This is described as ‘Your success is my success; your problem is my problem’. The experience from New Zealand’s health alliance contract is that the first question asked when there is a problem ‘How can we help?’. See page 19 of the King’s Fund report on Canterbury’s integrated care case study.

Of course, there is a provision in an alliance contract for addressing ‘wilful default’. This separates out poor performance despite trying one’s best from deliberate action. In these circumstances the provider demonstrating wilful default can be excluded.

What core outcome metrics should we be looking to build into an alliance agreement?

This depends on what you are seeking to achieve, the strategic objectives and time period. The gainshare and painshare should be designed to provide fair reward for effort and to drive the behaviours you wish to see.

An overall principle is to keep it simple. A small number of core outcomes and measures is far better than many measures that are peripheral to the main aims and purpose of the services.

There should be simplicity in the measures and thresholds, avoiding the arguments over 94.49% versus 94.51%. Outcomes used to trigger large gainshare payments in multimillion dollar contracts in other sectors are surprisingly unsophisticated. It is about everyone aligned to the spirit of the outcomes and why they have been chosen.

A second principle is to have a blend of outcomes and measures and ensure their interdependency so that there is no incentive to sacrifice performance in one to achieve better performance in another.

Should performance payments be made to a lead organisation within the alliance, for them to distribute among the providers involved?

Payment processes should be designed to suit the local landscape of providers. If it makes sense locally to nominate one provider as the “paying agent” for all or some of the others and everyone agrees this is the best solution then that can be arranged. Alternatively commissioners can pay each provider directly according to instructions from the Alliance Leadership Team.

Over what period should an alliance agreement focus?

The length of the contract should depend on the commissioners’ strategic objectives and the outcome metrics it is hoping to see delivered through the contract.

A shorter term contract presents higher risk (of losing the contract in the shorter term) to providers and so forces them to load up the costs of any investment they have to make in buildings and equipment necessary to deliver the services over the shorter period. If one of your objectives is to secure better value for money and to see fixed costs being taken out of your local health and social care economy, then a longer term contract provides the security necessary to enable providers to do that by investing in new technology and changing their staff establishment.

For example, if acute trust reconfiguration is one of the strategic objectives then a longer term (five or seven years) is advisable to provide the acute trust with the timescale necessary to enact the necessary changes of gradually closing buildings and redeploying staff whilst new buildings and skill development takes place in community settings.

Alliance contracts tend to be longer term and more strategic because it is recognised that achieving strategic change across organisations requires long term partnership working and alliance contracts are designed to support exactly that.

An alliance that is developed to deliver strategic objectives which have been assessed by commissioners as necessary for their local communities is more likely to withstand national policy and political changes as well as reduced funding.

How do alliance agreements fit with the personalisation agenda?

Where personalisation is a priority, this should be one of the shared strategic objectives which is then expressed in performance metrics within the performance framework. We have experience of building an increased use of personal budgets as a key result area.

Alliance contracts have greater flexibility and evidence shows innovation and quality are improved more quickly through this contractual framework, personalisation should benefit from these features.

What issues does alliance contracting raise around the requirement for open book accounting?

Open book accounting is a core principle for an alliance contract. Transparency about financial matters is pivotal to being trusted and having trust in others. Regular review of finances against target is a key component of driving value for money. However, it is important to recognise competition law and that there may be financial information that should not be shared between providers. They may lay themselves open to charges of price fixing or other advantages that contravene the law. Clauses and provisions are included in the alliance contracts we have used that address these.

Has anywhere progressed this sufficiently to demonstrate it really works?

An innovation, by definition, is new. Lambeth have pioneered this approach around mental health in this country. The methodology is well established in other sectors and in other countries. There are hundreds of project alliances that have or are taking place. They have, in the main, delivered outstanding results. There are a smaller number of service alliances, the most well- known ones in health being in New Zealand. Accountable care organisations in USA are very similar to alliance contracts – with multiple parties jointly responsible, with aligned incentives and sharing risks. These provide evidence that the mix of elements that make up alliance contracting do create innovation and achieve the desired outcomes.

Information kindly provided by lhalliances.org.uk

  • 15th January 2016
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