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Seminar on Latest Trends in Outsourcing and Innovation

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Ms Kitty Choi. Head, Efficiency Unit. 9 August 2006. 2. Outline of Presentation. Background ... Use the private sector to achieve value for money in delivery ... – PowerPoint PPT presentation

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Title: Seminar on Latest Trends in Outsourcing and Innovation


1
Seminar on Latest Trends in Outsourcing and
Innovation
  • Outsourcing Review in
  • Major Procuring Departments
  • Ms Kitty Choi
  • Head, Efficiency Unit
  • 9 August 2006

2
Outline of Presentation
  • Background
  • Labour exploitation issue
  • Outsourcing effectiveness
  • Good outsourcing practices
  • Way forward

3
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4
Outsourcing Policy
Use the private sector to achieve value for money
in delivery of public services where possible
5
Concerns on Outsourcing
  • Wide media coverage of contractor malpractices
  • Common concerns on contract preparation and
    management
  • Staffing issues
  • Union concerns
  • Impact on establishment and promotion
  • Contract management skills and efforts

6
The Outsourcing Review
  • Main study objective to improve outsourcing
    effectiveness
  • To address issues and concerns faced by
    departments
  • To develop solutions/recommendations for
    participating departments
  • To draw wider lessons for dissemination
  • To establish objective data on outsourcing
  • To help find practical and cost-effective means
    of enforcing control over exploitation of
    non-skilled workers

7
The Outsourcing Review
  • Participating departments took up about 21 of
    total value of non-works contracts in 2004
  • Outsourced services studied
  • Cleansing services
  • Security services
  • Horticultural maintenance services
  • Property management services
  • Sports centre management services

8
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9
Service-wide Measures
  • FC No. 3/2004
  • Mandatory requirements on tender assessment
  • Demerit Point System
  • Conviction records

FC No. 3/2001 Marking scheme to take account of
proposed wages and working hours
Standard Employment Contract
  • FC No. 5/2004
  • Mandatory wage level
  • FC No. 4/2006
  • Tightened mandatory requirements on tender
    assessment

10
Common Departmental Measures
  • Procuring departments
  • Posting notice on employment conditions
  • Interviewing workers
  • Checking payroll records
  • Deducting payment for wage shortfall
  • Setting up complaint / enquiry hotlines
  • Central investigation team
  • Enforcement departments
  • Stepped up enforcement by LD, ICAC, MPFA, etc

11
Extent of Problem
  • Departments under study

12
Extent of Problem
  • Convicted summons by Labour Department

13
Extent of Problem
  • Service-wide Demerit point statistics (for
    post-DPS contracts only)
  • DPS implemented for over 2 years
  • About 3,600 non-works contracts in 2004
  • 17 demerit points awarded so far (including 5
    cases under appeal)
  • 1 company debarred from tendering in the next 5
    years

14
EUs Observations Extent of Problem
  • Problem seems under control
  • Current measures seem to work
  • The media, staff union and public may think
    differently

15
EUs Observations Effectiveness of Measures
  • Existing measures are generally effective except
    payroll check
  • Time consuming but not very effective
  • May spot technical errors / irregularities
  • Wilful contractors unlikely to submit
    incriminating records
  • Cannot detect wage rebate
  • If payroll checks are to be continued
  • Adopt a risk management approach to conduct
    sample checks
  • Dont over-do it

16
EUs Observations Impact of Measures
  • On workers better working conditions
  • Standard Employment Contract Mandatory wage
    level
  • Generally higher wages
  • Vary among departments
  • From no significant change to 33 in wages

17
EUs Observations Impact of Measures
  • On departments
  • Generally raised contract price

17 for one dept.
18
Good Labour Protection Practices Identified
  • Centralise management information
  • Better understanding of extent of problem
  • Help formulate appropriate measures
  • Timely awareness, speedy response, directorate
    steer
  • Well-structured contract and robust tender
    evaluation
  • Attract capable tenderers
  • Help select honest and reputable contractors
  • Greatly reduce subsequent monitoring and
    enforcement effort

19
Good Labour Protection Practices Identified
  • Raising awareness on employment conditions
  • Posting notices on employment conditions in
    workplace
  • Briefing contractors and in-house staff
  • Partnership with enforcement agencies
  • Early detection of problematic cases
  • Timely advice on evidence gathering
  • Enable conviction of unscrupulous contractors

20
Suggested Additional Practices
  • Responsive complaint system
  • Proactive investigation of complaint cases
  • Build up confidence in departments complaint
    handling system
  • Wage calculation
  • Online computer program for wage calculation
  • Prevent unnecessary complaints on wage
    exploitation
  • Risk management
  • Measures/effort commensurate with the extent of
    problem
  • Focus on bad apples

21
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22
Outsourcing Achievements FEHD
Street cleansing services
  • Long outsourcing history
  • No formal mechanism to gauge public views but
  • Past survey
  • Staff opinion
  • Substantial cost saving achieved

Higher cleanliness level achieved
23
Outsourcing Achievements HD
Estate management and maintenance services
  • Marked improvement in service quality
  • Increasing trend of tenant satisfaction level
  • Drove up service standard of in-house services

24
Outsourcing Achievements HD
Estate management and maintenance services
  • Cost saving
  • Substantial cost saving achieved

25
Outsourcing Achievements GPA
Property management services
  • Reformed outsourcing model in 2001-2002
  • Steady increase in customer satisfaction level
  • Achieved cost savings

26
Outsourcing Achievements LCSD
Cleansing, security and horticultural maintenance
services
Sports centre management services
  • Long history of outsourcing
  • Significant cost saving achieved
  • Outsourced progressively since 2000
  • Service quality largely maintained
  • Substantial cost saving achieved

27
Conclusion
Clear evidence of improved quality of service and
cost savings
Competition from contractors has driven up the
service standard of remaining in-house services
28
EUs Observation - Outsourcing Effectiveness
  • General lack of documented data on outsourcing
    effectiveness
  • Business case documentation
  • Cost figures before and after outsourcing
  • Service delivery cost
  • Contract management cost
  • Service levels before and after outsourcing
  • User satisfaction levels and views

29
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30
Good Outsourcing Practices
Contract preparation
  • Contract development
  • Service specifications
  • Contract structuring
  • Commercial arrangements

Contract management
  • Relationship management
  • Performance monitoring
  • Review
  • others

Tendering selection
  • Tender evaluation

31
Contract Development
  • Centralised contract development
  • A central unit to develop standard contract terms
    and conditions
  • Benefits
  • Facilitate development of outsourcing expertise
  • More effective and efficient in preparing,
    processing and refining tenders
  • Maintain a consistent approach

32
Service Specifications
  • Outcome-based specifications
  • More outcome focus to encourage innovation and
    flexibility
  • Some input specifications inevitable
  • Department A adopts a performance-based approach
    and achieves the following benefits
  • More customer focused
  • Both parties focus on ensuring delivery of
    quality services
  • Flexible deployment of resources by contractors
  • Reduced contract management effort

33
Service Specifications
  • Appropriate service levels
  • Avoid gold-plated service level specifications
  • Nonetheless, seek continuous improvement
  • Avoid under specifications

34
Contract Structuring
  • Bundle small contracts and related services
  • Benefits
  • Enjoy synergies and economies of scale ? cost
    savings, improved service
  • Reduced tendering and contract management effort

Dept. A
  • Large number of
  • Cleansing contracts
  • Security contracts
  • Property mgt. contracts

4 property mgt. contracts with more comprehensive
services
Estate mgt. and maintenance contracts covering
cleansing, security, frontline tenancy mgt. and
maintenance services
Dept. B
  • Cleansing contracts
  • Security contracts

35
Commercial Arrangements
  • Encourage good performance
  • Link payment with performance level (Department
    A)
  • Min. 95 payment
  • 96 payment for 82 performance level
  • 97 payment for 84 performance level ...
  • 100 payment for gt 90 performance level
  • Extend contracts of good performers (Department
    B)
  • Invite contract renewal for performance exceeding
    pre-set level
  • Other departments may consider awarding a longer
    term contract with break clause(s) in between on
    achievement of performance targets for
    continuation of services

36
Commercial Arrangements
  • Optimal risk allocation
  • Allocate risk to the party best able to manage it
  • Private sector best at managing operational and
    life-cycle risks
  • Mitigating price risk in longer term contracts
  • 2 departments have contracts with 3-year term
    extension option
  • Adjust contract price annually according to CCPI
    movement
  • Adjust committed wage level annually by CCPI/NWI
    movement
  • Benefits
  • Reduce price risk to both departments and
    contractors
  • ? more realistic bid price

37
Tender Evaluation
  • Take due consideration of performance track
    records
  • Balance technical capability and price evaluation
  • Provide sufficient information to tenderers
  • Enhance transparency in tender evaluation

38
Contract Management
  • Contractor relationship management (Department A)
  • Appreciate concerns and expectation of each
    others
  • Major issues be brought to the direct attention
    of top management
  • Collect views on outsourcing arrangements
  • Identify improvement opportunities
  • Timely rectification of contractual irregularities

Annual tea gathering
Tripartite meeting
Operation meeting
39
Contract Management
  • Self-reporting of performance
  • Department A requires contractors to submit
    performance reports
  • Involving service recipients
  • Department A Take account of consumer
    satisfaction levels in considering contract
    extension
  • Department B tenant satisfaction survey results
    form part of contractors performance scores

40
Contract Management
  • Ongoing review (Department A)
  • Outsourcing arrangement constantly reviewed by
  • Working Group on Contract Management
  • Supplies Section, Contracts Unit, Outsourcing
    Section
  • Major improvements made
  • Standardisation of core terms and conditions and
    marking schemes
  • Alignment of service specifications
  • Bundling of contracts to achieve economies of
    scale
  • Establishment of a document library in Intranet
  • Coordinated approach in quest for further
    outsourcing

41
Contract Management
  • Allow sufficient time for contract transition
  • Adopt partnership approach and provide sufficient
    support to contractors
  • Focus on monitoring performance
  • Adopt risk management approach
  • Maintain consistency and transparency in
    performance assessment

42
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43
Challenges Ahead
  • Rising contract price
  • Outcome vs output
  • Contract management a new skill to acquire
  • How does outsourcing fit into the overall
    departmental strategic plan
  • Outsourcing vs staff commitment
  • Tendering criteria
  • Handling of surplus staff
  • Public perception on outsourcing

44
Whats Next
  • Disseminate good outsourcing practices
  • User guide to contract preparation and management
  • Outsourcing Survey 2006
  • Training on contract preparation and management
  • New edition of Outsourcing Guide

45
  • The EU stands to help

Contact us Help desk 2165 7255 E-mail euwm_at_eu
.gov.hk Website http//www.eu.gov.hk
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