Contract Management Capability in DHHS: Service Agreements

Tabled: 20 September 2018

Audit overview

The Department of Health and Human Services (DHHS) is responsible for policies, programs and services to support and enhance the health and wellbeing of all Victorians.

DHHS partners, through service agreements, with approximately 1 900 funded organisations to deliver person-centred services and care. It spends approximately $2.8 billion annually in this way. Service agreements define DHHS's and funded organisations' mutual responsibilities and obligations.

Funded organisations provide a wide range of health and human services through service agreements. Some of these services support clients that are particularly vulnerable, including children placed in out of home care and clients experiencing homelessness and family violence.

Establishing and maintaining sufficient contract management capability across both health and human services is inherently challenging. Service agreements must be managed in a way that caters to a wide range of service types and client needs of varying complexity across the state. DHHS management needs to assure that outsourced services are delivered as contracted and to the required quality, and that clients' safety is not compromised.

Previous reviews of government departments' partnership with community sector organisations have commonly highlighted the need for improved oversight of outsourced health and human services, in particular inadequate monitoring practices.

The objective of the audit was to determine whether DHHS has sufficient capability in managing service agreements to ensure funded organisations deliver agreed health and wellbeing supports and outcomes to clients.

Conclusion

DHHS does not have sufficient capability to manage its service agreements.

In responding to multiple past reviews highlighting a need for improved oversight of outsourced health and human services, DHHS's approach to managing and monitoring service agreements has become increasingly fragmented and duplicative and is not commensurate with service risk. Its capability has been further constrained by its lack of investment in developing its service agreement staff. This has precluded staff from opportunities to acquire and maintain their core contract management skills and has resulted in an overall lack of staff awareness about the purpose of their role.

DHHS has a duty of care to the individuals who access its contracted services, many of whom are particularly vulnerable. Its contract management shortcomings compromise its ability to consistently meet this obligation and heighten the risk of further instances where significant client safety risks go undetected. Ultimately, a more strategic service agreement management framework is needed that is integrated, risk-based and capable of reporting on performance at a system-wide level.

It is encouraging to see that DHHS is already working to address these issues and to significantly reform its service agreement management function.

Findings

Setting service agreement requirements

Performance standards refer to the quality of the service or activity that funded organisations are contracted to deliver, such as family violence support services. Relevant agreement clauses, departmental policies and guidelines fall within this definition.

DHHS needs sufficient assurance that clients are receiving quality services in a proper, timely and efficient manner. This requires that service agreements:

  • contain clearly defined performance standards, deliverables and review mechanisms
  • impose requirements on funded organisations that are proportionate to their risk profiles.
Service agreement performance standards

While some service agreement performance standards are explicitly listed within the agreement itself, others are detailed in documents that sit alongside the agreements. For agencies that deliver a broad range of activities, the applicable standards can be extensive. Organisations would benefit from DHHS clearly linking standards to deliverables where relevant, within the agreement, so that specific requirements for each funded activity are clear.

Service agreement deliverables

Deliverables are service activity outputs, including what needs to be delivered, to what standard and in what timeframe. Performance measures fall within this definition.

The performance measures in service agreements are inadequate. Not only are they inconsistent across service agreements for similar services, they are also inconsistent across documents and systems recording performance measures for the same organisation. Service agreements also do not consistently include mandatory performance measures set out in the Department of Health and Human Services Policy and Funding Guidelines 2017 (Policy and Funding Guidelines).

These issues indicate a lack of system-wide oversight and quality control over service agreements within DHHS. DHHS does not perform a system-wide review of service agreement performance measures for similar activities to ensure that they are both set and recorded in a compliant and consistent manner.

Review mechanisms refer to the triggers and supporting processes that enable variations to the terms and conditions of the service agreement.

Performance measures are also heavily output-driven and lack focus on service quality, nor are they clearly linked to DHHS's desired service system outcomes.

Service agreement review mechanisms

The mechanisms to review the terms and conditions of DHHS service agreements are sound. However, DHHS lacks assurance that variations are being processed in accordance with these mechanisms. Specifically, DHHS has not completed its annual variation compliance audit for 2017–18 after first introducing this process in 2016–17.

Categorising funded organisations according to risk

The scale and complexity of outsourced health and human services varies greatly, so it is important that the requirements set under each service agreement are targeted and proportionate to service risks.

DHHS has used a growing number of mechanisms to identify and manage service agreement risks. Over time these mechanisms have become increasingly fragmented and largely disconnected from each other.

One key mechanism is a risk-tiering framework that DHHS introduced in July 2015 to categorise funded organisations according to risk. However, the framework has limited coverage, applying only to approximately one-third of all organisations. Additionally, DHHS does not use the risk-tiering results, nor any results from its other risk oversight mechanisms, to inform funded organisations' service agreement obligations. Consequently, funded organisations commonly viewed their compliance and administrative obligations as excessive and duplicative.

Funded organisations' administrative and compliance requirements

Through our online survey of funded organisations, we sought views on service agreement administrative and compliance requirements:

  • Seventy per cent of surveyed funded organisations either agreed or strongly agreed that their administrative and compliance obligations were proportionate to service risk. However, funded organisations' open-text responses commonly raised concerns about excessive administrative and compliance requirements set by DHHS that were not proportionate to organisation size or level of funding provided.
  • A high proportion of funded organisations view their service agreement administrative and compliance requirements as duplicative, at both a departmental and inter-jurisdictional level—52 per cent and 67 per cent respectively.
  • Funded organisations that deliver services in multiple DHHS areas reported greater misalignment between their administrative and compliance requirements and their service risks, as well as higher duplication across data and reporting obligations.
  • Only about half of the surveyed organisations believe they are consistently able to meet their service agreement administrative and compliance obligations.

Staff skills, capabilities and capacity

The varied and often competing priorities of service agreement staff reinforce the need for DHHS to clearly define their roles and responsibilities, and the key skills and capabilities they require. DHHS also needs to provide new and experienced staff with sufficient opportunities to acquire and develop key skills and capabilities over time.

Defining required skills and capabilities

DHHS restructured its service agreement management function at a divisional and area level across the first half of 2018. This included:

  • combining the roles of the human services-focused local engagement officers (LEO) and the health services-focused program advisers into a single service agreement adviser role that extends across both portfolios
  • creating a new central performance unit to oversee and manage funded organisation performance at a statewide level
  • creating a new regulatory enforcement unit to focus on system-wide regulation of health and human service practitioners, providers and facilities.

The new position descriptions for service agreement advisers—as well as the newly created regulatory and performance units—focus more explicitly on managing the performance of funded organisations against contractual obligations, compared to the previous position descriptions for LEOs and program advisers. The new position descriptions more closely align with better practice contract management skills and capabilities, such as those from the Australian National Audit Office's (ANAO) 2012 better practice guide Developing and Managing Contracts (ANAO's better practice guide) and the Victorian Government Purchasing Board's (VGPB) VPS Procurement Capability Framework.

In adopting a more performance management-focused approach, it is important that DHHS also retain its focus on relationship management and tailor its engagement approach to the capability of each funded organisation, as well as to the risks associated with the services they provide.

Beyond aligning position descriptions more closely with better practice, DHHS will need to ensure that its staff perform their roles according to the new position descriptions and do not undertake tasks outside their roles, which occurred prior to the restructure. Our DHHS staff survey results show that a high proportion of respondents believe much of their work was on tasks that were outside their position description:

  • 28 per cent of respondents believe that somewhere between 25 and 50 per cent of their tasks are outside their position description
  • 21 per cent of respondents believe that over 50 per cent of their tasks are outside their position description.

Examples of additional tasks that staff have performed outside of their roles include meeting service clients to resolve individual issues and finding information and data for DHHS's central office.

Providing learning and development pathways

DHHS provides some training for service agreement staff, including an introduction to managing service agreements and training focused on how to use relevant DHHS systems and follow established processes.

The training does not sufficiently focus on good practice principles for contract or risk management. Although the introductory program covers good practice contract management and governance principles, the content is high-level and is not sufficiently targeted to equip service agreement staff with the contract management and governance skills needed to effectively manage service agreements.

Results from our online survey of DHHS service agreement staff also indicated that:

  • 29 per cent of respondents viewed their role orientation and induction as ineffective at giving them the basic skills needed to manage service agreements
  • 32 per cent of respondents viewed their training as ineffective at building and maintaining the skills needed to manage service agreements
  • only 76 per cent of respondents had an individual performance plan
  • 32 per cent of respondents viewed the performance planning and review process as ineffective at meeting their learning and development needs.
Corporate knowledge risks

Only two key DHHS staff hold a significant amount of corporate knowledge relating to the DHHS Service Agreement Management System (SAMS2), which DHHS uses to record and manage service agreements. One of these two staff members recently moved into another role within DHHS but is still regularly called upon to assist with SAMS2-related issues and queries. DHHS currently has no formal measures in place to capture the knowledge of these two staff.

This poses a risk to DHHS and its ongoing capacity to manage service agreements.

Monitoring and managing performance of funded organisations

Performance monitoring framework

DHHS's Funded Organisation Performance Monitoring Framework (FOPMF) provides the process for DHHS staff to assess funded organisations' compliance with service agreement requirements and respond to identified risks and underperformance.

There are limitations in FOPMF's design which reduce its effectiveness as a performance management framework:

  • FOPMF is essentially a one-size-fits-all framework, with some minor exceptions where FOPMF requirements are either optional or not applicable. It does not scale to account for the varying complexities and sizes of funded organisations, nor their risk profiles.
  • FOPMF monitoring tools are heavily compliance driven, and while this helps ensure funded organisations meet legislative and policy requirements, there is lack of focus on monitoring service quality and performance issues.
  • FOPMF drives a fragmented and duplicative approach to collecting performance information. In particular, DHHS staff need to enter performance data into various systems, which makes completing FOPMF monitoring tools administratively difficult and time consuming. This is further compounded by the lack of clarity in FOPMF guidance about the frequency of performance data collection and overlapping requirements across different FOPMF monitoring tools.

Our DHHS staff survey highlighted that overall satisfaction with FOPMF is relatively low. Only 42 per cent of respondents said they agree or strongly agree that FOPMF helps them monitor and manage the performance of funded organisations effectively.

Applying the performance monitoring framework

DHHS service agreement staff are not applying FOPMF as intended.

The uptake of FOPMF tools has been inconsistent. The main reasons for this are design limitations, lack of staff awareness about FOPMF components, insufficient training, and a heavy reliance on alternate local systems and tools.

The low uptake of the Risk Assessment Tool (RAT)—52 per cent of surveyed FOPMF users reported using it—is particularly problematic, as the tool is intended to ensure staff assess the severity of performance issues consistently and accurately. This undermines the ability of staff to track actions and address underperformance effectively and in a timely manner.

Our analysis found a total of 127 planned remedial actions to address funded organisation performance issues were overdue as at 17 April 2018, with the average number of days that actions were overdue being 264 days.

Additionally, we could not find evidence that DHHS had used existing performance information—generated through FOPMF or otherwise—to inform future service agreement funding decisions. This is despite DHHS's documented guidance instructing staff to do so.

Recommendations

We recommend that the Department of Health and Human Services:

1. apply centralised, system-wide quality assurance when setting service agreement performance measures so that they:

  • are set consistently across different service agreements where appropriate
  • are recorded consistently across different documents and systems
  • clearly link to desired service system outcomes (see Section 2.2)

2. develop and apply a system-wide framework for risk-profiling funded organisations that:

  • integrates the department's various disconnected risk oversight mechanisms
  • is applied to all funded organisations
  • is used to set service agreement requirements that are proportionate to the level of risk associated with the funded organisation and the services they are funded to deliver (see Section 2.3)

3. develop and implement support structures to ensure staff skills and capabilities, and the tasks performed, align with the new position descriptions including:

  • ongoing regular supervision and support for all service agreement staff that reinforces the new roles and responsibilities
  • individual performance plans for all service agreement that reflect the identified skills and capabilities needed to manage service agreements
  • a clear learning and development pathway for all service agreement staff for developing and attaining the identified skills and capabilities needed to manage service agreements (see Sections 3.2, 3.3 and 3.4)

4. capture and retain the corporate knowledge held exclusively by key staff in relation to its Service Agreement Management System (SAMS2) (see Section 3.5)

5. redesign its Funded Organisation Performance Monitoring Framework so that it:

  • scales monitoring effort according to service risk, organisational capability and funding levels
  • balances monitoring effort between compliance and service quality
  • integrates and streamlines performance data collection arrangements
  • systematically informs future service agreement funding decisions. (see Sections 4.2 and 4.3).

Responses to recommendations

We have consulted with DHHS and we considered its views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to DHHS and asked for its submissions or comments. We also provided a copy of the report to the Department of Premier and Cabinet.

DHHS provided a response which is summarised below. The full response is included in Appendix A.

DHHS acknowledged the value of this audit and accepted all five recommendations in full. It provided an action plan that addresses each recommendation.

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