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Home care
Home care outsourcing strategy outsourcing
Paul R. Drake and Bethan M. Davies strategy
University of Liverpool Management School, Liverpool, UK

Abstract 175
Purpose This paper aims to help public sector managers that are formulating strategies for
outsourcing home care from the independent sector.
Design/methodology/approach A review was performed of relevant literature on the
outsourcing of home care and its political drivers in the UK. This indicates that the future of home
care services, taking into consideration outsourcing and how Best Value will be achieved, has not been
researched widely. Therefore, an exploratory approach to research was adopted here using in-depth
analysis of a small number of particularly informative local authorities and private providers selected
by purposive/judgemental (extreme and critical case) sampling. Personal contact was deemed
necessary in order to perform an intensive investigation to pursue in-depth information.
Findings The British Governments Best Value regime is driving local authorities towards
increasing levels of outsourcing in the provision of home care. A local authority may choose to
outsource all of its home care or maintain some in-house provision based on capacity or capabilities
that are complementary to those provided by the independent sector. The 100 per cent outsourcing
strategy places enabling demands on the local authority, whereas the alternative strategy requires
decisions to be made on what should be outsourced. Across the authorities surveyed, six strategies for
creating a mixed economy of care have been identified, with the mix being based on complementary
capacity and/or capabilities. With Best Value driving authorities to consider lower-cost options, the
outcome may be a reduction in the amount of complementary capacity provided in-house, in favour of
strategies involving complementary capabilities that deliver the Best Value possible. Re-enablement is
emerging as a common, complementary or core capability that is remaining in-house. Outsourcing also
requires decisions to be made on the number of independent providers to be used and the type of
contracts to be employed. This paper considers the decisions that have been made in the local
authorities surveyed and critiques the alternative home care outsourcing strategies so derived.
Research limitations/implications To date, the research has focused on Wales in general plus a
few local authorities in England. The next stage will be to survey England in more detail along with
other countries that are implementing substantial outsourcing of home care, such as Canada.
Practical implications This paper provides timely guidance to public sector and health care
managers seeking Best Value in home care through outsourcing.
Originality/value Little has been found in the literature on strategies for outsourcing home care,
yet such strategies are needed urgently in the UK to achieve Best Value. The World Health
Organization stresses that strategies should be drawn up for providing support to patients and carers
at community level in order to avoid costly institutional care.
Keywords Home care, Best practice, Outsourcing, Wales
Paper type Research paper

Introduction
Work is in progress to identify best practice strategies for outsourced home care,
in collaboration with the social services departments of a number of local
Journal of Health Organization and
Management
The authors acknowledge the contribution of the collaborating social services departments and Vol. 20 No. 3, 2006
independent home care providers referred to in this paper. In particular, they acknowledge the pp. 175-193
q Emerald Group Publishing Limited
contribution of Jeremy Evans in Ceredigion, Dafydd Paul in Gwynedd, Maria Phillipps in 1477-7266
Wrexham and Gill Mahoney in Neath Port Talbot. DOI 10.1108/14777260610662726
JHOM government authorities in England and Wales, and their independent, home care
20,3 providers.
Across the world the number of elderly people is growing rapidly, both in absolute
terms and as a proportion of the whole population. It is widely reported that countries
are struggling to find ways of coping with the growing population of elderly people.
The World Health Organization stresses that strategies should be drawn up for
176 providing support to patients and carers at community level in order to avoid costly
institutional care. This paper looks at what is being done in England and Wales
to provide home care, a statutory duty of local government authorities in the UK to
provide the care and support needed to enable people, especially older people, to
achieve the maximum possible independence, whilst continuing to live in their own
homes. Traditionally, carers employed directly by the social services departments of
local authorities delivered this home care. More recently, there has been a move to
outsourcing home care from the independent sector. The Audit Commission (1987)
highlighted that the decision to make or buy goods and services is among the most
important decisions that industrial and commercial firms have to take. Wistow et al.
(1994) argue that it is also a decision which government policy has sought to place at
the heart of public sector management. An increase in outsourcing has often been
realised through a gradual process taking advantage of the natural turnover of staff.
This has the advantage of reducing decommissioning (e.g. redundancies) but there is a
risk that change is unfocused and the respective roles of the public and independent
sectors are not clear (Audit Commission, 2005).
In England, the proportion of home care outsourced from the independent sector has
increased dramatically (Figure 1) since the implementation in 1993 of the Conservative
governments NHS and Community Care Act 1990. The then government transferred a
special transition grant to local authorities to meet their new responsibilities under this
legislation and it was stipulated that 85 per cent of this grant had to be spent in
the independent sector. The shift to the independent sector has continued apace under

3.5

3.0

2.5
Hours (millions)

2.0

1.5

1.0

0.5

0
Figure 1.
93

94

95

96

97

98

99

00

01

02

03

Total home care contract

19

19

19

19

19

19

19

20

20

20

20

hours in England by Year

sector, 1993-2003
Local Authority Independent sector
the Labour Governments current Best Value regime implemented in 2000, so that the Home care
amount of home care sourced from the independent sector by local authorities is now outsourcing
more than double that provided in-house. In the 1990s, local authorities in Wales were
not obliged to outsource home care from the independent sector, so it is only since strategy
the implementation of Best Value that there has been an onus on the outsourcing of
home care in Wales.
Around the time of its initial implementation, Martin and Hartley (2000) 177
predicted that the Best Value regime would lead to an increasing variety of
approaches to managing local public services. Their corollary was that this would
present a challenge to researchers identifying what works best. Five years since
the implementation of Best Value a variety of approaches has indeed emerged, so
it is timely to review the first-generation home care outsourcing being adopted.
Furthermore, Harland et al. (2005) concluded recently, To outsource, managers
need intelligence and managerial guidance. This could come from research, but
currently it does not. The research presented here begins to address this need in
respect of public sector managers in local government and the outsourcing of
home care. Harland et al. (2005) also concluded, There is little research exploring
the circumstances in which mixed models might be appropriate. This is one of
the issues addressed here for home care.
This paper analyses some of the home care outsourcing strategies being employed
in Wales in particular to see the options being derived under the Best Value regime
without the legacy of the previous compulsion to outsource seen in England. Welsh
local authorities in particular are at a transitional stage, where they have the
opportunity to consider how they can achieve Best Value as opposed to just reducing
costs by outsourcing.

Research method
A review was performed of relevant literature on the outsourcing of home care.
In order to gain in-depth information, semi-structured interviews were performed
with care managers and commissioning officers in a sample of local authorities.
Between September 2004 and 2005, visits were made to 13 (60 per cent) of the
local, unitary authorities in Wales, to study the strategies that they are employing
to provide home care to their communities. As one natural alternative is dogmatic
100 per cent outsourcing and this has not been seen (yet) in a Welsh authority, the
survey includes Barnet in England as it has adopted such a strategy. Croydon was
also added from England because it has a home care brokerage that is considered
to be particularly good practice and the model for the brokerage adopted in
Flintshire (Wales), which is also in the survey. Furthermore, Croydon provides an
additional example of the use of cost and volume contracts as discussed later.
The list of authorities visited and the percentage of home care that they outsource
are given in Table I. The authorities shaded in Table I are those that are in
transition from one method of commissioning to another such that the percentage
outsourced is expected to rise.
Evidence was also taken from managers at private home care providers, and the
literature and websites produced by private home care providers. Pertinent evidence
from other local and central government authorities in the UK was gathered from the
literature and the internet.
 20,3

178

Table I.
JHOM

local authority
Percentage outsourced by
Percentage
outsourced Rhondda- Neath
(at time of Cynon- Port Vale of
interview) Gwynedd Bridgend Wrexham Taf Caerphilly Ceredigion Swansea Talbot Monmouthshire Flintshire Cardiff Glamorgan Torfaen Croydon Barnet

0-10 X X
10-20
20-30 X X X
30-40 X
40-50 X
50-60 X X X
60-70 X
70-80 X X X
80-90
90-100 X
The home care outsourcing questions Home care
The Best Value regime does not force local authorities to outsource with the sole aim of outsourcing
reducing costs. Instead, local authorities must consider what to outsource, who to
outsource from and the mechanisms for outsourcing in order to ensure they continually strategy
improve the ways that they function, having regard to economy, efficiency and
effectiveness: the aim of Best Value (Teachernet, 2005). The data gathered to date
reveals two features that distinguish home care outsourcing strategies; these are the 179
number of providers, which varies over a large range from 2 to 22 (Table II), and
contracts, which fall into three distinct types. In considering how home care should be
outsourced, these two features are focused upon here. Whilst it may be argued that
decisions on the number of providers and the type of contracts used go hand in hand,
the two are addressed separately here because they are seen to be distinct features in
the typology of home care outsourcing strategies.
The data reveals that an additional question must ask whether or not all home care
should be outsourced, as 100 per cent outsourcing is an established option that has
been taken by some English authorities and this option is quite distinct from just
another point on the scale of how much to outsource.
In summary, this paper addresses the following questions:
.
Why outsource home care?
.
Should all home care be outsourced?
.
What should be outsourced when it is not all outsourced?
.
How many providers should be used?
.
How should home care be contracted?

Why outsource home care?

The switch by local authorities from the in-house provision of services to outsourcing
from the independent sector has been driven politically, although the immediate
financial benefits are now clearly accepted. The introduction of compulsory
competitive tendering (CCT), the Housing Act (1988) and the Education Reform Act
(1988) by the former Conservative Government shared the common objective of
diminishing (or changing) the role of local authorities in service management and
provision. The personal social services were the last of the principal, local government
functions to be addressed in this way. However, in this case, CCT was explicitly
eschewed in favour of competition founded upon a system of purchaser and provider
functions similar to that adopted in the NHS, and introduced through the same
legislation-the NHS and Community Care Act 1990 (Wistow et al., 1994). In the
Conservative Governments 1989 White Paper, Caring for People, the activities of
the local authority were highlighted as securing services, not simply by acting as direct
providers but by developing the purchasing and contracting role to become enabling
authorities. The NHS and Community Care Act 1990, implemented in 1993 and the
stipulation that 85 per cent of the special transition grant had to be spent in the
independent sector led to a sharp rise in the amount of home care outsourced by local
authorities in England. In Wales, the local authorities were not subjected to compulsion
in their funding in the 1990s, so that higher levels of outsourcing of home care were not
seen at that time.
 20,3

180
JHOM

Table II.

local authority
Number of providers by
Rhondda-
No. of Cynon- Neath Port Vale of
providers Gwynedd Bridgend Wrexham Taf Caerphilly Ceredigion Swansea Talbot Monmouthshire Flintshire Cardiff Glamorgan Torfaen Croydon Barnet

0-5 4 2 Aim for: 4

4
6-10 Aim for: Aim for: 6 6 6 7 6-11
9
11-15 13 10-15 14 15
16-20 16 17 16
21-25 22
In April 2000, the Labour Government replaced the former Conservative Governments Home care
CCT initiative with the new (current) legal duty of Best Value set by the Local outsourcing
Government Act 1999 and aimed at improving local government services in general.
This reinforced the use of the independent sector, so that the rise in the amount of home strategy
care that is outsourced in England has continued apace, whilst the growth of
outsourcing has been triggered in Wales. For example, Monmouthshire (in Wales)
acknowledges that Best Value drove its move to outsourced home care. 181
The Welsh authorities received mixed reports from the Audit Commission in its
recent joint reviews of social services departments. For example, in 2001 Ceredigion
was criticised for having either poor or underdeveloped relationships with the
independent sector and quality standards for independent sector home care were not
explicit, nor had they been monitored. In 2003, Flintshire was found to have made no
attempt to compare the relative quality of services provided by the independent sector
against those provided in-house and it was suggested that it develop a commissioning
approach to its services. Similarly, in 2001, Gwynedds assessment emphasised the
need to mature its planning and commissioning unit and its provider unit. Also,
contract monitoring was highlighted as an area for improvement. Overall, the lack of
partnerships with the independent sector was criticised so that a recommendation to
create such partnerships was made.
Following the joint reviews by the Audit Commission there has been increased
outsourcing of home care in Wales. Recent statistics from the National Assembly for
Wales show that private provision accounted for 34 per cent in 2001, rising to 38 per
cent in 2002. However, local data (unpublished but more recent) and revised local
strategies suggest that this figure is now rising more sharply. The 2002 data showed
wide variation across Wales with the Vale of Glamorgan and neighbouring Cardiff
outsourcing 82 and 73 per cent of their home care, respectively, whereas Gwynedd and
Carmarthenshire outsourced only 3 and 4 per cent, respectively.
The origins of Best Value are well documented by Entwistle and Laffin (2005) who
highlight that it was the central plank of New Labours modernisation agenda for local
government. Martin and Hartley (2000) argue that in practice Best Value is intended to
build upon the local government reforms instigated by the Conservatives, as opposed to
sweeping them away, but it is not simply CCT in a new guise. Best Value requires local
authorities to show that in-house services are the most cost effective by subjecting them
to external competition. If an in-house service is found to be less cost effective then local
authorities should consider outsourcing that service from the independent sector. This
aspect of Best Value effectively absorbs a critical principle of CCT, although there is
debate over the extent to which comparing cost effectiveness is different to simply
comparing cost. Unlike CCT, Best Value does not compel local authorities to put most
of their services out to tender. Instead, it requires them to demonstrate that they are
achieving the Best Value they can, taking account of cost and quality, and it allows them
to deploy a range of market mechanisms from outright privatisation to the outsourcing
of top-up services or the creation of new joint ventures (Boyne, 1999). Martin and
Hartley (2000) predicted that Best Value would lead to an increasing variety of
approaches to managing local public services and indeed this is what the authors are
seeing as they expand their survey of local authorities in England and Wales.
Value can be understood by the equation Value Quality=Cost; so that Best Value
equates to the principle that an organisation can compete on quality or cost, not just cost,
JHOM provided it satisfies market-qualifying levels of both measures. At its website Croydon
20,3 states, Best Value means delivering better quality and reasonably priced services and
giving local people more say. In emphasizing, reasonably priced rather than the
cheapest Croydon is acknowledging that quality must be paid for. There is evidence
that there was less regard for quality before the implementation of the Care Standards
Act 2000. For example, some of the authorities interviewed admitted to resorting to
182 lower quality, independent care in order to meet excess demand. This was unacceptable
and is no longer the case in these authorities. In formulating Best Value, the aim is to see
an end to the lowest cost wins formula of CCT and the introduction of a statutory duty
on authorities to seek best value for money (Entwistle and Laffin, 2005).
Local authorities must weigh up the benefits of using the independent sector, which
can offer lower costs, greater flexibility of service and exposure to innovation. For
example, in 2004 joint review of Swansea it cost 11 per hour for outsourced home care
compared with 18 per hour in-house. In 2003 joint review of Bridgend, the
corresponding costs were 10.23 against 13.08. Croydon reported the difference as
being even greater; 13.50 per hour for outsourced care compared with 34 per hour
in-house. It should be noted that Laing and Saper (1999) reported that compared to
local authorities, private care providers offer less generous terms to care workers and
this is a primary reason why they can usually deliver home care at a substantially
lower cost. This was evident in the surveyed authorities. However, with recent
revisions to the Transfer of Undertakings (Protection of Employment) Regulations
(TUPE) and the current review of these regulations that is in the pipeline, local
authorities can no longer expect to cut costs dramatically, simply by transferring staff
contracts to the independent sector. However, there is nothing stopping the
independent sector offering reduced overheads and improved working practices,
noting that the latter can improve quality as well as reduce costs.
With regards to flexibility, Torfaen reported moving to private sector provision to
improve weekend cover. However, there is the danger of inflexibility arising due to
highly prescriptive contractual arrangements, the drive to cut costs and the shortage of
care workers. For example, one private provider in Neath Port Talbot has care workers
working up to 48 hours per week (the maximum working week allowed by legislation),
which means that there is little spare capacity in the system to allow for flexibility.
However, this providers clients may receive up to four care assistants each day, which
allows for flexibility in the rosters. Public sector staff may not accept such an
arrangement as it could result in a lower quality service; it is well understood that
clients prefer continuity of service and the close, trusting relationships normally
associated with having only one or two carers.
Exposure to innovation is seen in Torfaens block contract with a large national
provider that offers 24-hour cover through a Virtual Care Home. Neath Port Talbot
found that using the independent sector could help it to reach outlying areas.
Nonetheless, Wrexham identify the inflexibility of the private sector and the duty of
care to which local authorities are subject. Whereas independent providers can decline
a client if their contracting arrangements permit, local authorities cannot as they are
obliged to provide care for anyone that needs it; a potential cause for concern when all
home care is outsourced.
The outsourcing of public services may be ideologically unacceptable to councillors
who fear the hollowing out of the local state (Martin, 1999). Indeed, the benefits of
outsourcing home care are debateable. Undeniably, the foreseen economic gain is a Home care
major driving force. It is clear that the large-scale programme of outsourcing public outsourcing
services began mainly for economic reasons, and only later did more political and
sociological motives come to the fore (Saunders and Harris, 1994). Despite higher costs, strategy
in-house provision can make quality assurance simpler, reduce the complexity of
communication and reduce the overheads of managing contracts. It must be
emphasised that in outsourcing home care, local authorities cannot abdicate their 183
responsibilities for achieving Best Value by totally discharging them to the private
care providers, many of whom are small organisations with very limited resources. For
example, one provider in Gwynedd is run from the owners home. Local authorities
must still apply suitable strategic as well as regulatory control, ensuring providers are
operating in an environment that allows them to flourish and achieve Best Value.
In general, outsourcing comes with risks such as the loss of in-house expertise and
knowledge (Boston, 1996; Earl, 1996), unintentional loss of control, reductions in
quality and, at an extreme, corporate atrophy where the outsourcing organisation
becomes so skeletal that it becomes unsustainable (Lei and Hitt, 1995). The latter
phenomenon is termed hollowing-out. If an organisation over-outsources then what
is its raison-detre? Many commercial businesses have failed or suffered as a result of
ill-defining their core activities. Consider the case of IBM when it made the decision to
outsource software from Microsoft and microprocessors from Intel. The operating
system software and the microprocessor are the core of the personal computer (PC)
and, as has been seen, it is relatively undemanding for other manufacturers to make the
rest of the product. This has left IBM with little contribution to the PC that was once
know as the IBM-PC, so that the PC supply chain no longer needs IBM. This is in
contrast to Apple, which is still very much, the owner of the alternative range of PCs.
The emphatic drive to compete in the market place by cutting costs has led British
manufacturers to exploit low-cost manufacturing opportunities in other countries by
subcontracting substantial parts of their existing processes without regard for,
adequate understanding of, or sufficient in-depth debate about the long-term
implications of these critical and often irreversible decisions (Hill, 2000).
The recent decision by Network Rail to stop outsourcing the maintenance of
Britains railways demonstrates that outsourcing can prove to be catastrophically
unsuccessful and the wholesale reinstatement of large in-house functions can occur as
a result. Speaking to the BBC, Network Rail chairman Ian McAllister said the move
would ensure greater consistency of maintenance standards and help deliver
efficiency savings more quickly than would otherwise have been possible.

Should all home care be commissioned?

Several local authorities in England, such as Barnet and Hertfordshire claim to be
outsourcing 100 per cent of their home care, although no such authorities exist at
present in Wales. Clearly, the first fundamental and binary, strategic decision to be
made when outsourcing home care is whether or not to adopt strict 100 per cent
outsourcing. If everything is outsourced then there will be no in-house capacity to
fall back on to meet special needs or shortfalls in outsourced provision. It also
means that decisions do not need to be made on what to outsource and there is no
need to maintain the systems and management required to run an in-house home
care delivery function.
JHOM Of course, the 100 per cent outsourcing strategy can only be adopted if the
20,3 required capacity and capabilities are available in the independent sector. To
achieve this, authorities must look towards national as well as regional care
providers and they must be prepared to adopt a strong enabling role. Barnet turned
to a single, national provider to take over its then remaining in-house provision,
resulting in 30 per cent of its home care services being provided by that one
184 provider. When considering the more specialist and highly skilled care provision an
authority may find greater difficulty in finding suitable providers. To address this
they may either adopt the strategy of providing this care in-house or take on the
role of the enabling authority. Evidence shows that 100 per cent outsourcing does
not equate to the complete abdication of responsibility for front-line home care
provision, but rather the adoption of an enabling role that is committed to ensuring
that the independent providers have the full range of skills required to deliver home
care. In Hertfordshire, for example, the local authority trained its independent
providers to deliver re-enablement.
The concept of the enabling authority or state is somewhat emotive as ultimately
it defines the role of the local authorities in providing services in the new world of
outsourcing and the open market. Ridley (1988), the Environment Secretary in the
Conservative Government viewed the enabling authority as little more than one that
awarded contracts to private service providers. The authors take the view that
to enable means to make something possible or feasible so that an enabling
authority is one that makes it possible for Best Value to be achieved. An enabling
authority is then one that takes actions that are not only in the interests
of consumers but also enable independent providers to flourish in the interests of
delivering Best Value.

What should be commissioned when it is not all commissioned?

According to Best Value, a local authority should keep in-house only those activities
that are delivering better value than can be achieved in the independent sector. In the
first instance, this alludes to cost but there are other considerations. The quality part of
the equation means that services should be kept in-house when they are delivered with
particularly high levels of quality or suitable quality is not available in the independent
sector. This will certainly apply to specialist areas of care provision that are not
available from the independent providers that a local authority has access to. With
Best Value comes a change in the role of the local authority as it moves away from a
general providing role and towards a role as a commissioner and, perhaps, a provider
of specialist services. The British Governments 2005 Green Paper on Social Care,
entitled Independence, Choice and Well-being, promotes a vision to reduce the
dependency of the clients. In line with this vision, Croydon, along with other local
authorities, has identified re-enablement services as a core, specialist competency.
A corollary of local authorities keeping specialist services in-house was intimated by
one provider in Neath Port Talbot that fears that the local authority may secure the
best care assistants as the authority is committed to caring in-house for challenging
clients.
In the authorities studied, when an authority does not outsource 100 per cent of its
home care, one of the six strategies given below is adopted in implementing a mixed
economy of care:
 (1) keep certain specialist skills in-house and outsource the rest (principally basic Home care
care) so that in-house and outsourced provision is complementary in terms of outsourcing
capabilities/skills;
(2) provide a full range of skills in-house and through outsourcing so that the
strategy
in-house resource complements the capacity of the independent providers,
forming a single pool of providers;
(3) extend (1) to include the outsourcing of certain specialist skills from specialist
185
providers;
(4) extend (2), to include the outsourcing of certain specialist skills from specialist
providers;
(5) only outsource certain specialist skills; and
(6) maintain very low levels of outsourcing to provide top-up capacity as
required.

The last of these alternatives corresponds to not adopting outsourcing unless obliged
to at times when the in-house capacity is exhausted, perhaps due to staff illness or
sudden surges in demand. This strategy has been seen in Gwynedd, but the future of
this strategy faces challenges as Best Value continues to take effect so that the
authority is required to demonstrate that the in-house operation is offering the Best
Value for money. This strategy was adopted by Swansea and Cardiff when they first
approached the independent sector. However, as the authorities in-house resources
became increasingly stretched, the independent providers realised that the authorities
were becoming increasingly dependent upon them so that they began to dictate the
price of home care. Consequently, there was a need for more structure to the market, so
Swansea and Cardiff moved away from simple, top-up outsourcing. Wrexham now
realises that the use of this strategy in the past simply reflected inefficiencies in its
provision. One of the independent providers in Gwynedd is very conscious of the
top-up strategy and that it receives contracts only for clients that the local authority
cannot place in-house, with all the downside that this implies.
The first of the six outsourcing strategies involves keeping specialist skills in-house
because they are viewed as core skills that are mission critical. It may be that such
skills are not available (or easily available) in the home care marketplace or they are
delivered in-house with such a high level of value that under the terms of Best Value,
there is no reason to outsource them. Individual local authorities may innovate in
certain types of specialist care, perhaps in partnership with other bodies such as local
health authorities. This may naturally lead to the demonstration of Best Value and the
continuance of in-house provision for reasons of strategy as well as quality. In
principle, any specialism may be kept in-house, but re-enablement is the main one that
has been observed. This is seen in Wrexham as the local authority tries to move
towards the provision of intermediate care where a partnership between the health and
social care sectors can be exploited. In the Vale of Glamorgan, health and social care
budgets are pooled resulting in partnership between health care services and in-house
home care. Also in the Vale of Glamorgan, the commissioning manager tried to identify
ways to outsource lower-skilled services such as shopping. Conversely,
Monmouthshire wants to give independent providers the professional integrity to
provide specialist services if they can. This would be welcomed in Neath Port Talbot
JHOM by one private provider that is eager to exploit the potential of its highly skilled care
20,3 assistants in delivering the more specialist and highly skilled home care, moving its
business into a higher-value market and retaining more of its highly skilled staff. As a
small provider, it is very conscious of driving its business forward by developing
quality in the value equation, by delivering higher-skilled care. In contrast, a larger
provider delivers nearly half of the home care for older people in Neath Port Talbot, as
186 well as serving two other authorities. It has a clear strategy of driving its business
forward by increasing its client base, targeting increased economies of scale. The
business is so committed to this expansion that it is running at a loss at this stage, but
obviously aims to make profits through a large volume of business. It must be stressed
that it still strives to deliver a quality service. It can be argued that these two providers
illustrate the two options of competing on quality or cost as defined by the value
equation, whilst maintaining qualifying levels of both. It must be noted that, the larger
provider would like to offer specialised care in dementia, Alzheimers disease and
palliative care. This endorses the smaller providers call for more higher-skilled work
and it is evidence that once a carer has expanded it may seek more specialist work as
the opportunities for more general growth within an authority are exhausted and
skill-wise it has climbed the learning curve.
Monmouthshire does not support the idea of maintaining re-enablement tasks
in-house as this would take clients away from its independent providers, leaving them
with less work, counter to a partnership relationship. Monmouthshire has underlined
its commitment to outsourcing higher-skilled services by putting up for tender a
contract for elderly, mentally infirm (EMI) clients.
If an independent provider is given lower-skilled tasks to perform, it may wish to
differentiate between tasks that require a skilled, care assistant and those that do not.
For example, a provider in Neath Port Talbot is considering subcontracting domestic
services. This would set a lower limit on its core, in-house skills.
The second outsourcing strategy means running an in-house operation in parallel with
the outsourced operations. In some authorities, this is done to the extent that the
authoritys home care broker who allocates work to providers, treats the in-house care
assistants the same as the independent providers assistants. This is the case in Flintshire,
where once a social worker has defined work to be carried out by a care assistant, a request
is made to the broker to find a possible provider based on the availability and location of all
the care assistants. Flintshires in-house care assistants are treated the same as the
external providers assistants, being selected from the common pool according to the same
criteria. One of the providers in Neath Port Talbot found that being diverse in the types of
clients it can cater for means that it is always in demand. However, it holds a monopoly on
child-care services in the Neath Port Talbot area.
The third and fourth outsourcing strategies extend the first and second,
respectively, to include the outsourcing of certain specialist skills from specialist
providers. This might mean exploiting opportunities in the independent sector as they
arise and/or seeking specialist provision in areas of weakness. For example, Cardiff
and Barnet exploit providers with specialist expertise in EMI. A provider in Gwynedd
has a specific knowledge of Parkinsons disease so carefully selects the care packages it
accepts to reflect this interest. The provider is equally rigorous when it selects a care
worker, only accepting those with appropriate qualifications for the client group it
supports. The outsourcing of specialist skills is possible only if suitable specialist
providers are available. Cardiff is reducing the number of providers it uses, which Home care
means that small providers could go out of business. Consequently, it is encouraging outsourcing
them to diversify into the specialist capabilities that it needs. By serving more than one
authority, specialist providers can achieve economies of scale and scope when the strategy
demand from one particular authority is low. A provider in Neath Port Talbot is
developing its skill-base by exploiting the disparate training opportunities in the three
local authorities it serves. Its long-term plan is to become an NVQ training centre and 187
specialist provider across Wales.
Like the sixth outsourcing strategy, the fifth may disappear to be replaced by one of
the first four as Best Value continues to be applied. The fifth alternative amounts to
only outsourcing when specialist needs and opportunities in the marketplace coincide;
it does not include outsourcing the bulk of the more standard care provision. This
alternative is seen in Rhondda-Cynon-Taff where a specialist provider of care for those
with dementia is used. At the time of being interviewed, this authority was about to
start using block contracts for dementia and some other specialisms to achieve a sharp
increase in the level of outsourcing. This strategy involves a simple outsourcing
decision at the client level, according to the specialist care required.
Clearly, there is a range of mixed models (outsourcing combined with in-house
provision) being adopted with the mix being based on complementary capacity and/or
capabilities. Large block contracts are being used to achieve large step increases in the
amount outsourced with the aim of achieving a large step decrease in costs. With Best
Value driving authorities to consider lower-cost independent sector options, the
expected outcome will surely be a reduction in the amount of complementary capacity
provided in-house. Unless an authority delivers elementary home care with particularly
high levels of value, then it is only home care tasks that are specialist, high skilled and
difficult to obtain from the independent sector that will remain in-house, i.e. the first and
third alternative strategies given above. At the extreme, some authorities, such as
Hertfordshire, stick to a policy of 100 per cent outsourcing by taking steps to enable
(train) their independent providers when they lack specialist skills.

How many providers should be used?

In general, a key purchasing management principle is to have two or more suppliers for
an outsourced item or service as competition drives prices down and reduces
supplier-risk as single-sourcing is a high risk for the buyer (Chase et al., 1998).
However, by reducing the number of suppliers, relationships that are more partnership
based can be introduced so that, for example, an organization might provide training
for its suppliers in order to ensure quality. Clearly, the number of suppliers to be used is
an important strategic decision. In a survey by Plank and Kijewski (1991), 70 per cent
of the organizations surveyed had approved supplier lists. Local authorities have
introduced approved provider lists already, mirroring those used in industry.
Increasing the number of providers increases the complexity of communication and
monitoring. The Vale of Glamorgan has 22 providers that it contracts with and
consequently 300 different prices for the various home care services offered. Barnet
and Neath Port Talbot have avoided this proliferation of prices through stark, fixed
pricing. The providers in Neath Port Talbot find this to be fair, whereas those in Barnet
find it detrimental to Best Value, as the training costs involved in improving quality
are high, resulting in low profit margins.
JHOM Complexity can also be addressed by exploiting electronic monitoring systems to
20,3 provide real-time monitoring of care delivery and integration with financial systems,
etc. Systems of this kind have been implemented in, for example, Hertfordshire and the
London Boroughs of Waltham Forest and Barnet. Hertfordshire reports that its system
has yielded the benefit of greater flexibility being offered by the independent providers,
as they are more confident of receiving payment for necessarily extended visits.
188 Without such systems, local authorities must pay according to planned hours. In Neath
Port Talbot, without electronic monitoring, the local authority pays for visits by the
half hour, so there is extra expense as a result of rounding-up the times.
The use of a small number of suppliers will lead to the emergence of large providers
that could shift the power in the marketplace from the consumers to the providers,
contrary to the principles of Best Value. Indeed, one of the objectives underlying Best
Value (as well as CCT before it) is to shift power from the provider to the consumer.
Nevertheless, many authorities have awarded large contracts to single providers to
achieve a rapid and substantial reduction in costs through outsourcing. Torfaen
awarded to a national provider a very large, block contract to replace half of its
in-house provision. The simple motive was to achieve a big step decrease in costs. The
Vale of Glamorgan experienced an influx of new providers as the losers of the
tendering process in neighbouring Cardiff migrated. The Vale of Glamorgan envisages
a natural consolidation in the market as small providers merge. Consolidation, whether
it is through mergers or large providers taking on large block contracts, will mean
fewer providers.
Local authorities want to support local businesses as a matter of innate policy,
especially fledgling businesses. For example, in Monmouthshire small, local providers
receive a higher price to provide care to ensure their profit margins. This has created a
good relationship between the local providers and the local authority. However, the
local authority must be careful not to pay too much more for services, especially when
finances are tight. There may also be ethical and legal issues to consider when giving
favourable treatment to local businesses, although the taking of measures to create
buoyant marketplaces is clearly encouraged by Best Value and may be necessary to
protect against the large providers referred to above. Cardiff and Swansea noted small,
local providers that can no longer sustain themselves. The Vale of Glamorgan
acknowledged that its small providers would suffer if it were to introduce large, block
contracts.
The type of contracts used can determine the relationships that exist between local
authorities and their home care providers and how much work is allocated to each
provider. Laing and Buisson (Mickelborough, 2005) found that there is polarisation in
the home care industry with the result that large agencies fulfil local authority
contracts and smaller ones serve private clients and make the most of the local
relationships that small providers can develop with their customers. This is illustrated
in Neath Port Talbot where the smaller provider, referred to previously, prides itself on
its ability to ensure all of its clients are know to its managers personally. This is not
possible in the large providers.

How should home care be contracted?

Three types of contract between local authorities and independent home care providers
have been seen. Under spot contracts, work is commissioned as required. Under block
contracts, payment is made for a set number of hours of home care, regardless of Home care
whether the hours are used or not. Cost-and-volume contracts establish the minimum outsourcing
number of hours to be outsourced from a provider, but the authority may purchase
additional hours. All of these contracts can be based on a blanket (or framework) strategy
contract that is an agreement that the private provider has reached an approved
standard of care provision. Work is allocated under the conditions of this blanket
contract with no need for further contractual arrangements for individual clients. 189
Table III shows that spot contracts have been the predominant type of contract used
by the authorities surveyed, but block contracts are being exploited increasingly.
Spot contracts allow flexibility as demand varies. For example, Gwynedd uses spot
contracts to provide the ad hoc capacity required when its in-house capacity is reduced
by problems such as staff illness. Neath Port Talbot reported block contracts being
impractical since demand is difficult to predict. Consequently, they have chosen spot
contract arrangements. However, 50 per cent of their spot purchasing is now from a
single provider, which represents a substantial dependency and therefore a major risk.
Spot contracts encourage continuous competition and choice as the authority and
the clients can switch providers given the absence of contractual obligation. Croydon,
for example, reported that it has many providers so that it has the flexibility to pick the
cheapest when allocating work. However, price competition does not occur in those
authorities that set a fixed price for care provision as in Barnet or Neath Port Talbot.
The competition here is for care assistants who move between providers to increase
their pay.
Spot contracts may not encourage providers to invest in capacity and capabilities,
as business volumes are not guaranteed. This can be a critical weakness if the
authoritys need is to develop the independent sector as required by Best Value. In
essence, spot contracts are not conducive of partnership relationships and all the good
that such relationships can yield. In contrast, block contracts can provide security of
demand for the providers and more partnership-based relationships of mutual benefit.
With a relatively secure, long-term demand for their services, providers can make the
business case for investing in capacity and capabilities. The increased security of
supply offered by block contracts is obviously of value to the authorities and their
clients, especially when the in-house capacity is being reduced. Another benefit of
block contracts is that they allow simpler pricing structures, avoiding the problem of
300 prices seen in the Vale of Glamorgan and 119 prices in Croydon.
Spot contracts require the authority to allocate individual clients to care providers,
typically through an in-house broker employed in addition to the care managers. As
mentioned previously, in Flintshire the in-house broker establishes which care
assistant from the combined in-house and outsourced resource should be allocated to a
new client, based on proximity and availability. In contrast, block contracts can reduce
complexity from the point of view of the local authority monitoring the providers and
assigning clients to providers. This is particularly true when a block contract is
awarded to cover all the home care in a specific geographic area within an authoritys
boundaries, as seen in Ceredigion, although the right of the client to override the choice
of provider still remains. Wrexham, Swansea and Caerphilly are also looking to
contract by geographic area, with Caerphilly planning to employ two providers per
area in order to avoid monopolies. The assignment of clients to providers can also be
simplified when a particular specialism is outsourced using a single, block contract.
 20,3

190
JHOM

Table III.
Contract types
Neath
Contract Port Vale of
type Gwynedd Bridgend Wrexham Rhondda-Cynon-Taf Caerphilly Ceredigion Swansea Talbot Monmouth-shire Flintshire Cardiff Glamprgan Torfaen Croydon Barnet

Spot
Block
Cost-volume
Unlike spot contracts, block contracts tie the local authority to a long-term commitment. Home care
Providers in Gwynedd and Flintshire that experience large, daily fluctuations in demand outsourcing
under spot contracts would welcome the guaranteed hours offered by block contracts.
The Audit Commission recommended that Cardiff use block contracts to create stability strategy
in the market. Swansea adopted block contracts for the same reason.
The process of tendering for block contracts causes major competition in the
short-term whereas continuous, long-term competition is possible with spot contracts. 191
However, if block contracts are large, they can attract the large, national providers and
this results in added competition. Very large, block contracts have been used in
Torfaen and Barnet, to achieve big cost savings very quickly, exploiting the double
benefits of outsourcing per se and competitive, nationwide tendering for large
contracts. Nevertheless, it must be noted that national providers may have difficulties
recruiting staff. A national provider is currently trying to commence provision in
Swansea, but after the first eighteen months it had recruited only nine care assistants.
Providers that provide in both Neath Port Talbot and Swansea feel that there is more
competition in Swansea, where they are going through the tendering process.
When block and spot contractors are used, an authority will naturally endeavour to
fill its block contracts before using its spot contractors. Croydon in particular is an
authority that uses both types and adheres to this maxim. Once a national provider is
established in an authority, it has the possibility to expand. This is the case in Neath
Port Talbot through spot contracting but it has also occurred in Torfaen where a
national provider has expanded beyond its block contract. The latter has been made
possible by the providers management of operations to provide a 24-hour service with
care assistants working three shifts. Also, it defines tasks as critical or non-critical so
that at times of peak demand it only performs critical tasks. This not only increases the
utilisation of carers during the quiet periods, it also releases some otherwise
squandered peak-time capacity so that more critical work can be accommodated
during the peak periods, i.e. the provider can accept more work during the busiest
period when everyone elses resources are stretched to the limit.
Against the observed trend, Monmouthshire has moved away from block
contracting to the flexibility of spot contracting. Under block contracts, the market was
stable. However, since demand equalled supply, new clients replaced old ones without
regard for efficient carer-client allocation. Spot contracting is seen as more transparent.
Using a broker enables Monmouthshire to place care assistants strategically, taking a
more holistic view of the authoritys home care operations.
Only two of the authorities sampled (Caerphilly and Croydon) use cost and volume
contracts, although the advantages of these were highlighted in respect of Barnsley some
time ago (Stephens, 1994). Cost and volume contracts can bring the benefit of economies of
scale, encourage partnerships between purchasers and a limited number of suppliers, and
can facilitate market planning. The flexibility of cost and volume contracts allows for
partial devolution of purchasing power, which provides a greater responsiveness to needs
than is present under block contracting. Wrexham has chosen to implement cost-volume
contracting in future in order to promote flexibility, whilst still maintaining control.

Conclusion
In England and Wales, the British Governments current Best Value regime and the
NHS and Community Care Act 1990 that preceded it have driven local authorities
JHOM towards increasing levels of outsourcing in the provision of home care. Although the
20,3 major triggers of outsourcing in Wales have been political, there is growing acceptance
of the economic benefits. There are some local authorities in England that have chosen
(or have managed) to outsource all of their home care, although this places enabling
responsibilities on the authority and creates a major dependency given the complete
dissolution of the in-house capacity, in spite of having to retain the ultimate
192 responsibility for providing home care. If the 100 per cent outsourcing strategy is not
adopted then an authority must decide what is to be outsourced. Across the authorities
surveyed, six strategies for creating a mixed economy of care have been identified,
with the mix being based on complementary capacity and/or capabilities. With Best
Value driving authorities to consider lower-cost independent sector options, the trend
suggests that there will be a reduction in the amount of complementary capacity
provided in-house, so that only those strategies involving complementary capabilities
that deliver the Best Value possible, will survive. Re-enablement is emerging as a
common, complementary or core capability that remains in-house. Large block
contracts are being used to achieve large step increases in the amount outsourced with
the aim of achieving a large step decrease in costs. This has major ramifications for the
future of small providers and therefore, the desired plurality of providers in the
marketplace. The number of home care providers used and the type and mix of
contracts used are two features that have been seen to vary considerably across the
surveyed authorities. It is suggested here that making decisions on these two features
is a fundamental part of formulating a home care outsourcing strategy. This paper has
considered the decisions that have been made in the local authorities surveyed and the
alternative home care outsourcing strategies so derived; this has included a critical
comparison of contract types. Finally, as Martin and Hartley (2000) predicted, Best
Value has been seen to lead to an increasing variety of approaches to managing local
public services.

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About the authors

Paul R. Drake is a senior lecturer in Operations Management at the University of Liverpool
Management School where he is Head of the e-Business Division. He was previously at Cardiff
University. He has a BSc in Statistics and an MSc and PhD in Systems Engineering, all from the
University of Wales. Prior to undertaking postgraduate study, he gained several years
experience working in industry on the development of information systems. Over the last
18 years he has conducted wide-ranging research in the fields of Systems Engineering and
Operations Management in collaboration with industry. His current research concerns the
application of contemporary Operations Management thinking to home care provision. This has
evolved from initial work with the Gwynedd and Ceredigion unitary authorities in Wales. He has
published widely and has supervised many successful PhD programmes. Paul R. Drake is the
corresponding author and can be contacted at : drake@liv.ac.uk
Bethan M. Davies is a PhD student at the University of Liverpool Management School.
She obtained ME (first class) in Integrated Engineering at Cardiff University. Being fluent in
French, she was able to undertake a placement at the prestigious Ecole des Mines de Nantes, one
of Frances Grandes Ecoles. Her research is concerned with the application of modern Operations
Management practice within the domain of home care. She has performed detailed analyses of
existing practice in several local authorities in England and Wales and has produced reports for
some of them. Her work was presented at the 2nd IEEE Conference on Services Systems and
Services Management. E-mail: b.m.davies@liv.ac.uk

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