In the Sefton judgment last year, the Local Authority’s decision to freeze fees for residential care was quashed on the basis that it had not considered the actual cost of care when setting the usual price it would pay providers. That decision was the high point of the campaign by providers and representative bodies to obtain a fair price for care. The decision made it clear that councils would need to consider the actual cost of care, must consider any local variations in cost and must consult adequately with providers. Across the country, providers have been seeking to rely on the judgment to negotiate higher fees after successive years of freezes. Local authorities are now trying to adopt a fresh approach to meet this trend: competitive tendering for spot contracts.
The process would be as follows: as is already common practice, a framework contract would set out all the standard terms between providers and the local authority governing such issues as quality, termination, duration of the framework, dispute resolution and such like. Each individual service user would be placed under an individual placement agreement. Unlike current practice, however, bidding on prices will determine who wins the contracts.
In the model proposed by Sefton (still at an early stage) price bidding will take place for the award of the frameworkcontracts themselves. Providers will bid a price for residential accommodation and the lowest bidders will be admitted to the framework. Service users could choose other accommodation, but the usual cost of care would be based on the price of the successful bidders. This model would result in a stable, usual price for care for the duration of the framework. That has both advantages and disadvantages. The advantage is that it allows for effective budgetary and financial planning. A potential disadvantage is that the Council may seek to hold providers to the bid price even if providers began to face increased costs. In practice, this risk could be mitigated by providers withholding from making spot contracts until prices increased to meet costs.
One bidding model is due to be fully implemented by Birmingham by 1 April. The bidding will take place for the award ofspot contracts rather than for the frameworks. A shortlist of three providers will be made for individual contracts based on quality and price. Service users wishing to use alternative providers at higher costs will need to have third party top up funding. In this model, the price of care might fluctuate considerably which makes financial and budgetary planning extremely difficult but will at least allow for increases in price over time if costs increase.
The obvious benefit to council is that open competition in the market can be expected to drive prices down to cost (including a provision for normal profit). The problem for providers is equally obvious. The post-Sefton period where providers could fight in the courts for higher fees may be coming to an end.
However, it’s not going to be plain sailing for Councils. It will be hard to reconcile the bidding process with the duties clearly defined in Sefton. The Choice of Accommodation Directions 1992 require local authorities to accommodate service users in their choice of accommodation providing the accommodation is suitable for the service user’s needs, the cost of accommodation does not exceed what the local authority will normally expect to pay having regard to the service user’s needs, the preferred accommodation is available and the provider is subject to the authority’s usual terms and conditions.
It is difficult to see how service users could exercise that judgment if only a limited number of providers were admitted to the framework (the Sefton model) or a spot choice was limited to the three lowest bidders (the Birmingham model).
Furthermore, the Department of Health issued Guidance to Councils on how to implement top ups and the Choice of Accommodation Directions. The Guidance requires each council to set prices at the start of a financial or other planning period, or in response to significant changes in the cost of providing care, to be sufficient to meet the assessed care needs of supported residents in residential accommodation. It seems quite clear that councils need to set usual rates, and must do so annually or at the start of a planning period. That is inconsistent with the Birmingham model which effectively generates a new ‘usual price’ each time a contract is awarded.
Councils will no doubt seek to argue that the bidding process will ensure that the final price does reflect the actual cost of care as providers would not bid below the actual price. However, that fails to recognise the extent of the duties under the Guidance. The Guidance is quite clear, for example, that “Councils should not set arbitrary ceilings on the amount they expect to pay for an individual’s residential care. Residents and third parties should not routinely be required to make up the difference between what council will pay and the actual fees of a home.” The level of choice in the Birmingham model is so restricted that the expectation of top ups may indeed become routine.
Open price competition for residential contracts may well become the next big battle ground for the sector. The Birmingham model in particular appears to be inconsistent with Guidance that binds local authorities are regards setting usual costs and may be unlawful on that basis alone. From a policy perspective, there is clearly a balance to be struck. On the one hand, the Choice of Accommodation Directions does not provide a right to choose accommodation of any price but on the other hand, limiting the number of providers reduces choice to a level where it might be regarded as meaningless. The balance may eventually have to be struck by the Courts. Watch this space.
