Strategic Procurement in the Dutch Public Sector; a Transaction
Cost approach.
Wmo 2015 Procurement by Dutch Municipalities
Master thesis
MSc BA – Organizational & Management Control
University of Groningen, Faculty of Economics and Business
Thesis supervisor: Dr. E.G. van de Mortel Co-assessor: Prof. D.M. Swagerman
Johan van den Hoorn S2239000
j.van.den.hoorn@student.rug.nl
Abstract
This paper presents an analysis based on transaction cost theory (TCT) of Wmo 2015 procurement by Dutch municipalities. The aim of this analysis is to investigate the strategic aspect of Wmo 2015 procurement. Data was gathered in 13 interviews among 8 municipalities and 3 care providers. It was found that municipalities strategically integrate policy considerations into procurement for Wmo 2015. Furthermore, asset specificity, uncertainty and complexity are managed by municipalities in the consideration of the supplier relation and the procurement process, although legislation limits possibilities. These transactional features were also strongly present. The findings implicate that municipalities can manage institutional difficulties, by adjusting the degree of collaboration and partnership with suppliers; higher asset specificity, uncertainty and complexity urge for relational contracting. Thus, this paper identifies important characteristics of transactions for Wmo 2015 procurement, and therefore responds to the call for integration of procurement literature and transaction cost theory.
Keywords:
1. Introduction ...1
1.1 Paper objective ...1
1.2 Paper contribution ...2
2. Sector Description ...4
2.1 Background of the Wmo 2015 ...4
2.2 Implementation by municipalities. ...5
2.3 Legal context of the Wmo 2015 ...6
2.4 The procurement process ...6
3. Theory ...9
3.1 Strategic public procurement. ...9
3.1.1 Policy interests and strategic goals ...10
3.2 Transaction Cost Theory ...10
3.3 Characteristics of Transaction ...11
3.3.1 Asset specificity ...12
3.3.2 Uncertainty ...12
3.3.3 Frequency ...13
3.4 Supplier relations and public procurement ...13
3.5 Supplier relation matrices ...14
3.6 Conceptual model ...16 4. Methodology...18 4.1 Interview method ...18 4.2 Selection of Respondents ...19 4.3 Data collection ...19 4.4 Analysis ...20 5. Results ...22 5.1. Policy ...22 5.2 Transaction characteristics ...23 5.2.1 Asset specificity ...23 5.2.2 Uncertainty ...27 5.2.3 Frequency ...31 5.2.4 Complexity ...33
5.3 Character of Supplier Relations ...37
5.4 The Procurement process and model ...38
6. Discussion ... ….41
7.1 Conclusion ...43
7.2 Theoretical and practical implications ...43
7.3 Limitations and directions for future research ...44
8. References ...45
1
1. Introduction
In 2015 Dutch municipalities became responsible for a large area of tasks, due to decentralization of responsibilities by the central government. Social support, youth care, and employment are now policies for which municipalities are (partially) responsible. The goal of these three decentralizations is threefold (www.movisie.nl). Firstly, create a central point to bring together fragmented care
provision. Secondly to diminish the cost and scale of the welfare state. Thirdly to promote a society in which everyone can participate. Social support was already a responsibility since 2007, but was extended significantly in 2015 with extramural care (care outside health institutions) under the Wet Maatschappelijke Ondersteuning 2015 (Wmo 2015)1. Since on this area there has been already some
progress, the Wmo 2015 will be subject to this research. The Wmo 2015 is marking for all three decentralizations that were made, since it brings together many kinds of care providers, involves mostly care to enhance the self-reliance to participate in society, and was associated with a budget cut of 25%. The expectation is that the budget cut will be realizable through more competition on the supply side and more business-like management, including effective management control (Asquith, Brunton & Robinson, 2015). The importance of public procurement is therefore increasing, creating many commercial relations between public and private partners. Public procurement refers to the public authorities’ activities of purchasing goods and services.
1.1 Paper objective
When implementing public procurement, municipalities get involved with European Directives on procurement (CPB, 2015; Eshien, Staropoli & Yvrande-Billon, 2014) and with the Aanbestedingswet2,
issued by the central government in 2012. European rules on procurement strongly advocate auctions as the way to award contracts, while the opportunities for negotiation to award contracts are restricted (Eshien et. al, 2014). In purchasing, negotiation is preferred over auctioning for more complex procurement (Bajari et al., 2009). Eshien et al. (2014) find it strange that this difference in practices exists, because in principal, the aim of procurement in both public and private sector is to obtain the lowest price without the loss of quality. They argue that this contradiction in this situation stemmed from politics and regulation from the European Directives. Murray (2009) argues that literature on procurement has neglected a fundamental difference between private and public procurement. In the private sector, managers are responsible for policy. However, in public procurement, politicians are ultimately responsible, and they must hold themselves to democratic accountability. Other differences are the multiplicity of goals, the degree of transparency, target groups are identified by rights instead of demand, etcetera. (Telgen, 2007; Evald & Freytag, 2007) Hence, on the strategic level, public and private procurement differ significantly. A useful theory to analyze this distinguishing aspect of public
2
procurement is transaction cost theory. As a branch of new institutional economy, transactions cost theory considers the institutional context of transactions very much. This theory analyses which mode of governance is most useful to do transactions efficiently. This depends on the characteristics of the transaction in question (Williamson, 2000). The theory also states that political factors circumcising the transaction, can be very important, and can alter the set of governance modes that are deemed efficient. One of these modes is the market, in which transactions are contracted. This governance mode will be investigated, since public procurement is about public-private market relations. Procurement for Wmo 2015 has its focal point in the tender, in the way that contracts are closed and managed. In other words: How are suppliers searched and selected and how are the suppliers controlled with respect to their performance? To obtain a procurement competent on the strategic level, municipalities need to align their purchasing practices with nature of the product or service in play, but also with the political context (Murray, 2009). The research question is as follows: How do Dutch municipalities achieve strategic procurement regarding the implementation of the Wmo 2015? Sub questions:
- What is strategic procurement?
- What policy and regulatory factors influence procurement policy regarding the Wmo 2015? - What criteria do municipalities use to determine the balance between a pure transactional
(competitive) and relational (partnership) supplier contracting?
With a study on tenders by Dutch municipalities for the Wmo 2015 these questions will be answered.
1.2 Paper contribution
This paper aims to contribute to society and to science in several ways. The scientific contribution would be as follows. Firstly, there is not enough known about the role of politics in public
procurement, it is still a kind of a black box. How is procurement influenced by policies in this research politicians are included, providing an insight on public procurement from a policy perspective. Secondly, there needs to be more clearance on the cause-effect relationship between transaction characteristics, closeness of supplier relation, and procurement processes. Thirdly, Williamson encourages possible mutual exchanges between TCE and supply chain management in general, for procurement in particular (Williamson, 2008).
Furthermore, practically this research will be relevant to local as well as central governments, whether the way procurement is practiced enhances the possibility that policy objectives are being
3
4
2. Sector Description
2.1 Background of the Wmo 2015The Dutch central government has decided to decentralize many responsibilities to the municipalities. In the opinion of the central government, municipalities are more knowledgeable to the local
circumstances and therefore better able to allocate government facilities in an efficient manner. However, this was not the only reason. The prospect of ongoing aging of the population demanded for severe financial cuts. The pressure of the economic crises which started in 2008, made impetus for more reform in care. Under this circumstances, the government wanted to go from a welfare state, to a “participation society’’. Citizens of this participation society should be as much self-reliant as
possible, with support of the local government (municipalities). The point where they need intensive care is to be postponed in this manner, saving budgets. In 2007 the Wmo was decentralized, which should materialize these plans. This law entailed that some care that was funded on a provision basis under the AWBZ, now should be requested by people at their own municipality. This low-profile care is meant as the support needed to keep people self-reliant as much as possible. Municipalities were now to procure this care and distribute it. The change from welfare state to participation society is a large change process, which is implemented gradually. In 2015 this culminated in the transfer of three government policies towards the municipality (www.vng.nl). All three are in the social domain: youth care, work and income (helping to find work, and providing doles), and care for the long-term ill and elder people. This last one was arranged under a renewal of the Wmo, officially named Wmo 2015. There is a whole range of care which is provided under latest version of the Wmo. The care that municipalities should provide is loosely defined in responsibilities. It is not specified exactly which care is provided. However, the Wmo formulates 5 responsibilities, which result in many types of care to be provided. As an indication, the responsibilities are given with corresponding care in table 1.
Table 1 Responsibilities and attached care - Wmo 2015
Responsibility Care
Support for self-reliance Taxi for disabled people, personal care, daytime activities.
Support for participation in society Social events
Protected living Shelter for women, daycare for psychical ill.
Client support Provision of technical devices at home (i.e. stair
lift, scooter)
Support for family care Reimbursement for people who care for others.
5
The Wmo 2015 formulates a result obligation towards these responsibilities, which means that they must have a policy that results in sufficient self-reliance of people who cannot arrange this
independently. When a general provision is not adequate, a customized provision must be delivered up to the individual level. In the latter case, it can also be decided to provide a personal budget.
The broad formulation of responsibilities was made deliberately, to allow for some discretion. Hence municipalities are enabled to link policies and, where necessary, deliver customized provision
(Tweede Kamer, 2013). Such policies the Wmo is linked with often are; housing policy, public health, debt counselling, employment etc. The open formulation also allows for innovation, which another spearhead of the Wmo.
2.2 Implementation by municipalities.
Part of the reforms, was the plan to let municipalities outsource the activities that came with the Wmo The budgets allocated to municipalities in order to procure for this care, amounted up to 8,8 billion euro in 2015 (Tweede Kamer, 2013). There are two reasons for outsourcing (CPB, 2015). Firstly, municipalities take advantage of the expertise and economies of scale that exist in the external care field. Secondly, outsourcing introduces markets mechanisms which have the potential to enhance efficiency through the price mechanism. Essentially the reforms created a quasi-market that replaced an integrated government bureaucracy (Williamson, 2000). Municipalities now close contract with care providers, which entails a transaction of money in exchange for the provision of care by the suppliers to citizens of the municipality. When a citizen places a request for care, a special district team indicates specifically what care is needed and if this need is legitimate.
These district teams have a pivotal role in the monitoring and selection of suppliers. Monitoring and selection is important, since there are also risks incorporated to this outsourcing, because parties’ interest may not completely match. For example, when a patient needs a referral for additional care, care providers will have a preference for their affiliated organizations. Another risk is that there is not procured for sufficient quality, which will then lead to renegotiation when this lack of quality comes to bear. This is a very relevant risk, because municipalities lack the extensive knowledge that is needed to indicate what kind and quality of care is needed for the coming years. The more complex the kind of care, the more difficult it is for them to measure the quality delivered. Furthermore, the delivered care has to be aligned with other parties providing care to the facilitated people.
6
(2000). Therefore, we also consider how the supplier-relationship dimension is considered in the procurement procedure.
2.3 Legal context of the Wmo 2015
Some services that municipalities deliver under Wmo 2015, are acquired through subsidy, others through contracting. As said, this paper’s subject is public contracting. The most important distinction is that a contract is a bilateral act, while a subsidy is a unilateral act. This means that with a subsidy there is no contract for pecuniary interest. Furthermore, a subsidy must be granted if the requestor meets criteria, while in a procurement process such a party can still be denied. Wmo tasks are delivered through public works contracts, public supply contracts and public service contracts. This means that European Directive 2004/18 applies (europadecentraal.nl), until the European Directive 2014/18 is processed. In the Netherlands, this directive is implemented through the Aanbestedingswet 2012, a law that regulates al procurement for Dutch governments. The legal context influences the opportunities municipalities have in procurement. For example, cooperation in procurement is largely encouraged by advising institutions, and this is also done by municipalities. However, since
competition is a prerequisite, there is a prohibition to “unnecessary clustering” in the
Aanbestedingswet. This has caused some debate over cooperation (kvdl.nl). Another important distinction that the European Directives made is that between 2A and 2B services. For 2A services, the law fully applies. For 2B services however, an “enlightened regime” exists, that allows for more freedom in the procurement process. Services that fall under this category are, among others, health care services (pianoo.nl). Thus this detail is important for the Wmo 2015. Furthermore, the European Directives demand for transparency and accountability.
2.4 The procurement process
Before the introduction of the Wmo, it was clear that municipalities would need guidance on procurement. With the Wmo2015 insight, in 2011 the Transitiebureau Wmo was established by the Dutch ministry of Health and the VNG (association of Dutch municipalities). This bureau was active until 2015, when the Wmo 2015 was introduced. Together, these institutions made recommendation on the procurement process (Tweede Kamer, 2013). There are three steps distinguishable in their recommendations toward the procurement process:
1. Determine whether to cooperate with other municipalities or to procure independently. 2. Decide according to which model procurement will be implemented.
3. Decide how to arrange different control elements of the contract.
7
most used are given in table 2. These models differ in the degree of participation the provider has in setting up requirements, how many providers are approached, whether providers participate in cooperation, and in administrative burdens. As one can see in table 2, pure auction is almost unused. This means that in 99% quality is subject to negotiation.
Table 2 Usage and description of procurement models
Usage Procurement model Description 1 205 (54%) Governmental procurement
Interested care providers are invited to plenary negotiate contractual terms including quality, payment and duration.
2 66 (17%)
Multiple private procurement
With multiple private (meaning discrete) procurement, private parties make an offer, hereafter the municipality makes a selection of parties which whom they want to negotiate. Hence, the difference with the Zeeuws model, is that contracting is individual and price is not predetermined
3 65 (17%)
Zeeuws model Municipalities predetermine price, performance conditions, and quality standards. In most cases, the contract is only a framework agreement in which there is no revenue guarantee. This is namely determined by the clients. They have freedom to choose one of the selected suppliers to exercise their demand directly. This is characteristic for the Zeeuws model.
4 30 (8%)
Classical procurement
A public, specified request for supply is placed. All interested parties can then make an offer in which they describe how they will meet the specifications. This is
5 10 (3%)
Best Value
Procurement (BVP)
The municipality makes a request for supply in very general terms. Interested providers then make an offer a solution in which they describe price and quality. This is not
predetermined by municipalities. With BVP, creativity for innovative solutions is encouraged.
6 2 (1%)
Private Auction Firstly, interested parties must conform to certain criteria including quality requirements. These pre-selected providers can then bid to care per client when a demand is exercised.
8
Some further explanation on the differences between these models could be useful to the reader. Governmental procurement is done plenary, hence providers and municipalities consult quality and price all together. Meanwhile, multiple private procurement is much more discreet. Private parties make an offer, hereafter the municipality makes a selection of parties which whom they want to negotiate. This is also different from Zeeuws model, in which contracting is done per individual and price is not predetermined. A somewhat particular model is Best Value Procurement. Price and quality criteria are almost completely open for negotiation. Therefore, it stimulates creativity from providers, in this way solutions which were out of scope can be found. Best Value Procurement is a model in which ’the risk is shifted to the providers to show value through dominant expertise, knowing that experts minimize both risk and cost, thus providing the best value for the lowest cost’’ (Van de Rijt & Santema, 2012, p.147). Lastly, on the opposing side, with pure auction, selected providers can bid to care for one client, on preset quality requirement. This is different from classical procurement in its individual bidding, while it is different from the Zeeuws model with its prescribed quality requirements.
Off course, the procurement process is only finished when the contracts are signed. However, the control elements in the contract are vital for the compliance by providers. How these elements are given shape, is dependent on the desired relationship with the provider. Examples of these elements are; contract duration, budgeting method, option for prolongation, flexibility versus detailed
9
3. Theory
A central assumption in the acts of decentralization, was that municipalities could deliver more value for money through procurement, making use of market forces. Procuring instead of subsidizing would deliver more efficiency. To analyze whether efficiency enhanced, multiple theories could be used. The neo-classical economic view on markets for example, since it assumes that firms are profit-maximizing. However, this view assumes self-seeking individuals, who are fully rational and possess perfect information. Therefore, it focusses only on production costs (Reeves, 2008). However, in a context which is influenced by institutions the assumptions of neo-classical economics are not appropriate. Still, in public procurement the goal is to enhance the efficiency of acquiring goods or services. In other words, to diminish the cost of transactions. Meanwhile, the influence of human behavior and the effects of governing institutions need to be considered. Therefore, transaction cost theory (TCT) is very useful, since it analyzes governance modes (institutions) that ought to diminish transaction costs.These are the costs that arise in organizing a procurement process as well as drawing, monitoring and enforcing contracts (Reeves, 2008).
In addition to TCT, findings from purchasing and procurement literature are used to support TCT findings and to see the workings of TCT concepts in practice. Purchasing portfolio models (PPM’s) are very useful, since they make recommendations regarding the supplier relation that should be aspired. They do this according to several criteria, or dimensions, that are conceptually close to TCT (Sousa et al. 2012). First of all, procurement literature helps to define what strategic procurement is.
3.1 Strategic public procurement.
Currently, there is evolving a recognition that a strategic approach to procurement can provide significant success in terms of successful health policy outcomes and efficiency savings(Asquith, Brunton, & Robinson, 2015).There are many available definitions on what strategic procurement is. However, there are few that are focused on public procurement (Arlbjørn & Freytag, 2015). Murray’s (2007) definition is the one followed in this research:
“Local government strategic procurement is the process of determining the corporate procurement strategy, mapping and overseeing the high-level procurement portfolio, defining and challenging the desired procurement outcome, determining and managing specific procurement plans, identifying, evaluating and challenging procurement service delivery options, contract award, post-contract management and review.” (Murray, 2007; p.196)
10
Hesping and Schiele (2015) state that it is possible to distinct a whole hierarchy of strategies when it comes to strategic purchasing. Central to these different levels in the hierarchy is that they should be aligned. First of all, purchasing strategy should be seen as what it is: a strategy for a function in the organization among other functional strategies. Therefore, it needs to fit with these other functional strategies and the organizational strategy. If we apply this on the public sector, organizational strategy should be thought of as a coherent set of policies, in which politicians have a determining role
(Murray, 2009). On the second level is there is the sourcing strategy, which is about the criteria for supplier selection and determining which supplier relation is required. And thirdly there is the tactical sourcing level, which incorporates the tools and practices to implement the sourcing strategy. In section 3.6 purchasing matrixes are explained, which provide a way of thought to combine the organizational strategy with the sourcing strategy. In a strategic procurement process, all three levels are aligned. Therefore, municipal strategic procurement under the Wmo 2015 is about aligning policies and strategic goals.
3.1.1 Policy interests and strategic goals
Municipalities are democratically accountable, therefore, their most important stakeholder are the inhabitants. This accountability also extends to public procurement (Murray, 2009; Phillips et. al, 2007) The municipality has to serve the interests of the inhabitants. The needs and wishes of inhabitants are multiple and pluralistic, therefore a municipality has several functions in its organization, with their own strategies. In order for procurement to be strategic, it should have strategic “fit” with organizational objectives and be consistent with the issues important to the rest of the organization (Murray, 2009). These objectives are set by policies made by local politicians. Thus procurement is related to economic policy, social policy etcetera. For this reason, purchasing managers need to understand the political context of their profession (Thai and Drabkin, 2007).
Hence, Wmo 2015 procurement is taking place in a social context characterized by a strong legal framework. Meanwhile, procurement is an economic profession, which stresses efficiency. New institutional economics connects these different interests of procurement by recognizing the role of institutions such as society and law regarding economic transacting.
3.2 Transaction Cost Theory
11
system (Coase 1998). We are now talking about Transaction Cost Theory, according to many
founded by Coase (1937; 1998). This branch of NIE asks itself the question; What governance mode is best suited to the characteristics of a transaction (Williamson, 1999)?
Williamson (2000) mentions 4 levels of social analysis to place TCT in context. It is a continuum in which level 1 is almost unchanging and level 4 is continuously changing. Level 1, consists of informal institutions like custom, traditions, norms and religion. This level takes centuries or even millennia to change. Level 2 is about the formal institutions like laws and constitutions, the formal rules of the game. The rate of changes in this level is in terms of decades or centuries. In level two it is not only about the formal rules of the game, but it includes how the game should be played as well. However, the legal system of any country is unable to define and enforce property rights such that economic chaos would be eliminated (Williamson, 2000). The cost of such an enforcement, if it could be possible, would be enormous. The inherent friction of most transactions is therefore dealt with by involved parties themselves. Thus, the governance of contractual relations becomes the focus of analysis. This is level three, where we are arriving at the location of transaction cost theory, the institutions of governance. Here we can see how the game is played in practice. Commons (1932) stated that the ‘ultimate unit of activity’ is a transaction and should include the following three principles of: order, mutuality, and conflicts. Transaction cost theory not only supports this idea, but also states that governance can create mutual gains for parties, by shaping order and mitigating
conflict and friction (Williamson, 2000). Due to the importance it gives to institutions, transaction cost theory is very useful to analyze governance modes in a political context. It is furthermore interesting how often Williamson (2000) indicates that politics influences contracting policy.
3.3 Characteristics of Transaction
12
Opportunism refers to the possibility that the supplier will act against the interest of the buyer at the benefit of its own interest. “The result of opportunistic behavior can be adverse selection, the ex-ante choice of an inferior option, or moral hazard, increasing the ex post risk that one party will exploit the terms of the contract to the disadvantage of the other party” (Parker & Hartley, 2003, p.). Summarized in one quote: ''Transaction cost theory demonstrates how the combination of bounded rationality and opportunism creates the prospect that costly negotiating and monitoring cost may accompany exchanges in the market'' (Roberts and Greenwood, 1997, p. 348).
There are three critical dimensions for transaction costs according to Williamson (2000; 1999): asset specificity, uncertainty and frequency.
3.3.1 Asset specificity
Firstly, asset specificity is the degree to which an asset that is a necessary support to a transaction can be redeployed to support other transactions, without a significant loss of value. Hence, highly specific assets generate sunk cost. The dependency that asset specificity creates can be entirely for one party, but also be mutual (Bensaou, 1999). Therefore, when an asset is very specific to a transaction, this creates scope and incentives for one of the parties to behave opportunistic (Ashton, 1998). It is noteworthy that these assets can be both tangible (equipment) as well as intangible (human resources etc.) (Bensaou, 1999).
Care providers are subject to transaction specific investments. The knowledge that is gathered, and the innovation that is made, are often only valuable in the concerning district or municipality. Therefore, providers will demand a longer duration of the contract. Similarly, a municipality can have invested a lot of time developing an action plan together with a multitude of provider. The created knowledge about the clientele in the region and the agreement on ways of working represent an asset towards municipality that is not simply transferable to another provider.
3.3.2 Uncertainty
Secondly, uncertainty refers to the sources that cause hazard of maladaptation of contractual
governance (Williamson, 1985). Sources of this uncertainty are multiple. Market volatility, political circumstances and, most importantly, the financial and operational status of the partner in the transaction. Tough these contingencies are out of the buyers’ control; they have significant influence on the success of the transaction. Furthermore, given the impossibility to write everything in the contract (because people are rationally limited), this uncertainty is not eliminable.
13
was new to compete in a procurement process. Both these issues raise the complexity towards municipalities (Eshien et. al 2014).
3.3.3 Frequency
Thirdly, frequency (low versus high) of transacting with the same party is relevant regarding
reputation and set-up costs. Reputation effects mutual trust and set-ups costs determine the relevance of asset specificity. Regarding contracting, this last dimension is largely implicit to the first two (Williamson, 1985). More frequent transacting reduces uncertainty through reputation effects and lowers the weight of transaction specific investments. With the long duration of a contract that is needed for innovation and cooperation, and the cost associated. Frequency is also determining for the governance structure. In general, the more frequent parties make transactions with each other, the more they will know and trust each other. How this influences Wmo 2015 procurement is interesting. Concluding, the different characteristics of the proposed transaction are likely to influence the Wmo 2015 procurement process.
3.4 Supplier relations and public procurement
In public procurement, diminishing transaction costs is done through choosing the right contract and contractual relation (Arlbjørn & Freytag, 2015; Ashton, 1998). To analyze buyer-supplier relation one can take, among others, the view of the governance approach (Gelderman, Caniëls & Ulijn, 2010). This approach is forwarded by Williamson (2005), builds on TCT, and its main purpose is to provide management with strategic recommendations regarding different types of supplier relationships (Gelderman, Caniëls & Ulijn, 2010). “As against simple market exchange, governance is
predominantly concerned with ongoing contractual relations for which continuity of the relationship is a source of value” (Williamson, 2005, p.2). The closeness of this contractual relation depends on the 3 dimensions of transaction costs mentioned earlier.
Firstly, inherent uncertainty for example makes it likely that the contract must be adapted, because of disturbances in the transactions that were not provisioned in the contract. Such transactions must build on incomplete contracts to create adaptability regarding unforeseen circumstances and will therefore need cooperation from both parties to bring the project to a successful end, (Eshien et. al 2014; Crocker & Masten, 1996). Since, in the case of an incomplete contract, there is opportunity for the providing party to misbehave (Williamson, 2000), such a cooperating relation between parties requires trust (Parker & Hartley, 2003).
14
second instance however, it can be that at first there were many competitive suppliers, but at the time of contract renewal the existing supplier will be favored because of the existing assets.
Thirdly, asset specificity creates mutual dependency and therefore fosters cooperation. Asquith, Brunton & Robinson (2015) examined the role of politics in care procurement regarding public-private relationships. In their research it became evident that difference in values influenced the contracting. Because some service-oriented publicly funded government organizations thought of the profit-driven market as “evil’’, this sometimes resulted in distrust. Under circumstances in which a transaction is characterized by asset specificity, this is a bad thing. To invest for these assets, trust is a prerequisite. Furthermore, instable politics create uncertainty for both parties. Lastly they found that commitment to the other is very important for a partnership. When political objectives are consistent with the
objectives of the private partner, this commitment is made much easier.
To conclude, the relation between contract parties is significantly determined by transactional dimensions. Now, a framework is proposed, that is able to describe the relation between contracting parties. Building on the transactional dimensions from TCT, Macneils (1985) framework to typify relationships is extended by Reeve (2008). Macneil (1985) identified transactional versus relational contracting. At one end there is transactional contracting which is characterized by economic exchange, short-termism and absence of conflicting interest. This is associated with bidding. At the other end relational contracting is identified which is characterized by informality, shared problem-solving, co-operation and mutual trust. This is associated with partnerships and alliances. This
framework of Macneil (1985) was criticized, among others, from being to ‘discrete’ in opposing these two kinds. However, Reeve (2008) advocates to see it conceptually as a spectrum, in which the position is determined by the transactional dimensions. For example, in the case of high uncertainty and asset specificity this is predicted to lead to ‘relational contracting’, due to increased duration and complexity of the contract (Eshien et al, 2014; Williamson, 1985). The reference point for effecting adaptations in such a contract is not the original agreement. Instead the reference point for agreement on these adaptations is the relation itself, that developed through time (Reeve, 2008).
Hence, the appropriate kind of supplier relation regarding the Wmo 2015, is determined by transaction characteristics. Following, in the Wmo 2015 procurement process, municipalities are expected to take into consideration these characteristics in their consideration for the supplier relation and the
procurement process.
3.5 Supplier relation matrices
15
supplier relations were developed, recommending certain suitable management styles. Interestingly also these typologies were also developed according to dimensions that have resemblance with the three transaction cost characteristics. The influential purchasing portfolio matrix model (PPM) of Kraljic (1983) is an example of this, it categorizes suppliers according to two dimensions, one of them is supply risk, which represents uncertainty towards the buyer. Then makes recommendations for the kind of relationship, part of the actual purchasing strategy. Sousa et al. (2012) used these PPM’s to investigate the governance of contractual relations with TCT. PPM’s highlighted important factors in purchasing, and with TCT the findings can be aggregated. Hence, their examination of purchasing categories is based on the two of the three dimensions of transactions mentioned earlier: asset
specificity and uncertainty. Frequency was not included. From other PPM’s they find that uncertainty materializes in uncertain technological specifications and market conditions. Therefore, customization of the product or service will be needed when changes in demand occur. In this way, the bargaining power for the supplier/provider raises (Sousa et al., 2012). This is especially true for municipalities, as they are unfamiliar with the care they provide, and it is complex to forecast what care is needed.
The portfolios of Bensaou (1999) and Olsen & Ellram (1997) are very connected to TCT (Sousa et. al, 2012). They correspond respectively to asset specificity and uncertainty. Similarly, Bensaou (1999) investigated 4 types of transactions regarding asset specificity (see table 3). When asset specificity is high for one party, there is a burden to make the transaction successful to avoid losses. Meanwhile the party has to resist the pressure that the other is able to perform under these circumstances. When asset specificity is high for both parties, a strategic partnership is possible, with mutual trust, information sharing, cooperation and frequent meetings. There is a mutual interest for such a partnership, since the jointly carried risk.
Olsen and Ellram (1997) conceptualized a similar portfolio (see figure 1) according to two different dimensions; (a) the difficulty of managing the purchase situation, and (b) the strategic importance of the transaction. On the one hand, the difficulty of the purchasing situation was split into product characteristics (novelty and complexity), supply market characteristics (suppliers’ power as well as technical and commercial competences), and environmental characteristics (risk and uncertainty). On the other hand, strategic importance of the purchase consists of competence factors (e.g. evaluating the firm’s experience with the purchase and its technological strength), economic factors (e.g. the value of the purchase), and image factors (e.g. brand name and environmental safety). Image factors are
Tablet 3 Benseaou's (1999) portfolio matrix
B uyer s’ spe ci fi c inves tm en
t High Captive Buyer Strategic Partnership
Low Market Exchange Captive Supplier
Low High
16
particular to public procurement as Caldwell (2007, p.156) mentioned “public bodies and their procurement are subject to the particular need of elected representatives who have to be concerned with image and votes”. Managers should weigh in all these factors for their individual organization, when applying this portfolio (Olsen and Ellram, 1997). When the sum of factors in both dimension scores high (Strategic in figure 1), the organization should “develop a close relationship with the supplier, focusing on early supplier involvement and joint development of products and services, keeping a long-term value focus’’ (Olsen and Ellram, 1997, p.105). Transactions with high strategic importance and which are easy to handle, should be ‘levered’. Requirements for future performance should be communicated, and there should be a relation of mutual respect. Bottleneck represents transactions that are characterized by low strategic importance but high difficulty of purchasing. The purchasing procurement should be standardized as much as possible for these transactions. The supplier relation should be focused on cost savings.
Table 4 Olsen & Ellrams Purchasing portfolio model
These matrices describe very well how transactional features can determine the relationship between municipality and supplier. Municipalities are positioned in one of the four positions described by each matrix. Asset specific investments associated with daycare provision for example will possibly lead to a captive buyer or strategic partnership position, since it requires investment in buildings. Similar, domestic help could be seen as strategically important because of the large budget attached to it. If domestic help is relatively easy to procure, this is a service described as bottleneck. The procurement of these kinds of services should be standardized according to Olsen & Ellram (1997). In the case of Wmo procurement, this could possibly lead to pure auctioning, a transactional relation. This kind of reasoning is purely hypothetical for now, but it shows the relevance of the matrices in this context.
3.6 Conceptual model
Concluding, purchasing literature already has many connections with TCT, which can be used to refine and strengthen the concepts and relations investigated. However, the particularity of strategic public procurement needs to be more clarity. In section two it is described which procurement models municipalities have at their disposal. Furthermore, there has been investigated how transactional dimensions influence the appropriate choice for supplier relations. Meanwhile, it was also explained how this influences procurement processes generally. Figure 1 shows a model to summarize the different concepts and their relations that were mentioned. The degree that transaction characteristic occur influence the appropriate supplier relationship. This was explained by TCT and the matrices of
D if fi cu lt y of the pu rch as ing si tuat ion
High Bottleneck Strategic
Low Non-critical Leverage
Low High
17
Benseaou (1999) and Olsen& Ellram (1997). The transaction characteristic included are those from TCT (Williamson, 2000) and added is complexity. Complexity is a main cause of uncertainty (Williamson, 2000). However, it also has a direct influence on de supplier relationship (Eshien et. al, 2014). The supplier relationship is related to the procurement process. Open negotiation, and open contracts requires a trust-build relation, while an auction does not and a purely transactional relation is sufficient. Then, the procurement models distinguished by municipalities are used as a typology for the procurement processes, to match these with the character of supplier relations.
18
4. Methodology
Wmo 2015 procurement is a recent phenomenon in which the procurement side is not researched completely. The conceptual model shows several factors influencing the phenomenon, however it is unclear how they interrelate. Also, other important factors could bear up during research. Such factors could possibly be dependent on the specific municipality and therefore the design of this study is wide, 8 municipalities and 3 providers participated, with a total of 13 respondents. When foreknowledge is limited and the research question is open, such as in this research, qualitative research is fitted
(Baarda, 2005). Qualitative research must build on analytical generalizability, which means that when the same conditions apply in another case, the same result should be seen (Yin, 2009). This is
important, since qualitative research is often criticized for a lack of generalizability. Secondly, another characteristic of qualitative research is the applicability of multiple sources of evidence and benefiting from prior development of theory. Based on literature several findings were already found, as possible explanations about the relations between the concepts that are relevant. This does not hinder
exploratory research (Parker, 2012), but instead gives direction to the research. When findings from literature fail to be confirmed, the reasons why they failed, and how reality instead looks like, could result in alternative explanations. Therefore, a qualitative study is very suitable, since it fits both kinds of research.
4.1 Interview method
Interviews are to be semi-structured, to provide opportunity for exploration (Yin, 2009). There are held interviews at three municipalities, and two care providers. Semi-structured interviews were chosen because they provide means of obtaining both contextual and experiential insights into the experiences of participants (Asquith & Robinson, 2015).
The interviews were based on a questions composed by key features of procurement and transactions, as outlined above. For the development of these interview questions the interview guide of Emans (2004) was used. There were developed three kinds of interview guides, one for the municipal procurer, one for the alderman, and one for the care providers. These can be found in the Appendix. They are quite similar, though each with a twist to make the questions more relevant to the
interviewee. Central in the questioning stood Wmo 2015 procurement, at which the following
questions were directed. First some introductory questions and general questions about the Wmo 2015 and public procurement were asked. Then there is asked respectively after the degree of asset
19
4.2 Selection of Respondents
Murray (2009) argued that public procurement research lacks validity because there is often only one kind of respondent; the procurement manager. The way to improve this construct validity in
qualitative research is to include multiple viewpoints on the same subject, called triangulation by Yin (2009). Therefore, in this research three kinds of respondents will be included. The respondents should be in a position in which they experience the procurement process regarding the Wmo 2015 from a close perspective. Therefore, the people that will be interviewed should hold a position which enables them to do so. An attempt was made to interview several kinds of respondents for the municipality. Namely, Wmo purchasing managers, general purchasing managers, and a politician who is closely involved with the Wmo 2015. The research question is focused on municipalities, but it also includes relationships with care providers. Therefore, both municipalities and care providers must subject of research, and there were also held 3 interviews with care providers. Eventually during the interviews, it became clear that the distinction made between the three kinds of respondents from municipalities was not always valid. Wmo 2015 procurement often was a project, to which different employees were assigned, whose official function is for example policy makers. Additionally, policy makers are more privy to the link between policy and Wmo 2015 procurement. Therefore, several policy makers have been included instead of alderman. The inclusion of politicians in public procurement is strongly recommended by Murray (2009). The respondents representing the care providers were each very knowledgeable about the procurement processes their organization took part in. An overview of al interviews held, is given in table 5.
For selection of these municipalities, there was filtered on the procurement models they used. This was done via the websites of municipalities and TenderNed, the online application where
municipalities announce their procurement. Hence, all important procurement models (table 2) should be included. The only model not included was private auction, since it was not found to be used, which is also visible from table 2. Secondly three providers, each providing at least one of the
investigated municipalities, are investigated. The time span included will be approximately from 2014, when the procurement process started, until 2015 when it had to be finished.
4.3 Data collection
20
in the Wmo 2015, domestic help was already an older task for municipalities and care tools even older again, which gives a range of experience gathered by municipalities.
In total 13 interviews were held, with 14 respondents, since the interview with Wageningen was with two persons. 11 interviews were face-to-face; 2 interviews were telephonic. 8 municipalities were interviewed, and 3 care providers. The respondent from the ISNV is somewhat particular. The ISNV is a procurement group of several municipalities, including Nunspeet. Therefore, this respondent speaks on behalf of both these organizations, while the ISNV is not counted as a municipality in tables 6-9. For each care type there was focused on, there was interviewed one provider. One of the providers chose for anonymity, an option all respondents was given. Each interview was transcribed in order to enhance controllability of the study. According to van Aken, Berends and van der Bij (2012),
controllability is a prerequisite for reliability and validity.
Table 5 Overview of Interviews
Respondent’s function Duration Municipality Care provider
Procurement advisor 65 minutes Zeist X
Procurement advisor 65 minutes Ede X
Procurement advisor 60 minutes Veenendaal X
Procurement coördinator 55 minutes ISNV/Nunspeet X
Procurement coördinator 60 minutes Hoogeveen X
1 Procurement advisor and 1 Policy advisor.
60 minutes Wageningen X
Policy advisor and Wmo Procurer.
55 minutes Nunspeet X
Policy advisor 60 minutes Leeuwarden X
Alderman 60 minutes Nunspeet X
Account manager Wmo 55 minutes Deventer X
Manager TenderNed 55 minutes X Care tool provider
Marketing Manager 85 minutes X T-zorg, domestic help
Care Coordinator 35 minutes X Oranjehof, daycare
4.4 Analysis
After the data was collected through in-depth interviews and documents, it had to be made useful for analysis. Since the interviews are audio-recorded, they need to be transcribed. Since all our
21
Subsequently, the data will be analyzed on the basis of literature collected beforehand and some literature that will be searched during the research process. Analysis will be built on themes found during the process. Identification of themes as a goal and as an end point of analysis fails to produce a coherent robust and elegant theory (Bazeley, 2009). “Contextualizing and making connections
22
5. Results
In the following chapter, the most important findings distillated form the information gathered will be given. Respondents made clear how they gave shape to the procurement process. Multiple
considerations corresponding to our concepts were important in the logic behind procurement
processes. Respondents also told that the official models as defined, should not be used as a standard format to design the procurement process. Rather they should be used as assistance. As one
procurement advisor put it: “You first identify your needs, and then you distil how to approach this (tender)’’. These needs were partly disclosed in policy objectives set by the municipal council, and partly due to the features of the transaction as identified by procurement advisors. However ultimately a procurement model was discerned by the respondents, the models used are shown in table 10. This chapter will be structured according to the conceptual model, which means every section will correspond to a concept of the model shown in figure 1. Transaction features, including TCT characteristics, are vital, and causal factors in this research. Therefore, the findings will be reported according to these characteristics, which provide a common denominator to describe the different kinds of care provided under the Wmo 2015. However, first, the influence of policy factors will be examined. As will be shown, in the considerations designing the procurement process, policy and transactional factors are very much intertwined.
5.1. Policy
Policy aspects influenced the procurement process in both overt and subtler ways. For instance, the municipal council could set a very directed order, to structure the process according to a certain model. Since governmental procurement was becoming a trend, some municipalities just wanted this model for that reason, according to four respondents. However, respondents also stressed the importance of the more general Wmo 2015 policy goals. Three goals apply to all municipalities, because they are formulated by the Wmo 2015 itself; freedom of choice, one care director per household, and continuity of delivery. All respondents stressed freedom of choice for the citizen as of vital importance regarding daycare and domestic care. Thus multiple parties had to be contracted, on differing terms when the delivered care differed significantly. Another policy aim was to assign one directing caregiver to each household in need of care, in the case of different kinds of care. Lastly, continuity of care delivery was required, because of the sensitive nature of care. For example, daycare and domestic help must be delivered on time, because it will be harmful for clients when it is delayed.
However, according to many respondents, the Wmo 2015 did not only entail new tasks and
23
consultation. Therefore, also the operational management of existing tasks of the Wmo, such as domestic help, was influenced by the changed law.
Policy goals influenced the procurement process very much. The need for freedom of choice resulted for the municipalities Hoogeveen, Zeist, Ede and Veenendaal to contract multiple suppliers. This was also a form of risk management to ensure continuity, another policy goal. However, to really offer multiple options to the citizen, differing terms were set with care suppliers. Therefore, three of these parties ended up with governmental procurement. The procurement cooperation ISNV (including Nunspeet) chose for the same reasons the Zeeuws model, which is giving a clear price for every party. The ISNV also approached the dilemma of price slightly differently, by consulting a bureau
specialized in cost prices. However, as the policy advisor of the municipality of Nunspeet said; “It is true that it also has a touch of governmental procurement”. To arrange one care director per
household; Municipalities could arrange this trough contracting one main contractor (Veenendaal), or to include in the contract expectations for collaboration (Nunspeet).
5.2 Transaction characteristics
5.2.1 Asset specificity
Asset specificity for municipalities did occur, depending on the specific circumstances in the municipality and how the contract was set up. On the other hand, suppliers had made transact ion specific investments by a great extent. Several forms of asset specificity linked to the transactions of the Wmo 2015 were mentioned in answer to specific questions, which are shown in the Appendix. These results are summarized in table 6.
First of all, the process of preparing and implementing a tender is very costly, and represents a significant investment. The degree of specificity however, varies with the model that is used. When few suppliers are contracted, this poses a risk to the municipality. When existing suppliers are not able to deliver anymore, the whole tender has to be done over. Also the cost of adjusting operational processes in municipal organizations are considered significantly. There has to be adjusted to care suppliers with communication systems, financial systems, and organizational structure. With every procurement, new arrangements are made, and the municipality had to adapt again. As one purchaser put it: “It is an enormous investment, which is often underestimated”. She was confirmed by at least two other purchasers.
24
tools with the depot in possession of the supplier. Similarly, municipalities also have to make
adjustments in the homes of clients, such as the placement of a stair lift. These assets are in possession of the municipality of Hoogeveen and lose approximately half of their value after placement.
However, in this market there are no other suppliers who can maintain or replace these stair lifts. Asset specificity was an important aspect in a tender by the municipality of Veenendaal. It had several empty buildings in ownership. These buildings were used to provide care under older regimes, and were not anymore. The municipality desired to see these properties rented or bought by care parties that were active in the procurement process. However, these buildings were not necessarily fit for the care providers, care providers could have their own buildings already and so on. So to see this desire fulfilled, the municipality had to engage in constructive conversations with the care provider to see whether there could be made a deal. A procurement process in which such an issue is at stake, cannot include a tender designed similarly as the classical model. In such a tender, everything is laid solid in criteria, with which a candidate must agree to obtain the contract. To reach an agreement, the details of such a deal must be discussed. Therefore, the municipality of Veenendaal chose to select a supplier, based on a process with many one-on-one conversations and meetings with parties. This is very characteristic for BVP. Also the follow-up, the process of designing the contract is very much like the BVP model advocates, as will be shown later.
So far, the asset specificity regarding municipalities. For care provider’s asset specificity is a much bigger issue, which municipalities have to consider, to reach a good agreement. Care providers sometimes have invested heavily in buildings and personnel, or must do so in order to receive the order. For domestic help this is primary about personnel, for daycare also buildings. In both of these markets, goodwill is also an important aspect. Citizens choose their provider, thus it is important for a provider to be known and trusted. As the procurer of Zeist told: “Often clients already have
25
However, there are also citizens who work for the providers. Those are also your citizen, and you have a responsibility for them as well”.
As a result, the Wmo 2015 also is a socially sensitive subject:
“Care must go on, and just stands full in the spotlights…. You do not do a care project well? That immediately appears in the newspaper. (Procurer, Veenendaal)
“Because there is always quickly pointed at, yes, the municipalities must do that. If nobody does it, the municipality must, otherwise it’s the municipalities ‘fault”. (Procurer, Zeist).
Suppliers of care tools are also required to invest, since this is often a requirement municipalities make. Furthermore, when care tools are rented by the municipality, the supplier has to purchase these. As the interviewed Aldermen said: “You must give parties you contract time and space to earn their investment back”. So the result of asset specificity was closer collaboration.
Thus, asset specificity was very relevant for the procurement process, since it occurred to a large degree at the supplier side, and somewhat less at the side of the municipality. Different forms of asset specificity exist in the Wmo 2015 field; these are summarized in table 6. The traditional asset
26
Table 6 Description Asset Specificity Wmo 2015
Municipality M/N Supplier M/N S Relationship effect Daycare Cost of procurement process 3/8 Buildings 8/8 Agree Very high degree of asset specificity for
suppliers urged them to a collaborative relation with the municipality. Due to the social
importance, municipalities were interested in a close relation.
Social importance 8/8 Personnel 8/8 Agree
Goodwill 5/8 Agree
Domestic Care
Cost of procurement process 3/8 Personnel 8/8 Agree Asset specificity urged suppliers towards
collaborative relation, although less investment in buildings. Due to the social importance, municipalities were interested in a close relation.
Social importance 8/8 Goodwill 5/8 Agree
Car1e Tools
Cost of procurement process 3/8 Supply network 8/8 Agree Half of the municipalities had a purchased depot. However, this risks were accounted for with clauses. With a rented depot, asset
specificity was low. Therefore, the relationship with these suppliers was very transactional
Care tool depot 4/8 Care tool depot 4/8 Agree
Personnel 8/8 Agree
27 5.2.2 Uncertainty
As noted in Chapter 2, the law Wmo 2015 describes the responsibility of municipalities to deliver several kinds of care. However, the broadness of this description caused uncertainty about in which tasks it actually would materialize. It took a long time before the discussion about which kinds of care would be the responsibility of the municipality. Only in November 2014 it became sufficiently clear what care belonged to the Wmo 2015, and following, what had to be procured for 1 January 2015. Until this time, municipalities where at the hand of jurisdiction and changes in the law. Furthermore, it was clear that a budget cut would be associated with the transition. However, it was long unclear how large this would be. There were asked specific questions about uncertainty, which are shown in the Appendix. The results that will be discussed now, are summarized in table 7.
Under these circumstances it was hard to write in contract what was expected from care providers. However, since it was the first procurement on daycare, it took considerable time, and therefore municipalities already started the procurement process in early 2014. At this time, it was not sure what, and how many work daycare providers would receive. Therefore, one procurer said; “Indeed it is really in the relation. And then parties are inclined to invest to a certain extent”.
“However, for a subject that is still in motion, also at this moment, we found it unwise to set it in such a solid grid in terms of the contract.” (procurement advisor, Zeist)
So, classical and multiple private procurement was unfit for new tasks such as daycare, since the municipality would have to write everything in detail into the contract, which it was not able to. Therefore, all municipalities chose for an open conversation, which resulted in framework agreements, which could be relatively easy adjusted.
Best Value Procurement was used by only 3% of municipalities (table 2). Municipalities that did not use this model gave as primary reason that the situation was to insecure, to experiment with BVP for the Wmo. Besides the Wmo, two other transitions of tasks from the central government to the municipalities were taking place in the social domain. Together this left a large job for the
municipalities, just on the operational level. Therefore, to secure the continuity of care, municipalities did feel their organization was not ready to implement BVP, since it was seen as somewhat risky: “We sat down at the safe side, and we have not yet really experimented with other forms of procurement. That won’t exclude that there will be some room for it in the future. In first instance we said: “We want to have the administrative process behind it in order.”” (Alderman, Nunspeet). This priority was set because data about clients was to given to scarce and too late. This data also was outdated,
incomplete and flawed. Furthermore, it was anonymized for privacy reasons.
28
experience in delivering this care. However, this was much more problematic regarding daycare. As noted, since it was new. However also during the contract period, demand could vary. As one procurer of Wageningen noted, this is not so problematic when the Zeeuws model is used, since it consists of framework agreement and the client choses which party delivers (Wageningen). Similarly, governmental procurement also gives no revenue guarantee towards parties, because of contracts in the form of framework agreements. This seems to be more characteristics to these models (VNG, 2015). When traditional contract would be used, the estimation of demand is much more critical. In a certain way framework agreements require more trust between party and municipality, since
framework agreements are often made with the intention to come to closer agreement during the implementation phase. For example, the ISNV had an ongoing written consultation about issues regarding the contract. When this resulted in a desire to change the contract, this was possible, which frequently happened. This could be essential changes, though they could be very important. As the procurement coordinator said: “However, on a detailed level, very important changes could be processed in the sheet arrangements”.
When there is insecurity about the number of parties to contract, classical of private procurement is also inadvisable. The procurement coordinator of Ede; “Then we have to conform to legislation. Thus when we admit another party after a classical tender, that is impossible. So we thought in advance about our procurement systematics”. Of course, a classical tender gives the care provider much more security, he also said. Some municipalities (Wageningen, ISNV) accounted for uncertainty by investigating (with help of an independent party) the price structure of the market and to get an understanding of the products delivered. Then they set prices for these products and corresponding quality criteria clearly. They completed this process by giving entrance to every interested party, on the same agreements.
Also the providers experienced uncertainty that stemmed from several causes, especially providers of daycare and domestic help Both these markets had high budget cuts and unclear legislation. These budget cuts varied per municipality, but were significant with cuts up till 40%. The lowered prices, and the variation of prices made it for parties to foresee whether they could continue operations in a certain region. In many municipalities they could continue, but in some prices were to low and would mean a definite loss-making. Municipalities were interested in supporting the providers of daycare and domestic to meet these savings, since they represent a large amount of employment for people who could be in need of income support when laid-off. “As a municipality you have off course a double function, and often the people who work there come from your own municipality, so you also do not want them to end up in your own card box (for income support)”. (Procurer, Wageningen).
29
of domestic help, since they interpreted the law in such a manner, that it is not their responsibility. Only in May 2016, there was a court ruling of the highest administrative court of the Netherlands (Centrale Raad van Beroep), that these forms of domestic help are part of the Wmo 2015. Thus although a diverse implementation of the Wmo 2015 is a logical result of the freedom municipalities had, implementations sometimes went outside of the parameters set by the Wmo 2015. Therefore, the parameters set do not provide much certainty to care providers.
For daycare, adding to this was the fact that they became to work with a new contractor, the
municipality. “Fist it went via the care agency, and now it is funded by the municipality. That is a new task for the municipality, but also for the parties a new working method” (Marketing Manager, T-zorg). The organizations had to adapt invoicing, communications etcetera. Furthermore, it is important for care parties to understand the policy of a municipality, to act in a pro-active manner, as indicated before. This ability has to be developed by the new parties.
30
Table 7 Description Uncertainty Wmo 2015
Municipality M/N Supplier S M/N Relationship effect Daycare Unsecure budget savings 8/8 Unsecure and high budget
savings
Agree 8/8 Municipalities and providers worked closely together to adapt to changing demands and budgets from the
Rijksoverheid. Also, it was the first time for these suppliers to negotiate with the
municipality. Therefore, both parties wanted to become more familiar with each other.
Unclear Legislation made ambiguous what to procure.
8/8 The Wmo was only part of healthcare reform, the market was changing rapidly
Agree 8/8
Number of parties to contract 3/8
Domesti c Care
Unsecure budget savings 8/8 Unsecure and high budget savings
Agree 8/8 There was uncertainty because of budget cuts. However, this was relatively easy to manage with framework agreements according to most municipalities. Municipalities shape their
products differently.
Agree 8/8
Care Tools
Unsecure budget savings 8/8 Unsecure budget savings Agree 8/8 This market was known for a long time, and municipalities felt they were knowledgeable enough. Furthermore, the renewal of the Wmo did not affect this type of care. Varying demand (Purchased depot) 4/8 Varying demand (Rented
depot)
Agree 4/8
