2.Objectives and Deliverables and Approach

2.1Objectives and Deliverables


3.The Case for Procurement

4.Current State

4.1Voice of the Customer Review

4.1.1Voice of the Customer Summary Conclusions

4.2Contracted Insolvency Services Brief

4.3Current State Processes

4.3.1...... Cost and Quality Improvements from current state workshop

4.3.2Summary analysis of Current State


5.1High Level Vision and Design Principles

6.Immediate Next Steps

Appendix A Contracted Insolvency Services Brief

Appendix B Current State Processes

Appendix C Output from Workshop Strategic Options Consideration

Drafted: April 2008

Released for publication: June 2008

1. Background

The Accountant in Bankruptcy’s current contract, which appoints Insolvency Practitioners to act as ‘Agents’ on her behalf, has served well for the past 15 years. However it is now out of date leaving both the AiB and Agents frustrated at its limitations. Recent audits have highlighted the potential risk of non-compliance with EU procurement policy exposing the Agency to potential challenge under both EU and UK Public Procurement Regulations.

The Agency therefore undertook a review of procurement in 2006 leading to the publishing of a procurement strategy (Procurement in AiB: Procurement Strategy 2007-11) for improvement across all key expenditure groups. A business modelling project designed to identify activity costs and associated efficiency opportunities across the organisation are ongoing. As the administration of cases by external agents currently constitutes 2/3 of AiB’s caseload, and approximately £4.4m per annum of third party expenditure, the Agents contract has been identified as a priority for review by both of these initiatives. As a result, tendering for insolvency services is a key objective in AiB’s Business Plan 2008-09.

In 2007, 62% (£6.4m) of AiB's total costs related to procured goods and services, and 69% of this procured spend (£4.4m) was concentrated in the highly complex area of Insolvency Practitioner services that undertake 62% of the Agency’s case work. The procurement and contract management of the outsourced caseload has been recognised as a key issue to address as it is no longer considered fit for purpose, and recent audits have highlighted the potential risk of non-compliance with EU Policy.

While The Accountant in Bankruptcy has committed to re-tendering the contract for insolvency services during 2008/09, she wishes to use this opportunity to reassess the requirements of the contracted services in line with the overall Business Strategy, and to change processes, where prudent to do so, in order to gain related efficiencies.

The Contracted Insolvency Services Brief of February 2008 reviewed a number of options related to capacity and complexity of caseload. A general direction was agreed whereby Accountant in Bankruptcy will administer up to 60% of caseload ‘in-house’, representing the less complex insolvency cases each year.

Prior to the development of a business case and insolvency services procurement strategy it was important that the Agency undertook this short review to re-confirm the vision for out-sourced case work. This ‘vision and case for procurement’ involved staff and customer input, the analysis of available data, review of internal processes and a workshop to validate ideas and review the impact of various strategic options, especially in light of changes associated with the recently introduced Bankruptcy Reform.

External support has been commissioned to provide the professional strategic supply chain and project management focus to this important work in three initial stages:

– As-Is and To-Be Vision

– Strategic Options and Business Case

– Procurement Strategy Implementation Plan

This report constitutes the first deliverable from this work.

2. Objectives and Deliverables and Approach

2.1 Objectives and Deliverables

The Objectives of the first phase in this programme are:

– To have a ratified view of the current provision of out-sourced insolvency caseload and a ‘signed-off’ vision for the future; and

– To outline the case for external procurement of Agency services contract.

The Deliverables, contained within this report are:

– A description of the requirement to re-tender the contract (The Case for Procurement);

– The agreed current state (Current State);

– The ratified Vision for contracted out services (as opposed to the procurement strategy itself). This vision to include some indication of the Agency’s priorities that will feed into Stage 2, Strategic Options and Business Case (Vision); and

– The initial development of a set of likely requirements for providers of outsourced services (Vision).

2.2 Approach

A range of activities have been undertaken as part of this stage of the work, including:

• Interview with several key internal staff and management team members in relation to the Agency Brief, the likely vision and business direction, existing processes and areas for improvement;

• Interview with the author/review of the output from the business modelling project to discuss approach, assumptions and next steps;

• Significant gathering of data and subsequent analysis to provide insight into the past performance of Agents, the internal processes influencing buying behaviours and the management of contracts;

• A current state workshop where process maps of the key activities involved in the life of an externally-managed case were developed;

• A compare and contrast review of internal processes to draw comparisons and generate potential opportunities for the implementation phase and future contract;

• Consultation with some Creditor groups;

• A review of the plans and vision in relation to the key strategic themes set out in the AiB Business Strategy; and

• Discussions with Scottish Procurement Directorate in relation to EU Legislative requirements.

In addition to the directly relevant activities above, a communications strategy has been developed.


3. The Case for Procurement

There are a number of factors supporting the decision to undertake this procurement exercise:

Three key drivers are explained further on the following pages.


Factor 1: Services are subject to Procurement Legislation

Public Sector purchases are subject to a range of legislation, including:

– The European Procurement Directive 2004/18/EC which covers all procurement for Goods, Services and Works (with some minor specified exceptions);

UK Public Procurement Regulations SI 2006 No 1 which incorporate the European Directive into UK law;

– The EU Treaty Principles, which apply to all procurement, regardless of value. The key principles are:

• Freedom of movement of goods

• The freedom to provide services

– The Agreement on Government Procurement (GPA), which applies to trade between members of the World Trade Organisation. This agreement largely dictates compliance with EU Directives when contracting with members states of the WTO.

Insolvency Services are not exempt from this requirement, and since annual expenditure exceeds the minimum threshold set out in the Consolidated Directive (£144,371) then these services are covered

Factor 2: The Existing Contract is dated

The current contract is in the region of 15 years old and as such contravenes government expectations.

Office of Government Commerce guidelines on contract re-competition state:

“Although there are, in general, no legal restrictions under the EU rules on contract length, bear in mind that an excessively long contract could fall foul of the underlying objective of the EU rules to open up public sector contracts to competition. (The exception to this is for Framework Agreements which should be no longer than 4 years unless there are exceptional circumstances.)”

Factor 3: In-house Capacity cannot meet Demand

In 2006-07, 38% of insolvency cases are administered by AiB staff in Kilwinning. These tend to be cases that are less complicated, with debtor petitions wherever possible.

A recent review of the future strategy for AiB has identified a potential for efficiencies which could lead to increased volumes of cases being handled internally. The Strategic Board has approved this direction of travel which could see AiB administering up to 60% of cases internally in future years.

There is no doubting the requirement for the administration of cases by third parties.

Current capacity cannot meet demand, and the existing skills in-house could not deal with the nature of some of the more complicated cases that present themselves for administration.

4. Current State

The steps carried out in arriving at a validated ‘Current State’ with sufficient information for the Strategic Board to agree a future vision are outlined in the Approach page of this report. This section sets out a summary of those steps and the conclusions drawn, as follows:

– ‘Voice of the Customer’ review

– AiB Business Strategy

– Contracted Insolvency Services Brief

– Current State process

– Summary PEST analysis

4.1 Voice of the Customer Review

A number of creditor and debtor (representative) organisations were approached to discuss their perceptions of the service currently provided by Insolvency Practitioners and their ideal outcomes for a future contract, Feedback from three sources has been received to date, though no contact made with Debtor groups.

The first organisation provides a measuring and monitoring service of Insolvency Practitioner performance across the UK on behalf of their customers in major financial institutions. They report that creditors are increasingly recognising their ability to influence the process to increase their dividend, the key measure of performance from their perspective. The organisation’s scope has increased from solely IVAs to Trust Deeds. This increase in scope suggests a continued focus by creditor organisations.

The second organisation is a major bank whose petitions for insolvencies originate from one of two departments, relating to unsecured and secured debts. The latter department issue far smaller numbers of petitions, but advise that they have recently decided to always appoint a trustee as a result of previous “poor performance from those acting as Agents”

Discussions with a third organisation centred largely on developing relationships with AiB for administrative matters and identified an opportunity for developing technology to improve communications and bring efficiencies.

4.1.1 Voice of the Customer Summary Conclusions

• Creditor organisations appear to be focusing more attention on recovery rates and putting in place actions to influence those outcomes through the direct appointment and monitoring of private Insolvency Practitioners.

• Internal planning and efficiency improvements within AiB may have limited affect on major creditor strategies related to recovering outstanding debt from insolvent individuals since their key focus appears to be on dividends received rather than cost of administration.

• There has been an increase in the number of Trustee cases over the last two years. Whilst this is not necessarily related to conscious creditor strategies, it is important that this is tested further through direct contact with Creditor groups.

• It is important to invest further effort to understand if the views and future strategies expressed are typical of major creditors, and to recognise the potential impact on AiB.

• There are opportunities to bring about efficiencies for AiB and creditors through improved communications and use of technology.

• A customer relationship strategy to build on the points above will be incorporated through the implementation phase.


AIB Strategic Themes

The vision for the future Agent contract must be developed to compliment the wider AIB Business Strategic.


4.2 Contracted Insolvency Services Brief

The Contracted Insolvency Services Brief was issued in Feburary 2008 following an internal review and assessment of current costs. A number of conclusions were drawn and agreed upon by the Strategic Board, principally:

– A reconfirmation of the requirement to tender the existing ‘Agents contract’;

– A “direction of travel” for AIB to administer up to 60% of cases internally; and

– The increase in volume from current state to be borne from securing internal efficiencies.

Following the brief, further development of a business modelling tool has been undertaken to allow future assessments of activity costs across the case administration process. This tool will have an important role in the future consideration of AIB strategy.

The brief is provided at Appendix A.

4.3 Current State Processes

Numerous processes are involved in the lifetime of a case from petition at the outset to final filing of sederunt books. Cases may last many years and the processes involved for administering the Agents contract have been relatively unchanged for several years. The results of data assessment, interviews with AiB staff and reviews of Agent correspondence culminated in a workshop held in April designed to

– Validate the high level process

– Identify opportunities for improvement and

– Consider implications of AiB strategic options

The output from the workshop is provided in Appendix B and summarized on the following page demonstrating significant opportunities for efficiency gains through a redesign of some key processes and improvements in the contract management and terms of engagement with agents in the future contract.


4.3.1 Cost and Quality Improvements from current state workshop

4.3.2 Summary analysis of Current State


5. Vision

Having reviewed the current state and key variables affecting AIB’s strategy, a number of strategic options were considered for the new contract and are provided in Appendix C. They are:

– No Change

– Debtor-in : Creditor-out Policy

– Retention of all cases until after “First Contact”

– Bringing elements of externally-managed cases in-house for administration

– All cases administered in-house

– All cases administered externally

A short-medium term agreement was agreed as the most pragmatic approach whilst other work continues that will better inform direction for the longer term. The flexible approach agreed is summarised below.

5.1 High Level Vision and Design Principles

Continued overleaf.

6. Immediate Next Steps

• Develop Strategic Procurement Options to deliver the Vision

• Use the Agents Meeting (held 29 April 2008) to consult on improvement opportunities in the current state of administration

• Incorporate the development of a Customer strategy as part of implementation plan

• Consider Operating Model requirements

Appendix A
Contracted Insolvency Services Brief


Appendix B
Current State Processes



Appendix C
Output from Workshop
Strategic Options Consideration

No Change

 Teams internally only recently established

 No change required from MIDAS

 LILA will impact us anyway – change is happening

 Our people need to be developed – change is good

 Things need to change – there are opportunities to capitalise

Debtor In: Creditor Out

 It’s a myth that Debtor cases have no money, are simple, and that Creditors have the assets

 When we get the Award, we have very limited information about the case

 There would be limited impact on the numbers administered in-house (assuming LILA has no affect). Debtor cases account for approximately 2,000 cases per annum

 Good, but would want to keep some creditor cases in order to retain an understanding and develop people

 Would have no or limited affect on First Contact team structure

 Gets rid of the requirement for a quick decision

 A limited affect on the nature and complexity of work going to CMT and Asset team

 CMT and Asset teams potentially can get better information on cases coming their way and can therefore plan more effectively

 We don’t know what affect LILA will have – particularly on the numbers of Debtor petitions

 How to manage the flow of work through First Contact – what to do on quiet days?

 Need to manage the impact on Internal cases – in particular the 2,000 target

 Based on the current contract, the costs would go up (Agents receive a higher fee for Creditor cases)

Retain cases until after First Contact

 Would decrease the amount paid to Agents

 Huge impact on size of First Contact team

 Debtors who petition themselves are generally more cooperative – things may become far more complicated and difficult when dealing with creditor petitions

 Would impact on the time an Agent has to deal with the case (when they finally get handed over)

 Impact on MIDAS

Debate: How important is the face to face meeting that Agents currently are required to do? A range of views were expressed about the requirement to meet Debtors face to face. Generally more of the view that there is a requirement to meet, though not necessarily in all cases:

• Agents don’t always do them anyway

• We don’t do them – they shouldn’t need to

• If we are asked to do them for internal cases, would have a big affect on team

• When we conducted interviews for internal cases, performance improved. We should be doing it ourselves

Bring elements of work in-house

 We already do this in some cases (correcting work)

 Could consider elements of the Contributions process that could be handed over to AiB for management

 We currently do it as a consequence of a poor contract and communications with Agents. We mustn’t continue to correct work as it’s costly and leads to suggestions of employee status as opposed to supplier

 Complicated

 Risky – who takes responsibility for quality when the process is split?

 Impact on MIDAS

All in House

 We’d need to upskill and potentially recruit IPs

 We’d need a much bigger team

 Can’t happen overnight and therefore not an option for the short term

All Out-sourced

 A different model required in terms of management

 Need to consider the regulatory role and powers

 What impact on the correspondence team in terms of complaints?

 Can’t happen overnight and therefore not an option for the short term