introduction the following chapter will review: –overview –model assumptions –the cost...

IntroductionIntroduction

The following chapter will review:

– Overview– Model assumptions– The Cost Proposal & Evaluation– Payments methodology– Financial Incentives/Disincentives – Savings Calculation & Profit

OverviewOverview

Financial Model – ObjectivesFinancial Model – Objectives

• Reduction of welfare expenditure

• Reduction in income assurance recipients

• Transfer of resources from welfare payments to work support services

• Allocation of risk in welfare expenditure growth to operators

Financial Model – GuidelinesFinancial Model – Guidelines

• Ability to measure and monitor the investment and expenditure

• Simple measurement of performance• Quality incentives• Enhancement of the employment test

Welfare

Payments

100%

Welfare

Payments

100%

Welfare

Payments

100%

Welfare

Payments

65%

Cost of Center

Cost of Center

SavingsGovernment

Investment

0%10%20%30%40%50%60%70%80%90%

100%110%120%130%140%150%160%

Currentexpenditure

Full Cost - Nosavings

Requiredbudget - 35%

savings

Resources

Budget FrameBudget Frame

Financial Model – Financial Model – MethodologyMethodology

• Fixed budget frame• Financing the operation from the savings in

welfare payments• Managerial flexibility• Simplicity

– Performance measurement– Monitoring and control

Welfare

Operations and services

Start up

Financial Model – Methodology Financial Model – Methodology ContCont..

• Geographical responsibility• Focus on long-term solutions

– Risk Mitigation• Risk mitigation for the operator• Risk mitigation for the

government– Community impact

Geographical ResponsibilityGeographical Responsibility

1. We draw a line around 3,500 current recipients

2. A job center is given an area for operating

3. All Applicants in the area who are in the target population must claim their benefits at the job center

3,500 recipientsResponsibility area

Regional Risk ManagementRegional Risk Management

For each job center:• The operator is responsible for all participants

that reside in the area• All new applicants must apply for their benefits

at the job center• The operator is responsible for the

reduction/growth of income assurance payments to recipients in the area

• Failure to meet expenditure reduction objectives will result in penalties to the operator

Model AssumptionsModel Assumptions

AssumptionsAssumptions

• Population– Initial population - 3,500 income assurance

recipients who are subject to employment test. – Without reform, implementation growth in

recipients is - 0% annually• Welfare Payments

– Calculated at approximately NIS 138 million per job center for 24 months

Assumptions Assumptions ContCont..

• The program will include the following caseload reduction ingredients:– Personal details verification– Diversion– Mandatory full work week assimilation– Compliance as a condition for eligibility

Financial Model – Minimal Financial Model – Minimal RequirementsRequirements

• The Operators of the Job Centers must:

– Reduce expenditure on income assurance in region by at least 35%

– Meet monthly expenditure reduction goals

– Reduce the number of households dependent on income assurance in region by 40%

₪ 0

₪ 1,000,000

₪ 2,000,000

₪ 3,000,000

₪ 4,000,000

₪ 5,000,000

₪ 6,000,000

₪ 7,000,000

Benefit “Inventory”= 3,500 Participants X Average Benefit in the Region

Minimum expenditure reduction requirement

35%

Welfare Expenditure Reduction Welfare Expenditure Reduction GraphGraph

Maximum Benefits Paid NIS 4m

Resources and UtilizationResources and UtilizationResourcesResource Utilization

Income assurance Payments At the Signature Date

(according to NII figures)

+

Income assurance Payments to Participants

Start Up Costs

Operational Costs

Work Support Services

Balancing Budget(In order that

sufficient resources will be available for operation operator

must reduce government

expenditure by at least 35%)

Margin

Government Operator(Community)

Cost Proposal & EvaluationCost Proposal & Evaluation

Cost Proposal in the RFPCost Proposal in the RFPMonth12345678

Projected Welfare Payments

Reduction in Expenditure6%14%26%30%33%34%35%36%

Target for actual Welfare Payments

Month910111213141516




Month1718192021222324




Cost ProposalCost Proposal

EntryBid ABid BUpper Limit

Profit Sharing proposal (%)

103040

Start – Up costs₪5 M₪ 8 M₪ 10 M

Operational Costs₪ 20 M₪ 30 M₪ 33.5 M

Work Support Services₪ 20 M₪ 25 M₪ 27 M

Total₪ 45 M₪ 65 M₪ 70.5 M

Example

Cost Proposal EvaluationCost Proposal Evaluation

• Proposed allocation of savings between operator and government (rate)

• Proposed operating cost (operation + services)

• Bidder will not be able to exceed the figures in the proposal

Update At Contract Update At Contract SignatureSignature

• Regional income assurance payments adjustment–Adjustment of budgeted welfare payments to match regional data

–Conducted according to the average regional welfare expense of the three months preceding contract signature

Update Following Contract Signature – Update Following Contract Signature – Government Base Case ProjectionsGovernment Base Case Projections

Month12345678




Month910111213141516


Reduction in Expenditure36%37%38%38%39%39%

39%40%


Average expense on income assurance in the region for last 3 months= NIS 5.7 M

5,700 – 6%= 5358

5700

5358


Month910111213141516




Month12345678

Projected Welfare Payments5700570

0570

0570

05700570

0570

0570

0

Reduction in Expenditure6%14%26%30%33%34%35%

36%

Target for actual Welfare Payments5358

4902

4218

39903819

3762

3705

3648


Month12345678


0570

0570

0570

0570

0570

0570

05700



5358

4902

4218

3990

3819

3762

37053648 Month910111213141516


5700

5700

5700

5700

5700

5700

5700

Reduction in Expenditure36%37

%38%38%39%39%39%40%


3648

3591

3534

3534

3477

3477

3477

3420

Month1718192021222324


5700

5700

5700

5700

5700

57005700

Reduction in Expenditure40

%40%40%40%40%40%40%40%


3420

3420

3420

3420

3420

3420

34203420

PaymentsPayments

Payments of Start Up CostsPayments of Start Up Costs

• Payments are made according to the bid• Schedule:

– Down payment of 10% of the start up bid following contract signature

– Six equal monthly payments start at 3rd month– Down payment reduced from the sixth

payment– Payments are subject to withholding and

liquidated damages should the operator fail to meet milestones

Month No.

DatePayment

Start up period

11 January, 2005

Following Contract Signature Down payment - 10% of start up cost

according to bid

21

February,2005

No payment

31March,2005

1/6 of start up costs

41 April, 2005


51 May,2005


61 June, 2005


Operational period

11 July, 2005


21 August, 2005

1/6 of start up costs – reduction of down payment

Payments at Operational Payments at Operational PeriodPeriod• Payments for operational costs:

– Made according to the bid• Include:

– Placement & training– Personnel– Overhead

Payments at Operational Period Payments at Operational Period ContCont..

• Payment mechanism:– Down payment on first month of operations -

5% of the operational bid (excluding work support services)

– Equal monthly payments according to bid beginning with month three and onwards

– Down payment is reduced from last three payments

– Payments are subject to withholding and/or liquidation of damages

Payments at Operational Payments at Operational PeriodPeriod

• Work Support Services reimbursement– Reimbursement for use of services (actual).– Made 45 days after receipt of the report.– Total amount capped by bid– Monthly amount capped

Down Payment

5% of operational cost

No payme

nt

Submission of

receipts for

January work

support services

Payment for

January operatio

nal

Reimbursement for January services

Submission of receipts

for February

1/1 15/1 1/2 1/3 1/415/3 1/515/415/2

Payments Timeline to the Payments Timeline to the Operator Operator

Update at the End of Month 6 of Update at the End of Month 6 of OperationOperation

• Update to the operational cost proposal• Update to the welfare payments budget

Financial Financial Incentives/DisincentivesIncentives/Disincentives

Liquidated DamagesLiquidated Damages

•Start up period – failure to meet milestones •Operator must meet service level standards

– Quality standards– Appeals that have been accepted over a

certain rate

Withheld PaymentsWithheld Payments

• Should the operator fail to meet:– Key schedule milestones during the start up

period– Expenditure reduction objectives during

operational period

• Withheld payments during operational period:the amount of deviation from the expected income assurance payments

Withheld PaymentsWithheld Payments

₪ 0

₪ 1,000,000

₪ 2,000,000

₪ 3,000,000

₪ 4,000,000

₪ 5,000,000

₪ 6,000,000

₪ 7,000,000

Month 4-8: over-

pay of ₪ 1.4 M₪1.4 M

withheld

Back to the line, full month

payment

Month 8-12: ₪ 1.6 M saved

withheld sum (1.4) paid

Savings CalculationSavings Calculation

• The following formula will apply:G = (PIA – IA)– G = Gross savings– PIA = Maximum income assurance

payments– IA = Actual income assurance welfare

payments• Operator will receive 10% of saving in

services

Saving SharingSaving Sharing• Savings in Welfare Expenditure Sharing Formula:

Percent Reduced

Operators Share

Government Share

0% to 35%:0%100%Min. Requirement

35% - 40%70% 30%

40% - 50%X%100%-XAccording to Operators’ bid capped by 40%

50% - 60%X+5%100-X-5%

60% onwards10%90%Shared also with the Community

SavingsSavings

₪ 0

₪ 1,000,000

₪ 2,000,000

₪ 3,000,000

₪ 4,000,000

₪ 5,000,000

₪ 6,000,000

₪ 7,000,000

Minimum requirement - 35%

Savings to shareWelfare paid

UpdatesUpdates

• The government holds the option to top up the centers' caseload and maintain it on 3,500 ( the initial no. of participants)

• A financial update will be made

introduction the following chapter will review: –overview –model assumptions –the cost...

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