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Cost Benefit Analysis Training

Cost Benefit Analysis Training

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Cost Benefit Analysis Training

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  1. Cost Benefit Analysis Training

  2. WI Act 89 Overview • Requires agencies to consider total costs, quality, technical expertise and timeliness when entering into a contractual service procurement of more than $25,000. • Requires agencies to consider whether a proposed service can be performed more economically or efficiently by contract rather than by state employees. • Ensures that contractual decision-making is transparent and open.

  3. WI Act 89 Overview (cont’d) • Requires the Department Of Administration (DOA) to provide a uniform procedure for determining whether services are appropriate for contracting. • Requires agencies to review periodically, and before any renewal, the continued appropriateness of contracting under each contractual services agreement involving an estimated expenditure of more than $25,000. • Requires DOA to report annually to the legislature on the contractual services procurements by agencies for the preceding fiscal year and make recommendations for elimination of un-needed services or consolidation of existing service procurements.

  4. WI Act 89 Overview (cont’d) • Does not require an agency to base decisions on the cost-benefit analysis; however, the intent is that the cost-benefit analysis should be part of the decision-making process. • Does not empower DOA to stop an agency procurement based upon the results of a cost-benefit analysis. • Does not provide any agency with additional appropriations or staff to administer the Act.

  5. Reference Materials • Chapter Admin 10 – Contractual Services—amended to reflect Act 89 provisions (see handouts) • State Procurement Manual • (PRO – I: 1, 3, 4,9,13,14,15) • See VendorNet State Procurement Manual at: • http://vendornet.wi.state.us • General Procurement Information • State Procurement Manual

  6. What is a CBA? A Cost Benefit Analysis (CBA) is a uniform methodology to assist agencies in analyzing and documenting potential costs for contracting out services compared to providing the same service if state employees were used. This methodology enables agencies to determine the cost differential between these alternatives. In addition, a CBA is designed to: • Be verifiable and repeatable; • Provide an objective, accurate basis for decisions; and • Be as streamlined as possible, avoiding unnecessary calculations.

  7. When Do You Do a CBA? • Procurement from an Enterprise Contract • Union notification done by SBOP at least 30 days prior to entering into a contractual agreement with each of the vendors ultimately selected. • CBA is done by program area at the time of the solicitation for service and is based upon the specifics of that service request. • Individual RFB/RFP for services • The procuring agency does union notification and CBA at least 30 days prior to entering into a contractual agreement with a vendor. • In DOA, the CBA and union notification must be done prior to the solicitation

  8. Where Do I Begin? To perform the complete Cost Benefit Analysis the preparer will need to: • Complete DOA-3821a CBA Project Summary (Word) • Complete DOA-3821b CBA Financial Information (Excel) • Route both documents for approval within your agency as defined by your agency policy. • Note: DOA and attached entities must also complete DOA-3820 CBA Review Approval and route as specified in that document.

  9. Who Does The CBA? • The program area requesting the service completes the narrative and CBA spreadsheet • Available resources: • Procurement staff • HR staff • Budget/fiscal staff

  10. Cost Benefit Analysis Training Cost Benefit Analysis Project Summary Form DOA 3821a

  11. Cost Benefit Analysis Project Summary Form DOA 3821a (see handout) • This form is designed to expand as information is entered. • Remember the most current form will be on VendorNet. (Click on Procurement Manual in General Purchasing Information—Forms are attached to PRO I-15.) • http://vendornet.state.wi.us • General Purchasing Information • State Procurement Manual • PRO I -15

  12. Cost Benefit Analysis Project Summary Form DOA 3821a • Information at the top of the form is required: • Department • Date • Agency Tracking Number (assigned at the agency level—Department designation [see PRO-E-1], contact initials, sequential number) • Contact • Contact Phone Number • Project/Program Title

  13. 1.) Service Overview - Rationale for Contracting Out Provide a written justification for the request in clear, non-technical language that can be understood by persons who may not be directly involved in or familiar with the proposed services, with all acronyms fully defined.

  14. 1.) Service Overview - EXAMPLE • S. 440.07 WI Stats authorizes the Department of Regulations & Licensing (DRL) to provide examination services for attached professional boards including the Board of Architects, Landscape Architects, Professional Engineers, Designers and Land Surveyors. Engineer and land surveyor exams are given as paper and pencil exams. Over 1600 individual exams are given annually. • Department of Regulations & Licensing staff provides computer exam services but does not have staff to conduct the engineer and land surveyor examinations. Those services have been contracted out since July 2000.

  15. 2.) Market Strength Please describe the availability in the market of vendors that can perform this service. How does the labor market impact the recruiting and retention of employees?

  16. 2.) Market Strength – EXAMPLE • The knowledge to perform the examination and proctor services is very specific and requires training and on the job experience. The Department has had difficulty retaining and recruiting qualified state employee exam staff. • There are qualified vendors in the marketplace to perform this service. In 2004, when the last RFP for these services was issued, proposals from three vendors were received.

  17. 3.) Quality and Nature of Services Required Provide a description of the proposed service to be performed, a list of items to be delivered, any specific conditions to be required of the contractor, and how the agency will ensure that the contractor will provide services and quality as promised without financial loss to the State. Is the work a core service of state government?

  18. 3.) Quality and Nature of Services Required - EXAMPLE • The services needed include: receipt of candidate’s applications and fees, scheduling candidates for exams, location and rental of facilities for exams, printing state-developed examinations, ensuring examination security, exam administration, mailing results to candidates and conveying results to the Department of Regulations & Licensing by magnetic medium or electronic submission. • The Department of Regulations & Licensing (DRL) maintains a high level of communication with the vendor. The vendor is required to provide written test administration and billing reports to the department. DRL staff conduct impromptu site monitoring to observe the test administration process. Test administration is a professional field with its own common standards and protocols which DRL monitors.

  19. 3.) Quality and Nature of Services Required – EXAMPLE (cont’d) • A core function of the Department of Regulations & Licensing is to support the examining boards for a variety of professions. Those boards are charged with licensing and regulating professionals under their purview. The examination process ensures that candidates who are licensed in covered professions meet minimum competence in their field and thereby protect the health, safety and welfare of Wisconsin citizens.

  20. 4.) Risk Factors Please describe the controls and risk management that will be in place in the event a private firm may fail to provide the service it has guaranteed or reduce services if financial losses occur? How will we ensure that confidential information will be kept secure?

  21. 4.) Risk Factors – EXAMPLE • There are two chief risks to contracting out: loss, theft or other violation of the security of the exam, and failure of the company to provide the exam service. • To mitigate the risk, the Department of Regulations & Licensing requires the vendor to provide a surety bond or irrevocable letter of credit in the amount of $225,000 to cover the expenses of writing a new exam in case of theft or loss.

  22. 4.) Risk Factors – EXAMPLE (cont’d) • The Department of Regulations & Licensing also closely monitors the vendor’s preparations for upcoming exams to insure that all exam services are in place. • The contract provides that all vendor staff pass background checks and sign an oath of confidentiality regarding any personal information included in the applications or testing responses.

  23. 5.) Timelines Provide schedules and time tables for the proposed service. Provide a statement indicating whether the proposed service is a short-term project or a long term need for the agency. What controls will be in place to ensure the timeliness of project milestones.

  24. 5.) Timelines - EXAMPLE • The exams are given twice each year in April and October. • This a long term service and this contract is for one year with two optional one-year renewals • The department’s office of examination closely monitors the vendors including training of proctors and visits to examination sites during administration of exam to observe the vendor’s practices. They meet with the vendor after each exam to discuss the process and identify any issues needing to be addressed prior to the next exam.

  25. 6.) Technical Expertise Please describe whether the agency employees have the capacity to perform the proposed service. Also describe whether the agency employees have the expertise to perform the proposed service.

  26. 6.) Technical Expertise – EXAMPLE • Current Department of Regulations and Licensing staff do have the expertise to perform these exam services. • The Department of Regulations and Licensing does not have the capacity (time or staff) to conduct these on-site examinations.

  27. 7.) Legal Barriers Describe any federal mandates, state statutes, and administrative rules that dictate the service level which government must perform. Would contracting out affect access of services or treatment?

  28. 7.) Legal Barriers - EXAMPLE • Department of Regulations & Licensing is authorized under s. 440.07 of the Wisconsin Statutes to prepare, administer and grade examinations for the professions it licenses to determine that applicants have the skills likely to be needed to practice. • Without contracting out, the Department of Regulations & Licensing cannot meet its statutory obligation to conduct exams for engineer and land surveyor professionals.

  29. 8.) Alternatives to Contracting Out What alternatives have been considered? What research has been conducted to determine if this service can be performed by another agency or the University?

  30. 8.) Alternatives to Contracting Out - EXAMPLE • Department of Regulations & Licensing has contacted the University and determined that these services are not available from UW campuses or UW Extension staff. • No other state agencies have staff who are qualified to conduct these exam services. • The only alternative to contracting out is to hire additional state staff. The Department of Regulations & Licensing does not have vacant positions to reassign for this purpose.

  31. Cost Benefit Analysis Training Cost Benefit Analysis Financial Information Form DOA 3821b

  32. Completing the Cost Benefit Analysis Financial Information Worksheet Form DOA 3821b • Only enter information in the shaded areas of the worksheet. • Do not alter formulas in blue cells. If more room is needed for any line number insert new rows in the middle of the shaded area so the formulas will remain accurate. • Blank slides are provided on your handout to take notes. We will walk through the mock DRL Cost Benefit Financial Information form to illustrate the type of information needed.

  33. Completing the Cost Benefit Analysis Financial Information Worksheet Form DOA 3821b Line By Line Instructions • Please enter the following information at the top of the form: • Department • Date • Agency Tracking Number • Contact • Phone Number • Project/Program Title

  34. Part One – State Employee Costs Line 1 Part A – Permanent Positions Wages and Salaries

  35. Part One – State Employee Costs Line 1 Part B – Limited Term Positions Wages and Salaries

  36. Part One – State Employee Costs Line 1 Part C – Leave Adjustment Factor

  37. Part One – State Employee Costs Line 2 – Fringe Benefits

  38. Part One – State Employee Costs Line 3 – Annual State Employee Administrative Overhead Costs

  39. Part One – State Employee Costs Line 4 – Other Operating Costs

  40. Part One – State Employee Costs Line 5 – Total State Employee Costs

  41. Part Two – Contracting Out Costs Line 6 – Contract Price

  42. Part Two – Contracting Out Costs Line 7 – Contract Monitoring and Contract Creation Costs

  43. Part Two – Contracting Out Costs Line 8 – One Time Conversion/Implementation Cost

  44. The figures on this sheet are automatically imported from Parts One and Two of the financial information form. Do not alter this page. Part Three – Cost Benefit Analysis Summary

  45. CBA Checklist • Considerations when completing forms 3821a and 3821b • See handouts

  46. For DOA ONLY • DOA policy requires completion of DOA- 3820 CBA Review Approval • This form must be routed to and approved by the people listed at the end of the form • No solicitation will be conducted until the CBA has been completed and signed by all parties on the CBA Review or Approval form.

  47. Continued Appropriateness of Contracting Act 89 requires the department and its delegated agents to periodically review (prior to any contract renewal) the continued appropriateness for contracting for any services involving an estimated annual expenditure of more than $25,000.

  48. Continued Appropriateness of Contracting • Must do at the time of renewal whether a CBA was completed for the original solicitation or not. • Must do at the time of renewal if procuring from an enterprise contract (e.g. VMS). • Must do at the time of renewal when an agency-wide contract is being renewed

  49. Continued Appropriateness of Contracting • What does this mean? • A Continued Appropriateness of Contracting is needed when: • renewing an enterprise contract • renewing an engagement of a vendor obtained from an enterprise contract • an agency-specific contract is being renewed

  50. Continued Appropriateness of Contracting EXAMPLES • A 3 year contract with two 1-year renewals • Continued Appropriateness of Contracting must be done for years 4 and 5 • A 1 year contract with four 1-year renewals • Continued Appropriateness of Contracting must be done for years 2, 3, 4 and 5