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New Zealand Context - Part three: The contracting parties and the contracts

Funders and providers

Home based services

Key funders are:

• Accident Compensation Commission (ACC) - for people needing rehabilitative care after an accident. ACC purchases specific services for injured or disabled individuals assessed as needing assistance from a variety of provider organisations.
• Ministry of Health (MOH) - primarily for people with a long term disability who meet the definition of disability irrespective of age - although generally those under 65 years of age (meeting the objectives of the Disability Strategy). Directly funds provider organisations to provide specific care to individuals according to their assessed needs.
• District Health Boards - for people over 65 years who need support in their home (meeting the objectives of the Government Health of Older People Strategy). District Health Boards are funded through population based funding from MOH. DHBs provide 70 percent of the home based support Vote and MOH provides 30 percent. DHB's then purchase specific services from multiple providers.

Providers

Currently, long term DSS funded home based support services (HBSS) are delivered by independent providers under contract to multiple funders - DHBs, MoH and ACC. They number about 110 nationally and are a mix of not-for-profit and for-profit agencies within a largely unregulated industry. Providers deliver intermittent services over a 24 hour, seven day period, and vary in size from large national providers (four to five), to small owner-operated local enterprises. In urban areas providers will compete for contracts (although they will all be offered the same hourly rate for services). In some rural areas, funders report struggling to find providers.

It is estimated that there are around 40-50,000 support workers in New Zealand - around 18-20,000 of these may work in home based care services.

Sixty organisations belong to the New Zealand Home Health Association provider umbrella organisation set up to provide advocacy, information and assist the improvement of sector standards for its members. These organisations are, of course, often competitors for particular tenders and while seeking support on key industry issues have to be careful not to be collaborative in terms of the Commerce Act.

Residential services

Funders

1. has devolved publicly funded aged related residential care contracting to the DHBs. DHBs pay providers for services to "subsidised residents" in residential homes with which they have a contract.

Providers

Providers are a mix of for-profit and not-for-profit organisations. There are broadly three kinds of providers:

1. Religious and welfare groups;
2. Owner operator; and
3. Larger for-profit companies.

The larger organisations can use economies of scale in things such as compliance and certification costs and supplies and maintenance. These larger organisations generally do not rely on residential care for their profits. Most also have property (as in retirement villages) and this is their prime money earner. It is likely that the care services make little or, in some cases, no profit but exist to provide a more attractive package to potential residents.

Some of the religious and welfare agencies are exiting the sector citing costs as the reason.

Commercial cleaning

Funders

Individual government agencies contract for cleaning services, sometimes through syndicated contracts with other agencies.

Providers

Private sector organisations contract with government agencies to provide cleaning services. Some only provide cleaning and other larger organisations provide full building or facility management services. There are three to four large national organisations (a few years ago there were 10) and an unknown number of regional and local companies. The SFWU estimates that there are more than 20,000 commercial cleaners in New Zealand. Sixty big and medium sized companies belong to the umbrella group, the Building Service Contractors New Zealand Ltd.

Contract pricing

Home based service

All funders currently contract for services on a per-service level basis for a set number of hours. There are three levels of care and the tasks included in each service level are detailed in the MoH or DHB's Service Specifications, generally attached to each contract for services. Each care level attracts a different rate which is determined by each funder and varies:

MOH pays:

• Housework management - $16.00 per hour
• Personal care - $17.70 per hour
• Overnight care - $115 per night.

DHBs pay:

• Housework management - $15-17.90 per hour
• Personal care - $ 16.32-20.30 per hour
• Overnight care - $115 per night.

These rates paid to the service provider cover all business costs including labour costs.

No-one in interviewed in MOH was able to explain the funding formula on which these rates are based. This information is apparently now not part of institutional memory. There was a pricing review three years ago but the "project was canned". ACC say that they do "benchmark to the market" when determining their rates but since providers believe they are "price takers" rather than "price setters" this would seem to be a rather circular exercise. Benchmarking does not seem to have altered the ACC hourly rate relative to MOH although they do pay for travel time and holiday pay.

Interviews suggest that there is strong pressure for a similarity of contract price rates between these organisations. ACC could afford to pay higher rates but acknowledge the budget constraints of the other players. Some DHBs have increased the hourly rate they pay to providers. Two DHBs interviewed tagged 80 percent of the increase to be passed on to wages but could not be certain that this in fact happened.

There is no minimum wage agreement in this sector and little provider support for union involvement. Hourly rates are said to vary from around $9.50^[17] - $12.00 an hour. Currently the contract price does not include an allowance for the requirement to pay holiday pay^[18] or travel time between clients or travel costs. Research undertaken by Auckland University on behalf of MOH (the Uniservices research) found that when costs associated with travel are paid^[19] by the provider it is generally not at the true cost of the travel and is taken out of the hourly rate paid by the funder. This research suggests that about half of the employers pay some travel costs but that only about 15-16 percent of employees actually receive it always or sometimes. This is likely to be because some of the biggest providers, employing the most people, do not pay travel costs

Providers argue that the low hourly rate does not allow any margin for hiring adequate numbers of supervisors or coordinators and cannot cover paid training time^[20]. These issues are fully acknowledged by funders.

The Uniservices research found that the lowest and highest rates paid indicated a very diverse pay scale exists in the industry. A home-based service provider reported that they paid a support worker providing personal care $4.80 per hour (the lowest rate reported), while another mixed service provider paid a support worker providing personal care $22.00 per hour (the highest rate reported). The difference between the median hourly rate for home help and care for clients with high needs was $1.00 an hour.

As the home based support employers umbrella group said, "If we could, we would pay more to staff. We are not mad; we loose a lot of people because of the wage rates."

Residential Services

A "subsidised resident" is a person who meets two criteria. The first is that the person must have been assessed by a Needs Assessment and Service Co-ordination agency (NASC) as requiring residential care services indefinitely. The second is a financial means assessment carried out by the Work and Income. This identifies the amount a person may be required to contribute to their care. The DHB then pays the provider the difference between the amount a subsidised resident must pay and the price specified in the Contract for the level of care of the resident. The maximum any person should be required to pay for their care is the gazetted price for Rest Home Care for that region - this is known as the maximum contribution.

The national price varies due to local cost of living - e.g. higher in Wellington than in Porirua or Kapiti. Providers are paid per bed per day occupied. The price includes capital costs such as maintenance and building upgrade. This is said to be one reason why the religious and welfare agencies find it hard to compete.

There are four levels of Aged Residential Care (ARC) - rest home, dementia, hospital and psycho-geriatric.

The asset and income thresholds for subsidy eligibility are being raised. The first stage of this came into effect in July this year and lifted the asset threshold from $15,000 to $150,000^[21]. This means that many more people are now eligible for state assistance with the cost of their residential care. The anticipated increase in volume has been met with additional funding from government.

Each year there is a pricing review between the DHBs^[22] and the provider organisations. This review includes the consideration of "material variations". It is anticipated that this year the review will include consideration of the impact of the pay increases won by nurses in DHBs through the MECA agreement. This increase has resulted in the aged care sector having even more difficulty attracting and retaining nurses.

Unlike the home based support area, DHB payments to providers cover a wide range of variables - from wages to building maintenance and medical supplies. While providers have argued that the price controls their ability to pay higher wages, there is also a view from most funders that the wage rates (especially for support workers) are more of an internal business decisions (weighted against other cost factors) than in the home care sector.

There are two or three collective agreements with individual DHBs. SFWU estimated that about 1-5 percent of the support workers are unionised and that the union collective at Wairarapa pays a top rate of $10.79 and a base of $10.50 an hour. The MOH 2004 research with providers found that the average hourly rate paid to staff was $10.35-12.60. One DHB informant confirmed that there is wide variety of salary rates offered between providers.

One DHB commented that while the pay rates are low, staff are generally on fixed hours, have on-site supervision and training and do not have to pay for travel costs between clients as home based support staff do. This is part of the reason why many home based support workers find the residential setting more appealing.

Cleaning services

There is a recognised cleaning industry standard of $15 per square metre of cleaning. One large government department recently paid $12 an hour for cleaning services - including 6 percent for holiday pay. They thought that the cleaners themselves would receive about $11 an hour.

All members of the Building Services Contractors New Zealand Ltd are party to a multi-employer collective agreement^[23] with the SFWU. This is a minimum document with a minimum hourly rate of $10.60 an hour (and provision for holiday pay, qualifications allowances, overtime etc). In areas of extreme labour shortage such as Queenstown, the pay rate can be as high as $15.00 an hour. The providers feel that having the minimum document means that they do not have to (and cannot) compete on prices that would reduce wages below this level.^[24]

Providers believe that about 12-15 percent of workers in the cleaning sector are unionised. The union thinks it is more like 5 percent. Unlike home based support providers, cleaning providers have welcomed the multi-contract.

Contract terms

General issues

• Some providers may have workers who may not necessarily be employees but sub-contractors. This would allow the provider to avoid compliance under employment legislation. If they are not employees, they will have no entitlements under employment legislation such as the Holidays Act and Employment Relations Act (ERA).
• Travel is a negotiable term and not governed by employment legislation. There is not obligation for an employer to pay this. This can be addressed under an individual or collective employment agreement.
• In relation to individual and collective agreements, there is an obligation under the ERA 2000 for the employer to provide this before the employee commences employment. This is known not to occur in practice in some precarious employment situations.
• Employers with employees have an obligation to pay holiday pay, which can be paid as annual leave or at 6 percent. Holiday pay paid at 6 percent can only be paid under certain circumstances for. Some employers, especially SMEs, may not be aware of the changes under the new Holidays Act, and in particular section 28 which providers for 6 percent holiday pay to be paid on a 'pay as you go' basis.
• Multi-Employer Collective Agreements usually provide minimum entitlements depending on the type of industry. Their clauses usually comply with current employment legislation.

Home based support

ACC's and MOH's standard agreements with providers are similar in that they set quality standards and have substantial detail about providing culturally appropriate services and competent and well trained staff. ACC also requires the provider to abide by relevant legislation (including the Human Rights Act).

The MOH agreement with providers contains very detailed requirements on culturally appropriate care, particularly for Maori and also requires, "your employment policy and practices will support professional career pathway development for Maori Health Workers..."

The service components include:

"...provision of a suitable Caregiver who is acceptable to the client and arranging an alternative caregiver should the client request such a change. Maori clients must be offered the choice of a Maori Home Based Support Services Caregiver."

Key inputs into this service are described as:

• Staff including selection and training
• Cultural advice.

There are also detailed requirements for trained staff. The provider is, "...responsible for employing competent staff to provide flexible services for the client group. Orientation and induction to the service must occur within six weeks of employment. The Provider must ensure that all staff have the following core ongoing training provided to them:

• Development of values and attitudes towards people with a disability;
• Treaty of Waitangi;
• Working with family/whanau members;
• Communication skills;
• Health and safety; and
• Additional training as required."

There also should be, "...regular staff meetings and monthly reporting systems must be held. Staff should also be able to access supervisors outside of these structures if, and when, required."

Providers are required to report on staff recruitment and retention issues and have documented policies/protocols for the following aspects of service delivery:

• Food management
• Shopping including money handling
• Assistance with medication
• Incident reporting
• Abuse and neglect
• Safety issues and risk assessment when working in client's homes
• Changes in client's health status.

Providers have to ensure that risk to staff is assessed prior to the commencement of the service to client.

The agreement with the home based service provider strongly emphasises well trained and supervised staff. There is general agreement that neither of these outcomes is being achieved in the current environment. Average staff turnover in the home based support area is estimated at 39 percent (68 percent on the East Coast and in tourist or seasonal work areas) and recent Uniservices research^[25] showed that just over half of the 420 residential and home based support providers that responded to the survey said that less than half of the workforce was adequately trained and that when training is held only 70 percent of residential staff and 40 percent of home based staff attend.

"The current high turnover of support workers, particularly in the first year of employment, makes it uneconomic for providers (and funders) to significantly invest in this workforce. Workers who undergo training are likely to leave in large numbers, using their training to gain better and more secure jobs elsewhere."^[26] The Uniservices research^[27] showed that 17 percent of disability support workers (home based and residential) work for more than one disability provider.

Residential services

The national agreement between the government and residential care providers also includes the requirements to meet the cultural requirements of residents, particularly Maori residents.

There is a section on "human resources" that deals with numbers, ratios and qualifications of the staff required for rest homes and hospitals. It requires staff to be competent in any procedure they undertake and for on-duty staff to have access to support when needed.

They are required to, "...undertake a planned documented programme of staff development or in-service education with at least eight hours of programmes being provided annually, including courses attended other than at the Facility. You must keep a written record of staff attendance at such programmes." All new staff are required to receive a planned induction programme. In addition, "You shall ensure that all staff who will be in direct contact with the Subsidised Residents have completed education that is related to the care of older people. Those staff who have not completed the training at the time of their appointment must complete appropriate training within six months of appointment. The training must address:

• The ageing process, including sensory, physical, psycho social, spiritual and cultural aspects;
• Practical care skills;
• Awareness of cultural issues;
• Communication, including sensory and cognitive loss and other barriers to communication, communication aids;
• Observation and reporting;
• Promotion of independence and recognition of individuality, and
• Understanding of Subsidised Residents rights.

There are also clauses on safety obligations, safe practices, risk management and quality improvement programmes.

There are no clauses on good employer practices.

Cleaning services

All the government agencies interviewed said they were moving from task based to outcome based cleaning contracts. They set quality criteria rather than specify what has to be done to reach that standard. While the provider representative interviewed for this research felt this was a positive move an alternative view was expressed in the WEB research^[28]. The companies interviewed in the research said there has been a change in the form of tender specifications - from specific and detailed task lists to a phrase such as , "All rooms to be maintained in a clean state upon inspection." - they believe this advantages the contracting organisation as there are no absolute measures of quality standards.

The contracts do not specify the hours to be worked but one large department said that they do discuss this during the selection process. The provider representative interviewed said that there is huge variation between government agencies in terms of how they handle contracts - especially in terms of the details they require of service costing. She said that in her experience, some contracts do have good employer clauses and occasionally they will be asked about this during the interview - generally by being asked if they have an EEO policy. Generally funders were not sure if their contracts contained these clauses or not but they were certainly not monitored if they did.

Two of the government agencies interviewed operate national or regional contracts and this means they are inevitably only getting tenders from the large provider companies.^[29] Like home based support, cleaning has become a volume driven business.

One procurement manager said that he assumed that these large companies have better employment practices than the smaller ones but he does not investigate this. All funders said that price was not the only consideration in selecting a provider but the provider representative said her experience was that funders said this but most did select on price. She described the two envelope tender process - the provider puts their price in one and details about experience etc in the other. In theory, the price envelope is only opened after the initial assessment has been made on the other criteria. She said that in all her years of tendering, this had only happened once. As mentioned earlier, the union believes that providers indirectly compete on price by reducing the number of hours available for the job. This view is supported by the case study research.^[30]

Funders are aware that providers are finding it hard to attract cleaners at the current wage rates. Providers have indicated to them that prices may have to rise to meet current market rates. Increases in petrol costs will affect the margins of both cleaning and home based care providers.

In the cleaning sector contracts are generally of three years duration although one major funder has extended this to four years at the request of the provider because providers say they lose money on the contract in the first year, break even in the second and make money in the third. The provider representative said that there is rarely more than 12-15 percent profit margin on contracts with government agencies and in some cases margins can be as low as 8 percent. Funders may well have a different view of how much money is being made by the provider companies with one large funder stating that when assessing the contracts they think a margin of about 18-20 percent is acceptable and that if it was below this they would carefully question the viability of the company.

Contracts generally have a termination clause in cases of service failure. The Union said that employees in smaller companies often worked for more than one company in case one of the contracts fell over. It is interesting that of the 20 percent of disability support workers (in home based and residential services) who had another job outside of care services, almost a quarter worked as cleaners. Case study research suggests that, "The threat of loss of a contract with one month's notice or at its expiry is a constant discipline upon the work, expectations and bargaining behaviour of employees."^[31] The research also suggests that some of the cleaning companies also believed that they have no ongoing employment obligations to their staff when the contract ends and that the contracting model permits the principal organisation to stand at a distance from the operation and the effects of the contract upon the cleaning company and their employees.

Providers fund employee training themselves.

Health and safety requirements

Funders in all three sectors require providers to meet appropriate health and safety standards for the consumers of the care and the workers providing the service.

The Health and Disability Services (Safety) Act 2001 does not currently apply to community services, although there is the possibility that it will be extended in the future.

The Health and Disability Standards that cover residential care do not apply to home based support services. To meet this need in the home based support industry, NZS 8158:2003 was jointly commissioned by the Ministry of Health and ACC and was developed by Standards NZ. The Standard is currently voluntary and will not become mandatory until the Act is extended to cover community based services. Compliance can also become mandatory if the funder writes it into contracts with providers.

It appears that no-one has yet made this standard mandatory. ACC have developed a workbook for providers to assist them to meet the standards and since 2003 have included a clause in their contracts that providers should be working towards certification on the standard. They said that eventually it could be a differentiator between competing providers. MOH currently does not include any reference to the standard in their contracts. They feel there is more work to be done in the sector before compliance is possible. They also know there are cost implications and that providers are looking to MOH to meet some of these costs. A provider representative said that one provider had just spent $3000 to develop the document trail to start to meet the standard. There is some frustration amongst providers that yet another demand could be required of the hourly rate paid for services.

All three industries are currently covered by the general Occupational Safety and Health regulations, general privacy and employment regulations including the Employment Relations Act.

In the cleaning sector providers are contractually required to provide health and safety information sheets each worker.

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