What costs money, wellbeing services counties?

Over the past year there's been quite a buzz around social and healthcare (SOTE) transport services, as several regions have put their systems, dispatch services and transport out to tender.

When reading through the tender documents, I've sometimes been left wondering whether things have really been thought through to the end, in terms of either costs or service availability.

Broadly speaking, transport services are tendered in three ways:

  1. Full-package tender: transport services, dispatch and coordination, and the systems used for coordination are all included in one package.
  2. Transport and dispatch separately: the dispatch and coordination function, including its software, is tendered separately from the vehicles.
  3. Software and transport services separately: the buyer has its own dispatch centre, for which a system is procured. Transport operations are tendered separately.

So where do the costs of the service actually come from? Roughly speaking, this can also be split into three parts:

  1. System costs are a few tens of cents per order.
  2. Staff work at the dispatch centre costs a few euros per order.
  3. Transporting the client costs a few tens of euros per order.

The exact amounts depend on many things, such as trip lengths and the level of service offered. But the cost categories relate to each other in the proportions described above.

For SOTE transport, we're usually talking about 200,000–500,000 trips per year per tender. A quick mental calculation shows which cost is actually significant and which isn't. Even at its highest, the system cost can be counted on the fingers of one hand as a percentage of the service's total cost.

So what pitfalls should be avoided in tendering? Below are a few examples of approaches that don't necessarily produce the best possible outcome.

Good and cheap? If price is the only selection criterion in a software or dispatch centre tender, and no clear targets or reference values are set for things like trip pooling or chaining, or optimisation isn't encouraged through performance bonuses, for example, the winner will be an inefficient system 10 times out of 10. 

Optimisation, and especially real-time automated optimisation, is computationally intensive. The more optimisation, the more computing. The more computing, the more hardware is needed, and the more expensive the system is to run. So a good optimisation system costs more, but even a few percent savings in staff and transport costs is tens or even hundreds of times larger than the total cost of the system procurement.

Conflicting interests? One recently published tender had what looked at first glance like a good carrot: a doubled per-order handling fee for pooled trips. The centre gets a couple of euros extra, but the buyer saves tens of euros when trips are pooled. A classic win-win! The very next line, however, stated that the dispatch centre also receives a fixed percentage of the transport service's total turnover. In other words, the more the operation costs, the more the centre earns. In that case, the commission easily outweighed the pooling bonus, so pooling trips simply wasn't financially worthwhile for the centre.

A free lunch? Especially in dispatch centre tenders, you sometimes come across clearly underpriced bids. I recently even saw a tender where one centre offered its services for free, and actually won with that free bid.

Since there's no such thing as a free lunch, the question is: where does the centre get its money, if not from the buyer through the contract being tendered? Commissions? Dispatch and equipment fees charged to drivers? Either way, certainly not from the cost-efficiency of the operation. Perhaps quite the opposite.

So: generally speaking, the best way to save on transport costs is to tie the financial interest of the system supplier, dispatch centre or full-service provider to the cost-efficiency of the transport service. Pooling bonuses, or for example a percentage of the savings, are genuine incentives and bring forward those bidders who are actually capable of delivering good service efficiently. Rewarding a centre or system supplier for producing an expensive service rarely encourages efficiency. If the pooling rate of a SOTE transport service is below 30 percent, one can say, in the words of the late president: "Something probably ought to be done about it."