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APMS contracts: avoiding financial pitfalls

Be realistic when estimating the costs of meeting APMS contract terms to avoid incurring losses, advise solicitor Justin Cumberlege and accountant Paul Samrah.

Ensure financial commitments such as rent and leases match the contract’s duration
Ensure financial commitments such as rent and leases match the contract’s duration

Working out the costs of delivering an APMS contract is vital. 

It is too easy to think ‘we can do that’ without calculating the costs of the resources required to set up the contract initially and then to meet its terms and conditions.

You also need to factor in a contingency sum in case problems arise along the way. Always remember to include the costs of your own time and to allow for the risks of providing the service(s).

Walk away if you have financial or other doubts about the contract. Failing to do so could be very expensive further down the line.

Here are some pointers:

Research
Thorough research is crucial, and if at all possible, meet up with the commissioner to get a better feel for what they looking for.

Carefully analyse the bid documents and see if your practice and any partners in the bid have the experience and requirements needed. Work out a timescale and the investment involved.

Is the APMS contract worth your time? Does the contract fit in with your overall business plan? Or will it leave the practice overstretched with too many commitments?

Staffing
Will you need to take on new staff, or take over existing staff?Consider any TUPE issues (Transfer of Undertakings (Protection of Employment) Regulations 2006).

If you are taking over an existing service, will you have to take over the staff, and will you have to make some of them redundant? What will be the costs of employing them, or making them redundant? 

Will you actually have the legal right to make them redundant? At the end of the APMS contract, will there be redundancy issues? The costs involved can be significant and need to be factored in at the outset.

Facilities and equipment
Consider carefully what you are expected to provide. For example, APMS providers are frequently expected to fund 'soft' facilities management services such as infection control and sharps management. You may be responsible also for equipment budgeting, maintenance and provision.

Annual accounts
Your accounts (on which your tax bill will be based) will include the contract’s income as it is earned and this will be matched with the expenditure as it is incurred, regardless of whether the APMS monies have been received or paid by the date of the annual accounts are made up to.

Income is matched with the expenditure to which it relates, so APMS wages and salaries are matched with APMS income generated. This basis gives a fair reflection of financial performance. The accounts will show monies due (debtors) and monies owing (creditors).

Cash flow
Be aware of the mechanism for paying you the APMS funding and the timing being proposed. Consider the implications for cash flow. You may be asked to provide up to date accounts and forecasts to ensure strong financial standing and probity (integrity).

You will be required to have adequate insurance cover in place and you will be responsible for your own costs incurred throughout each stage of the procurement process.

All this will include considerable practice manager and GP partner time involvement, which you need to cost out.

Contract period
APMS contracts are time-limited to around five years, (subject to renewal if you successfully re-tender). Try to ensure that your financial commitments - rent for additional premises, leases for equipment, contracts for staff - match the contract’s duration.

Bear in mind that short-term loan finance arrangements may not be freely available and you may have to look at long-term loan finance for a short-term contract.

Contract price
If the contract price is not fixed, do not over-promise what you can deliver for the price you put forward, or offer the cheapest possible quote. In most cases, the commissioner will be testing the tender on four main issues:

  • Cost
  • Competence
  • Creativity (innovation)
  • Compliance. 

Freedom of information
Be aware that the commissioner is highly likely be committed to meeting its legal responsibilities under the Freedom of Information (FOI) Act.

Accordingly, any information provided may need to be disclosed in response to an FOI request following the award of the contract.

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