Contracting vs. Franchising A hypothetical example

The Basics Contracting: an system where governments pay for outside provision goods/services Franchising: a system of providing goods/services

Context The Pakistan MOH has determined that long-term family planning methods are underused by the poor due to lack of access. They estimate an unmet demand for IUDs in poor urban areas equal to 50,000 / year

Contracting The unmet demand is due to poor coverage/low usage of government medical facilities in poor urban settings. Rather than build new facilities (and commit to ongoing salaries for new staff) the MOH decided to contract outside provision of IUDs in these areas.

Contracting cont’d The MOH puts out a request for proposals The RFP calls for proposal to provide an average of 50,000 new IUDs in low-income urban areas each year for four years. Cost/IUD insertion is estimated at $20/insertion (cost of IUD=$4), or $1,000,000/year Contract: $1M/yr for four years to provide 200,000 new IUD insertions for poor urban women

Three Proposals Family Planning Assoc. of Pakistan (FPAK) “traditional” subsidized NGO services Marie Stopes International (MSI) “market-model” NGO services Greenstar Network (Greenstar) “franchise-model” services

FPAK Context: Limited urban clinics in low-income areas; Tradition of free / near-free services 10 clinics x $50,000/yr$500,000/yr 30 vans + associated outreach workers x $10,000/yr $300,000/yr 50,000 IUDs x $4/unit$200,000/yr Client fees: $1/insertion$-50,000/yr (income) Overhead$50,000/yr total$1,000,000/yr

MSI Context: few clinics, fee-for service tradition; clinic cost shared with other income-generating services 20 clinics x $40,000/yr$800,000/yr Referral fee paid to private providers: $1/IUD referral $50,000/yr 50,000 IUDs x $4/unit$200,000/yr Client fees: $4/insertion$-200,000/yr (income) Overhead$150,000/yr total$1,000,000/yr

Greenstar Context: mgmt-intensive training and franchising of existing providers. Members profit for each service. 2,500 member clinics will each avg. 2 IUDs/month Advertising / publicity$500,000/yr 50,000 IUDs x $4/unit$200,000/yr 50,000 IUDs x $1/unit: sale to members$-50,000/yr (income) Client fees: $2/insertion Fee goes to provider only Quality Assurance/Training/Overhead$350,000/yr total$1,000,000/yr

conclusion Contracting is the process of hiring out the provision of services Franchising is one way of providing services Note: all figures, coverage, quantities and organizational behavior Indicated in this presentation is fictional, for illustrative purposes only!