Introduction The following chapter will review: –Overview –Model assumptions –The Cost Proposal & Evaluation –Payments methodology –Financial Incentives/Disincentives –Savings Calculation & Profit

Overview

Financial Model – Objectives Reduction of welfare expenditure Reduction in income assurance recipients Transfer of resources from welfare payments to work support services Allocation of risk in welfare expenditure growth to operators

Financial Model – Guidelines Ability to measure and monitor the investment and expenditure Simple measurement of performance Quality incentives Enhancement of the employment test

Budget Frame

Financial Model – Methodology Fixed budget frame Financing the operation from the savings in welfare payments Managerial flexibility Simplicity –Performance measurement –Monitoring and control Welfare Operations and services Start up

Financial Model – Methodology Cont. Geographical responsibility Focus on long-term solutions –Risk Mitigation Risk mitigation for the operator Risk mitigation for the government –Community impact

Geographical Responsibility 1.We draw a line around 3,500 current recipients 2.A job center is given an area for operating 3.All Applicants in the area who are in the target population must claim their benefits at the job center 3,500 recipientsResponsibility area

Regional Risk Management For each job center: The operator is responsible for all participants that reside in the area All new applicants must apply for their benefits at the job center The operator is responsible for the reduction/growth of income assurance payments to recipients in the area Failure to meet expenditure reduction objectives will result in penalties to the operator

Model Assumptions

Assumptions Population –Initial population - 3,500 income assurance recipients who are subject to employment test. –Without reform, implementation growth in recipients is - 0% annually Welfare Payments –Calculated at approximately NIS 138 million per job center for 24 months

Assumptions Cont. The program will include the following caseload reduction ingredients: –Personal details verification –Diversion –Mandatory full work week assimilation –Compliance as a condition for eligibility

Financial Model – Minimal Requirements The Operators of the Job Centers must: –Reduce expenditure on income assurance in region by at least 35% –Meet monthly expenditure reduction goals –Reduce the number of households dependent on income assurance in region by 40%

Benefit “Inventory”= 3,500 Participants X Average Benefit in the Region Minimum expenditure reduction requirement 35% Welfare Expenditure Reduction Graph Maximum Benefits Paid NIS 4m

Resources and Utilization Resource UtilizationResources Income assurance Payments to Participants Income assurance Payments At the Signature Date (according to NII figures) + Start Up Costs Operational Costs Work Support Services Balancing Budget (In order that sufficient resources will be available for operation operator must reduce government expenditure by at least 35%) Margin Government Operator (Community)

Cost Proposal & Evaluation

Cost Proposal in the RFP Month Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure Target for actual Welfare Payments Month Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure Target for actual Welfare Payments Month Projected Welfare Payments 40% Reduction in Expenditure Target for actual Welfare Payments

Cost Proposal Upper LimitBid BBid AEntry Profit Sharing proposal (%) ₪ 10 M₪ 8 M₪5 MStart – Up costs ₪ 33.5 M₪ 30 M₪ 20 MOperational Costs ₪ 27 M₪ 25 M₪ 20 MWork Support Services ₪ 70.5 M₪ 65 M₪ 45 MTotal Example

Cost Proposal Evaluation Proposed allocation of savings between operator and government (rate) Proposed operating cost (operation + services) Bidder will not be able to exceed the figures in the proposal

Update At Contract Signature Regional income assurance payments adjustment –Adjustment of budgeted welfare payments to match regional data –Conducted according to the average regional welfare expense of the three months preceding contract signature

Update Following Contract Signature – Government Base Case Projections Month Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure Target for actual Welfare Payments Month Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure Target for actual Welfare Payments Average expense on income assurance in the region for last 3 months= NIS 5.7 M 5,700 – 6%=

Update Following Contract Signature – Government Base Case Projections Month Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure Target for actual Welfare Payments Month 5700 Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure Target for actual Welfare Payments

Update Following Contract Signature – Government Base Case Projections Month 5700 Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure Target for actual Welfare Payments Month 5700 Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure Target for actual Welfare Payments Month 5700 Projected Welfare Payments 40% Reduction in Expenditure 3420 Target for actual Welfare Payments

Payments

Payments of Start Up Costs Payments are made according to the bid Schedule: –Down payment of 10% of the start up bid following contract signature –Six equal monthly payments start at 3 rd month –Down payment reduced from the sixth payment –Payments are subject to withholding and liquidated damages should the operator fail to meet milestones

PaymentDate Month No. Following Contract Signature Down payment - 10% of start up cost according to bid 1 January, Start up period No payment 1 February, /6 of start up costs 1March, /6 of start up costs 1 April, /6 of start up costs 1 May, /6 of start up costs 1 June, /6 of start up costs 1 July, Operational period 1/6 of start up costs – reduction of down payment 1 August,

Payments at Operational Period Payments for operational costs: –Made according to the bid Include: –Placement & training –Personnel –Overhead

Payments at Operational Period Cont. Payment mechanism: –Down payment on first month of operations - 5% of the operational bid (excluding work support services) –Equal monthly payments according to bid beginning with month three and onwards –Down payment is reduced from last three payments –Payments are subject to withholding and/or liquidation of damages

Payments at Operational Period Work Support Services reimbursement –Reimbursement for use of services (actual). –Made 45 days after receipt of the report. –Total amount capped by bid –Monthly amount capped

Down Payment 5% of operational cost No payment Submission of receipts for January work support services Payment for January operational Reimbursement for January services Submission of receipts for February 1/1 15/1 1/21/31/415/31/515/415/2 Payments Timeline to the Operator

Update at the End of Month 6 of Operation Update to the operational cost proposal Update to the welfare payments budget

Financial Incentives/Disincentives

Liquidated Damages Start up period – failure to meet milestones Operator must meet service level standards –Quality standards –Appeals that have been accepted over a certain rate

Withheld Payments Should the operator fail to meet: –Key schedule milestones during the start up period –Expenditure reduction objectives during operational period Withheld payments during operational period: the amount of deviation from the expected income assurance payments

Withheld Payments Month 4-8: over- pay of ₪ 1.4 M ₪1.4 M withheld Back to the line, full month payment Month 8-12: ₪ 1.6 M saved withheld sum (1.4) paid

Savings Calculation The following formula will apply: G = (PIA – IA) –G = Gross savings –PIA = Maximum income assurance payments –IA = Actual income assurance welfare payments Operator will receive 10% of saving in services

Saving Sharing Savings in Welfare Expenditure Sharing Formula: Percent Reduced Operators Share Government Share 0% to 35%:0%100%Min. Requirement 35% - 40%70%30% 40% - 50%X%100%-X According to Operators’ bid capped by 40% 50% - 60%X+5%100-X-5% 60% onwards10%90% Shared also with the Community

Savings Minimum requirement - 35% Savings to share Welfare paid

Updates The government holds the option to top up the centers' caseload and maintain it on 3,500 ( the initial no. of participants) A financial update will be made