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

2. Overview

3. 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

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

5. Budget Frame

6. 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

7. 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

8. 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

9. 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

10. Model Assumptions

11. 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

12. 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

13. 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%

14. 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

15. 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)

16. Cost Proposal & Evaluation

17. Cost Proposal in the RFP 87654321Month Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure Target for actual Welfare Payments 161514131211109Month Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure Target for actual Welfare Payments 2423222120191817Month Projected Welfare Payments 40% Reduction in Expenditure Target for actual Welfare Payments

18. Cost Proposal Upper LimitBid BBid AEntry 403010Profit 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

19. 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

20. 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

21. Update Following Contract Signature – Government Base Case Projections 87654321Month Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure Target for actual Welfare Payments 161514131211109Month 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%= 5358 5700 5358

22. Update Following Contract Signature – Government Base Case Projections 161514131211109Month Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure Target for actual Welfare Payments 87654321Month 5700 Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure 36483705376238193990421849025358Target for actual Welfare Payments

23. Update Following Contract Signature – Government Base Case Projections 87654321Month 5700 Projected Welfare Payments 36%35%34%33%30%26%14%6%Reduction in Expenditure 36483705376238193990421849025358Target for actual Welfare Payments 161514131211109Month 5700 Projected Welfare Payments 40%39% 38% 37%36%Reduction in Expenditure 34203477 3534 35913648Target for actual Welfare Payments 2423222120191817Month 5700 Projected Welfare Payments 40% Reduction in Expenditure 3420 Target for actual Welfare Payments

24. Payments

25. 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

26. PaymentDate Month No. Following Contract Signature Down payment - 10% of start up cost according to bid 1 January, 2005 1 Start up period No payment 1 February, 2005 2 1/6 of start up costs 1March, 2005 3 1/6 of start up costs 1 April, 2005 4 1/6 of start up costs 1 May, 2005 5 1/6 of start up costs 1 June, 2005 6 1/6 of start up costs 1 July, 2005 1 Operational period 1/6 of start up costs – reduction of down payment 1 August, 2005 2

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

28. 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

29. 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

30. 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

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

32. Financial Incentives/Disincentives

33. 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

34. 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

35. 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

36. 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

37. 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

38. Savings Minimum requirement - 35% Savings to share Welfare paid

39. 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