Funding follows the child and the national standard for early learning and childcare providers: guidance for setting sustainable rates from August 2020

Section 4: Developing a Local Rate

40. Setting a sustainable rate locally will require sharing of knowledge and information between funded providers and local authorities in a spirit of meaningful and genuine partnership working.

4.1: Research

41. To set medium- to long-term sustainable rates, local authorities will need to undertake a process to understand actual costs incurred by funded providers when providing funded ELC in their local area, unless this is already available. By working together with private and third sector providers, including childminders, to understand costs, the rate should take account of the cost of providing funded ELC in the local area.

4.2: Consultation and Procurement

42. Where active consultation is undertaken, and a public tender is under consideration, public procurement regulations should be observed. This includes Regulations 41 (Preliminary market consultation), 42 (Prior involvement of candidates or tenderers) and 53 (Publication at national level) of the Public Contracts (Scotland) Regulations 2015. Local authority procurement and legal advisers will provide specific advice on the extent to which this should be reflected in the rate setting process.

4.3: Sharing Information

43. Setting a rate requires considerable sharing of cost information between local authorities and funded providers. For this to take place, relationships and trust between parties need to be developed. The options open to local authorities, and their success, is dependent on the structure of the market and the willingness of both parties to co-operate.

4.4: Cost Verification

44. Private and third sector providers and local authorities need to jointly acknowledge that the local authority has an overarching responsibility to ensure best value. It must also be clear that, in order to ensure robustness of cost information, independent verification of benchmark information may be required.

4.5: Transparency

45. Local authorities must act transparently, regardless of the process chosen, and make available details of the process, including any relevant non-commercially sensitive information. The local authority should record and justify the costs that have been taken into consideration during the process including where information or details have been removed. Where mechanisms or formulas are used, these should be clearly explained by local authority representatives.

4.6: Rates across Provision

46. Some local authorities may consider a tiered rate approach for different types of funded provider and for other considerations. It should be noted that any of the processes outlined in Section 5 could be used to gather information to inform a tiered rate approach.

47. A local authority may consider having a different rate based on a child's age and this should be taken into account when developing their sustainable rate process.

48. This does not mean that different processes need to be undertaken, however, variations to costs should be reflected in the rate, for example considering different staff ratios for different ages of children.

4.7: Affordability and Efficiency

49. Funded providers and local authorities must recognise that local authorities are tasked with managing the sustainable rate within their budgets, meaning that a fair, sustainable rate should consider affordability and efficiency for the local authority. This includes making the most effective use of public funds, within the Best Value requirement of the Local Government in Scotland Act 2003. The local authority should clearly set out where this has been a consideration in the sustainable rate setting process.

4.8: Occupancy

Box 1: Understanding Occupancy

Occupancy and the efficient allocation of available hours of ELC is an important consideration in rate setting as these directly relate to the cost per hour.

The number of available hours in a funded provider setting will be determined by the number of Care Inspectorate registered places and the setting's business model.

This could be established by considering the total number of on-ratio staff hours during the day divided by the appropriate staffing ratios for each age group (to reflect that staffing levels in settings can vary throughout the day).

This total reflects the total number of available hours, based on the business model of the setting, and it operating at full occupancy.

50. Where the process permits, local authorities should request occupancy figures and the number of hours delivered, to understand the cost per hour.

51. It should be noted that, due to the degree of flexibility required in ELC settings, local authorities may include settings that are operating significantly below full occupancy in the sustainable rate setting process, due to local market conditions (for example, in rural areas) and local delivery plan requirements. However, local authorities should ensure best value when contracting services, and this may include considering the appropriateness of including funded providers operating with very low levels of occupancy in the sustainable rate setting process.

52. Where occupancy and actual hours of care delivered are not available or required in the process, the local authority may set the occupancy level to inform the cost estimates, for example, where the local authority is undertaking the process outlined in Section 5.4: Cost Modelling. Where the local authority sets the occupancy level, this should be clearly communicated, including the methodology which has been used.

4.9: Nature of the Contract

53. The processes set out within this document apply to the most widely used type of contract with funded providers which is currently a contract where the rate paid to a provider reflects the service provided per hour.

54. There may be instances, for example, where increased flexibility, continuity of service and available provision means that a local authority may agree a different payment arrangement (for example, a block grant) or a different contracting method (for example, a block contract). These arrangements would be the exception rather than the norm and may be subject to alternative processes.

4.10: Meal and Snack Costs

55. Every child receiving a funded ELC session will receive a free meal. They will also receive a healthy snack and milk. These funded elements should be separate from the sustainable rate.

56. To ease the administrative burden on providers, a local authority may decide to include these elements in the same payment as the sustainable rate or a local authority may account for it separately. The local authority must make sure, particularly where all elements are reflected in one payment, that there is transparency for providers regarding the separate elements of funding being received.