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Naoh®
National Audit Office
Administration of time-limited compensation schemes
The National Audit Office
scrutinises public spending
on behalf of Parliament. The
Comptroller and Auditor General,
Tim Burr, is an Officer of the House
of Commons. He is the head of
the National Audit Office which
employs some 850 staff. He and
the National Audit Office are totally
independent of Government
He certifies the accounts of all
Government departments and a
wide range of other public sector
bodies; and he has statutory
authority to report to Parliament
‘on the economy, efficiency
and effectiveness with which
departments and other bodies
have used their resources. Our
work saves the taxpayer millions of
pounds every year: at least £9 for
every £1 spent running the Office.
This Briefing was prepared by
‘Andrew Packer and Simon Reason,
under the direction of Peter Gray.
Simon Banner, Nicola Coy and
David Howes assisted.
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Administration of time-limited compensation schemes O
Contents
Welcome 5
Overview 6
The Ombudsman’s principles rd
Lessons to be drawn from National Audit Office reports 8
The views and experiences of practitioners 10
Phase 1: Determining the extent of the liability 18
Understanding the overall liability or obligation 19
Options for discharging the liability 21
Phase 2: Designing the scheme 22
Setting the scheme rules 23
Designing the processing systems 24
Preparing the implementation plan 27
Phase 3: Implementation 28
Communicating with claimants and stakeholders 29
Working in partnership with contractors. 30
Monitoring progress 32
Reviewing progress 33
Phase 4: Scheme wind down and closure 34
Options for closure 35
Setting the closure dates 35
Processing the remaining claims 36
Additional information 37
Post closure 38
Additional reading 39
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4 Aciministration of time-lir
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5
Welcome
Setting up and delivering time-limited compensations schemes often poses a significant
challenge for public bodies. By definition, citizens eligible for compensation will already
have suffered some form of hardship and distress. For some schemes, the applicants
may be elderly and infirm. These citizens have a reasonable expectation that their
application will be treated fairly and expeditiously. Yet, for public bodies these schemes
can pose a tremendous challenge. The events to which the compensation relates may
have happened some years before. Establishing workable eligibility criteria, assessing
the potential number applicants, obtaining evidence to support eligibility and processing
applications can quickly test the capacity and expertise of public bodies.
This publication seeks to help officials with little experience of such compensation
schemes. It provides practical briefing points arising from recent examinations by the
National Audit Office and draws upon influential work by the Parliamentary and Health
Service Ombudsman. The briefing does not necessarily cover all the issues that need
to be considered when delivering a new compensation scheme, as each scheme will
to some extent raise new issues. This briefing, however, supplements and is consistent
with the section on remedies in HM Treasury's recently published Managing Public
Money. It also reflects issues outlined in Principles for Remedy published by the
Parliamentary and Health Service Ombudsman.
We are very grateful for the help afforded to us by officials in the Coal Liabilities Unit
and Employment Relations Directorate at the Department for Business, Enterprise and
Regulatory Reform, and the Redundancy Payments Service, now part of the Insolvency
Service, who readily shared their experience of running such schemes. We are also
indebted to Tom Riddell and his team at KPMG who drew upon their considerable
experience of practice in the insurance industry in helping us.
I hope you find this Briefing helpful.
Peter Gray, Director
July 2008
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nistration of time-limited compensation schemes
Overview
The difficulty of administering various forms of time-limited
compensation scheme has formed the subject of a number
of official reports over recent years. These reports have come
from a range of sources including the Select Committees, the
Parliamentary and Health Service Ombudsman and the National
Audit Office. This Briefing draws heavily on these sources.
The Briefing’s practical information is supplemented by the views
and experiences of five practitioners who were interviewed by the
National Audit Office in March and April 2008.
THE OMBUDSMAN’S PRINCIPLES
In March 2007, the Parliamentary and Health Service Ombudsman published her
‘Principles of Good Administration’ (available at ombudsman.org.uk). These Principles
set out the sorts of behaviour the Ombudsman expects when public bodies deliver
public service. The Principles drew on the Ombudsman's experience of handling
complaints over some forty years. Although the Principles are generic to all forms of
public administration, they are particularly relevant to the design and administration of
compensation schemes. The Ombudsman identified six key principles — see below.
Principles of Good Administration — published by the Parliamentary and Health
Service Ombudsman
1 Getting it right
© Acting in accordance with the
law and with due regard for the
rights of those concerned
* Acting in accordance with
the public body's policy and
guidance (published or internal)
© Taking proper account of
established good practice.
Providing effective services,
using appropriately trained and
competent staff.
© Taking reasonable
decisions, based on all
relevant considerations.
iy
Being customer focused
Ensuring people can access
services easily.
Informing customers what they
can expect and what the public
body expects of them
© Keeping to its commitments,
including any published
service standards.
© Dealing with people helpfully,
promptly and sensitively,
bearing in mind their
individual circumstances.
eo
FS
Responding to customers’
needs flexibly, including,
where appropriate,
coordinating a response with
other service providers.
Being open and accountable
Being open and clear about
policies and procedures and
ensuring that information, and
any advice provided, is clear,
accurate and complete.
Stating its criteria for decision
making and giving reasons
for decisions.
Handling information properly
and appropriately.
Keeping proper and
appropriate records.
Taking responsibility for
its actions.
Acting fairly and
proportionately
Treating people impartially, with
respect and courtesy.
Treating people without unlawful
discrimination or prejudice, and
ensuring no conflict of interests.
Dealing with people and issues
objectively and consistently.
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Administration of time-limited compensation schemes 7
ea
o
Ensuring that decisions and
actions are proportionate,
appropriate and fair.
Putting things right
Acknowledging mistakes and
apologising where appropriate.
Putting mistakes right quickly
and effectively.
Providing clear and timely
information on how and when to
appeal or complain.
Operating an effective
complaints procedure, which
includes offering a fair and
appropriate remedy when a
complaint is upheld.
Seeking continuous
improvement
Reviewing policies and
procedures regularly to ensure
they are effective,
Asking for feedback and
using it to improve services
and performance.
Ensuring that the public body
learns lessons from complaints
and uses these to improve
services and performance.
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LESSONS TO BE DRAWN FROM NATIONAL AUDIT OFFICE REPORTS
The National Audit Office has published a number of reports highlighting lessons to be
drawn from the administration of recent compensation schemes (see page opposite).
These reports suggest that the best results are achieved when public bodies:
© put in place the right governance and project management arrangements to
oversee, challenge and manage the development of the scheme. Officials should
draw upon the arrangements set out in the Gateway™ Process published by the
Office of Government Commerce;
© commit sufficient effort and the right skills at the outset to designing and planning
for implementation of the scheme;
© design scheme procedures as an end-to-end system with the aim of
minimising potential bottlenecks — piloting key aspects of the proposed scheme
may be essential;
design should take a whole-life view of the scheme from the start including how the
scheme might eventually be wound up;
© consider the likely number and profile of likely applicants and the capacity needed
to process applications from different types of applicant expeditiously;
consider the likely administrative cost of processing claims at the outset and set
this against the likely amounts to be paid out; and
have in place a strategy for dealing with external pressures in a structured and
confident way, including the management of expectations.
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Administration of time-limited compensation schemes 9
Recent NAO reports focused on the administration of compensations schemes
The 2001 outbreak of foot and
mouth disease (HC 939 Session
2001-02: 21 June 2002)
In February 2001, foot and mouth
disease was confirmed in Essex.
The disease was eradicated in
September 2001.
Farmers received £1.2 billion in
compensation from the Department
for Environment, Food and Rural
Affairs (formerly the Ministry of
Agriculture, Fisheries and Food)
under the Animal Health Act 1981
for the over four million animals
that were slaughtered for disease
control purposes. Individual
farmers received payments ranging
from £20 to over £4 million. The
average payment to farmers (some
9,300) was around £125,000.
The Department expected to pay
£10 million in fees to the valuers
of animals.
Under a new associated voluntary
scheme (Livestock Welfare
Disposal Scheme) farmers received
cover £200 million from the Rural
Payments Agency (formerly the
Intervention Board) to alleviate
the suffering of animals that were
indirectly affected by the foot and
mouth disease due to restrictions
on the movement of animals, for
example to alternative pasture. The
scheme, which cost a further £205
million to run, differed from the
scheme for slaughtered animals in
that the payments to farmers did
not have to reflect the value of the
animals killed, a set of tariffs being
used instead.
The compensation scheme
for former Icelandic water
trawlermen (HC 530 Session
2006-07: 29 June 2007)
The UK Government agreed in
1976 to phase out fishing by
vessels based in the UK within
200 nautical miles of Iceland.
This followed a series of disputes
with Iceland that became known
as the “Cod Wars”. In July 2000,
the Department of Trade and
Industry announced a scheme
to compensate relevant former
trawlermen (i.e. employees rather
than vessel owners).
‘The Department made around
5,200 payments totalling nearly
£43 milion, in respect of some
4,400 claims. Successful claimants
on average received around £9,700.
Coal health compensation
schemes (HC 608 Session
2006-07: 18 July 2007)
In 1998 the Department of
Trade and Industry took over
responsibility for the accumulated
personal injury liabilities of the
British Coal Corporation. In that
year the High Court found the
Corporation negligent in respect
of a lung disease, caused by
coal dust, known as Chronic
Obstructive Pulmonary Disease
(COPD); and the Court of Appeal
confirmed an earlier High Court
decision of negligence in respect of
hand injuries caused as a result of
using vibrating equipment, known
as Vibration White Finger (VWF).
The Department, in negotiation with
claimants’ legal representatives
and subject to the approval of
the High Court, introduced two
schemes, one for COPD and one
for VWF, to compensate former
miners. The Department employed
a contractor to administer and
assess claims. It also contracted
with independent medical
assessors to carry out medical
examinations. The Department
met the cost of the claimant's legal
representation, where these claims
were successful
The VWF scheme closed to
new claims at four dates from
September 2002 to January 2006
depending on the type of claimant
and the type of claim. The COPD
scheme closed to new claims in
March 2004.
By March 2007 the Department
had received over 591,000
COPD claims and 169,000 VWF
claims, of which around 168,000
COPD and 27,000 VWF claims
remained outstanding. The median
‘settlement under the COPD
scheme was around £1,500 and for
the VWF scheme £8,300.
When all the claims are settled the
Department expects to have paid
some £4.1 billion in compensation
and spent some £2.3 billion in
administration costs.
All the published reports in this
briefing are available from our
website at www.nao.org.uk
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Administration of time-limited compensation schemes
The views and experiences
of practitioners
Tom Riddell
SENIOR ADVISER, KPMG
lan’ McKenzie
DIRECTOR, COAL LIABILITIES UNIT -
DEPARTMENT FOR BUSINESS, ENTERPRISE
AND REGULATORY REFORM (BERR)
Alison Reeves
DEPUTY DIRECTOR, FOOD AND FARMING
GROUP - DEPARTMENT FOR ENVIRONMENT,
FOOD AND RURAL AFFAIRS (DEFRA)
Gordon Askwith
DIRECTOR OF OPERATIONS,
REDUNDANCY PAYMENTS SERVICE
W Sue Gamble
= REGULARITY AND PROPRIETY BRANCH,
HM TREASURY
> Ps
Tom Riddell
SENIOR ADVISER, KPMG
Q: In your experience of
compensation schemes
within the UK and abroad,
what are the three things that
scheme administrators often
do well?
Well with the assistance of
computerised records, I think
‘that compensation schemes
usually now have very good
records, and conduct the
payment side of things efficiently.
Secondly, I think that the
schemes are usually pretty good
at weeding out false claims.
Of course that can have a
downside that genuinely eligible
parties then resent the hoops
they have to go through to prove
their eligibility.
Third, I'd nominate cost
efficiency generally. Typically
the pure admin costs are a
pretty low proportion of the
total costs consumed by the
scheme relative to the amount
paid out in benefits. However as
soon as there is any complexity
in the criteria for eligibility, for
example because medical
diagnosis or legal analysis and
dispute is involved, schemes
are very quickly criticised for the
proportion of the total scheme
funding which is consumed in
costs or legal fees and so is not
paid out in benefits.
Q: What are the three things
that scheme administrators
often do less well?
I think I would list
communication as an issue
that could normally be handled
better. One of the biggest
challenges is to get the money
to the eligible parties quickly, but
at the same time follow proper
procedures to avoid paying out
on ineligible claims. For some
typically employment related
diseases, such as asbestosis,
‘the victim can have quite a short
life expectancy after diagnosis,
soit is very important that any
delay in payment is minimised.
Individuals can quickly resent
and be emotional about any
delays that they don't believe
are justified, particularly if
‘compensation is being paid for
injury or disease. Whether it
is funded by insurance or the
public purse, there still have to
be rules to ensure only the right
people are paid. Administrators
don't always handle the
communication aspects of this
as well as they could.
Administration of time:
Next I think I would list
forward planning at the start
of the scheme. Compensation
schemes often have a political
dimension to them. This can
mean the compensation
package is put together hurriedly
in response to a crisis or a
political imperative, without
the luxury of much time for the
administrators to plan properly.
If I had to nominate a third
aspect that is sometimes done
less well, I think it would be
responsiveness. Compensation
schemes have something
‘the applicant wants, but they
are not really selling anything.
Organisations which have to
sell their services in competition
with others have a better
reputation for responsiveness
‘than organisations which
don't. It is perhaps too easy for
compensation schemes to slip
to lower response standards.
Q: What's the one key
piece of advice you would
offer anyone embarking
ona scheme?
My key piece of advice would
be to sink more effort into the
research and planning stage
‘than people would initially think
justified. Getting the eligibility
rules specified as objectively
and clearly as possible, and
researching the likely eligible
population accurately so that
resources can be planned
properly, will pay off handsomely
in the long term.
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12 v0
lan McKenzie
DIRECTOR, COAL
LIABILITIES UNIT -
DEPARTMENT FOR
BUSINESS, ENTERPRISE
AND REGULATORY
REFORM (BERR)
Q: What were the main
challenges BERR faced in
administering schemes which
are under the direction of
the Courts?
It’s helpful to put the
establishment of the Coal
Health schemes in context in
responding to this question.
These schemes arose out of
litigation. British Coal defended
claims brought against them
by their former employees on
advice that there was a good
chance of success. However,
‘the Court found British Coal
liable and the schemes were
established by orders of the
Court as a mechanism for
compensating the claimants in
respect of that liability. When
the Department inherited the
liabilities of British Coal, the
litigation was already seized of
the Court, meaning that there
wasn't really a choice in how
the compensation was dealt
with — we had to follow the
rulings made by the Court.
Nevertheless, since the original
Court rulings on liability nearly
10 years ago we can see both
pros and cons of the Court's
involvement. On the positive side,
the Court's involvement means
we have mechanisms in place
to resolve issues, This can play
both ways but in recent years
the Court has been helpful in
driving a timetable for resolution
of outstanding claims. It provides
a regular public forum where
our position can be set out and
challenged in an open way.
The disadvantages of the
Court's involvement are that
it is expensive and resource
intensive. We can be ordered to
do things we don't necessarily
agree with. It can extend
timescales for resolving issues
— our Court hearings are
regular but it can still take more
than one hearing to secure a
ruling. Explaining decisions
where matters of complex
legal argument are involved is
challenging, as is explaining to
‘the Minister why he cannot take
decisions under the Court's
control whilst he remains
accountable to Parliament.
Q: How did BERR
respond to an unexpected
surge of claims for the
Chronic Obstructive
Pulmonary Disease (COPD),
and what lessons might this
offer for administrators of
other schemes?
Over 590,000 claims were
received under the COPD
Scheme with nearly 50 per
cent of them arriving in the six
months before closure to new
applications. The reasons for
the late surge are complex
but included - rightly - the
requirement to publicise the
Scheme to maximise awareness.
But this was combined with
some intermediaries seeking to
generate claims — many of which
were weaker based on evidence
to support them. These have
subsequently taken much more
time and effort to enable them to
even begin to be processed.
We monitored the late surge of
claims very carefully working
closely with our contractors to
model the potential timescales
for settlement. This information,
combined with real world
experience of processing the
first 100,000 claims, gave us
evidence to discuss with those
representing claimants and the
Court ways to fast track claims
likely to attract smaller amounts
of compensation.
Based on this we collectively
developed the Optional Risk
Offer Scheme (OROS) stripping
out parts of the handling process
— notably the detailed medical
assessment. OROS has been a
great success with over 170,000
claims settled via that route;
and estimated savings of over
£324 million from cutting the
medical records and assessment
process enabling scarce medical
resources to focus on stronger
claims. We estimate OROS has
cut the scheme duration by at
least 3 years.
The key lessons from our
experience are:
® make sure you have robust
management information
about the volume of
claims coming in and be
transparent about the issues;
© mandate levels of key
information for every claim
to ensure that they can be
processed through the
initial stages;
e set a deadline for registration
of claims and get Ministers
buy-in to it and stick to it!
This is much easier said than
done but it’s crucial
Q: What advice would
you offer to scheme
administrators when
claimants are represented
by intermediaries?
This is a challenging area!
For us having intermediaries
representing claimants
has played an important
role in helping claimants
understand their obligations
and entitlements; cascading
information; managing
settlement timescale
expectations; and ensuring
claimants provide claim
information as quickly as
possible. They also provide
useful inputs to ensure scheme.
rules are reasonable.
For us the most challenging part
of working with intermediaries
came at an early stage when we
were seeking to negotiate the
costs they would receive for their
role. The lessons we learnt were:
© make sure your have
‘the right skills to support
cost negotiations;
© ensure you have the ability to
model the costs and impacts
of different outcomes;
© challenge assumptions
on the tasks involved in
handling claims;
© consider piloting the process;
® make provisions in any
agreement that is reached
for a review clause but
recognise that this could be
used by both parties;
© look for benchmarking
evidence; and
© get the support of Ministers
for your negotiating position
especially if you need time
to test the assumptions.
For the COPD scheme the
nature of the negotiations meant
that we had to agree costs
up front. For other elements
of the VWF scheme we have
paid interims costs but then
used actual evidence to agree
the final tariff towards the end
of the process. There are pros
and cons in both approaches.
In reality there is no magic
formula and you are likely to be
under great pressure to reach
agreement so get organised.
Q: How have you sought to
protect the confidentiality
of the personal information
that BERR has collected in
settling claims?
The Coal Health Compensation
Schemes have made use of
large volumes of sensitive
personal data including
details about each claimant's
employment and medical history.
Keeping all that data safe has
been challenging and over the
10 years that the schemes have
been in operation the concerns
about personal data security
have grown.
Administration of time:
The solicitors involved in
representing claimants
are governed by their own
professional code of conduct
which includes responsibilities
towards the information provided
by their clients. However, the
involvement of so many parties
— there have been over 700
solicitors representing claimants
— makes this challenging.
We recognised this at an early
stage. We made awareness
of the obligation to protect the
personal data being handled
by our contractors a key
requirement. Recent events
which have hit the headlines
have caused us to review
our processes again and we
have made further changes to
aspects of the processes to
seek to minimise the risks of
unintended disclosure.
We make sure all contractors
have clear data security policies
in place. We use audit to check
the policies are also applied
in practice on the ground. We
have enhanced the security
of arrangements for sending
records between contractors and
claimant representatives by using
couriers, recorded delivery etc.
and for access to electronic data.
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Alison Reeves
DEPUTY DIRECTOR, FOOD
AND FARMING GROUP
- DEPARTMENT FOR
ENVIRONMENT, FOOD AND
RURAL AFFAIRS (DEFRA)
Q. The Foot and Mouth
epidemic in 2001 received
much media attention. What
advice would you offer when
a compensation scheme is
subject to significant media
and Parliamentary interest?
It is always better to draw up
the scheme with stakeholders in
advance, not in the height of an
emergency. With this in mind, I
would offer the following advice:
Always involve your
stakeholders.
e Be clear about the rationale
for Government intervention,
and have a communication
strategy to explain it
e Publish the criteria and
trigger points in advance;
not least so stakeholder/
businesses can be clear
on the risks they need to
‘own and have contingency
plans for.
e Anticipate the media and
Parliamentary interest and
have a communications
strategy ready for it.
Q. How did you balance,
on the one hand, assessing
compensation levels whilst,
on the other, ensuring
fairness between claimants?
The key lesson learned from
the 2001 epidemic is about
reaching agreement with
stakeholders before an exotic
disease outbreak on the way
compensation will be assessed.
We are now better prepared:
© We now publish valuation
rate cards on the Defra
web site.
e Weare clear about the
legal base for payments
and whether the policy
should be new for old, or
replacement valuations.
© We have a process for the
special or exceptional cases
(for example: high genetic
index stud bull owned
by a breeding company,
as opposed to a stock
bull owned by a farmer)
and organise individual
assessments in these cases.
e We have also appointed a
panel of monitor valuers to
ensure consistency in the
delivery of valuation policy.
Q. What was the most
significant challenge
created by the demands of
handling a large volume of
cases with pressure to make
payments quickly?
I don't think it's possible to give
‘one significant challenge; we
faced many in 2001. If I had to
give the top three, they would be:
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© ourcapacity to handle a
surge in claims - you
need contingency plans
for being able to bring in
more people quickly and
who can easily apply the
rules of the scheme;
deciding what was fair and
reasonable, which took time
and resource to resolve; and
ensuring we had an
auditable system.
Q. What lessons has Defra
learned from the 2001
compensation scheme?
I think there are several
key reasons:
be clear on the rationale for
Government intervention;
© have your scheme
agreed with stakeholders
and published in advance
—as I mentioned earlier we
now publish valuations on
the website;
© think about unintended
consequences before
you finalise the details,
for example the tax
consequences for
claimants;
deliver a sound audit
trail; and
© be clear about exceptions
and special cases and build
in flexibility to handle them.
Gordon Askwith
DIRECTOR OF
OPERATIONS, REDUNDANCY
PAYMENTS SERVICE
Q: What do you feel is
particularly important
during the set-up and
implementation phases of a
compensation scheme?
In terms of set up - do the
research and know your subject!
It's very difficult to band aid once
the scheme is up and running,
In our case, there was a clear
lack of understanding within the
policy team about the industry
and how it operated
As regards implementation
— don't bow to pressure and
rush into launching a scheme
before it's properly developed.
In our case the implementation
was rushed ~ a pilot run would
have demonstrated very quickly
‘the flaws in the initial rule set
~all the material required to
do this was available. The
second big issue is to not make
changes “on the hoof” — many
amendments made to the
scheme were ill-considered and
often undertaken just to support
earlier ill-considered judgments.
Within reason, there’s nothing
wrong in making a mistake
but it’s better to admit it then
compound it with another one!
Q: What were the main
challenges arising from the
passage of time since the
claimable period?
In many cases, we were trying to
establish what a fisherman was
doing as many as fifty years ago.
Very little independent evidence
is available to support claims of
employment this long ago - even
an organization as obsessive
about record keeping as the Civil
Service had very little information
that we could draw on. Most of
the employers within the industry
ceased to trade many years
ago, thereby removing another
possible source of information.
And it's unreasonable to
expect individuals to have a
clear recollection of what
exactly they were doing so
many years ago. These factors
inevitably led to “grey areas”
when trying to establish an
individual's entitlement.
However, the local press and
community in all of the ports
were very keen to provide
whatever assistance they could
We spent many hours trawling
(sorry!) through the newspaper
archives at each port to build
up an understanding of how the
industry actually worked
Q: How might working
between policy makers
and scheme administrators
be improved?
In a word, communication. The
administration group had little or
no input into the scheme design
and no input into the underlying
policy decisions. We were given
a set of un-tried rules and a
very tight timetable to get the
process up and running. This
failure to engage effectively with
each other dogged the scheme
‘throughout its brief life.
Administration of time
With hindsight, both the policy
and administration teams should
have worked closely together
from the schemes inception. The
effect of various policy options
and therefore rules should have
been properly assessed by
undertaking “dummy running” to
establish their effectiveness and
the difficulty operationally of any
proposed rules.
Q: What methods of
communication with
claimants worked well for the
Trawlermen Scheme?
The fishing community is a
very tightly knit one. Without
doubt, our most effective
communication was by word
of mouth within the community
following discussions with their
representatives. We put a lot of
effort into establishing good links
with the local community via the
British Fishermen’s Association,
MPs, local authority help centres
etc and this was certainly a good
investment. We also undertook
surgeries at the ports, which
proved very popular and
allowed us to dispel some of
‘the many rumours that used to
do the rounds.
We did of course use more
formal channels such as adverts
in the “Fishing News” and local
newspapers along with close
liaison with the local port MPs.
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164
Sue Gamble
REGULARITY AND.
PROPRIETY BRANCH,
HM TREASURY
Q: What are your
general observations and
experiences of compensation
schemes in each of the
three key phases: set-up;
implementation; and closure?
Neither Parliament nor the public
find poor quality public services
acceptable. Public sector
organisations should therefore
define what their customers,
business counterparties and
other stakeholders can expect
of them and review these
standards from time to time
using customer feedback,
including from complaints,
to reassess whether these
standards remain appropriate.
When it is identified that a public
sector organisation has caused
injustice or hardship because
of maladministration or service
failure, they should consider
providing remedies so that,
as far as reasonably possible,
they restore the wronged
party to the position that they
would be in had things been
done correctly. This does not
always mean financial remedy,
but can include an apology, an
explanation or putting something
that has been done wrong,
right. This is often done on an
individual basis, but where a
number of people have been
affected by maladministration
‘the department should consider
developing a scheme. It is also
important that they consider
whether their policies and
procedures need to change, to
prevent the failure reoccurring.
It is at the set up stage that
departments should be liaising
with the Treasury through their
normal Treasury Spending Team
contacts. This stage is key,
but there is often a great and
necessary pressure to do things
quickly. It is important that the
research is done thoroughly
and ideas sensibly tested. The
considerations are much the
same as should be made for any
new policy or project, including
whether it is a new service.
If there is a need for a formal
compensation scheme to be
set up, this is often a flag that
legislation is required too.
Experience also indicates that
there are some specific issues
‘that need careful thought when
dealing with compensation
schemes. These include:
e Are the scheme rules clear
and easy to apply?
© Isthere good, readily
available guidance for both
payers and recipients?
Will the application of
‘the rules result in fair and
proportionate remedies?
© Will the outcomes achieve
what was intended?
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Implementation of any
compensation scheme,
although mainly process, needs
to be closely monitored and
the feedback used. Key
questions include:
© Isthe scheme reaching
the intended population?
© Is the spend, both
administration costs and
scheme expenditure,
within budget?
© [sit working in the
expected way?
Closing the scheme should
have been planned for at the
beginning so that the trigger
points for winding down are
recognised and acted upon.
The whole project should be
reviewed and properly reported.
Experience shows that there are
always loose ends, for which
responsibility and resources
always need to be allocated.
Q: How should Departments
keep HM Treasury informed
of developments on individual
compensation schemes?
Public sector bodies should
consult the Treasury before
finalising any compensation
scheme that they are
developing. The Treasury will
be looking at issues relating
to the regularity, propriety and
value for money of the planned
scheme. Once Treasury approval
has been given there is no need
to consult the Treasury further
unless there are individual cases
‘that exceed agreed boundaries
or delegated limits.
Q: Although itis
important to keep the public
informed there is a risk that
public statements may
compromise a Department's
position on liability to pay
compensation, what advice
might you offer them?
Clearly the public sector policy
of transparency needs to be
followed, but care needs to
be taken where this could
raise expectations or costs.
Where this position appears
likely to arise it is important
‘that appropriate legal advice is
sought. The aim should be to
be as open as possible. When
deciding whether financial
remedies might be appropriate,
each organisation should
consider the legal rights of
‘the other party or parties, the
potential effects on its
reputation and the impact
on its future business.
Q: How important is it for
Departments to consider the
budgetary, Estimates and
accounts disclosure aspects
of compensation schemes?
Obviously it is key that
departments’ officials consider
these aspects, the same as they
would for any other spending
decision. It helps ensure that
‘the department can afford the
scheme, is legally able to spend
‘the money on this purpose
and keeps Parliament informed
of what has happened. The
position needs to be regularly
monitored as the scheme
develops, as things change.
Q: What information can
“Managing Public Money”
offer those involved in
compensation schemes?
At the high level, Managing
Public Money chapter 3, on the
role of the Accounting Officer. It
includes the duty to offer redress
for failure to meet agreed
customer standards, while
box 3.1 sets out the standards
expected of the Accounting
Officer's organisation. The
guidance in Managing Public
Money also suggests, at chapter
4, that consideration should
be given to arrangements for
redress after poor delivery when
planning any policy or project.
The main detail in Managing
Public Money concerning
compensation schemes is
in annex 4.14: Remedy. This
covers various sorts of remedy
‘that may be offered, when
each may be appropriate and
gives public bodies pointers
to the things they need to
consider when proposing a
compensation scheme. This is
also where departments can
find information on when the
Treasury needs to be consulted,
‘the reporting requirements and
links to the Parliamentary and
Health Service Ombudsman's
standards of remedy.
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Administration of time-limited compensation schemes
Determining the extent
of the liability
Summary
Ensure at the outset that the extent of the liability is fully understood and quantified
as far as possible.
Evaluate the full range of options for discharging the potential liability at an early
stage and decide, in principle, on the likely form of any potential scheme.
UNDERSTANDING THE OVERALL LIABILITY OR OBLIGATION
Time and effort invested at the outset in clarifying the Department's obligations and
the extent of its financial liabilities are likely to greatly assist the Department to: (a) avoid
the payment of compensation that is not due and (b) adopt systems for processing
claims that are efficient and effective. The Department should be mindful of the following
good practice:
Monitor potential liabilities — the Department should review the likelihood of such
liabilities materialising. This assessment should be updated regularly and action
‘taken to manage the risk as the likelihood of the liability maturing becomes clearer.
© Ensure the basis of the Department's liability or obligation is clear. It may arise
from a number of sources: statutory, contractual, litigation and common law, or a
perceived moral obligation where hardship has been suffered consequent to State
action, notwithstanding the absence of legal liability.
© Take legal advice on the nature of the Department's potential obligations as soon as
possible and keep in mind the need for legal advice at each stage as the prospect
‘of a scheme evolves. Legal advice is likely to be needed at points throughout the
lifetime of the Scheme.
Ensure the limit of the Department's liability or obligation is clear. The aspects to
this are:
‘the legal defences that are available, notably statutory time bars;
contributory factors for which the Department is not liable, for example other
causes of a disease that can be ascribed to the claimant's lifestyle;
co-defendants, for example where employees work over a number of years
with various employers in the same industry; and
the nature and boundaries of any perceived moral obligation.
Assess the extent of the total liability or obligation. Consider the size of the total
population of potential claimants, the likely propensity to submit a claim, the likely
amounts payable, and the expected timing of payments. Bear in mind that the
extent of the liability may extend to widows or the estates of eligible claimants.
Take actuarial advice where and when appropriate. Estimation work should
normally include a report by a qualified actuary who will produce estimates of the
population of claimants and the total financial liability. The estimates should include,
if possible, an assessment of the size of any sub-populations that might warrant
different processing procedures under any proposed scheme. Crucially, the actuary
will provide an assessment of the uncertainty attached to any estimates. It is good
practice in the private sector for an insurance company to have a periodic actuarial
review of liabilities, typically annually. The Department should consider doing this
too. Actuaries should be asked to refine the initial estimates as more and better
data becomes available.
‘A Department may come under pressure at this early stage to make public statements
as to its position on liability. Until actuarial advice has been received and a policy
decision taken on liability, particular care needs to be taken to prevent poorly judged
statements compromising the Department's legal position.
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20 Administration of time-limited compensation schemes
The Department should establish
whether it has the appropriate industry
knowledge before setting the terms of
grant schemes, and seek relevant
external advice if it does not.
Committee of Public Accounts recommendation, February 2008
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Administration of time-limited compensation schemes 21
OPTIONS FOR DISCHARGING THE LIABILITY
A Department may have a range of options for discharging its liabilities. Choices are
likely to narrow over time, so early consideration is desirable. The following points
should be kept in mind:
© Atan early stage, evaluate the range of options available for discharging the
potential liability. These may include, but not be limited to: statutory schemes where
eligibility and the broad features of the scheme are decided by Parliament and ex
gratia schemes where no legal liability is admitted but the Department decides to
make a payment.
Where the liability is the subject of court action, the Department's response will be
related to its assessment of the probability that the courts rule against it. In such
instances, the Department may choose to negotiate with the parties on options
above. It may decide, however, to leave cases to be settled individually through the
courts or accept the possibility of a scheme developed and agreed at the behest
of the court with the agreement of the various parties. Whatever the situation, it
is likely that the closer the Department comes to facing a decision, whether as a
result of a court decision or public pressure, the practical options open to it will
diminish. An option appraisal conducted at an early enough stage and reviewed
regularly is likely to offer the Department the greatest opportunity for shaping how
any resulting scheme should be administered. The appraisal should encompass all
the main costs the Department may be required to bear, such as any fees payable
to claimants’ representatives.
Consider the likely profile of expenditure on the scheme over time and how this will
be financed. The Department's finance team will need to be involved at an early
stage in helping to assess and plan for the potential financial implications of the
scheme, including the assessment of contingent liabilities. Their input is especially
important where actuarial advice indicates that expenditure could be substantial.
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Administration of time-limited compensation schemes
Designing the scheme
Summary
Ensure planning covers the full lifecycle of the scheme, allowing it to be
implemented effectively and wound-down efficiently.
Establish clear eligibility criteria — understandable to officials and potential claimants.
Decide whether to process claims in-house or contract out. If the latter, decide
whether to appoint a principal contractor.
Ensure that the implications of proposed scheme rules are properly understood and
tested prior to implementation.
Model the likely cost of administering claims for different categories of claimant and
the amount of compensation likely to be at stake.
Ensure that effective oversight is established and maintained throughout the lifetime
of the scheme by establishing arrangements to monitor, challenge and advise on the
work of the project team.
Administration of time
Once the prospect of a scheme looms, and the broad nature of that scheme has
been determined, the Department will need to decide how the potential compensation
scheme might operate. This process will require the Department to consider a host
of issues, ranging from setting workable criteria for determining eligibility, deciding the
evidence it will need to support eligibility and the likely timescale for the scheme, to
deciding whether to contract out the administration of the scheme and managing the
expectations of claimants. Departments need to make effective use of the time available
and devote sufficient resources to what can be a significant task. Once the Department
announces publicly that it accepts responsibility for the liability it will be under significant
pressure from stakeholders to start making payments as soon as possible.
During the design stage, the Department should seek to draw upon the expertise
of other parts of government, and other organisations, with relevant experience of
administering similar schemes. Where other public organisations are already interacting
with the potential claimant groups, the Department should explore the scope for
working in partnership, such as pooling resources and sharing information.
SETTING THE SCHEME RULES.
The Department may wish to take account of the following:
Set clear policy objectives for the scheme. The objectives should help define
the scope of the scheme and help the Department consider how best to manage
the scheme.
Draw up clear eligibility criteria for compensation and define the level of evidence
needed to support claims. While this process may not be straightforward, it
potentially has significant implications for the cost of the scheme and the ease with
which the scheme can be managed. Where the scheme is being drawn up under
‘the auspices of the court to replicate the compensation paid under a common law
settlement the discretion available to the Department may be more limited. The
criteria should be clearly understandable to both officials and potential claimants.
More complex criteria may help target compensation more carefully but this will
need to be balanced against the fact that complex criteria may confuse potential
applicants, prompt fruitless applications and contribute to a potentially greater
number of appeals. The Department should model the potential impact of different
eligibility criteria on the likely number of claimants and cost.
© Test the availability of evidence to support eligibility using the proposed criteria,
bearing in mind that some evidence may have been lost over time or may be
particularly costly or time-consuming to obtain.
© Consider whether some categories of claimants should be subject to special
procedures to expedite payment of compensation. Such procedures might apply,
for example, to those who are elderly, ill, or particularly needy in some way.
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Where there is a joint liability with other parties, the Department should consider
how this will be managed. The Department will need to consider whether it will pay
only its share of the total compensation due, or all of it and then recover from the
relevant third-parties their shares. The latter will include the practicality of recovery,
for example when liability involves a number of industries and occupations; and an
assessment of the likely level of success. Before a policy decision is taken to pay
in full and not recover all the monies due from third-parties, for example for moral
reasons, the Department should explore the financial implications that would arise.
Once the Department has publicly accepted responsibility for the liability, it should
consult widely with potential sources of knowledge and expertise in the sector
on the proposed scheme design. In many instances, this consultation may be
the only way of gaining an indication of the workability of proposed scheme rules
and whether they are likely to be fair to different categories of potential claimants.
Where compensation is related to employment history, for example, the availability
of historic records to support eligibility and local working practices may vary
significantly across different categories of claimant, region of the country and
period of service.
Test the proposed scheme rules before launching the scheme fully, The extent
of testing should be proportionate to the likely cost and risks associated with the
scheme. Using a sample of different types of claim, the Department should test,
for example the ease with which the eligibility criteria can be applied by officials in
practical circumstances, the likely availability of supporting evidence, and the ease
with which the application forms are likely to be used by potential applicants.
DESIGNING THE PROCESSING SYSTEMS
The outline design of processing systems should take place in parallel with the
design of the scheme rules. The individuals likely to be responsible for implementing
the scheme should play a part in advising on the practicality of the scheme rules.
Bear in mind that comparatively small changes to the scheme rules and eligibility
criteria could have a potentially big impact on the ease with which the scheme can
be managed.
Seek to maximise the use of electronic systems, and to minimise paper-based
systems, to process claims.
Secure expert advice. To help identify potential delivery options, make sure there is
sufficient specialist expertise on hand at an early stage to advise on the design of
processing systems.
Consider delivery options. The Department may have an existing in-house
capability, but it is possible, especially for large compensation schemes, that it
will wish to engage contractors to process claims. For especially large schemes,
it is possible that more than one contractor will be required to deal with different
aspects of the scheme. The Department will need to consider its strategy for
contracting out, for example whether to appoint a prime contractor to have
responsibility for appointing its own delivery partners, or to take the lead itself and
manage the various contractors directly.
Consider when to start the process for contracting out, if this is the chosen route.
Significant contracts will take time to let, with the time allowed for a tendering
process having to comply with OJEU requirements.
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:
A
syrroa"oquByDoeGSUAy NAN ‘UOPAON 22%
The Department should pilot the proposed
rules using a cross section of different
types of applicant. It should use the results
of this pilot to determine what changes
are needed to enable delivery of the
scheme’s objectives.
Committee of Public Accounts recommendation, February 2008
26 admin
Map the processes. Prepare an outline process map that shows the sequence of
the tasks and how they will be assigned, together with decisions that will need to
be taken and who will be required to take them, to complete an individual claim.
if contractors are used, this responsibility may fall to the contractor in which case
the Department may wish to obtain assurance on these points. Use these outline
process maps to identify potential issues that might affect the processing of
claims, for example the availability of appropriate skills and expertise, for example
medical expertise.
Obtain assurance that sufficient capacity can be put in place to manage the
likely volume of claims. Particular attention should be paid to identifying potential
bottlenecks. The opening of the scheme to new applications is likely to prompt a
large volume of applications in the initial stages. Explicit attention will need to be
given to the service standards the Department wishes to achieve, for example in
terms of median processing times and modelling the implications these standards
will have for the required processing capacity. In some situations, it may not be
possible to put in place the required capacity immediately in which case the
Department will need to have a strategy in place for managing the expectations of
claimants and other stakeholders.
Consider explicitly the likely unit cost of considering claims from different categories
of claimant. The Department should prepare a cost model to assess whether the
likely administration costs are acceptable — this model should include any costs
where the Department will be billed for expenditure incurred by others, for example
the travel costs of claimants attending interviews/medicals etc. The Department
should assess the likely unit cost of processing claims and compare this to the
likely profile of compensation to be paid; depending on the findings, consider
whether it is appropriate to adopt simplified processing procedures for dealing with
particular cohorts of claims, for example those of low value.
Check that the proposed system will enable proper financial control to be exercised.
Adequate arrangements need to be in place to maintain the physical and
electronic security of personal data — consult guidelines issued by the
Information Commissioner.
Ensure management information requirements form an integral part of systems
design, to enable performance to be monitored reliably; for example, early
identification of bottlenecks in the processing of claims and progress towards the
completion of key stages.
Put in place effective arrangements to detect duplicate payments and prevent
fraud. Seek advice from officials with experience of designing systems to combat
these risks. The arrangements put in place will need to be sensitive to how these
arrangements might be perceived by legitimate applicants and avoid unwarranted
criticism of heavy-handedness.
Establish arrangements to consider appeals from claimants quickly and effectively.
The arrangements should enable decisions to be reviewed thoroughly within the:
Department and clear feedback provided to appellants. If not satisfied, appellants
should have the opportunity to appeal to an independent party.
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‘Administration of time-limited compensation schemes 27
PREPARING THE IMPLEMENTATION PLAN
Draw together the development work into an implementation plan (see box below)
for approval by the project board, senior officials and ministers, as appropriate.
Aspects that should be considered for inclusion in an implementation plan
Indicative service standards,
including target processing
times for different types of claim
A profile of claim settlements
over time, and estimate of the
proportion of determinations
accepted by claimants and the
potential number of appeals
A procurement strategy,
setting out the options for
administration of the scheme
~ including, where appropriate,
out-sourcing - and the reasons
for the preferred approach
A resource plan, covering the
numbers of staff likely to be
needed to deliver the scheme,
including specialist skills
Aplan of the data recording,
handling and reporting
requirements — including that
needed for management
reporting and financial control
A project timetable for
procurement, publicity and
launch activities, scheduled
reviews and audit activity; and
target dates for key milestones
in handling claims
Acommunications plan covering
the publicity to be generated
in connection with the launch
of the scheme and the enquiry
handling capacity to be available
during the life of the scheme
The scope, likely costs
and benefits for allowing
individual claimants, or their
representatives, electronic
access to information databases
to help speed up the receipt of
information from claimants
A procedures and operations
manual for case officers and
supervisory staff
Explicit plans for dealing with
appeals, including independent
adjudication where appropriate
The arrangements to deal
with any policy questions that
might arise affecting the scope
of the scheme
An outline of the potential
closure strategy - including the
criteria dictating when closure
might be announced, the
factors that might need to be
considered and how they could
be handled, and a timeline for
the scheme.
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Implementation
Summary
Prepare a strategy for bringing the scheme to the attention of potential claimants
and for managing the expectations of potential claimants.
Establish effective arrangements for communicating with contractors, tracking
emerging issues and problem solving
Put in place arrangements for handling queries from claimants seeking information
on progress with their claim
Monitor the numbers of claims being received and be in a position to adjust
processing capacity to handle the volume of work.
Make provision to formally review progress soon after the scheme is launched and
at suitable intervals thereafter.
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COMMUNICATING WITH CLAIMANTS AND STAKEHOLDERS
Effective communication with claimants and other stakeholders will be critical throughout
the implementation phase to help manage expectations and maintain public confidence
in the scheme. The Department will need to consider a range of issues, for example:
© Prepare a strategy for bringing the scheme to the attention of potential claimants.
In some instances, lists of potential claimants may already exist in some form, but
in other situations the Department may have to rely on media coverage and local
bodies to help reach all potential applicants.
© Consider the information and advice likely to be required by claimants. Particular
attention should be given to how vulnerable and disadvantaged claimants might
gain access to the information and advice needed to make a claim. Bear in
mind that some claimants may not have access to the internet and some may
have significant difficulty in understanding application forms and the associated
guidance. To address these needs, the strategy might involve, for example, enlisting
the help of local bodies or the voluntary sector in providing advice.
© Manage the expectations of potential claimants. Previous experience of
compensation schemes suggests that many claimants will make their application
within the first few weeks and months of a scheme being announced, with another
potential rush when the closing date for applications begins to loom. For very large
schemes, or instances where the calculation of the amount of compensation due
may be complex, it may take some time before cases can be fully considered and
compensation paid. Departments should, from the start, try to provide a realistic
assessment to claimants of how long claims might take to be processed on average.
Consider how to handle queries from claimants seeking information on progress
with their claim. Claimants can often be frustrated if they make a claim and hear
nothing back for some months. Even if claims have to wait their turn, it will be better
to say this from the start and be open with claimants. The Department will need to
consider how to route such queries, for example whether to use a single contact
number, and the feasibility of keeping individual claimants informed of progress on
their claim.
© Where claimants are represented by intermediaries, most probably solicitors,
‘the Department may need to consult on how information is to be imparted to
claimants. A formal structure may also be needed to manage exchanges with the
intermediaries on procedural and related matters.
Make arrangements to brief relevant Members of Parliament on the plans
for implementing the scheme and how claims are to be dealt with. In some
constituencies, Members of Parliament may find themselves dealing with issues
raised by constituents and are therefore likely to welcome being kept informed.
Identify other relevant organisations that might benefit from briefing on how the
scheme is to be implemented, for example unions, local advice bodies etc.
yensation
WORKING IN PARTNERSHIP WITH CONTRACTORS.
Successful implementation will depend on a successful partnership with the
Department's contractors. Even with the best plans, unexpected issues are likely to
emerge as the scheme is rolled out. A constructive and open partnership on the part of
all parties to the contract is much more likely to result in a flexible and effective response
to problem solving.
e Putan effective contract in place. The incentives and penalties put into the contract
should enable the Department and contractor work towards common objectives.
‘Some of the issues addressed in contracts of this type are highlighted below.
Examples of issues covered in contracts for processing compensation claims
A defined methodology for °
the calculation ims, or incentives
particularly relating
provision for its development and penalties
Targets for pro
Guidelines on stan
° Procedures for reportin
service required
outputs to enable monitoring of
s and performance
Procedures for the authorisation progr
g procedure for disputed claims
Proce alidating
performan
e Establish effective communication arrangements with contractors to allow issues
and risks to be discussed as they emerge, potentially weekly for large schemes.
These arrangements should allow issues to be escalated to senior levels within the
Department depending on the significance of the issues emerging.
© Try to avoid an adversarial relationship developing when things do not go quite to
plan. Remember, claimants are unlikely to care much about the back-room functions
— their priorities are likely to be speed of settlement, faimess and accuracy.
e Ensure that the Department will receive timely, accurate and relevant management
information reports. Use them. In particular, regularly examine the pace at which
casework is progressing through each key stage. Compare scheme performance
against strategic targets and timescales; and, if necessary, devise mitigating options.
© Complete a regular review of risks.
Maintain a consistent approach with the Department's contractors.
© Take timely action to address poor contractor performance.
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Administration of time-limited compensation schemes 31
Welfare schemes should have clear
objectives and eligibility criteria which can
be readily checked.
Committee of Public Accounts recommendation, March 2003
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MONITORING PROGRESS
Even with thorough planning, the launch of a new scheme has potential to raise
unexpected issues that need attention. The Department needs to be in a position to
identify such issues quickly and take appropriate action
© The rate at which claims are submitted will, to some degree, be uncertain. The
Department, and its contractors, will need to be in a position to adjust their
processing capacity appropriately to meet the processing times envisaged in the
original plan and the expectations given to clients. An ability to cope with the rate
of incoming applications, and an ability to react quickly to any variances from plan
from the start, will be critical to the effective implementation of the scheme.
e Consider establishing stakeholder forums to help provide feedback to the
Department and its contractors.
© Ifclaims cannot be settled quickly, consider whether arrangements should be
introduced to make interim payments, especially if the basic eligibility is not in
dispute. But consider any downsides, for example the diversion of effort from the
final settlement of claims.
® Some claims may raise issues not envisaged when the scheme rules were drawn
up and may need to be set aside to await a policy decision. The Department should
recognise such issues may arise and have arrangements for dealing with them, and
keep claimants informed.
© Where joint liability exists (e.g. co-defendants in a legal case), ensure that monies
due from third parties are being recovered.
© Ensure that emerging performance issues are considered at the appropriate level.
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‘Administration of time-limited compensation schemes OO
Case studies from NAO reports (1999 and 2007): Examples of Departmental
responses to unexpected events
Handgun surrender and
compensation
The Department found that it
was able to process far fewer
claims each week than expected,
leading to delays. It responded
by preparing plans to more than
double the original complement of
staff processing claims to 115. The
delays resulted from
weaknesses in the design of the
scheme and claim forms, which
made checking difficult;
© the intermittent unavailability of
the computer system which had
been introduced quickly; and
© the need for Departmental
staff to handle a large volume
of enquiries about the progress
of claims.
Coal health compensation
schemes
The following actions were
taken by the Department in
response to a rising number of
claims outstanding:
© The Department brought in a
private sector senior secondee
with programme management
experience to strengthen its
review of internal procedures
to improve performance. As
a result of this and changes
already being introduced
by the Department, anew
project board was established
for both schemes to exert
greater project management
control. In addition, the number
of Departmental staff was
increased from some 20 to
about 40 and further secondees
with experience in project
management and the settlement
of insurance claims were
engaged to provide
professional input
The Department introduced
a fast-track option, known
as the Optional Risk Offer
Scheme (OROS), that was
aimed at remaining cases likely
‘to attract smaller amounts of
compensation. The procedures
for processing these cases
were simpler than the standard
procedures. This provided
benefits to both the Department
and claimants, as administration
costs were lower than the
standard process and cases
could be completed more
quickly. The compensation
offered to claimants choosing
this fast-track option reflected
the amounts already paid to a
significant number of claimants
who had their claim processed
under the standard procedures.
The Department also took steps
to improve, over time, the scope
and format of the information
it received from its claims
handling contractor to enable the
Department to track the progress
of casework more effectively.
‘The Department also oversaw
a series of initiatives aimed
at improving quality and
productivity in the processing
of claims. Solicitor Liaison
Managers were appointed at
the claims handling contractor
to tackle operational difficulties
more effectively. In addition,
electronic procedures were
‘extended to include the
scanning in of paper based
employment records at the
various archive facilities
and, at the claims handling
contractor, the scanning of
cover 30 million sheets of
primary documentation. These
initiatives lead to more efficient
processing of claims and a
substantial financial saving for
the taxpayer.
REVIEWING PROGRESS
Plan to evaluate progress early in the life of a scheme to assess performance and
identify areas that are working well and where improvements might be made. The
review should cover the extent to which the scheme is meeting its objectives.
The results of the review should be submitted to the programme board for
consideration. Ministers should be advised of any significant issues.
© Formally consider the finding of reviews and take swift appropriate action.
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Administration of time-limited compensation schemes
Scheme wind down
and closure
Summary
Take a planned approach to the wind-down and closure of the scheme.
Estimate the potential number of claims outstanding before announcing closure
dates for new applicants
Take adequate steps to ensure that all categories of potential claimant are alerted
well in advance to any closure dates for new applications.
Incentivise contractors to work towards an efficient wind-down of the scheme.
Seek confirmation that the wind-down of processing capacity will still enable the
remaining claims to be dealt with expeditiously.
Administration of time
OPTIONS FOR CLOSURE
The initial implementation plan for the scheme should contain an outline of how the
scheme might be wound-up and the timescale when this might begin. As the scheme
is taken forward details of how the scheme might be wound-up should be further
developed. A structured approach will be needed, drawing upon legal and actuarial
advice where necessary. The following factors might need to be considered:
The Department should consider the expected costs of maintaining the scheme
for remaining claims verses the potential cost and practicality of alternatives (such
as reinsurance, statutory amendment of common law rights, or reversion to court
determination of claims on an individual basis as and when they arise);
Consider any legal issues that might need to be borne in mind before closing the
scheme. The main specific legal options to terminate liability may involve:
if the compensation is statute based, closure under the existing or amended
terms of the enabling legislation;
termination by the natural expiry of claims;
if the compensation is based on a common law liability, agreement with the
defendants’ legal representatives and, if a joint action, the courts; and
termination by special legislation overriding a common law basis of liability (see
additional information overleaf).
SETTING THE CLOSURE DATES
The Department should estimate how many potential claimants have yet to claim
before deciding upon any closure date. If necessary, the Department should
seek advice from actuaries. The aim should be to identify any groups of potential
claimants who seem to have missed out. If a closure date is set too early, the
Department risks closing the scheme before large numbers of eligible applicants
have become aware of it, leading to unfair treatment, or sparking a rush of
applications that becomes difficult to handle with the processing capacity available.
® The Department should make all reasonable efforts to ensure that the existence
of the scheme is brought to the attention of potentially eligible claimants. This may
require further advertising, and other promotional effort, to alert claimants to any
closure date.
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PROCESSING THE REMAINING CLAIMS
Winding down the arrangements for paying compensation can be just as much a
challenge for a Department as the start-up. Retaining sufficient staff with the right skills
is likely to be critical to achieving continued efficient delivery of compensation, especially
if there is a cohort of more difficult cases. The following factors need to be kept in mind:
© Continue to control administration costs.
© The Department should put appropriate incentives and penalties into its contracts
with contractors to incentivise them to complete the processing of claims efficiently
and effectively. Cost efficient completion of claim applications is less likely to be
achieved if there is an element of staff working themselves out of employment. It is
therefore good practice to align the interests of stakeholders as best possible by
providing incentives designed to encourage efficient closure. These might include
financial incentives for claims handling staff or outsource organisations, based on
case closure volumes or on particular milestones achieved by specified dates.
The Department should consider how best to deal with the claims still to be
processed. Towards the end of the scheme, the claims still to be settled are likely
to comprise a higher proportion of more difficult cases. This strategy may involve
taking a more robust line on some categories of cases, or offering a compromise
in return for settlement, bearing in mind the likely cost of continuing to keep
administrative resources in place.
© With regard to resource management in the Department and its contractors during
wind-down, matters likely to need planning well in advance will include: termination
of contractual obligations, such as to landlords, outsource providers and utility
suppliers; and reductions in staffing numbers, possibly through redundancy or
further outsourcing, while using measures such as retention bonuses to retain
skilled processing staff and key managers.
© Before closure, consideration must be given to any remaining entitlement to recover
contributions from co-defendants, if applicable, and how this will be pursued.
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Additional information
COMMON LAW LIABILITIES
A public sector scheme which has been implemented under the authority of the
courts rather than statute, to mirror liability established under common law, such as
coal health compensation schemes, will not achieve finality of liability simply by the
closure of the scheme, unless all future potential claimants have become ineligible,
as a result for example of the operation of the statute of limitation.
‘The reason for this is that schemes without a statutory basis offer claimants an
alternative to, rather than a replacement of, court action to seek damages. Such a
scheme could normally be closed at any time unilaterally, leaving the common law
liability unresolved. There may be claimants who are as yet unaware of the scheme,
their symptoms, or the closure date who are not subject to time bar at the time of
closure and who remain entitled to pursue a claim through the courts.
Scheme termination despite the possibility of further claims may still be considered
an appropriate step towards ultimate closure. This could be the case, for instance,
if the level of remaining potential claims is expected to be low enough to justify
leaving their outcome to individual court cases, or because a political judgment
is made that sufficient opportunity for compensation has been offered, and that it
is fair to force any remaining claimants to establish their own claims through the
courts, as they would be forced to do in the private sector.
Whilst a scheme remains available and pays at levels approximating the likely
court awarded damages, a claimant would be expected to prefer claiming under
the scheme rather than taking court action, because the cost implications to the
claimant of mounting a claim are less of a barrier to claims under the scheme than
under court action.
ACTUARIAL AND LEGAL ADVICE
Actuarial advice is necessary to determine what volume, value and phasing of
claims might still be expected in the future. Factors relevant will be evidence of
the last point in time of employment at which the causal conditions could still
have been present; the populations employed at various time periods; the latest
medical research as to the potential lag or latency period between exposures and
symptoms; volume patterns experienced on claims already received; and legal
limits to claiming, such as imposed by the statute of limitations.
Legal advice would also be necessary, first to give the actuaries the correct basis
for their assumptions as to when claimants will be time barred, and secondly to
provide the compensating body with advice as to the closure options available to it.
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38 Administration of time-limited compensation schemes
POST CLOSURE
If any remaining liability is expected after closure of the compensation scheme,
practical arrangements will need to be made to be put in place for dealing with this
liability. This may include the need to retain some expertise and to maintain access
to records to ensure duplicate claims are identified, and to address information
requirements such as to comply with subpoenas.
On the matter of the management of records, the Department should refer to its
public obligations and its wider policy on this matter. In particular, it should ensure
that it can comply with Freedom of information (FO!) requests, and that internal and
external audit teams are able to access the information they need.
The Department should develop a checklist of residual issues, which would be
similar to any business closure.
The extent to which all outstanding issues have been cleared should be reported to
‘the programme board.
Case study from an NAO report (2007): Example of managing the closure of schemes
Coal health compensation schemes
The Department set aspirational dates for the effective closure of both schemes. In setting these dates the
Department took account of the fact that a significant proportion of the remaining claims raised complicated
issues. The Department mapped out the risks it faced, including the need to work effectively with its contractors
and solicitors, and sought to put in place arrangements to manage these issues.
The Department and its contractors,
working with solicitors, should retain
sufficient numbers of skilled staff to settle
the remaining claims as soon as possible.
Committee of Public Accounts recommendation, March 2008
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Additional reading
© You may find it worthwhile to refer to two documents published by the
Parliamentary and Health Service Ombudsman: Principles of Good Administration
and Principles for Remedy. Both documents can be viewed on its website
(www.ombudsman.org.uk).
You may also find it useful to refer to “The Green Book” (http://greenbook.
treasury.gov.uk), guidance issued by HM Treasury on Appraisal and Evaluation
in Central Government. The guide seeks to help Government departments and
agencies appraise and evaluate their activities.
You should be mindful of the requirements of Managing Public Money
(http://managingpublicmoney.treasury.gov.uk) issued by HM Treasury.
Particularly relevant are:
Chapter 4.5 (Control of expenditure) and the associated Annex 4.7 on the
arrangements for preventing, countering and dealing with fraud;
Chapter 4.11 (Non-standard transactions) and the associated Annex 4.13
(Special Payments);
Chapter 4.12 (Standards of Service); and
Annex 4.14 (Remedy).
© Further guidance on fraud related matters is contained in HM Treasury's Managing
the Risk of Fraud — A Guide For Managers. \t has also published, with the National
Audit Office, the guide Good Practice in Tackling External Fraud.
Postscript
I hope you have found the briefing material helpful. If you have any observations,
including any st ic improvement, please do not hesitate to let me know
on peter.gray: ]
GRO.
Peter Gray, Director
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