Supply_Chain_Issue

Approved by Cabinet 10-07-02 DONCASTER MBC Procurement Best Practice Guide ACHIEVING OUR FULL POTENTIAL Choosing the best options to achieve Doncaster’s goals and priorities 17-05-02 CONTENTS Page Introduction…..…………………………………………………………………… 3 The Procurement Process………………………………………………………………..………….… 4 1. Assessment of Need……………...…………………………………………... 4 2. Markets………...…………………………………………………………….…. 5 3. Option Appraisal……………………………………………………….... ……. 7 4. Contract Strategy…………………………………………………….….. ……12 * Partnerships & Partnering…………………………………….………………. 18 5. Green Procurement……………………………………………………… ….. 24 6. Local Suppliers………………………………………………………………... 27 7. Tender Evaluation…………………………………………………………….. 31 8. Project Management…………………………………………………………. 34 * Risk Assessment & Risk Management……………………………………… 39 9. Contract Management…………………………………………………... ……42 Summary……………………………………..…………………………………… 43 Appendix 1 Key Project Activities………………………………………………………………44 Appendix 2 Essential Elements of the Procurement Process………………………………45 INTRODUCTION This document outlines the major issues to consider when procuring in accordance with best value principles. It covers areas of the procurement process in a best value environment and provides guidance on current best practice. The issues apply equally to the decision-making process for all procurements undertaken by the Council. This guidance should also be used to inform the options appraisal undertaken as part of a Best Value Review. It should be read in conjunction with the Council’s Procurement Strategy, and will be developed further to take account of emerging issues. It will ultimately become a comprehensive manual for use by anyone involved in procurement activities within Doncaster MBC. THE PROCUREMENT PROCESS 1. ASSESSMENT OF NEED Is there a need for some form of Procurement' 1.1 The essential prerequisite to any procurement process being initiated, is an assessment of the need for the proposed works, supplies or services. This applies equally to Best Value services and other strategic procurements. As part of the Best Value review process, the need should be identified through the comparison and challenge elements of the review. For other strategic procurements, the need should be demonstrated in the Strategic Procurement Plan. The corporate policy on consultation should be complied with to ascertain the “need” for the procurement as judged by stakeholders. Consideration should always be given to how the proposed procurement will contribute to the achievement of corporate objectives and transformational goals, and also take account of the statutory nature of the goods or services and any legal constraints on how they should be provided. 1.2 1.3 2. MARKETS What can the Market Provide' 2.1 One of the requirements of Best Value is to analyse the structure of supply markets for the different goods or services, and the way in which they are developing. Market intelligence should be acquired via the following routes: ♦ research - via professional bodies, trade organisations, publications (including the Internet), and other public bodies, into whether there are currently a number of providers in that particular market, who could supply the goods/services in the way envisaged by the procurement plan. market consultation - potential providers of the works/supplies/services under consideration should be consulted as stakeholders in this particular procurement process. Their views should be sought on the proposed packaging of the procurement, and also any suggestions as to alternative provision or procurement methods which may be more attractive to the market and hence obtain better value for money for the Council. To enable this process to take place, adverts should be placed in appropriate publications/venues to invite interested parties to express interest in being consulted; the views of those interested should then be sought by the most appropriate means. This may be via interviews/discussions, questionnaires or organisation of a briefing session. The results should be used to inform the proposed procurement process. ♦ 2.2 Under Best Value, the Council is required to demonstrate that where a market is not apparent, steps have been taken to encourage a market to develop. The Council has a “Strategy for Developing Markets” where none is found to exist, and the steps contained in that strategy should be followed to encourage providers in that particular area. The steps to be considered (in accordance with paragraph 41 of DTLR Guidance 10/99) to create conditions in which new providers might take root or existing suppliers might become more competitive include: ♦ basing requirements on outcomes to encourage innovative methods of provision – don’t be unnecessarily prescriptive about the way something should be done grouping activities to reflect prospective market competencies ♦ ♦ packaging work appropriate to the market. (E.g. in some areas of activity larger packages may generate more interest than smaller ones, in other, the opposite may be the case). being clear about intentions - the Council must make it clear if it wants a long term relationship with potential suppliers, and demonstrate a genuine interest in using the best provider, regardless of the sector they operate in developing an understanding of the potential sources of supply. Early discussions with prospective providers can assist in shaping the optimum size, composition and length of contracts, whilst ensuring the fairness and transparency required. ♦ ♦ 3. OPTION APPRAISAL Obtaining the Best Possible Services 3.1 The objective of Best Value is to ensure that local citizens get the best possible services from Local Authorities. Choices have to be made to develop a framework for local service delivery, recognising that neither the public nor the private sector can deliver the best quality and cost effective local services on their own. Practical steps have to be taken to make the most of existing skills and experience in the public sector, the private sector and the voluntary sector. The Council therefore has to adopt new ways of thinking about its services and new ways of managing them (whether provided in house, through contracts or through other arrangements). We have to make a strategic choice about what services we require (the specification), and how we will work with the people who deliver the services (the relationship). Thus we will achieve the Best Value service option. The choice has to be made irrespective of whether the final result is improved in-house services, an external provider or a mixture of both. Service Delivery Options 3.2 The statutory guidance on Best Value lists (the minimum) seven options for service delivery: ♦ ♦ ♦ ♦ cessation of the service (withdraw from the activity, where the Council has a power to do something, but not a duty) creation of a public-private partnership, through a strategic contract or joint venture company transfer or externalisation of the service to another provider market-testing of all or part of a service (where the in-house provider bids in open competition against the private or voluntary sector) restructuring of the in-house service re-negotiation of existing arrangements with current providers where permissible joint commissioning or delivery of the service (joining with other public bodies to jointly provide or purchase services. This can include delegation of powers to another authority, pooling of budgets, working with other agencies or arrangements with not for profit organisations). ♦ ♦ ♦ 3.3 Each option will be appropriate in particular circumstances. The choice of option will be influenced by a number of factors, including: ♦ ♦ ♦ 3.4 the legal framework corporate values and objectives results of a Best Value Review This Guide outlines the approach to making the choice/appraising the options, to ensure that all practical options for future service delivery are considered, and the final decision is firmly based on evidence of a thorough appraisal process. KEY ISSUES TO CONSIDER AT THIS STAGE: a. What are the benefits of delivering the service through another organisation' Possible benefits could include: • Economies of Scale - another organisation may be larger than the existing supplier. Through access to management and support services via more efficient use of assets, it may be able to deliver better levels of service. Economies of Scope - another organisation may have specialist skills and expertise that the existing supplier cannot afford. This can be used more effectively to deliver a high standard of service at an economical cost Innovation - another organisation may have a way of doing things which is so different that the existing supplier will not be able to learn. Access to Capital - where investment in capital assets is necessary to deliver a Best Value service, restrictions on Local Authority borrowing may force this option. • • • b. What are the costs of delivering the service through another organisation' • Transaction costs - these are the costs of using the market, and any organisation which uses competition to choose who supplies works, goods or services will come up against them.. There always needs to be a balance between the cost of going out to the market, and the savings available from doing so. The costs can occur before a contract is awarded: ♦ ♦ ♦ ♦ creating the specification obtaining market information consulting customers choosing the right contractor or partner Or they can happen after contract award: ♦ ♦ ♦ ♦ the Council pays too much for the work or service the Council has continuing costs of monitoring and dealing with the contractor’s failure there are increasing costs over time if the winner of competition becomes a monopoly supplier Process Costs - some of the costs above will be necessary to control or reduce costs later. They are the unavoidable costs of using the market, and are known as process costs. There should be an attempt to ensure that the benefits of using competition are considered to outweigh the risks of having to meet these process costs. c. What are the elements of uncertainty and risk' These are issues about the level of uncertainty between the objectives of a service and its delivery; the uncertainty is between issuing an instruction and its execution. In general terms, the more uncertainty there is (because of the nature of the requirement or because of the environment in which the service is delivered), the more likely it is that in-house provision, or a modified contractual relationship is the Best Value option. Each procurement decision will have to be aware of the options which might increase transaction costs and the ways in which these costs may be reduced or controlled. Questions to answer for each Service Delivery Option: Make or Buy' 3.5 The options appraisal process is an essential part of the Procurement Strategy because, except for a decision to retain the service in house, or to pull out of providing the service at all, all the basic options concern externalisation (or potential externalisation). Most also involve the competitive selection of a service provider. Therefore, there needs to be clarity and forward planning regarding: ♦ What is planned to be externalised (the whole or part of an existing service, any assets, which people are involved, any implications for other parts of the Council'). What are the anticipated costs and benefits of externalisation (long term, short term, risk factors') What are the options available (what does the market currently offer, what could it be stimulated to offer, what are the alternatives to market transactions') What kind of relationship is being sought with the contractor (traditional contract, partnership approach, non-contract approach') Who will be responsible for managing the contract/relationship with the external supplier' ♦ ♦ ♦ ♦ The following series of questions should be applied to each option, and the answers should be expanded from a simple yes or no, to what, why and how: 1. 2. 3. 4. Is there any policy reason for eliminating this option' Is there any legal reason for eliminating this option' Is there any financial reason for eliminating this option' Are there any other reasons for rejecting this option' At this point some of the options may be eliminated. 5. What is the gap between our existing service and where we want to be; what is the nature of the gap; in what ways can each option help us to bridge the gap' At this point, options that are not appropriate to the Council’s objective of bridging the gap may be eliminated. 6. 7. What is the experience of other Councils who have used each option' How does this option contribute to Best Value for them' At this point, more options may be eliminated. If more than one option remains, each one should be assessed in terms of contribution and risk to the Council: 8. 9. What is the contribution to economy, efficiency and effectiveness, and to the achievement of corporate and service objectives' What is the risk to the Council in terms of likelihood of service or function failure, and extent of failure' 4. CONTRACT STRATEGY 4.1 The kind of relationship envisaged between the Council and another organisation as a result of the procurement/externalisation is identified as one of the outputs from the option appraisal process. There are obviously a number of competitive processes available, and correspondingly there are different types of contractual relationship which may result. The main options relating to the competitive process and relationships which result are outlined below. Consider all options for a competitive process and select the most appropriate, justifying your choice – a file note showing the full decision making process should be made a. OPTIONS FOR A COMPETITIVE/EXTERNALISATION PROCESS Open competition The Council invites tenders; any organisation can apply; there is one winner. More appropriate where: • the procurement is easy to specify & monitor • relationship can be dealt with by standard terms & conditions • there is an active, competitive market Less appropriate where: • the procurement is difficult to specify & monitor • Council wants a close relationship with supplier • Council will use standard criteria to reduce risk; some tenderers may be wasting their time by making a bid Restricted Competition Suppliers have to meet certain criteria before they can bid for work. More appropriate where: • Council only wants to deal with suppliers who meet specified technical, competence or management standards • relationship with supplier will be important for the success of the contract • evaluation of bid likely to be complex & time consuming Less appropriate where: • supply/service easily specified & monitored • evaluation of bids will be simple • established market for standard products/services Spot Purchasing Standard service package provided by supplier who can demonstrate cost effectiveness, competence & reliability. Suppliers chosen when needed. More appropriate where: • service packages relatively small & can be easily described or negotiated within a few parameters • law requires suppliers to be registered to deliver the service/product • Council’s relationship with suppliers based on contract mechanisms • cost is most important factor for Council Less appropriate where: • service difficult to specify & monitor • suppliers do not need to be registered • service packages relatively large (above Council threshold for competitive tendering) • balance between cost and quality is complex • relationship with supplier is important Call-Off Contracts More than one supplier chosen to have a licence to do work according to specification. Details of work and allocation dealt with on a day by day or project by project basis. More appropriate where: • a single supplier may not have all necessary skills & resources • Council requires flexibility without full tendering process each time • demand for service unpredictable • service delivered as a number of discrete projects • Council wants close relationship with suppliers Less appropriate where: • a single supplier can meet all Council’s requirements & deliver economies of scale • demand relatively predictable over life of contract Management Contracts The management part of the service is subject to competition but delivery remains with the existing provider More appropriate where: • a BVSR has identified serious management weaknesses • external management contractors can be co-ordinated with internally employed staff • there is a commitment to using in-house labour for front line service provision Less appropriate where: • management functions cannot be easily separated from service delivery • full externalisation would deliver better value Budget-Based Bidding Bidders compete on the quality they can offer within a set budget More appropriate where: • the Council has a clear idea of the budget available • the Council can specify the outputs & outcomes it requires Less appropriate where: • there are key inputs & processes the Council must specify • the Council does not have a clear view about what would constitute a Best Value bid • potential service providers do not understand how the process will work Segmented Contracting Contracting-out services in a specified geographical area used as a benchmark for in-house provision More appropriate where: • service suitable for dividing on geographical lines • spur of competition from the externalised service will improve the in-house service • contractors are willing to provide information to enable benchmarking of inputs & processes as well as outputs Less appropriate where: • the gap between in-house & external providers is too large for the in-house provider to improve in a reasonable time • the service needs to be managed as a whole to take advantage of economies of scale & scope Now consider all options for a contractual relationship and select the most appropriate, justifying your choice. b. OPTIONS FOR A CONTRACTUAL RELATIONSHIP In addition to the competition/externalisation choice above, the approach to the relationship with the chosen contractor/supplier also needs to be considered. The preferred relationship with the chosen supplier will affect the kind of contract which will be the most appropriate. Options in addition to the traditional forms of contract include the following: Continuous improvement contracting The contract has built-in commitments to improvement in service and shared benefits. E.g. one way to build in financial improvement is not to have any index-linking to the price paid More appropriate where: • the Council is planning to improve service delivery in stages over a number of years rather than in one go • service providers are willing to agree to open book accounting & to share performance information • both the Council & the service provider want a relationship based on trust & mutual benefits rather than a traditional contract approach Less appropriate where: • most significant improvements can be made in the short term • a standard service is required on a continuous basis • there is a danger that incentives may lead to inappropriate behaviour Partnering arrangements A variety of contract forms that can include ‘relational’ contracts which are developed where the service cannot be predicted, and the partners have to rely on each other more than on the courts for dispute resolution More appropriate where: • the Council wants to use competition/externalisation, but still wants a close relationship with the provider • the contract is for a large (financial) or significant (political risk) aspect of the Council’s services 4.2 Less appropriate where: • smaller or less significant contracts, where the process costs of setting up the partnering agreement outweigh any benefits • standard services that are easy to specify & monitor The Council has Officers within the Legal Department who should be requested to advise on the most appropriate type of contract in each particular circumstance. However, the responsible procurement officer should consider the type of relationship with a provider which he/she feels would provide the best value service provision. *PARTNERSHIPS & PARTNERING 4.3 Partnership is a concept now widely accepted in both central and local government, especially since the advent of Best Value. It has been said that “a best value authority is willing to work with other organisations in partnership to deliver services” (Beverley Hughes, 19/6/00). Partnership in its widest sense is about working to common goals with shared values and responsibilities. Partners should each contribute to best value performance indicators and so build innovation and continuous improvement into their day-to-day work. Definition 4.4 Many activities attract the label of “partnership”. A partnership or partnering arrangement may grow out of an existing contractual relationship or be specifically developed. Whatever the formal arrangement, the core processes necessary for the creation and maintenance of a successful partnership, and therefore integral to partnership working, would consist of following elements:• Two or more parties co-operate and work together. • The process brings together and uses resources more economically, efficiently and effectively. It results in synergy by pooling of resources. It achieves outputs/outcomes to meet the demands of the local community. It fits in with Best Value - “putting service users centrestage”. Commitment to agenda for joint/coordinated action by both parties. There are shared compatible ends, each willing to influence and be influenced and releasing some element of control. Each partner’s contribution is planned, along with what is expected of them and how they will benefit. Agreement of resources such as organisation, finance and skills. There is effective leadership of the joint action - implementation is as important as plans. Decision-making processes respect the needs of all partners. There is genuine consent, no dominant partner. • • • • • • Specific goals are set and the success of the partnership is evaluated against them. Permanent revisionism brings a capacity for continuous improvement. There must be continual assessment of the partnership’s function is the work still relevant to evolving community needs and priorities. Issues to be addressed when considering partnerships/partnering • 4.5 Partnership working requires clarity about the contribution expected from each of the partners at different stages of policy development and implementation. The Council needs to consider how best to achieve such clarity and how to give it effect through a considered approach to procurement. WHAT' A contractual partnership is a finite business relationship which brings together two or more organisations which have different statutory powers and duties, different skills and needs, but share a mutual interest in collaborating to achieve specific objectives, limited both in scope and time. a. b. WHY' There are a number of reasons for local authorities exploring the possibility of partnerships: ♦ ♦ ♦ to share risk to access new resources and specialist skills to review service delivery options The relationships which develop and are sustained as part of effective partnership working should be based on the following principles: ♦ ♦ ♦ ♦ ♦ shared understanding of aims and objectives of the partnership commitment to the development and success of the partnership open relationships and an atmosphere of trust, enabling partners to share information effective leadership to ensure the partnership maintains momentum and focus regular communication between partners and within each partner organisation ♦ ♦ c. clearly understood objectives and responsibilities for each partner demonstration of progress and contributions WHO' The Council’s partner may be: ♦ ♦ ♦ ♦ ♦ a voluntary organisation a community enterprise/trust a private contractor/developer another public sector body a local authority company d. HOW' There are also a variety of structures for a partnership arrangement: ♦ ♦ ♦ ♦ ♦ contractually based (not PFI) joint ventures not-for -profit joint entity (e.g. trust) PFI strategically co-ordinated services 4.6 The DTLR guidance on these matters states that we should have a policy or code of practice for partnerships, to ensure that there is a consistent council-wide approach to their initiation, management and review. Partnership Protocols 4.7 The key elements of the Council’s partnership policy can be found below to give broad guidance to officers when considering partnership as a method of procuring and providing works/supplies/services on behalf of the Council. Officers should also have regard to the Council’s Financial Procedures Rules (F.31) which provides that Executive Directors are responsible for ensuring that all partnership arrangements are reported to the Executive and approval gained for the proposed relationships and monitoring procedures. Issue to be addressed by establishing the partnership Protect the interests of the community and ensure the highest quality service is provided. Achieve the strategic aims of the Council, such as improving the environment and achieving Best Value. Formalise the structure of partnerships to assist the development of new partnerships including the definition of roles and responsibilities. Ensure service providers work in line with the Council’s core values and Directorate standards. Ensure common practice in the evaluation of partnerships. Objective of the individual partnership arrangements To provide quality services efficiently and cost effectively, to promote economic prosperity for the local community. Ensure the partnership is developed in accordance with corporate objectives. Agree terms of reference, membership, shared objectives, targets for service delivery and implementation timetables. The partnership works to an agreed standard, linked in with the Council’s decision-making structure Specification of measures of performance, both quantitative and qualitative, and accountability. Implications for contracts 4.8 Whatever arrangement is considered to be the most appropriate, the key objectives and parameters of the partnership need to be established at the outset. A formal document - the Memorandum of Understanding or Partnering Agreement- addresses the objectives, membership, management arrangements, values and responsibilities of the partners, and is used in conjunction with a formal contract to clarify the relationship between the partners. The formal partnering contract should set out the intended relationship between all parties involved. It should be framed so as to promote: ♦ ♦ ♦ an appropriate exchange of information on a regular basis arrangements for regular meetings shared arrangements for dealing with customers where appropriate, including communications and complaints handling 4.9 ♦ ♦ clear performance targets and standards an equitable system for dealing with poor performance, balanced by provisions for sharing the benefits of good performance overall, an equitable sharing of the risks involved in performance of the works/service. ♦ 4.10 In addition to the inclusion of these elements in the formal contract where necessary, to give them legal effect, a Partnering Agreement (often a single page setting out the overall aims of the collaborative working) is often adopted and signed by representatives of all parties involved in the partnership in order to demonstrate that the behavioural aspects of the arrangement have been adopted by all concerned. Advantages and disadvantages of partnerships 4.11 These should be taken into account when a partnership or partnering arrangement is suggested by the option appraisal and contract strategy processes as being appropriate. The current market situation for the particular service/supplies/works area must be assessed to determine whether the partnership would be viable. Typically, the private sector encounters some difficulty in persuading Local Authorities to enter partnership arrangements because of propriety problems related to public sector competition rules. The constraints on partnership working can be both external and internal to the organisation: ♦ ♦ EU procurement legislation, requiring particular procedures to be followed for contracts over a certain value particular problems where a private sector company seeks an exclusive relationship with a Local Authority that will result in a contractual relationship which would normally be subject to the requirement for competition (seen as a “cosy relationship”) cultural difficulties (Members, staff, service recipients, partner organisations) problems of measurement - benchmarks against which to judge performance 4.12 ♦ ♦ 4.13 The recognised benefits of partnerships have been mentioned above, and can be summarised as: ♦ ♦ ♦ ♦ improvements leading to best practice reduced duplication of effort improved access to resources ability to take advantage of networking 4.14 Partnership can therefore be viewed as shorthand for a collaborative approach between client and contractor, or indeed all parties involved in provision of a particular service. The partnership ideals need to be contained within the contract and monitored by managers on both sides. The extent of cultural change necessary within organisations to implement effective partnerships successfully, suggest that it would be sensible to introduce the concept only after carrying out a detailed analysis of procurement options in each individual case. The key principles contained in this best practice guide and the Procurement Strategy relating particularly to option appraisal, contract strategy selection and ethics and probity must be referred to in order to address the potential problems with a partnership approach and take advantage of the benefits on offer. 5. GREEN PROCUREMENT Environmentally Preferable Purchasing 5.1 Greener public purchasing is about specifying environmentally preferable products and services. Environmentally preferable products are defined as ones which are less harmful to human health and the environment when compared with competing products which serve the same purpose. Among other things they: 1. 2. 3. 4. 5. 6. 7. 8. are fit for the purpose and provide value for money are energy and resource efficient use the minimum amount of virgin materials make maximum use of post-consumer materials are non- (or less) polluting are durable, easily upgraded and repairable are reusable and markets and the infrastructure exist for recycling the product at the end of its life are supported by additional information to demonstrate their environmental preferability. 5.2 The requirement to achieve value for money - with its emphasis on whole life costs and quality to meet customers' needs - enables public bodies to build sustainable development and environmental factors into their contract specifications and to look beyond the initial cost to take account of longterm cost savings from, for example, lower operating and disposal costs. Value for money in procurement is defined as "the optimum combination of whole life cost and quality (or fitness for purpose) to meet the customer's requirement". This reference to "quality to meet the customer's requirement" enables departments to specify what they need to meet their own operational and policy objectives, while contributing to the Council's objectives on environmental matters. Buyers must, of course, satisfy themselves that specifications are justifiable in terms of need, cost effectiveness and affordability. 5.3 Building environmental aspects into evaluation models 5.4 It is possible when developing a business case for a contract to give added weight to a particular quality so that it has a greater influence over the outcome. For example, a buyer of a car for mainly urban use may wish to place greater emphasis on reducing emissions harmful to health than say the buyer of a vehicle for mainly inter-urban use where a higher priority is to achieve more miles per gallon with a consequent reduction in carbon emissions which contribute to global warming. This could also be built into a scoring system for evaluating bids where the quality is relevant to value for money to the contracting authority. Green Premium 5.5 The specification of a particular environmental requirement may occasionally result in a purchase which costs more - even after taking account of whole life costs - than a less environmentally-preferable product or service. This extra cost may be justified if the purchase is necessary to conform with Council policy to buy or not to buy a particular substance or material on environmental grounds. This should be reflected in the evaluation model for that particular tender. Social and Ethical Implications 5.6 Social performance is about the impacts of an organisation on society. That is, on people outside the organisation. Ethical performance is about internal business processes. For example, how an organisation deals with its suppliers or customers. Raising environmental standards through procurement and other activities helps to address social inequality, because environmental costs are born disproportionately by the poor, whether on a global scale or within the UK. Purchasing can therefore have an impact on social issues through appropriate use of specifications and by basing award decisions on whole life costs and quality. For example, by specifying water efficient appliances, a buyer can reduce the demand for water, so helping to safeguard streams and rivers - thus protecting wildlife, habitats and social amenities, and water supplies during droughts. There is always a danger that taking into account "social" and "ethical" issues in the procurement process may dilute the overriding requirement on buyers to achieve value for money, with the result that costs escalate and services suffer, hurting lower income groups more. We might also be using procurement to effect changes which could be more effectively brought about by, say, legislation, taxation, education and foreign aid. There are, however, some social and ethical issues which buyers can consider where they are relevant to the contract, consistent with value for money for the taxpayer and are best procurement practice. 5.7 5.8 5.9 Key tips Do: 1. Address environmental concerns at the specification stage of the buying process. Any invitation to tender or quote must include a specification which clearly describes requirements in sufficient detail to enable the submission of competitive offers, and any environmental considerations which are relevant to the purchase must be included in the specification. Think of the environmental issues before getting quotes and tenders - not afterwards. 2. Don't 1. Try to do everything at once! Concentrate on the most significant impacts. 80% of these arise in offices from: business travel and commuting; building energy; new build and refurbishment; paper and print; IT equipment; water and waste. 6. LOCAL SUPPLIERS Partners in Developing Local Suppliers 6.1 The Council’s Procurement Strategy states that where possible, we should actively support and encourage local suppliers to become best value providers. Developing a local supplier base need not be and should not be a solitary exercise. There are many potential partners to work with: ♦ Local Suppliers - Work with local suppliers in developing their business. However, it should not be a one-way street but true partnership with benefits accruing to both parties. ♦ Users/Customers - Explain to your users/customers, e.g. schools, why you are using local suppliers and get their commitment to the policy. At the end of the day it is the end-user who will be the real judge of value and quality. ♦ Suppliers - Encourage them to extend the local supply chain by doing their purchasing locally or encouraging start-ups around their own business. ♦ Other Buyers - Encourage other local large buyers to work with you in developing the local supply base, e.g. Health, Utilities etc. ♦ Partners - Work with other organizations to help develop the local supply policy, e.g. Chambers of Commerce, Enterprise Agencies, Business Link, Development Agencies. ♦ Regional Supply Networks - These are a product of Business Link, which is supported by the Department of Trade and Industry, and amongst other things give support to local supply chains and businesses involved in them. What can be done to develop the local market' 6.2 "Buy Local" policies must be justified on grounds of competitiveness, economy or efficiency, and comply with Procurement Directives and other regulations. Despite that and the restrictions that surround the question of buying locally in the public sector, there are many things that can be done to encourage local companies to compete, not only within the local economy but also possibly in the wider national or global market. 6.3 Developing local suppliers and working with them to develop their own business should also add to the competitiveness of the local authority. There are some fairly easy ways to achieve this in the first instance: Publicity and Advertising 6.4 Firstly, local suppliers cannot position themselves to supply you if they do not know what you want to buy. Most local authorities do advertise their requirements in the local papers and media as well as appropriate trade magazines. More often than not, however, these adverts are hidden away in that most boring and least-read section of the local paper - the Public Notices page. The Council should become far more proactive in approaching local marketplaces and making its own requirements more transparent by: ♦ ♦ ♦ ♦ ♦ Advertising in more accessible places, e.g. in the Business Supplement of the local paper. Working through the local Chamber of Commerce, Enterprise Agency, Business Link, etc. Developing a guide to Supplying Goods & Services to the Council Using the tenders page on the Council’s website and making sure local businesses are aware of its existence Making local firms aware of your requirements in advance through a Prior Indicative Notice (similar to the requirement for the OJEC). Organizing "Meet the Buyer" events. Other public sector partners could join in, e.g. Health Authorities, Police, etc. Holding supplier briefings for local companies about selling to the Council. Working with existing local suppliers to achieve continuous improvement "Best Value" in the products or services they supply. Making sure consumers are aware of local availability and who the local suppliers are. Developing Local Capacity ♦ ♦ ♦ ♦ 6.5 Developing the local marketplace is not, however, just a matter of advertising in the right place; it is also important to think of other ways of working with local suppliers to develop their capacity to supply you and other potential buyers. European rules permitting, the Council should consider: ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Establishing a partnering arrangement to develop a particular product or service. Creating a Supplier Association to help suppliers help themselves, each other and the Council Working with other buyers in the local marketplace in developing local supply chains. Encouraging larger suppliers to use local suppliers and distributors. Specifying local materials where appropriate. Working with local economic development and regeneration teams. Identifying gaps in the marketplace which local suppliers may be able to meet with some development of their business capacity. Investigating ways in which local companies can gain advantage from any developments the Council is involved in with regards to e-commerce and e-government. Involving local businesses in developing Council activities, e.g. education , trading standards and economic development. ♦ Modern Procurement 6.6 There have been substantial changes in the way in which all organizations now go about their buying or procurement activities. The concept of Strategic Procurement has seen the introduction of Supply Chain Management, e-Commerce and Best Value, all of which have had a substantial impact on the way we go about our business. This also has an impact on the development of local suppliers; it does not need to be a negative one. 6.7 In terms of Supply Chain Management, for example, if local authority buyers better understand their supply chains and their component parts it actually becomes easier for them to determine where local influence can be brought to bear between the point of consumption and the earliest point of its production. Local companies do not necessarily have to be the deliverers of the product or service. However, the Council can help by keeping them informed of opportunities to enter the supply chain at the appropriate position, assisting the prime supplier in their delivery of the end product or service. These opportunities to enter the supply chain are often easier for local suppliers to access than as the prime supplier and the spin-off can be significantly greater in terms of benefits derived from the prime supplier's own wider customer base. The Duty of Well Being 6.8 The guidance from Central Government as regards the power to promote or improve economic, social or environmental well being (Part I Local Government Act 2000) means that there is significant scope to use the duty of well being to help develop the local supply base This could be achieved by developing local suppliers as part of the promotion of neighbourhood renewal, working with minority groups, including ethnic or disabled business owners, to tackle social exclusion. It must however still be subject to the general duty of Best Value and legislation such as the European procurement directives. 7. TENDER EVALUATION Priorities and Emphasis 7.1 Tender evaluation models are the means by which we can assess which of the bids submitted in a competitive exercise offers the best deal for the Council. In order to make this judgement, we will already have recorded the criteria that are important to us in this particular case, and which can be scored for each tender submitted. The criteria will be price or quality related, and enable an open, transparent and ultimately fair evaluation process to be demonstrated. The quality/price model should be established before any tenders are invited, and all tender documentation should be designed to ensure that appropriate responses are received to feed into the model. There are basically two stages involved in building up an evaluation model: • • Establishing the quality/price ratio (i.e. the relative importance to be placed on price and quality in this particular contract); and Establishing the components of quality and price, and their relative importance in their respective categories. 7.2 Quality/Price Ratio 7.3 If quality and price have equal importance for your contract, the quality/price ratio would be 50:50. Different ratios will produce different prices to be paid for avoiding a reduction in quality. In order to demonstrate how the quality/price ratio has been selected for each tendered contract, the calculation below should be carried out and recorded: E.g. If the estimated cost of the contract is £250k, the following table would be the calculation of costs attached to quality: Max. £ extra willing to be paid to avoid a reduction in quality of: Q/P 10% 20% 30% Ratio 20:80 6,250 12,500 18,750 30:70 10,714 21,429 32,143 40:60 16,667 33,333 50,000 50:50 25,000 50,000 75,000 60:40 37,500 75,000 112,500 70:30 58,333 116,667 175,000 80:20 100,000 200,000 300,000 90:10 225,000 450,000 675,000 This shows that if your contract had an estimated price of £250,000 and a Quality/Price ratio of 50:50, you would be willing to pay an extra £25,000 to avoid accepting a bid which was 10% worse in quality terms, even if it was the best scoring bid in price terms. (Formula: Estimated cost x reduction in quality to be avoided x quality/price ratio). In general terms, the more complex the procurement, and the greater the degree of innovation and flexibility likely to be required, the higher the ratio should be. Indicative ratios are: Type of Project Feasibility studies/investigations Innovative projects Complex projects Straightforward projects Repeat projects Indicative Quality/Price Ratio 85/15 80/20 70/30 50/50 20/80 However, the calculation exercise above should still be undertaken in order to confirm the costs associated with setting a higher ratio. Quality and Price Weightings 7.4 The price element of the model should reflect the tendered prices and also any extrapolations to take account of whole life costs. The Council’s Procurement Strategy states that all procurement exercises should reflect these long term costs and hence the evaluation model should incorporate them as a matter of course. Quality criteria should be grouped under main headings and weighted. Suggested headings and weighting ranges are: Quality Criteria Capacity to resource the contract Potential to “add value” Previous experience Approach to the contract Others 7.6 Suggested Weighting Range 25-45% 20-30% 15-25% 15-25% 10-15% 7.5 A quality threshold should be established (e.g. 65 out of 100). Tenders may have to achieve this minimum quality score before final interviews are held and prices considered. 7.7 Submitted tenders are assessed for quality by marking each of the quality criteria out of 100, multiplying each mark by the respective weighting percentage and then adding them together to give a total quality score out of 100. Tenderers passing the quality threshold may then be interviewed, their quality scores reviewed and their prices examined and marked. The lowest compliant bid scores 100 and others score 100 minus the percentage figure above the lowest price (e.g. a bid 25% above the lowest scores 75). The final quality/price assessment is achieved by multiplying the quality and price scores by the respective weightings set by the quality/price ratio, and adding them together to give a total score out of 100.(E.g. if the quality/price ratio is set at 70/30 and the quality score is 80 and the price score 75, the total score is 80 x 70% + 75 x 30% = 78.5). The highest scoring bidder will be awarded the contract, as they are the one which has best met the Council’s priorities in terms of both quality and price. 7.8 7.9 8. Effective Decision-Making 8.1 PROJECT MANAGEMENT All procurement exercises should be conducted through effective communication and decision-making processes. To assist in this, as specified in the ‘Accountability’ section of the Procurement Strategy, Service Level and Corporate Procurement Steering Groups will be responsible for management of the procurement process. Each procurement must have a Project Sponsor from the client Directorate. This individual will: ♦ ♦ ♦ ♦ possess the skills to manage the client’s role in the project maintain direct access to the people making key decisions be vested with authority to take day to day executive action expect to see the project through to completion 8.2 Professional Advice 8.3 The CPSG must ensure that the Project Sponsor is assisted by the necessary professional advice throughout the procurement process. The essential areas to be considered are outlined below: • Corporate Strategies/Policies - Procurement Strategy - Contract Standing Orders/Financial Procedures Rules/EU compliance • Equal Opportunities - Race Relations - Disability Discrimination - Equal Opportunities - E-Government Strategy - receipt and opening of tenders - contractor compliance with financial and Health & Safety requirements - appointment of consultants - monitoring & management of contract - contract terms and conditions - TUPE - PFI/PPP - financial criteria and assessments - evaluation models - financial and accounting advice • IT Issues • Contract Administration • Legal Issues • Finance Issues • Personnel Issues • Sustainability/Environmental matters • Risk Assessment/Risk Management Critical Stages of the Procurement Process 8.4 The PSG will be responsible for approving/signing-off the outputs of each stage of the procurement process: • Business Case (this sets the case for the recommended procurement option, after consideration of all relevant factors, e.g. VFM, environmental impact.) • Output Specification (this is the Council’s requirements expressed in terms of outputs/outcomes required. Providers generate methods of delivery. Performance standards are stipulated, and Performance Indicators are passed on to providers, including year on year improvements.) Contract Terms Procurement Plan (this sets out the procurement route to pursue, ensuring compliance with Contract Standing Orders and EU Regulations. It also includes a timetable with milestones specified.) Risk Management Plan Evaluation Model Shortlists Contract Award Contract Management Plan • • • • • • • Confirming the business case: 8.5 Activities here will include: ♦ ♦ ♦ ♦ 8.6 fixing an initial project budget that includes all relevant costs over the whole life of the project evaluating the benefits that will be delivered drawing up an outline programme which allows realistic periods for essential activities identifying the significant risks in the whole process and establishing how they can most effectively be managed. This will provide the essential components of the strategic brief and establish measures of time, cost and quality against which the project can be judged as it proceeds. Financial Resource Issues 8.7 The Council’s Financial Procedures Rules and Contract Standing Orders contain a number of clauses relating to the financial control of the procurement process. In the main, these concern the need for adequate forward planning, ensuring that either budget provision exists (for Revenue funded procurement) or that projects are included in the Council’s Capital Programme (Capital financed projects). In addition, if circumstances change so that financial provisions are no longer adequate, the appropriate authority must be sought in order to ensure that budget limits are not breached. Key financial resource issues for any proposal include: • spend time at the beginning of the procurement process defining what you want and when you want it - it can be expensive to change your mind later understand the risks involved in your project, quantify them and make financial provision for them clarify your priorities regarding time, cost and quality take account of the costs of the project over its whole life ensure that financial and other resources necessary for the project are available when required monitor progress and performance • • • • • Developing a strategy for the project/contract procurement: 8.8 The Project Sponsor leads the development of a strategy for the project’s execution. This entails the development of early statements of needs into a strategic brief and then into a full project brief. The Project Sponsor will also consider the most suitable way of carrying out the project. The first priority is to choose the system best suited to procuring the skills and resources necessary to achieve the outputs required. This is a key strategic decision which will set the framework for carrying out the project. Section 4 above on ‘Contract Strategy’ details the issues to be taken into account when making this choice. In addition to those factors identified, the client’s attitude to risk is particularly important, as different contract strategies allocate risk in different ways. The more control a client wishes to have over aspects of the project, the more risk they should be willing to bear. Also, whilst risk can be transferred to others, this will be reflected in their prices. Systematic risk management should be part of the strategy for executing all major procurements. * RISK ASSESSMENT & RISK MANAGEMENT Risk 8.9 Risk is any unplanned action or event which threatens the achievement of cost, time and performance targets. Risk Management 8.10 Risk Management is the process of anticipating risks, planning as necessary and carrying out timely actions to cost-effectively reduce the probability and impact of risks to an acceptable level. Risk Assessment 8.11 Risk should be assessed at two levels during the procurement process - at the overall service level (during a Best Value Service Review), and at the contract level. Service Level Risk 8.12 The risk assessment process undertaken during the “competition” phase of a BVSR should show whether a service is appropriate for external provision, by identifying where the risk can best be managed to ensure effective and efficient service delivery. The level of risk must first be determined, and judgement reached on what level of risk is involved, and to whom. It may be that for a particular service, the level of exposure to the Council acting on its own would be unacceptable, whereas the private sector may be better placed to manage the liability (e.g. major building developments that incorporate commercial activity). Contract Level Risk 8.13 At the contract level, the assessment of risk will depend on factors such as the type and length of the contract, the stability of the supply or service, prevailing conditions in the supply market, and the risk to the user in terms of cost, quality and the impact of contract failure. The contract manager must consider each of these factors and deal with them in such a way as to manage down risk during performance of the contract. Risk Identification 8.14 An analysis of different sources and types of risk enables a comprehensive list of the risks it is reasonable to anticipate for a particular activity or contract. 8.15 Uncertainty arises from a lack of knowledge or experience of the area under review. Uncertainty arising from a lack of knowledge of technology or trading conditions, for example, should be reduced to an acceptable level at the earliest stage of the risk management process. Research into similar projects in the past, and interviews with those having relevant experience are natural starting points. Having reduced uncertainty to an acceptable level, all the relevant risks, both of a predictable and unpredictable nature, can then be identified. Risk Evaluation It is essential to determine realistically the true extent of potential risk to the Council, in order that only the appropriate amount of time is spent and necessary budget committed to the management of those risks. The actual level of risk depends on a combination of the l ikelihood or probability of an event occurring and the consequential adverse impact on the Council. Probability 8.16 8.17 When the probability of an event occurring is assessed, any relevant experience concerning similar events in the past must be considered. A more subjective view will be required if there is a lack of previous experience, but the risk can still be assessed as High, Medium or Low. Impact 8.18 The occurrence of a risk event will have direct consequences with cost and/or time implications. Other indirect consequences may be considered, such as the effect on service users, loss of future funding and adverse publicity. Past experience again is the best source of information needed to predict the implications of various risks. For risks where reasonable accurate historical financial information is available, the impact can easily be expressed in money terms. Potential time delays can be assessed using critical path analysis. Risk Factors 8.19 When quantification of both is possible, the product of the probability and impact for each risk event can be used to give a risk factor, expressed in financial terms and summarised to give a total project risk exposure. A way should be found to express all key risks in measurable terms for two main reasons: • • Any proposed risk management action should be judged on whether or not the benefit significantly outweighs the cost; and The summary of financial risk exposure will normally influence the size of contingencies within the budget for the procurement. Risk Control 8.20 Once the probability and impact of risk events has been established, and the risks graded, it is possible to determine appropriate types and levels of cost effective action to manage and control risk. A risk action plan should be drawn up for all key risks within an activity or project. The types of action to contain or eliminate risks will generally be dealt with under the following measures: • • Insurance Financial Provision Risk Allocation 8.21 All risks are then recorded in a risk management plan, which describes how each risk is to be best allocated and managed. For tendering purposes, invitations to tender must make clear the basis on which tenders are to be submitted. The Project Sponsor will have agreed the amount of risk felt best able to be managed (and hence priced for) by the contractor, and that best taken on by the Council by making a contingency allocation in the budget. The risk management process should therefore have produced the best possible allocation of risk involved in that particular procurement. 9.1 9. CONTRACT MANAGEMENT Contract Manager Every contract is to have a Contract Manager, who will be a Council officer with responsibility for ensuring that all parties understand their obligations under the contracting process, and fulfil them as efficiently and effectively as possible to maximise Best Value for the Council. The Contract Manger will implement the Contract Management plan as approved by the PSG. Once the contract is in place, there are two aspects to the contract management function: (a) Performance of the contract - the processes and procedures associated with the smooth operation of the contract need to be managed, to obtain the best service possible. This includes: ♦ management of relationships ♦ monitoring of costs and volumes ♦ reviewing and reporting on performance ♦ agreeing variations ♦ authorising payment ♦ resolving any disputes ♦ maintaining adequate records and a management trail ♦ assessing and managing risk ♦ maintaining ethical standards ♦ contingency planning ♦ managing change The contract manager will usually be assisted by a team of officers (the Project Team) to ensure that sufficient resource is available to undertake all these activities. (b) Management of the relationship between the client and the contractor. The contract manager should ensure that an appropriate style and behaviour is adopted, as the contract provides the foundation for the relationship between both parties. It is probably the case that under Best Value, the actual contract conditions will require continuous improvement and hence continual change. This will mean that the contract management style may also need to change throughout the duration of the contract. 9.2 9.3 Different styles will also be appropriate depending on the type of contract (e.g. a multi-dimensional service as opposed to the supply of a single product). The advantages discussed above relating to partnering arrangements should be particularly evident in the style to be adopted in managing these type of contracts. Real benefits should accrue for both parties when a spirit of mutual trust and partnership is encouraged. SUMMARY This Procurement Best Practice Guide is a first attempt to produce a comprehensive guide for all those involved in procurement activities, either in the form of Best Value Service Reviews or in day to day purchasing decisions. It will continue to be updated regularly in order to accurately reflect activities within the Council and best practice in the procurement field. A Key Project Activities Getting Started Defining the Project Assembling the Team Designing & Completing Nominate Project Sponsor Obtain professional advice Appraise options Confirm business case Develop project strategy Select client Project Manager Develop strategic brief Develop project execution plan Decide contracts Select project team Develop the project brief Operate the contract Manage & resolve any problems Review progress & quality Essential Elements of Procurement Process Assess Need Consider: Corporate Objectives Consultation Proposal in Strategic Directorate Procurement Steering Group Procurement Plan or Common Procurement Plan' Proposal taken to Corporate Procurement Steering Group Responsibilities assigned and agreed (CPSG) Market analysis undertaken Research & consultation Options Appraisal for Benefits service delivery Costs Uncertainty & Risk - apply the 9 questions to each option Determine appropriate What is best method of externalisation' contract strategy Determine appropriate Consider Partnering contractual relationship Compile specification Environmental issues Local sustainability Outcome based Compile Evaluation Quality/Price ratio Model Quality/price weightings Compile appropriate Risk assessment project management plan Establish Contract Management Plan Performance monitoring Managing relationships