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Value for money in procurement (4)
 

Value for money in procurement (4)

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Value for money in procurement

Value for money in procurement

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    Value for money in procurement (4) Value for money in procurement (4) Document Transcript

    • Management CentreValue for money inprocurement
    • 2
    • ContentsManaging work under contracts ......................................................................7 Introduction ................................................................................................7Contract Management process- overview.......................................................7 Bad Management ......................................................................................8 Managing service delivery .........................................................................8 Managing the relationship .........................................................................9 Contract Administration .............................................................................9 Managing changes ..................................................................................10 Scope.......................................................................................................11 Terminology .............................................................................................11 What is contract management? ..............................................................12 Getting the contract right .........................................................................12 New approaches .....................................................................................13 Critical success factors ............................................................................13 What can go wrong .................................................................................14 Key elements of contract management...................................................15 Intelligent customer capability..................................................................16 The contract management life cycle........................................................17 Contract management stages .................................................................18 Managing quality .....................................................................................20 Managing progress payments .................................................................23Stages in the contracting process..................................................................24 The Procurement Process.......................................................................24 A Process that is Fair and Impartial.........................................................25 Continuous Improvement ........................................................................25 Unravelling the Competitive Process ......................................................25 3
    • Phases and Steps of the Procurement Process .....................................26Overview of procurement strategy.................................................................31 Introduction ..............................................................................................31 Purpose ...................................................................................................31 What is procurement? .............................................................................31 Why procurement is an issue ..................................................................31 Procurement’s high profile .......................................................................32 What are the procurement essentials? ...................................................32 The regulatory framework .......................................................................33 Other important issues ............................................................................33 Procurement’s Strategic context .............................................................34 Figure 1: Strategic Framework for Procurement .....................................34 Applying risk and value to the procurement strategy ..............................34 Authority’s reputation – the suppliers’ view .............................................37 Managing procurement projects..............................................................38 Procurement cycle...................................................................................38 The Gateway process .............................................................................38 Key reasons why procurements fail ........................................................39 Members’ role in procurement.................................................................39 The executive role ...................................................................................39 The scrutiny role ......................................................................................41 Members’ SUCCESS checklist ...............................................................41 Corporate co-ordination...........................................................................41 Business case culture..............................................................................41 Learning organisation ..............................................................................42 Improvement – ‘quick wins’ .....................................................................42 Critical success factors ............................................................................42 4
    • Critical success factors – another dimension ..........................................43 Questions members should ask ..............................................................43Overview of procurement strategy – Case Study..........................................44 Context ....................................................................................................44 Procurement Strategy..............................................................................45 Transparency...........................................................................................46 Proportionality ..........................................................................................46 Non-discrimination ...................................................................................46 Equality of Treatment ..............................................................................47 Next Steps ...............................................................................................48 Recommendation ....................................................................................48 International Procurement .......................................................................49 Basic Policies...........................................................................................49 Managing the Procurement Process.......................................................50 Assessing the procurement project- Specification Writing ......................52 What is a specification? ...........................................................................52 When is it produced?...............................................................................52 Who is involved? .....................................................................................52 Process....................................................................................................53 Getting and assessing bidders - Planning the request for proposal .......55 CORRECT ADVERTISEMENT SAY 3 NATIONAL PAPERS - CONSIDER THE SPECIALIST PAPERS AND JOURNALS ...............................................................................................55 Contract Notice ........................................................................................59 Inviting Offers...........................................................................................59 Pre-qualification – introducing a second stage........................................59 Standard procurement methods..............................................................62 Single stage procurement method ..........................................................62 Two stage procurement method .............................................................63 5
    • Standards for awarding contracts............................................................64 Standards for awarding contracts – non-resident vendors .....................65 Responsibility of the bidder or vendor .....................................................65 Only one responsive bid or proposal received ........................................65 Committee submissions and approvals ..................................................70Engaging and managing stakeholders ..........................................................71Strategic partnerships ....................................................................................71Procurement and cost cutting ........................................................................71Controlling Procurement Risk ........................................................................71Managing Inventory........................................................................................71Control of the procurement process ..............................................................71 Performance measurement.....................................................................72 Managing quality - Key Performance measurements (KPI’s) .................77 Why is Ethical Procurement Practice Important? ....................................78 How to Link Ethical Values and Procurement .........................................78 Ethical Hotspots.......................................................................................78 Contract close out....................................................................................80 Contract de-mobilisation ..........................................................................88Appendix – Definitions & Resources .............................................................90 Resources ...............................................................................................90 Improvement and development Agency for local government - www.idea.gov.uk 90 Definitions ................................................................................................90 Glossary of procurement terms ...............................................................93 6
    • Managing work under contractsIntroductionThese guidelines cover the issues involved in managing long-term servicecontracts following contract award. The main areas covered are managingservice delivery (formal governance), managing the relationship, contractadministration, seeking performance improvements, and managing changes.This guidance does not cover the process of creating a commercial arrangement.These guidelines are aimed at public sector managers responsible for managinglong-term commercial arrangements with the private sector. It aims to help themmanage the contract and the relationship to give value for money and improveperformance. This document is intended as a guide for management rather thanpractitioner level guidance. Contract Management process- overviewContract management activities can be broadly grouped into three areas.• Service delivery management ensures that the service is being delivered asagreed, to the required level of performance and quality.• Relationship management keeps the relationship between the two parties openand constructive, aiming to resolve or ease tensions and identify problems early.• Contract administration handles the formal governance of the contract andchanges to the contract documentation.All three areas must be managed successfully if the arrangement is to be asuccess. In addition, good preparation and the right contract are essentialfoundations for good contract management. The arrangement must also beflexible enough to accommodate change. A key factor is intelligent customercapability: the knowledge of both the customer’s and the provider’s business, theservice being provided, and the contract itself. This capability, which touches all 7
    • three areas of contract management, forms the interface between supply anddemand; that is, between the business area and the providerBad ManagementAny project can be estimated accurately (once its completed).Managing service deliveryManaging service delivery means ensuring that what has been agreed isdelivered, to appropriate quality standards. The contract should define theservice levels and terms under which a service is provided. Service levelmanagement is about assessing and managing the performance of the serviceprovider to ensure value for money.Considering service quality against cost is equal to an assessment of the valuefor money that a contract is providing. As well as assessments of whetherservices are delivered to agreed levels or volumes, the quality of the servicemust also be assessed.‘Quality metrics’ will have to be created that will allow the quality of service to beassessed, even in areas where it is hard to quantify. A key part of assessing theservice provided is the baseline, or level from which service levels andimprovements are measured. This will need to be agreed before the servicecommences. Benchmarking, or comparing performance across differentorganisations and providers, is another useful way to gauge improvements orpricing levels.Managing risk is another important aspect of managing service delivery. Thefulfilment of the contract may be endangered by several kinds of risk; somewithin the provider’s control some outside it. Identifying and controlling (byavoiding or minimising) the risks to a contract is a vital part of managing it .Thisincludes those risks that have been transferred to the provider under thecontract. Business continuity plans and contingency plans help prepare thecustomer organisation for the situation where the provider cannot deliver. Theyare an important part of managing risk. 8
    • Managing the relationshipAs well as the contractual and commercial aspects, the relationship between theparties is vital to making a success of the arrangement. The approach to this willvary depending on the contract, but it is important that the specific responsibilitiesare not neglected, even though there may not be a nominated individualassigned to the role of relationship manager. In long term contracts, whereinterdependency between customer and provider is inevitable, it is in theinterests to make the relationship work. The three key factors for success aretrust, communication, and recognition of mutual aims. Management structures forthe contract need to be designed to facilitate a good relationship, and staffinvolved at all levels must show their commitment to it. Information flows andcommunication levels should be established at the start of a contract, andmaintained throughout its life. The three primary levels of communication in acontractual arrangement are operational (end users/technical support staff),business (contract manager and relationship manager on both sides) andstrategic (senior management/board of directors).The right attitudes andbehaviours, based on trust rather than adversarial models, should beencouraged.There should be set procedures for raising issues and handling problems, so thatthey are dealt with as early as possible and at the appropriate level in theorganisation.Contract AdministrationThe formal governance of the contract includes such tasks as contractmaintenance and change control, charges and cost monitoring, ordering andpayment procedures, management reporting, and so on.The importance of contract administration to the success of the contract, and tothe relationship between customer and provider, should not be underestimated.Clear administrative procedures ensure that all parties to the contract understandwho does what, when, and how.The contract documentation itself must continue to accurately reflect thearrangement, and changes to it (required by changes to services or procedures)carefully controlled.Responsibility for authorising different types of change will often rest withdifferent people, and documented internal procedures will need to reflect this. 9
    • Management reporting procedures control what information is passed tomanagement about the service; this can range from a comprehensive overviewof all aspects to solely reporting ‘exceptions’ to normal service.Arrangements for asset management must also be considered.Service delivery management, relationship management and contractadministration should keep both contract and relationship running smoothly, andproviding the value for money represented by the contract at its outset. Thecustomer will almost certainly want to aim for improvement over the life of thecontract as well; ideally, the requirement for improvement will be built into thecontract .A good working relationship will help make improvement a reality,based on the principle that improvement is good for both parties, not just ameans for the customer to drive down costs.Incentives motivate providers to improve by offering increased profit or someother benefit as a reward for improved performance or added value. Benefitsbased payments, where payment is dependent on the realisation of specificbenefits to the customer, are a more sophisticated form of incentive. Normallybuilt into the contract terms, it is vital that incentives are balanced and encourageappropriate provider behaviour. It may be appropriate to aim for continuousimprovement over the life of a contract, perhaps expressed through a cappedprice that decreases year on year. A plan could be developed with the providerdetailing how improvements will be made.Managing changesA successful arrangement requires a mutual commitment to meeting evolvingbusiness requirements and adapting to changing circumstances. Properlymanaged change can be a good opportunity to improve the service. Drivers(reasons) for change during contracts can come from a range of sources, bothinternal and external. Whatever the drivers, it is important to realise theimplications of change for the contract and all parties involved. There could beimplications or concerns in areas such as continuing value for money and thepossibility of moving beyond the original scope of the requirement. Change iseasier to deal with when preparations are made. Not every possibility can beforeseen and planned for, but it is desirable that the contract include someflexibility as well as procedures for handling changes.Areas where change might be necessary include performance metrics, servicefunctionality, service infrastructure and workload. Construction contracts arefundamentally different from major service contracts. There are various types ofconstruction contract. The choice of contract depends on the basis of pricing and 10
    • the contract strategy that best meets the project objectives. The various typesoffer different ways of handling pricing, risk transfer, responsibility forperformance, cost certainty, and complexity. The main customer-side rolesinvolved in handling construction contracts are the project manager and theproject sponsor. The project manager manages the contract on behalf of thecustomer, co-ordinating the design and construction and managing claims anddisputes in an impartial manner. On large-scale projects, the project sponsorfulfils a higher level, less hands-on role, overseeing the project manager andmonitoring budgets (among other duties).ScopeThese guidelines cover the issues involved in managing long-term servicecontracts following contract award. The main areas covered are managingservice delivery (formal governance), managing the relationship, contractadministration, seeking performance improvements, and managing changes. Theissues discussed will also be relevant to partnering deals (partnerships or PPP)and PFI deals. The material in these guidelines may also be useful to shorterterm contracts, although many sections will not be relevant to sucharrangements. This guidance does not cover the process of creating acommercial arrangement. It is assumed that the reader is familiar withprocurement procedures and principles, that the needs have been carefullydetermined and documented, that the contract to be managed is wellconstructed, and that the provider has been carefully selected and their tenderproperly evaluated before contract award. For contract management to besuccessful, it is vital that these foundations are in place.While the main focus is on contracts with commercial providers, the principles inthis guidance will be equally applicable to arrangements with in-house providers.This guide is aimed at public sector managers responsible for managing long-term commercial arrangements with the private sector to ensure value for money,improve performance and build a productive relationship. It gives an overview ofthe issues facing contract managers and relationship managers (and members ofteams fulfilling those functions). It is not intended as a practitioner level guidanceand therefore does not deal with all the components and requirements of formalcontract management. The guidance is generic – that is, its principles areintended to be applicable to all major contracts; this helps to achieve commonunderstanding, increasingly important where integrated projects may involvebusiness change, IT and new build.TerminologyIn this guidance, the term ‘customer’ is used to denote the buying organisation,normally a government department or other public body. The term ‘provider’refers to the company providing services under the contract. It may equally applyto a consortium of provider companies or to a prime contractor who subcontractsservice components. ‘Partnership’ and ‘partnering’ are used to denote a long 11
    • term arrangement between a public sector department and a private sectorcompany. It does not mean a partnership in the sense of a legal entity. ‘Intelligentcustomer’ denotes a capability of the customer organisation in understandingboth customer and provider businesses fully. It does not necessarily imply that anominated individual or team will become ‘the intelligent customer’ (although thismay sometimes be the case), but rather refers to certain skills, experience andcapability that must be available on the customer side to make a contract andrelationship work.‘End user’ means the person who actually uses the service, either in theireveryday work as departmental staff or as members of the public.What is contract management?Contract management is the process that enables both parties to a contract tomeet their obligations in order to deliver the objectives required from the contract.It also involves building a good working relationship between customer andprovider. It continues throughout the life of a contract and involves managingproactively to anticipate future needs as well as reacting to situations that arise.The central aim of contract management is to obtain the services as agreed inthe contract and achieve value for money. This means optimising the efficiency,effectiveness and economy of the service or relationship described by thecontract balancing costs against risks and actively managing the customer–provider relationship. Contract management may also involve aiming forcontinuous improvement in performance over the life of the contract.Getting the contract rightThis guidance concerns customer activities following the award of a servicecontract, not the procurement process that leads up to the award of contract. Buta key point is that the foundations for contract management are laid in the stagesbefore contract award, including the procurement process. The terms of thecontract should include an agreed level of service, pricing mechanisms, providerincentives, contract timetable, means to measure performance, communicationroutes, escalation procedures, change control procedures, agreed exit strategyand agreed break options, and all the other formal mechanisms that enable acontract to function. These formal contract aspects form the framework aroundwhich a good relationship can grow. If the contract was poorly constructed, it willbe much more difficult to make the relationship a success. It is vital to build a contract that not only identifies clearly the obligations of theprovider (and indeed the customer), but also enables a productive relationshipbuilt on good communication and mutual trust. While the contract must be builton a firm formal and legal foundation, it should not be so restrictive that itprecludes flexible, constructive management of the relationship betweencustomer and provider. 12
    • New approachesGood contract management goes much further than ensuring that the agreedterms of the contract are being met – this is a vital step, but only the first of many.No matter what the scope of the contract, there will always be some tensionsbetween the different perspectives of customer and provider. Contractmanagement is about resolving or easing such tensions to build a relationshipwith the provider based on mutual understanding, trust, open communicationsand benefits to both customer and provider – a ‘win/win’ relationship.Increasingly, public sector organisations are moving away from traditional formalmethods of contract management (which tended to keep the provider at arm’slength and can become adversarial) and towards building constructiverelationships with providers. The management of such a contract, in which thespecification may have been for a relationship rather than a particular service,requires a range of ‘soft’ skills in both the customer and the provider. A keyconcept is the relationship that is documented in the contract, not just themechanics of administering the contract. Agreements, models and processesforma useful starting point for assessing whether the contract is underperforming,but communication, trust, flexibility and diplomacy are the key means throughwhich it can be brought back into line. Adversarial approaches will only increasethe distance between customer and provider.Critical success factorsThe following factors are essential for good contract management:• Good preparation. An accurate assessment of needs helps create a clearoutput-based specification. Effective evaluation procedures and selection will ensurethat the contract is awarded to the right provider•The right contract. The contract is the foundation for the relationship. It shouldinclude aspects such as allocation of risk, the quality of service required, andvalue for money mechanisms, as well as procedures for communication anddispute resolution.• Single business focus. Each party needs to understand the objectives andbusiness of the other. The customer must have clear business objectives,coupled with a clear understanding of why the contract will contribute to them;the provider must also be able to achieve their objectives, including making areasonable margin.• Service delivery management and contract administration. Effective governancewill ensure that the customer gets what is agreed; to the level of quality required.The performance under the contract must be monitored to ensure that thecustomer continues to get value for money.• Relationship management. Mutual trust and understanding, openness, andexcellent communications are as important to the success of an arrangement as 13
    • the fulfilment of the formal contract terms and conditions. • Continuousimprovement. Improvements in price, quality or service should be sought and,where possible, built into the contract terms.• People, skills and continuity. There must be people with the right interpersonaland management skills to manage these relationships on a peer-to-peer basisand at multiple levels in the organisation. Clear roles and responsibilities shouldbe defined, and continuity of key staff should be ensured as far as possible. Acontract manager (or contract management team) should be designated early onin the procurement process.• Knowledge. Those involved in managing the contract must understand thebusiness fully and know the contract documentation inside out (‘intelligentcustomer’ capability).This is essential if they are to understand the implications ofproblems (or opportunities) over the life of the contract.• Flexibility. Management of contracts usually requires some flexibility on bothsides and a willingness to adapt the terms of the contract to reflect a rapidlychanging world. Problems are bound to arise that could not before seen whenthe contract was awarded.• Change management. Contracts should be capable of change (to terms,requirements and perhaps scope) and the relationship should be strong andflexible enough to facilitate it.• Pro-activity. Good contract management is not reactive, but aims to anticipateand respond to business needs of the future.What can go wrongIf contracts are not well managed from the customer side, any or all of thefollowing may happen:• The provider is obliged to take control, resulting in unbalanced decisions that donot serve the customer’s interests• Decisions are not taken at the right time – or not taken at• New business processes do not integrate with existing processes, and thereforefail• people (in both organisations) fail to understand their obligations andresponsibilities• there are misunderstandings, disagreements andunderestimations; too many issues are escalated inappropriately• Progress is slow or there seems to be an inability to move forward• the intendedbenefits are not realised• Opportunities to improve value for money and performance are missed.Ultimately, the contract becomes unworkable. There are several reasons why 14
    • organisations fail to manage contracts successfully. Some possible reasonsinclude:• Poorly drafted contracts• Inadequate resources are assigned to contract management• The customer team does not match the provider team in terms of either skills orexperience (or both)• The wrong people are put in place, leading to personality clashes• The context, complexities and dependencies of the contract are not wellunderstood• There is a failure to check provider assumptions• authorities or responsibilitiesrelating to commercial decisions are not clear• A lack of performance measurement or benchmarking by the customer• A focus on current arrangements rather than what is possible or the potential forimprovement• A failure to monitor and manage retained risks (statutory, political andcommercial).Key elements of contract managementContract management consists of a range of activities that are carried outtogether to keep the arrangement between customer and provider runningsmoothly. They can be broadly grouped into three areas.• Service delivery management ensures that the service is being delivered asagreed, to the required level of performance and quality.• Relationship management keeps the relationship between the two parties openand constructive, aiming to resolve or ease tensions and identify problems early. • Contract administration handles the formal governance of the contract andchanges to the contract documentation.All three areas must be managed successfully if the arrangement is to be asuccess: that is, if the service is to be delivered as agreed, the formalgovernance properly handled, and the relationship between customer andprovider maintained. Although possibly handled by different figures ordepartments within the customer organisation, the various areas of contractmanagement should not be separated from each other, but form an integratedapproach to managing service delivery, relationship and contract together. Inaddition, the arrangement must be flexible enough to accommodate change, andthe process of change must be prepared for and managed. A key factor in all 15
    • these areas is intelligent customer capability: the knowledge of both thecustomer’s and the provider’s business, the service being provided, and thecontract itself.Contract management consists of a combination of roles and responsibilities.The main task areas are service delivery management, relationship managementand contract administration. Who carries out these functions depends on thenature and scale of the contract. However, it is likely that there will be, as aminimum, a nominated individual responsible for managing the contract on thecustomer side and one on the provider side. How much additional resource isrequired to manage the contract depends on its scale, complexity andimportance. For smaller or more tactical arrangements, two or more areas maybe covered by the same individual: for example, the contract manager takes onresponsibility for administering the contract and building a relationship.Alternatively, a contract management team may be created. Where contractmanagement expertise is not available in-house, it may be appropriate to buy inadvice from professional consultants, or even appoint a professional contractmanager. Such arrangements must be clearly defined to ensure that ownershipof the arrangement as a whole continues to rest with the customer organisation;it is also important to safeguard commercial confidence when third parties areinvolved. Intelligent customer capability combines in-depth knowledge of thedepartment and its business and understanding of what the provider can andcannot do. It is vital that the individuals or teams responsible for managingcontracts on the customer side have this kind of capability. The aim is to reducemisunderstanding between customer and provider and to avoid problems, issuesand mistakes before they happen.Intelligent customer capabilityIntelligent customer skills and experience must also be retained for the whole lifeof the contract, so that the organisation does not end up without enoughunderstanding and knowledge of the services being provided to manage themeffectively, or carryout an effective re-competition (the process of replacing theexisting contract arrangements with new ones through a competitiveprocurement exercise).Intelligent customer capability enables the organisation toachieve the following goals• gain a common understanding between customer and service provider(s) ofservice expectations and possible achievement• use service quality monitors as a basis for demonstrating ongoing value formoney and service improvements• manage on-going change and the effect on relationships with providers• assure consistency and conformance with standards and procedures 16
    • • build flexibility in service arrangements, including contracts, in order to dealproactively with unexpected changes and demands• establish suitable baselines from which to track performance relating to servicedelivery and service improvement• understand and influence the factors which preserve and enhance relationshipsto achieve maximum business benefit • ensure that business continuity plans are kept up to date to reflect changesand new service provision.The contract management life cycleThe lifecycle begins with setting direction: high-level objectives and policies forthe organisation.This leads to the identification of business needs that can be fulfilled by acquiringa service.Once the service is acquired, a period of transition leads into contractmanagement.There is an on-going analysis of business needs, to routinely ensure that theservice provides what the business really needs.When the contract ends, for whatever reason, the re-competition processincludes are-examination of business need, the performance of the existingarrangement, any new requirements, and the options for sourcing.Thinking from this stage may feed back into high-level direction setting as well asinto the process of acquiring anew service: a process that mirrors the originalacquisition but with the benefit of all the lessons learnt from acquiring andmanaging the previous contract.Contract management issues do not suddenly become relevant at the momentthe contract is signed; they need to be considered at an early stage. Ideally, theyshould be considered before the creation of the output based specification thatforms the basis for the procurement process.The questions to consider are:• are we being realistic about whether we could manage a contract that deliversthis requirement?•do we have suitably experienced people, and will they (or their equivalents) beavailable for the duration of the contract? 17
    • • will there be adequate ‘intelligent customer’ capability for us to understand allthe technical and business issues?• is our organisation culturally ready to work in a new way with a provider if it isnecessary (because a partnering arrangement is sought, perhaps)?Contract management stagesThe award of the contract is not the end of the overall process, but rather thestart of the operational stage. In this stage we address a number of related butdiscrete areas, all of which are important to the success of this stage, and also inensuring that the needs addressed by this contract are optimally addressed forthe duration of the contractual relationship and beyond.Typically the activities can be divided into five discrete areas as shown below.Each area is supported by a framework for the review of contract performance. PERFORMANCE MANAGEMENTA framework needs to be established against which performance of the operationof the contract can be measured. There are a number of reasons for doing thisincludingThis is an objective based process using clear measurement metricsSuppliers and customers can assess each others performanceEquitable approach to improve outcomesRisk identification and mitigationA set of key performance indicators (KPIs) will be established. These will beinformed and be consistent through the strategic sourcing and supplier selectionand award stages. There should be no surprises in the what or how ofperformance expectations at this stage. CONTRACT OPERATION MANAGEMENT 18
    • The focus for this activity is the management of an individual contract. Managingthe delivery of obligations as set out in the contract is a very important duty,however understanding each others performance leading to the discharge ofthose duties is both more pro-active and developmental for both parties.It is also about the facilitation and on-going review of contracts which contributeto the organisations strategic goals. Contract management is activity driven fromthe results of the performance measures including:Supplier review meetingsSupplier visits and assessmentsProblem resolution of underperforming PIsLastly it is about monitoring PIs in the contract for appropriateness and amendingwhere required.An additional activity which happens during the operation of many contracts isdemand management. Demand management can be defined as "the alignmentof a business’ consumption with its business requirements" i.e ensuring that onlywhat is needed is bought. Demand management requires both process andbehavioural change to be effective. Demand management may also beintroduced at an earlier stage of the process i.e it is not dependant on a contractbeing in place. SUPPLIER RELATIONSHIP MANAGEMENTThe focus for this activity is the management of an individual supplier. Thissupplier may have a number of contractual relationships with the buyingorganisation. Supplier relationship analysis and management is the proactivemanagement of business relationships to secure a competitive advantage foryour own organisation. Its purpose is to encourage purchasing and businessmanagement to develop a structured understanding of the status quo i.e. what isthe nature of current relationships that exist within and between your organisationand the suppliers. STRATEGIC SUPPLIER MANAGEMENTIn certain circumstances there may be a greater mutual dependency between thebuying and supplying organisations. Examples of this would be where the supplymarket is monopolistic or tending towards being monopolistic, or where there is aneed to use a particular supplier in a non-competitive relationship e.g. ongoing ITsystem design/maintenance. The outcome may well be closer integration of theorganisations - and this may be across a range of contractual arrangements.One objective is that the integration will bring greater value for money for thebuyer and enhanced margin for the supplier. It is not an agreement to sole 19
    • source, or outsource to a supplier, rather to align two or more businesses formutual benefit. These benefits must be real and tangible, not just relationshipindicators.InputsThis stage will require input from the implementation plan and one of thedeliverables from the sourcing stage will be a high level contract managementplan which will require to be defined in more detail. EXIT STRATEGYAs the contract progresses through its duration the contract manager will alsohave responsibility for ensuring that both parties are working towards the plannedexit strategy. Depending on the nature of the contract this may involve re-competing the supply arrangement and may also involve a range of otherobligations e.g. TUPE arrangements (The Transfer of Undertakings (Protection ofEmployment) Regulations (TUPE) protects employees terms and conditions ofemployment when a business is transferred from one owner to another). assettransfer etc.Managing qualityMeasuring service quality means creating and using quality metrics –Measurements that allow the quality of a service to be measured.Some aspects of service quality that could be assessed are:  completeness  availability  capacity  reliability  flexibility  timeliness  responsiveness  security  standards 20
    •  usability  accuracy  auditability  satisfactionThere may be others that are applicable; there may also be a need to modify,addor remove service quality metrics during the lifetime of the service. It may be tooexpensive or time-consuming to measure a given aspect; the time and resourceimplications must be borne in mind. If a measurement requires intelligentcustomer capability, a person or team who has that capability will need time todevote to the task. B INARY ASSESSMENTSome aspects of a service can be assessed in a binary way. These aspects areeither adequate or inadequate, with nothing to be gained by improving thembeyond the level of adequacy. An example would be compliance with standards;if the service complies with the relevant standards, then it is satisfactory in thatrespect: no additional work need be done in that area. Even though the quality ofcertain aspects is a binary consideration, some flexibility in how it is assessedmay be desirable, particularly in the early stages of rollout. It may not beproductive to point out a minor transgression on (for example) standards if theprovider has worked hard to bring the service ‘on stream’ within a shorttimescale. NUMERICAL ASSESSMENTSome service aspects are measurable numerically; they can be counted andmeasured in a simple, mathematical way. Examples would be capacity,throughput, transaction volumes and accuracy. It is relatively simple to createservice metrics for numerical aspects; quality is expressed numerically, and thereis a set numerical value, or proportion, that is deemed acceptable. MANAGING SERVICE DELIVERYDuring the acceptance period or piloting of a service, it is possible that reliability,accuracy and other such aspects may fluctuate. It is important to stipulate anappropriate period and duration over which to gauge quality. Too short a period 21
    • might give an unfair picture; on the other hand, too long a period may be similarlymisleading.It may be desirable to stipulate a desired rate of change in a metric – forexample, to process 100 licences a week for the first month and to seek a 2%increase on that figure in each following month. This would be a requirement forcontinuous improvement. T HE BASELINEThe baseline is the existing level at which the service is being delivered, eitherinternally or through existing arrangement. The baseline is normally establishedin the business case and subsequently recorded in the contract.Performance measures and any improvements in performance are trackedagainst the baseline. It is important to set the baseline accurately in order togauge how well the service performs, and how much value the new service isproviding compared with previous arrangements. Since the provider’s targets andperformance will be calculated relative to the baseline, they will take a keeninterest in this. Customer and provider must work together to set baselines at alevel that accurately reflects the service the customer is currently getting andforms a fair basis for performance measurements.Some aspects of a service will be hard to measure because they involvesubjectivity: usability and flexibility, for example. However, it is still important toagree what is to be measured and how the information will be acquired – throughuser surveys, perhaps. Subjective aspects should not be neglected simplybecause mathematical techniques cannot be applied to them; it is a question ofgathering information and analysing it with as much objectivity as possible.It may be that something that is quantifiable can provide a ‘handle’ on a muchless tangible aspect. Such a measure is known as a proxy measure, since it actsas a substitute for a measure that cannot easily be created. For example, anindication of ‘staff morale’ may be provided by a measure of staff turnover rate.The assumption is that there is a correlation between the measure and the lessmeasurable phenomenon that lies ‘behind’ it.It is the subjective aspects of a service that are gauged over the longest term,and where hindsight will offer the clearest perspectives. They are also likely to bethe aspects that offer the most pertinent lessons to be taken forward to theacquisition of future services. 22
    • Managing progress paymentsYou can stay within your budget if you manage your progress payments to yourcontractor carefully and it will ensure the building schedule and building quality isto your satisfaction.Substantial upfront payments should never be made! Do not listen to longexplanations on why money is needed for materials etc. even and especially ifthe contractor was the lowest bidder. If they cannot manage their cash flow, youhave little chance of them managing your project effectively.At most, upfront payments must be limited to the value of the materials deliveredto the work site. In many states the limit for upfront payments is 10% of the totalcontract fee.Construction payments can be made at pre-determined stages but should onlycover materials and work supplied, to the extent that neither the homeowner norcontractor is at a big disadvantage.Payments should be made in accordance with the bill of quantities and theconstruction schedule so that both parties are clear as to what has or has notbeen paid for.Retention monies should be withheld and can be from 5% to 20% of the contractvalue - held from 3 months to 1 year, dependent on the type of works.Get receipts or an unconditional waiver and lien release (that indicate thecontractor, sub-contractors and suppliers have been paid for work and materials)at every progress payment and prior to the final payment. This is very importantand protects you against any mechanics liens or other claims being filed againstthe property which may result in your having to pay twice. Check with your localauthorities on the applicable laws!If progress payments are for a major phase of the work it should not be paid untilthe work has passed all inspections needed e.g. prior to pouring concretefoundations, the applicable building department has to do an inspection andsigning off. By the same token your final payment should only be made after youreceived a final approval or clearance document from the relevant governmentalbuilding department.If you have to make a payment in cash, it is best to make it in the presence of abank officer and get an affidavit from the contractor as proof of payment.Any operating manuals or maintenance instructions should be handed to youprior to final payment. 23
    • Final payment must be withheld until all items on your snag list have beenaddressed. Agree on a reasonable time with the contractor for this to be carriedout so as to avoid frustration and disputes.Most importantly: Get all final lien waivers and a signed copy of the final invoicestating that the contract has been paid in full.The contractor agreement stipulates the manner in which progress payments willbe made. Refer to our general contractor page for an overview of theconstruction process.You may be paying progress payments to an Independent Contractor such as aprogrammer or draughtsman, which should be clearly detailed in your contract . http://www.ogc.gov.uk/documents/Contract_Management.pdf Stages in the contracting processThe Procurement ProcessPublic sector procurement, unlike the private sector, brings more sunshine to theprocess. Taxpayers want to know by what means, how and where their taxeshave been spent and with whom. In order to provide this necessary information,we can use public notice of our solicitations, awards, open meetings andhearings to announce our plans and, where applicable, to entertain commentfrom interested stakeholders. 24
    • A Process that is Fair and ImpartialGreat effort is needed to insure that our procurement process is open,competitive, fair and impartial.Competitive sealed bidding, in most cases, is the preferred method of sourceselection although other methods of source selection are permitted under therules with the proper review and oversight.Issues of “responsiveness” and “responsibility” are key concerns to make certainthere is a level playing field for all suppliers and to avoid doing business withpeople or businesses who are either unreliable or do not have the requisitebusiness integrity to do business with us.Continuous ImprovementThe protest, appeal and dispute resolution process are some of the ways toinsure openness and fairness in our contracting process. Only by understandingthe past and by eliminating mistakes, can we hope to improve upon ourperformance.I believe that an informed supplier will be our best supplier if that supplier knowsand becomes familiar with the process we use to select our contractors. It is mybelief that once having understood the process, these suppliers will become ourgreatest assets and supporters.Unravelling the Competitive ProcessThis deals with the “Essential Steps in the Contracting Process.” We haveattempted to list most, if not all of the significant steps we go through to completeprocurement. There is more involved here than just simply an “Invitation for Bid”,a bid and then a contract.Other types of purchases such as “Sole Source”, “Emergency Procurement”and “Small Purchases” are very much abbreviated due to the limited amount ofcompetition, shortened competitive process and are therefore, not shown here. 25
    • The Procurement Policy Board (PPB) changes have had the impact of simplifyingall policy, rules and procedures, placing more authority in the hands of AgencyChief Contracting Officers and shortening procurement cycle time. More changesand improvements are anticipated as the streamlining process continues. Thisstreamlining has had the effect of reducing Rules by over half of what theyoriginally were in 1990.Phases and Steps of the Procurement ProcessWe have divided the procurement process into six basic phases under whichthere are steps that must be completed in order to move on to the next phase.These phases are: PHASE I – PRE-SOLICITATIONThe Agency:1. Establishes the need for particular goods, services or construction to fulfil theagency’s mission.2. Conducts a pre-solicitation review to identify potential sources in themarketplace, determine the level of competition and prevailing prices, estimatecost and contract term requirements, determine the appropriate methodof procurement, etc.3. May conduct a pre-solicitation conference.4. Develops specifications and/or scope of services/work.5. May establish minimum vendor qualifications.6. Develops the applicable solicitation document (i.e., Invitation for Bid orRequest for Proposals).7. Submits the Invitation for Bid (IFB) to the Law Department for approval. [CSBonly]8. Establishes evaluation criteria and appoints an Evaluation Committee. [CSPonly]9. Prepares a Pre-solicitation Review Report and obtains all required internaland oversight approvals. 26
    • PHASE II – SOLICITATIONThe Agency:1. Sends notices of solicitation to vendors on the appropriate bidder orprequalified list.2. Publishes a Notice of Solicitation in the City Record and the City’sProcurement Bulletin Board.3. Issues the Invitation for Bid (IFB) or Request for Proposals (RFP).4. May conduct a mandatory or non-mandatory Pre-Bid or Pre-ProposalConference.5. May conduct a mandatory or non-mandatory site visit.The Vendor:6. Attends a mandatory pre-bid or pre-proposal conference and/or site visit; mayattend a non-mandatory pre-bid or pre-proposal conference and/or site visit.The Agency:7. May issue amendments to the IFB/RFP.The Vendor:8. Prepares their bid or proposal.9. Submits their bid or proposal by the due date and time established in theIFB/RFP.The Agency:10. Secures all sealed bids/proposals received prior to the established due dateand time. PHASE III - EVALUATION/SELECTION 27
    • The Agency:1. Publicly opens and tabulates bids or opens proposals.2. Evaluates bids or reviews and rates proposals pursuant to the evaluationcriteria established in the RFP.3. May conduct discussions/negotiations with all or a “short list” of proposers andsubsequently request and rate“best and final offers.” [CSP only]4. Determines the apparent lowest responsive bidder or the highest rated and/orhighest ranked proposer pursuantto the basis for award established in the RFP.5. Determines that the lowest responsive bidder is responsible or determinesthat the selected proposer is responsible.6. Conducts a public hearing on the proposed contract award and considerstestimony received, if any. [CSP over$100,000 only]7. May conduct price negotiations with the lowest responsive and responsiblebidder or may conduct final contract negotiations with the selected proposer PHASE IV - AWARDThe Agency:1. Submits the final contract to the Law Department for approval. [CSP only]2. Prepares a Recommendation for Award and obtains all required internal andexternal approvals.3. Issues a Notice of Award.The Selected Vendor and Agency:4. Execute the contract PHASE V - REGISTRATION 28
    • The Agency:1. Prepares the advice of award.2. Submits the required contract documents to the Comptroller’s Office.Comptroller:3. Registers the contract (i.e., encumbers the necessary funds) within 30 daysunless objected to on grounds of corruption. PHASE VI - CONTRACT ADMINISTRATIONContract Administration involves those activities performed by governmentofficials after a contract has been awarded to determine how well the governmentand the contractor performed to meet the requirements of the contract. Itencompasses all dealings between the government and the contractor from thetime the contract is awarded until the work has been completed and accepted orthe contract terminated, payment has been made, and disputes have beenresolved. As such, contract administration constitutes that primary part of theprocurement process that assures the government gets what it paid for.In contract administration, the focus is on obtaining supplies and services, ofrequisite quality, on time, and within budget. While the legal requirements of thecontract are determinative of the proper course of action of government officialsin administering a contract, the exercise of skill and judgment is often required inorder to protect effectively the public interest.The specific nature and extent of contract administration varies from contract tocontract. It can range from the minimum acceptance of a delivery and payment tothe contractor to extensive involvement by program, audit and procurementofficials throughout the contract term.Factors influencing the degree of contract administration include the nature of thework, the type of contract, and the experience and commitment of the personnelinvolved. Contract administration starts with developing clear, conciseperformance based statements of work to the extent possible, and preparing acontract administration plan that cost effectively measures the contractorsperformance and provides documentation to pay accordingly. STAGES 29
    • It is helpful to have a pre-meeting with applicable program and contractingofficials prior to the post award orientation conference so that there is a clearunderstanding of their specific responsibilities and restrictions in administeringthe contract. Items that should be discussed at the pre-meeting include suchthings as the authority of government personnel who will administer the contract,quality control and testing, the specific contract deliverable requirements, specialcontract provisions, the governments procedures for monitoring and measuringperformance, contractor billing, voucher approval, and payment procedures.Post award orientation, either by conference, letter or some other form ofcommunication, should be the beginning of the actual process of good contractadministration. This communication process can be a useful tool that helpsgovernment and contractor achieve a clear and mutual understanding of thecontract requirements, helps the contractor understand the roles andresponsibilities of the government officials who will administer the contract, andreduces future problems.Where appropriate, an alternative dispute resolution (ADR) technique known as"partnering" should be discussed with the contractor to help avoid future contractadministration problems. Partnering is a technique to prevent disputes fromoccurring. It involves government and contractor management staff mutuallydeveloping a "plan for success," usually with the assistance of a neutralfacilitator. The facilitator helps the parties establish a non-adversarialrelationship, define mutual goals and identify the major obstacles to success forthe project. Potential sources of conflict are identified, and the parties seekcooperative ways to resolve any disputes that may arise during contractperformance. The process results in the parties developing a partnership charter,which serves as a roadmap for contract success. Many agencies havesuccessfully used partnering on construction projects and are now beginning toapply these principles in the automated data processing/information resourcesmanagement area.Good contract administration assures that the end users are satisfied with theproduct or service being obtained under the contract. One way to accomplishcustomer satisfaction is to obtain input directly from the customers through theuse of customer satisfaction surveys. These surveys help to improve contractorperformance because the feedback can be used to notify the contractor whenspecified aspects of the contract are not being met. In addition, the contractingand program officials can use the information as a source of past performanceinformation on subsequent contract awards. Customer satisfaction surveys also 30
    • help to improve communications between the procurement, program, andcontractor personnel. Overview of procurement strategyIntroductionPurposeThe purpose of this lecture is to present the Outline Procurement Strategy and atimetable for the delivery of the key elements to complete and implement thestrategy.What is procurement?Procurement is the process of acquisition of goods, works and services from thirdparties. The process spans the whole life cycle from initial concept and definitionof the authority’s needs through to the end of the useful life of an asset or end ofa services contract.Why procurement is an issueThe delivery of key services to the community is critically important to theachievement of an authority’s core values and objectives. The delivery of mostservices involves procurement and significant amounts of public money.Elected members are ultimately accountable for the delivery of services andexpenditure within their authority, and to ensure they carry out their duties fullythere must be ownership and understanding of procurement at the highest level.Recent estimates suggest that the procurement of goods and services accountfor 50% of local government expenditure, which will directly affect the lives ofcitizens.Procurement benefits include:Cost savingsValue for money 31
    • Fixing the prices of services and goods; this aids budgetingEliminating monopoly powerProcurement costs are:It will take time to get services and goods because you have to go through theprocurement process.The procurement department costs moneyTo reduce costs and time constraints we need to consider e procurementsolutionsProcurement’s high profileProcurement has developed significant prominence in the public eye. Authoritiesare required to improve their procurement processes; Best Value, andComprehensive Performance Assessments (CPA) will continually increase thefocus on procurement. Internal and external audit are seeking evidence ofcommitment to better practice; external suppliers are benchmarking theircustomers.What are the procurement essentials?At a corporate level an authority should put the following arrangements in place:  a procurement strategy aligned with the authority’s strategic objectives  robust Contract and Financial Standing Orders which reflect modern practices  procurement policies including best value for money, sustainability, workforce issues and equalities  a centre of expertise in procurement (a corporate team in larger authorities; a shared resource in smaller ones)  effective member involvement in executive and scrutiny capacities  members and offices trained in relevant procurement skills 32
    •  clear, user-friendly procurement guidance that is disseminated to staff  a contracts register and an annual procurement plan  aggregation of requirements and collaborative procurement  encouragement of a competitive supply market including participation by small firms and the voluntary and community sectors  a focus on the management of key suppliers  a business case culture  a commitment to resource procurement projects properly  a strategy to prevent fraud and corruption and maintain ethical standards.The regulatory frameworkIt is critical that a number of regulatory requirements are met in applying theprocurement cycle. These include:  Best Value, Comprehensive Performance Assessment (CPA) and the Wales Programme for Improvement requirements  procurement best practice in England and Wales (drawing on the recommendations in the Byatt Report)  EU Regulations, Human Rights legislation etc;  equalities and other relevant legislation  Contract Standing Orders.Other important issues  Procurement expertise should be made integral to the way the authority pursues Best Value.  A clear policy should be set out on how procurement is to be managed across the authority.  A register of current contracts should be developed and published, together with a schedule of contracts to be awarded over the next three years (a procurement plan). 33
    •  A ‘how to do business with the council’ guide should be developed and published.  The competency of all staff and executive members engaged in procurement or its scrutiny should be identified and measured.  Training programmes in procurement skills should be made a priority.  There should be a procurement plan to identify the resources required to effectively support procurement (that is. financial management, legal issues etc.).Procurement’s Strategic contextProcurement is not an end in itself, but is a necessity to further the overallstrategic objectives of the authority. The link between an authority’s corporateobjectives and how it procurers is essential. Members should ensure that theseobjectives are reflected in the corporate procurement strategy.Members are responsible for determining the corporate procurement strategyand mapping and overseeing the high level procurement portfolio. Officersprepare the strategy; those responsible for scrutiny challenge the strategy,followed by approval from the executive. When the strategy is adopted, itsimplementation is overseen by scrutiny. Best Value Reviews are presented first toscrutiny for recommendation to the executive [value for money, quality of service,number of complaints against.Figure 1: Strategic Framework for ProcurementOther major procurements are presented direct to the executive, but also requireearly member involvement.Figure 1 illustrates the relationship between an authority’s strategic objectivesand the role of procurement.Applying risk and value to the procurement strategyRisk-based strategies should be developed for the various requirements in theauthority’s procurement ‘portfolio - see Figure 2 for an example of portfolioanalysis matrix.Fig 2: Portfolio analysis (risk/value) matrixThis matrix is a simple tool; enabling authorities to identify how to treat differentservices or items of spend. Dependent on the risk or strategic importance and 34
    • the value of the item different procurement approaches should be adopted. Moredetailed information regarding this approach is provided in the IDeA Guidance onProcurement Essentials and Strategic Context.Risk based analysis of a NFP unit – Fig 2A different risk based approaches needs to be developed for the various types ofprocurement activity. A standard “portfolio matrix” analysis divides procurementinto 4 categories on a risk and value matrix as follows. High Bottleneck strategicRisk Routine leverage HighLow ExpenditureFor strategic (high-risk, high value) procurement the Council will need to look todevelop strategic partnerships and to investigate partnering arrangements.For routine (low value, low risk) purchases the Council will need to look atreducing the number of suppliers used and to aggregate contract values and use“call off” contracts to maximise purchasing leverage. 35
    • For leverage (high value, low risk) purchases the Council will need to considerthe use of local and national consortia arrangements.For bottleneck (low value, high risk) purchases the Council will need to ensurecontinued supply through multi- sourcing.The main types of the Councils expenditure are detailed in the table below, alongwith their “portfolio” analysis.Goods or Existing Procurement Arrangements Matrix AnalysisServiceComputer Use of government Gcat catalogue High value/low risk/routineHardwareComputer Sourced from various suppliers High value/low risk/routineSoftware Various companies used, Departments arrangeConsultancy their own appointments in accordance with High value/low risk/leverage standing ordersStationary 1 main supplier used but no formal contract or Low value/low risk/routineSupplies call off arrangementExternal A range of suppliers used (8+) but not on Medium value/low risk/routinePrinting contract. Purchased via individual ordersProperty More than 100 suppliers used formal contracts Medium value/mediumMaintenance and agreements for most. risk/bottleneckRevenue High value/medium Service level agreements used as basis of fundinggrants risk/strategic Personnel working towards central procurement Medium value/mediumAgency Staff of all agency staff and are compiling a preferred risk/leverage supplier listMobile Phones One central contract Low value/low risk/routinePhotocopiers One central contract Low value/low risk/routine Various suppliers with each service arrangingAdvertising Low value/low risk/leverage their own supply.Lease Cars 3 suppliers used and each car tendered under a Medium value/low 36
    • master agreement risk/bottleneckInsurance 1 major supplier with a 3 year contract Medium value/high risk Low value/mediumUtilities Number of contracts used including green tariff risk/leverage 1 contract for all cleaning requirements Medium value/mediumCleaning commenced 1 July 2003 risk/routineManagement Number of management contracts mainly for High value/ high risk/strategiccontracts sports facilities 5-8 years eachConstruction “Traditional” contracts let on an individual basis , High value/ high risk/strategicContracts internal project teams supported by consultantsRefuse 8 year contract with 1 supplier High value/high risk/strategiccontractFurniture Various suppliers used to date Low value/low risk/routineVehicle Uses Quotation system (at least three quotes for Medium value/mediumprovision best price), main fleet supplier risk/bottleneckAuthority’s reputation – the suppliers’ viewIt is important that authorities are aware of their image or reputation in themarketplace. To achieve best value for money and strive for innovation in thedelivery of services, the authority will need to do business with the best suppliersand providers. If the authority has a poor reputation in the marketplace it may findit difficult to attract good suppliers, and possible attract others for the wrongreasons.If you make it easier for suppliers to tender (i.e. make documentation simple andhave help line), this increases the supply of BIDDERS AND HELPS DRIVEPRICES DOWN 37
    • Managing procurement projectsEvery significant procurement should be managed as a project. The Byatt reportidentified good project management as an important factor in successfulprocurement. In response, Towards a National Strategy for Local GovernmentProcurement recommends the use of project management procedures based onPRINCE 2.Roles and responsibilities should be defined and agreed so that everyoneinvolved knows what they have to do and when. The stages of the procurementshould be set out with clear milestones and expectations of what is to be done ateach stage. People with appropriate skills and experience should be assigned toproject roles; resources and timescales should be determined at the outset.These are the principles of effective project management that enable aprocurement to achieve what is required.Figure 4: Organisation for a major projectProcurement cycleProcurers should adopt a procurement cycle approach to procurements as astructure within which to progress the project. Viewing a procurement in this wayensures that the business case and contract management elements are giventhe necessary importance. Often procurement is mistakenly regarded as just theprocess of advertising and evaluating tenders. Figure 5 illustrates the steps in theprocurement cycle with Gateways where reviews should take place.The Gateway processAuthorities should considering adopting a Gateway process for their majorprocurement projects.This comprises reviews at key decision-making points in the “procurement cycle”(see above) by a team that is independent of the project team to ensure that aproject can proceed successfully to the next project stage. The process,developed by the Office of Government Commerce, is particularly valuable formanaging high-risk projects. It is being introduced into local government by the4Ps. The recommended key decision points are illustrated in Figure 5.Figure 5: The procurement cycle with Gateway Review points 38
    • Key reasons why procurements fail  Lack of senior management commitment / sponsorship throughout the procurement project  Inadequate business cases, where the requirement is uncertain, the contribution to business objectives is unclear and/or there is a lack of realism about the authority’s ability to deliver services in new ways  Inadequate resources, especially the skills and expertise needed to deliver a successful project  Failure to plan for the whole life of the procurement project beyond contract award to operational servicesMembers’ role in procurementDemocratic accountability is fundamental. Members should be aware of theirstrategic role in relation to procurement. To get the balance right they need to beinvolved in decisions about the strategy and major projects but should not beconcerned with detailed procurement activities.Members should have two clear roles in an authority’s procurement activity:  an executive role, setting policy in an effective, strategic way and making decisions that affect the delivery of that policy  a scrutiny role, reviewing and challenging the decisions of the executive, reviewing broad policy and potentially monitoring overall performance of contracts.These roles should be focused at two primary levels: The strategic level – ensuring that the authority’s procurement portfolio is aligned with its key strategic objectives. Basically, the procurement function enables the authority to deliver its services whilst achieving best value for money taking strategic decisions on the authority’s major procurement projects – those projects that are large, complex and/or critical to the achievement of the authority’s key objectives.The executive role Strategic level  At a strategic level the executive members’ role might include:  ensuring the authority has a procurement strategy, which is aligned with the authority’s strategic objectives 39
    •  agreeing the corporate procurement strategy and receiving periodic reports on its implementation understanding what the authority spends it money on , being provided with periodic reports on its suppliers and spend understanding how key suppliers view the authority maintaining an overview of the corporate arrangements for procurement and being satisfied they are operating economically, efficiently and effectively (including a review process for projects and contract standing orders / financial regulations) maintaining an overview of the programme of procurement projects Major project level At a major project level executive members should, as a minimum, have involvement and challenge at each key stage of the Gateway process as illustrated in Figure 2. Some of the more detailed activities might include: scoping: defining and challenging the desired outcomes business case and options appraisal: considering the options; approving the outline business case and procurement approach for the preferred option planning: there should be procurement plans for all major projects, prepared by officers and agreed by members assessing delivery options: members provide a constructive challenge on the range of procurement delivery options that are subsequently evaluated in detail by officers project leadership: effectively questioning progress and the handling of risks supplier selection/bid evaluation: agreeing the contract award criteria; approving the list of bidders; agreeing the preferred bidder (where relevant) contract award: awarding the contract (making the investment decision) contract overview: receiving reports on performance and agreeing appropriate action; participating appropriately in the management of relationships with stakeholders and the supplier; agreeing actions to resolve any serious disputes 40
    •  Post-project reviews: ensuring that lessons learnt are taken on board.The scrutiny role Strategic levelAt a strategic level the scrutiny members’ role might include:  understanding the authority’s procurement strategy and monitoring its implementation  challenging the corporate arrangements for procurement in terms of economy, efficiency and effectiveness [3 e’s]  conducting inquiries into areas of spend where better value for money might be obtained  conducting inquiries into new models of service delivery Major project levelAt a major project level the scrutiny members’ role might include:  challenging the progress of major projects  receiving information on the performance of key suppliers [updating blacklist of suppliers]  Reviewing major contracts for lessons learnt.Members’ SUCCESS checklistThe majority of procurement activity will take place at a more detailed level withinthe authority. However, it is important that members are confident that adequateprocesses are in place and operating effectively. The key areas are outlinedbelow.Corporate co-ordinationAn authority should have an individual or a central body (dependent on the sizeand nature of the authority) with a strategic overview of procurement to ensurethat managers are not operating in isolation without reference to the widerstrategic context.Business case cultureIt is essential that the authority adopts a ‘business case culture’. No procurementshould be made, whatever the size, unless there is a compelling business case. 41
    • It should clearly document the need, budgetary implications, alignment withstrategic objectives and demonstrate its feasibility.If the case to proceed can be demonstrated, consideration must be given to thepotential options available – even at this early stage.For any authority to modernise and achieve value for money a robust challengeis needed at this stage. Investment into this first crucial stage of procurementmust not be under-estimated.Learning organisationEvidence shows that authorities often procure items in many different ways, withvariable success. It is essential that authorities learn from the successes andmistakes of the past – procurement can and will improve if there is a sharedcommitment across the authority.Improvement – ‘quick wins’In order to improve procurement activity within an authority, it is fundamental toidentify how much is spent by whom, on what and with which suppliers.Importantly, this information will enable an authority to identify options for savingsand areas that offer ‘quick wins’ through more effective procurement.Critical success factorsMembers must:  understand the strategic role of procurement, the procurement essentials and lifecycle  be familiar with the regulatory framework  understand the principles of Best Value – the lowest price is not always best value  distinguish the members’ role from the roles of senior managers and procurement officers  understand what to look for and how to challenge constructively  have an overview of strategic procurement issues  understand how risk is managed  understand how to question progress on high-risk projects effectively  know the important issues in contract and relationship management and how to question supplier performance 42
    •  understand what can be done if performance is poor.Critical success factors – another dimensionMembers’ involvement. Executive direction and decisions on strategic projects;scrutiny and challenge of all major projects to ensure that they supportcommunity and corporate strategies.Senior management involvement. Prompt decisions on key issues; enablingaccess to resources outside the project team’s immediate control.Ongoing monitoring of the project. Full consideration given to corporate issues.Solutions and outcomes fit with the strategic direction and are of value to theauthority.Clear objectives defined at the outset, and keeping the project aligned withstrategic objectives.Good planning. Realistic timescales and milestones for delivery; access to keypeople when required; effort focused in the right way when needed anddocumentation that is complete and correctAppropriate use of resources. The right people for the job, not just the nextavailable person. There is full consideration of the skills and input required.Complete clarity about who will be doing what.Questions members should askQuestions that all members should ask regarding their authority’s procurementapproach: Strategic level  How well do we currently manage our procurements? Do we get the outcomes we need?  Do we have adequate knowledge of procurement within our authority to enable us to usefully challenge performance? If not, how can we address this?  Have we clearly articulated our priorities in a corporate procurement strategy and high level portfolio, and are these being addressed?  How many suppliers do we have? Is there scope for streamlining current arrangements? Do we have any innovative procurement models in place? 43
    •  Do we, and all other staff, have access to comprehensive procurement guidance? Is the guidance adequately supported with structured training? Major projects  Have there been any serious challenges by suppliers to our authority’s procurement decisions? If so, what caused these? Have any shortcomings been addressed?  Have we considered the appropriate options early enough, having considered the aims, objectives and core values of the authority?  Are risks being managed properly? Can this be demonstrated?  Are staff getting the procurement advice, training and support they need?  How is procurement performance being measured and reported?  How is supplier performance being measured and reported? [In Nigeria no feedback is sought but the central department does audit the feedback from the local procurement units] Overview of procurement strategy – Case StudyContext“World Class Commissioning” published by the Department of Health inDecember 2007 requires organisations to demonstrate 11 key competencieswhich include: Simulating the market to meet demand and secure required clinical, health and well being outcomes. 44
    • Securing procurement skills that ensure robust and viable contracts.This was reinforced in the Operating Framework for 2008/09 which proposedstrengthening system management by: Providing a clear statement on system management and the principles and rules for co-operation and competition (PRCC). Providing advice and guidance on issues such as procurement. Setting up an independent competition panel.In May 2008 the Department of Health published “ORGANISATION ProcurementGuide for Health Services” which supports commissioners in deciding whetherand how to produce health services through formal tendering and market testingexercises. The guide is referenced in the Principles and Rules for Co-operation &Competition (PRCC) and will be used as a benchmark by the independentcompetition panel when considering any disputes.Procurement StrategyThe following should be considered in the development of a strategy: Market assessment. Current contracts. Procurement options. Procurement routes.The strategy also needs to include the following principles and good practice: Transparency, in terms of advertising contracts, decisions not to competitively tender and avoiding conflicts of interest [ code of conduct department investigates all suppliers]. Proportionality to ensure that the competitive process is proportionate to the value, complexity and risk of services being contracted. Non-discrimination. Equality of treatment.The procurement strategy will also need to consider the legal requirements of theindustry.The first element of the strategy relates to the principles that the organisation willadopt as part of any procurement, these will include transparency; 45
    • proportionality; non-discrimination and equality of treatment. The main function ofthe principles is to clearly demonstrate to providers and other stakeholders thatthe ORGANISATION is adopting a principled approach to the procurement ofhealthcare. Observation of the principles will reinforce the ORGANISATION’srole as local leader of the NHS and enhance its’ reputation as a trusted and worldclass commissioner.Transparency The ORGANISATION will use the most appropriate media in which to advertise contracts; ‘passive’ publicity is not considered to be adequate. The ORGANISATION will use the procurement portal, established by the Department to advertise for all appropriate tenders (part B). The ORGANISATION will gain consent from Board and inform the SHA where a decision is made not to tender for new or significantly changed services (as described in ORGANISATION Procurement Guide). The ORGANISATION will seek assurance from all bidders that all potential conflicts of interest have been declared. The ORGANISATION will ensure that all referring clinicians tell their patients and the commissioner (for NHS patients) about any financial or commercial interest in an organisation to which they plan to refer a patient for treatment or investigation. The ORGANISATION will provide feedback to all unsuccessful bidders.Proportionality The ORGANISATION will ensure that the procurement process is proportionate to the value, complexity and risk of the services contracted. The ORGANISATION will define the procurement route, including any streamline processes for low value/local services – taking into account available guidance. The ORGANISATION will ensure that the process, qualification and evaluation criteria are not disproportionately demanding, as this would discriminate against small organisations such as smaller third sector organisations.Non-discrimination The ORGANISATION will ensure that tender documents are written in a non- discriminatory fashion e.g. generic terms will be used rather than trade names for products. 46
    • The ORGANISATION will inform all participants of the applicable rules in advance and ensure that they (the rules) are applied equally to all. Reasonable timescales will be determined and applied across the whole process. The ORGANISATION will ensure that shortlist criteria are not discriminatory nor particularly favour one potential provider.Equality of Treatment The ORGANISATION will ensure that no sector of the provider market is given any unfair advantage during the procurement process. The ORGANISATION will ensure that the basic financial and quality assurance checks apply equally to all types of providers. The ORGANISATION will ensure that all pricing and payment regimes are transparent and fair. The ORGANISATION will retain an auditable documentation train regarding all key decisions.The principles will be underpinned by a detailed process to ensure that allprocurements are handled in a consistent manner and that they comply with allapplicable rule and regulations. This will be referred to as the rules and will besupported by a series of flowcharts describing the steps to progress a ‘concept’through to a completed procurement. A business case checklist will also bedeveloped to ensure that all procurements meet key criteria including contributionto ORGANISATION strategic objectives, consultation, accessibility, clinicalrequirements, equality impact, and measurement of success, affordability andvalue for money.In support of the rules a suite of template documents will be developed to ensureconsistency and compliance.Finally, as part of the Procurement Strategy the ORGANISATION will develop aprocurement plan, detailing known and potential procurement priorities for thenext 12 to 18 months. Potential procurements will be identified as part of theinternal Local Operational Plan process. The ORGANISATION will prioritise theprocurements following review and consultation with senior managers and willallocate a timescale for delivery and/or review. This approach will enable theORGANISATION to plan and resource procurements effectively, manageprovider and service user expectations, and encourage engagement frominterested and affected parties at an early stage. 47
    • Next StepsElement Action Timescale Development of detailedConstitution principles and rules for implementation.Principles & rules Board Approval July Board Identification of potentialYearly Procurement procurements andPlan prioritisation. Board Approval September Board Development of bespoke documentation. This should highlight the text that will need to be changed. There should be In line with September Board toProcess foot notes to tell you how to ensure that implementation canDocumentation fill it in and a declaration at occur as soon as priorities are the bottom of the agreed. specification saying that the responsibility for the specification is that of the user.RecommendationThe Board should be asked to: Agree the outline strategy 48
    • Support the principles for procurement as laid out in the strategy Approve the next steps as laid out in the paper Support the ongoing work on market management and procurement required for the organisation to be recognised as a World Class Commissioner.International ProcurementBasic PoliciesFair and equal procurement activities• Procurement activities are conducted in an open fair and equal manner.• Decision making will be done through total and objective evaluation andprocedures such as quality, price, delivery, technology level, financial status,activities for conservation of the environment.Co-existence and co-prosperity•The procurer will work together with suppliers to maintain and strengthenconfidence for co-existence and co-prosperity.Compliance•The procurer will comply with the laws and social norms, and conduct thebusiness under sound commercial practice [NSO~ Nigerian Standards].Information Control and Confidentiality• The procurer will not disclose any confidential information to the third partywhich they got through their procurement activities.“Procurement Journal just discloses the contract sum and who the contract wasawarded to.” 49
    • Procurement ActivitiesManaging the Procurement Process You can use software to manage the process - http://www.method123.com/procurement- management.phpThis Procurement Management process software will help you topurchase goods and services from external suppliers.It gives you a complete procurement process and procurementprocedures, which explain step-by-step, how to purchase fromsuppliers.You will learn how to issue Purchase Orders, receive and approvedeliveries, endorse supplier payments and manage suppliersagainst their contracts. This procurement process will also help you to: Identify the goods and services to procure Complete Purchase Orders and issue to suppliers Agree on delivery timeframes and methods Receive goods and services from suppliers 50
    • Review and accept the items procured Approve supplier paymentsThis Procurement Management Process will enable you to: Identify supplier contract milestones Review supplier performance against contract Identify and resolve supplier performance issues Communicate the status to managementProcuring goods and services from external suppliers can be acritical path for many projects. Often, the performance of thesupplier will reflect on the performance of the overall project team.Its therefore crucial that you manage your suppliers’ performancecarefully, to ensure that they produce deliverables which meet yourexpectations.This Procurement Management Process software will help you dothis to get the most out of your external supplier relationships. eProcurement solutions • Single point of access for buyers and suppliers• Lower cost P2P solution for smaller customers • Centrally managed supplier adoption, suppliers manage catalogues and price lists [suppliers can update the information themselves] • Negotiated collaborative contract pricing drives value for money • Web based ordering / pay using GPC or e-invoices • Reduced buyer and supplier process time and cost • Access to data about spending patterns, suppliers and demand • A catalyst for collaborative opportunities and benchmarking • Storage of data is not an issue and copies can be kept at multiple locations [as many as three] • Link to marketplace leverages customer’s existing investments in eProcurement and ERP systems • National supplier e-enablement programme makes system accessible 51
    • NB as a temporary measure documents should be scanned in and stored electronically]Assessing the procurement project- Specification WritingWhat is a specification?A specification can be defined as "a statement of needs to be satisfied by theprocurement of external resources". It is also known as an operationalrequirement, statement of requirement, statement of service requirement andoutput-based specification.Its purpose is to present prospective suppliers with a clear, accurate and fulldescription of the organisations needs, and so enable them to propose a solutionto meet those needs. The suppliers response to the requirement is evaluated toarrive at, depending upon the procurement strategy, either the supplier to beawarded the contract, or those suppliers invited to take part in negotiations.The requirements in the specification subsequently become incorporated in thecontract with the successful supplier.When is it produced?For simple procurements the specification is drafted before the OJEU notice isplaced. For more complex procurements the specification develops from astatement of the business requirements developed during the preparation of thebusiness case.The requirement may be refined in consultation with suppliers as part of marketsounding or after the supplier selection stage (see market sounding guidance).This can be particularly useful where innovative solutions are being considered.This should be handled with care and integrity to maintain a level playing field.The specification needs to be finalised before it is issued to suppliers with,depending on the procurement strategy, an ITT or an invitation to submit aproposal.Who is involved?Depending upon its complexity the specification can be drafted by an individualor team within the organisation or by external consultants. Those involved in itsproduction are:SRO - signoff 52
    • Project team - drafting or support to draftersStakeholders (including users) - contributing to requirement development andmay also review the specificationAdvisors such as technical and procurement specialistsConsider who is most appropriate to review the specification to ensure it iscomplete and accurate, and who should be involved in evaluating responses to it.Process Establish information sourcesExcept in the simplest of cases, those drafting the specification will need to drawinformation together from a number of sources and the first step is to identifythese sources. They may be individuals, organisations or documents.People include:  Business owners  Users  Other stakeholders  Technical specialistsIn cross-cutting projects and those involving the e-delivery of services the usersof the system can be very wide, including other government departments,organisations, businesses and the citizen. Where the service is provided to thepublic or businesses there may be a need to consult with representativeorganisations such as trade associations. The stakeholder map will identifystakeholders and their areas of interest and the communications strategy will setout the methods for contacting them.Documents include:  Business strategies and plans.  Business requirements  Specifications or contracts for similar goods or services  Contract(s) to be replaced by the procurement (the contract strategy should help identify these)  Process manuals  Service Level Agreements  Metrics such as volumes etc Develop the requirementThe high-level requirement as set out in the business requirements areprogressively refined to a level where they provide the necessary detail forsuppliers to understand what is required and develop a solution to meet it.In all but the simplest requirement, this will involve interaction with the peopleidentified as information sources. The degree of interaction will depend on theirinvolvement in and knowledge of the requirement. In some cases it will take theform of interviews, in other cases the review of draft documents. When beinginterviewed people may describe the current process and it is necessary toextract from this the outputs and key element of process that need to be retained.When reviewing metrics, be aware they represent historical information andconsider what changes are likely to occur over the duration of the contract. 53
    • Periodic reviews should be used to help shape the requirement. Developing therequirement will raise issues and risks that must be recorded and addressed inaccordance with the risk and issue management strategies. Produce the SpecificationOnce the requirement is refined it can be documented in the Specification thatwill be sent to suppliers. An example framework for a specification can be foundat Annex A, and a checklist to help with drafting and review can be found atAnnex B. In complex procurements it can be useful to have suppliers views onthe developing requirement. In these cases a draft high-level version of thespecification is issued to suppliers after the supplier selection stage for comment.This is not usually part of the evaluation process, and is just used to seek input.This can result in a longer procurement timetable and will incur additional costsfrom suppliers, so before embarking on it be sure:  What it is intended to achieve;  What sort of input is required from suppliers (and make them aware of it).When considering supplier input be aware of material that, if adopted, coulddirectly or indirectly favour a particular supplier, or a particular supplier or thirdparty solution or technology. The Specification also contains background materialto help the suppliers understand the requirement in context and providesupporting material. In large outsourcing projects the volume of backgroundmaterial can be considerable and the practicalities of copying it and issuing it toall prospective suppliers are difficult. If the material is available in electronic form,a CD can be used as a convenient mechanism for distributing it. If the majority ofit is on paper, some projects have set up a project library, and allowed suppliersto book time to review it. Produce the evaluation plan and evaluation modelThe requirement will elicit a response from suppliers. This will be evaluated toassess the extent to which it meets or exceeds the requirements in thespecification. The evaluation plan sets out how this will be achieved, and themodel provides a framework for capturing and assessing findings. They shouldbe developed in parallel with the specification to ensure:  all information needed for evaluation is requested from suppliers;  all requirements and information requests in the specification are covered by the evaluation;  supplier responses will be provided in a form that matches the evaluation model.The evaluation strategy sets out the approach to evaluation, and Bid evaluationstage describes the process in more detail. Review and SignoffThe specification is a key procurement document. It forms the basis againstwhich the successful supplier will be chosen and will become incorporated intothe contract setting out what the supplier will deliver. Its final review and signoff istherefore a key decision point in the procurement process, and it is important thatthose undertaking it have the necessary knowledge, authority and experience. 54
    • The key criteria for the review are:  the requirements are complete and accurate;  for IT projects, that COTS software is preferred over bespoke development  stakeholder needs have been taken into account;  future developments have been taken into account;  the requirement is deliverable (i.e. a market exists or can be created);  requirements are compatible with the scope set out in the OJEU notice  issues and risks raised in its development have been addressed;  business implications associated with the requirement have been identified and addressed;  consistent with : 1. Business case 2. Business requirements 3. OJEU advertisement 4. Procurement and contract strategies 5. Evaluation strategy.Getting and assessing bidders - Planning the request for proposalCORRECT ADVERTISEMENT SAY 3 NATIONAL PAPERS- CONSIDER THESPECIALIST PAPERS AND JOURNALSAdvertising of work has the potential advantage that it will attract firms that mightbe unknown to the Office but can provide the goods or services required. It alsohas the advantage of being inclusive and open. The disadvantage is that theOffice may raise the interest of firms who are unable to meet its requirementsand processing and deciding between numbers of interested firms can beresource consuming. Advertisements may be placed in a variety of media,including the relevant trade press.Where the total value of the procurement is expected to be above the EUthreshold (currently £93,898 ex vat), EU Procurement Rules may apply andadvertisements may be required to be placed in the Official Journal of theEuropean Union (OJEU) before advertising anywhere else. Precise rules applyalso to the form of such advertisements and the Central Procurement Teamshould always be consulted. Advertisement content (8 points) 55
    •  Must be clear and concise Show contact address and details Value or value range[price is questionable] Start date Duration Project description & phases Where the pre-qualification can be obtained from or web site link (or e- tendering portal website) 56
    • 57
    •  How the tender submissions will be evaluated HARTLEPOOL BOROUGH COUNCIL SELECTION OF SUPPLIERS FOR A TRAINING AND DEVELOPMENT FRAMEWORK AGREEMENT Hartlepool Borough Council invites expressions of interest from suppliers interested in tendering for a Framework Agreement for Training and Development activities up to the approximate value of £750,000 per annum which will begin on 1st April 2009. The duration of the Framework Agreement is for a 4 year period. The Framework Agreement covers all Hartlepool Borough Council departments and will be for various training and development activities not currently provided by Hartlepool Borough Council in house providers. The Framework Agreement Contracts will be divided into lots under the following subsections: • Promoting Equality & Diversity • ICT & Communication • Health and Safe Working • Quality & Service Improvement • Leadership & Direction • Specialist Knowledge At this stage, interested suppliers should download a Pre Qualification Questionnaire via 58
    • www.hartlepool.gov.uk/trainingprocurementframework by 19th September 2008, which is to be completed and returned by no later than 3pm on 26th September 2008. Shortlisted tenders will be evaluated on the basis of both price and quality and suppliers must demonstrate experience of and commitment to providing a high quality, cost effective service and working with HBC in monitoring and developing the service. Suppliers should not send brochures or further information at this stage. Completed questionnaires should be sent to: Procurement of Training and Development, Corporate Workforce Development Team, Human Resources, Windsor Offices, Unit 24 Middleton Grange Shopping Centre, Hartlepool TS24 7RJ.Contract NoticeNotice published in the Official Journal of the European Commission bycontracting authorities, inviting companies to tender.Inviting OffersThis method involves inviting a small number of firms to bid for work. As there ismore than one firm there is competitive pressure on price. However becausethere are relatively few suppliers involved, individual firms have a reasonablechance to win work and so should be encouraged to invest time and effort intopreparing bidsPre-qualification – introducing a second stageMany procurement projects are complex, and it will often be appropriate toadvertise or invite potential suppliers to pre-qualify before inviting formal bids. 59
    • This means potential suppliers do not then need to invest significant resourcesinto bidding until they know that the NAO considers that they are capable ofundertaking the work. The main advantage to the Office is that it only needs toinvite a limited number of suppliers to tender against the full specification.Consideration should be given to the administrative effort involved, for exampleto ensure equality of treatment. When advertisement is required in OJEU, theTwo Stage procedure may be employed by selecting the Restricted Procedure.Some firms may feel that they should be on the shortlist automatically and maynot take pre-qualification seriously. Staff should therefore emphasise theimportance of addressing the key evaluation criteria set out to those invited totender. Any uncertainties identified should be dealt with fairly and openly,otherwise the Office could be accused of unfair bias. The requirements of anypre-qualification exercise should not be unduly burdensome, so as not todiscourage firms from bidding, but should be sufficient to enable the identificationof firms to take forward to the next stage of bidding. Pre-qualification questionnaire content (13 points)  Objectives and back ground  About this competition  Selection process  Provisional procurement programme  Questions about procurement  Contact details  PQQ (pre-qualification questionnaire) Evaluation Approach 6  Freedom of Information Act 2000 (FOIA) 6  Confidentiality 6 (All information provided to the Tenderers by the Authorities shall be regarded as confidential and used only to prepare a response to the questions).  Non-UK Based Organisations – Transparency and Fairness 7  General 7  Appendix 1 Outline User Requirement Specification (introduction, application/volumes, implementation, training, documentation & maintenance & support). 60
    •  Appendix 2 The Pre-Qualification Questionnaire (PQQ) Scoring System Appendix 3 The Pre-Qualification Questionnaire (PQQ)- 15 points 1. Details of organisation- including years established, 2. Financial information, 3. Business activities, 4. References (min-3), 5. Insurance & litigation, 6. Quality-ISO, 7. Health & safety, 8. Equality & diversity, 9. Environment management, 10. Environmental action plan, 11. Professional & business standing, 12. Requirement specification, 13. Declaration and 14. Certificate of good standing 15. Anti collusion certificate Appendix 4 Frequently Asked Questions 61
    • Standard procurement methodsTo assist staff, standard procurement processes that are consistent with currentOGC best practice have been devised that set out the main steps required.These processes will assist in ensuring a good governance approach toprocurement and that we meet our legal obligations. Staff should justify theirchoice of a one or two Stage procurement method on the relevant procurementfile. Careful thought should be given before departing from standard procedures. Particular considerations are whether the departure might give rise to unfair treatment of a potential supplier; and ensuring that all suppliers are aware of the departure and understand the implications. The Central Procurement Team should be consulted for advice on this.Single stage procurement method Where single tender procurement is suitable Single Tender Action is acceptable when only one credible supplier exists or has a unique product or knowledge. The key elements of the NAO’s standard One Stage Procurement Process are as follows:  Prepare outline requirement;  Identify suitable suppliers;  Select at least three suppliers where possible;  Confirm suppliers willingness to bid, based on outline requirement;  Select replacement suppliers if suppliers unwilling to submit tender;  Prepare an “Invitation To Tender” noting evaluation criteria;  Request sealed bids to be opened on specified date;  Open sealed bids on specified date;  Reject late bids;  Select best bidder using evaluation criteria (may involve interviews); 62
    •  Agree contract with best bidder;  Debrief unsuccessful bidders;  Award contract to successful tenderer. *Health Warning for single stage procurement* All decisions for single tender action must be formally approved in writing by the Project Director responsible for the procurement, and in the case of those in excess of £20,000 (ex VAT) at AAG level. In reaching a decision, any risks to the Office should be identified and evaluated.Two stage procurement method Where single tender procurement is not suitable Single tender action is not justified where better planning would have negated the need for single tender action or where the award of a limited value consultancy or other contract could lead to further work and possibly give the chosen firm a major advantage at a subsequent stage of tendering. Single tender action should also be avoided where it is expected that a number of small contracts (below £20,000 excluding VAT) will be awarded to one supplier. The key elements of the NAO’s standard Two Stage Procurement Process are as follows:  Prepare outline requirement;  Identify suitable suppliers;  Advertise the contract or approach firms who may be interested;  Prepare pre-qualification criteria; 63
    •  Request sealed expressions of interest to be opened on specified date and at a specified time;  Open sealed responses on specified date at specified time;  Reject late expressions of interest;  Shortlist minimum of 3 firms using evaluation criteria;  Prepare detailed “Invitation To Tender” noting evaluation criteria;  Request sealed bids to be opened on specified date and at a specified time;  Open sealed bids on specified date at specified time ;  Reject late bids;  Select best bidder using evaluation criteria (may involve interview);  Agree contract with best bidder;  Debrief unsuccessful bidders;  Award contract to successful tenderer;Standards for awarding contracts Unless circumstances exist under which competition can be limited or waived, contracts must be awarded through a competitive solicitation process to the responsible vendor with the lowest responsive bid or the most advantageous proposal. An award will be made according to the evaluation criteria specified in the solicitation. A contract award will be made as soon as practicable after the opening and evaluation of bids or proposals. Any bid or proposal that does not meet the requirements of the solicitation, other than mistakes determined to be minor informalities, should be rejected. 64
    • Standards for awarding contracts – non-resident vendors When considering bids or proposals from non-resident vendors, the procurement officer must determine whether the vendor’s state of residence has a preference law. The state procurement office shall make publicly available a listing of state preference laws.Responsibility of the bidder or vendor 1. The procurement officer, at any time, may make a supplementary investigation as to the responsibility of any bidder or vendor, even though the bidder or vendor may be on the bidders list for the commodity or service being purchased. 2. This may include investigation of financial responsibility, insurability, effective equal employment opportunity, capacity to produce, sources of supply, performance record in the business or industry, and other matters relating to the bidder’s or vendor’s probable ability to deliver in the quantity and at the time required under the contract if it is awarded to the bidder or vendor. 3. The procurement officer may require the submission of written statements from the bidder or vendor or other persons concerning any related matter. If it is concluded on the basis of all available information that a particular bidder or vendor appears not to be sufficiently responsible to assure adequate performance if the contract were awarded to the bidder or vendor, the bid or proposal will be rejected even if it is the lowest bid or the best offer. 4. If a vendor is determined to be not responsible, that vendor may be debarred or suspended from the bidders list.Only one responsive bid or proposal received1. If only one responsive bid or proposal is received in response to a solicitation,the procurement officer may:a. Make an award to the vendor upon determination that the specifications werenot restrictive, other prospective bidders and vendors had a reasonableopportunity to respond, the bidder is responsible, and the price submitted is fairand reasonable;b. Reject the bid or proposal and solicit new bids or proposals; or 65
    • c. Cancel the procurement.2. If the price submitted is not fair and reasonable and there is no time for re-solicitation, or it is unlikely that re-solicitation will increase the number of bids orproposals, the procurement may be conducted as a limited competitive or non-competitive purchase, as appropriate.Rejection of all bids or proposals1. If it appears to be in the best interest of the state, all bids or proposals may berejected and invitations for bid or requests for proposal containing the same orrewritten specifications, terms, and conditions may be reissued.2. The procurement officer will send written notice to the bidders or vendors,including the reason all bids or proposals were rejected.3. The rejected bids or proposals will be retained in the procurement file.Contract preparation processWhat you need to do – step 1For complex procurements where the negotiated route can be justified, contractnegotiations are time-consuming and intensive but are key to the success of theproject in achieving the right deal with the right supplier. Planning is essential toensure they stay on track. Identify the order in which parts of the contract are tobe tackled, the review points, and who is involved in developing and reviewingthem.Identify specialist resources, legal, financial, technical etc and ensure they areavailable when required.There will be a lot of documents exchanged with suppliers, so ensure there is aconfiguration management plan in place to cover version control, routing, storageetc, and resources to implement and manage it.Points to considerTackle the difficult issues earlyDo negotiators know the extent to which they can make agreements withoutreferring upwards?Are negotiating and fall-back positions clear? 66
    • Points to consider – step 2Within contract preparation, the authority may also need to consider how risk willbe allocated through the SC, who is accountable and will manage it, and how thiswill be incorporated in the contract.What you need to do – step 3Review the need for related agreements (e.g. MOUs, SLAs etc) with otherorganisations or departments and the fate of any existing contracts identified inthe contract strategy in the light of provider’s proposals.Points to considerHave there been any changes affecting the related agreements?Do any existing contracts need to be extended in the light of the proposedimplementation plan?What you need to do – step 4A good contract should set out the obligations of the parties in a way that is:  clear complete concise unambiguous  The contract also forms the foundation for a productive relationship built on communication and trust.  The foundations for contract management are laid in the stages before contract award, including the procurement process.  These formal contract aspects form the framework around which a good relationship can grow. If the contract was poorly constructed, it will be much more difficult to make the relationship a success.  For IT enabled business change projects see the Risk Allocation Model for guidance on deal shapes and key areas to address in the contract clauses.Points to consider The contract should include as appropriate:  a definition of what is to be provided and requirements to be met  an agreed level of service and mechanism for payment reduction if it is not met  means to measure performance 67
    •  Pricing mechanisms including where appropriate milestone payments, incentivisation/rewards, retentions, and if the contract is for more then 2 years, price variation mechanisms. (see Government Accounting for policy on advance and interim payments)  plan to cover implementation/transition/rollout  acceptance strategy/test plan  ownership of assets and intellectual property;  escalation and alternative dispute resolution (ADR) procedures  change control procedures  invoicing arrangements  communication routes, typically at three levels - operational (end users/technical support staff), - business (contract manager and relationship manager on both sides) - strategic (senior management/board of directors)  contract management arrangements (see contract management)  agreed exit strategy and agreed break options.  Premises (where the goods/services will be delivered)  Sub-contractor detailsWhat you need to do – step 5For service contracts, agree service management plans with suppliers, withresponsibilities allocated for service management and standards defined andagreed for service levels, service quality and measurement (see the briefing onmanaging contracts and performance).Points to considerLook ahead to plan for how contract managers will ensure that services aredelivered as intended, once the service becomes operational.What you need to do – step 6Define change control procedures for maintaining and updating the contract. Seealso the briefing on changing requirements 68
    • Points to considerChange control procedures are essential if the contract is to be kept up to datewith a clear audit trail of decisions taken; failure to do so can put the departmentat risk. See the Best Practice briefing: How major service contracts can gowrong.Points to consider – step 7Alternative Dispute Resolution (ADR) clauses should be included in all standardcontracts, setting out the use of ADR techniques to settle dispute.What you need to do- step 8Preferred bidder stage is the final stage before financial close and contractsignature. It involves selecting one supplier as a preferred bidder, and finalisingdetailed drafting of the contract terms, and the schedules that specify theoperation of the service and define the nature of the asset as proposed in the bid.The time should not be used for substantive negotiations over commercial termsor price. Usually there is a reserve bidder in case it is not possible to concludethe contract with the preferred bidder.The best time to appoint a preferred bidder is when there is little risk that thefinalisation of contract terms details, due diligence and funding arrangements(and, when required, TUPE negotiations and other negotiations with employeesand/or detailed planning clearance or other statutory consents) will lead to anymaterial change to the proposed deal.Points to considerAfter the appointment of a preferred bidder, it may be difficult to maintaincompetitive tension. Since competition is the best driver of value for money, greatcare needs to be taken that the appointment is not made prematurelyAre the key elements of the deal agreed? What is the risk it could unravel?Can the preferred bidder demonstrate before appointment that it has theresources, and management skills and support to conclude negotiations on thebasis of the agreed key elements in an efficient and professional manner?Does it have the ability to deliver, post-contract signature, a complete solution tomeet the output specification?Points to consider- step 9Ensure the evaluation plan is consistent with the evaluation strategy. 69
    • What you need to do – step 10On completion of negotiations a final version of the contract should be reviewedto ensure it is acceptable to the organisation. The suppliers are then asked toconfirm it is acceptable to them, in which case Best and Final Offer (BAFO) canbe invited.If a preferred bidder route is to be followed, formal agreement to core elements ofthe deal is usually sought via an MOU before bids are invited.Points to considerDoes the contract accurately represent the requirement?Have stakeholder requirements/views been taken into account?Do the potential providers have realistic solutions to meeting the requirement?Does the organisation have the necessary skills and resources to meet itsobligations under the contract, and for managing the contract?Have any related agreements with other parties been produced and agreed?Does the charging arrangements take account of changing levels of demand(both up and down)?In complex procurements, consider producing a plain language guide describingthe contract and particularly the factors influencing its development. It can bevery useful in helping contract management staff understand the background tothe contract and the issues that came up in negotiation.Committee submissions and approvalsTo ensure that procurement activity is organised in an effective way and isembedded in the corporate and service planning process  Identify a Member Champion for procurement  Establish a Procurement Management Board to coordinate delivery of the procurement Strategy Action Plan, chaired by a corporate director champion  Develop the Council’s consultative approach to procurement by identifying within the authority a procurement “technical support team” comprising finance, legal, audit, central administration and sustainability officers with relevant experience and bought in specialist advice. Service Heads would be required to consult this team when planning significant procurement. 70
    • This will help to support Service Heads and establish consistency in the approach to procurement across the Council.  Investigate the current use of consultants to support procurement and evaluate the option of appointing an in house procurement specialist from the central procurement budget. Investigate the potential of sharing procurement services with other Councils.Engaging and managing stakeholders Handout 1Strategic partnerships Handout 2Procurement and cost cutting Handout 3Controlling Procurement Risk Handout 4Managing Inventory Handout 5Control of the procurement process Handout 6/7/ 71
    • Performance measurementTo develop management information and the use of performance measures ofprocurement  Set targets for procurement activity in key areas including savings targets and monitor performance.  Produce regular reports to Economic Overview Committee detailing progress against the procurement strategy action plan and reports to the Scrutiny Committee on performance targets.  Produce improved procurement management information on who buys, what, when and from whom.  Regularly review contract standing orders and the procurement toolkit.Improving Project Management through Earned Value Project ManagementProcesses & SystemsEarned Value Management is a means by which projects can improve deliveryperformance through periodic and meaningful cost and schedule performanceinformation, increasing the focus and understanding of status against scheduleand budget goals throughout the project lifecycle.EVM provides key information on cost and schedule performance, to inform aproject teams decision making. The principles behind EVM represent bestpractice project planning and control in project-based management.EVM was first adopted by the United States Department of Defense in 1967 andtoday is at the heart of the project control systems, for example, by thegovernments of the UK, USA and Australia, to help manage the performance ofcontractors engaged on major development contracts. It is also widely used inother industries such as Construction and Oil & Gas, and many others today inthe UK.WHAT IS E ARNED V ALUE ?In simple terms, Earned Value is the contract (or authorised) budget value ofwork accomplished on a project, typically to date. Earned Value is expressed 72
    • using budget (and currency) values of the local environment (e.g. £ or $). This isone of the reasons why Earned Value has been misinterpreted in the past - itsnot a financial tool, it is a tool for project management.So why is EV expressed in financial terms? EVM metrics are all converted to asingle unit of measure (i.e. £s) so that performance against both cost andschedule can be seen together, for example graphically, to inform ourunderstanding of status against of two primary goals of projects: costperformance and schedule performance. Traditional methods of representingproject data often look at these separately, which at best can be a significantweakness - at worst it can sometimes be completely misleading. Hence the bigfocus in the earned value world on the word integration - its critical to making EVwork well.WORKED EXAMPLEThe following shows the basics of how EV works in practice, using a simple onetask example:We have a task with a budget of 1000 hours to design a new widget, which wealso expect to take 12 weeks to complete. At the end of week 6, we planned tohave completed 55% (by effort) of the activities within the task, and we thereforebudgeted those activities to consume 550 hours of our total budget - thesenumbers could be translated into cost (£) data using average costing rates.At the end of week 6:The planned value = total task budget * our planned percentage complete (55%)= 550 hours our actual expenditure (in hours) was found to be 480, and onmeasuring actual progress (activities complete) we calculate that we havecompleted tasks worth 350 hours’ worth of the total task budget.In earned value language, this gives us Planned Value of 550 hours, EarnedValue of 350 hours, and Actual cost (hours) of 480.What can we derive from this?: Two things - schedule and cost performance(relative to plan), which are both commonly expressed as a ratio - costperformance index (CPI) and schedule performance index (SPI), where CPI/SPIof 1.0 indicates performance to plan - less than 1.0 is under performance to plan.In this example our CPI would be 350/480, or 0.73 and our SPI would be 350/550or 0.64. 73
    • WHAT DO WE DO WITH THIS DATA?In the past, it has often been mistakenly believed that EV data is either financialor used (only) to report to customers. The most important use of this data is bythose within a project team who have the responsibility for managing the work ofa project using Earned Value data (via the project structures e.g. workbreakdown structures) to understand their cost and schedule performanceperiodically throughout the project lifecycle. The aim is to highlight (cost andschedule) issues early, thus providing teams with the maximum time to minimisetheir impact and provide them a realistic opportunity to develop recovery planswhere necessary.The second thing we can do is to use the data to provide a means of forecastingout-turn on projects - the most commonly used being:Estimate costs at completion (for the total task: EAC) = total budget: 1000 / CPI(.73) = 1,371 hoursEstimate of forecast total duration for the task = current plan: 12 weeks / SPI(.64) = just under 19 weeks (this is a rough estimate that should be reviewedagainst project schedules for work remaining)And for those who dismiss the above, history is littered with projects thatdisplayed (performance) characteristics similar to the above - very very few camein on budget or on schedule (without significantly relaxing the scope) - if youknow of one please let us know.CORE COMPONENTS OF AN EVM PROCESSThe production of EV data requires that a performance measurement baseline,drawn directly from the project plan, comprising of the following:T HE PERFORMANCE MEASUREMENT B ASELINE (PMB)The PMB consists of a time phased aggregation of the resources (expressed inbudgetary terms) required to execute the work inherent in the project schedule -this creates the baseline against which cost and schedule performance is 74
    • measured via EVM metrics. The PMB should also show how Earned Value willbe measured and taken through the life of the project.OBJECTIVE MEASURES OF PROGRESSProgress must be assessed periodically - there are many ways of doing this andthe simple rule is that the more subjective the methods are, the less reliable theEV data is likely to be and the greater room there is for unwanted surprisesdownstream.Actual Costs - Labour and Materials: Actual cost data must then be gatheredagainst by the elements in the PMB - this requires that business systems andprocesses enable useful and timely capture of actual cost data, via the structuresthat are employed in the EVM system.EV was not developed simply to report status to customers - it may be used inthis way, but if this is the only way it is seen, a huge degree of the value of usingthe method will be lost.The objective is to embed EV data into the practice of daily management of theproject, leading to an improvement in decision-making based upon an informedanalysis of real status against cost and schedule goals, at the working levels ofthe project.IMPLEMENTATION CHALLENGESFor organisations implementing an Earned Value Management System, thechallenge lies not just in the mechanics of the method, but more often in thecultural change required to underpin an EV based project controlAdditionally, when most organisations first attempt to use EVM, they typically findthat EVM highlights weaknesses or gaps in the project planning and controlprocesses and capabilities.For example:a robust baseline needs to be developed as soon as possible after contractaward - this task alone challenges many organisations - and then it must bemaintained the planning process must identify all major project deliverablesclearly, within the PMB, not just the functional effort assumed to be required todeliver a project objective measures of physical progress must be assessedroutinely business systems and processes need to provide data in a timelymanner (e.g. costs) and need to be structurally compatible with the needs of theEVM system.IS E ARNED V ALUE WORTH IT? 75
    • The above question has raged in some environments for many years. EV givesobjective measures of status against the cost and schedule goals of a project -there are no more primary or fundamental goals in project management.Assuming an organisation follows the principles that underpin good practice inEVM systems, it provides important data to project teams, without which teamscan operate in a vacuum regarding their performance, or even worse, they couldoperate in an environment of false optimism that does not see the level ofchallenge or issues in their project, until it is too late to make a real impact on thesame - something that occurs far too often in projects.Earned Value is not just worth it - it is a fundamental tool to being in control inlarge scale risky development programmes.CREATING AN E ARNED V ALUE MANAGEMENT REQUIREMENTCustomers increasingly require contracts to be pro-actively controlled to assuredelivery on time, to budget and to specification. Customers look for confidence inthe project status information being supplied, and are increasingly achieving thisby defining contractual agreements that require Earned Value Management to beused by their suppliers.T HE MAJOR CONSIDERATIONS INCLUDE :  defining and communicating your EV requirement including the incorporation of the Integrated Baseline Review process  assessing the merits of payment by EV  determining appropriate data access and reporting requirements  defining and agreeing performance review cycles and processesWHAT IS AN INTEGRATED B ASELINE REVIEW ?The purpose of an Integrated Baseline Review (IBR) is to assess a set of projectmanagement processes and to establish the degree of risk associated with theprojects Performance Measurement Baseline plan delivering on time, to budgetand to specification.Where it is important to have confidence at an early stage that the baseline planfor a project is realistic and capable of delivery, an Integrated Baseline Reviewmay be deployed.PREPARING FOR AN INTEGRATED B ASELINE R EVIEW (IBR)If you are required to perform an Integrated Baseline Review, it will requirepreparation and the attention of those who will participate in the review. As aminimum, the following should be agreed / prepared before the review:  agreement on the specific objectives of the review and exit criteria 76
    •  the scope and timing of the review and how it will be conducted  Documentation and personnel to be made available at the review.IBRs are often preceded by some form of readiness review - given that an IBRshould be held as soon as possible and practical following contract award, thescheduling and resourcing of these activities needs to be considered urgentlyfrom contract award onwards.Managing quality - Key Performance measurements (KPI’s)Key performance indicators for the procurement function should be developed asthe maturity of the function and the availability of appropriate source informationbecomes available. It is anticipated that the KPI’s will encompass areasincluding:• Savings Delivery;• Process Efficiency;• Customer Satisfaction;• Supplier Satisfaction; and• Organisational and Staff Top 10 Procurement Key Performance Indicators (KPIs) KPI % Select ed Identified cost reduction savings 72% % of total spend under management 64% Cost avoidance 58% Implemented / realized cost reduction 55% savings Procurement ROI (savings / operating 52% costs) % of suppliers = 80% of spend 51% Supplier performance (price, delivery, 49% quality, service, etc.) Procurement spend as % of revenue 46% dollars Requisition, PO or invoice transaction 34% 77
    • volume Procurement spend per procurement 33% employee Source: Aberdeen Group, February 2008Why is Ethical Procurement Practice Important?How can a business ensure that its procurement practices are in line with its corevalues? This IBE Briefing considers ethical issues relevant toprocurement/purchasing. It provides guidance to those responsible forprocurement, suggests examples of good practice and links to corporatepurchasing policies.There are compelling arguments for treating your suppliers fairly and for beingconcerned about the source of your supplies, whether from the UK or overseas.First is the need for sustainable supplier relationships. Mutually beneficial terms,fair practice and trust should improve the reliability of your supplies.Second is reputation risk. Good ethical practice can enhance the organisation’sintegrity and reputation. Would you feel comfortable if the press spoke to yoursuppliers about your relationship with them or about their own employmentpractices or operations?How to Link Ethical Values and ProcurementOrganisations usually express their core ethical values and responsibilitiesthrough an ethics policy. A code of ethics then sets out the way the organisationintends to conduct its business, including commitments to stakeholders andguidance for staff. In addition, a specific code or standard of ethics may coverissues not covered by law concerning a particular function - such asprocurement.Once commitments and expectations have been established, it will be importantto ensure that they are met and continue to be appropriate. Procurement staff willneed training, particularly in how to resolve dilemmas and competing priorities.Useful monitoring and due diligence tools include Supplier Engagement Forumsand supplier questionnaires during tendering and at other stages of therelationship such as contract renewal.Ethical HotspotsResearch by the IBE suggests that approaches to ‘ethical procurement’ oftenconcentrate on supplier standards and practices rather than the organisation’s 78
    • own polices and practices. However, ethical issues arise mainly in the followingareas of procurement practice and all three should be considered. The selection of suppliersIn addition to value for money, will you seek to further your corporateresponsibility objectives through your purchasing activity and supplierrelationships? For example, will ethical criteria be used to exclude or positivelydiscriminate in favour of certain suppliers? Will you support initiatives that aim toincrease the number of diverse (e.g. ethnic-minority owned, women-owned)businesses that supply goods and services to your organisation? You may wishto consider measures to ensure that small businesses are given fairconsideration. Procurement conductThis refers to the way your staffs do business – the way procurement is carriedout. Are they encouraged and supported to act with integrity and in line with yourorganisation’s ethical values when establishing and maintaining supplierrelationships. Do you insist that your suppliers’ bills are paid on time, or thatoffers of gifts and hospitality are registered? How do you prevent conflicts ofinterest? If you are a large company, are you concerned to be judged as a faircustomer of your small suppliers? Do you have policies on dependency, or ontransparency regarding tendering, or on engagement when contract terms arenot met, changed or are being wound down? Your suppliers practiceAre you clear about the extent of your organisation’s responsibility down andacross the supply chain? What do you expect of your suppliers? Do you imposesocial (e.g. labour rights, health and safety) and environmental standards onsuppliers, seek to influence their policies and practices or offer them assistance? Examples of Good Practice• Be aware of ethical standards and good practice in your sector• Identify how ethics is relevant to your business• Formulate a transparent and clear procurement policy addressing ethicalconsiderations and commitments• Formulate clear supplier selection principles with regards to social, ethical andenvironmental criteria. 79
    • They should be in line with your own code of ethics, and corporate responsibilityand sustainability objectives.• Introduce a code of conduct outlining how procurement staff are expected tobehave in line with your organisation’s ethical values• Train procurement staff regarding the specific relevance of business ethics intheir work and how they can obtain guidance when facing dilemmas• Emphasise values of honesty and openness in the supplier relationship and thedisadvantage of adversarial relationships• Regularly enforce and monitor standards regarding gifts and entertainment• Inform suppliers of changes in your organisation that might affect them• Publish your performance targets and figures regarding paying bills on time• Avoid contracting for more than 20% of a suppliers’ business. Work withsuppliers to reduce the risk of overdependence on you.• Decide how far down your supply chain you need to impose your ethicalstandards and why• Ask how you can be sure that your ethical commitments are being lived up to –for example, consider ethical audits of your supply chains and including ethicalpractice in staff performance reviews.Finally, recognise the right of your suppliers to make money too! a. Background. Closeout of contract files occurs at the end of the contract administration process. The CO should assure file integrity throughout the life of the contract. Maintaining an accurate record of contract modifications and obligations facilitates contract closeout, and also minimizes costs associated with administration and closeout processes. Timely closeout deobligates excess funds and returns the excess funds for possible use elsewhere. The time frame for closing a contract is based on both the type of contract and date of physical completion.Contract close out (1) A contract is considered to be physically complete when: 80
    • (a) The contractor has completed the required deliveries and theGovernment has inspected and accepted the supplies;(b) The contractor has performed all services and the Government hasaccepted the services;(c) All option provisions, if any, have expired; and(d) The Government has given the contractor a notice of completecontract termination.(2) A purchase order, or delivery order against a Federal SupplySchedule contract, is considered to be physically complete when:(a) Property or services have been received within the terms of thecontract;(b) Final payment has been made to the contractor; and(c) A purchase order/delivery order Receiving Report signed by therecipient of the goods or services.c. Time Frames. Closeout of contract files should occur during thetime frames identified below, as evidenced by completion of the"Contract Closeout Checklist" or the closeout section of the "PurchaseOrder/GSA/FSS Order File Checklist" (See Procurement Forms inFAST).(1) Files for contracts using commercial and simplified purchaseprocedures should be considered closed when the CO receivesevidence of receipt of supplies and final payment.(2) Contract files for firm-fixed-price contracts, other than those usingcommercial and simplified purchase procedures, should be closedwithin 6 months after the date on which the CO receives evidence ofphysical completion (for example, signed receipt or delivered product). 81
    • (3) Contract files for contracts requiring settlement of indirect cost ratesshould be closed within 36 months of the month in which the COreceives evidence of physical completion.(4) Contract files for all other contracts should be closed within 20months of the month in which the CO receives evidence of physicalcompletion.d. Preparation for Closeout. To prepare for contract closeout, 60 daysprior to either final delivery or estimated contract or interagencyagreement completion date, the CO should perform a comprehensivereview of the contract or interagency agreement to determine whetherany documentation is missing and whether any step in the closeoutprocess can be initiated before physical completion. If documents aremissing, the CO should attempt to obtain them and insert them into thefile. To determine whether steps in the closeout process can beginbefore the contract or interagency agreement is physically complete,the CO should review the "Contract Closeout Checklist." Following areexamples of actions the CO may be able to take before the contract isphysically complete:(1) Ensure that the contractor has a current list of contractoremployees holding FAA security badges and verify that the listcorresponds to the FAA Servicing Security Elements list.(2) Ensure that all information in Prism is current and correct.(3) Reconcile the contract’s funding status and invoice payment logwith Accounts Payable. Identify final invoices. (Contracts andInteragency Agreements).(4) If the contract includes a "Patent Rights" clause, check to seewhether final patent or royalty reports have been received. 82
    • (5) If the contract includes "Government Property" clauses orcontractor-acquired property, ensure that the property administrator orContracting Officer’s Technical Representative provides dispositioninstructions to the Contractor. (Contracts and Interagency Agreement).e. Closeout Procedures. When the contract or interagency agreementis physically complete, the CO is responsible for initiating contractcloseout. The contract file should not be closed if the contract is inlitigation or under appeal. When closing both fixed-price and cost-typecontracts, the CO must verify that the documents and activitiesincluded in the "Contract Closeout Checklist" have been received orare complete. After completion of the "Contract Closeout Checklist"and notification of final payment from Accounts Payable, the CO mustcomplete and sign a "Contract File Completion Statement" (Appendix11). For purchase orders (PO) or GSA Federal Supply Schedule(FSS) orders, the CO will use the closeout portion of the "PurchaseOrder/GSA/FSS Order File Checklist" in place of the "ContractCloseout Checklist" and "Contract File Completion Statement." Tofacilitate receipt of required closeout documentation, the CO will needto take some or all of the following actions:(1) Reconcile the contract’s funding status and invoice payment logwith Accounts Payable. To accomplish this, contact the Finance Officeand obtain reports documenting the obligations and expendituresunder the contract.(2) Send a memorandum to the program official to confirm contractcompletion.(3) Send a memorandum to the COTR requesting termination of allcontractor personnel accounts on contract-specific FAA systems (SeeAppendix 12 for memorandum). The COTR should return the signedmemo to the CO within 30 days.(4) For all cost-type contracts not closed with Quick Closeoutprocedures, the CO must request Headquarters National AcquisitionEvaluation Program staff (AJA-A4) to initiate a DCAA audit. 83
    • (5) Send a memorandum to the Property Administrator requestingcompletion and transfer of the Government Property section of thecontract file. (Note: the CO must sign the property report submitted bythe Property Administrator).(6) Send a letter to the contractor indicating that the contract iscomplete and requesting required documents. Required documentsmight include:(a) Final voucher.(b) Confirmation of settlement of subcontracts.(c) Government Furnished Property (GFP) and Contractor AcquiredProperty (CAP) inventory.(d) Report of inventions and subcontracts, if applicable (AMS Clause3.5-12).(e) Patent and royalty reports.(f) Contractor’s release.(g) Contractor’s assignment of refunds, rebates, credits, and otheramounts.(h) List of contractor personnel holding FAA badges, indicating thebadge numbers and when they were returned to the FAA ServicingSecurity Element. 84
    • (7) Review and approval of the final voucher should include:(a) Verification that all contractual requirements have been satisfied.(b) Completion of any fee adjustments.(c) Verification that contractual funding limitations have not beenexceeded.(d) Identification of any offsets applied.(e) Verification of accuracy of Contractor Release and Assignment.(f) Verification that all previous Contractor vouchers have been paid.(g) Approval for payment with signature and date.(h) Deobligation modification processed and distributed for any fundsdetermined to be in excess.(8) Completion and submittal of the Past Performance InformationRetrieval System (PPIRS) evaluation for the contract.f. Quick-closeout Procedures. In some circumstances, the CO maydetermine that a contract is a candidate for quick closeout. Quickcloseout allows the CO to negotiate the settlement of indirect costswithout a DCAA audit and in advance of the determination of final 85
    • indirect cost rates. The procedures for quick closeout are the same asfor regular closeout except that a DCAA audit is not requested. Thedeterminations of final indirect costs under quick closeout proceduresare final for the contracts it covers and no adjustments are made toother contracts for over or under recoveries of costs allocated orallocable to the contracts covered by the advance agreement.Additionally, indirect cost rates used in the quick closeout of a contractare not considered a binding precedent when establishing the finalindirect cost rates for other contracts.(1) To determine whether a contract is a candidate for quick closeout,the contract must meet the following criteria:(a) The contract is physically complete;(b) The amount of unsettled indirect costs is not more than $1,000,000and the cumulative unsettled indirect costs to be allocated to one ormore contracts in a single fiscal year do not exceed 15% of theestimated, total unsettled indirect costs allocable to cost-type contractsfor that fiscal year; and(c) Agreement can be reached on a reasonable estimate of allocabledollars.(2) After the CO has made a decision that the use of quick closeoutprocedures is appropriate, the CO must:(a) Ensure adequate rationale for the decision is included in the file;(b) Require the contractor to submit a final voucher and a summary ofall costs by cost element and fiscal year for the contract(s) in question,as well as a copy of the contractor’s final indirect cost rate proposal foreach fiscal year quick closeout is involved; 86
    • (c) Notify the cognizant audit activity, either verbally or in writing,identify the contract(s), and request:(i) The contractor’s indirect cost history covering a sufficient number offiscal years to see the trend of claimed, audit questioned, anddisallowed costs; and(ii) Any other information that could impact the decision to use quick-closeout procedures. Indirect cost histories should be requested fromthe contractor only when the cognizant audit activity is unable toprovide the information;(d) Review the contract(s) for indirect cost rate ceilings and any othercontract limitations, as well as the rate history information;(e) Establish final indirect cost rates using one of the following rates:(i) The contract’s ceiling indirect cost rates, if applicable, and if lessthan paragraphs (e)(ii) through (vi) of this section;(ii) The contractor’s claimed actual rates adjusted based on thecontractor’s indirect cost history, if less than paragraphs (e)(iii) through(vi) of this section;(iii) Recommended rates from the cognizant audit agency, the localpricing office, another installation pricing office, or other recognizedknowledgeable source;(iv) The contractor’s negotiated billing rates, if less than paragraphs(e)(v) or (vi) of this section; 87
    • (v) The previous year’s final rates; (vi) Final rates for another fiscal year closest to the period for which quick-closeout rates are being established; (f) If an agreement is reached with the contractor, obtain a release of all claims and other applicable closing documents. g. Contract File Documentation. Official closeout documentation for contracts and interagency agreements, the signed "Contract File Completion Statement," and the completed "Contract Closeout Checklist" should be filed in the official contract file behind a marked tab. For POs or GSA FSS orders, the documentation should be filed in the official file and noted on the "Purchase Order/GSA/FSS Order File Checklist." h. Paying Office. The paying office must furnish the CO written documentation of the final payment including the voucher number, date, invoice number and date, and name and signature of technician processing the payment. The paying office should close their contract files upon issuance of the final payment voucher.Contract de-mobilisation There is a need to ensure mobilisation and demobilisation activities are carried out in an organised and cost effective manner, conforming to industry safety standards and Company procedures. Key Areas of Responsibility • To conduct activities in accordance with the Management System requirements and to meet all legal obligations To ensure that all personnel have the relevant certification prior to mobilisation 88
    • • To work in accordance with, and ensure compliance to MobilisationProcedures• Ensure mobilisation / demobilisation activities are completed in asafe, effective and timely manner in line with contractual requirements• Maintain close liaison and communication links with relevantdepartments/personnel throughout pre-mob and mob activities,ensuring all relevant parties remain fully appraised of progress at alltimes.Key Tasks• Ensure effective planning and delivery of mobilisation/ demobactivities• Ensure the timely placement of all subcontract services• Ensure mobilisation activities are adequately resourced.• Ensure all plant and equipment (including rigging and liftingequipment) is fully compliant with appropriate regulatory certificationrequirements.• Ensure inductions and safety briefings are conducted for all staff andthird party personnel participating in mobilisation activities• Manage mobilisation / demobilisation activities in accordance withMobilisation procedures• Work with the Project Manager to ensure mobilisation activities arecompleted by the scheduled completion dates, and allcontractrequirements are met.• Ensure any ‘lessons learnt’ are captured and recorded in thegovernment’s Lessons Learnt Database• Review and update mobilisation procedures on a regular basis 89
    • Appendix – Definitions & Resources Resources ACCA - http://www.accaglobal.com/ ICAEW- http://icaew.com AIA - www.aiaworldwide.com/ Accounting web - http://www.accountingweb.co.uk/ Improvement and development Agency for local government - www.idea.gov.uk DefinitionsCommon MarketCommon Market amalgamates the elements of free trade are and customsunion. “It involves an agreement among two or more countries under which isestablished common tariff and import-related procedures for the importation ofextra-regional good s and services for the free trade within the common marketof goods and services, whether locally-produced or imported, without theimposition of further tariffs or custom restraints”.Customs TransitCustoms procedure used to facilitate the movement of goods between twopoints of a customs territory, via another customs territory, or between two ormore different customs territories. It allows for the temporary suspension ofduties, taxes, and commercial policy measures that are applicable at import (2).This allows formalities to take place at the destination rather than the point ofentry into the customs territory.Customs UnionCustoms Union is a relationship between two or more bordering countries thatcreate a common trade barrier for all the participating countries to the entry ofgoods from nonmember countries. Any goods imported into the custom unionregion will be issued the same harmonized tariff schedule and be subjected tothe same rules regarding trade. It is important to note that tariffs could be 90
    • levied by the individual countries that compose the customs union for themovement of goods between country borders.Documentary TaxA tax that is paid as a percentage of the value of the transaction engaged inunder the document being taxed. Some countries collect document taxes andfees.Duty Types:Free TradePreferential Duty (discounted)Standard WTO RateEconomic UnionEconomic Union is an economic community where the national economicpolicies have been harmonized to the point where they are virtually the same.The only example of an Economic Union is the European Union.Free Trade AgreementFree Trade Agreement “is an arrangement between two or more countriesunder which they have agreed to permit some or all goods (and sometimesservices) produced within one or some combination of the members to circulatewithin their territories free of all or most tariffs and other restrictions” (3).Identifying trading agreements between supplier country and destinationcountry is essential data for the project.Other TaxesUser fees, cost reimbursements, storage fees, and similar payments ostensiblyto offset costs incurred by the importing government in order to serviceimportation are sometimes assessed on imported goods (4).Retaliatory TariffsTariffs imposed on imported goods in excess of the published tariffs if theimported goods are among those against the country of origin. This excess tariffis for nonconformance by the country of origin to the detriment of the country of 91
    • importation as permitted under the terms of GATT and WTO.Rules of OriginNon-preferential rules of origin—apply when no tariff preferences are involvedor when other trade measures need to specify a particular non-tariff treatmentof goods from a given country.Preferential rules of origin—apply when tariff preferences are involved due totrade agreements or when other trade measures specify a particular preferentialtreatment for a country of origin or specific goods from a country of origin.Surtaxes and Tariff surchargesTariff surcharges and other surtaxes on imported goods maybe encountered(5). A (5-10) % surcharge is identical to an additional (5-10) % tax imposed ontop of the normal importation fees.TariffTariff (custom duty) is a tax on the importation of particular goods. It is chargedby a national government and payable to it when the item/good crosses thenation’s customs boundary. It is also important to note that in some cases thereare tariffs on exported items. Nations have tariff schedules that show anabsolute amount of duty to be paid on a variety of imported items/goods. Thetariff schedule of destination countries will be essential data for the project.TreatiesTreaties is another notable source for the understanding the complexinternational system of tariffs. Treaties may “establish the bilateral free tradeareas of common markets between and within two countries” (5).Value Added Tax (VAT)Customs duties and value added tax are expressed as a percentage (%) of thevalue of the goods being declared for importation. The value of imported goodsis one of three elements of taxation that provides the basics for assessment ofcustoms debt, which is the technical term for the amount of duty that has to bepaid, the other ones being the origin of the goods and customs tariff (6). 92
    • Glossary of procurement terms A Procedure under which shorter advertising periods are permitted due to urgency. Justification must be published as part of the Accelerated tender notice. Applies to Public Sector only. Extreme urgency can Procedure also be used as the justification for using the negotiated procedure. Acceptance (legal) The act of the buyer accepting a supplier’s bid or offer. Acceptance The process of accepting goods/services in accordance with the (procedural) agreed acceptance criteria. A method of solving a dispute between parties. Under “The Housing Grants Construction & Regeneration Act 1996” either Adjudication party to a construction contract is entitled to submit a dispute to adjudication without the prior agreement of the other party. Advice of goods being despatched (sometimes called a despatch Advice Note note). Adding together the value of separate contracts for the same supply, service. Aggregation is often required in order to decide Aggregation whether a PIN needs to be issued. It appears not to apply to devolved units who buy from their own budgets for their own use. A generic term for a legally binding undertaking between a buyer Agreement and a seller. Amendment Any agreed alteration to a contract. Appraisal See “Supplier Evaluation” Approved List An eligible list of potential suppliers. A method of solving a dispute between parties. The parties Arbitration involved choose a mutually acceptable arbitrator who suggests a way of settling disputes. System or paper generated evidence showing how and by whom Audit Trail certain processes and functions were carried out. Award The issue of an order or contract to a supplier.B Best & Final Offer The detailed and fully priced offer submitted by the Respondent for the contract, following the issue of the Council’s Invitation to 93
    • submit BAFO documentation. Where the Council accepts the offer it becomes legally binding on both parties. The most effective and desirable method of carrying out a function Best Practice or process derived from experience rather than theory. Continuous improvement in the exercise of all functions Best Value undertaken by the Council, whether statutory or not, having a regard to economy, efficiency and effectiveness. A supplier’s offer to provide works, goods or services for reward in Bid response to a buyer’s enquiry or invitation to tender. The formal process of examining supplier’s bids to identify which Bid Appraisal provides best “value for money”. Ensuring that a clear understanding of requirements exist between Bid Clarification buyer and seller. Bid Conditioning Placing all suppliers’ bids on a common basis. A clause setting out the rights and liabilities of both parties if the contract should be terminated before it has run its full term, Break Clause enabling the contract to be determined before the anticipated end date. British Standards Institution. The National Standards body in the BSI UK, which brings together suppliers and users to draw up standards. The Buy Local Bulletin Board is a computer based system designed to give “South Bank” organisations easy access to a Bulletin Board wide range of selling opportunities. The system allows buyers, such as the Authority, to interface with local suppliers for their purchasing requirements. As part of its commitment to creating new jobs, the Council runs a highly acclaimed local purchasing programme. This programme Buy Local helps buyers to find competitive local suppliers for a wide range of goods and services. A contract or arrangement for the supply of goods or services at pre-stated prices for a specified period under which orders areC Call-off Contracts placed for varying quantities. (See Corporate Contracts Catalogue). Delivery of goods to a named destination with all charges up to the Carriage Paid point of delivery being borne by the supplier. 94
    • A group of suppliers acting illegally in concert to artificiallyCartel influence the price and quantity of supply.Caveat Emptor “Let the Buyer Beware”C.I.F. Cost, insurance and freightC.I.P.S. Chartered Institute of Purchasing & Supply. A fraudulent arrangement between two or more parties wherebyCollusion prices or service requirements are manipulated so as to circumvent competitive tendering.Competitive The awarding of contracts by the process of seeking competingTendering tenders. A person or organisation commissioned to carry out a specificConsultant assignment, usually the giving of specialist advice/services. A binding agreement made between two or more parties which isContract intended to be enforceable at law. Notice published in the Official Journal of the EuropeanContract Notice Commission by contracting authorities, inviting companies to tender. Notice of award published in the Official Journal of the EuropeanContract Award Notice Commission, in fulfilment of the requirements of EC public procurement directives. The estimated total monetary value of a contract over its fullContract Value duration (not annual value). A firm or person who has made a contract to supply goodsContractor and/or services. A policy where only authorised purchasing officers have contactControlled Contact with suppliers, to ensure that all contacts with suppliers are controlled and to high and professional standard. A catalogue of corporate contracts representing an efficient useCorporate Contracts of resources and capitalising on the financial benefits of usingCatalogue the Council’s substantial buying power to best effect. A procedure for examining how the quoted price relates to theCost Analysis cost of production. 95
    • Council North East Lincolnshire Council CPRs Contract Procedure Rules A breach of a contract condition, e.g. a delay in the promisedD Default delivery. A collective name for the tangible goods and/or services that the Deliverables supplier or contractor is required to supply under an agreement. The definition and description of the works, goods or services Detailed Specification required. It should be in such detail as to attract the maximum level of competition and hence secure the best value for money. Economic Order The most cost-effective quantity to order when purchasing forE Quantity stock based on the mathematical formulae known as EOQ theory. EN29000 The European equivalent to BS5750 and ISO9000 Series. Evaluation Detailed assessment of suppliers’ offers A clause to exclude, limit or qualify liability within a contract (also Exclusion Clause called exemption clause). A planned activity to monitor a supplier’s progressive Expediting achievement with the objective of receiving deliveries on time. Goods made available for collection by the customer from the Ex-works supplier’s factory, i.e. exclusive of transport costs.F Firm Price A price which is not subject to variation. Agreements laying down terms, conditions & prices governing Framework future contracts. Apply to the Utilities Sector, and run for a fixed Agreements period. If awarded according to the Directives, then the ensuing contracts may be awarded without further call for competition. The issue of stores or equipment to a supplier for incorporation in Free Issue equipment under construction etc, in accordance with a contract which provides for the issue without payment. Delivery of goods by the supplier on board a named vessel at a Free on Board (FOB) specific port, all costs & risks up to and including loading being borne by the supplier. A form used to check the accuracy of goods received against aG Goods Received Note requisition or order. 96
    • H Pertaining to a separate unit within an entity, as distinct from a third party. Awards are outside scope of Directives if no contractI In-house exists (in the case of Public bodies) and always provided the unit does not sell outside the entity (in the case of Utilities). An invitation to sellers to submit an offer (tender) in response to Invitation to Tender the needs of a buyer which has been laid out in a service (ITT) specification included within the invitation to tender documentation. A request to pay submitted by a supplier of works, goods and/or Invoice services. Invoice Item A line item on an invoice. Invoice Payment Specified terms of payment agreed between the supplier and Terms purchaser. International Standards Organisation. The international standards ISO making body. A procedure to avoid holding stocks, primarily developed inJ Just in Time (JIT) manufacturing in which the delivery of material is made just in time when it is needed in the production schedule.K The period of time that is considered to be required betweenL Lead Time defined events, i.e. placing an order and delivery of goods. An amount of money, defined in the contract, to which one party Liquidated Damages is entitled in the event of a breach of contract by the other. The process of comparing the efficiency of in-house servicesM Market Testing against tenders from outside firms. MEAT Most Economically Advantageous Tender. Member Elected Member of the Council. Most Economically Award criterion taking account of other factors as well as price. Advantageous Tender Negotiation Position The detailed and priced bid submitted by the Respondent(s) forN Statement negotiation together with all supporting information and 97
    • documentation. A procedure under European Procurement Directives which enables Local Authorities, under prescribed circumstances, to Negotiated Procedure consult with suppliers of their choice and to negotiate terms of contract.O OGC Office of Government Commerce A supplier’s offer to provide goods and/or services for a Offer consideration in response to a buyer’s enquiry. OJEC Official Journal of the European Commission. A procedure under European Procurement Directives which Open Procedure allows any company which responds to a notice to be able to tender. A confirmation from a supplier that they have received your Order order, and understand the terms & conditions and specification Acknowledgement of works, goods and services to be supplied under the order. Long term relationship between purchaser and supplier involving mutual trust. The Directives do not provide clearP Partnership sourcing guidance but it seems possible for a public sector body to request bidders to offer a partnership sourcing arrangement. Performance The formal description in objective & measurable terms of the Specification performance characteristics of the required goods or services. Summarises the procurements the advertiser expects to place Periodic Indicative in coming period. Gives no guarantee that procurements will be Notice made. Normally covers 1 year. Private Finance Initiative – a form of PPP which allows public bodies to draw upon the expertise and resources of the private PFI sector. Commonly used in capital intensive projects. Takes the form of a longer term contractual arrangement. Prior Information Notice – A published indication in OJEC of an intention that contracts will be placed. Does not guarantee that PIN contracts will actually be awarded. Placed by public sector body. Allows reduction in the timescale for the subsequent procurement process. Post Tender Discussions with a supplier or suppliers after their offers have Negotiation been received, with the aim of achieving clarifications and/or improvements. (Strict guidelines apply to conduct during this 98
    • process). Public Private Partnership is a generic term describing a collaborative approach of service delivery, which involves both PPP public bodies and private organisations. Examples include joint ventures; licensing; sponsorship; contracts; leasing; partnerships; and lettings. System for selecting bidders to be invited to tender for a Utilities contract. Criteria used may (but need not) be those laid down in Pre-Qualification the Works/Supplies/Services Directives – General Suitability; Financial and Economic Standing and Technical Ability. A clause in a contract which sets out conditions governing Price Variation additional or reduced payment terms on the contract due to the Clause rise or fall in the cost of materials and/or labour. Proprietary Goods Those protected by patent, brand name or trademark. A pre-printed form, which usually incorporates the buying Purchase Order organisation’s terms & conditions of purchase, used to place an order with a supplier. Purchase Order Item A line item of a purchase order form. A formal request for works, goods and services made by a cost Purchase Requisition centre (departmental section). Quality Assurance A discipline to assess quality standards. Covering all activitiesQ (QA) and functions concerned with the attainment of quality. A tender which is qualified because it does not fully meet the Qualified Tender intended contractual requirements. A procedure under European Procurement Directives whichR Restricted Procedure enables Local Authorities, under prescribed circumstances, to receive tenders from invited companies only. Payment made for the use of a patented invention or registered Royalty design process. This is a contract between two or more departments within the Service Level same organisation, where one undertakes to deliver a quantity ofS Agreement (SLA) service in return for a specified annual payment. An S.L.A can also set out a scale of fees for ad hoc works. Services All purchases other than Works or Supplies. (Mixture of supplies and services are usually put in the category to which more than 99
    • 50% by value belongs. Single Tendering The process of inviting only one supplier to tender. The process of establishing potential suppliers of specified Sourcing works, goods or services. The formal description in objective and measurable terms of the Specification characteristics of the works, goods or services required. An agreed percentage or part of the contract price, which is Stage Payments payable when specified stages of completion/delivery have been reached. A list of approved contractors or suppliers qualified for Invitation Standing List to Tender for works or services. A generic term for the business functions and processes to Stock Control account for, monitor and physically control the quantity of stock held. A despatch of stock from a store to a specified, person, section, Stock Issue cost centre or department. The process where a contractor assigns part of the contract to Sub-Contracting another contractor(s). The process of establishing whether a supplier is capable of Supplier Evaluation providing the goods or services required, and assessing a supplier’s subsequent performance against requirements. Goods, including both consumables and capital items. (Mixtures Supplies of supplies and services are usually put in the category to which over 50% of the value belongs. Supplies, Services & See individual definitions WorksT Tender A supplier’s bid in response to a buyer or invitation to tender. Tender Evaluation A group of people who analyse tenders received and take final Panel decisions on the award of contracts. Total Quality An overall means of managing quality in all areas of business. Management (TQM) Official Purchase Order, contract or call-off contract (but not an Transaction order placed against a call-off contract). 100
    • Transfer of Undertakings (Protection of Employment) TUPE Regulations 1981, governing the transfer of staff identified with an undertaking to and between successive contractors. UnqualifiedU Acceptance The unconditional acceptance of an offer. The breakdown of price into its constituent cost elements (e.g. labour, materials, administration, distribution, profit) to identifyV Value Analysis opportunities for reduction and/or a more cost-effective mix of resources. The provision of the right goods and services from the right source, of the right quality, at the right time, delivered to the right Value for Money place and at the right price (judged on whole-life costs and not simply initial costs). Tenders which meet minimum specifications but vary in technical Variants terms. May be allowed by a contracting authority where award criterion is that of most economically advantageous tender. Construction and civil engineering (Also referred to as “publicW Works works”). 101