Value for money in procurement (4)

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Value for money in procurement (4)

  1. 1. Management CentreValue for money inprocurement
  2. 2. 2
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. • 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
  18. 18. • 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
  19. 19. 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
  20. 20. 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
  21. 21.  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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33.  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
  34. 34.  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
  35. 35. 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
  36. 36. 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
  37. 37. 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
  38. 38. 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
  39. 39. 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
  40. 40.  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
  41. 41.  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
  42. 42. 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
  43. 43.  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
  44. 44.  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
  45. 45. 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
  46. 46. 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
  47. 47. 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
  48. 48. 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
  49. 49. 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
  50. 50. 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

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