Adding value to public procurement


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On the 14th March 2014 the House of Commons committee on public accounts report "Contracting out public services to the private sector" was published, and makes uncomfortable reading for those involved as suppliers or procurers. It might be tempting to say this is the reality of the difficulties of delivering public services, and it might instead be the case that procuring services through contracts performs with great variability across all sectors commercial and public.

A conference was hosted by the APM Value Management SIG that looked at those issues in the face, entertained the notion that the solution is in the hands of project teams, from either side, client or supplier/contractor, and sought to prove that case, with both theory and evidence!

The event included the following speakers:

John Heathcote, APM Value Management SIG Chair
Alan Munro (keynote speaker)
Paul Riley, Head of Capital Projects, Leeds Metropolitan University Estates & Contractor partners BAM
John Phillips, BAM Director
Professor Farzad Khosrowshahi, Head of the School of the Built Environment & Engineering

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Adding value to public procurement

  1. 1. “Adding value to public procurement” Partnering Approaches APM Value Management Specific Interest Group & Leeds Metropolitan University’s MSc [Strategic] Project Management
  2. 2. 2 House of Commons Committee of Public Accounts Contracting out public services to the private sector Forty-seventh Report of Session 2013–14
  3. 3. The House of Commons, Public Accounts committee report 47 Alan Munro: Contributor to 4Ps & Local Partnerships Reference: The House of Commons Committee of Public Accounts. Contracting out public services to the private sector. Forty Seventh Report of Session 2013-14 Ordered by the House of Commons to be printed 26th February 2014 Made 5 recommendations...
  4. 4. The House of Commons, Public Accounts committee report 47 1. Transparency: There needs to be far greater visibility to government, parliament and the public about suppliers’ performance, costs, revenues and profits. 2. Contract management and delivery: Central government’s management of private sector contracts has too often been very weak. 3. Competition: There is not enough effective competition in the market for government business. 4. Capability: Government does not currently have the expertise to extract the greatest value from contracting to private providers. 5. Public service standards: Contractors have not consistently demonstrated the high ethical standards expected in the conduct of public business.
  5. 5. Transparency and openness Mandate the use of open-book accounting for contracts above an agreed level of expenditure: (nice idea how practical?) develop guidance for departments on how and when to use open-book accounting explore how the FOI regime could be extended to cover contracts with private providers, scope for an FOI provision to be included in standard contract terms; (why is this not the case anyway?) that the Comptroller &Auditor General has access rights to contractors. Neither the Cabinet Office nor departments should routinely use commercial confidentiality as a reason for withholding information about contracts with private providers. The Cabinet Office should set out a plan for departments to publish routinely standard information on their contracts with private providers including, for example, contract duration, value and performance against key indicators.
  6. 6. Contract management and delivery: Central government’s management of private sector contracts has too often been very weak. Cabinet Office to: provide guidance to departments on how to ensure that contractors, of any size, have effective governance and internal controls over all aspects of their operations; & should provide guidance and support to ensure the terms of contracts properly protect both the taxpayers’ interest and the service users’ legitimate expectations. Seek to standardise the information that government requests from contractors as far as possible and improve the consistency, accuracy and efficiency of information collection; periodically review & update the performance regime of their major contracts to ensure that they reward or penalise behaviour as appropriate; (an appropriate incentive regime)
  7. 7. ..Contract management and delivery: Central government’s management of private sector contracts has too often been very weak. Cabinet Office to: To encourage good performance, departments should look at the scope for more ways to share the savings from efficiency gains with contractors; (gainshare) Depts should ensure that the penalties (!) imposed on contractors who fail to deliver reflect the full cost to the taxpayer; & Depts should make full use of their ability to take into account past performance on similar contracts when re-tendering or contracting for new services. (NB: unsure how legally sound that is) Assessment of contractors’ performance should also cover their corporate social responsibility policies and their record on corporate taxation.
  8. 8. Competition: There is not enough effective competition in the market for government business. In the short term, departments should review contracts to ensure that, in the event of supplier failure, contingency plans are in place for continuity of services, and that government is protected financially. They should explore all options for amending existing contracts where necessary; (change protocols) In the longer term, more to encourage diverse markets. For example, departments could split up contracts (LOTS) and set out specific actions to encourage SMEs and new entrants in particular markets, either as primary bidders, sub-contractors or part of consortia; and Depts should increase competitive pressure by reducing contract duration and extending contracts only by exception—balancing the need for stability and incentives for contractors to invest in improvement with the scope for savings from increased competition. (Interesting concept – increasing contract duration and early extensions of contracts can realise savings and efficiencies)
  9. 9. 4: Capability: Government does not currently have the expertise to extract the greatest value from contracting to private providers. Recommendations: • that there is appropriate Accounting Officer & board level engagement in major contracting decisions; (Governance) • and should invest in developing experience and expertise in commercial issues & contract management; (commercial awareness) • and should explicitly require departments to ensure that those who are responsible for day-to-day contract management have sufficient authority, commercial skills and experience. This includes having the expertise to put open-book accounting into practice; • and should strengthen the Crown Representative initiative, ensuring sufficient coverage across government bodies and major suppliers, providing them with the time and support necessary.
  10. 10. Public service standards: Contractors have not consistently demonstrated the high ethical standards expected in the conduct of public business. Recommendations: • Depts should have contracts that require suppliers to have whistle- blowing policies in place. • The Cabinet Office needs to be clearer with firms that they are expected to behave with the same standards of honesty, integrity and fairness that apply to the public sector itself. • expectations which include transparency, the treatment of service users and employees, and ethics; and • The Cabinet Office and government bodies should ensure that government’s expectations are then built into standard contract terms.
  11. 11. Typical services/courses procured (design & delivery) by local public bodies over the last 18 months: Commissioning Contract Reviews (mini gateways) Negotiation & Commercial Skills Contract Management Innovation Tools & Techniques Market Analysis Advanced Procurement Specification Writing Supplier Relationship Management (including category management) Prime Drivers for these courses: • deliver ‘real’ savings/efficiencies • standardising processes & systems • up-skill officers particularly with commercial skills Setting the National Scene
  12. 12. Key lessons learned from these in the last 12 months! ...................... 40+ Staffordshire Police 100+ Leeds CC (Open Course) 20+ Portsmouth CC NE Lincolnshire Council 80+ Staffordshire CC (Open Course) 200+ Essex CC 100+ LB Waltham Forest (Open Course) 40 + Cumbria CC Contract Reviews, Contract Management, and Negotiation National picture Cabinet Office: Crown Commercial Services earlier Circa £260bn public sector contracts not delivering benefits on scale anticipated (NAO) (£187bn on goods and services) Local Government picture Real savings – the only game in town! Delivered services/training to:
  13. 13. Observations – not so good practice Governance • Left to the contract manager • No corporate director engagement / visibility • No stakeholder engagement (internal & external) • No meetings Continuity • No handover – procurement team walk away • No Contract Operations Manual for: • Continuing application of the contract • Continuity/succession planning Team Development • In the dinner queue – no experience / no training • No understanding/different views of the contract(s) • Replicating the supplier’s workforce/doing supplier’s work – legal ‘state aid’ risk
  14. 14. Observations – not so good practice Monitoring Performance • Left to the contractor / no supplier engagement • No audit of supplier performance • Payment in advance / no checking of invoice – automatic • Contracts lost – locate them and keep master copy in central location • If in a partnership contract, allow the supplier to innovate • Remember it’s your contract – not the supplier’s Financial Control • No view of whole life costs / renewal by default! • Continuing use of the payment mechanism – especially the application of incentives • No Variation tracking and the use of change control protocols • When the tender was won the provider submitted a cost model • You need to review this as markets evolve and costs change
  15. 15. Observations – not so good practice Financial Control • No understanding of private sector perspective/aims/motivations • What income has grown for them? • What has been the impact of indexation? • What costs have they saved? • No understanding of what elements of specification and risk can be removed/refined to drive down cost • Lack of understanding of and justification for central overheads • Awareness of what you are paying for - are you sure they are not using equipment and staff from your contract on other contracts? • Need to become an "Intelligent customer" Client Power – the supplier wants your continuing business - negotiate
  16. 16. Theory & Research John Heathcote Senior Lecturer at Leeds Met University (Leeds Beckett) Course Leader for MSc [Strategic] Project Management & MSc Contract Management And our message to students is: - Based on our own (Action!) research - & says whilst tricky in practice, the principles once enacted are understood, those principles are....
  17. 17. Access to the supply chain Partnerships are not limited to large tier 1s contractors at Local Government level, At least others can & do bid, but their success is low And few understand the principles being applied. A major barrier is the volume of paperwork, & any understanding of PQQ (Pre-Qualification Questionnaires) & their purpose.
  18. 18. Access to the supply chain Tier 2 SMEs’ poor understanding of PQQ & partnering won’t matter if we just stick with tier 1s. Who will manage them! They might, & they also don’t (delegating the responsibility, we have a contracting culture of it's them!*) but mostly they are managed to maximise profit.. * Which starts with the Client!
  19. 19. Contractual behaviour But before we start blaming tier 1s for being contractual, let’s consider how that came about.. The NEC form was resisted by lawyers. The Client sets the rules, witting or unwittingly. The significance of NEC3 asking for back to back is under-emphasised.
  20. 20. The criticality of Agency Structure or Agent? When we look at contractual issues, we seek to do two separate things at once: Structure, the contract, the clauses, the procedures.. And the enactment of these, through the persons involved, or Agent. Our research tells us the ‘quality’ of the Agent is highly emphasised by respondent practitioners, at site level, at the level of named person (Engineer) to the contract. Badly written contracts work well because of good agents. Well written contracts go wrong because of bad agents.
  21. 21. There must be a programme approach When we know what we are doing, And what we are doing next, And why* we are doing those things, (the benefits*) and how they fit together. Partnering seeks to add value through greater co- ordination, less waste & you cannot do that without a programme management approach!
  22. 22. & Programmes need strategies For Client organisations, to know why they need to do something, They need to know why, what the benefits will be.. (the value) To be able.. To decide whether they are worth doing To be able to discuss it with the Partner!
  23. 23. Strategies should add value When we partner.. We should be talking with one another about value adding, and more value adding together.. (& removing risk!) Not just, can you move that transit from the entrance way! Experts can offer useful advice. The existence of this value innovation, largely remains circumstantial, our research shows, it happens.. In spite of the contract, Is prevented by the structure of the arrangement, (normalisation of deviance) Happens in secret,
  24. 24. Our research Concludes that There’s a value/transaction disconnect.. This happens even in the 6th Ed of the APM’s BoK, value is a subset of requirements.. What do you want? (Transaction) / Rather than what represents value! “How many beds/how do we improve capacity” “How big a building/how do we improve utilisation” “How many grades A-C/Lifelong learners” & you need a contract to seal the disconnect! “I’ve just done what you contracted me to”
  25. 25. Managing Value needs more than one element to work reasonably well The strategy needs formulating, and articulating, & you need to mean it. (So value can be defined) You need programme management (& a picture of it) You need to be able to measure enough to verify that value is being added, measure too much & the wrong thing(s), and the performance indicators will BECOME the project. You need Agents that understand partnering principles & will defend it. Tick the Box!
  26. 26. Managing Value needs more than one element to work reasonably wellNow we can look at the elements of a GOOD partnering contract... The Agents are named, perhaps called framework managers (Single point of integrative responsibility) The measurement is simple, reflects value/work done & true cost. The exclusivity is protected. (The organisational stakeholders are informed.) Appointment is waste-less, ideally call off. Prices are visible, known. Issues/Problems on both sides are raised, raise-able & addressed. Innovation/Improvement is formally encouraged, enacted & tested. Including the framework itself. More than one supplier is used, facilitates benchmark of absorption accounting SMEs. Also Benchmark, to prior, the others & market performance, compare apples with! Performance is rewarded by more (or less) programme work.. And only this. Right sized supplier, for the job they are doing in the Programme. Usual other QA considerations are verified prior to commencement. Change it!
  27. 27. Some Conclusions There’s no appreciable difference in practice between.. Public sector contracting and any other commercial supply chain.. Both are good & bad. The principles involved apply to all. All sectors wrestle with these issues. There’s disconnect in our fragmentation of ‘system’ And no element is deliberately evil! Our stereotypes are just that, stereotypes. Design your contract with the problems you hope to fix with it, in mind! Getting the Private sector to do what the public use to, will produce the same results . Know what value is, and know where the risk (to value) is! PFI PPP won’t be going away, even with its flaws it is too useful
  28. 28. Partnerships that work: Our exemplar John Phillips: BAM Construction Director Paul Riley: Head of Capital Projects, Leeds Metropolitan University Partnership agreement ‘ESTATES’ the client BAM the contractor
  29. 29. Strategy & Value Early involvement is further enhanced if the partner (& the Client) understand that projects go ahead only to add value, And in Organisations value is delivered through strategy... At Leeds Met Estates’ overhead is a significant cost to the Uni operational running costs, & this is translated simply into: - Space utilisation (improved by quality & flexibility of spaces) & - Running costs (Most influence by the size of the Estate)
  30. 30. 31
  31. 31. 32
  32. 32. Early Involvement
  33. 33. Innovation, Better solutions
  34. 34. An integrated supply chain • Learning • Customer service & client processes, requirements (live HE sites) • Remove performance blockages (Concrete Clean machine)
  35. 35. Size of the client team
  36. 36. Speed of mobilisation Removing the procurement, time.. Waste Photo of tender and site work
  37. 37. Design: Modular building
  38. 38. Programme EfficiencyOne CDM co-ordinator Site coordination & next project/overlapping planning/shared resources
  39. 39. Risk managed out! Shared risk log. critical to partnership working. And.. Most risk once identified can be removed.
  40. 40. LearningVia risks Through consultation..
  41. 41. Budgets more predictable Rates for one job utilised for the next.. Same supply chain, improves cost estimation 0 25 50 75 100 125 April May June July
  42. 42. Involvement in the Eng Spec. A live document, Subject to change to improve value to the organisation, its Estate operational costs.. Not a fixed set of solutions, that were correct from a 1999 perspective!
  43. 43. Viability of Projects One of our projects was simply not viable. Too expensive, BAM proposed using BIM to remove the risk pricing, this cost of mitigation, dramatically reduced the capital cost, making the project viable.
  44. 44. The Agents trust?
  45. 45. Trust, but verify If you cannot measure value, Or benchmark your unit costs, You cannot demonstrate.. And it’ll matter at some point, because trust is fickle. There’s some headline indicators that value is added here.. Estates team volume; Speed to mobilisation; Availability of University; Operational cost changes; Degree of Quality grade facilities. & also the detail is reportable at project level. Partnership advantages will be subject to scrutiny.
  46. 46. Question time! The Panel Members: - Merv Wyeth: APM Programme Mgt SiG Chair. - Ian Viveash: Wipro Integrated Value Management director. - Andrew Macey: 4Ps & Local Government partnership advisor/trainer. preceding speakers... - Alan Munro: Government Practitioner - Paul Riley: Client Practitioner - John Phillips: Contractor Practitioner
  47. 47. This presentation was delivered at an APM event To find out more about upcoming events please visit our website