Procurement Best Practice Guide

8/8/2019 Procurement Best Practice Guide

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Approved by Cabinet 10-07-02

DONCASTER MBC

Procurement Best PracticeGuide

ACHIEVING OUR FULL POTENTIAL

Choosing the best options to achieve Doncasters goals and priorities

17-05-02


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CONTENTS

Page

Introduction.. 3

The ProcurementProcess... 4

1. Assessment of Need...... 4

2. Markets..... 5

3. Option Appraisal.... . 7

4. Contract Strategy... 12

* Partnerships & Partnering.. 18

5. Green Procurement .. 24

6. Local Suppliers... 27

7. Tender Evaluation.. 31

8. Project Management. 34

* Risk Assessment & Risk Management 39

9. Contract Management... 42

Summary.. 43


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Appendix 1

Key Project Activities44

Appendix 2

Essential Elements of the Procurement Process45


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INTRODUCTION

This document outlines the major issues to consider when procuring inaccordance with best value principles.

It covers areas of the procurement process in a best value environment andprovides guidance on current best practice.

The issues apply equally to the decision-making process for all procurementsundertaken by the Council.

This guidance should also be used to inform the options appraisal undertakenas part of a Best Value Review.

It should be read in conjunction with the Councils Procurement Strategy, andwill be developed further to take account of emerging issues. It will ultimatelybecome a comprehensive manual for use by anyone involved in procurementactivities within Doncaster MBC.


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THE PROCUREMENT PROCESS

1. ASSESSMENT OF NEED

Is there a need for some form of Procurement?

1.1 The essential prerequisite to any procurement process being initiated,is an assessment of the need for the proposed works, supplies orservices. This applies equally to Best Value services and otherstrategic procurements. As part of the Best Value review process, theneed should be identified through the comparison and challengeelements of the review. For other strategic procurements, the need

should be demonstrated in the Strategic Procurement Plan.

1.2 The corporate policy on consultation should be complied with toascertain the need for the procurement as judged by stakeholders.

1.3 Consideration should always be given to how the proposedprocurement will contribute to the achievement of corporate objectivesand transformational goals, and also take account of the statutorynature of the goods or services and any legal constraints on how theyshould be provided.


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2. MARKETS

What can the Market Provide?

2.1 One of the requirements of Best Value is to analyse the structure ofsupply markets for the different goods or services, and the way inwhich they are developing. Market intelligence should be acquired viathe following routes:

research - via professional bodies, trade organisations,publications (including the Internet), and other public bodies,into whether there are currently a number of providers in thatparticular market, who could supply the goods/services in theway envisaged by the procurement plan.

market consultation - potential providers of theworks/supplies/services under consideration should beconsulted as stakeholders in this particular procurementprocess. Their views should be sought on the proposedpackaging of the procurement, and also any suggestions as toalternative provision or procurement methods which may bemore attractive to the market and hence obtain better value formoney for the Council. To enable this process to take place,adverts should be placed in appropriate publications/venues toinvite interested parties to express interest in being consulted;

the views of those interested should then be sought by the mostappropriate means. This may be via interviews/discussions,questionnaires or organisation of a briefing session. The resultsshould be used to inform the proposed procurement process.

2.2 Under Best Value, the Council is required to demonstrate that where amarket is not apparent, steps have been taken to encourage a marketto develop. The Council has a Strategy for Developing Marketswhere none is found to exist, and the steps contained in that strategyshould be followed to encourage providers in that particular area. Thesteps to be considered (in accordance with paragraph 41 of DTLR

Guidance 10/99) to create conditions in which new providers mighttake root or existing suppliers might become more competitive include:

basing requirements on outcomes to encourage innovativemethods of provision dont be unnecessarily prescriptiveabout the way something should be done

grouping activities to reflect prospective market competencies


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packaging work appropriate to the market. (E.g. in some areasof activity larger packages may generate more interest thansmaller ones, in other, the opposite may be the case).

being clear about intentions - the Council must make it clear if it

wants a long term relationship with potential suppliers, anddemonstrate a genuine interest in using the best provider,regardless of the sector they operate in

developing an understanding of the potential sources of supply.Early discussions with prospective providers can assist inshaping the optimum size, composition and length of contracts,whilst ensuring the fairness and transparency required.


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3. OPTION APPRAISAL

Obtaining the Best Possible Services

3.1 The objective of Best Value is to ensure that local citizens get the bestpossible services from Local Authorities. Choices have to be made todevelop a framework for local service delivery, recognising that neitherthe public nor the private sector can deliver the best quality and costeffective local services on their own. Practical steps have to be takento make the most of existing skills and experience in the public sector,the private sector and the voluntary sector. The Council therefore hasto adopt new ways of thinking about its services and new ways ofmanaging them (whether provided in house, through contracts orthrough other arrangements). We have to make a strategic choiceabout what services we require (the specification), and how we will

work with the people who deliver the services (the relationship). Thuswe will achieve the Best Value service option. The choice has to bemade irrespective of whether the final result is improved in-houseservices, an external provider or a mixture of both.

Service Delivery Options

3.2 The statutory guidance on Best Value lists (the minimum) sevenoptions for service delivery:

cessation of the service (withdraw from the activity, where the

Council has a power to do something, but not a duty)

creation of a public-private partnership, through a strategiccontract or joint venture company

transfer orexternalisation of the service to another provider

market-testing of all or part of a service (where the in-houseprovider bids in open competition against the private orvoluntary sector)

restructuring of the in-house service

re-negotiation of existing arrangements with current providerswhere permissible

joint commissioning or delivery of the service (joining withother public bodies to jointly provide or purchase services. Thiscan include delegation of powers to another authority, pooling ofbudgets, working with other agencies or arrangements with notfor profit organisations).

3.3 Each option will be appropriate in particular circumstances. Thechoice of option will be influenced by a number of factors, including:


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the legal framework

corporate values and objectives

results of a Best Value Review

3.4 This Guide outlines the approach to making the choice/appraising theoptions, to ensure that all practical options for future service deliveryare considered, and the final decision is firmly based on evidence of athorough appraisal process.

KEY ISSUES TO CONSIDER AT THIS STAGE:

a. What are the benefits of delivering the service through another

organisation?

Possible benefits could include:

Economies of Scale - another organisation may be larger than theexisting supplier. Through access to management and supportservices via more efficient use of assets, it may be able to deliverbetter levels of service.

Economies of Scope - another organisation may have specialistskills and expertise that the existing supplier cannot afford. This

can be used more effectively to deliver a high standard of service atan economical cost

Innovation - another organisation may have a way of doing thingswhich is so different that the existing supplier will not be able tolearn.

Access to Capital - where investment in capital assets isnecessary to deliver a Best Value service, restrictions on LocalAuthority borrowing may force this option.


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b. What are the costs of delivering the service through anotherorganisation?

Transaction costs - these are the costs of using themarket, and any organisation which uses competition to choose

who supplies works, goods or services will come up againstthem.. There always needs to be a balance between the cost ofgoing out to the market, and the savings available from doingso.

The costs can occur before a contract is awarded:

creating the specification obtaining market information consulting customers choosing the right contractor or partner

Or they can happen after contract award:

the Council pays too much for the work or service

the Council has continuing costs of monitoring and dealing withthe contractors failure

there are increasing costs over time if the winner of competitionbecomes a monopoly supplier

Process Costs - some of the costs above will be necessary tocontrol or reduce costs later. They are the unavoidable costs ofusing the market, and are known as process costs. Thereshould be an attempt to ensure that the benefits of usingcompetition are considered to outweigh the risks of having tomeet these process costs.

c. What are the elements of uncertainty and risk?

These are issues about the level of uncertainty between the objectivesof a service and its delivery; the uncertainty is between issuing an

instruction and its execution. In general terms, the more uncertaintythere is (because of the nature of the requirement or because of theenvironment in which the service is delivered), the more likely it is thatin-house provision, or a modified contractual relationship is the BestValue option.

Each procurement decision will have to be aware of the options whichmight increase transaction costs and the ways in which these costsmay be reduced or controlled.


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Questions to answer for each Service Delivery Option:

Make or Buy?

3.5 The options appraisal process is an essential part of the Procurement

Strategy because, except for a decision to retain the service in house,or to pull out of providing the service at all, all the basic optionsconcern externalisation (or potential externalisation). Most also involvethe competitive selection of a service provider. Therefore, there needsto be clarity and forward planning regarding:

What is planned to be externalised (the whole or part of anexisting service, any assets, which people are involved, anyimplications for other parts of the Council?).

What are the anticipated costs and benefits of externalisation

(long term, short term, risk factors?)

What are the options available (what does the market currentlyoffer, what could it be stimulated to offer, what are thealternatives to market transactions?)

What kind ofrelationship is being sought with the contractor(traditional contract, partnership approach, non-contractapproach?)

Who will be responsible formanaging the contract/relationship

with the external supplier?


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The following series of questions should be applied to each option, and theanswers should be expanded from a simple yes or no, to what, why and how:

1. Is there any policy reason for eliminating this option?

2. Is there any legal reason for eliminating this option?

3. Is there any financial reason for eliminating this option?

4. Are there any other reasons for rejecting this option?

At this point some of the options may be eliminated.

5. What is the gap between our existing service and where we want to be;

what is the nature of the gap; in what ways can each option help us tobridge the gap?

At this point, options that are not appropriate to the Councils objective ofbridging the gap may be eliminated.

6. What is the experience of other Councils who have used each option?

7. How does this option contribute to Best Value for them?

At this point, more options may be eliminated.

If more than one option remains, each one should be assessed in terms ofcontribution and risk to the Council:

8. What is the contribution to economy, efficiency and effectiveness, andto the achievement of corporate and service objectives?

9. What is the risk to the Council in terms of likelihood of service orfunction failure, and extent of failure?


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4. CONTRACT STRATEGY

4.1 The kind of relationship envisaged between the Council and anotherorganisation as a result of the procurement/externalisation is identified

as one of the outputs from the option appraisal process. There areobviously a number of competitive processes available, andcorrespondingly there are different types of contractual relationshipwhich may result. The main options relating to the competitive processand relationships which result are outlined below.

a. OPTIONS FOR A COMPETITIVE/EXTERNALISATION PROCESS

Open competitionThe Council invites tenders; any organisation can apply; there is onewinner.

More appropriate where: Less appropriate where:

the procurement is easy tospecify & monitor

relationship can be dealt with bystandard terms & conditions

there is an active, competitivemarket

the procurement is difficult tospecify & monitor

Council wants a closerelationship with supplier

Council will use standard criteriato reduce risk; some tenderersmay be wasting their time bymaking a bid

Consider all options for a competitive process and select the mostappropriate, justifying your choice a file note showing the full decisionmaking process should be made


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Restricted CompetitionSuppliers have to meet certain criteria before they can bid for work.


Council only wants to deal withsuppliers who meet specifiedtechnical, competence ormanagement standards

relationship with supplier will beimportant for the success of thecontract

evaluation of bid likely to be

complex & time consuming

supply/service easily specified &monitored

evaluation of bids will be simple

established market for standardproducts/services

Spot PurchasingStandard service package provided by supplier who can demonstratecost effectiveness, competence & reliability. Suppliers chosen whenneeded.


service packages relatively small& can be easily described ornegotiated within a fewparameters

law requires suppliers to beregistered to deliver theservice/product

Councils relationship withsuppliers based on contract

mechanisms

cost is most important factor forCouncil

service difficult to specify &monitor

suppliers do not need to beregistered

service packages relatively large(above Council threshold forcompetitive tendering)

balance between cost and quality

is complex

relationship with supplier isimportant


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Call-Off Contracts

More than one supplier chosen to have a licence to do work accordingto specification. Details of work and allocation dealt with on a day by

day or project by project basis.


a single supplier may not haveall necessary skills & resources

Council requires flexibilitywithout full tendering processeach time

demand for serviceunpredictable

service delivered as a number ofdiscrete projects

Council wants close relationshipwith suppliers

a single supplier can meet allCouncils requirements & delivereconomies of scale

demand relatively predictableover life of contract

Management Contracts

The management part of the service is subject to competition butdelivery remains with the existing provider


a BVSR has identified seriousmanagement weaknesses

external management

contractors can be co-ordinatedwith internally employed staff

there is a commitment to usingin-house labour for front lineservice provision

management functions cannotbe easily separated from servicedelivery

full externalisation would deliverbetter value


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Budget-Based Bidding

Bidders compete on the quality they can offer within a set budget


the Council has a clear idea ofthe budget available

the Council can specify theoutputs & outcomes it requires

there are key inputs & processesthe Council must specify

the Council does not have aclear view about what wouldconstitute a Best Value bid

potential service providers do notunderstand how the process will

work

Segmented Contracting

Contracting-out services in a specified geographical area used as abenchmark for in-house provision


service suitable for dividing ongeographical lines

spur of competition from theexternalised service will improvethe in-house service

contractors are willing to provideinformation to enablebenchmarking of inputs &processes as well as outputs

the gap between in-house &external providers is too large forthe in-house provider to improvein a reasonable time

the service needs to bemanaged as a whole to takeadvantage of economies of scale& scope


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b. OPTIONS FOR A CONTRACTUAL RELATIONSHIP

In addition to the competition/externalisation choice above, theapproach to the relationship with the chosen contractor/supplier alsoneeds to be considered. The preferred relationship with the chosensupplier will affect the kind of contract which will be the mostappropriate. Options in addition to the traditional forms of contractinclude the following:

Continuous improvement contracting

The contract has built-in commitments to improvement in service andshared benefits. E.g. one way to build in financial improvement is notto have any index-linking to the price paid


the Council is planning toimprove service delivery instages over a number of yearsrather than in one go

service providers are willing toagree to open book accounting& to share performanceinformation

both the Council & the serviceprovider want a relationshipbased on trust & mutual benefitsrather than a traditional contractapproach

most significant improvementscan be made in the short term

a standard service is required ona continuous basis

there is a danger that incentivesmay lead to inappropriatebehaviour

Now consider all options for a contractual relationship and select the mostappropriate, justifying your choice.


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Partnering arrangements

A variety of contract forms that can include relational contracts whichare developed where the service cannot be predicted, and the partners

have to rely on each other more than on the courts for disputeresolution


the Council wants to usecompetition/externalisation, butstill wants a close relationshipwith the provider

the contract is for a large

(financial) or significant (politicalrisk) aspect of the Councilsservices

smaller or less significantcontracts, where the processcosts of setting up the partneringagreement outweigh any benefits

standard services that are easy

to specify & monitor

4.2 The Council has Officers within the Legal Department who should berequested to advise on the most appropriate type of contract in eachparticular circumstance. However, the responsible procurement officershould consider the type of relationship with a provider which he/shefeels would provide the best value service provision.


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*PARTNERSHIPS & PARTNERING

4.3 Partnership is a concept now widely accepted in both central and local

government, especially since the advent of Best Value. It has beensaid that a best value authority is willing to work with otherorganisations in partnership to deliver services (Beverley Hughes,19/6/00). Partnership in its widest sense is about working to commongoals with shared values and responsibilities. Partners should eachcontribute to best value performance indicators and so build innovationand continuous improvement into their day-to-day work.

Definition

4.4 Many activities attract the label of partnership. A partnership orpartnering arrangement may grow out of an existing contractualrelationship or be specifically developed. Whatever the formalarrangement, the core processes necessary for the creation andmaintenance of a successful partnership, and therefore integral topartnership working, would consist of following elements:-

Two or more parties co-operate and work together.

The process brings together and uses resources moreeconomically, efficiently and effectively. It results in synergy by

pooling of resources.

It achieves outputs/outcomes to meet the demands of the localcommunity. It fits in with Best Value - putting service users centre-stage.

Commitment to agenda for joint/coordinated action by both parties.There are shared compatible ends, each willing to influence and beinfluenced and releasing some element of control.

Each partners contribution is planned, along with what is expected

of them and how they will benefit. Agreement of resources such asorganisation, finance and skills.

There is effective leadership of the joint action - implementation isas important as plans.

Decision-making processes respect the needs of all partners.There is genuine consent, no dominant partner.


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Specific goals are set and the success of the partnership isevaluated against them. Permanent revisionism brings a capacityfor continuous improvement.

There must be continual assessment of the partnerships function -

is the work still relevant to evolving community needs and priorities.

Issues to be addressed when consideringpartnerships/partnering

4.5 Partnership working requires clarity about the contribution expectedfrom each of the partners at different stages of policy development andimplementation. The Council needs to consider how best to achievesuch clarity and how to give it effect through a considered approach toprocurement.

a. WHAT?

A contractual partnership is a finite business relationship which bringstogether two or more organisations which have different statutorypowers and duties, different skills and needs, but share a mutualinterest in collaborating to achieve specific objectives, limited both inscope and time.

b. WHY?

There are a number of reasons for local authorities exploring thepossibility of partnerships:

to share risk to access new resources and specialist skills to review service delivery options

The relationships which develop and are sustained as part of effectivepartnership working should be based on the following principles:

shared understanding of aims and objectives of the partnership

commitment to the development and success of the partnership

open relationships and an atmosphere of trust, enablingpartners to share information

effective leadership to ensure the partnership maintainsmomentum and focus

regular communication between partners and within eachpartner organisation


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clearly understood objectives and responsibilities for eachpartner

demonstration of progress and contributions

c. WHO?

The Councils partner may be:

a voluntary organisation a community enterprise/trust a private contractor/developer another public sector body a local authority company

d. HOW?

There are also a variety of structures for a partnership arrangement:

contractually based (not PFI) joint ventures not-for -profit joint entity (e.g. trust) PFI strategically co-ordinated services

4.6 The DTLR guidance on these matters states that we should have a

policy or code of practice for partnerships, to ensure that there is aconsistent council-wide approach to their initiation, management andreview.

Partnership Protocols

4.7 The key elements of the Councils partnership policy can be foundbelow to give broad guidance to officers when considering partnershipas a method of procuring and providing works/supplies/services onbehalf of the Council. Officers should also have regard to the

Councils Financial Procedures Rules (F.31) which provides thatExecutive Directors are responsible for ensuring that all partnershiparrangements are reported to the Executive and approval gained forthe proposed relationships and monitoring procedures.


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Issue to be addressed byestablishing the partnership

Protect the interests of the

community and ensure the highestquality service is provided.

Objective of the individualpartnership arrangements

To provide quality services efficiently

and cost effectively, to promoteeconomic prosperity for the localcommunity.

Achieve the strategic aims of theCouncil, such as improving theenvironment and achieving BestValue.

Ensure the partnership is developedin accordance with corporateobjectives.

Formalise the structure ofpartnerships to assist the

development of new partnershipsincluding the definition of roles andresponsibilities.

Agree terms of reference,membership, shared objectives,

targets for service delivery andimplementation timetables.

Ensure service providers work in linewith the Councils core values andDirectorate standards.

The partnership works to an agreedstandard, linked in with the Councilsdecision-making structure

Ensure common practice in theevaluation of partnerships.

Specification of measures ofperformance, both quantitative andqualitative, and accountability.

Implications for contracts

4.8 Whatever arrangement is considered to be the most appropriate, thekey objectives and parameters of the partnership need to beestablished at the outset. A formal document - the Memorandum ofUnderstanding or Partnering Agreement- addresses the objectives,membership, management arrangements, values and responsibilitiesof the partners, and is used in conjunction with a formal contract to

clarify the relationship between the partners.

4.9 The formal partnering contract should set out the intended relationshipbetween all parties involved. It should be framed so as to promote:

an appropriate exchange of information on a regular basis

arrangements for regular meetings

shared arrangements for dealing with customers whereappropriate, including communications and complaints handling


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clear performance targets and standards

an equitable system for dealing with poor performance,balanced by provisions for sharing the benefits of goodperformance

overall, an equitable sharing of the risks involved inperformance of the works/service.

4.10 In addition to the inclusion of these elements in the formal contractwhere necessary, to give them legal effect, a Partnering Agreement(often a single page setting out the overall aims of the collaborativeworking) is often adopted and signed by representatives of all partiesinvolved in the partnership in order to demonstrate that the behaviouralaspects of the arrangement have been adopted by all concerned.

Advantages and disadvantages of partnerships

4.11 These should be taken into account when a partnership or partneringarrangement is suggested by the option appraisal and contractstrategy processes as being appropriate. The current market situationfor the particular service/supplies/works area must be assessed todetermine whether the partnership would be viable.

4.12 Typically, the private sector encounters some difficulty in persuadingLocal Authorities to enter partnership arrangements because ofpropriety problems related to public sector competition rules. The

constraints on partnership working can be both external and internal tothe organisation:

EU procurement legislation, requiring particular procedures tobe followed for contracts over a certain value

particular problems where a private sector company seeks anexclusive relationship with a Local Authority that will result in acontractual relationship which would normally be subject to therequirement for competition (seen as a cosy relationship)

cultural difficulties (Members, staff, service recipients, partnerorganisations)

problems of measurement - benchmarks against which to judgeperformance


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4.13 The recognised benefits of partnerships have been mentioned above,and can be summarised as:

improvements leading to best practice

reduced duplication of effort

improved access to resources

ability to take advantage of networking

4.14 Partnership can therefore be viewed as shorthand for a collaborativeapproach between client and contractor, or indeed all parties involvedin provision of a particular service. The partnership ideals need to becontained within the contract and monitored by managers on both

sides. The extent of cultural change necessary within organisations toimplement effective partnerships successfully, suggest that it would besensible to introduce the concept only after carrying out a detailedanalysis of procurement options in each individual case. The keyprinciples contained in this best practice guide and the ProcurementStrategy relating particularly to option appraisal, contract strategyselection and ethics and probity must be referred to in order to addressthe potential problems with a partnership approach and takeadvantage of the benefits on offer.


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5. GREEN PROCUREMENT

Environmentally Preferable Purchasing

5.1 Greener public purchasing is about specifying environmentally preferableproducts and services. Environmentally preferable products are defined asones which are less harmful to human health and the environment whencompared with competing products which serve the same purpose. Amongother things they:

1. are fit for the purpose and provide value for money

2. are energy and resource efficient

3. use the minimum amount of virgin materials

4. make maximum use of post-consumer materials

5. are non- (or less) polluting

6. are durable, easily upgraded and repairable

7. are reusable and markets and the infrastructure exist for recyclingthe product at the end of its life

8. are supported by additional information to demonstrate theirenvironmental preferability.

5.2 The requirement to achieve value for money - with its emphasis on wholelife costs and quality to meet customers' needs - enables public bodies tobuild sustainable development and environmental factors into their contractspecifications and to look beyond the initial cost to take account of long-term cost savings from, for example, lower operating and disposal costs.

5.3 Value for money in procurement is defined as "the optimum combination ofwhole life cost and quality (or fitness for purpose) to meet the customer'srequirement". This reference to "quality to meet the customer'srequirement" enables departments to specify what they need to meet their

own operational and policy objectives, while contributing to the Council'sobjectives on environmental matters. Buyers must, of course, satisfythemselves that specifications are justifiable in terms of need, costeffectiveness and affordability.


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Building environmental aspects into evaluation models

5.4 It is possible when developing a business case for a contract to give addedweight to a particular quality so that it has a greater influence over theoutcome. For example, a buyer of a car for mainly urban use may wish to

place greater emphasis on reducing emissions harmful to health than saythe buyer of a vehicle for mainly inter-urban use where a higher priority isto achieve more miles per gallon with a consequent reduction in carbonemissions which contribute to global warming. This could also be built intoa scoring system for evaluating bids where the quality is relevant to valuefor money to the contracting authority.

Green Premium

5.5 The specification of a particular environmental requirement may

occasionally result in a purchase which costs more - even after takingaccount of whole life costs - than a less environmentally-preferable productor service. This extra cost may be justified if the purchase is necessary toconform with Council policy to buy or not to buy a particular substance ormaterial on environmental grounds. This should be reflected in theevaluation model for that particular tender.

Social and Ethical Implications

5.6 Social performance is about the impacts of an organisation on society.That is, on people outside the organisation. Ethical performance is about

internal business processes. For example, how an organisation deals withits suppliers or customers.Raising environmental standards through procurement and other activitieshelps to address social inequality, because environmental costs are borndisproportionately by the poor, whether on a global scale or within the UK.

5.7 Purchasing can therefore have an impact on social issues throughappropriate use of specifications and by basing award decisions on wholelife costs and quality. For example, by specifying water efficient appliances,a buyer can reduce the demand for water, so helping to safeguard streamsand rivers - thus protecting wildlife, habitats and social amenities, and

water supplies during droughts.

5.8 There is always a danger that taking into account "social" and "ethical"issues in the procurement process may dilute the overriding requirementon buyers to achieve value for money, with the result that costs escalateand services suffer, hurting lower income groups more. We might also beusing procurement to effect changes which could be more effectivelybrought about by, say, legislation, taxation, education and foreign aid.

5.9 There are, however, some social and ethical issues which buyers canconsider where they are relevant to the contract, consistent with value for

money for the taxpayer and are best procurement practice.


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Key tipsDo:

1. Address environmental concerns at the specification stage ofthe buying process. Any invitation to tender or quote mustinclude a specification which clearly describes requirements in

sufficient detail to enable the submission of competitive offers,and any environmental considerations which are relevant to thepurchase must be included in the specification.

2. Think of the environmental issues before getting quotes and tenders- not afterwards.

Don't

1. Try to do everything at once! Concentrate on the most significantimpacts. 80% of these arise in offices from: business travel andcommuting; building energy; new build and refurbishment; paper andprint; IT equipment; water and waste.


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6. LOCAL SUPPLIERS

Partners in Developing Local Suppliers

6.1 The Councils Procurement Strategy states that where possible, weshould actively support and encourage local suppliers to become bestvalue providers. Developing a local supplier base need not be andshould not be a solitary exercise. There are many potential partners towork with:

Local Suppliers - Work with local suppliers in developing theirbusiness. However, it should not be a one-way street but truepartnership with benefits accruing to both parties.

Users/Customers - Explain to your users/customers, e.g.

schools, why you are using local suppliers and get their commitment tothe policy. At the end of the day it is the end-user who will be the realjudge of value and quality.

Suppliers - Encourage them to extend the local supply chain bydoing their purchasing locally or encouraging start-ups around theirown business.

Other Buyers - Encourage other local large buyers to work withyou in developing the local supply base, e.g. Health, Utilities etc.

Partners - Work with other organizations to help develop thelocal supply policy, e.g. Chambers of Commerce, Enterprise Agencies,Business Link, Development Agencies.

Regional Supply Networks - These are a product of BusinessLink, which is supported by the Department of Trade and Industry, andamongst other things give support to local supply chains andbusinesses involved in them.

What can be done to develop the local market?

6.2 "Buy Local" policies must be justified on grounds of competitiveness,economy or efficiency, and comply with Procurement Directives andother regulations. Despite that and the restrictions that surround thequestion of buying locally in the public sector, there are many thingsthat can be done to encourage local companies to compete, not onlywithin the local economy but also possibly in the wider national orglobal market.


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6.3 Developing local suppliers and working with them to develop their ownbusiness should also add to the competitiveness of the local authority.There are some fairly easy ways to achieve this in the first instance:

Publicity and Advertising

6.4 Firstly, local suppliers cannot position themselves to supply you if theydo not know what you want to buy. Most local authorities do advertisetheir requirements in the local papers and media as well as appropriatetrade magazines. More often than not, however, these adverts arehidden away in that most boring and least-read section of the localpaper - the Public Notices page. The Council should become far moreproactive in approaching local marketplaces and making its ownrequirements more transparent by:

Advertising in more accessible places, e.g. in the Business

Supplement of the local paper.

Working through the local Chamber of Commerce, EnterpriseAgency, Business Link, etc.

Developing a guide to Supplying Goods & Services to theCouncil

Using the tenders page on the Councils website and makingsure local businesses are aware of its existence

Making local firms aware of your requirements in advancethrough a Prior Indicative Notice (similar to the requirement forthe OJEC).

Organizing "Meet the Buyer" events. Other public sectorpartners could join in, e.g. Health Authorities, Police, etc.

Holding supplier briefings for local companies about selling tothe Council.

Working with existing local suppliers to achieve continuous

improvement "Best Value" in the products or services theysupply.

Making sure consumers are aware of local availability and whothe local suppliers are.

Developing Local Capacity

6.5 Developing the local marketplace is not, however, just a matter ofadvertising in the right place; it is also important to think of other waysof working with local suppliers to develop their capacity to supply you

and other potential buyers.


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European rules permitting, the Council should consider:

Establishing a partnering arrangement to develop a particularproduct or service.

Creating a Supplier Association to help suppliers helpthemselves, each other and the Council

Working with other buyers in the local marketplace indeveloping local supply chains.

Encouraging larger suppliers to use local suppliers anddistributors.

Specifying local materials where appropriate.

Working with local economic development and regenerationteams.

Identifying gaps in the marketplace which local suppliers may beable to meet with some development of their business capacity.

Investigating ways in which local companies can gainadvantage from any developments the Council is involved inwith regards to e-commerce and e-government.

Involving local businesses in developing Council activities,e.g. education , trading standards and economic development.

Modern Procurement

6.6 There have been substantial changes in the way in which allorganizations now go about their buying or procurement activities. Theconcept of Strategic Procurement has seen the introduction of SupplyChain Management, e-Commerce and Best Value, all of which havehad a substantial impact on the way we go about our business. Thisalso has an impact on the development of local suppliers; it does not

need to be a negative one.


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6.7 In terms of Supply Chain Management, for example, if local authoritybuyers better understand their supply chains and their componentparts it actually becomes easier for them to determine where localinfluence can be brought to bear between the point of consumptionand the earliest point of its production. Local companies do not

necessarily have to be the deliverers of the product or service.However, the Council can help by keeping them informed ofopportunities to enter the supply chain at the appropriate position,assisting the prime supplier in their delivery of the end product orservice. These opportunities to enter the supply chain are often easierfor local suppliers to access than as the prime supplier and the spin-offcan be significantly greater in terms of benefits derived from the primesupplier's own wider customer base.

The Duty of Well Being

6.8 The guidance from Central Government as regards the power topromote or improve economic, social or environmental well being (PartI Local Government Act 2000) means that there is significant scope touse the duty of well being to help develop the local supply base Thiscould be achieved by developing local suppliers as part of thepromotion of neighbourhood renewal, working with minority groups,including ethnic or disabled business owners, to tackle socialexclusion. It must however still be subject to the general duty of BestValue and legislation such as the European procurement directives.


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7. TENDER EVALUATION

Priorities and Emphasis

7.1 Tender evaluation models are the means by which we can assesswhich of the bids submitted in a competitive exercise offers the bestdeal for the Council. In order to make this judgement, we will alreadyhave recorded the criteria that are important to us in this particularcase, and which can be scored for each tender submitted. The criteriawill be price or quality related, and enable an open, transparent andultimately fair evaluation process to be demonstrated. Thequality/price model should be established before any tenders areinvited, and all tender documentation should be designed to ensurethat appropriate responses are received to feed into the model.

7.2 There are basically two stages involved in building up an evaluationmodel:

Establishing the quality/price ratio (i.e. the relative importance tobe placed on price and quality in this particular contract); and

Establishing the components of quality and price, and theirrelative importance in their respective categories.

Quality/Price Ratio

7.3 If quality and price have equal importance for your contract, thequality/price ratio would be 50:50. Different ratios will produce differentprices to be paid for avoiding a reduction in quality. In order todemonstrate how the quality/price ratio has been selected for eachtendered contract, the calculation below should be carried out andrecorded:

E.g. If the estimated cost of the contract is 250k, the following tablewould be the calculation of costs attached to quality:

Max. extra willing to be paid to avoid a reduction in quality of:Q/P

Ratio10% 20% 30%

20:80 6,250 12,500 18,75030:70 10,714 21,429 32,14340:60 16,667 33,333 50,00050:50 25,000 50,000 75,00060:40 37,500 75,000 112,50070:30 58,333 116,667 175,00080:20 100,000 200,000 300,000

90:10 225,000 450,000 675,000


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This shows that if your contract had an estimated price of 250,000 and aQuality/Price ratio of 50:50, you would be willing to pay an extra 25,000 toavoid accepting a bid which was 10% worse in quality terms, even if it wasthe best scoring bid in price terms. (Formula: Estimated cost x reduction inquality to be avoided x quality/price ratio).

In general terms, the more complex the procurement, and the greaterthe degree of innovation and flexibility likely to be required, the higherthe ratio should be. Indicative ratios are:

Type of Project Indicative Quality/Price RatioFeasibilitystudies/investigations

85/15

Innovative projects 80/20Complex projects 70/30

Straightforward projects 50/50Repeat projects 20/80

However, the calculation exercise above should still be undertaken inorder to confirm the costs associated with setting a higher ratio.

Quality and Price Weightings

7.4 The price element of the model should reflect the tendered prices andalso any extrapolations to take account of whole life costs. The

Councils Procurement Strategy states that all procurement exercisesshould reflect these long term costs and hence the evaluation modelshould incorporate them as a matter of course.

7.5 Quality criteria should be grouped under main headings and weighted.Suggested headings and weighting ranges are:

Quality Criteria Suggested Weighting RangeCapacity to resource thecontract

25-45%

Potential to add value 20-30%

Previous experience 15-25%Approach to the contract 15-25%Others 10-15%

7.6 A quality threshold should be established (e.g. 65 out of 100).Tenders may have to achieve this minimum quality score before finalinterviews are held and prices considered.


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7.7 Submitted tenders are assessed for quality by marking each of thequality criteria out of 100, multiplying each mark by the respectiveweighting percentage and then adding them together to give a totalquality score out of 100.

7.8 Tenderers passing the quality threshold may then be interviewed, theirquality scores reviewed and their prices examined and marked. Thelowest compliant bid scores 100 and others score 100 minus thepercentage figure above the lowest price (e.g. a bid 25% above thelowest scores 75).

7.9 The final quality/price assessment is achieved by multiplying thequality and price scores by the respective weightings set by thequality/price ratio, and adding them together to give a total score out of100.(E.g. if the quality/price ratio is set at 70/30 and the quality score is80 and the price score 75, the total score is 80 x 70% + 75 x 30% =

78.5). The highest scoring bidder will be awarded the contract, as theyare the one which has best met the Councils priorities in terms of bothquality and price.


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8. PROJECT MANAGEMENT

Effective Decision-Making

8.1 All procurement exercises should be conducted through effectivecommunication and decision-making processes. To assist in this, asspecified in the Accountability section of the Procurement Strategy,Service Level and Corporate Procurement Steering Groups will beresponsible for management of the procurement process.

8.2 Each procurement must have a Project Sponsor from the clientDirectorate. This individual will:

possess the skills to manage the clients role in the project maintain direct access to the people making key decisions

be vested with authority to take day to day executive action expect to see the project through to completion

Professional Advice

8.3 The CPSG must ensure that the Project Sponsor is assisted by thenecessary professional advice throughout the procurement process.The essential areas to be considered are outlined below:


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CorporateStrategies/Policies

- Procurement Strategy

- Contract StandingOrders/Financial Procedures

Rules/EU compliance

Equal Opportunities - Race Relations- Disability Discrimination- Equal Opportunities

IT Issues - E-Government Strategy

Contract Administration - receipt and opening of tenders- contractor compliance with

financial and Health & Safety

requirements- appointment of consultants- monitoring & management ofcontract

Legal Issues - contract terms and conditions- TUPE- PFI/PPP

Finance Issues - financial criteria and assessments- evaluation models

- financial and accounting advice

Personnel Issues

Sustainability/Environmentalmatters

Risk Assessment/RiskManagement

Critical Stages of the Procurement Process

8.4 The PSG will be responsible for approving/signing-off the outputs ofeach stage of the procurement process:

Business Case (this sets the case for the recommendedprocurement option, after consideration of all relevant factors,e.g. VFM, environmental impact.)


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Output Specification (this is the Councils requirementsexpressed in terms of outputs/outcomes required. Providersgenerate methods of delivery. Performance standards arestipulated, and Performance Indicators are passed on toproviders, including year on year improvements.)

Contract Terms

Procurement Plan (this sets out the procurement route topursue, ensuring compliance with Contract Standing Orders andEU Regulations. It also includes a timetable with milestonesspecified.)

Risk Management Plan

Evaluation Model

Shortlists

Contract Award

Contract Management Plan

Confirming the business case:

8.5 Activities here will include:

fixing an initial project budget that includes all relevant costsover the whole life of the project

evaluating the benefits that will be delivered

drawing up an outline programme which allows realistic periodsfor essential activities

identifying the significant risks in the whole process and

establishing how they can most effectively be managed.

8.6 This will provide the essential components of the strategic brief andestablish measures of time, cost and quality against which the projectcan be judged as it proceeds.


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Financial Resource Issues

8.7 The Councils Financial Procedures Rules and Contract StandingOrders contain a number of clauses relating to the financial control ofthe procurement process. In the main, these concern the need for

adequate forward planning, ensuring that either budget provision exists(for Revenue funded procurement) or that projects are included in theCouncils Capital Programme (Capital financed projects). In addition, ifcircumstances change so that financial provisions are no longeradequate, the appropriate authority must be sought in order to ensurethat budget limits are not breached. Key financial resource issues forany proposal include:

spend time at the beginning of the procurement processdefining what you want and when you want it - it can beexpensive to change your mind later

understand the risks involved in your project, quantify them andmake financial provision for them

clarify your priorities regarding time, cost and quality

take account of the costs of the project over its whole life

ensure that financial and other resources necessary for theproject are available when required

monitor progress and performance

Developing a strategy for the project/contract procurement:

8.8 The Project Sponsor leads the development of a strategy for theprojects execution. This entails the development of early statementsof needs into a strategic brief and then into a full project brief. TheProject Sponsor will also consider the most suitable way of carrying outthe project. The first priority is to choose the system best suited toprocuring the skills and resources necessary to achieve the outputs

required. This is a key strategic decision which will set the frameworkfor carrying out the project. Section 4 above on Contract Strategydetails the issues to be taken into account when making this choice. Inaddition to those factors identified, the clients attitude to risk isparticularly important, as different contract strategies allocate risk indifferent ways. The more control a client wishes to have over aspectsof the project, the more risk they should be willing to bear. Also, whilstrisk can be transferred to others, this will be reflected in their prices.Systematic risk management should be part of the strategy forexecuting all major procurements.


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* RISK ASSESSMENT & RISK MANAGEMENT

Risk

8.9 Risk is any unplanned action or event which threatens theachievement of cost, time and performance targets.

Risk Management

8.10 Risk Management is the process of anticipating risks, planning asnecessary and carrying out timely actions to cost-effectively reduce theprobability and impact of risks to an acceptable level.

Risk Assessment

8.11 Risk should be assessed at two levels during the procurement process- at the overall service level (during a Best Value Service Review), andat the contract level.

Service Level Risk

8.12 The risk assessment process undertaken during the competitionphase of a BVSR should show whether a service is appropriate forexternal provision, by identifying where the risk can best be managedto ensure effective and efficient service delivery. The level of risk must

first be determined, and judgement reached on what level of risk isinvolved, and to whom. It may be that for a particular service, the levelof exposure to the Council acting on its own would be unacceptable,whereas the private sector may be better placed to manage the liability(e.g. major building developments that incorporate commercialactivity).

Contract Level Risk

8.13 At the contract level, the assessment of risk will depend on factorssuch as the type and length of the contract, the stability of the supply

or service, prevailing conditions in the supply market, and the risk tothe user in terms of cost, quality and the impact of contract failure.The contract manager must consider each of these factors and dealwith them in such a way as to manage down risk during performanceof the contract.

Risk Identification

8.14 An analysis of different sources and types of risk enables acomprehensive list of the risks it is reasonable to anticipate for aparticular activity or contract.


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8.15 Uncertainty arises from a lack of knowledge or experience of the areaunder review. Uncertainty arising from a lack of knowledge oftechnology or trading conditions, for example, should be reduced to anacceptable level at the earliest stage of the risk management process.Research into similar projects in the past, and interviews with those

having relevant experience are natural starting points. Havingreduced uncertainty to an acceptable level, all the relevant risks, bothof a predictable and unpredictable nature, can then be identified.

Risk Evaluation8.16 It is essential to determine realistically the true extent of potential risk

to the Council, in order that only the appropriate amount of time isspent and necessary budget committed to the management of thoserisks. The actual level of risk depends on a combination of the likelihood orprobability of an event occurring and the consequentialadverse impact on the Council.

Probability

8.17 When the probability of an event occurring is assessed, any relevantexperience concerning similar events in the past must be considered.A more subjective view will be required if there is a lack of previousexperience, but the risk can still be assessed as High, Medium or Low.

Impact

8.18 The occurrence of a risk event will have direct consequences with cost

and/or time implications. Other indirect consequences may beconsidered, such as the effect on service users, loss of future fundingand adverse publicity. Past experience again is the best source ofinformation needed to predict the implications of various risks. Forrisks where reasonable accurate historical financial information isavailable, the impact can easily be expressed in money terms.Potential time delays can be assessed using critical path analysis.

Risk Factors

8.19 When quantification of both is possible, the product of the probability

and impact for each risk event can be used to give a risk factor,expressed in financial terms and summarised to give a total projectrisk exposure. A way should be found to express all key risks inmeasurable terms for two main reasons:

Any proposed risk management action should be judged onwhether or not the benefit significantly outweighs the cost; and

The summary of financial risk exposure will normally influence thesize of contingencies within the budget for the procurement.


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Risk Control

8.20 Once the probability and impact of risk events has been established,and the risks graded, it is possible to determine appropriate types andlevels of cost effective action to manage and control risk. A risk action

plan should be drawn up for all key risks within an activity or project.The types of action to contain or eliminate risks will generally be dealtwith under the following measures:

Insurance

Financial Provision

Risk Allocation

8.21 All risks are then recorded in a risk management plan, whichdescribes how each risk is to be best allocated and managed. Fortendering purposes, invitations to tender must make clear the basis onwhich tenders are to be submitted. The Project Sponsor will haveagreed the amount of risk felt best able to be managed (and hencepriced for) by the contractor, and that best taken on by the Council bymaking a contingency allocation in the budget. The risk managementprocess should therefore have produced the best possible allocation ofrisk involved in that particular procurement.


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9. CONTRACT MANAGEMENTContract Manager

9.1 Every contract is to have a Contract Manager, who will be a Councilofficer with responsibility for ensuring that all parties understand their

obligations under the contracting process, and fulfil them as efficientlyand effectively as possible to maximise Best Value for the Council.The Contract Manger will implement the Contract Management plan asapproved by the PSG.

9.2 Once the contract is in place, there are two aspects to the contractmanagement function:

(a) Performance of the contract - the processes and proceduresassociated with the smooth operation of the contract need to bemanaged, to obtain the best service possible. This includes:

management of relationships monitoring of costs and volumes reviewing and reporting on performance agreeing variations authorising payment resolving any disputes maintaining adequate records and a managementtrail assessing and managing risk maintaining ethical standards contingency planning

managing change

The contract manager will usually be assisted by a team ofofficers (the Project Team) to ensure that sufficient resource isavailable to undertake all these activities.

(b) Management of the relationship between the client and thecontractor. The contract manager should ensure that anappropriate style and behaviour is adopted, as the contractprovides the foundation for the relationship between bothparties. It is probably the case that under Best Value, the actual

contract conditions will require continuous improvement andhence continual change. This will mean that the contractmanagement style may also need to change throughout theduration of the contract.

9.3 Different styles will also be appropriate depending on the type ofcontract (e.g. a multi-dimensional service as opposed to the supply ofa single product). The advantages discussed above relating topartnering arrangements should be particularly evident in the style tobe adopted in managing these type of contracts. Real benefits shouldaccrue for both parties when a spirit of mutual trust and partnership is

encouraged.


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SUMMARY

This Procurement Best Practice Guide is a first attempt to produce acomprehensive guide for all those involved in procurement activities, either inthe form of Best Value Service Reviews or in day to day purchasingdecisions. It will continue to be updated regularly in order to accurately reflectactivities within the Council and best practice in the procurement field.


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KeyProject Activities

Getting Started

Develop project strategy

Obtain professional advice

Appraise options

Confirm business case

Nominate Project Sponsor

Select client Project Manager

Defining the Project

Develop strategic brief

Develop project execution plan

Assembling the Team

Decide contracts

Select project team

Designing & Completing

Develop the project brief

Operate the contract

Manage & resolve any problems

Review progress & quality

A


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Essential Elements of Procurement Process

Assess Need Consider:

Corporate Objectives

Consultation

Proposal in StrategicProcurement Plan or

CommonProcurement Plan?

Directorate Procurement Steering Group

Proposal taken toCorporate

Procurement SteeringGroup

Responsibilitiesassigned and agreed

(CPSG)

Market analysisundertaken

Research & consultation

Options Appraisal forservice delivery

Benefits

Costs

Uncertainty & Risk

- apply the 9 questions to each option


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Determine appropriatecontract strategy

What is best method of externalisation?

Determine appropriatecontractualrelationship

Consider Partnering

Compile specification Environmental issues

Local sustainability

Outcome based

Compile EvaluationModel

Quality/Price ratio

Quality/price weightings

Compile appropriateproject management

plan

Risk assessment

Establish ContractManagement Plan

Performance monitoringManaging relationships

Documents

Procurement Best Practice Guide