Hampshire County Council

Buildings, Land and Procurement Panel Item

30 June 2005

Corporate Procurement - Progress Report

Report by the Director of Property, Business and Regulatory Services

How the conclusion in this report fits with the Corporate Strategy

This scheme will impact on the delivery of the following Corporate Aims:

Aim 3 - achieving economic prosperity: impact on both the management of the Council's resources and in the local economy

Aim 5 - improving services: by promoting a strategic approach to procurement within the County Council

Aim 6 - developing councillors and staff: by developing procurement skills and capacity within the authority

1

Summary

1.1

The County Council prepared its corporate procurement strategy in 2003

and this is supported by a detailed action plan. The actions linked to

the strategy together with those identified in the National Procurement

Strategy for Local Government (NPSLG) are monitored by the

Corporate Procurement Network and progress has been reported

regularly to the Buildings, Land and Procurement Panel (BL&PP). This

report provides a further general update on activity in this field.

1.2

The previous progress report made in April 2005 raised important issues about the future direction, scale and funding of corporate procurement activity. It was recommended that, recognising the wider efficiency agenda created by Gershon and the importance of `cashable' efficiency savings to future budgets, a corporate efficiency plan for procurement be endorsed over a four year period from 2005 to 2008. These recommendations were approved and the first draft of a monitoring report for procurement savings and efficiencies is included as an appendix to this report. It shows that a very sound start has been made and that the activity of the Corporate Procurement Unit can be expected to make a very substantial contribution to the overall target for procurement savings of £1.15 million during the course of the next three years.

1.3

Councillor Davidovitz has been appointed `Procurement Champion'. Arrangements are in hand to support the development of this corporate role.

2

Procurement Action Plan

2.1

A detailed progress report against the 120 actions linked to the corporate procurement strategy and against those identified in the NPSLG was made to the BLPP meeting in April. The Council continues to be well placed against these actions, but there has been little material change over the intervening period and a revised position statement has not been produced. Greater effort is now being made to raise awareness of the procurement `agenda' - the corporate website has been revised and initial communications pieces have been provided to the editors of departmental newsletters and Spotlight.

2.2

Members will be aware that an independent corporate `healthcheck' or review of procurement arrangements is being undertaken by Qualitar Consulting Limited. This work is approaching completion and will include an appraisal of the Council's progress against the national procurement milestones. Good performance in this area will be important not least because it is expected that future CPA reviews will include an assessment of the Council's position against these best practice benchmarks. The cost of this corporate consultancy project is around £40,000 and is being funded from the trading account of County Supplies.

2.3

It was previously reported that annual procurement performance reports had been prepared by the Environment Department, Social Services and PBRS. These reports are intended to record departmental contributions to the overall procurement strategy of the County Council and highlight significant performance related issues that will become the subject of local action plans. The integration of these reports within the corporate performance management framework is still under discussion, but in recent weeks three further reports covering annual expenditure of around £3 million have been produced by the Chief Executives department, the County Treasurer and Human Resources.

2.4

Three new items have recently been added to the work programme of the Corporate Procurement Unit. The first is an effort to establish basic cost data for some of the principal procurement processes within the County Council so that an assessment can be made of the impact of any further developments (including the scale of any non-cashable efficiency savings). Secondly, a strong view has emerged that the County Council should have a single corporate contracts management system in place of at least five departmental systems. This initiative requires commitment rather than any significant investment and a group of departmental representatives has been drawn together to achieve this objective. The third item is the need for a corporate response to the proposed Concordat for Small and Medium Enterprises (see below).

Small Business Friendly Concordat

2.5

The Small Business Friendly Concordat is a voluntary, non-statutory code of practice supported by the Office of the Deputy Prime Minister (ODPM), Local Government Association (LGA) and the Small Business Service (SBS). The aim of the Concordat is to more actively engage all Small & Medium-sized Enterprises (SMEs) with less than 50 employees, with public sector purchasers either directly or through sub-contracting arrangements. Whilst the Concordat is a non-statutory code of practice, implementation of the Concordat is one of the 2005 milestones within the NPSLG.

2.6

At the beginning of 2002, SMEs in the United Kingdom accounted for 99.8% of all businesses, 55.6% of employment and 52% of turnover. Further statistics from the SBS (`Diversity in Public Sector Procurement' October 2003) indicate that ethnic minority owned businesses account for 3% of supply and 0.3% of spend, whilst women-owned businesses were 8% of supply and 5.6% of spend. As previously reported an analysis of the County Council's suppliers indicated that 40% of spend (£134 million) is with SMEs, 87% of suppliers are classified as SMEs and 4% of spend (£13 million) is with `new' businesses. At this stage no figures are available regarding ethnic minority- or women-owned businesses.

2.7

The Small Business Friendly Concordat has a number of requirements which align well with the County Council's own Corporate Procurement Strategy Action Plan and the work it is undertaking to meet the requirements of the NPSLG. An initial position statement for the County Council against the requirements contained within the Concordat is given in Appendix One. This shows that the County Council is performing well against the Concordat and further work will be undertaken to refine the analysis and finalise any further actions which the County Council needs to undertake to be able to fully implement the Concordat. It is anticipated that the Executive Member for Policy and Resources will be asked to sign the Concordat on behalf of the County Council later in the year.

Training - Procurement Skills

2.8

The programme of basic `Essentials' courses introducing the corporate procurement strategy and key policies is continuing and two new procurement courses have been arranged to start in September. These are Contract Management and Supplier Negotiation and Specification Writing and Bid Evaluation - both can now be booked via Hampshire Learning Centre.

South East Centre of Excellence (SECE)

2.9

The level of activity within the six workstreams continues to grow and the SECE management board has agreed the allocation of substantial funding to each. However, there is no obvious sign that the projects underway will yield direct significant savings or efficiency gains over the short term. The exchange of information is productive and the County Council's involvement with the centre needs to be viewed as an investment for the future. The management board is now chaired by Peter Gilroy, the new Chief Executive of Kent County Council.

3

Development Issues

Corporate Savings and Efficiency

3.1

The County Council's corporate strategy includes a target for savings from procurement of £1.15 million per annum over the next three years. The base requirement is £1 million with a further £150,000 to fund the expansion of the Corporate Procurement Unit to work with departments on development projects. Contributions to the target are expected from all procurement budgets and the allocation of these will be co-ordinated by the County Treasurer as part of the overall `efficiencies' programme. This target for procurement savings is in addition to the expected contribution to the SAP benefits realisation programme, which will be £500,000 in the current financial year. Attached to this report at Appendix Two is a first draft of a monitoring report for the savings and efficiencies linked to the activity of the corporate Procurement Unit.

3.2

The main focus of the current agenda is on projects that are expected to yield benefits in years two and three of the programme, but the first page of the appendix identifies savings of around £2.1 million in 2005/06 from work that has been undertaken previously. These savings are split almost equally between schools and corporate budgets (departments).

3.3

The estimates for 2006/7 and 2007/8 (shown on the second page) are forecasts for the cashable savings that might be achieved through the projects listed. Although these forecasts are likely to be heavily revised as further work is completed, it seems clear that the overall work plan will yield a very substantial contribution to the annual corporate savings target. On the basis of the current plans, this could be over half of the total and this can be expected to expand as the additional procurement resources begin to enable more projects to be undertaken within departments. Projects currently under consideration, but unresourced are a corporate review of the provision and commissioning of training (approximately £8 million) and joint work with Environment on the contract arrangements for the provision of taxis (approx £9 million). Some work with the new Adults and Children's Services departments can also be anticipated, but a consistent theme emerging from many local authorities is that minimising the growth of costs, particularly in services for older people, is perhaps a more realistic objective than lower unit costs through `better' procurement.

3.4

One of the barriers to effective change is the sheer scale and variety of the County Council's procurement activity. In a limited exercise, expenditure of around £3.7 million has been identified against 120 local purchasing agreements. With an average value of £30,000, it is very likely that the individual return from a detailed review will be relatively small and that a large amount of activity will be required to produce a substantial aggregate benefit.

3.5

The previous report to the Panel highlighted the savings achieved nationally through the use of electronic reverse auctions (20% savings on 47 contracts over the last 18 months). The County Council recently took part in an e-auction for the supply of computer consumables that was undertaken on behalf of the Central Buying Consortium by Coventry City Council and Achilles Plc. The results have been impressive and a saving of around 17% has been achieved on expenditure of about £800,000. Over the next 12 months this is expected to save schools around £100,000 and £43,000 for departments. A similar exercise for corporate stationery is currently being considered. A number of other contracts will be tendered using this technique, but the current list of targets consists of relatively low value contracts. Discussions will take place with departments to determine whether there are any other arrangements suitable for this treatment.

4

e-Procurement Initiatives

Electronic Tendering

4.1

The BLPP approved an electronic tendering pilot in December 2003 as part of the County Council's e-Government programme and to assist in meeting the requirements of Public Service Transformation Outcome R9 relating to e-procurement. There were some initial installation issues which delayed the start of the pilot, but in recent months, the department has processed three live tenders and two test tenders with existing suppliers through the e-tendering system. It is planned to continue the pilot with perhaps six further tenders, including social care, highways, common use goods and services and property requirements. Overall, the pilot is progressing well, and whilst there will need to be some review of tendering processes to support a full implementation of e-tendering, the impact on Contract Standing Orders is relatively limited.

4.2

A detailed business case has been developed which recognises the contribution of e-tendering to the e-Government programme, but also acknowledges that a full implementation of the system across the County Council is likely to provide other benefits including:

· Increased competition and expressions of interest from suppliers

· Provision of a single site for viewing and applying for all tendering opportunities

· Effective document management, storage and retrieval

· Increased efficiency.

4.3

Realisable cost savings are relatively small and relate to paper, printing and postage costs and are estimated to be £25,000 per annum. The cost of e-tendering systems for the public sector has reduced since the start of the pilot and is likely to be in the region of £10,000 to £15,000 per annum, with one-off implementation costs between £30,000 to £50,000. This means that the annual recurring savings will cover the annual licence costs and repay implementation costs within two to five years.

4.4

Non-cashable efficiency savings have been more difficult to estimate with the relatively small scale of the e-tendering pilot. Analysis commissioned by the National e-Procurement Project estimates that efficiency savings of up to £130,000 per annum can be achieved for a comparable authority, but further experience of electronic tendering is required before a reliable assessment of the non-cashable efficiency savings can be made.

4.5

The pilot has not raised any major concerns and appears to have been welcomed by the majority of suppliers. The project will make a valuable contribution to e-Government targets and cashable savings will cover the expected annual running costs of the system. Therefore it is proposed that the County Council joins the Central Buying Consortium tender for an electronic tendering system.

E-Procurement

4.6

In line with the national picture and as previously reported, progress on `genuine' e-procurement within the purchase to payment process is slow. However, the County Council continues to have a very comprehensive implementation of e-procurement and two further projects have recently been undertaken in this area.

4.7

Catering suppliers account for over 40,000 invoices received by the County Council each year which is over 7% of the total. Bearing in mind the nature of the procurement process and e-capabilities of suppliers, an options appraisal has concluded that a `virtual' purchasing card solution would be most appropriate to enable the County Council to automate the invoicing process. The current plan is to start to rollout this approach in October 2005 with the County Council's main catering supplier 3663. This project will provide a good contribution to the County Council's e-government targets and is a low cost solution which could be applied to other areas of procurement.

4.8

A detailed review of the potential for electronic procurement within Social Services has been undertaken with the assistance of the County Treasurer's Consultancy Team. E-procurement provides most benefit for low value, low risk and high volume routine purchases. The procurement of social care services is high risk and high value, but it also accounts for nearly 26% of total invoice transactions and is, therefore, an appropriate target for automation and efficiency.

4.9

Nationally, very little e-procurement work is being undertaken on social care, but a review has concluded that emailing of payment remittance advices, (which is also a corporate e-procurement priority), is possible and that there is potential for greater automation of invoice processing and payments for permanent residential care. However, work in these areas will be deferred until the implementation of SWIFT has bedded down and the combined capabilities of SWIFT and SAP have been evaluated further.

A further approach will be made to the Hampshire Domiciliary Care Association (HDCA) to identify a key domiciliary care supplier who would be willing to work with the County Council on evaluating other options for e-procurement and how this fits with domiciliary care suppliers' current systems and processes.

5

Energy Purchasing

5.1

The County Council made agreements relating to the price of electricity supplied to its large sites in the Autumn of 2004. The arrangement made with Scottish & Southern was for a fixed price for two years that will run until October 2006, but a one year agreement relating to around 55 sites was reached with London Electricity. The current value of the contract for these 55 sites is around £1.5 million. It is now intended to re-tender the business at those sites supplied by London Electricity. As on previous occasions in a volatile market, the County Council is likely to come under pressure to conclude a contract quickly after bids have been received and it is recommended that the Director of Property, Business & Regulatory Services be authorised to conclude new contract arrangements.

5.2

The County Council participates in a contract for the supply of gas with other member authorities of the Central Buying Consortium (CBC). The contract is managed on behalf of CBC by Hertfordshire County Council and it is pleasing to report that, after a very substantial price increase was agreed in November 2004, it seems likely that early discussions with the supplier, British Gas Trading, will result in a price decrease in the range of 4-8% that will come into effect later this year.

Recommendation(s)

That:

1

Progress on corporate procurement and the efficiencies agenda be noted.

2

That the progress towards procurement efficiencies embedded in the 2005/06 budget be noted.

3

That the Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that approval be given to the Director of Property, Business and Regulatory Services bringing forward a further report on how procurement efficiencies could be realised in 2006/07 and 2007/08.

4

That the Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that the Director of Property, Business and Regulatory Services be authorised to conclude new contract arrangements for the supply of electricity to a range of large sites commencing November 2005 .

Requirement

Progress to Date

1

1.1

1.2

1.3

1.4

1.5

Procurement Strategy - Publish a corporate procurement strategy, the strategy will include a commitment to:

The role procurement plays in delivering the Council's objectives and its contribution to the community strategy, workforce issues, diversity and equality and sustainability.

Encourage a diverse and competitive supply market, including small firms, social enterprises, ethnic minority businesses and voluntary and community sector suppliers.

Ensure our approach to individual contracts, including large contracts and framework agreements etc, is supported by a sound business case and options appraisal.

Where it is decided the best value option is to aggregate supply or let a longer term contract or framework agreement we will invite bidders to demonstrate their track record in achieving value for money through effective use of their supply chain

A commitment to consider the role of SME specialist suppliers in delivering elements of larger contracts and framework agreements.

Corporate Procurement Strategy Published in 2003.

Most of the requirements are already contained within the existing Corporate Procurement Strategy (CPS) to a lesser or greater extent.

The County Council is planning to revise the CPS during 2005 in light of progress against the action plan and the Procurement Healthcheck Review.

The County Council should ensure that the revised CPS more fully addresses the requirements of the Concordat.

Property Construction Procurement Strategy aims to enhance SME access to contracts through a subcontractor development programme.

2

2.1

2.2

Access to Contract Opportunities

Publish guidance for suppliers on how to do business with the Council;

Details of forthcoming bidding opportunities, and;

Contact details for each contract, with appropriate links to any regional site and the national public sector opportunities portal (to be launched Summer 2005)

How to do business guide printed and also available on Hantsweb in March 2005

Tendering Opportunities website is now available, number of tendering opportunities at this stage is limited. Departments have been requested to supply forthcoming tender information to the Corporate Procurement Unit. This will include the contact details for each contract.

3

3.1

3.2

3.3

Details of our Key Suppliers

Advertise contracts, use a range of publications and other means in order to encourage greater diversity and competition.

Give potential suppliers an opportunity to discuss the procurement in order to understand our requirements and assess their own suitability. Nothing will be done, however which would give a particular business or provider an unfair advantage in competing for a specific contract.

Work with prime contractors - both at tender stage and during the life of a contract - to establish the contribution that small firms, ethnic minority businesses, social enterprises and voluntary and community sector suppliers can play in the supply chain. We will provide details of our prime contractors on our website.

Already standard practice under Contract Standing Orders. Tendering Opportunities Website available.

`Meet the Buyer' events are standard practice for all procurement exercises managed by County Supplies and is included as part of the draft Procurement Best Practice Guide.

Economic Development has organised a number of conferences for local suppliers and producers, which is an on-going initiative.

This area is being developed particularly in construction procurement. It is planned to publish details of awarded contracts

and suppliers and framework contractors during 2005.

4

4.1

4.2

4.3

4.4

4.5

Fair Tender Processes

Apply our own rules and policies fairly.

At pre-tender stage and during the tender process we will ensure that all tenderers have equal access to relevant information.

We will keep the tender process as simple as possible in order to help minimise the costs to suppliers.

If a pre-qualification stage is used we will use a County-wide pre-qualification questionnaire containing core questions with limited bespoke additions for each contract. We will work with regional and national partners to ensure a consistence approach to pre-qualification.

Assess potential suppliers against published pre-qualification and tender evaluation criteria. These criteria will be proportionate to the risks of the individual contract process. In particular the criteria relating to financial standing will not to be set to unreasonably exclude newer businesses.

Current practice as embedded in Contract Standing Orders.

This does require a review by departments and it is likely that some actions will be required to address this issue sensibly

Agreed in principle to work towards a standard PQQ approach and aim for greater consistency in our tendering documentation and approaches.

Best Practice is to publish award criteria at ITT stage and generally this seems to

be happening. At present insurance does pose a huge obstacle to SMEs, a process does exist to carry out risk assessments and refer to the Corporate Risk Management Board for lower levels of insurance where risk is low. More consideration needs to be given on how to manage risk appropriate for each contract.

5

5.1

5.2

5.3

Feedback

Offer meaningful feedback to suppliers following the procurement process in order that suppliers can improve for future tenders.

Seek feedback from suppliers, and their respective trade associations, on our tender processes and address where we can resolve any problems which are brought to our attention.

Publish a complaints procedure for suppliers

Already part of the tendering procedure

A supplier questionnaire is on the Corporate Procurement Strategy action plan and will be undertaken during 2005 and on an on-going basis thereafter. Economic Development links to be explored for feedback mechanisms as well.

Standard County Council complaints procedure in place. Information is published within the `Selling to the County Council' guide which is also available on the Procurement website.

6

6.1

6.2

6.3

6.4

Contract Management

Treat suppliers openly and fairly. Suppliers will:

Be paid on time, no more than 30 days from receipt of an undisputed invoice.

Receive honest and constructive feedback on the supplier's performance of the contract.

Be given notice of any performance problems and an opportunity, if appropriate, to put matters right.

All contracts will require our suppliers to pay their sub-contractors, throughout the supply chain, within 30 days from receipt of an undisputed invoice.

92.9% of invoices are currently paid within 30 days.

Part of contract management procedures, but a more structured and consistent approach is required.

Yet to be confirmed.

7

7.1

Supplier Commitments

As customers we will make clear to our suppliers, and those wishing to do business with us, what is expected of them.

Selling to the County Council Guide has been printed and is also available on Hantsweb with additional and more detailed information.

ITTs should contain adequate information.

Performance management may need strengthening in some areas.