Hampshire County Council

Buildings, Land and Procurement Panel Item *

24 January 2006

Corporate procurement and efficiency/savings targets for 2006/07

Report by the Director of Property, Business and Regulatory Services

1

Introduction

1.1

This report provides an update on recent procurement activity, suggested corporate savings targets for 2006/07 and 2007/08 and a work programme for those years. Progress against the National Procurement Strategy was circulated to members at the last meeting. The report also seeks approval for the Director of Property, Business and Regulatory Services to be authorised to conclude new contract arrangements for the supply of electricity to its small (quarterly billed) sites.

Cashable Savings

1.2

The general allowance for non-pay inflation will be 2.5% next year. There are many examples where the cost of purchased goods and services will exceed this provision and this will be managed by departments as one of the general pressures on services. This report identifies opportunities for corporate contracts to contribute around £500,000 for cashable savings in 2006/07 and £700,000 in 2007/08.

Non Cashable Savings

1.3

Non-cashable savings are expected to increase to around £500,000 in 2006/07 and be over £1 million in the following year.

1.4

The estimate of the likely benefits for schools is £400,000 in 2006/7 and £270,000 in 2007/8. A summary is included in Appendix 1 to this report.

2

Procurement Training and Skills Development

2.1

Over 570 staff have received procurement training `free-of-charge' from a suite of training courses funded from PBRS trading accounts (Supplies). The range now includes:

· Procurement Overview

· Procurement Essentials

· Contract and Supplier Management and Basic Negotiation

· Procurement Partnerships.

Work is currently being undertaken jointly with Adults Services to develop a specific course for social care procurement.

2.2

Information for Suppliers

The web pages showing the forthcoming `tendering opportunities' have been live for some months now and over 4,000 hard copies of the `How to do Business' Guides have been distributed to business and organisations across the county. Detailed information on procurement processes is available on Hantsweb and a corporate register of contracts will go live by the end of the financial year.

2.3

E-Procurement

The contract for the supply of an e-tendering system is due to be completed in December. The e-tendering pilot is progressing well, with tenders being run by County Supplies, Property Services, Environment and Adults Services. The Government Procurement Card payment mechanism for catering supplies and an e-mail facility for purchase orders will both go-live in January 2006. These initiatives are projected to generate approximately £530,000 of non-cashable efficiency savings during 2006/07, based on national studies in these areas.

Collaboration

2.4

The Council continues to be engaged with the work of the South East Centre of Excellence (SECE) and has gained recognition across the

region and nationally for its work on construction.

2.5

The Council is leading the development of an electronic marketplace for Hampshire using the IDeA/EGS Marketplace service and eight districts have already signed up to participate.

`Health Check' Report by Qualitar Consulting Ltd

2.6

Following the submission of a draft report in June, a second round of interviews took place over the summer to explore departmental arrangements in greater depth. A revised report and management summary were received at the end of September 2005 and an initial discussion with departments regarding the recommendations took place during November 2005.

2.7

The report concludes that the County Council is "currently achieving good results" and is "the highest performing County Council" reviewed by the consultants. There are however, a large number of recommendations for improvement which are being discussed with departments.

3

Programme for 2006/07 and 2007/08

3.1

The forward programme will be divided between activity on:

· corporate and common-use contracts

· procurement reviews commissioned by departments

The work with departments on areas of direct service expenditure will largely be undertaken by the new staff recruited to the corporate procurement posts agreed as part of the budget last year. CMT has previously agreed that the detail of the review programme should be developed with each Chief Officer and reported back through the Panel to recommend any action to the Executive Member for Policy and Resources for decision.

3.2

Attempts continue to be made to address expenditure where no current contracts are in place and where efficiencies could be gained from more formal procurement arrangements and aggregation. This `non-contracted spend' is reducing as the value of contracted arrangements for common use goods and services has increased rapidly over recent years. Examples include:

· Temporary agency staff

· Venue hire

· First Aid training

· Plumbed-in water

3.3

It is estimated that a further £20 million of annual spend may be suitable for

`corporate' contracts and arrangements are currently being developed to let contracts for approximately £4 million of this in the following areas:

· IT consultancy

· Specialist furniture

· Printing and graphic services

· Books and publications (those currently outside existing book contracts)

· Workwear for Countryside Service (R&H).

3.4

A number of other areas have been identified as having the potential to

provide benefits from the development of corporate contracts. Initial work

is underway to identify the scale, scope, current arrangements and

service requirements for the following:

· Learning and Development (training)

· Specialist software

· Operational equipment (R&H)

The value of spend has not been fully researched, but current estimates are that these items could result in new contracts with a value greater than £3 million annually. Based on recent experience, average savings of 5% should be achievable in most of these new areas.

3.5

In addition to those goods and services referred to in the preceding paragraphs, which are currently under review, a workplan is being developed for the next financial year to assist departments with reviews of more specialist service specific procurement arrangements. Although these plans are not fully formed and will need to be agreed with departments, it is envisaged that significant benefit for the County Council will be achieved if reviews are started in the following areas in January 2006:

(i) Taxi services for Adults Services (£1m p.a.)

(ii) Taxi services for Home to School Transport (£8m p.a.)

(iii) High Cost Placements for Adults Services (c. £20m p.a.)

Subject to further discussion, work with Children's Services on new contractual arrangements will also be programmed into the first year (c.£10m p.a.).

3.6

The first three items above account for approximately £29 million of spend and will require substantial work over the next 6-9 months. It is unlikely that large percentage savings can be easily achieved, but a target of 1 to 2% would be the initial objective - perhaps saving around £430,000 within a range from £290,000 to £580,000 p.a. Any major change to the existing procurement strategy for such services is likely to have a significant lead in period and could take between 6 and 24 months to implement fully.

3.7

Developing Efficiency Reviews

Effective procurement can be achieved at 3 levels;

1. Developing `cashable benefits' from reduced costs;

2. Procurement reviews to `hold back costs' and produce cashable saving,

particularly where the County Council can reshape the market; and

3. Going beyond the scope of corporate procurement by directly

challenging the management of services.

3.8

The key trend that the Panel needs to be aware of is that, not unexpectedly, the cashable savings from procurement are likely to decline over time, particularly as `off contract' expenditure declines and we extend our contracting arrangements to more activities. The more realisable and significant savings are bound therefore to emerge in other areas: pay, benefits and productivity; organising services and work flow differently; reducing the `pay bill'; developing a different mix of inputs and policy changes that impact on services; and potential development in the mixed economy and supplier management. These issues are less in the domain of procurement managers and controlled by Chief Officers and Executive Members. A programme of activity in these areas will be essential if further cashable efficiencies are to be found.

Next Steps

3.9

The Officer Working group is currently revising the Corporate Procurement strategy and the corporate action/development plan. The main areas which need to be addressed over the next 12 months are:

· key performance indicators for procurement performance across the County Council

· greater consistency in procurement documentation for suppliers, including pre-qualification and terms and conditions

· contract management procedures for high value contracts

· a consistent corporate approach to assessing and managing corporate social responsibility issues (equality and diversity, sustainability, ethical purchasing)

· a corporate `Gateway Review' process for major procurements

· a Corporate Contracts Management System

· develop electronic procurement capabilities:

- implement electronic tendering

- rollout emailing of purchase orders

- pilot electronic invoicing

- support the implementation of the Hampshire and Isle of

Wight eMarketplace.

The Panel will be involved in each of the above as the work progresses and reports on specific outcomes be presented to future meetings.

4

Energy Contracts

4.1

The County Council's current arrangement for the supply of electricity to its small (quarterly billed) sites will expire at the beginning of April 2006. The contract with Scottish & Southern was made on a fixed price basis for three years from April 2003 and has provided excellent value during a period in which market prices have risen sharply. Discussions are being undertaken with the existing supplier to establish what terms are available for an extension to the contract, but preparations have also been made to invite competitive tenders for this business. A recent tendering exercise for electricity for street lighting has resulted in an increase of around 56% at the end of a period during which prices were fixed for two years and it is likely that the level of the increase for the small sites will be substantially higher (probably well over 80%). The current value of the contract for these sites is approximately £1.5million (covering around 1,200 meter points and excluding external customers). As on previous occasions in a volatile market, suppliers will require the County Council to conclude a contract quickly after bids have been received. It is likely that the lowest bid will be accepted, but it is recommended that the Director of Property, Business & Regulatory Services be authorised to conclude new contract arrangements in line with established principles.

Recommendation(s)

The Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that approval be given to:

1

The progress on the corporate procurement agenda

2

The proposed programme of work set out in the report and the estimates for cashable and non-cashable benefits for 2006/07 and beyond

3

The development of a corporate strategy out of the issues raised in paragraphs 3.7 and 3.8 to create further initiatives to reduce operating costs.

4

The Director of Property, Business and Regulatory Services being authorised to conclude new contract arrangements for the supply of electricity to quarterly billed sites commencing April 2006.

2006/07

£

2007/08

£

1.

Cashable Corporate Savings

400,000

400,000

2.

Cashable Savings from Corporate Reviews

(estimates)

100,000

300,000

TOTALS

500,000

700,000

3.

Schools Cashable Savings

400,000

275,000

4.

Non Cashable Savings

500,000

1,000,000