IDeA procurement

Procurementessentials

In association with:

This publication contains general informationabout English and Welsh law. Detailed specialistadvice should always be obtained before taking orrefraining from any action as a result of thecomments made in these pages, which are onlyintended as a general guide to the particularsubjects.

No responsibility for loss occasioned to any personacting or refraining from action as a result of thematerial in this publication can be accepted by theauthors or the publisher

Purpose

This is a quick reference guide for localgovernment officers.

It describes the essential features of modernprocurement practice in local government.

Contents

Why is procurement important? Page 1What is “procurement”? Page 2Strategic context Page 2Procurement essentials Page 2Corporate arrangements Page 3Procurement process Page 11Contracts and supplier relationships Page 24Further reading Page 27

All the topics outlined here are discussed in furtherdetail in the main guidance: Modern ProcurementPractice in Local Government and Sustainability andLocal Government Procurement. This draws on goodpractice developed by local authorities throughoutEngland and Wales.

The guide is intended to support theimplementation of the National Procurement Strategyfor Local Government in England and Better ValueWaIes in the Welsh local government sector.

For guidance on public-private partnerships,strategic service delivery partnerships, andpartnering in construction see the 4ps, SPT andLGTF guidance referenced in Further Reading at theend. On eProcurement see the NationaleProcurement Project’s toolkit.

Why is procurement important?

With external spending running at over £40 billiona year, a modernization agenda linked to BestValue and CPA /Wales Programme forImprovement, increasingly integrated publicservices, and a significant growth in partnershipswith private and voluntary sector suppliers it hasnever been more important to get procurementright.

Pressure to improve performance on procurementis mounting because:

• procurement can play a critical role in thedelivery of strategic objectives, including theimprovement of public services.

• savings realized through more efficientprocurement can be channelled into priorityservices or council tax reductions.

• authorities are accountable for achieving BestValue (see below) and are open to legalchallenge under the EC public procurementdirectives and the UK procurement regulations(EC rules).

• inadequate planning and contract failures canresult in financial loss and damage to theauthority’s reputation.

• poor practices in design and procurement resultin time and cost overruns and poor quality.

• unnecessary ‘red tape’ and excessive timescalesare costly for authorities and suppliers alike.

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Managers’ guide to procurement

What is “procurement”?

In this guide, procurement means the process ofacquiring goods, works and services fromsuppliers. The process spans the whole cycle fromthe identification of needs through to the end of aservices contract or the end of the useful life of anasset. It therefore covers everything from“paperclips to PFI”.

Importantly, it includes the critical option appraisalstage (the “make or buy” decision). In the contextof Best Value, for example, this might involvechoosing a new model of service delivery.

Strategic context

Local authorities in England and Wales frame theirown priorities and strategic objectives within apolicy and legal context that includes:

• Best Value. Authorities have a duty to spendpublic money wisely and make arrangements tosecure continuous improvement in their servicesin terms of economy, efficiency andeffectiveness. Areas for review are prioritizedthrough Comprehensive PerformanceAssessment (CPA) in England and the WalesProgramme for Improvement (WPI).

• Community well-being. Power to promote theeconomic, social and environmental well-beingof the community. A community strategy isdrawn up and delivered collaboratively througha Local Strategic Partnership.

• Sustainability is key objective to be driventhrough procurement and health and safety is alegal responsibility.

• In the field of diversity and equalities,legislation includes the amended Race RelationsAct 1976 and sex and disability discriminationlegislation.

• Procurement law. Includes the EC Treaty,relevant directives and UK procurementregulations (EC rules) plus rules on “non-commercial matters” and the treatment ofworkforce issues in procurement. That includesTUPE, pensions and conditions of new starters.

• Local government finance. Includes regulationsgoverning public-private partnerships, localauthority companies, trading, and auditrequirements.

• eGovernment. A target date of 2005 has beenset for electronic service delivery in localgovernment. It includes eProcurement (seeeProcurement tools below).

The policy context for English local authorities isset out in further detail in the National ProcurementStrategy for Local Government. The Welsh contextincludes Better Value Wales as implemented in thelocal government sector.

In addition, there are many service-specific legaland policy requirements that apply to services likesocial care, education, housing, transport,environmental services, leisure and fire. These areoutlined in Modern Procurement Practice.

Procurement essentials

The essential features of the modern approach toprocurement comprise:

• corporate arrangements: creating the capacityand capability for successful procurement,contract management and supplierrelationships.

• procurement process: a process built around theprocurement cycle, a structured approach toproject and risk management and legalrequirements.

• contract management: planned in advance,contract management is about ensuringbenefits (outcomes) are delivered, continuousimprovement and sound relationships as well ascontrols.

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Tailoring

The information provided in this guide is generic.The resources and effort applied to procurementmust be proportionate to the risk/value of theprocurement and the potential benefits that maybe achieved. Authorities should therefore tailorthe approaches described here to the context.

Guidance on complex projects is available from4ps, SPT and LGTF (see Further Reading).

Corporate arrangements

This section looks in further detail at corporatearrangements. These are summarized in Table 1.

Corporate arrangements

Leadership. Commitment from the top bymembers and senior managers.

Procurement strategy. Procurement’s contributionto strategic objectives. A risk-based strategy basedon an analysis of spend and the authority’srequirements.

Procurement policies. Including best value formoney, collaboration, partnering, sustainability,health and safety, equalities, workforce issues etc.

Procurement procedures. User-friendly,communicated and supported by training.Incorporate controls and EC procurement rules.

Procurement plan. Covering a five-year period, atool for prioritizing and resourcing major projects.

Register of contracts. Required for transparencyand a management tool.

Ethics and fraud prevention. A preventionstrategy and ethical dealing with suppliers.

Procurement skills. Professional qualifications inthe centre. Skill sets required by all projectparticipants, including members and seniormanagers.

Centre of expertise. The source of procurementadvice and commercial expertise. Point of contactfor suppliers. Conduit for sharing lessons learnt.

Management information and measurement. Toolsto manage and continuously improve. Trackingstrategy implementation.

Supplier intelligence. Centre of expertise is arepository of knowledge on suppliers and markets.

Supplier relationships. Understand how suppliersview you. Build relationships with key suppliers.

Collaboration. Make use of purchasing power.Departments and authorities should collaborate topool resources and “aggregate” requirements toobtain discounts. Services and construction arethe challenge for collaboration.

Promoting diversity and competition. Considerthe value added by small firms, social enterprises,voluntary and community sector suppliers andethnic minority businesses, including as membersof the supply chain in partnerships.

Resourcing projects. Projects fail if there is nocommitment to resource them properly.Business case culture. Make it part of the culturenever to enter procurement without a soundbusiness case.

Table 1: Corporate arrangements

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Leadership

Procurement and contract management should bea strategic priority in every authority. Seizingopportunities to improve public services throughnew service delivery models and ensuring that theauthority has the necessary corporate capacity andcapability to deliver change successfully are keyleadership tasks.

Among other things, the strategic importance ofprocurement should be reflected in an executiveportfolio, creating a member champion forprocurement.

Members on the executive might have primeresponsibility for:

• Adopting the corporate procurement strategy,ensuring it is aligned with strategic objectivesand monitoring its implementation.

• Overseeing corporate arrangements forprocurement and contract management toensure they are operating effectively.

• Promoting the use of gateway reviews.• Making key decisions in the procurement

process for major projects (e.g. business caseand contract award).

• Monitoring the performance of partnershipsand other key contracts.

• Learning lessons from major projects andpartnerships.

• Leading best value reviews of procurement andcontract management.

The role of overview and scrutiny members mightencompass:

• Conducting inquiries into new models ofservice delivery

• Reviewing areas of high spend to identifyopportunities for improved value for money

• Challenging the progress of major procurementprojects

• Reviewing the performance of partnerships andother key contracts

• Ensuring that lessons are learnt from majorprojects and partnerships.

It is vital that the chief executive recognizes thestrategic role of procurement and demonstratespersonal commitment to major projects andpartnerships.

Appointment of a chief officer champion forprocurement on the corporate management teamshould ensure that it is accorded the necessaryprofile in the organization.

Procurement strategy

Procurement is not an end in itself. It should beundertaken to further the strategic objectives ofthe authority.

Developing a corporate procurement strategy,covering a three-to-five year period, will enable anauthority to develop a longer- term vision of howprocurement can help deliver strategic objectives.The development of the strategy can help raisethe profile of procurement and gain member andsenior management buy-in.

The procurement strategy should reinforce thepolicy of achieving best value for money (seebelow) and the need for compliance with the ECdirectives and the UK procurement regulations. Itshould address sustainability considerations asdiscussed in Sustainability and Local Government, raceequality matters as set out in the CRE’s RaceEquality and Procurement in Local GovernmentProcurement and the opening of contracts to smallfirms, social enterprises, ethnic minority businesses,voluntary and community sector suppliers (see, forexample, OGC/DTI Smaller Suppliers... Better Value?)whose principles are generally applicable.

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As a minimum the procurement strategy shouldcontain the following:

• fit with the authority’s strategic framework andcontribution to the achievement of strategicobjectives (see Figure 1)

• spend profile and key suppliers• organization and resourcing of procurement

and contract management• key procurement policies• reference to procurement procedures including

option appraisal (which should be detailedelsewhere)

• strategies appropriate to different requirementsin the authority’s procurement portfolio (seebelow)

• action plan for improvements.

Figure 1 illustrates how procurement may fit withinthe authority’s strategic framework.

The development of procurement strategy beginswith a spend analysis and the mapping ofrequirements in the authority’s procurementportfolio. (See Figure 2).

Risk-based strategies should be developed for thevarious requirements in the portfolio.

Partnering may be considered an appropriatestrategy for high-risk, high-value (“strategic”)procurements. These do not occur often, butrequire the greatest resources and know-how.

Framework agreements and corporate contractsenable authorities to leverage their buying powerfor low-risk, low value requirements whenvolumes are high (see Collaboration below).eProcurement tools, such as eMarketplaces,support this as well as enabling electronictendering and electronic auctions. See the NePPToolkit.

Fig 2: Procurement portfolio

The Government Procurement Card, (GPC ) or aprocurement card offering comparable benefitsshould be considered for infrequent low value,low risk procurements

Requirements of low value can be critical to theoperation of the authority too. Strategies for“bottleneck” items include multiple suppliers,back-up contractors and partnering..

Fig. 1 Strategic framework

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Bottleneck

Routine

Strategic

LeverageRisk

Value

Procurement policies

The authority’s procurement policies need to beset down in writing and widely communicated.

Above all, the authority should have a policy,supported by members and senior management,of making procurement decisions on the basis ofbest value for money (the economically mostadvantageous offer in the procurementregulations).

Best value for money is defined as: “the optimum combination of whole lifecosts and benefits to meet the customer’srequirement”.

Contracts should not be awarded on the basis oflowest initial price alone. There must always bean assessment of quality and the costs that will beincurred by the authority throughout the life ofthe asset or contract period.

A tender evaluation model including objectivecriteria for the assessment of cost and qualityshould be prepared in advance of procurement.Evaluation criteria should be published in contractnotices and the invitation to tender. They mustnot be changed during the procurement process.

Procurement procedures

Clear, user-friendly procurement procedures are afundamental requirement. The procedures shouldbe available on the corporate intranet andproactively communicated to staff includingthrough structured training.

Contract standing orders (CSOs) and financialregulations form the core of the procedures. Theseare the mandatory rules with which all officersand members must comply. They are an essentialcomponent of the authority’s system of internalcontrols and should provide a transparent audittrail. The rules are there to protect the authority’sinterests and those of its members and officers.

It is essential that CSOs and financial regulationsare regularly reviewed and kept up-to-date. Theymust embody legal obligations properly, includingthe procurement regulations (EC rules), and shouldenable best practices including use of negotiatedprocedures in justified circumstances forparticularly complex contracts and the use ofeProcurement tools with appropriate controls.

CSOs should not be overly complicated. Typically,CSOs point to more detailed guidance and bestpractice set out in a procurement code of practiceor manual.

Procurement plan

The authority should prepare a procurement plancovering at least a five-year period and updatedon a rolling basis. This should set out for membersand senior managers information on all the majorprocurement projects (medium and high risk)planned for the coming five years, with estimatedoverall spend and resource requirements. Theplan should also show dependencies and howprojects will be prioritized. This will need to beunderpinned by a comprehensive database offorthcoming requirements that can be used by theprocurement centre (see Centre of Expertise below)to populate the council’s website with details oftendering opportunities.

Register of contracts

Every authority should have in place a corporateregister of contracts (ideally, an electronic contractmanagement database).

The contracts register is a basic management toolthat provides information on the contracts to whichthe authority is party. It is an important part of theaudit trail. It provides managers with data on whichto plan, such as expiry dates and resources requiredfor re-tendering and the scope for achieved bettervalue through the aggregation of requirements (seeCollaboration below).

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The register would help officers to identify, forexample, an existing framework agreement orcontract that can be used instead of letting a newone.

The register will also assist with the compilation ofgovernment statistical returns on contract awardsrequired by the procurement regulations.

Ethics and fraud prevention

Procurement in any organisation can be the targetof fraudulent and corrupt activities. Authoritiesshould take steps to minimize the opportunitiesfor these. The provision of clear policy statementsand codes of conduct, which are easily accessibleby staff, are a basic requirement.

The requirements should be described in thefollowing:

• mandatory code of conduct for members• mandatory employee code of conduct• a policy statement on fraud• financial regulations, contract standing orders,

schemes of delegation.

These should emphasize that it is the duty of allmembers of staff involved in procurement tobehave in a professional and honest manner(including adherence to rules on the acceptance ofgifts and hospitality) and to treat all suppliersequally. They must report any conflicts of interestand any breaches of procurement procedures.

These requirements should be embodied in theauthority’s procurement policies and procedures(see above).

Training on these rules should be provided fornew staff in particular and on an ongoing basis ifthe codes/rules change. The procurement functionshould work closely with internal audit to monitor their application.

A policy on procurement ethics will assistauthorities in a number of ways. It will help toensure that conduct is fair, honest, efficient andprofessional and that decisions are made on thebasis of best value for money alone. Importantly, itwill ensure that the reputation of the authorityremains good within the market. An authoritywith poor procurement ethics will attract supplierswith similarly poor ethics, with reducedopportunity for productive working relationships.

Procurement skills

The head of the procurement function and keyprocurement officers should be professionallyqualified.

Elected members and officers throughout theauthority need to have the skills necessary toperform their roles including participation inprocurement projects and managing contracts andrelationships.

IDeA, 4ps and EO have jointly published SkillsFrameworks for Local Government Procurement thatenable authorities to carry out training needsassessments and to provide or commissionappropriate training and development, includingmember and management development.

Under the National Procurement Strategy trainingand development programmes are being put intoplace for members, senior managers and projectteams to enable them to acquire the relevantskills. Skills training is also in place in Wales.

Centre of expertise

The National Procurement Strategy for LocalGovernment urges all single tier and countycouncils in England to establish a corporateprocurement team led by the professional head ofthe procurement function. Better Value Walessimilarly recommends leadership for the function.

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Smaller councils might collaborate with others toshare procurement resources. In England regionalcentres of excellence are being established tofacilitate this under the National ProcurementStrategy.

The authority’s procurement centre acts as a focalpoint for suppliers wishing to do business with theauthority. Accessibility can be enhanced bypublishing information on the authority’s website.This should include a “Selling to the Council”guide, contact details and information onforthcoming tendering opportunities.

The centre provides procurement advice andsupport on commercial issues to staff involved inprocurement projects. That typically includesguidance on rules, procedures and best practices,supplier intelligence and market knowledge.

It can involve assistance with best value reviews,option appraisal, specification, the preparation ofcontracts and the management of procurementprojects.

Early involvement of procurement professionals inprojects (from review stage onwards) is a key tosuccess. In major projects all professional advisers– legal, finance, HR and ICT as well asprocurement need to be involved from an earlystage.

The procurement centre also plays an importantrole in authorities committed to being a learningorganization as it can provide the mechanism forensuring that lessons learned on one project aredisseminated to others. This immediately improvesthe potential for success.

Every authority needs to determine theappropriate role for its centre in relation to therequirements in the portfolio. The four mainapproaches are:

• Procurement-led – the centre has responsibilityfor the procurement. This could involve leadinga project team.

• Cross-functional team – the centre participatesas a member of a project team.

• Co-ordinated – the centre collaborates closelywith key internal stakeholders, without which asuccessful outcome will be compromised.

• Decentralised – responsibility for theprocurement is located with service managers.

Procurement centres should proactively markettheir services within and outside the authority.This may be achieved through, for example, opendays, seminars, dissemination of success storiesand/or induction programmes.

Management information andmeasurement

A good management information system is afurther key to success in procurement.Traditionally, procurement in local government hasbeen bedeviled by a lack of information on whichto base decisions. However, as authorities upgradetheir financial management systems and startusing eProcurement tools much higher qualityinformation is becoming available. It is critical thatprocurement professionals are involved in thespecification and implementation of such systems.

Among other things, management informationcan be used to measure performance. Theperformance of the procurement function mustbe measured, like any other, with a view tocontinuously improving service and to achieve bestvalue for money. Performance measurementfacilitates benchmarking.

Procurement performance measurement should beconcerned with procurement’s contribution tostrategic objectives as well as operationalmeasures of efficiency.

For procurement performance indicators see theIDeA’s Modern Procurement Practice in LocalGovernment and the Audit Commission/IDeA onlineLibrary of Local Performance Indicators.

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Supplier intelligence

Successful procurement depends on good marketknowledge and supplier intelligence. Centres ofexpertise should be repositories of suchknowledge. Suppliers should be assessed in termsof capability, capacity and financial risk. Thisinformation may be held on a supplier database(approved list). The centre tracks developments inthe market and looks for innovations.

Supplier relationships

The authority needs to identify who its keysuppliers are in terms of spend and dependency.

The authority should have a strategy for buildingand maintaining good relationships with thosesuppliers.

Contract management will address therelationship on a project-by-project basis, butthrough the creation of an open dialogue with keysuppliers at senior management level, theauthority stands to benefit from learning aboutthe strengths and weaknesses of the authority’sprocurement processes, the potential risks tosupply in the future and changes in the market.

Lessons from these activities will assist authoritiesin improving their own performance and betterunderstanding their supplier base. Authorities mayneed to take steps to ‘market’ themselves to thebest suppliers.

Collaboration

Authorities should take advantage of theirpurchasing power by aggregating requirements.This requires departments to collaborate. To achieve the best results collaboration should extendacross a number of authorities and public bodies.

Aggregation provides opportunities for pooling,and where appropriate, reducing, the resources

that go into procurement and can of deliversavings for authorities through bulk discounts.Authorities should encourage the reduction ofprocurement resources used to acquire highvolume, low value items such as stationery, ICTconsumables and office equipment.

These can be very successfully dealt with throughframework agreements set up either within anauthority or via purchasing consortia, which set upframework agreements on behalf of a number ofauthorities. If a well-managed frameworkagreement is in place it is unlikely that authoritieswill be able to improve on the value for money itoffers, and use of frameworks should be mademandatory (i.e. in policies and procedures).

When establishing framework agreementsauthorities should take care to ensure that theyare open for use by all public sector bodies in thelocality or region that might wish to make use ofthem (including, for example, small authorities,health and police). OJEU contract notices (seeProcurement Process on page 13) need to beworded accordingly.

Significant benefits may be obtained fromcollaboration in the procurement of services and inconstruction (joint procurement projects). This is acomplex area. See, for example, the SPT’sRethinking Service Delivery guidance.

eProcurement tools

There are many eProcurement solutions on themarket, including some that can be fullyintegrated with back office systems and payment.

These solutions allow authorities to:• Receive quotations and tenders electronically in

a secure environment• Order goods and services securely over the

internet from electronic catalogues• Conduct electronic auctions

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eMarketplaces generally combine these featureswith the bonus that they also enable authorities tocollaborate to create shared catalogues.

Procurement cards and electronic payment (BACSand CHAPS) are also sometimes counted aseProcurement tools. They improve information,increase efficiency and reduce paperwork.

The first benefit of eProcurement is betterinformation on which to base decisions. In timeeProcurement can also release resources forallocation to strategic procurement and can resultin contracts that offer improved value for money.

Diversity and competition

Authorities should encourage a diverse range ofsuppliers to compete for their contracts. Often small and medium sized enterprises, socialenterprises, ethnic minority businesses, voluntaryand community organizations are discouragedfrom tendering.

They may be unaware of opportunities (see Centreof Expertise above), or the bureaucracy ofprocedures or packaging of requirements maydeny them the opportunity of tendering and soprevent them demonstrating the value they canadd.

These suppliers may offer greater innovation andvalue for money than their larger counterparts.They can be effective participants in the supplychain for larger partnerships.

See OGC/DTI’s Smaller Supplier…Better Value?, CRE’sRace Equality in Local Government Procurement andIDeA’s Sustainability and Local GovernmentProcurement for practical advice on how the localgovernment market can be opened.

Resourcing of projects

A common cause of the failure to deliver

procurements within time, budget and quality isthe lack of senior management commitment toadequately resource procurement projects. This isa false economy.

The correct number of staff will be important butso too will a level of skills and experiencecommensurate with the procurement (seeProcurement Skills above). The types of skills andresources that may be required at a project teamlevel (this will vary with the risk level of aprocurement) will include:

• project and programme management• commercial negotiation• contract and relationship management• options appraisal and business case

development• financial modelling• procurement processes• contract and procurement law • commercial practice (law, tax and finance)

If an authority fails to resource their procurementsadequately, the impact on the citizen may besignificant as a result of poor quality services.

Business case culture

Management must ensure that all proposedprocurements remain aligned with the authority’sprocurement strategy.

To ensure that this happens a business case‘culture’ should be promoted across the authority.That means that a business case should beproduced for each significant procurement project(risk-based approach).

This will provide a clear justification for theprocurement in terms of alignment with theauthority’s objectives and should be signed off bymanagement, and members where appropriate,before the project continues.

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The business case will provide evidence that:• the proposals fit with the authority’s strategic

objectives and priorities• an appropriate number and range of options

(benefits, costs and risks) have been consideredfor delivering what is required

• the proposals are achievable – that is, theauthority can realistically achieve all that isproposed

• the proposals are affordable – the budgetneeded to deliver the requirement is available

• the proposals offer best value for money for theauthority

The business case is considered in more detail inthe Procurement Process section below.

Procurement Process

Project managementEvery medium and high-risk procurement shouldbe managed as a project. The National ProcurementStrategy for Local Government Procurement in EngIandand the Wales Programme for Improvement identify astructured approach to project management as animportant factor in successful procurement.

Roles and responsibilities should be defined andagreed so that everyone involved knows what theyhave to do and when. The stages of theprocurement should be set out with clearmilestones and expectations of what is to be doneat each stage. People with appropriate skills andexperience should be assigned to project roles;resources and timescales should be determined atthe outset. These are the principles of effectiveproject management that enable a procurement toachieve what is required.

Project organisation Project management requires trained andcommitted staff in a hierarchy of roles.

The structure of the project team organisation andgrades of staff involved will depend on how

important the project is to the authority, its scaleand complexity.

Fig. 3. Project organization

Figure 3 shows a typical structure for a projectorganization, with the key roles and reportinglines between the roles.

Members and senior managementThere must be a role responsible for making theinvestment decision on behalf of the authority. Fora major project this would usually be members orthe corporate management team, not anindividual. They are responsible for committingfunding for the project. For less significant projectsthe decision on the investment would bedelegated as appropriate.

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Members Stakeholders

Project BoardProject Owner

Project Manager

Project Team

Project ownerAn individual should be nominated as the ownerof the project, with personal responsibility for itssuccess. This is the project owner (sometimesreferred to as the senior responsible owner). If aproject board is established, the project ownerchairs the board. They must have enough seniorityin the authority to drive the project forward.

Project board For major projects there is usually a project boardthat typically comprises senior managers fromlegal, finance, procurement, HR, ICT and property(as appropriate to the contract). The boardensures all aspects of the project are addressedand will act on the feedback from stakeholders.

Project managerThe project manager is the role responsible for co-ordinating the project team and overseeing thedelivery of the project. The project manager musthave sufficient authority delegated to them tofulfil their role.

For major projects project managers will requiresupport from professional advisers. These willprovide advice as and when required by theproject. Their expertise may include procurement,finance, legal, human resources, property andtechnical advice.

Project teamThe project team will be made up of staff requiredto resource the delivery of the project.

Procurement staff should be consulted throughoutthe project and may be project team members.Procurement should also be represented on theproject board at senior level and have an activepart in the quality management of essentialactivities such as formulation of evaluation criteriaand the development of contractualdocumentation.

StakeholdersInvolving the right stakeholders at the right stagesof a procurement will help to ensure that officers

correctly identify what is required, reduce thenumber of costly post-contract variations torequirements and have the buy-in of key bodiesand individuals to the procurement decisions thatare made (see Table 2 below for a list of potentialstakeholders). Stakeholder engagement is animportant element of achieving best value formoney.

Stakeholder input should be carefully planned.Not all stakeholders will require the same level ofinput to the procurement process. Officers shouldidentify a complete list of stakeholders, wherethey should be involved in the procurement cycleand the extent of their involvement at stages of aprocurement such as:

• sign-off required• comments required• keep informed.

Option appraisal, development of the specificationand the evaluation of suppliers are three mainactivities where stakeholder involvement isparticularly beneficial.

Examples of stakeholdersCitizensService usersElected membersHead teachers and governorsTenantsCarers StaffTrade unionsInternal auditExternal auditGovernmentOther local authoritiesSuppliersSpecial interest groups Media

Table 2: Examples of stakeholders

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Risk management

A risk to a procurement project is anything thatmight adversely affect the outcome of the project.Some typical procurement risks are shown in Table3 below.

• Political change in the authority leading toproject misalignment with authority objectives

• Loss of key procurement/project managementstaff

• Insufficient resources and skills in project team • Low response rate from market leading to poor

(or no) competition• Funding cannot be secured for the full period of

the contract• The projected timescales for implementation are

too short• Evaluation process fails to identify the best

value for money supplier• The authority is unable to agree favourable

terms with the preferred supplier• The supplier fails to perform as required

Table 3: Examples of risks in a procurement project

Risk management is the ongoing process ofidentifying potential risks, analyzing the likelihoodof them occurring and their impact, controllingthe risk and monitoring the process.

In some cases, a decision may be taken to transferrisk to the supplier under the contract.

A best practice approach to risk managementrequires authorities to control risks by identifyingwho is best placed to manage or eliminate the riskand allocating the risk to them. In some cases thiswill be the supplier but in others it will be theauthority. Sharing a risk may even be the best option.

If a risk is allocated to the wrong party there is agreater likelihood of it materialising and of theimpact being greater than it might otherwise be.In addition if it is allocated wrongly to the supplier,the supplier will charge the authority a premiumfor assuming that risk.

Each project should have a risk register, overseenby the project manager which:

• records each risk• prioritises them by impact and probability of

occurrence• allocates them to a named party• records the actions that can be taken to

mitigate or eliminate each and an action date.

This risk register provides the framework againstwhich the project manager will report on risk andmonitor the success of the risk managementprocesses. It is good practice for the risk registerto be maintained jointly by the authority’srepresentatives, the supplier and any additionalparties involved in the delivery of the project.

Gateway review processProject owners are recommended to adopt agateway review process for significantprocurement projects.

This comprises reviews at key decision-makingpoints in the “procurement cycle” (see below) bya peer review team that is independent of theproject team to ensure that a project can proceedsuccessfully to the next project stage. The processis particularly valuable for managing high-riskprojects. It is being introduced into localgovernment by the 4ps. The outcome of using thisapproach is projects that are more likely to becompleted on time and budget and to meet theclients’ requirements.

The gateway process is not an audit of a projectbut a tool to assist the project owner to deliver asuccessful project. Authorities should decide toapply a gateway review process on the basis ofthe risk inherent in the procurement project. Thereis a tool to help authorities do this on the 4pswebsite: the Project Assessment Spreadsheet(PASS).

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The recommended key decision points are shownin Table 4 below.

A review is recommend at each of these stages inthe procurement cycle:

• Gate 0: Strategic assessment - business needidentified and outline brief prepared

• Gate 1: Business justification - options appraisalcompleted and preferred option identified

• Gate 2: Procurement approach - approach toprocurement identified (but before advertising)

• Gate 3: Investment decision - preferred supplieridentified (but before contract award)

• Gate 4: Readiness for service - asset or service isready for delivery

• Gate 5: Benefits evaluation - asset or service isin place (this may be repeated several timesover the life of the asset (such as a building) orservice contract).

Table 4: The key decision making points at which agateway review is recommended

Project stages

There are four main stages in any project:

Project definitionProject definition requires the setting of theparameters of the project (using a project initiationdocument or PID) , including a high-level businesscase.

Project planningProject definition (the PID) also provides the basisof project planning. Planning is essential at theoutset of a project but remains importantthroughout the project as the environment, risksetc change. Planning includes:

• organising the project management teamstructure and any additional resources

• forecasting expenditure profiles• scheduling milestones for delivery• the actions required to achieve these• setting out the approach to risk management,

communications and stakeholder engagement.• developing the procurement approach.

Project controlAt this stage progress is monitored against theoutputs from the project planning stage andaction undertaken as required to ensure theproject remains on track.

Project closeAt this stage steps should be undertaken toensure that the end of the project is as smooth aspossible. A project evaluation report should beprepared with the key objective of learning lessonsand feeding them into the project managementprocesses for the benefit of future projects.

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Fig. 4. The procurement cycle and gateway reviews

All authorities should aim to be “learningorganisations” which will allow them tocontinually improve their performance. Post-project reviews are an important element of this.(See also post-implementation reviews below). Theseassess whether the procurement achieved thebenefits set out in the business case.

Some of the areas referred to above are outlinedin more detail below.

The procurement cycle

It is helpful to think of the procurement process asa cycle. The procurement cycle comprises the stepsshown in Figure 4 above.

Viewing a procurement project in this wayemphasizes the importance of the business caseand ensures that procurement is not mistakenlyregarded as simply the process of advertising andevaluating tenders.

TailoringAll procurements should be carried out inaccordance with the principle of the procurementcycle at Figure 4.

However, the resources applied to a procurementproject should be proportionate to its risk andvalue (see Figure 1). Those procurements that fallinto the strategic group should follow all the stepsshown at Figure 4 and should adopt projectmanagement and gateway review tools.Procurements with lower risk/value levels,particularly routine procurements, can be deliveredthrough a simplified process.

Steps in the procurement cycle

Each of the key steps of the procurement cycle isoutlined below.

1. Identifying needsNeeds may be recognised in a number of wayssuch as a demand from members, theidentification of weaknesses throughComprehensive Performance, Best Value reviewsor inspections, the end of an existing contract orthe failure of a contract.

2. Developing the business caseThe business case is an essential document forproject success. It provides justification for theprocurement in terms of its alignment with theobjectives of the authority; it also provides the

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basis for managing the delivery of the project ontime, within budget and to agreed qualitystandards.

The business case will be an evolving documentthroughout the procurement cycle.

In a major project the business case will start as ahigh level summary of possible options to meetthe service need, progress through further highlevel investigation as a Strategic Outline Case(SOC), develop into an Outline Business Case(OBC) with indicative costs and finally a FinalBusiness Case (FBC) with the indicativeinformation confirmed.

The Final Business Case is continuously reviewed.It will provide the basis for the projectimplementation review and beyond.

The following questions are explored at each stageof business case development:

• strategic fit – how well does the proposed wayof meeting the requirement support theauthority’s objectives and current priorities?Does the scope need to change?

• options – has a wide range been explored,including innovation and/or collaboration withothers? How do they compare in terms ofbenefits, costs and risk.

• achievability – can this project be achieved withthe authority’s current capability and capacity(such as other projects with a high priority thatmust be delivered at the same time)?

• value for money – can this be obtained fromproposed sources of supply such as currentsuppliers? Does the project need to be madeattractive to a wider market?

• affordability – is the budget available to deliverwhat is required? If not, can the scope bereduced or delivery extended over a longerperiod of time; or funding sought from othersources?

The high level business case may contain no morethan a summary statement outlining the questionsabove; all that is needed is enough information toenable those responsible for making theinvestment decision to take an informed view onthe best way forward.

The Strategic Outline Case is still a summarydocument, with just enough detail to engagestakeholders and support an informed decision onwhether to proceed or to revisit the project scope.It should include an option appraisal of the highlevel options for meeting the authority’s objectivessuch as make or buy, together with an initial viewof the costs, benefits and risks.

A more detailed option appraisal will beundertaken during the “Develop the BusinessCase” stage and recorded in the Outline BusinessCase. These options will be based on an ongoingassessment of strategic fit, achievability, value formoney and affordability. Information at this stageis based on relatively detailed indicativeassumptions about costs, benefits, risks etc.

The Final Business Case contains the same level ofdetail as the Outline Business Case, but with allthe information confirmed as it becomes availablefrom suppliers during the competitive procurementprocess. It should provide all the informationneeded to support a decision to award a contractand commit actual funding.

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The National Procurement Strategy for LocalGovernment describes the options that Englishauthorities should consider in the context of BestValue Reviews and similar strategic reviews ofservices (the “make or buy” decision):

• In-house• Public sector consortium• Tactical contracts (multiple)• Non-profit-distributing organization• Local authority company• Joint venture company• Partnering contract• Framework agreement• DBFO (PFI)• Concession or franchise• Closure or disposal.• Mixture of the above.

3. Defining the procurement approach(a) Market sounding It will be essential for authorities to communicatewith suppliers throughout the procurement cycleto create a dialogue (taking care not to showfavouritism or provide representatives with anunfair advantage).

They may chose to consult the market viapublication of a PIN for a particular project (seeAdvertising below) or during a best value review orthrough “open days” and similar events forsuppliers.

Market sounding is particularly important whendeveloping the option appraisal but will alsocontribute significantly to the development of theprocurement approach (see below). Not only is itunlikely that officers will have the knowledge andexpertise to produce the optimum approach toprocurement in isolation, they must also ensurethat there will be interest from the market in theapproach they choose. If suppliers are unwillingto accept, for example, the risks the authoritywishes to transfer to them, the procurement mayfail to achieve best value for money. As aminimum, timescales for reaching a satisfactoryagreement will be extended.

Authorities should also bear in mind that if theyare regarded by the market as a poor client theyare unlikely to receive the number or quality ofresponses required to achieve best value.Consultations with the market should identifythese perceptions and authorities should beproactive in addressing any shortcomings and inletting market know they have.

(b) Procurement approach The procurement approach defines the type, sizeand phasing of the procurement. Detailedplanning of the procurement timescales andresourcing are undertaken. In the light of marketsounding the procurement approach defines:

• the optimum allocation of risk between thesupplier/s and the authority

• the splitting of requirements across a numberof suppliers

• the bundling of requirements with a reducednumber of suppliers e.g. through setting upframework agreements (see below)

• incentives that may improve performance to theauthority’s advantage

• payment periods• the optimum length of contract.

The draft contract and specification and draftOJEU notice are also prepared during this period.

(c) Compliance with procurement lawCompliance with legal obligations is essential andprofessional advice should be taken asappropriate. For general information, see theBasic Guide to Contract and Procurement Law inthe IDeA’s Modern Procurement Practice.

Obligations include compliance with theprocurement regulations (EC rules), Part II of theLocal Government Act 1988 (non-commercialmatters), ODPM Circular 03/2003 (which includesthe code of practice on workforce issues), NAFWCircular 18/2002 and the Welsh code of practiceon workforce matters.

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If the contract is covered by the procurementregulations, authorities have a choice of threeprocedures:

• open• restricted• negotiated

The restricted procedure is recommended forgeneral use. Use of the negotiated procedure(with or without advertising) must always bejustified under the procurement regulations and isopen to challenge.

See Table 6 for summary information on theprocurement regulations.

Procurement regulationsPublic sector procurement is governed by ECdirectives and UK procurement regulations (ECrules). These apply to the majority ofprocurements of works, services and supplies witha total value, excluding VAT, over a specifiedthreshold (see table). They stipulate rules and timelimits for the procurement process particularlyconcerning specifications, advertising, selection ofsuppliers, tendering and contract award whichaim to increase competition across Europe.

Authorities need to comply with their obligationsunder the procurement regulations in order toavoid legal challenge by suppliers or the EuropeanCommission.

Threshold Value

Works: £3,861,932Services: £154,477Supplies: £154,477

Procurement regulations thresholds at June 2003.These are regularly reviewed.

Table 6: The procurement regulations

All procurements should aim to achieve best valuefor money for the authority. One of the keys toachieving this is through competition. On thesimplest procurement three quotations mayprovide adequate competition. On the morecomplex procurements advertising, followed by aninitial assessment to identify a shortlist, andtendering are the recommended competitive tools.

(d) Managing changeIf the project involves transferring staff to thesupplier, then the authority will need to plan inadvance how it will manage the change, inaddition to complying with its legal obligations onTUPE, pensions, new starters and other workforcematters. There is statutory obligation to consultstaff who might transfer.

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However, staff in the contract management teamand other services will be affected by the changeas well as those transferring. HR professionals willneed to be involved from the beginning of theproject if there is a likelihood of a staff transfer.

For guidance on the handling of workforce issuessee ODPM Circular 30/2003, the EmployersOrganisation’s Workforce Issues and Local GovernmentProcurement and the SPT’s Employment Matters inPartnerships.

4. Competition(a) AdvertisingAdvertising provides an important link betweenthe authority and suppliers. Contract noticesshould aim to attract an adequate number ofsuitable suppliers and therefore they should becarefully worded and the publications used shouldbe project specific.

For contracts covered by the procurementregulations, there are clearly defined rules onadvertising and the number of suppliers to beinvited to tender.

In most circumstances prior information notices(PIN) should be posted annually to notify themarket of future potential requirements ( onscheme approval for works projects) and acontract notice placed as each project arises. Thecycle is completed with a contract award notice.These should all be placed in the Official Journalof the European Union (OJEU).

The procurement regulations also contain rules onthe form and content of notices (which can besubmitted electronically).

(b) Selecting suppliersWhere a large number of replies are expected anearly sifting (pre-qualification or supplierassessment) exercise, based on informationrequested in the advertisement, will help toprovide a manageable number to invite to tender.The criteria used at this stage normally concernfinancial risk and technical capability of the

supplier. Criteria should be carefully chosen toavoid unnecessary ruling out at this stage ofsuppliers who might be suitable to provide therequirements.

For contracts being awarded under theprocurement regulations (open, restricted andnegotiated procedures) there are rules on theinformation that can be sought to assess thefinancial risk capacity and capability of suppliersand on the minimum number to be invited totender or negotiate.

(c) Inviting tendersOnce suppliers have been identified as suitable forfurther consideration, they may be invited totender.

Invitation to tender (ITT) documentation typicallycomprises four main parts:

• ITT itself, including tendering instructions.• specification• contract • pricing schedule

Tendering instructions. This section provides adviceon the timescales and administration of theprocurement process and conditions for tendering.

Specification. The specification provides potentialsuppliers with a statement of the authority’srequirements and will form an important part ofany contract with the supplier. It will also providethe information on which suppliers will base theirpricing and resourcing structure and thereforemust be comprehensive and clear. The importanceof getting the specification right should not beunderestimated.

Key specification success factors are shown in Table6 on the next page.

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Critical success factors for specifications

Do not over- or under-specify your requirements.The results will be expensive.

Reflect your needs, not your wants.

State your required outputs/outcomes but allowsuppliers to suggest how to provide these.

Time taken to produce the specification will berewarded.

Involve stakeholders in developing and signing-offthe specification.

Be alert to how the specification is allocating risks.

Table 6: Key factors in producing the right specification

The time and effort applied to developing aspecification should be in keeping with the risksand complexities attached to the requirement.However a specification will be helpful for allrequirements, even routine procurements as itprovides a useful contractual record of what wasrequested.

Involving relevant stakeholders, particularly users,in the development of a specification is essentialto ensure it properly reflects their needs.

A basic rule for producing a specification is toensure that it is as output-based as possible – thatis, it states the desired output/outcome but doesnot prescribe how a supplier should meet this.

Functional and performance descriptions ofrequirements provide an output-based approach.(See Table 7 below for further information on Typesof Specification). This approach invites supplierinnovation and recognises that in most instancesthey are best placed to identify the mostappropriate solution.

For major contracts, tenderers may be asked toprovide method statements setting out, for

example, their proposed solution, how they willresource and manage the contract and how theywill bring about continuous improvement. Theymight be asked to provide implementation andexit plans.

Types of specification

There are three main ways of specifyingrequirements:

Functional specification:This states the function or duty of the requirementsuch as to provide a refuse collection service fordomestic properties.

Performance specification:This defines the performance required e.g. arefuse collection service capable of removing xtonnes of waste from x homes in a defined area.

Technical specification:This sets out the technical and physicalcharacteristics of how the supplies, services orworks must be provided e.g. a refuse collectionservice using x number of vehicles of x capacityand with x staff, undertaking collections on stateddays.

Functional and performance specifications arepreferred as they allow the supplier to provideinnovative solutions to meeting the authority’srequirements because they are output-based.Technical specifications are generally toorestrictive, particularly for service provision, andretain the risk of failure with the authority.

Table 8: Types of Specification

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Contract conditions. Authorities should usestandard forms or their own terms and conditionsof contract, prepared with specialist legal advice,which suppliers will be requested to accept withminimal variation prior to award of contract.These set out the basic requirements that will becommon to most procurements such as what willhappen in the case of a default by a supplier andwhen and how payments will be made. Theseshould be included in all invitations totender/negotiate and on order forms wheretendering is not appropriate.

Such terms and conditions should not however beoverly adversarial so that fair and trustingrelationships can be developed with suppliers.

Suppliers’ own terms and conditions are unlikelyto be favourable to an authority or to provideprotection in the case of default by a supplier.

Pricing schedule. This is a form for suppliers tocomplete showing their proposed prices andexpenses. It will take a variety of different formsdepending on what is being procured and how.

(d) Negotiated proceduresUnder the public procurement regulations (ECrules), where the negotiated procedure applies, aninvitation to negotiate (ITN) may be used insteadof an invitation to tender (ITT). Care should betaken to ensure that the negotiated procedure isonly used within the terms of the procurementregulations.

In justified cases the negotiated procedure may bechosen for PPP/PFI and other strategic partneringprojects. In the case of PFI projects the 4psguidance (including Procurement Packs) andOGC’s Step-by-Step Guide to the PFI ProcurementProcess should be followed. Otherwise, therelevant guidance is the SPT’s Rethinking ServiceDelivery procurement guidance.

5. Evaluating tendersTraditionally, tenders have been assessed on thebasis of lowest initial price alone. This leads totenderers reducing proposed prices in the hope ofmaking up the difference by cutting corners,inflating prices for variations to contract andpursuing claims.

Rather than reduce the cost of delivery, awardingcontracts on the basis of lowest price increasescosts through, for example:

• delayed delivery• complaints handling• increased in-house management team to

continuously check performance• resources required to deal with claims• re-tendering.

Award on the basis of lowest price is thereforeoften a false economy.

Tenders should be assessed on the value formoney they offer the authority – that is, theoptimum balance of whole-life costs and benefitsthat meets the customer’s requirement.

Authorities often fail to consider whole life costsin particular. Whole life costs comprise all costs toan authority of acquiring, owning, maintainingand disposing of goods, services or works.

Table 8 below provides an indication of the typesof costs that may be included in whole life costs.Those to be included will vary with theprocurement to be undertaken.

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Whole life costsInitial priceDelivery and installationOperative resourcesIn-house management resourcesConsumablesSpare partsLicencesTaxesMaintenanceEnergy consumptionDepreciationDisposal

Table 8: Examples of cost contributing to the whole lifecosts of tenders

Evaluation of quality will entail an authorityidentifying the criteria against which they willevaluate suppliers’ proposals, weighting these onthe basis of their relative importance and scoringthem.

Quality criteria need to be carefully identified foreach procurement project. They will differ fromproject to project.

The main IDeA guidance, Modern ProcurementPractice, discusses mechanisms to assist authoritiesto identify the best balance of cost and quality.

Sustainability and Local Government Procurementexplains how environmental and socialconsiderations can be taken into account underthe procurement regulations.

Tender clarification is the process of obtainingfurther information about a tender if it isincomplete or unclear.

Post-tender negotiation (PTN) is the process ofnegotiating with a tenderer whose tender appearsto offer best value for money in order to obtainimproved terms for the authority.

Information from these activities should be fedback into the tender evaluation process.

PTN is only successful when it has:

• produced an outcome that is acceptable toboth sides

• been carried out efficiently and is not moreresource intensive than necessary

• encouraged and supported a good workingrelationship between the parties rather thanreinforced adversarial relations.

Authorities should note that where theprocurement regulations apply there arerestrictions in the use of PTN for above-thresholdcontracts under the open and restrictedprocedures. PTN should therefore only beundertaken with legal advice.

6. Awarding and implementing the contractIn major projects, the mobilisation andimplementation phases of the procurementprocess are critical to success. They may involvethe transfer of staff, assets, data and third partycontracts. The management of change moregenerally will be a key task and HR professionalswill need to be involved from an early stage.

On the management of staff transfers in particular,see the Employers Organization’s guidance(including Workforce Issues and Local GovernmentProcurement ) and the SPT’s Employment Matters inPartnerships.

There are two other activities to carry outfollowing the award of the contract:• debriefing • post-implementation reviewThese are set out below.

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(a) DebriefingDebriefing is the provision of feedback to asupplier following notification to them that theyhave or have not been successful in response toan advertisement, request for quotation orinvitation to tender/negotiate. In practice they aremost often undertaken following an unsuccessfultender.

Supplier debriefing is good procurement practiceand should be provided wherever it is requested.Authorities may proactively provide debriefingswhere they may wish to improve marketconditions for future procurements.

Debriefings have a number of advantages:• they assist suppliers in offering improved value

for money on future procurements• they allow authorities to explain their policies

on achieving best value for money.• they improve the authority’s image as a

professional purchasing organisation.

They also provide an opportunity to gain feedbackon the authority’s performance.

Debriefings should never be delegated to officerswho do not have the necessary experience,knowledge or sensitivity to carry them out.

They can successfully be provided by telephonebut a record of the conversation should beretained on file.Under the procurement regulations debriefingsshould be provided on procurement exercises towhich the procurement regulations apply, withinfifteen days of being requested by a supplier.

(b) Post-implementation reviewThis is a formal review undertaken once theprocurement has had time to demonstratebenefits (i.e. outcomes). Its purpose is to confirmthat the benefits set out in the business case forthe project (and the specification) have beenachieved. It may be repeated on major changeprojects. This is a major input to the GatewayReview benefits evaluation.

On larger projects a team may be required to carryout the review. These may include thoseresponsible for the benefits management process,strategy planners, technical staff and those withknowledge of the service under review.

7. Managing the contract and supplier relationshipEffective contract management is a vital and oftenneglected part of the procurement process. Inmany people’s minds, procurement ends when thecontract is awarded! Unless pro-active andprofessional contract management takes place,even the best specified and procured contracts canfail to deliver what was expected of them.

8. Closure and lessons learnedThe exit strategy for every contract must be clearlydefined (including contingency plans for earlytermination) and the period running up to the exitmanaged to ensure that that there is no loss ofservice delivery if this is still appropriate. Decisionson future arrangements must be made inadequate time to allow for a full procurementprocess should a further procurement be required.

Contract management

The foundations for effective contractmanagement are set in the quality of thespecification and the steps taken to the point ofaward. The mail focus of contract management isto ensure that the benefits identified in thebusiness case are delivered (ie. outcomes).

At this stage, clear objectives should be set,establishing what is expected from the supplierand how it can be measured. If key performanceindicators (KPIs) are included within the within thecontract, under-performance will be easier toaddress. Contract managers must be given thetools to tackle under-performance. Failure to do sowill simply frustrate the relationship with thesupplier.

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It is important that that the management of thecontract or relationship is seen as part of the on-going procurement process. The business casemust continue to be developed throughout thecontract management phase and reassessedagainst the need for the provision.

To ensure the life of the procurement cycledevelops effectively, consistency and continuity areimportant. Knowledge transfer between thedifferent stages is essential. This is mosteffectively ensured by involving the contractmanager in the procurement project at the outsetof the procurement project or, at the latest, in thedrafting of the specification.

Before the contract is awarded, the projectmanager should provide details of the provisionsin place to manage the contract. This needs to besupported by an analysis of risks associated withthe contract and how they will be addressed.

This will inevitably have resource implications andimpact on the way in which the contract shouldbe managed. Consideration also must be given tothe client structures within an organization. Thosethat are geographically-based or devolved willoften require a particular approaches. It isimportant that the authority’s on-siterepresentatives always have an adequateunderstanding of the contract (e.g. premisesmanagers and office cleaning contracts).

Who will manage the contract?

Contract management is the interface betweenthe authority and the supplier. The personresponsible for managing the contract anddeveloping the relationship must have thenecessary skills, knowledge and experience tounderstand both sides of the arrangement. If theauthority is serious about developing effectiverelationships, it is essential that the contractmanager has appropriate interpersonal skills.

Financial control

The ability to control the cost of the contractrequires careful attention. Too frequently budgetprovisions are over-spent, due to ineffectivemanagement and regular variations. In manycases this is a result of a poorly designed orspecified contract. However, costs can be reducedwhere the contract manager has a goodknowledge of the contract, enabling them toavoid the over-use of variations (that is, changesto the contract).

Robust and effective systems should be in placebefore the contract starts that include: payments,ordering, change control (variations), performancemanagement, information gathering etc.

Regular reports should be provided to seniormanagers, and where appropriate members, thatcarefully track the performance of the contractagainst the costs.

Roles and responsibilities

As part of the initial risk analysis and resourceplanning, the roles and responsibilities of all thoseinvolved in the project should be established.Effective reporting lines are essential to the successof any contract. If problems occur, it is importantthese are reported and acted upon. The owner ofthe contract must be able to bring about changeor influence decisions relating to resources, policyand strategy.

All those involved in the management of acontract must have a clear understanding of theirroles, responsibilities and reporting lines. Whetherit is the contract manager, contract owner,monitoring officer or finance assistant, levels ofauthority must be clearly set and decisions takenin line with the authority’s regulatory framework.

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Communication

Both parties need to be clear about how businesswill be conducted and how issues arecommunicated. It is also important that bothparties clearly understanding the others’ reportinglines, roles and responsibilities. The degree towhich this is relevant will depend on the risk orstrategic importance of the contract. If a communications strategy is established beforethe contract starts, many problems can beavoided.

Dispute resolution

However well a contract is procured and managedthere will inevitably be occasions when problemsoccur, or poor performance cannot be addressedthrough the normal day-to-day arrangements.There are many different ways in which these canbe resolved; such approaches should be agreed inadvance by both parties, to reduce the scope fordisagreement and unnecessary legal costs.

The usual mechanisms are shown in the table below.

• Informal liaison• Formal contract review meetings• Performance deductions (liquidated damages)

/change control (variations)• Formal expert determination, arbitration etc.

While most issues should be dealt with at thelowest level of both organisations, there must beclear provision of escalation to higher levelsincluding senior managers and members whereappropriate.

In extreme cases it may be necessary to go beyondthese normal processes, either terminating thecontract or pursuing legal action in the courts.Such approaches should not be taken lightly, andthere may be significant knock-on effects, bothpolitically and on the reputation of the authority.In addition the risk of success / failure of suchaction must be given serious consideration.

Again, where the contract manager has a goodknowledge of the contract and had developed aneffective working relationship with the supplier,such occurrences are less likely. However, it isimportant for the project team to know itslimitations and when to seek legal advice.

Critical success factors for contract management• Requirements specified in comprehensive

specification• Involve the contract manager at the outset of

the project• Accurate assessment of the service requirement• Good supplier selection• Planned and active relationship management• Clear roles and responsibilities• Good knowledge of the contract• Reduction and management of risk• Encouragement of continuous improvement• Management of performance shortfalls• Adequate tools to tackle poor performance• Continuity of knowledge throughout the

procurement cycle• Control of change (variations)• Robust financial control• Exit strategy

Table 9: Contract management success factors

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Supplier relationships

An authority should review its suppliers andidentify those that are critical to the performanceof the authority (the key suppliers). The objectiveis to establish a closer corporate relationship withthese suppliers. The criteria to use whenestablishing such a list is:

• Size of spend across the authority• Criticality of goods/service supplier to the

delivery of the authority services • Lack of easily available substitutes • Significant market share and strategic influence • Extent of the authority business on a multi-

departmental basis

Figure 2 illustrated a tool that can be useful forthis.

The authority should develop initiatives that aredesigned to foster better working relationshipsand understanding between suppliers and theauthority.

Figure 5 illustrates another useful tool. It helps theauthority to understand how it is viewed bysuppliers.

If the authority does not have a positive imagewith suppliers it will need to consider how tomarket itself better so that the best suppliers canbe attracted to bid. Members and senior managerscan have a decisive impact on the way that theauthority is perceived through the “signals” thatare sent out.

Figure 5. The suppliers view of a customer.

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Develop

Nuisance

Core

Exploit

Att

ract

iven

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acc

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Customer spend

Further Reading

Details of the main IDeA guidance can be found atwww.idea.gov.uk/knowledge . The guidanceincludes: • Strategic Context• Managing the Procurement Process • Managing Contracts and Supplier Relationships• Project Management for Procurement• Tools and Techniques• Supplies Procurement Pack• Services Procurement Pack

The Welsh Local Government Procurement SupportUnit’s guidance can be accessed via the WLGAwebsite www.wlga.gov.uk.

For information on 4ps guidance on the gatewayreview process and public-private partnerships inlocal government go to www.4ps.gov.uk.Guidance includes:• Gateway Review Workbooks• Leisure Procurement Pack• Street Lighting Procurement Pack• Schools Procurement Pack• Social Care Procurement Pack• Waste Management Procurement Pack• Joint Service Centre Procurement Pack • Standardisation of Local Authority PFI Contracts• Options Appraisal and the Outline Business

Case; Final Business Case• Output Specifications for PFI Projects; Payment

Mechanisms (by service)

Local Government Task Force (LGTF) and HousingForum publications on Rethinking Construction inlocal government are detailed on www.lgtf.org.uk.This includes -• Rethinking Construction Toolkit• Procurement through Partnering• Top Ten Tips for a Successful Procurement

Process

The Strategic Partnering Taskforce’s guidance ispublished at www.odpm.gov.uk. It includes:• Strategic Service Delivery Partnerships – A

Decision-Maker’s guide• Rethinking Service Delivery (Volumes 1 to 5)• Structures for Partnerships – Technical Notes• Partnership Assessment Tool• Procurement Pack

The National eProcurement Project’s toolkit ishosted on www.idea.gov.uk/knowledge

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Notes28

For further information please contact the IDeA at:

Layden House76-86 Turnmill StreetLondon EC1M 5LGUnited KingdomTel: +44 (0)20 7296 6880Fax: +44 (0)20 7296 6666e-mail: ihelp@idea.gov.ukwww.idea.gov.uk