Value for money in procurement

1. Management Centre
Value for money in
procurement

2. 2

3. Contents
Managing work under contracts ......................................................................7
Introduction ................................................................................................7
Contract Management process- overview.......................................................7
Bad Management ......................................................................................8
Managing service delivery .........................................................................8
Managing the relationship .........................................................................9
Contract Administration .............................................................................9
Managing changes ..................................................................................10
Scope.......................................................................................................11
Terminology .............................................................................................11
What is contract management? ..............................................................12
Getting the contract right .........................................................................12
New approaches .....................................................................................13
Critical success factors ............................................................................13
What can go wrong .................................................................................14
Key elements of contract management...................................................15
Intelligent customer capability..................................................................16
The contract management life cycle........................................................17
Contract management stages .................................................................18
Managing quality .....................................................................................20
Managing progress payments .................................................................23
Stages in the contracting process..................................................................24
The Procurement Process.......................................................................24
A Process that is Fair and Impartial.........................................................25
Continuous Improvement ........................................................................25
Unravelling the Competitive Process ......................................................25
3

4. Phases and Steps of the Procurement Process .....................................26
Overview of procurement strategy.................................................................31
Introduction ..............................................................................................31
Purpose ...................................................................................................31
What is procurement? .............................................................................31
Why procurement is an issue ..................................................................31
Procurement’s high profile .......................................................................32
What are the procurement essentials? ...................................................32
The regulatory framework .......................................................................33
Other important issues ............................................................................33
Procurement’s Strategic context .............................................................34
Figure 1: Strategic Framework for Procurement .....................................34
Applying risk and value to the procurement strategy ..............................34
Authority’s reputation – the suppliers’ view .............................................37
Managing procurement projects..............................................................38
Procurement cycle...................................................................................38
The Gateway process .............................................................................38
Key reasons why procurements fail ........................................................39
Members’ role in procurement.................................................................39
The executive role ...................................................................................39
The scrutiny role ......................................................................................41
Members’ SUCCESS checklist ...............................................................41
Corporate co-ordination...........................................................................41
Business case culture..............................................................................41
Learning organisation ..............................................................................42
Improvement – ‘quick wins’ .....................................................................42
Critical success factors ............................................................................42
4

5. Critical success factors – another dimension ..........................................43
Questions members should ask ..............................................................43
Overview of procurement strategy – Case Study..........................................44
Context ....................................................................................................44
Procurement Strategy..............................................................................45
Transparency...........................................................................................46
Proportionality ..........................................................................................46
Non-discrimination ...................................................................................46
Equality of Treatment ..............................................................................47
Next Steps ...............................................................................................48
Recommendation ....................................................................................48
International Procurement .......................................................................49
Basic Policies...........................................................................................49
Managing the Procurement Process.......................................................50
Assessing the procurement project- Specification Writing ......................52
What is a specification? ...........................................................................52
When is it produced?...............................................................................52
Who is involved? .....................................................................................52
Process....................................................................................................53
Getting and assessing bidders - Planning the request for proposal .......55
CORRECT ADVERTISEMENT SAY 3 NATIONAL PAPERS - CONSIDER THE SPECIALIST PAPERS AND
JOURNALS ...............................................................................................55
Contract Notice ........................................................................................59
Inviting Offers...........................................................................................59
Pre-qualification – introducing a second stage........................................59
Standard procurement methods..............................................................62
Single stage procurement method ..........................................................62
Two stage procurement method .............................................................63
5

6. Standards for awarding contracts............................................................64
Standards for awarding contracts – non-resident vendors .....................65
Responsibility of the bidder or vendor .....................................................65
Only one responsive bid or proposal received ........................................65
Committee submissions and approvals ..................................................70
Engaging and managing stakeholders ..........................................................71
Strategic partnerships ....................................................................................71
Procurement and cost cutting ........................................................................71
Controlling Procurement Risk ........................................................................71
Managing Inventory........................................................................................71
Control of the procurement process ..............................................................71
Performance measurement.....................................................................72
Managing quality - Key Performance measurements (KPI’s) .................77
Why is Ethical Procurement Practice Important? ....................................78
How to Link Ethical Values and Procurement .........................................78
Ethical Hotspots.......................................................................................78
Contract close out....................................................................................80
Contract de-mobilisation ..........................................................................88
Appendix – Definitions & Resources .............................................................90
Resources ...............................................................................................90
Improvement and development Agency for local government - www.idea.gov.uk 90
Definitions ................................................................................................90
Glossary of procurement terms ...............................................................93
6

7. Managing work under contracts
Introduction
These guidelines cover the issues involved in managing long-term service
contracts following contract award. The main areas covered are managing
service delivery (formal governance), managing the relationship, contract
administration, seeking performance improvements, and managing changes.
This guidance does not cover the process of creating a commercial arrangement.
These guidelines are aimed at public sector managers responsible for managing
long-term commercial arrangements with the private sector. It aims to help them
manage the contract and the relationship to give value for money and improve
performance. This document is intended as a guide for management rather than
practitioner level guidance.
Contract Management process- overview
Contract management activities can be broadly grouped into three areas.
• Service delivery management ensures that the service is being delivered as
agreed, to the required level of performance and quality.
• Relationship management keeps the relationship between the two parties open
and constructive, aiming to resolve or ease tensions and identify problems early.
• Contract administration handles the formal governance of the contract and
changes to the contract documentation.
All three areas must be managed successfully if the arrangement is to be a
success. In addition, good preparation and the right contract are essential
foundations for good contract management. The arrangement must also be
flexible enough to accommodate change. A key factor is intelligent customer
capability: the knowledge of both the customer’s and the provider’s business, the
service being provided, and the contract itself. This capability, which touches all
7

8. three areas of contract management, forms the interface between supply and
demand; that is, between the business area and the provider
Bad Management
Any project can be estimated accurately (once it's completed).
Managing service delivery
Managing service delivery means ensuring that what has been agreed is
delivered, to appropriate quality standards. The contract should define the
service levels and terms under which a service is provided. Service level
management is about assessing and managing the performance of the service
provider to ensure value for money.
Considering service quality against cost is equal to an assessment of the value
for money that a contract is providing. As well as assessments of whether
services are delivered to agreed levels or volumes, the quality of the service
must also be assessed.
‘Quality metrics’ will have to be created that will allow the quality of service to be
assessed, even in areas where it is hard to quantify. A key part of assessing the
service provided is the baseline, or level from which service levels and
improvements are measured. This will need to be agreed before the service
commences. Benchmarking, or comparing performance across different
organisations and providers, is another useful way to gauge improvements or
pricing levels.
Managing risk is another important aspect of managing service delivery. The
fulfilment of the contract may be endangered by several kinds of risk; some
within the provider’s control some outside it. Identifying and controlling (by
avoiding or minimising) the risks to a contract is a vital part of managing it .This
includes those risks that have been transferred to the provider under the
contract. Business continuity plans and contingency plans help prepare the
customer organisation for the situation where the provider cannot deliver. They
are an important part of managing risk.
8

9. Managing the relationship
As well as the contractual and commercial aspects, the relationship between the
parties is vital to making a success of the arrangement. The approach to this will
vary depending on the contract, but it is important that the specific responsibilities
are not neglected, even though there may not be a nominated individual
assigned to the role of relationship manager. In long term contracts, where
interdependency between customer and provider is inevitable, it is in the
interests to make the relationship work. The three key factors for success are
trust, communication, and recognition of mutual aims. Management structures for
the contract need to be designed to facilitate a good relationship, and staff
involved at all levels must show their commitment to it. Information flows and
communication levels should be established at the start of a contract, and
maintained throughout its life. The three primary levels of communication in a
contractual arrangement are operational (end users/technical support staff),
business (contract manager and relationship manager on both sides) and
strategic (senior management/board of directors).The right attitudes and
behaviours, based on trust rather than adversarial models, should be
encouraged.
There should be set procedures for raising issues and handling problems, so that
they are dealt with as early as possible and at the appropriate level in the
organisation.
Contract Administration
The formal governance of the contract includes such tasks as contract
maintenance and change control, charges and cost monitoring, ordering and
payment procedures, management reporting, and so on.
The importance of contract administration to the success of the contract, and to
the relationship between customer and provider, should not be underestimated.
Clear administrative procedures ensure that all parties to the contract understand
who does what, when, and how.
The contract documentation itself must continue to accurately reflect the
arrangement, and changes to it (required by changes to services or procedures)
carefully controlled.
Responsibility for authorising different types of change will often rest with
different people, and documented internal procedures will need to reflect this.
9

10. Management reporting procedures control what information is passed to
management about the service; this can range from a comprehensive overview
of all aspects to solely reporting ‘exceptions’ to normal service.
Arrangements for asset management must also be considered.
Service delivery management, relationship management and contract
administration should keep both contract and relationship running smoothly, and
providing the value for money represented by the contract at its outset. The
customer will almost certainly want to aim for improvement over the life of the
contract as well; ideally, the requirement for improvement will be built into the
contract .A good working relationship will help make improvement a reality,
based on the principle that improvement is good for both parties, not just a
means for the customer to drive down costs.
Incentives motivate providers to improve by offering increased profit or some
other benefit as a reward for improved performance or added value. Benefits
based payments, where payment is dependent on the realisation of specific
benefits to the customer, are a more sophisticated form of incentive. Normally
built into the contract terms, it is vital that incentives are balanced and encourage
appropriate provider behaviour. It may be appropriate to aim for continuous
improvement over the life of a contract, perhaps expressed through a capped
price that decreases year on year. A plan could be developed with the provider
detailing how improvements will be made.
Managing changes
A successful arrangement requires a mutual commitment to meeting evolving
business requirements and adapting to changing circumstances. Properly
managed change can be a good opportunity to improve the service. Drivers
(reasons) for change during contracts can come from a range of sources, both
internal and external. Whatever the drivers, it is important to realise the
implications of change for the contract and all parties involved. There could be
implications or concerns in areas such as continuing value for money and the
possibility of moving beyond the original scope of the requirement. Change is
easier to deal with when preparations are made. Not every possibility can be
foreseen and planned for, but it is desirable that the contract include some
flexibility as well as procedures for handling changes.
Areas where change might be necessary include performance metrics, service
functionality, service infrastructure and workload. Construction contracts are
fundamentally different from major service contracts. There are various types of
construction contract. The choice of contract depends on the basis of pricing and
10

11. the contract strategy that best meets the project objectives. The various types
offer different ways of handling pricing, risk transfer, responsibility for
performance, cost certainty, and complexity. The main customer-side roles
involved in handling construction contracts are the project manager and the
project sponsor. The project manager manages the contract on behalf of the
customer, co-ordinating the design and construction and managing claims and
disputes in an impartial manner. On large-scale projects, the project sponsor
fulfils a higher level, less hands-on role, overseeing the project manager and
monitoring budgets (among other duties).
Scope
These guidelines cover the issues involved in managing long-term service
contracts following contract award. The main areas covered are managing
service delivery (formal governance), managing the relationship, contract
administration, seeking performance improvements, and managing changes. The
issues discussed will also be relevant to partnering deals (partnerships or PPP)
and PFI deals. The material in these guidelines may also be useful to shorter
term contracts, although many sections will not be relevant to such
arrangements. This guidance does not cover the process of creating a
commercial arrangement. It is assumed that the reader is familiar with
procurement procedures and principles, that the needs have been carefully
determined and documented, that the contract to be managed is well
constructed, and that the provider has been carefully selected and their tender
properly evaluated before contract award. For contract management to be
successful, it is vital that these foundations are in place.
While the main focus is on contracts with commercial providers, the principles in
this guidance will be equally applicable to arrangements with in-house providers.
This guide is aimed at public sector managers responsible for managing long-
term commercial arrangements with the private sector to ensure value for money,
improve performance and build a productive relationship. It gives an overview of
the issues facing contract managers and relationship managers (and members of
teams fulfilling those functions). It is not intended as a practitioner level guidance
and therefore does not deal with all the components and requirements of formal
contract management. The guidance is generic – that is, its principles are
intended to be applicable to all major contracts; this helps to achieve common
understanding, increasingly important where integrated projects may involve
business change, IT and new build.
Terminology
In this guidance, the term ‘customer’ is used to denote the buying organisation,
normally a government department or other public body. The term ‘provider’
refers to the company providing services under the contract. It may equally apply
to a consortium of provider companies or to a prime contractor who subcontracts
service components. ‘Partnership’ and ‘partnering’ are used to denote a long
11

12. term arrangement between a public sector department and a private sector
company. It does not mean a partnership in the sense of a legal entity. ‘Intelligent
customer’ denotes a capability of the customer organisation in understanding
both customer and provider businesses fully. It does not necessarily imply that a
nominated individual or team will become ‘the intelligent customer’ (although this
may sometimes be the case), but rather refers to certain skills, experience and
capability that must be available on the customer side to make a contract and
relationship work.
‘End user’ means the person who actually uses the service, either in their
everyday work as departmental staff or as members of the public.
What is contract management?
Contract management is the process that enables both parties to a contract to
meet their obligations in order to deliver the objectives required from the contract
.It also involves building a good working relationship between customer and
provider. It continues throughout the life of a contract and involves managing
proactively to anticipate future needs as well as reacting to situations that arise.
The central aim of contract management is to obtain the services as agreed in
the contract and achieve value for money. This means optimising the efficiency,
effectiveness and economy of the service or relationship described by the
contract balancing costs against risks and actively managing the customer–
provider relationship. Contract management may also involve aiming for
continuous improvement in performance over the life of the contract.
Getting the contract right
This guidance concerns customer activities following the award of a service
contract, not the procurement process that leads up to the award of contract. But
a key point is that the foundations for contract management are laid in the stages
before contract award, including the procurement process. The terms of the
contract should include an agreed level of service, pricing mechanisms, provider
incentives, contract timetable, means to measure performance, communication
routes, escalation procedures, change control procedures, agreed exit strategy
and agreed break options, and all the other formal mechanisms that enable a
contract to function. These formal contract aspects form the framework around
which a good relationship can grow. If the contract was poorly constructed, it will
be much more difficult to make the relationship a success.
It is vital to build a contract that not only identifies clearly the obligations of the
provider (and indeed the customer), but also enables a productive relationship
built on good communication and mutual trust. While the contract must be built
on a firm formal and legal foundation, it should not be so restrictive that it
precludes flexible, constructive management of the relationship between
customer and provider.
12

13. New approaches
Good contract management goes much further than ensuring that the agreed
terms of the contract are being met – this is a vital step, but only the first of many.
No matter what the scope of the contract, there will always be some tensions
between the different perspectives of customer and provider. Contract
management is about resolving or easing such tensions to build a relationship
with the provider based on mutual understanding, trust, open communications
and benefits to both customer and provider – a ‘win/win’ relationship.
Increasingly, public sector organisations are moving away from traditional formal
methods of contract management (which tended to keep the provider at arm’s
length and can become adversarial) and towards building constructive
relationships with providers. The management of such a contract, in which the
specification may have been for a relationship rather than a particular service,
requires a range of ‘soft’ skills in both the customer and the provider. A key
concept is the relationship that is documented in the contract, not just the
mechanics of administering the contract. Agreements, models and processes
forma useful starting point for assessing whether the contract is underperforming,
but communication, trust, flexibility and diplomacy are the key means through
which it can be brought back into line. Adversarial approaches will only increase
the distance between customer and provider.
Critical success factors
The following factors are essential for good contract management:
• Good preparation. An accurate assessment of needs helps create a clearout
put-based specification. Effective evaluation procedures and selection will ensure
that the contract is awarded to the right provider
•The right contract. The contract is the foundation for the relationship. It should
include aspects such as allocation of risk, the quality of service required, and
value for money mechanisms, as well as procedures for communication and
dispute resolution.
• Single business focus. Each party needs to understand the objectives and
business of the other. The customer must have clear business objectives,
coupled with a clear understanding of why the contract will contribute to them;
the provider must also be able to achieve their objectives, including making a
reasonable margin.
• Service delivery management and contract administration. Effective governance
will ensure that the customer gets what is agreed; to the level of quality required.
The performance under the contract must be monitored to ensure that the
customer continues to get value for money.
• Relationship management. Mutual trust and understanding, openness, and
excellent communications are as important to the success of an arrangement as
13

14. the fulfilment of the formal contract terms and conditions. • Continuous
improvement. Improvements in price, quality or service should be sought and,
where possible, built into the contract terms.
• People, skills and continuity. There must be people with the right interpersonal
and management skills to manage these relationships on a peer-to-peer basis
and at multiple levels in the organisation. Clear roles and responsibilities should
be defined, and continuity of key staff should be ensured as far as possible. A
contract manager (or contract management team) should be designated early on
in the procurement process.
• Knowledge. Those involved in managing the contract must understand the
business fully and know the contract documentation inside out (‘intelligent
customer’ capability).This is essential if they are to understand the implications of
problems (or opportunities) over the life of the contract.
• Flexibility. Management of contracts usually requires some flexibility on both
sides and a willingness to adapt the terms of the contract to reflect a rapidly
changing world. Problems are bound to arise that could not before seen when
the contract was awarded.
• Change management. Contracts should be capable of change (to terms,
requirements and perhaps scope) and the relationship should be strong and
flexible enough to facilitate it.
• Pro-activity. Good contract management is not reactive, but aims to anticipate
and respond to business needs of the future.
What can go wrong
If contracts are not well managed from the customer side, any or all of the
following may happen:
• The provider is obliged to take control, resulting in unbalanced decisions that do
not serve the customer’s interests
• Decisions are not taken at the right time – or not taken at
• New business processes do not integrate with existing processes, and therefore
fail• people (in both organisations) fail to understand their obligations and
responsibilities• there are misunderstandings, disagreements and
underestimations; too many issues are escalated inappropriately
• Progress is slow or there seems to be an inability to move forward• the intended
benefits are not realised
• Opportunities to improve value for money and performance are missed.
Ultimately, the contract becomes unworkable. There are several reasons why
14

15. organisations fail to manage contracts successfully. Some possible reasons
include:
• Poorly drafted contracts
• Inadequate resources are assigned to contract management
• The customer team does not match the provider team in terms of either skills or
experience (or both)
• The wrong people are put in place, leading to personality clashes
• The context, complexities and dependencies of the contract are not well
understood
• There is a failure to check provider assumptions• authorities or responsibilities
relating to commercial decisions are not clear
• A lack of performance measurement or benchmarking by the customer
• A focus on current arrangements rather than what is possible or the potential for
improvement
• A failure to monitor and manage retained risks (statutory, political and
commercial).
Key elements of contract management
Contract management consists of a range of activities that are carried out
together to keep the arrangement between customer and provider running
smoothly. They can be broadly grouped into three areas.
• Service delivery management ensures that the service is being delivered as
agreed, to the required level of performance and quality.
• Relationship management keeps the relationship between the two parties open
and constructive, aiming to resolve or ease tensions and identify problems early
. • Contract administration handles the formal governance of the contract and
changes to the contract documentation.
All three areas must be managed successfully if the arrangement is to be a
success: that is, if the service is to be delivered as agreed, the formal
governance properly handled, and the relationship between customer and
provider maintained. Although possibly handled by different figures or
departments within the customer organisation, the various areas of contract
management should not be separated from each other, but form an integrated
approach to managing service delivery, relationship and contract together. In
addition, the arrangement must be flexible enough to accommodate change, and
the process of change must be prepared for and managed. A key factor in all
15

16. these areas is intelligent customer capability: the knowledge of both the
customer’s and the provider’s business, the service being provided, and the
contract itself.
Contract management consists of a combination of roles and responsibilities.
The main task areas are service delivery management, relationship management
and contract administration. Who carries out these functions depends on the
nature and scale of the contract. However, it is likely that there will be, as a
minimum, a nominated individual responsible for managing the contract on the
customer side and one on the provider side. How much additional resource is
required to manage the contract depends on its scale, complexity and
importance. For smaller or more tactical arrangements, two or more areas may
be covered by the same individual: for example, the contract manager takes on
responsibility for administering the contract and building a relationship.
Alternatively, a contract management team may be created. Where contract
management expertise is not available in-house, it may be appropriate to buy in
advice from professional consultants, or even appoint a professional contract
manager. Such arrangements must be clearly defined to ensure that ownership
of the arrangement as a whole continues to rest with the customer organisation;
it is also important to safeguard commercial confidence when third parties are
involved. Intelligent customer capability combines in-depth knowledge of the
department and its business and understanding of what the provider can and
cannot do. It is vital that the individuals or teams responsible for managing
contracts on the customer side have this kind of capability. The aim is to reduce
misunderstanding between customer and provider and to avoid problems, issues
and mistakes before they happen.
Intelligent customer capability
Intelligent customer skills and experience must also be retained for the whole life
of the contract, so that the organisation does not end up without enough
understanding and knowledge of the services being provided to manage them
effectively, or carryout an effective re-competition (the process of replacing the
existing contract arrangements with new ones through a competitive
procurement exercise).Intelligent customer capability enables the organisation to
achieve the following goals
• gain a common understanding between customer and service provider(s) of
service expectations and possible achievement
• use service quality monitors as a basis for demonstrating ongoing value for
money and service improvements
• manage on-going change and the effect on relationships with providers
• assure consistency and conformance with standards and procedures
16

17. • build flexibility in service arrangements, including contracts, in order to deal
proactively with unexpected changes and demands
• establish suitable baselines from which to track performance relating to service
delivery and service improvement
• understand and influence the factors which preserve and enhance relationships
to achieve maximum business benefit
• ensure that business continuity plans are kept up to date to reflect changes
and new service provision.
The contract management life cycle
The lifecycle begins with setting direction: high-level objectives and policies for
the organisation.
This leads to the identification of business needs that can be fulfilled by acquiring
a service.
Once the service is acquired, a period of transition leads into contract
management.
There is an on-going analysis of business needs, to routinely ensure that the
service provides what the business really needs.
When the contract ends, for whatever reason, the re-competition process
includes are-examination of business need, the performance of the existing
arrangement, any new requirements, and the options for sourcing.
Thinking from this stage may feed back into high-level direction setting as well as
into the process of acquiring anew service: a process that mirrors the original
acquisition but with the benefit of all the lessons learnt from acquiring and
managing the previous contract.
Contract management issues do not suddenly become relevant at the moment
the contract is signed; they need to be considered at an early stage. Ideally, they
should be considered before the creation of the output based specification that
forms the basis for the procurement process.
The questions to consider are:
• are we being realistic about whether we could manage a contract that delivers
this requirement?
•do we have suitably experienced people, and will they (or their equivalents) be
available for the duration of the contract?
17

18. • will there be adequate ‘intelligent customer’ capability for us to understand all
the technical and business issues?
• is our organisation culturally ready to work in a new way with a provider if it is
necessary (because a partnering arrangement is sought, perhaps)?
Contract management stages
The award of the contract is not the end of the overall process, but rather the
start of the operational stage. In this stage we address a number of related but
discrete areas, all of which are important to the success of this stage, and also in
ensuring that the needs addressed by this contract are optimally addressed for
the duration of the contractual relationship and beyond.
Typically the activities can be divided into five discrete areas as shown below.
Each area is supported by a framework for the review of contract performance.
PERFORMANCE MANAGEMENT
A framework needs to be established against which performance of the operation
of the contract can be measured. There are a number of reasons for doing this
including
This is an objective based process using clear measurement metrics
Suppliers and customers can assess each others performance
Equitable approach to improve outcomes
Risk identification and mitigation
A set of key performance indicators (KPIs) will be established. These will be
informed and be consistent through the strategic sourcing and supplier selection
and award stages. There should be no surprises in the 'what' or 'how' of
performance expectations at this stage.
CONTRACT OPERATION MANAGEMENT
18

19. The focus for this activity is the management of an individual contract. Managing
the delivery of obligations as set out in the contract is a very important duty,
however understanding each other's performance leading to the discharge of
those duties is both more pro-active and developmental for both parties.
It is also about the facilitation and on-going review of contracts which contribute
to the organisation's strategic goals. Contract management is activity driven from
the results of the performance measures including:
Supplier review meetings
Supplier visits and assessments
Problem resolution of underperforming PIs
Lastly it is about monitoring PIs in the contract for appropriateness and amending
where required.
An additional activity which happens during the operation of many contracts is
demand management. Demand management can be defined as "the alignment
of a business’ consumption with its business requirements" i.e ensuring that only
what is needed is bought. Demand management requires both process and
behavioural change to be effective. Demand management may also be
introduced at an earlier stage of the process i.e it is not dependant on a contract
being in place.
SUPPLIER RELATIONSHIP MANAGEMENT
The focus for this activity is the management of an individual supplier. This
supplier may have a number of contractual relationships with the buying
organisation. Supplier relationship analysis and management is the proactive
management of business relationships to secure a competitive advantage for
your own organisation. Its purpose is to encourage purchasing and business
management to develop a structured understanding of the status quo i.e. what is
the nature of current relationships that exist within and between your organisation
and the suppliers.
STRATEGIC SUPPLIER MANAGEMENT
In certain circumstances there may be a greater mutual dependency between the
buying and supplying organisations. Examples of this would be where the supply
market is monopolistic or tending towards being monopolistic, or where there is a
need to use a particular supplier in a non-competitive relationship e.g. ongoing IT
system design/maintenance. The outcome may well be closer integration of the
organisations - and this may be across a range of contractual arrangements.
One objective is that the integration will bring greater value for money for the
buyer and enhanced margin for the supplier. It is not an agreement to sole
19

20. source, or outsource to a supplier, rather to align two or more businesses for
mutual benefit. These benefits must be real and tangible, not just relationship
indicators.
Inputs
This stage will require input from the implementation plan and one of the
deliverables from the sourcing stage will be a high level contract management
plan which will require to be defined in more detail.
EXIT STRATEGY
As the contract progresses through its duration the contract manager will also
have responsibility for ensuring that both parties are working towards the planned
exit strategy. Depending on the nature of the contract this may involve re-
competing the supply arrangement and may also involve a range of other
obligations e.g. TUPE arrangements (The Transfer of Undertakings (Protection of
Employment) Regulations (TUPE) protects employees' terms and conditions of
employment when a business is transferred from one owner to another). asset
transfer etc.
Managing quality
Measuring service quality means creating and using quality metrics –
Measurements that allow the quality of a service to be measured.
Some aspects of service quality that could be assessed are:
 completeness
 availability
 capacity
 reliability
 flexibility
 timeliness
 responsiveness
 security
 standards
20

21.  usability
 accuracy
 auditability
 satisfaction
There may be others that are applicable; there may also be a need to modify,
add
or remove service quality metrics during the lifetime of the service. It may be too
expensive or time-consuming to measure a given aspect; the time and resource
implications must be borne in mind. If a measurement requires intelligent
customer capability, a person or team who has that capability will need time to
devote to the task.
B INARY ASSESSMENT
Some aspects of a service can be assessed in a binary way. These aspects are
either adequate or inadequate, with nothing to be gained by improving them
beyond the level of adequacy. An example would be compliance with standards;
if the service complies with the relevant standards, then it is satisfactory in that
respect: no additional work need be done in that area. Even though the quality of
certain aspects is a binary consideration, some flexibility in how it is assessed
may be desirable, particularly in the early stages of rollout. It may not be
productive to point out a minor transgression on (for example) standards if the
provider has worked hard to bring the service ‘on stream’ within a short
timescale.
NUMERICAL ASSESSMENT
Some service aspects are measurable numerically; they can be counted and
measured in a simple, mathematical way. Examples would be capacity,
throughput, transaction volumes and accuracy. It is relatively simple to create
service metrics for numerical aspects; quality is expressed numerically, and there
is a set numerical value, or proportion, that is deemed acceptable.
MANAGING SERVICE DELIVERY
During the acceptance period or piloting of a service, it is possible that reliability,
accuracy and other such aspects may fluctuate. It is important to stipulate an
appropriate period and duration over which to gauge quality. Too short a period
21

22. might give an unfair picture; on the other hand, too long a period may be similarly
misleading.
It may be desirable to stipulate a desired rate of change in a metric – for
example, to process 100 licences a week for the first month and to seek a 2%
increase on that figure in each following month. This would be a requirement for
continuous improvement.
T HE BASELINE
The baseline is the existing level at which the service is being delivered, either
internally or through existing arrangement. The baseline is normally established
in the business case and subsequently recorded in the contract.
Performance measures and any improvements in performance are tracked
against the baseline. It is important to set the baseline accurately in order to
gauge how well the service performs, and how much value the new service is
providing compared with previous arrangements. Since the provider’s targets and
performance will be calculated relative to the baseline, they will take a keen
interest in this. Customer and provider must work together to set baselines at a
level that accurately reflects the service the customer is currently getting and
forms a fair basis for performance measurements.
Some aspects of a service will be hard to measure because they involve
subjectivity: usability and flexibility, for example. However, it is still important to
agree what is to be measured and how the information will be acquired – through
user surveys, perhaps. Subjective aspects should not be neglected simply
because mathematical techniques cannot be applied to them; it is a question of
gathering information and analysing it with as much objectivity as possible.
It may be that something that is quantifiable can provide a ‘handle’ on a much
less tangible aspect. Such a measure is known as a proxy measure, since it acts
as a substitute for a measure that cannot easily be created. For example, an
indication of ‘staff morale’ may be provided by a measure of staff turnover rate.
The assumption is that there is a correlation between the measure and the less
measurable phenomenon that lies ‘behind’ it.
It is the subjective aspects of a service that are gauged over the longest term,
and where hindsight will offer the clearest perspectives. They are also likely to be
the aspects that offer the most pertinent lessons to be taken forward to the
acquisition of future services.
22

23. Managing progress payments
You can stay within your budget if you manage your progress payments to your
contractor carefully and it will ensure the building schedule and building quality is
to your satisfaction.
Substantial upfront payments should never be made! Do not listen to long
explanations on why money is needed for materials etc. even and especially if
the contractor was the lowest bidder. If they cannot manage their cash flow, you
have little chance of them managing your project effectively.
At most, upfront payments must be limited to the value of the materials delivered
to the work site. In many states the limit for upfront payments is 10% of the total
contract fee.
Construction payments can be made at pre-determined stages but should only
cover materials and work supplied, to the extent that neither the homeowner nor
contractor is at a big disadvantage.
Payments should be made in accordance with the bill of quantities and the
construction schedule so that both parties are clear as to what has or has not
been paid for.
Retention monies should be withheld and can be from 5% to 20% of the contract
value - held from 3 months to 1 year, dependent on the type of works.
Get receipts or an unconditional waiver and lien release (that indicate the
contractor, sub-contractors and suppliers have been paid for work and materials)
at every progress payment and prior to the final payment. This is very important
and protects you against any mechanic's liens or other claims being filed against
the property which may result in your having to pay twice. Check with your local
authorities on the applicable laws!
If progress payments are for a major phase of the work it should not be paid until
the work has passed all inspections needed e.g. prior to pouring concrete
foundations, the applicable building department has to do an inspection and
signing off. By the same token your final payment should only be made after you
received a final approval or clearance document from the relevant governmental
building department.
If you have to make a payment in cash, it is best to make it in the presence of a
bank officer and get an affidavit from the contractor as proof of payment.
Any operating manuals or maintenance instructions should be handed to you
prior to final payment.
23

24. Final payment must be withheld until all items on your snag list have been
addressed. Agree on a reasonable time with the contractor for this to be carried
out so as to avoid frustration and disputes.
Most importantly: Get all final lien waivers and a signed copy of the final invoice
stating that the contract has been paid in full.
The contractor agreement stipulates the manner in which progress payments will
be made. Refer to our general contractor page for an overview of the
construction process.
You may be paying progress payments to an Independent Contractor such as a
programmer or draughtsman, which should be clearly detailed in your contract .
http://www.ogc.gov.uk/documents/Contract_Management.pdf
Stages in the contracting process
The Procurement Process
Public sector procurement, unlike the private sector, brings more sunshine to the
process. Taxpayers want to know by what means, how and where their taxes
have been spent and with whom. In order to provide this necessary information,
we can use public notice of our solicitations, awards, open meetings and
hearings to announce our plans and, where applicable, to entertain comment
from interested stakeholders.
24

25. A Process that is Fair and Impartial
Great effort is needed to insure that our procurement process is open,
competitive, fair and impartial.
Competitive sealed bidding, in most cases, is the preferred method of source
selection although other methods of source selection are permitted under the
rules with the proper review and oversight.
Issues of “responsiveness” and “responsibility” are key concerns to make certain
there is a level playing field for all suppliers and to avoid doing business with
people or businesses who are either unreliable or do not have the requisite
business integrity to do business with us.
Continuous Improvement
The protest, appeal and dispute resolution process are some of the ways to
insure openness and fairness in our contracting process. Only by understanding
the past and by eliminating mistakes, can we hope to improve upon our
performance.
I believe that an informed supplier will be our best supplier if that supplier knows
and becomes familiar with the process we use to select our contractors. It is my
belief that once having understood the process, these suppliers will become our
greatest assets and supporters.
Unravelling the Competitive Process
This deals with the “Essential Steps in the Contracting Process.” We have
attempted to list most, if not all of the significant steps we go through to complete
procurement. There is more involved here than just simply an “Invitation for Bid”,
a bid and then a contract.
Other types of purchases such as “Sole Source”, “Emergency Procurement”
and “Small Purchases” are very much abbreviated due to the limited amount of
competition, shortened competitive process and are therefore, not shown here.
25

26. The Procurement Policy Board (PPB) changes have had the impact of simplifying
all policy, rules and procedures, placing more authority in the hands of Agency
Chief Contracting Officers and shortening procurement cycle time. More changes
and improvements are anticipated as the streamlining process continues. This
streamlining has had the effect of reducing Rules by over half of what they
originally were in 1990.
Phases and Steps of the Procurement Process
We have divided the procurement process into six basic phases under which
there are steps that must be completed in order to move on to the next phase.
These phases are:
PHASE I – PRE-SOLICITATION
The Agency:
1. Establishes the need for particular goods, services or construction to fulfil the
agency’s mission.
2. Conducts a pre-solicitation review to identify potential sources in the
marketplace, determine the level of competition and prevailing prices, estimate
cost and contract term requirements, determine the appropriate method
of procurement, etc.
3. May conduct a pre-solicitation conference.
4. Develops specifications and/or scope of services/work.
5. May establish minimum vendor qualifications.
6. Develops the applicable solicitation document (i.e., Invitation for Bid or
Request for Proposals).
7. Submits the Invitation for Bid (IFB) to the Law Department for approval. [CSB
only]
8. Establishes evaluation criteria and appoints an Evaluation Committee. [CSP
only]
9. Prepares a Pre-solicitation Review Report and obtains all required internal
and oversight approvals.
26

27. PHASE II – SOLICITATION
The Agency:
1. Sends notices of solicitation to vendors on the appropriate bidder or
prequalified list.
2. Publishes a Notice of Solicitation in the City Record and the City’s
Procurement Bulletin Board.
3. Issues the Invitation for Bid (IFB) or Request for Proposals (RFP).
4. May conduct a mandatory or non-mandatory Pre-Bid or Pre-Proposal
Conference.
5. May conduct a mandatory or non-mandatory site visit.
The Vendor:
6. Attends a mandatory pre-bid or pre-proposal conference and/or site visit; may
attend a non-mandatory pre-bid or pre-proposal conference and/or site visit.
The Agency:
7. May issue amendments to the IFB/RFP.
The Vendor:
8. Prepares their bid or proposal.
9. Submits their bid or proposal by the due date and time established in the
IFB/RFP.
The Agency:
10. Secures all sealed bids/proposals received prior to the established due date
and time.
PHASE III - EVALUATION/SELECTION
27

28. The Agency:
1. Publicly opens and tabulates bids or opens proposals.
2. Evaluates bids or reviews and rates proposals pursuant to the evaluation
criteria established in the RFP.
3. May conduct discussions/negotiations with all or a “short list” of proposers and
subsequently request and rate
“best and final offers.” [CSP only]
4. Determines the apparent lowest responsive bidder or the highest rated and/or
highest ranked proposer pursuant
to the basis for award established in the RFP.
5. Determines that the lowest responsive bidder is responsible or determines
that the selected proposer is responsible.
6. Conducts a public hearing on the proposed contract award and considers
testimony received, if any. [CSP over
$100,000 only]
7. May conduct price negotiations with the lowest responsive and responsible
bidder or may conduct final contract negotiations with the selected proposer
PHASE IV - AWARD
The Agency:
1. Submits the final contract to the Law Department for approval. [CSP only]
2. Prepares a Recommendation for Award and obtains all required internal and
external approvals.
3. Issues a Notice of Award.
The Selected Vendor and Agency:
4. Execute the contract
PHASE V - REGISTRATION
28

29. The Agency:
1. Prepares the advice of award.
2. Submits the required contract documents to the Comptroller’s Office.
Comptroller:
3. Registers the contract (i.e., encumbers the necessary funds) within 30 days
unless objected to on grounds of corruption.
PHASE VI - CONTRACT ADMINISTRATION
Contract Administration involves those activities performed by government
officials after a contract has been awarded to determine how well the government
and the contractor performed to meet the requirements of the contract. It
encompasses all dealings between the government and the contractor from the
time the contract is awarded until the work has been completed and accepted or
the contract terminated, payment has been made, and disputes have been
resolved. As such, contract administration constitutes that primary part of the
procurement process that assures the government gets what it paid for.
In contract administration, the focus is on obtaining supplies and services, of
requisite quality, on time, and within budget. While the legal requirements of the
contract are determinative of the proper course of action of government officials
in administering a contract, the exercise of skill and judgment is often required in
order to protect effectively the public interest.
The specific nature and extent of contract administration varies from contract to
contract. It can range from the minimum acceptance of a delivery and payment to
the contractor to extensive involvement by program, audit and procurement
officials throughout the contract term.
Factors influencing the degree of contract administration include the nature of the
work, the type of contract, and the experience and commitment of the personnel
involved. Contract administration starts with developing clear, concise
performance based statements of work to the extent possible, and preparing a
contract administration plan that cost effectively measures the contractor's
performance and provides documentation to pay accordingly.
STAGES
29

30. It is helpful to have a pre-meeting with applicable program and contracting
officials prior to the post award orientation conference so that there is a clear
understanding of their specific responsibilities and restrictions in administering
the contract. Items that should be discussed at the pre-meeting include such
things as the authority of government personnel who will administer the contract,
quality control and testing, the specific contract deliverable requirements, special
contract provisions, the government's procedures for monitoring and measuring
performance, contractor billing, voucher approval, and payment procedures.
Post award orientation, either by conference, letter or some other form of
communication, should be the beginning of the actual process of good contract
administration. This communication process can be a useful tool that helps
government and contractor achieve a clear and mutual understanding of the
contract requirements, helps the contractor understand the roles and
responsibilities of the government officials who will administer the contract, and
reduces future problems.
Where appropriate, an alternative dispute resolution (ADR) technique known as
"partnering" should be discussed with the contractor to help avoid future contract
administration problems. Partnering is a technique to prevent disputes from
occurring. It involves government and contractor management staff mutually
developing a "plan for success," usually with the assistance of a neutral
facilitator. The facilitator helps the parties establish a non-adversarial
relationship, define mutual goals and identify the major obstacles to success for
the project. Potential sources of conflict are identified, and the parties seek
cooperative ways to resolve any disputes that may arise during contract
performance. The process results in the parties developing a partnership charter,
which serves as a roadmap for contract success. Many agencies have
successfully used partnering on construction projects and are now beginning to
apply these principles in the automated data processing/information resources
management area.
Good contract administration assures that the end users are satisfied with the
product or service being obtained under the contract. One way to accomplish
customer satisfaction is to obtain input directly from the customers through the
use of customer satisfaction surveys. These surveys help to improve contractor
performance because the feedback can be used to notify the contractor when
specified aspects of the contract are not being met. In addition, the contracting
and program officials can use the information as a source of past performance
information on subsequent contract awards. Customer satisfaction surveys also
30

31. help to improve communications between the procurement, program, and
contractor personnel.
Overview of procurement strategy
Introduction
Purpose
The purpose of this lecture is to present the Outline Procurement Strategy and a
timetable for the delivery of the key elements to complete and implement the
strategy.
What is procurement?
Procurement is the process of acquisition of goods, works and services from third
parties. The process spans the whole life cycle from initial concept and definition
of the authority’s needs through to the end of the useful life of an asset or end of
a services contract.
Why procurement is an issue
The delivery of key services to the community is critically important to the
achievement of an authority’s core values and objectives. The delivery of most
services involves procurement and significant amounts of public money.
Elected members are ultimately accountable for the delivery of services and
expenditure within their authority, and to ensure they carry out their duties fully
there must be ownership and understanding of procurement at the highest level.
Recent estimates suggest that the procurement of goods and services account
for 50% of local government expenditure, which will directly affect the lives of
citizens.
Procurement benefits include:
Cost savings
Value for money
31

32. Fixing the prices of services and goods; this aids budgeting
Eliminating monopoly power
Procurement costs are:
It will take time to get services and goods because you have to go through the
procurement process.
The procurement department costs money
To reduce costs and time constraints we need to consider e procurement
solutions
Procurement’s high profile
Procurement has developed significant prominence in the public eye. Authorities
are required to improve their procurement processes; Best Value, and
Comprehensive Performance Assessments (CPA) will continually increase the
focus on procurement. Internal and external audit are seeking evidence of
commitment to better practice; external suppliers are benchmarking their
customers.
What are the procurement essentials?
At a corporate level an authority should put the following arrangements in place:
 a procurement strategy aligned with the authority’s strategic objectives
 robust Contract and Financial Standing Orders which reflect modern
practices
 procurement policies including best value for money, sustainability,
workforce issues and equalities
 a centre of expertise in procurement (a corporate team in larger
authorities; a shared resource in smaller ones)
 effective member involvement in executive and scrutiny capacities
 members and offices trained in relevant procurement skills
32

33.  clear, user-friendly procurement guidance that is disseminated to staff
 a contracts register and an annual procurement plan
 aggregation of requirements and collaborative procurement
 encouragement of a competitive supply market including participation by
small firms and the voluntary and community sectors
 a focus on the management of key suppliers
 a business case culture
 a commitment to resource procurement projects properly
 a strategy to prevent fraud and corruption and maintain ethical standards.
The regulatory framework
It is critical that a number of regulatory requirements are met in applying the
procurement cycle. These include:
 Best Value, Comprehensive Performance Assessment (CPA) and the
Wales Programme for Improvement requirements
 procurement best practice in England and Wales (drawing on the
recommendations in the Byatt Report)
 EU Regulations, Human Rights legislation etc;
 equalities and other relevant legislation
 Contract Standing Orders.
Other important issues
 Procurement expertise should be made integral to the way the authority
pursues Best Value.
 A clear policy should be set out on how procurement is to be managed
across the authority.
 A register of current contracts should be developed and published,
together with a schedule of contracts to be awarded over the next three
years (a procurement plan).
33

34.  A ‘how to do business with the council’ guide should be developed and
published.
 The competency of all staff and executive members engaged in
procurement or its scrutiny should be identified and measured.
 Training programmes in procurement skills should be made a priority.
 There should be a procurement plan to identify the resources required to
effectively support procurement (that is. financial management, legal
issues etc.).
Procurement’s Strategic context
Procurement is not an end in itself, but is a necessity to further the overall
strategic objectives of the authority. The link between an authority’s corporate
objectives and how it procurers is essential. Members should ensure that these
objectives are reflected in the corporate procurement strategy.
Members are responsible for determining the corporate procurement strategy
and mapping and overseeing the high level procurement portfolio. Officers
prepare the strategy; those responsible for scrutiny challenge the strategy,
followed by approval from the executive. When the strategy is adopted, its
implementation is overseen by scrutiny. Best Value Reviews are presented first to
scrutiny for recommendation to the executive [value for money, quality of service,
number of complaints against.
Figure 1: Strategic Framework for Procurement
Other major procurements are presented direct to the executive, but also require
early member involvement.
Figure 1 illustrates the relationship between an authority’s strategic objectives
and the role of procurement.
Applying risk and value to the procurement strategy
Risk-based strategies should be developed for the various requirements in the
authority’s procurement ‘portfolio - see Figure 2 for an example of portfolio
analysis matrix.
Fig 2: Portfolio analysis (risk/value) matrix
This matrix is a simple tool; enabling authorities to identify how to treat different
services or items of spend. Dependent on the risk or strategic importance and
34

35. the value of the item different procurement approaches should be adopted. More
detailed information regarding this approach is provided in the IDeA Guidance on
Procurement Essentials and Strategic Context.
Risk based analysis of a NFP unit – Fig 2
A different risk based approaches needs to be developed for the various types of
procurement activity. A standard “portfolio matrix” analysis divides procurement
into 4 categories on a risk and value matrix as follows.
High
Bottleneck strategic
Risk
Routine leverage
High
Low
Expenditure
For strategic (high-risk, high value) procurement the Council will need to look to
develop strategic partnerships and to investigate partnering arrangements.
For routine (low value, low risk) purchases the Council will need to look at
reducing the number of suppliers used and to aggregate contract values and use
“call off” contracts to maximise purchasing leverage.
35

36. For leverage (high value, low risk) purchases the Council will need to consider
the use of local and national consortia arrangements.
For bottleneck (low value, high risk) purchases the Council will need to ensure
continued supply through multi- sourcing.
The main types of the Councils expenditure are detailed in the table below, along
with their “portfolio” analysis.
Goods or
Existing Procurement Arrangements Matrix Analysis
Service
Computer
Use of government Gcat catalogue High value/low risk/routine
Hardware
Computer
Sourced from various suppliers High value/low risk/routine
Software
Various companies used, Departments arrange
Consultancy their own appointments in accordance with High value/low risk/leverage
standing orders
Stationary 1 main supplier used but no formal contract or
Low value/low risk/routine
Supplies call off arrangement
External A range of suppliers used (8+) but not on
Medium value/low risk/routine
Printing contract. Purchased via individual orders
Property More than 100 suppliers used formal contracts Medium value/medium
Maintenance and agreements for most. risk/bottleneck
Revenue High value/medium
Service level agreements used as basis of funding
grants risk/strategic
Personnel working towards central procurement
Medium value/medium
Agency Staff of all agency staff and are compiling a preferred
risk/leverage
supplier list
Mobile Phones One central contract Low value/low risk/routine
Photocopiers One central contract Low value/low risk/routine
Various suppliers with each service arranging
Advertising Low value/low risk/leverage
their own supply.
Lease Cars 3 suppliers used and each car tendered under a Medium value/low
36

37. master agreement risk/bottleneck
Insurance 1 major supplier with a 3 year contract Medium value/high risk
Low value/medium
Utilities Number of contracts used including green tariff
risk/leverage
1 contract for all cleaning requirements Medium value/medium
Cleaning
commenced 1 July 2003 risk/routine
Management Number of management contracts mainly for
High value/ high risk/strategic
contracts sports facilities 5-8 years each
Construction “Traditional” contracts let on an individual basis ,
High value/ high risk/strategic
Contracts internal project teams supported by consultants
Refuse
8 year contract with 1 supplier High value/high risk/strategic
contract
Furniture Various suppliers used to date Low value/low risk/routine
Vehicle Uses Quotation system (at least three quotes for Medium value/medium
provision best price), main fleet supplier risk/bottleneck
Authority’s reputation – the suppliers’ view
It is important that authorities are aware of their image or reputation in the
marketplace. To achieve best value for money and strive for innovation in the
delivery of services, the authority will need to do business with the best suppliers
and providers. If the authority has a poor reputation in the marketplace it may find
it difficult to attract good suppliers, and possible attract others for the wrong
reasons.
If you make it easier for suppliers to tender (i.e. make documentation simple and
have help line), this increases the supply of BIDDERS AND HELPS DRIVE
PRICES DOWN
37

38. Managing procurement projects
Every significant procurement should be managed as a project. The Byatt report
identified good project management as an important factor in successful
procurement. In response, Towards a National Strategy for Local Government
Procurement recommends the use of project management procedures based on
PRINCE 2.
Roles and responsibilities should be defined and agreed so that everyone
involved knows what they have to do and when. The stages of the procurement
should be set out with clear milestones and expectations of what is to be done at
each stage. People with appropriate skills and experience should be assigned to
project roles; resources and timescales should be determined at the outset.
These are the principles of effective project management that enable a
procurement to achieve what is required.
Figure 4: Organisation for a major project
Procurement cycle
Procurers should adopt a procurement cycle approach to procurements as a
structure within which to progress the project. Viewing a procurement in this way
ensures that the business case and contract management elements are given
the necessary importance. Often procurement is mistakenly regarded as just the
process of advertising and evaluating tenders. Figure 5 illustrates the steps in the
procurement cycle with Gateways where reviews should take place.
The Gateway process
Authorities should considering adopting a Gateway process for their major
procurement projects.
This comprises reviews at key decision-making points in the “procurement cycle”
(see above) by a team that is independent of the project team to ensure that a
project can proceed successfully to the next project stage. The process,
developed by the Office of Government Commerce, is particularly valuable for
managing high-risk projects. It is being introduced into local government by the
4Ps. The recommended key decision points are illustrated in Figure 5.
Figure 5: The procurement cycle with Gateway Review points
38

39. Key reasons why procurements fail
 Lack of senior management commitment / sponsorship throughout the
procurement project
 Inadequate business cases, where the requirement is uncertain, the
contribution to business objectives is unclear and/or there is a lack of
realism about the authority’s ability to deliver services in new ways
 Inadequate resources, especially the skills and expertise needed to deliver
a successful project
 Failure to plan for the whole life of the procurement project beyond
contract award to operational services
Members’ role in procurement
Democratic accountability is fundamental. Members should be aware of their
strategic role in relation to procurement. To get the balance right they need to be
involved in decisions about the strategy and major projects but should not be
concerned with detailed procurement activities.
Members should have two clear roles in an authority’s procurement activity:
 an executive role, setting policy in an effective, strategic way and
making decisions that affect the delivery of that policy
 a scrutiny role, reviewing and challenging the decisions of the
executive, reviewing broad policy and potentially monitoring overall
performance of contracts.
These roles should be focused at two primary levels:
The strategic level – ensuring that the authority’s procurement portfolio is
aligned with its key strategic objectives. Basically, the procurement
function enables the authority to deliver its services whilst achieving best
value for money taking strategic decisions on the authority’s major
procurement projects – those projects that are large, complex and/or
critical to the achievement of the authority’s key objectives.
The executive role
Strategic level
 At a strategic level the executive members’ role might include:
 ensuring the authority has a procurement strategy, which is aligned with
the authority’s strategic objectives
39

40.  agreeing the corporate procurement strategy and receiving periodic
reports on its implementation
 understanding what the authority spends it money on , being provided with
periodic reports on its suppliers and spend
 understanding how key suppliers view the authority
 maintaining an overview of the corporate arrangements for procurement
and being satisfied they are operating economically, efficiently and
effectively (including a review process for projects and contract standing
orders / financial regulations)
 maintaining an overview of the programme of procurement projects
Major project level
 At a major project level executive members should, as a minimum, have
involvement and challenge at each key stage of the Gateway process as
illustrated in Figure 2. Some of the more detailed activities might include:
 scoping: defining and challenging the desired outcomes
 business case and options appraisal: considering the options; approving
the outline business case and procurement approach for the preferred
option
 planning: there should be procurement plans for all major projects,
prepared by officers and agreed by members
 assessing delivery options: members provide a constructive challenge on
the range of procurement delivery options that are subsequently evaluated
in detail by officers
 project leadership: effectively questioning progress and the handling of
risks
 supplier selection/bid evaluation: agreeing the contract award criteria;
approving the list of bidders; agreeing the preferred bidder (where
relevant)
 contract award: awarding the contract (making the investment decision)
 contract overview: receiving reports on performance and agreeing
appropriate action; participating appropriately in the management of
relationships with stakeholders and the supplier; agreeing actions to
resolve any serious disputes
40

41.  Post-project reviews: ensuring that lessons learnt are taken on board.
The scrutiny role
Strategic level
At a strategic level the scrutiny members’ role might include:
 understanding the authority’s procurement strategy and monitoring its
implementation
 challenging the corporate arrangements for procurement in terms of
economy, efficiency and effectiveness [3 e’s]
 conducting inquiries into areas of spend where better value for money
might be obtained
 conducting inquiries into new models of service delivery
Major project level
At a major project level the scrutiny members’ role might include:
 challenging the progress of major projects
 receiving information on the performance of key suppliers [updating
blacklist of suppliers]
 Reviewing major contracts for lessons learnt.
Members’ SUCCESS checklist
The majority of procurement activity will take place at a more detailed level within
the authority. However, it is important that members are confident that adequate
processes are in place and operating effectively. The key areas are outlined
below.
Corporate co-ordination
An authority should have an individual or a central body (dependent on the size
and nature of the authority) with a strategic overview of procurement to ensure
that managers are not operating in isolation without reference to the wider
strategic context.
Business case culture
It is essential that the authority adopts a ‘business case culture’. No procurement
should be made, whatever the size, unless there is a compelling business case.
41

42. It should clearly document the need, budgetary implications, alignment with
strategic objectives and demonstrate its feasibility.
If the case to proceed can be demonstrated, consideration must be given to the
potential options available – even at this early stage.
For any authority to modernise and achieve value for money a robust challenge
is needed at this stage. Investment into this first crucial stage of procurement
must not be under-estimated.
Learning organisation
Evidence shows that authorities often procure items in many different ways, with
variable success. It is essential that authorities learn from the successes and
mistakes of the past – procurement can and will improve if there is a shared
commitment across the authority.
Improvement – ‘quick wins’
In order to improve procurement activity within an authority, it is fundamental to
identify how much is spent by whom, on what and with which suppliers.
Importantly, this information will enable an authority to identify options for savings
and areas that offer ‘quick wins’ through more effective procurement.
Critical success factors
Members must:
 understand the strategic role of procurement, the procurement essentials
and lifecycle
 be familiar with the regulatory framework
 understand the principles of Best Value – the lowest price is not always
best value
 distinguish the members’ role from the roles of senior managers and
procurement officers
 understand what to look for and how to challenge constructively
 have an overview of strategic procurement issues
 understand how risk is managed
 understand how to question progress on high-risk projects effectively
 know the important issues in contract and relationship management and
how to question supplier performance
42

43.  understand what can be done if performance is poor.
Critical success factors – another dimension
Members’ involvement. Executive direction and decisions on strategic projects;
scrutiny and challenge of all major projects to ensure that they support
community and corporate strategies.
Senior management involvement. Prompt decisions on key issues; enabling
access to resources outside the project team’s immediate control.
Ongoing monitoring of the project. Full consideration given to corporate issues.
Solutions and outcomes fit with the strategic direction and are of value to the
authority.
Clear objectives defined at the outset, and keeping the project aligned with
strategic objectives.
Good planning. Realistic timescales and milestones for delivery; access to key
people when required; effort focused in the right way when needed and
documentation that is complete and correct
Appropriate use of resources. The right people for the job, not just the next
available person. There is full consideration of the skills and input required.
Complete clarity about who will be doing what.
Questions members should ask
Questions that all members should ask regarding their authority’s procurement
approach:
Strategic level
 How well do we currently manage our procurements? Do we get the
outcomes we need?
 Do we have adequate knowledge of procurement within our authority to
enable us to usefully challenge performance? If not, how can we address
this?
 Have we clearly articulated our priorities in a corporate procurement
strategy and high level portfolio, and are these being addressed?
 How many suppliers do we have? Is there scope for streamlining current
arrangements? Do we have any innovative procurement models in place?
43

44.  Do we, and all other staff, have access to comprehensive procurement
guidance? Is the guidance adequately supported with structured training?
Major projects
 Have there been any serious challenges by suppliers to our authority’s
procurement decisions? If so, what caused these? Have any shortcomings
been addressed?
 Have we considered the appropriate options early enough, having
considered the aims, objectives and core values of the authority?
 Are risks being managed properly? Can this be demonstrated?
 Are staff getting the procurement advice, training and support they need?
 How is procurement performance being measured and reported?
 How is supplier performance being measured and reported? [In Nigeria no
feedback is sought but the central department does audit the feedback
from the local procurement units]
Overview of procurement strategy – Case Study
Context
“World Class Commissioning” published by the Department of Health in
December 2007 requires organisations to demonstrate 11 key competencies
which include:
Simulating the market to meet demand and secure required clinical, health
and well being outcomes.
44

45. Securing procurement skills that ensure robust and viable contracts.
This was reinforced in the Operating Framework for 2008/09 which proposed
strengthening system management by:
Providing a clear statement on system management and the principles and
rules for co-operation and competition (PRCC).
Providing advice and guidance on issues such as procurement.
Setting up an independent competition panel.
In May 2008 the Department of Health published “ORGANISATION Procurement
Guide for Health Services” which supports commissioners in deciding whether
and how to produce health services through formal tendering and market testing
exercises. The guide is referenced in the Principles and Rules for Co-operation &
Competition (PRCC) and will be used as a benchmark by the independent
competition panel when considering any disputes.
Procurement Strategy
The following should be considered in the development of a strategy:
Market assessment.
Current contracts.
Procurement options.
Procurement routes.
The strategy also needs to include the following principles and good practice:
Transparency, in terms of advertising contracts, decisions not to competitively
tender and avoiding conflicts of interest [ code of conduct department
investigates all suppliers].
Proportionality to ensure that the competitive process is proportionate to the
value, complexity and risk of services being contracted.
Non-discrimination.
Equality of treatment.
The procurement strategy will also need to consider the legal requirements of the
industry.
The first element of the strategy relates to the principles that the organisation will
adopt as part of any procurement, these will include transparency;
45

46. proportionality; non-discrimination and equality of treatment. The main function of
the principles is to clearly demonstrate to providers and other stakeholders that
the ORGANISATION is adopting a principled approach to the procurement of
healthcare. Observation of the principles will reinforce the ORGANISATION’s
role as local leader of the NHS and enhance its’ reputation as a trusted and world
class commissioner.
Transparency
The ORGANISATION will use the most appropriate media in which to
advertise contracts; ‘passive’ publicity is not considered to be adequate.
The ORGANISATION will use the procurement portal, established by the
Department to advertise for all appropriate tenders (part B).
The ORGANISATION will gain consent from Board and inform the SHA
where a decision is made not to tender for new or significantly changed
services (as described in ORGANISATION Procurement Guide).
The ORGANISATION will seek assurance from all bidders that all potential
conflicts of interest have been declared.
The ORGANISATION will ensure that all referring clinicians tell their patients
and the commissioner (for NHS patients) about any financial or
commercial interest in an organisation to which they plan to refer a patient
for treatment or investigation.
The ORGANISATION will provide feedback to all unsuccessful bidders.
Proportionality
The ORGANISATION will ensure that the procurement process is
proportionate to the value, complexity and risk of the services contracted.
The ORGANISATION will define the procurement route, including any
streamline processes for low value/local services – taking into account
available guidance.
The ORGANISATION will ensure that the process, qualification and
evaluation criteria are not disproportionately demanding, as this would
discriminate against small organisations such as smaller third sector
organisations.
Non-discrimination
The ORGANISATION will ensure that tender documents are written in a non-
discriminatory fashion e.g. generic terms will be used rather than trade
names for products.
46

47. The ORGANISATION will inform all participants of the applicable rules in
advance and ensure that they (the rules) are applied equally to all.
Reasonable timescales will be determined and applied across the whole
process.
The ORGANISATION will ensure that shortlist criteria are not discriminatory
nor particularly favour one potential provider.
Equality of Treatment
The ORGANISATION will ensure that no sector of the provider market is
given any unfair advantage during the procurement process.
The ORGANISATION will ensure that the basic financial and quality
assurance checks apply equally to all types of providers.
The ORGANISATION will ensure that all pricing and payment regimes are
transparent and fair.
The ORGANISATION will retain an auditable documentation train regarding
all key decisions.
The principles will be underpinned by a detailed process to ensure that all
procurements are handled in a consistent manner and that they comply with all
applicable rule and regulations. This will be referred to as the rules and will be
supported by a series of flowcharts describing the steps to progress a ‘concept’
through to a completed procurement. A business case checklist will also be
developed to ensure that all procurements meet key criteria including contribution
to ORGANISATION strategic objectives, consultation, accessibility, clinical
requirements, equality impact, and measurement of success, affordability and
value for money.
In support of the rules a suite of template documents will be developed to ensure
consistency and compliance.
Finally, as part of the Procurement Strategy the ORGANISATION will develop a
procurement plan, detailing known and potential procurement priorities for the
next 12 to 18 months. Potential procurements will be identified as part of the
internal Local Operational Plan process. The ORGANISATION will prioritise the
procurements following review and consultation with senior managers and will
allocate a timescale for delivery and/or review. This approach will enable the
ORGANISATION to plan and resource procurements effectively, manage
provider and service user expectations, and encourage engagement from
interested and affected parties at an early stage.
47

48. Next Steps
Element Action Timescale
Development of detailed
Constitution principles and rules for
implementation.
Principles & rules
Board Approval July Board
Identification of potential
Yearly Procurement procurements and
Plan prioritisation.
Board Approval September Board
Development of bespoke
documentation. This
should highlight the text
that will need to be
changed. There should be In line with September Board to
Process foot notes to tell you how to ensure that implementation can
Documentation fill it in and a declaration at occur as soon as priorities are
the bottom of the agreed.
specification saying that
the responsibility for the
specification is that of the
user.
Recommendation
The Board should be asked to:
Agree the outline strategy
48

49. Support the principles for procurement as laid out in the strategy
Approve the next steps as laid out in the paper
Support the ongoing work on market management and procurement required
for the organisation to be recognised as a World Class Commissioner.
International Procurement
Basic Policies
Fair and equal procurement activities
• Procurement activities are conducted in an open fair and equal manner.
• Decision making will be done through total and objective evaluation and
procedures such as quality, price, delivery, technology level, financial status,
activities for conservation of the environment.
Co-existence and co-prosperity
•The procurer will work together with suppliers to maintain and strengthen
confidence for co-existence and co-prosperity.
Compliance
•The procurer will comply with the laws and social norms, and conduct the
business under sound commercial practice [NSO~ Nigerian Standards].
Information Control and Confidentiality
• The procurer will not disclose any confidential information to the third party
which they got through their procurement activities.
“Procurement Journal just discloses the contract sum and who the contract was
awarded to.”
49

50. Procurement Activities
Managing the Procurement Process
You can use software to manage the process -
http://www.method123.com/procurement-
management.php
This Procurement Management process software will help you to
purchase goods and services from external suppliers.
It gives you a complete procurement process and procurement
procedures, which explain step-by-step, how to purchase from
suppliers.
You will learn how to issue Purchase Orders, receive and approve
deliveries, endorse supplier payments and manage suppliers
against their contracts.
This procurement process will also help you to:
Identify the goods and services to procure
Complete Purchase Orders and issue to suppliers
Agree on delivery timeframes and methods
Receive goods and services from suppliers
50

51. Review and accept the items procured
Approve supplier payments
This Procurement Management Process will enable you to:
Identify supplier contract milestones
Review supplier performance against contract
Identify and resolve supplier performance issues
Communicate the status to management
Procuring goods and services from external suppliers can be a
critical path for many projects. Often, the performance of the
supplier will reflect on the performance of the overall project team.
It's therefore crucial that you manage your suppliers’ performance
carefully, to ensure that they produce deliverables which meet your
expectations.
This Procurement Management Process software will help you do
this to get the most out of your external supplier relationships.
eProcurement solutions
• Single point of access for buyers and suppliers• Lower cost P2P
solution for smaller customers
• Centrally managed supplier adoption, suppliers manage catalogues
and price lists [suppliers can update the information themselves]
• Negotiated collaborative contract pricing drives value for money
• Web based ordering / pay using GPC or e-invoices
• Reduced buyer and supplier process time and cost
• Access to data about spending patterns, suppliers and demand
• A catalyst for collaborative opportunities and benchmarking
• Storage of data is not an issue and copies can be kept at multiple
locations [as many as three]
• Link to marketplace leverages customer’s existing investments in
eProcurement and ERP systems
• National supplier e-enablement programme makes system accessible
51