HIGHLANDS AND ISLANDS AIRPORTS LIMITED

PROCUREMENT POLICY

The term “Company” or “HIAL Group” applies to Highlands and Islands Airport Limited (HIAL) and any subsidiary companies concerned with its business including Dundee Airport Limited (DAL) and Airport Management Services Limited (AMSL).

Document Owner: Company Secretary / Financial Controller

Document Editor: Business Support Manager

Distribution: HIAL, DAL, AMSL

Date First Published: December 2010

Date Last Updated: 2 December 2011

© All rights reserved. No part of this document may be produced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright holders. This document remains the property of Highlands and Islands Airport Limited. It contains confidential information which should not be communicated to any person who does not have a need to know for the execution of their duties.

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PREFACE The purpose of the Highlands and Islands Airports Limited (“HIAL”) Procurement Policy (“the Policy”) is to set out parameters for HIAL Group staff (“purchasers”) who are engaged in procurement activity, in order to ensure compliance with statutory requirements whilst allowing the organisation to meet its objectives.

Procurement is the process of obtaining goods, services or works and managing that process from inception through to completion. This process includes monitoring suppliers to ensure that they meet agreed service levels and that value for money is achieved. The Policy applies to all purchases of goods (including hire, lease, sponsorship and disposal), services (including consultants, advisers and external research) and works, irrespective of the value. It is designed to help staff achieve best practice and consistency across the business and assist all those involved in procurement to navigate the legislative processes efficiently. The Policy has been written in accordance with Scottish Procurement Policy Handbook, Scottish Procurement Policy Notes, and the Construction Procurement Manual (when managing and delivery construction works/projects) and shall be implemented by application of the standards and procedures set out in the HIAL procurement guidance and templates, as published on the corporate intranet (Pages - Procurement) at the time of the requirement arising. Policy responsibility for the governance of commercial business shall rest with the Financial Controller & Company Secretary.

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CONTENTS

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PREFACE .......................................................................................................................................................... 1

1. CONTEXT ................................................................................................................................................. 3

2 ROLES AND RESPONSIBILITIES ................................................................................................................. 3

3. DELEGATED AUTHORISATION .................................................................................................................. 4

4. SEGREGATION OF DUTIES ........................................................................................................................ 4

5. COMPETITION .......................................................................................................................................... 4

6. EXEMPTIONS OR EXCEPTIONS FROM COMPETITIVE ACTION ................................................................... 5

7. PROCUREMENT PROCESSES ..................................................................................................................... 6

9. COMMITMENT OF A CONTRACT .............................................................................................................. 7

10. VALUE FOR MONEY ................................................................................................................................. 8

11. BUYING SUSTAINABLY ............................................................................................................................. 9

12. EXTERNAL CONSULTANCIES ..................................................................................................................... 9

13. RISK MANAGEMENT ................................................................................................................................ 9

14. CONTRACT MANAGEMENT .................................................................................................................... 10

15. POLICY REVIEW ...................................................................................................................................... 10

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1. CONTEXT Highlands and Islands Airports Limited (HIAL) is a private limited company wholly owned by Scottish Ministers and is responsible for the management of 11 airports. The HIAL Group consists of Highlands and Islands Airports Limited as parent company with Dundee Airport Limited (DAL) and Airport Management Services Limited (AMSL) as subsidiary companies. HIAL (including DAL and AMSL) is classed as a public corporation, and as such is required to procure goods, services and works in accordance with legislation, EU guidelines and best practice guidance. The rules for public sector procurement in Scotland are bound within:

EC Treaty Obligations;

EU Procurement Directives;

Public Contracts (Scotland) Regulations 2006; and

Public Utilities (Scotland) Regulations 2006. These rules are based on the following principles:

Equal treatment;

Non-discrimination;

Mutual recognition;

Proportionality;

Transparency;

Openness.

The Policy recognises the rights of anyone interested in providing goods, works or services to or on behalf of HIAL to be treated in accordance with these principles at all levels of expenditure, which are applicable at all levels of financial commitment, so that HIAL’s reputation as a responsible, competent, and fair organisation is upheld and enhanced The Policy also aims to ensure value for money for HIAL by establishing common compliance and application of standards throughout HIAL’s operations which will result in purchasing requirements being met by the best solution available and at the best possible price. 2 ROLES AND RESPONSIBILITIES The Managing Director and Financial Controller & Company Secretary are responsible and accountable for all procurement within the company and for determining best practice purchasing arrangements, including governance and compliance. They are also responsible for establishing, maintaining and auditing procurement standards across the company, and for determining purchasing authority for HIAL staff, ensuring that appropriate training and support is available through regular briefings, management meetings and the intranet. There is a duty on all HIAL staff that have the authority to purchase or enter into contracts to apply the key principles of public sector procurement, to abide by the rules set out in this Policy, to adhere to procurement procedures and to deliver value for money. For the avoidance of doubt, no member of HIAL staff with a social or family connection with any member of the staff of any organisation expressing an interest in bidding for a particular requirement, where there is a likelihood that said member of the potential bidders staff is likely to have access to the development of a bid, may be involved in any way on the related procurement exercise. Similarly, no member of HIAL staff with a pecuniary interest in any organisation expressing an interest in bidding for a particular requirement may be involved in any way on the related procurement exercise.

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All purchasers are responsible for ensuring adherence and familiarity with the appropriate procurement procedures and guidance, and for seeking guidance where appropriate from the Business Support Managers at Head Office.

3. DELEGATED AUTHORISATION HIAL’s Financial Regulations Policy requires that there are appropriate procedures in place to control capital and revenue expenditure. Therefore the terms of that policy must be implemented in the context of activity covered by this Policy. HIAL operates a register of Delegated Authorities which identifies those individuals within the organisation that are entrusted with spending powers, and details the level and parameters of spend which they may authorise via purchase orders, works orders, Group Purchasing Cards, call-off contracts and invoices. This list is published on the corporate intranet General Info - HIA. In this respect, the purchaser leading any procurement project must certify that sufficient funds exist prior to the commencement of any contracting action. If the cost of the requirement is not known when it arises, similar requirements elsewhere may be used as a baseline. Informal consultation with potential providers, without making any commitment, may also be used. Precautionary formal tendering aimed solely at establishing costs must not take place. The only allowable exception to this is when external funding is anticipated which must be used within the current financial year. In those circumstances tendering in advance of final agreement is acceptable, but the situation must be made clear to all potential bidders. 4. SEGREGATION OF DUTIES To ensure propriety, there must be a separation of duties between individuals with delegated purchasing authority and delegated financial authority during all procurement processes, i.e. it should not be possible for the same person to define the requirement, purchase that requirement and then approve the invoice for payment. 5. COMPETITION It is HIAL’s policy that goods, works and services should be acquired by fair competition unless they are covered by one or more of the exceptions or exemptions noted below. The essence of public sector procurement policy is to provide a means to improve public service delivery through the use of competition: • Through indirect competition (e.g. benchmarking) in which purchasers will assess the

competitiveness of current arrangements and improve their effectiveness by reference to these arrangements.

• Through direct competition in which contracts will be awarded to the provider(s) offering the

most economically advantageous balance of quality, sustainability and cost. Competition must be based on the principles of openness and fairness, with each tenderer being afforded exactly the same information and opportunities as every other.

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The table below gives HIAL’s competition and advertising thresholds and the purchasing processes to be adopted following relevant approval of spend and in accordance with HIAL Register of Delegated Authority:

Total Contract Value (£)

Process to be Adopted

0 - 499 Use of the Government Procurement Card

500 - 4,999 A minimum of 3 written quotes should normally be sought and details recorded

5,000 – 49,999 Minimum of 3 written quotes should normally be sought via the Public Contracts Scotland (PCS) “Quick Quote” facility.

50,000 – OJEU Threshold

Formal sealed bid process via the PCS portal normally through a 2 stage “Restricted tender” process (ie. PQQ and ITT)

Over OJEU Thresholds

Formal sealed bid process using the OJEU process via the PCS portal, normally through a 2 stage “Restricted tender” process (ie. PQQ and ITT).

Purchasers must ensure a degree of advertising which is sufficient to enable open competition. To facilitate compliance with adequate publicity requirements, all purchase requirements valued at £50,000 and above should be advertised via the Public Contracts Scotland web-based portal, unless the exceptions or exclusions below apply. No transactions or commitments made or costs incurred may be split to avoid the necessity of appropriate calls for competition. 6. EXEMPTIONS OR EXCEPTIONS FROM COMPETITIVE ACTION It is a fundamental principle of Public Sector procurement that purchases should be made as a result of competition. Dispensing with competition, or Non-Competitive Action (NCA), at any level of purchase, which may amount to unfair discrimination, should be avoided and must be recorded. Approval for NCA should only be sought in exceptional circumstances if there is a valid business case for no competition. For low value/low risk procurements between £1,000 and £10,000, prior approval for NCA must be obtained in advance by the Managing Director or Financial Controller & Company Secretary. Requests to proceed with NCA for procurements over £10,000 in value must be approved in advance by the Managing Director. Procurement via collaborative contracts such as those awarded by Procurement Scotland, Scotland Excel or the Office of Government Commerce (OGC) may be undertaken without further competition, depending on the particular procedure recommended by the agency concerned, at the discretion of the Financial Controller & Company Secretary. In all cases periodic ‘value for money’ checks involving other alternatives should be carried out as such agencies do not guarantee or always offer best value. NCA may be allowable where: a) The requirement is not readily obtainable from more than one supplier, service provider, or

contractor, and it can be demonstrated that no equivalent is available; or

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b) The prices of the goods, materials or specialist services are wholly controlled by trade organisations or government orders and it can be demonstrated that no equivalent is available; or

c) The requirements are subject to intellectual property rights and it can be shown that either no

suitable alternative is available, or that exposure to competition of an item covered by copyright, patent, or trademark would breach such rights. NOTE: That where an item is described by a reference to a trade name, it must be followed by the phrase “or equivalent”; or

d) The demand is for the execution of work or the supply of goods, materials or services, certified

by Senior Management, as being required as an emergency measure so as not to permit the invitation of tenders. “Emergency” means only an event which could not reasonably have been foreseen; or

e) the works, goods, or services to be provided consist of repairs to or the supply of parts for

existing proprietary machinery or plant and HIAL is bound by the terms of an agreement, by insurance requirements, or by the terms of a warranty to use a specified contractor; or

f) Where there is an existing contract for the supply of specific goods, works or services. Such

contracts may only be extended without fresh competition within reason, and in accordance with any limitations set out either in the contract itself or the contract notice. At least one of the following shall apply:

the extension is justified on the basis of best value and/or operational necessity in which case it may not exceed the allowance for extension as set out within the terms and conditions of the contract or by more than 50% over the original scope or value of the contract, whichever is the lesser;

the extension may be necessary in order to allow for the proper conduct of a competitive process,

the requirement for extension has been brought about by an unforeseeable circumstance not within the control of HIAL.

In all cases the original contract must have been won via a competitive process and must be reasonable in all the circumstances.

Any extension which constitutes a deliberate material variation of the original contract by nature or extent must be the subject of fresh competition.

All instances of such exceptions arising shall be reported to the Managing Director or Financial Controller & Company Secretary.

NOTE: Failure to take account of the timescales required for competition is not an acceptable reason for NCA.

7. PROCUREMENT PROCESSES HIAL is committed to adopting the Scottish Government’s Procurement Journey which provides a toolkit and guidance on procurement processes. The HIAL Procurement Guidance and Templates

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(which can be accessed on the corporate intranet Pages - Procurement), reflect this guidance and provides template documents for each of the relevant procurement processes. Before committing funds to or commencing a tendering process for any commercial arrangement in excess of £25,000 the purchaser must ensure that a business case has been established and approved by Senior Management. This must examine all possibilities for meeting the requirement. It must also show that no other contract which could be used already exists. The business case template form is included in the HIAL Procurement Guidance and Templates. Where requirements arise in more than one airport, department or other part of the HIAL group, or where requirements are shared between such parts of HIAL, then those requirements shall be aggregated for the purposes of procurement. Awards of tenders may only be made by those authorised to do so as per the HIAL list of Delegated Authority. Once a contract or set of contracts or framework agreements for goods, services, or works has been let corporately on behalf of the HIAL, purchasers shall use the contract where such requirements arise. New contracts shall be reported to the Business Support Managers and shall be published on the corporate intranet. Consideration should always be given to the possibility of joining with other relevant public organisations to tender jointly for similar requirements, and research undertaken prior to commencement as to the feasibility of this approach. HIAL is a member of the ‘Highland Hub’, which is a group of National Devolved Public Bodies, and as such shares best practice and provides opportunity to discuss joint working opportunities.

8. LEGAL ISSUES The Policy will be operated in such manner as will comply in all respects with the requirements of European Community Law, United Kingdom and Scottish legislation. There should be no conflict between the Policy and the legislation, but for the avoidance of doubt, in all cases EU law takes precedence, followed by UK and Scots Law. 9. COMMITMENT OF A CONTRACT Every contract subject to this Policy shall be committed only by staff having specific Delegated Authority, and shall be in writing in an approved form, specifying all HIAL applicable Terms and Conditions of contract, which can be found on the corporate intranet Pages - Procurement. Where possible, HIAL’s standard Terms and Conditions documents should be used rather than those of a supplier. To this end, prospective suppliers must, as part of their tender submissions, agree to adopt HIAL’s Terms and Conditions without making any material changes. The Invitation to Tender template on the corporate intranet includes provision for this (Pages - Procurement). A legally binding commitment is made by the offer (i.e. the tender submission) and acceptance (i.e. HIAL’s contract award letter). On no account should a contract award notice be sent until Terms and Conditions have been agreed. No contract may be signed, terminated, or materially varied on behalf of HIAL without the prior approval of the Managing Director or Financial Controller & Company Secretary.

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It is possible for legally binding commitments to be made unintentionally. Therefore it is important that purchasers make it clear in conversations or correspondence with potential suppliers that what is being offered is a proposal and is subject to finalisation and incorporation in a legally binding contract. If an agreement contains the essential elements of legally binding contract then neither party can escape from its contractual obligations and responsibilities without penalty except by mutual consent. Consequential liabilities when contracts go wrong can far exceed the contract value. In view of this, staff should not take part in pre-contract discussions with suppliers without Delegated Authority or without the explicit consent of a member of the Senior Management Team. The signing of documents is governed by the Requirements of Writing (Scotland) Act 1995. This Act states that in order for a document to be probative (i.e. to stand up in legal proceedings) it has to be signed in a certain way:

The Managing Director and the Company Secretary & Financial Controller; or

The Managing Director and a witness; or

The Company Secretary & Financial Controller and a witness/ The person signing as a witness is merely witnessing the signature of the grantor of the document, and not confirming its contents. The witness should always give their full name (i.e not just initials), their occupation and address (work address is fine). Plans and appendices to documents also require to be signed correctly and in accordance with the Act. In order for these to be valid they must be incorporated into the document and this is done by referring to the plans and appendices in the document itself and then signing them. Each plan annexed to a document must be signed, and in the case of an appendix or schedule the last page only need be signed. So where a schedule annexed to a document is in several parts, only the very last page of the schedule need be signed. If the document has many smaller schedules (each referred to as a new schedule) then the last page of each of these must be signed. If the method of signature using a witness is being used the witness does not have to sign the plans and appendices. If the other methods are used each party must sign all attachments. 10. VALUE FOR MONEY The prime outcome of procurement in accordance with the Policy is achieving best Value for Money (VFM). VFM is the optimum combination of whole life costs, sustainability and quality to meet HIAL’s requirement. It is HIAL’s policy to award contracts on the basis of the Most Economically Advantageous Tender (“MEAT”). Further guidance on contract award criteria is contained in the HIAL procurement guidance and templates. To ensure VFM in procurement the relevant factor is whole life cost, not lowest, short term price. Whole life cost takes into account all aspects of cost over time, including capital, maintenance, management, operating, training, implementation, transportation, and disposal, where necessary. VFM is an essential requirement and all staff are responsible for ensuring that VFM is maximised through the procurement process.

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11. BUYING SUSTAINABLY Sustainable Procurement is essentially about how goods, services and works can be purchased in a way that achieves value for money whilst also giving consideration to society, the economy and the environment. HIAL is committed to implementing the requirements of both environmental and socio-economic sustainability in all of its procurement activities, and to working with all sectors of the business community in order to achieve this. Details on how to maximise sustainability outcomes are available from the Scottish Sustainable Procurement Action Plan and further information on HIAL’s aims are contained within HIAL’s Environmental Policy. 12. EXTERNAL CONSULTANCIES In accordance with ‘Use of Consultancy Procedures for the Scottish Government (Professional Services)’, additional requirements apply in the case of procuring consultancy services, which are defined within the document. Authority to proceed with consultancy procurement must be approved as follows:

Total contract value of up to £10,000 – Financial Controller & Company Secretary;

Total contract value of £10,000 - £50,000 - Managing Director;

Total contract value greater than £50,000 – HIAL Board. These approvals are required in addition to any approval to purchase through delegated purchasing authority. It will be a condition of the engagement of the service of any architect, engineer, surveyor or other consultant who is to be responsible to HIAL for the supervision of a contract on its behalf, that in relation to that contract they will: a) Comply with this Policy and the HIAL Financial Regulations Policy as though they were a HIAL

purchaser; b) at any time during the carrying out of the contract, produce to the Financial Controller &

Company Secretary on request, all relevant records or copies maintained in relation to the contract; and

c) on completion of a contract, transmit appropriate records or copies to HIAL. In all commitments made in the commissioning of consultancy services, regardless of value, Statements of Requirement and Terms of Engagement shall be documented in every case. 13. RISK MANAGEMENT In each formal tender, the purchaser will assess the level of risk that is reasonable for HIAL to undertake and that which they wish to transfer to a contractor. When setting the appropriate detail of the specification, the particular terms and conditions which will form the basis of the contract, levels of insurance, etc. must be clearly stated. Risk management tools include the following: a) Insurance

Employers’ Compulsory Liability Insurance (ECLI): The sum insured must be in accordance with legislative requirements, currently at least £5,000,000. The purchaser must see a copy of the ECLI insurance policy and/or a copy of the certificate of insurance prior to contract commencement.

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Public Liability and All Risks/Professional Indemnity: The levels of insurance cover required in respect of each project should be set by HIAL in the context of the contract and reflecting the level of risk involved to members of the public, HIAL staff, its operational effectiveness, and its financial liabilities. Public Liability insurance shall be not less than £2,000,000, preferably set at £10,000,000 to reflect HIAL’s own liability cover.

Other forms of insurance: Varying levels of insurance will be required for areas of specialist service provision, and/or for services provided airside. HIAL’s Insurance Broker should be consulted, via Business Support Managers, to establish a list of required insurances.

b) Financial Vetting

In respect of contracts with a total value in excess of £50,000 or in respect of contracts which the purchaser views as exposing HIAL to excessive risk, a formal financial assessment of the potential tenderers’ financial standing shall be undertaken prior to shortlisting of tenderers at pre-qualification stage, depending upon the tendering procedure used. Minimum standards must be defined by the Finance Department and made known to all bidders at commencement of the contract award process.

c) Breach of Contract

Dependent on the terms of the contract document, where a breach, default or negligent act on the part of the contractor result in direct losses to HIAL, the purchaser must in the first instance discuss the situation with Business Support Managers before taking any action. No accusations of breach of contract can be made against any supplier without the prior approval of the Managing Director or Financial Controller & Company Secretary.

d) Staged Payments and Retentions No supplies, services or works should be paid for until they have been formally accepted and any required testing carried out. In the event that stage payments are required for each phase of a project, formal acceptance and any required testing of that phase must be complete prior to payment being made.

14. CONTRACT MANAGEMENT Contract monitoring and management is an essential part of the contracting process to ensure that the contractor or supplier meets the service levels set out in the contract and to ensure continuing value for money. A contract manager must be appointed on implementation of a contract and will be responsible for the management of all aspects of the contract.

HIAL is committed to adopting the Scottish Government’s Procurement Journey documentation and guidance, including contract monitoring and management processes outlined therein. 15. POLICY REVIEW This Policy is current as at the date noted above. HIAL will continue to monitor changes to legislation to endeavour to adhere to best practice. The HIAL Procurement Policy will be subject to an annual internal review, lead by the Business Support Managers. The Financial Controller & Company Secretary will be required to authorise any changes.