Management Centre

Value for money in

procurement

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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

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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

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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

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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

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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

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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.

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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.

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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

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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

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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.

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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

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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

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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

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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

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• 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?

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• 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

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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

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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

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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.

BINARY 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

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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.

THE 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.

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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.

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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.

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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.

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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.

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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

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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

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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

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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

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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

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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

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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).

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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

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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.

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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

Service Existing Procurement Arrangements Matrix Analysis

Computer

Hardware Use of government Gcat catalogue High value/low risk/routine

Computer

Software Sourced from various suppliers High value/low risk/routine

Consultancy

Various companies used, Departments arrange

their own appointments in accordance with

standing orders

High value/low risk/leverage

Stationary

Supplies

1 main supplier used but no formal contract or

call off arrangement Low value/low risk/routine

External

Printing

A range of suppliers used (8+) but not on

contract. Purchased via individual orders Medium value/low risk/routine

Property

Maintenance

More than 100 suppliers used formal contracts

and agreements for most.

Medium value/medium

risk/bottleneck

Revenue

grants Service level agreements used as basis of funding

High value/medium

risk/strategic

Agency Staff

Personnel working towards central procurement

of all agency staff and are compiling a preferred

supplier list

Medium value/medium

risk/leverage

Mobile Phones One central contract Low value/low risk/routine

Photocopiers One central contract Low value/low risk/routine

Advertising Various suppliers with each service arranging

their own supply. Low value/low risk/leverage

Lease Cars 3 suppliers used and each car tendered under a Medium value/low

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master agreement risk/bottleneck

Insurance 1 major supplier with a 3 year contract Medium value/high risk

Utilities Number of contracts used including green tariff Low value/medium

risk/leverage

Cleaning 1 contract for all cleaning requirements

commenced 1 July 2003

Medium value/medium

risk/routine

Management

contracts

Number of management contracts mainly for

sports facilities 5-8 years each High value/ high risk/strategic

Construction

Contracts

“Traditional” contracts let on an individual basis ,

internal project teams supported by consultants High value/ high risk/strategic

Refuse

contract 8 year contract with 1 supplier High value/high risk/strategic

Furniture Various suppliers used to date Low value/low risk/routine

Vehicle

provision

Uses Quotation system (at least three quotes for

best price), main fleet supplier

Medium value/medium

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

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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

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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

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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

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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.

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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

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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?

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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.

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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;

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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.

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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.

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Next Steps

Element Action Timescale

Constitution

Principles & rules

Development of detailed principles and rules for implementation.

Board Approval

July Board

Yearly Procurement Plan

Identification of potential procurements and prioritisation.

Board Approval

September Board

Process Documentation

Development of bespoke documentation. This should highlight the text that will need to be changed. There should be foot notes to tell you how to fill it in and a declaration at the bottom of the specification saying that the responsibility for the specification is that of the user.

In line with September Board to ensure that implementation can occur as soon as priorities are agreed.

Recommendation

The Board should be asked to:

Agree the outline strategy

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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.”

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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

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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

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NB as a temporary measure documents should be scanned in and stored electronically]

Assessing the procurement project- Specification Writing

What is a specification? A specification can be defined as "a statement of needs to be satisfied by the procurement of external resources". It is also known as an operational requirement, statement of requirement, statement of service requirement and output-based specification. Its purpose is to present prospective suppliers with a clear, accurate and full description of the organisation's needs, and so enable them to propose a solution to meet those needs. The supplier's response to the requirement is evaluated to arrive at, depending upon the procurement strategy, either the supplier to be awarded the contract, or those suppliers invited to take part in negotiations. The requirements in the specification subsequently become incorporated in the contract with the successful supplier.

When is it produced? For simple procurements the specification is drafted before the OJEU notice is placed. For more complex procurements the specification develops from a statement of the business requirements developed during the preparation of the business case. The requirement may be refined in consultation with suppliers as part of market sounding or after the supplier selection stage (see market sounding guidance). This can be particularly useful where innovative solutions are being considered. This should be handled with care and integrity to maintain a level playing field. The specification needs to be finalised before it is issued to suppliers with, depending on the procurement strategy, an ITT or an invitation to submit a proposal.

Who is involved? Depending upon its complexity the specification can be drafted by an individual or team within the organisation or by external consultants. Those involved in its production are: SRO - signoff

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Project team - drafting or support to drafters Stakeholders (including users) - contributing to requirement development and may also review the specification Advisors such as technical and procurement specialists Consider who is most appropriate to review the specification to ensure it is complete and accurate, and who should be involved in evaluating responses to it.

Process Establish information sources

Except in the simplest of cases, those drafting the specification will need to draw information together from a number of sources and the first step is to identify these sources. They may be individuals, organisations or documents. People include:

Business owners

Users

Other stakeholders

Technical specialists In cross-cutting projects and those involving the e-delivery of services the users of the system can be very wide, including other government departments, organisations, businesses and the citizen. Where the service is provided to the public or businesses there may be a need to consult with representative organisations such as trade associations. The stakeholder map will identify stakeholders and their areas of interest and the communications strategy will set out the methods for contacting them. Documents include:

Business strategies and plans.

Business requirements

Specifications or contracts for similar goods or services

Contract(s) to be replaced by the procurement (the contract strategy should help identify these)

Process manuals

Service Level Agreements

Metrics such as volumes etc Develop the requirement

The high-level requirement as set out in the business requirements are progressively refined to a level where they provide the necessary detail for suppliers to understand what is required and develop a solution to meet it. In all but the simplest requirement, this will involve interaction with the people identified as information sources. The degree of interaction will depend on their involvement in and knowledge of the requirement. In some cases it will take the form of interviews, in other cases the review of draft documents. When being interviewed people may describe the current process and it is necessary to extract from this the outputs and key element of process that need to be retained. When reviewing metrics, be aware they represent historical information and consider what changes are likely to occur over the duration of the contract.

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Periodic reviews should be used to help shape the requirement. Developing the requirement will raise issues and risks that must be recorded and addressed in accordance with the risk and issue management strategies.

Produce the Specification

Once the requirement is refined it can be documented in the Specification that will be sent to suppliers. An example framework for a specification can be found at Annex A, and a checklist to help with drafting and review can be found at Annex B. In complex procurements it can be useful to have suppliers' views on the developing requirement. In these cases a draft high-level version of the specification is issued to suppliers after the supplier selection stage for comment. This is not usually part of the evaluation process, and is just used to seek input. This can result in a longer procurement timetable and will incur additional costs from suppliers, so before embarking on it be sure:

What it is intended to achieve;

What sort of input is required from suppliers (and make them aware of it). When considering supplier input be aware of material that, if adopted, could directly or indirectly favour a particular supplier, or a particular supplier or third party solution or technology. The Specification also contains background material to help the suppliers understand the requirement in context and provide supporting material. In large outsourcing projects the volume of background material can be considerable and the practicalities of copying it and issuing it to all prospective suppliers are difficult. If the material is available in electronic form, a CD can be used as a convenient mechanism for distributing it. If the majority of it is on paper, some projects have set up a project library, and allowed suppliers to book time to review it.

Produce the evaluation plan and evaluation model

The requirement will elicit a response from suppliers. This will be evaluated to assess the extent to which it meets or exceeds the requirements in the specification. The evaluation plan sets out how this will be achieved, and the model provides a framework for capturing and assessing findings. They should be developed in parallel with the specification to ensure:

all information needed for evaluation is requested from suppliers;

all requirements and information requests in the specification are covered by the evaluation;

supplier responses will be provided in a form that matches the evaluation model.

The evaluation strategy sets out the approach to evaluation, and Bid evaluation stage describes the process in more detail.

Review and Signoff

The specification is a key procurement document. It forms the basis against which the successful supplier will be chosen and will become incorporated into the contract setting out what the supplier will deliver. Its final review and signoff is therefore a key decision point in the procurement process, and it is important that those undertaking it have the necessary knowledge, authority and experience.

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The key criteria for the review are:

the requirements are complete and accurate;

for IT projects, that COTS software is preferred over bespoke development

stakeholder needs have been taken into account;

future developments have been taken into account;

the requirement is deliverable (i.e. a market exists or can be created);

requirements are compatible with the scope set out in the OJEU notice

issues and risks raised in its development have been addressed;

business implications associated with the requirement have been identified and addressed;

consistent with : 1. Business case 2. Business requirements 3. OJEU advertisement 4. Procurement and contract strategies 5. Evaluation strategy.

Getting and assessing bidders - Planning the request for proposal

CORRECT ADVERTISEMENT SAY 3 NATIONAL PAPERS- CONSIDER THE

SPECIALIST PAPERS AND JOURNALS

Advertising of work has the potential advantage that it will attract firms that might be unknown to the Office but can provide the goods or services required. It also has the advantage of being inclusive and open. The disadvantage is that the Office may raise the interest of firms who are unable to meet its requirements and processing and deciding between numbers of interested firms can be resource consuming. Advertisements may be placed in a variety of media, including the relevant trade press.

Where the total value of the procurement is expected to be above the EU threshold (currently £93,898 ex vat), EU Procurement Rules may apply and advertisements may be required to be placed in the Official Journal of the European Union (OJEU) before advertising anywhere else. Precise rules apply also to the form of such advertisements and the Central Procurement Team should always be consulted.

Advertisement content (8 points)

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Must be clear and concise

Show contact address and details

Value or value range[price is questionable]

Start date

Duration

Project description & phases

Where the pre-qualification can be obtained from or web site link (or e-tendering portal website)

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How the tender submissions will be evaluated

HARTLEPOOL BOROUGH COUNCIL

SELECTION OF SUPPLIERS FOR A

TRAINING AND DEVELOPMENT

FRAMEWORK AGREEMENT

Hartlepool Borough Council invites expressions of interest

from suppliers interested in tendering for a Framework

Agreement for Training and Development activities up to

the approximate value of £750,000 per annum which will

begin on 1st April 2009.

The duration of the Framework Agreement is for a 4 year

period. The Framework Agreement covers all Hartlepool

Borough Council departments and will be for various

training and development activities not currently provided

by Hartlepool Borough Council in house providers.

The Framework Agreement Contracts will be divided

into lots under the following subsections:

• Promoting Equality & Diversity

• ICT & Communication

• Health and Safe Working

• Quality & Service Improvement

• Leadership & Direction

• Specialist Knowledge

At this stage, interested suppliers should download a

Pre Qualification Questionnaire via

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www.hartlepool.gov.uk/trainingprocurementframework

by 19th September 2008, which is to be completed and

returned by no later than 3pm on 26th September 2008.

Shortlisted tenders will be evaluated on the basis of both

price and quality and suppliers must demonstrate

experience of and commitment to providing a high quality,

cost effective service and working with HBC in monitoring

and developing the service.

Suppliers should not send brochures or further information

at this stage. Completed questionnaires should be sent to:

Procurement of Training and Development, Corporate

Workforce Development Team, Human Resources,

Windsor Offices, Unit 24 Middleton Grange Shopping

Centre, Hartlepool TS24 7RJ.

Contract Notice

Notice published in the Official Journal of the European Commission by contracting authorities, inviting companies to tender.

Inviting Offers

This method involves inviting a small number of firms to bid for work. As there is more than one firm there is competitive pressure on price. However because there are relatively few suppliers involved, individual firms have a reasonable chance to win work and so should be encouraged to invest time and effort into preparing bids

Pre-qualification – introducing a second stage

Many procurement projects are complex, and it will often be appropriate to advertise or invite potential suppliers to pre-qualify before inviting formal bids.

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This means potential suppliers do not then need to invest significant resources into bidding until they know that the NAO considers that they are capable of undertaking the work. The main advantage to the Office is that it only needs to invite a limited number of suppliers to tender against the full specification. Consideration should be given to the administrative effort involved, for example to ensure equality of treatment. When advertisement is required in OJEU, the Two Stage procedure may be employed by selecting the Restricted Procedure. Some firms may feel that they should be on the shortlist automatically and may not take pre-qualification seriously. Staff should therefore emphasise the importance of addressing the key evaluation criteria set out to those invited to tender. Any uncertainties identified should be dealt with fairly and openly, otherwise the Office could be accused of unfair bias. The requirements of any pre-qualification exercise should not be unduly burdensome, so as not to discourage firms from bidding, but should be sufficient to enable the identification of firms to take forward to the next stage of bidding.

Pre-qualification questionnaire content (13 points)

Objectives and back ground

About this competition

Selection process

Provisional procurement programme

Questions about procurement

Contact details

PQQ (pre-qualification questionnaire) Evaluation Approach 6

Freedom of Information Act 2000 (FOIA) 6

Confidentiality 6 (All information provided to the Tenderers by the Authorities shall be regarded as confidential and used only to prepare a response to the questions).

Non-UK Based Organisations – Transparency and Fairness 7

General 7

Appendix 1 Outline User Requirement Specification (introduction, application/volumes, implementation, training, documentation & maintenance & support).

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Appendix 2 The Pre-Qualification Questionnaire (PQQ) Scoring System

Appendix 3 The Pre-Qualification Questionnaire (PQQ)- 15 points

1. Details of organisation- including years established,

2. Financial information,

3. Business activities,

4. References (min-3),

5. Insurance & litigation,

6. Quality-ISO,

7. Health & safety,

8. Equality & diversity,

9. Environment management,

10. Environmental action plan,

11. Professional & business standing,

12. Requirement specification,

13. Declaration and

14. Certificate of good standing

15. Anti collusion certificate

Appendix 4 Frequently Asked Questions

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Standard procurement methods

To assist staff, standard procurement processes that are consistent with current

OGC best practice have been devised that set out the main steps required.

These processes will assist in ensuring a good governance approach to

procurement and that we meet our legal obligations. Staff should justify their

choice of a one or two Stage procurement method on the relevant procurement

file.

Careful thought should be given before departing from standard procedures.

Particular considerations are whether the departure might give rise to unfair

treatment of a potential supplier; and ensuring that all suppliers are aware of the

departure and understand the implications. The Central Procurement Team

should be consulted for advice on this.

Single stage procurement method

Where single tender procurement is suitable

Single Tender Action is acceptable when only one credible supplier exists or

has a unique product or knowledge.

The key elements of the NAO’s standard One Stage Procurement Process are

as follows:

Prepare outline requirement;

Identify suitable suppliers;

Select at least three suppliers where possible;

Confirm suppliers willingness to bid, based on outline requirement;

Select replacement suppliers if suppliers unwilling to submit tender;

Prepare an “Invitation To Tender” noting evaluation criteria;

Request sealed bids to be opened on specified date;

Open sealed bids on specified date;

Reject late bids;

Select best bidder using evaluation criteria (may involve interviews);

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Agree contract with best bidder;

Debrief unsuccessful bidders;

Award contract to successful tenderer.

*Health Warning for single stage procurement*

All decisions for single tender action must be formally approved in writing by the

Project Director responsible for the procurement, and in the case of those in

excess of £20,000 (ex VAT) at AAG level. In reaching a decision, any risks to

the Office should be identified and evaluated.

Two stage procurement method

Where single tender procurement is not suitable

Single tender action is not justified where better planning would have negated

the need for single tender action or where the award of a limited value

consultancy or other contract could lead to further work and possibly give the

chosen firm a major advantage at a subsequent stage of tendering.

Single tender action should also be avoided where it is expected that a number

of small contracts (below £20,000 excluding VAT) will be awarded to one

supplier.

The key elements of the NAO’s standard Two Stage Procurement Process are

as follows:

Prepare outline requirement;

Identify suitable suppliers;

Advertise the contract or approach firms who may be interested;

Prepare pre-qualification criteria;

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Request sealed expressions of interest to be opened on specified date

and at a specified time;

Open sealed responses on specified date at specified time;

Reject late expressions of interest;

Shortlist minimum of 3 firms using evaluation criteria;

Prepare detailed “Invitation To Tender” noting evaluation criteria;

Request sealed bids to be opened on specified date and at a specified

time;

Open sealed bids on specified date at specified time ;

Reject late bids;

Select best bidder using evaluation criteria (may involve interview);

Agree contract with best bidder;

Debrief unsuccessful bidders;

Award contract to successful tenderer;

Standards for awarding contracts

Unless circumstances exist under which competition can be limited or waived,

contracts must be awarded through a competitive solicitation process to the

responsible vendor with the lowest responsive bid or the most advantageous

proposal. An award will be made according to the evaluation criteria specified in

the solicitation. A contract award will be made as soon as practicable after the

opening and evaluation of bids or proposals.

Any bid or proposal that does not meet the requirements of the solicitation,

other than mistakes determined to be minor informalities, should be rejected.

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Standards for awarding contracts – non-resident vendors

When considering bids or proposals from non-resident vendors, the

procurement officer must determine whether the vendor’s state of residence

has a preference law. The state procurement office shall make publicly

available a listing of state preference laws.

Responsibility of the bidder or vendor

1. The procurement officer, at any time, may make a supplementary

investigation as to the responsibility of any bidder or vendor, even though the

bidder or vendor may be on the bidders list for the commodity or service being

purchased.

2. This may include investigation of financial responsibility, insurability, effective

equal employment opportunity, capacity to produce, sources of supply,

performance record in the business or industry, and other matters relating to the

bidder’s or vendor’s probable ability to deliver in the quantity and at the time

required under the contract if it is awarded to the bidder or vendor.

3. The procurement officer may require the submission of written statements

from the bidder or vendor or other persons concerning any related matter. If it is

concluded on the basis of all available information that a particular bidder or

vendor appears not to be sufficiently responsible to assure adequate

performance if the contract were awarded to the bidder or vendor, the bid or

proposal will be rejected even if it is the lowest bid or the best offer.

4. If a vendor is determined to be not responsible, that vendor may be debarred

or suspended from the bidders list.

Only one responsive bid or proposal received

1. If only one responsive bid or proposal is received in response to a solicitation, the procurement officer may:

a. Make an award to the vendor upon determination that the specifications were not restrictive, other prospective bidders and vendors had a reasonable opportunity to respond, the bidder is responsible, and the price submitted is fair and reasonable;

b. Reject the bid or proposal and solicit new bids or proposals; or

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c. Cancel the procurement.

2. If the price submitted is not fair and reasonable and there is no time for re-solicitation, or it is unlikely that re-solicitation will increase the number of bids or proposals, the procurement may be conducted as a limited competitive or non-competitive purchase, as appropriate.

Rejection of all bids or proposals

1. If it appears to be in the best interest of the state, all bids or proposals may be rejected and invitations for bid or requests for proposal containing the same or rewritten specifications, terms, and conditions may be reissued.

2. The procurement officer will send written notice to the bidders or vendors, including the reason all bids or proposals were rejected.

3. The rejected bids or proposals will be retained in the procurement file.

Contract preparation process

What you need to do – step 1

For complex procurements where the negotiated route can be justified, contract negotiations are time-consuming and intensive but are key to the success of the project in achieving the right deal with the right supplier. Planning is essential to ensure they stay on track. Identify the order in which parts of the contract are to be tackled, the review points, and who is involved in developing and reviewing them.

Identify specialist resources, legal, financial, technical etc and ensure they are available when required.

There will be a lot of documents exchanged with suppliers, so ensure there is a configuration management plan in place to cover version control, routing, storage etc, and resources to implement and manage it.

Points to consider

Tackle the difficult issues early

Do negotiators know the extent to which they can make agreements without referring upwards?

Are negotiating and fall-back positions clear?

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Points to consider – step 2

Within contract preparation, the authority may also need to consider how risk will be allocated through the SC, who is accountable and will manage it, and how this will be incorporated in the contract.

What you need to do – step 3

Review the need for related agreements (e.g. MOUs, SLAs etc) with other organisations or departments and the fate of any existing contracts identified in the contract strategy in the light of provider’s proposals.

Points to consider

Have there been any changes affecting the related agreements?

Do any existing contracts need to be extended in the light of the proposed implementation plan?

What you need to do – step 4

A good contract should set out the obligations of the parties in a way that is:

clear complete concise unambiguous

The contract also forms the foundation for a productive relationship built on communication and trust.

The foundations for contract management are laid in the stages before contract award, including the procurement process.

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.

For IT enabled business change projects see the Risk Allocation Model for guidance on deal shapes and key areas to address in the contract clauses.

Points to consider

The contract should include as appropriate:

a definition of what is to be provided and requirements to be met

an agreed level of service and mechanism for payment reduction if it is not met

means to measure performance

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Pricing mechanisms including where appropriate milestone payments, incentivisation/rewards, retentions, and if the contract is for more then 2 years, price variation mechanisms. (see Government Accounting for policy on advance and interim payments)

plan to cover implementation/transition/rollout

acceptance strategy/test plan

ownership of assets and intellectual property;

escalation and alternative dispute resolution (ADR) procedures

change control procedures

invoicing arrangements

communication routes, typically at three levels - operational (end users/technical support staff), - business (contract manager and relationship manager on both sides) - strategic (senior management/board of directors)

contract management arrangements (see contract management)

agreed exit strategy and agreed break options.

Premises (where the goods/services will be delivered)

Sub-contractor details

What you need to do – step 5

For service contracts, agree service management plans with suppliers, with responsibilities allocated for service management and standards defined and agreed for service levels, service quality and measurement (see the briefing on managing contracts and performance).

Points to consider

Look ahead to plan for how contract managers will ensure that services are delivered as intended, once the service becomes operational.

What you need to do – step 6

Define change control procedures for maintaining and updating the contract. See also the briefing on changing requirements

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Points to consider

Change control procedures are essential if the contract is to be kept up to date with a clear audit trail of decisions taken; failure to do so can put the department at risk. See the Best Practice briefing: How major service contracts can go wrong.

Points to consider – step 7

Alternative Dispute Resolution (ADR) clauses should be included in all standard contracts, setting out the use of ADR techniques to settle dispute.

What you need to do- step 8

Preferred bidder stage is the final stage before financial close and contract signature. It involves selecting one supplier as a preferred bidder, and finalising detailed drafting of the contract terms, and the schedules that specify the operation of the service and define the nature of the asset as proposed in the bid. The time should not be used for substantive negotiations over commercial terms or price. Usually there is a reserve bidder in case it is not possible to conclude the contract with the preferred bidder.

The best time to appoint a preferred bidder is when there is little risk that the finalisation of contract terms details, due diligence and funding arrangements (and, when required, TUPE negotiations and other negotiations with employees and/or detailed planning clearance or other statutory consents) will lead to any material change to the proposed deal.

Points to consider

After the appointment of a preferred bidder, it may be difficult to maintain competitive tension. Since competition is the best driver of value for money, great care needs to be taken that the appointment is not made prematurely

Are the key elements of the deal agreed? What is the risk it could unravel?

Can the preferred bidder demonstrate before appointment that it has the resources, and management skills and support to conclude negotiations on the basis of the agreed key elements in an efficient and professional manner?

Does it have the ability to deliver, post-contract signature, a complete solution to meet the output specification?

Points to consider- step 9

Ensure the evaluation plan is consistent with the evaluation strategy.

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What you need to do – step 10

On completion of negotiations a final version of the contract should be reviewed to ensure it is acceptable to the organisation. The suppliers are then asked to confirm it is acceptable to them, in which case Best and Final Offer (BAFO) can be invited.

If a preferred bidder route is to be followed, formal agreement to core elements of the 'deal' is usually sought via an MOU before bids are invited.

Points to consider

Does the contract accurately represent the requirement?

Have stakeholder requirements/views been taken into account?

Do the potential providers have realistic solutions to meeting the requirement?

Does the organisation have the necessary skills and resources to meet its obligations under the contract, and for managing the contract?

Have any related agreements with other parties been produced and agreed?

Does the charging arrangements take account of changing levels of demand (both up and down)?

In complex procurements, consider producing a plain language guide describing the contract and particularly the factors influencing its development. It can be very useful in helping contract management staff understand the background to the contract and the issues that came up in negotiation.

Committee submissions and approvals

To ensure that procurement activity is organised in an effective way and is embedded in the corporate and service planning process

Identify a Member Champion for procurement

Establish a Procurement Management Board to coordinate delivery of the procurement Strategy Action Plan, chaired by a corporate director champion

Develop the Council’s consultative approach to procurement by identifying within the authority a procurement “technical support team” comprising finance, legal, audit, central administration and sustainability officers with relevant experience and bought in specialist advice. Service Heads would be required to consult this team when planning significant procurement.

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This will help to support Service Heads and establish consistency in the approach to procurement across the Council.

Investigate the current use of consultants to support procurement and evaluate the option of appointing an in house procurement specialist from the central procurement budget. Investigate the potential of sharing procurement services with other Councils.

Engaging and managing stakeholders

Handout 1

Strategic partnerships

Handout 2

Procurement and cost cutting

Handout 3

Controlling Procurement Risk

Handout 4

Managing Inventory

Handout 5

Control of the procurement process

Handout 6/7/

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Performance measurement

To develop management information and the use of performance measures of procurement

Set targets for procurement activity in key areas including savings targets and monitor performance.

Produce regular reports to Economic Overview Committee detailing progress against the procurement strategy action plan and reports to the Scrutiny Committee on performance targets.

Produce improved procurement management information on who buys, what, when and from whom.

Regularly review contract standing orders and the procurement toolkit.

Improving Project Management through Earned Value Project Management

Processes & Systems

Earned Value Management is a means by which projects can improve delivery performance through periodic and meaningful cost and schedule performance information, increasing the focus and understanding of status against schedule and budget goals throughout the project lifecycle.

EVM provides key information on cost and schedule performance, to inform a project team's decision making. The principles behind EVM represent best practice project planning and control in project-based management.

EVM was first adopted by the United States Department of Defense in 1967 and today is at the heart of the project control systems, for example, by the governments of the UK, USA and Australia, to help manage the performance of contractors engaged on major development contracts. It is also widely used in other industries such as Construction and Oil & Gas, and many others today in the UK.

WHAT IS EARNED VALUE?

In simple terms, Earned Value is the contract (or authorised) budget value of work accomplished on a project, typically to date. Earned Value is expressed

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using budget (and currency) values of the local environment (e.g. £ or $). This is one of the reasons why Earned Value has been misinterpreted in the past - it's not a financial tool, it is a tool for project management.

So why is EV expressed in financial terms? EVM metrics are all converted to a single unit of measure (i.e. £'s) so that performance against both cost and schedule can be seen together, for example graphically, to inform our understanding of status against of two primary goals of projects: cost performance and schedule performance. Traditional methods of representing project data often look at these separately, which at best can be a significant weakness - at worst it can sometimes be completely misleading. Hence the big focus in the earned value world on the word integration - it's critical to making EV work well.

WORKED EXAMPLE

The following shows the basics of how EV works in practice, using a simple one task example:

We have a task with a budget of 1000 hours to design a new widget, which we also expect to take 12 weeks to complete. At the end of week 6, we planned to have completed 55% (by effort) of the activities within the task, and we therefore budgeted those activities to consume 550 hours of our total budget - these numbers could be translated into cost (£) data using average costing rates.

At the end of week 6:

The planned value = total task budget * our planned percentage complete (55%) = 550 hours our actual expenditure (in hours) was found to be 480, and on measuring actual progress (activities complete) we calculate that we have completed tasks worth 350 hours’ worth of the total task budget.

In earned value language, this gives us Planned Value of 550 hours, Earned Value of 350 hours, and Actual cost (hours) of 480.

What can we derive from this?: Two things - schedule and cost performance (relative to plan), which are both commonly expressed as a ratio - cost performance index (CPI) and schedule performance index (SPI), where CPI/SPI of 1.0 indicates performance to plan - less than 1.0 is under performance to plan.

In this example our CPI would be 350/480, or 0.73 and our SPI would be 350/550 or 0.64.

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WHAT DO WE DO WITH THIS DATA?

In the past, it has often been mistakenly believed that EV data is either financial or used (only) to report to customers. The most important use of this data is by those within a project team who have the responsibility for managing the work of a project using Earned Value data (via the project structures e.g. work breakdown structures) to understand their cost and schedule performance periodically throughout the project lifecycle. The aim is to highlight (cost and schedule) issues early, thus providing teams with the maximum time to minimise their impact and provide them a realistic opportunity to develop recovery plans where necessary.

The second thing we can do is to use the data to provide a means of forecasting out-turn on projects - the most commonly used being:

Estimate costs at completion (for the total task: EAC) = total budget: 1000 / CPI (.73) = 1,371 hours

Estimate of forecast total duration for the task = current plan: 12 weeks / SPI (.64) = just under 19 weeks (this is a rough estimate that should be reviewed against project schedules for work remaining)

And for those who dismiss the above, history is littered with projects that displayed (performance) characteristics similar to the above - very very few came in on budget or on schedule (without significantly relaxing the scope) - if you know of one please let us know.

CORE COMPONENTS OF AN EVM PROCESS

The production of EV data requires that a performance measurement baseline, drawn directly from the project plan, comprising of the following:

THE PERFORMANCE MEASUREMENT BASELINE (PMB)

The PMB consists of a time phased aggregation of the resources (expressed in budgetary terms) required to execute the work inherent in the project schedule - this creates the 'baseline' against which cost and schedule performance is

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measured via EVM metrics. The PMB should also show how Earned Value will be measured and taken through the life of the project.

OBJECTIVE MEASURES OF PROGRESS

Progress must be assessed periodically - there are many ways of doing this and the simple rule is that the more subjective the methods are, the less reliable the EV data is likely to be and the greater room there is for unwanted 'surprises' downstream.

Actual Costs - Labour and Materials: Actual cost data must then be gathered against by the elements in the PMB - this requires that business systems and processes enable useful and timely capture of actual cost data, via the structures that are employed in the EVM system.

EV was not developed simply to report status to customers - it may be used in this way, but if this is the only way it is seen, a huge degree of the value of using the method will be lost.

The objective is to embed EV data into the practice of daily management of the project, leading to an improvement in decision-making based upon an informed analysis of real status against cost and schedule goals, at the working levels of the project.

IMPLEMENTATION CHALLENGES

For organisations implementing an Earned Value Management System, the challenge lies not just in the mechanics of the method, but more often in the cultural change required to underpin an EV based project control

Additionally, when most organisations first attempt to use EVM, they typically find that EVM highlights weaknesses or gaps in the project planning and control processes and capabilities.

For example:

a robust baseline needs to be developed as soon as possible after contract award - this task alone challenges many organisations - and then it must be maintained the planning process must identify all major project deliverables clearly, within the PMB, not just the functional effort assumed to be required to deliver a project objective measures of physical progress must be assessed routinely business systems and processes need to provide data in a timely manner (e.g. costs) and need to be structurally compatible with the needs of the EVM system.

IS EARNED VALUE WORTH IT?

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The above question has raged in some environments for many years. EV gives objective measures of status against the cost and schedule goals of a project - there are no more primary or fundamental goals in project management. Assuming an organisation follows the principles that underpin good practice in EVM systems, it provides important data to project teams, without which teams can operate in a vacuum regarding their performance, or even worse, they could operate in an environment of false optimism that does not see the level of challenge or issues in their project, until it is too late to make a real impact on the same - something that occurs far too often in projects.

Earned Value is not just worth it - it is a fundamental tool to being in control in large scale risky development programmes.

CREATING AN EARNED VALUE MANAGEMENT REQUIREMENT

Customers increasingly require contracts to be pro-actively controlled to assure delivery on time, to budget and to specification. Customers look for confidence in the project status information being supplied, and are increasingly achieving this by defining contractual agreements that require Earned Value Management to be used by their suppliers.

THE MAJOR CONSIDERATIONS INCLUDE:

defining and communicating your EV requirement including the incorporation of the Integrated Baseline Review process

assessing the merits of payment by EV

determining appropriate data access and reporting requirements

defining and agreeing performance review cycles and processes

WHAT IS AN INTEGRATED BASELINE REVIEW?

The purpose of an Integrated Baseline Review (IBR) is to assess a set of project management processes and to establish the degree of risk associated with the project's Performance Measurement Baseline plan delivering on time, to budget and to specification.

Where it is important to have confidence at an early stage that the baseline plan for a project is realistic and capable of delivery, an Integrated Baseline Review may be deployed.

PREPARING FOR AN INTEGRATED BASELINE REVIEW (IBR)

If you are required to perform an Integrated Baseline Review, it will require preparation and the attention of those who will participate in the review. As a minimum, the following should be agreed / prepared before the review:

agreement on the specific objectives of the review and exit criteria

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the scope and timing of the review and how it will be conducted

Documentation and personnel to be made available at the review.

IBRs are often preceded by some form of readiness review - given that an IBR should be held as soon as possible and practical following contract award, the scheduling and resourcing of these activities needs to be considered urgently from contract award onwards.

Managing quality - Key Performance measurements (KPI’s)

Key performance indicators for the procurement function should be developed as the maturity of the function and the availability of appropriate source information becomes available. It is anticipated that the KPI’s will encompass areas including:

• Savings Delivery;

• Process Efficiency;

• Customer Satisfaction;

• Supplier Satisfaction; and

• Organisational and Staff

Top 10 Procurement Key Performance Indicators (KPIs)

KPI % Selected

Identified cost reduction savings 72%

% of total spend under management 64%

Cost avoidance 58%

Implemented / realized cost reduction savings

55%

Procurement ROI (savings / operating costs)

52%

% of suppliers = 80% of spend 51%

Supplier performance (price, delivery, quality, service, etc.)

49%

Procurement spend as % of revenue dollars

46%

Requisition, PO or invoice transaction 34%

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volume

Procurement spend per procurement employee

33%

Source: Aberdeen Group, February 2008

Why is Ethical Procurement Practice Important?

How can a business ensure that its procurement practices are in line with its core values? This IBE Briefing considers ethical issues relevant to procurement/purchasing. It provides guidance to those responsible for procurement, suggests examples of good practice and links to corporate purchasing policies.

There are compelling arguments for treating your suppliers fairly and for being concerned about the source of your supplies, whether from the UK or overseas. First is the need for sustainable supplier relationships. Mutually beneficial terms, fair practice and trust should improve the reliability of your supplies.

Second is reputation risk. Good ethical practice can enhance the organisation’s integrity and reputation. Would you feel comfortable if the press spoke to your suppliers about your relationship with them or about their own employment practices or operations?

How to Link Ethical Values and Procurement

Organisations usually express their core ethical values and responsibilities through an ethics policy. A code of ethics then sets out the way the organisation intends to conduct its business, including commitments to stakeholders and guidance for staff. In addition, a specific code or standard of ethics may cover issues not covered by law concerning a particular function - such as procurement.

Once commitments and expectations have been established, it will be important to ensure that they are met and continue to be appropriate. Procurement staff will need training, particularly in how to resolve dilemmas and competing priorities. Useful monitoring and due diligence tools include Supplier Engagement Forums and supplier questionnaires during tendering and at other stages of the relationship such as contract renewal.

Ethical Hotspots

Research by the IBE suggests that approaches to ‘ethical procurement’ often concentrate on supplier standards and practices rather than the organisation’s

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own polices and practices. However, ethical issues arise mainly in the following areas of procurement practice and all three should be considered.

The selection of suppliers

In addition to value for money, will you seek to further your corporate responsibility objectives through your purchasing activity and supplier relationships? For example, will ethical criteria be used to exclude or positively discriminate in favour of certain suppliers? Will you support initiatives that aim to increase the number of diverse (e.g. ethnic-minority owned, women-owned) businesses that supply goods and services to your organisation? You may wish to consider measures to ensure that small businesses are given fair consideration.

Procurement conduct

This refers to the way your staffs do business – the way procurement is carried out. Are they encouraged and supported to act with integrity and in line with your organisation’s ethical values when establishing and maintaining supplier relationships. Do you insist that your suppliers’ bills are paid on time, or that offers of gifts and hospitality are registered? How do you prevent conflicts of interest? If you are a large company, are you concerned to be judged as a fair customer of your small suppliers? Do you have policies on dependency, or on transparency regarding tendering, or on engagement when contract terms are not met, changed or are being wound down?

Your supplier's practice

Are you clear about the extent of your organisation’s responsibility down and across the supply chain? What do you expect of your suppliers? Do you impose social (e.g. labour rights, health and safety) and environmental standards on suppliers, seek to influence their policies and practices or offer them assistance?

Examples of Good Practice

• Be aware of ethical standards and good practice in your sector

• Identify how ethics is relevant to your business

• Formulate a transparent and clear procurement policy addressing ethical considerations and commitments

• Formulate clear supplier selection principles with regards to social, ethical and environmental criteria.

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They should be in line with your own code of ethics, and corporate responsibility and sustainability objectives.

• Introduce a code of conduct outlining how procurement staff are expected to behave in line with your organisation’s ethical values

• Train procurement staff regarding the specific relevance of business ethics in their work and how they can obtain guidance when facing dilemmas

• Emphasise values of honesty and openness in the supplier relationship and the disadvantage of adversarial relationships

• Regularly enforce and monitor standards regarding gifts and entertainment

• Inform suppliers of changes in your organisation that might affect them

• Publish your performance targets and figures regarding paying bills on time

• Avoid contracting for more than 20% of a suppliers’ business. Work with suppliers to reduce the risk of overdependence on you.

• Decide how far down your supply chain you need to impose your ethical standards and why

• Ask how you can be sure that your ethical commitments are being lived up to – for example, consider ethical audits of your supply chains and including ethical practice in staff performance reviews.

Finally, recognise the right of your suppliers to make money too!

a. Background. Closeout of contract files occurs at the end of the contract administration process. The CO should assure file integrity throughout the life of the contract. Maintaining an accurate record of contract modifications and obligations facilitates contract closeout, and also minimizes costs associated with administration and closeout processes. Timely closeout deobligates excess funds and returns the excess funds for possible use elsewhere. The time frame for closing a contract is based on both the type of contract and date of physical completion.

Contract close out

(1) A contract is considered to be physically complete when:

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(a) The contractor has completed the required deliveries and the Government has inspected and accepted the supplies;

(b) The contractor has performed all services and the Government has accepted the services;

(c) All option provisions, if any, have expired; and

(d) The Government has given the contractor a notice of complete contract termination.

(2) A purchase order, or delivery order against a Federal Supply Schedule contract, is considered to be physically complete when:

(a) Property or services have been received within the terms of the contract;

(b) Final payment has been made to the contractor; and

(c) A purchase order/delivery order Receiving Report signed by the recipient of the goods or services.

c. Time Frames. Closeout of contract files should occur during the time frames identified below, as evidenced by completion of the "Contract Closeout Checklist" or the closeout section of the "Purchase Order/GSA/FSS Order File Checklist" (See Procurement Forms in FAST).

(1) Files for contracts using commercial and simplified purchase procedures should be considered closed when the CO receives evidence of receipt of supplies and final payment.

(2) Contract files for firm-fixed-price contracts, other than those using commercial and simplified purchase procedures, should be closed within 6 months after the date on which the CO receives evidence of physical completion (for example, signed receipt or delivered product).

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(3) Contract files for contracts requiring settlement of indirect cost rates should be closed within 36 months of the month in which the CO receives evidence of physical completion.

(4) Contract files for all other contracts should be closed within 20 months of the month in which the CO receives evidence of physical completion.

d. Preparation for Closeout. To prepare for contract closeout, 60 days prior to either final delivery or estimated contract or interagency agreement completion date, the CO should perform a comprehensive review of the contract or interagency agreement to determine whether any documentation is missing and whether any step in the closeout process can be initiated before physical completion. If documents are missing, the CO should attempt to obtain them and insert them into the file. To determine whether steps in the closeout process can begin before the contract or interagency agreement is physically complete, the CO should review the "Contract Closeout Checklist." Following are examples of actions the CO may be able to take before the contract is physically complete:

(1) Ensure that the contractor has a current list of contractor employees holding FAA security badges and verify that the list corresponds to the FAA Servicing Security Element's list.

(2) Ensure that all information in Prism is current and correct.

(3) Reconcile the contract’s funding status and invoice payment log with Accounts Payable. Identify final invoices. (Contracts and Interagency Agreements).

(4) If the contract includes a "Patent Rights" clause, check to see whether final patent or royalty reports have been received.

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(5) If the contract includes "Government Property" clauses or contractor-acquired property, ensure that the property administrator or Contracting Officer’s Technical Representative provides disposition instructions to the Contractor. (Contracts and Interagency Agreement).

e. Closeout Procedures. When the contract or interagency agreement is physically complete, the CO is responsible for initiating contract closeout. The contract file should not be closed if the contract is in litigation or under appeal. When closing both fixed-price and cost-type contracts, the CO must verify that the documents and activities included in the "Contract Closeout Checklist" have been received or are complete. After completion of the "Contract Closeout Checklist" and notification of final payment from Accounts Payable, the CO must complete and sign a "Contract File Completion Statement" (Appendix 11). For purchase orders (PO) or GSA Federal Supply Schedule (FSS) orders, the CO will use the closeout portion of the "Purchase Order/GSA/FSS Order File Checklist" in place of the "Contract Closeout Checklist" and "Contract File Completion Statement." To facilitate receipt of required closeout documentation, the CO will need to take some or all of the following actions:

(1) Reconcile the contract’s funding status and invoice payment log with Accounts Payable. To accomplish this, contact the Finance Office and obtain reports documenting the obligations and expenditures under the contract.

(2) Send a memorandum to the program official to confirm contract completion.

(3) Send a memorandum to the COTR requesting termination of all contractor personnel accounts on contract-specific FAA systems (See Appendix 12 for memorandum). The COTR should return the signed memo to the CO within 30 days.

(4) For all cost-type contracts not closed with Quick Closeout procedures, the CO must request Headquarters National Acquisition Evaluation Program staff (AJA-A4) to initiate a DCAA audit.

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(5) Send a memorandum to the Property Administrator requesting completion and transfer of the Government Property section of the contract file. (Note: the CO must sign the property report submitted by the Property Administrator).

(6) Send a letter to the contractor indicating that the contract is complete and requesting required documents. Required documents might include:

(a) Final voucher.

(b) Confirmation of settlement of subcontracts.

(c) Government Furnished Property (GFP) and Contractor Acquired Property (CAP) inventory.

(d) Report of inventions and subcontracts, if applicable (AMS Clause 3.5-12).

(e) Patent and royalty reports.

(f) Contractor’s release.

(g) Contractor’s assignment of refunds, rebates, credits, and other amounts.

(h) List of contractor personnel holding FAA badges, indicating the badge numbers and when they were returned to the FAA Servicing Security Element.

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(7) Review and approval of the final voucher should include:

(a) Verification that all contractual requirements have been satisfied.

(b) Completion of any fee adjustments.

(c) Verification that contractual funding limitations have not been exceeded.

(d) Identification of any offsets applied.

(e) Verification of accuracy of Contractor Release and Assignment.

(f) Verification that all previous Contractor vouchers have been paid.

(g) Approval for payment with signature and date.

(h) Deobligation modification processed and distributed for any funds determined to be in excess.

(8) Completion and submittal of the Past Performance Information Retrieval System (PPIRS) evaluation for the contract.

f. Quick-closeout Procedures. In some circumstances, the CO may determine that a contract is a candidate for quick closeout. Quick closeout allows the CO to negotiate the settlement of indirect costs without a DCAA audit and in advance of the determination of final

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indirect cost rates. The procedures for quick closeout are the same as for regular closeout except that a DCAA audit is not requested. The determinations of final indirect costs under quick closeout procedures are final for the contracts it covers and no adjustments are made to other contracts for over or under recoveries of costs allocated or allocable to the contracts covered by the advance agreement. Additionally, indirect cost rates used in the quick closeout of a contract are not considered a binding precedent when establishing the final indirect cost rates for other contracts.

(1) To determine whether a contract is a candidate for quick closeout, the contract must meet the following criteria:

(a) The contract is physically complete;

(b) The amount of unsettled indirect costs is not more than $1,000,000 and the cumulative unsettled indirect costs to be allocated to one or more contracts in a single fiscal year do not exceed 15% of the estimated, total unsettled indirect costs allocable to cost-type contracts for that fiscal year; and

(c) Agreement can be reached on a reasonable estimate of allocable dollars.

(2) After the CO has made a decision that the use of quick closeout procedures is appropriate, the CO must:

(a) Ensure adequate rationale for the decision is included in the file;

(b) Require the contractor to submit a final voucher and a summary of all costs by cost element and fiscal year for the contract(s) in question, as well as a copy of the contractor’s final indirect cost rate proposal for each fiscal year quick closeout is involved;

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(c) Notify the cognizant audit activity, either verbally or in writing, identify the contract(s), and request:

(i) The contractor’s indirect cost history covering a sufficient number of fiscal years to see the trend of claimed, audit questioned, and disallowed costs; and

(ii) Any other information that could impact the decision to use quick-closeout procedures. Indirect cost histories should be requested from the contractor only when the cognizant audit activity is unable to provide the information;

(d) Review the contract(s) for indirect cost rate ceilings and any other contract limitations, as well as the rate history information;

(e) Establish final indirect cost rates using one of the following rates:

(i) The contract’s ceiling indirect cost rates, if applicable, and if less than paragraphs (e)(ii) through (vi) of this section;

(ii) The contractor’s claimed actual rates adjusted based on the contractor’s indirect cost history, if less than paragraphs (e)(iii) through (vi) of this section;

(iii) Recommended rates from the cognizant audit agency, the local pricing office, another installation pricing office, or other recognized knowledgeable source;

(iv) The contractor’s negotiated billing rates, if less than paragraphs (e)(v) or (vi) of this section;

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(v) The previous year’s final rates;

(vi) Final rates for another fiscal year closest to the period for which quick-closeout rates are being established;

(f) If an agreement is reached with the contractor, obtain a release of all claims and other applicable closing documents.

g. Contract File Documentation. Official closeout documentation for contracts and interagency agreements, the signed "Contract File Completion Statement," and the completed "Contract Closeout Checklist" should be filed in the official contract file behind a marked tab. For POs or GSA FSS orders, the documentation should be filed in the official file and noted on the "Purchase Order/GSA/FSS Order File Checklist."

h. Paying Office. The paying office must furnish the CO written documentation of the final payment including the voucher number, date, invoice number and date, and name and signature of technician processing the payment. The paying office should close their contract files upon issuance of the final payment voucher.

Contract de-mobilisation

There is a need to ensure mobilisation and demobilisation activities are carried out in an organised and cost effective manner, conforming to industry safety standards and Company procedures.

Key Areas of Responsibility

• To conduct activities in accordance with the Management System requirements and to meet all legal obligations

To ensure that all personnel have the relevant certification prior to mobilisation

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• To work in accordance with, and ensure compliance to Mobilisation Procedures

• Ensure mobilisation / demobilisation activities are completed in a safe, effective and timely manner in line with contractual requirements

• Maintain close liaison and communication links with relevant departments/personnel throughout pre-mob and mob activities, ensuring all relevant parties remain fully appraised of progress at all times.

Key Tasks

• Ensure effective planning and delivery of mobilisation/ demob activities

• Ensure the timely placement of all subcontract services

• Ensure mobilisation activities are adequately resourced.

• Ensure all plant and equipment (including rigging and lifting equipment) is fully compliant with appropriate regulatory certification requirements.

• Ensure inductions and safety briefings are conducted for all staff and third party personnel participating in mobilisation activities

• Manage mobilisation / demobilisation activities in accordance with Mobilisation procedures

• Work with the Project Manager to ensure mobilisation activities are completed by the scheduled completion dates, and allcontract requirements are met.

• Ensure any ‘lessons learnt’ are captured and recorded in the government’s Lessons Learnt Database

• Review and update mobilisation procedures on a regular basis

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Appendix – Definitions & Resources

Resources

ACCA - http://www.accaglobal.com/

ICAEW- http://icaew.com

AIA - www.aiaworldwide.com/

Accounting web - http://www.accountingweb.co.uk/

Improvement and development Agency for local government - www.idea.gov.uk

Definitions

Common Market

Common Market amalgamates the elements of free trade are and customs

union. “It involves an agreement among two or more countries under which is

established common tariff and import-related procedures for the importation of

extra-regional good s and services for the free trade within the common market

of goods and services, whether locally-produced or imported, without the

imposition of further tariffs or custom restraints”.

Customs Transit

Customs procedure used to facilitate the movement of goods between two

points of a customs territory, via another customs territory, or between two or

more different customs territories. It allows for the temporary suspension of

duties, taxes, and commercial policy measures that are applicable at import (2).

This allows formalities to take place at the destination rather than the point of

entry into the customs territory.

Customs Union

Customs Union is a relationship between two or more bordering countries that

create a common trade barrier for all the participating countries to the entry of

goods from nonmember countries. Any goods imported into the custom union

region will be issued the same harmonized tariff schedule and be subjected to

the same rules regarding trade. It is important to note that tariffs could be

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levied by the individual countries that compose the customs union for the

movement of goods between country borders.

Documentary Tax

A tax that is paid as a percentage of the value of the transaction engaged in

under the document being taxed. Some countries collect document taxes and

fees.

Duty Types:

Free Trade

Preferential Duty (discounted)

Standard WTO Rate

Economic Union

Economic Union is an economic community where the national economic

policies have been harmonized to the point where they are virtually the same.

The only example of an Economic Union is the European Union.

Free Trade Agreement

Free Trade Agreement “is an arrangement between two or more countries

under which they have agreed to permit some or all goods (and sometimes

services) produced within one or some combination of the members to circulate

within their territories free of all or most tariffs and other restrictions” (3).

Identifying trading agreements between supplier country and destination

country is essential data for the project.

Other Taxes

User fees, cost reimbursements, storage fees, and similar payments ostensibly

to offset costs incurred by the importing government in order to service

importation are sometimes assessed on imported goods (4).

Retaliatory Tariffs

Tariffs imposed on imported goods in excess of the published tariffs if the

imported goods are among those against the country of origin. This excess tariff

is for nonconformance by the country of origin to the detriment of the country of

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importation as permitted under the terms of GATT and WTO.

Rules of Origin

Non-preferential rules of origin—apply when no tariff preferences are involved

or when other trade measures need to specify a particular non-tariff treatment

of goods from a given country.

Preferential rules of origin—apply when tariff preferences are involved due to

trade agreements or when other trade measures specify a particular preferential

treatment for a country of origin or specific goods from a country of origin.

Surtaxes and Tariff surcharges

Tariff surcharges and other surtaxes on imported goods maybe encountered

(5). A (5-10) % surcharge is identical to an additional (5-10) % tax imposed on

top of the normal importation fees.

Tariff

Tariff (custom duty) is a tax on the importation of particular goods. It is charged

by a national government and payable to it when the item/good crosses the

nation’s customs boundary. It is also important to note that in some cases there

are tariffs on exported items. Nations have tariff schedules that show an

absolute amount of duty to be paid on a variety of imported items/goods. The

tariff schedule of destination countries will be essential data for the project.

Treaties

Treaties is another notable source for the understanding the complex

international system of tariffs. Treaties may “establish the bilateral free trade

areas of common markets between and within two countries” (5).

Value Added Tax (VAT)

Customs duties and value added tax are expressed as a percentage (%) of the

value of the goods being declared for importation. The value of imported goods

is one of three elements of taxation that provides the basics for assessment of

customs debt, which is the technical term for the amount of duty that has to be

paid, the other ones being the origin of the goods and customs tariff (6).

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Glossary of procurement terms

A

Accelerated Procedure

Procedure under which shorter advertising periods are permitted due to urgency. Justification must be published as part of the tender notice. Applies to Public Sector only. Extreme urgency can also be used as the justification for using the negotiated procedure.

Acceptance (legal) The act of the buyer accepting a supplier’s bid or offer.

Acceptance (procedural)

The process of accepting goods/services in accordance with the agreed acceptance criteria.

Adjudication

A method of solving a dispute between parties. Under “The Housing Grants Construction & Regeneration Act 1996” either party to a construction contract is entitled to submit a dispute to adjudication without the prior agreement of the other party.

Advice Note Advice of goods being despatched (sometimes called a despatch note).

Aggregation

Adding together the value of separate contracts for the same supply, service. Aggregation is often required in order to decide whether a PIN needs to be issued. It appears not to apply to devolved units who buy from their own budgets for their own use.

Agreement A generic term for a legally binding undertaking between a buyer and a seller.

Amendment Any agreed alteration to a contract.

Appraisal See “Supplier Evaluation”

Approved List An eligible list of potential suppliers.

Arbitration

A method of solving a dispute between parties. The parties involved choose a mutually acceptable arbitrator who suggests a way of settling disputes.

Audit Trail System or paper generated evidence showing how and by whom certain processes and functions were carried out.

Award The issue of an order or contract to a supplier.

B Best & Final Offer The detailed and fully priced offer submitted by the Respondent for the contract, following the issue of the Council’s Invitation to

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submit BAFO documentation. Where the Council accepts the offer it becomes legally binding on both parties.

Best Practice The most effective and desirable method of carrying out a function or process derived from experience rather than theory.

Best Value

Continuous improvement in the exercise of all functions undertaken by the Council, whether statutory or not, having a regard to economy, efficiency and effectiveness.

Bid A supplier’s offer to provide works, goods or services for reward in response to a buyer’s enquiry or invitation to tender.

Bid Appraisal The formal process of examining supplier’s bids to identify which provides best “value for money”.

Bid Clarification Ensuring that a clear understanding of requirements exist between buyer and seller.

Bid Conditioning Placing all suppliers’ bids on a common basis.

Break Clause

A clause setting out the rights and liabilities of both parties if the contract should be terminated before it has run its full term, enabling the contract to be determined before the anticipated end date.

BSI British Standards Institution. The National Standards body in the UK, which brings together suppliers and users to draw up standards.

Bulletin Board

The Buy Local Bulletin Board is a computer based system designed to give “South Bank” organisations easy access to a wide range of selling opportunities. The system allows buyers, such as the Authority, to interface with local suppliers for their purchasing requirements.

Buy Local

As part of its commitment to creating new jobs, the Council runs a highly acclaimed local purchasing programme. This programme helps buyers to find competitive local suppliers for a wide range of goods and services.

C Call-off Contracts

A contract or arrangement for the supply of goods or services at pre-stated prices for a specified period under which orders are placed for varying quantities. (See Corporate Contracts Catalogue).

Carriage Paid Delivery of goods to a named destination with all charges up to the point of delivery being borne by the supplier.

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Cartel A group of suppliers acting illegally in concert to artificially influence the price and quantity of supply.

Caveat Emptor “Let the Buyer Beware”

C.I.F. Cost, insurance and freight

C.I.P.S. Chartered Institute of Purchasing & Supply.

Collusion

A fraudulent arrangement between two or more parties whereby prices or service requirements are manipulated so as to circumvent competitive tendering.

Competitive Tendering

The awarding of contracts by the process of seeking competing tenders.

Consultant A person or organisation commissioned to carry out a specific assignment, usually the giving of specialist advice/services.

Contract A binding agreement made between two or more parties which is intended to be enforceable at law.

Contract Notice

Notice published in the Official Journal of the European Commission by contracting authorities, inviting companies to tender.

Contract Award Notice

Notice of award published in the Official Journal of the European Commission, in fulfilment of the requirements of EC public procurement directives.

Contract Value The estimated total monetary value of a contract over its full duration (not annual value).

Contractor A firm or person who has made a contract to supply goods and/or services.

Controlled Contact A policy where only authorised purchasing officers have contact with suppliers, to ensure that all contacts with suppliers are controlled and to high and professional standard.

Corporate Contracts Catalogue

A catalogue of corporate contracts representing an efficient use of resources and capitalising on the financial benefits of using the Council’s substantial buying power to best effect.

Cost Analysis A procedure for examining how the quoted price relates to the cost of production.

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Council North East Lincolnshire Council

CPRs Contract Procedure Rules

D Default A breach of a contract condition, e.g. a delay in the promised delivery.

Deliverables A collective name for the tangible goods and/or services that the supplier or contractor is required to supply under an agreement.

Detailed Specification

The definition and description of the works, goods or services required. It should be in such detail as to attract the maximum level of competition and hence secure the best value for money.

E Economic Order Quantity

The most cost-effective quantity to order when purchasing for stock based on the mathematical formulae known as EOQ theory.

EN29000 The European equivalent to BS5750 and ISO9000 Series.

Evaluation Detailed assessment of suppliers’ offers

Exclusion Clause A clause to exclude, limit or qualify liability within a contract (also called exemption clause).

Expediting A planned activity to monitor a supplier’s progressive achievement with the objective of receiving deliveries on time.

Ex-works Goods made available for collection by the customer from the supplier’s factory, i.e. exclusive of transport costs.

F Firm Price A price which is not subject to variation.

Framework Agreements

Agreements laying down terms, conditions & prices governing future contracts. Apply to the Utilities Sector, and run for a fixed period. If awarded according to the Directives, then the ensuing contracts may be awarded without further call for competition.

Free Issue

The issue of stores or equipment to a supplier for incorporation in equipment under construction etc, in accordance with a contract which provides for the issue without payment.

Free on Board (FOB) Delivery of goods by the supplier on board a named vessel at a specific port, all costs & risks up to and including loading being borne by the supplier.

G Goods Received Note A form used to check the accuracy of goods received against a requisition or order.

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H

I In-house

Pertaining to a separate unit within an entity, as distinct from a third party. Awards are outside scope of Directives if no contract exists (in the case of Public bodies) and always provided the unit does not sell outside the entity (in the case of Utilities).

Invitation to Tender (ITT)

An invitation to sellers to submit an offer (tender) in response to the needs of a buyer which has been laid out in a service specification included within the invitation to tender documentation.

Invoice A request to pay submitted by a supplier of works, goods and/or services.

Invoice Item A line item on an invoice.

Invoice Payment Terms

Specified terms of payment agreed between the supplier and purchaser.

ISO International Standards Organisation. The international standards making body.

J Just in Time (JIT) A procedure to avoid holding stocks, primarily developed in manufacturing in which the delivery of material is made just in time when it is needed in the production schedule.

K

L Lead Time The period of time that is considered to be required between defined events, i.e. placing an order and delivery of goods.

Liquidated Damages An amount of money, defined in the contract, to which one party is entitled in the event of a breach of contract by the other.

M Market Testing The process of comparing the efficiency of in-house services against tenders from outside firms.

MEAT Most Economically Advantageous Tender.

Member Elected Member of the Council.

Most Economically Advantageous Tender

Award criterion taking account of other factors as well as price.

N Negotiation Position Statement

The detailed and priced bid submitted by the Respondent(s) for negotiation together with all supporting information and

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documentation.

Negotiated Procedure

A procedure under European Procurement Directives which enables Local Authorities, under prescribed circumstances, to consult with suppliers of their choice and to negotiate terms of contract.

O OGC Office of Government Commerce

Offer A supplier’s offer to provide goods and/or services for a consideration in response to a buyer’s enquiry.

OJEC Official Journal of the European Commission.

Open Procedure

A procedure under European Procurement Directives which allows any company which responds to a notice to be able to tender.

Order Acknowledgement

A confirmation from a supplier that they have received your order, and understand the terms & conditions and specification of works, goods and services to be supplied under the order.

P Partnership sourcing

Long term relationship between purchaser and supplier involving mutual trust. The Directives do not provide clear guidance but it seems possible for a public sector body to request bidders to offer a partnership sourcing arrangement.

Performance Specification

The formal description in objective & measurable terms of the performance characteristics of the required goods or services.

Periodic Indicative Notice

Summarises the procurements the advertiser expects to place in coming period. Gives no guarantee that procurements will be made. Normally covers 1 year.

PFI

Private Finance Initiative – a form of PPP which allows public bodies to draw upon the expertise and resources of the private sector. Commonly used in capital intensive projects. Takes the form of a longer term contractual arrangement.

PIN

Prior Information Notice – A published indication in OJEC of an intention that contracts will be placed. Does not guarantee that contracts will actually be awarded. Placed by public sector body. Allows reduction in the timescale for the subsequent procurement process.

Post Tender Negotiation

Discussions with a supplier or suppliers after their offers have been received, with the aim of achieving clarifications and/or improvements. (Strict guidelines apply to conduct during this

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process).

PPP

Public Private Partnership is a generic term describing a collaborative approach of service delivery, which involves both public bodies and private organisations. Examples include joint ventures; licensing; sponsorship; contracts; leasing; partnerships; and lettings.

Pre-Qualification

System for selecting bidders to be invited to tender for a Utilities contract. Criteria used may (but need not) be those laid down in the Works/Supplies/Services Directives – General Suitability; Financial and Economic Standing and Technical Ability.

Price Variation Clause

A clause in a contract which sets out conditions governing additional or reduced payment terms on the contract due to the rise or fall in the cost of materials and/or labour.

Proprietary Goods Those protected by patent, brand name or trademark.

Purchase Order

A pre-printed form, which usually incorporates the buying organisation’s terms & conditions of purchase, used to place an order with a supplier.

Purchase Order Item A line item of a purchase order form.

Purchase Requisition A formal request for works, goods and services made by a cost centre (departmental section).

Q Quality Assurance (QA)

A discipline to assess quality standards. Covering all activities and functions concerned with the attainment of quality.

Qualified Tender A tender which is qualified because it does not fully meet the intended contractual requirements.

R Restricted Procedure

A procedure under European Procurement Directives which enables Local Authorities, under prescribed circumstances, to receive tenders from invited companies only.

Royalty Payment made for the use of a patented invention or registered design process.

S Service Level Agreement (SLA)

This is a contract between two or more departments within the same organisation, where one undertakes to deliver a quantity of service in return for a specified annual payment. An S.L.A can also set out a scale of fees for ad hoc works.

Services All purchases other than Works or Supplies. (Mixture of supplies and services are usually put in the category to which more than

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50% by value belongs.

Single Tendering The process of inviting only one supplier to tender.

Sourcing The process of establishing potential suppliers of specified works, goods or services.

Specification The formal description in objective and measurable terms of the characteristics of the works, goods or services required.

Stage Payments

An agreed percentage or part of the contract price, which is payable when specified stages of completion/delivery have been reached.

Standing List A list of approved contractors or suppliers qualified for Invitation to Tender for works or services.

Stock Control A generic term for the business functions and processes to account for, monitor and physically control the quantity of stock held.

Stock Issue A despatch of stock from a store to a specified, person, section, cost centre or department.

Sub-Contracting The process where a contractor assigns part of the contract to another contractor(s).

Supplier Evaluation

The process of establishing whether a supplier is capable of providing the goods or services required, and assessing a supplier’s subsequent performance against requirements.

Supplies

Goods, including both consumables and capital items. (Mixtures of supplies and services are usually put in the category to which over 50% of the value belongs.

Supplies, Services & Works

See individual definitions

T Tender A supplier’s bid in response to a buyer or invitation to tender.

Tender Evaluation Panel

A group of people who analyse tenders received and take final decisions on the award of contracts.

Total Quality Management (TQM)

An overall means of managing quality in all areas of business.

Transaction Official Purchase Order, contract or call-off contract (but not an order placed against a call-off contract).

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TUPE

Transfer of Undertakings (Protection of Employment) Regulations 1981, governing the transfer of staff identified with an undertaking to and between successive contractors.

U Unqualified Acceptance

The unconditional acceptance of an offer.

V Value Analysis

The breakdown of price into its constituent cost elements (e.g. labour, materials, administration, distribution, profit) to identify opportunities for reduction and/or a more cost-effective mix of resources.

Value for Money

The provision of the right goods and services from the right source, of the right quality, at the right time, delivered to the right place and at the right price (judged on whole-life costs and not simply initial costs).

Variants

Tenders which meet minimum specifications but vary in technical terms. May be allowed by a contracting authority where award criterion is that of most economically advantageous tender.

W Works Construction and civil engineering (Also referred to as “public works”).