Approved by Cabinet 10-07-02

DONCASTER MBC
Procurement Best Practice
Guide

ACHIEVING OUR FULL POTENTIAL

Choosing the best options to achieve Doncaster’s goals and priorities

17-05-02
 CONTENTS

Page

Introduction…..…………………………………………………………………… 3

The Procurement
Process………………………………………………………………..………….… 4

1. Assessment of Need……………...…………………………………………... 4

2. Markets………...…………………………………………………………….…. 5

3. Option Appraisal……………………………………………………….... ……. 7

4. Contract Strategy…………………………………………………….….. ……12

* Partnerships & Partnering…………………………………….………………. 18

5. Green Procurement……………………………………………………… ….. 24

6. Local Suppliers………………………………………………………………... 27

7. Tender Evaluation…………………………………………………………….. 31

8. Project Management…………………………………………………………. 34

* Risk Assessment & Risk Management……………………………………… 39

9. Contract Management…………………………………………………... ……42

Summary……………………………………..…………………………………… 43
Appendix 1

Key Project Activities………………………………………………………………44

Appendix 2

Essential Elements of the Procurement Process………………………………45

 INTRODUCTION

This document outlines the major issues to consider when procuring in

accordance with best value principles.

It covers areas of the procurement process in a best value environment and

provides guidance on current best practice.

The issues apply equally to the decision-making process for all procurements
undertaken by the Council.

This guidance should also be used to inform the options appraisal undertaken
as part of a Best Value Review.

It should be read in conjunction with the Council’s Procurement Strategy, and

will be developed further to take account of emerging issues. It will ultimately
become a comprehensive manual for use by anyone involved in procurement
activities within Doncaster MBC.
 THE PROCUREMENT PROCESS

1. ASSESSMENT OF NEED

Is there a need for some form of Procurement?

1.1 The essential prerequisite to any procurement process being initiated,

is an assessment of the need for the proposed works, supplies or
services. This applies equally to Best Value services and other
strategic procurements. As part of the Best Value review process, the
need should be identified through the comparison and challenge
elements of the review. For other strategic procurements, the need
should be demonstrated in the Strategic Procurement Plan.

1.2 The corporate policy on consultation should be complied with to

ascertain the “need” for the procurement as judged by stakeholders.

1.3 Consideration should always be given to how the proposed

procurement will contribute to the achievement of corporate objectives
and transformational goals, and also take account of the statutory
nature of the goods or services and any legal constraints on how they
should be provided.
 2. MARKETS

What can the Market Provide?

2.1 One of the requirements of Best Value is to analyse the structure of

supply markets for the different goods or services, and the way in
which they are developing. Market intelligence should be acquired via
the following routes:

♦ research - via professional bodies, trade organisations,

publications (including the Internet), and other public bodies,
into whether there are currently a number of providers in that
particular market, who could supply the goods/services in the
way envisaged by the procurement plan.

♦ market consultation - potential providers of the

works/supplies/services under consideration should be
consulted as stakeholders in this particular procurement
process. Their views should be sought on the proposed
packaging of the procurement, and also any suggestions as to
alternative provision or procurement methods which may be
more attractive to the market and hence obtain better value for
money for the Council. To enable this process to take place,
adverts should be placed in appropriate publications/venues to
invite interested parties to express interest in being consulted;
the views of those interested should then be sought by the most
appropriate means. This may be via interviews/discussions,
questionnaires or organisation of a briefing session. The results
should be used to inform the proposed procurement process.

2.2 Under Best Value, the Council is required to demonstrate that where a
market is not apparent, steps have been taken to encourage a market
to develop. The Council has a “Strategy for Developing Markets”
where none is found to exist, and the steps contained in that strategy
should be followed to encourage providers in that particular area. The
steps to be considered (in accordance with paragraph 41 of DTLR
Guidance 10/99) to create conditions in which new providers might
take root or existing suppliers might become more competitive include:

♦ basing requirements on outcomes to encourage innovative

methods of provision – don’t be unnecessarily prescriptive
about the way something should be done

♦ grouping activities to reflect prospective market competencies

♦ packaging work appropriate to the market. (E.g. in some areas
of activity larger packages may generate more interest than
smaller ones, in other, the opposite may be the case).

♦ being clear about intentions - the Council must make it clear if it

wants a long term relationship with potential suppliers, and
demonstrate a genuine interest in using the best provider,
regardless of the sector they operate in

♦ developing an understanding of the potential sources of supply.

Early discussions with prospective providers can assist in
shaping the optimum size, composition and length of contracts,
whilst ensuring the fairness and transparency required.
 3. OPTION APPRAISAL

Obtaining the Best Possible Services

3.1 The objective of Best Value is to ensure that local citizens get the best
possible services from Local Authorities. Choices have to be made to
develop a framework for local service delivery, recognising that neither
the public nor the private sector can deliver the best quality and cost
effective local services on their own. Practical steps have to be taken
to make the most of existing skills and experience in the public sector,
the private sector and the voluntary sector. The Council therefore has
to adopt new ways of thinking about its services and new ways of
managing them (whether provided in house, through contracts or
through other arrangements). We have to make a strategic choice
about what services we require (the specification), and how we will
work with the people who deliver the services (the relationship). Thus
we will achieve the Best Value service option. The choice has to be
made irrespective of whether the final result is improved in-house
services, an external provider or a mixture of both.

Service Delivery Options

3.2 The statutory guidance on Best Value lists (the minimum) seven
options for service delivery:

♦ cessation of the service (withdraw from the activity, where the

Council has a power to do something, but not a duty)

♦ creation of a public-private partnership, through a strategic

contract or joint venture company

♦ transfer or externalisation of the service to another provider

♦ market-testing of all or part of a service (where the in-house

provider bids in open competition against the private or
voluntary sector)

♦ restructuring of the in-house service

♦ re-negotiation of existing arrangements with current providers

where permissible

♦ joint commissioning or delivery of the service (joining with

other public bodies to jointly provide or purchase services. This
can include delegation of powers to another authority, pooling of
budgets, working with other agencies or arrangements with not
for profit organisations).

3.3 Each option will be appropriate in particular circumstances. The

choice of option will be influenced by a number of factors, including:
 ♦ the legal framework

♦ corporate values and objectives

♦ results of a Best Value Review

3.4 This Guide outlines the approach to making the choice/appraising the
options, to ensure that all practical options for future service delivery
are considered, and the final decision is firmly based on evidence of a
thorough appraisal process.

KEY ISSUES TO CONSIDER AT THIS STAGE:

a. What are the benefits of delivering the service through another

organisation?

Possible benefits could include:

• Economies of Scale - another organisation may be larger than the

existing supplier. Through access to management and support
services via more efficient use of assets, it may be able to deliver
better levels of service.

• Economies of Scope - another organisation may have specialist

skills and expertise that the existing supplier cannot afford. This
can be used more effectively to deliver a high standard of service at
an economical cost

• Innovation - another organisation may have a way of doing things

which is so different that the existing supplier will not be able to
learn.

• Access to Capital - where investment in capital assets is

necessary to deliver a Best Value service, restrictions on Local
Authority borrowing may force this option.
b. What are the costs of delivering the service through another
organisation?

• Transaction costs - these are the costs of using the

market, and any organisation which uses competition to choose
who supplies works, goods or services will come up against
them.. There always needs to be a balance between the cost of
going out to the market, and the savings available from doing
so.

The costs can occur before a contract is awarded:

♦ creating the specification

♦ obtaining market information
♦ consulting customers
♦ choosing the right contractor or partner

Or they can happen after contract award:

♦ the Council pays too much for the work or service

♦ the Council has continuing costs of monitoring and dealing with

the contractor’s failure

♦ there are increasing costs over time if the winner of competition

becomes a monopoly supplier

♦ Process Costs - some of the costs above will be necessary to

control or reduce costs later. They are the unavoidable costs of
using the market, and are known as process costs. There
should be an attempt to ensure that the benefits of using
competition are considered to outweigh the risks of having to
meet these process costs.

c. What are the elements of uncertainty and risk?

These are issues about the level of uncertainty between the objectives
of a service and its delivery; the uncertainty is between issuing an
instruction and its execution. In general terms, the more uncertainty
there is (because of the nature of the requirement or because of the
environment in which the service is delivered), the more likely it is that
in-house provision, or a modified contractual relationship is the Best
Value option.

Each procurement decision will have to be aware of the options which

might increase transaction costs and the ways in which these costs
may be reduced or controlled.
Questions to answer for each Service Delivery Option:

Make or Buy?

3.5 The options appraisal process is an essential part of the Procurement

Strategy because, except for a decision to retain the service in house,
or to pull out of providing the service at all, all the basic options
concern externalisation (or potential externalisation). Most also involve
the competitive selection of a service provider. Therefore, there needs
to be clarity and forward planning regarding:

♦ What is planned to be externalised (the whole or part of an

existing service, any assets, which people are involved, any
implications for other parts of the Council?).

♦ What are the anticipated costs and benefits of externalisation

(long term, short term, risk factors?)

♦ What are the options available (what does the market currently
offer, what could it be stimulated to offer, what are the
alternatives to market transactions?)

♦ What kind of relationship is being sought with the contractor

(traditional contract, partnership approach, non-contract
approach?)

♦ Who will be responsible for managing the contract/relationship

with the external supplier?
The following series of questions should be applied to each option, and the
answers should be expanded from a simple yes or no, to what, why and how:

1. Is there any policy reason for eliminating this option?

2. Is there any legal reason for eliminating this option?

3. Is there any financial reason for eliminating this option?

4. Are there any other reasons for rejecting this option?

At this point some of the options may be eliminated.

5. What is the gap between our existing service and where we want to be;
what is the nature of the gap; in what ways can each option help us to
bridge the gap?

At this point, options that are not appropriate to the Council’s objective of
bridging the gap may be eliminated.

6. What is the experience of other Councils who have used each option?

7. How does this option contribute to Best Value for them?

At this point, more options may be eliminated.

If more than one option remains, each one should be assessed in terms of
contribution and risk to the Council:

8. What is the contribution to economy, efficiency and effectiveness, and

to the achievement of corporate and service objectives?

9. What is the risk to the Council in terms of likelihood of service or

function failure, and extent of failure?
 4. CONTRACT STRATEGY

4.1 The kind of relationship envisaged between the Council and another
organisation as a result of the procurement/externalisation is identified
as one of the outputs from the option appraisal process. There are
obviously a number of competitive processes available, and
correspondingly there are different types of contractual relationship
which may result. The main options relating to the competitive process
and relationships which result are outlined below.

Consider all options for a competitive process and select the most
appropriate, justifying your choice – a file note showing the full decision
making process should be made

a. OPTIONS FOR A COMPETITIVE/EXTERNALISATION PROCESS

Open competition
The Council invites tenders; any organisation can apply; there is one
winner.

More appropriate where: Less appropriate where:

• the procurement is easy to • the procurement is difficult to

specify & monitor specify & monitor

• relationship can be dealt with by • Council wants a close

standard terms & conditions relationship with supplier

• there is an active, competitive • Council will use standard criteria

market to reduce risk; some tenderers
may be wasting their time by
making a bid
 Restricted Competition
Suppliers have to meet certain criteria before they can bid for work.

More appropriate where: Less appropriate where:

• Council only wants to deal with • supply/service easily specified &

suppliers who meet specified monitored
technical, competence or
management standards • evaluation of bids will be simple

• relationship with supplier will be • established market for standard

important for the success of the products/services
contract

• evaluation of bid likely to be

complex & time consuming

Spot Purchasing
Standard service package provided by supplier who can demonstrate
cost effectiveness, competence & reliability. Suppliers chosen when
needed.

More appropriate where: Less appropriate where:

• service packages relatively small • service difficult to specify &

& can be easily described or
negotiated within a few
parameters
• law requires suppliers to be
registered to deliver the
service/product
• Council’s relationship with
suppliers based on contract
mechanisms
monitor
• suppliers do not need to be
registered
• service packages relatively large
(above Council threshold for
competitive tendering)
• balance between cost and quality
is complex

• cost is most important factor for • relationship with supplier is

Council important
 Call-Off Contracts

More than one supplier chosen to have a licence to do work according

to specification. Details of work and allocation dealt with on a day by
day or project by project basis.

More appropriate where: Less appropriate where:

• a single supplier may not have
all necessary skills & resources
• Council requires flexibility
without full tendering process
each time
• a single supplier can meet all
Council’s requirements & deliver
economies of scale
• demand relatively predictable
over life of contract

• demand for service

unpredictable

• service delivered as a number of

discrete projects

• Council wants close relationship

with suppliers

Management Contracts

The management part of the service is subject to competition but

delivery remains with the existing provider

More appropriate where: Less appropriate where:

• a BVSR has identified serious • management functions cannot

management weaknesses
• external management
contractors can be co-ordinated
with internally employed staff
be easily separated from service
delivery
• full externalisation would deliver
better value

• there is a commitment to using

in-house labour for front line
service provision
 Budget-Based Bidding
Bidders compete on the quality they can offer within a set budget
More appropriate where:
• the Council has a clear idea of
the budget available
• the Council can specify the
outputs & outcomes it requires
Segmented Contracting
Contracting-out services in a specified geographical area used as a
benchmark for in-house provision
More appropriate where:
• service suitable for dividing on
geographical lines
• spur of competition from the
externalised service will improve
the in-house service
• contractors are willing to provide
information to enable
benchmarking of inputs &
processes as well as outputs
Less appropriate where:
• there are key inputs & processes
the Council must specify
• the Council does not have a
clear view about what would
constitute a Best Value bid
• potential service providers do not
understand how the process will
work
Less appropriate where:
• the gap between in-house &
external providers is too large for
the in-house provider to improve
in a reasonable time
• the service needs to be
managed as a whole to take
advantage of economies of scale
& scope
 Now consider all options for a contractual relationship and select the most
appropriate, justifying your choice.
b. OPTIONS FOR A CONTRACTUAL RELATIONSHIP

In addition to the competition/externalisation choice above, the

approach to the relationship with the chosen contractor/supplier also
needs to be considered. The preferred relationship with the chosen
supplier will affect the kind of contract which will be the most
appropriate. Options in addition to the traditional forms of contract
include the following:

Continuous improvement contracting

The contract has built-in commitments to improvement in service and

shared benefits. E.g. one way to build in financial improvement is not
to have any index-linking to the price paid

More appropriate where: Less appropriate where:

• the Council is planning to • most significant improvements

improve service delivery in
stages over a number of years
rather than in one go
• service providers are willing to
agree to open book accounting
& to share performance
information
can be made in the short term
• a standard service is required on
a continuous basis
• there is a danger that incentives
may lead to inappropriate
behaviour

• both the Council & the service

provider want a relationship
based on trust & mutual benefits
rather than a traditional contract
approach
 Partnering arrangements

A variety of contract forms that can include ‘relational’ contracts which

are developed where the service cannot be predicted, and the partners
have to rely on each other more than on the courts for dispute
resolution

More appropriate where: Less appropriate where:

• the Council wants to use • smaller or less significant

competition/externalisation, but contracts, where the process
still wants a close relationship costs of setting up the partnering
with the provider agreement outweigh any benefits

• the contract is for a large • standard services that are easy

(financial) or significant (political to specify & monitor
risk) aspect of the Council’s
services

4.2 The Council has Officers within the Legal Department who should be
requested to advise on the most appropriate type of contract in each
particular circumstance. However, the responsible procurement officer
should consider the type of relationship with a provider which he/she
feels would provide the best value service provision.
 *PARTNERSHIPS & PARTNERING

4.3 Partnership is a concept now widely accepted in both central and local
government, especially since the advent of Best Value. It has been
said that “a best value authority is willing to work with other
organisations in partnership to deliver services” (Beverley Hughes,
19/6/00). Partnership in its widest sense is about working to common
goals with shared values and responsibilities. Partners should each
contribute to best value performance indicators and so build innovation
and continuous improvement into their day-to-day work.

Definition

4.4 Many activities attract the label of “partnership”. A partnership or

partnering arrangement may grow out of an existing contractual
relationship or be specifically developed. Whatever the formal
arrangement, the core processes necessary for the creation and
maintenance of a successful partnership, and therefore integral to
partnership working, would consist of following elements:-

• Two or more parties co-operate and work together.

• The process brings together and uses resources more

economically, efficiently and effectively. It results in synergy by
pooling of resources.

• It achieves outputs/outcomes to meet the demands of the local

community. It fits in with Best Value - “putting service users centre-
stage”.

• Commitment to agenda for joint/coordinated action by both parties.

There are shared compatible ends, each willing to influence and be
influenced and releasing some element of control.

• Each partner’s contribution is planned, along with what is expected

of them and how they will benefit. Agreement of resources such as
organisation, finance and skills.

• There is effective leadership of the joint action - implementation is

as important as plans.

• Decision-making processes respect the needs of all partners.

There is genuine consent, no dominant partner.
 • Specific goals are set and the success of the partnership is
evaluated against them. Permanent revisionism brings a capacity
for continuous improvement.

• There must be continual assessment of the partnership’s function -

is the work still relevant to evolving community needs and priorities.

Issues to be addressed when considering

partnerships/partnering

4.5 Partnership working requires clarity about the contribution expected

from each of the partners at different stages of policy development and
implementation. The Council needs to consider how best to achieve
such clarity and how to give it effect through a considered approach to
procurement.

a. WHAT?

A contractual partnership is a finite business relationship which brings

together two or more organisations which have different statutory
powers and duties, different skills and needs, but share a mutual
interest in collaborating to achieve specific objectives, limited both in
scope and time.

b. WHY?

There are a number of reasons for local authorities exploring the

possibility of partnerships:

♦ to share risk
♦ to access new resources and specialist skills
♦ to review service delivery options

The relationships which develop and are sustained as part of effective

partnership working should be based on the following principles:

♦ shared understanding of aims and objectives of the partnership

♦ commitment to the development and success of the partnership

♦ open relationships and an atmosphere of trust, enabling

partners to share information

♦ effective leadership to ensure the partnership maintains

momentum and focus

♦ regular communication between partners and within each

partner organisation
 ♦ clearly understood objectives and responsibilities for each
partner

♦ demonstration of progress and contributions

c. WHO?

The Council’s partner may be:

♦ a voluntary organisation
♦ a community enterprise/trust
♦ a private contractor/developer
♦ another public sector body
♦ a local authority company

d. HOW?

There are also a variety of structures for a partnership arrangement:

♦ contractually based (not PFI)

♦ joint ventures
♦ not-for -profit joint entity (e.g. trust)
♦ PFI
♦ strategically co-ordinated services

4.6 The DTLR guidance on these matters states that we should have a
policy or code of practice for partnerships, to ensure that there is a
consistent council-wide approach to their initiation, management and
review.

Partnership Protocols

4.7 The key elements of the Council’s partnership policy can be found
below to give broad guidance to officers when considering partnership
as a method of procuring and providing works/supplies/services on
behalf of the Council. Officers should also have regard to the
Council’s Financial Procedures Rules (F.31) which provides that
Executive Directors are responsible for ensuring that all partnership
arrangements are reported to the Executive and approval gained for
the proposed relationships and monitoring procedures.
Issue to be addressed by Objective of the individual
establishing the partnership partnership arrangements

Protect the interests of the To provide quality services efficiently

community and ensure the highest and cost effectively, to promote
quality service is provided. economic prosperity for the local
community.

Achieve the strategic aims of the Ensure the partnership is developed

Council, such as improving the in accordance with corporate
environment and achieving Best objectives.
Value.

Formalise the structure of Agree terms of reference,

partnerships to assist the membership, shared objectives,
development of new partnerships targets for service delivery and
including the definition of roles and implementation timetables.
responsibilities.

Ensure service providers work in line The partnership works to an agreed

with the Council’s core values and standard, linked in with the Council’s
Directorate standards. decision-making structure

Ensure common practice in the Specification of measures of

evaluation of partnerships. performance, both quantitative and
qualitative, and accountability.

Implications for contracts

4.8 Whatever arrangement is considered to be the most appropriate, the

key objectives and parameters of the partnership need to be
established at the outset. A formal document - the Memorandum of
Understanding or Partnering Agreement- addresses the objectives,
membership, management arrangements, values and responsibilities
of the partners, and is used in conjunction with a formal contract to
clarify the relationship between the partners.

4.9 The formal partnering contract should set out the intended relationship
between all parties involved. It should be framed so as to promote:

♦ an appropriate exchange of information on a regular basis

♦ arrangements for regular meetings

♦ shared arrangements for dealing with customers where

appropriate, including communications and complaints handling
 ♦ clear performance targets and standards

♦ an equitable system for dealing with poor performance,

balanced by provisions for sharing the benefits of good
performance

♦ overall, an equitable sharing of the risks involved in

performance of the works/service.

4.10 In addition to the inclusion of these elements in the formal contract

where necessary, to give them legal effect, a Partnering Agreement
(often a single page setting out the overall aims of the collaborative
working) is often adopted and signed by representatives of all parties
involved in the partnership in order to demonstrate that the behavioural
aspects of the arrangement have been adopted by all concerned.

Advantages and disadvantages of partnerships

4.11 These should be taken into account when a partnership or partnering

arrangement is suggested by the option appraisal and contract
strategy processes as being appropriate. The current market situation
for the particular service/supplies/works area must be assessed to
determine whether the partnership would be viable.

4.12 Typically, the private sector encounters some difficulty in persuading

Local Authorities to enter partnership arrangements because of
propriety problems related to public sector competition rules. The
constraints on partnership working can be both external and internal to
the organisation:

♦ EU procurement legislation, requiring particular procedures to

be followed for contracts over a certain value

♦ particular problems where a private sector company seeks an

exclusive relationship with a Local Authority that will result in a
contractual relationship which would normally be subject to the
requirement for competition (seen as a “cosy relationship”)

♦ cultural difficulties (Members, staff, service recipients, partner

organisations)

♦ problems of measurement - benchmarks against which to judge

performance
4.13 The recognised benefits of partnerships have been mentioned above,
and can be summarised as:

♦ improvements leading to best practice

♦ reduced duplication of effort

♦ improved access to resources

♦ ability to take advantage of networking

4.14 Partnership can therefore be viewed as shorthand for a collaborative

approach between client and contractor, or indeed all parties involved
in provision of a particular service. The partnership ideals need to be
contained within the contract and monitored by managers on both
sides. The extent of cultural change necessary within organisations to
implement effective partnerships successfully, suggest that it would be
sensible to introduce the concept only after carrying out a detailed
analysis of procurement options in each individual case. The key
principles contained in this best practice guide and the Procurement
Strategy relating particularly to option appraisal, contract strategy
selection and ethics and probity must be referred to in order to address
the potential problems with a partnership approach and take
advantage of the benefits on offer.
 5. GREEN PROCUREMENT

Environmentally Preferable Purchasing

5.1 Greener public purchasing is about specifying environmentally preferable

products and services. Environmentally preferable products are defined as
ones which are less harmful to human health and the environment when
compared with competing products which serve the same purpose. Among
other things they:

1. are fit for the purpose and provide value for money
2. are energy and resource efficient
3. use the minimum amount of virgin materials
4. make maximum use of post-consumer materials
5. are non- (or less) polluting
6. are durable, easily upgraded and repairable
7. are reusable and markets and the infrastructure exist for recycling
the product at the end of its life
8. are supported by additional information to demonstrate their
environmental preferability.

5.2 The requirement to achieve value for money - with its emphasis on whole
life costs and quality to meet customers' needs - enables public bodies to
build sustainable development and environmental factors into their contract
specifications and to look beyond the initial cost to take account of long-
term cost savings from, for example, lower operating and disposal costs.

5.3 Value for money in procurement is defined as "the optimum combination of

whole life cost and quality (or fitness for purpose) to meet the customer's
requirement". This reference to "quality to meet the customer's
requirement" enables departments to specify what they need to meet their
own operational and policy objectives, while contributing to the Council's
objectives on environmental matters. Buyers must, of course, satisfy
themselves that specifications are justifiable in terms of need, cost
effectiveness and affordability.
 Building environmental aspects into evaluation models

5.4 It is possible when developing a business case for a contract to give added
weight to a particular quality so that it has a greater influence over the
outcome. For example, a buyer of a car for mainly urban use may wish to
place greater emphasis on reducing emissions harmful to health than say
the buyer of a vehicle for mainly inter-urban use where a higher priority is
to achieve more miles per gallon with a consequent reduction in carbon
emissions which contribute to global warming. This could also be built into
a scoring system for evaluating bids where the quality is relevant to value
for money to the contracting authority.

Green Premium

5.5 The specification of a particular environmental requirement may

occasionally result in a purchase which costs more - even after taking
account of whole life costs - than a less environmentally-preferable product
or service. This extra cost may be justified if the purchase is necessary to
conform with Council policy to buy or not to buy a particular substance or
material on environmental grounds. This should be reflected in the
evaluation model for that particular tender.

Social and Ethical Implications

5.6 Social performance is about the impacts of an organisation on society.

That is, on people outside the organisation. Ethical performance is about
internal business processes. For example, how an organisation deals with
its suppliers or customers.
Raising environmental standards through procurement and other activities
helps to address social inequality, because environmental costs are born
disproportionately by the poor, whether on a global scale or within the UK.

5.7 Purchasing can therefore have an impact on social issues through

appropriate use of specifications and by basing award decisions on whole
life costs and quality. For example, by specifying water efficient appliances,
a buyer can reduce the demand for water, so helping to safeguard streams
and rivers - thus protecting wildlife, habitats and social amenities, and
water supplies during droughts.

5.8 There is always a danger that taking into account "social" and "ethical"
issues in the procurement process may dilute the overriding requirement
on buyers to achieve value for money, with the result that costs escalate
and services suffer, hurting lower income groups more. We might also be
using procurement to effect changes which could be more effectively
brought about by, say, legislation, taxation, education and foreign aid.

5.9 There are, however, some social and ethical issues which buyers can
consider where they are relevant to the contract, consistent with value for
money for the taxpayer and are best procurement practice.
 Key tips
Do:
1. Address environmental concerns at the specification stage of
the buying process. Any invitation to tender or quote must
include a specification which clearly describes requirements in
sufficient detail to enable the submission of competitive offers,
and any environmental considerations which are relevant to the
purchase must be included in the specification.
2. Think of the environmental issues before getting quotes and tenders
- not afterwards.

Don't
1. Try to do everything at once! Concentrate on the most significant
impacts. 80% of these arise in offices from: business travel and
commuting; building energy; new build and refurbishment; paper and
print; IT equipment; water and waste.
 6. LOCAL SUPPLIERS

Partners in Developing Local Suppliers

6.1 The Council’s Procurement Strategy states that where possible, we

should actively support and encourage local suppliers to become best
value providers. Developing a local supplier base need not be and
should not be a solitary exercise. There are many potential partners to
work with:

♦ Local Suppliers - Work with local suppliers in developing their

business. However, it should not be a one-way street but true
partnership with benefits accruing to both parties.

♦ Users/Customers - Explain to your users/customers, e.g.

schools, why you are using local suppliers and get their commitment to
the policy. At the end of the day it is the end-user who will be the real
judge of value and quality.

♦ Suppliers - Encourage them to extend the local supply chain by

doing their purchasing locally or encouraging start-ups around their
own business.

♦ Other Buyers - Encourage other local large buyers to work with

you in developing the local supply base, e.g. Health, Utilities etc.

♦ Partners - Work with other organizations to help develop the

local supply policy, e.g. Chambers of Commerce, Enterprise Agencies,
Business Link, Development Agencies.

♦ Regional Supply Networks - These are a product of Business

Link, which is supported by the Department of Trade and Industry, and
amongst other things give support to local supply chains and
businesses involved in them.

What can be done to develop the local market?

6.2 "Buy Local" policies must be justified on grounds of competitiveness,

economy or efficiency, and comply with Procurement Directives and
other regulations. Despite that and the restrictions that surround the
question of buying locally in the public sector, there are many things
that can be done to encourage local companies to compete, not only
within the local economy but also possibly in the wider national or
global market.
6.3 Developing local suppliers and working with them to develop their own
business should also add to the competitiveness of the local authority.
There are some fairly easy ways to achieve this in the first instance:

Publicity and Advertising

6.4 Firstly, local suppliers cannot position themselves to supply you if they
do not know what you want to buy. Most local authorities do advertise
their requirements in the local papers and media as well as appropriate
trade magazines. More often than not, however, these adverts are
hidden away in that most boring and least-read section of the local
paper - the Public Notices page. The Council should become far more
proactive in approaching local marketplaces and making its own
requirements more transparent by:

♦ Advertising in more accessible places, e.g. in the Business

Supplement of the local paper.

♦ Working through the local Chamber of Commerce, Enterprise

Agency, Business Link, etc.

♦ Developing a guide to Supplying Goods & Services to the

Council

♦ Using the tenders page on the Council’s website and making

sure local businesses are aware of its existence

♦ Making local firms aware of your requirements in advance

through a Prior Indicative Notice (similar to the requirement for
the OJEC).

♦ Organizing "Meet the Buyer" events. Other public sector

partners could join in, e.g. Health Authorities, Police, etc.

♦ Holding supplier briefings for local companies about selling to

the Council.

♦ Working with existing local suppliers to achieve continuous

improvement "Best Value" in the products or services they
supply.

♦ Making sure consumers are aware of local availability and who

the local suppliers are.

Developing Local Capacity

6.5 Developing the local marketplace is not, however, just a matter of

advertising in the right place; it is also important to think of other ways
of working with local suppliers to develop their capacity to supply you
and other potential buyers.
 European rules permitting, the Council should consider:

♦ Establishing a partnering arrangement to develop a particular

product or service.

♦ Creating a Supplier Association to help suppliers help

themselves, each other and the Council

♦ Working with other buyers in the local marketplace in

developing local supply chains.

♦ Encouraging larger suppliers to use local suppliers and

distributors.

♦ Specifying local materials where appropriate.

♦ Working with local economic development and regeneration

teams.

♦ Identifying gaps in the marketplace which local suppliers may be

able to meet with some development of their business capacity.

♦ Investigating ways in which local companies can gain

advantage from any developments the Council is involved in
with regards to e-commerce and e-government.

♦ Involving local businesses in developing Council activities,

e.g. education , trading standards and economic development.

Modern Procurement

6.6 There have been substantial changes in the way in which all
organizations now go about their buying or procurement activities. The
concept of Strategic Procurement has seen the introduction of Supply
Chain Management, e-Commerce and Best Value, all of which have
had a substantial impact on the way we go about our business. This
also has an impact on the development of local suppliers; it does not
need to be a negative one.
6.7 In terms of Supply Chain Management, for example, if local authority
buyers better understand their supply chains and their component
parts it actually becomes easier for them to determine where local
influence can be brought to bear between the point of consumption
and the earliest point of its production. Local companies do not
necessarily have to be the deliverers of the product or service.
However, the Council can help by keeping them informed of
opportunities to enter the supply chain at the appropriate position,
assisting the prime supplier in their delivery of the end product or
service. These opportunities to enter the supply chain are often easier
for local suppliers to access than as the prime supplier and the spin-off
can be significantly greater in terms of benefits derived from the prime
supplier's own wider customer base.

The Duty of Well Being

6.8 The guidance from Central Government as regards the power to

promote or improve economic, social or environmental well being (Part
I Local Government Act 2000) means that there is significant scope to
use the duty of well being to help develop the local supply base This
could be achieved by developing local suppliers as part of the
promotion of neighbourhood renewal, working with minority groups,
including ethnic or disabled business owners, to tackle social
exclusion. It must however still be subject to the general duty of Best
Value and legislation such as the European procurement directives.
 7. TENDER EVALUATION

Priorities and Emphasis

7.1 Tender evaluation models are the means by which we can assess
which of the bids submitted in a competitive exercise offers the best
deal for the Council. In order to make this judgement, we will already
have recorded the criteria that are important to us in this particular
case, and which can be scored for each tender submitted. The criteria
will be price or quality related, and enable an open, transparent and
ultimately fair evaluation process to be demonstrated. The
quality/price model should be established before any tenders are
invited, and all tender documentation should be designed to ensure
that appropriate responses are received to feed into the model.

7.2 There are basically two stages involved in building up an evaluation

model:

• Establishing the quality/price ratio (i.e. the relative importance to

be placed on price and quality in this particular contract); and

• Establishing the components of quality and price, and their

relative importance in their respective categories.

Quality/Price Ratio

7.3 If quality and price have equal importance for your contract, the
quality/price ratio would be 50:50. Different ratios will produce different
prices to be paid for avoiding a reduction in quality. In order to
demonstrate how the quality/price ratio has been selected for each
tendered contract, the calculation below should be carried out and
recorded:

E.g. If the estimated cost of the contract is £250k, the following table
would be the calculation of costs attached to quality:

Max. £ extra willing to be paid to avoid a reduction in quality of:

Q/P 10% 20% 30%
Ratio
20:80 6,250 12,500 18,750
30:70 10,714 21,429 32,143
40:60 16,667 33,333 50,000
50:50 25,000 50,000 75,000
60:40 37,500 75,000 112,500
70:30 58,333 116,667 175,000
80:20 100,000 200,000 300,000
90:10 225,000 450,000 675,000
 This shows that if your contract had an estimated price of £250,000 and a
Quality/Price ratio of 50:50, you would be willing to pay an extra £25,000 to
avoid accepting a bid which was 10% worse in quality terms, even if it was
the best scoring bid in price terms. (Formula: Estimated cost x reduction in
quality to be avoided x quality/price ratio).

In general terms, the more complex the procurement, and the greater
the degree of innovation and flexibility likely to be required, the higher
the ratio should be. Indicative ratios are:

Type of Project Indicative Quality/Price Ratio

Feasibility 85/15
studies/investigations
Innovative projects 80/20
Complex projects 70/30
Straightforward projects 50/50
Repeat projects 20/80

However, the calculation exercise above should still be undertaken in

order to confirm the costs associated with setting a higher ratio.

Quality and Price Weightings

7.4 The price element of the model should reflect the tendered prices and
also any extrapolations to take account of whole life costs. The
Council’s Procurement Strategy states that all procurement exercises
should reflect these long term costs and hence the evaluation model
should incorporate them as a matter of course.

7.5 Quality criteria should be grouped under main headings and weighted.
Suggested headings and weighting ranges are:

Quality Criteria Suggested Weighting Range

Capacity to resource the 25-45%
contract
Potential to “add value” 20-30%
Previous experience 15-25%
Approach to the contract 15-25%
Others 10-15%

7.6 A quality threshold should be established (e.g. 65 out of 100).

Tenders may have to achieve this minimum quality score before final
interviews are held and prices considered.
7.7 Submitted tenders are assessed for quality by marking each of the
quality criteria out of 100, multiplying each mark by the respective
weighting percentage and then adding them together to give a total
quality score out of 100.

7.8 Tenderers passing the quality threshold may then be interviewed, their
quality scores reviewed and their prices examined and marked. The
lowest compliant bid scores 100 and others score 100 minus the
percentage figure above the lowest price (e.g. a bid 25% above the
lowest scores 75).

7.9 The final quality/price assessment is achieved by multiplying the

quality and price scores by the respective weightings set by the
quality/price ratio, and adding them together to give a total score out of
100.(E.g. if the quality/price ratio is set at 70/30 and the quality score is
80 and the price score 75, the total score is 80 x 70% + 75 x 30% =
78.5). The highest scoring bidder will be awarded the contract, as they
are the one which has best met the Council’s priorities in terms of both
quality and price.
 8. PROJECT MANAGEMENT

Effective Decision-Making

8.1 All procurement exercises should be conducted through effective

communication and decision-making processes. To assist in this, as
specified in the ‘Accountability’ section of the Procurement Strategy,
Service Level and Corporate Procurement Steering Groups will be
responsible for management of the procurement process.

8.2 Each procurement must have a Project Sponsor from the client
Directorate. This individual will:

♦ possess the skills to manage the client’s role in the project

♦ maintain direct access to the people making key decisions
♦ be vested with authority to take day to day executive action
♦ expect to see the project through to completion

Professional Advice

8.3 The CPSG must ensure that the Project Sponsor is assisted by the
necessary professional advice throughout the procurement process.
The essential areas to be considered are outlined below:
 • Corporate - Procurement Strategy
Strategies/Policies
- Contract Standing
Orders/Financial Procedures
Rules/EU compliance

• Equal Opportunities - Race Relations

- Disability Discrimination
- Equal Opportunities

• IT Issues - E-Government Strategy

• Contract Administration - receipt and opening of tenders

- contractor compliance with
financial and Health & Safety
requirements
- appointment of consultants
- monitoring & management of
contract

• Legal Issues - contract terms and conditions

- TUPE
- PFI/PPP

• Finance Issues - financial criteria and assessments

- evaluation models
- financial and accounting advice

• Personnel Issues

• Sustainability/Environmental
matters

• Risk Assessment/Risk
Management

Critical Stages of the Procurement Process

8.4 The PSG will be responsible for approving/signing-off the outputs of

each stage of the procurement process:

• Business Case (this sets the case for the recommended

procurement option, after consideration of all relevant factors,
e.g. VFM, environmental impact.)
 • Output Specification (this is the Council’s requirements
expressed in terms of outputs/outcomes required. Providers
generate methods of delivery. Performance standards are
stipulated, and Performance Indicators are passed on to
providers, including year on year improvements.)

• Contract Terms

• Procurement Plan (this sets out the procurement route to

pursue, ensuring compliance with Contract Standing Orders and
EU Regulations. It also includes a timetable with milestones
specified.)

• Risk Management Plan

• Evaluation Model

• Shortlists

• Contract Award

• Contract Management Plan

Confirming the business case:

8.5 Activities here will include:

♦ fixing an initial project budget that includes all relevant costs

over the whole life of the project

♦ evaluating the benefits that will be delivered

♦ drawing up an outline programme which allows realistic periods

for essential activities

♦ identifying the significant risks in the whole process and

establishing how they can most effectively be managed.

8.6 This will provide the essential components of the strategic brief and
establish measures of time, cost and quality against which the project
can be judged as it proceeds.
 Financial Resource Issues

8.7 The Council’s Financial Procedures Rules and Contract Standing

Orders contain a number of clauses relating to the financial control of
the procurement process. In the main, these concern the need for
adequate forward planning, ensuring that either budget provision exists
(for Revenue funded procurement) or that projects are included in the
Council’s Capital Programme (Capital financed projects). In addition, if
circumstances change so that financial provisions are no longer
adequate, the appropriate authority must be sought in order to ensure
that budget limits are not breached. Key financial resource issues for
any proposal include:

• spend time at the beginning of the procurement process

defining what you want and when you want it - it can be
expensive to change your mind later

• understand the risks involved in your project, quantify them and

make financial provision for them

• clarify your priorities regarding time, cost and quality

• take account of the costs of the project over its whole life

• ensure that financial and other resources necessary for the

project are available when required

• monitor progress and performance

Developing a strategy for the project/contract procurement:

8.8 The Project Sponsor leads the development of a strategy for the
project’s execution. This entails the development of early statements
of needs into a strategic brief and then into a full project brief. The
Project Sponsor will also consider the most suitable way of carrying out
the project. The first priority is to choose the system best suited to
procuring the skills and resources necessary to achieve the outputs
required. This is a key strategic decision which will set the framework
for carrying out the project. Section 4 above on ‘Contract Strategy’
details the issues to be taken into account when making this choice. In
addition to those factors identified, the client’s attitude to risk is
particularly important, as different contract strategies allocate risk in
different ways. The more control a client wishes to have over aspects
of the project, the more risk they should be willing to bear. Also, whilst
risk can be transferred to others, this will be reflected in their prices.
Systematic risk management should be part of the strategy for
executing all major procurements.
 * RISK ASSESSMENT & RISK MANAGEMENT

Risk

8.9 Risk is any unplanned action or event which threatens the

achievement of cost, time and performance targets.

Risk Management

8.10 Risk Management is the process of anticipating risks, planning as

necessary and carrying out timely actions to cost-effectively reduce the
probability and impact of risks to an acceptable level.

Risk Assessment

8.11 Risk should be assessed at two levels during the procurement process
- at the overall service level (during a Best Value Service Review), and
at the contract level.

Service Level Risk

8.12 The risk assessment process undertaken during the “competition”

phase of a BVSR should show whether a service is appropriate for
external provision, by identifying where the risk can best be managed
to ensure effective and efficient service delivery. The level of risk must
first be determined, and judgement reached on what level of risk is
involved, and to whom. It may be that for a particular service, the level
of exposure to the Council acting on its own would be unacceptable,
whereas the private sector may be better placed to manage the liability
(e.g. major building developments that incorporate commercial
activity).

Contract Level Risk

8.13 At the contract level, the assessment of risk will depend on factors
such as the type and length of the contract, the stability of the supply
or service, prevailing conditions in the supply market, and the risk to
the user in terms of cost, quality and the impact of contract failure.
The contract manager must consider each of these factors and deal
with them in such a way as to manage down risk during performance
of the contract.

Risk Identification

8.14 An analysis of different sources and types of risk enables a

comprehensive list of the risks it is reasonable to anticipate for a
particular activity or contract.
8.15 Uncertainty arises from a lack of knowledge or experience of the area
under review. Uncertainty arising from a lack of knowledge of
technology or trading conditions, for example, should be reduced to an
acceptable level at the earliest stage of the risk management process.
Research into similar projects in the past, and interviews with those
having relevant experience are natural starting points. Having
reduced uncertainty to an acceptable level, all the relevant risks, both
of a predictable and unpredictable nature, can then be identified.

Risk Evaluation
8.16 It is essential to determine realistically the true extent of potential risk
to the Council, in order that only the appropriate amount of time is
spent and necessary budget committed to the management of those
risks. The actual level of risk depends on a combination of the l
ikelihood or probability of an event occurring and the consequential
adverse impact on the Council.

Probability

8.17 When the probability of an event occurring is assessed, any relevant

experience concerning similar events in the past must be considered.
A more subjective view will be required if there is a lack of previous
experience, but the risk can still be assessed as High, Medium or Low.

Impact

8.18 The occurrence of a risk event will have direct consequences with cost
and/or time implications. Other indirect consequences may be
considered, such as the effect on service users, loss of future funding
and adverse publicity. Past experience again is the best source of
information needed to predict the implications of various risks. For
risks where reasonable accurate historical financial information is
available, the impact can easily be expressed in money terms.
Potential time delays can be assessed using critical path analysis.

Risk Factors

8.19 When quantification of both is possible, the product of the probability

and impact for each risk event can be used to give a risk factor,
expressed in financial terms and summarised to give a total project
risk exposure. A way should be found to express all key risks in
measurable terms for two main reasons:

• Any proposed risk management action should be judged on

whether or not the benefit significantly outweighs the cost; and

• The summary of financial risk exposure will normally influence the

size of contingencies within the budget for the procurement.
 Risk Control

8.20 Once the probability and impact of risk events has been established,
and the risks graded, it is possible to determine appropriate types and
levels of cost effective action to manage and control risk. A risk action
plan should be drawn up for all key risks within an activity or project.
The types of action to contain or eliminate risks will generally be dealt
with under the following measures:

• Insurance

• Financial Provision

Risk Allocation

8.21 All risks are then recorded in a risk management plan, which
describes how each risk is to be best allocated and managed. For
tendering purposes, invitations to tender must make clear the basis on
which tenders are to be submitted. The Project Sponsor will have
agreed the amount of risk felt best able to be managed (and hence
priced for) by the contractor, and that best taken on by the Council by
making a contingency allocation in the budget. The risk management
process should therefore have produced the best possible allocation of
risk involved in that particular procurement.
 9. CONTRACT MANAGEMENT
Contract Manager
9.1 Every contract is to have a Contract Manager, who will be a Council
officer with responsibility for ensuring that all parties understand their
obligations under the contracting process, and fulfil them as efficiently
and effectively as possible to maximise Best Value for the Council.
The Contract Manger will implement the Contract Management plan as
approved by the PSG.

9.2 Once the contract is in place, there are two aspects to the contract
management function:

(a) Performance of the contract - the processes and procedures

associated with the smooth operation of the contract need to be
managed, to obtain the best service possible. This includes:
♦ management of relationships
♦ monitoring of costs and volumes
♦ reviewing and reporting on performance
♦ agreeing variations
♦ authorising payment
♦ resolving any disputes
♦ maintaining adequate records and a management
trail
♦ assessing and managing risk
♦ maintaining ethical standards
♦ contingency planning
♦ managing change

The contract manager will usually be assisted by a team of

officers (the Project Team) to ensure that sufficient resource is
available to undertake all these activities.

(b) Management of the relationship between the client and the

contractor. The contract manager should ensure that an
appropriate style and behaviour is adopted, as the contract
provides the foundation for the relationship between both
parties. It is probably the case that under Best Value, the actual
contract conditions will require continuous improvement and
hence continual change. This will mean that the contract
management style may also need to change throughout the
duration of the contract.

9.3 Different styles will also be appropriate depending on the type of

contract (e.g. a multi-dimensional service as opposed to the supply of
a single product). The advantages discussed above relating to
partnering arrangements should be particularly evident in the style to
be adopted in managing these type of contracts. Real benefits should
accrue for both parties when a spirit of mutual trust and partnership is
encouraged.
 SUMMARY

This Procurement Best Practice Guide is a first attempt to produce a

comprehensive guide for all those involved in procurement activities, either in
the form of Best Value Service Reviews or in day to day purchasing
decisions. It will continue to be updated regularly in order to accurately reflect
activities within the Council and best practice in the procurement field.
 A

Key Project Activities

Getting Started Defining the Project Assembling the Team Designing & Completing

Nominate Project Sponsor

Obtain professional advice

Appraise options

Confirm business case

Develop project strategy Develop strategic brief

Select client Project Manager Develop project execution plan Decide contracts Develop the project brief

Select project team Operate the contract

Manage & resolve any problems

Review progress & quality

Essential Elements of Procurement Process

Assess Need Consider:

Corporate Objectives

Consultation

Proposal in Strategic Directorate Procurement Steering Group

Procurement Plan or
Common
Procurement Plan?

Proposal taken to
Corporate
Procurement Steering
Group

Responsibilities
assigned and agreed
(CPSG)

Market analysis Research & consultation

undertaken

Options Appraisal for Benefits

service delivery
Costs

Uncertainty & Risk

- apply the 9 questions to each option

Determine appropriate What is best method of externalisation?
contract strategy

Determine appropriate Consider Partnering

contractual
relationship

Compile specification Environmental issues

Local sustainability

Outcome based

Compile Evaluation Quality/Price ratio

Model
Quality/price weightings

Compile appropriate Risk assessment

project management
plan

Establish Contract Performance monitoring

Management Plan Managing relationships