Procurement

This briefing is intended to help procurement teams to procure services that will meet business need. It provides a route map for procurement of major business services, bringing together current UK public sector policy initiatives and an outline of recommended approaches for procurement.

Note: Construction procurements require additional considerations see the Achieving Excellence Guides in the Document Library.

Mandatory elements of procurement

UK public sector organisations must comply with EC Directives on Procurement and be able to demonstrate value for money - that is, the optimum combination of whole life costs and quality to meet the user requirement, not the initial purchase price. They must comply with the general requirements of legislation such as Health and Safety and the Data Protection Act. In addition, Gateway reviews are mandatory for major procurements.

Key factors for success

• Focus on the whole business change
• Keep sight of business objectives throughout the procurement.
• Ensure good leadership and accountability for the success of the procurement in contributing to business change (the Senior Responsible Owner role).
• Ensure effective communication and interaction with providers and other stakeholders, including a good understanding of the implications of providers' plans for implementation.
• Make realistic estimates of resources required, timescales and likely benefits to be achieved.  
  

Categories of requirement

Essentially, there are two categories of requirement - service provision and supply of goods or works; they are not mutually exclusive.

Service provision ranges from straightforward outsourcing of an existing service (such as payroll facilities or catering) because it is not a core function of the business to long term strategic partnering arrangements where the partner carries out business services in close collaboration with the department.

Supply of goods or works, such as the construction of a new hospital, is often combined with the provision of services to run the installation when it is completed; increasingly such arrangements are being delivered through PFI projects, as these are particularly suitable for long term investment by the private sector. Similarly, there may be a combination of construction and IT facilities, where (for example) there is a requirement for major refurbishment of office premises combined with new IT services to support the business.

Routine requirements for goods or services are usually procured through framework agreements or catalogues, such as OGC"s S-CAT for IT-related services.

The principles outlined in this briefing are relevant for most major projects. However, some special considerations apply to construction procurement, IT-enabled business change and Public/Private Partnerships (PPP) including the Private Finance Initiative (PFI).

Who is involved

Essential roles involved in procurement are the Investment decision maker, who authorises funding; Senior Responsible Owner/Project Owner (the owner of the procurement project), who is responsible for the overall success of the business change and the services that support the change; project sponsors, acting on behalf of the SRO/PO - who identify the business requirement, oversee interpretation of the business requirement into service specifications and set performance targets at the level of business outcome; procurement staff and specialist procurement advisers, contract managers. The procurement team roles must include a project manager leading the procurement project; a team member taking the lead on commercial and procurement issues; a team member taking the lead on service operational and technical assurance; support from team members with detailed knowledge of the business and financial modelling skills for developing the business case.

Figure 7: The procurement process (click to view)

Development of the business case

Business case development
The business case is developed in three stages: the Strategic Outline Case, the Outline Business Case and the Full Business Case. After award of contract the business case is maintained and updated to reflect changing business need.

Decision points
The decision points outlined below are project board decisions endorsed by the SRO/PO for the project. Depending on the scale and complexity of the project, you may need independent Gate reviews to validate your decisions before passing to the next stage. You may also wish to consider peer reviews where indicated to provide advice and mentoring throughout the procurement process.

Decision point A: pre-procurement (Gateway 0)
Setting objectives: are the objectives for the proposed investment in business change clearly articulated, agreed and understood by all stakeholders?

Decision point B: market sounding (Gateway 1)
Developing the business model for the project: which is the most appropriate way to maximise value for money in working with the private sector? Do you understand what your selected option means for service boundaries - between providers and/or between provider and public sector organisation? Can you confirm business justification for the project?

Decision point C: requirements definition and procurement strategy (Gateway 2)
Can you identify what type of contract management/ relationship focus you will need to adopt to give the deal the best chance of success? Can you identify the arrangement that will best realise your business model and deliver the objectives sought? Are you realistic about your organisation's ability to manage the deal and the expected pace of the planned programme of change? Can you confirm the procurement strategy?

Decision point D: shortlisting/negotiations (Gateway 3)
Finalising the deal - can you translate payment mechanisms and features, sharing of risks, behaviours and skills into effective commercial policies, contract terms and management processes? Can you confirm the investment decision?

Decision point E: contract award (Gateway 4)
Are the organisation, its staff, members of the public and providers ready for new ways of working? Are procedures in place for managing contracts, services, benefits, performance and the relationship with the providers? Have changes ahead been thought about? Can you confirm 'readiness for service'?

Decision point F: contract management (Gateway 5)
Operational services -have you achieved the benefits expected in the business case (for which investment was originally justified)? Did you achieve more? Could improvements be made? Has the organisation learned from experience? Can you confirm in-service benefits?

The procurement process

Development of the business case (described above and in Business Case Briefing) provides the foundation for procurement. The four key elements - the business case, the requirement, evaluation of proposals and the assessment of risk transfer - will interact throughout the procurement process. A change in one may affect the other three.

The notes below provide guidance on procurement of major services; however, many of the principles apply for smaller scale requirements.

Pre-procurement
Be prepared to take an innovative approach, but take a realistic view on how well new ideas could be achieved in practice. Consider different packaging of programmes of change and their component projects; look beyond organisational boundaries for opportunities to  collaborate on new kinds of service delivery with partners in the public and private sectors.

Market sounding
You need to make the market aware of your high level plans for business change, perhaps through use of a prospectus in addition to a Prior Information Notice (PIN) in the Official Journal of the European Union (OJEU).

Requirements definition
The EC Services Directive applies for service contracts. The scope of the advertisement will be established at this stage; it should be as broad as possible, to encourage innovation and to ensure continued compliance with EU legislation. Provide the requirement as an output-based specification (see the template to this chapter for a model). This focuses on business deliverables rather than detailed service requirements.

Shortlisting/negotiations
The major elements of evaluation are how well proposals meet the business objectives; costs and benefits, including risk transfer; scrutiny of providers' plans for implementing the service . Within this framework differing proposals can be evaluated to establish value for money and your organisation's ability to cope with the implications of proposals for business change. Note that confidentiality of commercial information about individual solutions must be protected.

Contract award
The final contract must fully reflect the commercial deal. It must, for example, document clearly and accurately the services to be provided, implementation plans and milestones, the performance regime that will apply, payment approaches and charges, the responsibilities of the parties and mechanisms for dealing with change. You will also need to establish a framework for managing the relationship with the provider and/or partners.

Contract management: managing demand and supply
You will need to put procedures in place to coordinate the management of service delivery, the relationship with providers and future changes in the business requirement. Ensure that you have good communication channels at all levels in both organisations.(See Managing Contracts and Performance)

Recompetition
Plan for recompetition early on, during contract negotiations; consider the future business direction. Ensure that there is an adequate exit strategy in the contract to make meaningful recompetition possible.

For a detailed step by step guide see the Procurement Workbook.

Further information

Construction projects
Special considerations apply for construction projects. These include the need to consider PPP/PFI, Design and Build and Prime Contractor as a key part of the procurement strategy; the need to facilitate teamworking and the need to meet targets set in Achieving Excellence and the sustainability Action Plan. Note that development of requirements is usually a project in its own right.