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Procurement step by step: A short guide to buying

URN No: 03/1840

PROCUREMENT STEP BY STEP:  A SHORT GUIDE TO BUYING

This guide is produced solely as a quick reference to the major or critical stages of a procurement project. It is not intended to supplant the Procurement Manual It includes references to the main Manual where you can find far more detailed advice on each of the topics.  It covers essentially what is currently Section E in the Manual. You are urged to refer to the other sections of the Manual for advice on all other aspects of procurement.

The main stages of the Procurement Process are set out below:

For simplicity these are presented as a linear process, but in reality many of the “steps” impinge on each other – e.g. what is required (The Specification) may be dependant on what can realistically be delivered (Sourcing the Market) - so you should read the whole of this guide before starting.

THE BUSINESS CASE  

This is the rationale for undertaking the purchase. It should describe the need for the goods or the service.  The detail will of course depend mainly on the size and complexity of the work.  Its purpose is 

To justify the purchase on cost-benefit grounds
To confirm the capacity of the market to meet the requirement
To confirm that resources – to pay for the purchase and to acquire it properly – are available
To keep the original aim of the procurement clearly in focus throughout the procurement process
To measure the success of the procurement against its original aim
To initiate an audit trail
 It should contain 

The purpose of the purchase
The benefits that will accrue from it
Any arrangements to be put in place for managing the contract
Estimated costs. 
The author of the business case should then obtain approval for the requirement from a separate person – ideally the budget holder.  This will maintain a separation of duties.

In addition to this, the Department requires certain external consultancy procurements in to be approved in advance by Senior Officials or Ministers. Details of what is included within such consultancies are detailed in the procurement bulletin Refer to Procurement bulletin 6/2003.   

THE SPECIFICATION  

The specification is your opportunity to let the prospective contractor know exactly what you require. It should also be designed to facilitate assessment of bids.  The specification must be included in the formal invitation to tender and will form an integral part of the contractual arrangement. For this reason it needs to be carefully considered. Generally the end user of the goods or service will draft the tender specification. However there will be occasions when specialist procurement advice is needed.

Current thinking is that specifications should be written in “output terms”. Put simply it should be drafted in a way that tells the contractor what you expect to be done or what you expect to get from the work, but not how they should do it.

Below is a simple checklist that can be used for the preparation of a specification

A more detailed list can be found at here

·         Is a similar or related spec available? (why re-invent the wheel?)

·         Are the requirements stated simply leaving little or no room for ambiguity?

·         Is the specification written in output terms?

·         Does the specification confirm to legal standards and obligations?

·         Ensure that they are not over-specified

·         Have relevant Departmental/government policies been considered? 

SOURCING A SUPPLIER 

As guardian of competition and sponsor of Small and Medium Enterprise, the Department is committed to an inclusive approach to buying, encouraging competitive bidding from as wide a market as possible for as many procurements as possible. It therefore does not hold a central list of approved suppliers. However it is open to each MU if they wish to hold a register of suppliers so that they can identify firms, which can provide the required service or product.  However it should equally be borne in mind that inclusion in any such list must not mean that orders will be automatically placed with those firms. 

There are several avenues that can be explored in order to find suitable suppliers, such as trade magazines, local directories, yellow pages.  In addition there are a number of on-line services that can be accessed such as Companies House Direct. 

CHOOSING THE PROCUREMENT STRATEGY 

This is how you go about getting your supplier. Government policy is that the normal route by which contracts are let is by competitive tender.  This is recognised as providing best value for money, which must be behind all decisions when it comes to awarding a contract.  There are though exceptional circumstances, which may make single tender action permissible such as no alternative source continuing use of specialist services.  You can find further details here.

In general terms the following are recommended limits for seeking either quotes, tenders or use of the Government Procurement Card

<£500                           Use the Government Procurement Card (although higher levels may be used in some circumstances)                                                                                                                                                            
>£500   <£10,000           Seek at least three quotes
>£10,000                       Undertake formal competitive tendering
>£100,410                     Advertise in the European Journal and use the Restricted Procedure
                                     Exceptionally – Single tender action
The Department has a standard form for obtaining quotes (PF30 on DTINet) and this ideally should be used. It must be accompanied by the Department’s terms and conditions of contract (PF31 or PF32).

Orders estimated to be in excess of £10,000 should be the subject of formal tendering, again, except in exceptional circumstances where STA may be appropriate. The same form for obtaining quotes may be used – the PF30.  Alongside this the formal specification must be included along with the standard terms and conditions of contract.  All Invitations must be issued at the same time with a common return date clearly indicated.  Any requests for an extension to the return date and agreed to must be applied equally to all invitees.

You must also include with your invitation to obtain quotes the Department’s standard terms and conditions of contract – PF31 for services and PF32 for goods

There is no right for any company to demand to be included in a tender list although the EU may ask us to justify non-selection so any reasons for non selection must be clearly recorded.  As a rule you should not circulate to all invitees the names of those being invited to bid, which could encourage collusion.

It may be necessary also to invite companies to a bidders conference.  The intention of this is to elucidate any problems or discrepancies or ambiguities in the invitation. 

You can reasonably extend a contract by single tender action but care must be taken to ensure that this doesn’t become an ongoing exercise -. i.e. after one extension you should consider re-tendering for the work.  You should for audit purposes give your reasons clearly for any single tender actions.

EUROPEAN UNION DIRECTIVES  

The aims of the EU Public Procurement Directives are to ensure fair play and international competition in bidding for goods and services of a certain type and over a certain value.  The types of goods and services that need to be advertised can be found in detail in the procurement manual. The threshold for advertising changes every two years.

The rules governing the advertising and the routes on how to go about this are explained in detail in the procurement manual. However – briefly – there are three recognised routes

The negotiated route is used where the Department may negotiate the terms of a contract with one or more suppliers of their choice i.e. without inviting competitive bids. This can only be used in very special circumstances. 
The open route means that you issue a formal invitation to tender to any supplier expressing an interest. This is only used where the likelihood of compliant responses is low and it is necessary to cast your net as wide as possible.
The restricted route limits the numbers of interested suppliers you would issue an invitation to tender to.  The Department’s policy is to use the Restricted route wherever possible and only exceptionally use the other two.

GATEWAY  Refer to Procurement Bulletin 4/2002

This is a process whereby all new procurement projects in civil central government are subject to reviews at various stages – gates.  It is used to provide assurance that the project can continue on to the next stage.  The process covers all types of procurement and is not dependant on the estimated value of the work. Full details can be found on the Office of Government Commerce (OGC) website www.ogc.gov.uk as well as in the Procurement bulletin referred to above.

Essentially you need to use an OGC risk assessment tool called the Project Profile Model (PPM). The PPM assigns points to various parameters and depending on the total score the project is defined as either low, medium or high risk or Gateway is not required.  If low risk the review of the project is conducted internally by DTI staff who have been trained in the process. If medium or high risk this will involve the project being reviewed by individuals outside of the Department.

FRAMEWORK PROCUREMENT  

Frameworks are agreements to provide both goods and services on pre-defined and specified terms. They may be with a single firm or a group of them. There is no commitment on either side to buy or provide the goods or service – although the arrangement will usually specify the terms that would apply if and when they are provided.

There is a wide variety of Frameworks that DTI staff has access to and these are listed in an annex to the Procurement Manual.  A typical DTI framework arrangement would be our stationery contract; a typical government-wide Framework would be S-CAT.

Actual orders from either the agreements or arrangements are usually referred to as “call-offs”, which leads sometimes to these arrangements being casually referred to as call-off contracts.

 Frameworks offer distinct advantages in providing value for money amongst these being: 

·         Speed and simplicity – no need to follow the full tender process

·         Price – economies of scale allow Framework managers to secure competitive prices

·         Process cost saving

·         Safety – the framework will already comply with all necessary regulations and- will be covered by DTI or other HMG Standard terms and conditions of contract. 

EVALUATING BIDS/TENDERS 

Receipt formalities. All tenders received must have the time of receipt recorded and kept under lock and key until the closing date.  Tenders received after the closing dates are invalid unless there is clear evidence from the postmark on an envelope that it was dispatched in time to meet the deadline.

A tender opening board should be convened with the sole purpose of overseeing the opening and recording of the bids. This should comprise of two officials. There is a tender opening form, which can be used (PF50) to record the names of companies and their bids, if any.

Evaluation. ideally the evaluation criteria should have been established beforehand and included within the specification. The objective of the evaluation is to compare commercial, financial and technical terms.  If quotes are being evaluated the criteria are likely to be simpler, but for tenders and especially large or complex pieces of work you can set these out formally.  You should recognise that large or complex tenders evaluation should be grouped under the headings – commercial; technical; financial. These then should be categorised as optional or mandatory. If mandatory and the criteria are not met the tender must be rejected. It is often desirable to assign weightings to each of the criteria.

What you are almost always seeking in a bid is a balance between meeting (but not necessarily exceeding) your requirements and price – what the EU calls “the Most Economically Advantageous Tender” (MEAT).

However it is often not possible simply on the basis of a paper sift to “pick a winner”. A visit to one of their existing customers – a “site visit” - may be advisable and any bidder short-listed can be invited to make presentations of their offerings to a panel and answer searching questions. This can go some way to assessing the competence or otherwise of those responsible for the delivery of the goods or service.

POST-TENDER NEGOTIATION 

Although it is possible to open negotiations with the best bidder in order to gain further benefits, great care needs to be taken to ensure that there is no distortion of competition.  One very important point to be stressed is that it is important to ensure that the Department’s Standard terms and Conditions of contract are accepted and that English law prevails. This should remain a vital consideration when comparing bids. See the next section for details

The purpose of negotiation is to obtain maximum value for money. Allied to this however is the need to ensure that other tenderers are not put at any disadvantage and that competition is not distorted – especially important in EU cases.

What carefully conducted negotiations can achieve is a reduction in the overall total cost of the service or a gain of other advantages. Once more it must be stressed that great care needs to be taken not to distort the process or allow any change in the specification. Should this happen any change must be notified to other tenderers and result in a re-tendering process.

The ultimate aim of post tender negotiation is the means by which the buyer can obtain a better deal, but one on a mutually acceptable basis.  There are potential areas that can be explored such as

Better terms of payment
Earlier delivery dates
Warranties
Training
After sales service
 It is important to control and document any post tender negotiation.  The benefits obtained should ideally be quantified and any changes made should be clearly recorded with the bidder and embodied in the final contract/purchase order.

Should any change in the specification other than in a minor way results from post tender negotiation all tenderers must be notified and invited to re-tender.

DEBRIEFING  

Debriefing unsuccessful bidders is in line with Government policy to improve the competitiveness of suppliers.  All unsuccessful bidders should therefore be offered a debriefing.  Additionally, under the EU rules those unsuccessful for inclusion in a tender list have a right to know the reasons for exclusion.  There is a clearly defined technique and some basic ground rules that should be observed amongst these are:

Debrief only after the contract is let
Ensure that the tenderer is aware that the debrief is mutually beneficial
Ensure that the tenderer is aware that it is only their tender that will be discussed
Record the results of the interview

ORDERING AND PAYING  

This needs to be read in conjunction with the Commit to Pay module guidelines of MENTOR.

The Purchase Order is that part of the process where the Department enters into a contractual agreement for the supply of the goods or service. It will in most cases follow on from the tendering process.

Various members of the Department have been issued with a Government Procurement Card (GPC).. This allows Cardholders to pay for usually small value (generally under £500) goods and services.  The main benefit to the Department lies in transaction costs savings. Suppliers in turn benefit from quick payment by VISA – usually 2-3 days.

MENTOR guidelines detail exactly how the purchase order is entered onto the system. Whether this is the final document that is issued to the contractor or whether a bespoke contract is issued, it is still mandatory to enter details on to the MENTOR system.

The Department is committed to pay all correctly presented invoices within 30 days.  As approval of the purchase order implies additionally approval of invoices relating to the ordered work separate certifying of the invoice is not needed. However end users are responsible for certifying receipt of goods and services, again details can be found in the MENTOR guidelines.

CONTRACT MANAGEMENT  

Contract Management is the active monitoring and control of all parts of the ongoing relationship between contractor and the Department.  It is a major and challenging role whose importance should not be understated.  Clearly a small value and/or simple contract will require less monitoring than a high value and/or complex arrangement.

At the outset contact names should be established and individual's roles understood.  The relationship should be one of joint problem solving rather than adversarial, with either side standing on the letter of the contract.

The main roles of contract management will be to;

Satisfy yourself that the goods and services have been received and are satisfactory
Identify any improvements in the contractor’s performance
Note any future trends/needs
Establish when staged payments should be made
To assist in carrying out these functions some standard practices include;

Monitoring of contractor’s performance against Key Performance Indicators set in the contract
Inspection of completed work
Noting any complaints from customers
Recording customer satisfaction
In order to be able to identify problems it is necessary to know what type of problems might be encountered.  These will include:

Unsatisfactory performance

Misunderstanding the requirement

Poor communication

Contractor insolvency

If it does appear from monitoring the contractor performance is unsatisfactory action must be taken to rectify this.  In many cases a simple discussion will suffice.

One very important aspect of contract management is being able to note the need, or otherwise, to extend or re-tender the work. Certainly various changes can be made during the life of the contract although these need to be agreed with the contractor for them to be legally binding, However contract re-newel may be necessary if for example it is deemed necessary to have “more of the same”.  It is vital to recognise that it should not be a case of a constant renewal of an existing contract in these circumstances.  A complete re-tendering exercise will at some point be needed if indeed more work is needed.