DTI is committed to 100% achievement of the promise in the DTI Standard Terms and Conditions of Contract for Supplies and for Services to pay within 30 days of presentation of a correct invoice. See also Section B.2.3. CSL Managed Services in Newport processes DTI’s payments within 2 days of receiving payment authorisation.

All purchases of goods and services, except those for petty cash, must be the subject of a purchase order or an offer of contract (in relation to which a purchase order has been raised). The supplier must quote the purchase order or contract reference on their invoices.

End users should be responsible for the manual receipting of the goods received note, after satisfying themselves that the goods or services have been provided. The budget holder should not carry out this task. It is important to enter such receipting onto the OPC system. This can be done by the purchase order entry officer.

On receipt of an invoice the invoice entry officer will need to check that the purchase order it refers to has been quoted. They will also need to check that the invoice can be matched to all or part of the purchase order and that the goods or services have also been receipted. The invoice details are then entered into the OPC system.

Matching of the invoice to the purchase order takes place on-line. This will generate a payment authorisation, which must be checked. It is then signed by the invoice entry officer as first signatory and sent to the financial authoriser as second signatory. The signed payment authorisation is forwarded to CSL for approval and payment.

Responsibility for processing invoices normally rests with end users, project managers and other receiving officers although purchasers may also process invoices. Wherever the responsibility lies, there should be a clear separation of duties between authorising the commitment to incur expenditure, placing the purchase order or awarding the contract, certifying performance of the service or acceptance of the goods and authorising payment.

Payment for goods or services should be made only on completion of the contract, or in stages for part delivery or completion if provision for doing so was included in the contract. However, the amount of each stage payment must equate with the value of goods or services received at that stage.

Requests for advance payments should be dealt with in accordance with Accounting Memorandum 2.6.8 - 2.6.12 and Annex 21.1 to Government Accounting chapter 21.

For purchases of products made overseas, the contractor should be made responsible for the payment of import duty and VAT.

Some suppliers issue documents which appear to be invoices (giving details of an account number, date and invoiced amount) which are just invitations to purchase the goods described. The goods are then despatched after payment has been received. Matching every invoice with a purchase order prevents erroneous payments being made against such documents.

Occasionally it will be appropriate to make an additional payment to a contractor for goods or services which have a connection with a particular contract but which are not specifically provided for in that contract.

Any claim for extra payment should be examined to determine whether it should be considered as an extra-contractual or ex-gratia payment: -

• ex-gratia payments are those which are not legally due but which may be made by way of compensation on the grounds of hardship or as an indication of goodwill.
• extra-contractual payments are those which are not legally due under the contract or any amendment, but where it could nonetheless be argued that there is a legal obligation on DTI to pay and where it is likely that a contractor’s claim will be upheld by the courts.

Additional payments, in particular ex-gratia payments, may have legal or ethical implications so it is important to take advice on such claims from FRM2’s Procurement Standards Unit or your Directorate’s solicitor.

The following table is a guide to the action to be taken in a variety of potential additional payment situations.

E.17.1 Contents

Introduction
General Arrangements
Contract Monitoring
Contract Control
Contract Variations and Extensions (Renewals)
- Contract Variations
- Contract Extensions (Renewals)
- Re-tendering
Completion Reports
Record Keeping

This Section of the Manual should be read in conjunction with CUP Guidance No. 61 on Contract Management.

Contract management is the active monitoring and control of all aspects of the relationship between the provider of goods or services and the Department. The primary aim is to ensure the delivery of a cost effective and reliable service (or goods) to the agreed price and standard, consistent with legal requirements and financial propriety.

Contract management arrangements come into effect when a contract is let. They form a distinct phase within the procurement cycle and are often carried out by individuals not involved with tendering or placing the contract However, it is important to take into account the contract monitoring and control requirements related to any particular procurement right from the outset (business requirements stage). In addition, wherever possible the staff to be responsible for contract monitoring and control should be identified at the beginning of the procurement process and should be involved at the specification stage. This ensures best practice prior to contract award and reduces the likelihood of problems arising later.

Contract management is a challenging task. Value for money will not be obtained if it is neglected. While management of low value, straightforward contracts may be simple and routine, at the other end of the scale service contracts involve issues such as change and uncertainty and the relationships of the parties in such contracts is also more complex.

In addition, the problems faced with monitoring framework or call-off arrangements, whilst in many respects similar to ordinary contracts, might be greater because of the large number of remote customers. Under such circumstances closer cooperation with customers will be required in order to ensure that such monitoring is effective.

Both parties to the contractual relationship need to establish contact points at the outset.

For the Department the contact will be the individual appointed to undertake the task of monitoring. He or she may be given a formal title such as contract monitoring officer or contract liaison officer. Whatever the title, ultimate responsibility for monitoring rests with that individual.

The actual management of the contract is the sole responsibility of the contractor, not the Department’s liaison officer. The management role is to monitor the contract and to control the contractor’s performance so as to ensure compliance with the provisions of the contract. If performance falls short it is the liaison officer’s job to take appropriate action.

The liaison officer should aim to establish a cooperative, rather than adversarial, relationship. This is especially important for those contracts that involve the delivery of services over a long period.

Ideally, the Department and its contractor should be working in an atmosphere partnership, as opposed to an arms length alliance. Best results are obtained through mutual trust, open contact and pro-active monitoring (as opposed to suspicion, limited contact and re-active monitoring). The risks involved in not forming the correct relationship can be considerable, ranging from increased contract administration and costs through to the possibility of argument over contract terms and conditions, which could ultimately involve the courts (albeit unlikely). Conversely there are major advantages to be gained by focusing on a shared objective.

Effective contract monitoring requires good two-way communications between both parties and good management information:

• to satisfy yourself that you have received the goods or service in a fully satisfactory manner as required under the contract;
• to ensure that the contractor has fully met his obligations under the contract;
• to identify any opportunities that might exist for improvement of the contractor’s performance (which is of course of direct benefit to the contractor);
• to forecast future trends or needs; and,
• to establish the point or points at which any stage payments can be made.

The contractor should be required to provide information and report on his own performance.

The exact monitoring requirements and methodology will depend on the nature of the contract and the goods or service being provided. There are nonetheless some standard practices that can apply throughout. These include:

• monitoring the contractor’s performance against the specific targets and levels laid down in the contract (e.g. deliveries of a set number of items by a given time, or particular milestones being reached);
• inspection of the completed work (if it is impracticable to check every item individually – e.g. as with bulk stationery supplies or with a cleaning contract- it is nevertheless always good practice to inspect at least a random representative number);
• recording complaints received from customers of the service (to ensure that complaints can be readily dealt with), which may mean that in cases with a large number of users, such as call-offs from framework arrangements, bespoke systems have to be set up to collect and record complaints;
• recording customer satisfaction with the service (different to recording complaints as it also tries to ascertain positive - as well as negative - feedback usually via a questionnaire at the end of a contract or periodically during a contract; and
• ensuring, for consultancy contracts that there is a system in place which allows for the project to be formally signed off on satisfactory completion.

A good complaints and compliments procedure must be capable of:

• tracking individual entries;
• assigning responsibility for investigating reasons for the complaint or compliment;
• identifying the source of complaint or compliment;
• resolving the problem or building on the success; and,
• responding to the originator.

A key skill for liaison officers is the ability to identify problems that require corrective action. The type of problems that are likely to be encountered might include:

• unsatisfactory performance,
• misunderstanding the requirement,
• inadequate channels of communications,
• changes to the contract brought about by unexpected altered requirements, and,
• contractor insolvency.

Contract control involves actively keeping the contractor’s performance to the required standard as required by the contract. Participation by both parties is needed if this is to be successful to enable problems to be quickly identified and remedies sought. It is therefore important that a sound working relationship is established.

Regular contact and monitoring of performance also assists control. Awareness by the contractor that this is being done can itself bring to his attention any potential fall-off in his performance.

If monitoring indicates that a contractor’s performance has deteriorated, action will need to be taken. The nature of the action will be dependent upon the level of the under-performance or complaints. If regular monitoring is effectively carried out problems will be spotted early and the degree of any disruption from corrective action will be minimised.

In most cases a discussion of the issue will be all that is required to secure agreement on remedial action. If this does not work formal negotiations will have to take place.

Negotiations (whether informal or formal) during the currency of a contract are a valuable means of resolving problem. A good client-contractor relationship will help to ease any tension should the need for formal negotiations arise.

An important potential outcome of contract monitoring and control is be the need to change the contract either by varying the terms and conditions, modifying the requirement, or extending it because you require the contractor to continue with the work.

1. Contract Variations

Variations to a contract made during its life will not always be as a result of contract monitoring and control. The Department may decide during the course of the work that a slight change to the requirement is needed due to external factors. Contract monitoring and control arrangements might reveal problems that need a contract variation in order to regularise a situation, for example, poor delivery resulting from impracticable timescales. The Department can at any time request an alteration to the terms and conditions or make other changes to the nature of the contract. However, such changes must be agreed with the contractor.

Changes to the contract might affect:

• the specification,
• the quantity of goods,
• delivery time or location, or
• the nature of the service being provided.

It will normally be the role of the contract liaison officer to ensure that the need for any contract variations are properly recorded and the contract is suitably amended and subsequently agreed with the contractor. This may involve liaison with end users and in some cases the purchaser who let the contract (if different from the liaison officer). The liaison officer must also ensure that appropriate financial authority exists or is obtained if the contract variation involves a change in price.

The variation order must be clearly tied in with the main contract reference and should be sequentially numbered in order to avoid any confusion and also to enable a clear audit trail to be established.

Only those individuals with the appropriate delegated authority have the power to agree to and/or sign a contract variation. Thus close liaison will be required where pre contract award functions such as purchasing are separated from monitoring and control.

2. Contract Extensions (Renewals)

A contract extension, often termed a renewal, may arise because of operational difficulties on the client’s side, for example it may be inappropriate to re-tender and let a contract for a short period because of an imminent policy change. It may also arise if the original contract made provision for the term of the contract to be extended (for example, if the performance of the contractor was satisfactory or a pilot service successful). Ideally, a contract should only be renewed once because technology may improve, the market may develop or the contract price may become unrealistic. There is also a risk that "cosy" relationships may develop with suppliers to the exclusion of new potential contractors who may have entered the market (see also Section E.6.6). If consultancy contracts over-run or need to have their scope extended take particular care not to drift into an open-ended sequence of contract extensions.

For contracts subject to EU Directives, it is important to determine the total contract requirement at the outset and to include any possible extensions in the original OJEC Notice. For unforeseen additional work the EU limits contract extensions to 50% of the original contract value.

3. Re-tendering

It is important to distinguish between a contract extension (or variation) and a re-tendering exercise. An example of the former is where a contract needs a short-term extension for a particular piece of work to be completed or a delivery to be effected as described above. A re-tendering exercise implies a complete end or stop to the existing contract to be followed by the commencement of a new arrangement. The contract may stop due to:

Where one of the criteria above occurs it would be normal for a new competitive tendering exercise to take place if further goods or services are still required.

Re-tendering should not normally be used as a threat to improve a supplier’s performance since it will undoubtedly disrupt the collaborative relationship. Where performance is slipping you should identify the problem and attempt to find a mutually acceptable solution, by negotiation if necessary. However, where a solution cannot be found by negotiation it is inevitable that the contract will have to be terminated.

If contract monitoring is carried out correctly the need for re-tendering, whatever the cause, should not come as a surprise. The specification will have been kept up to date and if procurement best practice has been followed, information on potential suppliers will have been accumulated whilst keeping abreast of market.

The re-tendering process should be started well before the end of the current contract. It is important to ensure that the existing supplier continues to meet contractual obligations during the re-tendering period, particularly if he/she is not to be invited to re-tender.

It is good practice at the completion of any contract to review and place on record what went well and what did not, so that lessons can be learned for the future. This does not always need to be a major exercise with formal reporting. Depending on the nature of the procurement it might take the form of a simple note on the file by the liaison officer.

However, in the case of:

• large procurements,
• projects which were more complex,
• high profile procurements and
• consultancy projects

there should be a more formal post project completion assessment covering all key aspects of the procurement.

This should include such things as:

• the conduct and outcome of the project,
• the extent to which the expected benefits (deliverables) were achieved,
• total cost (including full economic cost of in-house staff engaged on the project).

E.17.8 Record Keeping

Accurate and timely record keeping is essential to provide the liaison officer with up to date information on the contractor’s performance. This can be a manual system, but for complex contracts a computerised database may be more appropriate.

Records should be maintained of complaints and failures in performance, and of problems of a recurring nature:

• to act as evidence to support necessary remedial action,
• to monitor performance for payments purposes,
• for possible future use for vendor rating (or reference) purposes, and,
• to act as an audit trail.

Both parties to a contract should view maintaining records as mutually beneficial: records are kept primarily to help identify problems in advance and to set down agreed remedial action by both parties, not so as to penalise the contractor. Notes of meetings and important telephone calls should be kept, using some judgement about whether every single call or short meeting needs be the subject of a detailed note. Anything that impacts directly on matters of contract price or contract delivery must be recorded.

E.18.1 Contents

Introduction
Requirements
Responsibility and Authority
Approvals Process
Disposal Board
Information Required
Disposal Routes
- Internal Use.
- Internal Sale
- External Sales
- Tendering
Charitable Sales/Donations
Hazardous Materials
Collection and Completion
Documentation
Receipts

The disposal of fixed assets is covered in Government Accounting, Section 32.

Fixed assets include land and buildings, plant, machinery, office equipment etc. A fixed asset can be regarded as any item that is or was intended to provide a service over a number of years.

This Section of the Manual covers the disposal of goods and materials. EFM should be consulted on procedures for the disposal of land and buildings.

Any fixed assets (including goods and materials) that are surplus to requirements should be disposed of as soon as possible.

Goods that have a resale value should be disposed of to the highest bidder unless use can be found for them elsewhere in the department or government service. The disposal method chosen should be that which best safeguard’s the taxpayer’s interest by securing best value for money. The objective is to maximise the benefit to the Department, either in cash terms or by putting the assets to good use in a way that would benefit either the Department's general aims or the Government's wider interests. In assessing the economy of repairs or refurbishment, the value of staff time involved must be added to the repair cost.

Surplus or obsolete items not considered saleable should be disposed of in the most economical manner possible.

A note of items disposed of or scrapped must be made against the relevant entry in the assets register, stock account or similar record, with sufficient detail to identify the authority for the action taken. The item being disposed of or scrapped may exceptionally give rise to a notifiable loss within the terms of Government Accounting and will require formal write-off.

Heads of Agencies and Government Offices who have delegated authority for purchasing equipment and stores on capital or current expenditure budgets may also dispose of surplus or scrap. Other HMUs must refer all surplus office equipment to IMPE and all surplus furniture to EFM. For advice on dealing with disposal of other items, contact the Procurement Standards Unit in FRM2 in the first instance.

Any officer with delegated authority to incur expenditure may, subject to the requirement in E.18.3 to refer disposals of office equipment (including computers) and of office furniture, authorize disposal of goods whose value (written down book value) does not exceed 10% of that officer’s level of delegated authority.

The authorising officer should be satisfied that disposal of the items is more cost effective than redeploying them and should ensure that cost effective arrangements are made for managing the disposal.

Generally speaking an individual should be designated to manage the disposal (disposal officer). For values over £500 the disposal officer should be required to work with at least one other officer to form a Disposal Board.

The Disposal Board (or disposal officer working alone for values less than £500) should:

• recommend disposal arrangements to the authorising officer
• manage the disposal arrangements once authorised
• seek approval from the authorising officer of its final recommendations on disposal before confirming the sale.

For the disposal of commodities, equipment or vehicles where the sales price is likely to exceed £500, a Disposal Board (DB) should be convened under the following terms of reference:

• to comprise a minimum of two persons, the disposal officer and one other,
• to review the documentary submission and, where possible and economic, view the actual items to be disposed of,
• to set an estimated sales price and decide on the most appropriate method of disposal, and
• to prepare the tender document and/or the advertisement.
• to maintain clear and concise records.

The DB recommendation should be submitted to the MUFO for approval and authorisation of disposal.

The disposal officer should issue the invitation to tender or arrange an advertisement and award the contract, or, where appropriate, arrange destruction or disposal as scrap.

The proposal for disposal must indicate whether the materials are owned by the DTI. It is possible that material/assets for disposal may be subject to leasing arrangements, therefore without terminating the lease and obtaining written agreement to dispose of the said items, breach of contract or illegal practice may result.

The officer responsible for disposal will in addition require the following information:-

• full description (manufacturer/serial nos./supplier codes/ technical data sheets).
• quantity/weight.
• condition.
• value of items - estimated market value and net book value.
• date available.
• approximate age/date of purchase.
• current location/collection point.
• contact for collection.
• former use.
• reason for becoming surplus.
• any other reasons to support disposal.
• proposing officer authorization (signature).
• management approval (where applicable - see E.18.5).

If the disposal relates to computer equipment, the original Purchaser should be consulted (for HQ Directorates this will usually be IMPE). The proposing officer must ensure there is no software or data on the equipment. The disposal officer must also require the individuals or organisations making an offer for equipment (whatever the disposal route to indicate in writing their understanding of software copyright law).

There are several methods by which surplus assets and materials may be disposed of. It is important that the Disposal Officer judges each disposal activity on its own merit and determines the most cost effective approach to disposal, using a strategy appropriate to current market trends.

Example disposal routes are discussed in the following paragraphs.

1. Internal Use.

If a use in other departments/agencies or elsewhere in DTI can be found, disposal costs can be reduced. This process should not require significant resources and will be of greatest benefit for specialist items where restricted markets reduce market value at the time of disposal.

2. Internal Sale

Internal sale of surplus low value items may be most cost-effective but staff sales tend to be resource intensive. Safety and legal requirements necessitate firm control and clear sensible procedures need to be followed to avoid criticism of unfairness or impropriety.

Once materials have been identified as suitable for sale by this method, the following steps are recommended:

• individual items of a similar nature should be identified separately by the allocation of a Lot number;
• the materials should be openly advertised, and
• applications to purchase should be made on form PF90.

The sale should be conducted on principles applied to the standard procurement tender procedures, this concentrates on the particular concerns of getting a good return for surplus material.

A sales notice should be issued and drawn to the attention of all staff via, for example, internal staff notice boards. This notice should include the following:-

• full description (specification) manufacturers.
• estimated weight.
• condition.
• holding location.
• on-site contact or viewing.
• date available for collection.
• special site requirements.
• conditions of sales (standard PF90 Conditions of Sale should be utilised).

In considering bids from staff pay particular attention to:-

• whether the officer had been officially associated with the disposal arrangements,
• whether the officer has been able to obtain special knowledge about the condition of the item to be sold (which was or would not be available to other interested prospective purchasers), and
• whether the transaction would be likely to cause criticism on low pricing.

3. External Sales

Wherever possible, use approved external agents (auctioneers and organisations providing unrestricted sales to the public and trade).

One of three routes is specially recommended:

• Select a commercial auctioneer/company based on -
• the best offer from at least three commercial companies
• acceptance of DTI Conditions of Sale as printed on the reverse of PF90 or GC/SALES 1978 (GC/SALES 1978 should be used unless the buyers conditions are to apply, in which case you must record the reasons)
• provision of information along the lines of that required on PF90,
• Through MOD which operates, a disposal service for government departments and local authorities either by undertaking the administration or by accepting goods or vehicles physically at a number of depots throughout the country. The service includes dismantling on site as well as at the depots where precious metals can be recovered and sold at high prices. The MOD charges a management fee based on the amount of work involved.
• Auctioneers and valuers Martin Spencer-Thomas (MST) previously arranged disposal of surplus saleable government equipment from TCS and is now under contract to TBA. Goods for disposal can be sold on site with the company conducting the auction sale, collected by MST or delivered to MST's depot in Exmouth. The area of operation is South of Manchester, elsewhere only by negotiation with MST. The company will collect and auction for an all-inclusive commission of between 60% and 80%. The commission on sales of goods delivered to MST's Exmouth depot and for sales conducted on DTI premises is between 20% and 50% of the proceeds. The company will dispose of items that it cannot sell. There will be no charge for such disposals. The company will accept for auction almost any saleable commodity. TBA Contract No. A511825 must be quoted on all orders.

4. Tendering

For high value and highly attractive items of a specialist nature it may be appropriate to offer the goods for tender. However, this option should be used very selectively as the process tends to be labour intensive and often fails to produce returns significantly in excess of the returns achieved by specialist auction groups. Only use this option where net receipts are expected to be in excess of advertising, tendering and collection costs etc.

The principles for preparing tender documents and inviting offers for disposal are the same as those for purchasing. A sound specification must be prepared to make clear all of the requirements to be tendered.

It is important to make adequate arrangements for tenderers to view the items for sale. They will be sold ‘as they lie’ with such faults and errors of description accepted. it is therefore up to the tenderers to satisfy themselves as to their condition. If they purchase on this basis there can be no comeback on the department because of faults, errors or misstatements.

The tenders should be received, controlled and assessed in accordance with procurement procedures. However, the following should be observed:

• the aim is to obtain the highest price,
• if the price offered is below the scrap price the highest tenderer may be asked to increase his price or the materials will be disposed of for scrap based on assessed weight,
• tenderers conditions must be fully scrutinised - for example, firms may quote a price ‘free on vehicle' requiring the Department to absorb significant costs in providing lifting facilities or labour - wherever possible DTI conditions of sale as given on the reverse of PF90 should be applied,

The officer with appropriate delegated powers (see E.18.5) should be approached to approve this route.

The rules on the identification, storage and movement of hazardous materials also apply to their sale and disposal.

Staff responsible for hazardous materials must ensure the safe custody of such materials up to the point of loading or destruction. This must be done in compliance with the provisions of the Health and Safety at Work Act 1974 and any relevant Regulations and Approved Codes of Practice made under the Act. The Control of Substances Hazardous to Health (COSHH) Regulations 1999,) and the Control of Asbestos at Work (CAW) Regulations 1987 and CAW Amendment Regulations deal strictly with the control of materials that pose a risk to health.

No hazardous materials are to be disposed of until the responsible site or safety officer is satisfied that all health and safety and environmental requirements have been observed and, where necessary, advice or instructions have been passed on to the purchaser.

The disposal of hazardous materials will also need to comply with the Duty of Care on Waste Management under the Environmental Protection Act 1990.

Collection should be arranged to the satisfaction of the nominated Disposals Officer to take place as soon as payment is cleared.

If materials have been sold against an estimated weight, the purchaser’s vehicle should be weighed on entering and leaving the site and weight tickets obtained using a public weighbridge witnessed by a member of staff.

If several items are sold as a lot the most attractive item should be released only after the other items have been loaded.

Except for disposals through the MOD depots, all goods are to be sold "where lying", the buyer (including staff) being responsible for loading and/or removal from site.

For all sales, including those to staff, an application to purchase DTI sale goods (form PF90) must be completed. All buyers including staff who purchase equipment from the Department must be issued with an invoice (form DTI 1089M) which records details of the equipment, the serial number if appropriate, the date, the price paid and the signature of the authorising officer. The invoice must be cross-referenced to the relevant form PF90.

Whatever method of disposal is used, clear records must be kept providing an auditable trail of the decisions and actions taken and the authorisations given for the disposal.

Payment must be received before goods are released.

All receipts arising from disposals must be credited to Extra Exchequer Receipts under appropriate ledger headings allocated by FRM. However, where an item is "traded in" against new equipment the credit for the part exchange should be discounted from the purchase price.

Gifts to non-Exchequer bodies must be noted in the Appropriation Account.

Sales of damaged or obsolete stock that is written off should be recorded as value for money savings and declared as a part of the returns for the Treasury's annual reporting exercise.