In selecting the scope for an arrangement or agreement look for
price, delivery or administrative cost advantages. The selection
of items to be covered is a trade-off between the savings achieved
by on the one hand obtaining a lower price for a large number
of items placed with one supplier and getting the administrative
convenience (and savings) from dealing with a single supplier,
and on the other hand encountering the likelihood that the selected
supplier may not be the lowest-priced for every item within the
agreement.
Where the intention is to cover a range of commodities for which
the expenditure pattern is well known, do not assume that use
of a single supplier is inevitable. Identify the items and forecast
demands individually within the tender documents and request individual
prices, but ask in addition what the impact on prices would be
if a number of the items were taken from the same supplier. (If
precise information on forecast throughput is difficult to obtain,
seek advice from major users.)
Tender analysis should identify the total cost from each prospective
supplier (based on the quoted item price and forecast demand)
and rank prospective suppliers against each item. Apply an appropriate
range of ‘what-if' scenarios (such as the total cost if the cheapest
quote is selected for each item and the cheapest combination using
more than one supplier) to then determine the best bid or sub-division
of bids overall.
Pay careful attention to the bids of those suppliers offering
the best prices for the highest value (price x volume) items.
The objective is to find an overall commercially sensible solution
rather than just the lowest price for each item. Bear also in
mind that the initially tendered prices are likely to drop if
you offer a supplier a significant share of the business.
There are no hard and fast rules for getting the best deal, but
consider the following points:
- post tender negotiation is perfectly acceptable for discussing
price decreases as a result of increased share of the contract
- a single supplier is often the best answer (framework arrangements
become difficult to administer if an item range is divided between
suppliers) so, before splitting an arrangement or agreement
between suppliers, be sure that you could not get better overall
value from a single supplier
- geographical factors (e.g. delivery performance when a range
of sites is to be covered) can sometimes make splitting an arrangement
between sites or regions beneficial
- do not overlook other commercial factors such as delivery
costs (which should normally be zero), minimum order quantities,
payment terms, etc.
For arrangements covering a wide range of items (commonly based
on a trade catalogue) individual prices are often not negotiated.
The form of tender in these cases is a set discount off the list
price. To evaluate such tenders, the list prices have to be considered
along with the discount offered. It will often be impractical
to consider all the items in such an analysis. In those cases
take a ‘shopping basket' approach, selecting a typical mix of
items from the range representative of the forecast volumes. In
addition, undertake a sensitivity analysis to determine the effect
of variations in the volumes of the highest expenditure value
(price x volume) items.
When re-tendering bear in mind that circumstances can change
with time. Just because one approach proved most cost-effective
last time round does not mean that it is still the best. Remember
that the objective is to obtain best value for money overall.
Quality and satisfactory service need to be taken into account.
E.9.6 Selecting the Term of an Arrangement
or AgreementIn setting the term for an arrangement or agreement to
run, there is a trade-off between the savings achieved by
obtaining a lower price for a longer-term agreement, and
the volatility of the market, which may nevertheless make
the selected supplier less competitive over a long period.
One-year arrangements or agreements are common for goods,
but may need to be even shorter if item prices are highly
volatile. Longer-term arrangements or agreements offer price
stability but would need to be justified by securing a reduction
in price.
Services benefit from the commitment involved in longer-term
arrangements or agreements, which also minimise disruption
and expense arising from the "learning curve"
of a new provider.
E.9.7 Supplier Selection
For some framework proposals large numbers of suppliers
are prepared to bid. Take into account the range of suppliers
already used for the product or service. Consider accumulating
any demands that are currently uncoordinated to provide
an opportunity to move up the supply chain
Refer to Chapter E.5
for general advice on identifying and appraising suppliers.
Remember that:
- an element of supplier pre-selection can avoid wasted
time spent on tender preparation - a telephone discussion
with a supplier outlining the type of products, likely
volumes, number and location of sites for delivery and
any special requirements, can help to identify whether
a supplier is sufficiently interested in or capable
of getting the business;
- for some types of items, product samples will have
to be obtained for approval by users before considering
the supplier for tendering; and
- pre-qualification references (using Form PF10) may
be required.
E.9.8 Specifications
For arrangements and agreements covering
standard products a simple specification will usually be
sufficient. (For guidance on the preparation of specifications,
refer to Chapter E.3.) Always ensure that the
specification includes information such as number and location
of sites for delivery, delivery frequencies and quantities,
etc.
Arrangements and agreements for services commonly require
more complex specifications which cover the work to be carried
out, locations and frequencies, quality standards and work
excluded. It is often important to invite prospective suppliers
to view the locations and facilities where the service is
required and to allow them to develop their own ways of
meeting the specification, which can then be critically
examined and amended.
E.9.9 Terms and Conditions of Contract
While Framework Arrangements do not themselves create a
contractual obligation, call-offs under those arrangements
do. It is therefore important for the Arrangements to set
out the terms and conditions of the contractual relationships
that will arise from call-offs.
DTI's Standard Terms and Conditions
of Contract for Supplies or for Services, as set out in
Forms PF31 and PF32 respectively, will apply. For Framework
Arrangements or Agreements for works refer to the appropriate
General Conditions for Works (see
Section D.2.15).
Special terms and conditions should be included whenever
appropriate to cover such items as assurance of price stability
and service levels.
It is government policy that normally prices should not
be varied over the first two years of a contract. This policy
also applies to Framework Arrangements and Agreements. Arrangements
or Agreements for longer periods may provide for an annual
review or have a price adjustment clause built in. Price
adjustment clauses can also be used to provide for future
prices (particularly for services) to benefit from efficiency
savings.
Pricing methods that vary from those set out in the DTI's
Standard Terms and Conditions must be covered by special
conditions under a variation of price clause.
E.9.10 Tender Evaluation
For general guidance on tender evaluation
refer to Chapter E.12.
Tender evaluation for Framework Arrangements and Agreements
can be complex. There can be several permutations on which
suppliers are given which products and what effect certain
levels of business will have on item prices for each supplier.
It may not be practicable to investigate all the options.
In these cases some form of simplification must be considered.
The following general guidelines should cover most situations:
- entering tender responses on a
spreadsheet can assist with data manipulation and what-if
analysis (such spreadsheets can be additional to Form
PF 50 or can replace Form PF50 as the record of tender
opening if properly certified - see Section E.11.8)
- consider the total cost difference between using the
cheapest supplier and using more than one supplier -
if not greatly different, consider negotiating with
one or two suppliers for additional discount based on
giving one of them the whole of the business;
- if one tenderer is generally more competitive for
one type of product within the contract, and another
supplier for another type, consider proceeding on this
basis rather than dealing at item level - it is much
easier to manage an arrangement or agreement if there
is a logical link between the items supplied;
- compare tender prices with others recently obtained
- if there is little difference between ‘spot' and tender
prices do not proceed with a framework approach unless
the other benefits such as reduced administration costs
are substantial;
- ensure the arrangement is commercially sensible -
dealing with many different suppliers may apparently
achieve a lowest-cost solution, but the hidden costs
of having to maintain communication (write more contracts,
process more invoices) with so many suppliers can be
significant; and
- avoid accepting unrealistically high minimum order
quantities or minimum order values put forward by suppliers
offering low prices.
E.9.11 "Call-offs"
The procedure for placing orders ("call-offs")
will depend on the particular Framework Arrangement or Agreement.
Generally, the procedure applicable to other purchases of similar
value will apply (see Chapter E.15).
Normally:
- the arrangement or agreement reference number will need to
be quoted on the call-off order
- the order should be fully priced where appropriate (depending
on the type of contract)
- where the arrangement provides for a discount off list price,
confusion can be avoided by showing the list price with the
discount taken separately
- items should be identified by the supplier’s item code (usually
obligatory when ordering from a catalogue) and care should be
taken with units of measure.
- specified minimum order quantities or values should be strictly
adhered to.
E.9.12 Managing a Framework Arrangement
or Agreement
Framework Arrangements and Agreements should be monitored routinely.
A formal system should be put in place for each agreement or arrangement,
whose coverage must be appropriate to the nature of the arrangement
or agreement. It should normally include information from which
the liaison officer can:
- compare expenditure with forecast, both overall and by individual
item
- assess the extent to which the supplier is meeting agreed
performance standards (e.g. on delivery or customer satisfaction)
- determine the extent and nature of any problems experienced
by users
- assess the extent to which items available on arrangement
are purchased from other suppliers
The information collected by the routine monitoring system should
be reviewed at regular intervals in order to identify any trends
in supply patterns or changes in supplier performance which need
to be addressed in liaison or negotiation meetings with the supplier
or taken into account at review or renewal.
Routine monitoring is not the most effective way of ensuring
timely action on pressing problems with so a parallel reporting
(complaints) system for users is usually needed to ensure issues
requiring urgent action can be effectively addressed.
While many arrangements or agreements run their course with no
need for change, for some one side or the other may need to seek
to change some aspect of the arrangement
If a supplier asks for a price increase that is not already allowed
for in the arrangement, proper justification must be provided.
Even if the reason is that demand is lower than forecast, the
supplier should be asked to show the incremental cost to them
of such a change. If the issue is a change in cost base they should
be asked to provide a detailed cost breakdown for representative
items within the range. It can be useful to make an informal approach
to suppliers who were unsuccessful in the original tender to obtain
an updated price that will indicate the strength of your negotiating
position.
Increases in price sought by the supplier as a result of poor
demand are not normally permitted unless this is allowed for in
the agreement. The wording of the arrangement or agreement should
be specific about this.
If DTI needs to seek a change in prices, e.g. as a result of
a significantly higher demand than expected or a perceived change
in cost base, then the supplier should be asked to justify his
prices and again the prices in the market should be tested on
an informal basis.
If it is necessary to address quality or delivery
problems formally with a supplier, it should be made clear to
them that a failure to improve may lead to the arrangement or
agreement being terminated (see also Section E.9.14).
E.9.13 Completion Report
It is good practice at the conclusion of an arrangement or agreement
to prepare a completion report. This does not always need to be
a comprehensive review. A summary of key points can be useful,
covering e.g.:
- usage compared with forecast
- level and nature of user complaints
- supplier performance
- start and finish prices of key items
- summary of negotiation history
- expenditure outside arrangement (reasons for and recommendations
for dealing with)
- benefits (financial and non-financial)
- cost of setting up and management
- recommendations for any new arrangement or agreement, e.g.
change scope, quality.
E.9.14 Termination of an Arrangement
or Agreement
If an arrangement or agreement is to be terminated, you should
ensure that the supplier is given the requisite notice. Particular
care should be taken with Framework Agreements (as with any other
contractual agreement) to ensure that the Department’s contractual
obligations are properly met.
It is also important to ensure that alternative procurement arrangements
are put in place for the goods, works or services covered by the
arrangement or agreement. The timescales for putting such arrangements
in place need to be carefully taken into account when negotiating
the termination of an existing arrangement or agreement.
