DELIVERING COST SAVINGS

Transcription

1 DELIVERING COST SAVINGS THROUGH GREATER COLLABORATION GETTING TO GRIPS WITH FRAMEWORKS Adopting a more strategic and pan-government approach for all procurement spending will maximise savings and value for money according to the recent National Audit Office (NAO)/Audit Commission Report, "A review of collaborative procurement across the public sector". Hot on the Report's heels, and echoing its findings, Sir Philip Green's Efficiency Review 1 starkly illustrates the true extent of waste and inefficiency in Government spending. Against this backdrop, Francis Maude's newly established Efficiency and Reform Group (ERG) promises to deliver efficiencies through a dramatic shake up of public sector procurement to include commodity purchasing by only a few designated purchasers. But collaborative procurement and its potential to deliver significant savings is not a new concept. The Government's Collaborative Procurement Programme was established in 2007 as part of the implementation of the Transforming Government Procurement Report. Subsequently, at Budget 09, the Operational Efficiency Review Programme recognised collaboration as a means of unlocking significant savings across Government's 220 billion procurement spend. However, as the NAO Report and Philip Green's Review highlight, the approach to greater collaboration across the public sector remains fragmented. The lack of effective category management and a mandate for centralised procurement still lead to: duplication, fewer opportunities for savings through leveraging buying power and volume aggregation, and wide variations in price for the same or similar products or services. Whilst some progress has been made, there is still much to do before the anticipated savings will be delivered 2. So how can more effective collaboration and efficiency be achieved? The NAO Report recommends that all public bodies should: Support the development and implementation of a consistent pan-government approach for all public spending. Spearheading this approach, the Office of Government Commerce (OGC, now part of the ERG) working with other Government Departments and public sector stakeholders, should define which categories of procurement should be managed at national, regional and local level and the organisations responsible for developing category strategies and running procurement activities; and Adopt a more strategic approach to procurement. This should include focussing their in-house procurement activities on only those areas of strategic spend which are unique to their own organisation and delegating category management and procurement for all other areas to the designated body or centre with the relevant category expertise. Leveraging the Government's name, credit rating and buying power is the name of the game according to Philip Green's Review. The review makes similar points to the NAO and recommends: Mandating centralised procurement for commodity purchasing; Pricing common items at the same level for all central Government departments; Managing down demand and specifications; and A focus on cash (Civil Servants must spend as if the money were their own) October As at March 2010 approximately 19 billion of the total whole Government procurement spend was being channelled through deals endorsed by established Collaborative Category Boards.

2 Bigger and better frameworks Those bodies tasked with national category management will inevitably face the challenge of creating bigger and better framework agreements than may have been seen to date. Equally, authorities and departments who are encouraged (or mandated) to use these frameworks must be confident they can do so without unnecessary risk. So what challenges and risks do frameworks present? Procurement litigation is fast becoming common place and the majority of recent UK cases have notably concerned a framework agreement of some type. This is hardly surprising, larger frameworks inevitably mean there's more at stake; so a framework appointment can mean "make or break" for business. The risks are also heightened by the recent changes to procurement law on remedies. Introduced in December 2009, the changes mean that it is now much easier for suppliers to challenge a procurement process. A challenge now triggers an automatic suspension of the contract award where previously an injunction (and often a cross undertaking in damages, to prevent the award) was required. Additional remedies may also be available for challenges made after the framework or call-off contract has been entered, So authorities may face the risk of frameworks and/or call-offs being declared ineffective (practically, the arrangement would be terminated), and a punitive financial penalty imposed. This is in addition to possible damages claims from both the challenger and the supplier whose contract is declared ineffective. Aside from reputational issues, the risk of a damages claim against the authority responsible for establishing a major framework could be significant and far reaching, particularly for the larger frameworks which offer access to many millions of pounds of procurement spend. But the risks are not just legal ones, where cash is king at what expense and risk is this to quality? Without a watchful eye to quality, short term savings gain could lead to long term cost and pain through product failure and/or poor performance. So what can be done to both deliver the anticipated savings and minimise the risks of using framework arrangements? With the outcome of October s Comprehensive Spending Review (CSR) now clear, it has never been more important for the public sector to achieve savings.. However, in the drive to save money authorities should not lose sight of the fact that mistakes, either when establishing or using major frameworks, can be costly and unless steps are taken to prevent these will significantly undermine the benefit of any savings to be gained. To guard against such mistakes the following key considerations should be borne in mind: For those establishing the framework: they should ensure that they have: Properly identified end user requirements and managed end user expectations: The desired savings will never be achieved if there's a reluctance to use the framework because the specification for goods or services offered, or the terms and conditions of the framework or call-off, are unacceptable to the end user; Thought carefully about, and clearly defined, the framework's scope and who can use it: The need for adequate definition of framework users has been hammered home by the OGC 3 in light of recent unwelcome attention that UK framework agreements have garnered. This is important not least because authorities who are not covered by the framework or who use it to make purchases which are out of scope could find themselves on the wrong end of a claim seeking both contract ineffectiveness and damages; Considered how supplier insolvency or instability will be dealt with under the terms of the framework; Procured and established the framework correctly and in accordance with procurement law: to include robust, transparent and objective call-off and pricing mechanisms whether these be for making direct call-offs or call-offs via mini competitions; 3 OGC Procurement Policy Note 16/10 8 September 2010.

3 Fully complied with the procurement law standstill requirements prior to making formal appointments to the framework (as a means of protection against contract ineffectiveness); Provided clear guidance and information to users on how to make compliant call-offs from the framework; Considered and incorporated adequate protection in the event of framework user non-compliance. This can often be dealt with in a separate agreement between the user and the establishing authority. For those using the framework: they should ensure that they have: Carried out the necessary due diligence to satisfy themselves that the framework has been procured in accordance with the requirements of procurement law, that it is fit for purpose (including its terms and conditions) and covers both the user and the user's requirements: The user's procurement law compliance can only ever be as good as the compliance of the body that establishes the framework. However, even a properly established framework is of no defence for the user where either the user or its requirements are outside scope; Checked that the body establishing the framework can lawfully carry out this role (either because it is a contracting authority or is acting as agent on behalf of a contracting authority): As also recently highlighted by OGC4 some non-contracting authorities have attempted to establish framework arrangements for use by the public sector. However, the use of such arrangements amounts to an illegal direct award in breach of procurement law, and leaves the unwary user exposed to the risk of significant procurement law penalties; Fully complied with the framework's requirements for making call-offs and any user obligations set out in the framework agreement and/or any separate agreement between the user and the establishing authority; Considered running a formal standstill prior to concluding a call-off appointment (whilst this is not mandated as a matter of procurement law it has the benefit of protecting the user from a call-off ineffectiveness claim). Contact For further information please contact Ruth Smith on or by at ruth.smith@pinsentmasons.com Pinsent Masons LLP 2010 This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. LONDON DUBAI BEIJING SHANGHAI HONG KONG SINGAPORE OTHER UK LOCATIONS: BIRMINGHAM BRISTOL EDINBURGH GLASGOW LEEDS MANCHESTER T Pinsent Masons LLP is a limited liability partnership, registered in England & Wales under the Limited Liability Partnership Act 2000, with registered number OC and having its registered office at CityPoint, One Ropemaker Street, London EC2Y 9AH, United Kingdom. A list of the members of the LLP, and of those non-members who are designated as partners, is displayed at the registered office. The word "partner", used in relation to the LLP, refers to a member of the Pinsent Masons' LLP or an employee or consultant of the Pinsent Masons' LLP with equivalent standing and qualifications. We use 'Pinsent Masons' to refer to Pinsent Masons LLP and affiliated entities that practise under the name 'Pinsent Masons' or a name that incorporates those words. Reference to 'Pinsent Masons' is to Pinsent Masons LLP and/or one or more of those affiliated entities as the context requires. For important regulatory information please visit: OGC Procurement Policy Note 15/10 12 July 2010

4 Procuring Efficiencies through Framework Agreements: Procurement Checklist continued on reverse

5 Focus on Framework Agreements and Ineffectiveness Pinsent Masons LLP 2010 This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. LONDON OTHER UK LOCATIONS: DUBAI BEIJING BIRMINGHAM SHANGHAI BRISTOL HONG KONG EDINBURGH SINGAPORE GLASGOW LEEDS MANCHESTER T Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) and regulated by the Solicitors Regulation Authority. The word 'partner', used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm who is a lawyer with equivalent standing and qualifications. A list of members of the LLP, and of those nonmembers who are designated as partners, is displayed at the LLP's registered office: CityPoint, One Ropemaker Street, London, EC2Y 9AH, United Kingdom. We use Pinsent Masons to refer to Pinsent Masons LLP and affiliated entities that practise under the name Pinsent Masons or a name that incorporates those words. Reference to Pinsent Masons is to Pinsent Masons LLP and/or one or more of those affiliated entities as the context requires. For important regulatory information please visit: