Assessing the value for money of OGCbuying.solutions

Transcription

1 Assessig the value for moey of OGCbuyig.solutios REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 103 Sessio December 2006

2 The Natioal Audit Office scrutiises public spedig o behalf of Parliamet. The Comptroller ad Auditor Geeral, Sir Joh Bour, is a Officer of the House of Commos. He is the head of the Natioal Audit Office, which employs some 850 staff. He, ad the Natioal Audit Office, are totally idepedet of Govermet. He certifies the accouts of all Govermet departmets ad a wide rage of other public sector bodies; ad he has statutory authority to report to Parliamet o the ecoomy, efficiecy ad effectiveess with which departmets ad other bodies have used their resources. Our work saves the taxpayer millios of pouds every year. At least 8 for every 1 spet ruig the Office.

3 Assessig the value for moey of OGCbuyig.solutios LONDON: The Statioery Office Ordered by the House of Commos to be prited o 12 December 2006 REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 103 Sessio December 2006

4 This report has bee prepared uder Sectio 6 of the Natioal Audit Act 1983 for presetatio to the House of Commos i accordace with Sectio 9 of the Act. Joh Bour Comptroller ad Auditor Geeral Natioal Audit Office 11 December 2006 The Natioal Audit Office study team cosisted of: Theresa Crowley, Da Varey ad Hedley Ayres, uder the directio of Mark Davies This report ca be foud o the Natioal Audit Office web site at For further iformatio about the Natioal Audit Office please cotact: Natioal Audit Office Press Office Buckigham Palace Road Victoria Lodo SW1W 9SP Tel: equiries@ao.gsi.gov.uk Natioal Audit Office 2006

5 CONTENTS SUMMARy 4 KEy FACTS 4 TERMS USEd i THiS REPORT 4 PART OE The role of OGCbuyig.solutios 8 OGCbuyig.solutios products ad services 8 OGCbuyig.solutios customer profile 8 PART THREE Is OGCbuyig.solutios positio withi 28 the public sector procuremet ladscape providig value for moey? APPEdiCES 1 methodology 33 2 Case studies 36 3 List of procuremet orgaisatios 43 OGCbuyig.solutios positio withi the 9 wider public sector procuremet ladscape Previous Committee of Public Accouts (PAC) 10 recommedatios The scope of the study 10 PART TWO The value for moey achieved by 12 OGCbuyig.solutios A) The competitiveess of 13 OGCbuyig.solutios prices B) OGCbuyig.solutios role i improvig the 20 rage of suppliers ad the quality of service these suppliers offer to customers C) OGCbuyig.solutios market peetratio 22 D) The potetial for OGCbuyig.solutios to 26 brig about a step chage i performace by focusig o a core set of products ad aligig staff skills Photographs courtesy of Alamy.com, MoreySmith, Digital Visio Ltd. ad PhotoDisc, Ic

6 SummARy 1 OGCbuyig.solutios was established i April Its primary role is to maximise the value for moey obtaied by govermet departmets, ad other public bodies, through the procuremet ad supply of goods ad services. Its operatios break dow ito three areas: framework agreemets agreemets with providers which set out terms ad coditios uder which specific purchases ca be made throughout the term of the agreemet; maaged services a o-goig service maaged by OGCbuyig.solutios o behalf of public bodies, for example, the Govermet Secure Itraet (GSi); ad memorada of uderstadig which offer public bodies guarateed lowest prices for software ad telecommuicatios. 2 This portfolio of products is desiged to offer public sector orgaisatios better value for moey tha they could achieve elsewhere. The aim is to give orgaisatios access to lower prices tha they could achieve ad eable them to reduce their process costs by avoidig the eed for them to let ad maage their ow procuremet cotracts. 3 This report assesses whether OGCbuyig.solutios is providig value for moey. Key Facts ad Terms overleaf 4 ASSESSING THE value FOR money OF OGCBuyING.SOLuTIONS

7 Key facts Terms used i this report Status OGCbuyig.solutios is a executive agecy of the Office of Govermet Commerce. OGCbuyig.solutios is also a tradig fud ad supports the delivery of the Office of Govermet Commerce s Public Service Agreemet targets which are: to improve public services by workig with departmets to help them meet their efficiecy targets amoutig to 21 billio a year by ; ad to deliver a 3 billio savig by i cetral govermet civil procuremet through improvemets i the success of programmes ad projects ad through other commercial activities. OGCbuyig.solutios employs 283 people who are primarily based at its two sites i Liverpool (head office) ad Norwich. Reveue ad costs OGCbuyig.solutios raises reveue by chargig suppliers a small commissio (averagig less tha oe per cet) for each sale they make uder its framework agreemets. For maaged services, the busiess model rages from commissio to purchase ad sale at a small margi. I , OGCbuyig.solutios turover was 70 millio with a surplus after costs of 4 millio. This represets a retur o capital employed of 16.6 per cet. Customers Over 6,600 customers registered sped through OGCbuyig. solutios i ragig from major govermet departmets to idividual schools. OGCbuyig.solutios remit exteds across both cetral govermet ad the wider public sector comprisig cetral govermet, local govermet, health, educatio, devolved admiistratios, emergecy services, defece, utilities ad ot for profit sectors. It also exteds to devolved admiistratios ad the local govermet, health, educatio ad emergecy services i Scotlad, Wales ad Norther Irelad. Customer sped ad market share I public sector orgaisatios spet 2,795 millio through OGCbuyig.solutios rage of products. Cetral govermet accouted for 54 per cet of total sped with the wider public sector accoutig for the remaider. Customer sped has grow by 150 per cet sice Sped through OGCbuyig.solutios accouts for five per cet of total cetral govermet procuremet sped ad less tha oe per cet of wider public sector procuremet sped. Products OGCbuyig.solutios operatios break dow ito three areas framework agreemets, maaged services ad memorada of uderstadig. I it operated approximately 180 framework agreemets, five maaged services ad five memorada of uderstadig. Framework agreemets accouted for 78 per cet of customer sped, maaged services 12 per cet ad memorada of uderstadig 10 per cet. Its operatios cover a wide rage of products icludig iformatio techology (IT) equipmet, telecommuicatios, professioal services, facilities maagemet, paymet cards ad eergy. Suppliers There are 621 suppliers (292 small ad medium sized eterprises [SMEs]) across OGCbuyig. solutios three product areas ragig from major compaies to very small firms. They cover over 500,000 idividual products ad services. Savigs OGCbuyig.solutios reported value for moey savigs of 412 millio i Savigs due to customers payig lower prices tha public sector average prices accouted for 52 per cet of savigs. Savigs due to customers avoidig the process costs of lettig ad maagig cotracts accouted for the remaiig 48 per cet. Savigs have grow by 71 per cet sice Body Shop Body Shop is a framework agreemet for iformatio techology (IT) specialists ad admiistrative persoel. Catalist Catalist is the brad ame for OGCbuyig.solutios framework agreemets. Cetral civil govermet Cetral civil govermet excludes the Natioal Health Service ad defece military procuremet. eauctio A eauctio is a dyamic olie egotiatio process betwee pre-selected suppliers for a specific piece of busiess. Suppliers compete olie ad i real-time usig the iteret to commuicate offers. Framework agreemet A framework agreemet is a geeral term for agreemets with providers which set out terms ad coditios uder which specific purchases (call-offs) ca be made throughout the term of the agreemet. Maaged service Maaged services are a rage of o-goig services maaged by OGCbuyig.solutios o behalf of public sector customers. Cotractual arragemets betwee OGCbuyig.solutios ad suppliers are geerally through a set of framework agreemets. Memorada of uderstadig (MoU) OGCbuyig.solutios maages several memorada of uderstadig which provide public sector orgaisatios with geeral lowest price guaratees. Mii-competitio Suppliers from a framework agreemet are ivited to teder for a specific customer cotract. It ca also be referred to as further competitio. Public sector procuremet ladscape A phrase referrig to the rage of public sector orgaisatios that udertake procuremet, how they are structured ad iteract with oe aother. Quick Wi products I 2003, the Govermet implemeted a rage of measures to ecourage departmets to apply miimum evirometal stadards across a wide rage of commoly purchased products. The Sustaiable Procuremet Group respoded to this by idetifyig a umber of Quick Wis which could help govermet departmets meet these stadards. These were ehaced i Tradig fud A tradig fud is a fiacig mechaism for govermet tradig activities. The objective is to set up autoomous operatios with their ow capital base; thereby eablig more effective fiacial ad busiess maagemet alog covetioal commercial lies. I particular, it would ot be ecessary to seek fudig from Parliamet each year (through the Parliametary Supply process) for operatios vested i the tradig fud. Istead, the tradig fud s fiacial resources would be maaged withi the framework established by the Govermet Tradig Fuds Act 1973 (as ameded by the Govermet Tradig Act 1990). I basic terms, a tradig fud may keep cash received, may borrow (oly from its authorised public sector leder), ad may ivest surplus fuds (oly i the public sector), but may also pay divideds to the Exchequer. Volume commitmet Volume commitmet is a estimate by a orgaisatio of its likely sped through a framework agreemet if the framework agreemet meets its requiremets. It does ot ecessarily mea a legal commitmet, but may be i the form of a letter of itet, meetig ote, or simply a verbal idicatio that is coveyed to suppliers.

8 What has bee achieved? 4 OGCbuyig.solutios operates withi a uco ordiated public sector procuremet ladscape ad is i competitio with other procuremet orgaisatios ad departmet-led framework agreemets. Whilst operatig withi this ladscape, OGCbuyig.solutios reported value for moey savigs of 412 millio i , a icrease of 71 per cet sice These savigs have bee achieved i a umber of ways: the majority of prices paid by OGCbuyig.solutios customers are more competitive tha the equivalet public sector market average price; 2 usig OGCbuyig.solutios saves public sector orgaisatios sigificat procuremet process costs by avoidig the eed to let ad maage idividual procuremet cotracts; ad customer sales have icreased by 150 per cet sice with over 6,600 customers across the wider public sector usig OGCbuyig.solutios i Guarateed compliace with Europea Uio procuremet legislatio ad reduced process costs are idetified by customers as the key drivers behid this growth. There is o formal madate that orgaisatios should use OGCbuyig.solutios. What is the potetial to achieve more? 5 Whilst the value for moey savigs reported by OGCbuyig.solutios are sigificat, our examiatio idetified cosiderable potetial to icrease value for moey still further. OGCbuyig.solutios has the potetial to improve its ow performace ad further value for moey savigs could be achieved if the public sector procuremet ladscape were better co-ordiated: Despite strog sales growth, OGCbuyig.solutios market peetratio is low. A realistic medium term objective would be to double market peetratio which could icrease savigs by up to 400 millio per aum. Give the potetial for OGCbuyig.solutios to exploit sigificat buyig power, it should aim for the prices paid by its customers to be cosistetly i the lowest 25 per cet of public sector market prices. Based o the three professioal services framework agreemets examied i this report, ad assumig a doublig of sales volume, this could icrease savigs by up to 120 millio per aum. Across the top 25 per cet of framework agreemets, savigs could icrease by up to 260 millio per aum. Recommedatios 6 To achieve the potetial outlied above, OGCbuyig.solutios will eed to improve performace sigificatly i a umber of areas (see Key Fidigs box, overleaf): Recommedatio 1: OGCbuyig.solutios should improve the prices paid by customers through its framework agreemets ad maaged services by (paragraphs ): bechmarkig its prices agaist the lowest 25 per cet of prices paid by public sector orgaisatios, as well as the average prices paid, ad icludig all egative price savigs 3 whe calculatig value for moey savigs (paragraph 2.4 ad paragraphs ); securig greater volume commitmet from customers through cosultig customers more whe lettig ew framework agreemets (paragraphs ); reviewig framework agreemet ad maaged services prices regularly to esure they stay competitive compared to market prices (paragraphs ); icreasig the use of eauctios, where applicable, for lettig ew framework agreemets (paragraphs ); ad miimisig suppliers costs of dealig with OGCbuyig.solutios (paragraph 2.21). 1 Part 2 of this report idicates that the reported savigs i would have bee lower if OGCbuyig.solutios had fully take ito accout egative savigs whe prices paid by its customers were higher tha the public sector market average price. 2 This aalysis is based o OGCbuyig.solutios price bechmarkig data which covered approximately 50 per cet of customer sales i Whe OGCbuyig.solutios prices are more expesive tha the market average. Assessig the value for moey of OGCbuyig.solutios 5

9 summary Key fidigs Supportig our recommedatios O price competitiveess we foud that: the majority of prices paid by OGCbuyig.solutios customers were cheaper tha the equivalet public sector market average price; but, we examied three large professioal services framework agreemets ad foud the prices paid by OGCbuyig. solutios customers are uder performig agaist the lowest 25 per cet of public sector market prices, give OGCbuyig.solutios potetial to exert sigificat buyig power; ad most smaller orgaisatios surveyed, i terms of procuremet sped, cosidered that usig OGCbuyig.solutios offered their orgaisatio cheaper prices most of the time. Larger orgaisatios sped through OGCbuyig.solutios is cosiderable, although it makes up a small proportio of their total procuremet sped. Most large orgaisatios, with more buyig power, cosidered OGCbuyig.solutios prices less competitive tha they could achieve elsewhere. O supplier maagemet we foud that: oly 33 per cet of cetral govermet orgaisatios surveyed rated the rage of suppliers as either excellet or good; aroud half of the orgaisatios surveyed rated the quality of service as either excellet or good; ad customers were ot cosulted eough about supplier performace ad suppliers cosidered OGCbuyig.solutios curret supplier ratig system did ot provide them with eough iformatio to eable them to improve performace. O market peetratio we foud that: despite strog growth i sales i recet years, OGCbuyig. solutios market peetratio remais low compared to iteratioal comparisos; customers view reduced process costs as a key beefit of usig OGCbuyig.solutios ad that OGCbuyig.solutios could icrease take up by demostratig, through promotio of its research o the costs of lettig ad maagig cotracts, how much customers ad o-customers could save; i additio to cheaper prices, more cosultatio with customers ad a improved website were idetified by customers as key improvemets that would icrease take up; clearer iformatio o how to use OGCbuyig.solutios ad improved marketig were idetified by o-customers as key improvemets that would icrease customers; ad the majority of customers are ot usig the service provided by OGCbuyig.solutios which idetifies Quick Wi products o its framework agreemets. O staff skills we foud that: OGCbuyig.solutios has skill gaps i key areas icludig commercial skills ad staff with private sector kowledge of idividual product markets. O OGCbuyig.solutios product portfolio we foud that: Niety oe per cet of framework agreemet sales are udertake through oly 25 per cet of framework agreemets. Recommedatio 2: OGCbuyig.solutios should improve the rage of suppliers ad the quality of service these suppliers offer to customers by (paragraphs ): cosultig with customers to esure the rage of suppliers across its framework agreemets ad maaged services meet customer requiremets (paragraphs ); ad developig its supplier performace moitorig to esure customers are cosulted regularly o the performace of suppliers ad suppliers are provided with relevat feedback to eable them to make improvemets to their quality of service (paragraph 2.30). Recommedatio 3: OGCbuyig.solutios should icrease market peetratio by (paragraphs ): dissemiatig the results of its research o the cost of lettig ad maagig cotracts to eable public sector orgaisatios to make iformed decisios about whe to use collaborative procuremet methods (paragraphs ); cosultig more widely with customers to uderstad their requiremets, for example, whe lettig ew framework agreemets (paragraphs ); improvig its website to meet customer requiremets (paragraph 2.41); commuicatig more effectively with o-customers (paragraphs ); ad facilitatig the achievemet of sustaiability policy objectives through raisig customer awareess of the rage of Quick Wi products available o its framework agreemets (paragraphs ). 6 Assessig the value for moey of OGCbuyig.solutios

10 summary Recommedatio 4: I order to realise its value for moey potetial, OGCbuyig.solutios will eed staff that have the right rage of abilities icludig: commercial skills, marketig ad commuicatio skills ad private sector kowledge of idividual product markets. OGCbuyig.solutios should udertake a staff skills audit to esure staff skills match future plaed activity (paragraphs ). Recommedatio 5: The Office of Govermet Commerce ad OGCbuyig.solutios should work together to determie the portfolio of framework agreemets ad maaged services to maximise OGCbuyig.solutios value for moey (paragraphs ad paragraphs ). Recommedatio 6: The Office of Govermet Commerce should esure that OGCbuyig.solutios targets provide OGCbuyig.solutios with the right icetives to drive performace across all of its activities (paragraphs ). Value for moey potetial summary 7 OGCbuyig.solutios reported value for moey savigs of 412 millio i Our recommedatios provide a route for OGCbuyig.solutios to improve its performace. This, combied with a more co-ordiated public sector procuremet ladscape, would, i our judgemet, offer potetial for further savigs of 520 millio to 660 millio. The chages required to implemet these recommedatios ivolve a more effective use of existig resources, although there will also be some costs icurred. A descriptio of these additioal savigs is outlied below: Icreased market peetratio: 400 millio per aum 8 Curretly OGCbuyig.solutios has a market share of five per cet of cetral civil govermet procuremet sped ad less tha oe per cet of wider public sector procuremet sped. A realistic medium term objective for OGCbuyig.solutios would be to double the level of customer sales ad brig its market peetratio to 10 per cet of cetral civil govermet procuremet sped ad to two per cet of wider public sector procuremet sped. This would be equivalet to sales of 5,000 millio per aum ad should result i additioal value for moey savigs i the regio of 400 millio per aum, based o curret percetages of savigs achieved per uit of customer sped. Improved price performace: 120 millio to 260 millio per aum 9 I additio, a further objective for OGCbuyig. solutios would be, give its potetial purchasig stregth, for prices i the top quarter of its framework agreemets (by volume) to be i the lowest 25 per cet of public sector prices. Our aalysis of three high volume professioal services framework agreemets, for example, idicates that, for prices across all staff categories to be i the lowest 25 per cet of public sector prices, would require a reductio i prices of betwee four ad 19 percetage poits. If this price reductio is applied to the sales through these three framework agreemets aloe it would result i savigs i the regio of 60 millio per aum, based o sales. If sales i these three framework agreemets were to double, as outlied above, savigs would icrease to 120 millio per aum. Applyig similar price reductios to the total sales volume across the top quarter of framework agreemets, the savigs would rise to 130 millio per aum, based o sales. If sales across the top quarter of framework agreemets were to double, the the savigs would icrease further to 260 millio per aum (see Appedix 1 for more detail). Assessig the value for moey of OGCbuyig.solutios 7

11 PART ONE The role of OGCbuyig.solutios 1.1 The profile of public sector procuremet has icreased i recet years. I 2004, the Govermet accepted the recommedatios of a report o public sector efficiecy by Sir Peter Gersho. As a result, each departmet was set a series of efficiecy targets to be achieved by March 2008 totallig 21.5 billio i efficiecy gais. Procuremet makes up the largest percetage of these targets, accoutig for approximately 8 billio i efficiecy gais across the whole public sector. 1.2 OGCbuyig.solutios was established as a executive agecy of the Office of Govermet Commerce, a Office of HM Treasury, o 3 April It is also a tradig fud. It iherited the fuctios of The Buyig Agecy (TBA) ad the maaged services divisio of the Cetral Commuicatios ad Telecommuicatios Agecy (CCTA), both of which were trasferred to the Office of Govermet Commerce o 1 April The primary role of OGCbuyig.solutios is to maximise the value for moey obtaied by govermet departmets, ad other public bodies, through the procuremet ad supply of goods ad services uder arragemets that provide quality assurace ad comply with public purchasig policy ad regulatios, icludig those of the Europea Uio. It supports the delivery of the Office of Govermet Commerce s Public Service Agreemet targets which are: to improve public services by workig with departmets to help them meet their efficiecy targets amoutig to 21 billio a year by ; ad to deliver a 3 billio savig by i cetral govermet civil procuremet through improvemets i the success of programmes ad projects ad through other commercial iitiatives. 1.4 I OGCbuyig.solutios customer sped totalled 2,795 millio 4 with associated value for moey savigs of 412 millio. OGCbuyig.solutios products ad services 1.5 OGCbuyig.solutios operatios cover three mai areas: framework agreemets, maaged services ad memorada of uderstadig (Figure 1). 1.6 I , framework agreemets accouted for 78 per cet of customer sped, with maaged services accoutig for 12 per cet ad memorada of uderstadig accoutig for the remaiig 10 per cet (Figure 2). 1.7 OGCbuyig.solutios maagemet iformatio divides OGCbuyig.solutios 180 framework agreemets ito 105 broader categories. Our aalysis of this maagemet iformatio shows that, i , the top 25 per cet of framework agreemets accouted for 91 per cet of framework sales. 5 OGCbuyig.solutios customer profile 1.8 OGCbuyig.solutios remit exteds across both cetral govermet ad the wider public sector. As outlied i Figure 3, this comprises cetral civil govermet, local govermet, health, educatio, devolved admiistratios, emergecy services, defece, utilities ad ot for profit sectors. It also exteds to devolved admiistratios ad the local govermet, health, educatio ad emergecy services i Scotlad, Wales ad Norther Irelad. Cetral civil govermet makes up 4 This figure is slightly higher tha the figure quoted i OGCbuyig.solutios aual report for of 2,671 millio. This is due to icludig iformatio o customer sped through memorada of uderstadig that was ot available at the time the aual report was published. 5 This assumes that the 180 framework agreemets are spread evely across the 105 maagemet iformatio categories. 8 ASSESSING THE value FOR money OF OGCBuyING.SOLuTIONS

12 part oe 54 per cet of total customer sped. Of this, 55 per cet is udertake by cetral govermet departmets (excludig their agecies ad NDPBs), equatig to approximately 30 per cet of total customer sped. OGCbuyig.solutios positio withi the wider public sector procuremet ladscape 1.9 There are a large umber of other procuremet orgaisatios across the wider public sector. May of these procuremet orgaisatios cover specialist goods ad services ot covered by OGCbuyig.solutios framework agreemets ad maaged services. However, there is also cosiderable duplicatio of framework agreemets i more stadard product areas. Whilst there is some co-ordiatio betwee the differet procuremet orgaisatios, there is also direct competitio for customers i may product areas. Furthermore, govermet departmets, their executive agecies ad NDPBs ad wider public sector orgaisatios also operate framework agreemets, some of which cover similar product areas to OGCbuyig. solutios framework agreemets. 1 OGCbuyig.solutios areas of operatio Framework agreemets: a geeral term for agreemets with providers which set out terms ad coditios uder which specific purchases (call-offs) ca be made throughout the term of the agreemet. Cotracts for idividual purchases are made directly betwee customers ad suppliers. A commissio (averagig less tha 1 per cet) is collected from suppliers for each sale made uder a OGCbuyig.solutios framework agreemet. The framework agreemets are grouped together uder the Catalist umbrella brad ad cover iformatio techology (IT), cosultacy services, resourcig services, busiess solutios, facilities support ad paymet cards. Catalist comprises approximately 180 framework agreemets with over 600 framework cotracts with idividual suppliers coverig 500,000 products. Maaged services: a rage of o-goig services maaged by OGCbuyig.solutios o behalf of public sector customers. Cotractual arragemets betwee OGCbuyig.solutios ad suppliers are through a set of framework agreemets. Customers are charged for the maaged services i a variety of ways ragig from commissio to traditioal purchase ad sale at a small margi. The maaged services cover five specific services: Maaged Telecommuicatios Service, Eergy, Govermet Secure Itraet (GSi), eprocuremet Solutios ad the recetly itroduced Travel Service. 2 Framework agreemets made up 78 per cet of OGCbuyig.solutios sales i Breakdow of customer sped Maaged services 12% Source: OGCbuyig.solutios maagemet iformatio 3 MoUs 10% Source: OGCbuyig.solutios maagemet iformatio NOTES Framework agreemets 78% OGCbuyig.solutios remit exteds across the wider public sector Breakdow of customer sped across public sector orgaisatios ( ) 1 Devolved admiistratios 7% Emergecy services 5% Health 12% 1 Excludes MoU sales. Educatio 3% Local govermet 11% Other 2 8% 2 Other icludes: defece, ot for profit, private sector, utility ad ucategorised. Cetral civil govermet 54% Memorada of uderstadig: The memorada of uderstadig provide public sector customers with lowest price guaratees. OGCbuyig.solutios maages five memorada of uderstadig coverig four software compaies (Microsoft, Oracle, IBM ad Su Microsystems) together with the BT Premier Value memoradum of uderstadig. Assessig the value for moey of OGCbuyig.solutios 9

13 part oe 1.10 As already highlighted, OGCbuyig.solutios remit exteds to Scotlad, Wales ad Norther Irelad. OGCbuyig.solutios works closely with the Scottish Executive ad Value Wales 6 to esure activity is co ordiated. For example, it has a memoradum of uderstadig with the Scottish Executive ad oe is plaed with Value Wales. Previous Committee of Public Accouts (PAC) recommedatios 1.11 The PAC has made three previous recommedatios specifically aimed at OGCbuyig.solutios. The progress agaist these recommedatios is show i Figure 4. The scope of the study 1.12 This report addresses the issue of whether OGCbuyig.solutios is providig value for moey for its customers ad whether there is potetial to do more. The study is divided ito two mai areas: assessig whether OGCbuyig.solutios products ad services are providig value for moey ad whether there is potetial to do more (Part 2); ad examiig OGCbuyig.solutios role withi the wider public sector procuremet ladscape ad whether this is providig optimal value for moey (Part 3). Our fidigs are based o: aalysis of data from a survey of 132 cetral govermet orgaisatios (icludig cetral govermet departmets, o-miisterial govermet departmets, executive agecies ad o-departmetal public bodies); aalysis of data from a telephoe survey of wider public sector customers of OGCbuyig.solutios. This covered 222 customer orgaisatios (91 from the health sector, 80 from the local govermet sector ad 51 from the emergecy services sector); aalysis of data from a telephoe survey of o customers of OGCbuyig.solutios. This covered 104 o-customer orgaisatios (48 from cetral govermet ad 56 from the wider public sector); case study examiatios of six public sector procuremet orgaisatios i the UK ad overseas ivolvig iterviews with key staff ad documet reviews; aalysis of the results of five focus groups with suppliers o OGCbuyig.solutios framework agreemets ad maaged services. The focus groups ivolved 42 suppliers from a cross sectio of product areas; detailed aalysis of OGCbuyig.solutios maagemet iformatio; semi-structured iterviews with key staff from OGCbuyig.solutios; ad aalysis of procuremet otices published i the Official Joural of the Europea Uio. (See Appedix 1 for a full descriptio of the methodology, icludig a explaatio of the survey sample umbers show i a umber of the figures throughout the report.) 6 Value Wales is part of the Welsh assembly ad has bee established to act as a major catalyst for chage across the Welsh public sector, to help orgaisatios achieve real ad sustaiable improvemets ad realise value for moey opportuities. It works with Welsh public sector orgaisatios lookig to improve co operatio betwee them o the provisio of services to the public, the achievemet of efficiecy ad other gais through smarter procuremet ad deliverig a fit for purpose ad sustaiable capital ifrastructure estate. 10 Assessig the value for moey of OGCbuyig.solutios

14 part oe 4 Previous PAC recommedatios relatig to OGCbuyig.solutios PAC report Purchasig ad maagig software liceces (HC 306) February 2004 Purchasig ad maagig software liceces (HC 306) February 2004 Improvig departmets capability to procure costeffectively (HC 541) October 2004 PAC recommedatio I the light of their icreased kowledge of the marketplace, their greater experiece gaied from successive deals, ad the opeig of discussios with Microsoft, OGC should see whether a improved Memoradum offerig further savigs is possible. OGC is focusig its publicity ad awareess campaigs o those who are ot procurig software through the memorada. OGC should track the progress of these campaigs ad take further actio if awareess ad take up of the deal remai lower tha expected. Greater use should be made of the Govermet Procuremet Card Progress A ew memoradum of uderstadig was agreed with Microsoft i October 2004 which icorporates all of the existig discout structures, as well as a reduced reewal licece price for orgaisatios that choose to reew their licece agreemet immediately o its expiry. The ew memoradum also icludes a paymets gap feature which eables orgaisatios to delay ivestig i ew software o expiry of its existig agreemet if, for example, there is o immediate busiess case for it. There is also a ew etry level package for smaller orgaisatios. I additio, the ew memoradum offers a tiered level of discout which is based o the umber of qualifyig desktop computers withi the public sector. The maximum discout threshold of 1.5 millio was reached i July To improve publicity ad awareess amogst public sector customers the memorada of uderstadig have bee give a dedicated area o OGCbuyig.solutios website. They also feature regularly i OGCbuyig.solutios public sector procuremet magazie as well as targeted marketig campaigs. Sales through the Microsoft ad Oracle software licece memorada have icreased by 42 per cet betwee ad Whilst growth has bee strog, there appears to be sigificat potetial for improvemet. For example, our survey asked whether orgaisatios were usig the Microsoft memoradum of uderstadig. I cetral govermet, 47 per cet of orgaisatios ad i the wider public sector 51 per cet of orgaisatios did ot use the memoradum. Of the orgaisatios that did ot use the memoradum, 25 per cet of cetral govermet orgaisatios ad 37 per cet of wider public sector orgaisatios had ot heard of the memoradum. Trasactios usig the Govermet Procuremet Card have icreased from 305 millio i 2003 to 528 millio i 2005, a growth of 73 per cet. The umber of cards has icreased from 40,000 at the start of 2003 to 84,000 i Jue 2006, a growth of 111 per cet. Whilst this shows good progress, our survey idicates that there is sigificat potetial to icrease use of the Govermet Procuremet Card further. For example, 22 per cet of cetral govermet customers ad 73 per cet of wider public sector customers that were surveyed are ot curretly usig the Govermet Procuremet Card. Our survey also idicated that a umber of orgaisatios were usig a alterative paymet card. Source: Committee of Public Accouts (2004); Natioal Audit Office NOTE 1 No sales data is available for the memorada of uderstadig with IBM ad Su Microsystems. No sales data is available for ay of the memorada of uderstadig before The 42 per cet growth rate is based o fiacial year data provided by Oracle ad Microsoft. The Oracle year ed is May whilst the Microsoft year ed is Jue. Assessig the value for moey of OGCbuyig.solutios 11

15 PART TWO The value for moey achieved by OGCbuyig.solutios 2.1 This part of the report cosiders the value for moey beig achieved by OGCbuyig.solutios ad the potetial to improve this performace, cocetratig o: A) the competitiveess of OGCbuyig.solutios prices; B) OGCbuyig.solutios role i improvig the rage of suppliers ad the quality of service these suppliers offer to customers; C) OGCbuyig.solutios market peetratio; ad D) the potetial for OGCbuyig.solutios to brig about a step chage i performace by focusig o a core set of products ad aligig staff skills. 2.2 OGCbuyig.solutios is a fiacially well maaged tradig fud ad has met its target to achieve 6.5 per cet retur o capital employed i each of the last three years. It has a clear visio of its purpose to provide value for moey for the public sector, ecapsulated i OGCbuyig. solutios visio statemet Savigs for the atio. It is set a aual target for value for moey savigs ad has met this target i each of the last three years. 7 I , OGCbuyig.solutios reported value for moey savigs of 412 millio, exceedig its target by 12 millio. As show i Figure 5, this represets a growth of 71 per cet sice OGCbuyig.solutios measures value for moey savigs i two ways: price savigs: value for moey savigs associated with payig a lower price for goods/services as a result of usig OGCbuyig.solutios compared to the public sector market average price (see Figure 6); ad process cost savigs: value for moey savigs associated with the avoided cost of lettig ad maagig cotracts as a result of usig OGCbuyig. solutios (see Figure 6) Source: OGCbuyig.solutios maagemet iformatio NOTE OGCbuyig.solutios has achieved value for moey savigs growth of 71 per cet over the last two years Value for moey savigs ( millio) Combied price/process cost 1 Process cost Price No split i price ad process cost is available before I overall terms, our examiatio of this methodology cocluded that it provides a reasoable assessmet of the savigs beig provided by OGCbuyig. solutios. Historically, OGCbuyig.solutios has ot take accout of egative price savigs (whe its prices are more expesive tha the market average). Recogisig the priciple, it has started to icorporate egative savigs i its value for moey calculatios. Our aalysis has idetified further areas where egative savigs ca be icorporated. For example, for its telecommuicatios framework agreemets, we estimated that egative price savigs were approximately 5 millio i I additio, usig its ow costs of lettig ad maagig 7 OGCbuyig.solutios performace targets are recommeded by the Chief Executive of the Office of Govermet Commerce, agreed by the Fiacial Secretary to the Treasury ad are laid before Parliamet. 8 The growth i value for moey savigs sice has bee 300%. However, measuremet of value for moey savigs i covered a arrower set of products. Therefore, some of the growth i savigs over this period is due to improved measuremet techiques rather tha improved performace. 12 ASSESSING THE value FOR money OF OGCBuyING.SOLuTIONS

16 part two cotracts to calculate process cost savigs may ot reflect the costs actually icurred by customers. OGCbuyig.solutios is curretly workig with five cetral govermet orgaisatios to determie the costs ivolved i lettig ad maagig cotracts. 2.5 Our examiatio idetified sigificat potetial to improve its value for moey performace. The remaider of this sectio looks at three key aspects of OGCbuyig.solutios value for moey performace: the competitiveess of prices; supplier maagemet; ad the degree of market peetratio. It cocludes by lookig at the potetial for OGCbuyig.solutios to achieve a step chage i performace by cocetratig o a core set of products ad aligig staff skills to this more focused approach. A) The competitiveess of OGCbuyig.solutios prices 2.6 The price customers pay for goods ad services through OGCbuyig.solutios framework agreemets ad maaged services is a key part of assessig whether OGCbuyig.solutios is providig customers with better value for moey tha they could achieve elsewhere. 9 Here we foud that: the majority of prices paid by OGCbuyig.solutios customers were cheaper tha the equivalet public sector market average price; but, we examied three large professioal services framework agreemets ad foud the prices paid by OGCbuyig.solutios customers are uderperformig agaist the lowest 25 per cet of public sector market prices give OGCbuyig. solutios potetial to exert sigificat buyig power; ad most smaller orgaisatios surveyed, i terms of procuremet sped, cosidered that usig OGCbuyig.solutios offered their orgaisatio cheaper prices most of the time. Larger orgaisatios sped through OGCbuyig.solutios is cosiderable, although it makes up a small proportio of their total procuremet sped. Most large orgaisatios, that could exert more buyig power, cosidered OGCbuyig.solutios prices less competitive tha they could achieve elsewhere. 6 Price savigs Methodology for calculatig value for moey savigs OGCbuyig.solutios uses idepedet bechmarkig orgaisatios to compare the prices paid through its framework agreemets ad maaged services to those paid for the same or comparable products/services, at the same uit of quatity, from the same or comparable suppliers, withi the same time period, by public sector orgaisatios ot usig OGCbuyig.solutios. I some product categories OGCbuyig.solutios bechmarks all products/services sold over a specified time period. I others, due to the high umber of products available (ad occasioally low sales volumes) a shoppig basket of high volume items is produced. The frequecy of bechmarkig is drive by the level of price volatility i a give market; for example computer prices are bechmarked every 12 weeks, whereas the price of legal services is bechmarked oce a year. For framework agreemets, price savigs are calculated by bechmarkig the average prices paid by OGCbuyig. solutios customers with the public sector market average prices across a rage of products ad services. The average prices paid by OGCbuyig.solutios customers are derived usig returs from suppliers o OGCbuyig.solutios framework agreemets ad represet the actual price paid by customers whether usig the framework agreemet catalogue price or the price paid followig a mii-competitio. The public sector market average price is derived usig a survey of 150 public sector orgaisatios which asks for the prices paid for a rage of products ad services icludig IT, Telecommuicatios, Professioal Services ad Facilities Maagemet. The profile of the 150 orgaisatios is desiged to match the profile of OGCbuyig.solutios customer base. The bechmarkig results for each product category are applied to the total customer sped i that category ad these are totalled to provide a overall estimate of the price savigs figure. For maaged services, prices paid by OGCbuyig.solutios customers are compared with a estimate of the cost of purchasig a similar service through a sample of other suppliers. For memorada of uderstadig, the idividual suppliers provide OGCbuyig.solutios with data o customer sales ad the discout received compared with their stadard prices. Process cost savigs Process cost savigs are derived usig the estimated cost of lettig ad maagig a cotract based o OGCbuyig. solutios ow costs of lettig ad maagig cotracts. A estimate of the umber of cotracts avoided by customers is made by OGCbuyig.solutios based o the quarterly sped data provided by suppliers. These are combied to produce a overall estimate of the process cost savigs figure. Source: OGCbuyig.solutios/Natioal Audit Office 9 There are three differet types of price that ca be paid by customers: the framework agreemet catalogue price/maaged service charge; the price o applicatio; ad the price determied followig a mii-competitio ivolvig suppliers from a framework agreemet. The framework agreemet catalogue price is the price agreed with the suppliers whe the cotract is let. This may be revised over time accordig to the terms ad coditios of the framework agreemet, for example, through regular price reviews with the supplier. The price o applicatio is used where, due to frequet raw material price ad product specificatio chages, it is ot possible to provide product specific pricig. A mii-competitio is where a customer ivites suppliers from a framework agreemet to teder for a specific cotract. Uder the recetly adopted ew Europea Procuremet Directive this is referred to as further competitio ad requires that all capable suppliers are ivited to teder. This may result i a price lower tha the origial framework catalogue price. Assessig the value for moey of OGCbuyig.solutios 13

17 part two OGCbuyig.solutios prices perform well agaist public sector market average prices 2.7 Figure 7 shows that across the rage of framework agreemets ad maaged services bechmarked by OGCbuyig.solutios i , prices paid by OGCbuyig.solutios customers were below the public sector market average price for the majority of categories. These categories accout for approximately 95 per cet of the sales covered by the bechmarkig exercise. 10 The categories where prices were ucompetitive were geerally i markets where prices are fast movig (for example, broadbad). OGCbuyig.solutios prices are uderperformig give their advataged positio 2.8 OGCbuyig.solutios is, however, i a positio to exert sigificat buyig power ad could be expected to secure prices below the average public sector market price. Therefore, a more challegig compariso is agaist the lower quartile of public sector market prices (the lowest 25 per cet of prices paid by the public sector). 7 The majority of prices paid by OGCbuyig.solutios customers are lower tha the public sector market average prices OGCbuyig.solutios price vs public sector market average (positive percetage idicates discout to market average) Product category MTS maaged service IT desktop/otebook Applicatio developmet Property ad costructio services Programme ad project maagemet IT maiteace Eergy IT server Body Shop Maagemet ad busiess cosultacy Legal services (Lodo) IT accessories IT priters Fiacial cosultacy Mobile phoe (lie retal ad call charges) IT cosumables IT software Legal services (Regios) Broadbad Voice/data services 95 per cet of bechmarked sales are udertake at prices that are more competitive tha the public sector average 5 per cet of bechmarked sales are udertake at prices that are less competitive tha the public sector average Source: OGCbuyig.solutios maagemet iformatio Percetage NOTE 1 Does ot iclude facilities maagemet data as this was ot available at publicatio. 10 The bechmarked categories accout for approximately 50 per cet of all customer sales through OGCbuyig.solutios framework agreemets ad maaged services. There was o price bechmarkig data available for Facilities Maagemet framework agreemets at the time of publicatio. 14 Assessig the value for moey of OGCbuyig.solutios

18 part two 2.9 For example, we took three of OGCbuyig.solutios higher sped professioal services framework agreemets (Body Shop 11, Applicatio Developmet ad Maagemet ad Busiess Cosultacy 12 ), which had a combied customer sped of 647 millio i , ad compared prices (day rates) paid by OGCbuyig.solutios customers agaist the lower quartile of public sector market prices. Figure 8 shows that, for Body Shop, while prices paid by OGCbuyig.solutios customers were below the public sector market average i four out of six staff categories, oly oe out of six (Applicatio Programmer) was below the lower quartile. Over the three framework agreemets, prices paid by OGCbuyig.solutios customers were below the public sector market average price i 13 out of 16 staff categories, but oly seve out of 16 were i the bottom 25 per cet of prices paid by the public sector. Larger orgaisatios cosider they ca secure cheaper prices tha those offered through usig OGCbuyig.solutios 2.10 Our survey results also idicated that OGCbuyig. solutios is ot exploitig its potetial to exert sigificat buyig power. Cetral govermet customers were asked whether procurig through OGCbuyig.solutios eabled their orgaisatio to obtai lower prices tha they could achieve elsewhere. 13 Figure 9 overleaf shows that most orgaisatios i the lower quartile of procuremet sped cosider OGCbuyig.solutios goods/services offered cheaper prices i the majority of cases. Larger orgaisatios sped through OGCbuyig.solutios is cosiderable, but it makes up a small proportio of their total procuremet sped (approximately four per cet for the upper quartile orgaisatios whose total procuremet sped is over 120 millio a year). Most large orgaisatios cosider they ca achieve cheaper prices tha OGCbuyig.solutios i the majority of cases. Our survey highlighted, however, that the majority (66 per cet) of the cetral govermet orgaisatios surveyed used OGCbuyig.solutios framework agreemet catalogue prices to compare agaist prices they could achieve i the market. This ca be misleadig. The catalogue price is geerally the price for a sigle item whilst a orgaisatio may be gaugig the price they ca achieve elsewhere usig a larger product quatity. This highlights the eed for OGCbuyig.solutios to provide customers with better iformatio o actual prices paid by customers usig its framework agreemets. 8 OGCbuyig.solutios is uderperformig agaist the lower quartile of public sector market prices OGCbuyig.solutios Body Shop prices vs public sector market average (positive percetage idicates discout to market average) OGCbuyig.solutios Body Shop prices vs lower quartile of public sector prices (positive percetage idicates discout to lower quartile) Cosultat Database admiistrator Applicatio programmer Support desk staff Programme ad project maagemet Aalyst/programmer Percetage Cosultat Database admiistrator Applicatio programmer Support desk staff Programme ad project maagemet Aalyst/programmer Percetage Source: OGCbuyig.solutios maagemet iformatio 11 Body Shop is a framework agreemet for IT specialists ad IT admiistrative persoel. 12 For Applicatios Developmet ad Maagemet ad Busiess Cosultacy the compariso is made for Global Maagemet Cosultacy firms per cet of cetral govermet orgaisatios were uable to aswer. The data show i Figure 9 are the percetages across those orgaisatios that were able to aswer the questio. Assessig the value for moey of OGCbuyig.solutios 15

19 part two 9 Larger orgaisatios do ot cosider OGCbuyig.solutios goods/services offer them cheaper prices Cetral govermet orgaisatios procuremet sped (quartiles) The majority of OGCbuyig.solutios goods/services offer cheaper prices % of cetral govermet orgaisatios i each quartile that agree with above statemet Up to 9 millio 9 millio to 41 millio 41 millio to 120 millio 120 millio plus Source: Natioal Audit Office (NAO) cetral govermet survey (curret customers) NOTE = 103. There are four key areas where OGCbuyig.solutios ca improve the competitiveess of its prices 2.11 Our examiatio idetified four areas where there is potetial to improve the competitiveess of OGCbuyig. solutios prices: obtaiig customer volume commitmet whe lettig ew cotracts will provide suppliers with a icetive to offer lower prices; reviewig prices regularly throughout the duratio of the cotract will esure OGCbuyig.solutios prices keep pace with market prices; icreasig the use of eauctios will itroduce real time competitio betwee suppliers; ad miimisig supplier costs of dealig with OGCbuyig.solutios will result i the potetial for suppliers to offer lower prices without affectig their profit margis. Securig volume commitmet would icrease leverage with suppliers whe lettig ew cotracts 2.12 Our case study visits showed that securig customer volume commitmet is a importat method used by comparable procuremet orgaisatios to OGCbuyig. solutios as a way of securig lower prices. Case Example 1 shows how SKI, the Daish atioal procuremet orgaisatio, has bee successful i securig volume commitmet through the use of customer advisory boards Participats i our supplier focus groups ackowledged that providig suppliers with volume commitmet from customers would allow them to offer lower catalogue prices whe framework agreemets are let. (Lower catalogue prices would reduce the prices for products purchased usig the framework agreemet catalogue price, but would also provide a lower base price to start egotiatios uder a mii-competitio.) Whilst there are some examples where OGCbuyig.solutios has obtaied volume commitmet, the vast majority of ew framework agreemets go to market without volume commitmet from customers. 14 Focus group participats also highlight that, i the past, idicatios of likely customer volume provided by OGCbuyig.solutios had ot bee realised. This has led to some scepticism about such commitmets. OGCbuyig.solutios would have to regai supplier cofidece to realise the full potetial of providig suppliers with volume commitmet. This would, i tur, require more commitmet from idividual public sector orgaisatios. I additio to obtaiig volume commitmet, framework agreemets could be costructed so that prices vary depedig o the level of sped through the specific framework agreemet. 14 For example, 190 millio of committed customer sped was secured by OGCbuyig.solutios prior to awardig the cotract for the ew Travel maaged service. 16 Assessig the value for moey of OGCbuyig.solutios

20 part two 2.14 Our fieldwork idetified that the key to securig volume commitmet prior to lettig ew framework agreemets is to cosult fully with customers to esure their requiremets are met. Our survey asked both cetral ad wider public sector orgaisatios about the extet to which OGCbuyig.solutios cosults their orgaisatio before lettig ew framework agreemets ad maaged services, ad whether more cosultatio Case example 1 SKI volume commitmet for audio visual ad surveillace equipmet framework agreemet I September 2006, a ew framework agreemet for audio visual ad surveillace equipmet was established by SKI. SKI was successful i securig volume commitmet from a umber of public sector orgaisatios i advace of tederig the framework agreemet. The framework agreemet process started at the ed of 2005 with the establishmet of a customer advisory board, comprisig some of the largest customers from a previous framework agreemet coverig a similar product rage. Advisory boards are used extesively by SKI whe settig up ew framework agreemets. The advisory board for the audio visual framework agreemet atteded three cetral tederig meetigs ad provided SKI with iformatio o customer prefereces. The advisory board members comprised: Techical Educatio Cetre Copehage Copehage Techical Academy Uiversity of Copehage Uiversity of Aalborg Educatio cetre CPH West Miistry of Food, Agriculture ad Fisheries Uiversity of Aarhus The seve advisory board members, alog with four other orgaisatios that were ot able to joi the advisory board due to limited resources, committed a volume of 1.7 millio (18.5 millio DKK). This represeted 20 per cet of the estimated aual turover of the cotract of 9 millio (100 millio DKK). Whilst the commitmet was ot legally bidig, it was shared with suppliers durig the tederig process. SKI cosiders that the advisory board approach has helped them to secure volume commitmet o a umber of framework agreemets. Source: SKI would lead them to give volume commitmet. I cetral govermet, 63 per cet of orgaisatios cosider that OGCbuyig.solutios did ot cosult their orgaisatio eough whe lettig ew framework agreemets ad maaged services. I the wider public sector the figure was higher at 73 per cet. Of the orgaisatios that cosidered there was iadequate cosultatio, 49 per cet i cetral govermet thought they would provide volume commitmet if they were cosulted more. I the wider public sector, the figure was 76 per cet. We discuss the issue of customer cosultatio i more detail uder the sectio o OGCbuyig.solutios market peetratio. Regular price reviews would esure OGCbuyig.solutios prices remai competitive i volatile markets 2.15 I order to maitai price competitiveess, framework agreemet prices eed to be reviewed frequetly, as show i Figure 10 overleaf. We aalysed all framework agreemets operated by OGCbuyig.solutios ad the last time prices had bee formally reviewed with suppliers. A third of framework agreemets have ot had a price review i the past 12 moths, with 26 per cet ot havig a price review i the last two years I more volatile markets the frequecy of price reviews becomes eve more importat. As show i Figure 7, the majority of cases where OGCbuyig.solutios customers were payig higher prices tha the market average were i markets where prices are movig particularly quickly (for example, broadbad, IT ad voice/data services). For example, Figure 11 overleaf shows where prices (call charges) o oe of OGCbuyig.solutios telecommuicatios framework agreemets have ot kept pace with public sector market prices i a particularly fast movig market There are examples where OGCbuyig.solutios has kept pace with market prices. As show i Figure 12 o page 19, the mobile phoe lie retal price has kept pace with public sector market prices as a result of a price review i March 2005 ad cotract reegotiatios followig the expiry of the GTM mobile phoe cotract. The ew Mobile Solutios framework agreemet wet live i April Prices for ad refer to the GTM mobile phoe cotract with suppliers Vodafoe ad Orage. The prices for the ew OGCbuyig.solutios mobile phoe cotract Mobile Solutios are the average across four suppliers Vodafoe, Orage, T-Mobile ad O2. This cotract wet live i May Assessig the value for moey of OGCbuyig.solutios 17

21 part two 10 For framework agreemets to remai competitive, prices must be reviewed frequetly Whe a framework agreemet is let a set of catalogue prices are established. The framework cotract will outlie the terms ad coditios uder which these catalogue prices ca be reviewed. These terms ad coditios eed to reflect the specific market ad allow for regular price reviews. I product areas where prices are chagig rapidly, catalogue prices eed to be kept up to date with the market. (Eve i markets where prices are ot volatile, prices should be reviewed oce a year). Therefore, good practice requires regular price reviews with suppliers. Uder good practice, catalogue prices should remai below market prices ad cotiue to provide customers with value for moey. Where prices are ot reviewed frequetly there is a dager that prices will remai above the market price for log periods, durig which time, they are ot offerig customers value for moey. Good practice frequet review Price Bad practice ifrequet review Price Market price Market price Framework price Framework price Cotract life (3 4 years) Time Cotract life (3 4 years) Time Source: Natioal Audit Office 11 Fixed lie to fixed lie call charges (pece per miute) Some of OGCbuyig.solutios prices are ot keepig pace with chagig market prices OGCbuyig.solutios Public sector market average Source: OGCbuyig.solutios maagemet iformatio 0.95 Icreasig the use of eauctios could reduce prices sigificatly 2.18 eauctios ca deliver price savigs whe compared with more traditioal procuremet mechaisms. OGCbuyig.solutios operates a framework agreemet for eauctio services cotaiig four specialist suppliers. eauctio services ca also be sourced as part of OGCbuyig.solutios maaged esourcig service. 16 Data provided by the suppliers o this framework agreemet show that betwee December 2003 ad March 2006, 138 eauctios were udertake usig the framework agreemet, ivolvig 73 public sector orgaisatios across 34 geeric categories of goods ad services. Total price savigs, compared to the historic baselie, are reported at 95 millio agaist a total baselie sped of 421 millio. This represets a average savig of 22 per cet across all eauctios. The cost of ruig a eauctio averaged 8,500 with a average savig of 688,000 per eauctio esourcig is the use of secure web-based collaborative tools to coduct the strategic activities of the procuremet lifecycle olie. 17 The savigs figures quoted are derived by comparig the fial price established durig the eauctio with the historic price paid by the orgaisatios for the same equipmet. 18 Assessig the value for moey of OGCbuyig.solutios

22 part two 12 Mobile phoe lie retal 1 ( per moth) Keepig pace with market prices i volatile markets requires regular price reviews OGCbuyig.solutios Public sector market average Case example 2 NHS Purchasig ad Supply Agecy - eauctio for temporary labour I 2006 NHS Purchasig ad Supply Agecy held a eauctio for the lettig of a framework agreemet for temporary staff. The eauctio ivolved 8 lots coverig the followig categories of temporary staff: Admi Services Procuremet Huma Resources/PR Allied Health Professioals ad Associated Staff Fiace Orgaisatio Services ad Busiess Admiistratio Patiet Services/Iformatio Source: OGCbuyig.solutios maagemet iformatio NOTE Reogotiated price uder Mobile Solutios framework agreemet 1 For ad OGCbuyig.solutios price represets the volume weighted average across Orage ad Vodafoe o the GTM framework agreemet. The Mobile Solutios price is the average across O2, Orage, T-Mobile ad Vodafoe eauctios require a clear ad uambiguous specificatio of the buyers requiremets, i geeral, the use of eauctios is therefore most suitable for goods with fairly homogeeous characteristics (for example, IT equipmet) ad possibly less suitable for services such as professioal services. However, as illustrated i Case Example 2, NHS Purchasig ad Supply Agecy recetly used a eauctio to let a framework agreemet for temporary staff with estimated savigs of 12 per cet compared to historic prices. At preset OGCbuyig.solutios does ot use eauctios whe lettig its ow framework agreemets. Health Sciece Service Staff The eauctio led to a average reductio i prices (day rates) across all categories of temporary labour of 12 per cet agaist historic prices. This represeted a estimated potetial savig over the 3 year framework agreemet of approximately 121 millio based o historic levels of sped through this framework agreemet. Source: NHS Purchasig ad Supply Agecy 2.20 I additio to OGCbuyig.solutios use of eauctios to let its framework agreemets, there is sigificat potetial for customers to icrease their ow use of eauctios. Our survey foud that, o average, 42 per cet of purchases by cetral govermet orgaisatios through OGCbuyig.solutios framework agreemets were udertake usig mii-competitios. 18 May of these mii-competitios could be udertake usig a eauctio. Despite sigificat marketig efforts by both OGCbuyig.solutios ad the Office of Govermet Commerce (icludig coverig the cost of the eauctio), take up remais low. Accordig to our survey, 82 per cet of cetral govermet orgaisatios, ad 79 per cet of wider public sector orgaisatios, had ot used the eauctio framework agreemet, ad although some (ie per cet of cetral govermet ad 23 per cet of wider public sector orgaisatios) had used a alterative eauctio service, the vast majority of cetral govermet ad wider public sector orgaisatios have used either, despite the potetial for sigificat price reductios per cet of cetral govermet orgaisatios could ot aswer this questio. Assessig the value for moey of OGCbuyig.solutios 19

23 part two Miimisig supplier costs would help lower prices to customers 2.21 Results from our supplier focus groups idetified three key areas where the costs of doig busiess with OGCbuyig.solutios could be reduced: Pre-qualificatio questioaire: 19 Suppliers foud that the questioaires used by OGCbuyig.solutios durig the tederig process vary for differet framework agreemets. For suppliers tederig for multiple framework agreemets, this added sigificat time ad cost to the tederig process. I additio, certai iformatio was asked for across every teder rather tha oly beig asked for oce. Maagemet iformatio: Suppliers said that OGCbuyig.solutios frequet requests for maagemet iformatio were burdesome. I particular, they were ucertai about the reasos why the iformatio was required ad were ot show ay results. Mii-competitios: Suppliers reported that public bodies ruig mii-competitios ofte asked for similar iformatio as OGCbuyig.solutios had doe durig the origial framework agreemet teder, which suppliers felt was uecessary duplicatio. Customers also teded to use their ow terms ad coditios rather tha those i the stadard OGCbuyig.solutios framework agreemet which added sigificatly to legal costs for suppliers. B) OGCbuyig.solutios role i improvig the rage of suppliers ad the quality of service these suppliers offer to customers 2.22 Havig a rage of suppliers that meets customer requiremets with a track record of providig a good quality of service is importat for ay framework agreemet. 20 Without these two elemets, customer take up will reduce. This could result i a icrease i process costs, as customers let ad maage their ow framework agreemets, or teder for cotracts o a ad hoc basis. I additio, poor quality of service ca affect the delivery of policy objectives. Here we foud: oly 33 per cet of cetral govermet orgaisatios surveyed rated the rage of suppliers as excellet or good; aroud half of the orgaisatios surveyed rated the quality of service as either excellet or good; ad customers were ot cosulted eough about supplier performace ad suppliers cosidered OGCbuyig.solutios curret supplier ratig system did ot provide them with eough iformatio to eable them to improve performace. Oly 33 per cet of cetral govermet orgaisatios rate the rage of suppliers o OGCbuyig.solutios framework agreemets ad maaged services as excellet or good 2.23 Our surveys asked customers to rate the rage of suppliers available o OGCbuyig.solutios framework agreemets ad maaged services (Figure 13). 13 Source: Natioal Audit Office survey results NOTE Oly 33 per cet of cetral govermet orgaisatios rate the rage of suppliers as excellet or good How would you rate the rage of suppliers o OGCbuyig.solutios framework agreemets ad maaged services? Excellet Good Satisfactory Poor Very poor Do't kow Not stated Wider public sector Cetral govermet Percetage = 325 (cetral govermet curret customers = 103, wider public sector = 222). 19 A pre-qualificatio questioaire eables customers to idetify the most suitable suppliers to ivite to teder for cotracts. 20 The rage of suppliers refers to the capability of suppliers, whether the suppliers are local to the orgaisatios ad whether there is the right mix of large ad SME suppliers o framework agreemets. OGCbuyig.solutios curretly has 292 SME suppliers out of a total of 621 suppliers. OGCbuyig.solutios policy o SMEs is as follows OGCbuyig.solutios policy is that SMEs participatig i competitive procuremets should be cosidered o a equal footig with larger supplier orgaisatios, with all selectio criteria beig clearly defied i the relevat evaluatio methodology ad model. OGCbuyig.solutios also ow builds i a comprehesive o-discrimiatio clause to its framework agreemets with suppliers ad their sub cotractors. 20 Assessig the value for moey of OGCbuyig.solutios

24 part two 2.24 Whilst 33 per cet of cetral govermet orgaisatios ad 50 per cet of wider public sector orgaisatios cosidered that the rage of suppliers was either excellet or good, there is clear potetial for OGCbuyig.solutios to improve o this performace, ad also to uderstad why cetral govermet views are cosistetly less favourable tha the wider public sector From a suppliers perspective, our focus groups idetified sigificat cocers about the selectio criteria used to select suppliers for framework agreemets. The greatest cocers came from suppliers that had recetly bee through the major tederig of professioal services framework agreemets uder the Catalist umbrella. They cosidered that the selectio criteria were too heavily weighted towards price rather tha experiece ad capability, with the potetial risk of customers settig up their ow framework agreemets where their requiremets were ot met. Half of the orgaisatios surveyed rated the quality of service provided by suppliers as either excellet or good 2.26 Our surveys asked cetral govermet ad wider public sector orgaisatios to rate the quality of service provided by suppliers o OGCbuyig.solutios framework agreemets ad maaged services. Figure 14 outlies the results ad shows that 49 per cet of cetral govermet orgaisatios ad 57 per cet of wider public sector orgaisatios rate the quality of service as either excellet or good. Agai, this idicates that there is sigificat potetial for improvemet by reducig the umber of orgaisatios that rate the performace of suppliers as satisfactory or poor. OGCbuyig.solutios eeds to ask customers more frequetly about supplier performace ad provide suppliers with more iformatio to eable them to improve performace 2.27 Our case study visits ad supplier focus groups idetified two key aspects of supplier performace maagemet: obtaiig customer feedback o the performace of suppliers; ad providig suppliers with regular feedback o performace The primary method by which OGCbuyig.solutios moitors the performace of suppliers is through a red, amber, gree ratig system, outlied i Figure Source: Natioal Audit Office survey results NOTE Half of orgaisatios rate the quality of service provided by suppliers as either excellet or good How would you rate the overall quality of service received from OGCbuyig.solutios suppliers? Satisfactory Do't kow Not stated Percetage = 325 (cetral govermet curret customers = 103, wider public sector = 222). 15 Excellet Good Poor Very poor Wider public sector Cetral govermet OGCbuyig.solutios supplier groupigs ad ratig system OGCbuyig.solutios groups its suppliers ito three tiers. Tier 1 suppliers accout for over 70 per cet of sales o a specific framework agreemet ad/or are of strategic importace to OGCbuyig.solutios. Tier 2 suppliers accout for over 25 per cet of sales o a specific framework agreemet. Tier 3 suppliers make up the balace of suppliers. The supplier ratig system is made up of four categories: Quality of customer service: 40 poits Resposiveess to OGCbuyig.solutios: 20 poits Delivery of cosistet low prices: 20 poits Provisio of accurate ad timely maagemet iformatio: 20 poits Review meetigs are held twice a year with Tier 1 suppliers ad oce a year with the other two tiers. Prior to a review meetig approximately 10 per cet of customers are cotacted via a questioaire to determie the performace of the particular supplier. Resposes are marked out of 40. These are added to the other three categories, which are determied iterally by OGCbuyig.solutios, to provide a score out of 100. Suppliers are the rated gree ( poits), amber (70-89 poits) or red (69 poits or less). Source: OGCbuyig.solutios Assessig the value for moey of OGCbuyig.solutios 21

25 part two 2.29 Despite the supplier ratig system, there are sigificat gaps i the way OGCbuyig.solutios moitors the performace of suppliers. Figure 16 shows that i cetral govermet, 57 per cet of orgaisatios surveyed had ever bee asked about the performace of suppliers. I the wider public sector, the figure was higher at 68 per cet. The survey also asked customers whether they cosidered they were cosulted eough by OGCbuyig. solutios about the performace of suppliers. Four fifths (81 per cet) of cetral govermet orgaisatios, 83 per cet i the wider public sector, cosidered cosultatio to be isufficiet I respect of feedback to suppliers, our focus groups idicated that suppliers were either uaware of OGCbuyig.solutios ratig system or did ot cosider the red, amber ad gree ratig helped them uderstad their performace ad how to improve it. This icluded a umber of the key Tier 1 suppliers. Compared with OGCbuyig.solutios, some framework agreemet operators, followig collatio ad aalysis of mothly maagemet iformatio provided by suppliers, provide feedback to those suppliers. This assists i improved performace ad uptake of the framework agreemet. This is the approach adopted by NHS Purchasig ad Supply Agecy (Case Example 3). 16 Source: Natioal Audit Office survey results NOTE The majority of customers have ot bee asked about the performace of suppliers How ofte does OGCbuyig.solutios ask your orgaisatio for feedback o the performace of suppliers o its framework agreemets ad maaged services? More tha oce a year Oce a year Less tha oce a year Never Do t kow Not stated Wider public sector Cetral govermet Percetage = 325 (cetral govermet curret customers = 103, wider public sector = 222). C) OGCbuyig.solutios market peetratio 2.31 Icreasig the take up of OGCbuyig.solutios products ad services will improve value for moey. By usig OGCbuyig.solutios, orgaisatios avoid the eed to let ad maage their ow framework agreemets or teder for idividual procuremet cotracts, resultig i reduced process costs. I additio, where OGCbuyig. solutios prices are better tha orgaisatios ca achieve elsewhere, this will reduce procuremet sped. Our mai fidigs here were: Case example 3 NHS Purchasig ad Supply Agecy supplier performace moitorig NHS Purchasig ad Supply Agecy moitors the performace of suppliers agaist specific performace idicators built ito the terms ad coditios of its framework agreemets, for example, delivery times. These are combied with customer surveys o supplier performace to form a set of key performace idicators. These key performace idicators are moitored o a quarterly basis with the results shared with suppliers. The key performace idicators, together with sales volume data, are used to produce league tables to compare performace across suppliers o the same framework agreemet. The league tables are discussed with suppliers to idetify reasos for good/poor performace. Where poor performace is idetified, NHS Purchasig ad Supply Agecy ad the specific supplier will discuss ways to improve performace. Source: NHS Purchasig ad Supply Agecy despite strog growth i sales i recet years, OGCbuyig.solutios market peetratio remais low compared to iteratioal comparisos; customers view reduced process costs as a key beefit of usig OGCbuyig.solutios ad that OGCbuyig.solutios could icrease take up by demostratig, through promotio of its research o the costs of lettig ad maagig cotracts, how much customers ad o-customers could save; that, i additio to cheaper prices, more cosultatio with customers ad a improved website were key improvemets that would icrease take up; clearer iformatio o how to use OGCbuyig. solutios ad improved marketig is key to covertig o-customers to customers; ad the majority of customers are ot usig the service provided by OGCbuyig.solutios which idetifies Quick Wi products o its framework agreemets. 22 Assessig the value for moey of OGCbuyig.solutios

26 part two OGCbuyig.solutios has see sigificat sales growth sice As show i Figure 17, OGCbuyig.solutios customer sped grew from 1,008 millio 21 i to 2,795 millio i I , over 6,600 orgaisatios registered sped through OGCbuyig.solutios. Of these, the top 200 orgaisatios accouted for approximately 70 per cet of customer sped. Despite the strog growth i sales, market peetratio remais low 2.33 Based o our survey evidece, cetral civil govermet sped through OGCbuyig.solutios represets approximately five per cet of total cetral civil govermet procuremet sped. 22 If sped ot covered by OGCbuyig.solutios product rage, such as major capital projects (for example, road buildig), is excluded, OGCbuyig.solutios share of cetral civil govermet sped is still oly 10 per cet. 23 For the wider public sector 24 we estimate that sped through OGCbuyig. solutios accouts for uder oe per cet of total 17 Source: OGCbuyig.solutios maagemet iformatio NOTE Customer sped has grow by 150 per cet ( 1,500 millio) 1 sice Customer sped ( millio) 3,000 2,500 2,000 1,500 1, Framework agreemets 1 Excludig sales through MoUs. Maaged Services MoUs procuremet sped, although there is greater competitio for the wider public sector market ad OGCbuyig.solutios is ot the oly chael i this sector Compared to OGCbuyig.solutios, examples from elsewhere i Europe show a higher market peetratio. SKI i Demark has achieved a market peetratio across the whole public sector of approximately 15 per cet, while CONSIP i Italy, whose use by some Italia public sector orgaisatios has bee madated util recetly, has achieved market peetratio of approximately 30 per cet Suppliers who atteded our focus groups also cosidered that there was sigificat potetial to icrease sales by, for example, icreasig OGCbuyig.solutios cosultatio with customers. Most cetral govermet orgaisatios are ot makig iformed decisios about the value of usig OGCbuyig.solutios sice they do ot kow their costs of lettig ad maagig cotracts 2.36 Our survey asked both cetral govermet ad wider public sector orgaisatios what beefits they had idetified through usig OGCbuyig.solutios framework agreemets ad maaged services (Figure 18 overleaf) While process cost savig, through faster procuremet ad reduced admiistratio costs, were idetified by customers as a key beefit of usig OGCbuyig.solutios, our survey idetified that 87 per cet of cetral govermet orgaisatios surveyed had ot made a assessmet of the costs of lettig ad maagig cotracts. OGCbuyig.solutios is curretly udertakig detailed aalysis with five cetral govermet orgaisatios to determie the cost of lettig ad maagig cotracts. The results of this aalysis would provide public sector orgaisatios with valuable iformatio ad help them make iformed decisios about whe to udertake their ow procuremets ad whe to use collaborative methods, such as OGCbuyig.solutios. 21 This excludes sales through MoU as o data is available for years before OGCbuyig.solutios maagemet iformatio showed that the cetral govermet orgaisatios surveyed spet 1,035 millio through OGCbuyig. solutios i , represetig approximately 80 per cet of total cetral civil govermet sped through OGCbuyig.solutios. Our survey showed that the total procuremet sped of these orgaisatios was approximately 20,200 millio i Our survey showed that the total procuremet sped i areas covered by OGCbuyig.solutios framework agreemets ad maaged services was approximately 10,700 millio i Local govermet, health, educatio ad emergecy services. 25 We did ot collect data o the procuremet sped i the wider public sector, but total procuremet sped has bee estimated by the Office of Govermet Commerce at approximately 100,000 millio. Total wider public sector sped through OGCbuyig.solutios i was 720 millio. 26 Figures for both SKI ad CONSIP are for market peetratio i areas covered by their product rage. 27 Respodets were give a list of ie beefits with a optio to add additioal beefits if the ie beefits listed did ot match their experiece. They were asked to choose all optios that were applicable. Assessig the value for moey of OGCbuyig.solutios 23

27 part two More cosultatio is vital to icrease take up by existig customers 2.38 Our survey asked both cetral govermet ad wider public sector orgaisatios to idetify three key improvemets that OGCbuyig.solutios could make which would have the greatest impact o their use of OGCbuyig.solutios. 28 Figure 19 shows the most commoly expressed views of where most improvemet could be secured Beyod competitive prices, covered earlier i this sectio, customer cosultatio was see as the ext most critical elemet to icreasig take up of OGCbuyig.solutios products. This was also a key issue raised at our supplier focus groups. I additio, all of our case study orgaisatios highlighted the importace of customer cosultatio as a key way of esurig customer buy-i to ew framework agreemets (Case Example 4) While 41 per cet of the cetral govermet departmets surveyed cosidered that they were cosulted eough o ew framework agreemets ad maaged services, oly 15 to 20 per cet of the other categories of orgaisatio felt they were cosulted eough (Figure 20 o page 26). Whe asked whether more cosultatio would make them use OGCbuyig.solutios more, 62 per cet of cetral govermet orgaisatios ad 70 per cet of wider public sector orgaisatios thought they would use OGCbuyig.solutios more frequetly tha ow if cosulted more. OGCbuyig.solutios has recetly established a Customer Steerig Group to icrease cosultatio with customers. However, the represetatio o the group is primarily from cetral govermet departmets. I additio, OGCbuyig.solutios has recetly itroduced a ew customer value survey which provides detailed iformatio about customer cocers, but this does ot cover customer cosultatio o requiremets for specific framework agreemets. OGCbuyig.solutios website requires urget improvemet 2.41 I discussios with OGCbuyig.solutios, it was clear that it recogised the problems with its website ad had received feedback from customers that the website eeds to be more ituitive. Makig the website user friedly should be relatively straight forward (a quick wi ) ad should be see as a priority as it appears to be a sigificat barrier to icreasig take up. OGCbuyig.solutios has a website improvemet programme which is curretly i its third phase of website ehacemet. Customer feedback o why they fid it difficult to use the website should form a cetral part of this programme. 18 Top three beefits of usig OGCbuyig.solutios Beefit Percetage of orgaisatios 1 that selected the optio as a beefit of usig OGCbuyig.solutios % Compliace with Europea Uio/ 93 public procuremet legislatio Faster procuremet 82 Reduced admi costs 75 Source: Natioal Audit Office cetral govermet (curret customers) ad wider public sector surveys NoteS 1 Combied percetage across cetral govermet ad wider public sector orgaisatios. = 325 (cetral govermet = 103, wider public sector = 222). 19 Key improvemets that would icrease sales with existig customers Percetage of orgaisatios 1 that selected the optio as oe of their three key improvemets % More competitive prices 54 More cosultatio o ew 29 framework agreemets ad maaged services Easier to use website 29 Source: Natioal Audit Office cetral govermet (curret customers) ad wider public sector surveys NoteS 1 Combied percetage across cetral govermet ad wider public sector orgaisatios. = 325 (cetral govermet = 103, wider public sector = 222). To attract ew customers requires better commuicatio from OGCbuyig.solutios 2.42 Our survey asked o-customers (both cetral govermet ad the wider public sector) what actios OGCbuyig.solutios could take to make them use OGCbuyig.solutios. The top two categories of resposes made up 40 per cet of resposes. They are outlied i Figure 21 o page Respodets were asked to choose three optios from a list of 18 possible improvemets ad they also had the opportuity to specify their ow optios if oe of the 18 optios were relevat to their experieces. 24 Assessig the value for moey of OGCbuyig.solutios

28 part two Case example 4 Examples of customer cosultatio from case study orgaisatios NHS Purchasig ad Supply Agecy: NHS Purchasig ad Supply Agecy holds regular Commodity Advisory Group meetigs with ed users of specific framework agreemets. The level ad type of cosultatio differs depedig o the specific commodity area. For example, i some cliical categories, ed users are frequetly represetatives of patiet groups such as the Limbless Associatio. For more geeral product areas such as cleaig equipmet, omiated represetatives from idividual NHS Trusts may sit o the advisory group o a ad hoc basis for a specific purpose (for example, product testig). NHS Purchasig ad Supply Agecy cosiders high levels of cosultatio as key to eablig it to secure volume commitmet whe tederig ew framework agreemets ad icrease customer take up. Iter Agecy Procuremet Services Office: The Uited Natios Developmet Programme s procuremet orgaisatio, Iter Agecy Procuremet Services Office, udertakes cosultatio with customers ad stakeholders (such as door coutries or the Europea Commissio) prior to settig up ew framework agreemets. I particular, it regularly visits the Uited Natios Developmet Programme s coutry offices, to discuss procuremet eeds with those maagig specific programmes ad projects. The Iter Agecy Procuremet Services Office has foud that this level of egagemet eables it to build relatioships, ad develop framework agreemets ad procuremet strategies that customers will be more likely to use. SKI: SKI, the Daish atioal procuremet orgaisatio, uses Customer Advisory Boards to cosult with customers whe settig up ew framework agreemets. The advisory boards typically meet o three occasios prior to SKI lettig a ew framework agreemet. SKI cosiders that this approach has allowed it to develop framework agreemets to meet customer requiremets ad secure customer volume commitmet o a umber of ew framework agreemets. Yorkshire Purchasig Orgaisatio: Yorkshire Purchasig Orgaisatio, a local govermet buyig cosortium, establishes Expert Paels whe settig up ew framework agreemets. The paels are made up of product specialists. The paels meet frequetly durig the developmet ad early years of a framework agreemet providig Yorkshire Purchasig Orgaisatio with customer iput o the desig ad maagemet of its framework agreemets. Research Coucils Procuremet Orgaisatio: The Research Coucils Procuremet Orgaisatio plays a leadig role o a umber of Natioal Workig Groups i the higher educatio sector. The workig groups are made up of commercial ad techical represetatives from the regioal higher educatio procuremet cosortia together with represetatio from the Research Coucils Procuremet Orgaisatio. The workig groups determie the procuremet strategy for a rage of commodities ad services icludig laboratory supplies, IT, electroics ad photocopiers. They also provide a opportuity for bechmarkig ad cosultatio across the sector to determie user requiremets for framework agreemets. CONSIP: CONSIP, the Italia atioal procuremet orgaisatio, has traied a umber of CONSIP experts to act as a permaet poit of cotact o-site with its major customers. These o-site experts eable customers to use CONSIP more effectively. CONSIP cosiders that the use of o-site experts allows it to cosult with customers ad uderstad their requiremets. See Appedix 2 for a full case study of each of the orgaisatios These are customer commuicatio issues, some of which could be addressed through better website desig ad others through marketig strategy. The wider challege for OGCbuyig.solutios is to break dow established procuremet practices by demostratig its value to o-customers through, for example, cotiuig to target o-customers with its Great Deals marketig campaig ad highlightig the process cost savigs available through usig OGCbuyig.solutios. 29 Facilitatig the achievemet of sustaiability policy objectives is a opportuity for OGCbuyig.solutios to icrease take up 2.44 The publicatio of the Sustaiable Procuremet Natioal Actio Pla 30 has raised the profile of sustaiable procuremet ad is likely to lead to a icreased demad for products that meet miimum sustaiability criteria such as Quick Wi products The Evirometal Audit Committee recommeded i its report 31, published i March 2006, that OGCbuyig.solutios sustaiable solutios website should be up ad ruig as soo as possible. This followed a recommedatio i the Natioal Audit Office s report o sustaiable procuremet 32 that OGCbuyig.solutios should make it easier for departmets to procure products meetig the Quick Wi specificatio through its website The sustaiable solutios website is ow up ad ruig ad covers OGCbuyig.solutios work i this area such as the ew memoradum of uderstadig siged betwee OGCbuyig.solutios ad the Disposals Services Agecy, case study examples of sustaiable procuremet, evirometal legislatio ad a iformatio service o products o its framework agreemets that meet the Quick Wi sustaiability criteria. 29 Great Deals is a marketig campaig which bega i the summer of 2006 ad outlies 10 deals provided by OGCbuyig.solutios that are cosidered to be particularly good value for moey. It cotiued with a secod phase i the autum of 2006 with plas for a further campaig each quarter highlightig curret deals available from OGCbuyig.solutios. 30 Sustaiable Procuremet Task Force (2006) Procurig the Future, Sustaiable Procuremet Natioal Actio Pla:Recommedatios from the Sustaiable Procuremet Task Force. Departmet for Eviromet, Food ad Rural Affairs. 31 Evirometal Audit Committee (2006) Sustaiable Procuremet: The Way Forward, HC 740 Sessio , 8 March Lodo: The Statioery Office. 32 Natioal Audit Office (2005) Sustaiable Procuremet i Cetral Govermet, September Assessig the value for moey of OGCbuyig.solutios 25

29 part two 20 Source: Natioal Audit Office survey results NOTE Cosultatio is skewed towards cetral govermet departmets Does OGCbuyig.solutios cosult your orgaisatio eough whe lettig ew framework agreemets ad maaged services? Cetral govermet departmets Executive agecies Wider public sector = 325 (cetral govermet curret customers = 103, wider public sector = 222). 21 No-miisterial govermet departmets No-departmetal public bodies Do t kow Percetage Yes No What oe actio could OGCbuyig.solutios take to make you use it? Provide clearer iformatio o how to cotact ad 21 use OGCbuyig.solutios ames, addresses, referece poits, easier to use olie catalogues Provide more marketig iformatio. For example, 19 o ew cotracts/special offers Source: Natioal Audit Office o-customer survey Note = 104. % 2.47 Our survey asked cetral govermet ad wider public sector orgaisatios to what extet they used the OGCbuyig.solutios Quick Wi service (Figure 22). Whilst 50 per cet of cetral govermet departmets use the service, the percetage is less across other orgaisatio categories with, for example, oly five per cet of wider public sector orgaisatios usig the service. I cetral govermet, 41 per cet of orgaisatios that were ot usig the service had ot heard of the Quick Wi service provided by OGCbuyig.solutios. I the wider public sector, the figure was higher at 71 per cet. D) The potetial for OGCbuyig. solutios to brig about a step chage i performace by focusig o a core set of products ad aligig staff skills 2.48 Our examiatio of three key areas of OGCbuyig.solutios value for moey performace (price competitiveess, supplier maagemet ad market peetratio) idicates that there is sigificat potetial for improvemet. A more focused approach would improve the performace of a core set of products 2.49 As already discussed, 91 per cet of sales are udertake through oly 25 per cet of framework agreemets. The other 75 per cet of framework agreemets are cotributig very little i terms of sales ad value for moey. Ideed, up to 40 per cet of framework agreemets, with the lowest volume, appear to be ot coverig their lettig ad maagig costs based o sales figures for ad OGCbuyig.solutios iteral costs of lettig ad maagig cotracts. 33 I additio, there is a opportuity cost of cotiuig to operate this large umber of low volume framework agreemets with resources beig directed away from lettig ad maagig the top 25 per cet of framework agreemets effectively. 33 Based o OGCbuyig.solutios cost of lettig a SCat ad GCat cotract of 65,000, a four year framework cotract period ad a average commissio rate of oe per cet. SCat ad GCat are old brad ames used by OGCbuyig.solutios for its framework agreemets coverig goods ad services. 26 Assessig the value for moey of OGCbuyig.solutios

30 part two 22 The majority of orgaisatios are ot usig OGCbuyig.solutios Quick Wi service cosultatio with suppliers ad supplier orgaisatios such as Itellect 34 to esure the costs of tederig are miimised ad to uderstad supplier capabilities OGCbuyig.solutios established a Product Developmet Gatekeeper Group i April 2004 to determie the appropriate portfolio of products. The focus of the group has bee o assessig the feasibility of ew products ad the availability of resources to take them forward. We cosider that this group could be re-focused to make a strategic assessmet of the overall portfolio of products offered by OGCbuyig.solutios This report has highlighted four activities that are key to esurig that framework agreemets are let ad maaged effectively: Cotract lettig/re-lettig: Does your orgaisatio use the followig OGCbuyig.solutios services evirometal Quick Wi products? Cetral govermet departmets Source: Natioal Audit Office survey results NOTE No-miisterial govermet departmets Executive agecies No-departmetal public bodies Wider public sector Yes No Do t kow Percetage = 325 (cetral govermet curret customers = 103, wider public sector = 222). cosultatio with customers to esure framework agreemets meet customer requiremets ad esure customer buy-i, resultig i icreased customer volume commitmet ad take up of the framework agreemet post lettig; ad Cotract maagemet: regular price reviews to keep prices competitive with market prices; ad cotiuous supplier moitorig ad feedback to improve supplier performace A ratioalisatio of framework agreemets would eable OGCbuyig.solutios to udertake these activities effectively across a more focused portfolio of framework agreemets, maaged services ad memorada of uderstadig. Staff skills would eed to be aliged with a more focused approach 2.53 Our iterviews with seior maagers withi OGCbuyig.solutios ad our supplier focus groups highlighted that staff skills i certai areas required augmetig. I particular, OGCbuyig.solutios seior maagers cosidered that there is a eed for more commercial skills (for example, the ability to egotiate cotracts with seior maagemet of multi-atioal supplier orgaisatios), better marketig skills ad idividuals with private sector kowledge of idividual product markets. Suppliers also idetified these areas as skill shortages. However, they idetified the lack of commuicatio skills as the key skill shortage ad this sigificatly hampered the developmet of a effective workig relatioship betwee OGCbuyig.solutios ad suppliers ad made suppliers questio the ability of OGCbuyig.solutios to market suppliers products effectively A more focused approach would make these skill shortages more acute, with workload movig away from stadard procuremet tasks across a wide rage of framework agreemets towards the maagemet of a smaller umber of strategically importat framework agreemets ad maaged services ivolvig frequet egagemet with supplier orgaisatios at a seior maagemet level; a detailed kowledge of each product market; ad wider egagemet with customers at both seior ad workig level. 34 Itellect is the trade sector body for UK high tech idustry. Assessig the value for moey of OGCbuyig.solutios 27

31 PART THREE Is OGCbuyig.solutios positio withi the public sector procuremet ladscape providig value for moey? 3.1 The wider public sector procuremet ladscape is complex with a large umber of procuremet orgaisatios/buyig cosortia, ad thousads of idividual purchasers. This complexity is resultig i a erosio of value for moey i two ways: Orgaisatios are payig more tha they should for goods ad services. Competig framework agreemets are dilutig the potetial for aggregatio, resultig i higher framework agreemet prices. 35 I additio, the lack of iformatio about ope framework agreemets ad price bechmarkig is makig it difficult for orgaisatios to assess where the best deals are. Orgaisatios are icurrig uecessary procuremet process costs. The duplicatio of framework agreemets, or orgaisatios tederig for cotracts whe they could have accessed existig framework agreemets to purchase goods/services, is icreasig the process costs of procuremet across the public sector. 3.2 Value for moey will be ehaced through icreasig co-ordiatio, reducig duplicatio of procuremet effort ad esurig public sector orgaisatios are aware of where to get the best deals. Positioig OGCbuyig.solutios correctly withi this ladscape will be a key to improvig value for moey. The public sector procuremet ladscape is uco-ordiated 3.3 I additio to OGCbuyig.solutios, there are curretly over 50 procuremet orgaisatios across the public sector procuremet ladscape (Figure 23). May of these have particular expertise i certai product/service areas ad purchase products/services that are uique to their customers (for example, medical supplies). However, there is also sigificat duplicatio both amogst themselves ad, more specifically, with OGCbuyig. solutios, with may operatig framework agreemets i the same product/service areas. 3.4 I additio to these procuremet orgaisatios, idividual govermet departmets, their executive agecies ad o-departmetal public bodies ad orgaisatios i the wider public sector also set up ad operate their ow framework agreemets. Our survey foud that aroud 2,300 framework agreemets are curretly operated by the cetral govermet orgaisatios surveyed, 63 per cet of which are i the broad product/service areas covered by OGCbuyig.solutios (Figure 24). 36 Suppliers who atteded our focus groups also idetified the duplicatio of framework agreemets across the public sector as sigificat ad that this is havig a effect o their costs ad, as a cosequece, the prices they charge customers. 35 Procuremet strategy ad sourcig decisios o whether to seek aggregated supply should be take o a case-by-case basis. The advatages ad disadvatages of each optio should be assessed i the light of the idividual requiremet, the capability ad capacity of the buyer orgaisatio(s), the wider govermet ageda ad the features of the commercial marketplace. It may be importat, for example, to esure that a competitive supply market is safeguarded for the future. Take from, Aggregatio Is bigger always better?, Office of Govermet Commerce brochure. 36 We asked respodets to break dow the framework agreemets they operate ito six categories as outlied i Figure 24. The categories iformatio techology, professioal services, telecommuicatios, facilities maagemet ad eergy are broadly the product/service areas covered by OGCbuyig.solutios. 28 ASSESSING THE value FOR money OF OGCBuyING.SOLuTIONS