Advanced Diploma in Purchasing and Supply. Contracting in the Public Sector L5-14 LEVEL 5 MARKING SCHEME

Transcription

1 Advanced Diploma in Purchasing and Supply Contracting in the Public Sector L5-14 LEVEL 5 MARKING SCHEME November 2007

2 SECTION A BGA Q1 (a) The question requires the candidate to do two things: outline the concerns and make recommendations. Syllabus Reference(s): Syllabus References All Answer content might include: The following list of issues is as a guide only; candidates may have other valid concerns; (2 marks each) Widespread delegated authority which leads to local decision making and potential disaggregation of supplies and services with potential legal challenges Inconsistent management and control of purchasing by senior management Possible incorrect or non-application of EU procurement directives, either knowingly to avoid them or unwittingly, because of low level of procurement expertise Low level of procurement expertise amongst PCA staff Poor or no MI on suppliers or costs No evidence of electronic or use of GPC card (or any other e-initiative) Question of ethics regarding brother-in-law No evidence of competitive tendering in Temps or Consultancy contracts and price seems only criteria for VFM Little or no contract management in some large contracts (temp and consultants) No regime of proper levels of approval nor authority to proceed No Gateway reviews considered No commercial relationship with Main Department or OGC Q1 (b) Syllabus Reference(s): 12 marks Syllabus References All L5-14/Nov07/BT/FV 2/13

3 Answer content might include: Recommendations could include; Centralising the PCA as a professional unit and taking away authority to ad hoc purchase in the field to gain control of all procurement and contract management across the agency Identify common services, goods and supplies across the agency to rationalise the number of suppliers, aggregate requirements and start to think about partnering with suppliers Increase Procurement and Contract management (CM) resources and start a training programme looking at developing staff in the PCA Appoint a professionally qualified procurement manager in accordance with NAO (1999) recommendations Recruit better qualified procurement and contract management staff to immediately raise the level of Procurement and CM staff Introduce frameworks, use OGCbs frameworks as soon as possible and set new rules that prevent staff using local purchased goods, supplies etc unless they are on frameworks Specific and immediate training for all staff in agency to raise awareness of EU directives Develop a Procurement and CM strategy for the Agency linked to its goals. Introduction of active contract management including incentives Aggregation of spend to improve leverage with supplier The introduction of compulsory use of GPC card which, amongst other things, will improve MI, purchasing authority, introduce limits on spend, reduce admin time by reconciling purchases made automatically to requisitions and orders therefore releasing admin resources to the front line The list of issues and recommendations is not exhaustive and candidates will have many other ideas for which credit (if relevant) will be given. 13 marks Q2 (a) Syllabus Reference(s): Syllabus References 2.6,4.3,4.4 L5-14/Nov07/BT/FV 3/13

4 Answer content might include: The issue of having good management information was a key area of the NAO report Improving Procurement Any organisation public or private runs many risks if it does not know its business. Public sector organisations require reliable information on procurement and contract spend and supplier performance. Reliable management information used strategically is an important tool that can identify inappropriate buying arrangements that are unlikely to secure value for money. If MI is ignored authorities could face the following risks (not exhaustive); By not monitoring and benchmarking prices paid for key items and services it is impossible to gauge VFM They risk losing leverage (if they have any) and handing over power to the supplier due to not reviewing the volume of procurement. They will have no idea what constitutes maverick spend Frameworks are unlikely to be utilised as volumes not known. They will be open to fraud as monitoring will be poor Strategy will be unreliable as it will not be backed up by reliable financial information Often MI is used for control of particular functions and activities (for example, volume discounts) and this will prove difficult Legal challenges could be made (such as EU aggregation rules) 11 marks Q2 (b) Syllabus Reference(s): Syllabus References 2.6,4.3,4.4 Answer content might include: The issue of having good management information was a key area of the NAO report Improving Procurement To mitigate risks BGA could look at the following (list not exclusive); Areas to be included (with short explanation why) - 2 marks each. How much is spent, with whom and on what goods and services The number of suppliers and the profile of expenditure with them Information up and down the supply chain Transaction costs for different types and size of item or service Estimates of maverick spend that fall outside organised arrangements The potential value for money options of OGCbs, GPC and so on The likely future demand for products and services in particular markets and how much will be spent Number and nature of contracts let with individual suppliers Contract end dates 14 marks L5-14/Nov07/BT/FV 4/13

5 Q3 (a) Syllabus Reference(s): Syllabus References 2.3,2.4 Answer content might include: Examples identified could include but not limited to; Contracts too large for SMEs Penalties Access to public sector market Feeling of safety with known or large suppliers Political pressure Location Delivery point Suppliers unaware of opportunities Capacity of the market Impact on competition Range of products/services included Scope for enhancing access of SMEs, Women owned, ethnic owned (1 mark each max 5 marks-identification only required) 5 marks Q3 (b) Syllabus Reference(s): Syllabus References 2.3,2.4 L5-14/Nov07/BT/FV 5/13

6 Answer content might include, but please note this is a wide ranging question and many other areas will be valid: This is a question relating to risk of dependency on too few suppliers Public sector organisations information regarding dependency is patchy too say the least (especially in central government) and this increases the risk that they can become reliant on a small number of firms (often large multinationals). This can be dangerous as leverage is reduced and prices/service levels may be adversely affected. The NAO (2004) identified 3 key areas where enhancement was needed to reduce the risk of dependency. (4 marks) Competition Authorities should actively seek opportunities to promote competition between suppliers. Obviously this will take place on OJEU cases where tendering (incl frameworks) are required but by breaking requirements down in a legal way may encourage greater competition by suppliers (4 marks) Sources of Supply Opportunities to have a wider range of sources of supply for key goods and services should be realised, innovative methods of sourcing the market (for example, electronic means) could be used. (4 marks) Active promotion including SME use Departments can actively promote the use of small and medium enterprises (SMEs), although care should be taken that EU rules are not breached. The small business service has recently launched the supply2gov online portal, giving SMEs direct contact with sub-ojeu public sector business opportunities. SMEs find it difficult to compete for public sector contracts which can mean that authorities lose the benefits that can be gained from SMEs, including better levels of service, more innovative solutions and increased competitiveness. (6 marks) Other examples; Procurement staff should be aware of initiatives in the market (examples not exclusive and credit given for others) OGC Better regulation task force/sbs report Government: supporter and customer? (2 marks) Supply2gov initiative (see above) Haringey pilot on better access for SMEs and women/ethnically owned firms (2 marks) West Midlands pilot working with 500 SMEs and so on (other examples will be given credit also (2 marks each) 20 marks Q4 Syllabus Reference(s): Syllabus References 3.2,3.3 L5-14/Nov07/BT/FV 6/13

7 Answer content might include: Candidates will need to build a case which could include the points below, although credit will be given for other relevant areas. There are many benefits deriving from actively managing suppliers. The main areas are (not exclusive); The quality of goods and services purchased and their fitness for purpose depends partly on the clarity with which requirements are specified. Proactive management of suppliers helps grow good communication and trust between the supplier and the authority and will ultimately improve VFM down the value chain to the end user. It will also improve the stifling of competition (NAO 2004). Competition is a reliable means of ensuring VFM. Clearer communication arises between the authorities procurement staff, suppliers and possibly, most important, the end user of the goods or services required Bureaucratic perceptions of procurement practices in the public sector (EU/Legal and so on) can be explained or dispelled and this could eventually lead to more small firms bidding. More consistent performance across the authorities in reducing the time it takes to tender for goods and services so as to minimise the burden on suppliers and encourage them to bid, increasing the chance of better quality competitions. By proactive management of suppliers a single source of access to all invitations to tender, for example, an online portal could be developed. Without proactive management this process would be difficult Perceptions that contracts are awarded solely on price could be improved by close communication with suppliers that weighting given to other criteria, such as quality of service, ranks equal or above when procurement decisions are made It ensures that earlier engagement with suppliers is made before and during the earliest stages of procurement It allows an easier mechanism for the effective provision of feedback as a relationship exists Overarching agreements are possible (especially for larger suppliers) giving the procurement staff the opportunity to build in volume discounts, locality discounts, secondees at cost, contract rate as opposed to daily rate and so on (although care must be given that evaluation staff are not influenced by these type of arrangements) (4 marks each bullet point) An excellent example of proactive management of suppliers was the Capability Assessment tool developed by the Highways Agency where validated CAT information is used to ensure that the best suppliers receive the most tendering opportunities. The CAT will help to improve the consistency, transparency and robustness of the selection of tenderers and will be used to take forward a programme of proactive supplier management. (6 marks) 25 marks L5-14/Nov07/BT/FV 7/13

8 Q5 Syllabus Reference(s): Syllabus References 2.2 L5-14/Nov07/BT/FV 8/13

9 Answer content might include: The following scheme is a guide only and many other examples will be relevant. Many public sector organisations purchase a range of similar goods and services. This commonality provides opportunities to purchase goods and services collectively. Public sector organisations are attractive to suppliers as they offer certainty (and prestige) and minimum levels of business this provides authorities with the opportunity to secure improved deals To ensure best deals authorities must work together as the sheer size of joint deals mean that greater discounts, improved service levels and so on can be negotiated. Co-ordination should take place between departments and their agencies and NDPBs who may be purchasing similar goods and services, providing considerable opportunities for increased VFM. Where OGCbs have negotiated framework agreements authorities need to ensure that they make full use of them to achieve price and process savings. Further examples (NAO 2004) include; Sharing of information on supplier performance Better communication between authorities to identify opportunities for collaborative purchasing Increasing the use of pan-government initiatives such as S-Cat, Catalist, joint agreements between police, fire authorities, regional purchasing consortia and so on. Gershon (2004) proposed (this is a summary only) that departments consider shared services in areas such as print, utilities and back office functions such as IT, HR, finance and procurement. He proposed that; The potential to make savings for the market segments relevant to them; The potential for departments to be change agents and promulgate successful examples and encourage use of shared procurement models (for example, frame works) To look at possible incentive structures for encouraging devolved bodies to participate in shared procurement models where they can provide superior VFM over existing arrangements; and The scope to make use of scarce in-house professional commissioning and procurement models, for example, regional purchasing consortia, piggy backing of contracts and so on. Other things to consider are geographical (local, regional, national, European, even global) and sectoral scope of the contract, EU and UK rules on aggregation and joining previously let frameworks or contracts, and how to cope with specific levels of tailoring which the end user may require. L5-14/Nov07/BT/FV 9/13

10 25 marks Q6 (a) Question 6 clearly asked for details of these concepts in terms of the public sector, for example, size, thresholds, political pressures, regulations and so on and marks will be allowed for candidates who remember this. Syllabus Reference(s): Syllabus References 1.5 L5-14/Nov07/BT/FV 10/13

11 Answer content might include: Whole Life Costing Candidates should demonstrate an understanding of the following key points but this is a wide topic and the narrative is not exhaustive. Any relevant examples (for example inclusion of whole life in ITTs, Discounting and so on) will be rewarded. Whole life costing (WLC) aims to determine the full cost of a solution to a requirement over the full period that the requirement will exist. Some costs are clear from the outset; however many of the costs of goods and services only arise after purchase, such as running costs, staff training, disposal costs and so on. Also as part of a whole life costing environmental issues must be taken into consideration in the business case and specification. This is particularly important in the public sector where strict policy and objectives on environmental issues exist (for example, sustainability, timber purchases and so on). WLC principles, however, are broadly the same however for the public and private sectors. WLC can be applied to leased assets as well as owned assets and can be used in the public sector to compare the cost of leasing and outright purchase. WLC is a means of costing different methods of achieving an objective. The specification should be clear in terms of operating costs and disposal to give the full cost over a lifetime. The cost of using an item can be broadly divided into three categories: acquisition, running and disposal costs Although WLC deals with the cost of a requirement over its life candidates should remember that different solutions have different life spans and a form of annualisation may be required at the business case stage. WLC should form the element in purchasing decisions which should also reflect quality, environmental, social and price considerations. In taking these factors into consideration, public sector organisations must also act within a clear policy framework and comply with the law and regulations. WLC must be used in the context of the need to obtain VFM in the public sector purchasing decisions. Cost alone, even WLC does not capture all of the information relevant to a purchasing decision. In the public sector especially VFM does not simply mean choosing the cheapest option which meets the minimum requirements but is defined as the optimum combination of whole life costs and quality (and fitness for purpose) to meet the customer s requirement. 13 marks Q6 (b) Syllabus Reference(s): Syllabus References 1.5 L5-14/Nov07/BT/FV 11/13

12 Answer content might include: An investment appraisal is a technique whereby the need for the decision is outlined and set in the context of the Public Sector organisations strategy, where all realistic options are identified and the relative merits and drawbacks of each option are analysed, culminating in the identification of a preferred course of action. It is used to evaluate proposals to invest in a project to ascertain the benefit of making the expenditure. A public sector investment appraisal can be broken down into the following basic steps: a. Identify the need or problem, set in the context of the authority s strategies and define the objectives of the project b. Identify the options c. Assess the cost and benefits, financial and otherwise, of each option i. Analysis of non-financial benefit ii. Financial Analysis - Calculation of Net Present Value over an appropriate time period d. Consider risk and uncertainty e. Presentation of results and assessment of affordability A private sector organisation may concentrate more on the financial elements whereas a public authority must demonstrate all of the above. Therefore, in public sector cases, there are likely to be several proposals on the table at any one time. There are three main financial methods of investment appraisal, varying in degrees of accuracy and sophistication and candidates are required to give a short explanation of each; Payback, that is, which project has the shortest payback Average rate of return, that is, the yearly return on an investment Net Present Value (NPV) that is, the discounted value of money in the future 12 marks END OF MARKING SCHEME L5-14/Nov07/BT/FV 12/13

13 Question Develop The Business Case 1.1 x x 1.4 x 1.5 x 2 Analyse the Scope and Nature of the Contract x 2.3 x 2.4 x x 2.5 x 2.6 x 3 Manage the Supplier Selection Process Through the Application of Appropriate Rules and Procedures 3.1 x 3.2 x x 3.3 x 4 Develop and Maintain Positive Relationships With Suppliers to Realise Benefits from the Contract 4.1 x 4.2 x 4.3 x 4.4 x x L5-14/Nov07/BT/FV 13/13