Government Procurement: challenges and need for new approach Sheffield Hallam FM Conference Deborah Rowland, Government Property Unit Paddy Howlin, Government Procurement Service 12 th September 2012 UNCLASSIFIED 13/09/2012
Introductions Deborah Rowland Head of Facilities Management Category Government Property Unit Provide overview of FM procurement challenge and proposed way forward Paddy Howlin Head of Sourcing and Category Management Property Government Procurement Service Provide overview LEAN Sourcing Supporting procurement reform in Central Government
FM Procurement Issue Central Government Departments (CGD s) and their Arm Length Bodies (ALB s) currently procure Facilities Management (FM) contracts in isolation, with no standardisation of terms, key performance indicators (KPIs) or pricing, which limits government s ability to act as an intelligent customer and which suppliers exploit to their advantage. GPU and GPS are proposing a central Contracting Model for FM, with broad departmental and market support to address these shortcomings, maximise savings from FM and fully supports the SME agenda. GPU has already identified contracts totalling 502m per annum that could be re-procured through the FM Contract Model by 2020 with estimated annual savings of 158 million. The proposed model could also have wider applicability to the public sector.
Background Statistics on FM Second highest spend category - c 1.9bn* reflects assumed 30% element of unitary charge as FM cost (includes MOD and PFIs, excludes NHS) No transparency of actual costs for FM services within PFIs Limited transparency of FM spend and contract data Over 5,000* identified FM contracts procured, delivered and managed in silos by CGD s, ALB s and NDPBs. No consistency of service standards, KPI s, commercial terms, pricing, procurement Cost of procurement/management by each CGD s and ALB s and heavy reliance on consultancy At least 1,877* FTEs within CGD FM (operational delivery & contract management) at a cost of 56m* Skills and capability in contract management is variable Technical skills/knowledge are not shared or lessons learned disseminated FM spend and contract data inconsistent Lack of transparency by building and service type which leads to an inability to benchmark per m2 by service and location Inability to extract data from existing systems within each departmental FM contract CGD s paying consultants separately to benchmark their FM costs Gaps and inconsistency in FM data supplied from ALB s * Note all figures FY10/11 annual FM data return from CGDs/ALB s
Central Contracting Model GPU FM recommends the procurement of a central contracting model which could meet all of the challenges outlined above. The intention is to outsource to a central contracting team to manage all FM contracts with suppliers on behalf of government departments and their ALBs. The model will take over the provision of services from existing FM contracts on their expiry and will provide the following benefits: Savings achieved from; contracts negotiated to consistent standards, economies of scale and robust monitoring of FM costs. Significantly reduced FTE requirement to fulfil FM functions allowing staff to be deployed more efficiently. Increased data transparency due to central management of contracts to allow genuine comparison and further scope for savings. Inclusivity for SME s (able to bid at first tier through FM Supplier portal) encouraging growth in the FM sector. FM costs are currently expected to reduce in line with the national average reduction in occupied area as governed by National Property Controls (NPCs). Opportunity analysis predicts that this model provides savings of 15% over and above the savings trend (Appendix A).
Data Data Data Data Data DEPARTMENTS Business Demand Quality Control Compliance DEMAND Departments Wider Public Sector STRATEGIC Strategy/Direction Policy Property Alignment Innovation Reporting/analysis Market Trends TACTICAL Contract Management Procurement Supplier Evaluation MI/Data Performance Consistency/ Standards Audit Analysis CR Commercial Relationships GPU Strategy & Policy (Category Lead) FM Board Intelligent Client GPS Lead Procurement activity(s), Contracting Authority, Develop/Deliver/ Implement/Management of FM Supplier Framework Portal*, Spot Buying capability and support Performance & Data Management (Integrator) (Outsourced Contract/Lead Dept/GPS) Performance Management, MI, Supply Management, Audit, Standards, Technical Expertise, Sourcing Intelligence, FM Data Warehouse, Self- Service Helpdesk (CAFM), Mobilisation/Implementation, Framework Procurement & Supplier Portal (optional) (Fee tbc) Invoices & Contracts Project Bank Account OPERATIONAL FM Delivery Local relationships Helpdesks TFM Hard FM FM Supplier Framework Portal Soft FM UNCLASSIFIED Catering Specialist *0.5% GPS Management Fee recovered from suppliers based on spend directed through F/W
LEAN Sourcing Supporting procurement reform in Central Government Paddy Howlin Head of Sourcing & Category Management Property Government Procurement Service CFMD Conference: September 2012 UNCLASSIFIED
Setting the context Mandated across use of Central Government however key principals and benefits will apply to procurement undertaken by Health, Education, Local Government, Housing sectors etc. MCO announced publication of the LEAN Review at SME event on 11 February 2011: Management Summary & Diagnostics are published on Cabinet Office website: http://www.cabinetoffice.gov.uk/content/sme-contracts. Headlines were significant saving to be made in time and cost by working in a more efficient and effective way. The output of the study was a proposed new way of managing competitive dialogue within the existing legal framework that eliminates waste and unnecessary sequential activity. The Cabinet Office has developed a standard solution - a suite of tools to enable the execution of the LEAN sourcing process for all three procedures: restricted, open and competitive dialogue.
The new policy requirements The new approach comprises the following new government policy requirements: Adoption of a LEAN sourcing approach designed to strip out waste and reduce costs. A requirement to carry out significant levels of pre-procurement market engagement with diverse range of prospective suppliers, including SMEs in order to warm-up the market, test our thinking and generate ideas for innovation as part of the development of outcome-based specifications. The default starting point for all Government procurements will be the use of the Open Procedure. There is an expectation that all but the most complex procurements are completed with 120 working days (publication of the advert to the award of contract). Complex defined as procurements in construction, infrastructure and defence etc that typically require a detailed design proposal developed, planning permission, private finance etc. The policy requirements will be adopted in the proposed future procurement for Facilities Management.
A simple illustration & challenge of as-is practice Source: Tenders Electronic Daily (Central Government) Jan 11 to Aug 11 No. of contracts awarded No. of PINs published relating to those contracts Average No. of Working Days from Contract Notice Publication to Contract Award Decision Date Competitive Dialogue 10 4 (40%) 439 Restricted 89 10 (11%) 202 Open 10 2 (20%) 111 Are the right choices being made on selection of procurement route? Are opportunities being missed in warming up the market and using the PIN to reduce timescales? Benefit opportunities are being missed... Reduced turnaround times = 1) Decreased costs to suppliers 2) Better utilisation of scarce procurement resources 3) Potentially reduced procurement resource costs
Procurement routes the choice has become limited! Route Key Features Use Open All interested suppliers may respond to the advertisement in the OJEU by tendering for the contract. Well defined, outcome-based requirements will help ensure a manageable number of bid responses from good quality and capable suppliers. There is a government commitment towards greater use of the Open procedure and procurers should use this procedure as their default option. Restricted A two stage process where a selection of suppliers who respond to the advert is made and only they are invited to submit a tender for the contract. The selection (pre-qualification) questionnaire (PQQ) must only contain proportionate and relevant criteria. Use in limited circumstances where pre qualification is essential. The use of a standardised, stripped back core PQQ is mandatory across central Government, and not used at all for sub 100k work. Competitive Dialogue Following an advert and a selection process potential suppliers are invited to enter into dialogue to develop one or more suitable solutions before chosen suppliers are invited to tender. The Government has set a presumption against the use of competitive dialogue. Negotiated One or more potential suppliers are selected to negotiate the terms of the contract. An advert is usually required. Only to be used in extremely limited circumstances Described in the Regulations, for example, where a previous procurement was discontinued because of unacceptable/irregular tenders.
7 Key principles of the new approach Key principles 1. Establish a clear understanding of required business outcomes 2. Engage with the market in order to shape and confirm that the business requirement is attractive to a diverse range of suppliers 3. Use LEAN thinking and visual tools to set up and run a well planned and efficient process 4. Do not commence formal procurement until thorough engagement with suppliers has taken place. The Open procedure should be the default route 5. Streamline any engagement with suppliers and stakeholders by using a boot camp (or Industry Sounding) approach to make best use of limited time 6. Use e-sourcing tools to support the procurement and follow the LEAN Standard Operating Procedures (SOPs) 7. Measure and manage performance through continued focus on turnaround times and costs. Advert to award should be completed within120 working days Strong focus on preparing to go to market This is a key activity that takes time and careful planning Strong focus on running a fast procurement process This is a key activity that requires collective effort and is dependant on effective preparation Procurement perspective - The must do minimum Focus on the voice of the customer ensuring a sound understanding of required business outcomes Establish a planning and management discipline using visual management tools to drive progress Advertise your potential requirement to the market (preferably by using a project specific PIN) and undertake pre-procurement market engagement with industry prior to going to OJEU to inform sourcing strategy Ensure readiness for OJEU by developing your bidders pack (outcome / output based specification, draft Ts&Cs and project plan) ready for publication of OJEU Utilise OJEU compliant e-sourcing tools to underpin the sourcing process Confirm application of the LEAN sourcing standard operating procedures and challenge deviation from them to assure that best practice and efficiency has been built into all sourcing projects Drive continuous improvement and reductions in procurement turnaround times (from Contract Notice to Award of Contract) by measuring performance.
The new LEAN sourcing approach the 5 Stage Process Pre-Procurement Market Engagement Sourcing and Contracting 1. Business need & baselining 2. Market analysis & sourcing strategy 3. Supplier identification 4. Execution of sourcing strategy 5. Finalise contract Talk to potential suppliers, publicise requirement (preferably by using a project specific PIN) to warm the market up and advertise the industry engagement event Industry Sounding Events to capture the suppliers views on your requirement, on the viability, and on possible delivery options and where appropriate to facilitate meetings between suppliers to explore the potential for the establishing consortia, partnering arrangements and / or subcontracting opportunities. Mobilisation Pre-OJEU readiness - the preparation and subsequent publication of a bidders pack at OJEU including requirements, draft terms and conditions, selection criteria, evaluation strategy and criteria and procurement timescales. This transparency allows suppliers to make informed decisions as to whether they wish to bid. Driven by visual management tools Establish a project planning and performance hub in the mobilisation phase and use visual management and e- sourcing tools to drive the process and to measure and manage performance including turnaround times in line with the 120 day target. Execution of sourcing strategy through structured workshops, Industry Briefing Events and tightly managed project plans Use standstill period to prepare for publication of the contract documentation and to finalise delivery and contract management plans KEY TO SUCCESS: The new approach requires more work to be carried out before going to market
LEAN Sourcing Process General Overview Business need, baselining & market analysis Sourcing strategy Supplier identification Execution of sourcing strategy Finalise contract Mobilisation 1. Business Need Identification, Baselining & Market Analysis Ensure identification & clear articulation of the business need Talk to business stakeholders 2. Mobilisation 3. Sourcing Strategy Establish the procurement & identify sourcing strategy Talk to suppliers 4. Supplier Identification (OJEU) Publish requirements through a contract notice in the supplement to the Official Journal of the European Union Ensure that you are ready to go to market 22 to 66 calendar days from issue of OJEU 5. Supplier clarification Respond to all questions & clarifications simultaneously 6. Evaluation of Tenders The best solution is established through evaluation of tenders Use e- sourcing tools 7. Contract Award Notify the supplier and finalise the contract 10 days Drive continuous improvement in turnaround times by measuring performance 8. Contract Signature Formal signature of contract The sourcing team is set up for success, all associated stakeholders are clear on requirements of the business need Establish a strong PPM discipline approach and deploy visual management techniques Within 120 working days Indicative Timeline Ranges Subject to requirement at least 6 20 50 20 50 months 7 10 Working Days Working Days Working Days 2 10 Working Days
In summary... Pre-OJEU Setting up for success - readiness 1.Developing a clear understanding of requirement business outcomes 2.Engaging with suppliers in the market and identifying opportunities for innovation and/ or breaking requirements into more attractive lots 3.Developing a detailed understanding of the business requirement and constructing it in a way that will be clear and attractive to the market 4.Getting a team in place with the right capabilities and a clear delivery plan (that takes into account approval and assurance points) Risk Execution Key points Procurement: OJEU to Award 1.Operating a highly efficient process in line with the plan, which focuses on reducing turnaround times and costs to both the client and the suppliers within the competition but maintains quality 1. The more quality time that is spent on pre-ojeu activities the more efficient the procurement is likely to be. 2. Reduced turnaround times (OJEU to award) = reduced costs and improved resource utilisation 3. LEAN sourcing is not about cutting corners it is about improving efficiency, and quality as part of a repeatable approach that is subject to continuous improvement 1. Failure to complete the pre-ojeu activities is likely to result in three things occurring: 1. A protracted procurement incurring significant costs 2. A business outcome that is sub-optimal 3. Dissatisfaction of key business stakeholders
Next Steps for FM Upon ministerial approval to the proposed recommendations for FM, GPU & GPS will commence with finalising the business case in coordination with central government departments through implementation working groups. Procurement will then follow a Lean process with a plan to be operational by mid 2014 Questions