Dorset Procurement Toolkit
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Improving the quality of life for people in Dorset, now and for the future Dorset County Council Dorset Procurement Toolkit
Transcript of Dorset Procurement Toolkit
Improving the quality of life for people in Dorset, now and for the future
Dorset County Council
Dorset ProcurementToolkit
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Contents
Page
Introduction 2
Toolkit overview 3
1. Business needs 5
2. Sourcing plan 23
3. Tendering 39
4. Supplier management 55
Appendices 59
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Introduction
This document has been written to help Category Managers in Dorset County Council (DCC) procure goods and services using Category Management techniques. Category Managers are recognised as those employees directly involved in the procurement of products or services provided by external suppliers.
The process of category management has been divided into 4 sections:
1. Business Needs
2. Sourcing Plan
3. Tendering
4. Supplier Management
Category ManagementCategory Managers are responsible for securing the most relevant quality, value for money and supply improvements across the life-cycle of their nominated categories for the entire organisation.
The VisionCategory Management will support the County Council’s corporate aims and objectives. It will deliver best value in the procurement of goods, works and services by procuring delivery partners on the basis of whole life costs and benefits to meet customer needs. Category Management will contribute to the aim of the Authority to be recognised as providing procurement excellence in the region and beyond.
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1.1
Tota
l ann
ual s
pend
1.2
Ann
ual v
olum
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nd
cost
s by
sup
plie
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1.3
Defi
nitio
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nee
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1.4
St
akeh
olde
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agem
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1.5
Mee
ting
curr
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uppl
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1.6
Mee
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pote
ntia
l sup
plie
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1.7
Risk
M1
Mile
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e 1:
Bus
ines
s ne
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repo
rt
1.
Bus
ines
s ne
eds
2.1
Mar
ket a
naly
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2.2
The
spec
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2.3
Con
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iabl
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2.4
Re
sear
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2.5
Col
labo
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2.6
The
supp
liers
’ vie
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2.7
Pric
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sage
, pro
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M2
Mile
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Sou
rcin
g pl
an
2.
Sour
cing
pla
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3.1
Tend
erin
g –
back
grou
nd
info
rmat
ion
3.2
Con
trac
t val
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and
appr
oach
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3.3
Con
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cedu
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(O
JEU
)
3.4
Te
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eva
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3.5
Tend
er n
umbe
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regi
stra
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3.6
PQQ
3.7
Rele
vant
pol
icie
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3.8
Ten
der
ing
3.9
Ten
der
op
enin
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3.10
Ten
der
eva
luat
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3.11
Te
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acc
epta
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&
aw
ard
3.12
Co
ntra
ct s
igna
ture
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3.13
Im
ple
men
tati
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and
co
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unic
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M3
Mile
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e 3:
Fin
al re
port
3.
Tend
erin
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4.1
How
ofte
n?
4.2
Who
sho
uld
be in
volv
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4.3
Wha
t sho
uld
be d
iscu
ssed
?
4.
Supp
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man
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Dor
set P
rocu
rem
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oolk
it O
verv
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Do
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Co
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Co
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• This is a process which will accurately define the business need, how much is currently being spent and what we currently get for this expenditure.
• The business ‘need’ may not be the same as what the stakeholder(s) want. You must determine whether the stakeholders are asking for a product or service provision that is defined at an unnecessarily high level of specification. You should be willing to challenge these requests. Your objective is to determine the relevant quality appropriate to the sustained provision of products or services required.
• At the end of this part of the process you should have a very good understanding of the product/service and what is required by DCC.
• Asking the right questions is vital. Don’t stop until you have all the information you need.
The business needs section contains the following sections:
1.1 Total annual spend
1.2 Annual volumes and costs by supplier
1.3 Definition of needs
1.4 Stakeholder management
1.5 Meeting current suppliers
1.6 Meeting potential suppliers
1.7 Risk
1.8 Milestone 1: Business needs report (M1)
1. Business needs
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1.1 Total annual spend
Objective To gather all information available, to form the foundation of the category plan.
Annual spend by supplierIt is recognised that the sources of information on spend analysis will be variable until the ERP system is embedded in DCC (go live October 2009). Therefore assistance will be needed from the group accounts department in compiling a comprehensive DP supplier spend spreadsheet by sub category. By 2010 this spend report should be directly available from a single point, i.e. The ERP system.
Review the ‘DP Supplier Spend’ spreadsheet and find the suppliers that are in the category (available from the Information and Development Officer see App. 3). Remember that the total spend figures in the DP Supplier Spend file will include a number of elements:• DCCSpend–(canbe‘harvested’(seeApp2)asasaving)• Capitalcosts–(shouldbereviewed)• Paymentstoschools/directgrants(importantbutnotharvestable)• Ledger–Holdingaccounts
Annual Spend by DirectorateDetailed information is available through Abacus until its replacement in 2010 when the SAP/ERPsystemwillbeused.Appendix1–AccountingInformationgivesdetailsonhowtoaccessthe accounting systems. It is important you are able to do this. Accountancy Support (see App 3) will help if needed. By 2010 Category Managers will be able to access spend reports from the ERP system.
Annual Spend by Collaborative PartnerIf we are part of a collaborative procurement project (Pathfinder, CBC, ESPO, PCT) then what is the total spend and who are the main players? What are their motivations? What are the recognised advantages in managing/ participating in a collaborative contract?
Identify StakeholdersYou need to identify the main stakeholders in your category.
Using the Abacus system, or in future the ERP system, identify the budget holder or person who places the orders; contact them in person, by phone or by email to establish who is responsible for ordering the product/service. Also consider who are the main influencers in the selection of the supplier. You need to make a list of your main stakeholders, where possible include people who are positive about change. Ensure you look as widely as possible for other areas of DCC organisation that use this product/ service range.
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1.2 Annual volumes and costs by supplier
Objective
A To collect accurate information for each supplier on the individual costs and annual volumes for each product/service.
B To check current invoice prices against contracted prices.
Product line information To create a very detailed picture of what each supplier provides, the following information is required:• Total annual volumes per individual unit supplied (check that the purchased number is consistent across DCC in terms of defined unit of measure)• Current cost of each unit• Multiplying the two above should equate to the total spend analysis• Any other associated costs, delivery charges, minimum orders etc.
A typical spreadsheet should look like this, one line per product or service supplied:
Supplier Code Product description Annual volume
Unit cost £
Total spend £
Lyreco 318111 PK25 Premium Folder 150 4.98 747
This data should come from 3 sources:
Your stakeholder - may already have some data, contact them to see what they have.
The invoices - find where the invoices are kept and record a sample of invoices on a spreadsheet. Check that our current invoice price matches the contract price. If we are being overcharged then seek a credit or rebate immediately. Check for any additional and unacceptable charges e.g. Carriage.
The suppliers - make first contact with the supplier and get them to send annual volumes and current prices. You may encounter resistance so be firm, you are entitled to see this data.
Contracts• Find copies of all existing contracts. Check they include the pricing schedule. Check Contracts Database. Where no formal contract exists, check a sample of purchase orders placed in the last 12 months and look for consistent pricing.
Data checking• Atthispointmakesuretheannualsupplierspend,thestakeholderspendandthelineby line spend are all within 90% of each other. If not further investigation is needed.
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1.3 Definition of needs
ObjectiveTo understand the needs of the organisation.
IntroductionIt is vital that you understand in detail how your category works and where it impacts on your entire organisation. This section has been designed to assist you in gathering this information.
It is recommended that you visit all your key stakeholders (see 1.4) for 30-45 minutes maximum to ask a number of key questions about the category.
The next 7 pages consist of a page of suggested questions in 7 areas of activity:• General Stakeholder Questions• Logistics• Quality• Service• Cost• Innovation• Regulatory
Where necessary you should add your own questions, or delete questions that are not relevant.
General Tips • When you first contact your stakeholders make sure you get them on your side• Stick to 30-45 minutes for this first meeting. If you take too much of their time they will be reluctant to meet again, so keep to just the relevant points• Makenotes–writethemupimmediatelyafterthemeeting• Clarify by email/phone anything that is unclear• Becarefulofopinion–alwaysaskforfacts• Sometimes you will have to ask ‘why?’ 5 times to get the real reason behind a statement• It is vital you understand the end user requirements. For example if you are buying classroom furniture you may need to go to a school and discuss this with the teachers and the children• Lookoutforandquestionrequestsforbrandedproducts
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General stakeholder questions
Questions Answers
Howmuchdoyouspendinthiscategory each year? (You may need to explain what a category is)
Howdidyousetyourbudgetforspendin this category?
Howdoyouorderthisproduct/service? Howoften?
Howdoyoucheckonthequalityoftheproduct/service ordered?
Who are all the suppliers in this category?
Howdoyoumeasurethecurrentsupplier’sperformance?
Do you have any ideas how we can spend our money more effectively?
What are the critical properties of this good/service?
Haveyouhadanyproblemswiththesupply of the product/service recently?
What would you like to change in this category?
What would you like to change about the current supplier?
Will there be any changes in the needs of the business in the future?
Whoisthebestsupplier–andwhy?
Can you think of any associated spends in their category that we should also consider in the scope of this contract?
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Logistics
Questions Answers
What quantities are required?
HowarethequantitiesdecidedwithinDCC?
When are they required?
Howlongdoesittaketogetholdofthem?
Where are they required to be delivered?
Howistheproduct/servicecurrentlydelivered?
Are there minimum order values?
Howistheproduct/serviceordered?
Howisthequantityverified–i.e.howisit‘goods receipted’?
What happens if the product/service is not fit for purpose?
Are there any measurements or KPIs (Key Performance Indicators) for logistical needs?
Does DCC hold stocks? If so where and how is it managed?
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Quality
Questions Answers
Who decides what the quality of the goods or service should be?
Howdowemeasurethequalityoftheproduct or service provided?
What is the quality of the product/service currently delivered?
Could the quality of the service be reduced but still meet the needs of the stakeholders? If so what would be the effect of reducing quality?
In the future, will there be a change to the required quality of the goods/service?
Are there specifications for reliability of the products/service?
Does the specification take into consideration any sustainability issues?
What are the consequences of a product/service being delivered that is below the required quality standard.
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Service
Questions Answers
What are the critical elements of the service?
What is the required response time between order and supply?
Howisthismeasured?
What is the quality and effectiveness of people who work for the supplier?
What is the quality of the help desk/call centre/point of contact?
Howdoestheprocuretopaysystemoperate?Is it efficient?
Is there a programme for continuous improvements in this category?
Howdoesthesupplierrespondwhenthingsgo wrong?
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Cost
Questions Answers
What are the main elements of the price paid for the product/service? e.g. materials, labour, overheads, profit margin, distribution etc.
What % of the price do these cost elements make up?
Howwillthekeycostelementsofthepricechange in the coming year?
What indices are used to manage these elements of the price?
Apart from the product/service itself what are the other costs? e.g. training costs, running costs, cost of ordering, insurance costs, breakdown costs, annual maintenance, replacement costs disposal costs, R&D
Howdoesthesupplierpricethe product/service? e.g. cost plus, premium pricing, fixed management fee, match the competition, as much as possible etc
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Innovation
Questions Answers
Howwillourneedforthisproduct/servicechange in the next two years?
Will this product/service be substituted by another one in the next two years?
What new products/services are coming into this category in the next two years?
Can modern technology improve the efficiency of any part of the product/service?e.g. carbon footprint, reduced consumables etc
Howwillthemarketchangeinthenexttwoyears?
What improvements have the suppliers brought to their category in the last 2 years?
What new products/services are the current suppliers bringing to DCC in the next two years?
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Regulatory
Questions Answers
Do any laws & regulations apply to this category?• UK laws• EU procurement regulations
What corporate objectives should be considered in this category?
Does this category impact any FFF plans?
Does this category fit into any directorate plans?
Howwilldiversityimpactthiscategory
HowwillequalopportunitiesimpactthisCategory
Are there any local politics that should be considered?
Haveyouconsideredallthecollaborationopportunities?
What are the opportunities for SMEs in this category?
Can the 3rd sector be involved?
Howwillthiscontractimprovesustainability?
Will TUPE be an issue in this project?
Do health and safety at work regulations affect this category?
What will be the life cycle of the product/ service?
What is the environmental impact?
Are there any concerns regarding ethical practices
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1.4 Stakeholder management
ObjectiveGuidelines on managing a stakeholder meeting
IntroductionWith large projects it may be necessary to hold a stakeholder meeting at the start of the project - a ‘kick-off’ meeting. Alternatively a meeting of stakeholders should take place once you have completed this ‘Business Needs’ section. For large projects specific governance structures will be needed - contact the Strategy Policy and Guidance Manager for advice.
Definition of project: Projects change things, whereas routine everyday work, such as operational tasks, involves and promotes what is there already.
In looking at a potential procurement activity, you will need to decide if this activity is a new product/ service or may change the way people undertake their work from current practices. If this is the case, it may be appropriate to adopt a project management approach. To assist you with this process please refer to the Corporate Management Guidance Manual.
For example, if your contract is estimated to be a high value annual spend (greater than £250,000 p.a.) you may want to organise a senior management team who will recommend the contract decision, supported by assurances provided by the category manager and key stakeholders that all processes have been adhered to and the contract decision has been collaborative across the organisation.
If, however, your contract is of a sensitive nature (and may also be of high value), you may wish to consider a governance structure in the form of a project board who will approve the contract, taking into consideration the corporate objectives and strategies, any political sensitivities that need to be considered and endorsed, plus the potential to orchestrate an effective communication programme.
Finally, you may be undertaking a procurement activity that, whilst it could be a project activity in itself, may be only one part of a wider programme of activity. For example the provision of building supplies which may be part of a major PFI capital project for road construction. Therefore you will need to ensure that, whilst adapting the principles of the procurement toolkit, you will also need to be accountable to the Programme Director for your project contribution to the programme and seek relevant authorisation for timely contracts to be agreed.
Before the meetingPrior to the meeting you should consider the following points:• Who are the stakeholders and what is their influence?• What are the implications, if any, for members of the public?• What are the political implications, if any, for your project and how may it affect council members?• To what extent should council members be involved?
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• Are the numbers of stakeholders appropriate for the size of category?• What are the stakeholders’ motivations?• What message do you want the stakeholders to get?• What message do you want the suppliers to get?• What are the objectives of the project?• What will be the likely action points?• What deadlines should there be?• Who should do what?
At the meeting• Discussdataalreadygathered–everyonetobeatthesamelevel• Discuss and agree category objectives• Agree next steps/action plans• Agree responsibilities and dates• Send out meeting action points within 48 hrs after meeting
Meeting rules• Thank everyone for coming, put people at their ease• Introductions if necessary• Emphasise importance of this meeting to the success of the project• Start on time• Sort out all arrangements beforehand• Haveanagenda• Agree meeting’s objectives and timings• Stick to the agenda and time• Continually clarify and record action points• Summarise action points at end of meeting• Agree next steps, next meeting date• Finish on time…or earlier
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1.5 Meeting current suppliers
Objectives• To get detailed information on what is supplied.• To condition the supplier to start thinking about price reductions.• To see if suppliers can work more closely with DCC on innovative solutions/continuous
improvements.
BackgroundThis might be the first time you have contacted a supplier, or you are meeting an existing supplier again to begin a process of tendering a category.
Most large suppliers will have an account manager for DCC. These people will be trained in selling so you should be equally prepared.
Right from the very first contact you need to condition your suppliers.
Generally our approach should be:• Make them want our business• Make them concerned over losing it• Tough but fair on business• Respect people
Meeting the supplierAsk the supplier to present to you on the following:
• Description of their company, turnover, employees, profit, ownership, locations• Details of what DCC has bought over the last 12 months• Suggestions on ways to improve the service/products• Suggestions on ways to reduce costs
Questions to ask suppliersWhen you meet suppliers the more questions you ask the better. Take control of the meeting byaskingquestions.Listedbelowarequestionsyoushouldbeaskingsuppliers:
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Supplier questions
Questions Answers
Who are your main contacts in DCC?
What would you like to change in DCC?
If you were doing my job what would you change?
Howcanwedothingsbettertogether and save us both money?
Who are your main competitors?
What trade shows do you go to?
Whatisyourturnover?Howmanyemployees? Any sub-contractors?
Who are your top 5 customers?
What % of your turnover is DCC?
Where is DCC ranked against other customers by turnover?
What are your plans for the next year? Turnover and profit targets?
Who owns your business?
What other companies do you own? Do you have sister companies or affiliates?
What parts of the UK do you supply to?
Do you work for other councils, is there an opportunity for collaboration?
Do you sponsor any charities, educational programmes, etc.?
Are you a manufactor or distributor of products?
Can you evidence a robust continuity plan?
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1.6 Meeting potential suppliers
ObjectiveHowtogetsomeearlyinnovativeideas
BackgroundThere are clear rules in local government about being fair and transparent with the marketplace. The marketplace is a terrific place to build your knowledge of best practice, innovations and future developments. You need to follow some simple rules while doing this.
GuidanceIf you have a reasonable view of the main (current and potential) suppliers in your category then you can arrange a meeting with them and discuss the following (describe it as a fact-finding mission or market research):• Their business, turnover, customers, employees• Best practice• Current industry KPIs• What should be in a specification• Future developments
Always ensure that the suppliers you talk to understand that ultimately there will be a competitive process in order to select the final supplier. Be careful not to give any undertaking that will compromise this.
It is important you see a cross-section of suppliers and that none of these meetings will influence who will win the tender.
Soft market testingThis is a more formal method for complex tenders by which you can gather information on the marketplace and potential solutions to meeting our needs. To be used in categories where you may know the outcome required but need input on the method of reaching that outcome.
Soft market testing involves inviting all suppliers in the marketplace to meet and discuss in open forum the category you are reviewing. Suppliers may be reluctant to discuss all the options openly so you can invite individual discussions at the close of the meeting.
These meetings should be advertised in ‘Dorsetforyou’ and ‘Supply2gov’ for contracts up to £139,892. Above this it should be advertised as part of the procurement process in OJEU. You may contact known suppliers to ensure they are aware of the meeting.
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1.7 Risk
ObjectiveTo identify, evaluate and mitigate the main risks in the category.
DefinitionRisk is something with the potential to cause damage, loss or delay.
Types of riskWhen you are reviewing your category and the suppliers you should consider what the main risksare.Youcanbrainstormthiswithinyourstakeholdergroupordothisyourself.Herearesome prompts:• Product or service significantly fails quality tests• Budget overspend• Financial - Will the company go bust? If so what will happen?• Dishonesty • Security - e.g. data protection• Who is liable?• Who owns intellectual property?• Infringements of copyright• Healthandsafety• Environmental• Diversity & equal opportunities• Potential for adverse publicity• Customer dissatisfaction• Confidentiality• Cost of change (switching costs)• Limitedcompetition• Weak supply chain• Business Continuity Plan
Defining riskLookatriskintermsofimpact(delays,increasedcosts,poorperformance)againstprobability of the problem occurring.
Assess the level of risk in accordance with the DCC Risk Management strategy.
Each risk would be scored by identifying the severity and impact on a scale of one to four, and then multiplying this by the likelihood (which is also gauged on a scale of one to four).
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The following criteria are used to assess the potential Impact / Severity of each risk occurring;
Assessment of Impact / Severity
Financial Reputation Stakeholders Customers
1Up to
£500,000
Contained within the individual service area
Affects only 1 group of stakeholders
Minimal impact or service disruption to customersContained within service area
2£500,001
to£1 million
Affects significant number of the service areas but with likely short term impact on public memory
Affects more than 1 group of stakeholders
Minor impact to customers and customer dissatisfactionLimitedservicedisruption
3
£1,000,001 to
£3,000,000
Receives local press attention with medium term impact on public memory
Affects more than 3 groups of stakeholders
Significant service disruption and customer oppositionThreat of legal action
4Over £3 million
Receives national / international attention with potential for long term impact on public memory
Affects more than 5 groups of stakeholders
Major service disruptionSignificant customer oppositionLegalactionLongtermpublicmemory
(NB: - The values shown in the ‘Financial’ column have been provided for guidance purposes only. These would be used to assess ‘Strategic Risks’. Alternative values would replace these to assess ‘Operational Risks’.)
OncetheImpact/Severityhavebeenassessed,thefocusthenturnstotheLikelihood. The following criteria are used to assess the potential likelihood of each of the identified risks becoming a reality.
AssessmentofLikelihood
1 Unlikely 0 - 10% chance of occurring
2 Possible 10–50%chanceofoccurring
3 Likely 50–80%chanceofoccurring
4 HighlyProbable 80–100%chanceofoccurring
The product of this stage one assessment of impact and likelihood is a “Risk Score”, which can range from a minimum of 1 to a maximum of 16.Example:- Risk Impact / Severity Score (4) x Risk Likelihood Score (4) = Risk Score (4 x 4 =16)
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By measuring this Risk Score within the following Risk Matrix, it can be assessed as to whether theidentifiedriskisconsideredtobeHigh(Red),Medium(Amber)orLow(Green):
Likelihood
Unlikely Possible Likely HighlyProbable
Major 4 8 12 16
Serious 3 6 9 12
Significant 2 4 6 8
Insignificant 1 2 3 4
ThoserisksrankedasHighwouldrequireprioritisation.
Managing riskYour category plan should include a description of the main risks and the plans to mitigate this risk, for example• Insurance• Import more expertise• Reduce specification• Contingency plans In determining the risk scores, it can therefore be helpful to judge the quality of the controls in place. In this respect, each control should be assessed to determine whether they provide:
Limitedcontrol The measure provides only a limited control over the risk and may require strengthening
Substantial control The measure provides a substantial control, although there is an acceptance that it does not fully manage the identified risk
Full control The measure is accepted as providing full control in terms of reducing the risk of occurrence or mitigating the consequences
Mitigation should also be classified as RAG status.
Also consider who is best placed to manage the risk, DCC or the supplier.
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1.8 Milestone 1: Business needs report (M1)
You now need to write your M1 report to summarise the business needs.
When you have completed this report it should be discussed with your line manager (plus the Principal Category Manager) and then either presented or e mailed to the stakeholders for comment and acceptance.
The report should include the following sections:
Title: Category of spend
Background: What has happened over the last year Spend overview: Annual spend by supplier Total category spend Spend by directorate
Total spend (can be held in appendices): Linebylinepurchasedatafor12months Annual volumes, current prices, total costs
Collaboration: Current collaborative arrangements
Risks: Main risks
Stakeholders: Listofstakeholdersandtheirinvolvementwiththecategory Needs: Logistics Quality Service Cost Innovation Regulatory
Summary: Main points Potential improvements
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2. Sourcing plan
• This section is about planning how you will approach the market to find a supplier that meets the needs of DCC.
• Using the Business needs you will need to write a specification which will form the main part of the tender.
The sourcing plan contains the following sections:
2.1 Market analysis
2.2 The specification
2.3 Contract variables
2.4 Researching the market
2.5 Collaboration
2.6 The suppliers’ view
2.7 Price, usage, process (PUP)
2.8 Milestone 2: Sourcing plan (M2)
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2.1 Market analysis
ObjectiveDeciding the best approach to the market
IntroductionThis tool will help you decide how best to approach the market and will influence your sourcing plan.
You will need to place your existing suppliers in a grid that has two axes, these axes are ‘Market difficulty’ and ‘Annual expenditure’. The measurement of ‘market difficulty’ does involve a degree of subjectivity and judgement and should not be considered an exact science. It is often better to do this with a colleague/the main stakeholders.
Market difficulty explainedWhether a market is easy or difficult it will be influenced by the following factors:
A) Marketdifficulty–external• Number of suppliers• Number of alternative suppliers• Substitutions• Technology• Investment• Capacity• Supplier collusion• Regulations
B) Marketdifficulty–internal• Tight specification• Certification needs• Internal prejudice/bias• Lackofknowledgeofsupplychain• Customer direction• Unknown future needs• Quality of forecasts• Existing collaborations• Existing supplier relationships• Regulations–diversity,sustainability• Cost of change
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The market analysis grid
High BottleneckStrategic
‘The important few’
LowTransactional
‘The trivial many’Leverage
Low High
Using the gridFor each of your suppliers in the category draw a circle on this grid. Draw larger circles for suppliers with a larger turnover.
Highermarketdifficultywillmovethiscircleupwards.
Largerexpenditurewillmovethesuppliertotheright.
Where your supplier sits will now influence how you should approach your sourcing plan. The following pages provide some guidelines.
Market difficulty
Annual expenditure
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Transactional
High Bottleneck Strategic
Low
Transactional Bundle for leverage
Consolidate suppliers
Outsource
Simplify
Catalogues, cards
Leverage
Low High
• Lowspend,lowmarketdifficulty• Remove complexity• Consolidate volumes and suppliers• Try to move suppliers into the leverage quadrant• Shorter term contracts (1 year)• Annual supplier reviews• Suppliers managed by stakeholders• Standardise charging structures• Review administration costs
Market difficulty
Annual expenditure
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Leverage
High Bottleneck Strategic
Low Transactional
LeverageMaximise competition
Aggressive negotiation
E Auctions
Volume to best performers
Low High
• Highspend,lowmarketdifficulty• Best place for suppliers• Commodity buying• Maximise competition• Aggressive/assertive negotiation• E auctions• Select suppliers on price and service• Potential for spot buying• Contracts 1-2 years
Market difficulty
Annual expenditure
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Bottleneck
High
BottleneckMinimise risk
Delivery guarantees
Contigency planning
Find alternatives
Change specifications
Change technology
Strategic
Low Transactional Leverage
Low High
• Lowspend,highmarketdifficulty• Risk analysis• Back up supply• Delivery guarantees• Develop new suppliers• Are substitutions available?• Can the specification be changed?• Remove supplier from this quadrant
Market difficulty
Annual expenditure
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Strategic
HighBottleneck
StrategicPush for value/performance
Relationships important
Multi level contacts
Unsettle poor performers
LTA
ReturntoLeverage
Low Transactional Leverage
Low High
• Highspend,highmarketdifficulty• Longtermrelationships,developmentpartnerships• Contacts at many levels• Performance and value important• Joint goals• Monthly meetings• 2-3 year contracts• Return suppliers to leverage• Supplier innovation• Reduce specifications• Groom potential new suppliers
Market difficulty
Annual expenditure
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2.2 The specification
ObjectiveWriting a great specification and effective KPIs.
IntroductionThis is one of the most important parts of the category management process. The specification describes what you want to buy and how you will measure the performance of the supplier. Getting this part right will greatly increase the likelihood of a successful, productive, efficient and positive relationship with your supplier.
This section looks at all the variables you should consider when writing the specification. At the end is an example to demonstrate some of the principles described here.
All the background information you need for the specification will have been gathered in the ‘Business needs’ section. The skill is to take the business needs data and make it into a specification that suppliers can quote on.
Key principles in writing a specification
Turn your business needs into the specification
Review the business needs and then write out a list of requirements that the suppliers need to fulfil
Haveyoualltheinformationthe suppliers will need?
Put yourself in the supplier’s shoes. Do you have all the information necessary in order for a supplier to submit a quote? The more ‘unknowns’ there are, the higher the price as the supplier will seek to protect himself against these ‘unknowns’.Suppliers need to bid in a consistent and competitive manner.
Tight or output specification?
A tight specification will be very detailed and specific about whatyouwantandbeeasilycostedandmeasured–anoutput specification is more likely to describe a desired outcome and may encourage some supplier innovation in reaching the required service levels.
Supplier InnovationHaveyouensuredthatthespecificationallowsthesupplierto provide alternative suggestions or improved methods of delivery?
What are the supplier ‘must haves’?
What are the qualities, skills, knowledge the supplier must have in order to win a contract? What must they have to qualify as a supplier?
Avoid biasMake sure that the specification does not introduce unnecessary bias. Specifying national coverage for example would eliminate all local SMEs.
Do not over specifyThere is often a tendency to over specify what is needed. This can increase costs.
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KPIs
KPIs are a series of measurements that you will use to determine if your supplier is meeting the specification and hence the business needs.
ItisbettertolimitthenumberofKPIs,usuallytobetween3–6,makesureyoudonotgetbogged down in measurements (you can’t fatten a pig by weighing it).
HerearesometipsoncreatingKPIs• Think clearly about what you want the supplier actually to do• KPIs must be Specific, Measurable, Agreed, Realistic, Time • Be careful what you measure• Make sure you know your current performance against the KPIs• Is the data easily captured?• Is the data unbiased?• Keep it Short, Simple (K.I.S.S.)• What is the forum for debate/reporting, how often?• What is the result of missed KPIs, escalation procedures?• Prepare to be flexible during the contract• Should you measure inputs or outputs?• Are there any industry standards?• Haveothercouncils/consortiadevelopedKPIswhichwecancopy?
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2.3 Contract variables
ObjectiveTo determine the main elements of the contract
IntroductionIn addition to the specification of what you want supplied you need to consider a number of other topics, particularly around the contract.
Below is a list of some main areas on which you should have a view prior to approaching suppliers.• ContractParties• Collaborationpartners• Specification/Service/Productdefinition• Deliveryschedule• Price• Proceduresforhandlingvariances• Remediesforbreach,under-performance• SLA• KPI• T&Cs(standardorbespoke)• Terminationconditions• Continuousimprovements• Performancereviews• Duration• Paymentterms• Confidentiality
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2.4 Researching the market
ObjectiveDeciding on who should be approached for a tender.
Before you approach the market you need to ensure that you know who the major players are. The internet is fantastic for this but don’t forget the many other channels that can help you understandyourcategory.Herearesomesuggestedwaystobuildyouexpertise:• Internet/Google it• Existing internal knowledge• Other councils, CBC, ESPO, (see 2.5)• Quiz existing suppliers• CIPS bookshop• Market research reports (e.g. Mintel)• Trade shows• Trade associations• Trade magazines• Other buyers
Once you have this information you should know the following:• Listofallmainsuppliers• Who are the local suppliers• Market size• Market structures• Trends• Technical trends• Other major purchasers• Are you attractive to suppliers?• Bargaining positions• Levelofcompetition/newentrants• Supplier financial status, ownership (turnover, profit, major shareholders)
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2.5 Collaboration
ObjectiveFinding out about existing public sector contracts.
ResearchAsupplycontractmayalreadyexist,orwemightbesingeduptoaCBCcontract–publicsectorbuying organisations to research are:
www.CBConline.org.ukwww.OGCBuyingSolutions.gov.ukwww.ESPO.org
We support the concept of collaborative procurement but we must satisfy ourselves that the contracts are providing the best value for money that the market offers.
PathfinderDCC is committed to working with the other District and Unitary Councils in Dorset to coordinate procurement activities. You should advise the other councils of your category reviewandaskthemiftheywanttobeinvolved–remembertoalwaysgiveadatebywhich you need a response.
The list of Pathfinder contacts is available from the Strategy Policy and Guidance Manager (see App 3).
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2.6 The suppliers’ view
ObjectiveYou’ll get a better deal from suppliers who respect you.
High
GrowthDevelop account
Proactive
Competitive
CoreLookaftercustomer
Fight off competition
Highservicelevels
Cultivate dependency
Low
NuisanceLowattention
Poor service
No desire to compete
ProfitableGet best price
Take gains
Reactive
Low High
Consider how attractive you are to a supplier. Above is a grid with the size of the DCC account along the bottom and how attractive we are on the Y axis. Often the more attractive you are the better the deal you will get.
Being attractive to a supplier is important, you can do this by:• Being accessible• Being honest• Being clear on what you want• Complimenting good behaviour (also address and resolve bad behaviour)• Being a gateway to other councils• Resolving real problems quickly• Enabling a supplier to grow• Havingcredibilitywiththestakeholders
Remember,DCCisoftenattractiveasthereisnoissueoverpaymentofinvoices–amajorconcern for suppliers in the private sector.
Attractiveness of the account
Business value
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2.7 Price, usage, process (PUP)
ObjectiveFinding ways to spend our money more efficiently and effectively.
Finding improvements can be looked at in three ways, a lower price, less usage (also called demand management) or a more efficient process.
PriceRemember that cost and price are different. Aim to understand both. Pricing often follows some formofrule–costplus,marginal,premium,penetration,asmuchaspossible,matchingthecompetition, etc.
When approaching how to get a better price, consider the following:
Action Tips
Ask Emotional leverage, fairness, disappointment, partnership
Create competitionThe best leverage of all is to have two suppliers wanting your business
Price harmonisationIf there are different prices within the county then harmonise to the lowest
Volume aggregationBring volumes together, often means reducing the number of suppliers
Collaboration (Pathfinder, CBC etc)Can you get a better price by working within Pathfinder or via the CBC or ESPO?
Price list analysisStudy the supplier’s price list, understand their lowest price
Total costing Ask suppliers to breakdown their costs into materials, labour,overheadsandprofit.Howdotheycompare? Do the figures look acceptable?
Results based paymentsPaying on results is a powerful incentive, be careful of the unintended consequences
GainsharingCan you motivate the supplier to find improvements by sharing the gain with them?
Target costingIf you know your product/service really well and all the cost drivers, then you will know what a good price is and you can tell the suppliers what you are expecting to pay
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UsageDemand management can be as important as price. Below is a list of actions you can take to reduce demand, getting more prescriptive the further you go down the list• Persuade/communicate• Tighten controls• Use (cheaper) substitutes• Reduce frequency• Reduce quantity
If we take the example of travel, the different steps would be as follows:
Usage levers Actions
Persuade/communicate Ask people to consider their carbon footprint, car share, etc.
Tighten controls Either write a travel policy or enforce existing policy which should indicate using cheapest travel options, capped hotel rates, etc.
Use (cheaper) substitutes Video conferencing, coaches not cars, Travelodges
Reduce frequency Ask everyone to have essential meetings less often
Reduce quantity Identify all non-essential travel and meetings and cancel, cut budgets, allow no overspend
ProcessHowwebuyproductsorservicescanoftenaddcost.
Draw a map of every stage of the movement of the product/service and the administration involved from how the need is defined to paying the invoice.
Typically this process will include:• Deciding we need the product/service• Budget coding• Finding the right supplier• Ordering–paper,electronic?(considerwhetherERPgeneratedordersneedtobeprinted)• Confirmation of order• Checking on product/service• Goodsreceiving(oftencalledGoodsReceivedNotes–GRN)• ERP Accounts payable authorising payment• Payment made
Can you see any unnecessary actions which can be removed? Brainstorming with the stakeholders can be very productive in this area. Again the ERP system should assist you in adentifying efficiencies.
For every step in the process, ask yourself:• Can the action be simplified?• Are people complying with existing (good) practices?• Can the action be removed totally?
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2.8 Milestone 2: Sourcing plan (M2)
You now need to write your M2 report to summarise the sourcing plan.
When you have completed this report it should be discussed with your line manager (plus the Principal Category Manager) and then either presented or e mailed to the stakeholders for comment.
The report should include the following sections:
Title: Category of spend
The specification: A description of what we want to buy (ties in with the business needs)
Main contract variables: KPIs
Market overview: Size of market Current Suppliers and spend Other potential Suppliers Collaborative arrangements
Price, usage, process: What tactics will be used
Summary: Main Points Potential improvements
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3. Tendering
• You should already have your list of potential suppliers from yourpreviousresearchcompletedforyoursourcingplan–therefore this section is about how you go to tender, how you select your supplier and how you implement the change.
This section includes:
3.1 Tendering–backgroundinformation
3.2 Contract values and approaches
3.3 Contract procedure rules (OJEU)
3.4 Tender evaluation
3.5 Tender number registration
3.6 Pre-tender qualification questionnaire (PQQ)
3.7 Relevant policies to be incorporated into tender documents
3.8 Tendering
3.9 Tender opening
3.10 Tender evaluation
3.11 Tender acceptance, award and unsuccessful tenderer(s) arrangements
3.12 Contract signatures
3.13 Implementation and communication
3.14 Milestone 3: Final report (M3)
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3.1 Tendering – background information
Tendering is not just about achieving value for money through a competitive process, there are also legal and financial regulations that must be complied with. These include:
• Diversity and equality • Sustainability and protection of the environment• Developing local economies through closer working with SME’s and 3rd sector organisations• E.C. Public Procurement Directive (Public Supply Contract Regulations)
Because we are spending public money, the council has a responsibility to ensure that we treat everyone equally and fairly and that we are open and transparent in the way we conduct ourselves with all customers, clients and potential contractors.
The huge amounts of public money that are spent by local authorities in the delivery of its services is recognised by central government as being a significant leverage to influence both the private and 3rd sectors in meeting the diversity and sustainability targets set through legislation and local area agreements. As part of the procurement process through the tender documentation, evaluation and ongoing contract management, potential providers must be able to evidence and demonstrate that they understand the council’s policies on diversity and sustainability and that they have their own policies and arrangements in place which may complement or exceed those of the council. Similar evidence is required to satisfy, where appropriate, the council’s commitment to supporting the local economy through its SME’s and 3rd sector organisations.
If contractors are acting on our behalf they must follow our guidelines.
MoredetailscanbefoundintheProcurementHandbook.
It cannot be stressed too strongly that DCC tender documents must be transparent and avoid discriminationinorderthattheycomplywiththerequirementsofEuropeanCommunityLaw.
Principles of tendering• All tenderers receive the same information/identical paperwork• All tenderers work to the same timescales• Properly controlled opening procedures • Likeforlikeassessmentsaremadeinquantity,specificationandcosts
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3.2 Contract values and approaches
ObjectiveDifferent sized contracts require different approaches
There are different rules for different contact values. A contract value is the estimated amount a supplier will be paid over the life of the contract, excluding VAT.
Contract value £ min
Contract value £ max
Tender process (minimums)
Advertised in Agreed by
0 9,9992 quotations if possible, M3 report
Dorsetforyou Senior Category Manager
10,000 19,9993 quotations required, M3 report
Dorsetforyou Supply2.gov.uk
Senior Category Manager
20,000 49,9993 tenders required, M3 report
Dorsetforyou Supply2.gov.uk
Senior Category Manager Principal Category Manager
50,000 139,8926 tenders required, M3 report
Dorsetforyou Supply2.gov.uk
Senior Category Manager Principal Category
139,892 +Via OJEU, M3 report
Dorsetforyou Supply2.gov.uk OJEU Notice
Senior Category Manager Principal Category Manager HeadofProcurement,
3,497,313 +For Works only contracts an OJEU notice is required
DorsetforyouSupply2.gov.ukOJEU Notice
Senior Category Manager Principal Category Manager HeadofProcurement++
FurtherguidanceontheOJEUthresholdscanbefoundintheProcurementHandbookDifferent thresholds apply to utilities
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3.3 Contract procedure rules (OJEU)
ObjectiveKnowing the rules for managing OJEU contracts
When conducting a tender that involves an OJEU notice you should decide on the best procedure for the category.
All OJEU contract procedures must include a 10 day ‘cooling off’ period from notification of the contractawardtosigningofthecontract–thisistoallowanychallengestothecontractawarddecision (also known as the Alcatel standstill period).
When writing your contract notice and in your tenders remember to state if you intend to enter into post tender negotiation or is it a best and final offer. Electronic tendering can shorten the timings for notices, tender returns etc.
This table summarises some of rules around tendering, more details are available in the ProcurementHandbook.
Procedure Description Timings (minimum)
Open procedureAll suppliers that respond to the contract notice must be invited to tender.
52 days from OJEU notice to receipt of tenders.
Restricted procedure
Contract Notice invites expressions of interest detailing selection criteria.PQQ* issued to respondents. PQQ evaluation determines tender list. Minimum of 5 bids required whenever possible.
37 days from Contract Notice to receipt of expressions of interest. 40 days from despatch of tender documents to receipt.
Competitive dialogue
For complex deals. Contract Notice invites expressions of interest. Responses evaluated and respondents reduced if necessary. Issue ITDP** to selected respondents. Discussions with respondents. Select 3 for shortlist and invite final tender bids.
37 days from Contract Notice to receipt of expressions of interest.
Negotiated procedure
Ideally a minimum of 3 suppliers required.Exceptional procedure, for example when previous procedures have unacceptable responses; there is only one potential supplier; extreme urgency; where additional products/services from an existing supplier is justified
37 days from Contract Notice to receipt of expressions of interest.
*PQQ is a Pre-tender qualification questionnaire** ITPD is an Invitation To Participate in the Dialogue
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3.4 Tender evaluation
ObjectiveTo decide on what basis you will select your supplier(s).
Thisisavitalpartofthewholecategoryprocessandyoumusttaketimetogetthisright– you should include your stakeholders and your line manager in this area.
These evaluation criteria must be included in your contract notices and advertisements for the contracts and in the tender documents.
Guidelines• Your Specification and KPIs (2.2) should guide you on how you will evaluate the tenders.• All tenders will be evaluated on ‘most economically advantageous tender (meat)’.• As a start you should divide your evaluation into 3 areas: - Quality of the company - Quality of the service - Price• From this you should develop more detailed criteria in each section. As a general rule
theweightingsare60%onqualityand40%onprice–howeverthisshouldbevaried where necessary (e.g. stationery).
• Examples of some evaluation templates can be found in the file Dorset Procurement/DP Templates/Standard Project Templates/Tender.
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3.5 Tender number registration
ObjectiveRegistering the tender.
GuidelinesThe Information and Development Officer co-ordinates this process in Dorset Procurement.
First you need to decide if the tender is a “period supply” or “one-off supply”. This will determine which tender book is used.• Locatetenderbook• Select correct “supply” book (marked on front)• Use the next free page, and place a carbon sheet in between the white and yellow pages.
Copy 1 (white) is used by Corporate Resources and is removed by a Corporate Resources representative only on the day the tender is opened, Copy 2 (yellow) is retained in the book.
• The tender numbers are pre-printed on each separate page.• Handwritethedirectorate(CorporateResources)andthecontracttitle.Ifpossiblealso
input the day and date the tender will be opened.• Once the PQQ evaluations have been completed and the companies have been selected to
proceed to the “tender” stage, the name and town of the successful companies can be added to the tender book. (The rest of the details in the book are added at the time of “tender opening”)
• 2 weeks before the tenders are opened you need to email the Information and Development Officer with the following information: - Tender title - Tender number - Number of tenders sent out - Date of opening
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3.6 Pre-tender qualification questionnaire (PQQ)
ObjectiveTo form a short list of potential suppliers.
Guidelines• The‘right’numberofsupplierstenderingwillvaryforeachcategory.Toomanyandthe admin becomes a headache, too few and you’ll not get enough competition or new ideas.
• Ifyoubelieveitisnecessarytocontrolthenumbersofcompaniesthatwilltenderforthe contract then you can use the PQQ to manage this number.
• AllPQQsmustbewrittensoasnottodiscriminateagainstanysupplier.
• YoushouldusethePQQtoevaluateifthesupplierwouldbeacceptableasasupplierto DCC. At this stage you are not deciding who might offer the lowest price or the best service.
• TheProcurementHandbookhasastandardtemplateforthePQQwhichincludesquestions on: Company Details, Financial Information etc.
• YoushouldensureyourstakeholdersareinvolvedincreatingthePQQandinselectingthe shortlist.
• Informthesuppliersofyourdecision.
• StandardtemplatescanbefoundinthefileDorsetProcurement/DPTemplates/Standard Project Templates/Tender.
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3.7 Relevant policies to be incorporated into tender documents
ObjectiveUnderstand the other influences that you need to consider.
GuidelinesAs mentioned above, DCC is required to assess the ability and capacity of prospective tenderers to deliver the council’s policies and strategies in respect of:
• Standards for equality and diversity• Sustainability and protection of the environment• HRincludinghealthandsafety• Business continuity planning• Supporting the local economy through 3rd sector and local SME’s• Prevention of cartels and/or other price/market fixing activities
Specific questions related to diversity and equality can lawfully be included in the tender or PQQ documents which tenderers must respond to in order for their submission to be considered.
Prospective tenderers should be ‘signposted’ to DCC’s web-site for information on the above documents. Consideration must be given as part of the evaluation process to measure each organisation’s capacity and ability to meet DCC’s requirements.
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3.8 Tendering
ObjectiveIssuing the tender.
Tenderdocuments–checklist• Tender invitation• Instructions to tenderers• Tender closing date• Instructions for return of the tender• Award criteria and evaluation of the tender• KPIs • Size and scope• Specification• Contract period• Conditions of contract• Change controls - variations - continuous improvement• Termination clauses• Format for reply• Pricing format• Tendered rates, prices, costs, options• Other prescribed information (including those policies and strategies as described at 3.7)
Tender documents should all be sent out and received back at one and the same time.
The majority of your tenders, even for small contracts, should include most of the categories above. Reminder – KPIsThe best method of managing suppliers well is to have effective KPIs. You should consider the following:• What do we want the supplier to actually do?• Howandwhenwillwemeasurethesupplier’sperformance?• What remedies are there for non-performance?• What incentives are there to improve performance?
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3.9 Tender opening
ObjectiveMaking sure you get the tender opening right.
• Closing date and time for receipt of documents must be observed.• No means of identifying organisation from envelope or package in which documents
are delivered.• Named officers attend and witness the opening (must be consistent to those designations
or named officers in OJEU advert, where applicable), independent of Dorset Procurement or officers involved in the particular contract.
• All documents ‘stamped’ in and registered in tender opening book.
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3.10 Tender evaluation
ObjectiveSelecting the best supplier.
• Your stakeholders should be involved in the evaluation of the Tenders.• Evaluation must be undertaken in accordance with details contained in Contract Notice
(where applicable) and tender/PQQ documents.• Use standard templates to enable comparisons to be made simple and consistent.• Comprehensive notes must be taken from evaluation meetings.• The submission from all stakeholders must be evaluated in a fair and even-handed manner. • Wherever possible determine the whole life cost of the contract, by including all factors,
e.g. running costs, maintenance and final disposal costs etc.• Scores and evidence collected from evaluation process must be placed on the relevant
spreadsheets.• Arrangements for contract acceptance and award must be made in accordance with contract
procedure rules.• Need to keep good evidence to support the award procedures and manage any challenge
from unsuccessful parties or requests through FoI requests.
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3.11 Tender acceptance, award and unsuccessful tenderer(s) arrangements
• Needtoallowforthe10day‘cooling-off’period(seeabove)
• AwardnoticemustbeplacedinOJEU.
• Opportunitiesmustbegivenforunsuccessfultendererstobede-briefedastowhytheir submission was not successful. Information given must consider the requirements of the FoI legislation.
• Unsuccessfultenderersshouldbeinformed:
- Their approximate positioning within a league table
- Broad guidance on the disparity between their bid and the successful one –anapproximatepercentage
- Any area where their bid did not reach the required standards
- If appropriate an assurance that they will be considered again
• Allcontractdocumentationmustbeheldelectronicallyandbebackeduptoaremote secured server (in accordance with ICT protocols).
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3.12 Contract signatures
Guidance
Contract Value Signature Required
>£250,000 Chief Executive
£100,000 - £250,000 Director
Standard Terms and Conditions (T&Cs) can be found in Dorset Procurement/DP Templates/Standard Project Templates/Tender/Tender Std T&Cs.
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3.13 Implementation and communication
ObjectiveSuccessfully launching a new supplier and changing the habits of the organisation.
It is important you now plan the implementation of what you have agreed with the supplier. Herearealistofactionsyoushouldconsider.
• What actions need to take place to implement the changes?• Howwillyoucommunicatewith: - Key stakeholders? - Whole organisation? - Collaboration partners?• Who is responsible for making the changes?• What are the timescales for implementation?• HowdoIgetthestakeholderscommittedtodeliveringtheplan?• Howwillthesupplierandtheprocessbemanagedinthefuture?• Howwillteethingproblemsbedealtwith?• What will successful implementation look like?
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3.14 Milestone 3: Final report – (M3)
The M3 report will show which suppliers were in the tender, who was awarded the contract and the savings made.
The M3 report should include:
Title:
Category of spend
The contract:
Value and approach
Collaboration:
Who are we collaborating with?
PQQ:
Listofallinterestedsuppliers
Short-listed suppliers
Rationale for short list
Tender:
Rationale for award of contract
Implementation and communication
Savings:
Cashable savings (show calculations and assumptions, part year and full year)
Non-cashable savings
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4. Supplier management
• Thissectionisabouthowtomanageyoursupplierseffectively.The contract is signed……what now?
• Categorymanagersareresponsibleforthecommercialrelationship with the supplier. The day to day management of the supplier (contract management) can be done by the category manager or by someone else in the organisation.
• Criticaltogoodsuppliermanagementiseffectivemeasurement of the Key Performance Indicators (KPIs).
• Youshouldunderstandthesupplier’sperspective.
This section contains
4.1 HowoftenshouldIseethesupplier?
4.2 Who else should be with me when I see the supplier?
4.3 What should be discussed?
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4.1 How often should I see the supplier?
• Firstly make sure you book regular meetings with your strategic suppliers.• Depending on the position of the supplier in the Market Analysis Grid then the following
table gives some guidelines,
Transactional Leverage Bottleneck Strategic
Performance review meetings
Never/annual Annual 2 per year 4 per year
Contacts Operators Cat ManCat Man, Principal
Cat Man, Principal,Headof Dorset Procurement, Director
Trust None Minimal High Complete
Measurements Service Price/service KPI KPI + Kaizen
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4.2 Who else should be with me when I see the supplier?
• Withthesmallersuppliersthemeetingwillbeyouand,ifnecessary,thecontractmanager or person who places the orders.• Forstrategicsuppliersyoushouldregularlyinvolvenotonlytheoperationalmanagers involved but also the Principal CM, Director and once a year the CEO.
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4.3 What should be discussed?
• Performance against the KPIs. • Plans to improve performance against KPIs• Current issues• Current market conditions• Review diversity and sustainability arrangements• New ideas for reducing costs - Cost reductions - Demand reduction - New technological developments - Joint innovations - Reduced duplicated effort (admin.) - Waste reduction - Shorter lead times - Simplified process - A more customer focused supply chain - Sustainability in the supply chain - Motivating the supplier - Other areas of spend that the supplier could cover• Agree action points and responsibilities
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Getting financial information on procurement
1. IntroductionThis document gives you information on:• Where savings may be harvested• An overview of the financial code• An overview of financial systems• An overview of DEXTOR• An over view of the Batch payment system• An overview of ABACUS - Detail of how to use the Transaction and Creditor screen• Appendices explaining various points of detail
2. Where savings may be harvestedAharvestedsavingwillreducethenetbudgetofthecountycouncil.Howeverthereareexceptions savings that can NOT be harvested from:• Capital (as the budget is not finalised until the contracts are set)• Schools as their budgets are ring fenced.• Where reducing expenditure reduces grant income (although this could be measured
as an efficiency)• Where there is a service imperative that prevents the use of the contract. E.g. some
Children’s services need to use rail warrants because of timing issues. • VAT
This information is identifiable using Financial Information System (FIS) code and can be viewed in ABACUS. The information you need may not be found in DEXTOR as it is only one of the payment systems and therefore does not include all payments.
Appendix 1 – Accounting information
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3. An overview of the financial codeThe FIS code is a structured twelve digit code that is segmented in to the Service and Main code of 2 digits each and the Unit and Sub code of four digits each. This is traditionally written in the order of Service Main Unit Sub. 00 00 0000 0000.
ServiceService codes, Serv for short, are grouped by the accounting treatment they receive and the type of reporting they are subject to. These different groups are limited to using given ranges of sub codes and types of unit codes.
Service code Type of Accounting
05 to 20 Capital Service codes
21 to 60 Revenue Accounts
61 to 89 TradingAccounts&HoldingAccounts
90 to 99 LedgerAccounts
Saving can not be harvested on Serv codes 01 to 20 or 90 to 99. The narrative that is linked to the service code changes with the attached main code. The code description or narrative will be available in ABACUS but not in DEXTOR. E.g.
Service Main Service Code Heading Main Code Heading
31 28 Pupil & School Improvement Svs SS Psychological Service
31 29 Ferndown Sports Centre DirectCostsHoldingA/c
31 30 Pupil & School Improvement Svs BD Outdoor Education Service
MainThe Main code is used in conjunction with a service Code to more specifically define an area of the authority, often to a cost centre. Main codes are not unique but the heading is unique to a service. E.g.
Service Main Service Code Heading Main Code Heading
12 02 Schools-Primary/Secondary Primary- Direct Net Costs
13 02 LibraryService PublicLibraryService-North
23 02 Transportation–AreaEast Trunk Roads And Bridges
31 02 Schools-Primary Individual Schools Budget
87 02 HighwaysDLO Operating Account
99 02 Ledger Loans/AdvancesO/standing
UnitUnit revenue codes are used to identify establishments, teams or long term projects. There are several types of unit code but each type is limited to specific service codes. In ABACUS you do not need to be aware of this but in Discoverer reports that contain all service codes the narratives for services less than 21 and 90 and above are not reliable.
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SubThe subjective code, sub for short, describes the nature of the income or expenditure e.g. Pay APT&C staff, electricity, rent. Different ranges in the sub codes are used for different purposes and some can only be used for specific ranges of service code. E.g.
Serv Range Sub Code Range
10-20 Capital Service codes 9000–9999Capital
21-28 Road Maintenance codes 0100–4999RevenueExpenditure5000–5999Recharges&CapitalFinancing6000–6999RevenueIncome
29-60 Revenue Accounts
61-89 Trading&HoldingAccounts
90-99 LedgerAccounts7000–7999Ledger8000–8999Notused
Unfortunately there is not a consistent use of sub codes so you can expect the same type of expenditure to be coded to a variety of sub codes.
4. Budget book structureLookattheprintedbudgetbookandit’sprettyobviousthebudgetsareprintedinpages.What is not so obvious is that it is the Serv Main code that determines the page the expenditure / budget appears on. The sub code determines what paragraph and line transactions are linked to. There are usually several sub codes on a line. Budgets are put against a Serv Main and Sub code.However,expendituremaybecorrectlyrecordedagainstasubcodewithnobudget,asthe budget is monitored at the line level. Enquiries can be made through this budget book structure as well as the financial code.
5. An overview of Financial Systems When you log in to ABACUS you should get a view similar to the picture on the rightofthispage.ABACUS–Actuals,Budgets And Commitments System is the accountancy system. ABACUS contains transactions from all of the payment systems while DEXTOR within the EXCHEQUERSERVICESareadoesnot. If you limit your search to DEXTOR you may miss significant payments.
6. DEXTORDEXTOR is an ordering and payments system. But it is only one of several payment systems. DEXTOR orders can be created and invoices paid electronically. In the ABACUS enquiry screens it is the DEXTOR invoice prefix and Doc. No. that is shown and not the order number. There are three significant types of transactions that come from DEXTOR and these types can be distinguished by the source reference.
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54 Credit notes 55 Order and Payment - a DEXTOR order was raised on this56 Proforma Payment - no DEXTOR order exists
All of these sources can be enquired on through the “DEXTOR Payments General Enquiry” screen.
There are four fields you can enquire on.Year This is not the same as the Year recorded in the ABACUS code enquiry screens and
it is the ABACUS year that will be used to identify savings.Prefix A prefix is unique to a section or team creating the DEXTOR payment.Doc No A 6 digit number that is unique to that payments prefix in that DEXTOR yearCreditor A 6 digit number that relates to a supplier. A supplier may have more than one number
Once you have found an invoice double click in one of the white cells and you will drill down to the invoice detail. There may be a narrative that tells you why the payment was made but it may not be very informative.
Warning:• The total invoice in DEXTOR includes Vat but there are no savings to be had from Vat as we
reclaim all of it.• The DEXTOR year is not the same as the ABACUS code enquiry year. Analysis should be on
the ABACUS year• Many payments do not go through DEXTOR. The ABACUS code enquiry scheme is the only
place you will get all payment transaction.• Some creditors collect income on our behalf or a contract may involve them making
payments to DCC. When the Net value of the transaction results in a payment the income will be accounted for through the payment system. You may then find income within the reports. Reducing the cost may also reduce the income and not be harvestable.
Note:• Invoices are held by the team that pay the invoice and are filled locally.
7. An overview of the batch payment systemThe batch system is a paper based payment system. A payment slip is attached to the invoice, a financial code is added, the invoice is checked against the order, the payment is authorised and sent to exchequer services in county hall. There it is assigned a Source and a voucher number. This can be used to look up the invoice details in exchequer services, in county hall. The Source numbers are 1,2,3,4 which equate to quarters of the financial year or source 16 which are urgent payments.
Note:• Recent invoices are held in Exchequer Service in county hall, older ones are held by
Records Management.
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8. An overview of ABACUS code enquiresABACUS has several applications with in it. The most useful are likely to be the “Code Enquiries” and the “Creditor Payments” and are the only ones described here.
Below is a view of the “Code Enquiries” “Transaction” screenIt may look a bit daunting at first but it is to gateway to lots of useful information. You just need to know how to ask and how understand what you get back.
Once you have a record and you want to know the invoice detail behind it you can drill down to view the DEXTOR invoice or get the batch reference and lookup the invoice in Exchequer Services. To drill down use the mouse to click on the transaction you are interested, in click in a field (box) that is white, then double click to see any supporting electronic document you have access to.
Transaction detailThe screen is split in to two. The query parameters at the top and the core detail at the bottom. However,thisismisleadinganywherethereisawhiteboxyoucanenquireonit.
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Query parametersThe traditional way to use this is to select the Year* from the drop down list, enter a FIS code, tabbing between the boxes, and hit the F8 key to enter the query. But you can be smarter than this. So for instance if you know that you want to look at 2009 transactions on sub code 1701 then select the year leave the boxes for the Serv Main and Unit code empty, enter the Sub code, move in to the Actual(£) box, enter >0 in it and enter the query. The first result that comes back will be for the lowest FIS code with total expenditure above zero. The smart bit comes from using the down arrow on the keyboard to scroll through all valid codes.
The down side of asking for codes with net expenditure is that you miss some transactions where the expenditure has been recoded but if an Actual(£) of more than zero is not specified you end up scrolling through a lot of codes with no transactions on them. So you might consider entering the Service code and avoid scrolling through capital and schools expenditure before you get to the information you want.
A time saving tip is that if you only want to make a small change to your previous query press the F7 key twice and your previous query is shown. You now only need to change the relevant field. This is useful if you are looking at transactions from previous years.
Now to understand what has been returned and what to do with it. As you enter the FIS code the related headings will appear. If you enter a Sub code or when one is returned the code type willcomebackasExpenditure,Income,CapitalorLedger.Whenthequeryisrunyouwillalsosee if there is a budget associated with this code but they are usually only on the four zero unit code. Budgets can be changed through out the year so both the Original(£) and Current(£) budgets are shown.
Core detailThe transaction detail is given in the three tabs that make up the core detail.
Source detailGoing from left to right.
Wk –The financial year starts in April with week 1 this relates to the FIS date the date the transaction was first shown in ABACUS.
The next three boxes under Source are more interesting the first gives you the Feeder Type you will mainly be interested in type 01 which are DEXTOR payments or type 02 which are Batch payments. The next field is the Cm Feeder Source or in common parlance Source. The next field you can ignore (it tells you the feeder source and 6 is a Financial Services feeder system). The next box Reference is the voucher number and when down loaded is called cm_voucher. This is essential if you want to look up an invoice paid through the Batch system. The Cm Feeder Source and Reference (is still called by some the Source Voucher number) is the reference to look up for in Exchequer Services to find the original invoice.
* The financial year from 1 April 2008 to 31 March 2009 equates to 2009
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If the payment is through DEXTOR the prefix is that of the invoice or if the payment is Batch the entry will be * * * BP. The Doc No is the DEXTOR invoice number but in Discover reports it is just called Document, ignore this field for any Feeder typeotherthan01–DEXTOR.
Ignore the next 3 boxes Order No, Optcode and VAT. The final box in this view is the Actual amount of this line in the invoice. Invoices can have several coded lines in them and in the picture above all of the lines relate to the one DEXTOR invoice.
Creditor detailThis is the second Tab and gives you the Creditor Number and Name. Only transactions through the payment or Income systems will have useful information here.
Note. You have to click in a Creditor or Actual box before you use the scroll bar or you will be flipped back in to the Source Detail view.
Key There are only two fields that might be of interest here Type and Source. Type and Source is a description of the Feeder Type and Cm Feeder Source on the Source Detail tab. So you can see what transactions are payments and if they are Batch or DEXTOR.
Further queriesYou can refine your query. Once you have found the code you want to look at, you can limit the transaction returned. E.g. Amounts over X, payments only, creditor. To do this execute your query and click in one of the boxes in the Core Detail area and press F7, all the transactions disappear. Click in the field you want to select and enter your query press F8 to return the refined data.
Queries you might like to consider include:
Creditor Enter the number you want or put in >0 to get only creditor transactions
Feeder Type Enter 1 to get DEXTOR payments Enter 2 to get Batch payments Enter <3 to get only payments
Amount(£) Enter >1000 to get payments over £1,000. But don’t forget that there may be several amounts that relate to the same invoice.
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Extracting the information to excelThere is small Excel icon in the bottom right hand side of the screen. Click on it an all the data selected will be output to Excel. This is very useful if you have selected batch payments because you get a printed list of the source / reference you need to look up. Which are called cm_feeder_source and cm_voucher when they are downloaded.
Creditor screenThis screen will allow you to search for a creditor number and give you the total value of transactions made through our systems including VAT. But you must remember to select Expenditure or you will get income system transactions as well as payments. As with the Transaction screen above you can download to excel and if you delete any transactions with a Sub code of 7330 you get ex Vat total. Downside of this screen is that you can not drill down to invoice detail and there is no headings for the (FIS) analysis code.
The first six fields in the Details tab (below) under Voucher are the same as the field under Source and Reference in the Source detail tab in the transaction screen (above)
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If you do not know the creditor number, put your cursor in the white “Payee Number” box and press the F9. You get the box below, the search is on the Keyname field so limit the search to 10 characters and do not put in any spaces.
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Appendix 2 – acronyms and definitionsCIPS Chartered Institute of Purchasing and Supply
DCC Dorset County Council
DP Dorset Procurement
ERP Enterprise Resource Planning (SAP system)
ITPD Invitation to Participate in the Dialogue
FFF Fit For the Future
FoI Freedom of Information
Harvested A harvested saving is a saving that can be counted as a saving. It is counted when a budget is cut and therefore the money is harvested into a central account
KPI Key Performance Indicator
LTA LongTermAgreement
OJEU Official Journal of the European Union
PQQ Pre-tender Qualification Questionnaire
SME Small and Medium Enterprises
T&Cs Terms & Conditions
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Appendix 3 – contacts
Accountancy Support Carol Marshall
Information and Development Officer Gayle Acors
Principal Category Manager Steve Carr
Strategy Policy and Guidance Manager Alan Pavey
