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PUBLIC SECTORPROCUREMENTOPPORTUNITIES:A Practical Guide toSupplying Food & Drink tothe Public Sector in Scotland

RR Donnelley B63927 04/10

PUBLIC SECTORPROCUREMENTOPPORTUNITIESA Practical Guide toSupplying Food & Drink tothe Public Sector in Scotland

ContentsIntroduction 4

The Market 8

How to Supply 16

IsThis For Me? 20

Public Sector Requirements 24

Where to Find Opportunities 26

Responding toTenders 30

Further Support 36

Appendix 1 –Tendering Requirements 38

Food Safety & Quality Assurance 40

Health & Safety 42

Environment & Sustainability 43

Equal Opportunities 44

PricingYour Products 46

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Scotland’s national food and drink policy aims tomaximise opportunities to encourage SME foodproducers and manufacturers to engage indelivering Scotland’s food requirements forschools, hospitals and elsewhere in the publicsector. In this sustainable procurement is a keyfactor. It is an indication that the public sector inScotland wants to lead by example – not only inhow we source our food but also what we source.

It is for that reason that we commissioned SAOS,as part of the C2 Cultivating Collaboration Projectwhich is delivered under Scotland Food & Drink,to provide practical guidance to businessesaspiring, or considering, the opportunities of sellingfood and drink to the public sector. The guideaims to dispel any notion that public sector foodand drink contracts are off limits or too complexfor smaller sized food producers andmanufacturing businesses and the Guide willprovide the insight, knowledge and confidenceto help achieve this ambition.

ForewordPublic Sector Contracts - A Guide for SME FoodProducers andManufacturers

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The public purse always looks for value for moneybut we recognise that price is not the only factor.Health, Economic and Environmental impactsaround food are important considerations as well.That is why the Scottish Government firmlysupports sustainable public procurement andencourages consideration of sustainability criteriain its procurement. This guide is an important toolin helping deliver that aim.

For established companies and producers keen togrow their business public procurement offers abinding contract with a generally predictabledemand, and from this a steady assured cash flow.This can be a substantial opportunity from whichbusinesses can consolidate and move forward.

Following the publication of this Guide, whichcontains a wealth of information for the first timeassembled in the one document, I very much hopewe will see many more SMEs competing andwinning contracts to deliver healthful, sustainablyproduced food and drinks in schools, hospitalsand across the public sector.

I wish you well. There are considerable opportunitiesout there and Scottish food and drink companies arewell placed to deliver the quality product required.

Cabinet Secretary for Rural Affairs and the Environment

1.0Introduction

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Public Sector Procurement: A Practical Guide toSupplying Food & Drink to the Public Sector in Scotland

This guide aims to provide small- and medium-sizedScottish companies and producers with a practicalinsight into supplying the Public Sector food anddrink market. As you work through it, each sectionwill introduce a key element that should be consideredwhen tackling this growing and changing market.You will discover how the market operates, whatbuyer expectations are, the main routes to market,how to find and prepare tenders, and find out howtenders are evaluated.

1.1 A Changing Marketplace –Sustainable Procurement

Despite the fact that the Public Sector in Scotlandspends around £130 million each year on food anddrink, smaller producers and processors oftenfind it difficult to capitalise on the opportunitiesoffered by this market. Pre-conceived notionsthat the sector is driven primarily by cost, andthat the tendering process is time consuming,difficult, and excludes smaller companies,means few are attracted to supplying the market.

Times are changing and there is nowconsiderable interest from the ScottishGovernment in increasing the role of PublicSector food procurement in providing opportunitiesfor Scottish businesses, including Small andMedium-Sized Enterprises (SMEs) and the producethey supply. (In the UK a small business isclassified as one with not more than 50 employeesand a medium-sized business as not having morethan 250 employees.)

Times are changing and there isnow considerable interest fromthe Scottish Government inincreasing the role of Public Sectorfood procurement in providingopportunities for Scottish businesses

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Further Information

Through the National Food and Drink Policy,the Scottish Government is developing andimplementing a plan to support small businessesin supplying healthy, sustainable food to thePublic Sector. Guidelines have been producedfor Public Sector bodies, outlining practicalsteps that should be taken to ensure thatprocurement practices are as inclusive aspossible, maximising the opportunities forsmaller suppliers to become involved. In doingso, progress is being made in establishing thePublic Sector as an attractive and viable marketfor smaller Scottish food and drink companies.

A holistic approach is driving the agenda ofsustainable food procurement in the Public Sector,whereby increasing attention is being given tothe consideration of areas such as health, socialand environmental benefits when awarding foodand catering service contracts – it’s not all pricedriven. In October 2009 the Scottish Governmentlaunched its Scottish Sustainable ProcurementAction Plan, aimed at assisting the Public Sector

to build sustainable procurement into theircorporate culture. The key elements ofsustainable procurement consist of social,economic and environmental considerations.

In leading from the front, the Scottish Governmenthas issued guidance to all Public Sector bodiesin Scotland setting out six simple steps they cantake to ensure that small companies have fairaccess to Public Sector contracts.

In April 2009 John Swinney, the CabinetSecretary for Finance and Sustainable Growth,wrote to Chief Executives and Heads ofProcurement throughout the Public Sector topromote access to Public Sector contracts forSMEs, social enterprises, and third sectorbodies, through the use of the “Six SimpleSteps”. Mr. Swinney said “Taken together,these six simple steps will help to give SMEsfair access to contracts – Public Bodies mustimplement them as soon as possible to helpScotland beat the recession.”

Scottish Government public procurement webpage:http://www.scotland.gov.uk/Topics/Government/Procurement

The Six Simple Steps guidance for Public Bodiesin Scotland:http://www.scotland.gov.uk/Topics/Government/Procurement/policy/SMEs

Scottish Government Suppliers Charter:http://www.scotland.gov.uk/Topics/Government/Procurement/Selling/Supplierscharter2

Scottish Sustainable Procurement Action Plan:http://www.scotland.gov.uk/Topics/Government/Procurement/policy/corporate-responsibility/sspap

National Food & Drink Policy for Scotland:http://www.scotland.gov.uk/Topics/Business-Industry/Food-Industry/national-strategy

http://www.scotland.gov.uk/Topics/Government/Procurement

http://www.scotland.gov.uk/Topics/Government/Procurement/policy/corporate-responsibility/sspap

http://www.scotland.gov.uk/Topics/Government/Procurement/policy/SMEs

http://www.scotland.gov.uk/Topics/Business-Industry/Food-Industry/national-strategy

http://www.scotland.gov.uk/Topics/Government/Procurement/Selling/Supplierscharter2

2.0The Market

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The Public Sector food and drink market in Scotlandis large and diverse. A number of routes into thismarket exist, with opportunities to supply directly,either as an individual business or as part of acollaboration, or indirectly, via establishedintermediaries such as wholesalers, foodservicecompanies, or contract caterers.

The diagram below highlights the differentsupply routes for food and drink into the PublicSector. Where catering functions are contractedout there will be limited options for directlysupplying that Public Sector body, as they willhave appointed a single contract caterer to fullymanage their food and drink supply. In this case

opportunities may lie in becoming a supplier tothe appointed caterer or to another business intheir supply chain. The largest Public Sectormarkets for food and drink are in health, prisonsand local authorities (including schools andsocial work).

Direct Supply Indirect Supply Collaborative Supply

My Business

Public Body Public Body Public Body

My Business

FoodserviceCompany,Wholesaler,Caterer orProcessor

Partner 2Partner 1

Partner 3

My Business


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2.1 How Procurement Works in the ScottishPublic Sector

There are a large number of Public Bodiesprocuring goods, services and works. The PublicProcurement Reform programme, co-ordinatedby the Scottish Procurement Directorate (SPD),aims to improve procurement practices andencourage collaboration between organisations.

As part of the reform programme, procurementCentres of Expertise have been established andthe public procurement of goods and services inScotland has been organised into four categories,A, B, C1 & C, depending on the nature of theproducts or service being bought and theprocurement agency. Food and drink contractspresently fall into categories B, C & C1depending on their size, complexity and theprocuring body.

The Procurement Centres of Expertise, whichhave been established to improve processesand collaboration within their relevant businessareas and sectors, are:

At a National level:

• Procurement Scotland – responsible fordeveloping and implementing procurementstrategies for national Category Acommodities such as IT hardware andoffice supplies, on behalf of all ScottishPublic Bodies. No food and drink productsare considered Category A.

Centres of Expertise have also been established tomanage the procurement of goods and servicesthat are defined as Category B in key sectors:

• Central Government Centre ofProcurement Expertise (CGCoPE) –responsible for leading and facilitatingcollaborative procurement activity forScottish Government Agencies,Non-Departmental Public Bodies (NDPBs),Tribunals and Public Corporations.

• Advanced Procurement for Universitiesand Colleges (APUC) – responsible forHigher and Further Education Sector.

• Scotland Excel – responsible for localauthorities.

• NHS National Procurement –responsible for health.

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Category A Where a single interface with the publicsector facilitates efficiency andcompetitiveness of suppliers, e.g. IT HW,Telecoms, Office Equipment and Supplies

Category B Where interface coordinated viaa sector CoE, e.g. Wheelie bins,Medical Equipment

Category C1

Category C

Where interfacecoordinated via regionalhub or local organisation

NationalProcurementProcurement

Scotland

Sector SpecificCGCoPE APUC;Scotland Excel;

NHS National Procurement

RegionalCollaboration at local level,e.g. Tayside Consortium

Local185 Major procuring organisations;

in excess of 900 in total

At present all food and drink procurement contracts fall into the categories B, C & C1.

2.1 Public Contracts Scotland (PCS)

The free-to-use, on-line Public ContractsScotland (PCS) portal has been established toenable all of the Scottish Public Sector toadvertise their opportunities in a single place.Major contracts and many smaller opportunitiesare advertised on the portal. It is the prime siteto search for Scottish Public Sector tenderingopportunities. The portal gives free access tocontract opportunities above and below EUthresholds. It is recommended that suppliersregister and sign up for free email alerts foropportunities with Scottish Public Sectororganisations such as the Scottish Government,Agencies and NDPS, Local Authorities,NHSScotland, Higher and Further Education andEmergency Services. It can be accessed at:www.publiccontractsscotland.gov.uk

2.2 National Health Service

NHS National Procurement is responsible for theprocurement of hospital food in Scotland, and isan umbrella body covering all the NHS Boards.The remaining share is made up by local contractsfor sourcing particular products, such as freshfish and prepared food for therapeutic diets.These local contracts are managed by theindividual NHS Boards.

Many NHS tendering opportunities are advertisedthrough PCS. Suppliers to the NHS are expected tohold, or be working towards the BRC (British RetailConsortium) Global Standard for Food Safety.

The following descriptions and diagram summarises the categories and procurement organisations.


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2.3 Prisons

The Scottish Prison Service manages prisonfood and drink procurement centrally. There area small number of large procurement contractsin place covering pre-packed food, frozen food,fresh and frozen meat and poultry, bread andbakery, and milk and dairy. Large-scale foodservice contractors dominate the prison sector.Details of upcoming food and drink contractscan be found on the Scottish Prison Servicewebsite and on PCS.

2.4 Local Authorities

Small and medium sized companies alreadysuccessfully supply the Public Sector acrossLocal Authorities, in the education and socialwork sectors and in hospitals. Local Authoritiesare generally keen to support the localeconomy and many have been proactive insmall supplier development.

One of the major differences between LocalAuthorities and other Public Sector bodies is theoften large number of individual catering operationsthat need to be supplied. This distributionelement can present a challenge to many smallcompanies who wish to supply this sector, withdelivery costs often forming a significant portionof the delivered price. In some instances thebest route to market can be through a dedicatedwholesaler or foodservice company who willhave the appropriate delivery infrastructure.

Small and medium sized companies already successfully supply tothe Public Sector across Local Authorities, in the education and socialwork sectors and in hospitals.

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For many Local Authorities procurement ismanaged as part of a consortium throughScotland Excel in a bid to secure better valuethrough the greater volume of food required.The majority of the 32 Scottish Councils havesigned-up to Scotland Excel which formallycommenced operations on 1st April 2008.Scotland Excel’s area of responsibility includes anumber of National Local Authority Contracts(“Category B contracts”). In addition, around aquarter of food and drink is procured throughregional consortia, such as Tayside Consortium,and just over half of the expenditure is procured byindividual Local Authorities. Scotland Excel tenderscan be found on the Public Contracts Scotlandwebsite, www.publiccontractsscotland.gov.uk.

2.5 Universities & Colleges

Universities and colleges are major buyers offood and drink products and will either have aself-managed or outsourced catering function.Where universities operate their own cateringfacilities they will either purchase food directlyfrom suppliers or may aggregate purchasing byworking with other organisations to increasetheir purchasing strength by offering combined,and therefore more substantial food supplycontracts. In Scotland the majority of collaborativeprocurement is undertaken by APUC (AdvancedProcurement for Universities and Colleges), withmany contracts being advertised on the PublicContracts Scotland portal.

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Considerations in Supplying thePublic SectorBenefits in Supplying the Public Sector

• Predictable business, including year round for prisons and hospitals.

• Public Sector organisations generally have good payment terms and are obliged to pay supplierswithin 30 days of receipt of a valid invoice.

• Demand is less likely to be affected by economic downturns.

• Sizeable market opportunity – worth £130m per annum in Scotland.

• Public Sector procurers are keen to increase opportunities for small and medium sized businesses.

• Drive towards sustainable procurement is likely to increase opportunities for smaller suppliers.

Challenges in Supplying the Public Sector

• Perception that prices offered for products can be lower than in other markets.

• Distribution arrangements can be complex to manage.

• The tender process can be complex and lengthy for some organisations.

• Scale and length of timescales for national contracts can make it difficult for small suppliers toenter the market. There is however some movement by public bodies towards dividing contractsinto smaller lots.

• You must ensure that you business has the capability and capacity to fulfil the contract on anongoing basis.

• Value for money – the desired economies of scale may only be achieved by small suppliers workingtogether, or in partnership with others in the supply chain.

• Cost of achieving and maintaining food safety & quality criteria such as the British RetailConsortium Global Standard (BRC), Safe & Local Supplier Approval (SALSA) and in some casesLocal Authority assessment and Farm Assurance.

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Having looked in some detail at the PublicSector market and how it operates, it is clearthat, although complex, the market offerssignificant opportunities for competent smallbusinesses. The move to a more sustainableprocurement model should further serve toincrease opportunities for small companies inthis growing market.

Further InformationPublic Contracts Scotland:www.publiccontractsscotland.gov.uk

Scottish Procurement Directorate:http://www.scotland.gov.uk/Topics/Government/Procurement

Procurement Scotland:http://www.scotland.gov.uk/Topics/Government/Procurement/npcoe

Central Government Centre of ProcurementExpertise:http://www.cgcopescotland.gov.uk

Advanced Procurement for Universities andColleges (APUC):http://www.apuc-scot.ac.uk

NHS National Procurement:http://www.nhsscotlandprocurement.scot.

nhs.uk

Scottish Prison Service:http://www.sps.gov.uk

Scotland Excel:http://www.scotland-excel.org.uk

London Olympics:http://www.london2012.com/business

Glasgow Commonwealth Games:http://www.glasgow2014.com

http://www.scotland.gov.uk/Topics/Government/Procurement

http://www.scotland.gov.uk/Topics/Government/Procurement/npcoe

http://www.nhsscotlandprocurement.scot.nhs.uk

3.0How to Supply

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There may be several different routes to your PublicSector customer, depending upon the product, yourend-user, their location and procurement practices.

Small companies and producers can supplydirect to Public Sector customers. There arealso opportunities to supply the Public Sectorindirectly through wholesalers, distributors orprocessors. This can help small businessesovercome some of the barriers associatedwith supplying large contracts or not beingable to supply a wide enough product rangesingle handedly.

Increasingly the Public Sector is dividing largecontracts into smaller parcels (“lots”), whichmight be based on, for example, the geographicallocation of the sites to be supplied or the typeof product. This provides a greater opportunityfor smaller producers to supply part of a contract.

In addition, it might be possible for a groupof suppliers to work together to deliver therequirement or for suppliers to collaborate withothers in the supply chain to provide part of alarger contract.

The key is to contact the public body concernedto find out what possibilities might exist. This isbest done well in advance of any contractrequirements being advertised, in order to allowsufficient time to put any arrangements formallyin place.

3.1 Supplying Directly

If your company is large enough, or the PublicSector organisation has chosen to split a contractinto smaller lots, there may be opportunities tosell products directly. In supplying directly youwill be responsible for all aspects of tenderingand supply. Public Sector buyers are no differentfrom any other buyer and have a duty of careand responsibility. With this in mind you must becertain that you can meet all the organisation’srequirements on food safety, quality, consistency,any sustainability criteria, capacity, deliveryrequirements and security of supply.

Small suppliers need to be particularly aware ofany need to supply standard products covered bythe contract to all sites, however remote, at thesame price. This geographic spread can oftenbe too great for small suppliers to undertakealone, in which case you may wish to collaboratewith others. Another consideration is if yourproduct is not ambient, but chilled or frozen,it will need appropriate distribution facilities anddelivery vehicles.

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3.2 Supplying Indirectly

If you wish to supply the Public Sector but donot have the ability or scale to sell directly youmay wish to see if there is an opportunity tosupply products to those who already holdPublic Sector contracts such as regional ormajor national foodservice companies,wholesalers or contract caterers. Many of thesecompanies are keen to strengthen their localfood offerings and are often happy to talk topotential new suppliers. Details of contractedsuppliers can be obtained by calling theprocurement contact at the relevant PublicSector body. In addition information oncontracts that have been awarded can be foundon the Public Contracts Scotland portal.

3.3 Collaborate to Supply

Working in partnership with others in the foodchain can increase the number of opportunitiesto supply the Public Sector, by increasing yourability to supply the quality, consistency andsecurity of supply required.

Partnership working is also increasinglyimportant as Public Sector organisations striveto rationalise their supplier base to achievegreater efficiencies. Therefore some producersmay prefer to be part of a consortium ofsuppliers, which might also include a regionalwholesaler/distributor, rather than act as anindividual supplier. By working collaborativelyproducers and small companies can consolidatesupplies, which may help meet the volume anddistribution requirements of Public Sectorcustomers. Collaborative activities may include:

Working in partnership with others in thefood chain can increase the number ofopportunities to supply the Public Sector,by increasing your ability to supply thequality, consistency and security ofsupply required.

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• Collaboration in processing, grading andmarketing of products to achieve collectiveefficiencies and cost savings that could notbe achieved alone.

• Establishing or joining a delivery ‘hub’where products can be consolidatedprior to delivery to reduce delivery costsand reduce the amount of transportationrequired.

• Collaborate to offer the right competitivemix of products and volumes to meet theneeds of Public Sector buyers.

• Providing a single administrativeorganisation for Public Sector buyersto deal with.

RecommendationWhichever supply route you decide isbest for you; remember that those whosupply the Public Sector tend to havesucceeded because they have focusedon the needs of the end-user (e.g.schoolchildren and in hospitals).All parts of the supply chain need tofocus on what is required by theend-user and be willing to adapt theirproduct or service to suit.

mailto:[email protected]

4.0Is This For Me?

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Formany food and drink companies, supplying thePublic Sector for the first time presents an exciting newopportunity, but also a new set of challenges.It isimportant to be clear from the outset about thechallenges of doing business with the Public Sector,particularly with respect to strategic fit andwhether italigns with your aspirations for growth and development.In considering the factors outlined below youwillbe in a better position to identify the types ofopportunities that your business could respond to.

4.1 Strategic Fit

It is important to consider whether supplying thePublic Sector fits with the strategic goals andvision that you have set for your business. ThePublic Sector market should be viewed in thesame way as any other market, requiring focusand attention to detail. It is unwise to undertakeany endeavour that does not fit with the goals youhave set for your business.

It is important to consider whethersupplying the Public Sector fits withthe strategic goals and vision thatyou have set for your business.

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4.2 Capacity and Resources

As a potential supplier to the Public Sector,the first question you must ask prior toresponding to any tender opportunity is –do I have the capability, the capacity and theresources to manage and fulfil the contract?

Specific questions you will need toconsider include:

• Can I supply the required range of products?

• Do I have sufficient skills and capacity toaccommodate any additional production?

• Can I meet the food safety and qualityassurance requirements?

• Am I confident that my business can deliverproducts on time and in full as per therequirements set out in the tender?

• Am I comfortable sticking to the quoted pricefor the duration specified in the tender?

• Am I willing to adapt and learn?

• Do I have adequate storage and distributioncapacity and capability?

• Has my business the correct type and levelof insurances in place?

• What contingency arrangements do I havein place should my business fail to win orlose the contract?

• What are the risks and the impact of anyfailure to meet the contractual obligations?

If your business cannot meet all the requirementsset out in the tender you may wish to partnerwith others to strengthen your offering.

4.3 Suitable Products

The number and scale of opportunities to supplythe Public Sector varies quite significantly acrossproduct categories. At present the greatestopportunities with respect to local supply bySMEs lie in fresh and perishable products,including milk, bread and bakery, fruit andvegetables, meat, poultry & fish, and softdrinks. Other food and drink categories such asambient and frozen tend to be sourced throughlarger wholesalers or distributors.

An important consideration for smaller suppliersis being able to supply what may be seasonalproducts on a year-round basis.

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4.4 Distribution

A major consideration when bidding forPublic Sector contracts is the distributionarrangements required.

Depending on the nature of the contract, theproducts being supplied and the geographicarea covered, the cost of delivering productsto the required place at the right time cansometimes be problematic and costly. This isparticularly true where volumes are small andthere are many and widespread drop-points,combined with a mix of ambient, chilled andfrozen products. Many Public Sector contractswill also specify that suppliers deliver productsto sites within a defined delivery window. Thismay present a challenge when delivering tomultiple sites. A shift in focus to the use of morefresh and seasonal produce may serve toreduce distribution and storage costs for smallbusinesses. In all instances it is important toconsider if you have the required distributioncapacity, and that your delivery costs areworked out accurately.

Where supplying the Public Sector meanstransporting products to new areas there mayexist opportunities to develop new businessalong that route, further reducing thetransportation cost.

If it is too costly or difficult to deliver goodsusing either your own transportation or athird-party haulier, you may wish to considercollaborative distribution arrangements withother small businesses serving either the samecustomer, or working similar routes.

Recognising the logistical challenges for smallcompanies, some Public Sector organisationsare splitting contracts into separate supply anddistribution components, allowing SMEs toconcentrate on production and specialists todeal with the logistics of delivery.

5.0Public SectorRequirements

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When tendering for Public Sector contracts, thecontracting body will specify in their tenderdocumentation a number of requirements that suppliersshould seek to meet, some of which are considered‘essential’, and others that are ‘desirable’. It is criticalthat you are able tomeet all the ‘essential’ requirementsand advantageous to meet as many ‘desirable’ criteriaas you can.

Whilst the criteria will vary between customersand contracts, buyers may want to see:

• Some evidence of legal existence.

• Evidence of financial viability – e.g. auditedaccounts, bank statements or a deedof guarantee.

• Employers and public liability insurancecertificates & product liability insurance.

• Health and safety policy.

• Quality assurance policy.

• Evidence of accreditation to a recognisedfood safety standard and/or membershipof a particular food safety/qualityassurance scheme.

• Evidence of compliance/registration withbusiness/product certifications.

• Certificates of organic registration(if supplying organic) and/or evidenceof compliance with any other specifiedcertifications.

• Sustainability in terms of environmental,social and ethical policies.

Most of these will be included in the tenderevaluation criteria of the purchasing authority,which are advised to all those bidding forcontracts before their bids (“tenders”) have tobe submitted. Some may also ask for tradereferences from your customers, particularlyif you are a new entrant.

A guide to compiling the most commonlyrequested requirements can be found inAppendix 1.

6.0Where to FindOpportunities

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Formany companies part of the challenge in supplyingthe Public Sector starts in gaining access and insight intothe opportunities available.Thankfully, the Public Sectorhas recognised this challenge and has concentrated thenumber of places that businesses need to look in orderto identify tendering opportunities.

6.1 Online

The best way of finding up to date tenderingopportunities is to look online.

Larger contracts from all Scottish Public Bodiescan usually be found advertised on PCSwww.publiccontractsscotland.gov.uk

All Public Sector bodies in Scotland areexpected to use the portal to post opportunitiesthat are above the European Directivethresholds but can also use it for contractsbelow EU thresholds.

6.2 Scotland Excel

Scotland Excel was created as a Centre ofProcurement Expertise for the local governmentsector to help improve the efficiency andeffectiveness of Public Sector procurement inScotland. Scotland Excel is responsible for thecreation and delivery of purchasing strategy forCategory B commodities and establishing andmanaging Scotland Excel contracts for use byall member councils and associates. All LocalAuthority contracts administered by ScotlandExcel can be found on the Public ContractsScotland website.

In addition to Scotland Excel, there exist‘Centres of Expertise’ for the other Public Sectororganisations that will be responsible forprocurement of their own sector wide CategoryB commodities and services. This includes theNHS, Scottish Government (Central GovernmentCentre of Procurement Expertise (CGCoPE)which includes SPS) Police, Fire and FurtherEducation Centres. Like Scotland Excel, themajority of the contracts administered by theseCentres of Expertise will be advertised on thePCS website.

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6.3 Official Journal of the European Union(OJEU)

Larger Public Sector procurement opportunitiesthat fall above EU threshold amounts must bepublished in the Official Journal of the EuropeanUnion, as well as being advertised locally andnationally, to ensure equal access toopportunities across member states.EU threshold amounts are changed every twoyears to reflect inflation or deflation. Informationon the EU Thresholds including the currentthreshold amounts can be found at:http://www.scotland.gov.uk/Topics/Government/Procurement/policy/10613

EU Tenders are advertised in the Official Journalof the European Union at www.ted.europa.eu.Scottish Public Sector tenders that are abovethe EU threshold will appear on both the PublicContracts Scotland website as well as in theOfficial Journal of the European Union.

6.4 Other Sources of Opportunity

It is often difficult for small suppliers tounderstand how they might get a foot in thedoor with respect to supplying the Public Sector.Outlined below are some simple yet effectiveways to identify opportunities and market yourbusiness to the Public Sector.

Local Authority WebsitesWhere the procurement of food and drinkproducts is not classified as a Category A or B,local procurement teams will administer foodand drink contracts. At present, this is largelyrestricted to ‘Category C’ items such as fruit,vegetables and bakery, although there are localexceptions. Tender notices for these contractswill appear either on the Public ContractsScotland website, the Local Authority website,or in the Press.

University/College WebsitesFor smaller, non-aggregated purchases, tenderdetails may be found on the respective universityor college website or by contacting theirprocurement department. Where procurementhas been aggregated, opportunities will beadvertised in the PCS portal.

National Health ServiceAll larger scale NHS food and drink contractswill be advertised on the PCS website, whilstsmaller contracts administered locally will beadvertised on the website of the individual NHSTrust or Board.

Approved Supplier ListsWhere Public Sector organisations procuredirectly, they often have a list of approvedsuppliers who they can invite to tender for work.If this is the case contact the organisation

http://www.scotland.gov.uk/Topics/Government/Procurement/policy/10613

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directly to see if you can get your business ontothe list. The opportunity to get on to the list shouldbe advertised – find out when this will happen.

PressCheck the local, regional and trade Pressregularly for invitations to tenders.

Personal Contacts – Put Your Business onthe Map!Calling the procurement department of the PublicSector organisation you are interested in supplyingis a good means of introducing your businessand establishing what the organisation purchases,how they purchase it, and if there are anyopportunities that may exist for your business.

Trade OrganisationsTrade organisations such as Quality MeatScotland and Seafood Scotland and ScotlandFood & Drink will often have information onsupplying the Public Sector and may run specificevents or workshops where you will be able tolearn more.

Contact Existing SuppliersIf you do not wish to supply the Public Sectordirectly, and would prefer to supply indirectlythrough existing suppliers, it is important youmarket your business and product offerings tothese companies. Many of these companies arelarge catering and foodservice businesses, butthere are also a number of smaller regionalwholesalers who are worth targeting. Details ofexisting suppliers can be obtained by calling theprocurement contact at the relevant PublicSector body or by visiting the PCS portal. Moreinformation and support on supplying thecatering and foodservice sector can be foundon the Scotland Food & Drink website atwww.scotlandfoodanddrink.org.

Meet the Buyer EventsLook out for ‘meet the buyer’ events. Theseprovide a great opportunity to talk to potentialbuyers who are interested in working with smallproducers, and to find out more about what theyare looking for. Talk to your Local Authoritybuyers and check out their websites along withthe following organisations’ websites for detailsof forthcoming events:

• Scotland Food & Drink –www.scotlandfoodanddrink.org

• Supplier Development Programme –www.sdpscotland.co.uk

• Federation of Small Businesses –www.fsb.org.uk

• Business Gateway – www.bgateway.com

• Quality Meat Scotland –www.qmscotland.co.uk

7.0Responding toTenders

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For many small food and drink companies the processof responding to Public Sector tenders, particularly forthe first time, can be a time consuming and oftenconfusing process.This section will help demystify theprocess by providing a practical insight into the typesof tenders that may be encountered, what buyers areexpecting, how to respond, and how they are assessed.

7.1 The Tendering Process Explained

In general the tendering process follows thethree steps below. Public procurementprocedures are legally obliged to be transparentand to treat each potential supplier equally. It isimperative that you supply all the informationasked for at each stage of the process. Whereyou are not clear what is being asked for, askthe contact point given for clarification.

• Expression of Interest

• Pre-Qualification

• Invitation to tender

7.1.1 Expression of Interest

Once opportunities are advertised; interestedparties, including the current contract holder(s),have to respond and “express interest” intendering. Each advertisement will say whatlevel of information is required in the expressionof interest and this will vary according to thenature of the requirement.

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7.1.2 Pre-Qualification

The next stage (Pre-Qualification) is the stage ofthe process where the Public Sector assesseswhich food producers have the capacity andcapability to meet its requirements. This will bedone by way of a Pre-Qualification Questionnairethat will ask questions about your financialstanding and your technical capability andexperience. If you do not pass this assessmentyou will not be invited to tender. There willusually be more suppliers interested in tenderingthan the public body wishes to invite so theassessment will often involve some sort ofranking. It is normal for some suppliers whomeet the minimum standard to be passed overin favour of those who have scored better.

7.1.3 Invitation to Tender

Those who pass the Pre-Qualification stage areinvited to “tender” for the job. This documentationrequires detailed pricing for the range ofproducts for which you are tendering. It detailsthe terms and conditions of any subsequentcontract. If you tender successfully and win allor part of the contract you will be bound bythose terms and conditions. If successful at thisstage tenderers might be invited to interviewand have their premises generally inspected.When the buyer is satisfied the supplier will benotified that he/she has been awarded a contract.

6 Simple Steps1. Look for public contracts using internet sources and press.

2. Weigh up if the opportunity is right for your business.

3. Apply expressing interest.

4. Submit Pre Qualification Questionnaire (PQQ)

5. If you are successful respond to the invitation to tender.

6. Make sure you have completed all information correctly.

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7.1.4 Framework Arrangements

Some organisations may use what are known asframework arrangements. These are sometimesplaced with more than one supplier and areadvertised in the same way as otheropportunities. The advertising, pre-qualificationand tendering arrangements follow similar linesto those explained above. Frameworkarrangements detail the products available withprices and can be accessed by a number ofPublic Bodies. They can last a number of yearsand allow buyers to buy goods from theselected suppliers by placing orders during thatperiod. The frameworks are generally based onknown or expected demand but there is noguarantee about the amount of any productsbought during the life of the framework.

As part of the Scottish Government’s responseto the increasing interest from businesses insupplying the Public Sector, particularly smallerproducers and processors, buyers are beingencouraged to split larger contracts into smallerlots. When assessing procurement opportunitiesremember to read the advertisement carefully,and make sure you know exactly what it is youare responding to.

7.2 Responding to Invitations to Tender

Once you have been invited to submit a tenderfor a contract you must be sure to take fulladvantage of the opportunity. Remember, youare in competition with others and the publicbody concerned will rely upon the details withinthe submitted tender responses to make adecision on who should be awarded thecontract. This is the chance for you to really sellyour organisation and the products you provide.Pay close attention to the evaluation criteriaprovided in the tender documents as these willdecide who wins the business. Key questions toask are:

• Have you answered the questions andprovided all the information you wereasked for?

• Are you supplying what they want?

• Why use your company?

• What makes your company and productsunique?

Remember this is your only opportunity to winthe business so be sure you invest sufficienttime completing the tender and be sure that itdoes justice to the products you offer. A usefulsource of information is to talk to companies inyour field who are already working with PublicSector clients.

Once you have been invited to submit a tenderfor a contract you must be sure to take fulladvantage of the opportunity. Remember, youare in competition with others

“

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7.3 Assessment of Tenders

Generally tenders are scored on a MEAT basis –Most Economically Advantageous Tender, wherequality is considered as well as price. However,procurement authorities are also giving additionalpoints to wider non-price factors in tenders.The advertisement for the requirement or thedocuments, which invite you to submit a tender,will say on what basis tenders will be evaluated.It is important for the smaller producer, whomight have higher costs of production to fullyhighlight the non-price credentials of theirproducts and business in order to maximisescoring on non-price criteria.

Typical factors non-price factors may include:

• Ability to supply to deadlines

• Food handling arrangements and facilities

• Environmental and social responsibilities

• Quality assurance/procedures and range offoodstuffs

• After sales service

• Freshness and seasonality

• PGO/PDI designation

• Food safety criteria

For certain product categories, some PublicSector organisations will award a contract onthe basis of the lowest price. The lowest priceaward criteria is ascertained by considering allbids that meet the defined specification detailedin the tender documents and awarded to thesupplier with the lowest price. No otherconsideration is required.

Responding toTenders:A Checklist• Check the advertisement carefully to see when and where you should return

your bid. Bids that are even a few minutes late may be rejected out of hand.

• Make a note of the time, date and address (including the building name or number).

• Check any requirements regarding the format of your response. For example,does the advertisement state that you should use an unmarked envelope?

• Provide all the information and documentation required.

• Sign and date documents as required.

• Don’t try to qualify your bid by adding extra items or information, and don’tsubmit alternative bids, unless specifically requested to be innovative.

• If the buyer comes back and asks for more information, make sure youprovide it by the deadline.

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Further InformationThe Scottish Government has issued guidanceon how to tender for public contracts whichbusinesses may find helpful – see “Tendering forPublic Contracts” which can be downloaded at:

http://www.scotland.gov.uk/Publications/2008/10/27105954

For more information on some of the maintendering requirements see Appendix 1.

7.4 Contract Documentation

Invitation to tender documentation fromPublic Sector bodies varies in format but willtypically include:

• A letter of invitation which invites you totender and may contain other notices suchas how, by when and to where your tender(bid) has to be returned;

• A specification or technical requirementwhich may set out some background detailand then explains what you have to tender for;

• A pricing schedule for you to complete; and

• The terms and conditions which will applyto any contract you win.

Whatever you say in your tender and othercorrespondence may also form part ofany contract.

http://www.scotland.gov.uk/Publications/2008/10/27105954

8.0Further Support

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Scotland Food & Drink is the leadership organisation for the food and drink industry in Scotland. A number of our stakeholders, including SAOS and the C2 Cultivating Collaboration project, work within the field of public procurement and are able to offer advice and assistance. For all other information about Scotland Food & Drink and the benefits that we offer to members, please visit www.foodanddrink.scot.

Appendix 1TenderingRequirements

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When responding to tenders it is essential youmaximise the opportunity available by respondingclearly and accurately to the questions asked,ensuring you comply with all the essential businesspre-requisites. Included here is a guide to some of themore commonly requested requirements to be foundin Public Sector food and drink tenders.You may seethese referred to as ‘Method Statements’.Of course,not all tenders will specify the complete range offactors considered here, and marked differences willexist between contracts.These guides will be updatedregularly and are also available to download atwww.scotlandfoodanddrink.org

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Food Safety & Quality AssuranceFood Safety

Food safety is a fundamental requirement andcannot, and must not be taken for granted. It mustbe a pre-requisite for all points in the food chain,and as such all Public Sector procurers will requireevidence that your business is compliant withfood safety legislation. Some procurement bodies(such as the NHS) will require additional accreditationsuch as SALSA (Safe and Local Supplier Approval),or the BRC Global Standard for Food Safety.

At present it is a legal requirement for all foodbusinesses in the UK (except primary producers)to put in place, implement and maintainpermanent procedures based on food safetymanagement (HACCP) principles.

HACCP stands for ‘Hazard Analysis & CriticalControl Point’. It is an internationally recognisedand recommended system of food safetymanagement. It focuses on identifying the‘critical points’ in a process where food safetyproblems (or ‘hazards’) could arise and puttingsteps in place to prevent things going wrong.This is sometimes referred to as ‘controllinghazards’. Responsibility for monitoring foodsafety compliance lies with your Local Authority.

Other certifications may be expected as a conditionof supply by the procurement body. In the UK thetwo most widely adopted food safety standardsare BRC and SALSA. SALSA is specificallydesigned to meet the requirements of small andmedium sized food and drink businesses.

Check the tender documentation carefully to seewhat the expectations are regarding food safetystandards and be prepared to show evidence ofcompliance/certification.

Prior to awarding a tender, the procurementbody may review food safety performance bytaking up references and requesting copies ofinspection reports held by the Local AuthorityEnvironmental Health Service.

Quality Assurance

In addition to the provision of evidence withrespect to food safety, Public Sector buyersmay also request information regarding yourquality management policies (unless it isincorporated into standards such as BRC).

A commitment to quality management providesevidence that a business is truly committed toserving the customer, while quality managementstandards provide a framework for a business tomanage its processes and activities.

The level of detail required in tenders with respectto quality management varies according to theprocurement body and nature of the productsbeing supplied. Some tenders may simply ask forbasic details with respect to handling ofcomplaints, compliance to performanceindicators, organisational structure, returnspolicy and/or other issues they deem to be ofimportance within their specific contract, whilstothers may require a fully-fledged, formally-accredited quality management system (such asISO 9000) to be in place.

The ISO 9000 series is the best-known set ofstandards against which you can measure yourquality management system. Achieving it couldbe a good investment for your business, givingyou an edge over competitors.

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ResourcesFood Standards Agency Scotland:www.food.gov.uk/scotland

Royal Environmental Health Institute Scotland:www.royal-environmental-health.org.uk

SALSA:www.salsafood.co.uk

BRC Global Standard for Food Safety:www.brcglobalstandards.com/standards/food

BSI (For information on ISO 9000):www.bsigroup.co.uk

Sample Food Safety & Quality Policy Statement –This Food Company

This Food Company believes thatsuccess depends on the supply of highquality products that meet or exceedcustomer expectations and to ensurethey comply with all Food safety, Legalityand Quality parameters. Fundamentalto this belief is the responsibility toensure the food safety of all productsthat the company manufactures.

The company is committed to continuallyenhance the reputation of the productsit produces and maintain customerconfidence in its products through thedevelopment and implementation ofquality and food safety systems,standards and practices. Food safety isthe responsibility of all employees thathave direct influence on ingredients,packaging, manufacturing, storage andthe transport of products.

The company takes all reasonablesteps, to ensure the safety and integrityof the products. It has adopted duediligence principles through HACCP toensure that the products are free fromharmful substances and are fit and safefor human consumption.

This policy is implemented througha Quality Management System, theprinciples and policies of which aredefined in the Quality ManagementManual.

As Managing Director/Owner/Partner Iam committed to the Quality and FoodSafety Policy.

Managing Director/Owner/PartnerDated:

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Health & SafetyWithout exception, Public Sector procurementbodies will expect prospective suppliers to becompliant with current Health and Safetylegislation. If you employ five or more people,you must have a written health and safety policy.For businesses employing less than five peoplethere is no legal obligation to have a writtenhealth and safety policy, although you must stillensure that you comply with all relevant healthand safety legislation.

Your policy should set out your commitment tomanaging your risks and meeting your legal

duties. It should also inform people in yourbusiness of their duties towards health andsafety at work and the steps they need to takein order to fulfil those duties. It is recommendedthat your health and safety policy manages therisks inherent in the operation of your businessas identified by a formal risk assessment.

Depending on the procuring organisation, youmay or may not be asked for copies of yourhealth and safety policy and policy statementwith your tender application. A sample healthand safety policy statement is provided below.

This Food Company – Health and Safety PolicyStatement

This Food Company is committed tooperating the business in accordance withthe Health and Safety at Work Act 1974and all applicable regulations made underthe act, so far as is reasonably practicable.

Health and Safety matters are one ofthe Director’s/Partner’s/Owner’smanagement responsibilities. It is theduty of the Director/Partner/Owner toensure that everything reasonablypracticable is done to prevent injurywhen servicing customers.

It is the duty of any employee orassociate to act responsibly and to doeverything they can to prevent injury tothemselves and others.

Although the implementation of thepolicy is the Director’s/Partner’s/Owner’s responsibility, it relies on theco-operation of all employees to assessand manage risks.

Director/Partner/OwnerDated

You policy statement must of course be backed up by practical action, outlined in a more detailed Health& Safety Policy. Detailed guidance, sample policies, policy templates, and advice on carrying out a riskassessment can be downloaded from the Health and Safety Executive website at: www.hse.gov.uk

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Environment and SustainabilityWith an increasing focus on sustainableprocurement, many Public Sector buyers nowexpect suppliers to operate in a manner that fullyrecognises (and manages) environmental issueswithin the production of goods and services.To this end, many Public Sector tenders nowgive a significant weighting to environmentalfactors when assessing tenders. For someSMEs, being environmentally proactive canprovide an important, non-price-based sourceof advantage when responding to tenders.

Depending on the procuring body you may beasked as part of the tendering process toprovide a copy of your environmental orsustainability statement and policy, or at least

be able to identify in writing the steps youundertake to ensure environmental provisionsare adhered to. You may also be asked toprovide evidence of any environmentalaccreditations (such as ISO 14001 or EMAS)you may have, or details of your environmentalmanagement system.

The following is an example of an environmentalpolicy statement outlining a business' aims andprinciples in relation to managing the environmentaleffects and aspects of its operations. Any suchstatement must however be backed up byevidence of supporting activity that it is beingimplemented within the business.

Sample Environmental Policy Statement –This Food Company

This Food Company is committed toleading the industry in minimising theimpact of its activities on the environment.

The key points of its strategy to achievethis are:

• Minimise waste by evaluatingoperations and ensuring they areas efficient as possible.

• Minimise harmful emissions throughthe selection and use of its fleet andthe source of its power requirement.

• Actively promote recycling bothinternally and amongst itscustomers and suppliers.

• Source and promote a productrange to minimise theenvironmental impact of bothproduction and distribution.

• Meet or exceed all the environmentallegislation that relates to theCompany.

• Use an accredited program to offsetthe greenhouse gas emissionsgenerated by our activities.

• Increase the use of recyclable andbiodegradable product packaging.


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With this in mind it is important, even if you don’thave a formal environmental policy, to thinkcarefully about the various ways in which yourbusiness reduces its impact upon theenvironment and explain these in your tender.Initiatives may include:

• Recycling of paper and packaging

• Diligent use of various power sourcesand use of green electricity

• Use of public transport by employees

• Recycling of materials (other than paper)where possible, e.g. refilling ink cartridges

• Purchase of paper from managedforestry suppliers

• Use of vehicles that have low CO2

emissions or run on electric or bio-diesel

• Steps taken to reduce the number ofdelivery runs.

Further ResourcesBusiness Gateway:www.bgateway.com

Envirowise:www.envirowise.gov.uk/scotland

Business Environment Partnership:www.thebep.org.uk

WRAP:www.wrap.org.uk

BSI:www.bsigroup.co.uk

EMAS:http://ec.europa.eu/environment/emas/index_en.htm

Equal OpportunitiesPublic Sector organisations will expect suppliersto be legally compliant with equal opportunitieslegislation, and in some cases will requireprospective tenderers to have equal opportunitiespolicies and statements in place and becommitted to them. It is therefore essential thatyou are acting within the law and that your policiesand practices are in no way discriminatory.

In addition to your equal opportunities policy,you may wish to provide additional evidence tosupport your commitment to equality. Thesecould include documents containing instructionsto staff, advertisements, recruitment, selection,access to training and opportunities for promotion,copies of recruitment advertisements, extractsfrom staff handbooks or other materials.

http://ec.europa.eu/environment/emas/index_en.htm

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Sample Equal Opportunities Policy –This Food Company

This Food Company is committed toeliminating discrimination and activelyencouraging diversity amongst ourworkforce. Our aim is that our workforcewill be representative of all sections ofsociety and each employee feelsrespected and able to give of their best.

The purpose of this policy is to provideequality and fairness for all in ouremployment and not to discriminate ongrounds of gender, marital status, race,ethnic origin, colour, nationality, nationalorigin, disability, sexual orientation,religion or age.

All employees, whether part-time,full-time or temporary, will be treatedfairly and with respect. Selection foremployment, promotion, training or anyother benefit will be on the basis ofaptitude and ability.

Our commitment:• To create an environment in which

individual differences and thecontributions of all our staff arerecognised and valued.

• Every employee is entitled to aworking environment that promotesdignity and respect to all. No form ofintimidation, bullying or harassmentwill be tolerated.

• Training, development andprogression opportunities areavailable to all staff.

• Equality in the workplace is goodmanagement practice and makessound business sense.

• We will review all our employmentpractices and procedures to ensurefairness.

• Breaches of our equality policy will beregarded as misconduct and couldlead to disciplinary proceedings.

This policy is fully supported by seniormanagement and has been agreed withtrade unions and/or employeerepresentatives.


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ResourcesACAS:www.acas.org.uk

Equality & Human Rights Commission:www.equalityhumanrights.com/scotland

Scottish Human Rights Commission:www.scottishhumanrights.com

Scottish Government:www.scotland.gov.uk/Topics/People/Equality

PricingYour ProductsPricing products correctly to maximise thechances of winning a Public Sector tender isone of the major challenges facing SMEs.Success in pricing demands that you have arobust understanding of your business’ cost base,marketing strategy and competitive position.

Before you complete any tender it is important tounderstand how the tender will be assessed – willit be on a lowest cost, or MEAT (Most EconomicallyAdvantageous Tender) basis. This is an importantconsideration, as it will have bearing upon howyou price your products.

Where tenders are being scored on a MEAT basis,factors other than price, such as quality andenvironmental performance may feature heavilyin the assessment criteria, placing less pressureon businesses that perform well in these areasto reduce prices to a minimum in an attempt towin the business. The advertisement for therequirement or the documents, which invite youto submit a tender, will say on what basistenders will be evaluated. It is important for thesmaller producer, who might have higher costsof production to fully highlight their product’snon-price credentials in order to maximisescoring on the non-price factors.

For certain product categories, contracts will beawarded on the basis of lowest cost. The lowest

price award criteria is ascertained by consideringall bids that meet the defined specificationdetailed in the tender documents and awardingto the supplier with the lowest price. No otherconsideration is required. In this situation itimportant to ensure your bid is competitive,but not to price so low that you may lose moneyover the course of the contract.

There is a great deal of literature available thatexplains in more detail the subtleties andcomplexities of product pricing, most of which isbeyond the scope of this short guide. Here we’llfocus on the two basic elements of costing yourproducts, and setting a price for your tenderresponse.

Costing Your Products

Before establishing the price point for yourproducts in any tender response, it is essentialthat you first understand the various costsassociated with making, delivering andsupporting your product. Product costing tellsyou the minimum amount at which your productcan be priced to break even.

Product costs include both fixed and variablecosts which, for food and drink producerstypically fall into three categories:

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Jargon BusterVariable costs – costs that increase proportionallyto the amount produced. As a rule of thumb,variable costs include direct labour, directmaterial, equipment repairs, fuel costs fordistribution, broker fees, marketing expenses, etc.

Fixed costs – are consistent costs that do notchange from month to month. These costs occurno matter how many products are produced.Often they are time related, e.g. monthly rent,annual machinery costs, depreciation, salaries, etc.

1. Material Costs

This will include all material and supply costssuch as the packaging and raw ingredients usedto make your food products. Material expensesare variable costs. To identify variable costslook to see which costs keep pace with theamount of products that you produce.

E.g. a milk processor would include the costsfor the raw milk, bottles/cartons, labels and thedelivery costs in the materials cost grouping.

2. Labour Costs

The amount you pay the people (includingyourself) who make your food product should beadded to labour costs. If you are unsure howmuch time you spend working on productionactivities, keep a record for one week. Labourcosts for machinery operators and any peoplewho prepare the food product, package orprepare it for delivery should be included in thissection. Most labour costs are variable costssince they change with the number of units made.

3. Overhead Costs

Business expenses such as equipment andfacility expenses, insurances, utility costs anddepreciation are considered to be overheadcosts. If you can't directly trace costs back to

labour or materials, it likely belongs in overhead.Most overheads are fixed costs in that theycan't be tied to the number of units produced -they are the same whether 10 or 1000 areproduced. You have to pay your fixed costswhether or not you sell anything. Variableoverhead costs such as direct labour,equipment repairs etc must also be factoredinto product costings.

E.g. Product liability insurance protects yourbusiness if consuming your product injuressomeone. This is an overhead cost.

Pricing Your Product

Having established the costs associated withmanufacturing your products you can then moveon to considering how to price your products.

There are a number of different pricing strategiesthe business can utilise, the most common ofwhich in the food and drink industry are:

1. Competition-Based Pricing

The price range set by your competition is therange your customers will expect. You can getthis information by preparing a profile of yourcompetition and determining the prices theycharge for products similar to yours. You canuse this as a guide to set your prices. You can

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set your price the same as your competitors oryou can set a price that is lower in an attempt toundercut them, but make sure you are stillcovering your costs of production andoverhead. In a tendering situation it is useful toresearch the competition to guide your ownprice. This is particularly important wheretenders are evaluated on a lowest-price basis.

2. Customer-Based Pricing

How much is your customer willing to pay foryour product? You need to know your customer’sattitudes and values toward prices, productquality, value, and prestige. Some customersbelieve a higher price means higher quality. Youwant your price to reflect your product image.Being aware of customer-based pricing can beuseful in situations where tenders are beingassessed on a MEAT basis, particularly whereyou feel your company is very strong across therange of non-price factors being considered.

3. Cost-Based Pricing

This is one of the simplest and most popularways of pricing a product. The price wouldcover the cost of manufacturing your productplus the overhead and a profit. In cost basedpricing, you would take your costs and add ona profit to determine your price. This methodprovides a simple pricing procedure, especiallywhen multiple products are being sold.

The disadvantage of cost-based pricing is thatcompetition is not considered. For most foodand drink producers and manufacturerscompetition affects how products are priced.The idea of simply adding a profit level orpercentage to a product price will only work inindustries with limited competition.

Summary

Now, how do you combine all of thesecalculations to come up with a price? Here aresome basic guidelines:

• Your price must be higher than costs tocover reasonable variations in sales volume.If your sales forecast is inaccurate, how faroff can you be and still be profitable?Ideally, you want to be able to be off by afactor of two or more (your sales are halfof your forecast) and still be profitable.

• You have to make a living. Have you figuredsalary for yourself in your costs? If not, yourprofit has to be enough for you to live on andstill have money to reinvest in the company.

• Your price should never be lower than yourcosts or higher than your customersconsider "fair". This may seem obvious, butmany businesses seem to miss this simpleconcept, either by miscalculating costs orby inadequate market research todetermine fair pricing.

Pricing for Public Sector contracts is a trickybusiness, and there is no single right answer.You're certainly entitled to make a fair profit onyour product, and even a substantial one if youcreate value for your customers. But remember,something is ultimately worth only whatsomeone is willing to pay for it.

ResourcesBusiness Gateway:www.bgateway.com

Chartered Institute of Marketing:www.cim.co.uk

This document is available on the Scotland Food and Drink website: www.foodanddrink.scot

Scotland Food & Drink3 The Royal Highland CentreInglistonEdinburghEH28 8NB

0131 335 0940

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