PAPER
E2
Purpose
: for Decision
REPORT
TO THE EXECUTIVE
Date : 3 DECEMBER 2003
Title : SUSPENSION OF STANDING ORDERS
IN RESPECT OF THE PROCUREMENT OF BANKING SERVICES
REPORT OF THE PORTFOLIO HOLDER FOR
RESOURCES
IMPLEMENTATION DATE : 15 December
2003
SUMMARY/PURPOSE
1.
To suspend Standing Orders in respect of the
procurement of banking services.
CONFIDENTIAL/EXEMPT ITEMS
2.
Certain information
contained in this report is commercially sensitive and may disadvantage the
Council financially in any future procurement process. For this reason certain
cost exemplifications have been treated as confidential and are contained in Appendix 2.
BACKGROUND
3.
The Council last tendered for its Banking Services
in1998, resulting in a four year contract with the successful tenderer,
commencing 1st April 1999. This contract was subsequently extended
by a period of one year, until 31st March 2004, by the Strategic
Director of Finance and Information.
4. Evidence received from specialist banking consultants, and
research into the experience of other local authorities has indicated that some
of the major high street banks will not quote for local authority business. The
advice from consultants is that unless there are specific local circumstances
which make the contract attractive to one or more other local banks, then it is
likely that only National Westminster (ie Royal Bank of Scotland), Lloyds TSB
and the CO-OP would tender for business.
5. Having regard to the potential impact of
electronic banking and recognised changes in the market for banking services, a
company specialising in such services were engaged to review those currently
applicable to the Isle of Wight Council. The conclusions of Focus on Banking
are attached as Appendix 1 and the full report can be viewed via Review
Banking services. The findings of Focus on Banking indicate a level of
tender that exceeds significantly the annual cost of the current contract.
6. If
the Council were now to formally tender the contract, as required under
standing orders this may or may not result in relatively modest savings. Recent
experience however has demonstrated that re-tendering can actually produce a ‘step
up’ in cost arising from a tender exercise, and the likelihood of this
happening is supported by the findings of Focus on Banking.
STRATEGIC CONTEXT
7. A
successful relationship with the provider of its banking service is essential
for the well being of all the Councils financial administration and the
delivery of its programmes and services. This relationship is underpinned by
the need to balance reducing costs while maintaining strong bank relationships.
CONSULTATION
8. In order to ascertain current market
interest in local authorities seeking banking services, a number of other
authorities provided details of their experience. The general evidence from
such supported the findings of two specialist banking service advisors, one of
whom was engaged to review the Councils current arrangements.
FINANCIAL/BUDGET IMPLICATIONS
9. The
Councils current tariff for banking services, and those assessed by Focus on
Banking are detailed at Appendix 2. These figures demonstrate a potential
increase in annual cost of approximately £7500 per annum compared with the
current tariff. Once the anticipated cost of electronic banking is introduced
the additional cost falls to £5000 per annum based on the lowest anticipated
tender. (see Appendix 1)
10. It is estimated that to transfer to
another provider would have an additional one off cost of £5000, plus any
associated internal resources.
11. The Focus on Banking report also
highlights a number of areas where savings in the current contract could be
achieved as part of a negotiated settlement.
12. A three year extension to the current
contract would not be of sufficient cost
to require tendering under European Legislation.
LEGAL IMPLICATIONS
13. In relation to banking services, as any other procurement, the
Council has an obligation to ensure that it receives best value. Contract
Standing Orders prescribe that, for contracts of this value, a tendering
exercise should be undertaken. Contract Standing Orders can only be disapplied
by the Executive.
OPTIONS
14. (i)
To re-tender the contract for banking services, with effect from the earliest opportunity
following the end of the current contract.
(ii) To
suspend standing orders in order that the Chief Financial Officer, in
consultation with the Port folio holder for Resources, may enter into
negotiations with the current provider for a three to five year extension on
the current contract
EVALUATION/RISK MANAGEMENT
15. The
principal risk associated with a re-tendering exercise is that a resultant
increase in cost in excess of budget provision is the outcome. The transfer of
services to a new supplier also carries risk if not managed in an effective
manner.
16. The
benchmarking of the existing service should overcome any risk that the Council
will not achieve Best Value by extending current arrangements.
RECOMMENDATIONS
17. Option (ii)
|
BACKGROUND PAPERS
18. Focus on Banking Review of current
banking arrangements.
Correspondence from other local
authorities.
ADDITIONAL INFORMATION
The
current contract has run smoothly since 1st April 1999, with regular
contact on both sides to ensure a mutual cost effective operation. The current
provider has indicated that they would be willing to negotiate an extension to
the existing contract.
Contact
Point : Gareth Hughes
Financial
Services Manager
( (01983) 823604
|
P
WILKINSON
Chief
Financial Officer
|
R
BARRY
Portfolio Holder for Resources
|
APPENDIX 1
1. Conclusion
1.1. A summary of the costs of current banking arrangements compared
to typical tender quotes are detailed below:
|
|
Current tariff
|
Tender A
|
Tender B
|
Tender C
|
|
Transactions
|
£28,951
|
£38,369
|
£38,822
|
£36,757
|
|
Electronic banking
|
£6,381
|
£6,381
|
£2,592
|
£4,359
|
|
Reconciliation data
|
£2,721
|
£2,721
|
£2,250
|
£2,247
|
|
Total
|
£38,053
|
£47,471
|
£43,664
|
£43,363
|
1.2. The current costs are therefore competitive although there is
potential for some improvements as indicated in our report.
1.3. Subject to the issues identified in our report, we recommend
that the Council considers accepting a proposal from the current provider if
they are prepared to hold the current pricing tariff for a further three or
five year term.
1.4. The report has also identified potential savings in Girobank
costs, which we recommend are considered.
1.5. Arrangements with Streamline for card transactions are
competitive.
1.6. There are opportunities for the Council to reduce its banking
costs through the greater use of electronic payment methods especially BACS
Direct Credit and different options for paying in.
1.7. We look forward to discussing our findings with you further.
David Howland
Focus on Banking September 2003