RESOURCES SELECT COMMITTEE – 5 APRIL 2004 BEST VALUE REVIEW OF
PROCUREMENT REPORT OF THE CHIEF FINANCIAL OFFICER |
REASON FOR SELECT COMMITTEE CONSIDERATION
This report summarises the Action Plan arising from the Best Value review of the Council’s procurement processes. The Plan makes a number of recommendations for improvement in the way the Council procures the goods and services it needs and requires the endorsement of members to see that it is implemented. Both the Directors’ Group and the Appraisal Group for this Review have had opportunities to consider the Plan and make any changes it required. Subject to this Committees comments, the Action Plan will be presented to the Executive Committee in May for approval.
ACTION REQUIRED BY THE SELECT COMMITTEE
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BACKGROUND
1. Introduction
1.1. This report and the Action Plan attached as an Appendix, represents the conclusion of the Best Value Review of Procurement within the Council. Procurement and the need for local authorities to improve the way they do it have become hot topics over recent years - driven originally by the report of the Local Government Procurement Taskforce, which was chaired by Sir Ian Byatt and published in June 2001. This report made 39 recommendations in all to improve the way local authorities procure the goods and services they need. In parallel to that, other reports - most notably the Egan and Latham reports - were making similar recommendations to improve the way in which the Construction industry operated, and many of their recommendations applied to the way local authorities sourced their buildings.
1.2. In response to those reports, the Government has developed and launched its National Procurement Strategy for Local Government. This sets out the actions and initiatives which the Government believes local authorities should take to improve their performance in procurement. According to the Government, local authorities spend £40 billion ‘externally’ and it clearly believes that improving the way that money is spent will provide significant improvements in public services.
1.3. Locally the Council has responded by :
§ Developing and adopting its own Procurement Strategy
§ Commissioning a Best Value Review of Procurement (including as part of that review a ‘Fitness Check’ undertaken by the IDeA)
§ Developing and implementing some initiatives (for example an e-procurement project and partnering pilots) which contribute to an overall improvement in the way the Council procures
1.4. This report and the attached Action Plan sets out what further actions need to be taken for this Council to match the best practice of any local authority and business.
2. The
Review’s Findings
2.1. Although some departments of the Council are only small purchasers of external goods and services, all departments procure to some extent. It is therefore a wide ranging issue. It is estimated that the Council spends over £85 million per annum from its revenue account each and every year and a further £16 million is spent on capital investment. This means that:
§ The way in which the Council spends these sums will have a significant impact on the performance of the Council overall
§ The Council is by far the largest procurer on the Island and its spending has a profound effect on the Island’s economy
2.2. One of the key outcomes of the review is that whilst generally performance is satisfactory, many of the Council’s procedures and practices are outdated and in need of revision. In particular, rules which govern procurement (like Contract Standing Orders) and the guidance that is available to managers and staff need to be updated and reflect the very latest (and best) practice. On a similar theme, the Council’s processes and methods for procuring (sometimes described as the ‘req to cheque’ process) need to be completely overhauled in order to make them more efficient and effective. As a result of these findings, the Action plan includes recommendations to review and revise the Council’s procurement rules and to issue new and better guidance to staff and managers. It also endorses the Council’s proposal to implement an e-procurement solution, making many of the processes involved electronic, bringing efficiency savings and other benefits.
2.3. A second key finding of the review is that the Council needs to improve the governance of its procurement activity. Procurements need to be managed in a proportionate way according to their size, strategic significance and risk. Accordingly, the review recommends that after compiling better registers of existing and future procurements, each one if assessed to establish where it fits on a spectrum ranging from routine to strategic. From that analysis, the Council will then be in a position to decide the degree of scrutiny which each procurement should receive, with the most strategic receiving the greatest level. Procurements will therefore be subject to ‘Gateway’ reviews which will, at specific points in the procurement process, examine its robustness before either allowing the procurement to progress or recommend that more work is needed before it can proceed. The aim of this approach is to improve the quality of the procurement process and to avoid the potential pitfalls of a flawed process. To assist in this, the review recommends the compilation of a Procurement Register – a comprehensive database of all the Council’s procurement. The Action Plan also recommends that the role of elected members in the procurement process, both Executive and Scrutiny, is reviewed.
2.4. A third key outcome of the review is the acknowledgement that the Council’s position as a major spender in the local economy means that it can, through its procurement activity, have a profound influence on some other key objectives of the Council . This includes , for example , encouraging the growth and viability of SMEs, influencing suppliers’ and contractors’ policies on diversity, equality and safety, their practice in respect of developing and training staff and make a contribution to sustainability and environmental issues. Accordingly, the Review recommends that all these issues are considered when the Council is developing its procurement policies and strategies. This might for example mean that, when developing the Council’s e-procurement processes and plans, it will be important to consider the preparedness of the local business community for an (almost) exclusively electronic method of dealing with the Council and for the Council to work to mitigate the worst effects on the local economy of such proposals.
2.5. Although the Council already uses some joint purchasing arrangements as a way of achieving better deals, the Council needs to explore the benefits these bring to a greater extent. This means both joining with other (local) partners and also accessing other ‘consortia’ arrangements regionally and nationally. Using partnerships and a partnering approach to contracting are also examples of a modern and innovative approach to the Council satisfying its procurement and service delivery needs, and the review recommends that after using the schools partnering initiative as a ‘pilot’, the experience and advantages of a more collaborative approach to procurement should be considered in other areas of the Council.
2.6. Finally, whilst individual departments are aware of their own spending, the Council needs to have a better corporate understanding of the totality of its procurement spending. Compiling a procurement register and the capability of e-procurement systems to capture data will contribute significantly to meeting this need. Much of the rest of the Action Plan will depend on having accurate and meaningful information – the ability to apply risk assessment, the ability to use a Gateway process to strategic procurements, and the ability to identify opportunities to procure in partnership or simply opportunities for aggregation are all examples. The review also recommends that the Council needs to improve its ability to measure the success of its procurement activity, using techniques such as benchmarking.
3. The
Plan & Resources
3.1. The Plan sets out in some detail the recommendations arising from the Review. The actions arise from three sources : our own analysis, the results of the IDeA’s fitness check and the requirements of the National Procurement Strategy. As such it represents a comprehensive and ambitious list of actions intended to bring this Council’s procurement performance to excellent status.
3.2. The target dates which have been proposed in the Plan assume that it will be achieved using existing resources and any faster implementation would require more resources to be applied. There are also financial resources needs implied by the Plan- the most significant being the need to invest in any e-procurement systems. This, like any other ICT project will be the subject of a business case before any decision to proceed is taken. Other financial resources needs include the need to invest in a programme of training in the subject of procurement, and the Plan identifies a figure of around £20,000 for this over a three year period.
3.3. The Appraisal Group did express its anxieties about the apparent lack of resource implications of the Plan, questioning whether the target dates are realistic. It is acknowledged that whilst the plan represents a challenge, the dates are nonetheless achievable.
4.1. The key policies and strategies which are relevant to the subject of Procurement are:
The Council’s Procurement Strategy (November 2002)
Contract Standing Orders (March 2002)
The National Procurement Strategy for Local Government (October 2003 - ODPM)
4.2. In terms of inspections, the most relevant to this Review is that which was performed by the IDeA. Described as a ‘Fitness’ Check, a report of its findings was issued to all members on 26 September, 2003.
5.1. As well as using the IDeA to provide external challenge to the Review, other consultation included:
· Participation in the review by representatives from all directorates who have an involvement in procurement
· Participation in the Review by a procurement professional for the local Healthcare Trust
· Holding three forums when we invited local businesses to share their perspective on the procurement performance of the Council
5.2. The latter exercise proved particularly enlightening as it gave an insight into how suppliers and contractors view the Council as a customer. It also indicated how useful consultation of this sort could be if done on an ongoing basis. Some of the actions in the Action Plan are directly related to this initiative including: the need to develop local SMEs, the idea of holding a ‘Meet the Buyer’ event and developing the Council’s web-site so that it includes useful information to ‘would-be’ suppliers to the Council.
5.3. Both the Director’s Group and a Best Value Appraisal Group have been consulted on the Action Plan. In general terms, both groups endorsed the Plan. The Appraisal Group did however request that a recommendation to nominate an elected member to be the member ‘Procurement Champion’ was included in the Plan (see recommendation 1.2).
6.
FINANCIAL, LEGAL, CRIME AND DISORDER IMPLICATIONS
6.1. The financial implications of the Action Plan have already been highlighted under the heading of resources. It is however, worth emphasising that if implemented successfully, the Plan would deliver significant improvements in the Council’s service delivery, including efficiency savings, and cost savings whilst at the same time maintaining or improving the Council’s effectiveness.
6.2. As far as legal implications are concerned, many of the review’s recommendations would enhance the Council’s regime of corporate governance and contribute to better compliance with legal requirements. Since this is a Best Value Review, members should be aware that there is a duty under the Local Government Act 1999 to achieve Best Value in the provision of local authority services.
6.3. There are no crime and disorder implications of the Review and its Action Plan.
APPENDICES ATTACHED
Best Value Review of Procurement –Improvement Action Plan
BACKGROUND PAPERS USED IN THE PREPARATION OF THIS REPORT
Delivering
Better Services to Citizens (The Byatt Report) 2001.
The
National Procurement Strategy for Local Government (ODPM) 2003
IDeA
Fitness Check report (IDeA) October
2003
Contact Point : Bob Streets, Compliance & Risk Manager, (.(82)3622, email:[email protected]
PAUL WILKINSON
Chief Financial Officer