BERR procurement step by step: a short guide to buying
URN No: 06/844Y
This guide is produced solely as a quick reference to the major or critical stages of a procurement project. It is not intended to supplant the Procurement Manual. It includes references to the main Manual where you can find far more detailed advice on each of the topics. It covers essentially what is currently Section E in the Manual. You are urged to refer to the other sections of the Manual for advice on all other aspects of procurement.
The main stages of the Procurement Process are set out below:
1. The Business Case
2. The Specification
3. Sourcing the Supplier
4. Deciding on the Procurement Route
5. EU Considerations
6. Gateway Considerations
7. Framework Procurement
8. Obtaining Quotes/Tenders
9. Evaluating Bids/Tenders
10. Post Tender Negotiations
11. Contract award (including the Alcatel procedure of 10 days to receive any appeal)
12. Ordering and Paying
13. Managing the Contract
For simplicity these are presented as a linear process, but in reality many of the “steps” impinge on each other – e.g. what is required (The Specification) may be dependant on what can realistically be delivered (Sourcing the Market) - so you should read the whole of this guide before starting.
The Business Case
This is the rationale for undertaking the purchase. It should describe the need for the goods or the service. The detail will of course depend mainly on the size and complexity of the work. Its purpose is:
• To justify the purchase on cost-benefit grounds
• To confirm the capacity of the market to meet the requirement
• To confirm that resources – to pay for the purchase and to acquire it properly – are available
• To keep the original aim of the procurement clearly in focus throughout the procurement process
• To measure the success of the procurement against its original aim
• To initiate an audit trail
It should contain:
• Historic information as to how the Department has reached the current position.
• The purpose of the purchase.
• The benefits that will accrue from it, in terms of objectives met and deliverables that will be achieved.
• Timescales
• The chosen Procurement route
• Estimated costs
• Details of contract management arrangements
The author of the business case should then obtain approval for the requirement from a separate person – ideally the budget holder. This will maintain a separation of duties.
Ministerial Approval
In addition to this, the Department requires certain external consultancy procurements in to be approved in advance by Senior Officials or Ministers. Applications for approval of both new consultancy contracts and extensions to existing ones should be submitted as follows:
• All non-competitive procurements (“Single Tender Actions”) of professional services with a likely Value of £50-3250K, to the responsible Director General or Agency Chief Executive.
• All procurements of professional services with a likely value in excess of £250K to the responsible Minister or Agency Chief Executive, with a copy of the submission to the Secretary of State.
Details of what is included within such consultancies are detailed in the procurement bulletin Refer to Procurement bulletin 6/2003.
Internal Approval within BERR of Consultancy Procurement
All consultancy Procurements over £50K must be sent for approval by the Director of Finance and The Departments Chief Economist (known as the “Dual Key” process). Business cases must be sent for approval by e-mail to PPS Consultancy mailbox. Consultancy under £50K should be copied to PPS Consultancy mailbox for information.
The Specification
The specification is your opportunity to let the prospective contractor know exactly what you require. It should also be designed to facilitate assessment of bids. The specification must be included in the formal invitation to tender and will form an integral part of the contractual arrangement. For this reason it needs to be carefully considered. Generally the end user of the goods or service will draft the tender specification. However there will be occasions when specialist procurement advice is needed.
Current thinking is that specifications should be written in “output terms”. Put simply it should be drafted in a way that tells the contractor what you expect to be done or what you expect to get from the work, but not how they should do it.
Below is a simple checklist that can be used for the preparation of a specification.
• Is a similar or related spec available? (why re-invent the wheel?)
• Are the requirements stated simply leaving little or no room for ambiguity?
• Is the specification written in output terms?
• Does the specification confirm to legal standards and obligations?
• Ensure that they are not over-specified
• Have relevant Departmental/government policies been considered?
When writing a specification include:
• The task objectives
• The suppliers objectives
• Deliverables
• Identify milestones whenever possible
• Scope of work
• Provide enough information for the supplier to be able to put a cost to the work
• Ask for a breakdown of costs per activity, this will enable elimination of unnecessary processes
• Write your evaluation criteria at the same time that you write the specification. Ensure that you include in your specification all the elements that you are judging in the evaluation criteria.
Sourcing a Supplier
As guardian of competition and sponsor of Small and Medium Enterprise, the Department is committed to an inclusive approach to buying, encouraging competitive bidding from as wide a market as possible for as many procurements as possible. It therefore does not hold a central list of approved suppliers.
There are several avenues that can be explored in order to find suitable suppliers, such as historical information of the suppliers that have provided the product or service in the past, trade magazines, local directories, yellow pages and the internet. In addition there are a number of on-line services that can be accessed such as Companies House Direct.
Choosing the Procurement Strategy
This is how you go about getting your supplier. Government policy is that the normal route by which contracts are let is by competitive tender. This is recognised as providing best value for money, which must be behind all decisions when it comes to awarding a contract. There are though exceptional circumstances, which may make single tender action permissible such as no alternative source continuing use of specialist services. You can find further details here.
In general terms the following are recommended limits for seeking either quotes, tenders or use of the Government Procurement Card
• <£500 - Use the Government Procurement Card (although higher levels may be used in some circumstances)
• >£500 <£10,000 - Seek at least three quotes
• >£10,000 - Undertake formal competitive tendering
• >£90,319 - Advertise in the European Journal and use the Restricted Procedure
• Exceptionally - Single tender action
The Department has a standard form for obtaining quotes (PF30 on BERRNet) and this ideally should be used. It must be accompanied by the Department’s terms and conditions of contract (PF31 or PF32).
Orders estimated to be in excess of £10,000 should be the subject of formal tendering, again, except in exceptional circumstances where STA may be appropriate. The same form for obtaining quotes may be used – the PF30. Alongside this the formal specification must be included along with the standard terms and conditions of contract. All Invitations must be issued at the same time with a common return date clearly indicated. Any requests for an extension to the return date and agreed to must be applied equally to all invitees.
You must also include with your invitation to obtain quotes the Department’s standard terms and conditions of contract – PF31 for services and PF32 for goods
There is no right for any company to demand to be included in a tender list although the EU may ask us to justify non-selection so any reasons for non selection must be clearly recorded. As a rule you should not circulate to all invitees the names of those being invited to bid, which could encourage collusion.
It may be necessary also to invite companies to a bidders conference. The intention of this is to elucidate any problems or discrepancies or ambiguities in the invitation.
You can reasonably extend a contract by single tender action but care must be taken to ensure that this doesn’t become an ongoing exercise -. i.e. after one extension you should consider re-tendering for the work. Do not extend a contract for more than 50% of its original value. You should for audit purposes give your reasons clearly for any single tender actions. If in doubt contact Graham Geddes of Procurement Policy Services on 0207 215 0425.
European Union Directives
The aims of the EU Public Procurement Directives are to ensure fair play and international competition in bidding for goods and services of a certain type and over a certain value. The types of goods and services that need to be advertised can be found in detail in the procurement manual. The threshold for advertising changes every two years on the 31st of January. Thresholds were last set at 31 January 2008.
The rules governing the advertising and the routes on how to go about this are explained in detail in the procurement manual. However – briefly – there are three recognised routes
The negotiated route is used where the Department may negotiate the terms of a contract with one or more suppliers of their choice i.e. without inviting competitive bids. This can only be used in very special circumstances.
The open route means that you issue a formal invitation to tender to any supplier expressing an interest. This is only used where the likelihood of compliant responses is low and it is necessary to cast your net as wide as possible.
The restricted route limits the numbers of interested suppliers you would issue an invitation to tender to. The Department’s policy is to use the restricted route wherever possible and only exceptionally use the other two.
Gateway - Refer to Procurement Bulletin 4/2002
This is a process whereby all new procurement projects in civil central government are subject to reviews at various stages – gates. It is used to provide assurance that the project can continue on to the next stage. The process covers all types of procurement and is not dependant on the estimated value of the work. Full details can be found on the Office of Government Commerce (OGC) website www.ogc.gov.uk as well as in the Procurement bulletin referred to above.
Essentially you need to use an OGC risk assessment tool called the Project Profile Model (PPM). The PPM assigns points to various parameters and depending on the total score the project is defined as either low, medium or high risk or Gateway is not required. If low risk the review of the project is conducted internally by BERR staff who have been trained in the process. If medium or high risk this will involve the project being reviewed by individuals outside of the Department.
Framework Procurement
Frameworks are agreements to provide both goods and services on pre-defined and specified terms. They may be with a single firm or a group of them. There is no commitment on either side to buy or provide the goods or service – although the arrangement will usually specify the terms that would apply if and when they are provided.
There is a wide variety of Frameworks that BERR staff has access to and these are listed in an annex to the Procurement Manual. A typical BERR framework arrangement would be our travel or stationery contract; a typical government-wide Framework would be from the Office of Government Commerce (OGC) Buying solutions called “Catalist”.
Actual orders from either the framework agreements or framework arrangements are usually referred to as “call-off contracts”.
Frameworks offer distinct advantages in providing value for money amongst these being:
• Speed and simplicity – the work has already been competed across Europe
• Price – economies of scale allow Framework managers to secure competitive prices
• Process cost saving
• Safety – the framework will already comply with all necessary regulations and- will be covered by BERR or other HMG Standard terms and conditions of contract.
Evaluating Bids/Tenders
Receipt formalities. All tenders received must have the time of receipt recorded and kept under lock and key until the closing date. Tenders received after the closing dates are invalid unless there is clear evidence from the postmark on an envelope that it was dispatched in time to meet the deadline.
A tender opening board should be convened with the sole purpose of overseeing the opening and recording of the bids. This should comprise of two officials. There is a tender opening form, which can be used (PF50) to record the names of companies and their bids, if any.
Evaluation. ideally the evaluation criteria should have been established beforehand and included within the specification. The objective of the evaluation is to compare commercial, financial and technical terms. If quotes are being evaluated the criteria are likely to be simpler, but for tenders and especially large or complex pieces of work you can set these out formally. You should recognise that large or complex tenders evaluation should be grouped under the headings – commercial; technical; financial. These then should be categorised as optional or mandatory. If mandatory and the criteria are not met the tender must be rejected. It is often desirable to assign weightings to each of the criteria.
What you are almost always seeking in a bid is a balance between meeting your requirements (but not necessarily exceeding them) and price – the Most Economically Advantageous Tender (MEAT).
However it is often not possible simply on the basis of a paper sift to “pick a winner”. A visit to one of their existing customers – a “site visit” - may be advisable and any bidder short-listed can be invited to make presentations of their offerings to a panel and answer searching questions. This can go some way to assessing the competence or otherwise of those responsible for the delivery of the goods or service.
Post-Tender Negotiation
Although it is possible to open negotiations with the best bidder in order to gain further benefits, great care needs to be taken to ensure that there is no distortion of competition. One very important point to be stressed is that it is important to ensure that the Department’s Standard terms and Conditions of contract are accepted and that English law prevails. This should remain a vital consideration when comparing bids. See the next section for details
The purpose of negotiation is to maximise value for money. It is possible to clarity bid information and to eliminate any unnecessary processes that are offered. Provided that a breakdown of costs has been given in the proposal, unnecessary processes can be eliminated at the cost specified in the supplier’s proposal. Allied to this however is the need to ensure that other tenderers are not put at any disadvantage and that competition is not distorted – especially important in EU cases.
What carefully conducted negotiations can achieve is a reduction in the overall total cost of the service or a gain of other advantages. Once more it must be stressed that great care needs to be taken not to distort the process or allow any change in the specification. Should this happen any change must be notified to other tenderers and result in a re-tendering process.
The ultimate aim of post tender negotiation is the means by which the buyer can obtain a better deal, but one on a mutually acceptable basis. There are potential areas that can be explored such as
• Better terms of payment
• Earlier delivery dates
• Warranties
• Training
• After sales service
It is important to control and document any post tender negotiation. The benefits obtained should ideally be quantified and any changes made should be clearly recorded with the bidder and embodied in the final contract/purchase order.
Should any change in the specification other than in a minor way results from post tender negotiation all tenderers must be notified and invited to re-tender.
Contract Award including the 10 day cool off period known as the Alcatel period
Following the use of an evaluation matrix and interviews, record the results of the interview. You will have a potential winning supplier.
Contract award for bids below the European Union threshold of £90,319-00
Contact the winning supplier and ensure that they accept the contract and the Departments terms and conditions in their entirety.
Send the supplier an acceptance letter of their proposal and the contract documentation.
Provide debriefing to unsuccessful bidders in line with Government policy to improve the competitiveness of suppliers. All unsuccessful bidders should be offered a debriefing. Information from all tenderers is classified as commercial in confidence therefore when debriefing a supplier only their tender will be discussed.
Contract award for bids over the European Union threshold of £90,319-00
Contact the winning supplier and ensure that they accept the contract and the Departments terms and conditions in their entirety. The supplier has won the tender exercise subject to a 10 standstill period. In this 10 days, unsuccessful suppliers have the opportunity to request additional debrief information within [minimum of 10 calendars days counting from the day after the date of this letter] days of the notification letter. Additionally, under the EU rules those unsuccessful for inclusion in a tender list have a right to know the reasons for exclusion.
Provided such request is received by the contracting authority no later than 2 working days after the date of the notification letter, the supplier should receive the additional debrief information within a further 5 days. Should the suppliers written request be received more than 2 working days after the date of the notification letter additional debrief information will still be available to the supplier within 15 days. See Procurement Bulletin 03/2005
Following the Alcatel 10 day period passing without an appeal, the winning supplier can be sent an acceptance letter of their proposal and the contract documentation.
Ordering and Paying
This needs to be read in conjunction with the Commit to Pay module guidelines of MENTOR.
The Purchase Order is that part of the process where the Department enters into a contractual agreement for the supply of the goods or service. It will in most cases follow on from the tendering process.
Various members of the Department have been issued with a Government Procurement Card (GPC). The main benefit to the Department lies in transaction costs savings. Suppliers in turn benefit from quick payment by VISA – usually 2-3 days.
MENTOR guidelines detail exactly how the purchase order is entered onto the system. Whether this is the final document that is issued to the contractor or whether a bespoke contract is issued, it is still mandatory to enter details on to the MENTOR system.
The Department is committed to pay all correctly presented invoices within 30 days. As approval of the purchase order implies additionally approval of invoices relating to the ordered work separate certifying of the invoice is not needed. However end users are responsible for certifying receipt of goods and services, again details can be found in the MENTOR guidelines.
Contract Management
Contract Management is the active monitoring and control of all parts of the ongoing relationship between contractor and the Department. It is a major and challenging role whose importance should not be understated. Clearly a small value and/or simple contract will require less monitoring than a high value and/or complex arrangement.
At the outset contact names should be established and individual's roles understood. The relationship should be one of joint problem solving rather than adversarial, with either side standing on the letter of the contract.
The main roles of contract management will be to;
• Satisfy yourself that the goods and services have been received and are satisfactory
• Identify any improvements in the contractor’s performance
• Note any future trends/needs
• Establish when staged payments should be made
To assist in carrying out these functions some standard practices include;
• Regular monthly or weekly monitoring of contractor’s performance against Key Performance Indicators set in the contract
• Inspection of completed work
• Noting any complaints from customers
• Recording customer satisfaction
In order to be able to identify problems it is necessary to know what type of problems might be encountered. These will include:
• Unsatisfactory performance
• Misunderstanding the requirement
• Poor communication
• Contractor insolvency
If it does appear from monitoring, that the contractors performance is unsatisfactory, action must be taken to rectify this. In many cases a simple discussion will suffice. Communication is key here. The supplier must be told promptly all aspects of their performance and regularly discuss ways to keep optimum performance.
One very important aspect of contract management is being able to note the need, or otherwise, to extend or re-tender the work. Contracts should not be extended by more than 50% of their original value. Certainly various changes can be made during the life of the contract, although these need to be agreed with the contractor for them to be legally binding, However contract re-newel may be necessary if for example it is deemed necessary to have “more of the same”. It is vital to recognise that it should not be a case of a constant renewal of an existing contract in these circumstances. A complete re-tendering exercise will at some point be needed if indeed more work is needed.