Staffordshire to Outsource Procurement – a County Holds its Breath…

Last time we wrote about outsourcing, it provoked a major debate amongst the “comments” section, with different parties expressing views that ranged from all outsourcing was a huge con trick, to the more considered verdict that it could have benefits, when executed properly.

Well, we’re beginning to see a boom in local government (but not central) outsourcing in the UK, with councils forced into desperate measures, in some cases, by the financial squeeze.

Now, I’ve said that my personal view is that outsourcing can be a powerful tool – IF IT IS DONE WELL! And that goes for many different types of outsource, including outsourcing of procurement.  But I do worry about some of the things we’re seeing going on. One is the tendency for public bodies to outsource groups of pretty different services to a single provider, who just cannot have the capability to manage it all with real expertise, even if they in turn sub-contract.

Lichfield Cathedral - in Staffordshire

We will return to that issue at some point. But today’s commentary is around Staffordshire, who recently announced that they’re looking to outsource procurement.  It's a big deal, even compared to private sector contracts, with up to £500M a year spend up for grabs. Ian Parry, Deputy Leader and Cabinet Member for Finance and Transformation seems to be behind this. You can read his paper to the Council here - Finding_a_Procurement_Partner[1]– and it contains this gem.

“We have 433 contracts on our database – more than the entire NHS” .

What! Didn’t anyone from procurement in Staffordshire see this statement and say, “Councillor, I think you’re wrong on the number of contracts in the NHS by about a factor of 1,000”.  It doesn’t fill you with too much confidence anyway to see that remark.

Then, Mr Parry has been given delegated authority to select the shortlist, select the winning bidder and award the contract.  Why would a decision of that importance not be brought back to full Council for at least ratification? Seems rather strange. The timescale is very ambitious too, with a potential start date of April 1st 2012, and they’ve only recently issued the PQQ I believe.

The savings targets are £5M for 2012/13 and £10M for 2013/14 – not very ambitious on a spend of £500M. But there are some tough elements within that spend, like Social Care, so maybe that is sensible.

Then here’s the gainshare basis. “It is proposed that payment will be made exclusively through a share of the cost savings made by the County Council...”,  although there may be variant bids that look at some up-front payments. Nothing wrong with gainshare - but you really have to be an intelligent client to manage a gainshare properly.

Anthea Turner - born in Stafford

Do Staffordshire know how to undertake very robust baselining processes? Do they know how to measure “savings”, taking into account volume changes, specification issues, market price movements...? How will they differentiate between identified, contracted, and implemented savings?

If they don’t have the capability for that sort of intelligent management of the contract, then they will get taken to the cleaners by any half way competent and smart outsourcing firm. That won’t necessarily be a malicious exploitation of the Council – but you need to know what you’re doing to make sure savings are real and absolutely genuine, in bottom-line terms, if you’re going to pay out on the basis of them. So we’ll follow this with interest.

Voices (19)

  1. Elephant in the room:

    I note in local gov.co.uk that Staffs have now appointed Capita to save them £18.5m over three years on a spend of £525m per annum…..about 1%!

    Perhaps Spendmatters should raise an FOI to find out how Capita secured this contract as I wasn’t aware they were experts in the field of procurement – how was value delivery/gainshare/expertise assessed? As it is reported as gainshare deal, it would be interesting to know what goes in Capita’s pockets and what benefits the residents of Staffordshire. Makes you wonder whether those who contract in haste will repent at leisure!

    1. Final Furlong:

      I don’t think you need to find out how they won it – put simply, they submitted the highest scoring tender – and we all know that Capita has a very strong bid team. I’m just curious as to how they were prequalified to go through to ITT – what case studies did they put forward (upon which they would have been evaluated).

      Notably, Capita has an existing, significant relationship at Staffs which was awarded to them in early 2011…

  2. David Orr:

    Will IBM pick up this contract?

    Their Southwest One contract references & savings success should be compelling reading:

    http://ukcampaign4change.com/2012/01/31/ibm-struggles-with-sap-two-years-on-a-shared-services-warning/

    http://www.computerweekly.com/blogs/public-sector/2012/02/downturn-undermines-flagship-g.html

  3. Dan:

    Its a quick fix (if that). No-one has asked the central question – why aren’t the in-house team capable of getting even a 1% saving by themselves?

  4. bitter and twisted:

    which raises the central paradox of outsourcing:

    “we arent good enough at doing this thing ourselves, but we will be good at handing it over to someone else”

  5. Realistic:

    The council already has a company working with them to look at the processes and identify where the inefficiencies and savings can be made and the pricing mechanism within that contract, is the same as proposed for this one.

    I live in the borough and it can only be good news for us, because in the last couple of years there have been well documented challenges to how some procurement exercises have been carried out, which have resulted in contracts being overturned.

  6. Aardvark:

    Toni

    Date of dispatch 15/12/11 deadline for responses 16/1/12 so greater than 30 days – so legal. EU publications office frequently takes ca. 5 days to publish (God knows what they spend five days doing, given that the input is electronic), but it’s date of dispatch which counts.

    Award date 29/3 contract commencement 2 days later is legal provided provisional award made mid-March to allow for standstill – which gives them about two weeks to evaluate.

    PIN can be sent less than 52 days before contract notice provided the contracting authority doesn’t rely on it to reduce the timescales – and they haven’t in this case.

    1. Toni:

      True Aadvark.
      I am not saying that anything that they have done is out of legal timings but it is pretty close to them especially in a christams – new year period…

      As for the standstill bit, you might be giving more credit to the guy who wrote the paper than it is due, or maybe it is my conspiracy mind playing games with me.

  7. Toni:

    indeed…

    interested as well in the reference document that Peter links to, the estimated date for the contract award is 29th March with commencement of the contract on 1st April. Somebody wrote something without referring to the Standstill period rules…

  8. Toni:

    The Contract Notice for the procurement services is interesting.
    Issued on 20th December (like the timing)
    Deadline to request to participate 16th January, you should not have chocked on a turkey bone or caught the flu during this tiny window…

    The CN number is 2011/S 244-396174
    Restricted procedure kind of tender. In theory you should leave the bidders 35 to 40 days to the bidders unless you have issued a PIN before. This is interesting in the case of Staffordshire. I look at these tender documents almost everyday and the number of PIN issued is minimal, but here thye used one…
    With a PIN, then the restricted procedure requires the buyer to leave 36 days to the bidders but no less than 22 days (Art 38 of the EU directive 2004/18 transposed in the UK by the Public contracts regulation 2006 art.16, which gives slightly different deadline 37 days but if electronic documents 30 days. If a PIN issued same time needs as the EU directive.

    Another interesting point about the PIN, it should be published no less than 52 days before the Contract Notice.

    From what I understand we are not speaking about working days here but calendar days.
    PIN published 26/10/2011
    CN published 20/12/2011 (56 days after the PIN)
    Deadline 16/01/2012 (28 days after the CN – not 36 but more than 22)

    I am always a bit sceptical and paranoid but these timelines are so fine that I wonder about the aim of the process even more in a period like Christmas and New Year.
    Definitely not the best way to carry a procurement exercise where you want to find the best people…

    1. Dan:

      I wouldn’t be surprised if they already have someone in mind…

  9. Frank Tapler:

    Have seen their OJEU Prior Information Notice 2011/S 209-340529 issued 29/10/2011 but as far as I can see they haven’t issued the OJEU Contract Notice.

    If they are now at the PQQ evaluation stage, it seems to me that they’ve either:

    1) forgotten to issue the kick-off Contract Notice essentially making this a flawed challengable procurement exercise; OR
    2) they’ve decided not to follow up the PIN and instead use a framework.

    Does anyone know which they’ve gone for?

    1. Dan:

      The OJEU notice has been published: 2011/S 244-396174

  10. Huhh?:

    I do hope you will keep us amused and entertained by this unfolding “car crash” of an outsourcing project… Be really interested to see who bids and who gets it and how they intend making it work, as on the face of it the beleagured taxpayers of Staffs are really going to pay a high price for this level of ineptitude.

  11. eSourcingSensei:

    Hello Peter
    I tend to agree with the other comments made.
    It seems to me the first thing this county council needs to do is fully understand their spend, who its with and for how much (segregation). They may then even find the 80/20 rule exists for them (80% of spend is with 20% of suppliers/contracts) At least then before they consider outsourcing Procurement they will now where they are starting.
    As for gain sharing – I think “Aaardvak” has it right – they are just like those little “Lambs” – but if they truly want to share the “gain” then share the “pain” and go for something part way and have a paying contract for the outsourced consultancy which also includes a share of the gain that way both parties have a drive to succeed.
    However I may be missing something (I have sadly had my head burried in driving new tool adoption within our business and continual Procurement team development) but why is Procurement not being performed on a centralised basis? You can argue different councils have different needs unique to their area but do they? Are they unique? I suggest not.
    The needs of the various UK County Councils have less diversity than multi national private sector companies that deal with hugely varying local, governmental and country legislation and law. If they centralised this activity and developed a team of Procurement specialists the Councils would retain control of their spend and savings and have “experts” in place to deliver the cost savings targets they talk about.
    And £5m and £10m on a £500m spend – total 3% – oh how I would welcome a target as soft and easy as that over 2 years!!
    I will be watching the outcome of this one with some interest.

  12. Aardvark:

    They have 4000 suppliers but know about 433 contracts – but they think they understand the baseline well enough to do a gainshare… Lambs to the slaughter!

  13. Final Furlong:

    Dear oh dear! Perhaps he meant more contracts than his ‘local’ NHS ie: his local NHS Acute hospital. Which might make more sense. Or perhaps his local NHS community hospital. Or his local pharmacy.

    PCTs alone will have to transition approx’ 75,000 contracts to Clinical Commissioning Groups. Just in case you think I’ve banged my head (like Mr Parry), read the letter from the DH (link below).

    £5m, or 1%. Social Care often represents as much as 40% of a County Council’s budget, so it will have to be addressed, but I’m betting that it’s a ‘wave 3’ (or 4) category…

    http://www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131033.pdf

  14. bitter and twisted:

    So basically its financial sleight-of-hand.

    – They need to do purchasing better
    – Which would cost money right now
    – So, get a ‘partner’ to pay for the purchasing investment needed now, and repay them out of ‘savings’ later.

    Im automatically skeptical of such pocket-swapping driven projects.

Discuss this:

Your email address will not be published. Required fields are marked *