Monthly Archives: May 2014

Do procurement clubs offer real savings?

Procurement Clubs – An obvious solution?

On paper, it would seem that procurement clubs offer a myriad of benefits to buyers.  There is indeed evidence to suggest that ‘buying collectively’ does indeed bring solutions that benefit the greater good.  On the other hand, there is also evidence of what can happen when a ‘procurement club’ goes wrong.  At the point of writing, there are 13 consortia/procurement clubs representing almost 200 landlords who belong to the Homes and Community Agency-run Procurement Efficiency Initiative, with an estimated 20 clubs under way across England in total.

Cyntra, set up by a consortia of 8 London based Contracting Authorities was one of the first ‘big bang’ frameworks.  In essence, the principles of the organisation were sound – to deliver efficiencies and savings for public sector organisations ‘mainly in London’ but deliverable all around the UK as required.   CYNTRA, like the great big enormous turnip, started to get bigger and bigger, claiming savings on new contracts in excess of 13% and 1% annual savings for other contracting authorities using the CYNTRA framework.  Like extracting the enormous turnip from the ground, this framework approach took a lot of pulling and hard work from a number of people, not least those contractors and consultants who were appointed on the framework to subsequently not achieve work streams despite expending inordinate amounts of time and money on the procurement process associated with gaining a place on the framework.  So, when a ‘procurement club’ goes pop with debts of over £2m do doubts spring into the minds of housing professionals looking to procure goods and services by using procurement clubs?  Well yes, there might be doubts, but surely these should be outweighed by the delivery promises that procurement clubs can deliver?

What the HCA believe

The Homes and Communities Agency (HCA) believe that procurement clubs can work together for ‘the greater good’ to:-

  • Share best practice
  • Identify common issues
  • Develop inter-consortia working and alliances
  • Provide systems for benchmarking and inter-consortia comparison

As a minimum.  And this in itself is fine.  Annually, the publish reports demonstrating the efficiencies achieved but with much ‘questionable’ information where data is missing, or the calculation used to calculate savings is different between different procurement clubs.

Practical Priority 1?  Ensure the measures between procurement clubs are aligned to demonstrate ‘real’ data and allow the clubs to demonstrate their effectiveness and buyers to review this before deciding most appropriate route for their own procurement activity.

What happens when things go well?

Re:allies are responsible for the repair and upkeep of over 800,000 properties across the North of England.  As a procurement club, the commit to reinvesting volume cost savings directly into local businesses, jobs and skills.  They market their club based on:-

  • Time Savings (up to 77 days)
  • Compliance with UK and EU legislation
  • Best practice
  • Demonstrable value for money

While others cite the ‘social value’ that their clubs bring.  Whether it be a wealth of apprenticeships or re-investment into the local community.  However, there is concern relating to how the social value is actually being measured in line with the tendered promised that suppliers are making in their submissions.

Practical Priority 2?  Ensure that social value requirements for individuals calling off from the framework have been taken into account during the procurement process.  This should really require early engagement of named buyers to ensure that their individual requirements and that of their end users has been taken into account.  The act certainly applies to framework agreements and must be taken into account – how this trickles down to individual organisations is somewhat less transparent than the initial consultation requirement.

Mine is bigger than yours

One of the largest areas of positivity around use of procurement clubs sits in supplier frameworks.  For example, there are a number of supplier frameworks which look specifically at their ‘bulk buy’ ability for high usage items such as boilers.  However, while good rates are being achieved as a result of supply frameworks, it is commonplace to hear contractors advise that they can actually achieve better rates as a result of the sheer buying power they have.

Practical Priority 3?  Understand what it is you need to buy and develop your strategy appropriately.  Yes, you may think using a framework is the ‘simpler’ option, but what if creating a supplier framework with existing contractor partners would lead to greater efficiencies; better guarantees; shorter lead in times?

 Competing market forces

It should be remembered that procurement clubs are competing for your business.  They all offer different methods of ‘buying’ from their framework solutions.  Some are ‘subscription based’ while some are in essence ‘free at the point of entry’ and the supplier is charged a percentage of their total fee each and every time they are called off.  Most procurement clubs have key account teams who advise the features and benefits of their individual club.  What may be less obvious is how the potential buyer can make a direct comparison, or indeed ensure that they are compliant in use of the framework agreement.

 Practical Priority 4?      Prior to selection of a procurement club to deliver a particular element of your service requirement, undertake a quick analysis of:-
  • Which procurement clubs offer the scope of service you actually require
  • What the costs will be of making use of the framework
  • Whether your organisation is actually able to make use of the framework i.e have you in some way been named within the original contract notice
  • Does it ‘fit’ with your organisations procurement strategy and/or procurement standing orders

Leaseholders

So, you’ve gone through all of the practical priorities above and you think you’re home and dry and ready to make use of a pre-arranged framework.  One of the biggest problems for housing clients in accessing ‘Procurement Clubs’ is that these cannot be used where works/services/supplies are provide to leaseholder owned properties.  This is because a framework agreement itself is not classed as a ‘Qualifying Long Term Agreement’ (QLTA) because there are no specific projects to consult on.  Therefore, consultation can only take place on the ‘call-off’ contract.

In essence then, if a housing client accesses a framework via a ‘Procurement Club’ then they would still need to consult on the specific project, which could mean that a leaseholder could nominate a non-framework contractor, through the nomination process.  In theory, this would work where the value of the works/services/supplies are below EU thresholds.  Where the value of the call-off contract exceeds EU thresholds and where the works/services/supplies apply to leaseholder properties, then a separate OJEU compliant tender must be undertaken and any framework accessed via a Procurement Club would not be appropriate.

Due to the limitations of these frameworks to ensure compliance with leaseholder consultation, housing clients would not be able to use them.

Finally, it is highly unlikely that leaseholders would have been consulted in the establishment of any framework in a Procurement Club for the reasons set out above.

Practical Priority 5?      If you have leaseholders, are you absolutely sure that the framework you are proposing to utilise has undertaken section 20 consultations have been undertaken in a manner that satisfy the requirements of the Landlord and Tenants Act (1985)?  If not, then you should seek advice as to the most appropriate route for your organisation to procure the services required to remain as risk free as possible.

Final Thoughts

In summary, there are certainly benefits to using procurement clubs for less complex procurements and those not involving leaseholders.  You can achieve quicker turnaround, limited procurement investment, reduced client input, benchmarked data is available and you will be in line with National agendas.  However, if you have any concern relating to:-

  • Social Value Act (2012) consultation
  • Leaseholder consultation
  • Being a ‘named’ contracting authority on the original contract notice
  • Ensure that your organisation was in existence at the point of contract notice issue
  • The scope of services aligning fully with your requirements

Then you should at least undertake a procurement strategy review to ensure that you have minimised your overall risk and capitalised on the potential benefits which may be available to you through the use of procurement clubs.