Guidance on the implementation of the Opening Doors Charter principles for Welsh public sector organisations

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1 Guidance on the implementation of the Opening Doors Charter principles for Welsh public sector organisations

2 Background Further guidance on implementing the Charter principles and specific guidance on procurement best practice can be accessed via the Value Wales Procurement Route Planner on Alternatively please contact the Value Wales helpdesk: Tel: (Reception) Fax: ISBN CMK-22-04(045)(018) G/682/

3 Background Opening Doors: the Charter for SME Friendly Procurement 1, hereafter referred to as the Charter, was launched in June 2006 and organisations who had signed up to the Charter by of August 2007, were responsible for some 97% of the 4.5 billion spent by the Welsh public sector on procurement. To support the Welsh public sector in delivering on their commitment to the Charter the Business Procurement Task Force, chaired by Andrew Davies AM, Minister for Finance and Public Service Delivery, requested that guidance be produced on a range of issues to be considered by the public sector in embedding and implementing the Charter s principles. Also, the Task Force is anxious to ensure that the public sector engages with Supported Businesses, the Third Sector and SMEs more generally. The OGC Smaller Supplier Better Value 2 guidance defines SMEs as follows: A diverse group of businesses fall into this category, ranging from sole traders to substantial, established firms including start-ups, black and minority ethnic businesses (BMEs), voluntary and community organisations (VCOs) and social enterprises Purpose This document aims to: Support the implementation of the Charter by providing some practical steps on how each of the principles for the public sector can be implemented. SMEs are also being encouraged to play their part by acting on the principles for SMEs set out in the Charter through the business support programmes of the Assembly Government and by external bodies such as the Federation of Small Businesses, CBI Wales, TUC Wales and Wales Council for Voluntary Action. Underpin the commitment in the One Wales 3 progressive agenda for the government of Wales, agreed in June 2007 to introduce an All Wales Purchasing Code of Practice. The Charter is the cornerstone of this Code of Practice emphasising the Welsh Assembly Government s commitment to ensuring that it is easier for smaller suppliers to participate in public sector procurement. Remind the public sector that the Charter was designed to set out broad principles that convey the core message that public procurement is changing and that working with the public sector need not be overly bureaucratic and should be inclusive. In effect it can be regarded as a checklist for action. This document draws on the following guidance documents available via the Value Wales Procurement Route Planner. 4 Public Procurement, Equal Opportunities And Diversity In Wales 5 ; Public Sector Procurement and the Third Sector: Guidance for the Public Sector in Wales 6 ; and the, Step By Step Methodology For The Application Of Community Benefits / Social Requirements In Public Sector Procurement. 7 3

4 Frequently Asked Questions Why is there a need for this? While organisations signed up to the Charter accounted for some 97% of the 4.5 billion spent by the public sector on procurement, progress towards embedding and fully implementing the Charter s commitments has been slower than expected. Feedback suggests that one of the main reasons may be the difficulty in reconciling operational issues with strategic objectives such as efficiency savings and sustainable development. Application of the Charter principles will help to align what may appear to be conflicting agendas. For example, for some years, the trend has been towards aggregation of contracts because of the perception that larger contracts deliver better value. Applying this approach in all circumstances can lead to the stagnation of the market by reliance on a few large suppliers, with the consequent loss of competition. Bigger is not always better and opening up the market to a wider range of suppliers can lead to greater competitiveness and value for money. The Value Wales Sourcing Plan for Wales Smarter buying, sharing success is based on a methodology that considers the key role that SMEs play in the supply chain and, where appropriate, contracts and framework agreements developed will feature regional or sub-regional lots to enable SMEs to compete. There are many advantages that the smaller firm can offer, for example: lower overheads and management costs; greater responsiveness to changing needs and ability to tailor goods and services; development of personal relationships due to the proportionally greater value of your business to them. The OGC guidance Smaller Supplier Better Value 2 neatly sums up the advantages of working with SMEs stating that, Especially conspicuous, across a wide range of markets, is the ability and willingness of small firms to go the extra mile, in terms of commitment and service delivery. What is meant by the Third Sector and what do they offer? The UK Government 8 and the Welsh Assembly Government defines the third sector as: Non-governmental organisations which are value-driven and which principally reinvest their surpluses to further social, environmental or cultural objectives. It includes voluntary and community organisations, charities, social enterprises, co-operatives and mutuals. Third sector organisations are most commonly linked to health and social care, crime prevention and reduction, community transport, sport and recreation, environment, education and learning, housing, employment and welfare, community regeneration and advocacy and campaigning. The areas and the ways in which the Third sector works have a vital role to play in delivering public services and ensuring a just, inclusive and sustainable society in Wales. Amongst the many benefits that third sector organisations can bring to public service delivery are: a strong focus on the needs of service users; knowledge and expertise to meet complex personal needs and tackle difficult social issues; an ability to be flexible and offer joined-up service delivery; the capacity to build users trust; the experience and independence to innovate. 4

5 This is often because third sector organisations can deliver services in a different way, for example by: involving local people to build community ownership ; building the skills and experience of volunteers; increasing trust within and across communities, thereby building social capital. As stated in Welsh Assembly Government s Strategic Action Plan for the Voluntary Sector 7, the Third Sector is in a particularly strong position to provide front line services when: users have multiple disadvantages, requiring a co-ordinated portfolio of services from an informed provider; the service needs to be directed at sections of the community that have been excluded from traditional service provision; the service is targeted at users who are likely to mistrust business or state providers; the service is labour-intensive, where the flexibility and commitment of volunteers can be an asset; the needs of the service users are highly variable; the quality of service required by procurers is difficult to specify, measure and monitor; procurers are unsure of the exact service required and are seeking innovative proposals. In order to maximise the benefits of public sector procurement it is essential that public sector buyers get to know and understand the full range of what the Third Sector supply side has to offer. Not only the range of goods and services but the broader environmental, social and economic benefits and efficiencies that can be derived from the varied approaches to how those goods and services might be delivered. What is meant by Supported Businesses and what are the opportunities available to the public sector to support them? In addition to mainstream SMEs and the Third sector, contracting with Supported Businesses has a role in delivering public services while ensuring a just, inclusive and sustainable society in Wales. Under Article 19 of the Procurement Directives the public sector can reserve contracts above the OJEU financial thresholds for Supported Businesses. Below these thresholds Government Departments and Agencies 9 can use Special Contract Arrangements. 10 Supported Businesses are defined as: Factories and businesses, or economic operators which operate supported employment programmes, where more than 50% of employees are people with disabilities. 10 The Disability Discrimination Act defines a disabled person as someone with a physical or mental impairment which has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities. This definition can be applied to Registered Supported Businesses or Third Sector social firms or enterprises whose workforce comprises of more than 50% disabled people. For more detail on working with Supported Businesses, social firms or enterprises please refer to the Procurement and the Third Sector guidance available through the Value Wales Procurement Route Planner. 4 5

6 Is working with smaller and more local suppliers lawful? Yes, provided the effect of your actions is to open up the procurement process to a wider range of suppliers, and not to discriminate against larger ones, or in favour of smaller ones. What the Charter and this guidance aims to achieve is a level playing field for all, by setting out the principles on which the public sector procurement process should be based. This will create the environment that will enable more types of supplier to compete for public sector business, regardless of size. A useful test for any procurement action or decision is to ask the following questions: Does it discriminate against bidders/potential bidders on grounds of their origin? Does it treat all bidders/potential bidders equally? Is it open and transparent? Does it fit in with your published tendering and financial procedures and with what you have advertised or told the bidders? As with all procurement decisions, the key principles of UK and EU procurement law must be applied, these are: value for money; non-discrimination, i.e. treating all bidders equally; openness, fairness and transparency. 6

7 GUIDANCE ON IMPLEMENTING THE OPENING DOORS CHARTER S PRINCIPLES The Charter s 36 principles on which the public sector s commitment to SME friendly procurement is based can be divided into 3 broad headings, namely: Identifying and communicating with SMEs. Simplifying processes. Applying good procurement practice. Under each heading the relevant Charter principles are listed, the key issue / problem is stated and followed by suggested solutions. 1. Identifying and communicating with SMEs. 1.1 Relevant Charter Principles Principle 1: Become more familiar with the SMEs in our region, and the services provided. Principle 2: Take steps to find out what the barriers are to us doing business with appropriate SMEs, and seek to remove or lower them. Principle 4: Publish guidance, including on-line documents, and brief SMEs on our requirements, the opportunities we have available, who to contact, and how to tender for our business. Principle 5: Make it easier for SME s to talk to us. Principle 9: More widely advertise our contracts over 25,000 in value, making best use of the National Procurement Website buy4wales.co.uk - sell2wales.co.uk. Principle 20: Explain our procurement processes to SMEs and how they are influenced by the need to comply with the EU and UK procurement law. Principle 21: Give SMEs sufficient notice about changes in our processes to allow time to adapt. Principle 27: Give potential SME suppliers an opportunity to discuss the procurement, in order to understand our requirements and assess their own suitability. Principle 28: Inform SMEs of the criteria we use to evaluate applications to tender and tenders. Principle 35: Ask SMEs to help us, by providing feedback on our processes and procedures, and suggest innovative solutions. 1.2 Key issue / problem Many procurement officers indicate that it isn t possible to meet with all the SMEs in their region. However the Charter does require a level of communication with SMEs and the following are suggested solutions. 1.3 Solution Register on Buy4wales and fully utilize the functionality of the National Procurement Website to get to SMEs interested in working with you. Use the Request For Quote facility for low value purchases. 7

8 Use your own websites to publicise future opportunities and any guidance on procurement you have prepared such as buyer profile. Draw up a forward contract programme and use Prior Indication Notices where possible for above OJEU procurements. Value Wales have developed a PIN template that can be accessed through the Procurement Route Planner 4 Revisit your Standing Orders / Standing Financial Instructions to ensure they match current best practice, especially in areas such as Pre- Qualification and Contract Award Criteria. A robust risk management strategy that takes account of what it is you are buying will allow you to tailor your approach to financial, insurance / indemnity, and experience requirements. Award contracts on the basis of Most Economically Advantageous Tender (MEAT) not lowest price Undertake a full expenditure analysis to help you understand your current supply base. If your organisation participated in the Value Wales Management Information Project use the Expenditure Analysis Data that was returned to you to develop a procurement strategy that makes it easier for suppliers to engage with you. This will also help you identify opportunities to work with more local suppliers and help them compete to supply you with goods or services currently acquired from further afield. This may be simply achieved by communicating how your procurement processes and systems work or more targeted supplier development such as How to tender or Meet the Buyer type workshops. Publish high level analysis of your Management Information on the web. Engage with providers and suppliers to discuss your needs. There is nothing in any of the procurement regulations to prevent this. This twoway process is aimed at both: informing the market about your likely needs; and finding out what suppliers can offer. Include sub-contracting opportunities for SMEs that will allow them to build capacity and develop. By better understanding the supply base in Wales, even where a decision to award a contract to a single larger supplier is made, it may be possible to sub-contract. Value Wales guidance on achieving community benefits incorporates this consideration with particular relevance to construction projects and is available via the Procurement Route Planner 4. Use framework contracts developed out of the All Wales Sourcing Plan. The methodology used for prioritisation and design of lotting strategies takes account of SME engagement. Specific engagement with the Third sector Understand this aspect of the supply base. In Wales, there are at least 30,000 third sector organisations, of these, 26,000 have a primarily local focus and rely entirely on volunteers. Useful contacts Wales Council for Voluntary Action Tel: ON-LINE Supported Business Directory Give suppliers early and clear indications. If you are moving away from grant funding to competitive tendering arrangements, and work with them to ensure they understand how they may need to adapt and how to bid / tender under the proposed new arrangements. In doing so you will manage the risk of losing long-standing suppliers who understand your needs simply because they were not prepared for the changes. Effective engagement with Third Sector bodies and Value Wales will help you to develop policies, programmes and commissioning strategies that will result in better designed specifications and lotting strategies. This will lead to contracts that are attractive to this sector and broaden your supply base. 8

9 Ensure your procurement strategy clearly outlines how you will engage with the Third Sector with the measures in place to ensure the strategy is carried through to operational level. 1.4 Specific engagement with Supported Businesses Research which of your needs may be met by supported businesses - e.g. Consider reserving some of your contracts to, or providing that part of them must be carried out by, supported business. Remember that a comparatively small value contract may give a supported business security and enable it to expand. To Reserve contracts to sheltered workshops / work programmes you need to state in the OJEU notice that only such organisations may tender. Specify that contracts must be performed in the context of sheltered workshops / work programmes - i.e. anyone can bid but must use a supported business to provide the specified contract or parts of it, e.g. as a sub-contractor or a partner. Consider using Special Contract Arrangements (SCA). Below OJEU thresholds by using SCAs, where a bid by a supported business fails only on price, the contracting public body can give a tendering supported business a chance to adjust its price. In order to do this you must; state your intention to use SCAs in any advertisement of the contract; and, refrain from disclosing the price tendered by the leading bidder to the supported business (as this would breach the rules on confidentiality), unless you have received express consent to do so from the bidder concerned, for instance by requiring them to sign some form of consent in the tender documents. The Value Wales Policy team gsi.gov.uk) will be able to provide you with details of relevant training opportunities through the Value Wales training Programme. 2. Simplifying processes. 2.1 Relevant Charter Principles Principle 6: Ensure all our processes create a level playing field for SMEs Principle 8: Ensure genuine and fair competition that doesn t discriminate against SMEs Principle 18: Keep our tendering process as simple as possible to minimise cost. Principle 22: Cut down on administration needed to tender, simplify our documents, provide clear briefs that identify all our requirements, and use plain language. Principle 23: Move towards a consistent all Wales approach to pre-qualification and standardised contract documentation. Principle 29: Decide what our financial qualification requirements are on a tender-by-tender basis, having assessed the risks involved. 9

10 Principle 30: Not ask for more than two years audited accounts, and accept alternative information from newer businesses. Principle 34: Adopt good practice procurement guidance and standard tender templates developed by Value Wales. 2.2 Key issue / problem Over simplified processes exposes the organisation to risks. The resources aren t available to do the work to review and revise processes. Internal resistance to change. 2.3 Solution Use the guidance and templates available from organisations such as Value Wales and OGC. Collaborate with organisations within and outside of your sector to identify and adopt good practice, so that suppliers see more consistent processes within the public sector. For example, simplifying the pre-qualification process by adopting the standard template developed by Value Wales. Adopt a risk-based approach to how you address procurement by taking account of sustainability, business and reputational risks. This will allow you to vary the requirements placed on suppliers on a contract by contract basis, e.g. by applying financial thresholds, adopting Value Wales Sustainable Procurement Risk assessment templates. Consider whether your current processes are designed to limit the number of bids rather than identify companies that could deliver what you need. For example, look at your financial appraisal criteria, are they proportionate to the value of the contract? Do you focus disproportionately on price over quality? Do you apply pre-qualification and tendering procedures to reduce potential bids / tenders? Do you favour known suppliers or operate preferred supplier lists? Review your procurement processes, adopt e-procurement solutions and take up standard documents developed by Value Wales to simplify your processes, minimise costs and reduce pressure on time and resources. For example, by reviewing and revising your processes, opportunities to minimise administration will allow you to concentrate on more value adding activities such as considering broader strategic issues, identifying sustainability and collaborative opportunities, forward contract schedules and drafting clear specifications / briefs. Adopting a consistent all Wales procurement approach will benefit your own organisation which will also be more able to work collaboratively and help SMEs engage with the public sector across Wales. 2.4 Specific engagement with the Third sector Consider whether the contract you are proposing falls below EU thresholds or is classed in the service B category. Many Third Sector organisations deliver services which fall within this category. While still subject to the EC Treaty principles of transparency and non-discrimination, a lighter regime can be applied. This can therefore simplify processes and reduce resource requirements for both you and prospective third sector suppliers. 3. Applying good procurement practice. 3.1 Relevant Charter Principles Principle 3: Not assume that larger suppliers always offer better value for money. 10

11 Principle 4: Publish guidance, including on-line documents, and brief SMEs on our requirements, the opportunities we have available, who to contact, and how to tender for our business. Principle 7: Look for the best overall outcomes from our procurement activities using broad value for money criteria to make decisions Principle 10: Welcome applications from new businesses Principle 11: Actively encourage our main suppliers to provide opportunities for SMEs (including the Third, voluntary and Supported Factories and Businesses sector) to deliver elements of appropriate contracts. Principle 12: Welcome bids from small businesses that are collaborative or are on a consortia basis. Principle 13: Comply with all applicable EU and UK procurement legislation, in particular the principle of nondiscrimination, and apply the rules to all tenderers in a fair and transparent manner. Principle 14: Put our sign up to Sustainable Procurement into practice by joining the Value Wales Sustainable Procurement Programme and continually monitor our progress. Principle 15: (also see Principle 7) Use sustainable development criteria in determining value for money, including assessing the impact of economic, environmental and social factors. Principle 16: Encourage SMEs to embrace sustainable development. Principle 17: Ensure skilled and professionally qualified personnel manage the processes. Principle 19: Look at the whole life cost, and not just the initial cost of the product / service when considering value for money. Principle 24: Adopt e-procurement including e-auctions, procurement cards and electronic invoicing, in order to improve efficiency. Principle 25: (also see Principle 15 and Principle 7) Consider the most appropriate approach to achieve value for money and manage risk, for each procurement. Principle 26: Package large contracts into separate elements or make use of regional lots if appropriate, to ensure that SMEs are not excluded from tendering. Principle 31: Use outcome specifications and consider alternative products or services SMEs may wish to offer. Principle 32: Offer feedback to successful and unsuccessful tenderers, to help SMEs improve. Principle 33: Treat all SMEs fairly, and pay within 30 days from receipt of a correct invoice. 11

12 Principle 34: Publish and implement a complaints and continuous improvement procedure. 3.2 Key issue / problem Limited resources: This can be in terms of operational or technical capacity. Human resources: not having enough procurement staff (time) not having enough suitably experienced or qualified staff. Technical: IT systems not having the capability to support e-procurement solutions. Infrastructure: Issues caused by your current procurement structure i.e. centralised; devolved; fragmented. Lack of understanding of how to apply sustainable procurement in practice 3.3 Solution Address your training needs by utilising the; Value Wales Sustainable Procurement Training Value Wales / PMMS short course training programme Value Wales CIPS Cohort and; for CIPs qualified staff enrolling on the MSc in Procurement. Internally, raise awareness of a sustainable procurement approach to maximise the benefits of your procurement activity and how it can contribute to wider operational and strategic objectives e.g. by informing the supply side of your wider social, environmental and economic objectives and inviting innovative solutions. Externally, communicate clearly the wider needs, objectives and aspirations of the organisation why does your organisation exist and what is its core purpose? By including these in procurement processes and demonstrating that you are seeking the most economically advantageous or best value outcome you can maximise participation from a wider range of suppliers. Also by informing the supply side of your wider social, environmental and economic objectives and using output specifications were possible you will invite innovative solutions. Plan future IT investment with e-procurement in mind. Use e-procurement processes that your systems will currently support such as Value Wales e-tendering, e-evaluation, e-auctions tools. Use the National Procurement Website s full functionality i.e. for above OJEU full tenders and Request for Quote for below OJEU procurement. Ensure that a risk management approach is adopted that apportions risk fairly between you and your supplier. Work with them to manage risk using win / win incentives. For example is the client group hard to reach, the demand too difficult to assess, likely to be highly variable or increase over time? In which case a partnership approach with appropriately tailored contract management and reporting procedures will help you and your supplier to manage the risks and deliver the quality of service required. Determine appropriate contract periods. This is important for suppliers to re-coup start up costs and investments they may be prepared to make to ensure the service you require is delivered. By helping them to invest to deliver your contract they will also be increasing their capacity for the future, potentially to the benefit of your organisation and other public sector bodies. Paying SMEs in a timely manner can be critical to their cash flow and viability. In line with the Charter payment should be made within 30 days and performance against this target should be monitored. Fair payment should apply equally throughout the supply chain and principal contractors should be encouraged to formally adopt principles similar to those below: Companies have the right to receive correct full payment as and when due. Deliberate late payment or unjustifiable withholding of payment is ethically unacceptable. 12

13 Fair payment should apply equally between client and principal contractor and throughout the supply chain. The process should be transparent; for example, companies in the supply chain should have access to information on the certification and payment procedures and payment times relevant to their work content, in order that they can see when they will be paid and how much. The correct payment should represent work properly carried out, or products supplied, in accordance with the contract. Any withholding of payment due to defects or non-delivery should be proportionate and justified. The process must be practicable and efficient for all participants, reducing unnecessary transaction costs and without the need for additional regulatory and auditing activity. The process should seek to provide protection to the client and all supply chain members in the event of a company becoming insolvent. The process should be seen as part of a wider agenda to achieve better partnership working, thereby decreasing disputes and providing good value for money. 3.4 Specific engagement with the Third Sector Consider whether or not it would be appropriate to make payments in advance. Further specific guidance on the issue can be found in the HM Treasury guidance Managing Public Money Specific engagement with Supported Businesses Consider whether or not it would be appropriate to reserve contracts or enter into Special Contract Arrangements with social firms or Supported Business. This can help to deliver broad organisational objectives such as delivering on Community Strategies/engaging with social excluded or disadvantaged groups. See 1.4 above Conclusion It is important to recognise that your procurement strategy will need to have a mix of strategies in order to effectively engage with all suppliers e.g. how you communicate, supplier development, e-procurement and how lower value purchases and contracts are handled. In general the approach to implementing the Charter is to do what you can, when you can in relation to each principle. The size and scope of your organisation s procurement activity will naturally influence this. Simplifying your processes and opening up the market to a wider range of suppliers (SMEs, Third sector orgs and SFBs) can lead to greater competitiveness and value for money. A key consideration for SME s of all types is the time and resource required preparing tenders and quotes. Furthermore, by simplifying your processes and adopting standardised documentation and best practice approaches you will be contributing to working in a more consistent way across the public sector that will help suppliers access opportunities across Wales. This will help suppliers who currently limit themselves to working with public sector bodies simply because they are familiar with their particular processes, requirements and documentation. By helping SMEs, Third Sector organisations and Supported Business in your area to develop they are able to compete for not only your business but also business outside your area and beyond Wales. Firstly, this will ensure that SMEs will not become over dependent on doing business with you and will be helping them to diversify. This will mitigate the risks of over dependency for both you and them. Secondly, helping them to compete for business outside of your area will bring money into your local community. 13

14 References: 1 Opening Doors: The Charter for SME Friendly Procurement (Welsh Assembly Government, 2006) 2 Smaller Supplier Better Value (Office of Government Commerce, 2005) 3 One Wales a progressive agenda for the government of Wales (An agreement between the Labour and Plaid Cymru Groups in the National Assembly 27th June 2007) 4 Procurement Route Planner https://www.buy4wales.co.uk/prp 5 Public Procurement, Equal Opportunities And Diversity In Wales (Value Wales 2007) 6 Public Sector Procurement and the Third Sector: Guidance for the Public Sector in Wales (Value Wales 2007) 7 Step By Step Methodology For The Application Of Community Benefits / Social Requirements In Public Sector Procurement. (Value Wales, 2007) 8 Office of the Third Sector 9 Government Departments and Agencies are listed in The Public Contract Regulations 2006, Schedule 1, Regulation 2(1) GPA Annex 1 Contracting Authorities 10 Supported factories & businesses: OGC Guidance on reserved contracts in the new Procurement Regulations OGC January The Disability Discrimination Act Managing Public Money Oct 2007 and specifically at annex

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