Dounreay Procurement and Supply Chain Strategy

Transcription

1 Dounreay Dounreay Procurement and Supply Chain Strategy October 2014 Issue 5

2 Dounreay Procurement and Supply Chain Strategy Index Section 1: Commercial Services Unit - Objectives & Organisation Section 2: Procurement Strategy Section 3: Procurement Policy Statement Section 4: Contracting and Pricing Models Section 5: Delegated Authorities Section 6: Supply Chain Engagement & Development

3 Dounreay Procurement and Supply Chain Strategy Section 1 Commercial Services Unit - Objectives and Organisation

4 Dounreay - Commercial Services Unit - Objectives and Organisation This section sets out the Mission, Objectives, Organisational Structure and the key Tasks for 2013 to 2015 of the Commercial Services Unit. The Organisational Structure of the Commercial Services is illustrated in the chart contained in Appendix A. The Mission Statement and Key Objectives of the Commercial Services Unit are detailed as follows; 1.0 Commercial Services Unit Mission Statement To support Dounreay in the delivery of the P erformance P lan, the Commercial Services Unit will develop the procurement and contracting strategies to secure the right goods and services at the right time at the best value for money. 1.1 Commercial Objectives Deliver the Performance Plan (a) (b) (c) (d) Manage Dounreay s procurement and contracts interface with the NDA; Procure on time to meet project and programme delivery dates; Produce and manage the Procurement Plan and Monthly Procurement Metrics; and Support NDA improvement initiatives (including the Shared Services Alliance) Protect Dounreay (a) (b) (c) (d) (e) (f) Ensure that all procurements are subject to a competitive process except in cases where sole source can be shown to represent value for money or is the only option; Allocate commercial risks to those best placed to manage them; Ensure contracts are commercially sound and legally enforceable; Ensure compliance with all relevant legislation; Manage disputes to satisfactory closure; and Conduct business in accordance with a strong code of ethics Project Manager s (PM) Expectations (a) (b) (c) (d) Support the PM in the development of project business cases and the sanctioning process. Take the lead in developing acquisition strategies, sub contract strategies, preparation of Tenders, the Tender Evaluation process, Contract Award and post contract management; Procure the right goods / services to meet project objectives; Ensure consistency of contract documents; and Communicate regularly with the project team including early engagement Value for Money / Supply Chain (a) (b) (c) (d) (e) Ensure all procurements are conducted on a value for money basis including recognition of acquisition cost, whole life cost and quality; Understand and know the market; Share learning and best practice with Supply Chain, within Dounreay and across the NDA Estate; Supply Chain Engagement and Development; and Consider socioeconomic impact and benefits in contracting strategies for major procurements. Page 4 of 34

5 1.1.5 Enablers Skills & System Development (a) (b) (c) (d) Identify, maintain and share best practice functionally between SLCs and the supply chain; Have skills and resources to support project delivery; Maintain procurement procedures and a site procurement strategy reflecting best practice and market conditions; and Raise Commercial Awareness within Dounreay Commercial Services Organisation The Commercial Services Unit essentially comprises of 3 teams, each managed by an experienced Commercial/Procurement Manager. The teams within the Commercial Services Unit are: (a) (b) (c) Central Support & Strategy; Site Decommissioning (FCA, Waste, Fuels, Shaft & Silo); and Reactor Decommissioning. Each of these teams have responsibilities and Key Tasks for Financial Year 14/15 and details of these are contained in the sections below Central Support and Strategy Responsibilities: (a) Provide a general Commercial Support Service; (b) Lead on Business Improvement programmes for the Unit; (c) Act as a procurement and contracts interface to NDA; (d) Support NDA s Collaborative Procurement initiative and manage the Site framework agreements; (e) Co-ordinate the procurement plan and produce key metrics in compliance with the SLC Agreement; (f) Maintain and appropriately develop Procurement and Contract Management IT systems to support project delivery and reporting requirements; (g) Manage training and development requirements for the team, ensuring key skills and experience are retained or replaced; and (h) Deal with various departmental HR issues as they arise and co-ordinate resource cover for short term requirements. Page 5 of 34

6 1.3.2 Key Tasks: (a) Manage Dounreay s contribution to the NDA s collaborative procurement initiatives and transitioning to new arrangements; (b) Implement current best practice tools for NEC3 Contract Management and Reporting; (c) Manage a properly resourced team that provides commercial and contractual support to customers; (d) Ensure that standards of professionalism are attained by the Commercial Services Unit with key internal and external stakeholders; (e) Carry out a contractor selection process and manage the commercial transition to revised arrangements for the provision of the Civilian Guard Force. (f) Transition to revised arrangements for the provision of IT services when the current contract ends in 2015; (g) Maintain a suite of standard processes, procedures, best practice and standard templates; (h) Ensure compliance with Company and EU Procurement Policies and Procedures including latest amendments to EU Directives; (i) Provide post contract management support for the Detection & Retrieval of Radioactive Particles from Beach Environments Contract; (j) Provide commercial support to Health Physics requirements across Site and manage Collaborate Procurement for Health Physics requirements across the NDA Estate. (k) Identify and deliver new frameworks and buying strategies for low value, high volume spend. (l) Provide buying function for the Dounreay Site Stores ensuring timely delivery, stock replenishment and value for money Site Decommissioning Responsibilities: (a) Lead strategy development and implementation for high value projects and provide commercial advice and guidance; (b) Implement acquisition and subcontracting strategies that identify opportunities for Dounreay to achieve best value for money with the Supply Chain to complete activities within the Life Time Plan; (c) Manage a properly resourced team that provides commercial and contractual support to the Directorates objectives; (d) Ensure that standards of professionalism are attained by the Commercial Services Unit with key internal and external stakeholders; Page 6 of 34

7 (e) Develop and manage the Project Procurement plans, ensuring timely contract placement, monitor the same against planned procurements and compete/place contracts to the appropriate procedures commensurate to the value and risk; and (f) On contract award, administer the contract and manage the variations procedure in conjunction with Project Management to ensure the process is followed and value for money is achieved Key Tasks: (a) Shaft & Silo Update of the Acquisition Strategy for the Project; and Commence procurement process for the scheme design, detailed design and design support during construction; (b) FCA Commence procurement processes for concrete cutting operations in several facilities through the Framework Agreement for Advanced Cutting Services (c) Waste Award Framework Agreements for Waste Tru-Shiled Containers; Commence procurement process for the ILW Store Extension to the Dounreay Cementation Plant; Award of contract for the build of ADU Floc Plant; Provide contract management support to the Low Level Waste Projects (D3100) the Encapsulation Plant (D2179) including invoking the options for further LLW Vaults; and Procurement and contract management support for security enhancements project. (d) Fuels Provide post contract management support for the contract for containers and transportation of exotic fuels to Sellafield; Commence procurement process for the manufacture, licencing and supply of containers used for the transportation of exotic fules; Commence procurement processes for the remainder of the gloveboxes and equipment required for the Unirradiated Fuel Characterisation Facility; and Commence procurement process for the upgrades of infrastructure to facilities in the FCA. (e) Other Activities Award of Framework Agreement for: I. Professional Services; and II. Major Demolitions and Land Remediation Services Commence procurement process for the Framework Agreement for Lifting & Rigging Services Reactors Decommissioning (a) Responsibilities: Lead strategy development and implementation for high value projects and provide commercial advice and guidance; Page 7 of 34

8 (b) Implement acquisition and subcontracting strategies that identify opportunities for Dounreay to achieve b e s t value for money with the Supply Chain to complete activities within the Life Time Plan; (c) Manage a properly resourced team that provides commercial and contractual support to the Unit objectives; (d) Ensure that standards of professionalism are attained by the Commercial Services Unit with key internal and external stakeholders; (e) Develop and manage the Procurement plan, ensuring timely contract placement, monitor the same against planned procurements and compete/place contracts to the appropriate procedures commensurate to the value and risk; and (f) On contract award, administer the contract and manage the variations procedure in conjunction with Project Management to ensure the process is followed and value for money is achieved Key Tasks: (a) Support Breeder Fuel Removal and Fuel Shipment to Sellafield; (b) Manage procurement activities for Passivation Skids and pressure vessels; (c) Ensure procurement support to engage engineering design resources as required; (d) Contract award and management for Irradiated fuels Flask Loading Facility design; (e) Contract award and management of Irradiated fuels Flasks; (f) Support DFR NaK Optimisation implementation as appropriate; and (g) Contract award and management of Waste Facility Policy. Page 8 of 34

9 Appendix A Commercial Services Organisation Page 9 of 34

10 Dounreay Dounreay Procurement and Supply Chain Strategy Section 2 Procurement Strategy Page 10 of 34

11 Dounreay Procurement Strategy 2.1 Introduction DSRL operates under contract to the Nuclear Decommissioning Authority (NDA) and is a wholly-owned subsidiary of the Cavendish Dounreay Partnership Ltd (CDP), a consortium of Cavendish Nuclear, CH2MHILL and Aecom. It is funded by the NDA to deliver the site closure programme agreed with the Cavendish Dounreay Partnership. As such, the procurement strategy is influenced (amongst other things) by CDP, the NDA, and the statutory and ethical requirements of being publicly funded. This section describes the Dounreay site wide procurement strategy and should be read in conjunction with the Performance Plan to obtain an understanding of Dounreay s procurement requirements over the financial years 2013 to Purpose of the Dounreay Procurement Strategy Dounreay expects to spend circa 80M - 90M per annum with its supply chain for the foreseeable future, on a wide array of requirements ranging from minor office supplies to major construction projects. This procurement strategy summarises the methods and initiatives Dounreay are implementing in order to have a robust and competitive supply chain; with the necessary skills, capability and capacity to support the decommissioning of the Dounreay Nuclear Licensed Site to an agreed Interim End State. The strategy document will be updated as the decommissioning at Dounreay continues to progress and the challenges change. Dounreay will develop mature and open relationships with the supply chain that will deliver business solutions which meet or exceed Dounreay s Safety, Environmental, Quality, Schedule and Value for Money requirements. 2.3 Procurement Scope Dounreay has determined that in order to comply with Statutory and Legal obligations and to mitigate significant business risks, certain core / critical business activities should be self performed. Dounreay has similarly determined that all other business activities necessary to discharge its obligations as set out in the LTP shall be subject to a Make Buy Process. The Contract Project Manager and the Commercial Manager are responsible for the preparation and submission of Project Acquisition Strategies which are approved by the Project Director and/or the internal sanctioning panel depending on risk and value. The Make / Buy decision is an integral part of that strategy Dounreay Self Performed Activities Dounreay s core / critical business activities are set out below and represent the activities that need to be performed directly by Dounreay (or seconded from CDP) in order to manage significant business risks and ensure compliance with the Nuclear Site License and other Statutory requirements. Core activities cover leadership, strategy, governance, stakeholder management, assurance programme management, business change management, intelligent customer capability and functions covered by the safety base line to ensure compliance with the requirements of the Nuclear Site Licence. Critical activities typically cover significant business risks and compliance with Legislation (e.g. Dosimetry, Radiation Protection Advisors, Radioactive Material Transport, Maintenance of critical assets) Make / Buy Page 11 of 34

12 Dounreay recognises that the Make or Buy decision process is a clear area where significant economic and associated socioeconomic opportunities exist in line with NDA objectives. It is necessary that a robust approach is taken to challenge existing custom and practice when deciding whether to Make or Buy and to re-challenge this as the site decommissioning progresses. All Make / Buy decisions must demonstrate the economic benefits, risks and opportunities associated with the recommendation. The Make / Buy process provides a decision making tool to assist with maximising business performance and delivery of value for money solutions. This is achieved by: Reserving Dounreay s core and critical mission work for in-house performance; Retaining work that presents high performance risk. Where not practicable, strengthening the Dounreay intelligent client capability for procuring such work; Balancing the benefits of open competition with local socio-economic objectives within EU procurement rules; Using shared services when it offer best value and optimise use of resources across NDA sites; and Meeting demand through the supply chain when staff leave to find alternative work as the Intermediate End State approaches. Figure 1.1 below shows Dounreay s Make / Buy Decision Process. The outputs from the process will be one of the following: Must Make; Must Buy; or Make or Buy decision for those that could be either. Figure 1.1 Make / Buy Decision Process Page 12 of 34

13 2.3.3 The Buy Decision Generally, the principle business drivers for deciding to Buy or Outsource an item or activity are due to the following reasons: Capability (Dounreay does not have the capability and has no business driver to create the capability); Capacity (Dounreay has the capability but does not have the capacity to undertake the activity); Unique or non-continuous activities (where Dounreay pays only for the requirement); Intellectual Property (where the Supply Chain possess knowledge i.e. patents, design rights, specialist skills including Safety related); Risk Transfer (where it is appropriate and beneficial to transfer risk to the Supply Chain as they are best placed to manage the risk); Competitive Tension (where there are strong competitive forces within the Supply Chain); Efficiency (where there are demonstrable efficiencies available in the Supply Chain); Flexibility (where there are more flexible working practices available in the Supply Chain); and Whole life costs, including investment, replacement and development costs; staff costs and liabilities, etc. Strong socio economic reasons outweigh potential benefits of a Make Decision The outcome of the decision to Buy or Out-source must clearly demonstrate not only Value for Money, but efficiencies and (importantly) tangible benefits or savings/cost reduction Buying Strategies Dounreay applies Aggregation, Standardisation and Transformation strategies as appropriate to obtain the best value for money in procurement. These strategies are summarised as follows: Aggregation in its simplest form involves the aggregation of demand to leverage lower unit costs through economies of scale and is usually most effective when applied to the procurement of commodities, goods, manufactured items and repetitive standard services. Aggregation can be within or across the NDA Estate through the Shared Services Alliance and Collaborative Procurements (see below). The Crown Commercial Service (CCS) is also utilised where appropriate. Aggregation could also be done across the Dounreay Site using framework contractors or term service contracts. Leverage will be most effective with the highest level of participation in the initiative. A further benefit of aggregation is the opportunity to share and reduce the cost of the administrative burden. Page 13 of 34

14 The under noted is a list of collaborative procurements that Dounreay is actively participating in: Access & Insulation; Agency Supplied Workers (ASWs); Alcohol and Substance Abuse Testing; Beach Monitoring; Bulk and Cylinder Gases; Caustic Soda; Combustible Waste Treatment Services; Electrical / Mechanical (MRO); Electricity; Estate Management; Glovebox Consumables; Health Physics; High Integrity Stainless Steel Containers; ILW Container (Robust Concrete Boxes); Inspection and Quality Assurance services; Laboratory Supplies & Chemicals; Lease Cars; Legal Services; Metallic Waste Treatment Services; Online Standards; Packaging Services; Payroll Services; PPE, PVC Containment and Workwear; Professional Services (Government Procurement Service); Security Services; Stationery; Statutory Inspections; Transport Services; and Travel Booking Service. Standardisation involves identifying opportunities through best practice to harmonise business processes, practices, products and systems across Dounreay and potentially the NDA Estate, in order to achieve common approaches. The benefits of standardisation include: Reduction in management and administration costs; Consistency of approach; Lower risk of failure or problems; and Potential lower direct costs. Commercial Services are actively involved in standardisation initiatives including a combined complete tender management system (CTM), additional templates for contract and tender documentation, a generic NDA Estate Prequalification Questionnaire, standardised NDA flowdown provisions and rationalisation of catalogue items (e.g. stationary, PPE, workwear). The area currently identified as the biggest opportunity for standardisation is Waste Containers and Dounreay is working with the rest of the NDA Estate to reduce the substantial costs of Waste Containers required at Dounreay and other sites. Page 14 of 34

15 Transformation mainly involves engagement with the Supply Chain to identify innovative, cost effective long term business solutions that meet the requirements of Dounreay and the NDA Estate. It is generally the case that transformation has high implementation costs and durations, and there is limited opportunity to apply it to procurement activities at Dounreay due to the short programme life. However, an example of where Dounreay can apply transformation is the Strategic Interest Group (SIG) for Health Physics which Dounreay is leading on across the NDA Estate. The SIG will consider, amongst other things, estate wide resourcing and potential addition of other bodies that make use of Health Physics services (e.g. AWE, UK Border Agency) Supply Chain Risk and Responsibility Dounreay allocates supply chain risk (both threat and opportunity) appropriately to the scope of work to be procured by choosing the most suitable contracting mechanism. Risk is allocated to the organisation best placed to manage it. Dounreay shall negotiate fair risk allocation based on the risk reward benefit and ensure that technical specifications are as well defined as possible to minimise the risk to all parties. Supply chain risk includes both the commercial risks associated with the nature of the procurement/contract and risks associated with the supply chain. For procurement and contract risk assessments, products and services are categorised to reflect their relative supply importance in respect of risk and value (see Figure 1.2 below). Page 15 of 34

16 Figure 1.2 Risk Matrix There are four categories: strategic relationships, security of supply, leverage items and routine items. The key considerations in the Risk assessment are: Value of the contract; Availability of source of supply; Criticality to project or programme; Level of technical complexity; Uncertainty in the project scope; Interfaces and dependencies with other work packages/procurements; Security of supply; Benefits of aggregation and collaboration across the site and the NDA Estate; Operating environment; Impact on the supply chain; and Impact on other organisations within the NDA Estate. Dounreay assesses the commercial risk and value / uncertainty of the identified procurement requirement, positioning the procurement in one of four boxes on the Risk Matrix to establish the most suitable contracting strategy. Figure 1.2 summarises the key contract features associated with these commercial risks. Page 16 of 34

17 For simple low-risk activities, fixed-price contracting arrangements are the most appropriate means of risk transfer. Where complex, high-risk contracts are being procured, more innovative contractual strategies are developed using target cost incentivised arrangements to ensure an equitable balance of risk between the parties. Dounreay maintains a risk register of all risks, including supply chain risks, throughout the contract term. Supply chain risk assessments are supported by financial health checks on key suppliers and market intelligence gathering on performance issues and impending acquisitions Procured Items Once the Make / Buy process has established that work should be procured via the Supply Chain, then the project teams should engage with their nominated commercial representative to ensure that the procurement is undertaken in accordance with the Dounreay Procurement Manual D/MAN 0003 and the under noted rules are complied with: No expenditure should be incurred unless it is in the site Performance Plan, and only limited costs can be committed prior to the approval of Business Case, Acquisition Strategy and/or Subcontract Strategy; Sanction must be signed off by an individual or committee with the correct level of delegated authority; For resource augmentation contracts, DSRL s primary source of resources will be from Agency Supplied contracts (currently Capita and Morson) due to the low fee payable. The next preferred option is the site frameworks and only once these routes have been exhausted shall reachback be used for hired staff; Wherever possible Dounreay shall procure standard off the shelf equipment that is fit for purpose taking cognisance of the limited operating life of the Dounreay site; For discrete packages of work Dounreay s preferred hierarchy of reimbursement is fixed price, target price, measured work and cost reimbursable (giving due consideration to adequacy of scope definition and parties best placed to manage risk). See Section 4 for more detail; Maximise use of competition (minimise the use of sole source and provide justification for any single source tenders within the sub-contract strategy); Comply with Public Procurement requirements and give due consideration to the chosen procurement route - open, restricted, sole source or competitive dialogue based on where the package would be placed on the supply chain risk / cost matrix; Define the project or package critical success factors and link to the tender evaluation criteria; All procurements must be conducted in an ethical and sustainable manner; Compliance with Health, Safety, Security, Environmental and Quality Legislation and Site Requirements; Use the appropriate contract from the NEC Suite (and consider other appropriate terms where the NEC is not applicable for example property leases); On selection of the appropriate form of contract from the NEC suite, consideration needs to be given to the selection of the Main and Secondary options and any bespoke amendments to ensure adequate risk mitigation. Any bespoke amendments to standard forms of contract must be approved by the Head of Commercial Services; Ensure appropriate NDA flow downs are incorporated into all contracts; For ongoing service contracts a TUPE indemnity provision is inserted in the contract to ensure Dounreay are protected against the risk of future redundancy liability. Should this not be achievable, approval must be provided by the Head of Commercial; Any incentives or remedies for breach should be linked to project critical success factors; Termination for Convenience should be limited to one month s notice, with an express exclusion removing the Contractors rights to loss of profit. Any deviation from this shall Page 17 of 34

18 require the approval of the Head of Commercial Services; For target cost contracts under the NEC ensure that pain share is calculated on an annual basis and deducted from the Contractors payment. Value for Money should consider whole life cost of solutions (Capex, Opex, reliability, decommissioning and site remediation) and be linked to the project critical success factors; Ensure that due consideration of SMEs and socio economic are taken into account when developing acquisition and subcontract strategies; The use of aggregation, standardisation and frameworks should present Dounreay with the opportunity to rationalise its Supply; Ensure that due consideration is given to the use and creation of Intellectual Property Rights and informing the NDA where appropriate E Tendering In 2012 Commercial Services introduced the CTM (Complete Tender Management) System which is an internet based tendering system, supported by EU-Supply. At present all requirements are published via OJEU use the CTM System Dounreay has no current plans to carry out any electronic auctions during 2013 to 2015 but consideration will be given to its future use as a strategic tool. 2.4 Sole Source Procurement and Continuity of Supply As a guiding principle sole source procurements should be avoided wherever possible. However, the necessity of sole source procurement is recognised in specific circumstances. Where a sole source procurement is required, Commercial Services and the Project Teams must work together to mitigate the potential adverse consequences of sole source procurement, including: Lack of demonstrable value for money; Reduced certainty regarding the security of supply; Weaker SLC position to negotiate contract terms and conditions; and Limited options in the event of poor supplier performance. The procurement plan is used to create a clear understanding of all current and future sole source contracts required to execute the LTP. In order to mitigate the adverse consequences of such procurements there are processes and governance in place. The key elements of these processes are as follows: Survey of industry capability to ensure there are no other service or product providers; this could be through a call for expressions of interest; Sign-off by an appropriately delegated authority is mandatory; All sole-source procurement must comply with EU Procurement rules; Prices must be benchmarked wherever possible to ensure that best value for money is achieved; Adequate break clause conditions must be provided in the contract; The impact of sole-source procurement on other suppliers must be considered; Ongoing supplier financial health checks to monitor changes in the wider supply chain capability; Challenge the scope of sole source procurements to cover only those services that cannot be procured through open competition; Good understanding of price breakdown; and Page 18 of 34

19 Agreed schedule of rates. Where appropriate, sole-source contracts are reviewed on a regular basis to examine whether there is any other way of providing these goods and services. Where a new sole-source procurement activity arises, a detailed formal single tender action request is made by the project. This details the rationale behind the single tender action Business Continuity Management (BCM) and Supplier Monitoring A prolonged disruption to performance on critical contracts could result in adverse impact to the site; e.g. disruption to key processes, critical activities, resources and dependencies utilised in the delivery of business obligations. Dounreay has produced a Business Continuity Management Plan which sets out the strategy and arrangements that have been established to ensure that, in the event of a disruption to critical contracts, the site remains compliant with all statutory requirements and that disruption to operations and delivery is minimised. In conjunction with the BCM plan, Dounreay holds a critical supplier list which is reviewed and updated periodically by Commercial Services. The list is made up from suppliers of key service provisions (such as IT, Facilities Management, Health Physics) and suppliers of key consumables/components (in particular those in a market of very limited competition, if any). Dounreay also monitors all its key, critical and top 100 suppliers (by spend) for financial stability through Dun & Bradstreet in collaboration with other SLCs in order to take a holistic view across the NDA estate. Page 19 of 34

20 Dounreay Dounreay Procurement and Supply Chain Strategy Section 3 Procurement Policy Statement

21 3.1 Dounreay Procurement Policy It is Dounreay policy to: consider SME and socio economic impact and benefits in acquisition and contracting strategies for major procurements; to work collaboratively with the supply chain to improve safety, environmental and security performance; obtain best value for money, based on lifetime costs, in the purchase of goods and services; compete requirements unless there are compelling reasons to sole source; demonstrate the highest ethical standards in all dealings with suppliers and contractors; maintain security of supply using sustainable sources; communicate Dounreay requirements to the supply chain, by updating and publishing the procurement plan every month; comply with all relevant aspects of the EU Public Procurement Directives; undertake all procurements in accordance with good industry practice; apply an approved quality management system to all procurements; monitor critical, key and high spend suppliers for financial strength; apply a make or buy decision-making process to all non-core activities; and assess supplier performance and provide feedback to the supply chain. 3.2 Expectations of Supply Chain Dounreay expects its suppliers to: demonstrate responsible health and safety performance as per legislation and site requirements; demonstrate responsible environmental performance and apply rigorous standards of environmental protection and to comply with all site security requirements; provide best possible value for money; bring innovation and continually deliver improvements as reflected in Dounreay review feedback; not discriminate on any basis or undertake any unethical practices; respect commercial confidentiality; and share feedback with DSRL, regarding Dounreay performance such that 360 degree feedback can be obtained. Page 21 of 34 Page 21 of 34 Page 21 of 61

22 Dounreay Procurement and Supply Chain Strategy Section 4 Contracting and Pricing Models

23 This section is a summary of the guidance available on contract and pricing types. Further information is available from Dounreay Commercial Services. 4.1 Contract Types Dounreay decided to transition from GC Works to NEC contracts in the late 1990 s due to a drive for less adversarial contractual relationships. The suite of documents is now on edition 3 and is referred to as NEC3. NEC3 continues to be recommended by government for public authorities to use. Different NEC contract types are used for different phases of projects and for different project complexity (figure 2.1 below). NEC3 is suitable for procuring a diverse range of works, services and supply spanning minor works and purchasing of supplies and goods through to major construction and engineering works. Figure 2.1 The NEC3 Family of Contracts Page 23 of 34

24 Works encompasses contracts such as the construction of buildings, major process plant and equipment. NEC contract types under works include: NEC3 engineering and construction contract (ECC) NEC3 engineering and construction short contract (ECSC) NEC3 engineering and construction subcontract (ECS) NEC3 engineering and construction short subcontract (ECSS) Services encompass contracts such as the purchase of both professional services, for example engineering and consultancy, and maintenance or management services. The NEC contract types under services include: NEC3 term service contract (TSC) NEC3 term service short contract (TSSC) NEC3 professional services contract (PSC) Supply includes supply of high value goods. The NEC contract types under supply are: NEC3 supply contract (SC) NEC3 supply short contract (SSC) The framework contract (FC) is also available and is used for appointing one or more framework contractors. Under a framework contract, the suppliers prepare mini-competitions against defined scopes of work, to different pricing strategies. Use of these contracts is demonstrated in the table below: Type of Work Supply, delivery, installation of medium- and high-value/risk mechanical and electrical plant, including work on or off site Low-value, low-risk supply and repair of goods, including work on or off site Type of Contract NEC3 ECC NEC3 ECSC NEC SSC Where They May be Used Supply and installation of equipment for the PFR decommissioning Supply and installation of equipment for the DFR decommissioning Supply of bottled gases Lifting inspections Pressure system testing Decommissioning/engineering works NEC3 ECC Detailed design of specified systems for shaft and silo retrieval plant Design and build of Reactors Waste Processing Facility Build of the ADU Floc Plant Design and build of DCP ILW Store Extension Consultancy/R&D/professional services NEC3 PSC NEC3 FC Term contract/facilities maintenance Civil/building works and demolition NEC3 TSC Encapsulation development work Letter of compliance support Safety case writing support Scheme and detail design of the Shaft & Silo facilities Health Physics Decommissioning Support Services Demolition of inactive buildings Minor repairs to buildings in Site General NEC3 ECSC Page 24 of 34

25 Type of Contract Type of Work Supply of goods and services NEC3 SC NEC3 SSC Where They May be Used Areas Supply of containers TRU-Shield,, Thorp cans, HHISOs Supply of transport services movement of wastes on and off site 4.2 Pricing Mechanisms Using different pricing mechanisms allows Dounreay to deliver best value for money and lowest commercial, technical and programme risk for the projects. The appropriate pricing mechanism is chosen depending on the nature of the work and how well the scope of work can be defined. Dounreay s preferred pricing mechanism is fixed-price based on detailed scopes of work. However, the approach is flexible to meet the needs of the project. The table below summarises the different pricing mechanisms, their benefits and where they may be used. Pricing Mechanism Fixed-price contract Benefit Where They May be Used Inflation linked price adjustment formula Transfer of risk to supply chain Low administration costs in managing this type of contract Used for fully scoped, low commercial risk projects, for example: Supply and installation of equipment Supply of waste containers Non-destructive assay systems Robotic systems Asbestos removal Costreimbursable contract Contractors should receive lower margins because most of the risk remains with Dounreay Relatively low administration costs in managing this type of contract Used for projects where scope and usage levels are very uncertain Used for low value requirements and is closely managed to ensure control of time, cost and quality Optioneering assessment Agency-supplied workers Health Physics Monitoring resources Decommissioning Operatives Target cost with incentivised fee Approach allows visibility of the true cost of the activity for future benchmarking Allows the opportunity to incentivise the contractor to achieve specific milestones Promotes a strong cost control mentality on both parties Supports improved Dounreay/supplier relations Promotes cost saving initiatives Used for complex contracts where scope is uncertain and there are diverse interfaces, for example: Demolition of reactor buildings Build of LLW Vaults Page 25 of 34

26 Dounreay Procurement and Supply Chain Strategy Section 5 Delegated Authorities Page 26 of 34

27 5.0 DELEGATED AUTHORITIES 5.1 Commercial Delegation Authority to sign commercial documents including sub contract strategies, contracts and contract amendments is delegated within the commercial team. Dounreay use a dual signature approach to commit the business to a contract with the supply chain. This is usually the document author and a senior person within the commercial team depending on value. For very high value contracts a member of the Executive Committee may be a signatory to the contract. 5.2 SAP EBP Dounreay use SAP Enterprise Buyer Professional (EBP) to generate contract numbers and hold purchase order data for finance and payment purposes. SAP EBP provides internal sanction to commit the business and delegated authorities are managed by finance and formally notified to the individual. SAP EBP is set up to ensure that the correct person receives the purchase order electronically to authorise and is based on value and category. Page 27 of 34

28 Dounreay Dounreay Procurement and Supply Chain Strategy Section 6 Supplier Engagement and Development

29 6. SUPPLY CHAIN ENGAGEMENT AND DEVELOPMENT 6.1 Introduction The development of the Supply Chain is considered by Dounreay to be essential for delivering Value for Money. This section describes the Dounreay strategy for development and engagement with the Supply Chain. It includes initiatives to reduce the non-value added work that suppliers need to carry out in order to tender for opportunities and administer contracts with Dounreay. Further, this section summarises our socioeconomic and SME (Small and Medium Enterprise) commitments. The NDA supply chain development principles are taken into consideration in Dounreay s supply chain development strategy. Dounreay is committed to the implementation of the key NDA principles. Dounreay is a signatory to the NDA s Supply Chain Charter for nuclear decommissioning sites and encourage members of their supply chain to become one as well. The Supply Chain Charter aims to foster good working relations across the NDA estate's supply chain, with parties signing up to a set of principles encouraging mutually beneficial and rewarding relationships. As NDA and Dounreay value the whole supply chain, the concept of a Supply Chain Charter was identified to help deliver the following: For all levels of the supply chain to 'be a good client'; To foster good working relations; and Improve planning and performance through all tiers of the supply chain supporting the NDA estate. The charter is available on the NDA s web site at Supply Chain Development The purpose of Supply Chain Development is to ensure that: there is a healthy competitive environment where the Supply Chain is seeking to participate in the tendering process for contracting opportunities at the Dounreay Site; the Supply Chain is aware of contracting opportunities at the Dounreay Site; the Supply Chain is actively encouraged to propose innovative solutions that deliver value for money solutions; there is a continuous improvement process for the delivery of value for money through the involvement and delivery by the Supply Chain; and Dounreay s current and future contracting requirements are identified and met. Page 29 of 34

30 The Dounreay Supply Chain consists of a diverse range of contracting organisations, such as: Large Multi Nationals; UK Based Small and Medium Enterprises; Local and Regional Based Companies of varying sizes; Subcontractors supporting the above Contracting Organisations; and Specialist Suppliers Communications with the Supply Chain Policy - Dounreay s communications with the Supply Chain: will always be open, honest and transparent; will be responded to in a prompt professional manner; and will provide an accurate representation about current and future contracting opportunities and will not knowingly raise the expectations of the Supply Chain. Communication Routes - Dounreay will communicate with the Supply Chain through the following routes: Advertising of Contracting Opportunities; As part of the tendering process; e.g. site visits, responses to tender queries, debriefing of unsuccessful Tenderers; Meeting with representatives of Contracting Organisations; Regular Supply Chain briefings; and the Caithness Chamber of Commerce. Advertising - Contracting opportunities will be published and advertised in: 6.2 the Dounreay Procurement Plan (all opportunities > 50K); the Dounreay website (selected opportunities > 50K); the Official Journal of the European Union through the issue of PIN and OJEU Notifications (opportunities over the current EU Procurement Directive thresholds); and Contracts Finder for bullets 2 and 3 above (See 6.2 below for additional details). Opportunities for Supply Chain Development Dounreay has identified a number of opportunities for Supply Chain Engagement and Development, and is participating in estate wide initiates led by the NDA. This section summarises those initiatives Supplier Events and Conferences It is recognised that participation in supplier events and conferences can facilitate new suppliers and technologies to decommissioning at the site. Dounreay plans to participate in the following in 2013 to 2015: Nuclear Decommissioning Conferences; NDA National Supply Chain Event (usually in November each year); Scottish Enterprise and Highland and Island Enterprise initiatives; and Local supplier briefings. Page 30 of 34

31 6.2.2 Performance Review and Feedback Revised Supplier Performance Reviews were implemented in The supplier review now has fewer but more relevant questions. Review categories are: Commercial Management & Technical Commissioning (if applicable) Safety, Quality & Environmental Supplier Performance Reviews will be carried out for: All procurements over 50k, at the end of the contract Companies with an annual spend of 250k+, in order to cover suppliers with high spend but relatively low contract values. Information gained from the Reviews will be used by DSRL to: Provide benchmarking performance to NDA Drive Continuous Improvement through working with the Supply Chain Providing regular two way feedback sessions (360 degree review) Feed into Post Investment Appraisal for large projects/procurements Provide reputational information (e.g. for references) Contract Opportunities Portal Every SLC currently advertises procurements on their own web-site which makes it very difficult for suppliers to keep up to date with estate opportunities. Dounreay is supporting an initiative by NDA to advertise in a central web-portal, where all opportunities in the estate are easily accessed. To this end, Dounreay and the other SLCs have registered with Contracts Finder, the government portal for advertisement of opportunities. This can be found at: Suppliers can search on NDA Estate to find all opportunities across all SLCs Generic PQQ The NDA estate has developed a generic Pre-Qualification Questionnaire to replace SLC standard templates. This means that every SLC will ask the same questions on basic information (e.g. with regards to accreditations, HS&E statistics, etc.) when it comes to suppliers expressing interest in work, which should reduce the effort required. Dounreay uses the CTM (Complete Tender Management) system. Previous answers to the generic questions will be saved, further reducing the effort required in expressing interest in opportunities. Dounreay is also supporting further developments in this initiative including consistency on marking and standard templates for technical questions. Page 31 of 34

32 6.2.5 Small and Medium Enterprises (SMEs) "SME" stands for small and medium-sized enterprises as defined in EU recommendation 2003/361. The main factors determining whether a company is an SME are: 1. number of employees; and 2. either turnover or balance sheet total. Company category Medium-sized Small Micro Employees < 250 < 50 < 10 Turnover 50 m 10 m 2 m or Balance sheet total 43 m 10 m 2m There is an aspirational government target that 25% of all public spend opportunities are awarded to SMEs. Dounreay s SME spend in 2013/14 equated to 23.5%, it is still amongst the highest in the NDA Estate and DSRL wishes to continue this in the future. The initiatives described in this section go some way to enable this, making it easier for SMEs to access and win opportunities within the nuclear decommissioning market. Dounreay will monitor its SME spend on a quarterly basis and expects its top tier 2 suppliers to support this initiative and monitor their own spend in the same way. In addition to the other initiatives summarised in this section that will be of benefit to SMEs, Dounreay are implementing the following in collaboration with the rest of the NDA estate: Procurement plans which break out disciplines in order that companies can take a view on potential subcontract opportunities; Writing to our top 20 Tier 2 suppliers by spend to encourage them to register with Contracts Finder for advertising sub-contract opportunities; and Record interest by SMEs in opportunities to see if initiatives are having a positive effect NDA Flowdown The NDA is leading an initiative to reduce the amount of conditions (in its contract with the SLC) that are required to be flowed down to SLC supply chains. The aim is to limit the flowdown conditions to contract terms which the NDA requires to be incorporated into subcontracts for one of two reasons: Flowdowns required to allow the NDA to manage the estate (i.e. change of control, novation and assignment provisions); and Flowdowns which are required in order to enable the NDA to comply with its own statutory obligations (Anti Bribery, FOI, etc.). Further, application of NDA flowdown conditions is now > 150k for contracts and subcontracts raised from 50k (in 2013/14) NEC3 Contract Management Software Dounreay implemented a NEC3 Contract Event Management and Reporting Tool in 2012 called CEMAR. This allows communication between parties over a single web-application. The system minimises the administration burden on the parties, automating correspondence and guiding teams through contract procedure ensuring compliance. Intuitive alerts keep teams aware of their responsibilities. The system is used for new significant NEC contracts in the main, however as parties get to know the system lower value contracts will be administered through Page 32 of 34

33 CEMAR. More information on the system is available from Supplier Complaints Dounreay takes complaints against the company or its staff very seriously and has formal processes and procedures if this were to occur. The Dounreay web site contains details on how suppliers can make a formal complaint. The complaint will be acknowledged within 2 working days, investigated and responded to within 20 working days. If this is not achievable, Dounreay will respond stating the date of expected reply, giving reasons for the delay. The internal Supplier Complaints Procedure is applicable to both informal and formal complaints made by existing or prospective suppliers. It provides guidance on the actions to be taken by Commercial Services staff, including advice to be given to Technical staff managing projects and contracts. On existing contracts, the administration of the contract and the dispute resolution process provided under the contract is used to resolve most issues, and not the Supplier Complaints Procedure. 6.5 Socio Economic Procurement Policy With increasing emphasis being applied on socio-economic considerations in Caithness, there is a potential conflict with such initiatives and the Public Procurement Regulations which Dounreay is obligated to comply with. For example, it may seem sensible for Dounreay to have a preference for local suppliers; however, this would breach the EU treaty obligations on free movement of goods, services, people and capital. Non-compliance with these rules could lead to significant legal, financial and operational issues for Dounreay. This section summarises Dounreay s approach to socioeconomics within procurement, following expert advice on what Dounreay can (and can t) do within the Public Procurement Regulations. With the above in mind, Dounreay does not add a weighted assessment criteria for socioeconomic benefit in tenders (as standard) for two reasons: It can result in a breach of the Public Procurement Regulations; and Potential socioeconomic opportunities are restricted at Tender stage as strategic decisions have taken place much earlier in the process. Therefore, it is Dounreay policy to consider the recommendations above when compiling acquisition and contract strategies. Examples of approaches that can be considered at strategy stage include: DSRL has a right to establish the make up of acquisition and contracting strategies and therefore can specify smaller contracts or split larger contracts into smaller lots allowing local, smaller suppliers an opportunity to compete; Specifications and contract conditions can be set in performance terms to ensure that due weight is placed on important economic advantages of local suppliers. (E.g. the need for responsive emergency call-out arrangements); DSRL can engage with the local market in pre-procurement activities such as Supplier Briefing Events to communicate future opportunities; and Rationalisation of the Contractor Selection Process and reducing the extent of the information requested. There should be a reason for each question asked and standard questions are used to avoid unnecessary costs for suppliers. Page 33 of 34

34 Further, Dounreay does ask for socioeconomic plans from bidders on large projects in order to anticipate any positive effects on socioeconomics and the community of the supplier being awarded the contract. It is expected that these plans are followed through by the successful supplier and this will be monitored throughout the contract. Dounreay has also taken the step of providing national contractors who win work at Dounreay with details of known interested local suppliers and the Caithness Chamber of Commerce. They are encouraged by Dounreay to provide subcontract opportunities to local companies for pricing. Further, as part of the Dounreay Socioeconomic Development Plan 2012 to 2015, DSRL will be reviewing contracts let to non-local suppliers to review use of local staff and subcontractors, capturing lessons learned which would potentially feed into future policy decisions. These recommendations do not diminish the responsibility for the local supply chain to seek to obtain value for money for Dounreay. Further, strategies have to align with Dounreay objectives - e.g. if creating smaller packages of work is not the best strategy for Dounreay then it is for small companies and the local supply chain to find alternative ways of working, such as partnering with national companies. Dounreay will support and encourage such collaboration. Page 34 of 34