Strategy for the Implementation of eprocurement in the Irish Public Sector. October 2001

Transcription

1 Strategy for the Implementation of eprocurement in the Irish Public Sector October 2001

2 Table of Contents 1 INTRODUCTION BACKGROUND...6 APPROACH STRUCTURE OF REPORT OVERVIEW OF THE EPROCUREMENT STRATEGY INTRODUCTION OBJECTIVES TARGETS PROPOSED FINANCIAL BENEFITS IMPLEMENTATION COSTS FUNDING TREATMENT OF SAVINGS ACHIEVED THE VISION...14 New Organisational Arrangements New Procurement Management Framework New Procurement Practices eprocurement Systems Framework Legal Environment Economic Environment REVIEW OF PROCUREMENT IN THE PUBLIC SECTOR INTRODUCTION PROCUREMENT PRACTICES & PROCESSES Spend Profile Transaction Costs Procurement Policy Procurement Strategy and Planning Standardisation of Documentation Product Coding Standards Supplier Selection and Contracting Procurement Performance Management Supplier Performance Management Measuring Procurement Spend Consistency of Procurement Processes Order Fulfilment Budgeting Process ORGANISATION AND MANAGEMENT Existing Procurement Structures Procurement Skills Development Drivers of Current Behaviour Strategic Management Initiative (SMI) TECHNOLOGY Existing Systems Landscape Existing Support for the Procurement Process Related egovernment Initiatives ECONOMIC ENVIRONMENT Profile of the Existing Supply Base ecommerce Readiness of the Enterprise Sector Supplier Viewpoint LEGAL & REGULATORY ENVIRONMENT Public Procurement Regulation

3 ecommerce Regulation Other sources of law Sharing of Information STRATEGIC OBJECTIVES INTRODUCTION STRATEGIC OBJECTIVES KEY RECOMMENDATIONS FOR CHANGE RECOMMENDATIONS FOR CHANGE - PROCUREMENT PRACTICES AND PROCESSES Introduction Procurement Management Framework Procurement Practices Electronic Procurement Approaches Procurement Initiatives Recommended RECOMMENDATIONS FOR CHANGE - ORGANISATION Overview Organisation Design Considerations Organisational Structures Integrating Mechanisms Resourcing the Model Training Change Management RECOMMENDATIONS FOR CHANGE - TECHNOLOGY Overview eenabling the Procurement Process eenabling Suppliers Information Services Supplier Registration etender Management eprocurement Transaction Support and Catalogue Management Management Information Systems Security Technology Standards Framework Integration Principles Solution Principles RECOMMENDATIONS FOR CHANGE - ECONOMIC National Policy/ Strategy Formulation Enterprise Supports / Communications Strategy Performance Indicator System/ Monitoring RECOMMENDATIONS FOR CHANGE - LEGAL Transposition of Amendments to EU Directives 2, Submission to EU Commission on eprocurement Review of Agencies Statutory Basis Reverse Auctions Electronic Signatures Directive Maximising Competition in the Market Transmission and Receipt of Electronic Communications COSTS, B ENEFITS AND FUNDING COSTS BENEFITS Strategic Objectives and Targets Quantifying the Financial Benefits DETERMINING THE LEVEL OF FUNDING Review of Second Tranche Funding SENSITIVITY ANALYSIS

4 6.5 ALLOCATION OF FUNDING TREATMENT OF SAVINGS ACHIEVED THE WAY FORWARD RECOMMENDED WORK PROGRAMME PILOT INITIATIVES AND GUIDELINES TIMETABLE AND DEPENDENCIES IMMEDIATE ACTIONS REQUIRED KEY RISKS AND ASSUMPTIONS KEY IMPLEMENTATION CHALLENGES APPENDICES A. RECOMMENDED ORGANISATIONAL RESPONSIBILITIES B. TARGETS AND KEY PERFORMANCE INDICATORS C. SPEND ESTIMATES 127 D. IMPACT ON EXISTING SUPPLY BASE 131 E. SUPPLIER VIEWPOINT F. INTERNATIONAL TRENDS..139 G. PROJECT CHARTERS..148 H. GUIDING PRINCIPLES. 174 I. ANNEX X J. CROSS-REFERENCE OF RECOMMENDATIONS TO OBJECTIVE K. TERMS OF REFERENCE. 187 L. LIST OF PILOT AGENCIES M. TASK FORCE MEMBERSHIP N. TRANSACTION COST.192 O. GLOSSARY OF TERMS P. REFERENCES 198 4

5 List of Figures and Tables FIGURE 1: OVERVIEW OF PROPOSED ORGANISATION STRUCTURE FIGURE 2: PROPOSED PROCUREMENT MANAGEMENT FRAMEWORK FIGURE 3: TECHNOLOGY FRAMEWORK FOR EPROCUREMENT FIGURE 4: PROCUREMENT FRAMEWORK FIGURE 5: TOTAL PUBLIC SECTOR SPEND (2001) FIGURE 6: PROPOSED PROCUREMENT MANAGEMENT FRAMEWORK FIGURE 7: PROPOSED ORGANISATIONAL MODEL FIGURE 8: RECOMMENDED STRUCTURE FOR NATIONAL POLICY UNIT FIGURE 9: RECOMMENDED ORGANISATION MODEL FOR THE NOU FIGURE 10: INTERIM ORGANISATIONAL ARRANGEMENTS FIGURE 11: EPROCUREMENT TECHNOLOGY FRAMEWORK FIGURE 12: INFORMATION SERVICES FIGURE 13: SUPPLIER REGISTRATION FIGURE 14: FUNCTIONAL ELEMENTS OF AN ETENDER MANAGEMENT FACILITY FIGURE 15: INTEGRATION OPTIONS FOR ETENDER MANAGEMENT SOLUTION FIGURE 16: TRANSACTION SUPPORT & CATALOGUE MANAGEMENT FIGURE 17: CATEGORIES OF MANAGEMENT INFORMATION FIGURE 18: LEVELS OF INTEGRATION FIGURE 19: SUMMARY OF PROJECTED COSTS FIGURE 20: DELIVERY OF SAVINGS FIGURE 21: RELATIONSHIP BETWEEN UNIT COST SAVINGS AND TOTAL SAVINGS FIGURE 22; RELATIONSHIP BETWEEN UNIT COST SAVINGS AND TOTAL AVAILABLE TRANCHE 1 INVESTMENT FIGURE 23: TIMETABLE TABLE 1: POTENTIAL SAVINGS TABLE 2: TIMING OF SAVINGS TABLE 3: SAVINGS ACHIEVED IN OTHER COUNTRIES TABLE 4: SUMMARY OF COSTS TABLE 5: LEVELS OF INTEGRATION TABLE 6: OBJECTIVES, TARGETS AND KEY PERFORMANCE INDICATORS TABLE 7: SPEND ESTIMATES TABLE 8: SAVINGS TARGETS TABLE 9: ASSESSMENT OF POTENTIAL FINANCIAL BENEFITS TABLE 10: TIMING OF INVESTMENT TABLE 11: RECOMMENDED PROJECTS TABLE 12: PILOT PROJECTS

6 1 Introduction 1.1 Background In December 1999, the European Commission launched the Electronic Europe (eeurope) initiative. Its impact on Information and Communications Technology (ICT) policy has been significant, not only at European level but also in member states both nationally and regionally through the strengthening of existing initiatives and the fostering and development of new ones. One of the key areas in the eeurope Action Plan is the creation of a favourable environment for the development of e-commerce. As a member state of the European Community, Ireland is delivering on its commitment to the eeurope agenda through a number of national initiatives, including those related to e- commerce. In relation to this, the Program for Prosperity and Fairness (PPF) highlights the opportunity for improved national competitiveness that ecommerce presents. Such competitiveness can be achieved by accelerating the transition of the Irish economy to an information society through the adoption of appropriate uniform business strategies and the use of the latest Information and Communication Technologies (ICT). The Government s Action Plan on Implementing the Information Society in Ireland is the key instrument for achieving this transition. Arising out of this plan, the Department of Finance, in conjunction with the Department of the Taoiseach, identified eprocurement as an essential element in ecommerce, having a role in both: Accelerating the transition of the Irish economy to an information soc iety; Contributing to the attainment of the Government objective of modernising the public service through the development of new, innovative and more efficient procurement processes. A decision was taken to undertake an eprocurement initiative that would explore, develop, and deliver, through pilot project(s), an appropriate eprocurement solution, which could eventually be rolled out to embrace the whole of the public sector. To start the process, the Department of Finance established a public sector, cross agency, eprocurement Consultative Committee with the capacity to accommodate private sector participation. The initiative is divided into two phases: The first is the production of this strategic report, which contains recommendations on the introduction of a suitable solution that best suits public service business practice; The second is the implementation of those recommendations, which will initially be tested on a pilot basis before being extended to the wider public service. 6

7 A consortium of PricewaterhouseCoopers, and Philip Lee Solicitors together with subcontractor Purchasing Solutions were commissioned to undertake this strategic exercise and this document is the final work product in the first phase of the initiative. 1.2 Approach The study was divided into five work streams: Procurement Environment and Processes; Organisation and Change; Technology; Economic; Legal. Task forces comprising consultants and stakeholder representatives (both public and private sector) were established for each of the work streams. Membership of the task forces is detailed in Appendix M. The task forces were supported by a full-time project team. A number of representative agencies were selected to participate in the strategy study (see Appendix L). These agencies were chosen to reflect, as far as possible, all of the sectors, the widest geographical spread, and all of the different procurement types and categories of procurement practices within the public sector. The agencies also completed questionnaires which gave details of the size and pattern of spend and details of their procurement practices and systems. Workshops were also held with a wider representation of people from the stakeholder organisations, and a short questionnaire-based survey covering a number of small, medium and large enterprises currently supplying the public sector with supplies, services or works was conducted. Whilst the initial scope of the initiative excludes the commercial state bodies, the recommendations in this report can accommodate their inclusion at a later date. 1.3 Structure of Report The structure of this report, which represents the work in the first phase of this initiative, is as follows: Chapter 2 presents an overview of the main features of the eprocurement strategy. It outlines the objectives and targets of the recommended strategy and details both the financial benefits and costs associated with their attainment. It explores such issues as funding for the project and treatment of savings achievable. It also sets out a vision and the key recommendations for change necessary to ensure the successful implementation of the strategy. Chapter 3 reviews the current public procurement regime with regard to procurement practices and processes, organisation, technology, and the economic and legal environments which impact on the introduction of eprocurement in the public sector. Chapter 4 sets out the strategic objectives, agreed upon during a consultation process with key stakeholders in each sector and which will guide the development of the initiative. 7

8 Chapter 5 sets out key recommendations to ensure the delivery of the benefits achievable through eprocurement. These include new procurement practices and processes, the necessary organisational changes and technology initiatives, as well as legal and economic measures. Chapter 6 deals with the costs and benefits arising out of the implementation of new automated procurement practices and includes details of funding strategies for the project. It also sets out the way the savings achieved should be used. Chapter 7 outlines the programme of work required to implement the new strategy and each of the recommended pilot initiatives (electronic tender management and electronic ordering). It also provides an overall timescale and schedule for the implementation of the recommendations. In addition, there are sixteen appendices. 8

9 2 Overview of the eprocurement Strategy 2.1 Introduction This chapter sets out an overview of the recommended strategy for eprocurement in the public sector, which is presented, in greater detail in the remainder of the report. The scale of the opportunity to effect savings presented by eprocurement is large, by any standard. The total non-payroll spend for the public sector (excluding commercial state bodies), based primarily on the Estimates and Votes for , is approximately EUR8.8bn. It is projected that, if the measures recommended in this report are implemented in full, the potential financial benefits to the exchequer by 2007 are in the order of EUR 414 million, with annual recurring benefits thereafter of EUR 177 million. This represents a saving of approximately 2% of expenditure. Governments throughout the EU and elsewhere have identified eprocurement as a key strategic tool in increasing the competitiveness of their national economies by reducing procurement costs. As part of their egovernment strategies, many EU countries have placed a major focus on eprocurement, and a number of initiatives are already well under way (see Appendix F). However, both in the public and private sectors it is recognised that the introduction of information and communication technologies for procurement will not, on their own deliver savings. International experience has clearly shown that the fundamental benefits of eprocurement are tied directly to changes in strategic sourcing, business processes, user behaviours and relationships with suppliers. Therefore, many of the recommendations in this strategy relate not just to eprocurement, but to the wider public sector procurement environment. 2.2 Objectives Following consultation with the public sector stakeholders, the following strategic objectives were agreed. These are dealt with individually in Chapter 4. a) To improve service levels to buyers, suppliers and users involved in public sector procurement. b) To develop a more integrated approach to procurement across public sector agencies and sectors. c) To minimise the transaction costs associated with procurement through standardisation, streamlining and automation of the procurement processes within, and where appropriate across agencies and sectors. 9

10 d) To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector. e) To promote competition among suppliers while maintaining reliable sources of supply. f) To optimise inventory levels through the adoption of efficient procurement practices. g) To make effective use of human resources in the procurement process. h) To promote the use of ecommerce in the wider economy. i) To improve the auditability of public procurement expenditures. j) To be progressive in the adoption of procurement related Information and Communication Technologies (ICT). Key performance indicators and targets are proposed for each of the foregoing objectives. 2.3 Targets Proposed There are both financial and non-financial targets proposed, and they are detailed in Appendix B. The targets relate to levels to be achieved by the end of 2007, with interim measures along the way. The targets are set with reference to the budgeted / forecasted out-turn for FY2001 (at constant prices). Some of the key targets to be achieved by the end of 2007 include: Unit cost reductions of 2.5% of total expenditure on supplies and services and works (repairs and maintenance), arising from reductions in off-contract procurement and aggregation of procurement across agencies; Average transaction costs reductions of 5% for supplies services and works (repair and maintenance) as a result of standardisation, streamlining and automation; Unit cost reductions of 0.5% of total expenditure on capital works arising from savings in professional fees resulting from efficiency gains in the tender process and contract administration; Transaction cost related reductions of 0.25% in overall expenditure on capital works as a result of public sector administrative cost savings; 90% of tender competitions (above EU thresholds) carried out electronically; 80% of payments carried out electronically; 10% of all expenditure on supplies and services supported by electronic catalogue and ordering facilities. Significant financial benefits to the Exchequer, as well as other non-financial benefits will be obtained if these targets are met. 10

11 2.4 Financial Benefits In addition to the non-financial benefits outlined in section 2.2 above, the economic justification for eprocurement is based primarily on the following three factors: 1. Reducing off-contract spending by using technology to increase user awareness of existing contract facilities and by making it easier to order against them. 2. Leveraging buying power by using technology to support the identification of opportunities for aggregation and by facilitating the aggregation of user requirements within and across organisations. 3. Reducing transaction costs by using technology to automate processes which are currently paper based, and to streamline and standardise processes and documentation. The financial benefits which can be achieved through the implementation of the strategy recommendations are significant. Approximately EUR 8.8bn will be spent on the procurement of works supplies and services by the public sector (excluding the commercial state sector) in If the financial targets outlined above are achieved, then the estimated financial benefits (at 2001 values) will be as follows: Target Unit cost reductions of 2.5% for supplies, services and works (repairs and maintenance) Reduction of 5% in average transaction costs for supplies, services and works (repair and maintenance) Reduction of 0.75% in overall expenditure on capital works Cumulative Financial Benefits to 2007 EUR 330m EUR 28m EUR 56m Potential Annual Financial Benefits Thereafter EUR 141m EUR 12m EUR 24m Total EUR 414m EUR 177m Table 1: Potential Savings These benefits will not be delivered evenly over the period of the strategy. Because of the time required to put all of the recommended initiatives in place and the rate at which agencies adapt to the new model, it is likely that the benefits will be back-loaded, with approximately 70% being achieved in the final two years ( ), as follows: Year Total Table 2: Timing of Savings Financial Benefits EUR 0m EUR 13m EUR 36m EUR 70m EUR 118m EUR 177m EUR 414m 11

12 The scale of potential benefits will vary from organisation to organisation, reflecting different procurement patterns. There are widely varying views as to the extent of the savings achievable. However, it is generally accepted that significant savings can be achieved if the right policies are implemented. The assumptions on savings used in this report, representing 2% of annual procurement expenditure, are modest in comparison with those experienced and projected by other private and public sector organisations, as illustrated in the published examples set out below *. Organisation Procurement Improvement Programme Welsh National Assembly(BVW) Northern Ireland Purchasing Agency UK Central Government Departments eordering UK OGC UK GCAT Danish Government etendering Canadian Government (MERX) Reverse Auctions US Government buyers.gov US Navy NAVICP Level of Savings (Percentage of procurement cost) Experienced/Projected Table 3: Savings Achieved in Other Countries Realising the benefits of eprocurement is a major challenge. Many organisations nationally and internationally have found that implementing eprocurement is more complex, expensive, and time-consuming than originally expected. Problems encountered include supplier resistance, security concerns, system integration costs, and the non-readiness of organisations (both buyers and suppliers) to adopt the fundamental changes required. For the public sector, the practices adopted, the implementation timetable and the associated targets set for eprocurement initiatives need to reflect the broader agenda in areas such as value for money, fairness, promotion of competition, development of the enterprise sector and socio-economic responsibilities. * It should be noted that these figures have not been verified, and may not be directly comparable, as they may not have been calculated on a consistent basis. They represent savings claimed or projected in material published by the relevant organisations. 12

13 2.5 Implementation Costs A schedule of the initiatives required to implement the above recommendations is set out at Chapter 7 (The Way Forward). A summary of the projected capital and operating costs of the initiatives over the period is as follows: Year Total Estimated Cost (EUR 000s) Total Identified Capital Costs (EUR 000s) Total Identified Operating Costs (EUR 000s) FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY ,895 11,648 6,667 6,752 6,837 6, ,791 6, ,104 5,092 6,667 6,752 6,837 6,837 Total 47,674 13,385 34,289 Table 4: Summary of Costs These costs reflect only those initiatives recommended in the national strategy. It is not possible to accurately cost the full range of initiatives that may be implemented at sector and agency level over the period of the strategy. Cost estimates for these will be prepared by the sectors in developing their sector eprocurement strategies. It is likely, however, that the overall costs of implementing the national strategy will be significantly greater than the costs of the national initiatives alone. 2.6 Funding It is proposed that funding for the implementation of the eprocurement strategy be provided in two tranches the first covering the years , and the second , with a review at the end of the first period to determine the size of the second tranche. Chapter 6 describes the process used to calculate the investment proposed. Based on the projected financial benefits only, up to EUR 43 million could be invested evenly over the first period to deliver the cumulative savings envisaged (EUR 49 million). Any effort to rigorously derive the level of investment required for the second tranche (Years ) is likely to be unreliable because of the back-loaded nature of the savings envisaged. At this stage, it is not unreasonable to expect that at minimum a continuation of the investment levels proposed for years zero to two would be justified, and it is likely that significantly greater levels of investment could be justified at that stage. The investment should reap increasing rewards by virtue of the cumulative effect of the initiatives implemented in the earlier years. 13

14 Therefore, the overall amount, which could be invested over the whole period of the strategy, , based on projected financial benefits only (at constant prices), is: EUR43 million in the years ; A minimum of an additional EUR43 million in the years This does not take account of funding for non-financial benefits because these cannot readily be quantified. However, it is recognised that a higher level of investment may be justified to reflect the value derived from non-financial benefits. It is proposed that, at least in the initial period, the Government should provide up to 100% of the capital and operating funding required for national initiatives. It is not possible to determine the overall costs of implementing the national eprocurement strategy in advance of each sector preparing its own costed strategy. It has not been possible to verify, therefore, whether the funding proposed will be sufficient to meet all of the sectoral requirements. This should be reviewed when sectoral strategies have been completed. Should the funding proposed prove insufficient, the Government may wish to allocate additional funding to reflect the value of the non-financial benefits envisaged. In the future alternative sources of funding, such as Public Private Partnership (PPP) could be considered 2.7 Treatment of Savings Achieved Savings that arise from improved procurement practices and eprocurement should be available for use in augmenting or improving front-line services within the agencies concerned, providing the savings are clearly identifiable and can be shown to genuinely improve value for money in the provision of such services. Mechanisms for tracking procurement performance, set out in Appendix B, should be used as the basis for ensuring this. The use of savings in this way is subject to Government accounting rules and the right of Government to reduce any allocation in changing budgetary circumstances. 2.8 The Vision To achieve the targets set out, a strategic vision has been developed for the implementation of eprocurement throughout the public sector over the years The main components of the vision are: New organisational arrangements for procurement at national, sector and agency level. A new framework for the management of procurement; New procurement practices which are based on international best practice; An eprocurement systems framework to facilitate the introduction of eprocurement within and across agencies Legal and Economic environment 14

15 New Organisational Arrangements New organisational structures are required at national, sectoral and agency levels in order to spearhead the drive towards eprocurement. The key recommendations for organisational change are summarised below. These are set out in greater detail in Chapter A new discrete, dedicated and properly resourced National Policy Unit (NPU) should be established. Its role should be to define national procurement and eprocurement policy, and facilitate, co-ordinate and oversee its implementation across the public sector. 2. A new discrete National Operations Unit (NOU) ** should be created. The NOU should be the body responsible for the implementation of national eprocurement strategy in alignment with national policy developed by the NPU. 3. Sector Procurement Units (SPU) should be established for each sector. Their role will be to implement sector level strategies in alignment with the overall national eprocurement strategy. 4. An SPU for central government should be established by the Department of Finance. The role of the GSA should be taken into account in this regard. 5. Sectors should facilitate the establishment of dedicated procurement functions in those agencies where they do not currently exist and where the level and/or complexity of spend would warrant it. 6. A National Procurement Advisory Board should be established in order to facilitate consultation between the NPU, the NOU and the sectors to ensure that their views are taken into consideration in the development and implementation of national procurement strategy. 7. An interim operations unit should be set up as soon as possible, tasked with managing the implementation of the early national initiatives recommended in this report. In particular, it should play a key role in establishing the NOU. 8. A National Procurement Managers Forum should be established to provide the opportunity for Procurement Managers in the sectors to come together periodically to share views, and to provide their inputs into national initiatives and policies. 9. Sourcing teams should be established to assist in the development of category management strategies, and to carry out strategic sourcing for categories to be managed at national level. They should be chaired by a category manager appointed by the NOU, and should comprise multi-disciplinary teams drawn from the sectors. 10. The National Operations Unit, in consultation with the sectors, should develop and facilitate the implementation of a national procurement training plan. 11. A key element of implementation should be the development and implementation of a Change Management approach and plan. Change Management plans will need to reside at an initiative level, be this at the agency, sector or national level. ** National Operation Unit is a working title for the purposes of this report. A unique, discrete title for this function should be agreed as part of the project to establish the function. 15

16 An overview of the new structures proposed is illustrated below: Structural Model Department of Finance National Policy Unit National Procurement Managers Forum National Operations Unit Sector Agency Procurement Procurement Agency Units Functions Procurement Functions National Procurement Advisory Board Agency/ Sub- Agency Procurement Sector Agency Procurement Functions Functions Figure 1: Overview of Proposed Organisation Structure Two new entities are envisaged at national level: A new discrete, dedicated and properly resourced National Policy Unit * within the Department of Finance, whose role would be to define national procurement and eprocurement policy in consultation with the National Operations Unit and the sectors (such as the adoption of best practice on construction contracts agreed by the Forum for the Construction Industry). It will also facilitate, co-ordinate and oversee the implementation of this policy across the public sector. It will also be responsible for approval of sector level initiatives and for supporting associated budget requests prior to their inclusion in sector budget proposals. To facilitate good planning and to provide the necessary confidence, it is recommended that a multi-annual envelope approach be adopted during the annual Estimates process in relation to the funding for the Procurement and eprocurement initiatives set out in this report. * National Policy Unit is a working title for the purposes of this report. A unique, discrete identity for this function should be agreed as part of the project to establish the function 16

17 A National Operations Unit (NOU), which would be responsible for the implementation of national eprocurement strategies and policies established by the NPU. It would be separate from the National Policy Unit, with a discrete structure, and appropriate authority. Its governance arrangements would facilitate representation of sector senior management. It would have a core of public sector management expertise, while being able to recruit required skills externally, on a permanent and/or term contract basis. In order for the national strategy to be implemented successfully, it must be driven through the sectors, i.e. Health, Education, Local Government and Central Government. Much of the opportunity for co-operation in procurement resides within sectors, because greater commonality of procurement requirements exists and because some of the enabling factors required, such as common systems, communications channels and standards are already in place. At sector level, Sector Procurement Units would be set up in each sector (Health, Education, Local Government and Central Government) to drive the sectoral eprocurement programme. At agency level, dedicated procurement functions are envisaged in those agencies where they do not currently exist and where the level and/or complexity of spend would warrant it. In order to ensure an integrated approach to eprocurement nationally, two other bodies are proposed: A National Procurement Advisory Board to facilitate consultation between the NPU, the NOU and the sectors to ensure that their views are taken into consideration in the development and implementation of national procurement policy and strategy; A National Procurement Managers Forum to provide the opportunity for procurement managers in the sectors to come together periodically to share views, and to provide their inputs into national initiatives and policies. Because of the acute shortage of procurement skills in the public sector, a national training programme is recommended, to be co-ordinated by the NOU. In addition, NOU would be responsible for the development and co-ordination of a change management programme to manage the major changes, which will need to occur if the implementation of eprocurement is to be successful. Interim organisational arrangements are proposed at a national level to enable a rapid start to the programme of change recommended in this report. These are detailed in Chapter 5. 17

18 2.8.1 New Procurement Management Framework In order to achieve radical improvements in procurement performance in the public sector, a new framework for the management of procurement is required. The introduction of concepts widely used in the commercial sector is recommended. The following diagram illustrates the main components of the framework proposed. Procurement Strategy Procurement Policies Procurement Objectives Portfolio Management Diagnosis Assessment Prioritise Plan Prioritised List of Categories Category Objectives Category Management Level Category Enablers /Constraints Business Requirements Category Management Policy Process Documentation Spend Analysis Develop strategy Options Assess Options Select Strategy Systems Transition Market Analysis Organisation Category Management Strategy Sourcing Ordering Receiving Paying Recording & Compliance Figure 2: Proposed Procurement Management Framework The following are the main features of the management framework proposed: Procurement strategy sets out the overall procurement objectives, targets and priorities for the organisation. This forms the basis for all procurement initiatives to be undertaken and provides an underlying policy framework within which portfolio and category management are carried out. Portfolio management determines the approach to be adopted for the main categories of procurement by reference to their strategic importance and their overall spend. The portfolio strategy focuses on those categories of greatest importance, and sets specific objectives to be achieved for those categories. It determines where they should be managed within the organisation structure, and allocates category managers. Category Management identifies and selects the options for sourcing, contracting, order fulfilment and other aspects for each specific category of procurement. The category manager, usually supported by a multi-disciplinary sourcing team, then carries out the sourcing, specifying the needs, selecting the supplier, agreeing contracts, and specifying the 18

19 ordering, payment and fulfilment processes. Ongoing contract management and performance monitoring is also undertaken by the category manager. In order to implement this new approach, new organisational structures and skills are required New Procurement Practices Procurement in the public sector has not kept pace with modern national and international best practice. Fundamental changes are proposed to bring this into line. Without the introduction of these changes, the eprocurement initiative will not succeed. The key recommendations for changes in procurement practices are summarised below. These are described in greater detail in Chapter 5: 1. Procurement should be aggregated at the highest appropriate level in the public sector to optimise possible economic benefit. 2. Sector Procurement Units should initiate studies on the nature and extent of noncontract procurement, and determine opportunities for increasing the proportion which can be procured under contract through improved planning, increased aggregation, and standardisation of requirements. 3. The public sector should fully exploit all contracting approaches which facilitate competition in the supply base, increase flexibility in meeting user needs and ensure fair treatment of all potential suppliers. 4. A structured and objective approach should be adapted to the management of supplier performance. Common performance metrics and targets should be established, using recognised external benchmarks where possible. Reporting and management processes should be developed to ensure that performance targets are met. 5. Procurement performance should be formally managed at agency, sector and national level. Performance objectives should be derived from overall agreed national procurement targets and should incorporate both quantitative and qualitative measures. Performance reporting should be used to drive management actions at all levels. 6. The adoption and implementation of a national standard classification scheme for the identification of procurement categories and items should be managed nationally in co-operation with the sectors. 7. The development of national procurement policy, and the publication of national procurement policies and guidelines should be undertaken nationally in consultation with the sectors. 8. A National Supplier Register should be established for recording supplier details in order to improve the availability of supplier information and to reduce the duplication involved in maintaining separate supplier lists at agency level. Responsibility for management of the register should reside at national level. 9. The development of standard procurement documentation, taking account of sector specific needs should be managed nationally in co-operation with the sectors. 19

20 2.8.3 eprocurement Systems Framework A technology framework is recommended that will provide public sector buyers, suppliers and the general public with secure access to an integrated range of procurement systems and services, using Internet technology. A summary of the key recommendations in relation to procurement systems is set out below. These are described in greater detail in Chapter A National Procurement Website should be provided to act as a gateway to procurement related services for public sector buyers, suppliers and the general public. 2. A Content Management Framework for procurement should be devised to cater for all procurement-related information accessible via the National Procurement Website. 3. Content for procurement-related information, made available through the national web-site should be managed at a national level. 4. An electronic Tender Management facility should be provided at national level to support both above and below EU Threshold tenders for supplies, services and works contracts. Sectors/agencies may choose to implement local tender management solutions. However, where local (sector/agency) tender management solutions are deployed the national facility should provide visibility of such tender notices, documents and awards. 5. Preferred implementation models and catalogue standards should be developed at national level to facilitate the implementation of Catalogue Management systems. 6. Individual sectors should assess their sub-sector and agency requirements and where appropriate provide shared eprocurement Transaction Support and/or Catalogue Management facilities to the sub-sectors and agencies. 7. The electronic payment facilities of the Public Sector Broker being developed by Reach should be used for eprocurement systems. 8. The implementation and roll-out of MIS across the public sector should be managed at national level through the development of national standards. 9. The security infrastructure provided as part of the Public Services Broker (PSB) and any associated Trusted Third Party should be leveraged to provide the security infrastructure required for eprocurement. 10. An eprocurement Standards Working Group should be established under the National Operations Unit 11. In line with other egovernment initiatives, XML should be promoted as the document exchange standard. 12. Catalogue standards should be based on XML schemas defined as part of the Data Exchange Standards. 13. The solutions provided should accommodate differing levels of integration and the level to be implemented should be determined on a case by case basis. 14. Where economically beneficial, the systems and support services recommended in this report should be provided on a managed service basis. 15. Packaged software solutions are recommended in preference to custom development, where appropriate. 20

21 WWW eprocurement Strategy The main components of the recommended systems framework for eprocurement are illustrated below: Public Sector Buyers Enterprise Sector General Public National Public Procurement Web Site Agency/ Agency/ Sector Sector Public Procurement Web Public Procurement Site Web Site Public Procurement Portal Content Search and Presentation Security Catalogue/ Content Management Content Management System(s) Systems National Catalogues Sector/ Cross Agency Catalogues National Solutions Information Services Sector Sector Solutions Solutions Information Services National Supplier Register National etender Management (Above and Below Threshold) Sector etender Management (Optional) eprocurement Transaction Support Management Information Systems Management Information Systems Agency Catalogues Agency Agency Solutions Solutions Information Services Agency etender Management (Optional) eprocurement Transaction Support (Optional) Financial Management & Inventory Management Systems Management Information Systems Figure 3: Technology Framework for eprocurement A Public Procurement Portal will provide the main gateway to all of the facilities, but they will be accessible also through various sector and agency web sites. National solutions will be provided for: The national supplier register, which will record basic details of suppliers interested in doing business with any part of the public sector; A national etendering facility, which will enable the online advertising of tenders, and the secure transmission of electronic tender documents between buyers and bidders for public sector contracts. The system will support the whole tendering process from tender document preparation through tender award to contract management. It will build upon the existing initiative which at present publishes public sector procurement opportunities; Information Services, giving access to public sector procurement-related information such as news, publications and policies, as well as discussion forums; Management information on procurement, such as spend analysis, performance data and trends. Catalogue-based ordering systems will be provided at sector and/ or agency level. They will provide public sector buyers with Internet-based facilities to search and order from online 21

22 catalogues of goods and services available under contracts agreed with suppliers. These systems will provide for various means of integration with agencies financial systems to record the transactions carried out Legal Environment The key legal recommendations are set out below. These are detailed in Chapter In order to facilitate the adoption of etendering, there is a need for early transposition of the currently proposed amendments to the EU public procurement Directives, once adopted. 2. The Irish Government should take up the invitation from the EU Commission to make a submission in relation to eprocurement and the merit of permitting the use within the public sector of the eprocurement practices that are being used in the private sector, and that it consults with the utilities sector in formulating its submission. 3. In preparation for the introduction of eprocurement, agencies should, on an individual basis, carry out an audit of the legal documents under which they were established and operate (including, where applicable, their statutory basis) to ensure that these do not contain any barriers to the transition to eprocurement and, if potential barriers are identified, they should seek to have them removed. 4. The Irish Government should consider support for any amendments proposed by other Member States or by the EU Commission in favour of permitting the use of reverse auctions or table such an amendment itself. 5. The Irish Government, through the participation of the National Accreditation Board in the European Electronic Signature Standardisation Initiative, should seek to accelerate progress on the development of standards relating to the definitions set out in the Electronic Signatures Directive, so as to ensure the effective operation of the free movement and mutual recognition principles set out in that Directive. 6. Purchasing practices should be designed having regard, at all times, to the need to maximise competition in the market and to discourage anti-competitive practices. 7. In the terms and conditions of use of any eprocurement facility which is set up, and in the tender documents relating to specific procurements, clear rules should be laid down in relation to the transmission and receipt of electronic communications, and procedures should be put in place to deal with all reasonable contingencies. 22

23 2.8.5 Economic Environment The key recommendations related to economic factors are set out below. These are detailed in Chapter The National Operations Unit should keep abreast of major developments in the profile and ecommerce readiness of the existing supply base and be in a position to advise on the likely impact of eprocurement and category management strategies on the supply base. 2. The National Operations Unit should develop a mechanism for keeping suppliers informed of changes in procurement policies, practices and processes, as well as the introduction of new services such as the supplier registration system. 3. The national and sectoral procurement performance indicator system should incorporate data on the size, location and ownership of enterprises registering and tendering for public procurement business as well as for those awarded contracts. This information should also be used as a basis to track the impacts of the introduction of eprocurement on the supply base. 23

24 3 Review of Procurement in the Public Sector 3.1 Introduction The successful implementation of an eprocurement strategy is dependent on it being based on a sound procurement foundation. Consequently, a review of the existing procurement environment was carried out. Figure 4 below illustrates the framework within which the procurement environment was analysed. Chapter 5 deals with the changes recommended to address the issues identified. Legal & Regulatory Environment Organisational Strategy Procurement Strategy Organisation & Management Practices Internal Customers Sourcing Ordering Receiving Paying Recording & Compliance Suppliers Information Systems Economic Environment Figure 4: Procurement Framework Procurement strategy sets out the overall procurement objectives, targets and priorities for the organisation, and links them to the overall strategy of that organisation. eprocurement strategy includes, in addition, further objectives in relation to the appropriate Information and Communications Technologies (ICT) necessary for successful implementation of such a strategy. The Procurement Process comprises: Strategic sourcing which involves specifying requirements, selecting the supplier and agreeing contracts; The transaction process, which includes ordering, receiving, and payment; 24

25 Recording and compliance, which includes contract management, supplier management; performance management and information management. The procurement process must be supported by: Appropriate organisation structures resources and skills; Policies and procedures in relation to the procurement practices to be used; Information systems, including eprocurement. Figure 4 also shows how internal customers (buyers and end users) and suppliers (including consultants and contractors) fit into the framework. These are important areas and it is necessary to have effective policies in relation to dealing with both communities. The analysis also considered the wider economic environment within which public sector procurement takes place and the legal and regulatory environment governing public sector Procurement and eprocurement. The analysis presented is based on a review of the following material: Data questionnaires completed by the participating pilot agencies and selected suppliers; The profile of supply completed by six of the pilot agencies and secondary data regarding the ecommerce readiness of Irish enterprise; Relevant procurement related legislation. The findings of the pilot-based analysis were also reviewed by the task forces, and they supported the view that the results presented in this chapter broadly reflect the situation in the wider public sector. The overview is presented in the following five sub-sections: Procurement Practices & Processes; Organisation and Management; Technology; Economic Environment; Legal and Regulatory Environment. 25

26 3.2 Procurement Practices & Processes Spend Profile The total non-payroll spend (excluding the commercial state bodies) for the public sector, based on the Estimates and Votes for 2001, and other information obtained from the sectors, is approximately EUR 8.8bn of which EUR 4.73bn (53%) is spent on Supplies & Services with the remaining EUR 4.12bn (47%) being allocated to Works procurement. Supplies & Services Works EUR4.73bn EUR4.12bn Figure 5: Total Public Sector Spend (2001) The most recent data available in the pilot agencies was for the year In that year, Works accounted for about 41% of total non-payroll spend, with Supplies and Services representing 26% and 33% respectively. The split between Works, Supplies and Services varies significantly across the pilot agencies, reflecting the different spend profiles that exist. Non-payroll spend as a percentage of total spend varies from about 20% to 70% across the pilot agencies, with the median being approximately 45%. Those at the higher end of the scale tend to have a large proportion of Works spend Transaction Costs A transaction costing exercise (See Appendix N) for Supplies and Services carried out in one of the pilot agencies and data obtained from previous exercises carried out in two other agencies, indicate that the cost of the transaction process from requisition to cheque payment is between EUR 41 and EUR 70. This excludes costs involved in other activities in the transaction process such as specification of needs, supplier selection and contract monitoring. Analysis of the spend data from the pilot agencies indicates that approximately 70% of all transactions have a value of EUR 1, 270 or less, with the average transaction value for Supplies & Services being about EUR 1,651. This indicates that approximately 2.7 million procurement transactions will be processed for Supplies & Services across the public sector in Thus, it will cost EUR 173m to procure EUR 4.73bn of services and supplies, or 3.66 cents per euro spent. If this rationale were applied to works (repair and maintenance), the total transaction costs would be approximately EUR 40m. 26

27 The transaction costs for capital works (See Appendix B), including tender preparation and management, and contract supervision and administration, amount to approximately 5 cents per euro spent, giving a total transaction cost for capital works of approximately EUR152m. In summary, the total transaction costs associated with the expenditure of EUR 8.8bn are in the order of EUR 365m Procurement Policy The main source of public procurement policy is the publication Public Procurement, commonly known as the Green Book, which was last fully revised in This sets out high level guidelines governing procurement of works supplies and services, but does not address all required elements of procurement policy. Most agencies rely entirely on this document for their procurement policies. Examples of agencies who have produced their own policies include the Health Materials Management Board (HMMB) and the Defence forces. Other agencies have developed individual policies for specific aspects of procurement (e.g. approval limits) Procurement Strategy and Planning Procurement planning, other than for capital works, is generally confined to the annual budgeting process where outline requirements for following years are assessed. Procurement functions, where they exist, are generally not involved in the planning process and in many cases their initial input is at the requisition stage. Procurement exercises are usually initiated in response to specific needs as they arise, and approaches used are governed primarily by regulatory compliance. Outside of capital works agencies do not strategically assess their spend by category to identify opportunities for increasing value for money and there is no proactive approach taken to analysing the overall portfolio of procurement needs. Strategies and priorities are not developed to achieve specific objectives for the various categories of procurement. In general, agencies plan and carry out their procurement independently, with limited coordination across agencies, and none across sectors. Existing structures are not geared to facilitating cross-agency co-operation in procurement. Even within individual agencies, there is in many cases no effective process for aggregating procurement requirements of different users, nor is there a tradition of pooling procurement expertise gained from experience. As a consequence the opportunities to reduce costs and improve levels of quality and service, are rarely achieved. In addition, there is an avoidable duplication of administration effort in relation to market research, tendering, negotiation, and supplier management activities. Some exceptions to the above include, but are not limited to the following: The Healthcare Materials Management Board co-ordinates purchasing for certain categories of procurement on behalf of the sector as a whole; The Universities have appointed Procurement Managers, and are co-operating to improve procurement across the sub-sector; The Government Supplies Agency (GSA) carries out aggregated procurement in relation to certain categories of supplies on behalf of central Government Departments. 27

28 3.2.5 Standardisation of Documentation There are few standards in existence for the structure or content of procurement documentation such as pre-qualification questionnaires, tenders or contracts across the public sector. As a result of this lack of document standardisation, there is significant ongoing duplication of effort through re-invention of the wheel, little sharing of lessons learned, and unnecessary difficulties for suppliers in dealing with different public sector agencies. Exceptions to the above are: Public Works, where standard forms of contract have been developed. However there is still significant scope for further standardisation of documentation in the works area. Health Materials Management Board standard tender framework Product Coding Standards There are no common product coding standards in operation across the public sector, and in general agencies have developed their own coding systems. The Common Procurement Vocabulary (CPV) is generally used when tendering in the EU Journal to cross reference the list of requirements, but it is not used as a means of categorising items once they are purchased. Its use for categorising tenders will become mandatory under the amendments to the Directives on Public Procurement 2. The National Supplies Vocabulary (NSV) has been adopted by some of the agencies in the Health Sector Supplier Selection and Contracting Suppliers are required to register with each of the agencies that they deal with and often the same basic information must also be provided in each pre -qualification / tender submission. Most agencies maintain ad-hoc approved supplier lists that are used primarily as a basis for the identification of a restricted number of suppliers to provide quotations for below EU threshold procurement. In many cases, the lists are used also to notify selected suppliers of tenders, which have been advertised publicly. The inclusion of suppliers on these lists is based primarily on the provision of basic details and tax compliance certificates (where applicable). There is generally no evaluation carried out for suppliers to be included on these lists. The approach to evaluating supplier tenders varies across agencies for similar types of procurement, requiring suppliers to meet varying performance and evaluation requirements Many agencies use open tendering procedures for the procurement of supplies and services (works procurement is carried out principally using restricted tendering) primarily because of the requirements for transparency in the supplier selection process. However, the requirements for transparency must be balanced against efficiency in the process. In general, 28

29 agencies are failing to exploit opportunities to reduce the tendering workload by the use of pre-qualification procedures that would limit the number of suppliers from whom tenders would be received for individual contracts. This can result in unnecessarily long and complex evaluation processes, and wasted effort on behalf of unsuccessful suppliers. Draw down contracts are under-utilised in many of the agencies reviewed (representing on average less than 40% of purchases and in a number of cases as low as 10 to 20%) and in general a high proportion of procurement is carried out on a once-off basis. As a result, there are many more transactions than are necessary, and agencies are losing opportunities to reduce purchase costs and improve service levels and quality through the use of aggregation Procurement Performance Management In general, procurement performance management is focused on compliance with requirements of internal and exte rnal audits rather than on the overall effectiveness of procurement. Performance monitoring is limited, since objectives, targets and metrics are generally not established. This leads to a lack of focus on improving the performance of procurement activities. What cannot be measured cannot be managed. An exception to the above is the Dept of Health and Children where specific materials management related indicators are monitored as part of the service planning process Supplier Performance Management With some exceptions, there are no formal approaches in use to monitor supplier performance during the period of a contract. Performance tends to be managed on an exception basis with individual issues being addressed as they arise. As a result agencies may suffer poor or inconsistent supplier performance, but have no means of measuring value for money nor rectifying problems Measuring Procurement Spend In carrying out the analysis of the existing procurement environment, it was not possible to obtain reliable information regarding existing spending patterns, because agencies do not, in general, measure or analyse their procurement spend. An accurate and timely understanding of how much is being spent on different items is critical to enable effective procurement planning and management and facilitate the realisation of the benefits associated with eprocurement Consistency of Procurement Processes While the health sector through the development of its Health Service Procurement Policy has sought to formalise procedures, thresholds and roles in most agencies procurements processes, in most agencies, procurement processes have evolved over time, based largely on the Green Book guidelines and EU Directives 3,4,5. There are wide variations for similar procurement activities, particularly in the area of below EU threshold procurement. As an illustration, one pilot agency requires three quotes for expenditure up to EUR381, while another requires only one quotation for expenditure up to EUR7,

30 The manner in which these processes have evolved has resulted in them being less than efficient in many cases and, with some exceptions, they have not been reviewed or reengineered in the recent past. Inefficiencies identified in the pilot agencies included: Unnecessarily complex authorisation procedures, checks and sign-offs; Duplication of record keeping; Unnecessary reconciliation processes. As a result of these inefficiencies there is a higher potential for errors, lead times can be less predictable, service levels less reliable, and process costs higher than necessary Order Fulfilment Fulfilment is a key aspect of procurement and becomes even more important in an eprocurement environment. While no assessment of fulfilment processes was carried out in the pilot agencies, the analysis undertaken provided indications that there is significant potential for redesign in delivery and logistics arrangements. The use of service level agreements with suppliers to support effective order fulfilment was limited Budgeting Process Roll over budgeting is not generally allowed so funds are lost to the agency if they are not spent within the budget year. This spend or lose policy reduces the effectiveness of the procurement process by encouraging poor procurement planning, inefficient procurement practices and reduced value for money. There is significant potential for improvement in this area if more flexible budgetary rules were applied which permitted the carry over of funding within a permitted framework. 3.3 Organisation and Management Existing Procurement Structures Procurement is not generally viewed as a strategic support activity within the public sector which can add value to organisations and assist them in achieving their overall service delivery objectives. It is viewed instead as an administrative function that focuses on carrying out and recording transactions. In the main, sectors and agencies have adopted a decentralised approach to procurement in that individual Departments that control their own budgets are directly responsible for managing their own spend which includes sourcing suppliers, tendering, ensuring compliance with procedures and policies, ordering etc. In addition, where a high degree of technical knowledge and understanding is required in the specification of requirements, tendering and management of contracts, responsibility for procurement tends to reside with the people and divisions who understand the specifications best. 30

31 While there is some evidence of formal and dedicated procurement structures, functions and positions (e.g. HMMB in the health sector) this is not the norm, and there are limited structures and forums to co-ordinate and foster co-operation in procurement activities within sectors and none across sectors. Where procurement functions do exist within agencies, the head of the procurement function, in most instances reports to the head of other divisions such as finance or administration Procurement Skills Development Procurement skills within the pilot agencie s tend to be focused on the operational and transactional elements of procurement (e.g. tendering, contracting, ordering). There is little evidence of procurement skills in the strategic sourcing elements of the procurement process. Where procurement is decentralised across agencies and sectors, operational and service line staff have, as an operational necessity, developed the skills associated with that element of the procurement process for which they are responsible and which are relevant to the level and category of spend for which they are responsible. However there is little evidence of a formal approach being adopted to procurement skills development. Difficulties have been experienced in attracting and retaining experienced and formally trained procurement staff into the public sector and there are limited career development and promotion opportunities within procurement for such individuals Drivers of Current Behaviour The local delivery of services by agencies is a key driver of behaviour within the public service. This, when coupled with factors such as autonomy and independence of functional areas, agencies and sectors, does not encourage behaviours of co-operation and co-ordination across agencies unless senior management at local or sector level perceive that definite benefits can be realised by focusing scarce resources on procurement. The current definition of procurement costs is also seen as a key driver of behaviour influencing the current approach to procurement. Procurement costs are generally regarded as the cost of the individual item to be purchased and do not specifically include the additional costs such as those associated with the time required to prepare tenders, source suppliers, inventory holding and distribution costs and transaction processing costs Strategic Management Initiative (SMI) The Performance Management and Development System (PMDS) currently being implemented under the Strategic Management Initiative 6, entitled "Excellence through Performance - Moving Forward Together" is focused on clearly identifying individual roles and the range of competencies (i.e. the skills, characteristics and behaviours) that each person needs in order to fulfil their role within the civil and public service. The development and measurement of the procurement related capabilities necessary to support the introduction of eprocurement will need to take place in a manner that is consistent with the PMDS. The on-going implementation within central government of the Management Information Framework (MIF) arising from the SMI Working Group on Financial Management in a 31

32 Reformed Public Service is likely to see significant changes in existing financial management practices and organisation over the coming years. The eprocurement strategy needs to be implemented in a manner that is consistent with the MIF. 3.4 Technology Existing Systems Landscape Over the last three years there has been a significant level of financial management driven investment in software applications by the pilot agencies. This investment has also resulted in an upgrading of the procurement software applications within the pilot agencies. The majority of the pilot agencies have, or plan to, migrate to integrated software solutions that provide the capability to support the financial management, procurement and materials management functions of the agencies within a single software application. While the majority of the applications selected by the pilot agencies have web enabled features and provide some level of support for XML based data interchange none of the pilot agencies have yet deployed these features. In many cases agencies will be obliged to upgrade their application before they can avail of these application features. Not all public sector agencies have enjoyed the same level of investment in integrated financial management, materials management and procurement solutions evidenced in the pilot agencies and therefore the overall eprocurement solution will need to accommodate agencies with more limited information systems infrastructures Existing Support for the Procurement Process Based on the pilot agency responses there is considerable variation in the current level of system support for the procurement process. The sourcing and tendering elements of the procurement process are largely manual, with only limited evidence of electronic support. The implementation of the ConVal electronic tendering initiative in the Local Government sector, and the web site are exceptions to this. There are wide variations in the capability of existing systems to support the transaction elements of the procurement process. However, the activities associated with order placing and approval, receipting and payment are largely manual. The pilot agencies provided no evidence of electronically exchanging procurement related documents (e.g. purchase orders) with suppliers. While a number of the pilot agencies have automated support for the payment approval process only one pilot agency provided evidence of paying suppliers electronically. A small number of the agencies surveyed are engaged in vendor initiated eprocurement trials and the majority of pilot agencies are currently receiving some supplier catalogues in an electronic format, usually CD-ROM. 32

33 3.4.3 Related egovernment Initiatives eprocurement is only one of a number of egovernment initiatives currently taking place within the Irish public sector and the EU. It is important therefore that the eprocurement strategy is consistent, and where appropriate integrated, with these other initiatives. The Third Report of Ireland s Information Society Commission (Dec 2000) 7 contains a number of recommendations in relation to eprocurement, which it considers to be an area where tangible benefits can be achieved relatively quickly Provide a web-site giving information on public procurement by January 2001 and provide an integrated service in early 2002 (Ref Sec Recommendations) Create a framework for on-line payment to and from government by April 2001 (Ref Sec Recommendations) The report also highlighted that the development of an advanced telecommunications network providing affordable access to bandwidth in all parts of the country as being essential for the creation of a dynamic and inclusive Information Society and a success e-economy. The provision of such an infrastructure will support the adoption of eprocurement in the public sector supply base. Reach is the independent government agency established by the Irish Government to develop a strategy for the integration of public services and to develop and implement a framework for electronic government ( The main elements of the framework established by Reach, which are relevant to eprocurement, are; The proposed single business identifier to be assigned through the Public Service Broker (PSB): The security infrastructure that will enable businesses to transact with the public sector in a secure manner; The content management framework for electronic information services developed by the BASIS project under the Reach initiative; In addition to the national egovernment initiatives the EU Commission s eeurope 2002 Action Plan sets out target delivery dates for egovernment initiatives (including eprocurement) within the member states. 33

34 3.5 Economic Environment The eprocurement strategy needs to be consistent with existing national enterprise/ economic policies including Promoting more balanced regional development; Improving growth in the output of the indigenous productive sector: Developing Ireland as a European hub for ecommerce. The key factors that will determine the impact of eprocurement on the existing supply base and by extension, on the wider economy, are the profile of the existing supply base and the extent to which suppliers are electronically enabled. These factors are outlined below Profile of the Existing Supply Base A review of the profile of supply to six pilot agencies indicated a series of common traits, these are summarised below: Irish-owned suppliers account for a majority share of the total supply base (measured by number of firms) across all categories of works, services and supplies procured. This dominance is more pronounced in the services category than the supplies category, and considerably more pronounced in works than in services or supplies. There is evidence across all sectors of a strong local element in the procurement of supplies, services and works. This is most pronounced in the case of works, but it is also evident in the case of services and to a lesser extent, supplies. For agencies outside of Dublin, the majority of locally based suppliers of supplies and services are SME enterprises. Irish-owned suppliers typically account for a majority share of the value of works procurement and a marginal majority share of the value of services procurement. The average annual transaction value of Irish-owned suppliers of supplies and to a lesser extent services is typically considerably smaller than that for foreign-owned suppliers. Without exception, the Irish-owned supply base of supplies and services to each of the agencies reviewed is dominated by small and medium-sized enterprises (< 50 employees). Findings in regard to works were more mixed. The size profile of foreignowned firms is characterised by a much higher share of non-sme firms. The majority of Irish-owned suppliers of supplies to all of the agencies reviewed are not engaged in any form of manufacturing. The respective share for foreign-owned companies is typically smaller ecommerce Readiness of the Enterprise Sector In addition to the above, research findings in relation to the ecommerce readiness of the enterprise sector generally conclude that while there is a high level of awareness of ecommerce among Irish enterprise, this awareness has not translated very well into action. This awareness-action hiatus is particularly pronounced in the SME sector, where the poor state of ecommerce readiness has been described as a major source of concern 8. 34

35 In summary, the profile of the supply base is characterised by a high share of Irish-owned small firms with low levels of Internet connectivity, and firms that have no manufacturing function. This has implications for the nature of the eprocurement strategy as well as the timing with which the strategy is rolled out. An implementation approach that is too aggressive may run the risk of excluding a considerable proportion of existing suppliers and limiting competition in the supply base, with consequential impact on the national and regional economic performance Supplier Viewpoint In order to understand the existing public sector procurement environment from a supplier s perspective a short questionnaire-based survey covering a number of small, medium and large enterprises currently supplying the public sector with supplies, services or works was conducted. While the views obtained are not necessarily representative of the whole public sector supply base because of the nature and limited size of the sample, they are nevertheless useful in identifying areas to be considered in the implementation of the strategy. In general respondents rated their experience in dealing with the public sector in relation to procurement as positive but did highlight a number of potential areas for improvement including: The frequency with which potential suppliers are made aware of selection criteria used by the public sector; The level of feedback received from the public sector following the award of a tender. Appendix E to this report presents a summary of the key findings. 3.6 Legal & Regulatory Environment The legal and regulatory environment impacting on the introduction of eprocurement in the public sector is complex and evolving. The two principal sources of regulation are public procurement and ecommerce regulation, but other forms of regulation also impact on the project Public Procurement Regulation The public procurement legislative framework consists principally of the EC Treaty 9, the EU Public Procurement Directives 3,4,5 (implemented by way of Statutory Instrument into Irish law) and the World Trade Organisation Agreement on Government Procurement 10 (reflected in the last round of amendments to the Public Procurement Directives). The EC Treaty 9 requires that the procedures used by public bodies in the award of contracts ensure non-discrimination, equality of treatment, transparency, mutual recognition and proportionality. The Public Procurement Directives 3,4,5, which enshrine the basic Treaty principles, coordinate the procedures for the award of public contracts above certain financial thresholds. 35

36 There are separate Directives governing the classical public sector and the utilities sector, the latter sector being permitted a higher level of flexibility in relation to procedures. The Directives currently allow Member States to authorise the submission of tenders by electronic means, subject to certain conditions, but pose an obstacle to the exclusive use of electronic communications. In May 2000, the European Commission published proposed amendments to the procurement Directives 2, 11. These will facilitate electronic procurement by contracting authorities by putting electronic communications on the same footing as conventional communications and by allowing them the option of using electronic communications to the exclusion of conventional forms of communication. Certain conditions are attached to the use of electronic tendering: the integrity of data and confidentiality must be preserved and it must be ensured that contracting authorities can only examine the content of tenders and requests to participate after the time-limit for submitting them has expired. In particular, any eprocurement facility will have to meet the requirements of Annex X to the proposed Directive, which are described in functional, technology-neutral terms (see Appendix I). The means of communication chosen and its technical characteristics must not impede suppliers access to the tendering procedure and the technical specifications of all tools used for the electronic receipt of tenders/ requests to participate must be non discriminatory and available to all parties. The proposed amendments refer expressly to the application of the Electronic Signatures Directive 12. The principle of mutual recognition underlying that Directive will be important to the accessibility of an eprocurement system to tenderers from other EU states, as will be the availability of generally recognised standards for electronic signature products. The proposed amendments also considerably liberalise the treatment, under the public sector Directives, of framework agreements, permitting an agency to re-open competition between the suppliers party to a framework agreement at framework contract stage. The proposed amendments are unlikely to be adopted before mid Member States will then have one year to implement them into national law. As part of its legislative package, the Commission adopted in August 2001 a proposal for a Regulation of the European Parliament and Council which would make the Common Procurement Vocabulary (CPV) the sole classification system used for public procurement in the EU. In addition, the Commission adopted in September 2001 a Directive on the use of standard forms in the publication of public contract notices (Commission Directive 2001/78). This Directive will introduce by 1 st May 2002 modified standard form contract notices which are adapted to electronic submission. It is important to note that the current EU procurement Directives do not appear to allow for the free use, by public purchasers, of all types of private sector eprocurement practices (for example, supplier driven dynamic ecatalogues or emarketplaces). The proposed amendments, as currently drafted, will not change this position. However, there are member state proposals to liberalise the situation in relation to reverse auctions (see section ). By the end of 2001, the European Commission intends to publish a communication on the use of emerging eprocurement methods by the public sector and the consultation process that follows may result in further amendments to the Directives. 36

37 3.6.2 ecommerce Regulation The principal sources of law in this area are the Electronic Commerce Directive 13, the Electronic Signatures Directive 12 and the Electronic Commerce Act, The Electronic Commerce Act implements the Electronic Signatures Directive and those parts of the Electronic Commerce Directive dealing with formation of contracts. This legislation is largely facilitative of the introduction of eprocurement. The Electronic Commerce Act lays down the principle that electronic contracts, writing or signatures should not be denied legal validity solely on the basis of being in electronic form. The Electronic Signatures Directive deals with the form and recognition of electronic signatures, and sets out the parameters for the use and recognition of electronic signatures in dealings between individuals, commercial entities, and State authorities. It will be of particular importance in relation to the recognition by Irish contracting authorities of electronic signatures presented by contractors from other EU member states. Standards corresponding with the requirements of the Electronic Signatures Directive are currently being developed within the framework of the European Electronic Signature Standardisation Initiative Other sources of law Other sources of law also have an impact on this project, including competition law, Irish and EU Data Protection legislation and the Freedom of Information Act, Sharing of Information The introduction of eprocurement systems presents an opportunity to capture information at different stages of the procurement process. Information collected regarding suppliers may be subject to data protection and freedom of information legislation. It will be important to ensure that the information is objective, gathered in a fair and transparent manner and used for limited, specified purposes that are consistent with the public procurement Directives. 37

38 4 Strategic Objectives 4.1 Introduction In order to guide the development of a strategy for eprocurement, and to ensure that priorities are agreed and understood, clear objectives must be defined and agreed by all stakeholders. In this chapter, we set out the objectives that were agreed following a process of consultation with sector representatives participating in the project and approved by senior management in each of the sectors. For each of the objectives agreed, key performance indicators have been identified and targets proposed. These are set out in Chapter 6. The recommendations for change in Chapter 5 set out measures aimed at addressing each of the agreed objectives, and Appendix J contains a summary of the recommendations related to each objective. 4.2 Strategic Objectives A) To improve service levels to buyers, suppliers and users involved in public sector procurement While the realisation of cost efficiencies is a key objective of the eprocurement initiative, cost is only one dimension against which procurement performance should be measured. It is also expected that the introduction of eprocurement and the associated procurement process related changes will contribute to improved service levels for all parties (buyers, suppliers and users) engaged in public sector procurement. B) To develop a more integrated approach to procurement across public sector agencies and sectors Co-operation across agencies and sectors is a pre-requisite to achieving many of the objectives set out here. The organisational structures recommended in this strategy should facilitate and encourage this, but significant changes in behaviour will also be required if cooperation is to be effective. 38

39 C) To minimise the transaction costs associated with procurement through standardisation, streamlining and automation of the procurement processes within, and where appropriate, across agencies and sectors The analysis of the current procurement environment identified inefficiencies in the processes associated with the requisitioning, ordering and paying for goods and services. eprocurement, through the provision of automated support for the transaction related elements of the procurement process coupled with associated changes to the underlying business processes, affords the public sector the opportunity to realise efficiency gains through a reduction in the transaction costs associated with procurement. D) To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector The focus of this objective is on leveraging the buying power of the public sector to improve value for money. This leveraging of public sector s buying power will result from agencies reducing the amount of non-contract purchasing, and from increased co-operation among agencies to combine their procurement requirements. The resulting increase in contract volumes can lead not only to a lowering of unit costs (through the realisation of scale economies), but also to more favourable service and quality terms for agencies. E) To promote competition among suppliers while maintaining reliable sources of supply This objective focuses on two elements competition in the supply base and reliability of supply. eprocurement has a role to play in both. Experience elsewhere suggests that eprocurement can help to promote competition in the supply base by increasing suppliers awareness of business opportunities through the electronic publication of tender opportunities and awards. eprocurement and associated supplier management practices can assist in developing reliable sources of supply by helping the buying agency to proactively manage its supply base. F) To optimise inventory levels and reduce associated costs through the adoption of efficient procurement practices The costs of maintaining inventory can in some instances represent a significant element of the total cost of ownership of supplies procured. There is potential for reductions in inventory levels and costs through the adoption of the procurement practices set out in this report. 39

40 G) To make effective use of human resources in the procurement process Over time, through the standardisation and streamlining of processes facilitated by both the automation and process changes associated with eprocurement, there is potential to reduce the human resources required to support the transactional element of procurement activities. These resources can then be concentrated on either the more strategic elements of the procurement process (e.g. sourcing) or on the delivery of frontline services. H) To promote the use of ecommerce in the wider economy It is important that the eprocurement initiative contributes to the overall competitiveness of the Irish economy by having a positive impact on the level of ecommerce adoption within the public sector supply base. I) To improve the auditability of public procurement expenditures The introduction of eprocurement in the public sector can contribute to improved recording, control and auditability of public sector procurement by increasing, through automation, the ease with which information can be recorded and retrieved. The following chapter outlines the measures recommended to achieve the objectives outlined above. J) To be progressive in the adoption of procurement related Information and Communication Technologies (ICT) It is important that the Irish public sector is at the forefront in its use of ICT both as a stimulus for the enterprise sector, especially SMEs, to adopt modern procurement technology and also to ensure the overall competitiveness of our economy through reduction in the costs of transacting business with the public sector. 40

41 5 Key Recommendations for Change The analysis carried out in the course of this study showed that, fundamental changes are required in the public sector procurement environment if the benefits which eprocurement can undoubtedly bring are to be achieved. The key changes that are required to achieve the objectives set out in Chapter 4 are: The establishment of a new framework for the management of procurement, based on international best practice; The establishment of appropriate organisation structures with the necessary resources and skills to drive the implementation of new initiatives; The introduction of effective and innovative procurement practices facilitated by electronic procurement techniques. In this section we set out our key recommendations for the changes that are needed to bring about the required transformation. A set of guiding principles governing the strategy to be adopted was developed and agreed with all stakeholders during the course of the study. These are set out at Appendix H. 41

42 5.1 Recommendations for Change - Procurement Practices and Processes Introduction The analysis carried out during this study indicated that procurement practice in the public sector falls some way short of international best practice in many areas. Set out below are some of the changes that are required if the objectives set out in Chapter 4 are to be met. The changes recommended are fundamental and broad ranging, and can only be effected on the basis of significant changes in organisation structures and responsibilities Procurement Management Framework A new framework for the management of procurement should be introduced across the public sector, facilitated by new organisation structures at national, sector and agency levels. A new, more professional approach must be adopted to in order to elevate procurement expertise to a level capable of meeting the objectives. This will involve the introduction of new policies and practices, supported by the introduction of new skills. The initial requirement is for the introduction of a new management approach, based on portfolio and category management, as illustrated below. Procurement Strategy Procurement Policies Procurement Objectives Portfolio Management Diagnosis Assessment Prioritise Plan Prioritised List of Categories Category Objectives Category Management Level Category Enablers /Constraints Business Requirements Category Management Policy Process Documentation Spend Analysis Develop strategy Options Assess Options Select Strategy Systems Transition Market Analysis Organisation Category Management Strategy Sourcing Ordering Receiving Paying Recording & Compliance Figure 6: Proposed Procurement Management Framework 42

43 The framework comprises the following components: Procurement strategy sets out the overall procurement objectives, targets and priorities for the organisation. This forms the basis for all procurement initiatives to be undertaken and provides an underlying policy framework within which portfolio and category management are carried out. Portfolio management determines the approach to be adopted for the main categories of procurement by reference to their strategic importance and their overall spend. The portfolio strategy focuses on those categories of greatest importance, sets specific objectives to be achieved for those categories. It determines where they should be managed within the organisation structure, and allocates category managers. Category Management identifies and selects the options for sourcing, contracting, order fulfilment and other aspects for each specific category of procurement. The category manager, usually supported by a multi-disciplinary sourcing team, then carries out the sourcing, specifying the needs, selecting the supplier, agreeing contracts, and specifying the ordering, payment and fulfilment processes. Ongoing contract management and performance monitoring is also undertaken by the category manager. The category management approach should assist in shifting the focus from price to the total cost of ownership. This new approach to procurement must be driven from the top down. The full benefits of this approach cannot be realised by agencies working alone. The national objectives and targets proposed in this report should form the basis for the development of equivalent objectives and targets at sector and agency level. Portfolio strategies should be developed at national and sectoral levels that set out: The areas of expenditure where there is the most potential to achieve savings or improvements in service or quality; The categories of procurement, which would benefit from management at national or sectoral level. For those categories designated as national or sectoral categories, category managers and sourcing teams should be appointed to develop category management strategies and to carry out the sourcing (selection, tendering and contracting) for those categories. Some analysis carried out in the course of the study, and studies from other jurisdictions indicate that some of the categories that merit consideration for national or sectoral management include, among others: General Computer Equipment; Fuels; Office Equipment; Office Supplies; Travel; General Software; Telecommunications; Insurance and Banking. 43

44 5.1.3 Procurement Practices Some of the main areas of improvement required are set out below Aggregation Procurement should be aggregated at the highest appropriate level in the public sector to optimise possible economic benefit. Aggregation is defined as the consolidation of requirements for a given category of procurement for one or more agencies, using the aggregated volumes to obtain better contractual prices, terms and conditions than might otherwise be obtained. As well as these benefits, aggregation can improve process efficiency through a reduction in the number of tender competitions required. Aggregation is not about central purchasing. It is about co-operating within and across agencies to improve procurement performance in sourcing and contracting, while facilitating buyers with more streamlined and responsive local requisitio n, ordering and payment processes. It is about leveraging the purchasing power of larger units, while at the same time ensuring that the delivery, service level and quality needs of individual purchasers are met. Aggregation can be greatly facilitated by eprocurement, allowing users in different agencies to order electronically from a common contract facility. Portfolio management strategies should identify opportunities for aggregation, and the level at which aggregation should take place for particula r categories of procurement. It is essential that aggregation decisions are based on a good understanding of public sector expenditure, of suppliers and of the dynamics of the marketplace, and that they take into account variations in quality needs and service level requirements, ongoing costs of ownership and other factors, as well as the price. They should take account of the risk that any short-term gains could be achieved at the expense of long-term damage to the market through, for example, removing possible efficient competitors for future contracts. For this reason, they should be supported by ongoing research of the market trends and dynamics and supplier capabilities, and the strategy for each category of procurement should be subject to regular review by category management. Aggregation should be used only where it can be shown that there is long term national economic benefit to be gained. All proposals to aggregate procurement across agencies or sectors should be accompanied by a market impact analysis. Aggregation should be used wherever feasible, and particularly where: Common goods or services are used across participating agencies, and common requirements and specifications can be agreed; The volume procured by the participating agencies is sufficient to generate significant economies of scale when aggregated; 44

45 There will be no significant short or long term negative impact on competition in the market; Usage can be projected to a reasonable degree of accuracy. A large proportion of the total cost of ownership is built in at the specification stage of the procurement life cycle and the opportunity to influence these costs diminishes rapidly as the procurement process progresses. Aggregation should start, therefore, with sourcing teams concentrating on ensuring that specifications are appropriate to meet the needs of participating agencies, while being as standardised as possible. From a legal perspective, the Public Procurement Directives 3,4,5 permit joint purchasing by contracting authorities, as long as transparency is maintained in relation to the identity of the contracting party/ies and the nature of the contractual relationship, and as long as the rules in relation to the aggregation of purchases for the purposes of applying the thresholds are appropriately applied Non-Contract Procurement Sector Procurement Units should initiate studies on the nature and extent of non-contract procurement, and determine opportunities for increasing the proportion which can be procured under contract through improved planning, increased aggregation, and standardisation of requirements. One of the key issues observed in the analysis of the existing procurement environment was the scope for increasing the amount of contracted procurement taking place. Non-contract procurement (sometimes termed once-off or ad hoc procurement) usually results in higher prices and less favourable terms and conditions for the buying organisation. One of the primary methods of achieving savings in overall procurement costs is to minimise the amount of non-contract procurement. Research by Gartner 16 and PwC 17 suggests that increasing utilisation of existing contracts alone can account for up to 65% of savings achievable. To maximise value for money, contracts should be in place, and complied with, for as large a proportion as possible of all expenditure. This objective should be incorporated into procurement policies at all levels, and portfolio management strategies should be designed to achieve this. Sourcing approaches should take account of the need to maximise compliance with contracts through, for example, approval and control systems that preclude or make it difficult to procure otherwise. Contracting approaches such as those described below can be used to minimise non-contract procurement. For residual items that are not suitable for such contracts, particularly low value items, consideration should be given to the use of procurement cards, which operate much like credit cards, as possible approaches to reducing the level of administration involved. 45

46 Supplier Selection and Contracting Approaches The public sector should fully exploit all contracting approaches which facilitate active competition in the supply base, increase flexibility in meeting users needs, and ensure fair treatment of all potential suppliers. Public sector buyers have a number of objectives, some conflicting, to consider when determining which contracting approaches to use. These include; To reduce the number of tender competitions required; To improve responsiveness to individual users needs by reducing the time required to complete the supplier selection process; To combine the procurement requirements of agencies to enhance buying power while at the same time meeting varying local needs; To facilitate users in taking advantage of rapidly changing prices and specifications while at the same time leveraging buying power through long term contracts; To provide an adequate choice of suppliers to users. Various selection and contracting approaches are available to public sector buyers that can be used in different circumstances to facilitate meeting these objectives. eprocurement can greatly facilitate some of these approaches, which might otherwise prove to be operationally difficult. One of the key tasks of the procurement bodies will be to keep abreast of new and innovative approaches to contracting, and to disseminate best practice throughout the public sector. Some examples of the contracting approaches available are detailed hereunder.: Draw Down Contracts A draw down contract is one where an agreement is entered into between the purchaser(s) and the supplier, and users can order from the agreed contract over a period of time. It may (but not necessarily) be in the form of a framework agreement. Draw down contracts are already widely used in the public sector, but there is significant potential for expanding their usage to minimise the amount of non-contract procurement Restricted Tendering Restricted tendering involves a two-stage process where, initially, suppliers are pre-selected for a particular contract on the basis of their financial standing and technical capacity. Tenders are then issued only to those pre-selected suppliers, rather than being advertised publicly, as in an open tender. The use of restricted procedure can significantly reduce the workload involved in tendering for both buyers and suppliers Framework Agreements and Framework Contracts Framework Agreements are arrangements between purchasers and suppliers under which the parties agree to the terms of their future dealings. They are generally used where the purchaser knows that it will be making repetitive purchases over a period of years, and wants for this reason to enter into a long-term arrangement with a supplier or suppliers. 46

47 Constraints imposed by the current Public Sector Procurement Directives have limited the usefulness of framework agreements to date. However, the proposed amendments to the procurement Directives will significantly liberalise the rules on framework agreements, in particular, by permitting the agency to re-open competition at framework contract stage, where the framework agreement is with more than one supplier. These changes will greatly increase the usefulness of framework agreements, especially in an eprocurement context. The framework agreement approach provides considerable flexibility: It can provide an effective way of contracting for the aggregated requirements of agencies working together; It can provide improved responsiveness to buyers as a result of the fact that there is no stated minimum period for responses for tenders for framework contracts; Unlike simple draw-down contracts which usually involve a single supplier, a choice of suppliers can be made available to buyers each time a requirement to procure exists; The possibility exists to divide contracts into lots based on a variety of factors, thereby allowing for varying requirements to be met by different suppliers (e.g. lots based on region or county); The option to re-open competition between the parties at framework contract stage will mean that agencies are no longer tied to fixed prices and conditions over the life of the framework contract; this flexibility will be of considerable benefit in markets which are changing constantly, such as that for information technology products and services Prime Contracting-type model A prime contracting type approach could be used, under which the awarding authority appoints a contractor who takes responsibility for the co-ordination and management of the procurement of the goods or services required and for ensuring the delivery of those goods or services on time and in accordance with the requirements of the awarding authority. This prime contractor tenders on behalf of the awarding authority for each of the sub-contracts and enters into a contract with each of the sub-contractors (possibly with the awarding authority also having a collateral contract with the sub-contractors). Where the sub-contractor fails to perform his contract, the prime contractor could be held liable. The use of such a prime contracting-type arrangement is particularly attractive where a number of agencies are purchasing together, as the prime contractor can take responsibility for co-ordination of the agencies. This approach could also be used where there is a large contract which the agency(ies) wish to award in lots. In this situation, the prime contractor goes out to tender to award each lot to a sub-contractor. However, careful regard would need to be given to the need for award criteria suitable for each lot. The other main benefit of a prime contracting-type approach is that it introduces private sector co-ordination and management of the entire procurement process, up to the successful performance of the sub-contract. It therefore has the potential to reduce the tendering and contract management workload of the public sector. 47

48 Reverse Auctions In a reverse auction, buyers specify the product they wish to purchase and a price they are willing to pay while suppliers of the product compete to offer the best price for the product over a predetermined timeframe. This results in dynamic competition and pricing that can be closer to true market pricing. A reverse auction is one of the approaches to supplier selection offered through emarkets (see ), and it is used mainly to procure commodity products that have a simple specification, and where factors other than price are not significant in the supplier selection decision. From a legal perspective, insofar as reverse auctions involve a series of counter-offers it appears, under the current legislation, that they can only be used for above threshold purchases in circumstances where use of the negotiated procedure is permitted, i.e. for exceptional contracts under the Public Sector Directives 3,4,5, and all contracts under the Utilities Directive 18 (e.g. drinking water). There is also a concern that any such reverse auctions should be devised in a manner that safeguards the confidentiality of tenders/bids during the bidding process. As there is no prohibition on the use of negotiation for the procurement of below threshold purchases, reverse auctions could also be used for such purchases, subject to the EC Treaty (see section 3.6.1) principles being observed. The current version of the amendments to the EU procurement Directives would not have the effect of broadening the possibilities for use of reverse auctions. However there is now substantial support amongst Member States to amend the Directives to allow for the use of reverse auctions, (both generally and in the case of frameworks contracts) and we understand that it is likely that the text of the proposed amendment to the Directives will be altered in the near future to reflect this Combining Different Tendering Requirements This approach envisages the situation where an agency or agencies need to procure a number of different categories of goods and services. Instead of going out to tender separately for each category of good or service, they instead opt to go out to tender, under a single procedure, for all of the categories, indicating that each category may be awarded in a separate lot. One benefit of this approach is that it reduces the workload of the agency or agencies in relation to the tendering process itself. In addition, it can result in price savings in situations where the potential suppliers of each of the categories of goods or services form part of the same supplier base and, accordingly, a certain amount of leverage can be achieved. From a legal perspective, it would be important to ensure that appropriate award criteria were applied to each of the different categories of good or service. 48

49 Purchases below the EU thresholds Purchases below EU thresholds are not subject to the procurement Directives, and therefore there is greater scope for the use of innovative supplier selection and contractin g approaches, including those emerging through electronic eprocurement. The main requirement is that they comply with principles derived from the EC Treaty 9 (namely, equality of treatment, transparency, proportionality and mutual recognition). The availability of a government procurement web site or other electronic means of advertising below-threshold purchases will facilitate contracting authorities in achieving the requisite levels of transparency. The European Commission communication on eprocurement, due out by the end of 2001, should provide guidance on electronic procurement of below-threshold purchases Supplier Performance Management A structured and objective approach should be adopted to the management of supplier performance. Common performance metrics and targets should be established using recognised external benchmarks where possible. Reporting and management processes should be developed to ensure that performance targets are met. Supplier performance management involves adopting a structured approach to: Definition of relevant supplier performance metrics based on objectives to be achieved; Identification of required service levels and performance targets; Development of reporting and management processes to ensure that performance targets are met. Service level agreements (SLAs) should be used to document this structure and approach to supplier performance management for the duration of the contract. The SLA should detail the requirements on both the supplier and the agencies in monitoring and managing the procurement contract. Performance information can be used to establish average performance levels and benchmarks across agencies and sectors Procurement Performance Management Procurement performance should be formally managed at agency, sector and national level. Performance objectives should be derived from overall agreed national procurement targets and should incorporate both quantitative and qualitative measures. Performance reporting should be used to drive management actions at all levels. Procurement performance management should be used to ensure that procurement practices, processes, structures and systems are delivering value for money on an ongoing basis. National level performance targets will be agreed by the NPU and the sectors. These will then be used by the sectors and agencies to set individual performance targets in the context of their own business plans. The targets should take account of factors particular to each sector and therefore may not be uniform across sectors. The key performance indicators and targets 49

50 set out in this report (see Strategic Objectives section) should be the basis for procurement performance measurement. Performance measures should be both qualitative and quantitative and should not focus solely on financial indicators. Transaction costs, procurement costs, service levels and quality should all be tracked on a regular basis against targets set. Measurement approaches should be devised, and should above all, be simple, automated and not labour intensive. Where possible, statistical sampling approaches rather than systemised measurement should be used Electronic Procurement Approaches Electronic Tendering Electronic tendering can support the whole tendering process from tender document preparation through to tender award, linking buyers and suppliers using internet technologies. It can include the automation of: Requests for Information; Request to Participate; Requests for Proposals; Requests for Tenders; Tender processes within Framework agreements. The benefits of electronic tendering can be significant, including improvements in the transparency, accuracy and efficiency of the process, as well as promoting greater competition in the marketplace through the broader reach provided by the internet. For works procurement in particular, contract management can be a complex activity involving the assessment of project completion and the certification of staged payments to contractors. Electronic contract management tools provide support for: Management of contract valuations; Management of contract payments. The benefits of these tools are to increase the efficiency of the process, reduce errors and provide better management information to support decision making Electronic Catalogue -based Procurement Electronic catalogue-based procurement (eordering) provides electronic access to product catalogues, using Internet technologies, allowing users to search for an item across one or multiple catalogues and to raise a requisition or order for the items selected. The goods and services that are suitable tend to be Items with non-complex and defined specifications; Items with recurring and regular purchases; 50

51 Items can be ordered on a decentralised basis; Contracts that are in place for a period of time and where multiple purchases are made from the contract (e.g. draw down contracts). The benefits associated with eordering include A reduction in the transaction costs associated with the ordering of goods and services; The provision of procurement management information on procurement; Increased compliance with centrally agreed contracts. There is no legal constraint on the use of electronic catalogues that are controlled by the awarding authority and used as a tool to assist in the draw down of items from a contract that has been put in place between that awarding authority and a supplier. It is difficult, however, to envisage an application for dynamic, supplier-driven electronic catalogues that would be consistent with the provisions of the EU Procurement Directives 3,4,5. (In a dynamic, supplierdriven catalogue, the supplier prices and specifications are not fixed) Electronic Marketplaces (emarkets) emarkets are on-line business trading communities that connect buyer and supplier organisations to facilitate electronic procurement of supplie s and services. They offer various services, including quotation, tendering, auctions, catalogue-based ordering, and electronic payment. They can be built around vertical (industry specific) or/and horizontal (cross industry) markets. They can be owned either by a supplier, a buying organisation, a third party, or a community of trading partners, and operated either as private or public markets. From a legal perspective, emarketplaces may be used for below-threshold purchases, as long as the purchase requirement is properly advertised, all suppliers have open access to the market place and the other EC Treaty 9 principles are observed. The current EU Directives impose a constraint on the use of such marketplaces for the selection of suppliers for procurement of above-threshold purchases. Nonetheless, this does not preclude the provision of other services required by the public sector (such as eordering from existing catalogues) through the use of emarketplace facilities. There is the possibility that in the future, these Directives will be modified to facilitate broader public sector participation in emarketplaces for above threshold procurement. 51

52 5.1.5 Procurement Initiatives Recommended Development of a National Classification Scheme The adoption and implementation of a national standard classification scheme for the identification of procurement categories and items should be managed nationally in cooperation with the sectors A standard classification scheme for works, supplies and services will be a key enabler for procurement practices such as category management, aggregation, supplier management and performance management, as well as catalogue-based eprocurement. In order for the benefits of these practices to be realised, it is desirable that a common approach be adopted nationally. Recognised international classification schemes (e.g.: EAN, NSV, CPV) exist, and it is likely that one or more of these could form the basis for meeting the public sector need for both category and item level coding. The likely need for sector variations should be taken into account in determining the appropriate approach. Any new scheme should be implemented on a gradual basis, driven by the implementation of the various initiatives involving cross-sector co-operation in procurement. The implementation of a national classification scheme should not necessarily require agencies to change coding schemes that may be built into existing systems. It should be possible to map existing codes to the new codes as an interim measure, supported by electronic ordering systems Standardisation of Procurement Policies The development of national procurement policy, and the publication of national procurement policies and guidelines should be undertaken nationally in consultation with the sectors. There is a need to replace the existing national procurement policies and guidelines publication, Public Procurement (also known as the Green Book ) to bring it into line with modern electronic procurement practice, as well as updates in the regulatory framework. As far as possible, national policies should be developed. The policy needs of the sectors should be taken into account in the national policies, or through supplementary policies within the framework of the national policy. Public sector procurement procedures should be designed and executed in a manner to ensure value for money (VFM). This policy should be reflected in any legislative and administrative provisions adopted relating to procurement. 52

53 Standardisation of Procurement Processes The promotion of best practice procurement should be undertaken nationally. This will involve working with the sectors to: Develop and publish best practice processes ; Provide training to agencies in the implementation of these. Agencies should also be encouraged to review their procurement processes and to avail of the services provided at national level. Standardisation of procurement processes will also be driven by the introduction of cross agency sourcing and electronic procurement systems. Processes for ordering, receiving, payment and reporting will be determined as part of the implementation of cross-agency contracts, and would have to be adhered to by participating agencie s. As this process will be led at national and sectoral level, this should ensure that there is consistency in the processes adopted across sectors and agencies, in line with national strategies and policies Supplier Registration A National Supplier Register should be established for recording supplier details in order to improve the availability of supplier information and to reduce the duplication involved in maintaining separate supplier lists at agency level. Responsibility for management of the register should reside at National level. Agencies should be required to recognise the National Supplier Register and should not oblige suppliers to provide information that is available via the register. The register should, at a minimum, record items such as: Information related to the supplier that allows buyers to locate and identify the supplier. For example, business name, address, contact details; Information pertaining to the products and services that the supplier is interesting in providing to the public sector, based on the standard classification scheme. Optionally, suppliers should also be permitted to register information that is requested as part of the every tender process, including items such as broader business descriptions, summary of annual accounts, tax clearance certificate, etc. Suppliers should be responsible for maintaining their own information on the register. A single supplier registration process should improve the efficiency of the current procurement process by ensuring that consistent supplier information is available to all buyers in the public sector and should simplify interactions for suppliers, as there will be a single point of registration eliminating the need for multiple registrations across a number of individual agencies. It will also provide buyers with an accessible directory of suppliers interested in supplying the public sector and a summary of the products and services that they offer, as well as enabling suppliers to promote their products and services across the public sector. 53

54 Standardisation of Procurement Documentation The development of standard procurement documentation, taking account of sector specific needs should be managed nationally in co-operation with the sectors. The adoption of standard documentation will: Eliminate duplication and reinvention of the wheel ; Simplify interactions between buyers and suppliers as information is communicated in a consistent manner; Increase the level of compliance with regulations and policies; Improve the quality by reducing the level of errors and omissions; Improving the efficiency of the procurement process. In general, those wishing to participate in cross-agency sourcing and contracting will be required to adhere to standard documentation. Standardisation of documentation should be supported by electronic templates. The level of standardisation should be determined by the commonality of usage (i.e. sub-sector, sector, national) and the benefits to be gained through standardisation. Examples of documents for which standard templates could be developed are: Requirements specification; Request for Information; Request to Participate; Request for Tenders; Core Terms & conditions; Price schedules; Notices (to be standardised by EU from 1 st May 2002); Model Contract Forms; Model Service Level Agreements. 54

55 5.2 Recommendations for Change - Organisation Overview Some of the key factors dictating the need for organizational change in the procurement area are outlined below: The need for leadership in delivering the eprocurement Vision; The introduction of new procurement-related skills at all levels in the public sector; The introduction and promotion of new procurement practices in line with international best practice; The exploitation of modern electronic procurement techniques and systems; The introduction of a new framework for the management of procurement, based on the concepts of portfolio and category management; The provision of leadership and co-ordination in promoting co-operation and combined procurement between agencies within and across sectors; The development and management of procurement standards; The promotion of consistency in procurement policies, practices, documentation and systems across agencies and sectors; The proactive management and measurement of procurement performance. New organisational arrangements are required at all levels to meet these needs. The factors to be considered in determining the appropriate structures to be established are addressed below Organisation Design Considerations The design of structures to support the needs outlined above must take into consideration: The almost complete absence of any procurement-related organisational arrangements in many parts of the public sector; The overall shortage of procurement skills; The need for a more focused and broader approach to procurement at a national and sectoral level At present, there is no driver or motivation in the public sector for the realisation of the benefits of eprocurement and associated procurement best practices. Left unchanged, existing arrangements would not generate sufficient motivation to realise these benefits. Therefore, fundamentally new public sector-wide procurement organisational arrangements are required. Certain parameters governing the design of new arrangements emanate from the objectives and guiding principles of the strategy. Any new arrangements established should be designed to: Have regard for existing structures where procurement competencies and experience are already in place; 55

56 Avoid duplication of investment in resources and systems; Facilitate communication and knowledge sharing across sectors and agencies; Elevate procurement in the overall list of priorities for public sector management; Facilitate co-operation in procurement at all levels in the public sector to optimise national economic benefit; Recognise the autonomy of agencies by promoting and facilitating rather than mandating their co-operation. The organisation change recommendations focus on a number of key areas. These are: Organisational Structures: defining the organisation structures that are required to match skills and resources to the key tasks required to successfully deliver eprocurement across the public sector; Integration Mechanisms: setting out the key integrating mechanisms required to ensure that the revised structure operates effectively; Resource Levels: recommending appropriate resourcing complements for key structures; Key Capabilities and Skills Development: defining the key capabilities that need to be in place to effectively deliver the procurement practices recommended elsewhere in this report and how to develop them; Change Management Activities: setting out the key change management activities that will need to be considered and addressed during the implementation of the new strategy Organisational Structures The foregoing requirements indicate a necessity for new organisational arrangements at national, sectoral and agency level Procurement or eprocurement? It is recognised that the success of eprocurement is fundamentally dependant on the introduction of improved procurement practices, and significant changes are required in this area if the strategy is to be implemented successfully. Given the magnitude of the change involved, the opportunity exists to use eprocurement as the catalyst for the major shift in mindset which is required if the objectives of the strategy are to be achieved. The rationale for recommending the structures outlined below is based on the reality of the fact that the strategy needs to focus as much on procurement practices as on eprocurement. However, consideration should be given to ways and means of reflecting the importance of eprocurement in the name and promotion material of each of the bodies concerned. Therefore the whole programme of change should be branded in a way that reflects eprocurement. 56

57 National Level The objectives set out for the national strategy cannot be achieved unless there is a clear national focus on eprocurement. National functions must be established: To manage the delivery and roll-out of the national eprocurement strategy; To develop coherent national procurement policies and strategies and ensure their consistent implementation across the public sector; To prepare the required enabling regulations and legislation; To drive and monitor procurement performance at national level; To promote and facilitate national level initiatives such as : The national management of contracts for some categories of procurement; National eprocurement systems; National procurement standards. To promote the adoption of best practice procurement across the public sector; To facilitate and co-ordinate the management of change associated with the implementation of new procurement practices, structures and systems; To facilitate the provision of appropriate resources and skills for eprocurement across the public sector; To facilitate and co-ordinate the provision of adequate funding for eprocurement initiatives. This list incorporates both policy and operational level responsibilities. Experience suggests that strategic focus will be lost if a single body is charged with both the policy and operational aspects of implementing the strategy. For this reason, it is recommended that two new entities are established at national level: A unit focused on the development and oversight of national policy; A separate unit focused on facilitating and supporting the operational aspects of implementing the national strategy National Policy The Public Procurement Section (PPS) in the Department of Finance is currently tasked with certain aspects of public procurement policy: Public Procurement Legislation and Regulation; Procurement Guidelines / Green Book; Support for the Government Contracts Committee. Successful roll-out of eprocurement will require a significantly greater focus on the development and implementation of clear and consistent national level policies and strategies. In addition to the above, the key responsibilities and activities outlined below, will need to be discharged at a national level: 57

58 Setting national policy in relation to procurement; Monitoring national procurement performance and activity across the sectors; Facilitating and co-ordinating the provision of funding for eprocurement initiatives; The existing policy remit of the PPS is much narrower than that required, and it does not currently have the capacity to undertake the additional responsibilities required. Furthermore, because of the importance of emphasising eprocurement as a new and separately branded initiative, it would be best that a new unit be established for this purpose. Therefore, it is recommended that A new discrete, dedicated and properly resourced National Policy Unit * should be established. Its role should be to define national procurement and eprocurement policy, and facilitate, coordinate and oversee its implementation across the public sector. The relative standing/positioning of this unit within the public sector must be sufficie nt to support its role in developing national policy and co-ordinating the development of eprocurement across the public sector. The unit must also be able to operate effectively within the machinery of central government, while reflecting the issues and concerns of the sectors. For these reasons, it is recommended that the unit be located within the Department of Finance. The exact location of the unit within the structure of the Department is a decision for senior management. In determining its location, however, consideration should be given to the synergies between its role in improving public sector procurement performance and the role carried out by that area of the Department which currently has responsibility for the effective management of public expenditure. It is recommended that the new unit subsume the national policy functions currently carried out by the PPS. The suggested roles and responsibilities for the NPU are set out at Appendix A. Its focus will be on high level national policy rather than on operational issues. The unit should have the authority to acquire external skills and resources on a temporary basis as required National Operations Facilitating and supporting the operational aspects of implementing the national strategy will require the following key responsibilities and activities to be carried out at national level: Setting Operational Strategy for all aspects of procurement in alignment with National Policy; Devising and Issuing Standards and Best Practice; Monitoring sector procurement activities to ensure consistency of approach; Providing procurement, legal and systems support to public sector buyers; * National Policy Unit is a working title for the purposes of this report. A unique, discrete identity for this function should be agreed as part of the project to establish the function 58

59 Providing and managing eprocurement systems and facilities; National performance reporting and management information; Promotion of eprocurement across the public sector; Change management of the eprocurement initiative; Determining national portfolio strategies, and managing those categories of procurement designated to be managed at national level. No existing body carries responsibility for the development and implementation of public procurement operational strategies, and there is currently no body with a mandate to manage any operational aspect of public procurement at a national level. Most of the functions outlined above are not currently carried out anywhere. Certain agencies, such as the Government Supplies Agency (GSA), the Healthcare Materials Management Board (HMMB), the Office of Public Works (OPW) and the Rail Procurement Agency (RPA) do have specific procurement responsibilities at a sectoral or sub-sectoral level, but none at a national level. The GSA, for example, has a remit for the procurement and supply of certain categories of goods in common use to central government departments. Its role, however, is much narrower than that proposed for the new body, in that it is confined to central government departments, and its function is limited to procurement on behalf of the departments concerned. There is therefore a need for a new body to carry out the national functions identified. This body will have to meet certain key organisational requirements if it is to be successful: It must have sufficient standing and authority to operate effectively across the public sector; It must be designed to promote co-operation and buy-in at all levels across the public sector, particularly at sector senior management level; It must be seen to be independent, providing a high quality service to agencies and sectors wishing to avail of it; It must be able to provide a range of skills covering both public sector management and specific technical areas such as procurement, legal, electronic procurement systems, etc. In order to meet these requirements, it is recommended that The function is separate from the National Policy Unit; It is a discrete structure, with appropriate authority; Its governance arrangements should facilitate representation of sector senior management; While it should have a core of public sector management expertise, it should be able to recruit required skills externally, both on a permanent and term contract basis. 59

60 A new discrete National Operations Unit (NOU) ** should be created. The NOU should be the body responsible for the implementation of national eprocurement strategy in alignment with national policy developed by the NPU. The Department of Finance should be the parent Department for the NOU and it should facilitate funding and resourcing of the unit. The suggested role and responsibilities of the new body are set out at Appendix A. This recommendation is in line with approaches adopted in a number of other countries reviewed, where independent centralised units have been established to drive the implementation of their national procurement strategies and policies Sector Level In order for the national strategy to be implemented successfully, it must be driven through the sectors, i.e. Health, Education, Local Government and Central Government. Much of the opportunity for co-operation in procurement resides within sectors, because greater commonality of procurement requirements exists and because some of the enabling factors required, such as common systems, communications channels and standards are already in place. For these reasons, it is recommended that Sector Procurement Units (SPU) should be established for each sector. Their role will be to implement sector level strategies in alignment with the overall national eprocurement strategy. Their roles and responsibilities should be broadly similar to those of the NOU. The table at Appendix A sets out an overview of how responsibilities might break down between national and sector levels. The organisation structures, staffing and location of the Sector Procurement Units should be determined by the sector parent Department, taking into account the requirements identified in the sector eprocurement strategies, which should be carried out as a priority. Any new structures to be established should take account of existing procurement units and bodies where they exist, and areas of potential overlap and duplication should be identified and resolved. Central government should be regarded as a discrete sector for this purpose, having many of the characteristics of a sector as outlined above. Without a sector focus, central government departments and agencies are unlikely to achieve the degree of co-operation required to exploit opportunities for improved procurement. ** National Operation Unit is a working title for the purposes of this report. A unique, discrete title for this function should be agreed as part of the project to establish the function. 60

61 Accordingly, the options for an SPU for central government should be examined and assessed. The Department of Finance should determine the approach for establishing this unit. The role of the GSA must be considered in this regard. Its existing role encompasses a number of the functions envisaged for a Central Government SPU, including the management of certain categories of procurement in common use across the central government sector. However, it currently has no responsibility for managing the overall procurement performance of the sector, nor does it have any role in relation to procurement standards, training, support, promotion or eprocurement systems. The GSA is responsible for managing certain categories of procurement and has for the last three years been developing the use of draw down contracts for these items. Where such contracts are in place, user satisfaction is monitored on an ongoing basis. The analysis exercise carried out also indicated that the GSA has technical expertise in relation to certain categories of procurement, which it uses to provide support to its customers in the requirements specification process. These activities are consistent with elements of the role of the Central Government SPU and should be considered in any study carried out. A SPU for central government should be established by the Department of Finance. The role of the GSA should be taken into account in this regard. In advance of the completion of this assessment, the sector procurement strategy for central government will be initiated by the NPU Agency Level Existing Public Procurement Guidelines (1994 Edition) require that each contracting authority should designate an Officer at an appropriate level (usually Principal Officer or equivalent rank) to ensure that all matters relating to procurement in the relevant agency comply with legal and administrative requirements. This in itself will not be sufficient to effectively support the new procurement environment recommended in this report, which requires that the procurement function be proactive in ensuring that the agency obtains value for money. This may involve carrying out many new responsibilities, including Development and maintenance of a portfolio management strategy in alignment with sectoral and national policy Development of category management strategies for locally managed categories Strategic sourcing Contracting Contract management Supplier management Procurement performance management Reporting to sector level as required Participation in sector level procurement for a and sourcing teams Facilitating integration of agency level systems and national / sectoral systems For many agencies these new responsibilities will require the establishment of a dedicated procurement function. Consequently, it is recommended that, on the basis of an assessment of the needs of specific agencies: 61

62 Sectors should facilitate the establishment of dedicated procurement functions in those agencies where they do not currently exist and where the level and/or complexity of spend would warrant it. The organisation structures, staffing and location of Agency Procurement Units should be determined by the sector eprocurement strategies. Any new structures proposed should take account of existing procurement units and bodies where they exist, and should avoid areas of potential overlap and duplication. Any new Agency Procurement functions should be positioned at a level in the structure consistent with the strategic importance of procurement in the agency. Agencies should avail of the support infrastructures provided at national and sectoral level Integrating Mechanisms If the high level structures recommended in this report are to be effective they must be flexible enough to meet both national strategic objectives and the requirements of the sectors and individual agencies involved. In addition to the formal structures outlined above a number of other more informal, but no less important, organisational entities will be required to ensure that the overall Procurement organisational model is effectively integrated. These include advisory boards, procurement forums and sourcing teams National Procurement Advisory Board It is necessary to provide an effective consultation mechanism between the National Policy Unit, the National Operations Unit and senior management in each of the sectors, in order to reflect the views of the sectors in relation to key issues of policy and strategy, and to facilitate the buy-in of the sectors to the implementation of decisions arrived at. A National Procurement Advisory Board should be established in order to facilitate consultation between the NPU, the NOU and the sectors to ensure that their views are taken into consideration in the development and implementation of national procurement strategy. The advisory board should be established by the NPU as a matter of priority and chaired by the Head of the NPU and its membership should include IT and other relevant expertise from Department of Finance and senior management representatives of each of the sectors. These senior managers should be key decision makers within their agencies. Its role should be to facilitate sector senior management input into national policy development, and to approve national procurement strategies developed by the NOU in alignment with national policy. It is also necessary that the views of other key stakeholders, such as suppliers, are taken into consideration, particularly in relation to key decisions, which may impact them. Mechanisms 62

63 are required, therefore, to facilitate ongoing consultation with these key stakeholders. Appropriate mechanisms for consulting with such stakeholders should be devised by the advisory board. The functions of the National Procurement Advisory Board are also relevant to sector procurement units. Sectors should decide on the appropriate structures to carry these out, and rather than establishing new structures, may consider how these functions could be integrated into the responsibilities of existing sectoral representative groupings such as, for example, the County and City Managers Association (CCMA) in the Local Government sector National Procurement Managers Forum Procurement managers across sectors and agencies will be key to the success of the strategy. It is essential to put in place a mechanism, which will facilitate: contribution by the sector procurement managers to the development of national procurement strategies, objectives and targets, and to the development of the national portfolio management strategy; buy-in by sector procurement management to national policies and initiatives; procurement knowledge transfer across sectors, including sharing of best practice; resolution of common procurement issues. A National Procurement Managers Forum should be established to provide the opportunity for Procurement Managers in the sectors to come together periodically to share views, and to provide their inputs into national initiatives and policies. The Forum should be chaired by a senior representative nominated by the Head of the NPU and will have representation including IT and procurement expertise from the NOU. It should meet on a regular basis. Similar forums should be considered as communications and integration mechanisms within sectors and sub-sectors Sourcing Teams In order to ensure that national category management strategies adequately address procurement needs, it is important to involve multi-disciplinary teams in their development. These should include, at a minimum: Procurement specialists; Users; Technical Specialists in the categories concerned; Financial specialists. It is important, also, that the views of participating agencies are adequately represented in the development of national category management strategies. For these reasons, it is recommended that 63

64 Sourcing teams should be established by the NOU to assist in the development of category management strategies, and to carry out strategic sourcing for categories to be managed at national level. They should be chaired by a category manager appointed by the NOU, and should comprise multi-disciplinary teams drawn from the sectors Sourcing teams would be established for the duration of the strategic sourcing process, from specification of requirements through to contracting. At this stage they would be disbanded. Responsibility for ongoing contract and supplier management would then reside with the NOU category manager. Similar sourcing teams should be formed within sectors for categories to be managed at sector and sub-sector levels Summary of Organisational Arrangements Proposed The proposed organisation model * is illustrated below: Structural Model Department of Finance National Policy Unit National Procurement Managers Forum National Operations Unit Sector Agency Procurement Procurement Agency Units Functions Procurement Functions National Procurement Advisory Board Agency/ Sub- Agency Procurement Sector Agency Procurement Functions Functions Functions Figure 7: Proposed Organisational Model * The titles for the positions referred to are working titles only. Formal titles will be chosen when the units are being established. 64

65 5.2.5 Resourcing the Model It is critical that the structural model set out in this report is appropriate ly resourced if it is to be effective. Resource and skill levels should be matched to the key tasks required within each of the bodies recommended in the strategy. Set out below are recommended resource complements for the National Policy Unit and for the National Operations Unit. These recommendations will be further examined when these units are being established. Recommendations on the appropriate resource complements required for sectoral and agency units should be developed as part of the sectoral strategies. As a comparison, in the UK, the NHS Procurement and Supply Agency which has a spend influence of Stg 2bn, has a staff of 350 and an annual budget of Stg 19.5m National Policy Unit The NPU should be established as a line unit within the Department if Finance and should be structured along the following lines: Head of NPU Procurement Policy Procurement Performance & Analysis Legislation & Regulation Administrative Support Specialist Advisors Figure 8: Recommended Structure for National Policy Unit The model set out above comprises a number of discrete units supported by administrative support personnel. In carrying out the work of the Unit it is also likely that there will be a need to draw on the services of specialist advisors, for example procurement or legal specialists. Where this advice is not available or easily accessible within the public sector, qualified external advisors should be engaged under framework agreements or term contracts. 65

66 It will be essential that the NPU effectively engage with the NOU and with the sectors in developing its policy agenda. The key mechanism for engagement will be the National Procurement Advisory Board, where the NPU will consult with the NOU and sector senior management on national policy. The NPU will be staffed with permanent civil servants, personnel seconded from other areas of the public sector and staff on term contracts. The initial management and executive staffing level required to establish the NPU (over and above manpower resources subsumed from existing PPS) is estimated to be 4, supported by 2 clerical/administrative personnel. In the longer term it is likely that this number will need to be increased. Whilst this will be a matter for Government to decide, it is our view that the total staff complement will be in the region of National Operations Unit The NOU should be structured as outlined below. In carrying out its work the NOU will require specialist expertise in addition to the core public management expertise found in the public service. Head of NOU Head of Standards & Support Head of Operations Standards & Best Practice Procurement Support Training Promotion & Change Mgt. Performance Reporting & Management Information Portfolio & Category Management eprocurement Facilities Information Analysis Unit National Category Managers Administrative Support Specialist Advisors Figure 9: Recommended Organisation Model for The NOU Initial estimated resource requirements * for the recommended model are in the order of 12 15, plus administrative support. It is anticipated that this will grow significantly in the future * These are estimates of the resource requirements necessary to establish the NOU. A more detailed assessment should be made as part of the actual process of establishing the NOU. It is important that surplus resource is not put in place early in the process in advance of work actually existing for the NOU. The resource numbers set out above are scalable and should grow in line with the increased volumes of work required as the eprocurement strategy is rolled out. 66

67 as additional national categories and eprocurement systems come on stream. It is recommended that core staffing be kept to a minimum, but should include expertise in all of the key areas such as legal, procurement, systems and training. Administrative support for the NOU will include internal support services such as HR, Finance and IT. The unit should draw on the services of additional specialists, as the need arises. The manner in which these resources are engaged will vary but it is likely that the NOU will have an employment mix of full time public servants, specialists engaged on term contracts and bought in advice. The estimates above make no provision for the operation of the eprocurement facilities or for support arrangements (e.g. call-centres) for users, buyers and suppliers. It is recommended that both these tasks are outsourced. The NOU should also second procurement professionals from the sectors to work in the unit. This will greatly facilitate understanding and co-operation between the NOU and the sectors. Managers of the key functions in the NOU should be at a senior level consistent with the responsibilities of the post and possess the competencies required to meet the demanding specifications of the position. The NOU may be headed by a senior public servant, although consideration should be given to appointing an experienced individual from outside the public sector Immediate Organisational Initiatives Required It is essential that the National Policy Unit, as outlined in section , be established on a permanent basis as a matter of priority. It is recognised, however, that full establishment of the NOU and other elements of the national procurement structure, may take some time and that these structures will evolve during the early stages of the implementation phase. To facilitate the speedy implementation of the national strategy, interim operational arrangements are required. It is proposed that some of the national entities are set up on a temporary basis for an interim period of at least 12 months. At the end of this period a review, incorporating significant input from the members of the temporary bodies, would be carried out to determine their longer term position in the overall procurement structure. 67

68 Department of Finance National Policy Unit Temporary National Operations Unit Temporary Sector/Agency Arrangements Agency Agency Procureme Procureme nt Functions nt Functions Temporary National Procurement Advisory Body Figure 10: Interim Organisational Arrangements It is recommended that a discrete temporary unit be set up as soon as possible, tasked with managing the implementation of the early national operatio nal initiatives recommended in this report. In particular it should play a key role in the establishment of the permanent National Operations Unit in consultation with the sectors. This temporary unit should be established within the Department of Finance so that it can work closely with the NPU, and be in close proximity to the skills and expertise required, such as public policy, ICT, training and change management. The unit should be staffed with permanent civil servants, personnel seconded from other areas in the public sector and staff on term contracts. Key priorities in the initial stages should be to provide support for sector procurement initiatives, to initiate the development of training programmes and to initiate the process of developing standards. It is essential that this unit works closely with the NPU in a teamwork environment during the interim period to sustain momentum and drive the initiative forward. The immediate priority tasks for the NPU and the interim operations unit are set out at 7.4 (The Way Forward). At sector level, one of the early initiatives to be undertaken is the development of individual sector based procurement strategies. It will be necessary to put temporary structures in place to ensure that this work is carried as soon as the national strategy has been approved. The associated funding, resourcing, training and skills development issues will be need to be addressed in implementing these arrangements. Ultimately these will be replaced by the permanent sector and agency level bodies as outlined in section The Procurement Managers Forum will initially be set up on an informal basis as a crosssector and cross agency group of senior procurement managers whose primary role will be to share information and assist in the formulation of national operational policies. It is important that the group is representative of the sectoral and geographical aspects of the public sector. Initially the main interaction would be through workshops and conferences. The National Procurement Advisory Body should be set up to facilitate sector senior management input into national policy development, and to approve national procurement strategies developed by the temporary NOU in alignment with nationa l policy. This group of 68

69 senior managers would meet on a regular basis for the initial interim period and would also incorporate contributions from other key stakeholders such as suppliers. The interim arrangements should remain in place until the permanent structure has been established. This would also allow the experience gained in the initial period to be incorporated into the establishment of the permanent structure Training As set out in Chapter 3 (Overview of Procurement in the Public Sector) above, there is no formal, standardised approach to the development of procurement skills in the public sector. This has resulted in a deficit in terms of the key skills required to implement effective procurement practices. This situation is further compounded due to difficulties experienced in recruiting and retaining individuals with the required skills in the current tight labour market. In order for the procurement strategy to be effective certain key capabilities, relating to the effective implementation of recommended procurement practices, need to be developed over time across the public sector. The National Operations Unit, in consultation with the sectors, should develop and facilitate the implementation of a national procurement training plan Training in the following key areas of procurement will be required by dedicated procurement staff, and to a lesser extent by users: The development and management of procurement portfolios. This includes the skills required to collect, aggregate and analyse high level spend data and how this links to the overall agency and/or sector objectives; The development and management of category strategies. This includes skills in the following areas: Detailed spend analysis; Market analysis; The development of sourcing strategies; Negotiation and Contracting skills; Supplier and Contract management; Performance Management in relation to both process and individual performance management. This change will present varying degrees of challenge depending on current procurement arrangements within agencies and sectors. 69

70 5.2.7 Change Management The realisation of the objectives and benefits associated with the National Procurement strategy contained in this report is dependant upon the successful implementation of a number of key initiatives and recommendations. However, a number of factors impacting the public sectors capability to change will have to be addressed if the implementation of these initiatives is to be successful. The key change management issues that emerge within and across each of the key recommendations and initiatives, and the requirements they generate: The adoption of a new Procurement Management framework and procurement practices; The buy-in and support by senior management, users and suppliers to the objectives and benefits of the National strategy and the associated initiatives; A change in behaviours and attitudes to support the approach to procurement and the Procurement management framework. This will require, in addition to the necessary infrastructure and support mechanisms being in place, a change in the common understanding of procurement costs from item costs to the concept of Total Cost of Ownership; Changes in work practices at the agency level by dedicated procurement personnel and users currently involved in different aspects of procurement; The establishment of a climate of co-operation and co-ordination between functions, agencies and sectors. The establishment of new procurement structures at the national, sector and agency level; The recognition of procurement as a strategic support function; Addressing concerns relating to local autonomy and decentralised decision making and how new national and sector structures and procurement practices will impact this be addressed; Addressing concerns, at agency and Sector level, relating to need to deliver services on a local basis and how the new approach to procurement will impact this; The means to attract, develop and retain procurement competencies within the public sector. The implementation of national, sectoral and local eprocurement systems; The agreement and support of agencies for national and sectoral systems; The promotion of the benefits of such systems in order to establish the required levels of confidence in being able to meet local requirements; The obtaining of supplier support for the utilisation of such systems; Converting individuals from a reliance on and preference for predominantly locally developed and trusted manual processes to electronically based processes; Providing individuals with the confidence that information provided electronically is current and reliable in terms of meeting local needs both in terms of quality and responsiveness; 70

71 Addressing concerns that personal contact will be reduced and that local supplier relationships will be negatively impacted; The capacity to implement and manage the system and information on a local and sector basis. The introduction of Procurement Performance Management; That the purpose for which this information is required be explained and agreed with agencies and Suppliers if the information is to be provided and their co-operation is to be forthcoming; That agencies and sectors be actively involved in the development and setting of these of targets and objectives if they are to be accountable for procurement performance and the achievement of these; That the approach to procurement performance management and the setting of objectives be incorporated into the broader performance management development initiative underway within the public sector under SMI 6 ; The inclusion of performance measures that reflect the desired behaviours associated with the new Procurement Management framework into the broader Performance management Development initiative. The development of a National Classification Scheme and the standardisation of Procurement policies, documentation and technology standards. The agreement and support of agencies for National standards; The recognition and reflection of the diversity of activity and approach across the different sectors within the public sector, and hence the need to reflect and manage local needs and requirements; Acknowledging the independence of certain agencies within the public sector. In light of the above A key element of implementation should be the development and implementation of a Change Management approach and plan. Change Management plans will need to reside at an initiative level, be this at the agency, sector or national level. For national level initiatives it is recommended that the National Change Management plan be managed and co-ordinated by the NOU eprocurement Promotion and Change Management function and that this function support and co-ordinate the development of similar plans at the sector and agency level. 71

72 5.3 Recommendations for Change - Technology Overview The purpose of this section of the report is to outline the technology framework recommended to support the: Development of eprocurement within the Irish public sector; Implementation of the recommended procurement practices and processes. The technology framework recommended has been developed to support the procurement process from initial sourcing through to final payment taking into account the recommended procurement practices in the previous section. Some of the key practices that will be supported are: Facilitation of aggregation and Portfolio and Category Management through the provision of accurate and timely information; Reduction in non-contract procurement by providing users and buyers with information about available contracts and access to these contracts; Supporting the Supplier Selection and Contracting approaches through electronic tendering and electronic ordering solutions; Provide a means of implementing Supplier and Procurement Performance Management; Increase the adoption of standard documentation and the availability of this documentation. The implementation of eprocurement services will also enable the public sector to meet its obligations under the eeurope Action Plan 2002: The technology framework should be viewed in the context of other related Government initiatives outlined in Chapter 3 Section 7 such as: Reach and the Public Service Broker; The implementation and roll out of a Managed Data Service to Support the Electronic Delivery of Public Services and the associated Virtual Private Network (VPN); The Management Information Framework within the Strategic Management Initiative; Recommendations in the Third Report of Ireland s Information Soc iety Commission (Dec 2000) 7; 72

73 WWW eprocurement Strategy eenabling the Procurement Process The eprocurement Technology Framework is presented below. Public Sector Buyers Enterprise Sector General Public National Public Procurement Web Site Agency/ Agency/ Sector Sector Public Procurement Web Public Procurement Site Web Site Public Procurement Portal Content Search and Presentation Security Catalogue/ Content Management Content Management System(s) Systems National Catalogues Sector/ Cross Agency Catalogues National Solutions Information Services Sector Sector Solutions Solutions Information Services National Supplier Register National etender Management (Above and Below Threshold) Sector etender Management (Optional) eprocurement Transaction Support Management Information Systems Management Information Systems Agency Catalogues Agency Agency Solutions Solutions Information Services Agency etender Management (Optional) eprocurement Transaction Support (Optional) Financial Management & Inventory Management Systems Management Information Systems Figure 11: eprocurement Technology Framework The technology framework provides public sector buyers, suppliers and the general public with secure access to an integrated range of procurement systems and services, using Internet technology. A Public Procurement Portal will provide the main gateway to all of the facilities, but they will be accessible also through various sector and agency web sites. National solutions, which will be managed by the National Operations Unit, will be provided for: A national supplier register, which will record basic details of suppliers interested in doing business with any part of the public sector; A national etendering system, which will facilitate the online advertising of tenders, and the secure transmission of electronic tender documents between buyers and bidders for public sector contracts; Information Services, giving access to public sector procurement-related information such as news, publications and policies, as well as discussion forums; Management information on procurement, such as performance data and trends; Agencies in all sectors will use the national supplier register and the national etendering system. Sectoral or local etendering systems may also be provided, but they must link to the national system to provided a single view of all opportunities and awards. 73

74 Catalogue-based ordering systems will be provided at sector and agency level. They will provide public sector buyers with facilities to order from online catalogues of goods available under contracts agreed with suppliers. These systems will provide for various means of integration with agencies financial systems to record the transactions carried out. The catalogues made available to buyers through the ordering systems may reside at national, sectoral or agency level, depending on the level at which the associated contracts are managed. As the primary access mechanism for the recommended eprocurement services and systems will be via the Internet, users within the public sector will require access to the internet/ corporate intranet to participate in eprocurement eenabling Suppliers The ability of suppliers to engage in eprocurement will be critical to the success of the eprocurement initiative. There are two key elements to be considered as part of the implementation of the eprocurement Technology Framework. The first is the technology and infrastructure required by suppliers to participate. The supplier side technology requirements should be minimised such that suppliers require only a PC, browser software, modem and internet access. In situations where suppliers are required to download software to interact with the public sector for eprocurement purposes, (for example tender management templates and documents, security software), they should not incur charges for this software. This principle of minimising supplier side software should be included within the evaluation criteria used to select solutions as part of the eprocurement Technology Framework. The second element to be considered during the implementation and deployment of eprocurement is the ability of suppliers to provide catalogues in electronic form and in accordance with the classification scheme developed. Any lack of supplier readiness to provide electronic catalogues may impede the progress implementing and rolling out catalogue-based ordering systems and thereby delay benefits to be achieved from the investment in these systems. In identifying possible categories of goods and services to be supported by catalogues based ordering systems, due regard for supplier ability to provide electronic catalogues should be taken. The following pages contain a further explanation of the framework, along with specific technology recommendations. 74

75 5.3.4 Information Services A National Procurement Website should be provided to act as a gateway to procurement related services for public sector buyers, suppliers and the general public The national website will be an access facility as well as providing procurement related information to public sector buyers, suppliers and the general public. It will facilitate navigation to various systems and information sources at national, sectoral and agency level. A Content Management Framework for procurement should be devised to cater for all procurement-related information accessible via the National Procurement Website. This framework will define inter alia, content templates, technology standards, meta data standards, content design and editorial and approval processes. This framework should be consistent with the content management framework being developed as part of the BASIS project under the Reach initiative. Content for procurement-related information, made available through the national web-site should be managed at a national level. The diagram below illustrates the type of information that might be available. Public Sector Buyers Enterprise Sector General Public WWW Local (Agency/ Sector) Public Procurement Web Site National Public Procurement Web Site Local Content SERVICE How do I? Contact Details FAQs STRUCTURED News Press Releases Speeches Circulars Parliamentary Questions BUYER FORUM Best practice advice Buyer communities Figure 12: Information Services Search Engine (Government or or Public Procurement engine) Content National Content REFERENCE Procurement Practices & Standards Template Documents Archives Reference & Statistical Annual Reports General Publications POLICY Legislation & EU Directives Policy & White Papers 75

76 5.3.5 Supplier Registration The national supplier register, as described at above, will record information on suppliers interested in supplying to the public sector. It will be optional for suppliers to register. Supplier Information Stored Four categories of supplier information have been identified for possible inclusion within the register. These four categories are: Level 1 Level 2 evel 3 Level 4 Identification Information: Product and Service Information: Standard Tender Information: Tender Specific Information: Information related to the supplier that allows buyers to locate and identify the supplier. For example, business name, address, contact details Information pertaining to the products and services that the supplier is interested in providing to the public sector. This will probably be a multi-choice list of categories of goods and services based on the categorisation approach implemented. Some extra information maybe required for specific categories of goods/ services Information about a supplier that is requested as part of the every tender process. This is an expansion on the identification information to cover things such as broader business descriptions, summary of annual accounts, tax clearance certificate, etc. Information that a supplier provides which is unique to an individual tender (e.g. pricing information, track record in a certain area, etc.) The first 3 levels of information should be stored within the Supplier Register. For those suppliers who do wish to register, level 1 and 2 would be mandatory and level 3 optional for suppliers to complete. Care would need to be taken in the future that any necessary links are maintained between the Supplier Register and the Public Services Broker (PSB), an initiative being undertaken as part of the Reach programme, to share basic information stored on businesses. Supplier Identifier A unique identifier will be required for all suppliers wishing to register. It is likely that the business identifier being developed under the Reach programme will need to be supported by a Supplier ID at the appropriate business entity level. This will require further analysis of decisions in relation to the business identifier are progressed. Overview of Operation The following diagram provides an illustration of how the register may operate with suppliers accessing the service via the web or via a support centre and buyers retrieving information from the register via the web. The diagram also shows potential links to the Public Service Broker to 85 information from here as well as links to Revenue for Tax Clearance certificates. 76

77 Supplier Buyers Receive Supplier ID WWW Customer Service WWW Supplier Register Information Services Information Services Search For Suppliers and Supplier Information Identification Information Revenue Public Service Broker Product and Service Information Standard Tender information Supplier Register Figure 13: Supplier Registration 77

78 5.3.6 etender Management An electronic Tender Management facility should be provided at national level to support both above and below EU Threshold tenders for supplies, services and works contracts. Sectors/agencies may choose to implement local tender management solutions. However, where local (sector/agency) tender management solutions are deployed the national facility should provide visibility of such tender notices, documents and awards. The rationale for providing a National etender Management facility is: To provide economies of scale and minimise the cost of implementing multiple solutions to meet the requirements of the EU Directives; 3,4,5 To provide a single security infrastructure to meet the requirement of the EU Directives; To be consistent with the existing initiative; To meet obligations under the eeurope Action plan; To provide the consistency of approach and process to suppliers. Tender Management is defined to cover the process from tender document preparation through to tender award. The scope of the etender Management component is to cover all RFx types processed including: Request for Information; Request for Proposal; Tender processes within Framework agreements. The Tender Management Facility should provide a means of transferring information between awarding authorities (buyers) and suppliers as part of the tender process. Other functions to be supported by the Tender Management Facility are: Provide standard templates and paragraphs to be included in tender documents; Maintain log of suppliers who have downloaded documents; Provide clarification forum facility to enable tenderers to submit queries and to enable the contracting authority to publish responses to these queries; Facilitate the payment of tender documentation fees; Publish information in relation to the award of all tenders. The electronic tender documents should contain electronic response templates that provide on-line validation to ensure the completeness of tenderers responses. Tenderers should be able to electronically submit completed tender responses in a manner that ensures: No loss or modification of information; No access to the information in advance of the tender closing date / time; Full audit trail of file movements showing when tenders are issued, received and opened; 78

79 etender Management Components The following diagram highlights the key functional areas and the interaction with awarding authorities and suppliers (depicted by the dashed lines). etender Support for the Tender Process Awarding Authority Tender Creation Document Management Tools Buyers use templates and online forms from the etender solution to develop tender documents both for online and offline completion Supplier Tender Completion Offline Completion Response Suppliers complete the tender: on-line; download the tender document and complete off-line create new documents to be submitted Awarding Authority Tender Evaluation Evaluation Evaluation supported by etender System and additional Offline evaluation Tender Document Templates Tender Publication Online Completion Tender Opening Evaluation Support Tender Award etender Management Solution Figure 14: Functional elements of an etender Management Facility Integration with other Components The etender Management Solution should be closely integrated with other components of the eprocurement Technology Framework and other external systems. The diagram presented below provides an overview of some potential integration points. Integration with other component eprocurement Technology Framework Supplier Registration Details eprocurement Transaction Support Facility Notify suppliers of tender notices; extract supplier information for Tender purposes Raise Purchase Order after the contract is awarded etender Management Solution Update notice and award details for above EU Threshold Tenders Process Payment for Tenders External Systems Tenders Electronic Daily (OJEC/ SIMAP) Credit Card Authorisation System Figure 15: Integration Options for etender Management Solution The existing Con-Val and Con-Doc systems developed by the local authorities sector should be taken into consideration in the development of a national tender management solution. 79

80 5.3.7 eprocurement Transaction Support and Catalogue Management The eprocurement Transaction Support and Catalogue Management Facility will provide buyers and users with the following support: Access to the appropriate catalogues; Search for, and identification of, items which could meet buyers requirements; Determining the prices available; Selecting from a choice of options; Placing an order for the items required; Providing delivery instructions; Electronic transmission of the order details for authorisation and approval to the appropriate authorisers; On approval, transmission of the order to the supplier (via , fax, integration to supplier s sales order system); Transmission of the order (real time or in batch mode) to the buyer s own Procurement and / or Financial Management system; Updating of the Management Information System to reflect the detail of the transaction. The facility is comprised of two key components, eprocurement Transaction Support Catalogue Management. There are a number of possible implementation models to support the agencies requirements and the functionality highlighted above. A brief summary of the models is presented below: Model Other Organisation (Shared or Outsourced) Buying Organisation (Agency) Description When is it most applicable? 1 Catalogue System eprocurement Transaction Support Users All eprocurement facilities implemented and managed locally Inventory purchases Specialised procurement for an agency Catalogue facilities available locally with functionality to load shared catalogues 2 Catalogue System eprocurement Transaction Support Users Agencies use existing eprocurement systems and punch out to catalogues services that host shared and/or local catalogues Agencies with existing eprocurement Transaction Support systems but want to access shared catalogues or outsource their catalogue management through a separate catalogue management service 3 Catalogue System eprocurement Transaction Support Users Agencies use shared eprocurement Transaction Support Facilities and Catalogue Management Services Agencies do not have eprocurement Transaction Support Facilities locally to support catalogue procurement and requisitioning Figure 16: Transaction Support & Catalogue Management Analysis of the current systems infrastructure within the public sector would suggest that each of the three models outlined above will need to be supported. In addition to the facilities outlined above, it is possible that there will be a requirement for specialist eprocurement transaction support facility to support the needs of specific categories of procurement that have unique requirements (e.g. printing). In these scenarios it is recommended that such solutions are procured at the level (i.e. national, sector, agency) at which categories are managed. 80

81 Catalogue Management Preferred implementation models and catalogue standards should be developed at national level to facilitate the implementation of Catalogue Management systems. This framework should address the following: Provide common catalogue standards to allow suppliers deliver catalogues in a common format when they are dealing across sectors; Provide a means for sectors and agencies to share catalogues and search across catalogues; The manner in which access should be provided to shared catalogue management services. eprocurement Transaction Support Individual sectors should assess their sub-sector and agency requirements and where appropriate provide shared eprocurement Transaction Support and/or Catalogue Management facilities to the sub-sectors and agencies. It is recommended that these systems be provided at sector or agency level because: The majority of contracts will reside at these levels; Sectors, sub-sectors and agencies would be better placed to manage the linkages needed to local financial management systems. Sectors should leverage experience gained from pilot implementations and other sector and sub-sector implementations when planning and implementing transaction support and catalogue management facilities. emarketplaces As outlined within the Procurement Practices Recommendations for change, under the existing EU Directives, emarketplaces cannot be used for the sourcing and selection of suppliers for above EU Threshold procurement. However in evaluating possible solutions in the eprocurement transaction support area, consideration should be given to leveraging existing emarketplaces to provide support for the electronic ordering of goods and services for existing contracts and/or framework agreements. The use of emarketplaces in these instances could reduce the need to invest in eprocurement Transaction Support and catalogue management facilities that would be delivered solely for the purpose of the sector or agency contract(s). Electronic Payment The electronic payment facilities of the Public Sector Broker being developed by Reach should be used for eprocurement systems. In order to enable supplier payments to be made by electronic means, it will be necessary to have the required framework and infrastructure. This should be developed in conjunction with the Reach initiative to ensure consistency of standards and approach. 81

82 5.3.8 Management Information Systems The implementation and roll-out of MIS across the public sector should be managed at national level through the development of national standards. Management Information will be critical to support a number of the Procurement Practices and Practices recommended, as well as measure success against the strategic objectives and key performance indicators identified in Chapters 4 & 6. The management information required to support procurement can be categorised into strategic, management and operational. The diagram below illustrates the broad categories of MIS required and examples of the reports. Specify Select Suppliers Tender Ordering Receiving Paying Recording/ Compliance Strategic MIS Spend Analysis (historical) Category Agency Supplier Contract Market Analysis External research Business Requirements Forecasts and Budgets (demand, quantity, timing) Requirements/ Inputs to tenders Operational MIS Operational Reports Budgets Vs Actual Delivery and SLA monitoring Outstanding orders and deliveries Management MIS Supplier Performance Adherence to SLAs Price Quality Procurement Performance Total Cost of Ownership Cost Savings Number of Supplier % of spend under contract Buyer Contract Compliance Value for money performance Figure 17: Categories of Management Information The recommended framework should incorporate the: Identification and development of metrics for each category of management information (i.e. to measure progress against the Key Performance Indicators, to support spend analysis, to measure Procurement Performance and to measure Supplier Performance); Development of the reporting processes and templates to be implemented at national, sector, sub-sector and agency level to support the metrics; Identification of specific data that must be provided by agencies, sub-sectors and sectors. 82

83 5.3.9 Security The security infrastructure provided as part of the Public Services Broker (PSB) and any associated Trusted Third Party should be leveraged to provide the security infrastructure required for eprocurement. In order to encourage buyers and suppliers to engage in eprocurement it is critical that both parties have confidence in the underlying security infrastructure. There are a number of factors influencing the security infrastructure required to support the eprocurement initiative including: Above EU Threshold, the Tender Management solution will have to meet the functional requirements set out in Annex X of the proposed EU Directives (See Appendix I); Buyer and supplier access to systems via the Internet and intranet requires robust authentication as well as authorisation functionality. Based on the identification and authorisation of the user, the services available will be personalised to the users profile; The transfer of data between buyers, suppliers and banks requires secure communication channels to ensure confidentiality, non-repudiation and integrity; The potential for outsourced and /or hosted solutions increases the security requirements between these systems and any internally hosted system to mitigate against and detect unauthorised intrusion; The security infrastructure for below EU Threshold tenders should be chosen on a case by case basis with reference to the preference of the awarding authorities, value of the tender and requirements of the supplier base; The security infrastructure provided by the PSB under the Reach initiative should be utilised to provide: Buyer and supplier authentication to access components of the eprocurement Technology Framework; A PKI infrastructure as a means of authenticating suppliers including the provision of the following services; Registration Authority to validate and verify identity of domestic and international suppliers for the purpose of digital certificates; The issuing and management of digital certificates; Accreditation standards and accredited Certification Authorities of other PKI infrastructures to promote interoperability; PKI technology standards that eprocurement components must comply with to ensure they can be PKI enabled. 83

84 Technology Standards Framework Standards Setting and Management An eprocurement Standards Working Group should be established under the National Operations Unit The purpose of this working group should be to: Take the lead role in developing and maintaining an eprocurement Standards Framework; Manage co-ordination with other relevant government initiatives and international standards bodies; Monitor compliance with the recommended standards framework; It is important that all standards incorporated into the eprocurement Standards Framework are accepted by all stakeholders engaged in public sector eprocurement. All key stakeholder groups should therefore be involved in the definition and maintenance of the framework. A working group focussed on setting standards is critical in order to facilitate interoperability between national, sector and agency systems and to support document exchange and integration between buyers and suppliers. The eprocurement working group should focus on the development of Data Exchange Standards and Catalogue Format Standards. The development and adoption of other standards, for example security and interconnectivity, should be co-ordinated with other egovernment standard bodies. While the eprocurement Standards Framework will be defined at a national level in accordance with other egovernment standards and with input from all relevant parties, the task of implementing these standards will to a large extent fall to the individual agencies within the public sector. Data Exchange Standards The successful introduction and adoption of eprocurement in the public sector will be dependent in part on the ease with which procurement related data can be exchanged both within the public sector and between the public sector and its supply base. In line with other egovernment initiatives, XML should be promoted as the document exchange standard. XML standards for data exchange such as ebxml should be assessed as to their suitability to be adopted for eprocurement purposes. 84

85 Catalogue Format Standards The use of electronic catalogues to support the sourcing and ordering of goods and services will be an important element of the implementation of the eprocurement initiative. Catalogue Format Standards are the means by which catalogues/content is exchanged, structured and displayed. Catalogue standards should be based on XML schemas defined as part of the Data Exchange Standards. The development of XML schema should incorporate the catalogue formats required. The selection of any catalogue management vendor or service provider should be assessed as to their ability to accept and output data to the selected standard Integration Principles The level of integration refers to the extent to which the solutions within the eprocurement Technology Framework are integrated. It is necessary that purchase transactions carried out through electronic ordering transaction support systems are reflected in agencies Financial Management Systems (FMS) and are communicated to suppliers for fulfilment. The diagram below identifies three possible levels of integration for both buyers and suppliers Level 1 Manual Integration Level 2 - Batch Integration Level 3- Real Time Integration No direct electronic links between any of the applications. In this scenario, buying agencies would have to manually update the FMS to record purchases made (perhaps at a summary level) and to facilitate payments. Suppliers would receive orders via fax or . Batch file transfer based electronic links between the eprocurement Transaction Support Facilities and the systems of the buyers / suppliers. In this scenario, the information is being transferred from the eprocurement facility to the FMS on a scheduled basis (e.g. daily, weekly, monthly) and orders are being provided to the suppliers on a scheduled basis also. The third level is real time integration between the central eprocurement Application and the buyer/ supplier systems. This can be provided in two manners: Through eprocurement Transaction Support being provided by agencies FMS systems Through real-time transfer of information from the eprocurement Transaction Support facility and the FMS. Table 5: Levels of Integration 85

86 Buyer - Level 3 Supplier - Level 3 FMS epts FMS IMS SOP Real Time Data Transfers Messaging Services Real Time Data Transfer Real Time Data Transfer Messaging Services Real Time Data Transfers Shared epts and CM Facilities Buyer - Level 2 Supplier - Level 2 Standardised Batch Data Transfers FMS Messaging Services Batch File Transfers eprocurement Transaction Support (epts) Catalogue Management (CM) Batch File Transfers FMS IMS Messaging Services SOP Standardised Batch Data Transfers Buyer - Level 1 Supplier - Level 1 FMS FMS IMS SOP Manual Processes / Fax FMS = Financial Management System IMS = Inventory Management System SOP = Sales Order Processing System /Fax Manual Processes Figure 18: Levels of Integration The level of integration required should take the following factors into consideration: The good or service being supported by any shared eprocurement Transaction Support and Content Management facility, reflecting the importance of the good or service to business continuity and to the management of procurement and inventory; The requirement of agencies to have real-time information in their FMS systems for inventory or budgeting reasons; The requirement for line item information in the FMS systems versus summarised journal entries (i.e. it may be sufficient to record summary information in relation to certain goods such as stationery while storing line item records of inventory goods); The deployment of the eprocurement Transaction Support facility to support the requisition to cheque process versus the use of the FMS system; Cost effectiveness of integrating an eprocurement Transaction Support facility with the FMS systems. The solutions provided should accommodate differing levels of integration and the level to be implemented should be determined on a case by case basis. 86

87 Solution Principles Focus on End-to-End Managed Services Where economically beneficial, the systems and support services recommended in this report should be provided on a managed service basis. The national and sectoral organisation structures proposed have not been designed to be of sufficient scale to carry out the design, construction and operation of the systems contained in the eprocurement technology framework. Therefore, the procurement agencies should seek to select vendors who will provide complete managed solutions with defined Service Level Agreements (SLAs) for the performance of the service. The service procured should, where possible, provide the following three levels of service: Provide and manage applications and operational processes including help desk support and application configuration and upgrades; Monitor and manage connectivity, infrastructure and operations processes; Provide storage, connectivity and infrastructure hosting. Buy versus Build Packaged software solutions are recommended in preference to custom development, where appropriate. Packages exist which can support the major components of the eprocurement technology framework. However, the suitability of packaged solutions may be impacted by the uniqueness of public sector requirements, particularly in relation to tender management, which is heavily influenced by regulatory requirements. 87

88 5.4 Recommendations for Change - Economic National Policy/ Strategy Formulation The National Operations Unit should keep abreast of major developments in the profile and ecommerce readiness of the existing supply base and be in a position to advise on the likely impact of eprocurement and category management strategies on the supply base. The National Operations Unit (NOU) should maintain an understanding of the profile and ecommerce readiness of the existing supply base, as well as the nature/ potency of existing barriers to public procurement market access for different categories of supplier. This expertise should be offered by the Procurement Support Unit of the NOU as an advisory service to the wider public sector in the formulation of procurement strategies and rigorously applied in reviewing procurement strategies at sectoral and agency levels to allow for an assessment of the likely impact of changes proposed on the existing supply base. The Procurement Support Unit of the National Operations Unit should be a national repository of learning on the nature and effectiveness of initiatives aimed at minimising the negative enterprise effects of the introduction of eprocurement/ private sector procurement practices into highly decentralised public sector markets. Potential initiatives in this regard might include the aggregation of demand for a given category of good or service to the regional as opposed to the national level, the posting of all invitations to tender on the government tenders website and/ or the introduction of a policy of including at least one SME in the supplier listings for below-threshold restricted tenders. Evidence collated from the experiences of public sector buyers and suppliers should be evaluated and disseminated as appropriate to procurement practitioners. The National Procurement Advisory Board should have regard to the views of enterprise representative bodies. All category management strategies which envisage significant change to existing procurement approaches should be advised by research aimed at determining the enterprise impacts of proposed changes to existing practices, policies and processes. Based on this research and baseline data collated for sectoral/ national procurement performance management systems, statements of category management strategy should incorporate, at the minimum, a profile of the existing supply base, a description of changes to existing procurement practices/ policies/ processes, an assessment of the new requirements that such changes place on existing suppliers and a description of measures/ initiatives undertaken to ensure continued market access for the greatest number of incumbent suppliers Enterprise Supports / Communications Strategy The National Operations Unit should develop a mechanism for keeping suppliers informed of changes in procurement policies, practices and processes, as well as the introduction of new services such as the supplier registration system. The National Operations Unit should have responsibility for keeping the enterprise sector informed of supply opportunities and requirements/ procedures associated with such opportunities, as well as public sector wide changes to procurement practices, e.g. introduction of a single supplier register. This requirement may be met to some extent 88

89 passively, for example via the proposed national website or the stimulation of general publicity about the initiative. However, the approach taken should also incorporate a more proactive element guided by the preparation of a national enterprise communications strategy. This could include activities such as the dissemination of information via the distribution networks and websites of enterprise representative bodies, the hosting of national and regional seminars (independently on in conjunction with enterprise representative bodies), the piggybacking of the many ecommerce awareness initiatives being undertaken by a plethora of bodies at the present time and forecast to run into the foreseeable future, or a requirement that all state-funded ecommerce awareness campaigns have regard to the eprocurement initiative in the public sector. Experience from the communications strategy put in place to promote the existing government tenders website should be applied to determine the most appropriate approach to this exercise. NOU activity in this regard will be eprocurement specific and designed to complement the more mainstream ecommerce capability raising activities of dedicated enterprise support agencies and bodies. The effectiveness of these agencies/ bodies in promoting ecommerce capability will be crucial to the overall success of the introduction of eprocurement into the Irish public service Performance Indicator System/ Monitoring The national and sectoral procurement performance indicator system should incorporate data on the size, location and ownership of enterprises registering and tendering for public procurement business as well as for those awarded contracts. This information should also be used as a basis to track the impacts of the introduction of eprocurement on the supply base. National and sectoral-level procurement performance indicator systems should incorporate data on the size, location and ownership status of enterprises registered and tendering for public procurement business, and similar information on the profile of enterprises that are awarded contracts. The scope of the data should be limited to information necessary to carry out category management and performance evaluation, whether at national, sector or agency level and should be determined in consultation and agreement with the participating agencies. This would require that the supplier registration process and/ or tender documentation incorporate the provision of information in relation to each of these indicators. To the extent that it is possible, data should be tracked relative to base year findings to determine the extent to which the single supplier register is reaching all categories of supplier as well as to determine the enterprise impacts of changed procurement practices. The foregoing exercise should be supplemented by a cohort analysis of suppliers to the public service to allow for the tracking of the impacts of the introduction of eprocurement on the ecommerce readiness of the supply base at the time of its introduction, as well as to determine the survival rates of selected supplier categories. With regard to the former, and reflecting the fact that the stimulation of ecommerce among suppliers to the public sector is one of the procurement performance objectives of the eprocurement initiative, base line data should be incorporated into the national indicator system and targets should be set. 89

90 5.5 Recommendations for Change - Legal Transposition of Amendments to EU Directives 2,11 In order to facilitate the change to etendering, there is a need for early transposition of the currently proposed amendments to the EU public procurement directives, once adopted Submission to EU Commission on eprocurement The Commission will be issuing a communication on the use of emerging ecommerce practices in public procurement by the end of It has requested that in advance of this, the Irish government make submissions to it in relation to eprocurement in general and, in particular the merit of permitting the use within the public sector of the types of eprocurement practices that are being used in the private sector. The Irish Government should take up the invitation from the EU Commission to make a submission in relation to eprocurement and the merit of permitting the use within the public sector of the types of eprocurement practices that are being used in the private sector, and that it consults with the utilities sector in formulating its submission Review of Agencies Statutory Basis In preparation for the introduction of eprocurement, agencies should, on an individual basis, carry out an audit of the legal documents under which they were established and operate (including, where applicable, their statutory basis) to ensure that these do not contain any barriers to the transition to eprocurement and, if potential barriers are identified, they should seek to have them removed Reverse Auctions It is understood that other Member States may seek to amend the wording of the proposed amendments to the public sector procurement Directives to allow for the use of reverse auctions, both generally and in the case of frameworks contracts (i.e. the individual contracts awarded under a framework agreement). The Irish Government should consider support for any amendments proposed by other Member States or by the EU Commission in favour of permitting the use of reverse auctions or table such an amendment itself. 90

91 5.5.5 Electronic Signatures Directive 12 The Irish Government, through the participation of the National Accreditation Board in the European Electronic Signature Standardisation Initiative, should seek to accelerate progress on the development of standards relating to the definitions set out in the Electronic Signatures Directive, so as to ensure the effective operation of the free movement and mutual recognition principles set out in that Directive. The Irish Government should also ensure through the European Commission that the adoption and publication of standards for electronic signature products, by means of the procedure set out in the Directive, should be prompt and responsive to facilitate implementation and mutual recognition of products within the EU Maximising Competition in the Market Purchasing practices should be designed having regard, at all times, to the need to maximise competition in the market and to discourage anti-competitive practices Transmission and Receipt of Electronic Communications In the terms and conditions of use of any eprocurement facility set up, and in the tender documents relating to specific procurements, clear rules should be laid down in relation to the transmission and receipt of electronic communications, and procedures should be put in place to deal with all reasonable contingencies. 91

92 6 Costs, Benefits and Funding This section outlines the costs and benefits associated with the introduction of the key recommendations for change, along with recommendations on funding for the initiatives proposed. 6.1 Costs Set out in Chapter 7 (The Way Forward) are descriptions of the national initiatives recommended, including the setting up of organisational structures, the implementation of systems, pilot projects, and strategic studies. A summary of the projected costs of these initiatives over the period is as follows: Year Total Estimated Cost (EUR 000s) Total Identified Capital Costs (EUR 000s) Total Identified Operating Costs (EUR 000s) FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY ,895 11,648 6,667 6,752 6,837 6, ,791 6, ,104 5,092 6,667 6,752 6,837 6,837 Total 47,674 13,385 34,289 Figure 19: Summary of Projected Costs 2 In addition to the national initiatives recommended, it is envisaged that each sector will prepare a sectoral eprocurement strategy in which it will set out its own programme of initiatives to implement the eprocurement strategy. It is not possible at this stage to accurately cost the full range of initiatives that may be implemented at sector and agency level over the period of the strategy. These costs will depend on many factors, but primarily on the rate at which agencies and sectors can adapt to the new procurement framework. It must be recognised, also, that in implementing some of the initiatives, it is likely that 2 The Dept. of Finance circular Costing of Civil Service Staff Time (1996) was used in the calculation of these costs 92

93 increased costs will be incurred over the transition period due to the need for running old and new approaches in parallel. Cost estimates will be prepared by the sectors in developing their sector eprocurement strategies and it is likely, that the overall costs of implementing the national strategy will be significantly greater than the costs of the national initiatives alone. Consequently, the approach taken to determine the level of investment to be allocated for the implementation of the national strategy has been Firstly, to identify the potential benefits, both financial and non-financial, achievable through improved procurement in the period to 2007; Based on these, to determine a level of investment, which could be justified to achieve the desired outcome. The rationale used for determining the size of the fund required is set out in the following paragraphs. 93

94 6.2 Benefits Strategic Objectives and Targets The financial and non-financial benefits envisaged from the implementation of the strategy are reflected in the strategic objectives proposed in Chapter 4 (Strategic Objectives). Targets and key performance indicators are recommended for each objective, and these are summarised in the table below. The spend-related percentage targets are set with reference to the budgeted / forecasted out-turn for FY2001. Objective Key Performance Indicator Target A) To improve service levels to buyers, suppliers and users involved in public sector procurement B) To develop a more integrated approach to procurement across public sector agencies and sectors C) To minimise the transaction costs associated with procurement through the standardisation, streamlining and automation of the procurement process within and where appropriate across agencies and sectors D) To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector E) To promote competition among suppliers while maintaining reliable sources of supply User, Supplier and Buyer Satisfaction Levels Percentage of National Expenditure on Supplies and Services and selected works (repairs and maintenance) procured under cross-agency contract Average Cost per Transaction for supplies, services and works (repairs and maintenance) Transaction Cost for capital works Percentage of National Expenditure on Supplies and Services and works (repairs and maintenance) procured under contract Unit Cost Reduction for Supplies and Services and Works (repairs and maintenance) Fee levels for tender management and contract supervision and administration for capital works User, and Buyer Satisfaction Levels Percentage of Tender and Award notices Published Electronically Unit Cost Reduction Set following completion of baseline survey. 25% of expenditure on supplies and services and works (repairs and maintenance) procured under crossagency contracts by end Y5 (2007) 20% reduction in average transaction costs by end Y5 (2007) 25% of expenditure impacted by end Y5 (2007) Reduction in transaction cost equal to 0.25% of total capital works expenditure by end Y5 (2007) 50% of expenditure on supplies and services and works (repairs and maintenance) procured under contracts by end Y5 (2007) Average Unit Cost Reduction of 5% for supplies services and works (repair and maintenance) by end Y5 (2007) Reduction of 0.5% of total capital works expenditure by end Y5 (2007) Set following completion of baseline 80% by end of Y2 (2004) Average Unit Cost Reduction of 5% by end Y5 (2007) 94

95 Objective Key Performance Indicator Target F) To optimise inventory levels through the adoption of efficient procurement practices G) To make effective use of human resources in the procurement process H) To promote the use of ecommerce in the wider economy I) To improve the auditability of public procurement expenditures J) To be progressive in the adoption of procurement related Information and Communication Technologies (ICT) Addressed as part of category management strategies Average Cost per Transaction for supplies, services and works (repairs and maintenance) Transaction Cost for cap ital works Track movements in ecommerce adopting levels in public sector supply base relative to adoption levels in wider enterprise sector No national targets set Percentage of Tender Competitions carried out electronically Percentage of Tenders and award notices advertised and tender documentation published electronically Percentage of Expenditure on Supplies and Services supported by electronic catalogue and ordering facilities Percentage of Payments transacted Electronically 20% reduction in average transaction costs by end Y5 (2007) 25% of expenditure impacted by end Y5 (2007) Reduction in transaction cost equal to 0.25% of total capital works expenditure by end Y5 (2007) Set following completion of baseline 90% of Tenders above EU Threshold by end of Y4 (2006) 80% by end of Y2 (2004) 10% of expenditure on supplies and services by end Y5 (2007) 80% by end Y5 (2007) Table 6: Objectives, Targets and Key Performance Indicators The targets chosen are considered realistic and achievable. They are based on international research and experience and reflect the low end of the range of cost reductions claimed or projected by others in both the private and public sectors internationally. A description of the basis and rationale for selecting these targets, along with the proposed approach to measuring performance against targets, is set out at Appendix B Quantifying the Financial Benefits The level of financial benefits achievable is based partly on the estimated percentage of overall public sector procurement expenditure, which could be saved as a result of the implementation of the eprocurement strategy. For FY2001 the total national expenditure on procurement in the public sector (excluding the commercial state sector) is projected to be approximately EUR 8.8bn. This has been established with reference to Votes & Estimates (2001) and local authority accounts (1999), producing the following figures for the 2000 and 2001 financial years: 95

96 Central Government Education Health Local Authorities TOTAL EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 FY2000 Gross 10,720,471 4,233,911 5,656,038 3,916,854 24,527,274 Less: Pay 2,643,833 2,661,591 3,281,270 1,202,372 9,789,066 Less: Deductions 5,907, , , ,155 7,280,994 Less: Mail / Travel 165, ,000 Procured 2,003,681 1,333,841 1,534,365 2,420,326 7,292,214 Being: Works 831, , ,944 1,706,331 3,344,265 Supplies & Services 1,172, ,242 1,240, ,995 3,947,948 FY2001 Gross 12,874,017 4,716,285 6,851,039 4,781,316 29,222,656 Less: Pay 3,017,413 3,043,504 3,995,753 1,361,017 11,417,687 Less: Deductions 7,226, , , ,456 8,774,422 Less: Mail / Travel 183, ,000 Procured 2,447,194 1,409,114 1,909,398 3,081,842 8,847,547 Being: Works 1,003, , ,845 2,271,088 4,116,997 Supplies & Services 1,443, ,656 1,565, ,754 4,730,550 Table 7: Spend Estimates Education, Health and Local Authority figures incorporate their respective Government Department spend figures. Due to the significant increase of predicted spend in FY2001 over FY2000,therefore it is prudent to base predicted financial benefits upon the budgeted / forecast out-turn for FY2001: Supplies & Services EUR billion Works EUR billion Basis of Calculation of Financial Benefits The financial benefits projected, can be summarised under two headings: Unit Cost reductions, reflecting reductions in the unit price paid for supplies works and services, arising from leveraging buying power and improved procurement practices; Transaction Cost reductions, which reflect lower administration costs within the public sector, arising primarily from standardisation, streamlining and automation. The following table summarises the targets in relation to each of these, taking into account the level of reduction proposed as well as the proportion of expenditure impacted. Unit Cost Reduction Transaction Cost Reduction Table 8: Savings Targets Supplies and Services Works (Repair & Maintenance) Capital Works 2.5% of Total Expenditure 5% of Total Transaction Costs 2.5% of Total Expenditure 0.5% of Total Expenditure 5% of Total Transaction Costs 0.25% of Total Expenditure 96

97 Reductions in capital costs arising from increased automation and standardisation of suppliers procurement transaction processes have not been included although the potential for such savings will arise as the eprocurement capability of suppliers increases over time Timing of Benefits Assumptions about the timing in the delivery of cost reductions are crucial in quantifying the financial benefits. Because gearing up in terms of organisation, resourcing, training and systems will take time, it is anticipated that benefits delivered over the period of the strategy will be back-loaded *, with little significant benefits emerging in the earlier part of the period Financial Benefits Estimates The following table summarises the assessment of potential financial benefits over a five-year period (assuming that FY2002 is year zero for investment purposes). All costs are at FY2001 levels. Year FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Cumulative EUR'mill EUR'mill EUR'mill EUR'mill EUR'mill EUR'mill EUR'mill Procured Supplies & Services 4,914 4,914 4,914 4,914 4,914 4,914 LESS:Travel / Post Net Supplies & Services 4,731 4,731 4,731 4,731 4,731 4,731 Works (Repairs & Maintenance) Works (Capital) 3,211 3,211 3,211 3,211 3,211 3,211 Total 8,848 8,848 8,848 8,848 8,848 8,848 Cumulative Impacted %age Impacted Costbase ,770 3,539 5,899 8,848 Procured Supplies & Services Unit Cost Related Benefit Transaction Cost Related Benefit Works (Repairs & Maintenance) Unit Cost Related Benefit Transaction Cost Related Benefit Works (Capital) Unit Cost Related Benefit Transaction Cost Related Benefit Total Unit Cost Related Benefit Transaction Cost Related Benefit Total saving Table 9: Assessment of Potential Financial Benefits * To reflect this, we have used the sum of digits approach to estimate a pattern of exponential increases cost reductions delivered (see figure 19 below). This is an approach to depreciation used to reflect loss of value early in asset lifetime. In this instance we are using the method in reverse, to reflect benefit delivery later in the lifetime of the initiatives 97

98 Recurring annual benefits are EUR 177 million at, and beyond, FY2007 (year five), building up incrementally from FY2002*. This represents approximately 2% of annual (in scope) procurement expenditure. The potential cumulative benefit over the reference period (FY 2002 FY2007) is estimated to be EUR 414 million. The in-year and cumulative delivery of savings is depicted in the graph below: EUR 'million FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Year Annual Saving Cum.Saving Figure 20: Delivery of Savings 6.3 Determining the Level of Funding To determine the level of investment, which could be justified based on the targeted savings being achieved, an approach based on discounting the potential future financial benefits has been adopted. A high discount rate (20%) was chosen because of: The relative risk attached to the delivery of savings; The elapsed time before the bulk of savings is potentially delivered (i.e. in our workings, 60% of savings are delivered during years four and five FY2006/2007). In view of the back-loaded nature of benefits, it is necessary to link investment with potential savings delivered, and provide it in two separate tranches: 98

99 Year FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Cumulative EUR'mill EUR'mill EUR'mill EUR'mill EUR'mill EUR'mill EUR'mill Total saving NPV: LESS: Investment - Tranche NPV - post Tranche NB Given the NPV(Net Present Value) of the year two cumulative saving equalling EUR 40 million (i.e. EUR 12 million plus EUR 28 million), the maximum investment that would deliver an IRR=20% (i.e. a cumulative NPV=0) is derived as the total investment (divided into three equal parts) that has an NPV of EUR 40 million at a discount rate of 20%. Hence the NPV of saving less investment equals zero. Table 10: Timing of Investment The first investment tranche covers years zero to two (FY ) up to EUR 43 million could be invested evenly over the period to deliver the cumulative savings envisaged (EUR 13 million plus EUR 36 million = EUR 49 million). This would deliver a zero NPV (Net Present Value) at year two indicating an Internal Rate of Return (IRR) of 20%. Any effort to rigorously derive the level of investment required for the second tranche (FY2005 FY2007) is likely to be unreliable because of the back-loaded nature of the savings envisaged. At this stage, it is not unreasonable to expect that a continuation of the investment levels proposed for years zero to two would be likely to provide an IRR greater than 20%, and it is likely that significantly greater levels of investment could be justified at that stage. The investment should reap increasing rewards by virtue of the cumulative effect of the initiatives implemented in the earlier years. Therefore, the overall amount, which could be invested over the whole period of the strategy, , based on projected financial benefits only, is EUR 43 million in the years A minimum of an additional EUR 43 million in the years The above projections have not taken account of non-financial benefits because these cannot readily be quantified. However, it is recognised that a higher level of investment may be justified to reflect a value derived from non-financial benefits Review of Second Tranche Funding A review should be undertaken during 2004 to consider the amount of second tranche investment required to deliver the substantial longer-term savings. The outcome may be an increase or a decrease on the levels proposed in this report, and should be based on several criteria: 99

100 Requisite measurement systems are in place in order to confirm the accuracy of numbers; Confirmation that the EUR 13 million savings in FY2003 have been delivered; Firm commitment is made (and plans in place) to deliver the EUR 36 million saving in FY2004; Confirmation that later year (FY2005 FY2007) savings assumptions are realistic and achievable; First tranche investment spending is neither overspent nor forecast to be. The back-loaded nature of savings delivery, and the relatively low savings generated up to FY2004, gives rise to the risk of any slippage in delivery being countenanced (in view of the sizeable benefits in later years). The dangers of early slippage potentially derailing achievement of late-stage savings (in terms of either under-shooting targets and/ or shifting achievement of the recurrent EUR 177 million annual saving beyond FY2007) cannot be emphasised enough. To this end, it is suggested that a stretch-target of achievement of FY2004 savings by FY2003 be considered producing a potential buffer (and recognising the likelihood of delivery of quick-wins early in the timetable). 6.4 Sensitivity Analysis It is worth analysing the impact of different sets of assumptions regarding potential financial benefits achievable. The key area for sensitivity analysis is the percentage used to calculate unit cost savings in relation to Procured Supplies & Services (as this represents two-thirds of total savings generated). For every 0.1% change in unit cost savings (relating to Procured Supplies & Services only), the change impact on Total Savings (up to and including FY2007) is EUR 11 million (see graph below). For example, total savings would be roughly halved if unit cost savings in supplies and services fell from 2.5% to 0.6%: EUR 'million %age Unit Cost Saving Unit cost Saving Total Saving Figure 21: Relationship between unit cost savings and total savings 100

101 For every 0.1% change in unit cost savings (relating to Procured Supplies & Services only), the change impact on Total Available Tranche 1 investment (up to and including FY2004) is EUR 1 million (see graph overleaf). EUR 'million Total Tranche 1 investment at differing %age Unit Cost Savings (Supplies & Services) %age Unit Cost Saving Figure 22; Relationship between unit cost savings and total available tranche 1 investment Note in both graphs, the white bar represents the working assumption that a 2.5% saving will be delivered. 6.5 Allocation of Funding It is stressed that if the return on investment as set out in this report is to be realised within the timeframe of , appropriate resources need to be put in place at all levels. Failure to do so will result in the anticipated financial returns not materialising during the implementation phase. To facilitate good planning and to provide the necessary confidence, it is recommended that a multi-annual envelope approach be adopted during the annual Estimates process in relation to the funding for the procurement and eprocurement initiatives set out in this report. This funding should be allocated annually to each sector, and to the National Operations Unit, on the basis of proposals for initiatives developed by them as part of the normal budgeting process. The National Policy Unit should approve initiatives and support appropriate budget requests included in sector budget proposals. Individual sectors or agencies requiring initiative funding should ensure that business cases provide full quantitative and qualitative evidence of their ability to deliver benefits within stipulated timescales. When sectoral eprocurement strategies have been completed and agreed, it will be possible to verify the adequacy of the proposed overall funding incorporated in the national strategy. In determining their required levels of investment, sectors must take existing resources into account and their ability to maximise their use in meeting the eprocurement needs of their sector. If the level of funding proves insufficient, it would be important in making any decision about additional funding, to consider the benefits of the eprocurement investment in 101

102 achieving other objectives such as modernising the public service, implementing egovernment and improving national competitiveness. It is recommended that, at least in the initial period, the Government should provide up to 100% of the additional capital and operating funding required for national initiatives. Access to all systems and support services should, in principle, be provided at no charge to agencies and suppliers, in order to encourage their participation. This approach should be reviewed after an initial period, and the opportunity for more creative funding approaches could be considered. This is suggested because Supplier and agency participation is crucial to get these initiatives off the ground Alternative business models which might be proposed by providers, such as reliance on revenues from web advertising, transaction charges to suppliers, and other sources have not yet been proven One of the alternative funding approaches for some of the major initiatives to which consideration should be given at that time is Public Private Partnership (PPP) Treatment of Savings Achieved Budget savings from exchequer funds, arising out of a coordinated and committed approach over time to improved procurement practices and eprocurement, which can yield better value for money for public services, should be available for use in augmenting and improving frontline services provided by the agencies concerned. In order for this approach to be successful, it is necessary that these savings are clearly identifiable and can be shown to genuinely improve value for money in the provision of such services. The mechanisms for tracking procurement performance, set out in Appendix B, should be used as the basis for ensuring this. This must, be subject to Government accounting rules and the right of Government to reduce any allocation in changing budgetary circumstances. The National Operations Unit and Sector Procurement Units should be responsible for monitoring the procurement performance of participating agencies vis-à-vis those not participating, and for the development of strategies, including those based on budgetary policy, to encourage greater participation in procurement initiatives. 102

103 7 The Way Forward The purpose of this section of the report is to outline: The programme of work required to implement the recommendations detailed in the previous section of the report; Pilot initiatives recommended and guidelines for the evaluation of other pilot initiatives; The immediate next steps required to begin the implementation of the strategy. 7.1 Recommended Work Programme In order to implement the recommendations detailed in the previous section of the report it is recommended that a range of projects be completed. The recommended projects are grouped under the following headings: Organisational Development Projects; eprocurement Technology Framework Projects; Further Studies. The following table presents a brief description for each of the recommended projects. Detailed project charters for each of the projects are contained in Appendix G Project Charters 103

104 Project Description Project Sponsor A. Organisational Development Projects: A1: Establishment of Interim National Operations Unit The establishment of an interim unit within the Department of Finance whose main objective is to commence the implementation of key projects in advance of setting up the NOU. The project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit and the appointment of individuals. Dept of Finance A2. Establishment of National Policy Unit The establishment of a discrete national Procurement Policy Unit within the Department of Finance. This should include; the development of detailed roles, responsibilities and competency profiles for all positions within the unit the appointment of individuals to fill these roles. Dept of Finance A3: Review of Interim Organisational Arrangements A4. Establishment of National Operations Unit A5. Development of National Procurement Training Plan The implementation of an independent review of the temporary organisational bodies at national, sectoral and Agency level to determine their most appropriate location in the procurement structure, based on experience ga ined during the initial twelve month period. The establishment of a National Operations Unit. This project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit the appointment of individuals to fill these roles and the physical establishment of the agency. Key to the successful implementation of the procurement practices contained within the national strategy is the development of the skills required to implement these practices at a national, sector and agency level. In order to ensure a consistent set of skills are developed across the public sector and that all agencies and sectors have access to the means to develop these skills a National Training plan will need to be developed. The project should include the following: Conducting a Training Needs Analysis across the public sector to meet the requirements of the eprocurement role out Development of core curriculum Dept. of Finance Dept of Finance National Operations Unit 104

105 Project Description Project Sponsor Determine training delivery approaches Development of Training materials Piloting the delivery of the training courses contained within the curriculum A6. Development of National Change Management Plan A7: Establishment of Central Government Sector Procurement Unit B. eprocurement Technology Framework Projects: B1 National Supplier Registration System B2. Design National Procurement Content Management Framework If procurement is to be viewed as a strategy support activity within the public sector then the current attitude to procurement will need to be changed. This will require the development, management, co-ordination and implementation of a detailed Change management plan once the strategy is approved for implementation. Key components of the Change management plan will need to be stakeholder management and communications management. The establishment of a Central Government Sector Procurement Unit. The project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit, the appointment of individuals and the physical establishment of the Unit. This project will take into account the potential role of the GSA. This project is divided into three phases. Phase one of the project will focus on testing the feasibility of a National Supplier Register by working with representatives from all sectors and from the enterprise community to undertake a scoping, analysis and high level design of the National Supplier Register. Phase 2 of the project will cover the procurement of the solution and solution provider assuming that the outcome of the feasibility study provides the go ahead Phase 3 will cover activities such as completion of the design, technical architecture, system development, system testing and roll-out To develop a framework to facilitate the implementation of a National Public Procurement website as well as sector or agency sites. The project will cover the following: Standards and guidelines to cover areas such as content templates, technology, meta data, content design, editorial process, archiving, etc.; Content classification, templates and design; Authoring, editing and publishing guidelines; National Operations Unit Dept of Finance National Operations Unit National Operations Unit 105

106 Project Description Project Sponsor Agree content sharing approaches for the different content categories; Archiving and expiration guideline; Search engine requirements and suitability of the Government Search Engine. The project should be run in close co-operation with the BASIS initiative. B3. Design National Catalogue Management Framework B4. Design National Procurement Management Information Framework To design and agree with sectors an implementation framework for Catalogue Manage ment Systems. The framework should include areas such as: Implementation models (focussing on potential to share services and information across sectors); Develop Catalogue Standards; Identifying goods and services most suited to Catalogue Management. The scope of this project is provide a framework in agreement with the sectors and agencies, to implement and roll-out MIS across the public sector to support the procurement practices of: Tracking progress of strategy against the KPIs; Portfolio and category management (spend analysis); Supplier performance management; Procurement Performance management. The scope of the project should include: Identification and development of metrics for each category of MIS; Development of the reporting processes and templates for recording and communication procurement performance. National Operations Unit National Operations Unit B5. National Public Procurement Website Design, develop and implement National Public Procurement Website to provide Information Services to public sector buyers, the enterprise sector and the general public. National Operations Unit Phase 1 The scope of Phase 1of this project is to: Identify the information services and web site access requirements based on the content identified as part of the Content Management Framework; Develop requirements to be supported by the Content Management Tool and the ISP; Select Content Management Application and implementation partner. 106

107 Project Description Project Sponsor Phase 2 Design, implement and launch the web site B6. National Tender Management Facility The objective of the project is to provide an electronic tender management system to manage the publishing, completion, submission, opening and awarding of the tenders. National Operations Unit B7. Central Government Catalogue based eprocurement System Phase one of the project should focus on definition and agreement of scope, defining requirements, preparation of tender documents and selection of solution. Phase 2 of the project should focus on implementation of the Tender Management Solution. This will also include the implementation of the required security infrastructure. The first phase of the project will specify the requirements for a Catalogue-Based eprocurement system to support users throughout all departments and agencies within Central Government and in-line with the Framework agreed at a National Level. It will also include the tendering and selection of a solution and implementation partners. The second phase of the project will cover the implementation of the solution for the Central Government departments in line with requirements specified in Phase 1. Central Government Sector Procurement Unit B8. Central Government Management Information System Scope, analyse and design Management Information Systems to meet the requirements of Central Government to support their Procurement requirements based on the agreed MIS framework. Select solution and solution provider for the MIS system. Central Government Sector Procurement Unit C. Further Studies: C1. Develop National Classification Scheme The project will identify an appropriate approach to the coding and categorisation of purchases across the public sector. This will involve the following key activities: National Operations Unit Assessment of the coding and categorisation approaches currently being used in the public sector; Identification of the coding and categorisation requirements (e.g. spend analysis, reporting, ecatalogues); 107

108 Project Description Project Sponsor Determining the level of standardisation achievable; Selection of suitable coding and categorisation standards to meet requirements; Developing approaches to meeting any sector variations required. Development of strategy, policies and procedures to ensure effective implementation of the national approach to coding and categorisation. C2. Develop Unit Costs and Transaction Costs Baselines C3. Revise National Procurement Policies and Guidelines C4. Establish Baseline for ecommerce Readiness of Public Sector Supply Base C5. Establish Baseline for Profile of Supply to Public Sector C6. Establish Baseline for Buyer, Supplier and User Satisfaction Levels The project will develop a baseline for two key procurement measures: Unit cost; Transaction cost. The approach to be adopted will be based on statistical sampling methods. For unit costs, this might be based on a basket of products and services across agencies. The project will also develop policies and guidelines for ongoing monitoring of these measures. This project will revise the current policies and guidelines in order to incorporate the national procurement strategy. The key activities involved will be: Reviewing existing Green Book and identifying areas of change required; In consultation with the NPA and the sectors, determine policies and practices to be included; Develop and agree revised policies and guidelines; Publish and disseminate via national Procurement Website. Conduct a survey of a sample of public sector suppliers (stratified to ensure that the various supplier categories are sufficiently well represented) to determine their usage of ecommerce. This survey would form the basis of a survey to be conducted annually on the same sample to track the impact of the introduction of eprocurement on the ecommerce readiness of suppliers to the public sector. Collation of base line data on the profile of supply for public sector agencies for incorporation into sectoral procurement performance management systems and to feed up into the national procurement performance management systems. In agreement with the sectors and agencies, the project will develop a baseline for supplier, user and buyer satisfaction with procurement in the public sector, so that future improvements in these qualitative aspects of procurement performance can be assessed. This will involve the following key activities: National Operations Unit National Policy Unit National Policy Unit National Policy Unit National Policy Unit 108

109 Project Description Project Sponsor of procurement performance can be assessed. This will involve the following key activities: Determination of criteria for assessing satisfaction; Selection of participants for survey; Data collection (survey, interview). Collation of sector and national level data Development of policies and guidelines for future assessments C7: Prepare EU Commission Submission on B2B practices in eprocurement area S1: Development of Sector Strategies for Health, Education, Central Government and Local Authorities Table 11: Recommended Projects Preparation of submission to DG Internal Market of the European Commission on the use, by public sector bodies, of eprocurement practices that are emerging in the private sector (such as reverse auctions, emarket places and supplier driven dynamic catalogues). The development of sector strategies for eprocurement based on the national strategy. Department of Finance (NPU) Sector Parent Departments (Health, Education, Environment & Finance) 109

110 7.2 Pilot Initiatives and Guidelines In addition to the range of projects outlined a number of pilot initiatives at national level are also recommended. These pilots are summarised in the table below Pilot Initiative Description Objectives Sponsor Tender Management Pilot a Tender Management Solution to support below EU Threshold tenders. The pilot project should last approximately 6 months and cover a number of different tendering processes, for example, two stage tendering (RFI and RFP) and RFP. The focus of the tender management solution should be on the exchange of tender documents between suppliers and buyers and the ability to use templates and forms by suppliers, to allow online completion of tenders and to assist in the evaluation process. To assess the impact of electronic tendering on buyers and the tendering process within the pilot agencies To test the acceptance of electronic tendering both within the public sector buying communities and also different supplier communities National Operations Unit Electronic ordering using electronic catalogue Implement a Catalogue Based eprocurement solution to support an existing cross-agency contract or contract than can be put in place in a timely manner. The nature of goods or services covered by the contract must be suitable for catalogue based procurement and the supplier(s) must be able to provide an electronic catalogues. The objectives of this pilot are to test: The impact of decentralised buying within organisations User acceptance and reaction to an ecatalogue procurement Ability to implement one solution to support many public sector agencies Measure the benefits of Catalogue based eprocurement Assess level of integration required with back-office systems National Operations Unit Table 12: Pilot Projects In addition to national pilots, it is important that sectors and individual agencies undertake pilot eprocurement initiatives so that the benefit of their experience can be rapidly availed of at a national level. It is recommended that any proposed pilots should: 110

111 Have the approval of the relevant Sector Procurement Unit and the NPU; Have a clear statement of objectives, with defined success criteria and evaluation process; Be consistent with the national and sector eprocurement Strategies; Be consistent with other egovernment initiatives including frameworks emerging from the Reach initiative; Have costs that are reasonable, having regard for the scope and purpose of the pilot; Adopt a holistic view of eprocurement addressing organisational, practice and process issues as well as systems; Not duplicate pilot initiatives taking place elsewhere. 7.3 Timetable and Dependencies The Gantt Chart (on the following page) outlines a suggested sequencing for each of the recommended projects and pilot initiatives. It takes account of the interdependencies between initiatives, as well as dependencies on other egovernment initiatives. In particular the implementation of the proposed eprocurement technology framework is dependent on the Reach initiative for the provision of The proposed Business Services Number which will act as an input into the Supplier Registration System; Security Infrastructure to support the etender Management facility; Content Management Framework to act as an input into the development of the procurement content management framework. In addition the proposed Government Virtual Private Network will be an important part of the technical infrastructure required to support the introduction of eprocurement. It is critical that the National Policy Unit manages the co-ordination with other egovernment initiatives and ensures that the relevant parties are aware of the eprocurement timeline and dependencies. The National Policy Unit should review the timetable on an on-going basis. 111

112 A. Organisational Development Projects : A1. Establishment of Interim National Operations Unit A2. Establishment of National Policy Unit A3. Review of Interim Organisational Arrangements A1, A2 A4. Establishment of National Operations Unit A1, A2, A3 A5. Development of National eprocurement Training Plan A1 A6. Development of National Change Management Plan A1 A7. Establishment of Central Govt Sector Procurement Unit A1 Pre- Requisite Projects N D J F M A M J J A S O N D J F M A M B. eprocurement Technology Framework Projects: B1 National Supplier Registration System - Feasability - Specification and Selection - System Delivery B2. Design National Content Management Framework B3. Design National Catalogue Management Framework C1 B4. Design National Procurement MIS Framework A1 B5. National Public Procurement Website A1, B2 - Specification and Selection - System Delivery B6. National Tender Management Facility - Specification and Selection - System Delivery B7. Central Gov Catalogue based eprocurement System A1, A7, B3 - Specification and Selection - System Delivery B8. Central Government Management Information System A1, A7,B4 - Specification and Selection - System Delivery C1 112

113 C. Further Studies: C1. Develop National Classification System A1 C2. Develop Unit Costs and Transaction Costs Baselines A1 - Unt Cost Baseline - Transaction Costs Baseline C3. Revise National Procurement Policies and Guidelines A1 C4. Establish Baseline for ecommerce Readiness of Supply Base A1 C5. Establish Baseline for Profile of Supply to Public Sector A1, A2 C6. Establish Baseline for Buyer, Supplier & User Satisfaction C7 : Preparation of Submission to the European Commission N D J F M A M J J A S O N D J F M A M P. Pilot Initiatives: P1. Pilot Tender Management A1 - Specification and Selection - Pilot Setup - Pilot Period - Pilot Evaluation P2. Pilot Catalogue Based eprocurement A1 - Specification and Selection - Pilot Setup - Pilot Period - Pilot Evaluation S. Sector and Agency Initiatives S1. Development of Sector Strategies for Health, Education, Central Government and Local Authorities S2. Sector Pilot Projects S1 S3. Other Sector and Agency Initiatives S1 Figure 23: Timetable (Note: External dependencies on the BASIS and Reach projects have been taken into account, based on information available at the time of publication) 113

114 7.4 Immediate Actions Required In order that key milestones in the implementation of the national eprocurement strategy are achieved, there are a number of essential early actions that should be initiated immediately upon approval of the strategy: The NPU should be established. Its immediate priority tasks should be:- Approval of sector initiatives and facilitating the funding of sectoral eprocurement initiatives, including the development of sectoral strategies; Co-ordination and Approval of sectoral strategies to ensure compliance with national strategy and integration with proposed national structures; Assisting in the establishment of the interim operations unit; Establishment of the National Procurement Advisory Board; Co-ordinating and monitoring eprocurement activities across the sectors; Investigating options and make recommendations on the establishment of the National Operations Unit Investigating and making recommendations supporting the establishment of an SPU for central government Preparing legislation to allow speedy transposition of the proposed amendments to EU Procurement Directives into Irish law on foot of their adoption by the European Parliament. Preparing Ireland s submission to the EU Commission in relation to the implementation of eprocurement (Legal Recommendation 2) The interim operations unit, which will be responsible for ensuring that the early initiatives are kicked-off on schedule, should be set up. Its immediate priority tasks should be; Initiate and co-ordinate the pilot projects on etendering and eordering in conjunction with the selected pilot agencies Initiate and co-ordinate any central government sector pilots decided upon Initiate the establishment of any national infrastructure required to support pilot projects Agree national and sectoral objectives for procurement performance, in consultation with the sectors Establish the National Procurement Managers Forum Commence the development of programmes of training standards and best practice 114

115 7.5 Key Risks and Assumptions The successful implementation of the recommended strategy is dependent on the following assumptions There are no delays in approval of national strategy; Support and co-operation of the individual sectors for the national strategy is forthcoming; There are no delays in establishing the structures recommended in strategy (i.e.: NPU, NOU, SPU); Key stakeholders at the sector and national level are available to take key actions required in the Change Management plan Buy-in is obtained from buyers and suppliers to the system; A national categorisation and coding strategy is agreed on schedule; There is no delay in completing the National Content Framework; The Reach and BASIS initiatives are completed on schedule. Full realisation of projected savings is based on the assumption that sector led initiatives will be completed by the end of Key Implementation Challenges The Strategy and associated work programme recommended in this report will see eprocurement technologies being leveraged to facilitate the introduction of a radically new framework for procurement within the Irish public sector. While the potential benefits to be derived from the successful implementation of the initiative are significant, the implementation will present a number of key challenges that will need to be addressed if the targeted benefits are to be realised. These challenges (in no particular order) include; Co-operating across traditional organisational boundaries. Many of the procurement practices and supporting technologies recommended under this strategy will require agencies to look beyond their own organisations and co-operate with colleagues in other agencies inside and outside their sector. Fostering and encouraging this co-operation whilst respecting the autonomy of individual agencies is a key challenge facing the initiative. Viewing technology as an enabler and not a solution. While technology undoubtedly has a key role in facilitating the programme of change recommended under this strategy, experience elsewhere has shown that eprocurement initiatives that are not based on a foundation of sound procurement practices and processes and appropriate organisational structures are unlikely to deliver the expected benefits. It is crucial therefore that the implementation effort addresses all elements of the procurement framework and does not place an over reliance on technology to deliver the targeted benefits. Encouraging the participation of both the enterprise sector and buyers. The ultimate success of the initiative is dependent on the participation of both the public sector buying community and enterprise sector. It is important that the change management and consultation process associated with the implementation of the initiative makes adequate provision to understand and address the concerns and requirements of both the enterprise sector and public sector buyers 115

116 Realising and measuring the benefits The proposed investment programme is justified on the basis that it will facilitate the realisation of significant financial and non-financial benefits to the Irish public sector. Monitoring performance against targets is therefore critical. The challenge facing the initiative is to ensure that the measurement systems in place provide an accurate picture of the initiative s progress without placing an unreasonable reporting burden on participating agencies. In the case of non-financial benefits, it is essential that their ultimate financial impact is identified through a cause and effect assessment so that it can be incorporated into suitable performance metrics. Developing the public sector s procurement competency. Designing the appropriate organisational structures and providing the necessary technology infrastructure will be of little value if the structures are not populated with staff equipped with the skills necessary to support the implementation of the practices and processes recommended by this study Achieving senior management support The eprocurement initiative has been developed on the principle of encouraging rather than mandating agencies to participate. It is critical therefore that the initiative is successful in achieving the senior management buy in at national, sector and agency level which is necessary if the proposed procurement framework is to be adopted by a wide range of agencies. 116

117 Appendix A: Recommended Organisational Responsibilities National Policy Unit (NPU) Key Responsibilities Responsibility Setting National Strategy and Policies Monitoring National Performance Facilitate and Coordinate the Provision of Funding for eprocurement Initiatives Developing Legislation Activities Setting national procurement policy in conjunction with the GCC, with input from the National Operations Unit Development of national procurement guidelines in consultation with the National Operations Unit Co-ordination of sectoral procurement strategies Setting policies and direction in relation to eprocurement systems Monitoring developments relating to procurement at EU and international level and representing Ireland on procurement matters in EU and other relevant international bodies Approving National Strategies and Plans developed by the NOU Determine national and sectoral procurement objectives and targets through consultation Monitoring national procurement performance and activity across the sectors Review and endorsement of annual expenditure estimates from national and sectoral procurement units prior to their submission through the normal estimates process Monitoring and reporting on expenditure of approved funds Chairing, administrative and secretarial support for the GCC Promoting and ensuring the adoption of appropriate enabling legislation, including the transposition of EU legislation into Irish law Devising Standards Developing standard templates 117

118 National Operations Unit (NOU) Key Responsibilities Responsibilities Devising and Issuing Standards and Best Practice Activities Developing of coding, process, documentation and technology standards Input into the development of standard documentation templates Input into national procurement policy On-going research and development of innovative solutions Provision of advice, guidance, tools and techniques to the sectors Providing Support Provision of support to public sector buyers in relation to issues regarding o Legal o Procurement o Systems Managing eprocurement Facilities Promotion and Change Management Performance Reporting and Management Information Managing the National Portfolios Provision of support to suppliers in connection with, for example o Supplier registration o Use of national level eprocurement facilities Provide, manage and operate national level systems. Manage content, including, catalogues for national and central government web-sites Promotion and marketing of procurement as a strategic support activity and of the eprocurement concept Development of change management plans, communications plans, awareness initiatives etc; Managing the implementation of change Measurement and monitoring of procurement performance across the public sector Provide detailed management and performance information to the central policy unit In co-operation with sectors representatives, develop and manage portfolio strategies at national level to determine the categories of procurement to be managed at national level, and to define the broad strategic approach for those categories In cooperation with the sectors, for categories to be managed at national level prepare detailed category management strategies Carry out sourcing, tendering, contracting and contract management 118

119 Breakdown of Responsibilities between National and Sectoral Bodies Function National Responsibilities Sector Responsibilities Strategy and Policy Monitoring performance Promotion of eprocurement Facilitating Funding Approval Standards and Best Practice Support eprocurement Facilities Portfolio Management Provision of Information Analysis Develop and Maintain National Strategy and Policies. (NPU) Determine national and sector objectives, set targets / performance indicator in consultation with the sectors and monitor national and sector performance. (NPU) Development and implementation of national promotion strategies, plans and campaigns. (NPU) Annual approval of sectoral funding requests. (NPU) Developing and issuing national standards in line with best practice and providing guidance to the sectors. (National Operations Unit) Provision of support to all public sector buyers and suppliers nationally. (National Operations Unit) Provide, manage and operate national level systems including content management of national web-sites. (National Operations Unit) Develop and manage portfolio strategies at national and central government level in consultation with the sectors (National Operations Unit) Prepare detailed category management strategies and carry out sourcing, tendering, contracting and contract management for national and central government level categories (National Operations Unit). Collection and analysis of data to support National and Sectoral Performance Monitoring. Portfolio and Category Management at National and Central Government levels. (National Operations Unit) Develop and Maintain Sector Strategy and Policies in alignment with National. Agree sector objectives with National Operations Unit, determine agency objectives and monitor sector and agency performance. Implement promotion initiatives in the sector. Assessment and approval of agency initiatives. Submitting annual funding requests to National Operations Unit, Incorporating approved funding requirements into annual estimates. Promoting the adoption of nationally agreed standards and best practices at sector level. Determine and provide any additional sector level support required. Provide manage and operate sector level systems where required. Ensure co-ordination with national systems and content management. Agree National portfolio strategies with National Operations Unit Develop sectoral portfolio strategies in consultation with agencies Prepare detailed category management strategies and carry out sourcing, tendering, contracting and contract management for sector level categories Collection and analysis of data to support Sectoral and Agency Performance Monitoring Portfolio and Category Management at sector and agency levels Provision of data for reporting to NPU 119

120 Appendix B: Targets and Key Performance Indicators Targets and key performance indicators are proposed for each of the strategic objectives identified in Chapter 3. We set out below, for each objective, a description and rationale for the targets proposed, along with a description of the approach suggested for measuring performance against targets. The spend related percentage targets are set with reference to the budgeted / forecasted out-turn for FY2001, A) To improve service levels to buyers, suppliers and users involved in public sector procurement User, Supplier and Buyer Satisfaction Levels are the recommended indicators of the progress being made in the attainment of this objective. User, supplier and buyer satisfaction levels are not currently monitored at a national level. It is recommended that satisfaction levels are measured through annual statistically based surveys. In the absence of any reliable baseline satisfaction levels for users, suppliers and buyers it is not appropriate to set quantified targets at this time. However once the baseline is established, the specific targets aimed at achieving annual increases in satisfaction levels should be set. B) To develop a more integrated approach to procurement across public sector agencies and sectors The recommended indicator of the progress being made in the attainment of this objective is Percentage of National Expenditure on Supplies and Services and selected works (Repair and Maintenance) procured under cross-agency contracts. It is proposed that a target is set of 25% of all procurement spend in these areas to be procured under cross-agency contracts by the end of This should be measured on an ongoing basis and reported annually by each agency. 120

121 C) To minimise the transaction costs associated with procurement through standardisation, streamlining and automation of the procurement processes within, and where appropriate, across agencies and sectors Average Transaction Cost is the key indicator of the progress being made in the attainment of this objective. Average cost per transaction for supplies, services and works (repair and maintenance) is calculated as the average cost of processing a purchase order from requisition to cheque payment). Experience elsewhere has shown that the accurate measurement and realisation (i.e. cashing in ) of transaction cost efficiencies is difficult. It is suggested that movement in the average transaction cost should be tracked via the periodic, statistically based sampling of transaction costs ( req. to cheque and tender preparation to payment ) across a range of categories and agencies. Industry experience suggests a broad range of possible transaction cost reduction levels arising from the introduction of eprocurement, varying from less than 10% to in excess of 70%. The following factors were considered in arriving at a target for the national strategy Very little proven experience exists upon which to base target savings, and there are grounds for believing that many of the published figures may be over-stated The recommendations in this strategy involve much more than eprocurement, and the potential for savings should theoretically be higher on this account On the basis of the above, an initial target of 20% reduction in average transaction costs by the end of 2007 is proposed following the implementation of the relevant recommendations. Furthermore, we have assumed that the percentage of the cost base impacted by initiatives that will contribute to the lowering of transaction costs will be less than the whole. This is because not all transactions will be suitable. For example, strategic purchases (e.g. enterprise computer systems) are inappropriate as a target for transaction cost reduction.. Research by PwC and Gartner*** suggests that a range from 30% - 50% of the identified cost base can be impacted. Allowing for the scale of the public sector and the time required to fully roll out the eprocurement strategy, it is recommended that a target of 25% by the end of year five (2007) be set for the percentage of total expenditure on supplies and services and works (repairs and maintenance) impacted. For Capital Works, a different method is required for identifying transaction cost savings. A description and rationale are set out in a note at the end of this appendix. The recommended target is 0.25% of total capital works expenditure. It is recommended that this be tracked by reference to periodic statistical surveys carried out. Specific targets in relation to the automation of the procurement process are detailed above under objective (e). 121

122 D) To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector The recommended indicators of the progress being made in the attainment of this objective are as follows: Percentage of National Expenditure on Supplies and Services and Works (Repair and Maintenance) Procured under contracts Level of Unit Cost Reduction achieved as a result of increasing the level of on-contract expenditure both within and across agencies (Supplies, Services and Works (Repair and Maintenance) For capital works, the level of fees paid to contractors for preparation of tender documentation, the tendering process, and contract supervision and administration While it is difficult to relate changes in unit costs directly to any initiatives undertaken by buying agencies it is reasonable to assume, based on experience elsewhere, that an increase in the level of on contract expenditure should have a positive impact on unit costs. The extent of the on contract purchasing taking place should be tracked by requiring sectors to report periodically on the estimated percentage of their expenditure on supplies and services and works (repairs and maintenance) procured under contracts. It is recommended that unit cost changes are tracked by undertaking periodic surveys of unit costs for a basket of supplies, services and works (repairs and maintenance) included in contracts within and across agencies. A baseline survey should be carried out to establish the initial cost levels. Individual unit cost reduction targets should be set as part of individual category management strategies. Overall, it is reasonable to anticipate that average unit cost reductions of 5% from current levels could be achieved over a five year period (end 2007). It is recommended that a target of 50% be set for the percentage of total expenditure on supplies, services and works (repairs and maintenance) procured under contracts by the end of year five (end 2007). The target proposed for reductions in capital works contractor fees, which will arise from automation, is 0.5% of total Capital Works Expenditure. The rationale for this is set out in a note at the end of this appendix. These should be tracked by periodic statistical surveys of the level of fees paid. 122

123 E) To promote competition among suppliers while maintaining reliable sources of supply User and Buyer Satisfaction Levels is the recommended indicator of the progress being made in the development of reliable sources of supply. The recommended indicators of the progress being made in promoting competition in the supply base are: Percentage of Tenders and Award Notices Published Electronically. Level of Unit Cost Reduction achieved as a result of increasing the level of on-contract expenditure both within and across agencies User and Buyer Satisfaction Levels. It is important that performance on the Level of Unit Cost Reduction and User and Buyer Satisfaction Levels indicators are viewed together so as to ensure that reductions in unit costs are not associated with reductions in quality and / or service levels. Targets and associated measurement guidelines for these indicators are outlined under objective (e), (a) and (b) respectively. F) To optimise inventory levels through the adoption of efficient procurement practices It is not recommended that national level indicators are set to track the progress made in the attainment of this objective. Rather it is recommended that targets for inventory reductions are addressed as part of category management strategies. G) To make effective use of human resources in the procurement process Tracking Transaction Cost Savings for Supplies, Services and Works as a measure of the human resources being freed up for deployment elsewhere, is the recommended indicator of the progress being made in the attainment of this objective. Targets and associated measurement guidelines are outlined above under objective (d). 123

124 H) To promote the use of ecommerce in the wider economy The recommended indicator of the progress being made in the attainment of this objective is: Tracking movements in ecommerce adoption levels in public sector supply base relative to adoption levels in the wider Enterprise Sector The rate of ecommerce adoption should be assessed with reference to the following: usage Internet Access Own web-site Transacting business electronically There is currently no reliable baseline information available in relation to the ecommerce adoption rates of the public sector supply base on which to track movements over time. It is recommended that annual statistically based surveys are conducted to track ecommerce adoption rates of the public sector supply base. It is recommended that a baseline survey of public sector suppliers be undertaken. Suppliers included in this sample should be surveyed on an annual basis to determine developments in their levels of ecommerce usage/ adoption. Usage of the same sample year after year will ensure that underlying shifts in ecommerce adoption rates are not attributable to underlying shifts in the profile of supply. The sample used should be representative of the profile of supply to the public sector as a whole. In view of the fact that only limited information exists at the present time in relation to this profile, the design of a representative sample will require that profiling exercises are carried out in advance of the collection of baseline data for these indicators. Findings from this annual sample should be tracked against those for a comparable sample of enterprises nationally. A national enterprise survey should be identified that is comparable in terms of sample profile and sampling methodology. Where an appropriate survey is found not to exist, the body should liase with relevant bodies to determine how existing surveys could be adopted to render them more comparable and/ or determine the need for a new national survey. I) To improve the auditability of public procurement expenditures It is not appropriate to set national performance indicators and associated targets in this area. 124

125 J) To be progressive in the adoption of procurement related Information and Communication Technologies (ICT) The recommended indicators of the progress being made in the attainment of this objective are as follows: Percentage of Tender Competitions carried out electronically Percentage of Tenders and award notices advertised and tender documentation published electronically Percentage of Expenditure on Supplies and Services supported by electronic catalogues and ordering facilities Percentage of Payments Transacted Electronically The following national targets are recommended Electronic Tendering: 90% of tenders above EU threshold levels carried out electronically by the end of year four (end 2006). This should be measured by comparing the number of tender competitions carried out electronically with the total number of tender notices published in OJEC. 80% of all tenders and award notices advertised, and tender documentation published, on the national procurement web site end of year two (end 2004). This should be measured by requiring sectors to report annually on the total number of tenders issued and awarded in their sectors. Electronic Ordering: 10% of expenditure on supplies and services should be supported by electronic catalogues and ordering facilities at the end of year five (end 2007). This should be measured by requiring sectors to report annually on the level of supplies and services related expenditure supported by electronic catalogues and ordering facilities. Electronic Payment: 80% of all procurement transactions settled electronically at the end of year five (end 2007). This should be measured by requiring agencies to report annually on the total number of payments and the total number paid electronically. 125

126 Capital Works Note on Rationale for Estimated Savings The following is the rationale behind the calculation of savings for Capital Works. They are based on the 2001 estimates, as follows:- Capital Cost of Works = EUR3.033 billion Building (59%) = EUR1.789 billion Engineering (41%) = EUR1.244 billion Assume in the case of Building Works that EUR317 million relates to the acquisition of sites and other types of items such as EISs, Feasibility Studies, etc and in the case of Engineering works EUR190 million relate to similar items. These items removed reduced the figures as follows: Capital Works Capital engineering works Total EUR1.472 billion EUR1.054 billion EUR2.526 billion Of the EUR1.472 billion for Building Works assume professional fees are 12.5% of the figure, thereby construction costs = EUR1.288billion with fees representing EUR184million. Of the EUR1.054 billion for Engineering Works assume professional fees are 6% of the figure, therefore construction costs = EUR990 million with fees representing EUR63 million. Total fees included in the public sector capital programme is therefore EUR247 million (EUR184 million and EUR63 million). Assume 40% of this fee relates to tender documentation and the tender process which amounts to EUR99 million, and assuming that by the introduction of automation into the process there will be a 15% saving in process cost or EUR14.84 million per annum. 25% of the fee relates to the supervision and administration costs of a works which equals EUR62 million. Of this assume 20% relates to the payment process or EUR12.36million, of which say 20% are saved on transaction costs amounting to EUR2.47million. Therefore the savings in a single year on public sector capital works = EUR17.31 million (EUR14.84 and EUR2.47 million). This reflects the unit cost reduction, which, as a percentage of total capital works is approximately 0.5%. Assuming that public sector administrative costs equate to half of the fees paid for supervision and administration to the contractor, the public sector transaction cost savings amount to EUR8.65 million, which is approximately 0.25% of total capital works expenditure. 126

127 Appendix C: Spend Estimates Figures are drawn from Revised Estimates for Public Services (2001) and Local Authority Accounts (1999). Heading descriptions: i. Gross total expenditure LESS ii. Pay all salary / wage and pension payments LESS iii. Deductions all non-pay non-procured supplies and services (identified in notes) EQUALS iv. Balance BEING: v. Works identified capital expenditure vi. Sup / Serv procured supplies and services expenditure Financial Year 2000 (Provisional Out-Turn) Central Government Being Notes on Gross Pay Deductions Balance Works Sup / Serv Revenue Deductions EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 Agriculture, Food & Rural Development 1,050, , , , , ,214EU CAP, BSE compensation Army Pensions 113, ,126 4, Arts Council 45,107 1,524 35,705 7,879 5,079 2,800 Arts, Heritage, Gaeltacht 338,138 58, , ,390 94,033 49,357RTE & the Islands Attorney General 6,871 4, ,324 2,324 Charitable Donations Chief State Solicitor 21,787 10,186 6,600 5,002 5,002 Civil Service Commission 9,787 4,343 5,445 5,445 Comptroller / 6,125 4,712 1,413 1,413 Auditor General Courts 70,882 28,521 42,361 26,460 15,901 CSO 29,289 16,409 3,875 9,005 3,231 5,774 Defence 645, ,618 59, ,928 24, ,633Compensation DPP 12,946 1,461 10,018 1,467 1,467 Enterprise, Trade 1,191, , , ,685 89, ,254FAS & Employment Finance 62,036 26,259 7,618 28,158 12,596 15,562 Flood Relief 1,781 1,781 1,781 Foreign Affairs 116,289 53,246 13,670 49,372 5,071 44,301 Garda Síochána 837, ,251 13, ,188 17, ,390 International Co-Operation 175,054 5, ,816 Aid Justice, Equality & Law Reform 116,138 41,263 37,229 37,646 6,746 30,900Compensation Land Registry 21,602 16, ,635 4,635 Marine & Natural Resources 249,970 44,549 90, ,708 60,563 54,

128 National Gallery 4,230 1,977 2, ,300 Oireachtas / 60,649 31,431 29,218 29,218 European Parliament Ombudsman 3,064 2, OPW 415,042 37, , , ,408 28,384Rent & Rates Ordnance Survey 14,048 8,255 5,794 1,474 4,320 President 1, Prisons 262, ,376 2,640 79,505 30,640 48,865 Public Enterprise 509,556 25, ,489 26,181 9,948 16,232CIE / Aviation Revenue Commissioners 253, ,153 3,765 64,839 12,149 52,690 Secret Service Social, Community & Family Affairs 3,628, ,253 3,460,035 45,770 3,174 42,596Social Assistance State Laboratory 4,810 2,682 2,128 2,128 Superannuation 158, ,999 22,759 22,759 Taoiseach 73,244 8,257 64,986 45,196 19,790 Tourism, Sport & Recreation 202,489 24,914 65, ,208 37,026 75,182Bord Failte Valuation Office 6,193 4,709 1,483 1,483 SUBTOTAL 10,720,471 2,643,833 5,907,957 2,168, ,391 1,337,289 Education 1st Level Education 1,313,911 1,019,564 36, , , ,976 2nd Level 1,529,901 1,069,668 15, , , ,829 & Further Education 3rd Level 1,097, , , , , ,414Grants & Further Education Education & Science 292,282 35,706 48, ,392 96, ,023 SUBTOTAL 4,233,911 2,661, ,480 1,333, , ,242 Health & Children 5,656,038 3,281, ,403 1,534, ,944 1,240,421Pass throughs Local Government 3,916,854 1,202, ,155 2,420,326 1,706, ,995LA capital receipts included as Works Gross spend includes Local Govt. grant, Motor Tax receipts etc. TOTAL 24,527,274 9,789,066 7,280,994 7,457,214 3,344,265 4,112,

129 Financial Year 2001 (Estimates) Central Government Being Notes on Gross Pay Deductions Balance Works Sup / Serv Revenue Deductions EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 Agriculture, Food & Rural Development 1,512, , , ,982 74, ,014EU CAP, BSE compensation Army Pensions 129, ,095 4, Arts Council 46,370 1,841 36,407 8,121 5,079 3,042 Arts, Heritage, Gaeltacht 398,500 76, , , ,214 61,554RTE & the Islands Attorney General 10,696 6, ,970 3,970 Charitable Donations Chief State Solicitor 28,779 12,904 8,253 7,621 7,621 Civil Service Commission 11,345 5,079 6,266 6,266 Comptroller / 7,620 5,940 1,680 1,680 Auditor General Courts 84,779 34,882 49,897 28,542 21,354 CSO 56,635 23,396 16,901 16,338 1,794 14,544 Defence 778, ,827 72, ,293 56, ,057Compensation DPP 15,608 2,473 11,428 1,707 1,707 Enterprise, Trade 1,265, , , ,166 96, ,419FAS & Employment Finance 116,537 32,621 7,709 76,207 20,841 55,366 Flood Relief 2,858 2,858 2,858 Foreign Affairs 138,648 65,144 17,784 55,720 5,197 50,523 Garda Síochána 901, ,363 40, ,834 32,246 88,588 International Co-Operation 239,539 6, ,687 Aid Justice, Equality & Law Reform 257,912 62,978 98,707 96,227 37,434 58,793Compensation Land Registry 28,335 20, , ,032 Marine & Natural Resources 289,508 49,380 95, ,835 86,664 58,171 National Gallery 14,088 3, ,932 7,872 3,060 Oireachtas / 59,586 37,100 22,486 22,486 European Parliament Ombudsman 4,106 3,035 1,072 1,072 OPW 356,847 43,815 91, , ,416 29,455Rent & Rates Ordnance Survey 20,895 11,410 9,485 2,946 6,539 President 1,888 1, Prisons 294, ,120 1, ,448 47,404 62,043 Public Enterprise 668,167 28, ,276 64,654 40,737 23,917CIE / Aviation Revenue Commissioners 305, ,253 5,041 85,871 18,236 67,635 Secret Service Social, Community & Family Affairs 4,287, ,803 4,067,870 79,806 9,967 69,838Social Assistance State Laboratory 5,440 3,364 2,076 2,076 Superannuation 187, ,957 23,077 23,077 Taoiseach 56,473 10,564 45,909 28,528 17,380 Tourism, Sport & Recreation 282,350 27,815 69, ,669 90,776 93,893Bord Failte Valuation Office 8,649 5,848 2,801 2,801 SUBTOTAL 12,874,017 3,017,413 7,226,410 2,630,194 1,003,606 1,626,587 Education 1st Level Education 1,444,097 1,165,368 21, , , ,218 2nd Level 1,728,553 1,220,322 25, , , ,579 & Further Education 3rd Level & Further Education 1,258, , , , , ,607Grants 129

130 & Further Education Education & Science 284,675 53,728 70, ,119 27, ,251 SUBTOTAL 4,716,285 3,043, ,667 1,409, , ,656 Health & Children 6,851,039 3,995, ,889 1,909, ,845 1,565,553Pass throughs Local Government 4,781,316 1,361, ,456 3,081,842 2,271, ,754LA capital receipts included as Works Gross spend includes Local Govt. grant, Motor Tax receipts etc. TOTAL 29,222,656 11,417,687 8,774,422 9,030,547 4,116,997 4,913,

131 Appendix D: Impact on Existing Supply Base The introduction of eprocurement into the Irish public service may have an impact on the existing supply base, which is characterised by a high share of small firms with low levels of Internet connectivity and firms that have no manufacturing function. Features of the eprocurement strategy that will determine the nature of this impact include the level and nature of purchase aggregation, related service level requirements, and the level and nature of investment required of supplier firms. While the exact impact may not be determined, there are clearly certain categories of firm that are more exposed. These and the factors that could militate against continued success in the Irish public service market for these categories of supplier are now described under five broad headings: Indigenous vs. Foreign-owned Suppliers Incumbent Suppliers vs. Foreign-owned New Market Entrants Small Firms vs. Big Business Distributors vs. Manufacturers Local vs. Non-Local Firms Indigenous vs. Foreign-owned Suppliers The profile of supply to the Irish public service showed foreign-owned firms to have a series of distinct features that would afford them a degree of competitive advantage over their Irishowned equivalents under an eprocurement regime. These include: larger size profile and likely better state of ecommerce preparedness; greater experience in the management of large value public service contracts; related to the foregoing, a greater experience of formal tender procedures; marginally greater propensity to be engaged in manufacturing. While previous commentators have made the point that indigenous firms would not be adversely affected by any increase in aggregation of procurement by the Irish public service owing to their distinct profile of supply 3 this assertion does not hold up to close scrutiny. It is indeed true that for any given agency, the share of Irish-owned suppliers engaged in the provision of services and works which lend themselves less well to aggregation than goods - is likely to be higher than the respective share for foreign-owned enterprise. Notwithstanding this, however, Irish-owned suppliers of goods account for a majority of all Irish-owned suppliers as well as for a majority of all goods suppliers. Thus, Irish-owned enterprises are exposed to eprocurement and potential revenue losses. 3 see Small Firms and Public Procurement in Ireland, May

132 This level of exposure, however, varies between sectors. In the case of the local authorities, for example, the share of the Irish-owned supply base accounted for by suppliers of works and services is typically higher than for other agencies. In addition, the profile of goods procured is relatively mainstream or nonspecialist, with the result that the share of firms that are fully dependent on the public service as a source of demand is likely to be relatively small. Finally, a high share of local authorities goods procurement is characterised by high bulk/ low value items with limited transportability. This suggests that they may not be suited to a high level of aggregation, and that where aggregation does take place there may still be a significant role for existing local suppliers as 2 nd or 3 rd tier players. In the health sector, by contrast, Irish-owned suppliers of goods account for a very high share of the total Irish-owned supply base and goods demand is dominated by high value/ low bulk items which are specialist to the health sector and relatively standard between agencies with a number of notable exceptions. Irish-owned suppliers would therefore be signific antly exposed to foreign-owned competition in a more aggregated procurement environment. Moreover, and in view of the limited demand for many specialist medical products outside of the public service, more intense competition could have a serious impact on the viability of certain Irish-owned supplier firms, e.g. small distributors Incumbent Suppliers vs. Foreign-owned New Market Entrants The profile of supply presented earlier suggests that there is significant potential to displace Irish-owned and, to a lesser extent, foreign-owned suppliers. This potential is presently being frustrated by relatively limited market knowledge internationally about public sector needs in Ireland and relatively small contract sizes. The recent launch of the Government tenders portal and an aggregation of demand for certain categories of goods and service would remove these barriers and make the threat of foreign-owned new market entrants much more real for incumbent suppliers. The attractiveness of market entry for non Ireland-based players will, however, also be determined by the service level requirements of a particular contract and the associated need to develop a local market presence or form a strategic alliance with a locally-based player, and/ or sub-contract to existing suppliers Small Firms vs. Big Business The likely impact of the introduction of eprocurement on the indigenous SME sector is a concern in the context of this assignment. SMEs are the dominant type of Irish-owned supplier to the public service. In view of the very large size of the public service s annual spend and its highly disaggregated procurement arrangements, it is likely that a significant share of all SMEs in Ireland transact business with the public sector. Thus, any shake-out of small firms in the public procurement market would have wide-spread ramifications for the SME sector as a whole. A number of factors suggest that SMEs may lose share of public service demand as a result of the introduction of eprocurement. These include: limited competitiveness relative to larger players; relative difficulty in managing large contracts; relative difficulty in meeting service requirements associated with large contracts; 132

133 financial constraints, limiting potential to invest in certain technologies with large upfront fixed investments (e.g. supplier managed inventories); relatively high concentration in low value-added activities, e.g. distribution; low levels of Internet connectivity and poor access to required IT skills. The potency of these factors will be directly dependent on the scale and nature of demand aggregation, and the supports put in place to help small firms catch-up with larger players in Internet connectivity terms. The degree of SME exposure will also vary considerably on a size and sectoral basis. It is, for example, probable that non-specialist/ niche micro firms are considerably more exposed than larger SMEs. Similarly, and as discussed above, levels of exposure will differ between sectors Distributors vs. Manufacturers Disintermediation refers to the process whereby procurement streamlining enabled by Internet technologies can lead to the eventual elimination of middlemen from supply chains. In view of the very high share of the existing supply base to the Irish public service and particularly that which is Irish-owned accounted for by goods distributors, this process could have implications for incumbent market players. The disintermediation notion has, however, been subject to considerable debate in recent times and the extent to which it will actually occur as a result of the introduction of eprocurement into the Irish public service is not clear. Much will depend on the scope and nature of aggregation, and the extent to which such aggregation entails the outsourcing of key procurement/ materials management functions (e.g. warehousing). In general terms, the greater the degree of aggregation and the smaller the associated service level requirements, the more likely manufacturers and even large/ dominant distributors are to displace incumbent distributors from the supply chain. Where there is not significant aggregation, contract sizes may not be sufficiently large to entice large manufacturers into the supply chain. Similarly, where contracts require a high level of service (e.g. just in time delivery/ assembly of a number of diverse goods), they are less attractive to manufacturing firms who will be unable to deliver on these requirements without establishing an Irish base/ network or engaging with the existing supply base, i.e. re-intermediation. While the re-intermediation theory is an attractive one it takes many different forms. At its most basic level, it may entail contracting delivery to a locally-based transport firm. Medical manufacturing firms have now, for example, started to assemble packs for common surgical procedures potentially robbing distributors of a key product assembly/ information function and relegating them to a mere fulfilment role. Alternatively, re-intermediation may take the form of the emergence of a single dominant player (manufacturer or even distributor) who simply acts as a co-ordinator of a majority or all of the incumbent market players this is now the situation with the supply of Garda uniforms to the GSA. In this case, the impacts on the supply base are considerably more muted depending of course on the behaviour of the dominant supplier. While the extent to which eprocurement will displace the traditional middleman may not be determined, it is clear that there are certain categories of distributor that face a greater risk than others. High-risk distributors are those: engaged in the supply of goods which lend themselves readily to high-level aggregation, e.g. office supplies; that are small and by virtue of their size, not particularly price competitive and not in a position to meet the service demands of relatively large contracts; 133

134 whose value-added to the buyer is based on convenience and personal factors; that are dependent on the public service and/ or other large industrial buyers for the mainstay of their business. The first three of these points indicate that the distributor in question is in danger of losing the business which it currently transacts with the public service. A typical example in this regard is a small locally-based supplier of stationery products (a product category where the public service is not the dominant buyer), where non-industrial buyers account for a significant share of revenues. The last point in tandem with the first three indicates that the enterprise in question is in danger of becoming un-viable in an eprocurement environment. An example in this regard is a small distributor of medical products, which has a high dependence on the public service Local vs. Non-Local Firms The extent to which the introduction of eprocurement will affect local or more specifically rural enterprises is a key concern in this assignment, given its importance in a wider regional development context. Before assessing this impact, it is worth reminding ourselves of the features of locally-based supply: locally-based firms account for a higher share of the total supply base in the case of services and works. Therefore, they have a much greater presence in the supply base of agencies where services and works account for a relatively large share of total procurement spend, e.g. local authorities; their share of goods procurement is heavily dependent on the nature of good procured. Agencies can be classified into three types for this purpose: those that have a highly specialist spend (e.g. hospitals) and a low dependence on locally-based suppliers outside of the major urban areas; those that have a more mainstream demand for non-complex, low-bulk items (e.g. education/ administrative organisations) and varying levels of dependence on locally-based suppliers depending on procurement practices; those that have relatively mainstream demand, but where demand is dominated by high-bulk items which cannot be easily transported (e.g. local authorities) and/ or decentralised procurement practices, and there is a high dependence on local suppliers. reflecting these features, local authorities have the greatest dependence on locally-based firms, followed by education/ administrative agencies and health; locally-based firms are characterised by their small size profile particularly relative to their urban-based equivalents. Thus, it is clear that the introduction of eprocurement in the Irish public service will have differing local impacts by sector. In the case of the health sector eprocurement is unlikely to have a very significant local economic impact outside of the major urban centres (where there exist a plethora of small distributors catering to a large local demand). The impact in the case of education and central government agencies will depend on the procurement practices that are currently in place, e.g. the extent to which office supplies are sourced from the GSA, relative to those which will be introduced, and the value of business generated locally. 134

135 The local authorities are the agencies where aggregation/ eprocurement will potentially have the most significant impact at local level particularly in the area of goods supply, most notably building materials/ engineering supplies, and to a lesser extent in the services and works procurement categories. Local enterprises pay annual rates to their local authorities and their displacement could have a negative goodwill impact. 135

136 Appendix E: Supplier Viewpoint Supplier Viewpoint In addition to carrying out an analysis on the procurement environment in the pilot agencies, it was decided to obtain the viewpoint of the suppliers. This was done by means of a short questionnaire-based survey covering a number of small, medium and large enterprises currently supplying the public sector with supplies, services or works. The questionnaire was developed in consultation with a group of the Pilot Agencies and the Department of Finance. The list of suppliers which were used in the sample was not selected statistically but rather was provided by selected Government departments and Pilot Agencies. Consequently the views presented cannot be taken as representative of the whole public sector supply base. The questionnaires were sent out to a total of 127 suppliers and 36 were returned which equates to an overall response rate of 28.3%. The following is a summary of the responses received. Awareness of Public Sector Business Opportunities Question: Please rate the following methods through which your organisation becomes aware of public sector business opportunities on a scale of 1 to 5, where 5 is most frequent and 1 is not often at all. Response: Methods of awareness of Public Sector Business Opportunities Average Overall Supplier Average Large Supplier Average SME Supplier Published tenders in the national/ local press Published tenders in OJEC Formal tenders sent directly to organisations Requests for Quotes sent directly to organisation Direct communication with end-users of products/ services Telephone calls

137 Fairness and Transparency of Procurement Process Question: In tendering for public sector business, how frequently is your organisation made aware of the criteria used by the public sector in the selection of suppliers? Please indicate on a scale of 1 to 5, where 5 is always and 1 is never. Response: Suppliers gave an overall average rating of 2.8, an opinion that was consistent across both large and SME suppliers. Question: Please rate your level of satisfaction with feedback received from the public sector following the award of a tender, on a scale of 1 to 5, where 5 is extremely satisfied and 1 is not satisfied at all. Response: Suppliers gave an average rating of 2.72 that demonstrates that they are less than satisfied with the level of feedback received. The majority of SME suppliers displayed a lower level of satisfaction than their larger counterparts. Efficiency and Effectiveness of the Public Sector Procurement Process Question: Please rate the quality of the tender documentation which you receive from the public sector on a scale of 1 to 5, where 5 is excellent and 1 is poor. Response: Documentation Criteria Average Overall Supplier Average Large Supplier Average SME Supplier Specifications Provided Guidance to Tenderers Questions evaluating suppliers experience and capabilities Terms and Conditions

138 Question: Please indicate, from your experience in dealing with public sector procurement, your views of the following where 5 is very positive and 1 is negative. Response: Criteria Average Overall Supplier Average Large Supplier Average SME Supplier Adequacy of procurement expertise among public sector staff Adequacy of public sector understanding of the market for the Supplies/ services/ works which your organisation provides Appropriateness of balance between efficiency and compliance with Public sector procurement regulations Consistency of process and documentation within and between different public sector agencies Adequacy of response times for tenders and quotations Appropriateness of numbers of suppliers invited to tender Adequacy of opportunities to discuss and clarify tender requirements Efficiency of order/ contract administration Efficiency of Payment Administration

139 Appendix F: International Trends Private Sector The purpose of this section of the report is to highlight a number of key eprocurement related trends and developments within private sector organisations. The analysis presented below is based on published research material. Organisations are finding implementing eprocurement more complex, more expensive, and more time -consuming than they originally expected The adoption of software solutions for re-engineering, networking and automating their basic buying processes is proving more difficult than it looks. For example, many have encountered problems in scaling their enterprise eprocurement systems from a few people using a few buyer-managed catalogues to large numbers of people using great numbers of ecatalogues Purchasing Magazine; Benchmark Survey; March 2001 While all of the respondents to Forrester s April Report on ebusiness clearly have high hopes for their eprocurement projects, only one of the 15 early adopters has completed its rollout; the others have encountered problems primarily with suppliers ranging from resistance to readiness issues ecommerce Times; Does eprocurement deliver ROI; Larry Seben; May 2001 eprocurement should not be viewed as a standalone project to reduce transaction costs. eprocurement is more likely to succeed if strategic sourcing and business process re -engineering accompany it. The Centre for Advanced Purchasing Studies, The Wacht Group and AT Kearney concluded that 73% of all potential savings in purchasing can come only from strategic sourcing. By some estimates every 1 saved through strategic sourcing has an equivalent impact to gaining 5-25 in sales. Purchasing magazine; Software streamlines strategic sourcing process; Kent Godfrey; April 2001 Automating all non-direct spend through eprocurement software is the wrong objective. Enterprises can achieve many benefits by re-engineering procurement processes without acquiring new eprocurement software. The fundamental benefits of eprocurement are tied directly to changes in business process, user behaviours and relationships with suppliers not software Gartner Group; Real eprocurement Savings do not come from Software; May 2000 Transaction cost savings can be obtained from eprocurement. However the debate is still continuing as to the extent of savings that can be achieved. Some of the benefits companies have recognised through the use of eprocurement technologies include a 73% reduction in transaction costs, a 70% to 80% reduction in purchase order processing cycles, and a 5% to 10% reduction in prices paid. Aberdeen Research; eprocurement: Don't Believe the Anti-Hype; June

140 A more realistic indication of transaction cost reductions is provided by the survey which found that just under a third of respondents expect the reductions to be less than 10 percent between now and A third expect them to be between 10 and 20 percent, and slightly more than a third expect them to be 20 percent plus. The Conference Board; E-Procurement: Buyer Beware; 2001 The goods that organisations are most likely to buy via eprocurement include office supplies and equipment, IT supplies and travel services. More than 90 percent of respondents say they will probably or definitely buy all office equipment via e- procurement in the next three years. The equivalent figure for IT supplies is about 85 percent and for travel services 90 percent. The Conference Board; E-Procurement: Buyer Beware; 2001 A recent Purchasing benchmark study on B2B ecommerce finds office and MRO supplies, computers and peripherals, software, office equipment and electronics gaining the most online sales traction. Travel, electrical goods and packaging are also gaining ground steadily. Purchasing magazine; E-marketing winners; March 2001 Most organisations (70.9%) bought some indirect materials online during the past three months. Less than half of organisations surveyed bought direct materials online NAPM/Forrester; Research Report On ebusiness; April 2001 While electronic funds transfer is standard practice amongst organisations, the majority of B2B ebusiness transactions are settled offline While online transactions in public and private trading networks and marketplaces are growing, the vast majority of online B2B ecommerce transactions are still settled offline. According to Gartner Group data, 13% of all B2B transactions in 2000 were paid for online, and the vast majority of those took place among a small group of large enterprises. The select, large companies that comprise the bulk of online payments have embraces the Automated Clearing House (ACH) network. The ACH network is a batch-oriented electronic funds transfer system which provide for the inter-bank clearing of electronic payments. Line56 Research; How do you want to pay for this?; Jim Ericson; May 2001 Security and trustworthiness are the paramount active concerns preventing the wider adoption of eprocurement Perceived security problems are a paramount obstacle to the proliferation of eprocurement activity in Europe Fears over security are no less significant amongst those companies that already have substantial experience of eprocurement. The more companies know about eprocurement, the more scared they are about security Secure systems are identified as the most significant obstacle to dealing with new suppliers online by the companies surveyed Over one third of companies identified concerns over transactional security, safety and trustworthiness as the principal obstacles to conducting more business online with suppliers 64% of respondent companies are reliant on passwords when dealing with suppliers over the Internet. Only 27% insist on digital identity certificates to prove identity. PricewaterhouseCoopers; Trust... not built at e-speed; May

141 eprocurement solutions One size does not fit all In the infancy of catalogue commerce, it was assumed that an enterprise needed only one BSA (buy side application). However, most enterprises will find they need three or more separate applications Gartner Group; E-Procurement: One Buy-Side Application is not enough; A Kyte; November 2000 Integration is a vital consideration when choosing an eprocurement solution. Integration is a huge issue. We re seeing companies that jumped into some point solutions that now must consider re-architecting or joining them together in the context of a private trading exchange. Addressing integration issues up front ensures that your procurement solution will be unified within your ultimate e-business framework AMR Research; E-procurement Certain Value in Changing Times; Louis Columbus; April

142 Public Sector A review was conducted on a number of initiatives and implementations taking place in relation to eprocurement in the public sector. As a result of the research, which was based on published materials, information was obtained on several public sector eprocurement initiatives. The table below contains the details of these initiatives and further information is available in the public sector eprocurement trends and developments working paper. Sourcing Supplier Registration Initiatives etendering Initiatives Country Initiative Description Status Savings URL Australia Single Supplier Register A report was issued on the development of a Single Supplier Register UK G-SID A repository of supplier information stored by government Canada SRI A database of suppliers interested in doing business with the federal government UK OGC TenderTrust An electronic tendering system built by the Royal Bank of Scotland for the Office of Government Commerce (OGC). UK DELTA A privately operated electronic tendering service provided by Business Information Publications Currently a number of pilot implementations are in place Pilot has been undertaken. Expected roll-out in 2001 Launched in September 1999 A six month pilot is starting 29 th June 2001 involving 9 central Government departments The Project mo dule is currently being rolled out by the NHS N/A N/A N/A Expect to save the government 13m (IR 16m) over 4 years and to save suppliers 37m (IR 47m) in tendering costs No expected savings are reported ojects/eprocurement/ Ssregister.htm a.gc.ca/en/sourcee.htm com acts.com/delta.html Denmark ETHICS An application package aimed at Currently in use at Expected to provide reduced 142

143 eauction Initiatives Country Initiative Description Status Savings URL organisations that perform public tenders regularly National Procurement Ltd, whose 85 framework contracts are available to administrative costs Germany Medien Pool A privately owned system that allows the online exchange of public and non-public invitations to tender. China Electronic Tendering System (ETS) Website for display of tender notices, downloading tender documents and submission of tender proposals hosted by the Government Supplies Dept Australia CETS Online electronic tendering system for use by commonwealth agencies developed by the National Office for the Information Economy (NOIE) Canada MERX A privately operated online tendering system used by the Canadian public sector Canada MERX Auction A private online auction site that is initially being offered to the customers of MERX, an electronic tendering service used by government purchasers US Buyers.gov An egovernment exchange to implement auctioning and aggregation capabilities within 7000 public agencies At the moment the system is predominantly used for advertisements in the building industry In September 2000, the system had attracted 382 subscribers, and 491 tenders had been issued Currently being piloted with a small group of agencies Central Government departments must use MERX for requirements subject to any trade agreements Medien pool states that cost savings of up to 80% are possible No immediate reductions in cost have been realised, as the manual system has not yet been phased out. No savings are reported. Experience indicates that MERX can save the public sector buyer as much as 15% based on increased competition m m Launched June 2001 No expected savings reported m Buyers.gov is an operational pilot. GSA expects to release a RFP Buyers.gov claims that every auction conducted has shown cost savings, typically 7-16% 143

144 Ordering eprocurement Transaction Support Initiatives Country Initiative Description Status Savings URL the government for a government wide of the unit cost contract in June 2001 US NAVICP NAVICP recently awarded contracts for online reverse auctioning services. A five-year contract began in December The first auction was conducted in May Expect 10-20% procurement savings. First auction saved 28.9% on the unit cost. il US CECOM CECOM tested an online eprocurement system that uses reverse auctioning. US Air Force Exploring the use of reverse auctions using CECOM s existing reverse auction software US Marine Corps Adding Frictionless Commerce Inc. s sourcing software to CECOM s existing reverse auction software UK OGC Buying Solutions Catalogues of IT Products and Services, Telecommunications, Catering, Building, Grounds and Facilities Management, Interior and Furnishing and Health, hygiene and safety products supplying the UK public sector. UK GCat Catalogue of IT commodity items for UK public sector organisations UK S-CAT Catalogue of IT services for UK public sector organisations Successfully completed pilot program Pilot program Phase One should be completed by September 2001 Operational and currently integrating all services more closely. G-Cat and S-Cat are elements of the OGCBuying.Solutions service Over 800 public sector organisations use GCat and number of vendors available is over 500 At the end of 1999, 170 organisations and 36 CECOM claims savings of 20% - 50% on the unit cost One auction saved the Air Force more than 35% on the unit cost Averaging 25% savings Planned savings: 2001/2-40m (IR 51.4m) 2002/3-80m (IR 102.8m) 5% price advantage on a basket of goods and services. GCat claims to have helped to cut Government procurement costs by 10% on average No savings reported tions.gov.uk/

145 Country Initiative Description Status Savings URL public sector organisations organisations and 36 prime contractors were using S-CAT UK DECS The Defence ecommerce system which will allo w for electronic ordering, receipting and invoicing Norway Electronic Marketplace A web based system where public sector buyers may order from existing framework agreements Finland Sentteri Electronic procurement solution that permits ordering, financial administration and bidding. Denmark SKI An internet catalogue and ordering system China GSD Online product catalogue containing information about the items maintained by GSD Singapore GeBIZ Partner A system enabling buyers to carry out electronically the steps from purchase requisition to acceptance of items delivered. Singapore MIPS A system operated by Ministry of Defence, Singapore (MINDEF) enabling MINDEF and it s suppliers to conduct transactions via the internet Australia Gem An online eprocurement solution allowing users to browse catalogues, order, receipt and Currently in first year of a ten year implementation programme Implementation expected in March 2002 In May 2001, Hansel had about 6000 electronic subscribers. Accessible for over 80-90,000 government employees and over 85 suppliers Planned enhancement to support web-based ordering Currently suppliers can receive purchase orders raised against contracts electronically Currently MINDEF posts only Invitations to Quote for items below $30,000 (IR 15,000) So far Gem has over 3000 registered suppliers and 500 registered buyers Expected to assist in achieving 20% savings by Expect reduced prices and reduced transaction costs In May 2001, Hansel has claimed to have had obtained over FIM100m (IR 13m) in annual savings Estimated potential savings of 2-8% of turnover N/A Cost benefits are expected. MINDEF expects more competitive bids as a result of wider reach of the Internet and lower business costs for suppliers The cost of a typical transaction by the state government is about $100 decs.htm o htm ov.sg u 145

146 Country Initiative Description Status Savings URL pay online online (IR 48). Gem expects to reduce this to less than $10 (IR 4.80). Australia EC4P An online eprocurement solution allowing users to browse catalogues, order, receipt and pay electronically Canada e-purchasing An internet based service that will eventually allow government buyers to browse, order and settle invoices online. US US Interoperable Catalogues Pilot GSA Advantage A pilot to demonstrate the feasibility of an interoperable online procurement system Online catalogue and ordering system US DoD EMALL A single point of entry to acquire goods from the commercial marketplace and government stores US CAMIS An online purchasing system that enables LA County employees to interactively search for products, check availability, and place orders US Multi-State EMall Pilot A government-to-business electronic procurement system The Department of Natural Resources and Environment (DNRE) is the first department to trial the implementation of full EC4P. Currently the service supports requisitions for goods and services. Phase 2 will begin in Autumn 2001 Pilot completed in September ,000 registered users in registered users in January 2000 Fully operational The EMall currently has 21 executive agencies, 18 A substantial reduction in the administrative costs is expected Savings have been obtained when volume discounts are requested Helped reduce costs inherent in operating multiple standalone electronic catalogues GSA Advantage claims that administrative and purchasing savings can be obtained EMALL claims that cost savings over commercial catalogues can be obtained, because of negotiated volume discounts Central warehouse was closed providing one-time savings of $20m (IR 18m) and ongoing savings of $6m (IR 5.5m) per year. Also saving up to 5% through online comparison shopping EMall estimate the potential savings per transaction to be C9.htm Purchasing.gc.ca mittee_docs/finalrp t_may2000.doc gov donline.net/scripts/d efault.asp ceone.com/downloa d/countyoflacases tudy.pdf all/index.htm 146

147 Payment epayment Initiatives Country Initiative Description Status Savings URL EMall Pilot electronic procurement system designed for use by multiple states. Currently being piloted in the state of Massachusetts. 21 executive agencies, 18 state departments, and 1 public authority in the Buyer Community, and nine members in the Supplier Community savings per transaction to be between $56.20 and $ (IR and IR 97.54) all/index.htm UK GPC The Government Procurement Card (GPC) is a Visa purchasing card specifically for government There are now 135 live programmes and 15,700 cards across government Finland Hansel card Public sector payment card Accepted at 4000 shops throughout Finland Australia US Remittance Advice GSA Smart Pay Project to develop a standard for government use of remittance advice The Federal government s charge card program In 2001, the National Office for the Information Economy will investigate the application of an XML standard schema for remittance advice, in anticipation of future supplier demand In Fiscal year 2000, 670,374 Federal cardholders spent $12.3 billion (IR 11.4 billion) via 23 million transactions. OGC estimates savings of 28 (IR 36) per transaction by using the GPC Price reductions have been achieved by using the whole purchasing potential of the public sector No savings reported. Savings are obtained on invoice processing and cheque costs uk/ogc/procurement. nsf/pages/procureme nt.html /en/kortti/kortti.shtm l au/projects/eprocure ment/remittancead vice.htm pay.html 147

148 Appendix G: Project Charters This appendix contains the project charters for each of the recommended initiatives under the following headings: Organisational development projects (A1 to A7) eprocurement technology framework projects (B1 to B8) Strategic studies (C1 to C5) Pilot initiatives (P1 to P3) Sector and agency initiatives (S1) 148

149 A1 : ESTABLISHMENT OF TEMPORARY NATIONAL OPERATIONS UNIT Project Sponsor(s): Department of Finance Description: The establishment of an interim body within the Department of Finance whose main objective is to commence the implementation of key projects in advance of setting up the NOU. The project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit and the appointment of individuals. Objective: To establish the interim National Operations Unit To define the detailed role for the Unit Rationale: To ensure that key enabling projects are not constrained by the time required to set up the NOU. Outputs A discrete, dedicated and properly resourced body with the required resources is in place. Estimated Duration: 2 Months Pre-Requisites & Dependencies National Strategy recommendations approved by Government Funding available for establishment of interim National Operations Unit Assumptions None Risks Delays in approval of national strategy 149

150 A2 : ESTABLISHMENT OF THE NATIONAL POLICY UNIT (NPU) Project Sponsor(s): Department of Finance Description: The establishment of a discrete National Policy Unit (NPU) within the Department of Finance. The project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit and the appointment of individuals. Objective: To create a discrete, dedicated and properly resourced unit at the National level responsible for overseeing the implementation of the National Strategy, developing, and maintaining a national policy framework and supporting the legislation drafting process. Rationale: Provides a coherent national policy framework within which sectors can operate Provides a single point of reference for the implementation of the National Strategy Develop the legislative and regulatory environment governing procurement both nationally and internationally. Outputs Unit established and resourced. The NPU will be in a position to assume responsibility for the key tasks assigned to it. Estimated Duration: 2 Months. It should be noted that the Head of the Unit should be appointed as soon as possible and oversee the establishment of the unit. Pre-Requisites & Dependencies National Strategy recommendations approved by Government Funding is available for establishment of NPU Assumptions Individuals with the requisite experience and skills are available. Risks Delays in approval of National Strategy delay the creation of the NPU 150

151 A3 : REVIEW OF INTERIM ORGANISATIONAL ARRANGEMENTS Project Sponsor(s): Department of Finance Description: The implementation of an independent review of the temporary organisational bodies at national, sectoral and Agency level to determine their most appropriate long term location in the procurement structure, based on experience gained during the initial period. Objective: To identify the most appropriate long term location for temporary procurement bodies established during the initial review period. Rationale: Assessing the experience gained during the review period will give an indication of the key issues to be addressed in determining the long term location of the temporary bodies. Outputs Review report including recommendations on the long term procurement structure Estimated Duration: 2 Months Pre-Requisites & Dependencies Completion of sector level strategies Establishment of the temporary National Operations Unit Establishment of National Policy Unit Assumptions None Risks 151

152 A4 : ESTABLISHMENT OF THE NATIONAL OPERATIONS UNIT (NOU) Project Sponsor(s): National Policy Unit (NPU) Description: The establishment of a National Operations Unit. The project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit, the appointment of individuals and the physical establishment of the Unit. Objective: To establish a body at the National level tasked with operationalising the National strategy. Rationale: Provides the capacity required to operationalise the National strategy Provides central support to sectors and agencies thereby reducing the level of duplication of effort across the public sector. Provides the capacity to implement and manage portfolios and categories at the national level. Outputs A discrete, dedicated and properly resourced body with the required resources is in place. Estimated Duration: 6 months Pre-Requisites & Dependencies National Strategy recommendations approved by Government Funding available for establishment of National Operations Unit Establishment of interim National Operations Unit Establishment of National Policy Unit Review of interim organisational arrangements Assumptions The National Operations Unit will be established in interim form pending its full implementation. It is assumed that the body can be created and run under the NPU until permanent structures are established. Individuals with the requisite experience and skills are available. Risks Delays in agreeing the type of structure which may be required to support establishment of National Operations Unit. Government approves the National strategy but the support and co-operation of the individual sectors for the National Operations Unit is not forthcoming 152

153 A5 : DEVELOPMENT OF A NATIONAL PROCUREMENT TRAINING PLAN Project Sponsor(s): National Operations Unit Description: The development of a National Training plan to ensure that a consistent set of skills are developed across the public sector. The project should include the following: Conducting a Training Needs Analysis across the public sector Development of core curriculum Determination of training delivery approaches Development of training materials Piloting the delivery of the training courses contained within the curriculum Objective: To identify procurement training needs across the public sector To establish a national public sector procurement curriculum to support the development of procurement skills across the public sector. Rationale: Development of the skills required to implement the procurement practices contained within the national strategy at a national, sector and agency level. Ensure a consistent set of skills in procurement are developed across the public sector and that all agencies and sectors have access to the means to develop these skills. Provide the capacity required to operationalise the National strategy and procurement practices. Outputs A comprehensive training curriculum and materials which addresses the specific needs of the public sector. Access to training in procurement for all public sector agencies. Estimated Duration: 6 months Pre-Requisites & Dependencies Interim National Operations Unit is established and Training Manager appointed Detailed roles and competency profiles completed Co-operation of sectors, agencies and providers of training content. Assumptions Training courses in Procurement are currently available and can be adapted to reflect specific requirements of the public sector. Risks Sectors and Agencies develop their own training materials. 153

154 A6 : DEVELOPMENT OF NATIONAL CHANGE MANAGEMENT FRAMEWORK FOR THE EPROCUREMENT STRATEGY Project Sponsor(s): National Operations Unit Description: The current attitude to procurement will need to be changed, if procurement is to be viewed as a strategy support activity within the public sector. This will require the development, management and co-ordination of a detailed Change Management Framework once the strategy is approved for implementation. Key components of the Change Management Framework will need to be stakeholder management and communications management. Objective: To develop a detailed change management framework for the implementation of the national procurement strategy, the initiatives to be undertaken at national level and to support the adoption of the National Strategy objectives at the Sector and Agency level. To ensure that the needs and concerns of key stakeholders are addressed and that their support and commitment to the objectives of the national strategy and initiatives is forthcoming. To ensure a consistent message is delivered throughout the public sector as to the aims and objectives of the national strategy and national initiatives. Rationale: Ensures key stakeholders are identified and managed Ensures a consistent message is delivered across the public sector as to the objectives of the National Strategy and initiatives. Ensures potential barriers to implementation of the National Strategy are identified & managed. Assists in the changes of attitudes and behaviours surrounding procurement as an activity. Outputs Detailed Stakeholder Management Plan including actions to be taken Detailed Communications plan including key messages, target audiences and mediums to be used. Detailed Change Management Plan covering all national level initiatives Estimated Duration: The development of detailed change management framework required at the national level is estimated to take approximately four months once the national strategy is agreed. Once the initial detailed plan is developed it will have to be maintained and implemented on an on-going basis and it is recommended that this be a key responsibility of the National Operations Unit. Pre-Requisites & Dependencies National Strategy recommendations approved by Government National level initiatives agreed Individual(s) appointed at the national level to manage the implementation of the National Strategy. Establishment of interim National Operations Unit Assumptions The NPU will be responsible for implementing and managing the Change Management plan. The NPU will be responsible for supporting sectors in the development of sector level plans. Risks Individuals with required level of influence are not available to implement the Change Management Plan Individual initiatives at the National level are not incorporated into the National Change Management Plan. Key stakeholders at the sector and national level are not available to take key actions required in the Change Management plan. 154

155 A7 : ESTABLISHMENT OF CENTRAL GOVERNMENT SECTOR PROCUREMENT UNIT Project Sponsor(s): Department of Finance Description: The establishment of a Central Government Sector Procurement Unit. The project should include the development of detailed roles, responsibilities and competency profiles for all positions within the unit, the appointment of individuals and the physical establishment of the Unit. This project will take into account the potential role of the GSA. Objective: To establish the Central Government Sector Procurement Unit To define the detailed role for the Unit Rationale: To provide a focus for the implementation of sector-wide eprocurement initiatives at central government level. Outputs A discrete, dedicated and properly resourced body with the required resources is in place. Estimated Duration: 4 Months Pre-Requisites & Dependencies National Strategy recommendations approved by Government Funding available for establishment of Central Government Sector Procurement Unit Establishment of interim National Operations Unit Assumptions None Risks Delays in establishing interim National Operations Unit 155

156 B1 : NATIONAL SUPPLIER REGISTRATION SYSTEM Project Sponsor(s): National Operations Unit Description: It is proposed that the implementation of the National Supplier Registration system is delivered over three phases as outlined here. Phase 1 The purpose of this study is to test the feasibility of a National Supplier Register by working with representatives from all sectors and from the enterprise community to undertake a scoping, analysis and high level design of the National Supplier Register. The scope of the phas e includes: Definition of the scope of the supplier register covering areas such as the use of the register, the nature of the information to be store, integration with other components Completion of a detailed requirements analysis based on the agreed scope Operating and administration model of the register Phase 2 The procurement of the solution and solution provider assuming that the outcome of the feasibility study confirms the viability of a National Suppliers Registration system. Phase 3 This phase will cover the detailed design, technical architecture definition, system development, system testing and roll-out of the National Supplier Registration system. The rationale for implementing a National Supplier Register is: Provide buyers with an accessible directory of suppliers interested in supplying the public sectors and a summary of the products and services that they offer Provide a single point of entry for suppliers to provide information to all public sector bodies agencies and to enable them to promote their products and services Objective: The objectives of this project are to: Test the concept of a National Supplier Register with public sector buyers and the enterprise sector Define scope and complete detailed functional and technical requirements of the supplier register Select a solution provider and implement the National Supplier Registration system. Outputs Analysis and High Level Design Document Invitation to Tender and selected Solution Provider and Hosting Partner Solution Implemented and documentation and procedures developed Estimated Duration: Pre-Requisites & Dependencies Phase 1: 3 months Phase 2: 4 months Phase 3: 5 months Project to develop National categorisation and coding strategy completed before Phase 3 can begin. Business Service Number in place to support supplier identifier Assumptions Feasibility study will confirm requirement for a National Supplier Register The OJEC tendering process will be required for Phase 2 of the project Risks Lack of buy-in from buyers and suppliers to the system National Categorisation and Coding Strategy not agreed 156

157 B2 : DESIGN NATIONAL CONTENT MANAGEMENT FRAMEWORK Project Sponsor(s): National Operations Unit Description: To develop a framework to facilitate the implementation of the Information Services component of the eprocurement Technology Framework including the National Public Procurement website as well as sector or agency sites. The scope of this project is to cover the following: Content classification, templates and design Authoring, editing and publishing guidelines Agree content sharing approaches for the different content categories Archiving and expiration guideline Search engine requirements and suitability of the Government Search Engine The project should be run in close co-operation with similar work to be undertaken as part of the BASIS initiative. The rationale for undertaking is project is: Agree a common framework for the implementation of Public Procurement Information Services across the public sector. To provide a means of ensuring consistency of information across procurement web sites. To ensure that content can be created and managed to allow a single view of all Public Procurement Information to the enterprise sector and allow users to search and retrieve content from multiple locations and data stores Objective: To ensure consistency of content management across agencies & in accordance with those set out by BASIS. Outputs Procurement Content Management framework Estimated Duration: 3 months Assumptions The Content Management Standards and Guidelines being developed by BASIS can be leveraged to support this activity Risks Delay in development of standards and guidelines as part of the BASIS initiative 157

158 B3 : DESIGN CATALOGUE MANAGEMENT FRAMEWORK Project Sponsor(s): National Operations Unit Description: To provide sectors with an implementation framework for Catalogue Management Systems. The framework should include areas such as: Assessment of catalogue implementation models specifically addressing the possibility of sharing catalogue management services across sectors and agencies. Agree Catalogue format standards Provide guidelines to sectors and agencies addressing the goods and services most suitable for catalogue based procurement The rationale for undertaking this project is: To ensure consistency of approach in the implementation of Catalogue Management facilities across sectors To encourage cross agency and cross sector co-operation Objective: The objective of this project is to provide a framework to support the implementation of catalogue management services. The aim of the framework is to provide common catalogue standards to allow suppliers provide catalogues in a common format when they are dealing across sectors Outputs Catalogue Format Standards Catalogue management operation and implementation model(s) Estimated Duration: 3 months Pre-Requisites & Dependencies Must be consistent with the National categorisation and coding strategy Risks Sectors/ agencies may wish to select / implement systems in advance of framework being finalised and agreed 158

159 B4 : DESIGN NATIONAL MANAGEMENT INFORMATION FRAMEWORK Project Sponsor(s): National Operations Unit Description: The scope of this project is to provide a framework to implement and roll-out MIS across the public sector to support the tracking progress of strategy against the KPIs and the procurement practices of: Portfolio and category management (spend analysis) Supplier performance management & procurement performance management. The scope of the project should include: Identification and development of metrics for each category of MIS Development of the reporting processes and templates for recording and communication procurement performance The rationale for undertaking this project is: To improve control of procurement within the public sector To provide a means of implementing the strategic sourcing techniques of category management Provision of a common framework for measuring performance across the public sector To investigate the potential for sharing of MIS infrastructures & investments across sectors & agencies Objective: To establish a common approach to reporting across the public sector including the development of metrics and targets linked to objectives. Outputs Management Information Framework to include: o Data requirements which each sector will need to provide o Timing and frequency of data feeds required agreed o Performance reporting templates Polices and procedures for deriving and reporting performance metrics and targets Development of key performance indicators Estimated Duration: 3 months Pre-Requisites & Dependencies Establishment of interim National Operations Unit Assumptions MIS will be required at national, sector and agency level A set of common KPIs can be agreed across the public sector Risks Framework complex and difficult to implement because of the attempts to meet requirements at many levels 159

160 B5 : NATIONAL PUBLIC PROCUREMENT PORTAL Project Sponsor(s): National Operations Unit Description: Design, develop and implement National Public Procurement Website to provide Information Services to public sector buyers, the enterprise sector and the general public. As well as providing the entry point for all users of the eprocurement Technology Framework components to access services such as Supplier Registration, Tender Management, Catalogues and eordering, etc. The project has 2 key phases: Phase 1 The scope of Phase 1of this project is to: Identify the information services and web site access requirements based on the content identified as part of the Content Management Framework Develop requirements to be supported by the Content Management Tool and the Internet Service Provider Select Content Management Application and implementation partner Phase 2 Design, implement and launch the web site The rationale for this project is to: Support the Procurement practices of standardisation of policies, processes and documentation by providing buyers with access to best practice across the public sector network as well as information on contracts that exist and tenders open and awarded. Provide support and information to businesses who wish to supply the Irish public sector Provide information on recent Procurement events, press releases, strategy, policy, etc. Objective: The objective of the project is to develop and implement the National Public Procurement portal to provide users (public sector buyers, the enterprise sector and the general public) access to information and services. Outputs Scope and Specification Document and ITT Content Management Solution Provider and ISP partner selected Content sourced and format to standards required Web site operational Estimated Duration: 7 months assuming OJEC tendering process Pre-Requisites & Dependencies Interim National Operations Unit in place to manage and own the content National Content Framework in place Assumptions Internet connectivity and Internet Service Provider services for users will be available through the Public sector VPN contract currently being procured. Risks Delay in completing the National Content Framework may delay the implementation 160

161 B6 : NATIONAL TENDER MANAGEMENT SOLUTION Project Sponsor(s): National Operations Unit Description: The eprocurement Technology Framework proposes the implementation a National Tender Management Facility to support both above and below EU Threshold Tenders for suppliers, services and works. The scope of this project is as follows: Phase 1 Agree scope and complete functional and technical requirements analysis must be conducted. Select the solution and solution provider. Phase 2 Phase 2 of the project covers the implementation of the Tender Management Solution. This will also include the implemented of the required security infrastructure or integration with Reach as is required The rationale for implementing a National Tender Management Solution are: Improve transparency of the procurement process through publication of opportunities and awards in a single site that is easily accessible for suppliers, both domestic and international Imp rove the accuracy of the process through validating information at the point of entry Improve efficiency of the process through the provision of tender templates and the potential to support the evaluation process Enable the public sector to meet its obligations under the eeurope Action Plan Build on the existing initiative. Objective: The objective of the project is to provide an electronic tender management system to manage the publishing, completion, submission, opening and awarding of the tenders. Outputs Functional and Technical Specification Document and Invitation to Tender Solution provider(s) and hosting partner selected Tender Management Solution operational, user/ buyer procedures developed and training material developed Estimated Duration: 9 months Pre-Requisites & Dependencies Security Infrastructure in place to support the above EU Threshold tenders (i.e. Certification and Registration Authority selected) provided as part of the Public Services Broker (Reach) Completion of pilot Assumptions Licenses, support, maintenance and hardware costs procured under managed services model Security infrastructure provided by Reach will be sufficient to meet requirements Risks Security infrastructure not in place 161

162 B7: CENTRAL GOVERNMENT CATALOGUE-BASED EPROCUREMENT SYSTEM Project Sponsor(s): Central Government Sector Procurement Unit Description: Phase 1 The first phase will specify the requirements for a Catalogue-Based eprocurement system to support users throughout all departments and agencies within Central Government and in-line with the Catalogue Management Framework agreed at a National Level The expected system usage, transaction volumes, catalogue items and user profiles must be estimated at this stage provide potential vendors with an estimate of usage to develop an appropriate pricing model. This phase will also cover the selection of the solution and solution provider. It should be noted that one solution provider may not be able to meet all requirements and that separate providers for the Catalogue Management and the eprocurement Transaction Support may be appropriate Phase 2 The second phase of the project will cover the implement the solution for the Central Government departments in line with requirements specified in Phase 1. The rationale for implementing an eprocurement Transaction Support and Catalogue Management facility is to assist in achieving the following objectives: Reduce the transaction costs associated with procurement of goods and services suited to catalogue based procurement Support strategic sourcing through the gathering and provision of procurement spend related information Increase awareness of, and compliance with, contracts Objective: The objective of this project is to provide public sector users throughout Central Government with access to contracts through electronic catalogues, including the ability to order from these catalogues Outputs Scoping and Analysis Document and Invitation to Tender Solution Provider(s), implementation partners and hosting partner selected Solution implemented, processes and procedures documented and training material completed Estimated Duration: Approximately 9 months Pre-Requisites & Dependencies Complete portfolio and category management strategies for the Central Govt Complete Catalogue Management Framework National and sector organisation structure in place Assumptions Central Government contracts will exist Costs based on implementation with approx catalogues and minimum integration effort Sufficient contracts in place Risks Buyers and users will not participate 162

163 B8 : CENTRAL GOVERNMENT MANAGEMENT INFORMATION SYSTEM Project Sponsor(s): Central Government Sector Procurement Unit Description: Phase 1: Building on the National MIS framework, scope, analyse and design a Management Information System to meet the specific requirements of central government to support their Procurement requirements based on the MIS framework agreed. Select solution and solution provider for the MIS system. Phase 2: Implement the MIS solution. The rationale for this project is to support the measurement of procurement performance and other related procurement practices. Objective: To provide an MIS system to support procurement practices and sourcing strategies within Central Government and to feed up to MIS systems at National Level. Outputs Requirements specification document Invitation to Tender Solution(s) and provider selected Design document and report templates developed and agreed Data warehouse in place Feeds and uploads from agencies FMS systems in place Required reports being produced Estimated Duration: 9 months Pre-Requisites & Dependencies MIS Framework Completed to provide input to the Analysis and Specification Phase Spend analysis information for category management strategy identified Metrics for supplier and procurement performance identified Establishment of interim National Operations Unit Establishment of Central Government Sector Procurement Unit Assumptions Category management will be undertaken at central government Contracts will be placed at Central Government level Risks 163

164 C1 : DEVELOP NATIONAL CLASSIFICATION SCHEME Project Sponsor(s): National Operations Unit Description: A standardised categorisation approach is a key enabler for the implementation of portfolio management and category management across Agencies, Sub Sectors, Sectors and the entire public sector. Standardisation of the approach to item level coding is required to enable Agencies to uniquely identify items that are part of aggregated Sector or National level contracts. The project will identify an appropriate approach to the coding and categorisation of purchases across the public sector. This will involve the following key activities: Assessment of the coding and categorisation approaches currently being used in the public sector Identification of the coding and categorisation requirements (e.g.: spend analysis, reporting, ecatalogues) Determining the level of standardisation achievable Selection of suitable coding and categorisation standards to meet requirements Developing approaches to meeting any sector variations required Development of strategy, policies and procedures to ensure effective implementation of the national approach to coding and categorisation Objective: To adopt a coding and categorisation standard that will be used by all Agencies and Sectors to classify expenditure and uniquely identify purchased items. Outputs Standard categorisation and coding system(s) Strategy for the adoption of a national approach to coding and classification Policies and procedures for the implementation of the national strategy across the public sector Estimated Duration: 6 months Pre-Requisites & Dependencies Establishment of interim National Operations Unit Participation of sector representatives Assumptions Agencies will be able to maintain current coding and classification systems if necessary and map to standard approach as required Agency staff will be available to participate as required Risks Complexity of mapping to standard approach prevents effective implementation 164

165 C2 : DEVELOP UNIT COST AND TRANSACTION COST BASELINES Project Sponsor(s): National Operations Unit Description: The project will develop a baseline for unit cost and transaction cost so that future improvements in transaction efficiency and value for money can be measured. Unit cost information is a critical input to the assessment of priorities and opportunities as part of portfolio management and the development of category management strategies. Information relating to transaction costs is required when evaluating strategy options, assessing performance improvement or analysing total cost of ownership. The approach to be adopted will be based on statistical sampling methods. For unit costs, this might be based on a basket of products and services across agencies. The project will involve the following key activities: Determination of statistical sampling approach Selection of participating agencies Determination of transaction cost components and development of cost model Data collection Determination of baseline values & collation of sector and national level data Development of policies and guidelines for future assessments Objective: To establish baseline values for unit cost and transaction cost so that future procurement performance improvements can be assessed. Outputs Baseline unit cost data Baseline transaction cost data Policies and guidelines for future assessments Estimated Duration: 4 months Pre-Requisites & Dependencies Establishment of interim National Operations Unit Assumptions It will be possible to establish a representative basket of purchased items Risks Time delay due to data quality and availability 165

166 C3 : REVISE NATIONAL PROCUREMENT POLICIES AND GUIDELINES Project Sponsor(s): National Policy Unit Description: This project will revise the current policies and guidelines in order to incorporate the national procurement strategy. The key activities involved will be: Reviewing existing Green Book and identifying areas of change required In consultation with the National Operations Unit and the sectors, determine policies and practices to be included Develop and agree revised policies and guidelines Publish and disseminate via national Procurement Website Objective: To produce a revised set of national procurement policies and guidelines based on the adoption of procurement best practice across the public sector Outputs National level policy and guidelines manual Estimated Duration: 3 months Pre-Requisites & Dependencies Establishment of interim National Operations Unit Consultation with the sectors 166

167 C4: ESTABLISH BASELINE FOR ECOMMERCE READINESS OF PUBLIC SECTOR SUPPLY BASE Project Sponsor(s): National Operations Unit Description: Survey of a sample of public sector suppliers (stratified to ensure that the various supplier categories are sufficiently well represented) to determine their usage of ecommerce. This survey would form the basis of a survey to be conducted annually on the same sample to track the impact of the introduction of eprocurement on the ecommerce readiness of suppliers to the public sector. Objective: To provide reliable information regarding the ecommerce readiness of suppliers to the Irish public sector. To meet the information gap that presently exists regarding the ecommerce readiness of suppliers to the Irish public sector; To form the basis of key performance indicators that relate to the overall objective of promoting ecommerce adoption among suppliers to the Irish public sector. Outputs A short paper presenting statistics pertaining to the ecommerce readiness of suppliers to the public service, broken down by major supplier category. Estimated Duration: Three months to be initiated once profile of supply data is made available. Pre-Requisites & Dependencies Establishment of interim National Operations Unit Availability of profile of supply data allowing for the design of a sample that is representative of the larger supply base. No major changes in procurement practices, processes or policies before baseline data are collected. Assumptions All survey and analysis work is commissioned to external consultants; Assumes responses are to be received from approximately 1,000 suppliers. Co-ordination between the definitions employed for the purposes of the profile of supply, the single supplier register (e.g. product/ service lines) and those employed for the production of baseline data; Willingness of agencies/ suppliers to participate. Risks Poor supplier response Agency willingness 167

168 C5: ESTABLISH BASELINE FOR PROFILE OF SUPPLIER TO PUBLIC SECTOR Project Sponsor(s): National Operations Unit/ Sectoral Procurement Agencies Description: Collation of base line data on the profile of supply for public sector agencies for incorporation into sectoral procurement performance management systems and to feed up into the national procurement performance management systems. Objective: To ensure that there are baseline data against which the enterprise impacts of a changed procurement regime may be tracked. To ensure access to timely information on supply profile when reviewing procurement strategies; To enable evaluation of the likely impacts of changed procurement practices on the supply profile To allow early identification of practices/strategies that are having unforeseen enterprise impacts; To identify the extent and coverage of single supplier register Outputs A description of the profile of supply to public sector agencies, detailing total number of suppliers and percentages regarding size, location, ownership and nature of product/ service supplied. Indicative profiles of supply at sector & national levels, disaggregated by broad category of spend. Estimated Duration: 4 months Pre-Requisites & Dependencies Establishment of national/ sectoral procurement bodies. Definitions to be used in the collation of supplier information for the purposes of the single supplier register have been determined/ categorisation structure developed. No major changes in procurement practices, processes or policies before baseline data are collected. Establishment of interim National Operations Unit Establishment of National Policy Unit Assumptions Templates for surveys, survey methodology and data inputting are designed centrally by ext ernal consultants, who would also have responsibility for analysis of findings; Availability of individuals at agency level to conduct (telephone) surveys as well as to input findings into centrally designed systems; Co-ordination between the definitions employed for the purposes of the single supplier register and those employed for the production of baseline data/ categorisation structure developed; Risks Poor supplier response; Willingness of agencies/ suppliers to participate. 168

169 C6: DEVELOP BASELINE FOR BUYER, SUPPLIER AND USER SATISFACTION LEVELS Project Sponsor(s): National Operations Unit Description: Qualitative metrics are a key element of overall performance assessment and should be included with other quantitative measures in a balanced scorecard approach. In particular, assessment of satisfaction levels is an important input to initiatives aimed at improving service levels for buyers, suppliers and users in the public sector. The project will develop a baseline for supplier, user and buyer satisfaction with procurement in the public sector, so that future improvements in these qualitative aspects of procurement performance can be assessed. This will involve the following key activities: Determination of criteria for assessing satisfaction Selection of participants for survey Data collection (survey, interview) Collation of sector and national level data Development of policies and guidelines for future assessments Objective: To establish baseline values for supplier, buyer and user satisfaction so that future procurement performance improvements can be assessed. Outputs Baseline data for supplier, user and buyer satisfaction with procurement performance in the public sector Policies and guidelines for future assessments Estimated Duration: 3 months Risks Low level of response to survey 169

170 C7: PREPARE EU COMMISSION SUBMISSION ON B2B PRACTICES IN EPROCUREMENT AREA Project Sponsor(s): Department of Finance (NPU) Description: Preparation of submission to DG Internal Market of the European Commis sion on the use, by public sector bodies, of eprocurement practices that are emerging in the private sector (such as reverse auctions, emarket places and supplier driven dynamic catalogues). The submission should consider the benefits of the use of such practices, having regard to the experience in the utilities sector or elsewhere, and the suitability / appropriateness of the use of such practices for public sector purchasing. The preparation of the submission to the European Commission should include consultation with the utilities sector, which currently enjoys greater flexibility in terms of their procurement procedures and is not dependent on amendments being made to the directives in order to begin piloting the use of emerging eprocurement practices. Objective: To influence the shaping of future EU legislation relating to electronic procurement. Rationale: The European Commission plans to issue by the end of 2001 a communication on the use, by public sector bodies, of eprocurement practices that are emerging in the private sector (such as reverse auctions, emarket places and supplier driven dynamic catalogues). It has requested that the Irish government make submissions to it in relation to eprocurement in general and, in particular, the merit of permitting the use, in the public sector, of such emerging eprocurement practices. This consultation process at EU level could result in amendments being made to the EU public procurement directives to facilitate the use of such practices. Outputs Written submission to the European Commission Estimated Duration: 2 months (elapsed time). 170

171 P1 : TENDER MANAGEMENT PILOT Project Sponsor(s): National Operations Unit and the Pilot Agencies Description: Pilot a Tender Management Solution to support below EU Threshold tenders. The pilot project should last approximately 6 months and cover a number of different tendering processes, for example, Request for Quotes, Two stage tendering (RFI and RFP), RFP. The pilot is divided into a number of phases: Phase 1: Specification and selection of the pilot solution (4 months) Phase 2: Implementation of the solution (1 month) Phase 3: Operation of the pilot for 6 months Phase 4: Review of the pilot (1 month) The focus of the tender management solution should be on the exchange of tender documents between suppliers and buyers and the ability to use templates and forms to suppliers to allow online completion of tenders and to assist in the evaluation process. The rationale for piloting an etender Management System are to: Identify key learning points and success factors in relation to the implementation of an electronic tender management system. Test supplier willingness and ability to adapt to electronic tendering Identify benefits to be derived from the use of electronic tendering Objective: There are a number of objectives of the Tender Management Pilot: To assess the impact of electronic tendering on buyers and the tendering process within the Pilot agencies To test the acceptance of electronic tendering both within the public sector buying communities and also different supplier communities Outputs Electronic Tendering System for below EU Threshold procurement in place and being used by the 13 pilot agencies Formal review of the impact of electronic tendering on both public sector buyers and suppliers Estimated Duration: 12 months Pre-Requisites & Dependencies Agreement of Pilot agencies to the concept Interim National Operations Unit in place Assumptions Market will provide Tender Management Solution on a pilot basis at a favourable cost Buyers and suppliers will be willing to participate Only below EU Threshold as extra security required for above EU Threshold tenders Risks Market will not provide solution at an acceptable cost Time frame too short to determine impact 171

172 P2 : PILOT FOR ELECTRONIC ORDERING USING ELECTRONIC CATALOGUE Project Sponsor(s): National Operations Unit and AN Other Description: Implement a Catalogue Based eprocurement solution to support existing cross-agency contract(s) or contract(s) than can be put in place in a timely manner. The nature of goods or services covered by the contract must be suitable for catalogue based procurement and the supplier must be able to provide an electronic catalogue. The pilot is divided into a number of phases: Phase 1: Specification and selection of the pilot solution (4 months) Phase 2: Implementation of the solution (1 month) Phase 3: Operation of the pilot for 6 months Phase 4: Review of the pilot (1 month) The rationale for piloting a Catalogue Based eprocurement Solution are: Identify key learning points and critical success factors in the implementation of a Catalogue Based eprocurement Solution Assess the organisational impact to provide input to other implementations Objective: The objectives of this pilot are to test: The impact of decentralised buying within organisations User acceptance and reaction to an ecatalogue procurement Ability to implement one solution to support many public sector agencies Measure the benefits of Catalogue based eprocurement Outputs Invitation for Tender Document Catalogued Based eprocurement System operational Process and Procedures developed Training and communication in place Estimated Duration: 11 months Assumptions Agencies will have internet access to order on-line Risks Marker will not provide a solution at an acceptable price One contract will not be representative enough to test all objectives Users within the selected agencies will not be willing to participate 172

173 S1 : DEVELOPMENT OF SECTOR STRATEGIES FOR HEALTH, EDUCATION, CENTRAL GOVERNMENT AND LOCAL AUTHORITIES Project Sponsor(s): Sector Parent Departments (Health, Education, Environment & Finance) Description: The development of sector based strategies for eprocurement based on the national strategy. Objective: To produce strategies for each individual sector which will implement the recommendations of the overall national eprocurement strategy Rationale: Sector based strategies are required in order to ensure that the national eprocurement strategy can be successfully implemented in each of the sectors and that sector specific issues are addressed. Sector strategies are required to identify and develop the operational aspects of the national strategy at sector level Outputs Sector eprocurement strategy Estimated Duration: 6 Months Pre-Requisites & Dependencies National Strategy recommendations approved by Government Assumptions None Risks Delay in approval of national strategy 173

174 Appendix H: Guiding Principles The following are the key guiding principles which were developed following a process of consultation with the stakeholders in the project and were used to guide the development of strategic recommendations. eprocurement Strategy The national strategy, which will be developed from the vision for eprocurement, will not prescribe an approach to procurement or eprocurement for each sector or agency. It will set out policies and guidelines within which sectors and agencies will develop their own strategies. It will set out an overall vis ion of how the national objectives could be met using a combination of national, sectoral and regional procurement services supported by appropriate organisation structures and systems. Procurement Practices (a) The eprocurement strategy will be based on the introduction of sound procurement practices in line with international best practice, while taking account of the differences in objectives and priorities between the public and private sectors. (b) Opportunities for the aggregation of public sector procurement to enhance buying power across agencies, sectors and nationally will be exploited to the greatest extent practicable. Aggregation will be used as part of an overall category management strategy which is based on a good understanding of public sector expenditure, of suppliers and of the dynamics of the marketplace, and which takes into account service levels required, ongoing costs of ownership and other factors, as well as the price. It will be used only where it can be shown that there is long term economic benefit to be gained from aggregation at the level proposed. (c) While recognising the differing requirements and objectives that may exist, and subject to the proviso of local autonomy where applicable, agencies will be encouraged to adopt a consistent approach to procurement activities across the public sector. (d) The eprocurement infrastructure and procedures will support and facilitate a cooperative relationship between industry and the public sector, within the requirements of fairness and equity required by public procurement regulation. 174

175 Technology (a) The eprocurement strategy will promote the interoperability of systems through the use of open standards and protocols that will provide a framework that can allow for information exchange between Public Sector buying organisations and suppliers. (b) The eprocurement strategy will ensure that all transactions between public sector agencies and suppliers are authenticated, confidential and may not be repudiated (c) The eprocurement strategy will recognise and accommodate the diversity in Public Sector agencies and suppliers in terms of their existing procurement related technology infrastructure. (d) The technical solution should not require suppliers to provide the same information to multiple Public Sector agencies. Rather the recommended solution should support the sharing of common information across multiple agencies, subject to the requirements of confidentiality, and in particular Data Protection legislation. (e) Technology strategy recommendations should not be tied to particular vendor offerings (e.g. eprocurement applications, operating systems, integration technologies, hardware, back office systems). (f) The eprocurement strategy will ensure that the recommended technology direction takes account of, and is consistent with, other egovernment init iatives (g) The technology approach selected, while not being constrained by existing or planned technology related initiatives in the nominated sectors, will take these into account (h) The eprocurement strategy will provide a security and logon infrastructure to allow companies register only once for the public sector services thereby facilitating a single sign-on for any public sector service available over the web (e.g. Basis; eprocurement). This will not preclude additional security or other access control measures being implemented where agencies require it. (i) The proposed solution should allow for the provision of supplier/ procurement information, which would allow for on-going monitoring of performance in relation to certain or all of these guiding principles, subject to the requirements of confidentiality and the provisions of Data Protection legislation. 175

176 Organisation and Change Management (a) The eprocurement strategy will not mandate to sectors and agencies how to define their internal structures, processes or systems as long as they meet the overall strategy objectives. (b) Organisational recommendations must be consistent with the objectives as laid out in the Strategic Management Initiative, in particular: Devolving authority and accountability New approaches to human resources management (c) Accountability for procurement goals should be shared across functions, agencies and sectors as appropriate to support the implementation of the eprocurement strategy and objectives. (d) Ownership of budgets relating to procurement will remain with the purchasing agency, irrespective which agency may manage tendering or put contracts in place (e) Budget savings achieved through improved procurement practices combined with eprocurement will be available to be redirected at the discretion of the agency s management to other areas of expenditure required to enhance the services provided by the agency. (f) The introduction of eprocurement and new procurement practices must take into account the capacity for change in public sector organisations, as well as in supplier organisations. (g) Development and implementation of the recommended eprocurement strategy should be advanced in consultation with staff, possibly through existing partnership arrangements, so that all staff irrespective of level or grade are given an opportunity to participate and contribute. Legal and Regulatory (a) Consistency with the legal principles of Non-discrimination, open and effective competition, transparency, objectivity, proportionality and equality of tenderers. Promotion of good governance through ensuring procedural regularity and security. (b) Compliance with all applicable legal regulation, in particular:- EU directives (detailed provisions as well as underlying principles), IT regulation (Irish, EU and other), WTO requirements (detailed provisions as well as underlying principles), Competition law, Data protection regulation, Freedom of Information regulation. (c) Contribution to the development of a legal environment which reflects and is suited to the changing business environment 176

177 Economic (a) The proposed solution should contribute to national competitiveness, through the achievement of efficiencies in public service delivery and enhanced productivity across the Irish enterprise sector. (b) The proposed solution should maintain consistency with established national economic policies, particularly those relating to: the promotion of regional development; the promotion of indigenous enterprise/ SMEs; the establishment of Ireland as an international ecommerce hub. (c) The proposed solution should encourage the adoption of eprocurement-related technologies across the enterprise sector, by: enabling suppliers wishing to offer certain categories of goods and service to the public sector to do so on-line; show-casing the benefits that the public sector realises through the implementation of an effective eprocurement solution; building supplier confidence in the security of on-line transactions; highlighting the importance the public sector places on the role of ecommerce in the national economy. (d) To the greatest extent possible, the investment requirements associated with the proposed solution should allow suppliers to access ecommerce opportunitie s beyond the Irish public sector. This will have the effect of: encouraging the adoption of ecommerce technologies even in those enterprises that conduct relatively small amounts of business with the public sector; related to the foregoing, ensuring more intense competition for all transaction types, including those which are relatively low in value; promoting the development of ecommerce across the Irish economy; (e) The proposed solution should reflect appropriate technological capabilities/ infrastructure while not imposing prohibitive costs on any single category of supplier. (f) The proposed solution should enhance supplier access to public sector markets. The level of accessibility will determine the intensity of competition, which in turn influences the public service efficiencies that may be realised. 177

178 Appendix I: Annex X This appendix contains a copy of Annex X which is part of the proposed amendments to the EU procurement directives. ANNEX X REQUIREMENTS RELATING TO EQUIPMENT FOR THE ELECTRONIC RECEIPT OF TENDERS/REQUESTS FOR PARTICIPATION 1. Equipment for the electronic receipt of tenders/requests for participation must at least guarantee, through technical means and appropriate procedures, that: (a) electronic signatures relating to tenders/requests for participation comply with national provisions adopted pursuant to Directive 1999/93/EC of the European Parliament and of the Council 4 ; (b) the exact time and date of submission can be determined precisely; (c) it may be reasonably ensured that, before the time-limits laid down, no-one can have access to data transmitted under these requirements; (d) if that access prohibition is infringed, it may be reasonably ensured that the infringement is clearly detectable; (e) only duly authorised persons may set or change the dates for opening data submitted; (f) access to all data submitted, or to part thereof during the successive phases of the contract award procedure, is possible only through simultaneous action by duly authorised persons; 5 (g) simultaneous action by duly authorised persons can give access only to data transmitted after the prescribed date; (h) data submitted and opened under these requirements remain accessible only to duly authorised persons. 2. All the technical specifications of all tools used for the said equipment and which must be known for submission of tenders, including encryption, must be non-discriminatory and available to all interested parties. 4 Directive 1999/93/EC of the European Parliament and of the Council on a Community framework for electronic signatures (OJ L 13, , p.12). 5 German reservation: provision unnecessary. 178

179 3. Member States may introduce or maintain voluntary accreditation arrangements to improve the level of the certification-service for equipment to receive tenders/requests for participation pursuant to the provisions of both Directive 1999/93/EC of the European Parliament and of the Council and these requirements. 179

180 Appendix J: Cross-Reference of Recommendations to Objectives Recommendations Objectives To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) Organisation A new discrete, dedicated and properly resourced National Policy Unit (NPU) should be established. Its role should be to define national procurement and eprocurement policy, and facilitate, coordinate and oversee its implementation across the public sector. A new discrete National Operations Unit (NOU) ** should be created. The NOU should be the body responsible for the implementation of national eprocurement strategy in alignment with national policy developed by the NPU. Sector Procurement Units (SPU) should be established for each sector. Their role will be to implement sector level strategies in alignment with the overall national eprocurement strategy. ** National Operation Unit is a working title for the purposes of this report. A unique, discrete title for this function should be agreed as part of the project to establish the function. 180

181 Objectives Recommendations An SPU for central government should be established by the Department of Finance. The role of the GSA should be taken into account in this regard in determining the nature and location of the unit. Sectors should facilitate the establishment of dedicated procurement functions in those agencies where they do not currently exist and where the level and/or complexity of spend would warrant it. A National Procurement Advisory Board should be established in order to facilitate consultation between the NPU, the NOU and the sectors to ensure that their views are taken into consideration in the development and implementation of national procurement strategy. An interim operations unit should be set up as soon as possible, tasked with managing the implementation of the early national initiatives recommended in this report. In particular, it should play a key role in establishing the NOU. A National Procurement Managers Forum should be established to provide the opportunity for Procurement Managers in the sectors to come together periodically to share views, and to provide their inputs into national initiatives and policies. Sourcing teams should be established to assist in the development of category management strategies, and to carry out strategic sourcing for categories to be managed at national level. They should be chaired by a category manager appointed by the NOU, and should comprise multi-disciplinary teams drawn from the sectors. The National Operations Unit, in consultation with the sectors, should develop and facilitate the implementation of a national procurement training plan. A key element of implementation should be the development and implementation of a Change Management approach and plan. Change Management plans will need to reside at an initiative level, be this at the agency, sector or national level. To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) Procurement Practices 181

182 Objectives Recommendations A new framework for the management of procurement should be introduced across the public sector, facilitated by new organisation structures at national, sector and agency levels. Procurement should be aggregated at the highest appropriate level in To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process the public sector structure to optimise possible economic benefit. Sector Procurement Units should initiate studies on the nature and extent of non-contract procurement, and determine opportunities for increasing the proportion of this which can be procured under contract through improved planning, increased aggregation, and standardisation of requirements. The public sector should fully exploit all contracting approaches which facilitate competition in the supply base, increase flexibility in meeting user needs and ensure fair treatment of all potential suppliers. A structured and objective approach should be adapted to the management of supplier performance. Common performance metrics and targets should be established, using recognised external benchmarks where possible. Reporting and management processes should be developed to ensure that performance targets are met. Procurement performance should be formally managed at agency, sector and national level. Performance objectives should be derived from overall agreed national procurement targets and should incorporate both quantitative and qualitative measures. Performance reporting should be used to drive management actions at all levels. The adoption and implementation of a national standard classification scheme for the identification of procurement categories and items should be managed nationally in co-operation with the sectors. The development of national procurement policy, and the publication of national procurement policies and guidelines should be undertaken nationally in consultation with the sectors. To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) 182

183 Objectives Recommendations A National Supplier Register should be established for recording supplier details in order to improve the availability of supplier information and to reduce the duplication involved in maintaining separate supplier lists at agency level. Responsibility for management of the register should reside at national level. The development of standard procurement documentation, taking account of sector specific needs should be managed nationally in cooperation with the sectors. To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) Technology A National Procurement Website should be provided to act as a gateway to procurement related services for public sector buyers, suppliers and the general public. A Content Management Framework for procurement should be devised to cater for all procurement-related information accessible via the National Procurement Website. Content for procurement-related information, made available through the national web-site should be managed at a national level. An electronic Tender Management facility should be provided at national level to support both above and below EU Threshold tenders for supplies, services and works contracts. Sectors/agencies may choose to implement local tender management solutions. However, where local (sector/agency) tender management solutions are deployed the national facility should provide visibility of such tender notices, documents and awards. Preferred implementation models and catalogue standards should be developed at national level to facilitate the implementation of Catalogue Management systems. Individual sectors should assess their sub-sector and agency requirements and where appropriate provide shared eprocurement Transaction Support and/or Catalogue Management facilities to the sub-sectors and agencies. 183

184 Objectives Recommendations The electronic payment facilities of the Public Sect or Broker being To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector developed by Reach should be used for eprocurement systems. The implementation and roll-out of MIS across the public sector should be managed at national level through the development of national standards. The security infrastructure provided as part of the Public Services Broker (PSB) and any associated Trusted Third Party should be leveraged to provide the security infrastructure required for eprocurement. An eprocurement Standards Working Group should be established under the National Operations Unit In line with other egovernment initiatives, XML should be promoted as the document exchange standard. Catalogue standards should be based on XML schemas defined as part of the Data Exchange Standards. The solutions provided should accommodate differing levels of integration and the level to be implemented should be determined on a case by case basis. Where economically beneficial, the systems and support services recommended in this report should be provided on a managed service basis. Packaged software solutions are recommended in preference to custom development, where appropriate To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) Economic The National Operations Unit should keep abreast of major developments in the profile and ecommerce readiness of the existing supply base and be in a position to advise on the likely impact of eprocurement and category management strategies on the supply base. 184

185 Objectives Recommendations The National Operations Unit should develop a mechanism for keeping suppliers informed of changes in procurement policies, practices and processes, as well as the introduction of new services such as the supplier registration system. The national and sectoral procurement performance indicator system should incorporate data on the size, location and ownership of enterprises registering and tendering for public procurement business as well as for those awarded contracts. This information should also be used as a basis to track the impacts of the introduction of eprocurement on the supply base. To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) Legal In order to facilitate the adoption of etendering, there is a need for early transposition of the currently proposed amendments to the EU public procurement Directives, once adopted. The Irish Government should take up the invitation from the EU Commission to make a submission in relation to eprocurement and the merit of permitting the use within the public sector of the eprocurement practices that are being used in the private sector, and that it consults with the utilities sector in formulating its submission In preparation for the introduction of eprocurement, agencies should, on an individual basis, carry out an audit of the legal documents under which they were established and operate (including, where applicable, their statutory basis) to ensure that these do not contain any barriers to the transition to eprocurement and, if potential barriers are identified, they should seek to have them removed. The Irish Government should consider support for any amendments proposed by other Member States in favour of permitting the use of reverse auctions for such contracts or table such an amendment itself. The Irish Government, through the participation of the National Accreditation Board in the European Electronic Signature Standardisation Initiative, should seek to accelerate progress on the development of standards relating to the definitions set out in the 185

186 Objectives Recommendations development of standards relating to the definitions set out in the Electronic Signatures Directive, so as to ensure the effective operation of the free movement and mutual recognition principles set out in that Directive Purchasing practices should be designed having regard, at all times, to the need to maximise competition in the market and to discourage anti-competitive practices. In the terms and conditions of use of any eprocurement facility which is set up, and in the tender documents relating to specific procurements, clear rules should be laid down in relation to the transmission and receipt of electronic communications, and procedures should be put in place to deal with all reasonable contingencies. To improve service levels to buyers, suppliers & users involved in public sector procurement To develop a more integrated approach to procurement across public sector agencies & sectors To minimise the transaction costs associated with procurement through the standardisation, streamlining & automation of procurement To maximise value for money for Irish public sector expenditure by enhancing the buying power of the public sector To promote competition among suppliers while maintaining reliable sources of supply To optimise inventory levels through the adoption of efficient procurement practices To make effective use of human resources in the procurement process To promote the use of ecommerce in the wider economy To improve the auditability of public procurement expenditures To be progressive in the adoption of procurement related information & communication technologies (ICTs) 186

187 Appendix K: Terms of Reference Introduction The purpose of this appendix is to outline the terms of reference for the eprocurement Strategic Study. The material presented is extracted from the Request for Tender for A multidisciplinary consultancy service for the first phase of a two phase process in relation to the implementation of electronic procurement in the whole of the public sector Background The Irish Government is very keen to enhance and sustain our competitiveness so that we continue to retain our position as one of the premier economies in Europe. It is aware that improved competitiveness can be achieved by accelerating our transition to an information society through the adoption of appropriate uniform business strategies and by using the latest Information and Communication Technologies (ICTs). The Program for Prosperity and Fairness cites the Government Action Plan on Implementing the Information Society in Ireland, as the main vehicle for achieving this. The National Development Plan par 4,71 states It is crucial that Ireland should not fall behind in the provision of advanced communications and e-commerce facilities and in the basic infrastructure capacity necessary to support the development of the Information Society. The Plan also states in par 4.73 In order to leverage the benefits of the Information Society and to exploit its potential to contribute to economic development the following objectives are being perused: the development of the Irish communications sector so that it ranks in the top decile of OCED countries in terms of service range, quality availability and price; and the establishment of a legal, regulatory and administrative framework which will create a favourable climate for the development of electronic commerce and digital industries. Arising out of the Action Plan the Department of Finance in conjunction with the Department of the Taoiseach has identified e-procurement as an essential element in e-commerce in delivering this overall high level objective. E-Procurement will also impact on another very important Government high level objective which is to modernise the public service. The development of new innovative and more efficient e-procurement strategies will ensure significant progress towards this objective. A decision has been taken to undertake an e-procurement Initiative which is to explore, develop, and deliver through a pilot project an appropriate e-procurement solution which can eventually be rolled out to embrace the whole of the public service. The particular objectives of this initiative are: 187

188 To progress the objectives of the Action Plan for implementing the Information Society in Ireland, in particular para. 48. provision of public procurement information electronically To promote E-Commerce To facilitate th e participation of all suppliers interested in accessing procurement opportunities in the public sector To raise awareness of Procurement opportunities among potential suppliers To raise awareness of opportunities for co-operation among contracting authorities To create a secure and private environment in which to conduct business To make optimal use of the most up-to-date appropriate Web and other software technology To make optimal use of best international procurement practice To create innovative procurement strategies To facilitate the creation of optimised and standardised procurement procedures To achieve economies of scale and to create greater efficiencies To improve knowledge management and to create transparency. To make sure that the solution adopted is compatible with corporate sector practices To ensure that a correct balance exists between SMEs and big Business organisations Structure of Initiative The public sector e-procurement Initiative is divided into two phases: The first phase is identified as the Planning Phase i.e. the production of a strategic report and RFT for the second phase. The second phase is identified as the Implementation Phase i.e. the delivery of the selected e-procurement option. The first phase entails: The Carrying Out of a Strategic Study The production of a strategic report setting out a strategic plan on the way forward in relation to all aspects of the preparation, procedures and implementation of e-procurement in the Irish Public Service and any other matter arising in that regard The Preparation of an RFT for Implementation Phase. Following approval of the strategic study the second phase of the initiative will be activated. This will involve the consultants in the preparation of an appropriate RFT(s) for the second phase. The second phase will be to implement the national public procurement strategy, which will be the subject of separate tendering processes. The consultants will also be involved in the evaluation of expression of interest and of recommending a particular tenderer(s) to implement the second phase. 188

189 Appendix L: List of Pilot Agencies Health Sector: North Eastern Health Board Southern Health Board St James s Hospital South Western Area Health Board Education Sector: University of Limerick City of Dublin VEC Institute of Technology, Carlow Local Government: Dublin Corporation Cork Corporation Kerry County Council Cork County Council Central Government: Department of Defence Defence Forces GSA Revenue Commissioners Department of Social, Community and Family Affairs 189

190 Appendix M: Task Force Membership Procurement Task Force Organisation Purchasing Solutions PwC HMMB Southern Health Board St James s Hospital Dept of Education & Science Kerry County Council Dublin Corporation GSA Dept of Defence Dept of Finance Name Gavan McGirr Gary Holohan Frank Smyth Michael O Driscoll Padraic Carolan Johnny Bliss Brian Looney Jim Kelly Pat Granahan John Power Nicholas O Loughlin Dolores Rooney Organisation & Change Task Force Organisation PwC PwC Dept of Health and Children South Western Area Health Board Southern Health Board Dept of Education & Science Kerry County Council GSA Dept of Defence/Defence Forces Dept of Finance Name Brian Kearney Grieve Michael McDaid Charlie Hardy Tony McMahon Gerry McMahon Niall McCabe Jim Fox Pat Granahan Lt Col John Curley Mary Donnellan Annette Connolly 190

191 Technology Task Force Organisation PwC North Eastern Health Board Dept of Education & Science Dept of Social, Community & Family Affairs LGCSB Kerry County Council Office of Public Works Defence Forces Southern Health Board Department of Finance Name David Lee Patricia Stack Tony Reilly Gerry McMahon Micheal Delaney Sean Fay Ronan McCarthy Catherine Carmody John Sydenham Capt Derek Priestley Gerry McMahon Catherine Curley Siobhan O Higgins Legal & Regulatory Task Force Organisation Philip Lee Solicitors Dept of Finance Competition Authority Southern Health Board Department of Education Dept of Public Enterprise OPW Name Sarah Johnson Nicholas O Loughlin Dolores Rooney Billy Noone Michael McCarthy Philip Andrews John O Donovan Johnny Bliss Una Ni Fhaircheallaigh Mary Donohoe Economics Working Group Organisation PwC Dept of Enterprise Trade & Employment IBEC Chambers of Commerce Enterprise Ireland Construction Industry Federation Dept of Education & Science Forfas Name Rachael Morgan Tom O Reilly Siobhan Masterson Karen Hynes John Bolton Mr George Hennessey Ms Miriam Kearney Adrian Devitt 191

192 Appendix N: Transaction Cost As part of the analysis of the procurement environment in the public sector, consideration was given to the cost of the procurement process. Typically this is calculated as the cost of processing a purchase order from requisition to cheque payment. Data was obtained from two agencies (Dublin Corporation and Cork Corporation) in relation to studies that had been previously carried out. These showed that the relevant costs were IR and IR respectively. In addition to this a process costing exercise was carried out in the Food Procurement area of the Defence Forces. This exercise showed that the average Req. to Cheque cost for ordering food on a draw down contract is IR If the scope is increased to inclu de all activities in the high level procurement transaction process, this cost increases to IR A detailed breakdown of the costs is shown below. Dept of Defence Food Procurement Comparison Process Step Activity Cost per Order Total Process Specify Needs Review each unit's expected usage IR 0.22 Consolidate overall requirements IR 0.07 Produce tender documents IR 0.06 Assess projected requirements IR IR Raise & Approve Req. to Cheque Req. to Cheque (Dublin Corp.) Raise Requisition IR 3.94 IR 3.94 IR 3.94 IR Req. to Cheque (Cork Corp.) Requisition Select Supplier Send tenders to selected suppliers IR 0.19 Address supplier queries IR 0.01 Advertise tenders in OJEC IR 0.00 Receive and open tenders IR 0.03 Evaluate tenders IR 0.27 Obtain tax clearance certificate IR 0.06 Produce contract and send to supplier IR 0.39 Inform unsuccessful suppliers IR 0.01 IR 0.97 Place Order Phone order into supplier IR 0.30 IR 0.30 Raise purchase order IR 4.18 IR 4.48 IR 4.18 IR 1.55 Monitor Order Issue quarterly returns questionnaire to users IR 1.93 Receive AF305 (complaint form) IR 0.00 Identify supplier issues IR 5.91 Take corrective action IR 0.01 Carry out annual audit of ration stores IR 0.66 Receive monthly returns from ration stores IR 2.44 Estimate spend v budget IR 0.09 Receive monthly report from finance IR 0.09 IR Receive Goods Receive and check goods IR IR Issue requirements from inventory IR IR Pay Supplier Certify invoice IR IR IR 2.09 Pay supplier IR 6.79 IR IR 6.79 IR 0.54 Total IR IR IR IR

193 Appendix O: Glossary of Terms Term Explanation Agency Aggregation Back Order BASIS (Business Access to Services and Information and Support) Business Vault Category Category Management Cohort Analysis Contract Draw Down Contracts The term Agency is used to refer to the bodies (detailed in Appendix A) nominated to participate in the provision of information for the project The consolidation of requirements for a given category for one or more agency, and using the aggregated volumes to obtain better contractual prices, terms and conditions than might be obtained in the absence of aggregation Occurs when a supplier cannot fulfil or can only partly fulfil an order on request and consequently fulfils at a later date An initiative set up under Reach to develop government to business access. Creating a one stop internet site to allow access to government information relevant to businesses. The Business Vault (evault) is a component of the Public Services Broker which contains re-usable data about a business that is owned by the business and has been certified by the Government. Category is used to refer to a grouping of related expenditure line items For example Stationery, Office Equipment and Transport are viewed as categories and Paper, Photocopiers and Petrol would be viewed as line items The development and management of procurement strategies on a category basis which detail the approach to be taken to the various stages of the procurement process. A longitudinal examination of a group or cohort of firms that are supplying the public service at a given point in time. The rationale of this approach is to control for the impacts of a changing composition of supply (e.g. growing dominance of larger firms) on key measures of success for the eprocurement initiative as a whole, e.g. promotion of ecommerce among Irish enterprise. Defined to include formal contract signed between the agency and the supplier where no formal contract exists, (e.g. for once off purchase) but purchase order exists Contracts for the supply of works, services or supplies for a given period of time or to a given maximum amount, where terms and conditions are agreed by contract and requirements are ordered and paid for by purchasers under the contract as and when needed 193

194 Term Explanation EAN EDI - Electronic Data Interchange eprocurement Framework Agreement Framework Contract Groups Inventory ISSPs Line Items Micro Enterprise European Article Number is used to identify products at item level and is commonly used as a barcode identification number. The most common form of the EAN code is EAN-13, a 13 digit code which represents the country, producer and article details. A standard for electronic communication of business transactions between organisations. EDI standards define a common set of business forms, data elements and protocols that allow business applications in different organisations to exchange information automatically and securely. EDI usage has typically focused on high volume transactions. Usage has also tended to focus on larger organisations as the necessary investment in EDI infrastructure and associated running costs is outside the range of most smaller organisations. The electronic linking of public sector purchasers with their suppliers to conduct any of all aspects of procurement A "framework agreement" within the meaning of this Directive means an agreement between one or several contracting authorities and one or several economic operators having as its object the supply of products, the provision of services or the execution of works. Through that agreement, the operators provide undertakings on the conditions relating to certain terms laid down by the contracting authority such as quality, quantity, technical merit, delivery period or period of completion and price, relating to the contracts to be awarded pursuant to the agreement within a given period. Framework contracts are agreements entered into with individual suppliers within the context of a framework agreement. Combinations of categories and sub-categories, which may have the same characteristics in terms of procurement management and organisation Items held in a stocking location, usually a warehouse Information Society Service Providers. Information Society Services are defined in the Electronic Commerce Directive as any service normally provided for remuneration, at a distance, by means of electronic equipment for the processing and storage of data, and at the individual request of the recipient of the service. Examples include selling goods on line, services giving rise to online contracting, offering online information or commercial communications, allowing for search, access and retrieval of data, and providing access to or hosting information provided by a recipient of a service. Commodities with particular specifications used to denote firms with fewer than 10 employees 194

195 Term Explanation Negotiated Tendering Procedure Non-payroll spend NSV NUTS II Regions NUTS III Regions OJEC Open Tendering Procedure Portfolio Management Procurement Public Service Broker(PSB) Purchase Cards The EU Directives recognise three tendering procedures of which Negotiated Procedure is one. Under the Negotiated Tendering Procedure contracting authorities consult parties of their choice and negotiate the terms of the contract with one or more of them. This procedure may, however be used only in the very limited special circumstances set out in the Directives. Payments made to suppliers for works, supplies and services National Supplies Vocabulary is a hierarchical coding system developed by the NHS in the UK in the mid 1980s and expanded across the public sector. It was privatised in October 2000 and is now operated by a company called Coding International who manage the administration of the system and the allocation of new codes. The recently formed Border, Midlands & West, and Southern & Eastern Regions The regions associated with the seven national regional authorities Official Journal of the European Communities The EU Directives recognise three tendering procedures of which Open Procedure is one. Under the Open Tendering Procedure all interested parties may submit tenders. The management procurement as a portfolio of categories so that strategies take account of the interdependencies and relationships between categories. includes the purchasing of supplies, services and works. It covers all aspects of purchasing, including determining the need selecting the supplier negotiating the appropriate price, terms and conditions issuing the contract or order following up to ensure delivery management of supplier performance. In determining an appropriate eprocurement strategy, the project will also take into consideration the related requirements and opportunities in the areas of payments, materials and inventory management, physical distribution and logistics Acts as an intermediary between the client and the service broker. The PSB will mean that it is possible to transact business with government or public service agencies from one single point of choice Similar to credit cards, however users have pre defined budgets set and can only purchase from pre defined suppliers. Generally used for low value purchases 195

196 Term Explanation Purchase Order Reach Requisition Restricted Tendering Procedure Sector SME Sourcing Team Standard Desktop Image Sub Sector Supplier Survival Rate Task Force Transaction Cost Trusted Third Party The purchasers document used to formalise a purchase transaction with a supplier Reach was launched under for the Minister for Social, Community and Family Affairs September The objective of Reach is to develop the framework for the integration of services and the implementation of egovernment An internal document conveying authority to an authorised individual or department to purchase specified materials in specified quantities within a specified time. The EU Directives recognise three tendering procedures of which Restricted Procedure is one. Under the Restricted Tendering Procedure only those parties invited by the contracting authority may submit tenders A group of agencies, incorporating sub sectors. Sectors involved in this project are Health, Education, Local Go vernment and Central Government. For the purposed of this project the Department of Finance is regarded as the umbrella agency for Central Government. small or medium-sized enterprise/ used in the Irish context to denote a firm with fewer than 50 employees or with annual turnover of less than IR 3 m A multi-functional team which is formed for the purposes of developing a strategy for managing procurement of a specific category of procurement. Refers to the software applications loaded as standard on all PCs and laptops within an organisation A collection of similar agencies within a sector, such as the universities or hospitals A supplier is defined as any organisation to which the agency has paid monies to in respect of goods, services or works in the years 1998 and The cohort or longitudinal approach allows one to track the profile of firms falling out of the supply chain to the public sector and those that are remaining. The term survival rate refers to the measurement of the proportion of a given category of supplier (e.g. small and Irish-owned) that are still first tier suppliers to the public service after a given period of time. Members of the task force as selected by the Department of Finance from within the public service to assist the consultants during the project This the cost of processing an order from requisition to supplier payment. In e-business, a TTP is an independent entity that allows confidence in the truth and worth of the parties to an e-business transaction and of the information communicated. (Source: PricewaterhouseCoopers Risk Management Forecast, 2001) 196

197 Term Explanation Umbrella Agencies VFM Virtual Private Network(VPN) XML (Extensible Markup Language) Agencies that have a management and control function related to agencies under their aegis. Examples would be health boards, VECs, Parent Government Departments (e.g. Dept of Health and Children) Value for money A private data network that makes use of the public communication structure maintaining confidentiality through the use of tunnelling protocol and associated security procedures An internet base standard for creating and sharing structured documents and data via the internet. 197

198 Appendix P: References References Report 1 Department of Finance; Revised Estimates for Public services, European Parliament and Council Directive 97/52/EC of 13 October 1997 amending Directives 92/50/EEC, 93/36/EEC and 93/37/EEC concerning the coordination of procedures for the award of public service contracts, public supply contracts and public works contracts respectively 3 Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts 4 Council Directive 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply contracts 5 Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts 6 Strategic Management Initiative; Excellence through performance; May Information Society Commission; Third report of Ireland s Information Society Commission; December Forfás ebusiness Monitor, June The Treaty establishing the European Community, incorporating the amendments of the Amsterdam Treaty of 2 nd October WTO Agreement on Government Procurement 11 Directive 98/4/EC of 16 February 1998 of the European Parliament and Council amending Directive 93/38/EEC coordinating the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors 12 Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures 13 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market ('Directive on electronic commerce') 14 Electronic Commerce Act, Freedom of Information Act,

199 16 Gartner Group; Real eprocurement savings do not come from software; May PricewaterhouseCoopers; E-supply chain: revolution or e-volution; September Council Directive of 17 September 1990 on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors 19 Better Value Wales, The Review of Procurement in the Welsh Public Sector, February 2001 Appendices 1 Aberdeen Research; eprocurement: Don't Believe the Anti-Hype; June AMR Research; eprocurement Certain value in changing times; April Conference Board, the; eprocurement: Buyer Beware; June Deloitte Consulting; eprocurement viewed as vital component in corporate e-biz strategies; April Department of Finance; National Development Plan Department of Finance; Public Procurement (Green book); 1994 Edition 7 Department of Finance; Revised Estimates for Public services, Department of the Taoiseach; Implementing the Information Society in Ireland: An Action Plan; January Department of the Taoiseach; Program for Prosperity and Fairness; February European Commission; eeurope 2002 Action Plan; June Forfas; ebusiness Monitor; June Gartner Group; Real eprocurement savings do not come from software; May Information Society Commission; Third report of Ireland s Information Society Commission; December Data Protection Act, Electronic Commerce Act, Freedom of Information Act, NAPM/Forrester; Research Report on ebusiness; April PricewaterhouseCoopers; E-supply chain: revolution or e-volution; September PricewaterhouseCoopers; Trust.. not built at e-speed; May Purchasing Magazine; The old economy strikes back; March Reach; Framework for Electronic Government 22 Strategic Management Initiative; Excellence through performance; May Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market ('Directive on electronic commerce') 199

200 24 Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures 25 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data WTO Agreement on Government Procurement 27 The Treaty establishing the European Community, incorporating the amendments of the Amsterdam Treaty of 2 nd October Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts 29 Council Directive 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply contracts 30 Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts 31 Council Directive of 17 September 1990 on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors 32 European Parliament and Council Directive 97/52/EC of 13 October 1997 amending Directives 92/50/EEC, 93/36/EEC and 93/37/EEC concerning the coordination of procedures for the award of public service contracts, public supply contracts and public works contracts respectively 33 Directive 98/4/EC of 16 February 1998 of the European Parliament and Council amending Directive 93/38/EEC coordinating the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors Work Products of eprocurement Strategy project: 34 Agency Data Questionnaire 35 Supplier Questionnaire 36 Vision and Guiding Principles 37 Analysis Report 38 Discussion Papers 200