Public Sector Procurement

Public Sector Procurement Ten year analysis of the leasing market Produced by Digital Networks Ltd.

Public Sector Procurement and Contract Management Consultancy and Interim Management www.dignet.co.uk

Contents Introduction 4 Leasing Market 4 Business Levels and Sectors 4 Providers 5 Advisors 5 Procurement Methods 6 Open & Restricted 6 Framework Agreements 6 Joint Procurement 7 Accelerated Procedure 8 References 9 Appendicies 11

Introduction Monitoring of the Supplement to the Official Journal of the European Union (ref 1) gives an overview of both the size of a market sector and the participants. It can only give an overview as transactions below threshold (ref 2) are not published and there will always be the occasion when a procurement that should have been advertised was not. Ten years of observation of the leasing market has seen a dramatic fall in activity (90% by contract awards). However this fall in activity may not be mirrored by the value of the business written due to the increase in the use of frameworks and joint procurements. The use of such approaches has been actively encouraged across the public sector as they bring economies of scale and administrative efficiencies. Unfortunately they also reduce the openness and transparency of the market to the outside observer. Leasing Market Business Levels and Sectors The tables below highlight the reduction in the public sector leasing market most notably in the Local Authority Sector which had traditionally dominated. Good estimates of the value of business written could be given until 2010-11 when the proportion of framework procurements most frequently incorporating joint requirements became significant as did the proportion of awards with no published value (appendix 1). As a joint framework agreement can be used by all the participating authorities without the requirement for advertising a single published contract award can subsequently lead to multiple contract awards reducing the accuracy of contract awards as a measure of market activity. Joint framework procurements can freeze an unsuccessful bidder out of large sections of the market for up to four years. Yet while the procurement process for this type of agreement frequently does not match best practice (see procurement methods) there has been no recorded challenge to an authority awarding business from these types of arrangements. Year Invitation to tender Total Contract Awards Framework Awards Total Value of Awards m 2004-5 148 126-75.7 2005-6 123 106-72.4 2006-7 106 68 1 74.5 2007-8 98 84 1 68.9 2008-9 68 70 4 34.4 2009-10 52 79 5 55.6 2010-11 20 34 7-2011-12 11 8 3-2012-13 10 9 1-2013-14 9 11 2 - Page 4

Year Local Authority % of invitations NHS Emergency Services Higher Education Housing Associations Quango 2004-5 85 5 10 2005-6 83 7 10 2006-7 77 17 5 0.5 0.5 2007-8 90 2 5 1 2 2008-9 85 3 7.5 1.5 3 2009-10 81 8 3 8 2010-11 65 25 10 2011-12 64 18 18 2012-13 50 25 12.5 12.5 2013-14 70 30 Providers The providers of leasing finance have varied over the ten years with some leaving the market, some joining and some no longer trading. Only three providers have been awarded business in each of the ten years Financial Services, Societe Generale Equipment Finance Ltd and Finance Ltd (full details appendix 2). While accurate estimates of market share suffer the same difficulties as the estimates of general business levels after 2009-10 the range of providers awarded contracts remains wide indicating an open and competitive market. Advisors The use of advisors in Public Sector procurement is not unknown usually for either resource reasons, the complication of the procedure being used or the complexity of the service being acquired. It is unusual for a market sector to be as dominated by advisors as is the case with leasing and another additional factor may well be a poor understanding of how to assess respondents submissions. Over the ten years only three individual invitations to tender for advisors have been noted though this is not unreasonable as advisory services for a single Authority are unlikely to be above the advertising thresholds (ref 2). However in 2013 NHS Shared Business Services awarded a framework for Lease Advisory Services to Chrystal Consulting Ltd, Leaseguard Group Ltd, Sector Treasury Services and Unilnk Finance Ltd. This requirement was overlapped in January 2014 by an invitation to tender by NHS Supply chain on behalf of NHS Business Services Authority for both lease finance and lease advisory services for that finance (tender in two lots). This highlights the competition within consortium procurement (see Joint Procurement) and indicates that perhaps there will be little advertising for leasing advisors or business in the NHS going forward. Within the Higher Education sector a framework agreement tendered by Cornwall College covering the leasing of most asset types is available to all Higher and Education establishments via http://www.gem.ac.uk/ and is managed by Unilink. This negates the requirement for members of this sector to look for alternative advisory support. Page 5

Year % of LA invitations using Advisors NHS Higher Education Emergency Services Housing Associations 2004-6 98 98 2006-7 96 6 2007-8 90 (83 Sector) (7 Unilink) 2008-9 93 (90 Sector) (3 Unilink) 2009-10 90 (Sector) 100 (Sector) 5 (4 Sector) (1 Unilink) 100 (Sector) 2010-11 77 (31 Sector) (31 Arling) (15 Unlink) 2011-12 71 (57 Sector) (14 Arling) 2012-13 67 (Arling) 20 (Leaseguard) 50 (Leaseguard) 100 (Sector) 2013-14 100 (57 Arling) (29 Capita) (14 Unilink) Capita/Sector Treasury Ltd. Lease Guard Group Ltd, Unilink Finance Ltd, Arlingclose Ltd. Procurement Methods Open & Restricted Historically the vast majority of procurements have utilised the Restricted Procedure (87%) (ref 3). The Open procedure allows all interested parties to tender and does not allow for any form of pre-qualification. The Restricted Procedure allows for pre-qualification based on the organisations technical and financial standing (changes in regulations (ref 3) will make pre-qualification less onerous for SME s). An Open procedure is usually preferred were the requirement is quite simple or there are few participants in a market. Restricted is usually the preferred approach in the Leasing market as it reduces the number of responses for which a detailed analysis is required reducing costs and improving manageability. Framework Agreements The Regulations define a framework agreement as: an agreement or other arrangement between one or more contracting authorities and one or more economic operators which establishes the terms (in particular the terms as to price and, where appropriate, quantity) under which the economic operator will enter into one or more contracts with a contracting authority in the period during which the framework agreement applies (Ref 4). Page 6

The main advantage of using a framework agreement is that the Purchasing Authority does not have to go through a full OJEU process every time requirements arise. The main disadvantage is that they are relatively unresponsive to change most obviously from solutions or suppliers that were not available when the framework was tendered (Frameworks are most commonly for four years). Frameworks within the leasing market are rarely procured by and for a single authority the vast majority (95%+) are used in conjunction with a joint procurement. Joint Procurement Joint procurement means combining the procurement actions of two or more contracting authorities (Ref 5). The significant advantages are threefold and it is because of these that contracting authorities have been actively encouraged to pursue this approach. 1. Lower Prices - Combining purchasing activities leads to economies of scale. 2. Administrative cost savings - The total administration work for the group of authorities in carrying out one rather than multi tenders. 3. Skills and expertise - Joining the procurement action of several authorities enables the pooling of different skills and expertise. There are three approaches to joint procurements. 1. Permanent Organisations. These organisations are widespread across the whole of the public sector, Crown Commercial Service, University Purchasing Consortium, NHS Supply Chain, ESPO and Buying Solutions being just a sample. There is however a tendency for the activities of the bodies to overlap if not compete (Ref 6). Within the leasing sector this is illustrated by a Framework for Lease Advisors tendered by NHS Business services Ltd ( a joint venture between Steria UK and the Department of Health) in 2013 and a lot for Lease Advisors issued within a tender by NHS Business Services Authority ( a Special Health Authority and an arms length body of the Department of Health) in early 2014 (subsequently discontinued) 2. Collaborative Agreements between contracting authorities. As yet there has not been an example of this approach in the leasing market. 3. Piggy Backing. When an authority publishes a tender it is possible to include a statement that names other contracting authorities. This has been the most popular approach in the leasing market. EU guidance refers to other named contracting authorities (Ref 5). Legal viewpoints (Ref 7) highlight a potential weakness in how this approach is utilised it is not uncommon for notices to refer to other neighbouring local authorities, other government departments or other public sector bodies including NHS Trusts. This may be insufficient for another organisation to justify joining the procurement or relying on the contract at a later stage. The risk sits with the organisation who may want to benefit in the future. The risk being that the contract is open to a claim by a challenger (most likely a provider not on the framework) for a declaration of ineffectiveness. The full range of statements have been used in the procurement of leasing services from the wide and non specific to the listing of specific contracting authorities. Given that an unsuccessful or non bidder may be frozen out of a wide section of asset leasing across a broad spectrum of the Public Sector for up to four years by a generalised statement it is perhaps surprising that as yet there have been no legal challenges. Page 7

As draw downs against a framework do not have to be advertised the value and volume of business being written in this manner is not transparent to the market place. Making the Public Sector market less open to scrutiny by the outside observer through the Freedom of Information Act does enable interested parties to query authorities on their use of framework arrangements. Accelerated Procedure Clause 16.6 of the Public Contracts Regulations allows for the acceleration of the Restricted Process for reasons of urgency. In 2009 the European Commission relaxed these rules for major projects and this also marks the start of the use for the procurements of leasing services. The relaxation was removed at the beginning of 2011 but the use of the approach has continued to increase. Reasons of Urgency has usually been understood as referring to the same as those under regulation 14a(iv), for reasons of urgency brought about by events unforeseeable (Ref 8). It is difficult to see how the reasons Asset already purchased or Financial Year End meet the unforeseeable criteria but as yet there has been no challenge to this approach. Year 2009-10 2010-11 2011-12 2012-13 2013-14 Number 2 2 3 5 4 Page 8

References Reference 1 http://ted.europa.eu/ted/main/homepage.do Reference 2 Public Contracts Regulations 2006 - from 1 January 2014 Supplies Services Works Entities listed in 111,676 111,6762 4,322,0123 Schedule 11 ( 134,000) ( 134,000) ( 5,186,000) Other public sector 172,514 172,514 4,322,0123 contracting authorities ( 207,000) ( 207,000) ( 5,186,000) Indicative Notices 625,050 ( 750,000) 625,050 ( 750,000) 4,322,012 ( 5,186,000) Small lots 66,672 66,672 833,400 ( 80,000) ( 80,000) ( 1,000,000) Reference 3 Public Contracts Regulations 2006. These regulations are due to be updated in UK legislation to reflect the changes agreed by the European Parliament in Jan 2014. The changes are not likely to have any significant effect on the procurement of leasing. Changes in summary: Member states will then have 24 months to implement the new directives into national law, with up to a further 30 months to introduce mandatory e-procurement. Member states will then have 24 months to implement the new directives into national law, with up to a further 30 months to introduce mandatory e-procurement. The main reforms that will be introduced by the new Public Procurement Directive include the following: Most economically advantageous tender and life-cycle costing. Extended use of competitive procedures with negotiation. New innovation partnership procedure. European Single Procurement Document. Mandatory use of electronic communications. Simplified procedures for local authorities. Exemption for co-operation between public entities Abolition of distinction between Part A and Part B services and new simplified regime for certain services. Page 9

Reference 4 OGC Guidance on Framework Agreements in the Procurement Regulations. Reference 5 European Commission Green Public Procurement Training Toolkit: Joint Procurement Fact Sheet Reference 6 www.theguardian.com Public Leaders Network: A dogfight for public sector procurement. 29/2/12 Reference 7 www.localgovernmentlawyer.co.uk Running a smooth procurement process 17/01/2004, www.nabarro.com Public sector outsourcing. Reference 8 Publisector.practicallaw.com, 17/2/2009, Field Fisher Waterhouse LLP. Page 10

Appendicies Value of Business Written: In awarding a contract the value is also published though occasionally this is omitted. When award numbers were high assuming the average award value for tenders with no value was a reasonable estimation as volumes fall this approach becomes less accurate. Further inaccuracies result from the increasing proportion framework contract awards. These contracts are usually awarded for 4 years and dividing the published value ( usually a poor estimate is published for Framework awards) and allocating across all the successful bidders was a justifiable approach when the proportion of Frameworks was low (1.5% 2006-7). By 2010-11 the proportion was significant (20%) and the allocation approach is no longer valid. Page 11

2013-2014 (Year end 31st March) Market Share by number. Econocom Cranmer Lawrence Pitney Bowes Soc Gen Tusker Direct Burntree Gp Walsall Leasing Gp The above figures include one framework awarded solely to Tusker Direct but not a framework awarded by Walsall MBC. This framework was for a wide range of vehicles and equipment covering nearly all public bodies (excluding central government and the NHS) and listed 16 lessors across various lots. CHG Meridian UK Limited, Cranmer Lawrence & Company Ltd, De Lage Lande, Econocom Plc, Finance Ltd, Lloyds Bank Plc, Lombard North Central Plc, Macquarie Equipment Finance Ltd, Maxxia Limited, Richard C Bircher (Holdings) Ltd, Santander Asset Finance Ltd, Financial Services Ltd, Societe Generale Equipment Finance Ltd, Solutions Asset Finance Ltd, Specialist Fleet Services Ltd, SMBC Leasing (UK) Ltd Page 12

2012-2013 (Year end 31st March) Market Share by number. Macquarie Bank Landpower Granmer Lawrence Singers Healthcare The above figures do not include A framework awarded by Cambridge University Hospital Trust (covering all NHS bodies) for ICT equipment and services leasing (no value quoted). Awarded to Centreprise International Ltd, CHG-Meridian Computer Leasing UK Ltd, Cisco Systems Finance International, CIT Group (UK) Ltd, CSI Leasing UK Ltd, Econocom Plc, GE Capital Equipment Finance Ltd, Lombard North Central PLC, Financial Services Ltd., Soceite Generale Equipment Finance Ltd, Solutions Asset Finance Ltd. Page 13

2011-2012 Market Share by number. De Lage Landen Econocom Cranmer L Lombard Major Corp The above figures do not include Framework award by West Midlands Ambulance NHS Trust for the lease and maintenance of vehicles with a published value of 300m. Awarded to Atel Leasing, Cranmer Lawrence, De Lage Lande, Eagle International,GE Capital, Hitachi Capital, LeasePlan, Lombard North Central, Soc Gen,, Singer Healthcare Finance, Venson Automotive Solutions, Alltrust plc, Fraikin Ltd, Prohire, Translinc, Dayo, Alphabet (UK) Fleet Management, Lex Autolease. Framework award by Walsall MBC, for Vehicles, IT, Leisure Equipment and General Equipment, Value 200m. CHG Meridian UK Ltd, Cranmer Lawrence &Co Ltd, De Lage Lande Leasing Ltd, Hewlett Packard International Bank Plc, Finance Ltd, Lombard North Central Plc, Macquarie Equipment Finance Ltd, Santander Asset Finance Plc, Financial Services Ltd, Societe Generale Equipment Finance Ltd, Cranmer Lawrence and Company Ltd The third Framework in the year was awarded to a single provider and is included in the Pie Chart. Page 14

2010-2011 Market Share by number. Asset Advantage ECS Soc Gen De Lange Lande Optare Tusker Direct Cranmer Lawrence Heathside Park HP The above figures do not include Buying Solutions framework award 1000m- 2000m for contract hire and leasing of various vehicle types.awarded to, Alphabet (GB) Ltd, Arnold Clarke Vehicle Management, Inchape Fleet Solutions, ING Car Lease, LeasePlan UK, Lex Autolease, Lombard Vehicle Management, Lookers Plc, TC Harrison Group Ltd, Volkswagen Group Leasing, Babcock Land Ltd, Fraikin Ltd, Hitachi Capital Vehicle Solutions Ltd, ING Car Lease, Prohire Plc, Translinc Plc, Venson Automotive Solutions Ltd, Ryder Ltd, Leasedrive Velo, BT Fleet, Logical Vehicle Management Ltd Healthcare Purchasing Consortium framework award no value given for various purchases: Asset Advantage Ltd, Cranmer Lawrence & Company Ltd, De Lage Landen Leasing Ltd, GE Capital Equipment Finance Ltd, Lombard North Central PLC, SG Equipment Finance Ltd, Financial Services, Singer and Friedlander Ltd, Solutions Asser Finance Ltd Cornwall College framework, with no value, for all types of assets. HP Financial Services, ECS UK PLC, CHG Meridian Computer Leasing Ltd, Financial Services Ltd, SG Equipment Finance Ltd, Investec Asset Finance ltd Cambridge University Hospitals NHS Foundation Trust, ICT equipment with no value given. Centreprise International Ltd, CHG Meridian Computer Leasing UK Ltd, Cisco Systems Finance International, CIT Group (UK) Ltd. CSI Leasing UK Ltd, Econocom Plc, GE Capital Equipment Finance Ltd, Lombard North Central PLC, Financial Services Ltd, Soceite Generale Equipment Finance Ltd, Solutions Asset Finance Ltd. The other three frameworks awarded in the year were to single suppliers and are included in the pie chart. Page 15

2009-2010 The value of OJEU awards 55.6m Market share by value S.G Equipment Finance Asset Advantage Cranmer Lawrence Financial Services CHG Meridian Others (21 companies) Market share by number S.G Equipment Finance Cranmer Lawrence Asset Advantage CHG Meridan Financial Services Other Page 16

2008-2009 The value of OJEU awards published 34.4m Market share by value De Lage Lande S.G Equipment Finance Alliance and Leicester ECS CHG Meridian Asset Advantage Other Market share by number De Lage Lande S.G Equipment Finance CHG Meridian Other Page 17

2007-2008 The value of awards published 68.9m Market share by value Financial Services Bank of Scotland SHG Meridian SG Equipment Finance Cranmer & Lawrence Yor Lease Alliance & Leicester Barclays ECS ING Asset Advantage Market share by number Bank of Scotland Financial Services SG Equipment Finance Alliance & Leicester CHG Meridian Cranmer & Lawrence Yor Lease Barclays ECS ING Asset Advantage Page 18

2006-2007 The value of awards published 68.9m Market share by value Bank of Scotland Alliance & Leicester CHG SGEF Lex Vehicles Lombard Barclays AF CSA Karupthing Singer Friedlander ILC Yorlease BOI ECS KBC CIT Market share by number SGEF Alliance & Leicester CHG CSA Bank of Scotland Karupthing Singer Friedlander ILC BOI KBC Lex Vehicles ECS CIT Lombard Barclays AF Yorlease Page 19

2005-2006 The value of awards published 72.4m Market share by value Soc Gen Yorkshire Bank ILC Key Finance CSA Financial Barclays Asset Finance Market share by number Soc Gen ILC CSA Financial Alliance & Leicester Yorkshire Bank Key Finance KBC CHG Meridian Asset Co Barclays Venson Group PLC Bank of Scotland Bank of Ireland Automotive Finance ECS Investec Page 20

2004-2005 The value of awards published 75.7m Market share by value Soc Gen ILC Asset Co Yorkshire Bank Citicap CSA Financial Key Finance GE Healthcare Alliance & Leicester CHG Meridian KBC Agnew Corp Sigma Investec Summit Bank of Ireland Automotive Finance Market share by number Soc Gen Asset Co ILC Yorkshire Bank Key Finance Citicap CSA Financial KBC Alliance & Leicester Investec Sigma CHG Meridian Summit Automotive Finance GE Healthcare Agnew Corp Bank of Ireland Page 21