Delivering progress towards meeting HMG targets on the SME growth agenda

Delivering progress towards meeting HMG targets on the SME growth agenda Action Plan Version 1.1 dated 16 th August 2013 Author: Robert Astall, Head of Commercial Profession and Capability Background The NDA has set a number of objectives concerning the delivery of progress towards meeting HMG targets on the SME growth agenda which are set out within Performance Agreement Form SEL-2013-84: 1) To increase the SME spend from current levels (currently 7% - 8% direct only) to minimum 17% (direct and indirect) of Supply Chain spend by the end of 2013/14. 2) Propose a longer term plan to allow the NDA target of minimum 20% of Supply Chain spend by the end of 2014/15 to be achieved. The Plan to be proposed by or before 30 th June 2013. Once agreed the plan and target shall be published on the SLC s website alongside NDA s target and plans 3) All acquisition strategies to consider appropriate lotting strategies (by way of example) and other ways of enabling access to Sellafield work by SMEs and SME alliances. To be completed by 30 th June 2013. Specifically Sellafield will: 4) Update its overarching Site procurement strategy to include and reflect the SME target and actions to enable the target to be met. 5) Consider the SME obligations above in all new project and programme acquisition strategies. These to include enabling techniques including early market engagement, alliancing arrangements and risk and reward proposals. 6) Include proposals addressing the SME target in all contract strategies by the end of FY 2013/14 7) Sellafield to develop a plan to align all major prime contractors with this target and to agree with NDA how SME data from these contracts can be recorded and reported. To be delivered by 30 th June 2013. Page 1 of 10

1. Current State In order to establish a benchmark for progress SL has sought SME spend data from its top 50 suppliers. Together with the regular analysis of direct spend with SME at Tier 2, which is reported quarterly to NDA, there is an early picture of the relationship between direct and indirect spending. Data on SME spend during the last financial year, 2012-2013, has been ranked into the top 50 suppliers by value. Most of these suppliers have been contacted with a request to provide the percentage of the monies they received from Sellafield Ltd that were subsequently spent via SME. This data gives an estimate of the SME spend beyond the direct SL spent at Tier 2. Of the 50 organisations identified there were 4 SME, who were given a factor of 100% as all of the spend at Tier 2 was SME. Some organisations were not surveyed as they were Government Agencies / statutory bodies in receipt of payments covered by contracts or payment obligations (who report SME spend separately to their respective parent Government Departments. Examples are the; Civil Nuclear Constabulary, HSE, utility fees, Environment Agency, etc. The total spend with these organisations is at least 106m, or about 13% of the top 50 value and these non-commercial vendors have been excluded from the analysis. Of the remaining vendors, to date we have had responses from 24. Of these, the average SME spend at T3 and below is 21.42%, above the target. These figures rely on the reported value of SME spend by T2 suppliers and there will probably be variation in the method and accuracy of the calculations. In one case, however, a full breakdown of spend with named sub-contractors was provided which would allow a cross check with the standard Dun & Bradstreet analysis of SME status that SL uses for the quarterly report. For the Agency Supplied Workers framework the Sellafield accounting system enables direct spend with individuals (who are mainly registered as micro-businesses) to be assessed. In other cases data is less available for underpinning; however the cost-benefit of any audit process should be weighed against the objective of the project, which is to use policy to enhance opportunity for SME. This probably doesn t require perfect information. If a running total of just the responders so far plus direct SME spend at T2 is calculated, the SME spend is 26.19% of total spend with these 28 vendors. This will be an overestimate as a larger data set will dilute the effect of the direct T2 SME spend, but it is encouraging. If the non responders are added, the running total is 22.58%, which will be an underestimate of the real figure. It seems reasonable to assume that as further vendor data is added the SME spend should exceed the 20% target and we therefore conclude that the target is achievable. The data so far and the calculations are summarised in the diagram overleaf (Fig.1). Page 2 of 10

Fig 1. The flow of SL spend via SME at T2 and T3+ Notes: 1. Commercial spend represents the value of contracts with our commercial suppliers 2. Non Commercial spend represents the value of contracts or payment obligations with Government Agencies / statutory bodies (who report SME spend separately against targets set by their respective parent Government Departments) When the whole data set of vendor spend at T2 by Sellafield Ltd is analysed it is not surprising that the level of SME engagement increases as the individual contract value reduces. What is interesting for this exercise is where the level of significant SME participation starts. There is guidance from Government that lots up to the value of 100k are most attractive to SME. Sellafield s data of SME spend at Tier 2 opens this to question. The SME spend rates for the financial year 2012-2013 were broken into spending bands from the highest ( 10m- 100m annual spend) to the lower ranges ( 1K- 10K per annum). This is shown overleaf in Fig.2. Page 3 of 10

Conclusion: Lot sizes of up to 4m per year can attract SME participation at or about the 20% target 1m - 4m 17.13% 4m - 10m 8.21% Fig.2 SME spend at T2 by annual value As expected, above 10m annual spend there are very few SME at T2. Between 1m to 10m however there is a significant population of SME, and note that a typical contract or framework would be extant for several years. If a four year framework was taken as an example, the data suggest that lot values up to 16m ( 4m per year) may well attract SME who could be successful at or about the 20% level. For example, the range between 1m and 4m annual spend has an SME component of over 17%. The implication for procurement policy is clearly to think beyond the 100K level when designing SME friendly competitions. At the very low spend levels the SME percentage appears to decline, but this is an artefact of increased micro business participation, who are often not registered as SME via Companies House and therefore don t appear on the Dun & Bradstreet analysis. 2. Plan description This Plan has a number of elements which have been developed in cognisance of Government s 'Seven Conditions for Success' which are included below for ease of reference. 1 Stretching target of 20% of available subcontract spend. 2 A credible, adequately resourced plan - subject to regular, senior review - setting out the key actions designed to deliver real outcomes. An agreed, stretching goal for making the NDA's contribution of 20%. 3 A published pipeline of spend that will be competed before March 2015. 4 Early engagement with the market before any formal procurement is launched. 5 The optimal contract (or lot) size for planned procurements has been evidenced in all cases. 6 Prime contractors provide data on sub-contracted spend with SMEs and pay their sub-contractors promptly 7 Prime contractors not covered by the Cabinet Office s Strategic Supplier programme can show that they have plans to seek full value and thereby increase their spend with SME Page 4 of 10

1. Identification and removal of constraints / barriers 1.1 Review Supply Chain Policy SL will review its Supply Chain Policy and associated practitioner guidance with a view to removing barriers to SME participation in competitions (i.e. by increased levels of soft market engagement. adoption of appropriate lotting strategies (breaking the cycle of small contracts for small companies ), use of GPS frameworks and promotion of SME usage via the work of the Shared Services Alliance Group and by the standardisation of award criteria) as well as ensuring use of SME is routinely considered as part of procurement strategy development (using practitioner guidance as to how this may be done). 1.2 Clarify use of turnover thresholds and size, value of past contracts SL will mandate advice to procurement practitioners and to the wider supply chain over use of turnover thresholds as a barrier to entry. That where we perceive the value of the opportunity would form a significant proportion of the supplier s turnover (25% taken as signifying significant ) we will open up further lines of enquiry with the supplier as to his financial ability to deliver of the work scope. That we will not exclude a supplier from a competition, purely on the basis of financial standing relative to value of opportunity, without pursuing such lines of enquiry with that supplier. Also, actual performance on past contracts of a similar nature rather than their size and value to be of concern in relation to supplier evaluation. We will apply intelligence to the question of suppliers financial capacity to meet potential contractual liabilities in a manner which recognises the real degree of risk such liabilities might crystallise. 1.3 Exclude Pre Qualification Questions (PQQ) from simple procurements below 100K in value SL will mandate the exclusion of PQQ (other than Public Contracts Regulations mandatory / discretionary exclusion questions and relevant safety related questions for work on the licensed site) for opportunities. 1.4 Simplify third party accreditation insurance and performance bonds requirements SL will mandate advice to practitioners that third party accreditation is to be sought only where necessary to assure quality and where no other mechanisms can be appropriately deployed (such as third party inspections / test houses). Insurance requirements and performance bonds / guarantees are to be restricted to those required by Law e.g. (3 rd Party Liability) unless there are good business reasons to the contrary. The presumption will be that special insurances / bonds and guarantees will not be required for contracts below 100K and will be replaced by alternative mitigation measures not impacting the contractor unless invoked Page 5 of 10

1.5 Publish Procurement documents Building upon the work already carried out is standardising PQQ across the NDA estate, SL will publish all standard PQQ and all standard contract forms on SL internet site providing an opportunity for suppliers to review and consider their response in advance of competitions. SL will also publish typical exemplar core PQQ and terms and conditions for certain types of procurement e.g., white collar, blue collar, off / on licensed site etc. 1.6 Publish specifications Building upon work already undertaken across a number of procurements, SL will, where practicable, publish draft specifications in advance of the start of the competition process for review / comment / challenge by suppliers. SL will also strengthen its capability to undertake specification verification prior to release for competition purposes. 1.7 Simplify in house terms and conditions / flow-down SL will deploy GPS and NEC3 suite of contracts as our first option and will only adopt in house or bespoke forms of contract by exception. In such exceptional cases, SL will seek to simplify such forms of contract so far as is possible. 1.8 Improve usage of efficient tendering tools SL will mandate the use of its CTM tender and contract management system on all competitions (sole source and multi-bid) below 100K (with no parallel / optional paper tender submissions in order to reduce avoidable bid time and costs in terms of document production / photocopying etc) unless required for Contract Security Reasons. SL will embrace Lean Procurement principles in ensuring that start of competitions are preceded by early heads up in the Procurement Plan publication of scope, terms and conditions, PQQ etc SL will also establish / enhance e-feedback mechanisms for suppliers to score their experiences of SL procurements against set criteria. 1.9 Improve payment terms SL will work with the NDA to introduce accelerated payment terms on competitions / contracts below 100K as well as possible use of Project Bank Accounts. SL will also seek to avoid the use of payment retentions, where practicable and examine the contractualisation of payment obligations to suppliers below Tier 2 as well as the monitoring of Tier 2 payment performance in respect of such obligations. Page 6 of 10

2. Facilitating connections and collaboration 2.1 Improve visibility of procurements SL will mandate use of CTM for all procurements above 25K (without exception) to ensure that such opportunities are visible to suppliers via the CTM e-portal. SL will also mandate Contract Flagging (identifying procurements where SME might be able to play a role as subcontractor) in CTM. For larger contract opportunities, SL will require lead contractors to advertise sub-contract opportunities in, for example, Contracts Finder. 2.2 Improve Commercial Practitioner awareness of SME SL will use external resource to develop best practice Commercial Policy and guidance and deliver Commercial Practitioner training as to role of SME in the supply chain and how they can best be afforded opportunity to deliver value for money. 2.3 Reward success SL will introduce mechanisms to recognise and reward the innovative use of SME in the supply chain e.g. a programme of Supplier Forum Awards, publicising, via SL website etc. innovative use of SME by T2 etc. SL notes the NDA s national programme of awards already in place and will work with the NDA to ensure that these programmes are aligned and complement each other. 2.4 Make expectations clear SL will prepare and publish guidance as to its expectations of the supply chain including, for example, guidance in bid preparation and the procurement process. This guidance will encompass specific expectations in terms of what a good supplier looks like and how a good supplier works with its supply chain and local stakeholders. 2.5 Contractualise obligations on subcontracting Where an intent to subcontract work or employment is contained within a tender, SL will seek to give contractual effect to that intent. For example, the evaluation of T2 Supply Chain management including policy and practice with regards to Make versus buy, the competition process and past performance in respect of supply chain management. Page 7 of 10

2.6 Refresh Yellow Pages facility SL will review the content and structure of the Yellow Pages directory of supply chain capacities and capabilities with the intent of improving its usefulness to all in the Supply Chain. 3. Establish robust and coherent reporting arrangement 3.1 Establish reporting capability SL will agree with NDA how, in the short term, SME data from T2 contracts can be recorded and reported. We propose to provide quarterly reporting to the same cycle as currently reported for direct SME engagement in T2. We note the NDA s longer term intent to deploy an estate wide IT solution for spend data collection and will cooperate fully in its adoption. To support the plan elements, described above, SL will host launch events, specifically for SME, to announce our intentions, and host a similar programme of events to brief T2 on our expectations regarding their engagement with SME. SL will also build upon work already carried out in promoting the adoption of a number of plan elements within procurements undertaken by the Shares Services Alliance Group, of which SL is a member, in particular those plan elements identified at Section 1, above. 3. Planning assumptions SL has assumed; - EC definition of an SME will be applied for reporting purpose - The NDA will recognise the additional plan activities within the M&O contract baseline, subject to the justification for such activities being demonstrated to the reasonable satisfaction of the NDA - Supply chain members will accept revised obligations and cooperate in and support delivery of the plan, where appropriate 4. Lessons incorporated The plan reflects lessons from: - - ORC Health of Supply Chain Study, prepared for NDA, dated November 2012 - MACE based upon their involvement in support of the 2012 London Olympics - SME feedback via Supply Chain Ombudsman. Page 8 of 10

5. Monitoring and control In order to provide effective monitoring and control for the plan a team will be established comprising: - - The Head of Commercial Profession & Capability - The Commercial Policy and Procedures Manager - The Supply Chain Ombudsman - The Head of Supply Chain Strategy - T2 Representation - Commercial Systems Application Support The Team will be accountable to George Beveridge, Sellafield Ltd Chief Business Officer, as Plan Sponsor, for plan delivery. The purpose of the Team will be to a) deliver the plan elements b) work with the NDA and SME representation to review both plan progress and effectiveness and c) identify, assess, and implement further opportunities to safeguard and surpass the NDA target of minimum 20% of Supply Chain spend for the years beyond 2014/15.Plan Configuration control Version Dated Status 1.0 27/06/2013 Plan, as submitted to the NDA as a deliverable against the NDA s Performance Agreement Form SEL-2013-84 1.1 16/08/2013 Plan, revised, following comments received from the NDA during a presentation of the plan, given to NDA on 16/07/2013 and updated in line with additional Tier 2 spend data received after initial submission to the NDA Page 9 of 10

7. Plan Schedule ID Activity Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Deliverable 1.1 Review Supply Chain Policy Supply Chain Policy reviewed by 30/09/13 1.2 1.3 1.4 Clarify use of turnover thresholds and size, value of past contracts Exclude Pre Qualification Questions (PQQ) from simple procurements below 100K in value Simplify third party accreditation, insurance and performance bond requirements 1.5 Publish procurement documents 1.6 Publish specifications Use of turnover thresholds clarified by 31/07/13 PQQ excluded from below 100K procurements by 30/09/13 Revised guidance on use of 3rd Party accreditation etc. published by 30/09/13 Maintained library of procurement documents published by 31/08/13 Process in place to publish specifications in place by 30/10/13 1.7 Simplify in house terms and conditions / flowdown Use of GPS / NEC 3 in place by 30/09/13 1.8 Improve usage of efficient tendering tools Mandatory use of CTM in place by 31/08/13 1.9 Improve payment terms Accelerated payment terms available by 30/10/13 2.1 Improve visibility of procurements Mandatory use of CTM in place by 31/08/13 2.2 Improve Commercial Practitioner awareness of SME 2.3 Reward success Developed SME Competency materials and training in place by 31/01/14 SME focussed reward and recognition programme in place by 31/01/14 2.4 Make expectations clear Booklet published by 31/12/13 2.5 Give contractual effect to subcontracting / employment creation Practitioner guidance published by 30/10/13 2.6 Refresh Yellow Pages facility Yellow Pages facility refreshed by 28/02/14 3.1 Establish reporting capability Reporting capability in place by 30/09/2013 Page 10 of 10