Procurement: Follow-up

Comptroller and Auditor General Procurement: Follow-up

27 August 2015

R.96/2015

Procurement: Follow-up

Introduction

1. Effective procurement is a key means of:

• securing value for money;
• managing risk; and
• reducing the risk of impropriety.

2. The States of Jersey has recognised that effective procurement has the capacity to deliver substantial savings, establishing a central procurement function within Treasury and Resources and targeting procurement savings as part of the Comprehensive Spending Review (CSR).
3. I reviewed aspects of the States' approach to procurement and issued a report detailing my findings and recommendations in March 2014. I identified significant development in procurement over the previous few years but also highlighted a need to:

• develop most of the stages of the procurement cycle to embed consistent practice and assist users to comply with corporate requirements;
• update the procurement strategy to promote a consistent corporate view of procurement; and
• establish effective mechanisms for learning from procurement exercises and disseminating the learning across the States.

4. Subsequently, the States have started to rollout Supply Jersey, a web-based purchasing system that is designed to simplify ordering and invoicing for the majority of purchasing transactions, promoting efficiency and effectiveness.

Objectives

5. This review comprises:

• an evaluation of the response to my earlier recommendations; and
• an initial evaluation of the rollout of Supply Jersey in the context of those recommendations.

6. In addition to recommendations this report contains areas for continuing management action relating to more detailed aspects of implementation.

Progress against recommendations

1. In my previous report I reviewed and made recommendations on:

• overall corporate procurement arrangements and specific aspects of those arrangements;
• securing compliance with Financial Directions; and
• identification and monitoring of savings.

Procurement arrangements

2. The effectiveness of procurement processes depends amongst other things on:

• clear processes, consistently and clearly communicated;
• effective support for staff involved in procurement across the States;
• effective communication with existing and prospective suppliers;
• establishing corporate procurement arrangements for identified common needs across the States; and
• effective governance arrangements for procurement supported by high quality corporate information.

3. In my previous review I identified scope for improvement in many of these areas and made recommendations addressing both overall arrangements and those relating to separate stages of the procurement process.

Overall arrangements

4. In Exhibit 1 I evaluate the steps taken and planned in response to my recommendations relating to overall arrangements for procurement.

Exhibit 1: Overall procurement processes: action in response to recommendations

Recommendations

R1  Set clear targets for the finalisation of the revised Corporate Procurement Strategy and future updates of it, possibly linked to

the preparation of Corporate Plans, and monitor delivery against the targets.

R2  As part of finalising the Corporate Procurement Strategy, reconsider whether incentives for participation in corporate

procurement initiatives should be developed.

R3  Revisit corporate information needs for procurement following finalisation of the Corporate Procurement Strategy.

Areas for management action

A1  Keep under review the scope for enhancing the accessibility on the States of Jersey website of relevant information on

procurement for suppliers.

A2  Determine corrective action, including changes to Financial Direction 5.1 and support from the Corporate Procurement

Team, required in response to any trends identified from review of the exemption register.

Identifying need

5. Effective procurement requires clear articulation of the need for the procurement. In my previous review, I identified clear guidance on the questions to inform decisions to embark on procurement exercises. I made one recommendation to support consistent documentation of the needs assessment on which progress has been made (see Exhibit 2).

Exhibit 2: Identifying need: action in response to recommendations

Developing a business case and procurement strategy

6. A well-documented procurement strategy is key to maximising the chances of a successful procurement that achieves the objectives of the States. In my previous report I identified areas for improvement in standard documentation. Progress has been made in respect of both the recommendations I made (See Exhibit 3).

Exhibit 3: Developing a business case and procurement strategy: action in response to recommendations

Area for management action

A3  Through active monitoring of the implementation of the revised procurement strategy document, template risk log, template

issues log and communications plans, evaluate their impact and make revisions or develop supporting guidance as necessary.

Tender evaluation and contract award

7. Tender evaluation involves evaluating competing bids against objective criteria including price, quality and risk. In my previous report I identified:

• scope for improvement in the reporting of the results of tender evaluation (so that all relevant factors are clearly documented); and
• a need for enhanced guidance on the due diligence' procedures that should be carried out on potential suppliers (to reduce the risk of awarding a contract to a supplier who subsequently failed).

8. Exhibit 4 sets out my recommendations and the action in response to my recommendations.

Exhibit 4: Tender evaluation and contract award: action in response to recommendations

Area for management action

A4  Enhance the guidance on due diligence to provide a consistent framework on how to undertake all relevant dimensions of

due diligence, including organisational capacity.

Contract management

9. Procurement does not stop with the award of a contract. Effective contract management is essential to securing the envisaged benefits from a contract. In my previous report I made one recommendation concerning enhancing the guidance on establishing and monitoring performance against Key Performance Indicators (KPIs), a key tool in effective contract management. This recommendation has been implemented but more needs to be done (see Exhibit 5).

Exhibit 5: Contract management: action in response to recommendations

Recommendation

R4  Enhance the robustness and relevance of KPIs by:

• reviewing and as necessary updating guidance on the preparation of KPIs following finalisation of the revised Corporate Procurement Strategy; and

• actively promoting the role of the Corporate Procurement Team as advisors on developing KPIs.

Closure, learning and review

10. Effective closure, review and learning from procurement exercises reduce the risk of mistakes being repeated and promote sharing of good practice. In my previous report I identified that there was no structured process for ensuring that:

• lessons are captured and disseminated; and
• the attainment of planned savings on corporate procurement exercises is reported at corporate level.

11. Some progress in implementation of these recommendations has been made but they are not yet fully implemented (see Exhibit 6).

Exhibit 6: Closure, review and learning: action in response to recommendations

Area for management action

A5  Monitor the effectiveness and impact of new mechanisms for internal communication of key learning points from

procurement exercises.

Compliance

12. Effective procurement does not just depend on good procedures but on consistent compliance with those procedures. Monitoring compliance with procedures, evaluating the reasons for non-compliance and taking appropriate corrective action, including in instances changes to procedures, are important mechanisms for securing both value for money and strong internal control.
13. In my previous report I said that I had identified instances of non-compliance with Financial Direction 5.1 and made a series of recommendations for improvement. These recommendations have yet to be fully implemented but the rollout of Supply Jersey is designed through automated controls to promote greater compliance with Financial Directions for the procurement activity covered by Supply Jersey (see Exhibit 7).

Exhibit 7: Compliance: action in response to recommendations

14. Looking forward, the implementation of Supply Jersey that embeds procedures within an IT system should:

• facilitate compliance with FD 5.1; and
• reduce the incidence of exemptions.

Recommendation

R5  Prioritise review and updating of FD 5.1 taking into account the extent of non-compliance with and exemptions from the

current FD.

Estimating and monitoring attainment of procurement savings

15. Major procurement exercises are designed to secure savings. In my previous report I reviewed two procurement exercises and identified scope for improvement in the three stages of the process:

• establishing the baseline expenditure;
• calculating the expected savings; and
• monitoring and reporting of savings achieved.

16. In following-up the implementation of the recommendations I made, I focussed not only on changes in overall arrangements for procurement but also the specific experience of the corporate removals contract (see Exhibit 8).

Exhibit 8: Estimating and monitoring attainment of procurement savings: action in response to recommendations

17. I also reviewed progress on securing planned savings from the managed print contract. Although target annual savings of £300,000 have broadly been achieved, these have derived almost entirely from a reduction in unit cost rather than from a reduction in the volume of printing (see Exhibit 9).

Exhibit 9: Savings from managed print contract

Total expenditure pa From £1,600,000 to £1,302,000

Saving £298,000 pa

(18.6%)

Cost per copy  Volume of copies pa From 3.143p to 2.567p  From 50.9m to 50.7m

Saving £292,000 pa  Saving £6,000 pa (0.4%)

(18.2%)

18. Reductions in volumes of 10% to 20% were anticipated at the commencement of the project and this would indicate that the anticipated behavioural change has not occurred. Achieving a shift away from hard copy documentation is central to the public sector reform and e-government programmes but changing copying arrangements alone will not secure reductions in volumes. Such changes can, however, be secured by changes in working practices, for example by supplying appropriate software and hardware so that agenda papers do not need routinely to be printed.

Recommendations

R6  Finalise and implement an overarching framework for estimation of savings from procurement contracts.

R7  For each corporate procurement contract, in consultation with users, determine useful disaggregated management

information and provide it routinely to CMB and departments.

R8  Identify the reasons why anticipated reductions in volume of copies under the managed print contract were not secured and

use the findings to inform the wider public sector reform programme.

Supply Jersey

1. Supply Jersey is a web-based procure to pay' system designed to secure:

• better communication between the States and suppliers;
• reduced time from order to payment;
• reduced checking of remittances;
• greater visibility of transactions throughout the purchasing, supply and payment process;
• electronic matching of orders to invoices; and
• greater visibility of demand to suppliers.

2. As described above, through the operation of embedded automated controls, Supply Jersey also reduces the cost of compliance and risk of non-compliance with established procedures for those items purchased using it.
3. The detailed business case for Supply Jersey prepared in 2013 identified that the system was suitable for all routine purchasing transactions from supplier catalogues. These are estimated to cover 67% of purchasing transactions by volume and 62% by value. The remaining expenditure relates to non catalogue items' for which the States plans to retain the existing How to Buy' toolkit.
4. The business case identified:

• £0.9m - £1.3m pa efficiency savings; and
• £0.4m - £1.1m pa of non-cashable savings.

5. Rollout was originally planned from May 2014 but actually commenced in October 2014 with full implementation planned for December 2015. Only a minority of users have been moved to Supply Jersey by July 2015 and no rollout date has yet been scheduled for some users.
6. Following completion of the rollout, the Corporate Procurement Team plans routinely to produce a suite of management information to evaluate the delivery of the objectives of Supply Jersey, for example:

• the proportion of procurement expenditure covered by Supply Jersey; and
• the incidence of invoice mismatches.

Area for management action

A6 Monitor implementation of the project plan for the remainder of the Supply Jersey rollout taking appropriate action to

escalate slippage and risks to delivery as necessary.

Conclusion

1. Procurement expenditure represents a third of the total expenditure of the States. Good procurement practice drives good value for money and good internal control. My previous report identified that further steps were needed to embed consistently good procurement practice across the States.
2. This follow-up review has identified progress in the implementation of my recommendations. Guidance has been updated following my earlier review but recent changes need to be embedded and some further changes need to be made. Although there are plans to implement many of the remaining recommendations, there were in some cases no clear timetables for implementation and no corporate mechanisms outside the procurement team for monitoring implementation.
3. Implementation of some recommendations is dependent on key corporate actions. Firstly, the States-wide procurement strategy needs to be updated. The strategy should clearly set out what the States wants to secure from its procurement activities and should include not only the rollout of Supply Jersey but also other initiatives. The financial pressures that the States faces have pushed procurement, including outsourcing, centre-stage. The absence of an up to date strategy means that other developments have been delayed or, as in the case of development of guidance on KPIs, undertaken in a vacuum.
4. Secondly, the control framework for procurement, contained in Financial Direction 5.1, needs to be updated. Whilst this work is due to be undertaken as part of a wider review of Financial Directions, the delay in updating the Financial Direction has a knock-on effect on the implementation of improved arrangements.

Appendix 1: Summary of Recommendations

R1 Set clear targets for the finalisation of the revised Corporate Procurement Strategy and future updates of it, possibly linked to

the preparation of Corporate Plans, and monitor delivery against the targets.

R2 As part of finalising the Corporate Procurement Strategy, reconsider whether incentives for participation in corporate

procurement initiatives should be developed.

R3  Revisit corporate information needs for procurement following finalisation of the Corporate Procurement Strategy. R4 Enhance the robustness and relevance of KPIs by:

• reviewing and as necessary updating guidance on the preparation of KPIs following finalisation of the revised Corporate Procurement Strategy; and
• actively promoting the role of the Corporate Procurement Team as advisors on developing KPIs.

R5 Prioritise review and updating of FD 5.1 taking into account the extent of non-compliance with and exemptions from the

current FD.

R6 Finalise and implement an overarching framework for estimation of savings from procurement contracts.

R7 For each corporate procurement contract, in consultation with users, determine useful disaggregated management

information and provide it routinely to CMB and departments.

R8 Identify the reasons why anticipated reductions in volume of copies under the managed print contract were not secured and

use the findings to inform the wider public sector reform programme.

Appendix 2: Summary - Areas for management action

A1  Keep under review the scope for enhancing the accessibility on the States of Jersey website of relevant information on

procurement for suppliers.

A2 Determine corrective action, including changes to Financial Direction 5.1 and support from the Corporate Procurement

Team, required in response to any trends identified from review of the exemption register.

A3 Through active monitoring of the implementation of the revised procurement strategy document, template risk log, template

issues log and communications plans, evaluate their impact and make revisions or develop supporting guidance as necessary.

A4 Enhance the guidance on due diligence to provide a consistent framework on how to undertake all relevant dimensions of

due diligence, including organisational capacity.

A5 Monitor the effectiveness and impact of new mechanisms for internal communication of key learning points from

procurement exercises.

A6 Monitor implementation of the project plan for the remainder of the Supply Jersey rollout taking appropriate action to

escalate slippage and risks to delivery as necessary.

KAREN McCONNELL

COMPTROLLER and AUDITOR GENERAL  21

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