ao link
Twitter
Facebook
Linked In
Twitter
Facebook
Linked In

You are viewing 1 of your 1 free articles

How do you ensure your procurement is robust?

The collapse of Carillion has shown yet again that arrangements for buying in services and goods must be robust. Greg Campbell gives his top tips

Linked InTwitterFacebookeCard
Picture: Getty
Picture: Getty
Sharelines

How can you ensure your procurement is robust? Some top tips from @GregCampbell15 #ukhousing

Carillion’s recent and dramatic collapse (even though predicted by some observers) has once again highlighted the challenges of making procurement effective.

Although Carillion was primarily a construction company, its diversification into other sectors – facilities management, prison and hospital maintenance, transport infrastructure management, cleaning and catering, housing management for the armed forces – gives a sense of how many areas have been affected by its demise. It received £1.7bn in revenue from state contracts last year and employed 43,000 staff.

For most organisations – unless they have a philosophical objection to doing so – it is better to provide services in-house using their own resources.

“When an organisation opts to outsource a service, it should do so for sound and documented reasons.”

In practice, this is often not possible for a variety of reasons: they may for example lack the necessary expertise, or the scale of their operations cannot deliver value for money in comparison with the market, or it may be judged necessary to tender particular services in order to benchmark in-house operations.


READ MORE

Could a Carillion-style collapse happen in social housing?Could a Carillion-style collapse happen in social housing?
How Grenfell is changing procurementHow Grenfell is changing procurement
L&Q carried out closed tender for major IT contract, leaked documents revealL&Q carried out closed tender for major IT contract, leaked documents reveal

When an organisation opts to outsource a service, though, it should do so for sound and documented reasons.

And it needs to have a clear strategy for its actions and what it is seeking to achieve. These should include:

  • Rationale for contracting out
  • Anticipated benefits of an external contract
  • Estimated cost of the outsourced contract
  • Analysis of the provider market
  • Risks that the procurement needs to manage
  • Arrangements for clienting the contract and reviewing performance

Managing the risks should include looking at:

  • What the market looks like for the particular service, including how wide a range of providers exists
  • Whether your contract is large enough to be attractive to reputable and well-resourced providers
  • Whether the whole of the service should sensibly be placed with a single contractor
  • Whether the service is best specified based on outputs and outcomes, or whether you should more appropriately specify inputs and methods
  • Whether the specification, including any performance metrics required, is reasonable, especially if there is a performance-linked element to the fees
  • Whether your budget for the services is sufficient to cover the likely tender fees range, and if it isn’t, whether you need to reduce the specification – plus if you do that, whether the scaled-back specification will meet your needs
  • Whether the services are realistically deliverable for the tender price quoted, and what happens if the contractor finds they are not
  • Whether the contractor is financially robust, and what happens if they go bust
  • Whether the service will represent a disproportionate amount of the contractor’s overall business, or if the contractor is already providing services to you and a disproportionate amount of their business is with your organisation
  • Whether you have allowed enough time for the new contractor to mobilise the service
  • What other clients of a contractor say about their performance
  • What the results of services delivered elsewhere by that contractor look like (eg repairs, cleaning, grounds maintenance – are you doing site visits?)
  • Whether you are sufficiently geared up and resourced to manage and monitor the contract effectively
  • Whether you are integrating your activities sufficiently with the contractor (eg on a repairs contract) to ensure a seamless service

In a sense, these issues ought to be obvious. Yet time after time, we see organisations that have failed to consider them.

We have seen contracts placed with providers whose finances are shaky; contracts awarded on price alone without proper regard to quality and whether the bid will actually meet the service requirements; and contracts awarded to firms that have priced jobs unrealistically low.

You don’t have to look hard to see the results. A few years ago, it was the collapse of significant repairs contractors Connaught, Rok and Kinetics.

This left a string of commissioning organisations in the lurch, with no one on hand to deliver their repairs services.

New contractors had to be brought in, at high cost and with inevitable disruption.

In part as a result, insourcing of repairs services has become more popular than it has been for decades.

More recently, these same issues have come to light with the Carillion collapse.

“Insourcing of repairs services has become more popular than it has been for decades.”

Once more, councils and others have opted to bring services in-house. And recent reports of share price hits, restructurings and other problems for several more major support services providers have worried many organisations that have substantial contracts with those companies and other large-scale outsourcers.

These worries have gone hand-in-hand with recently highlighted concerns about private finance initiatives; its high costs and rigid pay and performance structures – see for instance the recent Smith Institute report ‘Out of Contract’.

Will we learn the lessons this time, and make sure our procurement activity is thought out and our arrangements robust?

Greg Campbell, partner, Campbell Tickell

Linked InTwitterFacebookeCard
Add New Comment
You must be logged in to comment.