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Slide 3.

Public Sector Procurement

Chapter 3

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.2

Objectives of this chapter


Part A
• To appreciate the context and background of public sector procurement
• To recognise the distinctive challenges of government procurement
• To examine the ways in which strategic procurement best practice has
been adopted and adapted within major public sector organisations, such
as Police,
• National Health Service (NHS), and Ministry of Defence (MoD)
Part B
• To appreciate the EU procurement directives
• To outline the main provisions of the directives
• To outline the main changes introduced in the revised EU directives (2000)
• To consider contract pricing mechanisms

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.3

In May 1995, the government published its second procurement


strategy in the form of a white paper, Setting New Standards: A
Strategy for Government Procurement (HM Treasury, 1995).
This identified ambitious proposals for the public sector
including:
• seeking to develop world-class professional procurement
staff;
• seeking to introduce best practice in terms of whole-life cost
savings;
• highest standard benchmarking;
• co-operative relationships with contractors and suppliers
within the constraints of competition;
• the promotion of continuous improvement (Kaizen).

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.4

National Audit Office (1999) has, however, sought to


remedy that situation through articulating value for money
principles, namely:
• have a procurement strategy;
• plan early and agree requirements;
• actively manage contracts;
• think about the supply chain;
• seek continuous improvement;
• monitor performance.

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.5

General principles of government


procurement
The approach that has been taken for many years within the public
sector can be summarised as follows:
• Purchasing should be based on value for money.
• Competition should be used to acquire goods and services (unless
there are convincing reasons to the contrary).
• There should be clear definition of the roles and responsibilities of
personnel involved in specifying the need, giving financial authority,
and making procurement commitments.
• There should be separation of the financial authority and the
purchasing authority.
• There should be separation of duties between personnel who make
contracts, those who receive the goods or services and those who
authorise payments.
• Requirements which are above a certain financial threshold are
normally required to be advertised in accordance with EU
regulations on public procurement.
Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.6

Figure 3.1 Variables contributing to the Best Value concept

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.7

Case study – How the NHS supply


chain will work
Under the agreement, DHL will run NHS Supply Chain on behalf
of NHS Business Services Authority (responsible for managing
core public sector support services). It will be responsible for
delivering all procurement and logistics services across an initial
500,000 products to support 600 hospitals and other providers
in England. By focusing on procurement, supply, logistics and
delivery of hospital goods, it claims it will enable healthcare
providers to better manage their cost base and focus on patient
care.

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.8

UK Metropolitan Police procurement


The London Metropolitan Police force has a £500 million annual
procurement budget.
They have cut the their 2,000 suppliers by 30%, buying from longer
term, ‘higher value’ relationships.
An example of improvements is as follows: For yellow waterproof
jackets, a 40% saving was delivered by aggregating their own
requirements. In the police environment, availability and
performance of equipment comes first -operational support and
quality are paramount and only then do they think about saving
money.
They have begun to put in place contracts that give them clear
performance measures and improvement targets. They used to buy
always on lowest price. Now they use the whole life costing
approach.
Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.9

Figure 3.3 Smart acquisition strategy


Source: Adapted from Boyce, 2000

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.10

Figure 3.4 The EU procurement cycle

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.11

Figure 3.5 Flow chart showing the process of the open procedure

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.12

Figure 3.6 Flow chart showing the process of the restricted procedure

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.13

Flow chart showing the negotiated procedure with prior publication of a


Figure 3.7
procedure notice
Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.14

Flow chart showing the negotiated procedure without prior publication of a


Figure 3.8
procedure notice
Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008
Slide 3.15

Checklist – Key changes

• In official tender notices, purchasers will have to include more


details of the criteria used to select suppliers for a tender list.
• New ‘competitive dialogue’ procedure will offer extra scope
for discussing the most appropriate solution with suppliers.
• The new procedures legitimise the framework approach to
purchasing.
• The directives allow purchasers to follow shorter time scales
on electronic tenders and clarify the rules on reverse
auctions.

Baily, Procurement Principles and Management, 10th Edition, © Baily, Farmer, Crocker, Jessop and Jones 2008