Commercial Excellence - Edinburgh Council

Aug 29, 2013 - of the contract that are required to implement business change, .... C&F Youth Services contract renegotiation ... Mobiles (correct data tarrifs).
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Finance and Budget Committee 10.00am, Thursday 29 August 2013

Commercial Excellence Programme - Update

Item number

7.3

Report number Wards

Links Coalition pledges

P30

Council outcomes

CO25

Single Outcome Agreement

Alastair D Maclean Director of Corporate Governance

Contact: Nick Smith, Commercial & Procurement Manager E-mail: [email protected] | Tel: 0131 529 4377

Executive Summary

Commercial Excellence Programme Summary As agreed by Council on 14 March 2013, the Council appointed Ernst & Young LLP (“EY”) on a gain-share basis to assist the Council with the delivery of the Commercial Excellence Programme. This programme has following overall aims: •

to save the Council £149m over 5 years;



to transform the existing operational procurement team into a fit-for-purpose and sustainable in-house commercial unit; and



to raise the standards in buying practices and processes across the Council.

This report updates Committee on progress in relation to the delivery of this key Council initiative.

Recommendations It is recommended that the Committee note the content of this report and the progress made to date.

Measures of success The level of savings achieved will be closely monitored against planned and budgeted savings targets.

Financial impact The currently anticipated cost of the gain-share arrangements under the contract is circa £12.5m if the Council’s net savings target of £149m is achieved over the 5-year period. This cost could be greater or less as it is entirely performance based and is directly related to the level of procurement savings achieved. There are likely to be some spend to save costs associated with the award and delivery of the contract that are required to implement business change, including investment in staff, technology and training. These costs are currently being scoped and will be offset against any savings delivered.

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Equalities impact No anticipated impact on equalities.

Sustainability impact It is anticipated that taking forward the Council’s Sustainable Action Plan as part of the transformation of the existing operational procurement team will reduce the impact of the Council’s activities from a sustainability perspective.

Consultation and engagement A programme of engagement has taken place across all Directorates and with elected members.

Background reading / external references Procurement Pipeline Assessment and Delivery Report report to Finance and Budget Committee 21 February 2013 Corporate Procurement transformation project - update - Finance and Resources Committee, 31 July 2012 Corporate Procurement Transformation project – Finance and Resources Committee20 March 2012

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Report Commercial Excellence Programme 1.

Background

1.1

The Council’s Commercial & Procurement Unit (the “Service”) provides advice and support to customers to enable them to meet the Council’s purchasing requirements. The service carries out tendering procedures and also monitors and challenges planned purchasing activity to ensure it is both effective and compliant. The service also has a crucial role to play in helping the Council to achieve its budgeted savings targets.

1.2

EY were appointed on 1 April 2013 to assist the Council and the Service in delivering the aims of the programme as set out above. The detail of EY’s appointment was set out in the report to Council on 16 March 2013. Since 1 April, significant progress has been made, with the delivery of the programme being split into three distinct work-streams. • Procurement pipeline activity delivery • Council wide change • The development of the Service

1.3

2

Main Report Procurement Pipeline

2.1

Following on from the work carried out by EY and the Service earlier this year to verify the potential for achieving savings through improved commercial excellence activity, the combined team have been working to deliver proposals for savings as well as delivering the savings themselves.

2.2

Since 1 April, the following has been achieved: • •



• 2.3

Approximately £10.67m of proposed savings have been identified as potentially being deliverable in 2013/14 against a target of £12.5m. £7.84m of these proposed savings have been formally approved by CMT or the relevant Directors and are now actively being delivered. A list of these is appended at Appendix 1. A further 34 procurement projects with a total value of £160m (baseline recurrent spend) are also being delivered by the team in addition to the additive savings proposals noted above and these also have the potential to deliver a further approximately £2.38m in savings for the Council in 2013/14. The 2014/15 projected pipeline savings are presently at £13.61m

In addition, the Service is working closely with all directorates to assist with planning for future requirements and/or delivery models for services. This

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greater partnership is ensuring that service areas are supported, with relevant commercial and procurement advice being fed in, which will enhance service delivery and best value. 2.4

While the pipeline for financial year 2013/14 is developing as planned, the speed and timing of both project approvals and savings is critical. Against a target of £12.5m savings for 2013/14, we are currently forecasting a potential shortfall of up to £2m. As the year progresses, the urgency of savings will become more acute and the accuracy of our forecasts will be revised. To address current risks, the Service is currently working with directorates to both identify new opportunities through a systematic review of budgets, and also capture the benefits of existing, smaller procurement projects. Council-wide change

2.5

Much of the work associated with improving the Council’s commercial and procurement activity relates to behavioural, cultural, system and policy changes. Work is presently underway to plan for the delivery of these changes:

2.6

These include: •



• • • • •

• • 2.7

Ensuring that the aims of the project, as well as the consequences of not achieving the planned savings, are fully understood and ensuring that every member of staff understands that they can and need to make a difference and contribute to the programme’s aims. Revising the existing Purchase to Pay systems to make it both more user friendly and controlled. Focus groups are being set up, with Schools actively involved. Introducing new policies such as “no PO/no pay” and ensuring the Council is paying to terms agreed. Ensuring that staff are appropriately trained and communicated with in relation to the changes and new policies. Revising and enhancing systems to ensure that managers and the Service get appropriate and useful management information. Ensuring that proper contract management skills are embedded across the Council. Changing and standardising process documentation and methodologies and rolling out training in REASON (Requirement assessment, Evaluate options, Affordability, Sourcing route, Ownership and Noting the Benefits). Ensuring that elected members get the information that they require. Embedding sustainability.

All these changes require significant training and communications to ensure that the impact of the project is fully understood. The Service is working with colleagues from Occupational Development and Communications to plan how this can be delivered most effectively. Service change

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2.8

This workstream relates to the improvement in capability and capacity within the existing Commercial & Procurement Unit. The development and change in this area is fully supported by CMT and investment is being made into both training and recruitment of specialist staff to bolster the current team. The addition of EY staff has been welcomed and seen as beneficial and both teams are learning from each other to create a single effective and efficient delivery team.

2.9

Stage 1 of the transformation of the team has been to design a new delivery model for the team to reflect what the Council needs. Staff have been fully involved in the development of the new model and the organisational review saw existing staff match to the new structure earlier this month. The Commercial & Procurement Manager will now look to recruit new staff to appropriate roles to ensure that we have the correct mix of skills and capacity to deliver the Council’s requirements. It is likely that, for a short period of 18-24 months, more intensive resource will be required to deliver the changes and processes necessary to give the Council a solid platform from which to improve its commercial and procurement capability. Transitional Period

2.10

As identified by previous reviews, some of the historic practices of the Council have not been optimum in terms of operational effectiveness and commerciality. In simple terms, the Council could, in some areas, be more effective and efficient, delivering further value for the Council.

2.11

The Council’s systems and policies, in place for many years, have also been either not conducive to effective purchasing and/or have not been complied with. One of the cornerstones of the project has been to revise the Council’s Contract Standing Orders to more clearly define roles and requirements. Further minor revisions to these will be brought to Council in the Autumn to address any practical issues learned since their implementation in October 2012. Whilst staff have occasionally had issues with certain requirements, overall feedback has been that the new rules are clear and effective.

2.12

Whilst the project has seen improved purchasing practices and results over the last few months, it should be borne in mind that this is a long term initiative and much of the change required cannot be implemented overnight. Many procurements have a 3-5 year life term and accordingly the project, from a holistic delivery and change standpoint, requires to be looked at in this light and timeframe. Officers are working to deliver as much of the change as possible as early as possible, but there will inevitably be a period of adjustment and transition during which (i) we will trend towards 100% compliance; and (ii) attitudes and commerciality will be developed. This notwithstanding, the savings will continue to be delivered towards the target and the time for change has been accounted for on figures stated.

2.13

In the interim, it is to be expected that the Officers will have to take appropriate decisions in relation to the prioritisation and manner of delivery in relation to many of the Council’s procurement and commercial activities. This will necessarily include officers taking measured risk and impact decisions as they

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try to balance the need for delivering savings with the requirement to ensure that the Council’s business continues to be delivered seamlessly. Accordingly, for a period there is likely to be an increased usage of Waiver reports (in terms of Contract Standing Orders) until compliance and planning is better embedded within the system. This is, however, being fully monitored and by the Service. Spot checks by Internal Audit are also being undertaken to ensure staff compliance with new procedures. 2.14

Whilst in an ideal world we would see an immediate move to 100% compliance and efficiency, it will necessarily take time to see and measure a tangible improvement and change in culture and behaviour. New systems and policies, coupled with effective support and communication, will seek to ensure that this transition is a short as possible whilst still delivering the changes and savings required.

3.

Recommendations

3.1

It is recommended that the Committee note the content of this report and the progress made to date.

Alastair D Maclean Director of Corporate Governance

Links Coalition pledges Council outcomes Single Outcome Agreement Appendices

P30: Continue to maintain a sound financial position including long term financial planning CO25: The Council has efficient and effective services that deliver objectives

Appendix 1 – Approved projects (as at 7 August 2013)

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Appendix 1 – Approved Projects (as at 7 August 2013)

Dir

Opportunity title

Annual baseline spend (£m)

FY13/14 saving

FY14/15 Saving

C&F

LAC renegotiation

£18.16

£0.04

£0.08

C&F

Youth Services contract renegotiation

£2.50

£0.01

£0.27

CG

ICT – PEC renegotiation with BT

£0.20

£0.20

£0.20

CG

P2P payment terms (working capital)

£0.19

£0.17

CG

Vehicle Disposal

£0.00

£4.00

£0.00

H&SC

Emergency Social Work Service

£0.92

£0.04

£0.08

H&SC

Residential care - 4 seasons

£6.73

£0.04

£0.08

SfC

Tarmac extension (renegotiation)

£1.00

£0.09

£0.00

SfC

Rail freight (rebate & renegotiate)

£0.90

£0.40

£0.04

SfC

Stores materials to supply chain

£4.43

£0.10

£0.38

SfC

Highways – repairs & maintenance

£8.75

£0.44

£0.88

SfC

Property repairs & maintenance

£8.33

£0.00

£0.50

SfC

Kitchen & bathroom installation

£3.67

£1.25

£1.25

SfC

Kitchen & bathroom EBS supplies

£1.50

£0.13

£0.21

SfC

Decriminalised parking (rebate)

£6.25

£0.28

£0.00

SfC

Domestic heating contract

£1.34

£0.07

£0.32

XD

Staff Travel (stopping taxis for staff)

£0.12

£0.04

£0.08

XD

Mobiles (no new handsets)

£0.70

£0.05

£0.05

XD

Mobiles (correct data tarrifs)

£0.20

£0.03

£0.03

XD

Excel contracts (retrospective)

£11.80

£0.27

£0.00

XD

Excel contracts (compliance)

£11.80

£0.17

£0.24

£89.30

£7.84

£4.86

Totals

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