london councils community benefits and the small lots exemption david mosey partner, projects and...
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London Councils
Community Benefits and the Small Lots Exemption
David MoseyPartner, Projects and construction department
Trowers & Hamlins LLP
4 April 2011
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Procurement priorities
■ Value for money – need for savings (will arm’s length lowest price tendering also deliver high quality goods and services or are other processes/closer analysis going to produce better results?)
■ Economic sustainability – maximum opportunities for local businesses and employment/training of local residents (needs close working relationship with contractors/service providers)
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Procurement priorities (cont/d)
■ Community benefits for residents as additional benefits from goods/services procured – what is proportionate, how can it be secured and how is it best costed/evaluated?
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Innovation and partnership
■ Need to think about different ways of providing and buying goods/services
■ Necessary to improve value for money while not reducing quality
■ Need to work within EU procurement, but to look for techniques/exemptions/post- award processes that deliver results
■ Need to work with, rather than against, contractors/service providers/suppliers
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Effective procurement
■ Selection processes■ Mobilisation and contracting processes■ Improvement processes ■ Measurement processes■ All need to be clear and properly
documented so as to meet stated requirements
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Defining community benefits
■ Sustainability■ Training and apprenticeships■ Local jobs■ Small businesses and social enterprise
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Overview of the proposed approach
■ EU limitations (background)■ Contract packaging (small lots)■ Structured involvement in contractors’
supply chains
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Scope
■ Facilities management (repairs and maintenance, cleaning, grounds maintenance etc)
■ Construction■ Back office services (customer services,
printing, advertising, recruitment etc)■ Other areas (cleaning, car-park
management, catering etc)
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SME’s and Local Businesses
■ EU procurement does not permit insistence on use of SME’s or local labour by appointed contractors.
■ Best value obligations compromised if procurement structure does not lead to lowest price or most economically advantageous tender.
■ Need for local government to generate opportunities for local businesses/residents wherever possible.
■ Alternative approaches through the small Lots exemption and through second tier supply chain re-engineering.
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Small Lots exemption
■ Regulation 8(12) of the Public Contracts Regulations 2006.
■ Opportunity, when valuing a contract to establish relevant financial threshold for public works/services/supplies, to exclude a small Lot and procure this in a different way.
■ Exclusion of small Lots from the OJEU Notice and subsequent procurement procedure creates flexibility for local authorities to address local issues through procurement.
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Small Lots
■ £64,826 for services and supply contracts or £810,580 for works contracts
■ Less than 20% of aggregated value of all contracts for the relevant services/ supplies/works
■ An opportunity to reserve particular services/supplies/works for smaller businesses (i.e. local opportunities)
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Limits on small Lots exemption
■ Cannot lower overall EU threshold by taking out small Lots
■ Works - £3,927,260 net of VAT■ Services and supplies - £156,442 net of VAT
■ Aggregation rules will apply when assessing total of goods/services/works identified as small Lots
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When can a small Lot be created and how should it be treated?
■ A small Lot contract is to relate to “the outcome of any works which is sufficient of itself to fulfil an economic or technical function”.
■ Could be a bridge, a hospital, a block of flats, a house, a community centre or a programme of roofing works or cyclical painting.
■ Can be broken down into separate works packages but not so as to artificially disaggregate an overall works programme or to convert works into services or supplies.
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What about services and supplies?
■ Services and supplies contracts are subject to aggregation rules where entered into in order to fulfil a “single requirement”.
■ Current EU limit for services and supplies (£156,442 net of VAT) will be applied to the aggregated single requirement.
■ Small Lots exemption in relation to services/supplies needs to be considered in light of all contracts for same type of services/supplies even if awarded at different times.
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What about small Lots and frameworks?■ Small Lots exemption applies to “contracts” but less
clear how it applies to “framework agreements”.■ Query how bundling of works/services/supplies
under a framework could be combined with excluding small Lots?
■ Suggested that exclusion of small Lots needs to be proportionate to the overall framework and to the work intended to be awarded under that framework each year.
■ Need to look at individual frameworks very carefully.
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Bundling/debundling of services contracts
■ Consider, for example, “estates services” comprising different activities such as graffiti removal/cleaning of common parts/bulk rubbish removal/grounds maintenance
■ Possible identification of one service easily separated from the others and let as a small Lot
■ Provided it does not comprise more than 20% of overall requirement for estate services
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Practical assistance to SMEs
■ Procurement procedures need to be simple and not unduly onerous for small companies
■ Advertisement in local press/internet sites where SMEs will have access
■ Review level of administration in terms of questions raised/information requested at prequalification and through invitations to tender
■ “Meet the client” events and other means of easier access
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Supply chain re-engineering
■ Combination of savings with added value ideas after completion of EU processes
■ Jobs, apprenticeships and other training opportunities can be achieved through this system
■ Depends on conditional two stage appointment for:
■ Single Project■ Framework Agreement■ Long-Term Contract
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Supply chain re-engineering
■ Worked example of Hackney Homes■ Appointment of five Decent Homes contractors, post-
selection review of supply chains and conclusion of joint second tier agreements with suppliers/subcontractors
■ Combination of shared savings with training and employment activities
■ Proposed as National Skills Academy for Construction project
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Supply re-engineering – local government initiatives
■ Second tier review of suppliers/sub-contractors/sub-consultants first pioneered by London Borough of Hackney.
■ Adopted by other members of supply chain management group (Newham and Haringey) and being seriously considered by other London boroughs/ALMOs.
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Supply re-engineering – local government initiatives■ Savings through supply chain re-engineering audited by
independent consultants and reviewed by DCLG/HCA/ OGC.
■ Savings achieved by Hackney of up to 20% combined with long term appointment of supplier/sub-contractor/ sub-consultants.
■ Assessment on savings combined with added value through improved warranties/reduced carbon emissions/reduced waste.
■ Strong case for use of local businesses/SMEs with relevant expertise.
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Supply chain re-engineering and highways
■ Second tier supply chain re-engineering adopted by Surrey County Council in its Highways Maintenance Contracts with Carillion and Ringway.
■ Surrey initiative now being considered by SE7 group of Councils (East Sussex, West Sussex, Hampshire, Kent, Brighton and Hove and Medway).
■ Supply chain management initiative also under review by Department for Transport with a view to sporting wider groups of local authorities nationally.
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What is supply chain re-engineering?
■ Appointment of contractors under conventional EU procurement processes (restricted procedure or competitive dialogue).
■ Inclusion of contract conditions/processes/ deadlines for re-assessment of second tier sub-contractors/suppliers/sub-consultants put forward by successful bidders – after award of main contracts.
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What is supply chain re-engineering?
■ Basis for review will include business cases and second tier tenders to achieve lower prices for particular sub-contract/supply/sub-consultant packages combined with added value.
■ Tendered prices/proposals of main contractor remain the starting point on i.e. supply chain re-engineering cannot give rise to higher prices or poorer value for money than the approved tender.
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What is supply chain re-engineering? –
■ Supply chain re-engineering cannot involve nomination or direct selection by the client as this would require new EU procurement procedures.
■ Supply chain re-engineering therefore led by the appointed contractor under agreed contractual provision/processes/deadlines, subject to client monitoring/approval at each stage.
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What is supply chain re-engineering?
■ Legitimate client interest in the exact terms of the sub-contract/supply agreement/sub-consultancy agreement entered into following supply chain re-engineering.
■ Significant potential to link second tier supply chains appointed by the different contractors on behalf of different clients/the same clients undertaking comparable works programmes.
■ For this purpose need alliancing agreements to link the local authority clients and their main contractors in joint supply chain re-engineering initiatives.