Briefing for policy staff & project managers Procurement Reform – LEAN Sourcing A new approach that requires us to change the way we work Briefing for policy staff & project managers UNCLASSIFIED UNCLASSIFIED

The Procurement Reform Agenda The Coalition Government has set out the requirement to support the implementation of the Growth Agenda and to ensure that more Small & Medium Sized Enterprises win government contracts.  The requirement includes a new approach to the way central government departments carry out procurement. This requires departments to think very differently about how procurements are planned and delivered. Subsequently, this will require a much closer working relationship between procurement staff and colleagues from policy areas and project management functions than has previously been the case. The new approach has been endorsed by Francis Maude, the Minister for the Cabinet Office and all central government departments and their arms length bodies are required to adopt it.

The new policy requirements The new approach comprises the following new government policy requirements: Adoption of a LEAN sourcing approach that strips out waste and reduces costs A requirement to carry out significant levels of pre-procurement market engagement with diverse range of prospective suppliers, including SMEs in order to warm-up the market, test our thinking and generate ideas for innovation as part of the development of outcome-based specifications. Contracts should be broken down into lots where appropriate, and requirements that are below the value of £100K should be rapidly sourced through the new Government Dynamic Market place. All Government procurements are strongly encouraged to use the Open Procedure. There is now a presumption against the use of the Competitive Dialogue procedure which has often resulted in slowing things up unnecessarily and typically incurs huge costs on both sides. There is an expectation that all but the most complex procurements are completed with 120 working days (publication of the advert to the contract award decision date).

What this means for our department Collectively, we need to develop: A detailed understanding of what the pipeline of potential procurements is so that these can be planned and resourced effectively Strong recognition within business areas that early engagement and joint working with the procurement function (as part of a multi-disciplined procurement team) is a critical success factor A full understanding of the key principles of the LEAN sourcing process and how engagement with suppliers in the market before establishing a formal procurement process has to become standard practice (we can no longer rush out with an advert) Strong acceptance that large complex contracts with large suppliers are no longer going to be permitted (in the vast majority of cases) and that increasing the number of contracts awarded to SMEs (through breaking requirements into lots) is the new way forward (where appropriate). Strong recognition that departmental performance in delivering procurements within 120 days will be subject to ongoing scrutiny by ERG and No10 and that we can only achieve this by working together. More efficient and effective approaches to taking business decisions to ensure that we do not incur any unnecessary delays.

7 key principles of the new approach 1. Establish a clear understanding of required business outcomes Strong focus on preparing to go to market This is a key activity that takes time and careful planning 2. Engage with the market in order to shape and confirm that the business requirement is attractive to a diverse range of suppliers 3. Use LEAN thinking and visual tools to set up and run a well planned and efficient process 4. Do not commence formal procurement until thorough engagement with suppliers has taken place. Strong focus on running a fast procurement process This is a key activity that requires collective effort and is dependant on effective preparation 5. Streamline any engagement with suppliers and stakeholders by using a ‘boot camp’ approach to make best use of limited time 6. Use e-sourcing tools to support the procurement and follow the LEAN Standard Operating Procedures (SOPs) 7. Measure and manage performance through continued focus on turnaround times and costs. Advert to contract award decision date should be completed within 120 working days 5

Procurement routes – our choice has become limited Key Features Use Open All interested suppliers may respond to the advertisement in the OJEU by tendering for the contract. Well defined, outcome-based requirements will help ensure a manageable number of bid responses from good quality and capable suppliers. There is a government commitment towards greater use of the Open procedure. Restricted A two stage process where a selection of suppliers who respond to the advert is made and only they are invited to submit a tender for the contract. The selection (pre-qualification) questionnaire (PQQ) must only contain proportionate and relevant criteria Use in limited circumstances where pre qualification is essential.. The use of a standardised , stripped back ‘core’ PQQ is mandatory across central Government, and not used at all of sub £100k work. Competitive Dialogue Following an advert and a selection process potential suppliers are invited to enter into dialogue to develop one or more suitable solutions before chosen suppliers are invited to tender. The Government has set a presumption against the use of competitive dialogue. Negotiated One or more potential suppliers are selected to negotiate the terms of the contract. An advert is usually required. Only to be used in extremely limited circumstances described in the Regulations, for example, where a previous procurement was discontinued because of unacceptable/irregular tenders. 6

The new LEAN sourcing approach – the 5 Stage Process 1. Business need & baselining 2. Market analysis & sourcing strategy 3. Supplier identification 4. Execution of sourcing strategy 5. Finalise contract Mobilisation Pre-Procurement Market Engagement Sourcing and Contracting Talk to potential suppliers, publicise requirement (preferably by using a project specific PIN) to warm the market up and advertise the industry engagement event Establish a project planning and performance hub in the mobilisation phase and use visual management and e-sourcing tools to drive the process and to measure and manage performance including turnaround times in line with the 120 day target. Industry boot camp to capture the suppliers’ views on your requirement, on the viability, and on possible delivery options and where appropriate to facilitate meetings between suppliers to explore the potential for the establishing consortia, partnering arrangements and / or subcontracting opportunities. Pre-OJEU readiness - the preparation and subsequent publication of a bidders pack at OJEU including requirements, draft terms and conditions, selection criteria, evaluation strategy and criteria and procurement timescales. This transparency allows suppliers to make informed decisions as to whether they wish to bid. Execution of sourcing strategy through structured workshops, boot camps and tightly managed project plans Use standstill period to prepare for publication of the contract documentation and to finalise delivery and contract management plans Driven by visual management tools The new approach requires more work to be carried out before going to market 7

The new LEAN sourcing approach – overview 6. LEAN Sourcing Process Overview – General 2. Mobilisation The sourcing team is set up for success, all associated stakeholders are clear on requirements of the business need 22 to 66 calendar days from issue of OJEU 10 days 1. Business Need Identification, Baselining & Market Analysis Ensure identification & clear articulation of the business need 2. Sourcing Strategy Setup the procurement & develop the most efficient sourcing strategy 4. Supplier Identification (OJEU) Publish requirements through a contract notice in the supplement to the Official Journal of the European Union 5. Supplier clarification Respond to all questions & clarifications simultaneously 6. Evaluation of Tenders The best solution is established through evaluation of tenders 7. Contract Award Notify the supplier and finalise the contract 8. Contract Signature Formal signature of contract Business need, baselining & market analysis Sourcing strategy Supplier identification Execution of sourcing strategy Finalise contract Mobilisation Use e-sourcing tools Talk to suppliers Talk to business stakeholders Establish a strong PPM discipline approach and deploy visual management techniques Ensure that you are ready to go to market Drive continuous improvement in turnaround times by measuring performance Issue of OJEU Notice To be completed within 120 working days 8 UNCLASSIFIED

The LEAN sourcing tools that have been developed to help us The Standard Solution enables the execution of the LEAN sourcing process. It provides a suite of tools that you can use to execute the sourcing process from business need identification and baselining through to contract award & signature. Standard Operating Procedures (SOPs) A set of high level desk instructions describing the best known method for carrying out the activities described in the value stream map Procurement Route Decision Tree A tool to assist procurement professionals to think through and identify the most appropriate procurement route for their requirement. Visual Management A way of displaying information to drive the performance of the process & specific parts of the process Value Stream Map The route map which sets out the LEAN sourcing process. Team Implementation Plan (TIP) An action plan showing who will do what and when in specific functions and processes KPIs Performance indicators to measure turnaround times and cost of running procurements.

Key specific differences in practice Open – Standard Operating Procedures (SOPs) Key specific differences in practice Typical as-is New approach Used rarely, and only when requirements are so specific and the target supply base is known to be small More efficient requirements capture through stakeholder bootcamp, followed by full and comprehensive pre-procurement market engagement Publish OJEU, Bidders pack (ITT including Ts &Cs) at same time, with a clear statement of requirement and evaluation criteria Problems with this: Inevitable tendency to avoid using the Open route because of the lack of control over the number of bidders. Benefits Provides full clarity to market and opportunity for supplier self de-selection Helps to ensure the widest possible market is aware of and understands the opportunity to compete pre-OJEU

Restricted – Standard Operating Procedures (SOPs) Key specific differences in practice Typical as-is New approach 1. Publish OJEU & PQQ 1. Publish OJEU, PQQ & Bidders pack (including Ts &Cs) at same time 2. Evaluate PQQ 3. Use time between 1& 2 to develop ITT (full bidders pack) 4. Issue ITT to those who get through pre- qualification 5. Evaluate responses to ITT Problems with this: Benefits Suppliers may get through PQQ and not like Ts & Cs and then cause delays in timescales - waste Inefficient supplier self de-selection - they may not have entered the competition if they had seen full pack Provides full clarity to market and opportunity for supplier self de-selection Helps to ensure that requirement are crystal clear before going to market. Helps to ensure the widest possible market is aware of and understands the opportunity to compete pre-OJEU Helps consortia and other partnerships to form

Procurement: OJEU to Award In summary...... Pre-OJEU Procurement: OJEU to Award New policy imperatives that may require procurement Setting up for success - readiness Developing a clear understanding of requirement business outcomes Engaging with suppliers in the market and identifying opportunities for innovation and/ or breaking requirements into more attractive lots Developing a detailed understanding of the business requirement and constructing it in a way that will be clear and attractive to the market Getting a team in place with the right capabilities and a clear delivery plan (that takes into account approval and assurance points) Execution Operating a highly efficient process in line with the plan, which focuses on reducing turnaround times and costs to both the client and the suppliers within the competition but maintains quality Pipeline of known procurements Key points The more quality time that is spent on pre-OJEU activities the more efficient the procurement is likely to be. Reduced turnaround times (OJEU to contract award decision date) = reduced costs and improved resource utilisation LEAN sourcing is not about cutting corners it is about improving efficiency, and quality as part of a repeatable approach that is subject to continuous improvement The pool of scarce resources Risk Failure to complete the pre-OJEU activities is likely to result in three things occurring: A protracted procurement incurring significant costs A business outcome that is sub-optimal Dissatisfaction of key business stakeholders

What we need to do next...... Business stakeholders will need to: Familiarise themselves with the policy requirements set out in this briefing Familiarise themselves with the key LEAN sourcing principles that will be applied to all procurements Work with the procurement team to identify what policy initiatives will result in a potential future procurement The Procurement team will: Become knowledgeable (and trained) in operating the new LEAN approach using the standard operating procedures Be ready and prepared to work with Business stakeholders to plan procurements in good time Support business stakeholders in planning and delivering procurements within 120 days Ensure that as a department we are complying with these policy requirements

Training The Government Procurement Service (GPS) is rolling out training across central government which will comprise: 1 day LEAN Sourcing Awareness course 3 day LEAN Sourcing Simulation workshop Initially the both course types will be classroom based but an e-learning package is being developed to replace the 1 day course. This should be available by May 2012 Further information will be available from GPS by phoning the service desk on 0345 4102222 or by emailing training@gps.gsi.gov.uk