1. Procurement - Improving School Efficiency 1 December 2010 Helen Lumb EPC Regional Manager Graham Wright EPC School Procurement Partner Jane Hardie EPC School Procurement Partner

2. Introduction AGENDA  Introduction to Procurement  Contracts – What they should include & what to look for  Contracts – Roll-over arrangements  Contract management

3. What is procurement and why is it important? Procurement is “the purchasing of the right goods or services at the right price, at the right quality level at right time and delivery to the right place to meet the needs of the purchaser.” Procurement is important because:  It helps to ensure that schools achieve good value for money when buying the goods and services that they need.  Effective procurement also ensures that public money is spent in a way that is fair, open, honest and accountable.

4. How can procurement help?  Benefits are  the realisation of financial savings  ensuring that the goods or services purchased are the most suitable for their needs  ensuring that suppliers deliver (and continue to deliver) as agreed  ensuring that the school is compliant with procurement legislation

5. How can procurement help? Current fiscal climate - it is imperative that school spend achieves value for money. The Secretary of State for Education has stated that schools need to make savings of around £1 billion in back office and procurement to reinvest into teaching and learning. Collectively, schools spend £6.6bn on non-pay related spend (non staff costs) with procurement of these goods and services accounting for around 15% of a school’s non-pay budget. Significant savings can often be made in this area, which can then be reinvested in the school’s priorities for teaching and learning, or used to address a budget deficit. A recent Department for Education project reported that if schools were able to close the gap between their current spend and the average benchmark spend by just 5%-10% primary schools could save an average of £5,000 and £10,000 each per year. Whilst secondary schools could save an average of between £23,000 and £47,000 each per year.

6. How can I get started? 1. EPC has a wide range of tools which can help identify areas where schools could save money. 2. Procurement Health Checks - a free service which focuses on two areas by providing an analysis of current contracts and a general overview of school spending activities. 3. Buyways - The DfE’s procurement e-learning system through which school purchasing staff can study a range of modules in procurement. www.buyways.co.uk

7. The following examples show some of savings that can be achieved:  A primary school in Newcastle was spending £6,471 per year on grounds maintenance, by switching to a different supplier they’ve cut their bill to £3,000 - a saving of £3,471.  A school in the South East had an existing water heater system that was in need of replacing and the caretaker had been quoted a replacement purchase price of approximately £1,000 plus installation by engineers. Following advice from the DfE's procurement team the school found an alternative system with the same capacity for £300 – a saving of £700.  A high school in North Tyneside was previously spending £24,306 per year on paper which should have cost them £17,886 therefore, they could save £6,420.  A large primary school was paying 84% more than necessary for their supply teacher insurance. If they changed supplier they could save £4,764 per year.  On average, schools pay 0.008p per black and white print that’s double the average market price. The average price they pay for colour copies 19.8p, almost four times the average market price.  Early findings from spend analysis and interviews suggest that collectively schools could save between £40million - £80million on their overall estimated spend on Multi Function Devices* of £265million. * Machines which combine printing, copying, faxing and scanning facilities.

8. Introduction to Procurement Helping you find real savings Procurement is an umbrella term and covers all functions of buying, delivery, receiving, inspection, inventory and stock management, salvage and disposal of goods and services. Why is it important? Procurement of goods and services typically accounts for 15% of a school’s total (Non-Pay) budget. Significant savings can often be made in this area, which can then be reinvested in the school’s priorities for teaching and learning, or used to address a budget deficit. The Procurement Cycle and Principles Supporting principles Public Sector Procurement Rules Knowledge of your school Collaboration and networking 1. Planning The planning stage is the point at which your school identifies the need for a new good / service or decides to review an existing one. During this stage your school should be reviewing what they need, what options they 2. Purchasing 3. Managing Once a contract is in place, your school will need to actively manage it to ensure you are achieving value for money from the procurement exercise. Depending on the size and complexity of the contract, your school may opt to maintain a relationship with the provider or apply more formal contract management tools such as KPIs (Key Performance Indicators). have for providing the service (provide themselves vs. buy in) and developing a statement of requirements (specification) After the Planning stage, your school will need to follow a process to acquire the good / service from the market. This may involve accessing an existing framework contract or tendering. Depending on the length of contract and annual spend this may require running an OJEU procurement. If staff are affected by the changes then the school may need to consider TUPE implications. What is Procurement?

9. CONTRACTS The importance of contracts When sourcing goods & services there is a need to understand the difference between a good or bad contract and you need to know what to look for BEFORE signing. Once a contract has been signed it is legally binding and very difficult to get out of without financial settlement, so when signing a contract follow the below checklist: Read through all terms and conditions and understand implications Ensure goods / services meet the school’s requirements Ensure purchasing method is in line with Financial Regulations Get a legal team to check contract Does the contract offer value for money – Economical, Efficient, Effective

10. Decision Flowchart: Do the EU Procurement Regulations apply? Is the total contract value (annual value x number of years) more than £156,000? YES - The EU regulations apply Follow the OJEU tendering process Part A - Full EU process (e.g. cleaning and waste) Part B - partial EU process (e.g. catering and education services) NO - The EU regulations don’t apply Follow the standard tendering process 10

11. What should a contract include?  Names of both / all parties  Start date and duration of contract  Product / Specification  Price and how it is calculated  Any additional charges  Location  Who is providing the service  Performance standards / measurement  Complaints / dispute procedures  Notice period  Obligations – maintenance / servicing / response times / quality assurance  Authorisation signature

12. Names of both / all parties Sometimes there may be a lease company involved for the finance element, however it is important that the lease agreement confirms the contractor name as well. Start date and contract duration Most contracts will clearly detail the contract duration, however, very often there is no dated copy of a contract or no start date given. It is important to have this date agreed for termination purposes. If an agreed contract duration is different to the Contractor’s norm, then the terms and conditions will need to be checked and amended. E.g. if a photocopier contract is for 3 years rather than the usual 5 years the terms and conditions will refer to 60 months so this will need to be changed manually before signing to show 36 months.

13. Product / specification Ensure the contract stipulates exactly what the product or service is and, if relevant, a serial number. Ensure that this is checked when the product is delivered / installed that it is as quoted on the documentation. Price and how it is calculated The price should always be quoted on a contract and where finance is arranged, the contract will state how the interest has been calculated. Within the terms and conditions there may be a clause on potential price increases throughout the length of the contract and it will explain how these will be calculated. Some conditions on photocopier contracts have been known to: change invoice frequency to ‘annually in advance’ without warning automatically implement an annual 15% increase in price for payments NOT made by direct debit without a justification charge charge for late payments

14. Any additional charges There may be additional charges with photocopiers; for example: Ink Staples Delivery of ink cartridges Location All contracts should detail the school’s address as the location where the goods will be held or where the service is to be undertaken. Ensure this is correct, however, if the school is considering a new build / BSF, incorporate a transfer element into the contract and establish any additional costs for this transfer in advance. If you do not do this, there could be repercussions where contracts can not re- locate to a new premises and the school will need to buy out of the contract through early termination.

15. Who is providing the service? Ensure the contract states who is providing the service so that you can understand if there are sub-contractors involved or not. You may want CRB checks / financial checks undertaken on all parties involved. Performance standards / measurement Most supplier contract terms and conditions to not allow for performance monitoring and hence you will need to consider if this is relevant to your contract and how you can incorporate this. Complaints / dispute procedures Most terms and conditions should give a route for complaints or disputes. Check this information and if nothing quoted establish the ombudsman for the product or service you can contact and reference on the terms and conditions.

16. Notice period There will be a notice period for terminating the contract detailed in the terms and conditions. If a finance company is involved, they will have their own termination period. Note both earliest notification dates on your contract register and adhere to them. Check for any return costs of the equipment at the end of the agreement. If no notice of termination is given the following outcomes could occur: You automatically re-enter into a continuation of the contract for the same contract period You will have to pay ongoing lease charges even though product paid for only re-negotiate an ongoing maintenance cost if product fit for continued use.

17. Obligations Ensure all obligations are detailed within the contract e.g. Maintenance / annual service arrangements Call out response times Timeliness / frequency of invoices Holiday payment of invoices Signature Ensure the school has a signed and dated copy of the contract for records.

18. Roll-over contracts A roll-over contract is where, for example, a new photocopier is given to a school before the current lease contract has ended – this is classed as an upgrade / change of specification. The school are told the company will settle the balance on the finance but THEY DON’T. Instead it is added to the cost of the new equipment and more interest is added making it an extremely expensive contract! The new charges will be documented in the paperwork from the finance company which will state: Cost of new equipment Balance of cost for old equipment Total cost Interest calculations Quarterly repayment charge

19. Example Current quarterly lease payments for a 5 year agreement (3 years in to contract)£ 140.00 Total value of contract over 5 years (20 payments of £140)£2,800.00 Balance on contract after 3 years(8 payments of £140)£1,120.00 New machine valued at£2,000.00 New contract will be:cost of new machine£2,000.00 balance on old machine£1,120.00 TOTAL£3,120.00 Interest on £3,120.00£ 936.00 TOTAL repayments over next 5 years£4,056.00 Quarterly repayments£ 202.80 IF SEEN CONTRACT THROUGH… 2 years with repayments at £140.00 5 years with repayments for new machine only at (£2,000 + interest @ £600.00)£130.00

20. Contract Management Contract management is the process of administering an agreement / contract through establishing a mutually beneficial relationship between all parties. The purpose of contract management is to ensure the delivery of cost effective (value for money) and reliable services (to a high standard).

21. Pro-active contract management practices Service delivery complies with contract T & C’s Service delivery complies with contract T & C’s Value for money through performance monitoring Potential difficulties identified & alternative strategies devised Costs monitored to ensure remain within budget Communicate constantly Identify improvement opportunitie s Risk Management End of contract summar y on lessons learnt

22. WHEN THINGS GO WRONG… Get all the facts on what is going wrong Check contract to ensure clear on what supplier is contracted to supply/deliver Discuss issues early on with supplier & seek agreement on who is to take what action Agree contingency arrangement to get contract back on track. Funding issue? Identify any deliverables which can be dropped. Evaluate progress of outcomes and change Always work with the supplier to resolve and issue a variation to the contract.

23. What support is available There is a lot of guidance and advice available to help schools procure more efficiently:  www.ogc.gov.uk/contractsdatabase - An easy to use tool to help you find the best public contracts www.ogc.gov.uk/contractsdatabase  OPEN – The DfE’s e-marketplace which gives schools access to the best deals.  www.pro5.org – on here you can find links to the main PSBOs as well as a range of framework user guides www.pro5.org  NASBM – The National Association of School Business Managers support the training and qualification of school purchasing staff.  MSTAR – The DfE’s service to help schools staff find high-quality temporary staff  www.carbontrust.co.uk – The Carbon Trust’s website provides energy saving ideas for schools www.carbontrust.co.uk  www.tesbuywire.co.uk (formerly Schoolquote) – This is a free online marketplace which allows you to collect quotes from suppliers for your specific requirements www.tesbuywire.co.uk  https://sfb.teachernet.gov.uk – This website enables you to benchmark your schools expenditure against that of similar schools https://sfb.teachernet.gov.uk

24. Thank you Any questions?