Develop Commodity/Service Strategy

Commodity Service Strategy v Procurement Strategy 

A commodity/service strategy should not be confused with a Procurement Strategy.

A commodity/service strategy is effectively a purchasing plan for a particular good or service i.e. it documents the your sourcing strategy.

Key components of a commodity/service strategy with the suggested minimum requirements are icluded in the document section below.

 A Procurement Strategy is a mandatory legislative requirement under The Procurement Reform (Scotland) Act 2014.  An organisation must publish a Procurement Strategy where ot estimates  the value of its regulated contracts in a year will the same  or greater than £5 million (excluding VAT). 

Further information on Procurement Strategy requirements can be found in the Additional Resources dropdown.

Main Subject of the Contract

If you procurement includes both goods and services your approach should be determined byu the main subject of the contract. For example if the services/goods subject split is 60%/40% respectively then the entire exercise should be treated as a services procurement exercise.

If your contract consists:

  • partly of services and partly of supplies, or
  • partly of social services (or other specific services listed in schedule 3 to The Public Contracts (Scotland) Regulations 2015) and partly of other services,

then the main subject of the contract is determined by which of the services or supplies has the highest estimated value. 

(Please note: the Procurement Journey does not cover procurements which are works contracts or contracts that include ‘utilitiy’ activities e.g. running tramways.  This includes works/utilities contracts whose elements:

  • cannot be separated or
  • which can be separated but  are the  main subject-matter of the contract).

Care and Support Services

Conflicts of Interest and Fraud

You must consider conflicts of interest and fraud as part of your Commodity/service strategy.  This must be  in line with your Organisation’s own governance procedures.  Also for non commodity/service specific aspects of the procurement exercise in respect of the Procurement Reform (Scotland) Act 2014, the Public Contracts (Scotland) Regulations 2015 and the Procurement (Scotland) Regulations 2016,

You must ensure that you take all appropriate measures to prevent, identify and remedy conflicts of interest.  You must include measures to combat fraud throughout your procurement exercise. 

Strategic Partnerships

Your organisation may seek a long-term strategic partner or partners  e.g. for a period of 10 or 20 years.  This may be to redesign and achieve major changes in service delivery and/or the use of resources.

For example, your organisation may work with a supplier(s) to determine what range of services could be provided within available resources.  This would be instead of tendering for particular services. In this situation, the choice of strategic partner(s) should be transparent and through a competitive process in accordance with the public procurement rules.

Public Social Partnerships (PSPs)

PSPs are strategic partnering arrangements.  These are based on a co-planning approach where the public sector can work with third sector organisations.  In such cases you would share responsibility for designing services based around service user needs.

The Scottish Government published guidance on developing and running Public-Social Partnerships in July 2011.

A PSP typically comprises three stages:

  • third sector organisations work with public purchasers to design a service;
  • a consortium of third sector organisations(which may also involve the public sector) conduct a short-term pilot.  This helps to refine service delivery limitsand maximise community benefits; and
  • if the service is deemed successful, commissioners then consider the most appropriate approach to sustaining the PSP. This could involve a competitive tendering process but other methods of securing service delivery should also be considered.

You should also consider the current and possible future relationships between the Buyer and Supplier.  You should demonstrate how you intend to develop any relationship with a potential supplier going forward.

 

Joint Procurement Exercise

If you are entering a joint procurement exercise with one or more public sector organisations.  you must agree the legal status  and requirements of such an exercise at this stage. 

You organisation may either:

  • agree a “lead” authority at this stage.  Legally, this lead authority will be the organisation responsible for forming the contract with the successful supplier(s), or
  • entera truly “joint” exercise.  This is where the conduct of the procurement is carried out in the joint name(s) of the participating organisations. 

In either of the above cases, the organisations are jointly responsible for ensuring they comply with all relevant procurement legislation.

Sometimes you could consider having only part of the procurement operating as a joint exercise.  In such cases the organisations would be equally responsible for any joint  areas. and retain sole responsibility for their own.

Other practical areas to consider and plan for now include:

  • the responsibility for contract management;
  • how Key Performance Indicators (KPIs) will be managed and communicated and
  • the reporting / communication network that will be needed between organisations and  potential supplier(s)whether a Framework Agreement would be more appropriate than a contract.  If so,  how would the call offs and management of same will be conducted

The Strategic Positioning Action Plan

Having considered the previous points you can identify the position of your commodity/service as either Leverage, Strategic, Routine or Bottleneck. The Strategic Positioning Action Plan provides guidance as to the procurement approach you should adopt in each of these circumstances.

These suggested approaches  provide a starting point on how to proceed with your commodity/service. You must define these further still by looking at your specific commodity/service and the opportunities identified using the Best Value Triangle.


Duty of Best Value in Public Services

Best Value principles are a key component of the public service reform agenda in Scotland, supporting public service organisations. It is a central, enduring foundation for continuous improvement across the public sector.

Best Value Characteristics

There are many characteristics to Best Value that public service organisations are expected to demonstrate.  Some relating to procurement are as follows:

  • Purchase Demand Management
    • Reduce consumption
    • Consolidate spend
    • Improve specification
  • Supply Base Management
    • Restructure relationships
    • Increase competition
    • Restructure supply base
  • Total Cost Management
    • Optimise total supply chain costs
    • Reduce total life cycle / ownership costs
    • Reduce / eliminate transactions
  • Sustainable Procurement
    • Maximise sustainable opportunities
    • The requirements of the of the Climate Change Act where appropriate
    • Consider Fair Work Practices where appropriate

Fair Work Practices

In line with Statutory Guidance before starting your procurement you should consider whether Fair Work Practices are relevant and proportionate.  If so, you should  include a question on Fair Work, to be evaluated along with other relevant criteria. Your question(s) should be informed by an your organisation's policy statement on Living Wage, including Fair Work, and the results of your pre-market engagement.

In relation to Fair Work Practices and in line with the Statutory Guidance, an organisation should consider, before undertaking a procurement exercise, whether it is relevant and proportionate to include a question on Fair Work, to be evaluated along with other relevant criteria. This will be informed by an organisation's policy statement on Living Wage, including Fair Work and the results of pre-market engagement.In relation to Fair Work Practices and in line with the Statutory Guidance, an organisation should consider, before undertaking a procurement exercise, whether it is relevant and proportionate to include a question on Fair Work, to be evaluated along with other relevant criteria. This will be informed by an organisation's policy statement on Living Wage, including Fair Work and the results of pre-market engagement.


SMEs 

Small and Medium Enterprises (SMEs) should have fair access to public sector contracts.It is important that SME inclusion is encouraged, especially as SMEs may have characteristics that give them competitive advantages over larger organisations. These can include:

SME Advantages

  • Better levels of service - relative to large bidders, your business will represent a much larger proportion of an SME’s turnover.  As a result they may value you more as a customer.  You may receive a better and more personal service;
  • Lower overheads – small bidder’ running costs will usually be lower than those associated with larger organisations;
  • Innovative business solutions - potential for taking a new approach to requirements, e.g.  early exploitation of new technology, or providing products or services in new/underdeveloped markets;
  • Greater flexibility – their size lends them to being able to tailor solutions more effectively, e.g. short management chains and approval routes;
  • Specialism – many are set up to cater for niche markets which may better match requirements;
  • Increased competitiveness in the longer term - rather than limiting competition to a few large bidders (who may be familiar with each other’s operations) inclusion of smaller bidders may lead to an increase in competition.

Compliance Issues and Strategies

You should consider how you will ensure compliance to the contract.

Compliance is required from all parties throughout the whole Procurement Journey. Governance arrangements, management and budget holder behaviours  are key to ensuring compliance.

The Components of a Compliance Strategy document should encourage maximum uptake of a new contract. Members of the User Intelligence Group (UIG) should champion the contract.  Commitment from users should be obtained for the proposed strategy options.

Commodity/Service Strategy Options

There will be a number of delivery options which are applicable to any commodity/service. These will vary with the type, size and complexity of the requirement..

In all cases, you should consider a 'Do Nothing' option as a benchmark.

The Commodity/Service Strategy should include a summary of options that clearly details the:

  • benefits,
  • costs and
  • risks

associated with each option.  These should  demonstrates compliance with any legal obligations. This should help the objective selection of the Commodity/Service Strategy to be pursued in the short, medium and long term.

Estimating benefits within a commodity/service area can be obtained from sources such as:

  • benchmarking,
  • market testing,
  • market trends,
  • past discounts and 
  • past experience. 

Identification and assessment of “softer” benefits must be undertaken at this stage.  For exampleCommunity Benefits that could be achieved or other sustainability measures such as carbon use reduction.

Costs to implement sourcing strategies include:

  • contract switching costs,
  • supplier switching costs,
  • manpower investment,
  • communications and roll out and
  • cost of going to tender

The Options Appraisal summarises the various delivery options considering the benefits and risks of each before selecting an option for recommendation.

The recommended option must satisfactorily meet the requirements, be affordable, viable and agreed with the UIG.

Division of Contracts into Lots

You should consider awarding  your contract in separate lots. Division into lots can increase SME participation. 

Where you decide not to award a contract in the form of lots, you must indicate the main reasons for not doing so.  These reasons must be included in the relevant Procurement Documents, or in the procurement exercise written report.

Potential reasons for not subdividing contracts into lots may be:

  • that it would risk restricting competition,
  • it would make contract execution  excessively technically difficult or expensive, or
  • the need to coordinate the different contractors for the lots could seriously risk undermining the proper execution of the contract.

You must  state in the relevant Procurement Documents, whether bids may be submitted for one, for several or for  all lots. Where more than one lot may be awarded to the same bidder contracts may be awarded that combine several or all lots.You must have specified this can happen and include the groups of lots that may be combined.  If you use thisapproach, you must think carefully about how the relevant evaluation matrices will assess all possible scenarios.

You can limit the number of lots that any one bidder can win.  To do so you must state the maximum number of lots per bidder in the relevant Procurement Documents. 

The objective and non-discriminatory criteria your Organisation intends to apply to determine who wins lots must also be listed in the relevant Procurement Documents. This is done where the application of the award criteria would result in one bidder being awarded more lots than the maximum number.

Contract Implementation/Contract and Supplier Management

There are separate stops on the Procurement Journey on Contract Mobilisation and Implementation and Contract and Supplier Management (C&SM).Your approach must be considered during this 'Develop Commodity/Service Strategy' phase.

You must consider how the proposed options will operate throughout the life of the requirement. For example, if you decide to use an existing contract or framework agreement the contract implementation and management will be covered in the framework terms and conditions.  These must be complied with in full.

You must think about how the new goods or services will be introduced into your organisation.  Also how will  you move from your existing arrangements to the new arrangements?

You should also consider your transition or exit strategy for when this new contract or framework agreement comes to an end.

Once fully operational you will manage and develop the contract and supplier(s) to ensure  desired delivered now and in the future.

You must consider the resources required to implement and manage the contract or framework agreement. A designated contract manager must be identified. Additional guidance can be found in the Planning & Governance station.

You should detail the contract and supplier management requirements in the contract or framework agreement terms and conditions.  This will ensure both parties are clear on their contractual obligations. The contract should then be managed in accordance with these terms and conditions.

The level of contract and supplier management required depends on the risk, value and complexity of the contract. You will find guidance to help assess the potential level management of C&SM required in the Contract and Supplier Management / Planning and Governance station.

Generally, "Routine" contracts will require a lower level of management than "Leverage" and "Bottleneck" (medium level), and "Strategic" which will require the highest level.

There may be opportunities for your organisation to make its own internal processes more efficient. Some of the key areas to consider during the procurement process are:

  • Use of PCS-Tender
  • The transactional procurement process: requisitioning, authorising, raising and sending purchase orders, goods receipting and invoicing and payment

Further guidance can be found in the Planning & Governance station.  

 

As with all aspects of the Procurement Journey, the activities at this stage must be carried out in a carefully managed manner that supports the Principles of Procurement.  The processes must be carried out in a transparent way.  This ensures there is no distortion of the market place. 

The procurement outcome cannot unduly favour or disadvantage a particular bidder.  It is your responsibility to make sure these requirements are met.

Useful documents are shown below

Develop Strategy

(file type: doc)

Commodity/Service Tree

(file type: docx)

CSS Service Tree

(file type: docx)

Fair Work Practices

(file type: docx)