Procurement Annual Report

31 December 2016 to 31 March 2018

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IMAGE: The Orkney Islands Council crest and the words “Orkney Islands Council” appear above the report title.

Contents

• Definition of Key Terms
• Introduction
• Section 1 – Summary of Regulated Procurements Completed
• Section 2 – Review of Regulated Procurement Compliance
• Section 3 – Community Benefit Summary
• Community Benefit Analysis
• Section 4 – Supported Businesses Summary
• Section 5 – Future Regulated Procurements Summary
• Section 6 – Other Information
• Supplier Development
• Collaboration and Partnering Opportunities
• Table 1 – 1 April 2016 to 31 March 2017
• Table 2 – 1 April 2017 to 31 March 2018
• Procurement Annual Spend Data
• Procurement Spend – National Context
• Climate Change Duties and Bio-Diversity
• Appendix 1
• Summary of Regulated Procurement carried out 31 December 2016 to 31 March 2018
• Appendix 2
• Procurement Service Improvement Action Plan 2016 to 2018
• Appendix 3
• Forward Plan for Regulated and Unregulated Procurements

Definition of Key Terms

Introduction

Orkney Islands Council (‘the Council’), providing a range of facilities and services to a community with a population in excess of 21,400 (2011 census population figures) and growing. The Council is also the Harbour Authority with a port estate of 29 piers and harbours, a Roads Authority for the islands and operates a network of internal air and ferry services.

The Council provides procurement and related services for a wide range of Works, Supplies and Services with an annual spend, for the financial years 2016 to 2017 and 2017 to 2018, of just under £41 million and £44 million respectively.

The Council operates a devolved model of procurement across five directorates. The central Procurement Services Team is based within Corporate Services and consists of three full-time equivalent staff; a Procurement Manager, a Procurement Officer and an Assistant Procurement Officer. The Procurement Manager’s responsibilities include development of a network of 22 trained and experienced Officers across the Council who are assigned delegated responsibility for the procurement of supplies, services and works.

The Council published its Procurement Strategy, as required by the Procurement Reform (Scotland) Act 2014, in December 2016. In order to report compliance with its Procurement Strategy and the Act itself, the Council must publish an Annual report.

There are 11 themes identified in the Procurement Strategy for the period ending 31 March 2018 as follows:

• Sustainability.
• Working with suppliers.
• Value for money.
• Collaboration and partnering.
• Governance.
• Contract management.
• Communication.
• E-Procurement.
• Monitoring and measurement.
• Guidance.
• Training.

The six key priority areas where targets have been identified and are attributable for the Procurement Strategy reporting period ending 31 March 2018 are as follows:

• Sustainability.
• Working with suppliers.
• Value for money.
• Collaboration and partnering.
• Contract management.
• E-Procurement.

The guidance and template issued by the Scottish Government to report on our performance from 2017 to 2018 onwards has been used for this first Annual Procurement Report. The reporting period for this first annual report is from 31 December 2016 to 31 March 2018.

In addition to the required information set out in the Act, this report includes performance against a number of strategic indicators as detailed in the Council’s Procurement Strategy 2016 to 2018.

In order to evidence our progress against our strategic targets and the new duties introduced by the Act, the published Annual Report details the form of measurement taken. The statistics presented in this report provide the evidence which should, over time, show how the Council is progressing against both the national and local objectives. Targets were set in the Council’s Procurement Strategy and progress towards these has been noted in this first Procurement Annual Report.

Section 1 – Summary of Regulated Procurements Completed

Section 18(2) of the Procurement Reform (Scotland) Act 2014 requires organisations to include ‘a summary of the regulated procurements that have been completed during the year covered by the report’.

As defined by the Procurement Reform (Scotland) Act 2014 and referred to as the Reform Act ‘slice’ a regulated procurement for Goods or Services Contracts with a value of over £50,000 and for Works Contracts over £2,000,000 and less than the relevant OJEU Thresholds.

A regulated procurement is completed when the award notice is published or where the procurement process otherwise comes to an end. This includes contracts and framework agreements.

Appendix 1 provides the breakdown of the 55 regulated procurements completed for the reporting period of 1 January 2017 to 31 March 2018.

Section 2 – Review of Regulated Procurement Compliance

All procurement carried out by the Council are required to be carried out in accordance with the Council’s Contract Standing Orders (CSOs) and this is regularly updated to take account of changes in legislation and best practice in procurement. The last update was agreed in March 2018.

Prior to the point of contract award, all recommendation reports are required to include a statement that the CSOs have been complied with, therefore full compliance is anticipated. Examples of internal and external review of the Council’s processes and compliance with these processes are detailed in the audit / improvement capability outcomes as follows:

The Council completed Scotland Excel’s Procurement Improvement Capability Programme (PCIP) in July 2017. The PCIP is undertaken every two years and a second PCIP assessment for the Council is due to take place in March 2019.

The objective of the PCIP is to assist the Council to improve its structure, capability, processes and ultimately performance by attaining a level of a procurement performance that is appropriate to the scale and complexity of its business. As part of the PCIP the Council is required to demonstrate a prudent and well-planned approach to defining its supply needs. Assessment of the Council’s procurement improvement capability is carried out every two years by Scotland’s Centre of Expertise Scotland Excel and covers procurement activities carried out by the Council’s Officers with Delegated Authority in the Procurement, Capital Projects, Facilities and Engineering Teams.

Key areas of strength identified

1. Procurement has an increasingly high profile in the Council.
2. The improvements in procurement are beginning to deliver results.
3. Some good examples of strategic analysis in developing tenders.

Key opportunities for improvement

1. Consider how the flexible framework is used to support sustainable procurement. Progress to Date: New Sustainable Procurement Policy published in March 2018 following a public consultation.
2. Ensure the Council has the right skills, support and resources for procurement in the future. Progress to Date: Officers signposted to the Scottish Government’s Procurement Journey and the Procurement Manual for Officers with Delegated Procurement Authority reviewed and updated.
3. Ensure that the recently developed conflict of interest policy is embedded into Council practice. Progress to Date: Included in the latest update of the Procurement Manual and documentation circulated to relevant Officers and senior management via internal communications.
4. Prioritise contract coverage, maverick spend and contract and supplier management. Progress to Date: Internal contracts register data collation continuously improved and the Change Programme Procurement Review (CR02) underway to achieve savings and on-contract spend.
5. Ensure implementation and exit strategies are embedded into procurement processes and practices in the pre-tender stage. Progress to Date: Procurement Manual reviewed and updated to include sections and guidance for Officers with Delegated Procurement Authority.

An internal audit was carried out in 2016 / 2017 with a final report issued in September 2017 which reviewed procurement activities in the Council in the light of the new regulations. The review was very positive in general with recommendations all of medium priority which included completion of the review of the Sustainable Procurement Policy, the Procurement Manual, the Council’s Standard Terms and Conditions, referencing updates within the Council’s Financial Regulations in line with the Council’s CSOs and to instigate a process for review of access rights for the Officers with Delegated Procurement Authority. All of the recommendations have been implemented.

The Council’s CSOs were updated, revised and published in June 2016 to include the provisions of the Procurement Reform (Scotland) Act 2014 and the Procurement Scotland Regulations 2016. The CSOs were also updated to include recommendations of an internal audit on procurement at the Council. The CSOs were approved by General Meeting of the Council 5 July 2016 and have been updated further in October 2017 and March 2018 respectively to reflect an additional procedure to ensure that there is documentation to evidence that there are no conflicts of interests for evaluation team member and to update the EU Threshold for procurement. Changes to the CSOs were highlighted to Senior Managers and key procurement staff and within the organisation by way of the Procurement Services Bulletin.

The Council’s Procurement Strategy 2016 to 2018 was published in December 2016. A revised and updated version is due to be published in December 2018 for the following two years and three-month period to 31 March 2021. This will bring the Procurement Strategy in line with the ongoing annual reporting requirements.

Appendix 2 attached to this report is the Procurement Service Improvement Action Plan contains the Procurement Strategy targets set and progress made over the last two financial years.

Section 3 – Community Benefit Summary

The Council has a Sustainable Procurement Policy in place and this policy sets out the general principles that the Council will follow across all its procurement and commissioning activities to ensure that it is undertaken in a sustainable manner.

It sets out how the Council will plan and manage its procurement activities to meet the Council’s corporate aims and objectives and comply with regulatory and legislative requirements.

This policy supports the commitment to sustainable procurement which is set out in the Council’s Corporate Procurement Strategy 2016 to 2018: http://www.orkney.gov.uk/Service-Directory/P/procurement-strategy-2016-to￾2018.htm.

It is intended for all of those who are involved in, or affected by, the Council’s procurement activities throughout our community and beyond.

The Council spends tens of millions of pounds each year on a diverse range of goods, services and works from third parties. It is important therefore that this spending power is used to support key Council objectives. The sustainable procurement policy has been developed to help the Council to meet its legal duties and to deliver its key strategic objectives available at the link below: http://www.orkney.gov.uk/Files/Business-and￾Trade/Sustainable_Procurement_Policy.pdf.

Sustainable procurement supports the Council’s values, as outlined in Orkney Islands Council’s Delivery Plan 2015 to 2018 (Our Plan): http://www.orkney.gov.uk/Files/Council/Council￾Plans/OIC_Delivery_Plan_2015_2018.pdf.

And more recently in the Council Plan 2018 to 2023: http://www.orkney.gov.uk/Council/C/corporate-strategic-plan-2018-2023.htm.

Our VALUES are our beliefs and our principles. These are a guide for what is right and for how we should conduct the work that we do.

• Promoting Survival: To support our communities.
• Promoting sustainability: To make sure economic, environmental and social factors are balanced.
• Promoting equality and fairness: To encourage services to provide equal opportunities for everyone.
• Working Together: To overcome issues more effectively through partnership working.
• Working with communities: To involve community councils, community groups, voluntary groups and individuals in the process.
• Working to provide better services: To improve the planning and delivery of services.

The Sustainable Procurement Policy outlines how sustainable procurement supports and contributes to the implementation of the Council’s Delivery Plan 2015 to 2018.

Community benefits must be considered for all procurement processes at or above £4 million in value to meet the Council’s requirement to meet the sustainable procurement duty. For each individual regulated procurement exercises Officers with Delegated Procurement Authority must complete a Commodity Strategy for all Regulated Procurements which includes a section on Community Benefits to be considered where applicable.

During the reporting period covered by this Procurement Annual Report two procurements where Community Benefits have been included have been carried out by the Council and completed within this timeframe, and are as follows:

A summary of the Community Benefits included in the award criteria for the procurements included within the reporting period, and those in procurements that are not concluded yet, are as follows:

• Employment (skills and training, small or medium-sized enterprises (SMEs) / social enterprises / supported businesses).
• Fair Work Practices.

In the instance of the provision of Personalised Care and Support Services contracts resulting from the framework agreement, reporting of community benefits achieved are contained within quarterly contract management meetings for each individual contract. Contracts are as awarded throughout the life of the framework and will vary according to each contract where relevant.

For the Stromness Care Home construction project, contract management meetings are held on a regular basis with the Contractor. Progress made towards the targets set for the Stromness Care Home are recorded at each monthly meeting.

The following factors are routinely taken into consideration in relevant procurements, in particular, in construction or social care procurement, however these may not always be specifically labelled as a Community Benefit Award Criteria:

• Climate change (carbon and energy consumption, carbon in production, adaption, carbon in vehicle emissions).
• Materials (scarcity, security).
• Waste (production, reuse / recondition / remanufacture).
• Hazardous materials / emissions.
• Bio-diversity (protection and enhancement).
• Heritage (protection and enhancement).
• Water (consumption and production).
• Employment (skills and training, SMEs / social enterprises / supported businesses).
• Communities.
• Fair and ethical trading (working conditions, conflict materials).
• Equality (protected characteristics).

There has been an increase in the inclusion of Community Benefit Clauses over the past two financial years as recorded in the Procurement Strategy Improvement Plan as attached at Appendix 2.

Following the legislative changes, and as recorded for the previous two financial years on the Council’s On-Contract Spend Register, there have been a total of six procurements undertaken in the 2017 / 2018 reporting period where Community Benefit Clauses have been part of the award criteria.

For procurement of Category C Contracts which are undertaken by the Council it is now routine for Community Benefits to be included as part of the award criteria where the value of the contract is over £4 million. For three of the above construction related contracts recorded for 2017 / 2018 period the value of the contracts was substantially less than £4 million.

Where the Council can access Category A or Category B contracts via Framework Agreements the overall anticipated value of the Framework is inevitably of a high value and likely to be over the £4 million threshold for the inclusion of community benefits. Contracts awarded under Framework Agreements are likely to achieve Community Benefits. However, for contracts awarded via a Framework Agreement it is more difficult to identify Community Benefits which will be realised locally, except where the local supply chain is involved in the delivery of the Contract.

Community Benefit Analysis

Section 4 – Supported Businesses Summary

The Procurement Reform (Scotland) Act 2014 includes a new classification for supported business: ‘an economic operator whose main aim is the social and professional integration of disabled or disadvantaged persons and where at least 30% of the employees of the economic operator are disabled or disadvantaged’. Public organisations can reserve the right to participate in procurement for the award of a public contract / framework to a supported business.

Although there is no contract in place following a procurement exercise, a grant funding agreement arrangement is in place with a locally based Supported Business, Restart Orkney. Restart Orkney supply furniture to people who have moved into permanent accommodation following an application for housing when meeting the criteria for homelessness. Orkney Soap, a subsidiary of Cope Ltd, has been supplying liquid soap for use in Council establishments for a number of years, unfortunately the Orkney outlet has now closed [August 2018] following a period of uncertainty.

The classification change in 2016 expanded the potential for more businesses to be included in this category however the Council’s contract activity for last year did not provide an opportunity to carry out such an exercise.

Section 5 – Future Regulated Procurements Summary

The Procurement team has worked with Executive Directors to develop a forward procurement plans for their service areas. These plans identify the Council’s anticipated procurement activity for the coming year for Category C and C1 procurement (excluding Category A and B activity).

The Act has extended this timeframe to two years and Appendix 2 includes information regarding anticipated Regulated Procurements for that period. As referenced in the introduction above, this report includes information on all procurement activity and this is included in the Forward Plan, i.e. it also covers ‘non-regulated’ procurement.

See Appendix 3 for the Council’s Forward Plan.

Section 6 – Other Information

Supplier Development

A Meet the Buyer event has been held annually for the last two years with a third event planned for 10 October 2018. The events are organised by the Councils’ Procurement Team together with service colleagues and Business Gateway.

Scotland Excel and the Supplier Development Programme have presented to the events in 2016 and 2017 and have also been involved in helping local firms do business better with the Council. The events have been attended by 40 to 50 individuals on both occasions and have been well received.

The following commitments have been made as part of the Council’s Procurement Improvement Action Plan:

• To increase attendance at ‘meet the buyer’ or equivalent events to cover areas of concern, engage with local suppliers and advice on how to become a supplier to the Council. Encourage main contractors to engage with SMEs through the inclusion of Community Benefit clauses.
• Encourage suppliers to the Council to access support available to businesses, via Business Gateway Orkney and the Supplier Development Programme.

Collaboration and Partnering Opportunities

In accordance with the Council’s Procurement Strategy there is a Council Commitment regarding collaboration and partnering. It is recognised that greater efficiencies can be achieved by improved collaboration between different organisations within the public sector with similar requirements, whether within the local government sector or in other areas of the public sector, such as the Scottish Government, the Crown Commercial Service, Non-Departmental Public Bodies and the National Health Service (NHS).

Collaboration maximises the value of procurement whether it be through aggregation of demand or through the sharing of resources to reduce administration. Framework Agreements are noted as either a Category A Contract, Category B Contract or Category C1 for local collaborative contracts in place. The Council’s use of these are noted in tables 1 and 2 below.

The Council’s internal contract register lists all purchases for works, services and supplies known to have a contract in place. This register does not include ad hoc purchases for values typically under the £10,000 minimum threshold as noted in the Council’s CSOs. There are exceptions to this rule where the nature or complexity of the contract does warrant a contract in place, for example, IT licensing agreements, cleaning contracts etc.

In total there are 326 live contracts listed in the Council’s contract register for the year 1 April 2016 to 31 March 2017 and 386 for the year 1 April 2017 to 31 March 2018.

Tables 1 and 2 highlight the summary of all live contracts as recorded on the Council’s Contract Register by category for the previous two complete financial years and a corresponding split between Services, Supplies and Works.

Table 1 – 1 April 2016 to 31 March 2017

Table 2 – 1 April 2017 to 31 March 2018

Procurement Annual Spend Data

The Council is required by the Scottish Government to input its annual spend data to the Procurement Hub which records all purchasing transactions made by the Council for each financial year. The information is processed and released back to the Council for the purposes of analysis and forward planning.

The following table provides a summary of key data for the Council spend data for the past three financial years.

Procurement Spend – National Context

The Council has the second highest value (39%) for total procurement spend on local small / medium enterprises (Figure 2), in comparison to the whole of Scotland for the reporting period 2016 to 2017. Orkney’s local procurement spend is almost twice the national average of 20% (Figure 1).

Please note that the figures referred to in the section are the percentages of the Council’s spend on local SMEs which is a different data set to the figures recorded for percentage of SME Spend and percentage of Local Spend in the table above.

IMAGE: Figure 1 compares procurement spent on local small / medium enterprises in Orkney Islands and Scotland in 2016 to 2017: Orkney Islands 39%; Scotland 20%. Source: www.improvementservice.org.uk, accessed 02 August 2018.

IMAGE: Figure 2 is a bar chart showing the percentage of Council procurement spent on local small / medium enterprises by Scottish local authority in 2016 to 2017. Orkney Islands is highlighted at 39%, Scotland is marked at 20%, and the other authorities range from approximately 6% to 41%.

Climate Change Duties and Bio-Diversity

The Climate Change (Scotland) Act 2009 places ‘Climate Change Duties’ on public bodies, which require them to:

• Contribute to national carbon emissions reduction targets.
• Contribute to climate change adaptation.
• To do this sustainably.

All public bodies are required to report annually to the Sustainable Scotland Network at the Edinburgh Centre for Carbon Innovation, setting out what they are doing to fulfil their Climate Change Duties (CCD). The Council is currently preparing its CCD report for 2017 to 2018 which is due to be submitted by November 2018.

Part 1 of the Nature Conservation (Scotland) Act 2004 places a ‘Biodiversity Duty’ on public bodies, requiring them to ‘further the conservation of biodiversity’ when carrying out their functions.

The Council is a member of the Orkney Local Biodiversity Action Plan Steering Group and helps prepare and implement the Orkney Local Biodiversity Action Plan (LBAP). Consultation has recently closed on a new draft Orkney LBAP which will cover the period 2018 to 2022. Once approved by the Council, the LBAP will be accessible from the Council’s website at www.orkney.gov.uk.

Appendix 1

Summary of Regulated Procurement carried out 31 December 2016 to 31 March 2018

Appendix 2

Procurement Service Improvement Action Plan 2016 to 2018

1. Sustainability

The Council is conscious that its procurement decisions must take account of the social, economic and environmental impact it has on the people and communities of Orkney and elsewhere.

BRAG indicators:

• Blue – Complete.
• Amber – At risk of not delivering to the timescale.
• Red – Overdue or will be late.
• Green – On track.

2. Working with suppliers

The Council recognises that there is a popular view amongst suppliers and contractors, and particularly amongst SMEs, that Councils are difficult to do business with and that communications are often poor.

3. Value for money

Section 1, Local Government in Scotland Act 2003 places a statutory duty on the Council to secure best value. Procurement activities which deliver value for money will contribute to the achievement of value for money.

Best Value is continuous improvement in the performance of the Council’s functions. In accordance with Best Value principles all proposed and current services arrangements shall be subject to review and option appraisal.

The aim of Council procurement must be the achievement of value for money (the optimum combination of whole life cost and quality) for the Council.

4. Collaboration and partnering

Greater efficiencies can be achieved by improved collaboration between different organisations within the public sector with similar requirements, whether within the local government sector or in other areas of the public sector, such as the Scottish Government, the Crown Commercial Service, Non-Departmental Public Bodies and the NHS. Collaboration maximise the value of procurement whether it be through aggregation of demand or through the sharing of resources to reduce administration.

5. Governance

The Council currently has a highly devolved procurement structure with the majority of services still carrying out a sizeable procurement role. The culture of compliance with the Councils governance arrangements is difficult to manage. The Council expects that all possible attention is given to the issue of accountability and governance in the area of procurement.

6. Contract Management

Active contract management is increasing across the Council with segmentation used to identify high value / high risk contracts to ensure targeting of staff resources to develop and apply a contract management plan at the implementation stage following contract award.

7. Communication

It is recognised that, key to the successful implementation of any new procurement processes or policy, there has to be an understanding amongst all stakeholders of the reasons behind such actions.

8. E-Procurement

The Council has yet to implement a process for the replacement of all paper-based purchase ordering systems with a modern e Procurement system and where appropriate with corporate purchasing cards.

9. Monitoring and measurement

Performance measurement within the Council has developed significantly in recent years. In order to measure improvement in effectiveness and efficiency it is important that an agreed set of standard indicators are adopted. The methods of monitoring and measuring procurement performance are required to be proportionate to the scale and complexity of the Council’s procurement activities.

10. Guidance

An important aspect of the role of the procurement function is to provide guidance and advice to both Council services and to all stakeholders.

11. Training

The Council recognises that training and development are essential to an effective procurement function and that this is a key element of the McClelland Review and the ongoing Procurement Capability Assessments.

Appendix 3

Forward Plan for Regulated and Unregulated Procurements

Anticipated Long Term Capital Projects