Procurement Annual Report

1 April 2019 to 31 March 2020.

IMAGE: The Orkney Islands Council crest and name appear above the report title.

Contents

• Introduction — 6
• Section 1 – Summary of Regulated Procurements Completed — 7
• Section 2 – Review of Regulated Procurement Compliance — 7
  • Procurement Improvement Capability Programme (PCIP) — 7
  • Internal Audit — 8
  • Contract Standing Orders — 8
  • Procurement Strategy — 9
• Section 3 – Community Benefit Summary — 9
• Section 4 – Supported Businesses Summary — 12
• Section 5 – Future Regulated Procurements Summary — 12
• Section 6 – Other Information — 13
  • Supplier Development — 13
  • Collaboration and Partnering Opportunities — 13
  • Procurement Annual Spend Data — 16
  • Procurement Spend – National Context — 18
  • Climate Change Duties — 19
  • Biodiversity Duty — 19

Definition of Key Terms

Introduction

Orkney Islands Council (‘the Council’), provides a range of facilities and services to a community with a population estimated as 22,190 in mid-2018 by the Office of National Statistics. 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 year 2019 to 2020, of over £45 million.

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 18 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 (‘the Act’), in January 2019. In order to report compliance with its Procurement Strategy and the Act itself, the Council must publish an annual report.

There are 11 key priorities identified in the Procurement Strategy 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 2020 remain the same as for the previous year and 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 third Annual Procurement Report.

The reporting period for this third annual report is from 1 April 2019 to 31 March 2020.

In addition to the required information set out in the Act, this report includes performance against several strategic indicators as detailed in the Council’s Procurement Strategy 2019 to 2021.

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 second Procurement Annual Report.

Section 1 – Summary of Regulated Procurements Completed

Section 18(2) of the Act 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 Act and referred to as the Reform Act ‘slice’ a regulated procurement is 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 44 regulated procurements completed for the reporting period of 1 April 2019 to 31 March 2020.

Section 2 – Review of Regulated Procurement Compliance

All procurement exercises 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.

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:

Procurement Improvement Capability Programme (PCIP)

The Council first completed Scotland Excel’s PCIP in July 2017. The PCIP is undertaken every two years and a second PCIP assessment for the Council took place on 3 September 2019. Outcomes and recommendations from this exercise are incorporated as a process of ongoing procurement improvement.

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.

Internal Audit

An internal audit of procurement 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.

There has been no further audit of procurement carried out in the reporting year of 2019 to 2020, however an internal audit of contract management is currently underway and the outcome of this will be reflected in the Procurement Annual Report for the reporting period 2020 to 2021.

Contract Standing Orders

The Council’s CSOs were significantly updated, revised and published in June 2016 to include the provisions of the Act 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.

Since then they have been updated 3 times. In October 2017 and March 2018 respectively to reflect an additional procedure to ensure there is documentation to evidence that there are no conflicts of interests for evaluation team member and to update the EU Threshold for procurement, and then in January 2020 which included the new EU thresholds and included an update on new procurement procedures in use by the Council.

Changes to the CSOs are highlighted to Senior Managers and key procurement staff and within the organisation by way of the Procurement Services Bulletin.

Procurement Strategy

The Council’s current Procurement Strategy was published in January 2019 for the following two years and three-month period to 31 March 2021. This version brings 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 financial year.

Section 3 – Community Benefit Summary

The Council has a Sustainable Procurement Policy. 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.

This Policy also 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. Finally, the policy supports the Council’s commitment to sustainable procurement which is set out in the Council’s Corporate Procurement Strategy 2019 to 2021:

https://www.orkney.gov.uk/Service-Directory/P/procurement-strategy-2019-to-2021.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:

https://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 Plan 2018 to 2023 and the Council’s Delivery Plan 2018 to 2023:

https://www.orkney.gov.uk/Council/C/corporate-strategic-plan-2018-2023.htm

https://www.orkney.gov.uk/Files/Council/Council-Plans/OIC_Delivery_Plan_2018_2023.pdf

The Strategic Themes identified are as follows:

• Connected Communities.
• Caring Communities.
• Thriving Communities.
• Enterprising Communities.
• Quality of Life.

The Policy outlines how sustainable procurement supports and contributes to the implementation of the Council’s Delivery Plan 2018 to 2023.

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 exercise, 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 there have been three procurements, where Community Benefits for procurements with a contract value over the £4,000,000 threshold, have been included and have been carried out by the Council.

These Procurements are as follows, and have either been completed or remain ongoing with the reporting period for this annual report:

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.

Monitoring of Community Benefits for exercises before this year have continued as planned.

In the instance of the provision of Personalised Care and Support Services contracts resulting from the framework agreement (awarded 13 February 2017), reporting of community benefits achieved are contained within quarterly contract management meetings for each individual contract. Contracts are awarded throughout the life of the framework and will vary according to each contract where relevant.

For the Stromness Care Home construction project (awarded 8 September 2017) contract management meetings were 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.

For the two new Tugboats sea and shore staff will be trained in the use of new equipment and maintenance prior and following the vessels being delivered to Orkney waters. There is also a requirement for the knowledge of modern technology to effectively be passed on to increase the knowledge base of local suppliers. This will be necessary due to the requirement for a higher level of shore side backup for these vessels.

The following factors are routinely taken into consideration in relevant procurements, especially 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 financial year as recorded in the Procurement Strategy Improvement Plan, 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 nine procurements undertaken since 2016 to end of March 2020 reporting period where Community Benefit Clauses have been part of the award criteria.

For procurement of Category C (local contract / framework including local collaborative framework agreements) 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.

Where the Council can access Category A (national collaborative) contracts or Category B (sectoral collaborative) 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.

Section 4 – Supported Businesses Summary

The Act (http://www.legislation.gov.uk/asp/2014/12/section/18) included a new classification for supported business, and defined a supported business as ‘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.

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

Section 5 – Future Regulated Procurements Summary

The Procurement team has worked with Executive Directors across the Council 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 four years. Given the Covid-19 pandemic there has not been a Meet the Buyer event organised for 2020/21 however contract specific market engagement events will take place in a format compatible with Coronavirus restrictions in place at the time where required and on a case by case basis. The events are organised by the Councils’ Procurement Team together with service colleagues and the Business Gateway.

Scotland Excel have presented in person to the last three Meet the Buyer events, similarly the Supplier Development Programme has been active in providing support to contractors and actively involved in helping local firms do business better with the Council. The events have attracted between 10 and 50 individuals over the last four 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 or a Category B Contract or Category C1 for local collaborative contracts in place. The Council’s use of these is shown in the tables 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 426 live contracts listed in the Council’s contract for the year 1 April 2019 to 31 March 2020.

Tables 1, 2, 3 and 4 below summarise all live contracts as recorded on the Council’s Contract Register by category for the previous three 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

Table 3 – 1 April 2018 to 31 March 2019

Table 4 – 1 April 2019 to 31 March 2020

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 five financial years.

Key to categories in Procurement Annual Spend table:

• Total Spend - the total amount of spend for the 19/20 year.
• Input Suppliers - The number of suppliers, before de-duplication.
• De-duplicated Total Suppliers - The number of unique suppliers.
• Duplicate Suppliers - The number of suppliers which are duplicates of another supplier.
• Transactions - The total number of transactions.
• Avg. spend per supplier - The average spend per unique supplier.
• Core Trade Spend - Core Trade is a sub-set of your supply base that includes all Trade Suppliers and Social Care Provider with whom you have spent £1,000 or more in the financial year.
• SME Supplier - Small and Medium sized businesses where the supplier has less than 249 employees or where the annual revenue is less than £22.8m.
• SME Spend - Spend with SME as a percentage of Core Trade Spend.
• Local Suppliers – Spend with suppliers within the same local authority area as your organisation (based on Postcodes).
• Local Spend – Spend with local suppliers as a percentage of Core Trade Spend.

Procurement Spend – National Context

The Council has the third highest value (48%) in comparison to the whole of Scotland for the reporting period 2018 to 2019, for total procurement spend on local SMEs (Figure 2).

Orkney’s procurement spend on local SMEs is 19% above the “all Scotland” national average of 29% (Figure 1).

Please note that the figures referred to in this 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.

It should be noted that this information is sourced from the Local Government Benchmarking data sets and are the 2018 to 2019 figures. These are the most up to date statistics available to illustrate the national context.

What percentage of my council’s procurement is spent on local enterprises?

Figure 1: Percentage of Council Procurement spent on local SMEs 2018 to 2019. Source: www.improvementservice.org.uk, accessed 27 October 2020.

IMAGE: A comparison for 2018–19 shows Orkney Islands at 48% of procurement spend on local SMEs and Scotland at 29%.

Figure 2: Percentage of Council Procurement spent on local SMEs – Scottish Local Authorities 2018 to 2019. Source: as above.

IMAGE: A bar chart titled “What percentage of my councils' procurement is spent on local enterprises?” compares Scottish local authorities for 2018–19. The bars range from approximately 48% for Shetland Islands and 47% for Orkney Islands down to approximately 9% for East Renfrewshire; Orkney Islands is highlighted among the authorities.

Climate Change Duties

The Climate Change (Scotland) Act 2009 places ‘Climate Change Duties’ (CCD) 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 CCD.

The Council is currently preparing its CCD report for 2019 to 2020 which is due to be submitted by November 2020. Copies of previous CCD reports may be accessed at https://sustainablescotlandnetwork.org/reports/orkney-islands-council.

Biodiversity Duty

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. Local authorities are well placed to deliver biodiversity conservation; as land managers and planning authorities, they can have a significant positive impact on biodiversity protection, as well as identifying opportunities for enhancement. Across a range of functions there are also opportunities for education, community engagement, sustainable resource management, projects and initiatives which can deliver significant benefits for biodiversity.

The Wildlife and Natural Environment (Scotland) Act 2011 requires public bodies in Scotland to provide a publicly available report, every three years, describing the actions which they have taken to meet their Biodiversity Duty. Orkney Islands Council has already published Biodiversity Duty reports in 2014 and 2017 and these are available on the Council’s website at https://www.orkney.gov.uk/Service-Directory/B/Biodiversity.htm. The next report, covering the period 2018-2020, is due for completion in December 2020.

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). First published in 2002 then revised in 2008, 2013 and 2018, the LBAP identifies actions which can be taken locally, and which will contribute to the conservation of those species and habitats identified as being ‘at risk’ or ‘threatened’ in the UK. All four versions of the LBAP are available on the Council’s website at https://www.orkney.gov.uk/Service-Directory/B/Biodiversity.htm.

Appendix 1

Summary of Regulated Procurement carried out 1 April 2019 to 31 March 2020

Appendix 2

Procurement Service Improvement Action Plan 2019 to 2020

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.

Indicators: 1. Sustainability

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.

Indicators: 2. Working with Suppliers

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.

Indicators: 3. Value for money

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.

Indicators: 4. Collaboration and partnering

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.

Indicators: 6. Contract management

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.

Indicators: 8. E-Procurement

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 April 2020 to March 2022

Anticipated Long Term Capital Projects