Julian Fris, Director at Neller Davies explores the very varied world of the procurement process.
More for less – sound familiar?
Recent market changes have contributed to smaller margins and, in turn, more pressure on the proﬁtability of outsourcing contracts. In the past ten years catering and FM margins have roughly halved; many we see are now less than 5%.
Where do companies turn to? There are few people who can argue that procurement is the ‘go to’ place when looking at ‘smarter’ operations, and the more efficient purchase of goods and services from suppliers.
Most progressive organisations will see procurement as one of their core strategic functions, however, the process itself particularly when it comes down to the old private vs public debate. Whilst there are variants, the public sector essentially operates four models for FM and catering; restricted, negotiated, dialogue and ‘light-touch’. If we take restricted and dialogue models (light-touch only concentrates on contracts up to the value of 186k euros and where there are signiﬁcant levels of income), we can see some real advantages and some signiﬁcant issues.
The restricted model basically involves a client putting a contract notice on OJEU (Official Journal of the European Union) or some other channels, identifying what type of service it requires. Suppliers can then apply directly.
Restricted – best and ﬁnal
The tender they initially submitted is their best and ﬁnal offer and that its. Bids are assessed on a ‘price and quality’ basis and the company which scores highest wins the contract. This sounds pretty straightforward and fair, if you know exactly what you want.
However, what if, during the tender process, you identify some gaps or changes you’d like to make in the brief ? You are not able to change without starting the process again. Furthermore, what if you realise that, during the tender process, the company which scored the highest isn’t the right cultural ﬁt for the organisation it is about to work with? As we know, engagement and relationship are the backbone of a successful service- based industry.
The dialogue based approach is quite different. A so-called descriptive document is distributed through OJEU, organisations will go through a period of discussion and engagement with all stakeholders. This is likely to result in a brief that all parties are engaged with, however, it could take up to around 18 months to ﬁnalise – about double that if restricted.
Restricted is great if you know exactly what you want and have all the back-up data and policies. Dialogue is best for developing strategy but there is a danger that it can be open-ended. The negotiated procedure does give an opportunity for a best and ﬁnal offer and works quite well with catering subsidies but you have to ensure that the process is fair and transparent.
On many public contracts, smaller businesses are at a disadvantage at the pre-qualiﬁcation stage because they have insufficient collateral. This means the bigger players will win every time. SMEs are then relegated to second-tier suppliers. This can’t be good for the market.
The beneﬁts, however, are clear – avoidance of fraud or corruption and strict procedures means that everything is transparent.
In the private sector, the major difference here is that organisations can invite companies they already know of and ask them to bid. The ﬁrst impression is to say that they immediately rule out competition, but the onus is really on suppliers to engage with companies whose cultures match
In a private sector tender process, suppliers or contractors go through a similar pre-qualiﬁcation phase and we will shortlist those who get through to the next round. The difference here is that we can all be ﬂexible.
This can also mean that SMEs are able to be in with a shout of competing as the client may be less risk averse.
More importantly, the companies shortlisted will also be measured on cultural ﬁt throughout the process.
Any cleaning, reception, catering, grounds maintenance business can offer the right algorithm on paper but, as ambassadors for the end client, they will need to share similar values and blend into their environment. The wrong service provider can alienate customers and this naturally has a real impact on the bottom line.
The public sector is strong on process, discipline, governance, and compliance – it has to be. The public demands to know how its money is being spent and rightly so. Many like to buy into the phrase that the ‘private sector is service driven and the public sector is process and cost driven’ – neither are bad and both can improve procurement processes.
So if the question is ‘which’ is better? The answer probably lies somewhere in the middle, or, it really depends on the appetite of the client. The private sector can learn a lot from the discipline of the public sector, however, the public sector can do more to ensure that it opens itself up to more opportunity for competition.