Further submission from Eastern Shires Purchasing Organisation

Follow up note to oral evidence provided by ESPO 4th November

‘What is ESPOs estimate of the scale of savings potentially deliverable through improved collaboration in procurement?’

Preamble

As the committee may be aware there have been a number of empirical and qualitative studies on the subject matter of collaboration and savings potential pan public sector. The common conclusions are often the recognition of variability in potential across expenditure categories, the relative ‘starting positions’ across local government and the willingness/fitness for purpose of collaboration in a range of circumstances all impacting the assessment.

ESPO believes that as well as the typical understanding of the term ‘savings’  as an improved price point via collaboration, it is important to recognise the broader, sometimes hidden costs. These include the cost of undertaking procurement itself, the value of enhanced management information to guide strategic decision making and the cost avoidance that is associated with costs of poor procurement.

As a result of this complex context ESPO deliberately does not make a ‘savings promise’ such as a return for every pound spent through its procurement solutions. Instead the demonstration of value is in positive engagement with local government to understand opportunity and act as a delivery agent for realising it. The case study below is an example of this approach which has delivered a saving of circa 4% on a major area of LG expenditure.

Case Study: A National Framework for Temporary Staff (MSTAR)

Background

In April 2011 an ESPO led Pro5 framework agreement for the supply chain management for the provision of temporary (agency) labour was established by ESPO as a replacement for a previous localised contract. The contract was let to cover a four year period.

One of the drivers was that the Local Government Professional Services Group (LGPSG) had been tasked with exploring best practices and identifying and establishing procurement solutions in this market. The LGPSG identified the need for a national framework for temporary staffing to be established by local government for local government. Pro5 were asked to run such a procurement exercise and through consultation with our Pro5 partners, ESPO agreed to lead the procurement exercise.

The key drivers for establishing the new framework were:

The Department for Education (DfE) was also exploring the potential for reducing significant spend in the Education staffing arena. Schools had similar pressures to local government and the wider public sector in facing budget cuts, whilst being expected to deliver services; coupled with the essential requirement to ensure the safeguarding of children.  The DfE was very keen to join this collaborative process and wished to include its requirements into the overall solution. 

An extensive procurement project followed with emphasis on aspects which were identified as being key: project management, collaboration/consultation, and communication. The project was completed over a period of 12 months and a framework established with 11 suppliers covering 6 lots offering neutral and master vendor solutions. The framework is known as MSTAR (Managed Services for Temporary Agency Resources).

ESPO has established and continues to undertake a robust framework management programme. Regular supplier and customer engagement activities are carried out and management information is captured and presented to stakeholders on a quarterly basis via e-mail newsletters and the Local Government Association Knowledge Hub.

Savings

Under the MSTAR framework there is a wide selection of management information received from suppliers. This covers the core elements relating to contract spend and savings achieved as a result of paying lower agency margins, and also the finer details ranging from invoice accuracy to hours processed against each job category. The data reuirement arose from the initial MSTAR tender, where ESPO engaged with its stakeholders to establish what information would be useful and required by the parties.

Management information is received from suppliers on a quarterly basis, against the financial year, and ESPO then collate and analyse this information by way of contract management. Based on the management information received, the collective spend across all customers is already £434.8m and the collective savings are £19.9m. This information covers the life of the framework to date (April 2011 to October 2013).
 

Figure 1 – quarterly client expenditure & savings on mark up over pay

 

 

 

 

 

 

 

 

 

 

 

 

Additional Benefits

As well as delivering significant cashable savings there are other benefits that come from a national, collaborative framework established ‘by the sector, for the sector’:

     Reducing duplication of effort involved in running separate OJEU procurement processes, all timely and costly administration processes

     Improving control and safeguarding and increasing provision and transparency of management information to enable visibility over working practices and a strategic view of expenditure

     Encouraging supply chains to engage with the SME community recognising Government’s desire to see SMEs and local businesses play a significant role in public sector service delivery

     Easy, efficient and swift temporary workers recruitment process

     Enabling sharing of commercial knowledge, including supplier and market intelligence and expert advice and facilitating strategic relationships with suppliers to gain better VFM, improve performance and align with organisational priorities and government agendas, developing the sector and supply market.

     Improved demand management and temporary/permanent workforce planning through far enhanced provision of management information.

 

Testimonials:

“Bracknell Forest are pleased to have achieved savings of approximately 14% during quarter four of the 2012/13 financial year under the MSTAR framework, as a result of reduced margins and process efficiencies.  
The MSTAR framework gave the Council an alternative approach to the sourcing and procurement of Agency Workers.  Our Managed Service Provider has worked hard to aggregate spend and to ensure that the supply chain meets all of the Councils requirements, and this has been achieved through hard work on both the Council and suppliers side during implementation, as alternative suppliers had to be sourced in the absence of agreements in place with many of our historical suppliers. 
Using the MSP’s web based system has improved the reporting information available and has given the Council much greater confidence in meeting AWR requirements. 
We hope that the contract continues to perform and deliver year on year savings by offering a consistent and reliable approach to the hire of temporary agency workers.”
Claire Garton from Bracknell Forest Council

“MSTAR has consistently generated savings for Gloucestershire County Council, with current indications being around 16% over £750,000 per quarter, in addition to promoting regional / national benchmarking and continuous service improvement. 
As an example of national collaboration the framework delivered by ESPO should be regarded as the ultimate blue print.  The contract is flexible enough to encompass user requirements on a national scale but focussed enough to deliver significant savings.  ESPO spent considerable time and resource ensuring they really listened to their Local Authority customers in setting up this framework and this has certainly paid dividends.”
Claire Smart from Gloucestershire County Council

 

Concluding Comments

ESPO has many case study examples of multiple benefits being derived as a result of collaborative procurement. These can stem from aggregated volume, aggregation of ‘know how’ and market experience cross sector, an ability to be able invest the required time and effort in pre-market engagement that lead to the running of well-conceived procurement processes. ESPO’s cost recovery in this case study is between 1p and 2p in the hourly rate. This represents as little as 0.0015% to 0.003% (based on a worker receiving the national minimum wage).

ESPO has not concluded that an absence of mandating or unwillingness of local government to collaborate is acting as a barrier to the non-achievement of latent savings that would stem from collaboration. Indeed ESPO is itself the result of a successful collaboration over three decades between seven local government authorities. Collaboration is commonly viewed as one of a number of tools and on the whole is a sensibly utilised tool.

Government figures are sometimes criticised as being ‘optimistic’ in the scale of cashable savings directly attributed to just collaboration; however, they undoubtedly provide an indicative understanding of the potential.

 

John Doherty, Managing Director, ESPO

Kristian Smith, Assistant Director, Procurement & Compliance, ESPO