rce procurement programme

l u f s o t s w e Ho ucc s e b

PP

s n o i t c u a in e

y cienc i f f e h hroug t t n veme o r p Im

rcoe.gov.uk

How to be successful in e-auctions

Contents 01 01 02 03 05 06 07 08 10 12 16 19 21 22 23 25 27 28 29

Your guide to success What’s in this guide What’s an e-auction Getting started Resourcing an e-auction programme Preparing for an e-auction programme Is an e-auction appropriate? Collaborative e-auctions Buying an e-auction The specification Award criteria Supplier engagement The e-auction event After the e-auction Benefit realisation and assessment Glossary For more information Acknowledgements Appendix

© Regional Centres of Excellence. February 2007

t emen r u c ro ing P m r o f s >Tran

01

How to be successful in e-auctions

Your guide to success The Regional Centres of Excellence Procurement Programme is seeking to transform procurement and deliver major efficiencies in the £40 billion that local government spends each year on goods and services. e-Auctions can be a highly effective tool to generate savings but they require careful planning and skilful execution. There is plenty of guidance available but this is the first time that it has been brought together into a definitive, up-to-date guide to help procurement professionals get the very most from e-auctions. Please take time to read through the whole guide but for a quick overview of the e-auction process, refer to the Appendix on page 26.

What’s in this guide? This guide explains how you can run a successful e-auction and includes information on the following: > > > > > > > > > > >

How to get started on an e-auction programme How to resource an e-auction project How to check if an e-auction is appropriate How to run collaborative e-auctions How to select a provider How to create a specification for an e-auction How to use award criteria Supplier engagement How to run the event itself Post event management How to identify the benefits of an e-auction

NB This guide covers the use of electronic reverse auctions where suppliers compete for an organisation’s business online by reducing their prices. The guide does not cover any other type of electronic auction.

t emen r u c ro ing P m r o f s >Tran

02

How to be successful in e-auctions

What’s an e-auction? An e-auction is a procurement tool using web-based software that allows suppliers to bid online for the opportunity to win a contract being let by an organisation. Suppliers compete with each other by reducing the cost of their goods or services in order to win the business being offered by the contracting organisation. It is sometimes called a ‘reverse auction’ because this form of e-auctioning reverses the traditional auction process where buyers’ bids increase. e-Auctions are becoming increasingly popular in the public sector because they create a structured opportunity for suppliers to reduce their costs in order to win business in a way that is legally compliant with EU legislation.

Legal Notes New public procurement rules came into force in the UK on 31 January 2006 and made explicit the process by which electronic auctions can work to best effect in the context of a contracting authority’s tendering procedure (Regulation 21 of the Public Contracts Regulations 2006, S.I. 2006 No. 5).

Successful e-auctions allow buying organisations to identify the lowest sustainable prices that suppliers are willing to offer for their goods or services. In some circumstances, public sector bodies have been able to make significant savings of well over 20% against previous prices. Not all contracts will generate a saving but the key benefit of running an e-auction is the opportunity to determine the true market price for the goods or services being contracted.

t emen r u c ro ing P m r o f s >Tran

03

How to be successful in e-auctions

1. Getting started Ensure the contract is compliant It is likely that most contracts that public sector organisations will let through e-auctions will be above the current EU threshold of £144,371 for supplies. This means that the majority of tenders that result in an e-auction will have to go through the OJEU procedure. Part of the tender will include submitting a document to suppliers called an ‘invitation to tender’ or ITT which includes all the details that the suppliers will need to know. The EU has provided a set of standard documents for use in EU tenders which can be found on the EU Journal website www.simap.eu.int Spend for e-auctions Before you consider using an e-auction, you need to have an idea of the goods or services you wish to let contracts for. Contracts can be let by individual organisations or by a group of organisations working together. Where organisations have a small amount of spend, it is advisable to work with other organisations in order to offer larger contracts which will be more attractive to suppliers. Collaboration is covered in the section entitled ‘Collaborative e-auctions’ on page 6. Strategic sourcing A spend analysis will help you identify the areas of spend that should be contracted, although you may wish to start with those items with the greatest spend value. Setting up a project to establish contracts for these goods or services is called strategic sourcing. As well as choosing to reduce costs, a sourcing project can include other factors such as a requirement to provide services that have minimal environmental impact. Details on strategic sourcing can be found at the Office of Government Commerce website www.ogc.gov.uk Other pre-existing contracts There are also a large number of contracts available to public sector bodies that can be called off without letting a new tender. It is important, therefore, that you review all OJEU compliant public sector contracts as they may be able to save you significant procurement costs. To find out about them, please contact your Regional Centre of Excellence. Where a framework contract with more than one supplier is available, an e-auction can be used to select a supplier from the framework without having to repeat the OJEU process. e-Auction decision tool Having identified the goods and services that can be placed using existing contracts, you should have a short-list of goods and services that you will want to contract for. To help identify whether these are suitable for an e-auction, an e-auction decision tool is included on page 5.

t emen r u c ro ing P m r o f s >Tran

04

How to be successful in e-auctions

Legal Notes The rules are very firm on the removal of certain procurements from the scope of an e-auction, namely a public services contract or a public works contract, which has as its subject matter intellectual performance, such as the design of works. The reason for excluding such contracts, according to European Commission guidance, is that e-auctions include automatic evaluation (i.e. as new prices or values are offered, the original tenders are automatically re-ranked by reference to a previously notified mathematical formula). While the guidance does not elaborate further, it seems that contracts with an “intellectual” element are outside the scope of e-auctions because of their highly subjective nature. It is possible, however, for contracts which do not have as their subject matter intellectual performance to be subject to a two-stage evaluation along the lines of (1) the initial tender evaluation, which looks at each tenderer’s proposal in the round (particularly relevant when assessing the most economically advantageous tender) and (2) the e-auction, by which tenderers make further proposals in respect of quantifiable elements, based on which their full tender proposal is re-ranked.

Collaborators You will now have a list of contracts that are suitable for e-auction. The key to running a successful e-auction is to offer a clearly specified contract which is attractive enough to ensure that suppliers are willing to bid against each other to win the business. One way of doing this is to expand the size of the contract by collaborating with other public sector organisations. Therefore, you should investigate whether health trusts, councils, educational bodies or other government agencies have similar requirements and whether collaboration can offer a more attractive contract to suppliers. More details on collaborative e-auctions are included on page 6. Resources and business case The next stage is to carry out planning and business analysis before a programme of e-auctions can get started. You will need to identify the resources required to deliver the e-auction programme, including the amount of consulting support and to cost these resources against the estimated benefits from the use of e-auctions. The business case should be used to get the backing of senior managers. More details on resourcing for e-auctions can be found on page 4. Project start Once the project has managerial support, you should establish a project team and select an e-auction provider. It is recommended that project management methodology, such as Prince 2, is used. As part of the project initiation, take care to establish the roles and responsibilities for all members of the project team, including the e-auction provider’s staff. More details on selecting an e-auction provider can be found on page 8. Taking the time to co-ordinate these resources and gain the backing of senior managers will increase the chances of not only running a successful e-auction programme but also of embedding a best practice strategic sourcing approach to procurement within the organisation.

t emen r u c ro ing P m r o f s >Tran

05

How to be successful in e-auctions

Legal Notes E-auctions may be used as part and parcel of a procurement carried out under the open procedure, the restricted procedure or, in certain limited cases, the negotiated procedure. They may also be appropriate when carrying out a mini-competition for the award of a contract under a multi-party framework agreement, or when awarding contracts through a dynamic purchasing system. The Regulations do not anticipate e-auctions being used when following the competitive dialogue process. OJEU contract notice If you intend to use an e-auction in the procurement process, you must say so in the OJEU contract notice (or at least reserve your right to use it in the notice if no decision has been made at the time of its publication). It is advisable, when publishing the award criteria, to indicate those criteria that will be applied at the e-auction stage.

2. Resourcing an e-auction programme You should not underestimate the amount of resources needed to carry out an e-auction. For an organisation to deliver an e-auction, the following staff should be involved: An experienced procurement professional Someone who: > Understands the principles of best practice procurement > Works in partnership with the auction provider to determine a strategy > Oversees the drafting of the specification and ITT Involvement: strategic, minimal workload A project manager / business analyst Someone who: > > > > > >

Works to the direction of the procurement professional Co-ordinates the work of the staff members and the e-auction providers Oversees the recovery of data required for the specification Undertakes market research Develops bid sheets Drafts the ITT

The work required to deliver this role will vary depending on the complexity of the e-auction and the amount of support being provided by the e-auction provider. Involvement: detailed, high workload A buyer Someone who: > Details and approves the specification of the goods or services required Involvement: detailed, minimal workload

t emen r u c ro ing P m r o f s >Tran

06

How to be successful in e-auctions

Administrative support Someone who: > Co-ordinates data, drafts documents, checks bid sheets > Helps with the co-ordination of the e-auction event Involvement: detailed, varied workload An e-auction consultant It is likely that most public sector e-auctions will require the support of a consultant with experience of running e-auction events. They can help the organisation to: > > > >

Design an auction programme Develop each e-auction strategy Forecast savings Draft a schedule of works for the e-auction to be run

The extent of involvement of the consultant will depend on the service chosen from the e-auction provider. Involvement: detailed and strategic, varied workload Internal stakeholders Most e-auctions require input from those staff who will use the contract once the auction is complete. These staff members will provide details of the current contract, market awareness, help develop specifications and help with the evaluation of the tender.

3. Preparing for an e-auction programme Business case You should develop a detailed business case for the use of e-auctions. It should estimate all costs, including internal costs and the cost of the e-auction provider, which should be offset against the estimated savings realised through the e-auction. How not to resource e-auctions If you see e-auctions as an add-on to a standard tender procedure you will probably underestimate the resources and skills necessary. An ad hoc approach may cause delay and the e-auction to fail. e-Auctions should be seen as a new form of tendering that, to begin with at least, will require greater resource and new skills. Issues to consider for a business case You should be aware that a business case for e-auctions runs the risk of overlapping with a business case for other procurement technologies such as p-cards if these business cases rely on generating savings through contracting. Hence, you should estimate the anticipated savings from running a standard tender procedure as well as the likely additional savings gained from an e-auction. This should avoid any double-counting from the savings that have been attributed to other procurement technologies.

t emen r u c ro ing P m r o f s >Tran

How to be successful in e-auctions

07

4. Is an e-auction appropriate? The answers to the following seven questions will provide a quick assessment of whether your commodity is suitable for e-auction. If the answer to any of the following three questions is no, it is highly likely that your commodity is unsuitable.

01

Is there a high level of market competition? Competition is essential to an e-auction and more than four suppliers would normally be considered a healthy level. If the market is especially competitive and the amount of spend is high, an auction with two suppliers may be sufficient to deliver a significant saving but this is not common.

02

Is the predicted market value of the procurement attractive to suppliers? The contract on offer must be large enough to attract competition and the predicted savings must exceed the cost of running the auction. Contracts worth at least £250k are suitable for auctions, although if the cost of the auction is low, then contracts below £250k may be viable.

03

Can the goods or services be specified to a high level of accuracy? Will the ITT allow suppliers to gain a detailed understanding of the contract requirements? If they cannot accurately determine the cost of meeting the contract from the ITT, the contract is not suitable for an auction. If the answer to any of the following four questions is no, you should seek further advice on whether an e-auction for your commodity would be successful.

04

Is the procurement of low strategic importance? Is the procurement of strategic importance to your organisation e.g. will the contract directly affect residents? If so, you should carry out a thorough risk analysis before running the auction.

05

Is the supply market a simple one? A simple supply market is where a single supplier can supply all your requirements. A more complex market if where suppliers need to collaborate to meet your requirements.

06

Are at least some, if not all, of the award criteria quantifiable? If factors other than the most economic tender principle are to be used to award the contract, can they be accurately represented and assessed by suppliers and buyers respectively? If not, this contract may be difficult to let via auction.

07

Is there ‘room’ in the suppliers’ margins? If the suppliers have demonstrated clearly that there is no room to reduce their prices, perhaps through a previous auction or through open-book accounting, it may not be appropriate to run an auction for the commodity or service in question. This is derived from the OGC online e-auctions decision tool which can be found at www.ogc.gov.uk

t emen r u c ro ing P m r o f s >Tran

08

How to be successful in e-auctions

5. Collaborative e-auctions Why start a collaborative e-auction programme? Collaboration will increase the value of the contract which will increase the likely savings offered by suppliers. Organisations of any size can start a programme of collaborative e-auctions. They need only to identify potential collaborators and make a joint business case for the support they will need to run the e-auction on the group’s behalf. As well as greater savings, collaboration allows the organisations to share responsibility for managing e-auctions and to share their knowledge with each other, as well as increasing the efficiency of the procurement process by sharing tasks. How does a collaborative e-auction work? It works by one organisation letting a tender under their own rules and OJEU tender on behalf of the other organisations. The tender advert must state that the organisation may run an e-auction and that other UK public sector bodies will be able to use the contract. All the collaborating bodies are usually named in the tender and these bodies will work to develop the tender specification. An e-auction is then run, based on this specification. Following the e-auction, the contract will be awarded to the winning supplier by the organisation letting the tender on behalf of the collaboration. All the collaborating bodies can then call off the contract for its duration. What are the problems associated with collaboration? Complexity is determined by the goods or services that you wish to purchase. So, an e-auction for A4 paper is relatively simple to run while a contract for servicing boilers that includes complex specifications makes the contract more challenging. Collaborating organisations must work together to co-ordinate their individual requirements into a joint specification and the more complex the requirements, the more challenging this can be. They must commit the resources necessary to develop the requirements, they should be as flexible as possible to determine a specification and should seek to eliminate non-essential characteristics from the specification. In ideal circumstances, the collaboration will generate a universal specification, but this may not be possible. Where contract objectives are different, collaborative e-auctions can be run with multiple lots allowing each organisation to contract separately if required. This provides the opportunity to combine spend and retain some independent requirements. However, this may also affect the competitiveness of the event. How big can a collaboration get? In theory, collaborations can be limitless in size, but very large collaborations are not practical as the task of agreeing on a single specification between many organisations can be too challenging. The size of a collaboration, therefore, tends to be limited by the capacity available to manage it. Typically, this will mean between three and ten organisations, though if dedicated resources are made available to manage the specification more organisations can be brought into the e-auction programme. How can an organisation contribute to a collaborative e-auction? Collaborative e-auctions can involve an organisation in two ways, either as a named party or as a ‘silent’ party to the e-auction. As a named party, you will commit to providing a detailed breakdown of your requirements in the tender and to help define the specification. In other words, named parties are integral to the tender, informing the amount that is to be contracted as well as providing detailed requirements.

t emen r u c ro ing P m r o f s >Tran

09

How to be successful in e-auctions

As a ‘silent’ party, you will commit to using the contract and may even be named in the contract. However, you will not provide a detailed breakdown of your requirements and cannot influence the specification. Silent parties are usually welcomed by suppliers but because they are unable to provide detailed information on their spend and requirements they have much less influence on the supplier’s ability to reduce the price of the goods or services on offer. How should a collaboration be set up and managed? A collaborative e-auction programme should be established as a formal undertaking either as an individual programme or as part of a wider shared procurement programme. A formal project should have a board with a chair and reporting structure and adopt a project management methodology, such as Prince 2. Organisations working in a collaboration can rotate the responsibility for running an e-auction and acting as the contracting authority and lead organisation on behalf of the group. As contracting authority, you will be responsible for sourcing an e-auction provider and for managing the tender in line with the group’s expectations. Frameworks Professional buying organisations run tender exercises on behalf of the UK public sector. The contracts resulting from these tenders are called ‘framework contracts’ because they determine the terms of supply for a particular commodity or service. Usually, a framework contract will include a number of suppliers who are able to meet the requirements laid out in the tender. The contract will specify a price range for supply and individual public sector organisations can call off the contract, either by selecting a supplier directly from the framework or by running a mini-competition amongst the suppliers contracted to the framework. The contract for the supply of e-auction services is a framework contract.

Legal Notes If a procurement is being carried out on behalf of a number of local authorities (perhaps with other public bodies) in order to combine purchasing power, the OJEU notice should explain this, citing the range of organisations covered by the procurement. For example: > In the context of a framework agreement, you could state that “[LEAD AUTHORITY] requires to establish a framework agreement for use by other public sector bodies. These are [ENTER NAMES or GENERIC DESCRIPTION [1] ]. The public sector bodies reserve the right to hold an electronic reverse auction on the reopening of competition among the parties to the Framework Agreement(s). Successful suppliers must be willing to participate in e-auctions at any time throughout the duration of the Framework Agreement(s)”. > In the context of a public supply contract in which one authority is running a procurement exercise for itself and other specified public authorities, the following wording on e-auctions may be used: “[LEAD AUTHORITY] may, at its discretion, hold an electronic reverse auction as part of this tender process. In such an event, [LEAD AUTHORITY] will contact the tenderer with the necessary details. Prospective suppliers must be willing to participate in an e-auction”. Legal advice should always be sought on the most appropriate drafting in any particular case.

t emen r u c ro ing P m r o f s >Tran

10

How to be successful in e-auctions

[1] For example, “all local authorities in [PARTICULAR REGION]”. In this case, OGC Guidance on Framework Agreements recommends that the OJEU notice indicates where details of these authorities can be obtained. OGC also recommends that framework agreements should be set up to have the maximum take-up across the public sector. As an example, OGCbuying.solutions recently advertised its requirements for a framework agreement “for use by or on behalf of UK public sector bodies. These will include central government departments, NHS bodies, local authorities, police and emergency services, educational establishments, utilities and registered charities."

6. Buying an e-auction What is an e-auction provider? An e-auction provider is a company that provides you with all the technology and services you need to successfully develop and manage an e-auction or programme of e-auctions. OGCbuying.solutions has let a framework contract that any public sector organisation can use to select a provider. The contract provides access to four firms who can provide e-auction services, and their details can be found on page 25. How should an e-auction be bought? An e-auction can be broken down into three components: 1. Technology and technical support The technology and systems support required include an on-line bidding system, e-auction upload tools, back ups, security systems and reporting tools. These components are usually provided with the necessary staffing. This is the most basic level of support and will usually include a staff member being available remotely to monitor the event and to ensure that the software is running properly. Some providers are willing to provide additional services under this type of event, but this should not be expected. 2. Training and supplier support The engagement of suppliers and their ability to bid successfully are essential. To ensure a well run auction, each supplier bidding in the e-auction should be properly trained and be provided with a proxy bidding service. 3. Consulting advice and support By far the most demanding part of an e-auction is the task of determining your strategy. You will need to decide how the specification will be developed, how the requirements will be broken into lots, the starting price for the e-auction and the bid decrements for each bid. All of these factors combine to create a strategy. The advice that experienced e-auction professionals can provide is extremely valuable for an organisation participating in an e-auction. Even when an organisation has previous experience of running e-auctions, it is likely to benefit from advice on how to structure the event in a way that will deliver the maximum opportunity for savings.

t emen r u c ro ing P m r o f s >Tran

11

How to be successful in e-auctions

Provider services Different providers will structure their services in different ways, but in broad terms, providers offer a variation on the following services: 1. Technology only This will provide access to the technology and the support necessary to run the event, including access to the servers, data uploads, security and some event monitoring activity. Pros: Cost effective Cons: In the majority of cases, additional expertise will need to be brought in Cost: Between £2k - £5k per event 2. Semi-managed event In addition to technology and support, the provider will liaise with the suppliers and provide training to them. The service will also include the support required to set up the system and to be with the client during the event. This service usually includes some guidance on how best to initiate the e-auction project and how to write a specification for the e-auction. Pros: Cost effective because the work of consultants is only used at the key points in the procurement Cons: Difficult to define for novice organisations who may expect and require a more comprehensive service to achieve success Cost: Between £5k - £15k per event 3. Fully-managed procurement A fully-managed service will provide ‘end-to-end’ support for the e-auction project. This will include everything from working with the buying organisation(s) to identify the contracts most suitable for e-auction, creating the specifications and drafting the ITTs as well as training suppliers, managing the event and providing the technology. Pros: Provides you with a complete service, providing a greater chance of running a successful project Cons: Can be expensive Cost: Between £15k - £35k per event Pricing If you are thinking about running an e-auction, you should always think in terms of running a programme of them. The services listed above will be offered by providers on a flat fee basis with a discount for bulk purchases. They tend to offer a flat-fee approach in order to simplify the buying process and to make e-auctions more accessible to buying organisations. In some cases, suppliers will offer to provide their services in return for a percentage of the savings made through the e-auction. This approach is rare in the UK public sector and if you wish to take this approach you should agree a capped maximum price for the e-auction. The importance of additional expertise Access to e-auction software is increasingly easy, solutions are being offered at competitive rates on a use-only basis and are being bundled with other e-sourcing and contracts management solutions. However, it is important to stress the need to involve knowledgeable staff who have the skill and expertise necessary to make an e-auction a success. It is highly likely therefore that you will require additional expertise to run and manage events.

t emen r u c ro ing P m r o f s >Tran

12

How to be successful in e-auctions

Selecting an e-auction provider It is important to find a provider who can act as an effective delivery partner across a number of events for a number of different commodities. To do this, you must ensure that the provider has the software and expertise to deliver the outcomes you require. The provider’s personnel must have the experience, knowledge and professionalism necessary to complete the work successfully. You should ask for CVs and references from previous clients which should be followed up. Make sure that staff put forward by the auction provider can demonstrate knowledge of both the e-auction process and OJEU regulations. To manage the cost of e-auctions, you can ask suppliers to break down their prices and to detail exactly what services they will provide for the fee quoted. However, you should ensure that any flat fee quoted is based on outcomes and not on a per day fee. If you opt for a per day fee structure, it is possible that fees could increase if the provider’s staff are required to put in more time than originally estimated.

7. The specification Carry out a spend analysis A spend analysis will ensure that you identify your organisation’s suppliers, the number of transactions placed with key suppliers and the amount spent with them over a period of time. A spend analysis will also provide additional information to help you with strategic sourcing. However, if you want a detailed list of the items being purchased from your suppliers or details such as the amount being spent on specific goods or services, further analysis will be required. Why is a spend analysis important to an e-auction? To e-auction an item, you will need to provide a detailed specification of the goods or services being bought. This means not only providing details of what is to be bought but also how much the supplier will be expected to provide. A spend analysis will provide much of the starting point for the specification as it will allow you to identify which suppliers your organisation uses and how much is spent with them. For most e-auctions, you will need to carry out further research to identify the exact requirements for a contract, but a spend analysis is a useful starting point. How is a spend analysis done? Spend analyses can be carried out by private sector specialists. In the first instance, we recommend that you use the RCE framework agreement for spend analysis providers. Please contact your Regional Centre of Excellence for more information. Using data from an organisation’s general ledger, the company will check it for duplication and errors and then upload it to their systems. They will then collate the number and value of transactions per supplier and categorise the suppliers by type. A spend analysis is particularly valuable for collaborative e-auctions as it can be conducted on a regional basis, allowing organisations to identify common needs and common suppliers. The specification All tenders require a specification. This is the detailed description of the goods or services that an organisation or collaboration needs. Whether the tender is for building materials or insurance, the tender will have to include a specification.

t emen r u c ro ing P m r o f s >Tran

13

How to be successful in e-auctions

Legal Notes Prepare a clear contract specification so that tenderers can readily understand your requirements. The rules call for procurements using an e-auction to be based on a specification that has been “established with precision”. When preparing the specification, make sure its contents satisfy the long list of requirements referred to in Regulation 21(7) [1], such as identifying the quantifiable elements of tenders (capable of being expressed as a figure or a percentage) which will be the subject of the e-auction, providing a description of the e-auction process so that tenderers have a clear understanding of what to expect, and explaining the conditions under which the tenderers will be able to bid, in particular setting out any minimum differences in terms of price or value required when one tenderer is bidding against another. [1] Public Contracts Regulations 2006, S.I. 2006 No. 5.

Why is the specification important? The specification is the means that you use to communicate your requirements to the tenderers. A specification must therefore be understood by the tenderers in order to drive competition on like for like goods or services. The specification enables you to assess whether a supplier’s submission is compliant with the contract requirements established in the ITT. Specifications remove opportunities for confusion and allow non-compliant tender responses to be eliminated from the procurement. In some cases, a specification also allows suppliers to offer goods or services that exceed requirements in order to win business. Why are specifications important to e-auctions? During an e-auction, it is critical for suppliers to know that they are bidding against each other to provide like for like goods or services. The most successful e-auctions are those that create a strong sense of competition between suppliers for the business on offer – multiple suppliers bidding for tightly specified goods or services. Essential and non-essential characteristics Developing a specification for e-auction is a task that usually requires the input of an experienced professional with detailed, technical knowledge of the goods or service being purchased. The aim of the task is to provide a detailed technical description of the goods or services required without unnecessarily limiting the number of suppliers that can bid in the e-auction. This means identifying the key characteristics of the goods or services and including these in the specification, whilst eliminating any non-essential characteristics from the specification. So, for example, if the e-auction was for ibuprofen tablets the specification might include details of the number of milligrams of ibuprofen in the tablet, the way the tablets are kept (an ‘over the counter pack’ or bottled), and the total number of tablets required. However, the specification should not mention a brand name such as ‘Nurofen’, because this is a non-essential characteristic. Although a supply of Nurofen would meet the requirements of the tender, perhaps not all the suppliers in the market will stock Nurofen and by using this specification some suppliers may be unable to bid in the e-auction.

t emen r u c ro ing P m r o f s >Tran

14

How to be successful in e-auctions

How does a specification get developed? The method used to develop a specification depends on the good or service being bought. For a new service, there will be no historical basis for the specification but if you are buying a commonly bought commodity such as stationery, the specification will be drafted on the basis of last year’s spend. Having chosen a commodity to e-auction, the next step is to identify your needs for the e-auction. If the commodity has a history of being bought, the previous year’s requirements can be used to build a picture of your future requirements. Using invoice and order data, you can build a picture of the commodities that are required by your organisation. Initial research will generate a list of commodities with no formal grouping. In order to develop an accurate specification that can be understood by suppliers, this list needs to be categorised and then split into lots and possibly baskets. Categorising In the example of our e-auction for ibuprofen tablets, it is possible that the organisation buying the tablets may have a number of requirements, perhaps some 200mg tablets and some 400mg tablets. In this instance, the specification must be absolutely explicit about their requirements and must detail the requirements in a categorisation structure that can be understood by the suppliers: Drugs: Analgesic: Ibuprofen Tablets: 200mg Drugs: Analgesic: Ibuprofen Tablets: 400mg As well as detailing the different characteristics, it is necessary to detail the volume of supply. If possible, spend data from previous years can be used to provide a greater insight into demand trends to improve forecasting. Additional comments or clarifications such as ‘over the counter pack’ can also be added to the categorisation. Again, you have to be careful not to over-specify your requirements by adding non-essential characteristics and organisations will have their own view of what constitutes a non-essential characteristic. However, these must be identified when establishing the specification in order to avoid running an uncompetitive event. Lotting Once the categorisation is complete, the long list can be split into lots which represent a specific requirement of the organisation. A lot is the smallest single item (or group of items) that a supplier can bid for in an e-auction. For example, an e-auction for a refuse truck may have a single item in a lot, whilst an e-auction for computer monitors may have sixty of the same items in a lot. The separation of requirements into lots usually follows a distinction based on the categorisation work that has been completed. So, for example, in an e-auction for computers, one lot might include laptop computers, whilst another may include desktop computers. Sometimes the strategy for lotting can be more complex than this and it can be difficult separate the requirements into lots. The strategy for lotting should always be focused on creating greater opportunities for competition between the suppliers bidding for the business. A lot containing too many items runs the risk of restricting the number of suppliers who can bid because they may not be able to supply all the requirements. A lot containing too few items may reduce the value of the lot and so may dissuade suppliers from bidding for it.

t emen r u c ro ing P m r o f s >Tran

15

How to be successful in e-auctions

Lotting errors It is easy to fall into the trap of preparing a lotting strategy that follows how an organisation uses a commodity. For example, a buyer for a school might choose to separate school equipment into lots based on the school departments, such geography, mathematics, English etc. However, suppliers providing school supplies don’t organise their catalogues in this way. By choosing to specify in this way, the buyer is likely to restrict the value of the lots and may group lots in such a way that they cannot be fulfilled by a single supplier. Instead, the buyer should study the catalogues of the suppliers who are likely to bid and should structure the lots according to the suppliers’ categorisations. Where possible, you should seek the advice of experienced professionals to establish your lotting strategy for an e-auction. Baskets When you want to purchase a large number of small items of differing specifications, such as stationery, it becomes impractical for the suppliers to put each of the items required into a lot of its own. Quite simply, the e-auction would take too long and the number of bids would be too great to manage. Instead, a technique called basketing is used. Basketing allows you to gather together a large number of requirements into a single list with a total price – known as a basket. A basket is created by taking a list of the most commonly purchased items and listing the total annual requirements for the organisation. To make the process of listing the items in a basket more efficient for both buyer and supplier, baskets usually only include the core spend for a contract. They do not normally include a long list of one-off or infrequent purchases. A basket should represent around 80% of the requirements on a contract, the remaining 20% usually being removed from the basket due to the infrequency of demand. This basket is then e-auctioned as a single lot and suppliers will post their bids to supply the whole basket of goods. Again, you need to take care that your baskets are collated in such a way that suppliers are not excluded from bidding because they cannot provide all of the goods in the basket. It is therefore very important that the items listed in a basket do not contain non-essential characteristics such as brand names. Baskets are particularly useful for collaborative e-auctions. Provided the organisations in the collaboration use a standard categorisation, the group’s core requirements can be bought together relatively easily. Bid sheets Bid sheets are the spreadsheets sent to suppliers as part of the ITT and contain the list of lots to e-auctioned, including multiple items listed in baskets. Suppliers need these bid sheets to identify which items they can supply to meet the tender requirements. They also need to identify the cost of supplying all the items in a basket, including their ‘bottom price bid’, the lowest bid which they are prepared to offer. You need to be sure that suppliers are placing realistic bids which can sustain the supplier’s business. So, it is in your interest to see that suppliers use the bid sheets and research their bottom price bids prior to the e-auction. The bid sheets are usually returned with the supplier’s tender responses listing their opening prices for each lot that the supplier intends to bid for. These are then checked by the e-auction provider and loaded onto the e-auction software prior to the e-auction event.

t emen r u c ro ing P m r o f s >Tran

16

How to be successful in e-auctions

Who should be involved in a specification? Developing a specification can be time consuming and demanding. However, the specification is critical to delivering a successful e-auction and therefore you must resource this work properly. The procurement staff, project manager, departmental buyers, administrative staff and the e-auction provider’s staff must all commit time and effort to ensuring that an accurate specification has been created that all parties can sign up to. This work should be factored into the business case for an e-auction programme which should make it clear that failing to produce accurate specifications that reflect the requirements will jeopardise the success of the e-auction. Specification of outcomes Procurement managers in both the public and private sectors are using outcomes as a specification when buying services. An outcome might be a pest control service stipulating that a building must be rodent-free. Outcome specifications are used to engage with suppliers who may use different approaches to solve your needs and to enable suppliers to use their skills and specialisms to deliver a final outcome. Expertise The detailed work required to establish a lotting strategy, select items for basketing and to draft a bid sheet are all highly specialised and it is recommended that you use the services of an experienced professional to complete these tasks.

8. Award criteria What are award criteria? Public sector bodies can choose to assess a tender on the basis of a number of criteria to identify the most economically advantageous offering. For example, a tender might wish to consider the environmental impact of a service and decide to give preference to firms providing a service that is more energy efficient. In this case, the organisation letting the contract will stipulate in the tender a preference for an energy efficient service. This means that the organisation will consider more than price when awarding the contract. As a result, the contract will have two award criteria – price and energy efficiency.

Legal Notes The electronic auction should be based on price alone where the contract is to be awarded on the basis of lowest price. If the contract is to be awarded on the basis of the most economically advantageous tender, the electronic auction should be based on price or the values of the quantifiable elements of tenders.

Valuing an award criterion When tendering using additional award criteria, it is not possible to stipulate that an award criterion will simply be ‘considered’ in the tender process. To factor an award criterion into a tender, it must be given a weighting. This is usually expressed as a percentage of the total value of the contract. So, if you stipulate that 5% of a tender will be based on the energy efficiency of the service being offered, it is equivalent of valuing the importance of energy efficiency at 5% of the total contract.

t emen r u c ro ing P m r o f s >Tran

17

How to be successful in e-auctions

In a contract for £1,000,000 with 5% of the contract assessed on energy efficiency, the valuation for this portion of the contract would be £50,000. This means that a supplier whose offering does not meet the energy efficiency requirements will be at a disadvantage. In fact, if this supplier offers to meet the contract requirements at price of £960,000, they would be rejected in favour of a supplier with good environmental efficiency who offers to meet the contract requirements at a price of £1,000,000. EU regulations and e-auctions EU regulations also stipulate that the e-auction has to calculate the ranking of the suppliers by taking account of all the award criteria during the e-auction. This means that e-auctions with multiple award criteria must factor the criteria into the e-auction while the suppliers enter their bids. So, in the case of the two suppliers bidding £960,000 and £1,000,000 respectively into the e-auction, the supplier with the £1,000,000 bid must have their positive score for energy efficiency weighted into each of their bids as the e-auction progresses. If there were only two suppliers in the e-auction, the supplier with the £1,000,000 bid must be informed that they are winning the e-auction, despite the fact that their bid is a more expensive bid. Setting up award criteria The EU regulations also stipulate that all the award criteria and their relative values must be included in the ITT document. Therefore, to run a legally compliant e-auction, the ITT document must provide a value and an explanation for each award criterion. For example, a contract might include an award criterion for delivery terms, in which case, the tender must detail the value of the delivery award criterion and a request that suppliers detail their timescales for guaranteed delivery to the buying organisation. Carrying award criteria into an e-auction If you receive tender responses with multiple award criteria, you must assess the tender responses and award a mark for each non-price criterion in the tender. In conjunction with the opening prices submitted by the suppliers in their tender responses, you will be able to upload these scores into the e-auction tool. A correctly loaded e-auction using an e-auction tool that can manage multiple award criteria will automatically rank the suppliers according to the opening prices and the scoring for the other award criteria. The software will then continue to do this throughout the e-auction, automatically adjusting the price for each bid. What can go wrong? Unless award criteria are carefully managed and thoroughly tested they can affect the competitiveness of an e-auction. Usually this happens when the buying organisation overvalues a non-price award criterion. In the case of the tender that has a 5% element for energy efficiency, let’s imagine that the energy efficiency criterion was valued at 10%. In this instance, the valuation put on the energy efficiency becomes £100,000. This means that the supplier who cannot meet the energy efficiency requirements has to reduce their offering by 10% more than a supplier with a compliant energy efficiency offering. In effect, this will end the competition between the suppliers. The supplier in second place will lower their bids to try and catch up to the rival supplier but, depending on the nature of the market, this supplier is likely to find a 10% disadvantage too much to overcome. With a strong built-in advantage, the supplier with an energy efficient offering can afford to bid only when losing and will not feel the need to drive the competition.

t emen r u c ro ing P m r o f s >Tran

18

How to be successful in e-auctions

How to prevent award criteria mistakes The best way to prevent mistakes with award criteria is to test them prior to an e-auction by ‘modelling’ an e-auction scenario using the award criteria. This will involve documenting a scenario where a number of suppliers acquire different ratings according to the proposed award criteria. Suppliers’ starting prices are calculated and a number of decreasing bids are entered for each supplier. Plotting these bids on a chart will demonstrate the spread of prices. If the spread becomes too wide, the criteria might be adversely affecting the competitiveness of the e-auction and should be reassessed.

Legal Notes Carry out a full initial evaluation of tenders based on the previously published award criteria, applying weightings where given, before going ahead with the second stage of the procurement the e-auction. The initial evaluation will establish a preliminary ranking of tenderers and, in the context of identifying the most economically advantageous tender, will involve an evaluation of the wider aspects of a tender, including those not capable of being expressed as a quantity or figure. The results of this initial evaluation will feed into a mathematical formula agreed by the authority. It is by reference to this formula that tenders are automatically re-ranked when the e-auction is underway.

Invitation to Tender for e-auction checklist The following is a checklist of items to include in an ITT document for an e-auction: > > > > > > >

Details of the way that suppliers should respond to the tender (post, e-mail etc.) Point of contact for queries Deadline time and date for responses Names of the agencies able to call off the contract Terms and conditions, including contract duration and extension Confidentiality documents Required company information, e.g. confirmation that the supplier operates an equal opportunities policy or staff CVs > A detailed specification of requirements, including an estimate of the volume of supply > Details of any additional award criteria including details of the information required > Bid sheets

t emen r u c ro ing P m r o f s >Tran

19

How to be successful in e-auctions

9. Supplier engagement Managing the involvement of suppliers is critical to the success of an e-auction. You will have two key responsibilities – identifying the right suppliers and bringing them into the e-auction. Identifying the right suppliers To create the maximum amount of competition between suppliers, it is desirable to have a good number of suppliers bidding for the work on offer. Suppliers must also meet the requirements laid out in the ITT to be able to bid. In some cases, organisations could do more to attract the right suppliers to bid for work than simply placing an advert in the European Journal by, for example, contacting other public sector buyers or conducting market research. Actively working to bring suppliers into an event, including suppliers from abroad can increase the competition and viability of an event. Bringing suppliers into an e-auction Suppliers may be reluctant to join an e-auction, especially an incumbent supplier, as they may feel that they are likely to lose out as a result. Whereas non-incumbent suppliers may anticipate smaller profit ratios as a result of deciding to join, but the additional business will probably be viewed favourably. To help suppliers take part, it may be necessary to provide support to the suppliers so that they fully understand the issues raised by using an e-auction. Supplier engagement therefore needs to achieve two main objectives – firstly, to secure the supplier’s confidence in the process and secondly, to ensure that suppliers are given the knowledge required to bid in the e-auction. This information will cover everything from the e-auction invitation to being trained to use the tool. All supplier engagement must be co-ordinated and transparent so that each supplier is provided with equal information and support. In a situation where a supplier was not trained sufficiently, it could be possible for the supplier to claim that they were unable to bid, which in turn, could jeopardise the e-auction process. Suppliers also need to understand the consequences of the auction process. It is important to help them define their lowest prices or their ‘walk away’ price and their bidding strategy before they commit to the event. Providing information to suppliers Suppliers will therefore need to receive the following information before joining the e-auction: > An invitation to e-auction, including the time and date of the e-auction > Details of the e-auction procedure, including details of the lots, bid decrements and time extensions > Details of the contract award procedure > Support necessary to complete the bid sheets > Training to use the e-auction tool > Details of how to submit a proxy bid if their connection to the e-auction fails > Specialist training and support to help suppliers understand how additional award criteria will affect the process > Details of procedures for suspending or cancelling an auction It is good practice to require all suppliers to return a signed letter of engagement before they join the e-auction. This letter will state that the supplier has been provided with all the information and knowledge necessary to join the e-auction and submit bids accordingly.

t emen r u c ro ing P m r o f s >Tran

20

How to be successful in e-auctions

Working with suppliers It is likely that some suppliers will be concerned about the security of the system, understandably wishing to protect commercially sensitive data. By providing details of the security measures in place, you should allay any particular security fears and demonstrate a willingness to protect supplier interests. In fact, some suppliers will find the information they receive from the e-auction of significant value to their understanding of the market they work in. It will be necessary to provide suppliers with the opportunity to take part in a test e-auction event so that they can see how it would work in a live environment. Occasionally, a supplier may choose not to join an e-auction in the belief that they can pick up business from you despite the fact that a different supplier will have a contract to provide the business. In this instance, you should remind suppliers about the stringent pre-auction vetting procedure to get the best suppliers into the e-auction, and that these suppliers would be required to bid competitively under a normal tender process to win the contract. Suppliers should also know you will be working to enforce the contract once it has been let. A sample invitation to an e-auction and bidding guidelines can be downloaded from the national Regional Centres of Excellence website at www.rcoe.gov.uk

Legal Notes The invitation to participate in the e-auction should satisfy the following points: > Simultaneously by electronic means (e.g. email) invite tenderers who submitted an admissible tender to take part in the e-auction > Fix a date and time for the start of the e-auction and explain the basis on which the e-auction is to be closed > Explain how individuals can connect to the e-auction system > Explain the number of phases in the e-auction > Explain the mathematical formula by which tenders will be automatically re-ranked in response to their new prices or new values, and include a separate mathematical formula where variant bids are envisaged > Allow at least two working days between the date on which the invitation is sent and the date of the e-auction > If awarding a contract on the basis of the offer which is the most economically advantageous, include in the invitation the outcome of the evaluation of the tender submitted by the tenderer to which the invitation is sent

t emen r u c ro ing P m r o f s >Tran

21

How to be successful in e-auctions

10. The e-auction event If you are working with an e-auction provider much of the work to run and manage the event will be carried out by the provider, but in any case, you should still be familiar with the issues so that you can be sure that the event is being run efficiently. Working together to create a buying team, you and the provider should set up and co-ordinate the technology, the suppliers and if necessary, the viewing room. Preparing the technology To run the e-auction, all the relevant data from the bidders must be loaded into the e-auction tool. This will include: > > > > > >

Lots, including names and values Starting prices for each lot (calculated in line with any adjustments) Listing the items in each lot Bid decrements Time extensions Additional award criteria weightings

Usually, this work is carried out by the provider before to the e-auction. However, you should double check this data on the day of the e-auction. As well as ensuring that the e-auction software is correctly loaded, the buying team must also make sure the following are working: > > > > >

Event log-in Supplier log-ins Supplier ranking Time extensions Proxy bidding numbers

Once all these have been completed the e-auction is ready to run. During the event If you have opted for a managed service, the provider will provide two or three staff to test the set up and manage the event. These staff will help in two ways. Firstly, they will provide support to the suppliers, either by handling proxy bids or by checking bids that may have been entered in error. In these cases, if the supplier does not contact the provider to request that the bid is retracted, the supplier may be contacted to check if the bid was intended. Secondly, the staff may be required to run a viewing room where the progress of the e-auction can be witnessed. A member of staff with good knowledge of the e-auction software should be on hand to respond to questions and explain the bidding activity as the e-auction progresses. In some cases, providers will offer remote access to e-auctions to allow people to watch the progress of an auction from their web-browser which is ideal for large numbers of people. Setting up a viewing room is good a means of publicising the event and for gaining valuable buy-in for future projects. Closing an e-auction An e-auction is usually given a set time to run. If a bid is received within a fixed time period before the end of the e-auction, usually about a minute, this late bid will trigger a pre-agreed time extension to allow the other suppliers to respond. This extension is often between two and five minutes. The same extension rule will apply as the amended deadline approaches, the

t emen r u c ro ing P m r o f s >Tran

22

How to be successful in e-auctions

consequence being that some e-auctions planned for half an hour or forty-five minutes are repeatedly extended so that the e-auction lasts for over two hours. The e-auction will finish only once the set end time has been reached without any additional bids being received during the extension trigger period. Mistakes to avoid The majority of stumbling blocks can be avoided with good preparation. Failures tend to fall into three categories – poor set up, suppliers failing to bid or technology failing. Very few e-auctions are cancelled due to technical failings and when this does happen, the event can usually be rescheduled to be run again a few days later. Suppliers do pull out at short notice or fail to bid competitively during the e-auction but as long as there are two suppliers in an e-auction, the event can still be run. The most common reason for e-auctions failing is down to the failure to attract a competitive group of suppliers to bid. Thorough preparation and the involvement of experienced e-auction staff will mitigate against this kind of failure. When e-auctions are run with the backing of senior managers and executed by knowledgeable procurement professionals working closely with experienced e-auction consultants, the chances of failure are greatly reduced.

Legal Notes > Run the e-auction on a system that is interoperable with information and computer technology commonly in use to open up the process and avoid accusations of discrimination > Make sure the e-auction system operates in a secure environment that does not reveal the identity of anyone taking part while the e-auction is ongoing. The anonymity of tenderers could be preserved, for example, by running the e-auction on a controlled, secure web site to which tenderers have password-protected access > Ensure that, during the auction phase, communications to tenderers are instantaneous so that they can see their relative rankings at any one time, including on closure of the e-auction If there are any problems with the e-auction device, for example it ceases to be generally available or there is unreliable access, consider extending the closing deadline to ensure equality of treatment and to safeguard competition.

11. After the e-auction Awarding the contract Once the e-auction is complete, you will have a list of suppliers ranked in order from first to last, with the first placed supplier offering the most economically advantageous tender on the basis of the award criteria. The award criteria must be wholly factored into the e-auction and cannot be recalculated after the e-auction is complete. Standstill period For all contracts let under OJEU, you must notify all suppliers in writing of your decision to award the contract to a particular supplier. Following the contract award, you must allow for a ‘standstill period’ before entering into the contract. This is in place to allow you time to brief the losing suppliers and to allow those suppliers an opportunity to apply to court for interim measures to halt the contract if they feel that the procurement was not compliant with regulations.

t emen r u c ro ing P m r o f s >Tran

23

How to be successful in e-auctions

The standstill period lasts for a minimum of ten days and includes weekends. Following receipt of the contract award notification, a supplier has two days to request an additional de-briefing from you. This request can be made by phone, fax, e-mail or letter. You then have until the end of the seventh day to complete all supplier de-briefings. If no legal challenge has been received by the tenth day, (or a minimum of three days after the final de-brief) the contract can start the following day. e-Auction reporting The e-auction providers can provide you with a summary report on the e-auction in the days following the event. This report will include details of the number of bids, the number of time extensions and the total savings gained from the contract. It will provide the audit details on each bid and its value, including details of the affect of any award criterion on each bid.

12. Benefit realisation and assessment Where do the savings come from? The e-auction itself does not generate savings. Only by using the contract can you generate savings. So, by running an e-auction for car hire, for example, you found that the previous cost of £100 per day has been replaced with a new cost of £75 per day. As a result, a 25% saving on price has been achieved. Let’s assume that last year your organisation hired cars for 2,000 days at a cost £200,000. Assuming the same level of spend on cars this year, a 25% saving will generate a saving of £50,000. The 25% saving is generated using the £100 as a baseline and comparing it to the awarded contract price of £75. Baseline prices To accurately assess a saving from an e-auction, it is necessary to identify the price that was paid previously for the goods or services. This price is called the baseline price. For the purposes of finding savings from e-auctions, we recommend using one of three different methods for finding the baseline – ‘previous price’, ‘indexed price’ or ‘lowest start bid price’. 1. Previous price In most cases, the commodity or service being e-auctioned has been bought previously using similar contract terms and conditions. In this case, it should be straightforward to identify the amount of previous spend on it. Hence, the ‘previous price’ should be the default method for identifying a baseline as it provides the most accurate picture of savings. It is important to remember that the previous price is always linked to the volume and quality of the commodity or service being purchased, so you will need to consider these factors as well. 2. Indexed price Sometimes organisations buy a commodity that has a fluid price which changes daily or hourly – electricity or fuel for example. In the case of electricity, prices have been rising steadily and it is highly unlikely that a public sector body would make a saving against their previous annual spend and yet it is still important to know how the e-auction has impacted on the tender. In these cases, the baseline price is found by using a recognised index that provides information on the current prices for the commodity. The final price offered by the winning supplier is compared with the indexed price being used as a baseline price.

t emen r u c ro ing P m r o f s >Tran

24

How to be successful in e-auctions

3. Lowest start bid price Where no previous price indication is available, a new baseline must be found. Here, the lowest opening bid placed in the e-auction should be used as the baseline price. The need to use the lowest start bid price can arise when a previous contract is not in place or when an organisation’s requirements change significantly enough to make a comparison with the previous price untenable. An example of this might be the contract for hire cars. If you decide to issue a contract only for the hire of electric cars then you cannot compare the previous contract price for petrol driven cars. In this instance, the lowest start bid price would be used as a baseline for calculating savings. There is a major caveat for the use of the lowest start bid method of baselining – suppliers can falsely inflate their opening bids in preparation for an e-auction. Organisations choosing to use this baseline must explore all options for finding a previous price baseline before using the lowest start bid price baseline. This should include investigating any contracts that are in use by similar bodies within the region or contracts available through the use of professional buying organisations. It is also worth noting that where organisations use this method of determining savings, the savings become attributable to the whole procurement and not just the auction process. Calculating savings You must ensure that only genuine procurement efficiency benefits are identified and that quality is maintained. The efficiency is the difference between the value of the business at the baseline price and at the awarded contract price. Therefore: Efficiency benefit = (baseline price - awarded contract price) x volume This demonstrates the relationship between the contract price and the need to use the contract. In the example of the hire cars, the savings will be calculated as follows: (£100-£75) x 2,000 = £50,000 However, for the £50,000 in savings to be achieved it is necessary for the contracting body to hire cars for 2,000 days this year. Usually potential savings are considered over the full term of the contract and therefore if the car hire contract is for three years, the potential savings will total £150,000.

t emen r u c ro ing P m r o f s >Tran

25

How to be successful in e-auctions

13. Glossary Award criteria The factors that the buying organisation will consider and qualify when assessing tender returns from suppliers. Award criteria are used in order to establish where suppliers are providing ‘best value’ as opposed to lowest price. Basketing Collecting a related set of goods into a single lot. Where goods are of a similar nature (able to be supplied by single supplier) they may be collected into one lot to create a lot of sufficient value to interest suppliers. Benefits realisation The actions taken to identify where benefits should come from. This also involves assessing whether benefits are being achieved and taking steps to ensure that cashable and non-cashable benefits are achieved. Further information on benefits realisation can be found at www.ideaknowledge.gov.uk/eprocurement Bid decrement The maximum and minimum amounts that each bid can be reduced by. For example, to submit a lower bid, the supplier will have to offer a price that is £500 less than their previous bid. This is normally set by the buying organisation as a percentile of the starting bid. Business case A business case is the document used to gain management commitment and approval for investment in business change, such as e-procurement, which changes the way that suppliers are selected and goods and services are purchased. The business case provides a framework for planning and management of this change and ongoing identification of risks. The viability of the project will be judged on the contents of the business case. Buying organisation The organisation letting the contract of which the e-auction is a part. Cashable benefits Cashable benefits result in a reduction in expenditure. For example, less money will be spent with suppliers but the volume or quality of goods or service will remain the same or fewer staff will be required to deliver the same level of service. e-Auction An e-auction is the means by which pre-selected suppliers can place bids for a specific contract via the internet. e-Auction decision tool A spreadsheet which supports the organisation in assessing whether an e-auction is the appropriate tool for a particular contract. See the e-auction decision tool prepared at www.ogc.gov.uk e-Auction provider A company that specialises in e-auctions. They provide technology to run the e-auction event and provide advice on the tasks to prepare for an e-auction.

t emen r u c ro ing P m r o f s >Tran

26

How to be successful in e-auctions

Framework contracts These are contracts let by one organisation but which can be called off by other organisations. The organisation letting the contract must stipulate in advance that the contract is to be a framework contract and which other organisations are entitled to call off it. Identify requirement The organisation identifies requirements by: > Using spend analysis to understand what the organisation purchases and the number of suppliers it purchases from > Awareness of market conditions such as the number of suppliers for a particular good or service > Assessing which goods and services can be easily specified and which are complex > Defining the criteria that will form the basis of awarding a contract i.e. price, quality, service etc. Invitation to tender (ITT) Documents issued by the organisation that specify what they wish to purchase, the contractual terms and conditions for the tender and instructions for how bidders are to respond. Lot This is the smallest unit on which a supplier can bid. A supplier or group of suppliers must bid to supply the contents of a lot. A lot may contain a singular item or various items. Items in lots are grouped using logical structures designed to maximize competition. See also Basketing. Non-cashable benefits Non-cashable benefits are those that free-up staff from a task (because it has been automated or eliminated) but the time saved for each staff member is not large enough to result in a reduction in the number of staff required. Other non-cashable benefits include better management information, a more robust audit trail and increased compliance with regulations. OJEU tender The selection of a supplier through a tender where the contract value is above the level of expenditure at which EU regulations require the contract to be advertised in the Official Journal of the European Union (OJEU). The current level of expenditure for goods and certain services is £144,371. See www.simap.eu.int Specification This is the detail on which a supplier bids. The specification must include all the criteria on the good being auctioned that are essential to the purchasing organisation. The winning bidder will be expected to meet these criteria but is not required to supply more than these. Spend analysis An essential task to determine whether or not to use an e-auction. A spend analysis is the act of reviewing all the held data on the organisation’s previous purchasing activity. Analysis of this data will show what the organisation has bought, what it has paid for it and who it has bought it from. This information will enable accurate forecasting of an organisation’s future needs and the likely cost to the organisation of these needs. True market price The lowest sustainable price that suppliers can offer for the contract.

t emen r u c ro ing P m r o f s >Tran

27

How to be successful in e-auctions

14. For more information Your first point of contact is your Regional Centre of Excellence. They can also signpost you to other specialists, the details of which are listed over the page.

East of England Centre of Excellence www.eastspace.net/eecpe 01603 704 010 Regional Director: Mike Worron [email protected]

South East Centre of Excellence www.sece.gov.uk 01883 732 957 Regional Director: Andrew Larner [email protected]

East Midlands Centre of Excellence www.emce.gov.uk 0115 977 3875 Regional Director: Chris Allison [email protected]

South West Centre of Excellence www.swce.gov.uk 01305 757 230 Regional Director: Julian Morley [email protected]

London Centre of Excellence www.lcpe.gov.uk 020 7934 9967 Regional Director: Ken Cole [email protected]

West Midlands Centre of Excellence www.wmcoe.gov.uk 0121 245 0220 Regional Director: Andy Hancox [email protected]

North East Centre of Excellence www.nece.gov.uk 0191 433 2257 Regional Director: David Wright [email protected]

Yorkshire and the Humber Centre of Excellence www.yhcoe.rcoe.gov.uk 0113 247 5252 Regional Director: Tony Wiltshire [email protected]

North West Centre of Excellence www.nwce.gov.uk 0161 342 4080 Regional Director: Colin Cram [email protected]

Regional Centres of Excellence Procurement Programme 01603 704 015 Programme Director: Steve Holland [email protected]

t emen r u c ro ing P m r o f s >Tran

28

How to be successful in e-auctions

Details of other organisations who can help you www.ogc.gov.uk www.ogcbuyingsolutions.gov.uk www.pasa.doh.gov.uk/confederations (NHS Procurement) www.dfes.gov.uk/cpp (DfES Centre for Procurement Performance) The following auction providers offer services under the OGCbuying.solutions framework for e-auctions. Achilles Information Limited 30 Park Gate Milton Park Abingdon Oxon OX14 4SH 01235 820813 [email protected] www.achilles.com/uk Bravosolution 4th Floor 12-14 Masons Avenue London EC2V 5BB 020 7796 4170 [email protected] www.bravosolution.co.uk

e-3 Riverbank House 1 Putney Bridge Approach London SW6 3JD 020 7384 1234 [email protected] www.e-three.com Trading Partners 54 Jermyn Street London SW1Y 6LX 020 7261 0000 020 7261 0066 [email protected] www.tradingpartners.com

15. Acknowledgements This guide was commissioned by the Regional Centres of Excellence Procurement Programme in collaboration with the National e-Procurement Project and the Office of Government Commerce. It was authored by Ticon UK Limited. Additional advice and guidance was received from the following organisations: East Lancashire e-Government Partnership Wiltshire County Council Cumbria County Council OGCbuying.solutions Legal advice was supplied by Nabarro Nathanson.

t emen r u c ro ing P m r o f s >Tran

29

How to be successful in e-auctions > Spend analysis

16. Appendix

> > > > >

Is an e-auction appropriate? Business case Budget release and resourcing Identity collaborators Select auction provider

e-auction tasks Tender procedure [diagram depicts restricted procedure]

Contract Notice dispatched for publication in OJEU

37 DAYS

Notice published in OJEU

> Include the right to use an e-auction in the OJEU notice > Reserve the right to award the contract to a supplier that is not 1st placed in the auction

> Market research

Suppliers respond to Contract Notice by date specified > Draft specification > Categorise requirements Supplier appraisal conducted

Agree shortlist

Construct ITT to include: specification, T&Cs, instructions, invitation letter. Notify successful suppliers

40 DAYS

Tenders invited from qualified suppliers

> > > > > > > >

Strategy review Invitation to auction Supplier training Project build Test event Review lotting strategy Basketing Bid sheet

> > > > >

Event build Test event Run event Post event data management Post event report

Suppliers return complete tender

Auction

10 DAYS

> Award criteria and weightings > Terms and Conditions > Build ITT

Inform supplier

Contract awarded

Contract Award Notice

t emen r u c ro ing P m r o f s >Tran