Efficiencies of framework agreements for procurement

[Skie]

Moderator note: split from https://www.railforums.co.uk/threads/cost-control.226513/

I hope the DfT are not just seeing one price for things, there should be at least three prices provided for everything unless framework type agreements are already in place where prices are already agreed. It is not just cutting down on wasteful unnecessary spending but ensuring best value for money is obtained. The railway industry seems to be at the mercy of a few companies many of which are not UK based. We see enormous sums quoted for infrastructure works and as a pure layman and tax payer I do not have confidence that the projects are satisfactorily controlled regarding scope, solutions, decisions made and cost.

Unfortunately framework agreements can sometimes be a license to rip off an organisation too if they aren't well managed.

I've made the scenario generic, but this was just one experience: We had to buy sprockets and I found a website that specialised in this particular type of sprocket (sprocketsrus.com) at a reasonable cost of £400. Finance said no can do, you need to buy sprockets from our framework supplier, we'll get you a quote. Quote duly came in a week later and was for £1200. As we had no choice we paid.

The Sprockets then arrived in a box labelled sprocketsrus.com. Our supplier had basically charged us an £800 fee to submit an order to the same supplier we could have used. Multiply that experience across a huge organisation and you're talking ludicrous amounts of money being syphoned out of projects.

 

[zwk500]

Unfortunately framework agreements can sometimes be a license to rip off an organisation too if they aren't well managed.

I've made the scenario generic, but this was just one experience: We had to buy sprockets and I found a website that specialised in this particular type of sprocket (sprocketsrus.com) at a reasonable cost of £400. Finance said no can do, you need to buy sprockets from our framework supplier, we'll get you a quote. Quote duly came in a week later and was for £1200. As we had no choice we paid.

The Sprockets then arrived in a box labelled sprocketsrus.com. Our supplier had basically charged us an £800 fee to submit an order to the same supplier we could have used. Multiply that experience across a huge organisation and you're talking ludicrous amounts of money being syphoned out of projects.

Did finance provide a genuine business justification for spending 3 times as much on the same product or did they just mumble 'mummy says we can't'?

 

[JamesT]

Did finance provide a genuine business justification for spending 3 times as much on the same product or did they just mumble 'mummy says we can't'?

Usually the idea is you get suppliers to bid competitively on a basket of goods and commit to keeping those prices low for a period of time. This saves having to go through the process for each item when you can just buy from the pre approved supplier. Depending on how often you need stuff outside the basket, it can be cheaper overall to just live with the occasional expensive product.

 

[zwk500]

Usually the idea is you get suppliers to bid competitively on a basket of goods and commit to keeping those prices low for a period of time. This saves having to go through the process for each item when you can just buy from the pre approved supplier. Depending on how often you need stuff outside the basket, it can be cheaper overall to just live with the occasional expensive product.

That's the logic behind it. After all, what's £800 to a company the size of GWR or NR? However, it's never just occasionally you need the expensive products. It all adds up quite quickly, and it's an area that could be controlled relatively easily by specifying that products outside the basket can be sourced directly if the price difference exceeds a certain threshold from the contracted supplier. Win-win: supplier keeps their monopoly, customer makes sure they're never paying over the odds for a product.

 

[Skie]

Did finance provide a genuine business justification for spending 3 times as much on the same product or did they just mumble 'mummy says we can't'?

Wibble about contractually bound. I just added it to the list of things it's best to do first, ask for forgiveness later.

 

[westerndave]

Unfortunately framework agreements can sometimes be a license to rip off an organisation too if they aren't well managed.

I've made the scenario generic, but this was just one experience: We had to buy sprockets and I found a website that specialised in this particular type of sprocket (sprocketsrus.com) at a reasonable cost of £400. Finance said no can do, you need to buy sprockets from our framework supplier, we'll get you a quote. Quote duly came in a week later and was for £1200. As we had no choice we paid.

The Sprockets then arrived in a box labelled sprocketsrus.com. Our supplier had basically charged us an £800 fee to submit an order to the same supplier we could have used. Multiply that experience across a huge organisation and you're talking ludicrous amounts of money being syphoned out of projects.

Happens all the time. We sold out business 2 years ago (nothing to do with railway related items) we supplied several NHS trusts, police and fire services, schools, uni’s etc… as we offered the lowest price on several branded products they used/needed and had stock but we constantly got knocked back by a majority of these organisations as we were “not on the list” and I had many a heated word with organisations about what a waste of public money their short sightedness caused. We also often had facilities management companies place order with us for delivery under plain label to these same organisations and the facilities management companies didn’t even ask for a trade discount!!!

 

[Meerkat]

However, it's never just occasionally you need the expensive products. It all adds up quite quickly,

If its not just occasionally those items should be on the main list of special deals with the supplier. If you excluded the "expensive" things then they would reduce the discount on the really frequently bought stuff. It isn't as simple as it looks to the user.

Happens all the time. We sold out business 2 years ago (nothing to do with railway related items) we supplied several NHS trusts, police and fire services, schools, uni’s etc… as we offered the lowest price on several branded products they used/needed and had stock but we constantly got knocked back by a majority of these organisations as we were “not on the list” and I had many a heated word with organisations about what a waste of public money their short sightedness caused. We also often had facilities management companies place order with us for delivery under plain label to these same organisations and the facilities management companies didn’t even ask for a trade discount!!!

From vague memories of a report I read about NHS inefficiency the thing you complain about was introduced to stop gross inefficiency in procurement. Too many individuals were ordering, too many different versions of the same thing were being bought, corruption control was too difficult, and cupboards all over the place were full of a random selection of products.
Admittedly this isnt entirely relevant to your branded products (remembering that depending on what your branded products are the concern might be that random new suppliers are not supplying the real thing, and thats why they are cheaper)

 

[zwk500]

If its not just occasionally those items should be on the main list of special deals with the supplier. If you excluded the "expensive" things then they would reduce the discount on the really frequently bought stuff. It isn't as simple as it looks to the user.

Then they leave themselves open to being undercut by a competitor, the free market in operation. Or the supplier could negotiate with the customer to expand the 'protected' list for things bought at a certain frequency. However both approaches require proactive and attentive management, a bit like finding the right insurance deal for your house/car.

 

[Brush 4]

I'm not involved in this area but is automation a factor. Leave it to the system, with no oversight or checks.

 

[westerndave]

If its not just occasionally those items should be on the main list of special deals with the supplier. If you excluded the "expensive" things then they would reduce the discount on the really frequently bought stuff. It isn't as simple as it looks to the user.

From vague memories of a report I read about NHS inefficiency the thing you complain about was introduced to stop gross inefficiency in procurement. Too many individuals were ordering, too many different versions of the same thing were being bought, corruption control was too difficult, and cupboards all over the place were full of a random selection of products.
Admittedly this isnt entirely relevant to your branded products (remembering that depending on what your branded products are the concern might be that random new suppliers are not supplying the real thing, and thats why they are cheaper)

As much as I love the NHS and owe my life to them they are can be incredibly inefficient. You are not wrong in saying the NHS introduced rules to stop duplication but and it’s a BIG but the rules were vague and not compulsory coupled with vague local agreements or requirements. Almost all of the organisations I mentioned have moved to buying via consortiums or using facility management companies because on paper they offer a good efficient one stop shop and should with the right framework and parameters in place do exactly that but sadly they rearly actually deliver that.

another example of this was we also had a subsidiary company that rented equipment and we often rented to MOD sites for emergency cover but we were not on any lists so usually to get round it and also to be able to deliver a quick solution the facilities company would issue an order to one of their local sub contractors who would in turn issue an order to us. With everybody putting a margin on t(e job. On man6 occasions we would go to site to install and work under the local sub contractors permitted framework with them in attendance for compliance while there was also physical oversight from the facilities companies and the MOD base at the same time. Trust me if you want a small insight into how companies like carillon operated I could provide you volumes but it only happened because hats he way the top of the ladder drew up contracts and frameworks…. Ie passing the buck down the line all the time but with contuiLly added inefficiencies and margins that why a mile of track probably costs £3m

 

[Brush 4]

Good to see that we are now getting to the crux of the matter re industry in general. So, rail work does cost more than it needs to. It is the bureaucratic structure that needs reform. Cut out the middle man and the just to the left/right of the middle ones as well. Too may cooks etc.

 

[py_megapixel]

Usually the idea is you get suppliers to bid competitively on a basket of goods and commit to keeping those prices low for a period of time. This saves having to go through the process for each item when you can just buy from the pre approved supplier. Depending on how often you need stuff outside the basket, it can be cheaper overall to just live with the occasional expensive product.

I think these negotiated low prices are often offered to businesses subject to them meeting specific quotas for the amount ordered at those prices per year. The idea is that the business has an internal system which allows all of its departments to order products through the approved supplier at the negotiated, supposedly discounted rate.

The problem is it's not unheard of for the suppliers to start offering publicly available rates which undercut these negotiated rates. Of course the departments, all with their own budgets, within the business that negotiated the rates will now order directly at the cheaper public rates, rather than going through the internal system. But this causes the business as a whole not to meet their negotiated quotas, meaning they are expected to pay the supplier to make up for the shortfall (or whatever penalty is in the contract for not meeting the quota), basically leading to them paying for things twice.

Or alternatively, the business can implement a policy that anything needed that can be procured through an approved supplier must be procured through an approved supplier. But then the internal departments complain that they are being kept from accessing the cheapest prices. Which is true to an extent, even if it makes it cheaper overall.