The Scottish Procurement Directorate's Policy Manual

SEPARATION OF DUTIES	The roles of Budget Holder/Customer, Purchaser and Payment Authoriser should be separated. The purchaser who is empowered to make the binding commitment must have written delegated authority.
VALUE FOR MONEY	A prime aim of the procurement process is to ensure that best Value for Money (VFM) is achieved.
COMPETITION	Procurement should be through open competition unless there are exceptional reasons.
INTERNATIONAL OBLIGATIONS	Procurement processes must comply ffully with the EC Procurement Directives and the WTO Government Procurement Agreement.
PAYMENT ON TIME	Suppliers must be paid on time in accordance with contractual arrangements.
ETHICAL STANDARDS	Procurement must be undertaken to the highest ethical standards and with fairness to suppliers.
LEGAL ASPECTS	Contracts must be in writing and in accordance with Scottish Executive legal policy.
EXTERNAL CONSULTANCY	Ministerial approval must be obtained for external consultancies over £50k, and SPD must be involved.
ENVIRONMENTAL IMPACT	Purchasers must consider environmental impacts and aim to minimise adverse environmental impacts.
OTHER GOV. INITIATIVES	Full account must be taken of other relevant Government initiatives. (See Annex A for details.)

2. INTRODUCTION

'Procurement' is the whole process of acquisition from third parties and covers goods, services and construction projects.

The Procurement Policy Manual sets out the Scottish Government's Procurement Policy. It applies to all procurements, e.g. goods, services (including consultancies and research) and works/construction. The policy applies to procurements funded from both programmes and running costs. It is intended for the information of everyone in the Scottish Government who is involved in procurement whether as budgetholder/customer, purchaser, expenditure authoriser, or contract manager/project sponsor.

The key elements of the policy reflect essential values set out in the Scottish Government Mission Statement, i.e. to act with integrity and honesty, to pursue value for money, and to encourage continuous improvement and innovation. In this context it is worth pointing out that such key elements as use of competition and separation of duties help to protect the individuals involved in procurement in addition to helping support value for money.

It is the responsibility of all line managers to ensure that any staff involved in procurement processes adhere to the policies outlined in this Manual.

Detailed guidance covering best practice in undertaking the procurement process is provided in the separate SPD - Toolkit. Relevant references to Government Accounting, the Scottish Public Finance Manual (SPFM), and other Scottish Government material, are indicated where appropriate.

3. PROCUREMENT ROLES/RESPONSIBILITIES and COMPLIANCE

4. Generic Procurement Process : Main Elements

This section looks at the procurement process including:

Separation of duties
Responsibilities and Authority
Compliance: Information Requirements and Health Checks

5. SEPARATION OF DUTIES

In the procurement process two key distinguishable roles are:-

the budget holder/customer who perceives the need and makes out the business case to obtain any necessary approval to spend, then commissions the procurement service, and normally gives final approval to the recommended choice.

the purchaser who fulfils the procurement role (including making the legally binding commitment to the chosen supplier) and is responsible for ensuring that the procurement process fully complies with procurement policy as set out in Section 1 of this Manual, and secures best Value for Money (VFM). Key elements of the purchaser's role are set out in Annex B.

It is Scottish Government policy that these two key roles should be separated. However, in all but the simplest cases, the customer and the purchaser should work together as a team throughout the procurement process. In more complex cases, the team is likely to be expanded to include Finance, Technical, and possibly legal colleagues. The final sourcing decision should be agreed by all the parties involved.

Neither of the above roles include the authority to make payments in connection with the contract entered into by the purchaser. Actual payment is to be handled in accordance with the Scottish Public Finance Manual.

In the case of major capital expenditure projects, roles and responsibilities are set out in the Finance Manual-Section, and must be complied with.

6. RESPONSIBILITIES AND AUTHORITY

The Scottish Government's Director of Procurement has been charged by Management Group to determine best practice purchasing arrangements and, through Accounting Officers, to seek to establish these consistently across the Office.

No member of staff may award a contract without written delegated authority.

This delegated authority to commit a specific purchase contract (purchasing authority) is entirely separate from delegated budgetary authority, including that detailed in individual financial responsibility statements. Budgetary authority does not, of itself, imply purchasing authority. Purchasing authority will be delegated by the Director of Procurement, Scottish Procurement Directorate dependant on procurement needs, relevant training and experience. These officials may be able to sub-delegate purchasing authority in a form prescribed by, and with the approval of, the Director of Procurement. Members of staff who have delegated purchasing authority shall be known as "delegated purchasing officers".

Where the usual officer with purchasing authority is absent, authority should be sought through the lines' senior authorised purchaser or through the Director of Procurement. The officer with appropriate purchasing authority should be alerted to planned or possible procurements at the earliest opportunity. Specialist advice should also be taken. The sources of advice are set out in Annex C.

The Director of Procurement will maintain a central register of these purchasing delegations for the purpose of communications, advice and training.

7. COMPLIANCE: INFORMATION REQUIREMENTS and HEALTH CHECKS

All purchasing Divisions/units throughout the Scottish Government should maintain, and make available as required, procurement management information as set out in Annex D.

To ensure compliance with procurement policy and to spread best procurement practice, the Director of SPD has been charged with the responsibility of developing a purchasing health check programme in consultation with the Scottish Government Audit Unit (SGAU), Construction Advice and Policy, Trunk Roads Design & Construction Division and others.

8. PROCUREMENT POLICY

9. VALUE FOR MONEY

Pursuance of VFM is a key component of the Scottish Government Mission Statement.

"The prime objective of Government procurement is to achieve value for money (VFM). Best VFM is the optimum combination of whole life costs and quality to meet the customer's requirement".

Setting New Standards 2.3

Meeting the customer's requirement is fundamental. End users are not usually the purchasers themselves and their needs must be tested critically for cost effectiveness. To ensure best VFM in procurement the relevant factor is whole life cost, not lowest short term price. Whole life cost takes into account all aspects of cost over time, including capital, maintenance, management and operating costs, whenever they fall. Where investment appraisal techniques and analysis of financing costs are appropriate in complex cases for evaluating tenders, referral should be made to the Finance Manual

It is Government policy that purchasers should also use their commercial influence to help improve the competitiveness of suppliers, e.g. by ensuring that the products, processes and services which they buy, as far as possible, reflect the requirements (in terms of quality and price) of world markets, and specifications encourage innovation. Suppliers should not be put to unnecessary cost through casual enquiries for bids.

All managers, not only purchasers, are responsible for ensuring that best VFM is achieved through the procurement process.

The Scottish Government has established a number of collaborative contracts for widely used goods and services, and these must be used wherever possible to ensure best VFM is obtained. A list of items covered is provided in Annex E, and further information is available from SPD.

10. COMPETITION (including NON-COMPETITIVE ACTION)

"Goods and services should be acquired by competition unless there are convincing reasons to the contrary. Competition avoids any suggestion of favouritism and the encouragement of monopoly; it also helps to promote efficiency and economy. The form of competition should be appropriate to the value and complexity of the goods or services acquired". Government Accounting

It is Scottish Government policy that procurement should be undertaken through open competition. Purchasers, in consultation with customers, are responsible for identifying suppliers most likely to offer best VFM and for encouraging them to tender.

Key aspects of tendering policy for each form of competition are outlined at key stage sections within the Scottish Procurement Toolkit but this chart gives an overview of expected activity:-

Value	Activity
£0 - £1,000	Use of the Government Procurement Card and 1 verbal quote should normally be sought
Between £1,000 and £5,000	Use of Government Procurement Card ( if transactional limit allows) Minimum of 3 verbal/telephone quotes should be sought and details recoreded
Between £5,000 and £50,000	A minimum of 3 written quotaitons should normally be sought
Above £50,000	Formal sealed bid procedures

Further reading on Goods and Services Procurement Guidance can be found in the Scottish Procurement Toolkit

Non-Competitive Action

Sometimes known as "Single Tender Action", Non-Competitive Action (NCA) is required when procurements need to be made which cannot satisfy the minimum competition requirements. Great care is needed in authorising NCA as without competition it is difficult to achieve best VFM and difficult to ensure that the procurement process is fully defensible. Therefore all requests to proceed with NCA for procurements over £10k in value must be approved in advance by SPD.

For lower value NCA-procurements between £1k and £10k, prior approval must be obtained from a senior line manager of at least Head of Division level. In all cases the guiding principles are that approval is by someone other than the purchaser who will undertake the procurement (i.e. adequate separation of duties), and the justification must be formally recorded on file.

Examples of situations where NCA may be justified are set out in Annex F.

11. INTERNATIONAL OBLIGATIONS

Within the European Union a series of Procurement Directives (known as EC Procurement Directives) apply to promote fair and open competition. These require public authorities to publish details of contracts above specified thresholds which they intend to place, and to follow other specified procurement procedural rules.

It should be noted that many procurements above £94k are likely to be subject to the detailed procedures in the EC Procurement Directives. The most common procedure will take a minimum of about 3-months from advertisement to choice of supplier, and this can easily extend to 8-months in more complex cases allowing for clarification of specifications, supplier set-up time, etc. Failure to appreciate the EC obligations sufficiently in advance is not itself an acceptable reason for reducing normal timescales.

Details of the Directives, corresponding UK Regulations, and current thresholds are set out in Annex G.

Annex H sets out the list of services which fall into Part A of the Directive (often known as "priority services") to which the full rules apply, or Part B ("residual services") where obligations relate only to specifications and contract award information.

Annex I sets out essential requirements for purchasers. Advice can be provided by SPD

12. PAYMENT ON TIME OF VALID INVOICES

Scottish Government policy is to ensure that suppliers are paid on time. The Scottish Government observes the Better Payment Code and British Standard 7890 published in 1996. The latter sets out good payment practice and the roles of buyer and seller, particularly emphasising the need for clarity in the arrangements. In the case of construction, statutory requirements for payment procedures are set out in Part II of the Housing Grants, Construction and Regeneration Act 1996.

The aim is to pay on time, never late but not unnecessarily early unless some early payment discount or other benefit has been agreed. Our interpretation of making payment is when a BACS payment is committed or a cheque is posted. If any invoices have been disputed, the 'clock' should run from the date the dispute was resolved.

Further information can be found in the SPFM and SEAS Homepage

CONTRACT MANAGEMENT

Contract management is an essential part of the contracting process. Contract monitoring procedures are the essential key to ensuring that the contractor meets the service levels set out in the contract and to ensuring continuing value for money. A contract manager should always be appointed from within the Department and will be responsible for the monitoring, and all aspects of the management, of the contract.

Guidance is provided in the SPD - TOOLKIT, and further advice can be provided by SPD.

It is Scottish Government policy that no accusations of breach of contract should be made against any supplier without the prior approval of a direct line manager of C1 or above, and normally also approval from Solicitor's Office.

14. FOREIGN CURRENCY TRANSACTIONS

Scottish Government policy is to buy goods and services at sterling prices without parity clauses. The only exceptions to this rule are if the commodity being purchased is normally traded internationally in another currency, e.g. oil and gold.

15. ETHICS AND ETHICAL ISSUES

Detailed guidance on most ethical issues which relate to purchasing is contained in the Staff Handbook at Section A10.1. Purchasing staff and all others involved in procurement (including line managers) must read, and be familiar with Section A10.1 and its associated appendices - most particularly Appendices 3, 4 and 5.

Purchasers should be honest, fair and impartial in their dealings with suppliers.

Invitations from suppliers or potential suppliers to attend social functions must not be accepted without receiving consent from your Group Budgetholder or Chief Professional Officer.

Staff involved in the procurement process should be vigilant against the operation of cartels and collusion of suppliers. Any suspicions should be reported to the Director of Procurement.

A supplier may wish to make a press announcement about an order they have been awarded. Before approving a request for such an announcement, staff should consult FCSD Press Desk.

References may from time to time be sought from other potential customers of one of your suppliers. In such circumstances caution must be exercised. Such references should be provided wherever possible on a special pro-forma available from SPD. References in writing must not be provided without receiving consent from your Line Manager/Head of Branch (at least Band C1) and also consulting the relevant purchaser.

16. EXTERNAL CONSULTANCIES

In the case of consultancy purchases these should be approved by an appropriate level of management usually Head of Division (with delegated budgetary authority) within the Customers Division when between £10,000 and £50,000 and by the Minister for Finance and Public Service Reform when in excess of £50,000.

Relevant policy and procedures have been published in the SPD Toolkit.

17. DISPOSAL OF SURPLUS MATERIAL

Goods not wholly consumed in the course of use will have to be disposed of when no longer needed. Some assets may have a resale value. For others, there may be a cost, including an environmental cost of their disposal. All these factors will be taken into account in an integrated procurement process. Setting New Standards 2.27

Officers with responsibility for stock, equipment and materials should be aware of the need to release them for sale should they become obsolete or surplus to requirements. Items not considered saleable should be disposed of in the most economical manner possible. In all cases the objective is maximum benefit to the Office.

In all cases formal approval must be obtained prior to any disposal. The disposal process should be executed by a designated purchaser who will ensure that standard Scottish Government Conditions of Sale are applied. Detailed guidance is provided in the SPD - TOOLKIT.

Whatever the method of disposal, it is particularly important that clear records are kept which provide a comprehensive trail of the decisions and actions taken and of the authorisations given to effect the disposal. Payment must be received before the item or lot is released to the purchaser ( t he machinery for handling such receipts is set out in SPFM Sections).

18. CONTRACT AND LEGAL ISSUES

19. COMMITMENT OF A CONTRACT

In Scots law, a contract is a legal obligation by which one person is obliged to pay or perform something, or not to do or permit the doing of some things. There is no fundamental difference between a "purchase" and a "contract". A purchase is a contract.

A simple contract can be deemed to have been made by word of mouth, or implied by the action of the parties, even though no formal written contract exists. If the contract contains the essential elements of legally binding agreement then neither party can escape from its contractual obligations and responsibilities except by mutual consent. Consequential liabilities when contracts go wrong can far exceed the "contract value" in some circumstances. Care is required to ensure that contacts are not entered into prematurely.

It is Scottish Government policy that contracts should be committed only by purchasers having specific written delegated authority, and that all contracts must be confirmed in writing.

*Warning.It is possible for legally binding commitments to be made unintentionally. A way of avoiding this is to make it clear in conversations or correspondence that what is being offered is a proposal and is subject to finalisation and incorporation in a proper contract.

20. LAW, AND CONDITIONS OF PURCHASE

All contracts let by the Scottish Government should normally be subject to Scots Law. This is provided for in the Scottish Government Standard Conditions of Contract (SETC) forms, and in all other conditions of contract prepared on behalf of the Scottish Government. Any agreement to the contrary, or any attempt by a supplier to make any other law applicable, should be referred to Solicitor's Office.

Although Divisions/Purchasing Units will issue their own Purchase Orders, they must all contain the same Scottish Government Standard Conditions of Contract (where the subject matter of the contract makes them suitable for use - see further below) with Divisions' special requirements if any, being covered by specific supplementary conditions of contract. Any such non-standard supplementary conditions must be approved in advance by Solicitor's Office, who will consult with SPD as appropriate.

A suite of Scottish Government Standard Conditions of Contract are available from SPD covering goods, (SGTC 1), services (SGTC 2), Consultancy Services (Non-works) (SGTC 3), goods plus associated services (SGTC 4), and also conditions for the sale of goods (SGTC 5). Additional Standard Conditions of Contract Forms can be developed as required. It should be noted, however, that these SETCs have been designed for straightforward or routine purchases of goods or services. In all other cases, and in cases of doubt, reference must be made to Solicitor's Office on this issue.

The appropriate Terms and Conditions of Purchase should be supplied and referred to with the request for quote/Invitation to Tender, and with the Purchase Order if there is any remaining doubt about whether the supplier has read them e.g. in cases of small value ad hoc purchases. Statements on these Forms ensure that these Conditions form part of the resulting contract.

Further information and a brief summary of Laws concerning Competition and Pricing, and Contracts are set out in the SPD - TOOLKIT.

21. BANKRUPTCIES, LIQUIDATIONS AND RECEIVERSHIP

From time to time purchasers may have to deal with bankruptcy of their supplier. Since, at common law, the Crown is indivisible, in any case where a Division is a debtor of a bankrupt or of a company in liquidation or receivership it should investigate the need or possibility for 'set-off' involving a creditor Division/Department. Detailed guidance on this is contained in the SPFM

22. FRAUD RESPONSE PROCEDURES : EXTERNAL FRAUD

External fraud means fraud by an external supplier with no collusion by Scottish Government staff and most commonly involves fraudulent misrepresentation or fraudulent claims . The main areas of vulnerability include: choice/selection of suppliers; contractual arrangements; and claims by suppliers for payment. All parties involved in procurement must take steps to minimise risks by ensuring clarity in contracts/procedures, cross checking claims (proportionate to the degree of risk perceived), and ensuring clear responsibility for checking and approving invoices i.e. correct amount and not already paid.

If instances of misrepresentation are discovered, careful judgement is required as to whether this is in line with commonly accepted ethical practice, e.g. "economy with the truth", commercial exaggeration, dissimulation etc., or whether it might go beyond these bounds and become classifiable as "fraud".

It is Scottish Government policy that no accusations of fraud will be made against any supplier, i.e. the word "fraud" will not be mentioned to any supplier , without the prior approval of a direct line manager of Grade 7 or above, and normally also approval from Solicitor's Office.

If any internal collusion is suspected, the case will be handled in accordance with the Fraud Response Procedures which includes reporting it to the Fraud Response Co-ordinator without delay. All cases of external fraud should also be reported to the Co-ordinator.

Annexes

· Annex A : Other Government Purchasing Initiatives

· A.1 Private Finance Initiative (PFI)

· A.2 Small and Medium Sized Enterprises (SMEs)

· A.3 Special Contracts Arrangement (SCA) Scheme

· A.4 Environmental Issues in Procurement

· A.5 Open Government & The Freedom of Information (Scotland) Act 2002

· Annex B : Key Elements of the Purchaser's Role

· Annex C : Sources of Help and Advice

· Annex D : Information Required from Purchasing Units

· Annex E : Scottish Executive Call-off Contracts

· Annex F : Non-competitive Action: Examples

· Annex G : Public Procurement: Thresholds

· Annex H : Public Procurement: Categories of Services

· Annex I : EU Public Procurement: Essential Requirements

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