Procurement

2. Accountable Officers should ensure that all staff involved in the procurement of goods, works or services for which they have responsibility are aware of these guidelines and relevant guidance on purchasing policy and practice matters.

3. All procurement of goods and services should be based on value for money, having due regard to propriety and regularity

4. Goods and services should be acquired by competition unless there are convincing reasons to the contrary.

5. Public sector organisations are responsible for ensuring that they comply appropriately with legal obligations and that staff involved in procurement processes understand those obligations.

6. Purchasers should, wherever possible, seek opportunities to collaborate with others, including procurement agencies in respect of common requirements.

7. Procurement processes and the management of contracts and suppliers should be conducted by staff with appropriate skills, experience and training.

8. There should be a clear definition of the roles and responsibilities of staff involved in specifying requirements, giving financial authority and making purchasing commitments. There should be clear separation of financial authority and procurement authority.

Background

9. These guidelines provide an overview of the framework within which public procurement must be conducted. They are intended to be fully consistent with EU/World Trade Organisation (WTO) procurement rules and other international obligations. They do not however create any rights or legal obligations. Accountable Officers should ensure that all staff involved in the procurement of goods, works or services for which they have responsibility are aware of these guidelines and relevant guidance on purchasing policy and practice matters including the Scottish Government's Procurement Policy Manual, Scottish Procurement Directorate Toolkit and Construction Procurement Manual. Local procurement procedures should reflect current guidance.

10. Public sector organisations should notify the Scottish Procurement Directorate (SPD) of issues which may have wider implications for procurement policy or practice. This will enable SPD to consider whether the matter should be drawn to the attention of others and whether general guidance is required.

Value for Money

11. All procurement of goods and services should be based on value for money, having due regard to propriety and regularity. "Value for money" is defined as the optimum combination of whole-life cost and quality (or fitness for purpose) to meet the user's requirement. Securing value for money in procurement is crucial to the wider objective of delivering high quality, cost-effective public services. It is essential, therefore, that purchasers develop clear strategies for continual improvement in the acquisition of goods and services. Whether in conventional procurement, market-testing, or some form of public-private partnership, value for money considerations should involve assessment of risk and an appropriate allocation of risk

12. It would not be consistent with value for money, or the equal treatment of suppliers, for procurement to be used to pursue aims unrelated to the subject of the contract. Purchasers should not seek information which they cannot legitimately take into account. Purchasers should however seek such information from potential bidders as is necessary for establishing whether it would be inappropriate to enter into contracts with them. Suppliers to the public sector should be able to demonstrate their economic and financial standing and capacity to meet the requirement. In addition they should be expected to maintain high standards of business and professional conduct.

13. Awarding contracts on the basis of value for money following competition contributes to the competitiveness of suppliers in both domestic and overseas markets.

Competition

14. Goods and services should be acquired by competition unless there are convincing reasons to the contrary. Competition promotes economy, efficiency and effectiveness in public expenditure. Subject to any relevant legal obligations, for example under the EU rules, the form of competition should be appropriate to the value and complexity of the goods or services to be acquired. For example, the cost to both the purchaser and potential suppliers will need to be taken into account in deciding whether a full competitive tender is appropriate. Purchasers should keep bidding costs to the minimum necessary for effective competition and should remove barriers to participation by small firms and the self-employed without discriminating against others.

15. In contract award procedures which involve the selection of suppliers to be invited to tender or negotiate, selection should be made on the basis of objective criteria, (taking account only of evidence permitted under the EU rules where they apply). Purchasers should also ensure that, consistent with their legal obligations, any minimum standards of financial or economic standing and technical capacity, are proportionate to the contract(s) in question and that in selecting participants undue emphasis is not placed on size.

16. In determining the criteria for the award of contracts, purchasers should rarely rely on price alone. In most cases value for money will involve other factors such as whole-life cost, quality and delivery against price. Appropriate investment appraisal techniques should be used in assessing which compliant bid offers the best value for money. Investment appraisals in respect of complex, high value contracts, may require specialist advice.

17. On the cost side, 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 maintenance, management, operating and disposal costs, whenever they fall. For complex procurements, including large supplies and services contracts and construction projects, whole-life cost may be very different from, and only loosely related to, initial price.

18. On quality, higher expenditure on better quality might well be offset on a whole-life costing basis, for example by lower maintenance costs, longer life or higher residual value and therefore justified on cost grounds alone. However, a better quality solution to the requirement, for example in terms of service standards, might add to whole-life cost. In all cases it is for the purchaser to consider carefully whether increased benefits justify higher cost, providing better value for money in meeting the requirement

19. Guidance on the use of external tax advisers and the consideration of tax issues in relation to procurement decisions is set out in the Tax Planning and Tax Avoidance section of the SPFM.

Legal Framework

20. Public sector organisations are responsible for ensuring that they comply appropriately with legal obligations and that staff involved in procurement processes understand those obligations. Advice on interpretation of the EU/World Trade Organisation rules should be sought from the relevant legal adviser or from specialist procurement staff.

21. The legal framework for public procurement includes:

EU and other international obligations, as implemented in domestic legislation or by virtue of direct effect;
specific domestic legislation, for example, on corrupt gifts or unfair contract terms;
contract and commercial law in general; and
domestic and European Court of Justice case law.

22. In the event of infraction proceedings by the European Commission against a Scottish contracting authority, SPD will co-ordinate the UK response under the arrangements set out in the subject specific Concordat on public procurement.

23. In general, procurement decisions by purchasers will be of a commercial rather than administrative nature. Applications for judicial review are unlikely to be granted where an alternative, more appropriate, remedy is available.

The User's Requirement

24. The purpose of procurement is to meet the user's requirement, including the project brief. The requirement, including any specified level of quality or standard of service, must, however, be tested critically for need, cost-effectiveness and affordability under whatever arrangements are in place for financial approval. As far as possible, requirements should be expressed in terms of what is to be achieved to provide scope for innovative solutions and avoid any suggestion of favouritism. Requirements should be specified by reference to recognised standards, where relevant, making provision for equivalents to be offered and considered wherever possible. Where they apply, the EU directives specify a hierarchy of standards to which purchasers must refer. Also, in specifying products of a particular characteristic, e.g. in accordance with their policy on the environment, purchasers should take care not to discriminate either directly or indirectly.

Collaborative Procurement

25. Purchasers should, wherever possible, seek opportunities to collaborate with others, including procurement agencies in respect of common requirements. This will help avoid unnecessary duplication of effort and gain the benefits of aggregation of requirements and economies of scale.

26. In seeking value for money purchasers may choose to enter into contracts under framework agreements put into place by others. The body responsible for the framework should advise whether the framework agreement has been awarded in accordance with the EU rules on behalf of other potential users. In deciding whether to make use of collaborative contracts, the costs of undertaking a separate procurement process must be taken into account.

27. If purchasers employ private sector agents, or a private sector agency, to undertake procurement on their behalf they should ensure a clear allocation of responsibilities and, where appropriate, obtain an indemnity from the agent against any costs incurred as a result of its failure to comply with the legal framework on their behalf. Private sector agencies can only comply with the EU rules on behalf of purchasers if appointed to do so. For example, they cannot purport to have complied with the EU rules in entering into framework agreements for use by a number of public sector purchasers unless formally appointed to do so by a public body ("contracting authority").

Ethics and Professional Standards

28. In all dealings with suppliers and potential suppliers purchasers must preserve the highest standards of honesty, integrity, impartiality and objectivity. In particular, purchasers must:

be fair, efficient, firm and courteous;
achieve the highest professional standards in the award of contracts;
publicise procurement contact points and make available as much information as suppliers need to respond to the bidding process;
notify the outcome of bids promptly and, within the bounds of commercial confidentiality, to debrief winners and losers on request on the outcome of the bidding process to facilitate better performance on future occasions;
achieve the highest professional standards in the management of contracts; and
respond promptly, courteously and efficiently to suggestions, enquiries and complaints

29. Procurement processes and the management of contracts and suppliers should be conducted by staff with appropriate skills, experience and training.

30. Suppliers to the public sector should be expected to maintain high standards of business and professional conduct e.g. in relation to legislative requirements on the environment, equal opportunities, race relations, health and safety, employment and taxation. Bidders should generally be required to disclose any recent adverse court or tribunal rulings regarding their business/professional conduct. Where a bidder has failed to comply with relevant legal obligations, consideration should be given to whether it should be excluded from competition on grounds of its unsuitability. In deciding whether or not a bidder should be excluded, account should be taken of the seriousness of the ruling/offence, whether or not the ruling/offence indicates that the bidder is of poor reputation and whether or not the bidder has taken appropriate action to remedy the problem which was the subject of the ruling.

Contracts

31. Contracts should be in writing. Purchasers should, wherever appropriate, seek to apply model terms and conditions developed in the light of collective experience and with which they and potential suppliers are likely to be more familiar. "Variation of price" clauses should not be used in contracts of less than two years duration, and all contracts should contain "prompt payment" clauses, requiring the supplier to pay its sub-contractors promptly, ordinarily within 30 days of receiving a valid invoice.

32. Purchasers cannot usually enter into contracts with other parts of the same legal entity. Internal agreements which fall short of being contracts are normally referred to as "Service Level Agreements". Service Level Agreements may have all the hallmarks of contracts other than the normal provisions for the enforcement of a contract. It should be noted that, under the terms of the Scotland Act, it is possible for agreements between the Scottish Ministers and UK Ministers, to be legally binding. If the intention in framing such agreements is that they should not be legally binding, this must be made explicit in the terms of the agreement. It should also be noted that, if an agreement between Scottish and UK Ministers is to be legally binding, it may be subject to the EU/WTO rules.

Ordering and Payment Procedures

33. Procurement arrangements should be reviewed periodically to consider whether ordering and payment procedures could be streamlined and value for money improved e.g. e-procurement or the Government Procurement Card. Guidance on the use of the Government Procurement Card is provided on the Scottish Government's Intranet.

Separation of Duties

34. There should be a clear definition of the roles and responsibilities of staff involved in specifying requirements, giving financial authority and making purchasing commitments. The role of specialist purchasers and other staff with formal delegated purchasing authority is to work in partnership with budget managers and end-users to ensure that value for money is achieved and that these guidelines and other relevant guidance are adhered to within the legal framework.

35. There should be clear separation of financial authority and procurement authority (other than for ordering under standard call-off or framework contracts). Budget holders should have authority to commission orders by specifying their requirements and providing financial authority for the expenditure. The authority to place that order should be in separate hands. In addition, there should be an appropriate separation of duties within the purchasing cycle between staff who place orders, those who receive goods or services and those who authorise payment. Separation of functions should be designed both to provide necessary safeguards against impropriety or unethical practice and to ensure achievement of value for money.

Prompt Payment

36. All invoices should be paid on time and, with regard to relevant organisations, in accordance with the Scottish Government's prompt payment commitment. See the Expenditure & Payments section of the SPFM.

Environmental Policies

37. All staff involved in procurement must have regard to the organisation's environmental policies, where relevant, especially in framing specifications. Detailed guidance on sustainable development in procurement is available from SPD.

Further Guidance

38. Detailed guidance on procurement and related issues can be obtained from SPD which:

advises the Scottish Ministers on procurement policy and the implementation and interpretation of the EU rules in Scotland
liaises closely with the Office of Government Commerce on best practice, UK and EU procurement policy and the development of EU directives and other international measures;
issues guidance aimed at promoting best practice and the development of procurement strategies.

39. Detailed policy and guidance on works procurement can be obtained from SPD Construction Advice and Policy Division which maintains the Construction Procurement Manual (applicable to all bodies subject to the requirements of the SPFM).

40. Guidance on the EU rules is also published by the European Commission, but advice should not be sought from the Commission without first consulting SPD.

41. In general, SPD communicates with business areas within the Scottish Government which are responsible for communicating with other bodies in their field of responsibility e.g. sponsored bodies. SPD also provides information via the Scottish Government website.

Page Published / Updated: October 2008

The Scottish Government

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