Centralised purchasing: it makes sense!

1. Centralised purchasing: it makes sense! Saving money and becoming efficient by developing Framework Agreements 9th Public Procurement Exchange Platform Skopje| May 2013

2. Portuguese PublicProcurementsystemSNCP Key Stakeholders Community/ Society Contractors/ Suppliers Government Ministry of Finance eSPap Interministerial Advisory Committee UMC (11) Contracting authorities and entities (mandatory and voluntary) 2 UMC = MPU: Ministerial Purchasing Units

3. Portuguese PublicProcurementsystemeSPap - thenewmanagingentity Board Planning & Organizational Development General Administration Finance & Administration Legal Support Human Resources Management Client Management & Innovation Client & Service Management Process Management & Innovation Finance Shared Services Human Resources Shared Services Public Procurement State Fleet & Logistics IT Architecture & System Development IT Infrastructure & Operations Finance Business Development Human Resources Business Development Project & Product Management Systems Administration Finance Shared Services Roll-Out Human Resources Shared Services Roll-Out Business Requirements & Processes Security, Data Center & Communications New Products & Capacity Management IT Architecture & Software Engineering Shared Services Center Service Desk, Monitoring & Support Competence Center ERP & BI Budget & Treasury Applications Portfolio Management, SLA & Sourcing

4. CentralisedPurchasingSystemPortuguese model Centralised Model - Framework Agreement (FA) for Contracts and Acquisitions eSPap Ministry Purchasing Units (MPU) Selecting suppliers and awarding the best proposals for each Framework Agreement (FA). 6 to 8 months. Acquisitions of goods and services categories available in the framework agreements (Call Off Stage / mini-competition) Public Tender Supplier Selection Request for Proposals Awarded Suppliers Request for Proposals Negotiation Awarding Contract awarded to the most economically advantageous tenders OR to the lowest price tenders Public Tender announced via OJEU notice. Tender documentation available online Invitation for tendering to all the awarded suppliers (FA contractors). Minimum 5 days Supplier technical and financial selection criteria Best proposal (the most economically advantageous proposal OR the lowest price), as defined on the FA Technical and functional requisites, contract requirements and economic proposal evaluation E-auction or traditional negotiation Framework Agreement Centralization Purchase of goods and services categories under the FAs are mandatory for the central public administration Centralization of acquisitions of goods and services under the FAs eSPap can opt to centralize the acquisitions of goods and services covered by the FA (example: Vehicles and Vehicle Insurance)

5. CentralisedPurchasingSystemSelectionof FrameworkAgreements • FA in “waves” • Criteria: - PublicExpenditures - Common Use - Quickwins - StrategicSourcing • The renewal rate of framework agreements in 2011/12 was 33%, stimulating competition and larger presence of SMES

6. CentralisedPurchasingSystemParties to theframeworkagreement • In the contract notice eSPap identifies that all mandatory entities (State Direct Administration Services and Public Institutes) and voluntary entities (Local Authorities (Municipalities), Local Authorities’ Owned Companies, Regional Authorities and State Owned Companies) are party to the framework agreement. • Mandatory entities: + 1800 entities • Voluntary entities: around 500 .....framework agreements can only be used between the contracting authorities and the economic operators originally party to the framework agreement. When a framework agreement is to be used by several contracting authorities, therefore, these contracting authorities must be identified explicitly in the contract notice, either by naming them directly in the notice itself or through reference to other documents (e.g. the specifications or a list available from one of the contracting authorities [ ], etc.).

7. Centralised Purchasing SystemSuppliers With a single economic operator - Framework agreements not used by eSPap Where a framework agreement is concluded with a single economic operator, contracts based on that agreement shall be awarded within the limits of the terms laid down in the framework agreement. For the award of those contracts, contracting authorities may consult the operator party to the framework agreement in writing, requesting it to support its tender as necessary. With several economic operators Contracts based on framework agreements concluded with several economic operators may be awarded either: a) by application of the terms laid down in the framework agreement without reopening competition, or b) where not all the terms are laid down in the framework agreement, when the parties are again in competition on the basis of the same and, if necessary, more precisely formulated terms, and, where appropriate, other terms referred to in the specifications of the framework agreement, in accordance with the following procedure: (a) for every contract to be awarded, contracting authorities shall consult in writing the economic operators capable of performing the contract; ...... (d) contracting authorities shall award each contract to the tenderer who has submitted the best tender on the basis of the award criteria set out in the specifications of the framework agreement. eSPap Framework Agreements

8. CentralisedPurchasingSystemMajor aspectsof a frameworkagreement • Duration of framework: up to 4 years ( usually 2 + 1 + 1 ) • FA concluded with several economic operators • For every contract to be awarded, contracting authorities shall consult the economic operators capable of performing the contract (using ePlatform) • Public tenders or Public Tender (restricted procedure) • Use of electronic platform (mandatory)

9. The National Public Procurement PlanAssessing needs and planning demand Purchasing entities identify needs and estimate budget UMC collects and validates information Aggregation of demand according to the types of goods and services needed Integration of information from different ministries Preparation of draft version of the National Public Procurement Plan eSPap Ministry level Version sent for validation and approval Reception and evaluation of changes Negotiation and final settings Meeting of the CIC commission and preparation of the Final National PP Plan Formal approval of the Ministry of Finance Publication of the National PP Plan 9 eSPap , UMC and CIC

10. Centralised Purchasing SystemIdentification of goods/services/works to establish a FA • Identification of annual expense, incl. historical trends and forecasts • Evaluation of the public administration needs • Market´s solutions review Conceptual model by eSPap • Concept model and technical solutions review with all ministries • Preparation of technological solutions to include in the FA • Term of the framework agreement, FA criteria award, ... Public Administration Consultation Technical Validation by experts • Review and validation of products and services specifications Public Consultation • Economical operators, associations, public administration & citizens

11. CentralisedPurchasingSystemCalculation of contract values for the framework contract • No value contract at FA level • Public tender / Public Tender (restricted procedure) are advertised on OJEU • There are no limit to the value of the contracts to be awarded under a framework agreement

12. CentralisedPurchasingSystemDividingcontracts/Subcontracting • Through the Portuguese e-procurement solution, SMEs are able to better access public markets, either isolated or in association, in order to improve scale. • In designing the tenders, several measures were taken according to the principles of the European SBA, like creation of lots, regionally and by size, adaptation of requisites to the economic dimension of the markets, multi-access criteria or allowing subcontracting. • Currently SMES account for 70% of the System’s 250 suppliers.

13. CentralisedPurchasingSystemOrganizing mini-competition/ call off without competition CALL OFF under eSPap FA • Conduct needs assessment of the entities • Standardize the technical requirements • Aggregate demand and validate expenditure/spending approvals • Use of the eSPap eCatalogue IdentificationofNeeds (PurchasersEntities) AggregationofNeeds (UMC/eSPap) • Prepare tender/invitation documents (based on standard) • Comply with the requirements and award criteria defined in the framework agreement Call offs documents • Use of eSPap ePlatform • Invitation to all FA economical operators • Contractors obligation of responding to all calls Invitation to all FA economical operators

14. CentralisedPurchasingSystemOrganizing mini-competition/ call off without competition CALL OFF under eSPap FA Improving Attributes of Proposals • E-auction or traditional negotiation • Best proposal • (MEAT orthe lowest price, as defined on the FA) • Notify decision to other suppliers (ePlatform) Awarding • Contracting authorities must: • Monitor the conditions of supply / delivery • Produce and submit award reports to eSPap • FA contractors must: • Meet the conditions agreed in contracts • Report billing reports to the Agency, UMC and entities, within the time specified in the FA Report and Monitoring

15. CentralisedPurchasingSystemIdentifying needs and aggregation methodologies • Aggregation: • Internal • External, UMC, CPB or third party • To aggregate it is necessary to: • Understand available goods and services in the Catalogue • Define rules: duration of contract, timeline, formularies, documentation, etc

16. CentralisedPurchasingSystemIdentifying needs and aggregation methodologies • Best practices • Do not include all goods and services – rationalise • Advantages: • Order management • Stock management • Invoice management • Assess and plan needs (at least one year ahead, but it is possible to adapt to each category and/or FA) • Define clearly the rules, but be flexible if necessary

17. CentralisedPurchasingSystemPricing mechanisms and MEAT evaluation within the frameworks • FAs developed by eSPap allow both situations: • MEAT • The lowest price • Individual contracting authorities, within the FAs, will fit MEAT criteria / weights to their individual situation or chose the lowest price.

18. CentralisedPurchasingSystemPricing mechanisms and MEAT evaluation within the frameworks FA Lots Region Subcontracting Contractors / SME • Paper • Stationary • Consumables 30 / 26 Paper & Stationary No Yes • Scanning • Fax • Portable printers • Printers (Low, medium, high performance) • Combine lot Printing & Copying 21 / 18 Yes No North, South, Alentejo, Lisbon, Algarve, Azores, Madeira and National Level. (NUTS II) • Services • Products Cleaning Services & Products 15 / 10 Yes • Surveillance • Alarm Receiving Centre & Monitoring services • Combine lot Security &Surveillance Services North, South, Alentejo, Lisbon, Algarve, Azores, Madeira and National Level. (NUTS II) 8 / 0 Yes NUTS: Nomenclature of territorial units for statistics / NUTS II (Basic regions for the application of regional policies)

19. CentralisedPurchasingSystemFinancingstructure • Operations are funded by charging fees on suppliers that are part of the framework agreements. No fees are charged on public buyers. • There are only fixed rates in each framework agreement that are charged to suppliers based on their invoicing amount to public entities under the framework (purchases). Rate range: from to 0.5% up to 3%. The usage of the e-procurement tools is free of charge: • Electricity: 0.5% • Software, Vehicle Insurance and Mobile communications: 3% • Vehicles: 2% • Fuel: 1 cent per litre • All other framework agreements: 1% • Framework fees are calculated to support the setting up and managing costs, but also operating costs. The fees take in consideration the relevance of each category of goods and services, in terms of market size, margins and relevance. In the last two year they covered 100% of operations.

20. CentralisedPurchasingSystemCentralisation = efficencyandtransparency • Decide on the rules and mandatory/voluntary approach, incl. penalties • Streamline processes and aggregation flows • Create a sound expenditure approval model (internal and external) • Design mechanisms to support procurement policies (SME, GPP) • Promote integration of information, report and monitoring • Assure publication of contracts awarded under the system in a portal, in order to promote transparency and trust

21. Centralised Purchasing SystemResults of SNCP Savings, transationaland processual (M Euros) 17,5

22. IT Framework |Setting up the framework agreement model • Identification of annual expense • Identification of bad practices in public sector • Evaluation of the public administration needs • Analysis of potential savings attached to the amount of the estimated expense • Market´s solutions review and link to the public administration needs Conceptual model • Concept model and technical solutions review with all ministries • Preparation of technological solutions to include in the FA • Term of the framework agreement, FA criteria award, ... PublicAdministrationConsultation Technical Validation by main IT entities • Review and validation of products and services specifications Public Consultation • Submission to public consultation to collect contributions from general public and citizens, businesses associations, stakeholders, ...

23. IT Framework |Products and equipments Standard Desktop Desktop High performance Desktop Personal Computers Standard Laptop High performance Laptop Laptop Small Laptop Netbook Standard rack server Rack Servers Servers High performance rack server Standard Blade System Blade System High performance Blade System Storage Peripherals Desktop/Laptop/ Servers/Others Display Others

24. IT Framework |Public Tender - Restricted procedure 1st step QUALIFICATION • Technical and financial selection criteria: • Experience (at least 5 customers of € 50.000 each) • EBITDA • Number of workers • Years in the market • NP EN ISO 9001:2008 e NP EN ISO 14001:2004 2nd step Invitation for bid • Selection criteria: • Economically most advantageous offer based on: • Price • Energy efficiency • Manufacturer environmental certification In this procedure: from 36 candidates, 32 passed to the 2nd step

25. IT Framework |Proposals The tenderers must identify equipments, accessories, peripherals, OS and their technical features, and also quote their maximum price. Example: Basis equipment Additional products and options Desktop computer Keyboard + mouse + Display TFT 17” + RAM memory + OS+ technical assistance….. + Laptop computer Mouse + RAM memory + keyboard + transport case+ security cable+ docking station + OS+ technical assistance……. +

26. IT Framework |Lots/Competitiveness Lots / Number of bids The competitiveness was assured in the first six lots but in the seventh, eights and ninths there was some lack of it due to the renting type of provide, quite unusual in the public sector.

27. IT Framework |Awards criteria FA – Award criteria (1st phase) • The award criteria for the framework agreement tender was the economically most advantageous offer based on: • Price • Energy efficiency • Manufacturer environmental certification • Additionally all the products and equipments must fulfill technical / environmental requirements as well as required SLAs • In the call offs under the FA, the award criteria must be one of the following: • The lowest price or: • The economically most advantageous offer based on: • Price and: • Environmental/ Energy efficiency, and/or • Time to delivery, and/or • Technical and functional adequacy, and/or • Warranty period Call offs – Award Criteria (2nd phase)

28. IT Framework |FA upgrade Product upgrade during FA length (usually 2 years) • Can occur: • By eSPap initiative or • By contractors request (typically due to a product discontinuation) • However, the new proposals must: • Maintain or decrease price offer • Maintain brand/maker • Maintain or improve technical specifications

29. IT Framework |Main issues Main issues and difficulties • Diversity of public administration key needs • Solved by constitution of lots with several package solutions which fit in the majority of requests (laptop, desktop, netbook, rack server, blade server, standard, high performance,...) • Market diversity and modularity • Solved by division on lots by product category attached with various possible combinations of peripherals, accessories and additional options for upgrade to ensure and optimize their adaptability • FA Product upgrade/update • Solved by availability of update procedure during FA length • Performance assurance • Solved due the use of a settled requirement benchmark rating (Sysmark 2007: scenario office productivity/ Mobilemark 2007: performance qualification / Mobilemark 2007: battery life/ SPEC CPU 2006 – CINT 2006 Baseline) • Due to legal risk, eSPap did not request or refer any model /brand of processor (or other with similar performance). Instead we defined a level according to an official and accepted benchmark (Bapco and SPEC)

30. Centralised Management Model of the State Fleet (PVE) • Redefiningthe Legal Framework: • Publication of a new legal decree law for the State Fleet (DL n.º 170/2008) • Publication of other Regulatory Documents • Legal Obligations of organizations and services using the State Fleet • Providing the State Fleet Management System (SGPVE) • Public tenders to select suppliers of motor vehicles as well as insurance services through frameworks agreements • The acquisition of motor vehicles is an exclusive competency of eSPap • Call-off process under the framework agreements for vehicles and insurances • Access to the PVE Services by voluntary bodies

31. State Fleet – Some numbers • Since the implementation of the centralised management model of State Fleet we purchased around 1800 vehicles, with a 30% overall savings ratio.

32. Framework Agreements for Vehicles and Motorcycles (AQ-VAM), Electric Vehicles (AQ-VE) and Insurance (AQ-SA) • Defines technicalrequirements: • Displacement, capacity ranges, weight, number of wheels, doors, places, wheelbase, height, length, minimum equipment, permitted load and other specs. • 103 lots grouped in 6 typologies of vehicles: • 5 groups for acquisition: motorcycles, HeavyGoodsVehicles (HGV’s), HeavyPassengerVehicles, ambulances, passengercars and light commercialvehicles • 1 group for operational leasing of passenger cars and light commercial vehicles • Effective for two years, automatically renewed for one year up to a maximum of 4 years • Defines obligations of suppliers and service levels to comply with before the purchasing entities and eSPap • Sets penalties applicable to suppliers for failure to comply with the obligations • Sets deadlines for payment • Foresees management reports, which are the key to a detailed analysis and to support future decision-making process • Sets the maximum prices in place during the validity period, with the possibility to improve by negotiating during the tender • Defines products and suppliers

33. Call-off process under the framework agreements for vehicles and insurance Users send the request through SGPVE (purchasing entities) eSPapvalidatestherequest Aggregation process of requests according to the types of vehicles needed Preparation of the Call-off Documents (Invitation and Specifications) eSPapBoard approves the Call-off Paper and electronic State Fleet Management System (SGPVE) ReleaseoftheCall-off ProposalsReception and evaluation Negotiation Preparation of the Preliminary Report Preparation of the Final Report Awarding A 33 eSPap E-ProcurementElectronicPlatform

34. Call-off process under the framework agreements for vehicles and insurance Qualificationdocuments Bankgarantee (ifcontract > 200K €) Signingofthecontract Court of Auditors (if contract > 350K €) A eSPap E-ProcurementElectronicPlatform Delivery of the new vehicles, legal destruction of the old ones PreparationofAwardingReports

35. Budget planningandcostcontrol • Changing variable into fixed costs: • Include variable cost components in the contract price • Consider maintenance costs if necessary

36. Framework agreementBidding documents • Tender program / Invitation to tender • Definition of lots: 8 • Definition of price: min. discount (cents per litre) over reference price (eg. Fuel) • Awarding criteria for the FA – best discount offered per lot (weighted %) • Tender specifications / Terms of reference • Definitions, duration of the FA • Obligations of the parties • Auditing • Acquisitions under the framework agreement • Awarding criteria • Duration of contracts under the FA • Conditions and payment terms • SLA’s, technical and functional requirements (minimum) • Reporting and monitoring • Fee to the managing entity • Penalties

37. FA and call-offsInvitation to tender • Type of procedure, and object of the tender • Contracting authority • Decision to contract • Registration in the e-platform • Clarifications and rectifications • Errors and omissions • Tender documents • Price proposal • Variants of the proposal • Minimum period validity (Duration) of the proposal • E-signature • Term to present proposals • List of competitors and consultation of proposals • Awarding criteria • Electronic aution • Qualification documents • Possibility to group • Costs of the proposal • Technical support regarding the e-platform • Period counting in the formation phase of the Framework Agreement