To receive a presentation in response of a scrutiny outcome regarding the savings attributed to the digraph contract.
Minutes:
Documents:
· Scrutiny briefing 18th January 2018
· Scrutiny Committee A paper 14th December 2017
Discussion:
The Interim Professional Lead – Commercial Services gave a presentation on the Council’s Vehicle Spare Parts contract with Digraph Transport Supplies.
The contract had started in April 2017 and scrutiny had been undertaken in December 2017 as local contractors had expressed disquiet.
The contract had been let following a National Procurement Service procurement process. This included a commitment to local sourcing to help the local economy. Prior to April 2017 no contract had been in place, the authority were not compliant with contract regulation and workshop staff were undertaking numerous journeys to pick up parts to get vehicles back on the road. It was extremely difficult to calculate spend as there was little management information available but it was estimated that local spend was around £80k which was lower than expected. However, when the contract was let local suppliers did express concern that they were losing business.
The information presented in December 2017 showed local spend at around 18%. It has since been found that this was slightly higher than the actual local spend.
During 2018 £528k was spent on the Digraph contract. It is estimated that the previous annual spend was approximately £500k although it has not been possible to verify this.
The Digraph contract has the following advantages:
· Imprest stock provided and managed by Digraph
· Stock reviewed by Digraph on a monthly basis and advice provided to workshops by Digraph
· Payment is now by Barclaycard All Wales Purchase card
· Improvement management information and overview of spend per vehicle
This year there have been 750 deliveries (including 426 to Brecon and 325 to Newtown). The contract allows for up to two deliveries a day to each depot thereby minimising the waiting time for parts that are not maintained within the imprest stock. Deliveries are rated and none have been rated ‘poor’. The imprest stock is regularly adjusted to reflect usage.
The payment by Barclaycard has decreased the processing costs and provided much improved management information which will be available when the contract needs to be renewed.
During the last 12 months local spend has been approximately 13%. Not all spend could be spent locally (for example HGV parts cannot be sourced locally as there are no main dealers in the county). It is likely that no more than 25% could be spent locally as most local companies are motor factors and the service are looking to purchase original parts.
In addition to the local spend the contract includes a 2% rebate to be spent on community benefits. The Portfolio Holder has agreed to spend this year’s rebate supporting an apprenticeship. Digraph have also agreed to attend the Powys Careers Festival.
What are the savings figures for 2018? What is the agreed discount rate and are you confident this is the best?
When the contract was put out to tender companies were asked to quote on a basket of items which were compared to the workshop rates. It was found that Digraph was about 20% cheaper. Frequently purchased items are regularly added to the basket. The service are content that the contract is value for money (if an additional 20% was still being paid this would be in the region of and extra £100k) and value is being achieved in other ways such as workshop staff not having to pick up stock.
Officers are currently examining if it would be possible to use OEM (Original Equipment Manufacturer) substitutes to save money.
Do to workshops undertake work for outside organisations?
Some external work is undertaken for example Brecon Dial-A-Ride, Brecon Mountain Rescue, Ysgol Penmaes etc.
Does the service restrict itself to certain vehicles when replacing fleet?
When vehicles are procured the service does not specify a brand of vehicles but DAF are often chosen as they are cheaper and reliable and there are DAF dealers in Shrewsbury, Hereford, Cardiff and Swansea.
Does the service specify genuine economy parts during repair and maintenance?
This is left to the discretion of the Workshop Manager. If the vehicle is within the warranty period, then genuine parts are used. OEM parts are considered as are non OEM parts but it depends on the repair or maintenance required and the Workshop Managers are experts in this respect.
Do workshops following the Book Pricing methodology that commercial operators use?
This is not used at present but the service should be using this methodology to help measure productivity. A staff restructure is currently been consulted on with the intention to move to a more commercial approach including a shift system for 06.00 to 18.00 workshop operation.
It appears historically that poor control was exercised in this area. Has it been necessary to take on extra staff to manage the contract?
This has not been necessary as less resources are required now the service is only dealing with one contract.
Have lessons been learnt from move to the Digraph contract?
The authority is working with areas that have non-compliant spend to ensure compliance.
There are clear benefits from entering into a national contract but to what extent does this result in the loss of local spend and is local spend more expensive?
It can be difficult to get local companies to engage in a procurement process. The local sourcing agenda is about getting the right sized packages for local companies to be able to bid for. Local companies are beginning to come forward but despite undertaking development (meet the buyer events, signposting to business support from Welsh Government etc) the response has been disappointing.
When the contract is rerun there will be an opportunity for local suppliers to work together.
Some staff expressed a view that Digraph was proving more expensive but mystery shopping has shown that this was not the case.
What is the length of the contract and does it include uplift? The complaint is that national companies bid at a low level but have a high uplift which can result in goods costing more than local suppliers.
The contract is for 2 plus 1 years (April 2017 to April 2019 or April 2020). There are two uplift figures – one for the basket of goods (high volume or high cost) and one for other goods. Digraph have not implemented the uplift and have advised that this will not be implemented for 12 months. The agreed rate of uplift will be shared with Members.
It was noted that the reduction in costs of 20% has resulted in a squeeze on local suppliers. However, it appears to have encouraged them to improve efficiency which may enable them to compete more effectively in other areas of their business.
How much does Powys purchase through the National Procurement Service (NPS)?
The Commissioning and Procurement Team try to ensure that as much as possible is procured through the NPS whilst ensuring that this does not discriminate against Powys companies. Lotting of contracts helps in ensuring that local companies have an opportunity to bid for work. The NPS have been reviewed and it may be that they withdraw from some contracts.
Can Powys produce a forward programme of contracts that are coming up for renewal in the next three years?
The NPS do produce a forward work programme but this may change in light of the review.
Is it intended to take advantage of the ‘plus one’ so that this contract runs until April 2020?
The ‘plus one’ will be used but it may not be with NPS. The additional time will be used to work on retendering and it will be necessary to ensure that this work is done suitably ahead of April 2020 with work starting by October 2019.
Outcomes:
· That the uplift rates for the basket of items and other items be provided
· That the issue of workshop productivity is addressed with a commitment to introduce at the earliest opportunity book pricing to enable current productivity to be assessed against industry standards
· That the successor scrutiny committee be advised that this contract is coming up for renewal in April 2020 and that the service be asked to communicate their plans for retendering to the relevant committee to allow for monitoring particularly in light of the uncertainty regarding the National Procurement Service and the potential need to draw lessons from the experience of retendering a service previously procured under the NPS process
Supporting documents: