9. RETENDERING This chapter provides guidance to contract managers, senior managers in Departments and service providers.   New review considering all options.   New competition for contracted out services.   Insourcing only if justified on value for money grounds. BASIC PRINCIPLES 9.1 Circumstances, needs and ways of meeting them change. It should not be assumed therefore that what was required in the existing specification will represent what is needed when a contract or SLA is due for retendering. Departments should also learn and apply the lessons of each efficiency programme. EVALUATING THE EFFICIENCY EXERCISE AND THE CONTRACT Evaluation 9.2 Each efficiency exercise should be evaluated after the contract is let (while memories are still fresh) and during the life of the contract, to see if measurable better quality service at optimal cost has in fact been achieved. The questions are: did it work? and, could it have been better? The evaluation should result in a better – more innovative – approach to securing value for money in the future. The evaluation should take account of:   Benchmarking – the exercise and contract management against similar services or processes undertaken or provided by others and their results.   Feedback from the contractor – at the time the contract was awarded (see Chapter 7). Benefits – whether the planned improvements in services were clearly enough defined (as outcomes and outputs – not processes), and were achieved? Do customers/users say that services have improved?   Timing – did the exercise run to time? And were the benefits delivered on time?   Process costs – What were they? And could they have been lower? Were they controlled? The same questions should be asked about the costs of contract management.   Management – was the management style lean and empowering? Were staff trained to carry out the exercise? Were staff supported in dealing with personal consequences of change?   Risk – was risk assessed (see Chapter 4) and placed appropriately?   Procedures – were EC Procurement Rules followed? Taken as a whole were the procedures as streamlined as possible? And were they cost effective in achieving value for money?   Options – was the right option chosen? Would a different option have achieved better results? REVIEWING SERVICE REQUIREMENTS 9.3 Well before contracts or SLAs are due to end (and no later than 12 months beforehand), a rigorous review of service requirements should be undertaken. All options and their impact should be considered again to see which offers better quality service at optimal cost. The following aspects should be considered:   Overall strategies – contract expiry is an opportunity to review the Department's strategy for achieving efficiencies and effectiveness through competition with the private sector and to look for greater efficiencies by re-packaging the activities, and combining them with others, in order to broaden the scope of tendering.   Service requirements – including assessing whether requirements have significantly changed, for instance, through technological advances, changes in standards or political and environmental changes. Requirements should be considered strategically and broadly, drawing related activities into consideration.   Current performance – including how well services have been delivered as well as how well current providers have performed in delivering them. The effectiveness of contract management should also be assessed.   The market – examining whether there have been any significant changes or developments that might impact on a further round of tendering.   Risks – should be evaluated afresh, in the light of current circumstances.   Planning and resources – including the likely costs of mounting a competition, how those could be minimised and what relative benefits might follow from extending the current contract or SLA, under the terms of the current contract/SLA. Also, considering factors such as the effects of other initiatives on the timing of competitive tendering, for example, resource accounting may have been introduced since the previous round of tendering and that might affect the impending competition. 9.4 In reviewing these aspects, it will be essential to consult all those involved with service provision, including contract managers, service providers and customers/users, as well as senior management. APPRAISING OPTIONS 9.5 All options should be appraised fully against the new requirement, as set out in Chapter 1, without any hierarchy in approaching the options and without any pre-judgement of the outcome.   There is no legal fetter on Departments' discretion to bring in-house (that is, to "insource") outsourced work when the contract ends, or, exceptionally, earlier according to the contract terms, but Departments must be able to demonstrate that better quality service at optimal cost will result.   If continued outsourcing is the preferred option, there should be a fresh competition – a contract should not be simply re-awarded to an existing contractor at the conclusion of the maximum term permitted under the contract. Insourcing 9.6 If insourcing is being considered, Accounting Officers should be consulted and the option appraisal should include the following considerations, in addition to those set out in Chapter 1:   whether there is the management capacity within the Department to take on work currently undertaken by external contractors?;   how would value for money over the long term be demonstrated – whether through a competition or by other means, the justification of the Department's decision must be robust and capable of standing up to scrutiny;   If there is similar work being carried out in the Department (which might be the basis of a bid, or which could provide management for insourced work) is that work achieving value for money? Or is contracting out that work an option in order to secure better quality at optimal cost?   if it were decided to mount a competition with an in-house bid for outsourced work, the in-house bid team must be separated from the project team running the competition and the bid must be appraised on equal terms with other bids (see Chapter 7);   what would be the process costs of insourcing? Could the Department afford them?   if work were insourced, TUPE might apply to the external contractor's staff. The recruitment provisions of the Civil Service Order in Council and the Civil Service Commissioners' Recruitment Code are not relevant when TUPE applies. If such a bid were allowed, the bid team must be separated from the project team running the competition and the bid should be appraised on equal terms with other bids (see Chapter 7). AFTER THE EVALUATION, THE SERVICE REVIEW AND THE OPTION APPRAISAL 9.7 The guidance in Chapters 1–8 should be followed   KEY MESSAGES   Each efficiency exercise should be evaluated and lessons learnt and acted upon.   Requirements change, so there should be a thorough review of services, of the ways in which they are delivered and of all options for securing better quality services at optimal cost.   This should start at least 12 months before the expiry of a contract or SLA.   The service needed should be considered as broadly and as strategically as possible, drawing in related activities and drawing upon the experience of other projects (including those undertaken by other Departments).   Contracts for contracted out services should be re-let only after a fresh competition.   Insourcing outsourced services must be justified on strict value for money grounds. TUPE might apply.   SOURCES OF FURTHER INFORMATION   CUP Guidance Note 43: Project Evaluation.   Civil Service Commissioners' Recruitment Code.   Civil Service Management Code.     GLOSSARY   Glossary of terms likely to be used in relation to Public Private Partnership. Those used in this handbook are marked*. (References to Departments include their Agencies and NDPBs). ACCEPTANCE The act required of the buyer in (legal) accepting a (legal) supplier's bid or offer. ACQUIRED RIGHTS DIRECTIVE* See "TUPE". ADDED VALUE The additional, tangible, benefit derived by an organisation through carrying out a business function or process. ASSET A tangible or intangible product or service which will last for more than one year of account. AVOIDABLE COSTS* Costs that are identified with a particular activity and which would not be incurred if that activity were not undertaken. BENCHMARKING* The process of identifying and incorporating best practices that will lead to continuous improvements in performance and customer satisfaction. The Business Excellence Model is widely used in the Civil Service and private sector. BENEFITS The tangible, measurable (hard); and/or intangible, unmeasurable (soft) values derived from an act, function or business process. BEST PRACTICE* The most effective and desirable method of carrying out a function of process, derived from experience rather than theory. BID* A supplier's offer to provide goods or services for a consideration in response to a buyer's enquiry or invitation to tender. BID APPRAISAL/EVALUATION* The formal process of examining suppliers' bids to identify which provides best value for money. BSI British Standards Institution. The national standards body in the UK, which brings together suppliers and users to draw up standards. BUDGET HOLDER A person having responsibility for disbursing and controlling a defined level of resources authorised in his/her budget. BULK TRANSFER* A transfer of PCSPS pension benefits on special terms where the payment covers the accrued benefits of one or more members. Where a bulk transfer is agreed with a new employer's pension scheme, members will have an option which enables them to preserve the link to salary when calculating the benefits which derive from service with the PCSPS. It simplifies the administration procedures and may offer transferees higher pensionable service credits in the new employer's scheme compared to individual transfer value payments. Each member must decide for themself whether to participate in the bulk transfer. CALL OFF A contract or arrangement for the supply of goods or services at stated prices for a specified period under which orders are placed for varying quantities. CAPITAL EXPENDITURE* Expenditure on tangible and intangible assets which will benefit more than one year of account. CARTEL A group of suppliers acting in concert to control supply artificially, thus affecting price. CHINESE WALL* The term used for the separation between two parties, for instance, an in-house bid team and the clientside team for the sake of propriety. COLLUSION* A fraudulent arrangement between two or more parties whereby, for example, prices are manipulated so as to undermine competitive tendering. COMPETITION* Process of tendering seeking competing bids in order to award contract of services (or goods). COMPETITIVE TENDERING* Awarding contracts for services (or goods) by the process of tendering seeking competing bids. See also "Competition", "Contracting out", "Market testing". COMPONENT One discrete, self-contained part of a system in which defined business functions and processes can be suitably grouped and categorised. CONSIDERATION* Legal term used to describe the payment or other promise made for the goods or services provided by a supplier. CONSULTANT* A person or organisation commissioned to carry out a specific intellectual assignment paid for by the Department. CONTRACT* A binding agreement made between two or more parties which is enforceable at law. It is constituted by the acceptance by one party of an offer made by the other. In England and Wales, but not in Scotland, a contract must include "Consideration". In purchasing terms, it must always specify the goods or services to be purchased, their price and the terms and conditions under which they are purchased. CONTRACT AWARD NOTICE* Notice of award that is published in the Official Journal of the European Communities, in fulfilment of the requirements under the European Community public procurement directive. CONTRACT MANAGER The person responsible for monitoring a contract and ensuring that the benefits of contracting out are delivered. Day to day dealings with the contractor may be delegated. CONTRACT NOTICE* Notice published in Official Journal of the European Communities by contracting authorities, inviting firms to tender in an open procedure or to participate in restricted or negotiated procedures. CONTRACTING OUT* 1. Awarding a contract to an external bidder (from the private sector, other Government Departments or the wider public sector) for work, formerly done in house, following a competition. See also "Out-sourcing". 2. A competition with no in-house bid. See also "Strategic contracting out". CONTRACTOR* A firm or person who has entered into a contract to supply goods and/or services. COST CENTRE A valid cost centre for recording expenditure and costs for accounting purposes. DEFAULT A breach of a contract condition. DELIVERABLES A collective name for the services that the goods and/or supplier or contractor is required to supply under an agreement. DETAILED SPECIFICATION* Additional definition or statement of requirements. Too detailed a definition can limit possible sources of supply and can prevent best value for money being obtained. Whenever possible a "performance specification" should be used. EC TREATY OBLIGATIONS In particular require public authorities and other parts of the State, in its widest sense not to discriminate against suppliers or contractors on the grounds of nationality and the Member of State in which they are based. EFFICIENCY PLANS Plans setting out departmental cost limits and objectives and outlining how the latter will be met for the following three financial years. EXPENDITURE CATEGORY A valid category for the grouping of cost elements. FIRM PRICE A price which is not subject to any provision for variation. FIXED PRICE The term (sometimes used erroneously instead of firm price) is used for a price which may be subject to a cost variation condition. FREE ISSUE* The issue of stores of material to a contractor for incorporation in equipment under construction, modification or repair, in accordance with a contract which provides for the issue with payment. FULL COST/FULL ECONOMIC COST* The total cost of resources used in providing a particular activity, including all direct costs of that activity together with its proportional share of any overhead costs. GATT General Agreement on Tariffs and Trade – see "World Trade Organisation". GUARANTEE* An undertaking that certain conditions will be met. INSOURCING* Performing in-house, under a SLA, usually following a competition or another equally robust value for money appraisal, work which was previously outsourced. INTELLIGENT CUSTOMER* The capability needed by Departments to manage and retender service contracts. INTERFACE The point at which a specified business process or function leaves one defined component of the system and enters another. INVITATION TO TENDER (ITT)* An invitation to suppliers to bid for the provision of goods and/or services. INVOICE A request to pay submitted by a supplier of goods and/or services. INVOICE PAYMENT TERMS Specified terms of payment agreed between supplier and purchaser. ISO International Standards Organisation. The International standards-making body. LEASING A contract under which the owner agrees to rent out goods for a fixed period and for a fixed payment. LEGAL RELATIONS The intention to create a legal relationship is a requirement of a binding contract in English Law. LETTER OF DECLINE The notification sent to an unsuccessful tenderer. LETTER OF INTENT A letter whereby the purchaser notifies the supplier of his/her intention to place a contract. These letters are not usually binding in English Law. A letter of intent needs to be carefully worded so as to ensure that it is not binding in English Law. LIABILITY Legal responsibility to do, pay or suffer something. LIFE CYCLE COSTS An approach which looks at the total cost of acquiring and owning equipment or buildings over a specified time period. As well as capital costs, it takes into account the costs of feasibility studies, commissioning, training, operating and maintaining the equipment or building and the cost of eventual disposal and replacement. MARKET TESTING* The process of testing the value for money of in-house supply of goods/services against tenders from outside firms. The outcome can be an in-house win or a win by an external bidder in which case the work is contracted out. See also "Contracting out", "outsourcing". MANAGEMENT BUY OUT (MBO)* A group of managers, acting either on their own or in conjunction with a consortium who purchase and carry on for their own profit the business in which they have previously been employed. The buy out becomes a Management and Employee Buy Out (MEBO) if there is also a substantial employee shareholding. MONOPOLY The exclusive possession, control or exercise of supply in some commodity or service. MULTI-ACTIVITY CONTRACT (MAC) A contract for a range of activities, for instance, catering, cleaning, security and property maintenance. NEGOTIATED PROCEDURE* Procedure allowed under the EC Procurement Directives by which contracting authorities can consult suppliers selected in accordance with the Directives, and negotiate terms of contract. NEGOTIATION* A discussion so as to reach agreement. OBLIGATION What one must do to comply with an agreement or law. OFFER A supplier's offer to provide goods or services for a consideration in response to a buyer's enquiry. OJEC* Official Journal of the European Communities OPEN PROCEDURE* A procedure under which all suppliers, or contractors who respond to a contract notice, can tender. ORDER The order is the process by which they buyer accepts the supplier's offer. Alternatively a process through which a buyer makes an offer to a supplier. When the supplier acknowledges the order a contract may be formed. OUTCOME* What is to be achieved by providing a service (all goods) under a contract or SLA. OUTPUT OR PERFORMANCE SPECIFICATION* The formal description in objective and measurable terms of the performance characteristics of the required goods or services. OUTPUTS* What is to be produced, delivered or provided under a contract or SLA. Outputs should always be measurable and monitored. OUTSOURCING* Contracting out OVERHEADS Overheads are the expense of running the business (e.g. rent, rates, heating, accommodation etc) as opposed to the direct costs of personnel and materials used to produce the end result. Overheads are often calculated as a percentage of the personnel costs or added as a fixed amount to the cost price of the product. PAYMENT OF DETRIMENT* A payment calculated to compensate an employee for the assessed deterioration in his/her pension rights, offset by an overall improvement in other terms & conditions of employment, upon transfer to the private sector following a market test in which TUPE applies. PCSPS* Principal Civil Service Pension Scheme. PERFORMANCE BOND* A tri-partite deed, often issued by a bank or an insurance company (the surety), to provide financial protection to a client in respect of any extra expenses that may be incurred in making alternative arrangements for the work to be carried out in the event of default by a contractor. PERFORMANCE MEASURES* A set of indicators or objectives agreed between the manager and the managed against which success/achievements can be measured. POST TENDER NEGOTIATIONS* Discussions with a supplier or suppliers after their offers have been received, with the aim of achieving value for money improvements. PRE-QUALIFICATION* Also known as supplier appraisal or assessment. It is the process of establishing whether a supplier is capable in all key respects of providing the goods or services required. If firms are appraised for inclusion on approved lists, the process is called pre-qualification. PRICE (OR COST) VARIATION CLAUSE A clause in a contract which sets out conditions governing additional or reduced payments on the contract due to the rise or fall in the cost of materials and/or labour. PRIVATE FINANCE INITIATIVE (PFI)* An initiative aimed at securing private sector money and management expertise in the provision of services (usually involving substantial capital investment) which have traditionally been undertaken by the public sector, where there is significant risk transfer to the private sector. PROPERTY REPAYMENT SYSTEM (PRS) The charging system for Government accommodation on the Common User Estate (CUE) and Departmental Estate (DE) that was operated by Property Holdings. PUBLIC SERVICES CONTRACT REGULATIONS 1993 (SI 1993/3228)* Implement the EC Procurement Rules in UK law in respect of services and are binding on Public Authorities (central Government, national, regional local and health authorities, etc). PURCHASE Acquisition of goods or services by payment. PURCHASE ITEM A clearly defined, tangible product or service. A purchase item is the lowest level at which the nature of the expenditure needs to be identified. PURCHASING CONTROL A general term for a group of business functions or processes which provide management data, information and controls throughout all stages of the procurement cycle. QUALIFIED TENDER A tender which is qualified because it does not fully meet the intended contractual requirements. QUALITY* Those characteristics of an item which make it able to perform its specified function – be fit for purpose. QUALITY PLAN* A programme of planned and systematic actions developed by both client and supplier to ensure that when goods and/or services are delivered they will be of the prescribed quality to do the job during the required period of time for which they were purchased. QUALITY SYSTEM That part of the management systems, of both supplier and purchaser, which are directed towards ensuring that goods or services will be fit for purpose. RESOURCE ACCOUNTING* A set of accruals accounting techniques for reporting on the expenditure of central government and a framework for analysing expenditure by Departmental aims and objectives, relating to outputs, wherever possible. RESTRICTED PROCEDURE* A procedure allowed under the EC Procurement Directives by which only those invited by the contracting authority may submit tenders. RUNNING COSTS (DEPARTMENTAL) The annual operational costs (non capital) of a Government Department, Agency or NDPB. SERVICE LEVEL AGREEMENT (SLA)* An agreement made between two or more parts of Government – within Departments or between Departments – to provide services to a specified performance level which, although not enforceable in law, will be regarded as binding. SOURCING The process of identifying potential suppliers of specified services or goods. SPECIFICATION* The formal description in objective and measurable terms of the characteristics of the goods or services required. STRATEGIC CONTRACTING OUT* Decision to place work externally (usually with the private sector) subject to competition without an in-house bid as the best way in all the circumstances to secure long-term value for money. SUB-CONTRACTING The process whereby a contractor assigns part of the contract to other contractors. SUNK COSTS* Costs which have already been incurred or irrevocably committed and where the goods or services procured have no future alternative use at the time of taking the decision. SUPPLIER* The in-house or private sector provider of goods and/or services. SUPPLIER EVALUATION The process of establishing whether a supplier is capable of providing the goods or services required, and assessing a supplier's subsequent performance against requirements. TENDER* A supplier's bid in response to a buyer enquiry or invitation to tender. TENDER (OPENING) BOARD* Three or more people who certify receipt of the tender documents. TENDER EVALUATION PANEL* Group of people (who should, as a matter of best practice, be different from the Tender Board) who analyse tenders and take final decisions on the award of contracts. TERMS AND CONDITIONS (CONTRACT)* A service of statements defining the contractual terms. TRANSFER VALUE* The amount representing the value of the person's accrued pension benefits in a pension scheme or arrangement. It is payable by one scheme or arrangement to another in order to buy the person pensionable service or pension benefits." TUPE* The Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended), which implement in the UK the EC Acquired Rights Directive, protect employees' terms and conditions of service, in certain circumstances when the undertaking in which they work transfers from one employer (the transferor) to another (the transferee). UNQUALIFIED ACCEPTANCE The unconditional acceptance of an offer. VALUE FOR MONEY* 1. Better quality services for the customers/users at optimal cost to the taxpayer. 2. The provision of the right goods and services from the right source, of the right quality, at the right time, delivered to the right place and at the right price. (Judged on the basis of a financial appraisal taking account of all relevant costs.) VENDOR RATING A form of supplier appraisal; a technique which awards marks for a supplier's actual performance on a contract against specified criteria. WARRANTY A contractual undertaking given by the supplier, to provide a specified level of product or service support. WORLD TRADE ORGANISATION (WTO)* This replaced the General Agreement on Tariffs and Trade (GATT) and has a role in keeping world trading activities under regular scrutiny.