Getting the most out of IT procurements
Procuring IT systems and servicing contracts can be difficult and expensive. Here are some top tips for running a procurement that meets your commercial objectives.
Having a functional and up-to-date IT system is a critical requirement of any social housing provider's day-to-day practice. Key responsibilities such as asset management are highly dependent on IT systems to identify relevant properties, identify non-compliance and record the service provider's performance data. Given the rapid change in technology, tendering exercises for IT systems and services are a regular feature of most social housing providers' procurement strategies.
IT contracts present a number of challenges for social housing providers. They are, by their nature, highly technical, requiring a close degree of working between procurement officers, in-house IT support staff, and the relevant departments who are commissioning the contract. The tender process and contract negotiation and mobilisation stages can be long and resource-heavy, often requiring external support if there is not sufficient in- house expertise.
Most IT-related contracts will be required to be advertised under one of the procedures in the Public Contracts Regulations 2015 if the contract value exceeds the relevant financial thresholds. The number of IT providers in the UK is relatively small compared to other industries, making a fiercely competitive marketplace. Bidders in the IT industry tend to be well-informed about the procurement rules, and aren't afraid to challenge irregular tender processes, requiring clients to be vigilant about maintaining compliance.
Many IT solutions are bespoke to the individual client, and clients are often unsure as to the precise scope or features of a particular solution. This can make it difficult for clients to use the Open or Restricted Procedures, which assume that all contract requirements can be defined in advance and don't allow for negotiation with bidders.
By contrast, the Competitive Dialogue Procedure allows clients to enter into structured dialogue with shortlisted bidders, to help identify the solution that best meets its requirements. For projects requiring a bespoke product not currently available in the marketplace, clients can use the Innovation Partnerships Procedure, which allows bidders to develop and present prototype solutions as part of the tender process. If run in a lean and efficient way, these procedures shouldn't add significantly to a procurement timetable, and result in a more informed award decision based on close engagement with the bidders. Both procedures can be structured to reduce the number of bidders, to avoid spending resources on three separate bids.
Clients should take care to specify their minimum requirements for the project, so bidders are clear about the limits of any negotiations. Setting minimum requirements allows clients to remove bidders from competition who are unwilling or unable to meet the requirements. Tenders can be structured with a series of gateways at key stages, in which bidders must provide information about their proposed solution before proceeding to the next assessment stage. Gateways form formal structured "sign-off" stages and allow clients to ensure at key stages in the procurement process that all proposed solutions deliver what is required, rather than ending up with an unworkable solution.
In any tender exercise, clients must ensure that promises being made by bidders about the proposed solution are formalised in contractually binding terms. Clients who rely on informal processes such as heads of terms can run into problems later in the procurement, if there is a dispute about whether the heads of terms are binding or what exactly has been agreed.
Contract negotiations should be included early in the tender exercise, with a view to agreeing terms as far as possible before the award decision is made. This allows the client a commercial advantage, as bidders will be more willing to concede commercial points with a view to winning the contract.
The key commercial points that should be addressed in any contract negotiation are:
- Is it a fixed price agreement? What should happen if any assumptions about the fixed price prove to be incorrect? If it is not a fixed price consider how to maintain control over the project expenditure, e.g. by use of milestone payments
- Payments should be linked to deliverables to motivate the supplier and ensure that the client only pays when something tangible and usable is delivered
- Consider who will undertake the testing and acceptance of deliverables, what it will involve and what should happen when something fails. How far will the supplier stand behind what they are to deliver? Warranties are usually heavily negotiated, particularly if the supplier is configuring or incorporating third party software
- Consider whether liability caps should vary depending on the issue or whether there are some matters that should be un-capped (eg indemnities against the supplier's software infringing a third party's rights
- Consider what service levels will apply and the consequences of any failure to maintain these
- Consider whether any supplier personnel could transfer by operation of TUPE on termination of the support services
Given the small and competitive nature of the IT marketplace, it's essential that clients adhere strictly to the feedback requirements at contract award stage. Award notification letters and feedback to unsuccessful bidders must include all information required by the Regulations, and clients may consider giving enhanced feedback where a competition has been particularly close. Clients should take prompt advice in respect of any complaint or threatened challenge to an IT tender process.
IT procurements should be scheduled to allow sufficient time for any mobilisation and test-run activities, prior to the project going live. Sufficient time should also be built in to allow consultation with key stakeholders and end users of the proposed solution.