Decision details

The Cabinet Member authorised entering into a Notice of Change with Serco Limited to vary the Council’s Peterborough Serco Strategic Partnership Contract, to amend the approach for the delivery of procurement services to the Council by removing the current gain share arrangements for procurement savings and amending the existing specification for operational procurement services.

The PSSP Contract was awarded to Serco Limited following an Official Journal of the European Union (OJEU) procurement process, for the provision of a range of services. One of the services provided under the PSSP Contract is procurement services.

As part of the existing PSSP Contract, in addition to an operational procurement service, Serco Limited also guarantee delivery of certain procurement savings which are then to be split between the Council and Serco Limited. In summary, under the current PSSP Contract, Serco Limited are to have control of approximately £51million of ‘addressable spend’ per annum (the Council’s allocated annual expenditure in relation to goods, services and works purchased by the Council from third party suppliers), Serco Limited are to determine the approach to procuring those goods, services and works, and guarantee certain savings. These procurement savings are then split between the Council and Serco on a gain share basis.

The level of ‘addressable spend’ is to be reviewed annually, and any changes agreed. If the ’addressable spend’ has dropped, then the procurement savings guaranteed by Serco Limited also reduce.

A full review of ‘addressable spend’ was undertaken over the summer of 2015, and it is clear that it has reduced by around £15million per annum, due to a number of factors (for example, new proposals around foster care delivery arrangements, and different approaches to commissioning of some works etc.). As this reduces the procurement savings guaranteed by Serco Limited under the PSSP Contract moving forward, the reduction in ‘addressable spend’ places a pressure on the Council’s budget, which was based on the Council receiving a higher level of guaranteed procurement savings. The pressure from the reduced procurement savings, as a result of the drop in ‘addressable spend’, was approved by Council as part of the 2016/17 Medium Term Financial Strategy (MTFS) and came into effect 1 April 2016.

Consequently, a review of the procurement savings gain share arrangements and operational procurement service provision has been carried out, and it is considered that the current procurement savings gain share arrangements no longer offer the best approach for the Council. This is because the reduced level of spend means that the existing arrangements no longer offer best value for money.

It is therefore proposed to vary the PSSP Contract by way of a Notice of Change (under the Change Control Procedure within the PSSP Contract) to remove the procurement savings gain share approach and additionally refresh the operational procurement service specification to ensure that the service focuses on key procurement priorities. It is proposed that the Notice of Change will become effective on approval of this CMDN.

The removal of the procurement savings gain share provisions from the PSSP Contract will mean that Serco Limited are no longer obliged to deliver guaranteed procurement savings, however, any savings in expenditure in relation to the goods, services and works purchased from third party suppliers which the Council does achieve would be retained wholly by the Council, under the proposed new arrangements (rather than shared with Serco Limited).

In addition, as part of the current procurement savings gain share arrangements under the PSSP Contract, a fixed annual fee is paid by the Council in relation to procurement savings (which is in addition to the share of the procurement savings which Serco Limited receive). The proposed variation to the PSSP Contract will result in that annual fee no longer being payable by the Council.

The amendments to the operational procurement specification will ensure that the service meets the Council’s continuing requirements. As Cabinet approved its Procurement Strategy at its meeting of 7 December 2015, the refresh of the operational procurement specification will also enable the service to focus on delivery of that strategy.

The following alternative options were considered and rejected.

Option 1: Do Nothing

This would mean that the PSSP Contract would not be varied and the Council would have procurement service arrangements that were inflexible and which did not best serve delivery of Cabinet’s Procurement Strategy, and would not represent the best approach for the Council.

None.

None.