Procurement choices – “to lot or not”

Attain’s Commercial team have considerable experience of working across health and care systems and leading the procurement of services and providing guidance and support around the management of the process.

Richard Hill, Senior Manager in the Attain Commercial team explains how decisions around lotting in procurements have a major impact on both the process and eventual outcome.

We all know that new procurements are a significant investment for organisations; they are labour intensive and challenging process. Gathering of supporting information, getting broad agreement on the approach, complying with changing procurement rules, and finally supporting the many stages of the bidding/assessment process take time and effort. However, what some organisations overlook is the impact of lotting strategy on the procurement process, both the benefits and disadvantages of taking this approach and how making an informed decision at the outset of the process is key to achieving desired outcomes.

For the purposes of this article we can define lotting as selecting a service or a combination of services that providers can bid for in its entirety. This article focuses on the drivers that can help guide organisations in making such a choice and so touches upon the dramatic impact these choices can have on the overall success of the procurement as well as the resources required.

There are many valid reasons given as to why large procurements can be broken down into individual packages – “lots” – and these include:

  • To meet individual partner needs in the case of multiple commissioners
    • For example, to more closely match an individual Commissioning Authority’s priorities
    • To align with individual commissioner expenditures
  • To take advantage of national and specialised providers for a specific service
    • For example, suppliers of wheel-chairs and similar equipment
  • To gain more local control
    • For example, to align with political boundaries vis-à-vis local authorities
  • To support integration into a local ancillary service
    • By separating out the development plans and associated governance
  • To attract local, smaller, voluntary sector bidders
    • Often they are more likely to bid for ‘bite size chunks’
  • To encourage and maintain healthy competition in the marketplace

In fact there is also legislative support for this approach, the 2015 UK regulations state:

“Contracting authorities may decide to award a contract in the form of separate lots and may determine the size and subject-matter of such lots. Contracting authorities shall provide an indication of the main reasons for their decision not to subdivide into lots, which shall be included in the procurement documents or the report referred to in regulation 84(1)”.

Whilst these are all honourable aims, in practice the benefits don’t always stack up but add considerable complexity, risk, time, and administration, to the process. At the same time such an approach can fly in the face of national guidance and, most of all, in the current challenging financial environment, risk creating inefficient supply arrangements.

Whilst it can have its disadvantages, scale can bring economies in terms of back office costs, overheads, sharing of staff, holiday cover, reducing risk, and the sharing premises and equipment. Hence, there may be potential providers that don’t want to risk simply gaining some individual lots when their real target, in order to apply their unique efficiencies/synergies, is the full offer in its entirety.

Perhaps the biggest downside of the lot approach is the risk of having multiple providers that negates against consistency of service, leads to fractured pathways, and undermines any efforts to integrate/join-up a service with other sectors in the future, e.g. GP federations, acute hospitals, and community services etc. Joining pathways, generating economies, driving service efficiency, consistency, and quality, is always a challenge between two provider organisations let alone three or four. Whilst the Sustainability & Transformation Plan (STP) approach should create a pause for thought in such situations, recent cases exist where (already) integrated services of sufficient size to generate economies, have risked becoming fractured via the lotting approach.

Procurement choices diagramRemember, multiple lots risks multiple providers and multiple contracts which in turn can mean  substantial increases in resource requirements for bid administration – bidder Q&As, numbers of bids, complexity, multiple service specifications, multiple financial envelopes, moderation and scoring. This is not an inconsiderable burden in terms of administrative effort and time. So before trying to ‘localise’ your procurement, have a transparent discussion about the relative pros and cons of each approach and adjust project times/resources realistically and accordingly. As part of this process, clearly identify the drivers of your procurement and list the ideal set of outcomes in order to reach a balanced view. Along with this and in order to stimulate a more diversified supply chain or smaller independents, consider using other contractual mechanisms like Lead Provider/Integrator contracting models and mandatory sub-contractors.  Carrying out a market analysis can really help to inform your lotting strategy discussions.

At the same time, consider other ways of localising a tender by, for example, ensuring fair and proportionate representation of the commissioning partners with respect to the ensuing contract governance arrangements. Consider adapting or including multiple service specifications in the final contract to take account of individual needs and tie these, along with appropriate KPIs and service development and improvement plans to financial incentives. Encourage SMEs and the voluntary sector by inviting partnership working and be open to promoting prime contracts/sub-contract during market events.

At Attain we recognise these challenges and complexities and seek to break them down by combining insightful analysis along with commercial acumen which is supported by a structured decision tool. This uses a simple Q&A approach to start to address the questions alluded to above and can help guide commissioners to make the right choice for their population and their organisation.