The ongoing pressure to find greater efficiencies continues to drive councils to look for different ways to deliver better outcomes for local people.
Dynamic Purchasing Systems (DPSs) are flexible alternatives to frameworks which impose no limit on supplier numbers and provide an ‘open system’ of procurement. With no time restrictions imposed by the regulations for suppliers to apply, DPSs offer buying organisations maximum flexibility to select from a highly competitive supply base.
Most councils commonly choose to spend through a framework agreement, which is an ‘umbrella agreement’ that sets out the terms of trade, such as price, quality and quantity, under which individual contracts can be made throughout an agreed period, normally a maximum of four years. Unfortunately, once the umbrella agreement has been awarded there is no opportunity for new suppliers to join until the next agreement is awarded.
DPSs are a way of overcoming this barrier and represent a significant development for procurement professionals.
However, despite obvious benefits, there is still a low uptake. A relatively recent overhaul in 2015 to simplify the DPS process has had some impact on the number of councils opting for this flexible approach to purchasing, but the process still remains largely unexplored by the majority of local authorities.
A quick search online reveals that there are around 500 DPSs in existence in the UK, which is probably the most in the EU, but any new development takes time to catch on, and there are a number of reasons why a council may not use DPSs. Foremost is lack of knowledge and experience, together with a lack of systems capability, resource concerns and suitable opportunities.
Whilst it’s true DPSs are not a suitable alternative to framework agreements in every case, they can offer greater opportunity beyond traditional approaches and the lack of understanding surrounding DPSs may be costing councils dearly. YPO has the largest number of DPSs on the market in relation to public sector body organisations and was one of the first procurement organisations to embrace changes to regulation. So it’s our belief that they can offer a buying organisation maximum flexibility to pursue competitive tendering.
What are the benefits of a DPS?
A DPS represents a more flexible approach to procurement frameworks and councils might find that this flexibility helps them achieve better procurement outcomes through increasing competition and innovation.
There’s also no time limit imposed by the regulations which benefits all parties. A DPS can run for as long as the contracting authority wishes as long as the period of validity is set out in the initial call for competition. This reduces the administration associated with repeat tendering.
An ever increasing supply base due to the nature of the “’open system’ also delivers further cost savings due to greater competition and a DPS offers the potential to reduce tender timeframes allowing for quick responses to changing procurement requirements. It also means new market players have access to tender opportunities, supporting innovation.
Why should you consider the use of a DPS? Here are my top five reasons:
1. You’re buying a category that is difficult to bulk buy
DPS is a good option where it would be difficult to achieve economies of scale. Due to the length of time the DPS remains available and the ease of inclusion for suppliers, it encourages a variety of companies from large providers to small businesses to sign-up. Smaller suppliers will also be more willing to tender for small orders.
2. Your strategy is to engage local businesses
A DPS supports small businesses to compete for work. The barriers to entry are lower than a framework and as they can join at any time, they can apply when they know that there would be opportunities that interest them. The process also allows smaller firms to compete where they may not otherwise have sufficient resource to submit a full tender within a deadline. Bidders are also not disqualified from competing on mere technicalities, something which smaller firms who are not used to the complexities of a tender process find frustrating. YPO recently introduced a DPS to recruit enforcement agencies sourced from a local SME supplier base.
3. There is a high level of innovation and new market entrants
A traditional framework wouldn’t be suited to a market where there is a high level of innovation. A DPS allows new entrants throughout its life. In new and emerging technology markets the best suppliers at the start of a framework may not be the best suppliers four years on. YPO has deployed a DPS successfully to help local authorities purchase new energy efficient systems, an innovative and quickly changing market.
4. You are buying in a price sensitive market
A DPS is a great way to engage a competitive number of suppliers and ensure that every requirement is tendered to achieve the lowest price possible.
5. There are a large number of potential suppliers or volume of transactions
This is where DPS comes into its own, taking advantage of the competitive nature of the supplier market without limiting the scope of the competition. It can also unify large volumes of transactions into a single manageable process to allow them to be approached in bulk.
Potential barriers to consider
Working with local authorities to help them buy better, we know the challenges faced day in day out and recognise that for some, considering adopting a DPS is daunting. Common concerns are that a DPS must be run electronically, so a council would have to be able to support this.
We have also seen that some organisations are concerned about the level of resource required to keep a DPS maintained during its life as suppliers can apply to join at any time. This level of flexibility a DPS offers does bring significant benefits, but may also be burdensome in markets with an oversaturation of suppliers. Our advice would be that larger supply markets would not favour a DPS unless there is the right level of administration resource to run it.
Note also that the authority is required to evaluate supplier requests to join within 10 working days of receipt, although this can be extended to 15 days in some cases. All opportunities under the DPS must be competed, so a Direct Award cannot be made to individual suppliers.
Purchasing organisations like YPO can help address these concerns in a number of ways, firstly we might already have a collaborative DPS in existence for your requirements and so we can help you avoid the cost and hassle of setting one up yourselves. We can also help with systems recommendations, advice and procurement. Finally, we can support your strategy and give you some tips on implementation.
Is it right for you?
Our advice to those local authorities considering a DPS is to think carefully about your category strategy and what you are trying to achieve. A DPS is of course only one option. If you choose a DPS then take time to learn from those who have already implemented one. With so much activity now, you should be able to find a colleague elsewhere in the public sector who has already been through it, and can give you some specific tips for your category.
It’s my view that a DPS can be a useful tool in achieving good procurement outcomes in certain markets. They offer more flexibility than a traditional framework even though they demand more on-going management. We urge councils to seriously consider DPS when looking at ways to maximise their procurement processes.
Paul Smith is executive director of YPO