National Housing FederationNational Housing Federation

Strategic Sourcing of Technology

A Market Perspective

David Brook & Mike HardyNovember 2013

Turnstone: on demand commercial IT support

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Social Housing Procurement

“...the UK Government has accepted the European Commission’s view that Registered Social Landlords are to be regarded as Bodies Governed by Public Law and therefore must comply with the requirements of the EU Public Procurement Directives...”

Social Housing Procurement (local authorities, housing associations, trusts, etc) should comply with the Public contracts Regulations 2006.

Procurement by public bodies should be Procurement by public bodies should be

-Non-discriminatory

-Transparent

-Competitive

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10 years – changes- Third party suppliers- More critical business processes- Cloud

Have IT sourcing capabilities kept pace?Compare to advances in:-

Introduction

Compare to advances in:-

-Project Management-Infrastructure control -Process Optimisation

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Sourcing of technology/telecoms in the public sector may seem a technical and onerous task, but it offers an opportunity to save time and money and to address out-of-date specifications.

1. Coherent, defined processes for all areas of technology spend?

2. Resource focus on higher profile spend

3. IT strategy is a separate entity from Sourcing strategy

4. Little formal supplier performance management

5. Existing contractual documentation not well organised / indexed

Typical Strategic Issues

5. Existing contractual documentation not well organised / indexed

6. Poor spend visibility, islands of data

7. IT sourcing not considered strategic

8. Risk Management is a separate exercise

9. Much attention historically on enhancing PO process

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The Maturity Curve for IT Sourcing

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IT Sourcing – the Top 10 Disasters

1. Assumption that negotiations can be successfully concluded after work has started

2. Inadequate requirements

3. Chipping away at a heavily biased ‘standard’ supplier contract

4. Undocumented assurances from suppliers

5. Rushing: more attention on speed of delivery than definition of requirements

6. Focus on legal terms above the commercial and service elements of the contract

7. Over-ambition

8. Allowing suppliers easy access to premises, influential staff and confidential information

9. Losing interest / giving up if negotiations drag on

10. ‘Contract in the cupboard’ – once it’s signed there is no supplier performance management

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Sources: 1. Crash: Ten Easy Ways to Avoid a Computer Disaster, Tony Bricknell2. Turnstone survey 2011

Reviewing Legacy ContractsA brand new contract will usually be well matched to the requirements for the goods / services.After signature though, requirements can ‘drift’....

REQ

CONTRACT

Day 1 Day 100

CONTRACT...yet payment remains tightly linked to the original

PAYMENT PAYMENTtightly linked to the original contract

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• Organisations tend to acquire more IT contracts as time passes

• 50 to 200 IT suppliers on the books is typical, with at least one contract per supplier

• Looking at your legacy contracts to look for ‘requirements drift’ can be a big money saver, and / or identify risk areas

Legacy Contracts II

Prices change over time... And technology evolves...

...with technology costs generally decreasing

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...with more features and better services

Strategic IT Sourcing : Assessment Model

1. Governance & Policy

2. IT Strategy & Supplier Portfolio

3. Internal Skills & Resourcing8. Spend Tracking

9. Supporting Technology

4. Category Planning

5. Supplier Performance & Relationships

6. Market Testing & Benchmarking

7. Variations & Renewals

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IT Sourcing: The Balancing Act

Unique Factors

• Costs often high (initial purchase & cost of failure)

• Purchase is complex

• Many stakeholders involved • Many stakeholders involved

• Significant opportunity for negotiation

• Payment structures are varied and complex

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Why Bother with Contracts?

• Key Points- Define each party’s expectations

• Service description• Specification / service levels • Price

- Provide framework post-signature• Governance• Change control• Price change and benchmarking

- Deal with what happens if it all goes wrong

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- Deal with what happens if it all goes wrong• Dispute resolution• Termination• Remedies and liability limits

• Contract formation- Need not be in writing – beware email exchanges- Use of ‘subject to contract’ - Bridging the gap – Instructions to Proceed- Formal requirements follow…

Housing Associations: Typical Procurements

IT Procurement Projects1. Telecoms: WAN, connectivity & telephony2. Software development (agile)3. Supplier portfolio management4. Mobile phones5. Sharepoint development6. IT Outsourcing7. MFD’s

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Issues- Lack of time- Short on resource- Knowledge of best approach

Compliance – does it matter?

• Newham Council – approached a Housing Association in Stoke on Trent to rehouse 500 families from Newham

• West Coast Rail – Awarded to FirstGroup – challenged by Virgin and awarded contract retracted

• MPS – Stab vests

• Clackmannanshire Council v Sidey – restricted procedure used

• Consequences?

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• Consequences?

• Rip up contract and start again

• Uninstall / remove the solution – go back out to market

• Personal career inhibitor?

RFP Risks in the Public Sector

Be aware of what you are asking for – you only have a limited power to extend beyond what is stated

In the tender request.

Alcatel Period – Once the Vendor has been selected, all unsuccessful parties must be notified and

given a minimum period of either 10 or 15 working days to raise an objection.

No conference with any relevant vendor during the tender period outside of the stated process.

Timescales –minimum periods – vary by which OJEU approach you use. PIN (Prior Information Notice) or electronic transmission can reduce theseelectronic transmission can reduce these

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Tendering & OJEU

Tendering

-Below EU thresholds

-Over EU Thresholds

Current Thresholds (set in January 2012, reviewed every two years)

- £173,934 for goods and services- £173,934 for goods and services

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Tendering Approaches

1. Open – commodity products and services

2. Restricted – any party may respond, only ones meeting selection criteria will proceed

3. Competitive Dialogue – two stage process; discussion (similar to Restricted) then tender

4. Negotiated – this is subject to severe restrictions

5. Frameworks - pre approved suppliers for you to use – compliant

6. G-Cloud – predefined catalogue of suppliers with day rates

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1. Open Procedure

This method is suitable if:

a. Requirement is relatively straightforward

b. Smaller number of bids is anticipated

c. Work to prepare bids is modest

The public body announces a project/contract and allows bidders to compete for the contract

StrengthsStrengths

- For suitable contracts it is straightforward and quicker

Weaknesses

- Bidders are required to provide a lot of input, even if the probability of success is low

- May be time consuming if a high number of applicants pass

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• Two part process

• Pre-Qualification Questionnaire (PQQ) – selecting suitable suppliers – “selection” stage

• Invitation to Tender (ITT) – appointing the right contractor – “appointment” stage

Suitable for most contracts where getting the right company involved is important

Strengths

- Allows suitable companies to be selected before full tenders are invited and evaluated

2. Restricted procedures

- Makes the process more manageable

- Reduces workload for contractors and encourages participation

Weaknesses

- Can take along time to complete the process

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• Pre approved compliant supplier lists, with pre negotiated T&C’s & prices

• Several frameworks exists- GPS RM860 Connectivity- RM1498 Telecoms- Fusion21

• You run a ‘mini competition’

Strengths

5. Frameworks

- Fast

- Lower risk

Weaknesses

- Less competition

- Reduced T&C’s negotiation

- Restricted to framework suppliers only

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PHASENegotiate &

ContractITT Drafting and Issue

SupplierResponse

TASKS

Due Diligence: The Procurement Process and beyond

1. High level requirements

1. Supplier comms

1. Evaluation

2. Presentation

1. Negotiation Strategy

1. Performance Mgmt

2. Dispute Mgmt

Supplier Management

Evaluation

2. Include key T&Cs

3. Brief all stakeholders

4. Analyse the market

5. Draw up Requirements

6. Selection and evaluation criteria

7. Include exit requirements

2. Supplier Q&A

3. Financial checks

4. Track Record

5. Recent litigation

2. Presentations/ Q&A

3. Final Scoring

4. Customer references

2. Stakeholder Briefing

3. Negotiation tactics

4. Timescales planning

5. Contract Negotiations

6. Agree SLAs and KPIs

7. Contract Signature

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2. Dispute Mgmt

3. Audit/ Benchmark

4. Risk Management

5. Renewals & Variations

6. Spend Tracking

Requirements – how formal?

Whatever it is you are buying or renewing, there are requirements.

They may seem obvious, (mobile phones), or complex (IT outsource)

For almost all IT spend, consistent definition and documentation is key.

Why?

Requirements are your single point of reference.

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Requirements are your single point of reference.They allow you to compare suppliers bids on a like for like basis.

Without requirements, suppliers will present their solutions in their own formats, making it hard or even impossible to compare them.

Pre-Qualification Questionnaires

Advertise contract and invite “expressions of interest”, issue PQQ to assess:

• Business stability (do they do what you want and will they continue to do so)

• Financial strength (set parameters)

• Insurances (consider what is required)

• References (consider what they offer)

• Experience (is it relevant)

• Technical suitability (do they have suitable skills)

• Mandatory questions and discretionary exclusions• Mandatory questions and discretionary exclusions

Consider using the Cabinet Office (GPS) format

Invitation to Tender

• Selected suppliers only invited

• Can be price only

• Can include assessment of Most Economically Advantageous Tender (MEAT) – Quality/VFM

• Includes all legal T&Cs

The more details that you can provide the keener will be the bids.

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Evaluation

Questions• Make questions relevant

• Make them easy to understand

• Make it clear what you are looking for

• Beware responses that impress but don’t answer the question – stick to the pre-agreed criteria

• Only assess what you are told by the bidder – don’t use prior knowledge of the bidder

Evaluation models• MEAT

• Determine the model before issuing PQQ/ITT

• Only evaluate each item at one or other stage – not both

• Establish both models at the same time to give comprehensive coverage and to ask suitable questions at relevant stage

• Weight questions according to their importance

• At ITT stage, determine the weight of price vs. Quality elements, e.g. 60% 40% Quality

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Negotiation & Contracting

This phase is crucial as:-

1. It is the culmination of all earlier work

2. All responses / promises are cemented into a legally binding agreement

3. Include ongoing management and exit

FACT: A typical IT contract has 50 to 100 ‘configuration’ points or clauses.

• on average, you may negotiate on 20 to 50 of these.

Cost and legal terms

• on average, you may negotiate on 20 to 50 of these.

• clauses can be grouped as legal , commercial or service

Commercial and service terms

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Common reasons why OJEU gets avoided

• “Expensive” – but the process does not cost – time is the expense

• Complicated – in reality only two extra elements for Open and Restricted Tendering: Contract Notice and Contract Award Notice

• Time Consuming – Actually not much longer than normal tendering if done properly

• “We don’t want European Companies bidding: they couldn’t deliver in the UK” – Remember the requirement to be non-discriminatory for any procurement

• “We don’t understand the process”– being non compliant risks a supplier challenge. Very costly • “We don’t understand the process”– being non compliant risks a supplier challenge. Very costly and painful

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Case study: Mobile Phone Contract Renewal Notting Hill Housing Trust

MERGER OF 4 HOUSING

GROUPS IN 2009

- 2 suppliers of mobile phone services

- 1,200 devices

Notting Hill inherited

Background

ChallengeChallenge

- Commercial deal: several years-old

- Sizable fleet

- Large scope for improvement

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Case study: Mobile Phone Contract Renewal Notting Hill Housing Trust

minimum handset holding

reduced from 1200 to 700

improved service levels with

Service Charter

title in all devices with the client

hardware support for new handsets

further rebates for any new

handsets added

Benefits61% cost saving59% - hardware41% - air time/

rental cost

current and future handset contracts - now all co-terminus

reduced line rental for voice handsets and

discounted voice tariffs

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Cloud

Application

Platform

Infra

Software (SaaS)

Platform (PaaS)

Infrastructure (IaaS)

Infra

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Strategic Commercial Angles

- Business case – TCO – is long term rental good?

- Charging models – usage based?

- Apparent ‘ease’ of signing up – iPhone example

Amazon's Cloud Crash Disaster Permanently Destroyed Many Customers' Data– April 2011

1. Low upfront costs - Opex not Capex

2. Flexibility to scale up and down

3. Lower technology running costs

4. Perception it’s easier / more modern?

5. Centralised upgrade / patch management

Why choose Cloud provision? The Customer Perspectiv e

+ Plus points

- Negatives5. Centralised upgrade / patch management

6. Low exit costs – in theory

7. Technology stays current?

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1. Data security?

2. Availability

3. Third party dependant

4. Long term higher TCO?

- Negatives

Cloud: Look out for...

1. One way flexibility – aka ‘up quick, down slow’�Customers can add users throughout the life of a contract but cannot decrease them

2. Commercial mechanisms that look familiar…� Stating user levels in advance for a year� If the supplier insists on a traditional licence model, ensure that they’re co-terminus� You pay for licences all up front – ensure that everything is up and running before paying for any

user subscriptions

3. Any pricing model that is not usage based e.g. per user / per hour / per GB� Cloud computing is synonymous with utility pricing – you should pay for what you have used

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� Cloud computing is synonymous with utility pricing – you should pay for what you have used

4. Unwelcome changes to the software that may impact your business process

5. Security Compliance

6. Limited supplier obligations, liabilities (e.g. Data protection)

7. Transition cost / effort (vendor lock in)

Onerous Terms & Conditions

Beware of click wrap and shrink wrap software� Ensure that staff read the terms and conditions before clicking ‘I agree’� Caveat Emptor –ensure that staff are aware of any risks before signing up to them

Rebuffs from large vendors e.g. Oracle take it or l eave it� Ignore this tactic it is a deliberate attempt to intimidate. Don’t be afraid to ask for more.� Avoid deadlock – give the supplier an escape avenue – ask what if…….?� A large vendor conceded by removing IPR indemnity for limits of liability and on Safe Harbour vs DPA.

Possible to negotiate? – yes absolutely– in spite of what the supplier says

Variation of T&C’s – best to ‘tender’ acceptance of YOUR key ones

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Variation of T&C’s – best to ‘tender’ acceptance of YOUR key ones� Include 10 to 15 of your key terms and condition in the Request for Proposal� Exploit commercial tension to ensure that the supplier accepts your T&Cs � Score the supplier on its acceptance or otherwise of your key T&Cs

Intellectual Property Rights� Full indemnification for breach of IPR is seldom offered as standard – be certain to demand it. Watch out

for limits of liability

Data security – data protection act –data controller & data processor roles� Cloud suppliers often accept their role as data processor but not controller� Demand full indemnification for breaches and watch out for limits of liability

Hidden Costs: SaaS

• Configuration• Modification• Data conversion• Integration• Reporting• Training

Implementation

• Day Rates• Services & Service levelsAdhoc Consultancy

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• Services & Service levels• Timescales & acceptance

Adhoc Consultancy

• Back ups / data escrow• Exit (inc. your config)Post go live

SaaS and IaaS actual supplier cost models

Salesforce: $75 per user per month, 12 / 24 month commitment � Suppliers still look for a minimum term contract and will offer better pricing for longer term

Google mail: £3.30 per user seat/month for 1GB storage� Suppliers will offer an amount of free storage per seat and then charge punitive amounts for any extra

Amazon – EC2 (IaaS) spot pricing� For non critical tasks, Amazon will inform you of when processing costs fall to a certain (low) level, you

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� For non critical tasks, Amazon will inform you of when processing costs fall to a certain (low) level, you then initiate a processing task. Amazon inform you when they are about to increase again

The ‘Take Homes’

1. Be aware of the risk of non compliance

2. Choose the most appropriate compliant procurement approach

3. Good tendering accelerates progress, esp in the latter stages

4. You can negotiate T&C’s and key terms with big suppliers

5. Contracts = legal + commercial + service

6. Cloud demands more due diligence, not less

7. Organisations focusing on:-- ongoing supplier management- sourcing strategy

8. Check for Goldmines & Timebombs in your legacy contracts

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Thank YouQuestions?

Presented by David Brook & Mike Hardy

David.Brook@turnstoneservices.com

07710 763 433

Temple Chambers, Temple Avenue, London, EC4Y 0HP

Ranked #1 in Google for IT Procurementwww.turnstoneservices.com

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