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IFB2014 offers you career opportunities
The International Festival for Business is taking place in Liverpool this summer aiming to accelerate UK economic growth with an ambitious programme of global business events running throughout July 2014.

Great, say you (with weary cynicism)! However…as we have seen recently, two thirds of buyers expect a pay rise in 2014. How are you going to justify that?

What initiatives are you taking to be a leader in your organisation?

Dr Brian Farrington, recognised by CIPS for his 'outstanding contribution' to the procurement profession for over thirty years, will be presenting at complementary IFB events, which are designed to be a useful stepping stone in your career - so make sure you save the dates.

Here's the details:

#1 The first one is a breakfast session (surely the bacon rolls will make it worthwhile?) on Wednesday 2 July in the amazing location of the Hubb "Proven approaches to improving your bottom line", consisting of a two pronged input:.

i) the role of purchasing to impact on the bottom line. We will emphasise the opportunity to reduce purchase prices (without reducing quality). Not only does this improve bottom line it doesn’t need capital investment!

ii) the need for due diligence when working with suppliers, carefully explaining the unacceptable risks that some companies enter into.

A recommended implementation plan will be provided to attendees.

 

#2 The second event, on Wednesday 16 July, is a full-dayer at the imposing Central Library taking a deep dive exploring Why your innovation needs your courage. We will explain the commercial, financial, procurement and legal considerations, all designed to protect your long-term interests and to take advantage of your innovation. The input will have direct relevance to formal legal guidance, although the emphasis here will be pragmatic advice on avoiding third parties taking advantage of your innovation, without rewarding you for your efforts.

A real life case study will be included to explain the salient points.

 

The take-away: IFB2014 offers you career opportunities to (as the strapline says) Meet, Connect and Grow at the biggest business to business festival of the year  - interested?  Please reply and I'll make sure we save you a space -yes, the events are free :) and provide you with more details.

Thanks

Steve

You can connect with me on LinkedIn , on Twitter and contact me or give me a call (I won’t bite!) on 01744 20698

Subscribe to our newsletter at the bottom of the page for updates on our IFB programme.

For more information about the IFB- Who’s helping you? IFB 2014

 
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How do Buyers work with Suppliers to deliver Social Value?
How do Buyers work with suppliers and contractors to deliver social value and support achieving wider social, economic and environmental outcomes?

The Public Services (Social Value Act) was passed at the end of February 2012.

Social value is about maximising the impact of public expenditure. Social value considers more than just the financial transaction. It includes: Happiness, Wellbeing, Health, Inclusion, and Empowerment. These types of value often accrue to different people, communities or organisations and are not always easy to measure. The strategically-thinking Buyer recognises and is committed to supporting their organisation achieving wider social, economic and environmental outcomes.

How do Buyers work with Suppliers to deliver Social Value? Here’s four tangible examples of how Buyers can seek to evidence Social Value initiatives in their supply chains:

•             Embedding Social Value in your Procurement Strategy. the continued commitment to SMEs (and BMEs and third sector organisations) engagement in their supply chain, which enables recruitment and retention of local labour.  Careful consideration of ‘Lots’ and budgets for projects to ensure a wide range of potential bidders - an open, fair and transparent process.

•             Probing the recruitment policy of suppliers and contractors. When recruiting, for example there is consideration of applications from all sectors. In that context the long-term unemployed are an attractive source of human resources. Recognising that there may be obstacles to them obtaining employment and exploring the Suppliers' commitment to assist them in whatever way they can. Initiatives that can be taken include providing work placements for people referred via government schemes designed to help the long term unemployed get up to date via work experience.

•             Valuing learning and development provision. Up-skilling of staff through formal training as well as on-going development programmes. Organisations are quick to state “our people are our greatest asset??. Seek evidence of staff being actively encouraged to develop their skills and seek out qualifications – and supported to do so.  Social value includes local businesses (noting defining “local?? is a challenge!), and a wider local community of skilled people to achieve their aims.

•             Engagement with young people. Apprenticeship schemes with Suppliers working with their local colleges. Providing the opportunity to work with young people giving them a ‘step up’ into the business world.  Often the small business will also have benefited from their engagement with local education establishments having a wider impact on their approach to learning, development and training

In summary, Suppliers need to be encouraged by Buyers to demonstrate that Social Value is embedded in the way they do business. There are a range of non-financial impacts of programmes and interventions, including the wellbeing of individuals and communities and the environment. Suppliers are an integral part and enabler of the Buyer-led Social Value and experience suggests forward-thinking Suppliers welcome the opportunity. These are not empty words. Where £1 is spent by the Buyer on the delivery of services, that same £1 is also used by the Supplier, at the same time, to produce wider benefits to the local community.

What tangible examples have you found to evidence Social Value in action?

Steve

Steve Ashcroft, your first point of contact for advice and support on how to enhance procurement practices, can be reached on 01744 20698 or email

For more insights to procurement, risk and negotiation sign up to our free newsletter – details below

Brian Farrington – one the world’s first procurement consultancy and training specialists.

 
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Surely there's a smarter way to deal with price?
The economic climate dictates that, it is time for people engaging and managing suppliers re-examine their approach to the use of price indexation formulae.

Surely there's a smarter way to deal with price?

Our research shows that in the UK there is an extensive use of the Retail Price Index (RPI) and Consumer Price Index (CPI). These are produced by the Office for National Statistics. The main differences between the RPI and CPI relate to:

• Commodity coverage – the CPI excludes owner occupiers housing costs and hence the RPI has wider commodity coverage than the CPI.

• Population base – the RPI excludes very high and low income households and hence the CPI has a wider population coverage than the RPI.

• Formulae  - used to combine prices at the first stage of aggregation – the CPI uses a combination of geometric means and authentic means whereas the RPI only uses authentic means.

The first official RPI was produced in January 1956 whereas the CPI was launched in 1996 and was first known as the HICP (Harmonised Index of Consumer Prices).

There is also the RPIX that is the RPI excluding mortgage interest payments and the RPIY that is the RPI excluding mortgage interest payments and indirect taxes.

Why use either RPI or CPI as indexation formulae in an ‘industrial context’?

The RPI and CPI both measure the average change in a fixed basket of goods and services over time. They are based on a comprehensive price collection that combines the price movements of around 180, 000 price quotes collected each month, for a range of over 650 representative good and services.

The Office for National Statistics promotes the view that RPI and CPI have, among other things, the use of “indexing rates in private contracts??.

We challenge the logic of such an approach!

The indices are too general, lacking precision when applied to specific cost drivers.

The choice of indexation requires careful consideration of what is being purchased. BEAMA (British Electrotechnical and Allied Manufacturers Association) produce a Standard Contract Price Adjustment Clause and Formulae for Electrical Machinery and Mechanical Plant and other product formulae e.g. for Turbo Generating and Allied Plant.

There are nuances to the BEAMA formulae in that they introduce a “Fixed Element?? (5%) and Labour and Materials weighted each at 47.5%. A sample calculation can be found on the BEAMA website .

We were very pleased to see a UK Council take a somewhat unusual stance;

“In line with the Council’s reduced funding provision, the contract is being offered on a fixed price basis for 3 years and then linked to an appropriate basket of indices to reflect the labour and equipment used in its provision rather than RPIX or CPI. This should provide a level of price certainty in the short to medium term and also link future increases to actual cost model in delivery of the service??.


A question to be considered is:

“who checks the implications of contractors being awarded RPI (or other indexation) but who have not given the workers a wage increase for the past two years???

The answer is, we suspect, very few organisations (if any!).

Surely there's a smarter way to deal with price:  The takeaway

Chances are some one in your team is about to make one (all!?) of the following mistakes. Here's a 7 point checklist of NOT what do in reviewing your approach to price variations.

1. Don't include indexation in your fixed price contracts

2. Have a raft of appendices with the contract, but not one with a worked example of how price indexation works

3. Refused to explore alternatives from RPI - "we've always done it this way"

4. Require something called Value for Money but not figured out how to link it to the indexation strategy

5. Do we have a forward strategy to deal with our approach to indexation?

6. Struggled to find an index (or indices) that accurately reflect the cost drivers of a specific purchase.

7. If we do have indexation, unconvincing in negotiating the granularity of the fixed and variable elements

These are the rookie procurement errors we’ve observed most often. What did we miss?

Steve

Steve Ashcroft, your first point of contact for advice and support on how to enhance procurement practices, can be reached on 01744 20698 or email

 

For more insights to procurement, risk and negotiation sign up to our free newsletter - details below

 

Brian Farrington - one the world's longest established procurement consultancy and training specialists.

 
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What initiatives are you taking to be a leader?
The International Festival for Business is taking place in Liverpool this summer aiming to accelerate UK economic growth with an ambitious programme of global business events running throughout July 2014.

Great, say you (with weary cynicism)! However…as we have seen recently, two thirds of buyers expect a pay rise in 2014. How are you going to justify that?

What initiatives are you taking to be a leader?


Brian Farrington will be presenting at complementary IFB events, which are designed to be a useful stepping stone in your career -  make sure you save the dates.

2 July 2014

The first one is a breakfast session on 2 July (surely the bacon rolls will make it worthwhile?) in the amazing location of the Hubb Proven approaches to improving your bottom line, consisting of a two pronged input:.

i) the role of purchasing to impact on the bottom line. We will emphasise the opportunity to reduce purchase prices (without reducing quality). Not only does this improve bottom line it doesn’t need capital investment!

ii) the need for due diligence when working with suppliers, carefully explaining the unacceptable risks that some companies enter into.

A recommended implementation plan proven to improving your bottom line will also be included in your takeaway pack.

16 July 2014

The second event, on 16 July, is a full-dayer at the imposing Central Library taking a deep dive exploring Why your innovation needs your courage. We will explain the commercial, financial, procurement and legal considerations, all designed to protect your long-term interests and to take advantage of your innovation.

The input will have direct relevance to formal legal guidance, although the emphasis here will be pragmatic advice on avoiding third parties taking advantage of your innovation, without rewarding you for your efforts.

A real life case study will be included to explain the salient points.

 

Interested?  Please reply and I'll make sure we save you a space and provide you with more details - yes, the events are free :)

Thanks

Steve

You can connect with me at LinkedInTwitter and contact me - or give me a call for a chat on 01744 20698

What initiatives are you taking to be a leader? Sign up to our eNewsletter, details below, for exclusive tips, advice and advance notice of forthcoming events.

 

 
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10 points about real life bribery and fraud
 

10 points about real life bribery and fraud

We have a continuing research project into Bribery & Fraud, specifically when the circumstances involve procurement and other staff with a supplier(s).

This research has led us to a report on “Investigation into bribery and fraud at RailCorp (Australian report by ICAC – First Report). Chapter 6 of the Report sets out the findings of fact and corrupt conduct. Some highlights are shown below.

  1. The report principally concerns the corrupt conduct of Mr Allan Michael Blackstock a RailCorp employee responsible for allocating welding work and Mr Youssef Madrajat the director of Precision Wirefeed Welding Pty Ltd (Precision).

  2. Mr Blackstock had allocated almost all welding work in his region since January 2004 to Precision.

  3. Mr Blackstock awarded the work to Precision, knowing that in doing so he would benefit financially through receipt of payments from Precision. Those payments, which were organised and paid by Mr Madrajat, totalled in excess of $1.3 million. Both were involved in submitting false invoices.

  4. When Mr Blackstock gave evidence he was evasive. Initially, he denied all allegations put to him, but changed his evidence when he realised that the commission had significant evidence against him. He cannot be regarded as a witness of truth.

  5. Inclusion of Precision on the list of established welders was one of the first critical steps undertaken by Mr Blackstock to organise work for Precision. At that time, the company had been newly created, had no work history and no employees.

  6. Mr Madrajat and Mr Blackstock colluded to produce at least six false invoices and claimed for work never performed by Precision.

  7. Mr Blackstock was aware proper safety tests were not being done, did not insist that they should occur, and did not report it to anyone in RailCorp. This is another indication of the adverse effect on his duties caused by Mr Blackstock’s considerable conflict of interest in relation to his management of Precision.

  8. During the subject period, RailCorp paid $4,288,521 to Precision for services claimed to have been provided. Out of this sum Precision paid its employees and the costs of running the business, such as maintenance of equipment, rental of premises and the purchase of consumables. This accounted for less than half the money paid to Precision. Mr Blackstock and Mr Madrajat were the principal beneficiaries of the rest.

  9. One direct outcome of the conduct over several years by Mr Blackstock was that his financial wealth increased substantially.

  10. During the period he was receiving substantial amounts of cash, Mr Blackstock significantly increased his discretionary expenditure on his lifestyle. His gambling alone demonstrated that he was able and willing to lose a lot of cash as he knew more would be forthcoming. His purchase of the investment property and the holiday unit indicate that he did not consider there was any realistic prospect of RailCorp finding out about his receipt of secret commission s and bringing it to an end.


10 points about real life bribery and fraud: Brian Farrington Limited comments on the above

These comments are presented in the same numbering sequence as above. The comments we make are intended to alert other organisations to the risk of bribery and fraud taking place within their procurement and contract award processes.

  1. The report is factual and very informative.

  2. This raises a strategic question regarding the vast majority of work being placed with one supplier. It emphasises the need for internal audit to conduct regular reviews of such decisions.

  3. This focusses attention on closed loop situations where one individual or department can award work, confirm receipt and appropriate quality, and sign-off invoices.

  4. This emphasises the need to gather irrefutable evidence prior to facing employees with allegations of wrong doing. Obviously, if criminal proceedings are to take place there are investigations and evidence gathering processes to be complied with.

  5. This is a massive consideration! How do suppliers get on an authorised list? Who keeps appropriate records of pre-qualification information and its robustness?

  6. This emphasises an internal weakness in invoice payment authorisation processes.

  7. The quality of Health & Safety tests and management is a very serious issue, leaving organisations and individuals potentially open to prosecution.

  8. This emphasises the need to understand the cost drivers and profit. It raises the obvious question regarding the availability of such information in organisations.

  9. Who examines the life style of buyers in your organisation?

  10. Note the comment on gambling and investments in property. It raises the issue of whistleblowing and the confidence people have in reporting situations where they have serious doubts about current practices in their organisation.


Professional colleagues should review their practices and ask a simple question –

“Could this happen in our organisation???


Thanks

Steve Ashcroft, your first point of contact for advice and support on how to enhance procurement practices, can be reached on 01744 20698 or email

More insight at Do you believe in the reliability, truth and ability of your suppliers? Do you trust them?

To meet the needs of thoughtful people, Brian Farrington publishes a newsletter “Think Procurement.??

It’s free. See bottom of the page for a quick and easy sign up.

 
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How are you planning your new financial year - April fool?

No doubt your processes to engage and manage suppliers and contractors have served you well. Is it now time – right at the commencement of your new financial year - to confirm they are fit for purpose and capable of supporting your objectives during the next phase of your organisation’s development?


Working with your stakeholders, including project managers and legal teams, the key activities of a timely strategic expenditure review include;

  •  Review the current processes and expenditure plan

  •  Determine future contracting requirements

  •  Propose and recommend the most appropriate procurement process

  •  Develop or revise the document/s e.g. risk mitigation

  •  Create guidance documents for internal and external use


In essence, collate data to inform your decision-making in determining a contracting strategy for 2014/15 to facilitate future procurements.

10 Facets to review include:

  1.  Your predicted scope of future procurement in terms of likely projects and contracts requiring a mix of supply market solutions, including Joint Ventures and Prime Contractors who have a complex supply chain

  2.  Your commitment to Partnering Agreements

  3.  Your commitment to input based contracts

  4.  The funding and other liabilities that arise from your contractual agreements

  5.   Future ownership of IPRs and financial rewards for long-term exploitation of the IPRs

  6.  Your risk appetite and how that impacts on contract terms and conditions

  7.  Rights of termination and liabilities arising therefrom

  8.  Your rights of audit and reporting mechanisms

  9.  Your Governance requirements

  10.  Whether Framework Agreements are appropriate for long-term provision of strategic services


A short piece of work and a valuable one. How are you planning your new financial year?

Steve Ashcroft, your first point of contact for advice and support on how to engage and manage suppliers, can be reached on 01744 20698 or email

 
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None of us knows more than all of us.
Engaging with people interested in procurement, risk and negotiation here at Brian Farrington is a challenging yet exciting activity we do - behind consultancy and training that is - and I've always enjoyed doing it. From social media (Twitter and Linkedin), website management, speaking at events and everything in between.

What made me think hard and more than twice was a question brought up by a colleague during one of our weekly, "how are we doing" meetings.

"What do you think of taking comments off BrianFarrington.com?"

"Not a chance," I firmly replied (only because I've thought about this for quite a while on my own). I wasn't being stubborn was I?

Course not. I value the conversations, debates and differing perspectives, and I don't think I'm alone on that, no one (really) enjoys a lecture at the best of times.Open-minded people like two-way discussions, one-way systems lack energy. I like to see how people react to BrianFarrington.com articles and blog posts, good or bad, agree or disagree, or need more information. I enjoy receiving the comments and replies we get, especially from people responding to our regular 'Think Procurement' newsletter; a real sense of connection.

Approaches to procurement, risk and negotiation are always evolving, developing, adapting to new working environments, the actual changing of the physical environment and also new technologies. To be discussed, debated, and questioned is good.  I’m a great believer in ‘none of us knows more than all of us’.

However, in the end, I completely made a U-turn with my original thought, after conversing and discussing with the whole team.

For those who follow a few blogs (or write your own) such as Spend MattersSupply ManagementProcurement Leaders, or Dr Gordon Murray, then you may have noticed that comments on them are becoming less and less frequent with Twitter and LinkedIn starting to reach its full potential.

Why did this make procurement blog comments less frequent? The answer is simple; because the conversation moved to a wider public platform.

This clearly, is great for everyone involved with procurement, risk and negotiation. The same insightful, thought provoking conversations, but now, we have a wider potential discussion group. These social platforms have created a much better opportunity for new people to connect with people interested in procurement, risk and negotiation. On these platforms, our followers, connections, clients can share, retweet, pin, favourite, forward our Brian Farrington blog posts, which in turn leads to more connections, debate and discussion.

One example is an article we posted on Linkedin a few weeks ago, ' Do you believe in the reliability, truth and ability of your suppliers? Do you trust them?' The subject engaged readers instantly, admittedly some people thought the article was thought-provoking and insightful - which was sure to agree and support many people's answers and thoughts - yet (positively) provoke and disagree with many others.

This created a great discussion on the Linkedin page where it was posted, with people hotly debating the subject. I like how an article like that brought together some of the brightest people in our community engaging with each other. This idea of a worldwide community is why we are sharing articles and getting involved in the International Festival of Business IFB (PS look out for our events at IFB!).

We appreciate the comments submitted to Brian Farrington and I'll be the first to admit that I have learnt many things from some of the responses we get and I'm sure others have as well.

The thing is, I've mentioned two-way discussions earlier, and I'll refer to it again. If our readers are willing and passionate enough about a certain topic to stop their work, playing with their kids and concentrating on the road (please don't do that) to read and respond to our articles, then shouldn't they also have a wider audience to speak to?

I definitely think so. The more we all share with each other, the more the world of procurement, risk and negotiation can learn and grow together.

Thanks

Steve

P.S. Please comment on this article on Twitter, LinkedIn company page or Risk in procurement group on LinkedIn – or drop us a note at s.ashcroft@brianfarrington.com.  Better still give us a call on 01744 20698
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A shocking wake-up call on Partnering agreements!
A shocking wake-up call on Partnering from the DVLA, Fujitsu, IBM United Kingdom (and not forgetting PwC)?

This trial of preliminary issues arises out of a claim brought by Fujitsu Services Ltd against IBM United Kingdom Ltd [2014] EWHC752 (TCC).  There is to be a full trial in 2015.  The situation arose out of a DVLA agreement with PwC, later purchased by IBM.  At the time of contract award PwC agreed to subcontract certain work to Fujitsu.

There was a partnering Agreement and that is the focus of this article. The partnering principles were set out in Annex A, and included the following statements:

Working together

  • All dealings between DVLA and PwC and Fujitsu will be open, honest, clear and reliable

  • Work together to achieve a relationship of mutual respect and trust

  • Work together to foster and sustain positive working relationships over the full Contract Period


 Transformation

  • Do our best to ensure that work is mutually enjoyable and fulfilling for everyone

  • Work together to generate a sense of inclusiveness

  • Work together to solve problems effectively


 Service delivery

  • Undertake joint business planning

  • Work together to stimulate innovation and creativity


The above statements, at face value, are very good, seeking to capture the essence of partnering.

So, what is the contractual implication of Annex A?

At paragraph 161 of the judgment it states:

“the principles in Annex A lack contractual certainty. 


Objectively constrained, they are not intended to be the subject of direct contractual effect??



 


At paragraph 162 it states:

 

“IBM was obliged to ‘have regard to these principles’ including the principle of working together on an ‘open, honest, clear and reliable’ basis, but no more??



 


Earlier at paragraph 141 the judge concludes:

 

“the principles themselves are aspirational and motivational??


 



The take-away:  At Brian Farrington we have negotiated a number of Partnering Agreements.  We seek not to be blinded by the supplier’s enthusiasm for a Partnering Charter, proposing language similar to that shown above.

The cynicism we have is informed by what happens, if, and when, relationships sour. The lawyers will turn to the contract – that is what will happen!  Caveat emptor.  IBM will have good reason to be highly satisfied with the outcome of the preliminary issues.

 

Why Brian Farrington?

Why people with procurement risk issues want to work with the people at Brian Farrington.

There are three themes that clients tell us over and over again.

First, they tell us they believe they are making a smarter investment working with Brian Farrington — bringing a thorough understanding of their procurement risk issues and a proven track record of enabling excellent returns on their investment.

Second, clients are confident that they are working with specialists that bring experience, expertise and stay focused on client success; not on our next income target.

Finally, people, just like you, tell us they actually like working with us. They find us easy to work with and collaborative in solving issues that inevitably arise in procurement risk.

 

About Brian Farrington

Brian Farrington is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading technology, manufacturing, aerospace and defence organisations in the UK, North America, southern Africa and Asia. Established in 1978, we have proven expertise and experience in identifying and managing procurement risk.

Brian Farrington solutions and services are formed through consultancy, training & development and coaching – all underpinned by proprietary technology. Our four core areas of procurement capability are:

  • Strategic review and risk governance

  • Performance delivery and transition

  • Major project support including partnering advice

  • Learning & development in support of organisational aims.


 

www.Procurisk.com - The evolution of risk management For more information and instant access to the free demo site please contact Ray Gambell on 01744 20698, or r.gambell@brianfarrington.com

Interested in insight on managing supplier performance? We recommend reading: “The Attributes of effective contract management???

To meet the needs of thoughtful people, Brian Farrington’s “Think Procurement?? can be sent straight to your inbox – exclusive advice and tips on procurement, risk and negotiation.

It’s free. See bottom of the page for a quick and easy sign up.

 
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