procurement for the university staff training and development unit friday 26 november 2010

Procurement for the University

Staff Training and Development Unit

Friday 26 November 2010

Course Content:•Risks and Challenges

•Procurement Regulations and Procedures (including financial

thresholds)

•Roles in Purchase-to-Pay Process

•Methods of Purchase

•Accounting for VAT on Purchase Orders

•Importing Goods

•Basic Procurement Law

•Sale of Goods Act

•Value for Money

•Green Procurement

•Staff Expenses Q&A (Charles Gray, Payments Accountant)

Question? Feel free to ask!Issue? Feel free to share!

Bad experience? We’re all ears!

(remember feedback forms)


Other Training for Users

Qfis Purchase Order Processing: facilitated by Financial Systems, in conjunction with the Procurement Office (contact Qfis Helpdesk for information – email [email protected] / ext 5055)

Purchasing Card: ‘Using Your Purchasing Card’ course facilitated by the Procurement Office, in conjunction with Staff Training & Development Unit (see STDU programme for information)

mailto:[email protected]


Information Sources

• Procurement Website – guidelines, regulations, procedures, systems and contracts

• Queen’s Now / Weekly Round-up – information on new contracts, developments and other items of ‘procurement news’

• Workshops, roadshows, ‘meet the supplier’ events, user events eg away days for travel bookers

• School/Directorate Briefing Sessions – advice on key issues and interaction with Procurement team

Risks and Challenges

Procurement for the UniversityRisks and Challenges

What is Queen’s University Belfast in the procurement context?

• body governed by public law - EU Directives (Public Contracts Regulations 2006 (as amended) and associated case law

• its procurement activities must follow the Rules and Principles of the EC Treaty – ie all suppliers must have same degree of non-discrimination, equal treatment, transparency, proportionality and mutual recognition


What does this mean for Queen’s?

•Must ensure that adequate control arrangements are in place

•Non-compliance with public procurement legislation leads to…

•Public accountability issues – perceived misuse of taxpayers’ money

•Possible legal challenges from unsuccessful suppliers following award decisions

•Reputational risk

•Financial risk


What the University does to Reduce Risk:-

•Clearly documented, robust procurement policies and procedures

•Formal approval and reporting procedures

•Appropriate systems – Qfis, pcard programme, inventory

•Expenditure monitoring, analysis and benchmarking

•Professional procurement expertise and experience

•Procurement strategies – regularly reviewed

•Training / CPD

•Availability of specialist legal advice


What you can do to Reduce Risk:

•‘Intelligent Action’ - ask for advice before engaging in a procurement process

•‘Bigger Picture’ - consider the implications of what you are thinking of doing and act accordingly

•‘Keep Yourself Informed’ – ensure that you keep up to date with procurement regulations and requirements

•‘Cover Your Tracks’ – ensure that your actions can stand up to scrutiny – your actions are auditable and almost everything is discoverable under FOI*

(* Freedom of Information Act 2000)

Procurement Regulations and Procedures

Procurement for the UniversityProcurement Regulations and Procedures

The Rule:-

Any goods, services or works purchased via the University’s accounting system, using general funds, research funds or otherwise, must comply

Joint Appointees / Jointly Funded units – if funding is channelled through the University’s accounting system, regardless of the source, then the purchase must comply


Contracts/formal supply arrangements must be used where possible – see

www.qub.ac.uk/directorates/FinanceDirectorate/Procurement/ContractsBuying


Examples of reluctance to use contracts:

Comment: I can get a better (cheaper) deal by going to my chosen supplier

Response: Best value is not always about cheapest price. There are other (qualitative) considerations. Also, the initial cost may increase when the whole life cost (eg maintenance etc) is taken into account. Further, all contracts are covered by stringent terms and conditions which govern the performance of the contracted supplier.



Comment: I had a bad experience with that supplier and don’t want to use it.

Response: If any issues were not brought to the attention of the Procurement Office at the time, nor were they recorded or the supplier brought to task, there is little that can be done. Unless a supplier has been penalised for poor performance, it cannot legitimately be excluded from supplying to the University. If it is necessary to use that supplier then instead, the required level of performance, and any other specifics, should be agreed prior to undertaking the transaction.



Comment: I need something which is not the same specification as, or is more expensive than, the contract item

Response: All such requests will be considered as long as a valid justification is provided. Technical expertise will be sought where deemed necessary (eg from Information Services)



Comment: I need something urgently and the contractor can’t supply it or the item is not available from the contractor.

Response: The requestor will be asked to confirm this in writing, however, it is likely that the Procurement Office will verify this with the contractor. As a rule, such situations would be monitored and Procurement will work with the contractor to expedite deliveries / extend product/service ranges where possible.


Procurement Thresholds for non-contract items

• £2,500 to £10,000 exc VAT – three written quotes

• £10,000 to £30,000 exc VAT – four written quotes

(see handout – ‘Guide to Seeking Competitive Quotations’)

• Over £30,000 exc VAT – must be tendered• Over £156,442 exc VAT – must be tendered in

Europe (see handout on timescales)

All tenders – talk to Procurement as early as possible!


Calculating Thresholds:

• Look at likely spend over period of requirement

• Use aggregated total to determine whether quotations or tenders are required

• If unsure of contract period, use maximum of 4 years (48 months)

Example: Consultant required 2 days per week for 12 weeks costing £500 per day, hence:

2 x 500 x 12 = £12,000 - requires four written quotes


Thresholds apply to:

• Single purchases

• Multiple quantity of the same item

• Total value of similar items within a generic description

• Aggregated total anticipated spend over period of requirement (maximum 48 months)

Do not apply to:

• Items grouped together on an order for convenience

Possible exceptions to requirement for competitive process –single or limited source of supply, equipment upgrades, compatibility requirements, etc


Possible reasons for single or limited source of supply (quotes or tenders):

• Patented design

• Upgrades to existing equipment (available only from manufacturer)

• Compatibility – existing equipment or collaborative research

• Software – unless available from a source other than its creators

In all cases, there must be a sound justification.


For tenders which are deemed ‘sole source’:

• Procurement will advise on most appropriate means of competition

• Tendering exercises conducted where possible to test the market

• Purchases over tender threshold should never go ahead without the involvement of Procurement


Specifying your requirements:-

• Input/Prescriptive specification (details features of item)

• Output/Performance specification (details features of result) – use where unsure of, or unable to specify, requirement.

Remember:

• Give a clear explanation of your requirements but don’t ‘lock out’ any potential suppliers by producing too detailed a spec.

• When buying equipment, never use a supplier’s technical specification as your own


• Quotation and Tender evaluation process - must stand up to the most rigorous of scrutiny in the event of a legal challenge

• Remember, asking supplier to bid implies willingness to deal if bid wins

• Suppliers (non-EU competitions) entitled to de-brief within 15 days of being advised that unsuccessful

• Standstill period (EU competitions) requires ‘characteristics and relative advantages’ of winning bid to be disclosed to all unsuccessful applicants

Roles in Purchase-to-Pay Process

Procurement for the UniversityRoles in Purchase-to-Pay Process

Nominated Buyer’s Responsibilities:-

• Five R’s – to ensure that the right quantity of the right goods is purchased at the right time at the right price and delivered to the right place

• To ensure that procurement regulations and procedures are followed

• To make colleagues aware of contracts and to ensure that they are used

• To approve orders up to £2,500 exc VAT


Authorised Signatory’s Responsibility:-

• To approve the commitment of funds from a budget (project code) by signing a paper (Qfis) requisition

- whereas a Nominated Buyer approves the resultant order on Qfis


Segregation of duties = the person who authorises commitment of funds on a requisition should never authorise the invoice for payment

In some cases, a Nominated Buyer may also be an authorised signatory. If so, he/she can approve the order on Qfis but can only authorise the requisition to raise the order OR authorise the invoice for payment


Nominated Buyer Combination of Signatures

Purchase Order Invoice

First Signature – authorisation of requisition to commit funds from project

Second ‘Signature’ - approving the order after ensuring that procurement procedures were followed and VFM obtained

Third Signature - authorisation of invoice for payment

As Nominated Buyer who is also authorised to commit Project Funds

Yes Yes No

As Nominated Buyer only

No Yes No

As Nominated Buyer who is also authorised to pass invoices for payment

No Yes Yes


Order approval requirements above £2,500 ex VAT:

£2,500 - £10,000: Buyer

£10,001 to £50,000: Senior Buyer

£50,001 to OJEU threshold: Procurement Manager

Above OJEU threshold: Head of Procurement

Additional requirements for approval by Director of Finance on behalf of University Operating Board:

Non-compliant orders over £50,000

All orders over £100,000


‘Non-compliant’ denotes an order, in respect of which, a competitive process has either been undertaken incorrectly or not at all.

All orders requiring approval by the Director of Finance require a ‘Report on Order’ to be produced by the Procurement Office. Orders cannot be approved by Procurement until they have been approved by the Director of Finance, who may seek from the originator further clarification or information on the circumstances of the order.

Methods of Purchase

Procurement for the UniversityMethods of Purchase

Two main methods of purchase:-

•Qfis – Purchase Order Processing (‘POP’)

•Purchasing Card (‘pcard’)

Other methods are less commonly used in the purchase of goods and services (see handout ‘Guidelines on Processes for Undertaking Purchases’)


Qfis – Purchase Order Processing (‘POP’)

•Requisition – source document - must be signed by authorised signatory for project code(s) (remember your procurement practices may be audited!)

•Order created electronically by ‘Qfis clerk’ and approved by Nominated Buyer or Procurement team. If Qfis clerk is in doubt that rules have been followed, they should refer to the Nominated Buyer.

•Authorised signatories on all orders (‘accountable’) are checked by Procurement


• Nominated Buyers should only approve orders if satisfied that rules have been followed – if in doubt, challenge!

• Orders can only be approved by Procurement if appropriate supporting paperwork (eg quotes) has been received from originator – fax or email!

• A comment should be added to the ‘notes’ screen advising the whereabouts of any supporting paperwork - including the method of issue, the date sent and who it was sent to, or, if the paperwork is still to be issued, the date on which its issue is expected.

Qfis POP


Following best practice:

When raising orders to the same supplier:-

• do include goods/services with different specifications, dates of requirement, etc

• do include items with different accounting requirements - product code, project code, VAT code, etc

Qfis POP


When raising orders:-

• don’t raise an order for each requisition received on the same day to the same supplier – forward plan where possible

• don’t intentionally split orders to bring individual values below the Nominated Buyer threshold

• don’t communicate requirements to supplier – this will result in a Confirmation Order

Qfis POP

Qfis POP


Avoiding confirmation orders:

• Standing orders (delivery of same quantity of item(s) each month) – eg bottled gas

• Blanket orders (delivery of item(s) on an ‘as required’ or ‘call-off’ basis) – eg travel

• Purchasing card (can be used for most commodities – use for high volume, low value transactions where possible)

(see handout – ‘Guidelines – Confirmation Orders’)

Qfis POP


Pre-payment:

University’s policy not to pre-pay for goods or services but may be necessary if:

• Requirement is a ‘one-off’ and University doesn’t have account with supplier

• Contract (eg scientific equipment) is subject to stage payments

If significant amount, pre-payment only made subject to receipt from supplier of banker’s Letter of Guarantee (Procurement will advise)

Qfis POP


Receiving and Paying for Goods

• Check quantity received against delivery note asap

• Report discrepancies to supplier and confirm in writing

• Delivery note is key component of contract documentation – retain with other paperwork

• Match invoice against delivery note

• Orders - obtain credit notes where appropriate and only process invoice when received

Qfis POP


Paying personally for goods and services

• Personal payment by staff or students is not permitted - must be purchased using official order or purchasing card

• Exceptional circumstances only (eg, urgent requirement when travelling abroad – must be made clear on Expenses Claim)

• Procurement approves all such claims• Claim may not be approved if inadequate justification is

provided Qfis POP


Purchasing Cards

•Purpose - purchase of low value goods and services (mainly on-line)

•Single transaction limit of £500 + VAT (rounded to £600) on all purchasing cards – individual card limits reviewed annually with some limits increased based on spend profile

•Cards have various monthly limits set in agreement with Cardholder’s Head/Director

Purchasing Cards


• Only cardholders should undertake purchases

• Security = no card numbers on faxes or e-mails

• On-line ordering – ensure that cardholder uses only sites with secure payment methods

• Efficiency savings = use of purchasing card encouraged where possible

• Better for suppliers as payment received within four days (improved cashflow outweighs merchant fee charged by supplier’s bank)

Purchasing Cards


To facilitate monitoring of ‘personal expenses’ by Payments Office (invoice/staff expenses form), these categories are blocked on all cards:-

•Catering and catering services

•Leisure activities

•Restaurants and bars

•Personal services

•Professional services

Purchasing Cards


Summary of Procurement Reports:

• Confirmation Order Reports – issued to Heads/Directors and Nominated Buyers (on request)

• Procurement Practices: Exception Reports – issued to Heads/Directors and School Managers (details purchase order transactions where best practice wasn’t followed)

• Purchasing Card: Maverick Spend reports – issued to cardholders (highlights areas of non-contract spend and requests justifications/further information from cardholder)

Accounting for VAT on Purchase Orders

Procurement for the UniversityAccounting for VAT on Purchase Orders

Most goods and services purchased by the University will incur VAT at 17.5%.

Exceptions:-

• Goods/services exempt from VAT

• Supplier not VAT registered

• Goods which are VAT zero-rated or eligible for VAT zero-rating, by declaration

• Services being provided outside the UK (which in itself has exclusions)


The following applies where VAT is payable:-

• UK Suppliers – VAT shown on invoice

• EU and Rest of World Suppliers – VAT not shown on invoice*. Instead we make payment directly to HMRC at the UK rate.

* (unless the charge is for a service which takes place in the country of supply – eg

VAT on a hotel room in Europe where the invoice will show the gross total cost

(eg £121 in Belgium where the VAT rate is 21%, ie, £100 cost + £21 = £121).

Some services, including consultancy, are exempt from this rule – contact

Finance Tax Section for further details.)


VAT Coding of Orders to UK Suppliers:-

S – UK Standard rate

Z – Zero-rated – where either the applicable rate is 0% or zero-rating of VAT can be claimed eg for medical research

X – Exempt – VAT does not apply

W – Supplier not VAT-registered or VAT cannot be extracted from purchase price


VAT Coding of Orders to EU Suppliers (EU Imports):-

ES – UK Standard rate payable to UK Customs & Excise

EZ – Zero-rated – where either the applicable rate is 0% or zero-rating of VAT can be claimed eg for medical research

EX – Exempt – VAT does not apply

EW – VAT cannot be extracted from purchase price or not applicable to any of above categories

Procurement for the University Accounting for VAT on Purchase Orders

VAT Coding of Orders to Other Worldwide Suppliers (Rest of World Imports):-

RS – UK Standard rate payable to UK Customs & Excise

RW – Includes zero-rated purchases, exempt purchases and purchases where VAT is not applicable


Examples of Items Exempt from VAT (UK VAT Code X):1. Land2. Insurance3. Postal services (UK postal service only)4. Betting, gaming and lotteries5. Finance6. Education7. Health and welfare8. Burial & cremation9. Trade Unions and professional bodies10. Sports, sports competitions and physical education11. Works of art12. Fund raising events by charities and other qualifying bodies13. Cultural services14. Supplies of goods where input tax cannot be deducted15. Investment gold


Examples of Zero-rated Items (UK VAT Code Z, ie, no VAT liability):1. Food2. Sewerage and water3. Books4. Talking books for the blind & handicapped and wireless sets for the blind5. Construction of buildings6. Protected buildings7. International services8. Transport (except taxis and car hire)9. Caravans and houseboats10. Gold11. Bank notes12. Drugs, medicines and aids for the handicapped13. Imports and exports14. Tax free shops15. Charities

Procurement for the University Accounting for VAT on Purchase Orders

By declaration, VAT can also be ‘charged’ at 0% on:-

• Equipment for medical research, teaching, training, diagnosis or treatment

• Certain consumables and items of veterinary equipment (contact Finance Tax Section for further details)

• Open to regular scrutiny by HM Revenue & Customs

• Penalties for false declarations

• No VAT zero rating of personal purchases for staff or students


Getting the VAT code wrong:

• Increases the University’s costs unnecessarily

• Creates errors which later have to be explained to HMRC

• Penalties for false zero-rated declarations for medical and veterinary supplies

Procurement for the UniversityAccounting for VAT on Procurement

What VAT codes should be allocated to these examples and why?

1. Air travel from a UK supplier

2. A book from a supplier in France

3. Medical equipment from a supplier in the US

4. A hotel room in Italy

5. A delivery by the Royal Mail (UK)

6. The printing of a journal by the University’s appointed contractor

Procurement for the UniversityAccounting for VAT on Procurement

For advice and guidance on handling of VAT in all financial transactions, including lodgements and journals, refer to the Finance Department website

www.qub.ac.uk/directorates/FinanceDirectorate/Tax/ or contact:

Alan Crowe - Tax Manager [email protected] ext. 3058

Dympna Stewart - Tax Officer [email protected] ext. 3073

Advice and guidance on accounting for VAT on purchasing card transactions is covered in the ‘Using Your Purchasing Card’ course

Importing Goods

Procurement for the UniversityImporting Goods

Ensure that you know the total cost of importing your goods and what your quotation actually includes, eg:-

• Delivery charges directly to your department?

• Insurance for goods in transit?

• Import Duty?

• Installation and Commissioning?


Agree currency of purchase – particularly important if exchange rate is favourable (eg if the $ v £ rate is favourable, pay in $)

Ensure that goods are arriving in Northern Ireland and not, eg, via Dublin as additional charges will be incurred


‘Incoterms’ – internationally-recognised trade terms which identify what is included in the cost quoted.

Common examples:

FOB – ‘free on board’ (the carriage vessel). Liability for insurance, full carriage and import duty rests with buyer

CIF – ‘cost, insurance and freight’ (to named port of destination). Liability for carriage of goods from point of import to UK and import duty rests with buyer


Full list of Incoterms, information on duty relief and guidance on returning imported goods for repair can be found at

www.qub.ac.uk/directorates/FinanceDirectorate/Procurement/PoliciesandP

rocedures/ImportingGoods/

Advice on import duties from Finance Directorate, Tax Section:

Alan Crowe - Tax Manager [email protected] ext. 3058

Dympna Stewart - Tax Officer [email protected] ext. 3073

Basic Procurement Law

Procurement for the UniversityBasic Procurement Law

Basic Contract Law:

• Contract has two main elements – offer and acceptance

• Verbal contract – legal and enforceable

• Offer can be withdrawn before acceptance

• Agreed price cannot change after acceptance, unless by agreement between both parties

• Agreed price cannot change after goods/services have been delivered


Terms and Conditions:-

• preferable that QUB conditions govern contract (eg standard QUB conditions for goods [see handout], REAG conditions for scientific equipment, bespoke conditions for service contracts)

• other special conditions may be required, e.g. price (fixed/variable), payment terms, performance monitoring, termination, clause for specific performance (liquidated damages)


• Supplier Conditions may be introduced before contract, eg with a quotation or tender

• Suppliers can be persistent! If their conditions must be used, then ensure no conflict with standard conditions (see handout) or special conditions (refer to Procurement if necessary)

• May be necessary to agree to not all, but certain, clauses from supplier’s conditions – eg relating to payment or delivery (again, refer to Procurement)


• Reference to purchases being covered by University’s conditions of contract, with web link, is included on all Qfis orders

Conditions introduced after the contract, e.g.

• with an order acknowledgement

• with a delivery note or invoice

have no legal effect unless the buyer, or receiver, agrees specifically to them by signing the document

Sale of Goods Act

Procurement for the UniversitySale of Goods Act

Sale of Goods Act 1979 (amended by the Sale & Supply of Goods to Consumers Regulations 2002) –

viewed as consumer law, but principles apply equally to commercial contracts.

Requires that goods must be:

• of satisfactory quality

• of the required state and condition

• fit for the purpose intended

• free from defect

• safe

• durable


Goods are of satisfactory quality if they:

“…meet the standard which any reasonable person would regard as satisfactory taking into consideration the description, the price and all other relevant circumstances.”

• acceptance of goods = when buyer examines them, however, must be within a “reasonable” time

• right of partial rejection = if some items in a consignment are faulty, buyer can accept those which are ok but can reject the rest


Things to remember:-

• Action against a supplier is easier with hard evidence

• Keep a chronological record of all issues, supplier responses, faults, repairs, etc

• Keep a record of all losses incurred

• Ask colleagues for comments and to attend any meetings with suppliers

• Don’t let suppliers make you doubt your own expertise

• Get everything in writing!

Value for Money

Procurement for the UniversityValue for Money

Procurement:

…the whole process of acquisition from third parties and covers goods, services and construction projects. The process spans the whole life cycle from initial concept and definition of business needs through to the end of the useful life of an asset or the end of a services contract.


Value for money:

…depends on combining competition with innovative ways of procurement, whilst managing the risks effectively.


• The procurement of all goods, services and works must be based on value for money (VFM), having due regard to propriety and regularity

• VFM is not just about lowest price; rather the optimum combination of whole life costs and quality

• Admin costs of procurement - between 10% and 50% of goods/services being purchased – often disproportionate to value of item

Examples of Achieving better VFM through Procurement

Green Procurement

Procurement for the UniversityGreen procurement

Green procurement:

• “…taking environmental and social factors into account in making procurement decisions with the aim of minimising the environmental and social impacts of those purchases whilst ensuring that value for money is obtained.”

Procurement for the UniversityGreen procurement

Economic, environmental and social reasons for this:

• Ensuring compliance with legislation

• Conservation of natural resources

• Reducing pollution

• Reduction of amount and type of waste sent to landfill

• Cost savings - greener alternatives = energy-efficiency

• Enhancing the University's corporate image

Procurement for the UniversityGreen Procurement

2006 – Environmental Management System (EMS) established by Procurement Office and Estates Directorate

2007 – EMS achieved ISO 14001 Environmental Systems Standard Certification

(see

http://www.qub.ac.uk/directorates/FinanceDirectorate/Procurement/Environment

alProcurement-InformationforBuyers/

for details)


• Green Guidelines for Buyers (introduced June 2009) [see handout]

• Green Guidelines for Suppliers (introduced November 2009)

Current ‘greener’ contracts:

• One Stop Shop (stationery, computer cons, paper)

• Print Management Service

• Commercial Waste Management Service

• Photocopying Equipment (MFDs)

• Disposal of WEEE


If essential to purchase, then consider choosing alternative "greener" products:

• Is it made from partly or wholly recycled material?

• Can it be recycled once it has been finished with?

• Does it have excess packaging?

• Is it energy-efficient?


Biggest opportunity to influence the University’s impact on the environment = electrical equipment (white/brown goods, IT and lab equipment) ---

• Choose equipment with energy ratings of A or higher (highest A++ for refrigeration equipment)

• Look out for the ‘Energy Star’ on office equipment and ‘Energy Saving Recommended’ logos

• Think about energy consumption as a key component of the procurement decision

• The Queen’s target - to reduce carbon emissions by 21% by 2020

Staff Expenses Q&A(Charles Gray, Payments Accountant)

Any Other Questions?

procurement for the university staff training and development unit friday 26 november 2010

Documents

procurement activities

procurement context

procurement team slide

public procurement legislation

robust procurement policies

university risks

information slide

university staff training