Dynamic Purchasing Systems and the Death of Frameworks

Will the use of Dynamic Purchasing Systems grow as a result of amendments to EU Procurement Directives? And will they provide a solution to problems of both buyers and suppliers?

As procurement professionals we are familiar with the use of frameworks as a contracting mechanism. The 2015 amendments to the EU Procurement Directives have sown the seeds of change, but will this result in a growth in the use of Dynamic Purchasing Systems (DPS) and a decline in framework agreements? Could DPS be the panacea to the problems of both buyers and suppliers?

Dynamic Purchasing Systems are a relatively marginalised process and have been under used due to their complexity. The up-dated EU Regulations have seen four changes around the use of the DPS, which has simplified the process.

Benefits

Use of a Dynamic Purchasing System seems to offer several benefits and, as we operate in an ever-changing environment, it seems perfectly sensible to adopt increasingly dynamic procurement methods. Many of these benefits could lead to savings and supplier growth, which are high priorities on the government’s agenda.

• Gives Suppliers Another Chance

DPS gives suppliers another bite of the public sector cherry if at first they are unsuccessful. Many contractors are not poor suppliers, they are poor tenderers. The use of frameworks unnecessarily locks these suppliers out of the market for up to four years. DPS offers a solution where if they don’t succeed at first they can try, try, try again.

• Increased Competition & Competitive Pricing

As the mix and number of suppliers on the Dynamic Purchasing Systems evolves, it is likely that this will lead to an increase in competition. A report by PWC in 2011 noted that ‘Dynamic Purchasing Systems are the most successful type of procedure in terms of attracting a large number of bidders’.

Direct award also isn’t permitted, so the decision on best value can only be decided at tender stage. This is likely to result in more competitive pricing from suppliers.

• Development of Long-Term Relationships

A dynamic purchasing system can now run for more than four years. A review of ‘live’ Dynamic Purchasing Systems found examples with a proposed duration of a decade! As austerity measures remain in place, and procurement professionals are constantly required to do more with less, DPS could be a solution to expensive re-procurement exercises.

It has been said that the EU regulations can make developing long-term, value generating supplier relationships difficult due to strict time limits on contracts, and the mandatory competition required over the threshold values. However, if suppliers are no longer looking over their shoulder at a looming re-procurement, DPS could support the development of these relationships with key suppliers.

• Fully Electronic

As DPS is conducted solely through electronic means, the various advantages of e-procurement are present here. However, it is imperative that the infrastructure is there to support the process. The maturity of systems and the change in the EU regulations may serve to create an environment where DPS can flourish.

Current systems can also be adapted to run a DPS so there should be no significant change management or training required unless new systems are adopted.

• Bridge Talent Gap

Currently public sector purchasing is experiencing a talent gap. Greater use of DPS could go some way towards alleviating this, as it could potentially reduce the number of full EU processes an organisation is required to undertake. Further efficiencies could be made if dynamic purchasing systems were used as part of collaborative or consortium purchasing.

• Spreading & Minimising Risk

The public sector has been branded as a risk averse creature. Therefore, one may imagine that the use of a variant on a procurement procedure may strike fear into the hearts of procurement professionals. Public sector professionals are becoming far more innovative, but the risk averse nature of the public sector could be a reason why, despite the simplification and flexibilities added, the DPS may remain under utilised.

Risk of challenge to a procurement is never far from the minds of  procurement officers. One wonders that if suppliers knew that they would be able to re-apply to join the DPS, whether this would reduce the number of unsubstantiated challenges that contracting authorities have to fend off.

Finally, a DPS is likely to have more suppliers awarded into the system than a framework agreement. This would serve to spread the risk for authorities.

Drawbacks

Conversely, there are a number of reasons why the changes in regulations may not result in an increase in the use of DPS.

• Administration of Suppliers

Although there are efficiency savings found in not having to re-procure every four years, these could be eroded by the fact that buyers may have a regular stream of suppliers requesting to be accepted onto the DPS. This is likely to be exacerbated in certain markets and by the fact that documents have to be evaluated within ten working days.

The authority also has no possibility of restricting the maximum number of operators. Constant applications by serial tenderers could be mitigated by providing detailed feedback on the reasons why they were unsuccessful.

• Risk of Obsolescence

If a DPS has been running for too long it may become obsolete. Over the course of several years the requirements of an authority may change significantly. However this could be overcome by good contract and category management as well as an annual review.

• Up-Front Costs

There are likely to be additional costs the first time that an authority uses this process in the form of e-systems development, training and preparing the market. Procurement policies and internal processes will also need to be up-dated. However, removing the four year limit should go some way towards alleviating these costs, as they will be spread over a longer contract term. Up-take may also depend on how DPS is viewed by internal customers.

Have you worked with a Dynamic Purchasing System in public sector procurement? What were your thoughts? If you’re looking for evidence of benefits in DPS use, make sure you keep a look out for the second article in this series.