Commercial Tactics

This element looks at:

  • The commercial tactics used to complete the works identified by the life cycle processes and practices
  • How the organization ensures the lowest unit costs for asset acquisition, creation, operations and maintenance or renewal
  • How the organization ensures that all elements of business activity are placed under systematic, sustained competitive pressure or are benchmarked to ensure effectiveness and efficiency.

Core/Non Core Activities

The way in which the organization:

  • Assesses its core/non core (purchaser/provider) activities
  • Relates this split to its own readiness to deliver, and the availability or readiness of contractors.

Best appropriate practice includes:

The organization has identified its core and non core activities. The key services covered are:

  • Design documentation services
  • Construction phase services
  • Program management
  • Project management
  • Management consulting services
  • Construction D&C and BOOT contractors
  • Financial services
  • Customer service and billing services
  • Operations
  • Maintenance
  • Life cycle AM
  • Risk.

"Bundling" of Contracts

How the organization packages its contracts, including an economic evaluation, as well as the ability of the contracts to maintain true competitive pressure over the long term.

Best appropriate practice includes:

The organization will have bundled contracts for out-sourced services in such a way as to maintain a full competitive pressure in the long term.

Specifications on the service contracts and agreements are completed for internal and external service providers.

The contracts clearly define the information and data available and the means by which the contractors or service providers will maintain the information feed back to the organization.

Contract supervision and performance monitoring activities are covered by the contracts and information systems provide regular reports. Exception reports and poor performance are identified automatically and reported to responsible staff.

The organization has a contract assessment and selection process that ensures best value in the letting of contracts or service agreements.

Specification Quality

The quality of the contracts or service agreements for core and non-core activities.

Information and Data Availability

The quality of the:

  • Information and knowledge available to the contractors about their asset management roles
  • Information feedback process required by the contracts.

Contract Supervision

The effectiveness and efficiency with which the organization supervises or administers the contracts and staff workforce involved in the "works program".

The assessment looks at the quality assurance processes used and the cost effectiveness of the evaluation system. It also looks at the way in which benchmarking is used to supplement this process, especially in the core purchaser roles.

Best appropriate practice includes:

The organization clearly identifies the cost of supervision of external contractors and in-house staff.

The organization understands the cost involved in changing contractors and this is taken into account in bid assessments. This information is used to drive improvements in contract policies/processes.

Contractor Assessment & Selection

How the organization assesses its contractors (initial contract letting) and how their performance is monitored and managed throughout the contract period.

Best appropriate practice includes:

The organization has a clear policy for in-house and contracted services including incentive/penalty arrangements for:

  • Repeat maintenance work
  • Design/construction problems.

Contract Support Systems

Information and communication systems help to improve the efficiency of contract administration.

Best appropriate practice includes:

The organization uses the benchmarking of its activities and costs and known pricing of the private sector to:

  • Ensure that "in house" activities are kept at a "best value" level
  • Decide which services could be provided externally.


Case Studies Australia

Benchmarking with Grading # 1

In New Zealand the Ministry of Health uses a system of water quality grading.

In an “Ee” grading the “E” refers to the treatment grading (the quality of water treatment) and “e” refers to the reticulation grading (the state of the delivery system).

Grading for all councils are public knowledge.

The overall City or Council grading is based on the lowest graded treatment plants despite the number of higher graded plants elsewhere in the City, which gives considerable incentive to tackling the more serious issues first.

Benchmarking Gradings Used to Decide and Explain Actions

In 1995, Dunedin’s provisional water treatment grading was an “E” reflecting that at (three) sites the treatment was rudimentary.

To improve this grading to a “D” all plants would need to disinfect with chlorine at sufficient quantities and for long enough to kill Giardia. This requires prolonged storage after full treatment. There is not sufficient storage at those sites to do this, let alone full treatment. The highly colored nature of the water is such that the chlorine will combine with the color to produce undesirable chemicals (such as chlorinated organic by products or THM’s). Thus it was not desirable to aim for a “D” grading, as the water would probably be unacceptable in terms of taste. This meant that the aim should be higher if Council wished to upgrade its treatment plants.

To get to a “C” grading the “Drinking water standards of New Zealand” need to be met – that is to strip out the color and dirt by using a coagulation and filtration process. Improvements to the operators’ skill levels and qualifications will not assist in achieving a “C” grading - major capital expenditure is required before other actions will improve the grading. To assist the process, the raw water should be stored for some days to stabilize it before treatment. After treatment, as mentioned above, further storage is needed to ensure proper disinfection.

Thus major capital works are required, with consequential increased operating costs, to improve Dunedin’s treatment water grading from an “E”.

Once this (expensive) step is taken, it is relatively easy to get a “B” grading. A “B” grading can be obtained by either training the Chief Operator to gain an “A” grade ”ticket” or by having continuous quality control. An “A” grading is gained by having both of the above. An “A1” grading is achieved by adopting quality control measures such as ISO9000 registration.

Contracting Out – and Buying Local

In the initial stages of outsourcing there was a tendency to “think big” – all-encompassing contracts that take care of maintenance, cleaning, catering, security, etc, everything rolled into one contract for easier contract management.

But this makes it difficult for small, local businesses to compete for work in their own area. As small businesses often have lower overheads, less travelling time, and other cost advantages, as well as providing employment for council ratepayers, this was considered not to be to the advantage of the Sandwell Metropolitan Borough Council, who have taken a new tack – think local!

The Council don’t believe in preferential treatment, rather a levelling of the playing field. “Think local” is applied to both local employment and local purchasing. The local purchasing element involves raising the profile of local suppliers and supporting them to become even more effective at submitting tenders for council and other local public sector contracts; and encouraging inter-trading between local businesses.

This requires changes in the way the Council deals with suppliers, eg

  • Providing user friendly information and systems
  • Reviewing tender procedures
  • Providing additional help to potential suppliers seeking to meet purchasing requirements
  • Explaining why tenderers have been unsuccessful
  • Monitoring the extent to which new, small, and Sandwell based companies have succeeded in getting onto a Select list and/or obtaining a contract with the Council.

It also requires organizing contracts in smaller, rather than larger, packages.

Working with a Contractor Requires new Practices to instill Trust

Suspicion that security call-outs were excessive had initially led BP Oil (NZ) to contract another firm to monitor the first! But this also proved costly.

So the company decided to take a partnering attitude.

They found that explaining their concerns to the contractor resulted in a positive response. They struck a new deal whereby the call-outs were linked to their electronic mail to ensure instant updates on incidents, cash collection reconciliation, differences, etc.

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