How much is a Spend Recovery review worth to your organisation? Can you afford to ignore your share of £220 million?
Crown Commercial Services (CCS), the UK’s largest public sector procurement body, responsible for shaping and delivering government procurement policy, estimates that £220 million in overcharges and incorrect payments could be recovered over the next four years. To facilitate the identification and recovery of these valuable funds, CCS created the Spend Analysis and Recovery Services framework – SARS II (RM 3820).
The SARS II framework was designed to allow access to a range of suppliers who provide retrospective ‘audit’ and analysis of core spend and supplier transactions (invoices and payments), to identify and recover any supplier overpayments, overcharges or missed opportunities (discounts, rebates etc.) from a customer’s suppliers on a ‘gainshare’ basis.
This means that the customer only pays a percentage fee of any amounts actually recovered, not simply identified i.e. An effective NO financial cost to the Organisation.
Yet with these pressures, why is it that ALL Public Sector organisations are not jumping at the opportunity to undertake these reviews?
Public sector organisations are no different to private sector organisations in that in the present economic climate all organisations are resource stretched but this is no reason to not explore no cost options for revenue generation.
However, our recent experience at the Public Sector show in London showed that there is a serious education gap regarding the understanding of costs, benefits and resources needed for a Spend Recovery Review. Many organisations we spoke to were unclear about how to go about these reviews, who was responsible for procuring these services and whether they had to go through a lengthy tender process to procure these services.
Several people admitted that their own internal procurement procedures, with confusion around the likely cost of the services being procured and difficulty establishing the likely benefit lead to reviews of this type not being prioritised.
The reality is that the process is simple but the selection of the Supplier and associated recoveries is more complex.
The Process for undertaking a Spend Recovery review under the SARS II Framework (RM3820)
Public Sector organisations can save significant time, resource and cost because virtually all the procurement issues have been addressed by the framework eliminating the need to conduct their own full procurement exercise.
Suppliers on the framework have already been carefully evaluated during the tender process against set criteria:
- Technical Merit including capacity to supply, performance, reporting, references, Insurances etc.
- Security Considerations
- Environmental/Social considerations
- Financial Assessments
Suppliers on the Spend Recovery Framework provide the time, resource and expertise that many in-house teams cannot afford:
- Specialist teams of audit experts
- Tailor-made software solution that has been designed specifically for the task
- Dedicated recovery function
In this way, Clients can free their resources up to focus on the delivery of their core activities and services.
Selecting the Supplier
We believe that this is the most challenging aspect as SARS II, due to Tendering rules and regulations has tried to provide organisations with a ‘pricing’ structure that will enable them to select a Supplier using objective measures i.e. Specific % fees against various tiered levels of recovery.
The main issue with this measure is that no-one knows what the likely level of recoveries will be. Individual Clients can range from a £millions Trust to a £billions council, with a plethora of different finance systems, resource structures and internal controls.
How do you know that the Supplier charging the least share of recoveries will work the hardest to recover you the most money? It was clear from reviews undertaken under the previous framework agreement that recoveries were less than would have been anticipated when particularly low fees had been charged. This is known as the result of ‘top-slicing’ (where only higher value and less complex overpayments are targeted) due to it being ‘un-economic’ for the Supplier to review and collect lower value transactions.
In our experience in the Private Sector tends to be more flexible in choosing:
- who they believe will generate the greatest returns from the review (often NOT those charging the lowest fee):
- The approach to be used by the Supplier
- which Supplier they believe provides the best fit within their organisation
Fortunately, SARS II does allow the framework to be utilised more flexibly by allowing for the selection of a Supplier (on the framework) through ‘further competition’ where a Supplier can be selected if the organisation can demonstrate ‘best value’.
This does not have to be too onerous as the organisation can utilise all other aspects of the framework and then set their own criteria regarding how they are going to establish ‘best value’.
Whilst it is impossible to guess how much will be recovered from a Spend Recovery review, estimates for the Public Sector of in excess of £200 million in recoveries and the £billions already recovered in the private sector are testament to likely potential.
Can you afford to ignore your share of the £220million?