Approval to award a contract for the provision of payroll and pensions administration services

Report: 09
Date: 17 February 2005
By: Commissioner

Summary

This report seeks Finance Committee approval to award a contract to LogicaCMG for the provision of outsourced payroll and pensions administration services commencing 1 April 2006. It gives an outline of the procurement process and explains the economic and commercial rationale behind the recommendation that will provide the MPA with a high quality pay and pensions service.

A. Recommendation

That

1. Finance Committee approves the award of a contract for the provision of payroll and pensions administration services to LogicaCMG to commence on 1 April 2006 for an initial duration of seven (7) years, with the option to extend for a further three (3) years; and
2. Acceptance of this recommendation will constitute approval to proceed with contract signature and implementation of the current supplier exit plan and transition plan to the new service provider.

B. Supporting information

Introduction

1. As part of the outsourcing of key support services in 1998 and 1999, two contracts were awarded to Capita Business Services Limited for the provision of payroll and pension administration services. Following a seven-month extension granted by Finance Committee, these contracts expire on 31 March 2006.

2. In 2002, Finance Committee approved the set-up of the Outsource Services Programme (OSP) to manage the re-tendering of these contracts within Procurement Services. Since then, Finance Committee has been involved at key points of the procurement process: approving a seven-month extension to the Capita contracts in October 2003 to ensure sufficient time for an effective procurement; noting the sourcing and packaging strategies for these services in December 2003 and April 2004 respectively; and approving the commercial strategy and issue of the Invitation to Negotiate (ITN) documentation to a qualified short-list of bidders in May 2004.

3. The procurement process has now resulted in the selection of a preferred bidder. Following successful negotiations, the MPS is now seeking Finance Committee approval to award the contract for these services to LogicaCMG, to commence on 1 April 2006, for an initial period of seven years, with the option to extend for a further three years. This report, along with the exempt Appendix 1, outlines the affordability, value for money and commercial benefits of the proposal.

Procurement Process

4. The procurement route adopted for re-tendering these services was the standard European Union ‘negotiated’ route.

5. An OJEU notice was published on 6 February 2004 which specified three packages for the provision of pay and pensions administration services:

• Package 1 - Police Officer and Police Staff payroll services
• Package 2 - Police Officer pensions services
• Package 3 - Police Staff pensions administration.

6. To encourage a robust competition, a proactive market engagement exercise was conducted which alerted 34 potential bidding organisations to the publication of the OJEU notice. Following this, 26 organisations attended a bidders’ conference held on 24 February 2004 and formal responses were received from eight organisations or consortia for one or more of the Packages as specified in the OJEU notice.

7. These responses were then assessed and evaluated by teams drawn from Pay and Pensions, Human Resources, Procurement Services, Finance Services and Corporate Risk Management. References from customers were also taken up during evaluation and visits were conducted to customer and supplier sites, including other Police Forces. This resulted in three organisations being invited to negotiate with the MPS: one for all three packages, one for Packages 2 & 3 only and one for Package 1 only.

8. Negotiations concluded in November 2004 and the bidders submitted their Best and Final Offers. These were evaluated and, as a result, the Outsource Contracts Steering Group (OCSG), chaired by the Director of Resources, selected LogicaCMG (with Paymaster as their material pensions sub-contractor) as preferred bidder for all three packages.

9. Work is now progressing to close down the few remaining outstanding issues with LogicaCMG and to develop the transition plan.

Overview of Offerings

10. LogicaCMG proposes to provide all payroll and pensions services from a single location in central London, with a final decision on the exact location depending on the outcome of the staff consultation exercise during transition.

11. LogicaCMG will provide payroll services using its own ePayfact system. The provision of Police Officer and Police Staff pensions administration will be provided by Paymaster utilising Compendia and PenServer systems (as mandated by Cabinet Office in respect of Package 3). LogicaCMG will have responsibility for Paymaster’s performance under this contract through the governance provisions.

12. Key benefits provided during the lifetime of the new contract will include:

• Movement away from paper based systems towards electronic data transfer dependent on the MPS delivering Information Technology (IT) system enhancements.
• Enhancement of the quality of management information by interfacing with other IT systems within MPS.
• Improved customer service and satisfaction by implementing an improved performance standard regime.
• The potential for self-service options such as on-line pay advices
• Flexible services that can adapt to reflect future changes in MPS requirements, technology, legislation, etc.

13. Robust contract governance and service management will be a key part of the new contract. It will include a pay and pensions management unit which will have the following responsibilities:

• To monitor the day-to-day service delivery of pay and pensions services including performance, accuracy and customer satisfaction. The unit will provide feedback on areas for improvement, key service issues and concerns about service delivery, including the escalation of service issues and assisting in the management and resolution of disputes between MPS stakeholders and the Contractor.
• To facilitate the transition of the services to the new systems.
• To carry out residual functions that are outside the scope of the contract and make service management decisions on behalf of the MPS which cannot reasonably be made by the supplier in the interests of security or where employer discretion has to be exercised.
• To verify and audit the contractor’s quality systems and obtain security clearance of personnel. Also to initiate and take the lead in implementation of any audit recommendations.
• To make contractual payments and conduct service review meetings.
• In conjunction with Procurement Services representatives, to carry out all contractually agreed MPS responsibilities.

14. In support of ongoing high levels of service delivery and mechanisms for escalating issues to the appropriate level for resolution, the contract makes provision for several layers of governance and relationship meetings:

• MPS Board Level representatives to meet with LogicaCMG Board representation at six monthly intervals or ad hoc as required
• MPS Finance Services SMT level representatives to meet with LogicaCMG Service Delivery Director and Police Business Manager at three monthly intervals or ad hoc as required.
• MPS Exchequer Services management representatives to meet with LogicaCMG Service Delivery Director and Service Manager on a monthly basis or ad hoc as required
• MPS pay and pensions contract management unit staff to liaise with LogicaCMG Service Managers on a day-to-day basis.

Transition

15. To ensure resilience in service provision a key tenet of the procurement strategy was to allow at least 12 months for transition. Subject to Finance Committee approval of contract award, this target will be achieved and transition will commence immediately on contract signature and continue until the end of March 2006.

16. Transition will include the development, testing and validation of new systems for payroll and police officer pensions, establishment of electronic linkages to MPA infrastructure, transfer of all pay and pensions data (electronic and paper-based) from current arrangements to the new arrangements and the transfer of staff providing the services under TUPE. Key milestones during transition are:

• 29 April 2005 - solution design complete
• 31 August 2005 - configuration complete
• 20 March 2006 - acceptance complete
• 1 April 2006 - commence provision of services under the new contract.

Risk management

17. An assessment of the key risks that relate to this procurement, along with appropriate mitigating actions, has been undertaken and is continuously monitored and updated. The OSP has taken every measure to ensure that key milestones are met and, to date, the procurement has remained on track.

Next Steps

18. Finance Committee approval of this paper will trigger the following actions:

• Contract signature
• Implementation of the transition plan
• Implementation of the current supplier exit plan.

C. Equality and diversity implications

1. The procurement process required bidders to declare their existing policies and initiatives and future actions with regard to promoting a working environment that actively encourages equal opportunities and non-discrimination on the grounds of race, gender, disability, sexual orientation, religion or belief and age. They were also required to respond to the six questions prescribed by the Secretary of State and endorsed by the Commission for Racial Equality.

2. LogicaCMG’s equality and diversity record is of a calibre commensurate with the MPS/MPA requirements, aspirations and reputation. The draft contract ensures compliance with all equality and diversity related matters and includes setting up a mechanism to monitor performance in respect of equal opportunities and diversity throughout the lifetime of the contract.

3. During the procurement process, the OS Programme Director and Human Resources (HR) representative have held bi-monthly meetings with Trade Union representatives to update them on general progress. In addition, a trade union representative sits on the Pay & Pensions Workstream Action Group, which made the initial recommendation to OCSG to select LogicaCMG as preferred bidder.

4. Under TUPE regulations, consultation with affected employees is the legal responsibility of the existing employer and the incoming contractor.

5. The key activities in respect of on-going consultation and communication will relate to transition arrangements. The MPS will facilitate the meeting of the relevant HR contacts in each of the organisations to enable them to undertake the key transition activities, ensure that they fulfil their obligations under TUPE and affect a smooth transition of employees.

D. Financial implications

1. The total cost of the contract is below the initial expectations based both on projecting currents costs and on modelling potential costs for the enhanced service offered. This indicates that the contract is good value for money and is affordable within existing resources.

2. Further details are contained in the exempt Appendix 1 of this report.

E. Legal implications

1. It is confirmed that the matter for decision complies with procurement regulations and all relevant EU and UK Government Directives.

2. It is confirmed that the proposal is within the powers of the MPA.

3. The terms and conditions of contract (‘the Contract’) were prepared and approved specifically for the outsourcing of the pay and pension administration services. During the course of the negotiations with the preferred bidder these terms and conditions were amended to address commercially agreed issues. However, it is believed that the terms and conditions as amended, still adequately protect the MPA in that they do not expose the MPA to any significant risks and are not unduly onerous in terms of the MPA’s responsibilities.

4. MPS Procurement Services has carried out a due diligence exercise to assess the preferred bidder’s financial risk and their ability to perform the contract. While such steps have been taken to protect the MPA’s position, there can be no guarantee that issues will not arise in relation to the Contract post Contract award.

F. Background papers

Papers relating to the OSP previously seen by Finance Committee or the Co-ordination and Policing Committee (COP):

• Exempt report to Finance Committee – 18 April 2002 entitled ‘Outsource Contracts in the MPS - Proposed Strategies For Renewal’
• Open and exempt reports to Finance Committee – 24 October 2002 entitled ‘Programme for Re-tendering the Services through the Current Outsource Contracts’
• Open and exempt reports to Finance Committee – 10 July 2003 entitled ‘Appointment of Consultants to support the Outsource Services re-tendering programme and the Procurement Business Process Improvement Programme’
• Exempt report to Finance Committee – 10 July 2003 entitled ‘Programme for Re-tendering the Services through the Current Outsource Contracts’
• Exempt report to Finance Committee – 23 October 2003 entitled ‘Extension of existing contract for the provision of pay and pension administration services’
• Exempt report to Finance Committee – 18 December 2003 entitled ‘Programme for Re-tendering the Services through the Current Outsource Contracts’
• Exempt report to Finance Committee - 22 April 2004 entitled ‘Programme for Re-tendering the Services through the Current Outsource Contracts’
• Open and Exempt reports to Coordination and Policing Committee – 17 May 2004 entitled ‘Approval to Issue ‘Invitation to Negotiate (ITN) documentation for the re-tendering of payroll and pensions administration services.’
• Exempt report to Finance Committee - 22 July 2004 entitled ‘Programme for Re-tendering the Services through the Current Outsource Contracts’
• Exempt report to Finance Committee – 22 July 2004 entitled ‘ the future provision of the current outsourced contracts - strategic approach, underlying principles and aims under which sourcing and re-provision of the outsourced programme is being undertaken’
• Open and exempt reports to Finance Committee – 21 October 2004 entitled ‘Programme for Re-tendering the Services through the Current Outsource Contracts’

G. Contact details

Report authors: Sharon Burd, Director of Finance Services and Anthony Doyle, Acting Director of Procurement Services

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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