Agenda of Tenders Subcommittee Meeting

File Ref: 18/559

REPORT TO: Tenders Subcommittee

MEETING DATE: Thursday 28 June 2018

FROM: Procurement Manager

Sharon O'Toole

Chief Financial Officer

Bruce Allan

SUBJECT: Briefing Paper - Investigation of the use of Electronic Purchase Orders

1.0 SUMMARY

1.1 The purpose of this report is to inform the Tenders Subcommittee about the initial investigation into electronic purchase order software and to seek endorsement from the Subcommittee on the recommended approach to develop a Business case (the case for change), on the basis that the incumbent Enterprise Resource Planning System, TechnologyOne will be the software system used for the solution.

1.2 Currently the purchasing and invoicing processes at Council are mainly manual with some automation around invoice approvals. Manual processes tend to be inefficient and are prone to human error, they are also difficult to monitor and relay largely on trusting staff to ‘do the right thing’ all of which increase the risk of error and/or fraud.

1.3 Small organisations often use a range of disparate stand-alone software systems. As the size of an organisation increases the need for greater connectivity between the different functional areas also grows. At this point stand-alone systems are often replaced by Enterprise Resource Planning (ERP) systems. The ERP system used at Council is Technology One and this system encompasses a range of modules and functional areas, those used by Council include Accounts Payable and Receivable, General Ledger, Budgeting, Fixed Assets, Property and Rating to name just a few. The integration into one overarching ERP system facilitates the flow of information within an organisation enabling business decisions to be data-driven. The TechnologyOne financial management module is called FinanceOne.

1.4 Procure to Pay (P2P) is the process of automating transactional procurement (purchasing). P2P encompasses the end to end process from:

· Creating an electronic request through to

· Creation of the electronic purchase order (the approved request). Confirmation that the goods or services have been received (receipting) Invoice matching

· Payment processing

· The process is supported by workflows which support the appropriate financial controls, business processes and approvals.

1.5 The P2P process supports Council in purchasing the goods and services that it needs to function while ensuring that this is conducted according to Council policy and that the appropriate financial management controls and approvals are being applied.

1.6 This reports recommends that the project team complete a detailed investigation of the TechnologyOne P2P solution to assess the ability of the system to provide the required benefits and ascertain the total anticipated costs to implement the required solution.

2.0 BACKGROUND

2.1 An electronic purchase order system will support and strengthen the financial controls at Council. The paper based ordering system that is currently used means that the system controls are applied primarily when coding and approving an invoice i.e. after the financial commitment has been made.

2.2 An automated P2P process can improve provide greater transparency and improved efficiency of the purchasing process. Streamlining the purchasing process can ensure greater consistency across Council. The ability to monitor and report on the activity improves supporting reviews and reports which can help to highlight areas of risk and potential fraudulent activity.

2.3 This recommendation to implement an electronic purchasing system has been recommended to Council by Audit New Zealand following their audit process, and both PwC and Crowe Horwath following internal audits.

3.0 PROJECT DESCRIPTION

3.1 This project is to automate the current purchasing process using electronic purchase order software. This will form part of the overall procure-to-pay (P2P) process which integrates the purchasing and accounts payable functions into one process. It generally includes:

· Supplier management - The process of connecting to and managing suppliers for the purpose of ordering

· Catalogue management – establishing a catalogue of commonly used goods and services to drive consistency and improved coding

· Requisition – An internal draft (unapproved) Purchase Order

· Purchase order - A formal approved document specifying order quantities & requirements

· Receipting- Accepting the good/services as being received or completed

· Invoice reconciliation - Comparing the invoice to the purchase order to ensure costs are as expected

· Accounts payable - Approving payment of the purchase order, and processing payment.

Procure to Pay – TechnologyOne purchasing process

3.2 A fully automated P2P system will streamline processes and enable improved controls to be implemented in line with recommendations made by both our internal and external auditors:

· Improving data and information security

· Optimise staff effectiveness

· Establish process performance baselines to enable improvement efforts

· Managing business risks

· Highlighting opportunities

· Consistency in reporting.

3.3 Technology One also identify benefits (some of which we are already achieving), that can be realised from fully utilising their AP automation tools, which include:

· Reduce invoice processing time by up to 50%

· Go paperless by removing manual data entry

· Reduce risk by improving accuracy

· Improve finance team productivity

· Automate attachment of invoices to enhance audit functionality

· Streamline approval processes

3.4 It is anticipated that these benefits will allow Council to realise the following strategic objectives:

· Streamlined and automated processes

· Seamless integration with other finance systems

· Maintained compliance and control

· Improved procurement controls

· Enhanced data visibility and reporting

· Reduced transaction costs

· Reduced errors and re-work

· Rationalised supply base to improve supplier and relationship management

3.5 As with any system that touches a significant number of users, implementing a procure-to-pay system requires significant knowledge of the existing business processes and what the future state will need to be in order to effectively support an automated system.

3.6 Change management will be a key component in implementing a successful procure-to-pay solution. Most organisations take the ‘less talking more walking’ approach and try to move through the planning process as fast as possible. Often the extra time planning is the difference between a smooth process and one hampered by avoidable mistakes.

3.7 The project team have spoken to a number of organisations that have implemented the TechnologyOne P2P solution and completed site visits to Hawke’s Bay District Health Board (HBDHB) which implemented the solution in 2006 and Wellington City Council (WCC) which implemented the software in the past year. There was very clear and consistent feedback from WCC and HBDHB, that this is not a software project it is a business improvement project. It requires a detailed understanding of the current, and future state business processes and a clear understanding of the vision you have for your organisation (benefits). The software is an enabler to support that vision. Both HBDHB and WCC warned against making compromise decisions to expedite the implementation as these may get an organisation ‘over the line’ but can hard to unpick afterwards; the advice was to take the time to get it right first time.

3.8 The implementation of the P2P solution will require the purchase of additional TechnologyOne licences, and the creation of some linkages (interfaces) with other Council systems. The implementation process will require a reasonable investment in external consultant time and internal staff time.

4.0 CURRENT SITUATION

4.1 Council currently uses Purchase Order (PO) books when ordering goods or services, the PO books are assigned to individuals. Manual PO’s do not create a commitment within the financial system. This means that there is no visibility (or linkage between) the cost of items or services which have been ordered, and the delivered product and invoicing. This is either tracked manually, or not tracked at all.

4.2 PO expenditure is subject to the order having the appropriate Delegated Financial Authority approval. In a paper based process there is no easy way to assess if this is happening or whether the appropriate approvals have been sought before an order is issued, the current system relies on trusting staff to understand their obligations and to ‘do the right thing’. This approach increases the level of risk, and the increases the potential for error or fraud.

4.3 The invoice receipt, approval and payment process is semi-automated at Council. Invoices are received into the finance system by way of manual data entry. The invoice approval and payment process, depends on a two stage verification and approval procedure conducted by two staff members, within council’s financial workflow system. The first person verifies that the goods / services have been received, the second step is a DFA approval, and the one–up rule applies. Segregation of duties and DFA approval(s) are important financial controls, which are currently being applied only after the financial commitment has been made.

5.0 OPTIONS

5.1 The three options considered were:

· Status Quo

· Procure to pay software from Council’s ERP provider (TechnologyOne)

· Best-of-Breed (BoB) Solution.

6.0 ASSESSMENT OF OPTIONS (INCLUDING FINANCIAL IMPLICATIONS)

6.1 Council’s ERP Software Suite (TechnologyOne)

Advantages	Disadvantages
The TechnologyOne (FinanceOne) Accounts payable module is an integral part of the P2P process and this module has already been successfully deployed at Council	May not be the best or most cost effective P2P system available (acquisition cost).
Data is timely and accurate across the entire enterprise with single points of data entry.	A full business transformation review of Council’s ERP system has yet to be completed, further investment in TechOne may be sacrificed if there is decision to move away from the TechOne be ERP solution
Single version of the truth – by having one centralized system, data will be the same for the entire enterprise.	If Council does not retain TechOne as the preferred ERP solution then a new P2P module will need to be sourced
Integration between functional enable Council to implement version upgrades without invalidating the integration points between two separate systems.
Should be able to take advantage of all functionality in the system without concern about the functionality in one area of the system compromising functionality in other areas due to a lack of compatibility/integration.

6.2 Best-of-Breed Solution (BoB)

Advantages	Disadvantages
BoB solution may offer greater P2P functionality.	Separate systems with separate infrastructure – separate database instances
BoB systems are often more cost effective than ERP solutions in terms of up-front acquisition costs.	Integration can be adversely affected when systems are upgraded. The ongoing costs involved in retaining integration may erode yup front acquisition costs savings increase the on-going operational cos
BoB solution would be agnostic to the ERP i.e. if Council moves away from TechOne as an ERP solution the BoB P2P solution may be retained	Different look and feel for various applications – users would need to learn different sets of commands and menu structures.
	Timeliness of data. There would be time delays between the data being present in one system and when it becomes available in the other system. Data sharing across separate systems often involves a batch process, integration, or manual data import / export between the various systems, creating these delays.
	Single version of the truth for the entire business – when data is not fully in-sync, there can be differences of opinion as to which data is correct
	Everyone in the organisation works from the same set of information
	There can be some enhanced functionality in one functional areas (hence the reason to select best-of-breed); however, the functionality and data needed from other functional applications areas to support and enable that functionality may not be present compromising quality.
	Finger pointing among software vendors when things go wrong.

6.3 The status quo solution does not address the recommendation to implement an electronic purchasing system made by Audit New Zealand. Audit New Zealand PwC and Crowe Horwath have all recommended the council implements an electronic purchasing system to ensure that the appropriate financial control and approvals can be automated and more easily monitored.

6.4 No ERP product will satisfy 100 percent of an organisation’s business process needs. Best-of-breed solutions are typically designed to do one or two things, but in a way that can meet highly specialised requirements.

6.5 A single ERP solution ensures that business processes are tightly integrated and that data exists in only one place to be used for transaction, execution and analysis. Best-of-breed solutions on the other hand, may split processes between software modules, requiring duplicate transaction entry and the development of interfaces to keep multiple databases synchronised.

6.6 A single-vendor solution delivers new software functionality by upgrading software releases as they become available. A best-of-breed approach introduces a combination of vendors, this approach can complicate the implementation of new software releases, which can delay or limit the availability of essential functionalities (new and existing).

6.7 A best-of-breed approach adds cost around the development and maintenance of interfaces. Each upgrade of related systems will require further ongoing work in this area.

7.0 PREFERRED OPTION/S AND REASONS

7.1 Research across Local Government in New Zealand has indicated that the Councils which have implemented the TechnologyOne financial management solution, FinanceOne, and which utilise electronic purchase orders, have selected the FinanceOne P2P solution. The exception is Bay of Plenty Regional Council which is the process of transitioning to the FinanceOne P2P solution.

7.2 A fully automated P2P system will enable improved financial and business controls to be implemented in line with recommendations made by Council’s internal and external auditors. A TechnologyOne ERP P2P solution is the option most likely to deliver the benefits that Council has identified. The tight integration between the TechnologyOne P2P solution and Council’s financial management system (FinanceOne) can best support the close relationship between purchasing and financial management.

7.3 For these reasons the preferred option is to proceed to more detailed investigation of the TechnologyOne P2P solution.

7.4 The recommendation is to follow up this report with a business case which will further outline the scope, feasibility, the high level business benefits and requirements and the indicative costs and timeframes required to implement the solution. The business case would be subject to further review through the Tenders Subcommittee.

8.0 RECOMMENDATIONS AND REASONS

A) That the report of the Procurement Manager titled “Briefing Paper - Investigation of the use of Electronic Purchase Orders” dated 28/06/2018 be received.

B) That the Tenders Subcommittee endorse the recommended approach to proceed with more detailed investigation of the Technology One procure to pay solution.

Attachments:

There are no attachments for this report.

File Ref: 18/501

REPORT TO: Tenders Subcommittee

MEETING DATE: Thursday 28 June 2018

FROM: Team Leader Environmental Policy

Megan Gaffaney

SUBJECT: Laneway - 325 Heretaunga Street West

1.0 Summary

1.1 The purpose of this report is to seek approval from the Tenders Subcommittee to award Contract No. CON2018027 – 325 Heretaunga Street West Laneway and to increase the budget for the final construction phase of the project.

1.2 This tender recommendation is submitted to the Tenders Subcommittee for approval because under the delegations, the value of the contract requires approval from Tenders Subcommittee.

1.3 Tenders were invited under the “Lowest Price Conforming” method. Two tenders were received.

1.4 The contract is expected to run for 16 weeks (4 months) scheduled for completion on 18^th October 2018.

1.5 This report concludes by recommending:

a) The tender from MCL Construction Limited for Contract No. CON2018027 – 325 Heretaunga Street West Laneway in the sum of $$570,845.00 (excluding GST) be approved; and

b) To increase the funding contribution from the Hastings Off Street Parking Reserve from $775,000 to $1,040,000 for the purpose of creating a pedestrian laneway at 325 Heretaunga Street West.

2.0 Background

2.1 In June 2017 Council approved the purchase of this site, 325 Heretaunga Street West, Hastings for the purpose of creating a new pedestrian link in the 300 block west to the Council’s Queen Street. Council also approved the funding of redevelopment totaling $1,035,000.

2.2 The resolution approved the funds sourced from Councils Off Street Car Parking Reserve and the balance from the Nelson Park CBD Greenspace Reserve. The reasons for the decision on 22^nd June 2017 were that the decision contributes to good quality local infrastructure in a way that is most cost-effective for households and business by:

· meeting the current and future needs of the community by ensuring that the car parking facilities are safe, accessible and convenient, while facilitating a vibrant retail environment

· maximising the use of an existing car parking facility

· achieving Council’s strategic vision

3.0 SCOPE OF WORK

3.1 The scope of works identified in the Request for Tender (RFT) includes:

Building works:

· existing building demolition

· façade retention and upgrade

· new paving and pergolas

· gardens and seating

3.2 Construction of works are programmed to start on 2 July 2018.

3.3 Outside the scope of works for this tender, but forming part of the overall redevelopment is:

· Supply and installation of Landscaping, Corten Screen, fencing, gates and supply of granite paving, drinking fountain and bin.

4.0 HEALTH AND SAFETY

4.1 The Request for Tender included a risk register which identified the key health and safety risks for the tenderers to consider when preparing their tender submission.

4.2 The Contractor will be required to provide a Site Specific Health and Safety Plan upon contract award which addresses all aspects of health and safety related to the contract works.

4.3 The Contractor will need to prepare and submit a temporary traffic management plan (TTMP) that will be reviewed and if found acceptable will be approved by Council. The TTMP will consider vehicle as well as pedestrian access, including access to private properties during construction. The Contractor will then be required to comply with the requirements of the approved TTMP.

5.0 PROCUREMENT APPROACH

5.1 The procurement of this contract work has been requested via invited tender to MCL Construction Limited and Gemco Group. There are a number of reasons for this, but it is primarily due to the high profile nature of the project for the Council and its central location in the CBD.

5.2 This project requires a contractor with a high level of experience, competency, project management skill and reliability to ensure a high quality outcome.

5.3 The project needs to be executed accurately, efficiently and to a high standard. The site is located in the heart of Hastings CBD a sensitive location which requires minimal interruption to the function of the surrounding retail area and businesses.

5.4 It is considered that Gemco Group and MCL Construction Limited are the two companies that meet the above criteria.

5.5 The procurement approach has been approved, as detailed in the Procurement Plan PRJ17-114-0078.

5.6 The prospective tenderers were invited on 28^th May 2018 to submit their tender under the Lowest Price Confirming Method.

6.0 Tenders Received

6.1 Tender invitations were sent via GETS to Gemco Group and MCL Construction Limited and sets of documents were uplifted by both companies. Two tenders were received by the closing date of 4pm, Wednesday 13^th June 2018. These are summarised in Table 1 below:

6.2 The table below shows the tendered price for each tender:

Table 1: Tender, Tender price and TAGS

Name of Tenderer

Tendered Price

TAGS/Clarifications

Yes / No

MCL Construction Limited

$570,845.00

Yes

Gemco Group

$782,337.60

Yes

7.0 CLARIFICATIONS

7.1 The tender from MCL contained some clarifications however these clarification are minor and do not impact to the overall project cost.

8.0 Tender Evaluation

8.1 In accordance with the conditions of tendering, tenders were evaluated in line with the Lowest Price Conforming method in accordance with the Hastings District Council Procurement Manual.

8.2 As Gemco Group and MCL Construction Limited are invited companies it was considered that Methodology and Resourcing were the only relevant attributes required. The Tender Evaluation results of the evaluation are attached.

8.3 The evaluation was carried out by John Wright, HDC Project Manager, Megan Gaffaney, HDC Planner and Project Manager, and Gordon Tripp, HDC Parks & Buildings Operations Manager. The Tender Evaluation Team (T.E.T) met on Monday 18^th June 2018.

8.4 The TET confirm that none of them have personal relationships with any owners, directors or employees of the companies listed above, or any financial or commercial interest in any of the companies that would create a conflict of interest with respect to this tender evaluation process.

8.5 The attributes were scored on a pass/fail basis.

8.6 MCL submitted the lowest price and therefore their method and resource attributes were evaluated and they received a pass for each attribute making them the preferred tenderer.

9.0 Budget

9.1 As noted in paragraph 2.1 and 2.2 of this report, the approved funding for the purchase and redevelopment as at 22 June 2017 was a total of $1,035,000.

9.2 $775,000 of that total funding was sourced from the Hastings Off Street Parking Reserve with the remaining $260,000 sourced from the Nelson Park CBD Greenspace Reserve. As shown in the table below:

Table 2: Budget Approved as at 22^nd June 2017

Funding source	Amount ($)	Total ($)
Hastings Off-Street Funding Reserve	775,000
Nelson Park CBD Greenspace Reserve	260,000
Funding Available		1,035,000

9.3 The budgeted redevelopment cost (excludes property purchase) as at 22^nd June 2017 was $565,000 as shown in Table 3 below:

Table 3: Budget Approved as at 22^nd June 2017

Item	Project Components	Budget ($)	Total ($)
	Land Purchase component
1	325 Heretaunga Street West	470,000
	Subtotal		470,000
	Redevelopment component
2	Legal, Survey	20,000
3	Design and Contract Management	45,000
4	Demolition	70,000
5	Laneway construction	430,000
	Subtotal		565,000
	Total Budget	1,035,000	1,035,000

9.4 Note that the approved redevelopment budget did not explicitly include a contingency allocation.

9.5 Since the original budget was estimated a year ago, the detailed design has resulted in significant changes from the early ideas of a laneway, with the differences shown in the drawings appended in Attachment 1. Therefore the funding for the project has been revised, as outlined below:

Table 4: Differences in Funding

Funding source	Amount ($) 22/06/17	Amount ($) 28/06/18	Amount difference
Hastings Off-Street Funding Reserve	775,000	1,040,000
Nelson Park CBD Greenspace Reserve	260,000	260,000
Revised Available Funding	1,035,000	1,300,000	265,000

9.6 Over the past year the Parking Reserve Fund has increased due to increase revenue and has sufficient funds to accommodate the increased project costs.

10.0 PROJECT COSTS

10.1 The redevelopment cost (excluding property purchase), is now $830,000 which includes a $70,000 contingency allocation.

10.2 Table 4 below shows the revised project costs (excluding GST) for redevelopment:

Table 4: Revised Project costs

Item	Project Components	Budget ($)	Total ($)
	Land Purchase component
1	325 Heretaunga Street West	470,000
	Subtotal		470,000
	Redevelopment component
2	Planning / Design / Survey / Consenting	70,000
3	CON2018027: MCL Construction Ltd	570,845
4	Landscaping	18,000
5	Council supplied material supplies	40,000
6	Corten Screen/Fence/gates	50,000
7	Asbestos Testing/Removal	5,155
8	Corbel removal	6,000
9	Contingency Allowance	70,000
	Subtotal		830,000
	Total Budget	1,300,000	1,300,000

10.3 There is a total increase of $265,000 for redevelopment costs from the approved budget and the project costs.

10.4 This difference can be attributed to the following:

· $8,000 Consenting

· $80,000 Lighting

· $15,000 Landscaping

· $32,000 Council supplied materials

· $50,000 Security fence, screen and gates

· $5,000 Asbestos Testing and removal

· $5,000 Corbel removal

· $70,000 Contingency

10.5 As you can see on the attached Design Concepts (Attachment 1), the final design has been fully developed. There have been significant design changes from the original ideas for the laneway. In fact there was little design input put into the early concept, other than to say that having better connections in Hastings was a sought after urban design outcome, and one that contributes to the City Vision:

· to enabling better movement through the CBD

· to improve amenity, access to parking

· overall to contribute to the vibrancy of the City centre, and in particular to the 300 block west.

10.6 Purchasing this site a year ago was the first step toward achieving the vision.

10.7 Since then a design team was put together by the project sponsor, Mr O’Shaughnessy and the design concept and detail worked up. As highlighted in the attached design concept significant differences include:

- the retention of the existing façade as opposed to its removal in the early concepts*

- having pedestrian shelter with glass canopies along the street frontage and within the lane

- Lighting for amenity and safety

- Screen, fences and gates at both ends for security

- Creating an amenity space with gardens and seating; and

- Pergolas to provide symmetry, a place with a distinct identity and character for the community to enjoy.

*This site is within the Central Character Precinct and subject to District Plan requirements for a continuous street frontage and retention of heritage elements. This is one of the reasons why the front façade was retained.

NOTE: that NZS 3910:2003 provides for certain events and circumstances to be treated as variations, resulting in additional costs and time extensions. The price includes a Contingency Allowance of $70,000.

11.0 Implementation Issues

11.1 The Council is currently processing a building consent application for the laneway, in particular the structural frame to support the front façade of the building. This consent will be in place prior to commencement of the contract.

12.0 summary

12.1 MCL Construction Limited were the successful tenderer as determined by Lowest Price Conforming Method. As note earlier in the report both MCL Construction Limited and Gemco Group were the only two local companies that the design team considered suitable for this high profile project. Limiting the tender to these companies which meet the high standard criteria sought will minimise the project risks and overall risk to Council.

12.2 MCL submitted the lowest price conforming. It is therefore recommended that CON20180027 ‘325 Heretaunga Street West Laneway’ be awarded to MCL at the tendered price of $570,845.00 (excluding GST).

13.0 RECOMMENDATION

A) That the report of the Team Leader Environmental Policy titled “Laneway - 325 Heretaunga Street West” dated 28/06/2018 be received.

B) The tender from MCL Construction Limited for Contract No. CON2018027 – 325 Heretaunga Street West Laneway in the sum of $$570,845.00 (excluding GST) be approved; and

C) To increase the funding contribution from the Hastings Off Street Parking Reserve from $775,000 to $1,040,000 for the purpose of creating a pedestrian laneway at 325 Heretaunga Street West.

With the reasons for this decision being that the objective of the decision will contribute to meeting the current and future needs of communities for good quality local infrastructure in a way that is most cost-effective for households and business by:

(i) The engagement of a contractor with the required experience, track record and skills to complete the works successfully and at a competitive price achieved through an appropriate tendering process.

(ii) The final design concept for the laneway includes elements that were not envisaged in the early conception of the project and therefore the now project costs reflect those changes.

(iii) The final design concept will provide a high amenity public space for the community to benefit from for many years to come.

Attachments:

1	Design Concepts	CG-14-17-00180
2	CON2018027 Tender Evaluation Documents	PRJ17-114-0160

Hastings District Council

Lyndon Road East, Hastings

Tenders Subcommittee – Terms of Reference