Guide to Purchasing Equipment

1.         Statement of Need/Specification of Requirement

1.1       The need to acquire equipment should wherever possible be identified as early as possible and a Statement of Need (SON) / Specification of Requirement (SOR) prepared. Even when a need arises suddenly and funding is sought either from Chest, the Research Councils or other grant funding organisations, a thoroughly prepared SON or SOR stands the best chance of securing the funding required.

1.2          A Statement of Need (SON) or Requirement (SOR) should set out:

·         the benefits expected from the equipment.

·         the total costs of ownership over the whole of its operational life, covering acquisition costs, running and disposal, and

·         how the acquisition will promote the institution’s objectives.

1.3       Where the equipment to be purchased is valued in excess of £100,000.00 (both single and aggregated purchases), University Finance Regulations, Section 4 (Expenditure) paragraph 18.4 require that Head of Purchasing (Finance Division, Central Purchasing Office) must be contacted to provide consent and advice e.g. on any statutory procurement requirements such as the EU Procurement Directive or advice on Research Councils grant compliance requirements.

 

2.         Specification of Requirement (SOR)

2.1       Good research depends on the right choice of equipment. A well-drafted specification of requirement not only sets the quality and performance standards for the equipment, but also provides the greatest scope for maximising value for money (VFM).

2.2       A good specification should be functional e.g. describing the equipment in terms of its intended function and the required level of performance, rather than by a generic description or brand name. It should be concise, but sufficiently detailed to enable bidders to take all costs into account, and also to offer alternative solutions. In particular it should:

·         state the criteria for acceptance of the equipment

·         abide by international and national quality requirements

·         include health and safety requirements

·         if brand names are unavoidable, qualify these by adding “or equivalent”

·         comply with UK, EU and international law.

2.3       Specifications for leading-edge equipment may be developed in conjunction with one or more suppliers and the focus of the requirements should be on research needs rather than what the supplier can offer. No commitment should be made to any supplier prematurely, nor should a resulting specification be so detailed as to eliminate any effective competition.

2.4       Specifications may be refined using such techniques of value analysis and value engineering (VA/VE). In value analysis an existing product is dissected and its components modified or omitted where this will reduce lifetime cost without compromising performance. Value engineering is a similar process applied to new equipment.

2.5       When considering VA/VE as part of defining a SON or SOR, it is recommended that a small team consisting of key stakeholders (internal and external) conduct a brainstorming session, identifying major cost elements and components parts of the equipment (examples below) to assess whether or not such component parts may be modified or omitted etc:

·         What are its basic functions?

·         Are they all necessary?

·         Can they be simplified?

·         Can they be performed in some other way?

·         Are performance requirements and tolerances too stringent?

·         Can standard methods and off-the-shelf equipment be used?

·         Can operations be combined?

·         Where can waste be reduced?

·         What is the environmental impact, including costs of waste disposal?

·         What are the staff cost implications in terms of numbers, expertise, etc?

2.6       Involvement of suppliers at this stage can help implement the results of the investigation by modifying their equipment so as to reduce cost or improve performance.  In doing so they will hope to share in the cost savings and gain additional business, but care should be taken not to favour one supplier unduly, particularly if the purchase subject to the EC directives.

2.7       Consideration should also be given to purchasing good second-hand equipment.

3.         Aggregation of requirements

3.1       Aggregating similar requirements can substantially reduce purchase prices and costs relating to maintenance, delivery, ordering and payment processing. For specialised equipment, other departments and institutions should be approached to see if there is scope for a co-ordinated approach to suppliers.

3.2       For regular purchases of common items, a framework agreement should be set up. Purchases may then be made from designated suppliers at competitive prices and favourable terms, which will cover all whole life costs:

·         a fixed, or at least index-linked, purchase price

·         on-site tests and pre-negotiation trials

·         delivery, installation and commissioning

·         maintenance cover and costs

·         the price of consumables

·         spare part cost and availability

·         provision and updating of maintenance handbooks

·         training.

3.3       The use of existing framework agreements should be mandatory unless there are strong reasons for not using them. A spot price may seem cheaper, but other factors must be considered:

·         time and cost of obtaining competitive bids and selecting the best value;

·         less leverage over the supplier in case of dispute;

·         handling additional invoices from different suppliers and making additional payments;

·         reduced economies from scale;

·         undermines the current framework agreement and weakens the negotiating position.

4.         Sharing equipment

4.1       Sharing may be possible when suitable equipment already exists in another department, or when new equipment can be made available to other departments, perhaps on a repayment basis. This arrangement can include the aggregation of requirements for maintenance, spare parts and consumables, thus reducing cost through better purchasing. The controlling department’s responsibility extends to applying procedures and security measures to ensure that the equipment is protected and used in the proper manner.

4.2       An alternative may be to provide usage time to others on new equipment, since:

·         it may save other users having to purchase new equipment, or provide them with improved performance;

·         there may be opportunities for rationalising or improving the specification to the benefit of the principal User.

4.3       Equipment for shared use or hire may have to be more robust, and may have a shorter life expectancy, due to greater wear and tear. It may also need more security and safety features, which may add to the price but overall should provide better value for money.

5.         Funding

5.1       Research Council grants, like funding council grants are a legal contract between the funding body and the University where the award grant funds belong to the institution rather than the grant or budget holder, and must be accounted for in accordance with the institution’s regulations. A breach of grant conditions could result in the funding being withdrawn and the University refunding the total grant awarded regardless of any expenditure that may / may not have already been assigned to the grant.

5.2       Recent years have seen a significant shift in the sources of funds for research equipment:

·         Research Councils provide almost 40% of total expenditure

·         Funding councils provide just over 25%

·         Charities provide almost 15%

·         Private industry or business provides just under 10%

·         EC, government departments and donations provide just over 10%.

5.3       Funds for equipment for teaching and administration come mainly from the funding councils. Since funding councils no longer ring-fence funds for equipment, institutions will be able to vary equipment budgets substantially.

5.4       Estimates of purchase costs are needed when seeking funding for new equipment. Provision should be made if possible for adjusting the final sum upwards or downwards, to cover the cost of the most economically advantageous offer. Funding may be required for future years to cover such costs as lease charges, consumables, overhauls or upgrading. Any costs relating to building work, staffing, energy, waste disposal, and the eventual disposal of the equipment should also be included.

5.5       Leasing spreads the costs of ownership over a period of years. Costs are more clearly known at the outset and most of the risks of ownership remain with the lessee. It can ease maintenance problems, reduce staff costs, and ensure equipment is kept up-to-date, but this comes at a price and outright purchase will often be more cost-effective. Leasing should not be used to augment departmental funds as it is probably cheaper to borrow within the institution.

5.6       Researchers are likely to be in close contact with suppliers of leading edge products, but may need advice on how best to go about obtaining initial quotations without commitment. The Procurement Office can advise on how to elicit a competitive bid, including elements for delivery, training, consumables, servicing and trade-in of old equipment, in addition to the purchase price.

5.7       If a prospective supplier knows the budget figure, this may weaken the University’s negotiating position, but it is still possible to improve on the original bid by competitive tendering and negotiation. As funds for capital equipment are increasingly scarce, it is important to:

·         seek authority from the grant body to use savings for additional equipment or services

·         or return the savings to the grant body so that they can be used for other grants

·         use institutional funds for other essentials or return them to the centre, in accordance with institutional rules.