Indexation

Overview

For some time, Scottish councils have been faced with reducing budgets and increasing demand on services - so the need to do more with less has become a key feature for our local authority members.

We were keen to build on the annual savings of £16m our tendering activity delivers for councils, to bring more support as they work to balance budgets while maintaining crucial services.

So we developed a strategy to enhance commercial support to councils through a focus on ongoing contract pricing across our entire framework portfolio.

The solution

The solution we produced is a digital tool known internally as Indexation. It produces a single contract and market index for each of our frameworks, giving a visual report comparing contract performance against prevailing market conditions.

This allows our contract owners to assess market price movements regardless of how diverse the industry sector is, and it gives clarity of complex, fast changing markets.

Our teams look at all cost drivers for each framework and consider the significance of these drivers on the framework commodity.  They then link to multiple market indices, identified from a central ‘bank’ from sources like the London Metal Exchange and Office of National Statistics.

As market conditions rise and fall, the Indexation tool produces a framework specific market index that can be reported at any point through the life of the framework. It gives a clear understanding of market movements.

The outcome

Ultimately, it ensures we access intelligence effectively and underpins the due diligence required to support £1bn of annual local government expenditure through our frameworks.

It also enables our teams to successfully apply commercial acumen in price negotiations with framework suppliers, making sure councils continue to receive the best prices, while maintaining productive relationships with suppliers. 

As a result of this approach, we are better equipped to deal with the hundreds of price variation requests we receive each year from suppliers - in terms of negotiating reductions or better preparing councils for likely increases in the future. 

By using the commercial and market intelligence gathered by Indexation, since its introduction in 2017, we have been able to successfully reject millions of pounds worth of price increase requests from suppliers.