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Frameworking practices
Business Travel World – January 2007

The public sector spends a great deal on hotels, but this spend is fragmented and lacks coherence. Mark Smulian examines the prospects for a consolidation strategy implemented by the Office of Government Commerce

Herding cats is renowned as a futile activity, but is OGCbuying.solutions trying to do the equivalent as it tries to get the most out of its framework deal for public sector hotel booking?

theory, it should be easy. The Office of Government Commerce, the government body charged with improving public sector efficiency, has used the prospect of the consolidated public sector spend on hotels as an incentive for selected companies to provide competitive rates which can be accessed by any public body.

Hotels form the largest part of the public sector's travel spending as it is UK-based and air journeys are rare.

The problem is the public sector's diversity. Each part has historically done its own thing, and most public bodies, or departments within them, have links with travel management companies that they have seen no pressing need to review for best value because travel is a small expense in their total budget. It is common for hotel bookings to be handled by the person travelling or their secretary.

The OGC's efforts at consolidation depend on persuasion and incentives. Despite the pressure for efficiencies, each part of the public sector can place its spending where it likes. Since the OGC launched its framework last summer, awareness of it has grown, but whether that will translate into use remains to be seen.

Jim Parkinson, head of payment cards and travel services at OGCbuying.solutions, says: "There are costs to clients in not getting the best deals and to the supply side in responding to multiple tenders. We felt we could bring that together and then get some deals done."

Parkinson puts the value of the public sector travel market at 3.5bn, but says this can only be an estimate because of the absence of centrally held data.

"We decided this market lent itself to consolidation, but knew that collating centralised information would be important," he says.

Stage one, completed in the summer, was to get the booking services in place, and the second stage will be "to pull together customer spend on services and get some really good deals on quality and price".

Framework agreements do not guarantee any level of business to participating companies, but they can expect orders because of the keen prices offered.

Parkinson explains: "There is no commitment that the public sector will use the OGC frameworks. The framework members operate on offering quality of service, some choice for customers and good value for money, and any part of the public sector can join in."

Travel consultant Ian Flint, who devised much of the OGC arrangement, stresses its voluntary nature.

"Individual departments can do their own thing but if they do they must be prepared to justify it as bookings through the OGC deal will cost them less because of the procurement work done," Flint says.

"Government cannot mandate departments but it can recommend very strongly."

One of his objectives is to help the public sector to own its rates, so it can go to the market with a set of maximum fees from which it will not be pushed higher.

"We looked at the process needed for the public sector to own its rates, which it has not done before, and if its volume is applied the rate prices can be very good," he says. "You can say you will pay x for a hotel of a particular type in a particular city."

Flint says public purchasing of travel "has not been effectively managed in the sense that it has not been brought together". To do that, he is assessing the data on who spends what and where, though he is "very much at the beginning" of that process.

It will be complex work because different government departments spend different amounts in different cities, he says, but he feels that once this is collated it will become evident where economies of scale are available.

One of the largest council spends on hotels is by Birmingham City Council whose greatest demand, perhaps surprisingly, is in Birmingham. Jill Robinson, head of its European and international division, says: "Overseas booking on behalf of council staff it is quite small and relatively low value business, mostly trips to Brussels. If we go to conferences our officers and councillors are likely to be guests of an inviting body."

The council receives a great many guests itself, everything from mayoral delegations from a twin city, such as Lyon, which would expect a five-star hotel, to English language students from Guangzhou, another twin, who require far cheaper accommodation.

Robinson says: "Often we are looking at the bottom end of two and three star hotels and the choice is dictated by price and location since people need to be in reasonable reach of the city centre."

Procurement of rooms for visitors has been centralised in Robinson's department. "We happen to have an officer who has been in this work for several years and has been reasonably successful in getting good rates". But the council has decided it should not rely on one person happening to know the market and is to use a provider from the OGC framework, which the council expects will produce better rates.

A report approved by Birmingham's ruling cabinet in November resulted in the council placing its hotel and other travel bookings through the OGC framework.

But the council's business drew little interest from framework providers.

Only one tender was received for hotels and the council speculated that this was because it had added specific requirements to the basic OGC deal on equal opportunities, freedom of information and environmental standards.

Whitehall's' highest spenders on hotels are the Foreign and Commonwealth Office and the Ministry of Defence.

The FCO has a contract with American Express but is in the midst of a joint tender exercise with the MoD to combine their spending power.

Overseas missions make their own arrangements while American Express would handle UK staff travelling aboard. The FCO specifies minimum standards such as 24 hour manned reception, lockable front door, en-suite rooms and a suitable environment for lone women.

Both it and MoD have similar travel requirements that are quite different from UK-focused departments, but a spokeswoman says it has proved difficult to gauge how much is spent since "a lot is contained in staff's expense claims, and on corporate cards".

The Metropolitan Police use a centralised team for booking foreign air travel and hotels. In the UK it uses Expotel for its hotel bookings, with which end users deal directly.

It has not used the OGC arrangement but is considering doing so. The Met's annual spend on hotels is around 9.3m and it is looking at ways to reduce this through improved rate negotiations, demand management and changes to internal policy.

The sheer range of public sector travel arrangements may mean there is a slow take-up of the OGC service, particularly where travel is not seen as a large expense or source of significant savings.

David Pointon, chairman of the public sector's Society of Procurement Officers and procurement manager at Portsmouth City Council, says: "Travel is not a huge amount for any one council and a big part of it is train travel, which is not easily negotiable."

Portsmouth uses Expotel to "stop is people booking places off their own bat and paying rack rates," but that predates the OGC deal.

So long as travel is seen as a minor spending area, unamenable to large savings, the OGC will face an effort to educate its potential users.

Views from framework providers

Veena Lidbetter, Expotel operations director

"The government is always trying to save money and that is all very well, but the most important things have not changed in the way they do things. Central procurement departments are increasingly used but they cannot really make a difference to the prices charged.

"Government likes to leave things to the last minute with hotels so as not to have money tied up, but in peak times they can be full from other business."

Nigel Turner, director of government accounts, Carlson Wagonlit

"There are changes in the market with the OGC framework and there are lots of benefits in giving people the opportunity to put all their travel together.

"Hotels offer government rates but they just put those out into the market and there is no negotiation.

"The corporate sector will negotiate over payments themselves and get a discount programme, but the public sector has not done that. Government rates are rarely negotiated. They are pretty competitive because the industry recognises the public sector has a ceiling on its spending."



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