Sunday, 29 May 2011

Tenders, framework agreements and suicide-bidding - how public procurement isn't working


We can expect that – for many reasons not least the need to drive out costs in public administration – there will be renewed attention given to the processes of public procurement. After all if more provision is to be outsourced we need to know that the process by which suppliers are selected is fair, transparent and delivering value. I’m not sure we’re in such a position for three reasons – the tender process is over-complex, public agencies are relying on framework agreements rather than open market procurement and these problems are encouraging market distorting practices such as suicide-bidding.

Anyone involved with seeking business from public bodies will be familiar with the complexities of tendering – here’s just one cry of pain at the onerous requirements in the process:

Reading through the documents today was a jaw-dropping insight into the dream world of public sector morons.

Method statements, framework agreements, key performance indicators, robust performance management systems, equality and diversity policies, performance evaluations, environmental advancement, partnership milestones, sustainable procurement narratives, race and gender statements, service quality monitoring, volume forecasting, operational delivery reviews, governance structure audits, outcomes recording methods, business continuity plans, and contingency planning systems.

All of the above must be installed before we are even allowed to see the work we may be able to bid for, if approved. And, of course, there is no guarantee - by their own admission - that it will be of any quality.

Here we have a classic example of procurement processes seeking to capture every regulatory nuance – to the point where most suppliers and especially smaller suppliers simply give up and go away. And this process is intended simply to create the “framework” from which the public body can procure the services it requires. It is a process intended to limit the competitive environment by excluding those who fail to ‘tick the boxes’.

However, framework agreements are becoming a bigger problem than this – we are seeing them used as market control mechanisms. Rather than allowing any business that qualifies to bid, these agreements are setting limits on the number of qualifying firms. In one recent example, Leeds City Council (on behalf of a consortium of Yorkshire authorities) sought to procure a framework of businesses to provide outsourcing and redundancy support – the framework limited the number of suppliers to just five from the hundreds of possible providers of these services. There is no doubt in my mind that this process is anti-competitive and should be stopped. We should either have a tender process or a prequalification process, combining the two through a framework system compromises the market and acts only to provide procurement convenience rather than public benefit.

Given the nature of this complexities and the creation of a deliberately limited pool of competitors (protected for the duration of the framework agreement from new market entrants and, in effect, behaving as an oligopoly) the market response throws up some problems – not least what has been dubbed ‘suicide-bidding’:

Although EU law allows businesses to reject abnormally low bids, it does not define ‘abnormally low’, which has lead to disputes with bidders.

Paul Dooley, director of estate regeneration at Poplar Harca, said the association decided to act after receiving several low bids, including some of up to 20 per cent lower than the average. He said: ‘We feel that without a clause in the contract we could be subject to contractors making a challenge.’

The move follows concern in the sector about ‘suicide-bidding’, in which companies bid at amounts that do not cover the cost of their work. This can lead to poor quality service and to firms seeking contract loopholes to charge clients extra.

With complicated tendering processes, combined (and ever larger) contracts, longer contract periods, the temptation is to go for business at a low price and back your managers – and lawyers – to be better than public sector managers and lawyers. After all, it’s pretty difficult to get out from under a six volume contract on the basis of work being ‘not quite good enough’, a little slow or snag-ridden.

The process of public procurement is a minefield but one where Councillors tend to doze off – it’s not exactly sexy politics after all! We should be paying more attention to these processes. I started to complete a pre-qualification questionnaire for some work with Manchester City Council (or rather to get on a framework to be allowed to bid for some work) – the nature of the questionnaire was such that even the mid-sized organisation on whose behalf I was applying decided the requirements were too onerous.

Not only did Manchester require written policies on equalities, health & safety, environment, sustainability & climate change to be submitted (along with three years of accounts, bank references, nine public sector referees and insurance documents) but asked for detailed information about the implementation of these policies. Now Manchester may be the worst authority in this respect but sadly other large authorities – Leeds, Bradford, Liverpool – are little better.

Procurement departments are now pressured to deliver significant savings while maintaining standards of service delivery. And these departments will also be responding to new procurement environments resulting from the Localism Act. To deliver on price, quality and continuous improvement and to support new providers emerging in local communities, procurement systems need to be freed from these requirements linked to other policy requirements and to be encouraged to widen rather than narrow the market. We cannot continue with the too complex, anti-competitive, market distorting approaches that currently dominate public procurement.


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