Monday, 22 August 2011

Public procurement and framework contracts - inefficient, anti-competitive and expensive


In public sector procurement we have got used now to the system of “framework contracts”:

A ‘framework agreement’ is an agreement between one or more contracting authorities and one or more economic operators, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged.

In layman’s terms a framework agreement limits the market from which the public body procures its goods or services in a given time period. Rather than a long-winded procurement process for each contract, the public body can “call off” for each purchase from the organisations in the framework. Nobody else can bid.
And these frameworks are used for multi-billion pound contracts:

Willmott Dixon, Morgan Sindall, Mansell and Thomas Vale have all been appointed to a regional framework worth up to £3 billion.

The companies were chosen by Birmingham Council to work on projects secured through the Constructing West Midlands Framework.

The quartet will work on the four-year framework covering work costing more than £500,000-a-year.

The framework has the potential to be extended to eight years and is available to all public sector bodies in the West Midlands.

So there you are – a small group of construction businesses have been given the exclusive right to bid for £3 billion in public contracts. During that time no other organisations can bid for that work – the councils involved have granted to those in the framework a degree of protection that should not apply, is anti-competitive and cannot possibly represent value for taxpayers’ money.

These contracts are done for reasons of procurement efficiency and administrative convenience. They cut out smaller contractors – the ones for whom £500,000 is a big contract but who do not have the financial elbow to get chosen for a large framework. Yet nothing is done. There is no outcry when the DWP carves up valuable contracts for delivering the Work Programme between fewer than 20 organisations – a process that allows BEST, A4e and others the opportunity to further extend their market dominance. Mostly at the expense of smaller, regional and local providers.

Framework agreements are now standard practice and the numbers of businesses on frameworks gets smaller and smaller. One “pre-qualification questionnaire” (PQQ) run by Leeds City Council to procure a framework for redundancy support across Yorkshire was explicit in seeking to limit the tender to just six organisations from which five would be selected to form the framework.

This is an example – increasingly common with large authorities like Leeds and Manchester – of the use of the PQQ as a shortlisting device rather than as a means of established whether an organisation is qualified and has the capacity to deliver. This is an abuse of the process and misrepresents the PQQ – it is not pre-qualification but a two-stage tender process. Again it is designed for reasons of administrative convenience and procurement efficiency rather than for reasons of good purchasing practice.

If there is one area in desperate need of reform, that is ill-managed and run for producer interests rather than for the good use of taxpayers’ money, it is the system of public procurement overseen by the Office for Government Commerce and implemented by local authorities, government departments and quangos up and down the country. It may not be corrupt but it is certainly anti-competitive, wasteful and produces overpriced and inflexible contracts.


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