In the aftermath of high profile contractor failures and concerns mounting about the affordability of many existing UK projects, the emphasis is turning to how major public contracts are awarded. The Local Government Association's new 2018 National Procurement Strategy is a good example of how the focus is turning more and more to commercial behaviour in public sector tendering.
A historic focus on lowest cost tenders (and a focus only on the cost of acquisition, rather than the whole lifecycle cost), has led to a race to the bottom among suppliers to the public sector.
Contractors have had to price very keenly to maximise their chances of winning a procurement. With, for example, average profit margins in the UK construction industry at -0.5%, the risk is that this approach results in the public sector simply buying poor quality or, at worst, the insolvency of the contractor.
There is often a mismatch between the expectations and the budgets of the purchaser. Too often, a lack of clarity of core requirements and what the market can provide leads to poorer quality tenders and a lack of innovation in service delivery. It can also contribute to the increase in public procurement litigation that we continue to see in the UK, where bidders complain that tender documentation was unclear and/or incapable of evaluation.
The Public Contracts Regulations 2015 ("PCR2015") which regulate public procurement in England and Wales will continue to apply after Brexit until the rules are replaced by the UK Government. One flexibility in PCR2015 is the express right of the contracting authority to use early market engagement to talk to the supplier market before starting a new procurement process. Regulation 40 PCR 2015 provides that public bodies "may conduct market consultations with a view to preparing the procurement and informing economic operators of their procurement plans and requirements". The rules go on to say that the public body can "seek or accept advice...from market participants".
Our view is that this flexibility is underused in the UK market. Often, the urgency of a procurement process is caused by the imminent expiry of the existing contract. This can leave insufficient time to talk to the market, and to understand what it is capable of providing and, more importantly, what the project will cost.
One reason for the lack of uptake could be concern about procurement challenge risk. The rules are clear that provided the soft market testing does not "have the effect of distorting competition and does not result in a violation of the principles of non-discrimination and transparency", the public body has flexibility about who it consults, how it consults, and when. Clearly, structuring a procurement in such a way that only one bidder can win will create a risk of a successful challenge. But there is a great deal that can still be done.
The principles apply equally to private sector procurement, and engaging with supply chains and sub-contractors pre-bid often saves considerable time, money, and potential problems later.
By bringing forward exploratory discussions with the market, public bodies are able to start their procurement afresh, armed with the latest industry insight. This means that technical specifications and evaluation criteria can be drafted with the latest technology and solutions in mind, and stakeholders are fully informed of the likely costs. This is particularly relevant in construction projects where costs of raw materials and specialist sub-contracting can change quickly, and which is often a source of dispute later.
The LGA recently launched their 2018 National Procurement Strategy, which focuses on leadership, commercial behaviour and achieving community benefits.