- December 16, 2019
- Posted by: R
- Category: CT Blog
We have all seen plenty of procurement disasters.
The government department that let a ferry contract to a company with no ships; the PFI contract that was handed from one operator to another, and cost far more in set-up and operating costs than its benefits could ever justify; the housing association that handed over all its property maintenance to a contractor that bid at unsustainably low rates in order to maximise market share and then went bust, leaving the landlord with no-one to do urgent repairs.
Common challenges and solutions
Why do such disasters keep occurring? It’s typically for one or more of several reasons:
- Failure to plan the procurement properly;
- Failure to understand the market;
- Failure to timetable the tender exercise adequately;
- Failure to evaluate bids robustly;
- Failure to client the contract effectively.
In the first place then, you should work out what you are procuring and why. In some cases, it will be perfectly obvious: you need to purchase supplies, or to carry out a major works programme for which you lack the skills and resources required. In other cases – services in particular – you should be clear what type of services you require, including whether some of these can reasonably be provided in-house, and how you want to package up the services (in terms of scope and contract length) in order to be attractive to the market.
As part of this, it is important to recognise that not all services or works are alike, and recycling contract documents you have previously used for say a cleaning contract makes no sense when it comes to procuring legal services, for example. Moreover, make sure that what you are procuring is a coherent package – avoid the temptation to bolt on unrelated elements that could dilute focus away from what you want to achieve.
It is good practice, and will often save a lot of grief down the line, to carry out ‘soft market-testing’, i.e. talking to potential providers to find out what contract arrangements and package of services will work for them and encourage them to bid. This will in turn inform what you include in the contract specification and terms.
As part of planning for the procurement, you should work out a realistic timetable for the tender exercise. Trying to rush everything through in a week does not work: potential tenderers either will not bid; or they will do a rush job; or they will simply pull a previous tender off the shelf, because they do not have time to consider how to respond to your specific requirements.
Make sure that you set out in the tender documentation what your selection criteria are, and how you are planning to evaluate bids. That way the process is as transparent as reasonably possible and gives all bidders a fair chance. And avoid including unreasonable requirements that are not relevant to what you want delivered. If you can, tell bidders what your budget is for the goods, works or services. This cuts out the ‘guessing game’ that bidders have to go through in pricing a job, and means they can focus on how much they can deliver within your price cap.
When it comes to assessing bids, it is important to keep the quality evaluation separate from the price evaluation. In fact, I would argue for ‘double envelope tendering’, with the quality submission (method statements, proposed resources, programme etc.) in one envelope and the price submission in another. And you should only open the price envelopes for those bids that pass your minimum acceptable quality threshold. Substandard submissions that will not actually deliver what you want in the first place – even if they are cheap – are a recipe for problems.
When you do open the price envelopes, if you come across a bid that is significantly cheaper than others, and than your estimate of what the work is likely to cost, you need to ask why. The answer will almost certainly be one of these:
- The tenderer has discovered a revolutionary new method that enables them to deliver more (or the same) for less cost;
- They have got the numbers wrong;
- They have under-resourced the contract or skimped somewhere along the line;
- They are treating the work as a ‘loss-leader’ in order to get into a new area or build up their market position.
The first of these reasons needs checking. The second and third could well be grounds to reject a tender. The last of these is not necessarily a reason to reject a tender, provided the bidder can convince you that they have legitimate business reasons for taking a financial hit on the job, that the loss will not cause them major problems, and that it will not lead to poor quality at a later stage.
Another key area to mention is clienting the contract. You should ensure that your lead client understands the work that is being delivered and knows what to look for in the procurement and in the contract delivery. And you should ensure that you have sufficient resources on the client side: these need to be proportionate to the value of the contract and the level of risk transferred.
Depending on the nature of the works or services, there may be scope for sensible flexibility. For instance, a service contract that runs over several years could well benefit from say an annual review of what has worked well, what needs improvement, and whether there are enhancements that could be made to benefit you as the client, the contractor, and the end-users (if that is not you, such as your tenants).
It is important that the contract conditions include remedies for when things go wrong, and that those are implemented. At the same time though, the most successful contracts are typically where both parties treat it as a mutually beneficial partnership, with a transparent approach and effective communication in place.
Finally, it is often worth using procurement frameworks when you can, whether your own or a consortium of which you are a member. Frameworks save time and effort. You should at the same time though make sure that the framework has been properly put together, and for instance does not disadvantage SME providers in favour of large companies.
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