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Tuesday, April 12, 2011

The false savings of "competitive" tendering...

Posted by Devil's Kitchen at 4/12/2011 12:42:00 am

... are neatly illustrated by Dick Puddlecote.
To illustrate, I'll go back around a decade to when such things really did pit suppliers against each other in a cut-throat mechanism which drove down costs to provide value for the taxpayer buck. It was a time when large operators were capable of being usurped by a one-man-band offering a quality service at a homemade price. The more providers, the lower you had to pitch to be sure of getting the work.

Those days are long gone.

About five or six years ago, in our experience, the regulatory burden began increasing at an alarming rate. Health and safety was ramped up to quite absurd levels and quality thresholds were set which were impossible for small outfits in our industry to comply with. For example, a company like ours—with a tad more financial breathing space by virtue of our larger size—were able to implement all of the ridiculous (and not even mildly more protective) demands placed on the vehicles which would be acceptable to the authorities concerned. The little guy had no chance—unlike us—of throwing a load of cash at new, or adapted, vehicles to cope with the latest over-weening directive imagined by local authorities, none of which would have any effect on overall safety or provision of service.

We thrived as a result, while dozens of our competitors threw the towel in and went and did something else instead (that's if they did anything but sell their rig and roll up to the local social security office, of course). Happy days for Puddlecote Inc, but we were—as economics dictates—charging far more to the authority.

Of course, Dick fails to mention that, in many cases (especially in the NHS) if you are not a member of the "supplier framework"—for which you have to submit massive amounts of paperwork and be of a certain size (in terms of turnover)—then even being in with a chance of tendering for many public sector contracts is almost impossible anyway. The result is fewer suppliers who have to sink even more time and money into simply bidding for a contract.

For example, the other day, I was talking to a friend whose company deals with the public sector: the tenders often run into the hundreds of pages and they often have to attend at least two "pitches"—with the entire tendering process often running to six months or more.

His company recently bid for an NHS project over a period of three months: the tender response ran to 187 pages, they attended three meetings (including one "pitch"), did a considerable amount of research and product tuning to ensure that they would be able to meet the technical requirements, and were delighted that they got short-listed to the final two...

... at which point the tendering organisation in question informed them that they were terribly sorry, but they had got the tender process wrong and they would have to cancel this process and start again from scratch!
Of course, once again costs have no way to go but up, and with less competition, we are likely to get more of the proportion of work available. The taxpayer gets shafted while the public sector office fills its boots with council tax cash.

And the end result? Well, they can say that greedy private sector businesses are ripping off the taxpayer and that competitive tendering—introduced by Thatcher IIRC—just doesn't work.

Clever, huh?

Remember, our industry is just one small part of public sector outsourcing. Every supplier, in every field, is being put through this. Raising costs, and punishing your bank account with every monthly council tax instalment as a result.

Indeed. And the origin of this uncompetitive rubbish...?
You see, the whole process is run according to the Public Contracts Regulations 2006, which - as I'm sure will not in the least surprise you - is the UK enactment of European Directive 2004/18/EC.

Competitive tendering is supposed to act against monopolies and cartels, yet EU legislation is actively encouraging them in every town hall up and down the UK.

The problems here are, of course, not down to one single piece of legislation at all—however, the legislation serves as a convenient fig-leaf for those involved in the whole process. If all of the rules have been followed, then the amount of judgement required by those running and judging the tendering companies is vastly reduced.

Why?

Well, the way in which a tender should work is that anyone should be able to tender for the business. Now, many would argue that this could lead to poor outcomes—the smaller company could go bust without completing the job, or their service could be worse or just not up to the job, or the service could be delivered in a less safe way, etc. etc.

But all of these things should be assessed by those doing the tendering, those running the project. However, if these people made a fuck up then, of course, their necks could be on the line.

If they have fulfilled the minimum guidelines, however, then the potential for risk is far lower: not because the judges spend more time considering the bids, but because they know that the only bids that they can get are those that meet the minimum legal guidelines.

In other words, the onus for proving that the service is suitable is thrown almost entirely onto the tendering companies. The problem being, of course, that said companies must spend more money and time on doing the judges' work for them—resulting in higher prices.

If the project the goes tits up, the judges can point out (usually) that they have fulfilled all of the legal provisions and that it must be someone else's fault that the project is 18 months late and looking like crap.

In the meantime, as Dick points out, the only person being consistently shafted is the taxpayer...

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Posted by Devil's Kitchen at 4/12/2011 12:42:00 am


6 Blogger Comments:

Anonymous Anonymous said...

I remember when working for one public sector organisation they got the (unpaid) intern to sift through the tenders ensuring they met the criteria (primarily layout) and then, as a reward, they (the intern) got to choose the winning bid.

Makes it all worthwhile eh?

4/12/2011 05:06:00 am  
Blogger JuliaM said...

"... if you are not a member of the "supplier framework"—for which you have to submit massive amounts of paperwork and be of a certain size (in terms of turnover)..."

And you have to comply with all the PC bullshit too - have 'anti-racist' and 'green' policies, etc.

4/12/2011 05:43:00 am  
Blogger Dick Puddlecote said...

"if you are not a member of the "supplier framework"—for which you have to submit massive amounts of paperwork and be of a certain size (in terms of turnover)—then even being in with a chance of tendering for many public sector contracts is almost impossible anyway."

Yes, that's the case with the ITT I'm currently dealing with. Three years of preferred suppliers locking out everyone else, including new market entrants, to the detriment of the taxpayer.

And, as you rightly say, much of this is an exercise in keeping their backsides out of the bacon slicer.

Yet talking to others in our industry, the general experience is one of the suppliers just BSing their way through it all. A lot of the demands from these authorities are so absurd that any company actually doing as they require would probably not be in business in the first place. And you know what? I am pretty damn certain they are fully aware of this. Large tranches of the process are just a monumental waste of time and resources from both sides (and that's from someone who benefits by it).

Ta for the link. :)

4/12/2011 11:06:00 am  
Anonymous grumpy old government buyer said...

Government buyers didn't, in my experience, ask for hundreds of pages of crap. But we got it. 90% went straight in the bin: no, I don't care that your firm has been going 85 years, or want to see the pretty picture of your HQ. Where's the bloody pricing schedule?

Having said that, there did seem to be some unwritten law that a Government contract shouldn't dominate the turnover of a supplier - say over 30%. I never understood this. I loved the idea of a supplier being totally dependent on my whims, risking going bust if he/she crossed me. In the rag trade, I'd seen buyers crack the whip over suppliers (used to be in sales in those days).

4/12/2011 06:34:00 pm  
Blogger barbara said...

I had been reading a few of the articles right here but everyone provide great information and Once again costs have no way to go but up, and with less competition, we are likely to get more of the proportion of work available. The taxpayer gets shafted while the public sector office fills its boots with council tax cash. Competitive tendering is supposed to act against monopolies and cartels, yet EU legislation is actively encouraging them in every town hall up and down the UK.Thanks.
home business

4/18/2011 09:29:00 am  
Anonymous Business Plan said...

Great article, short and precise. What bothers me although is the fact that the jury is impressed by a presentation like this. This just proves that the application of law often does not have anything to do with justice, but more so with who's better at presenting. A lot of the demands from these authorities are so absurd that any company actually doing as they require would probably not be in business in the first place. And you know what? I am pretty damn certain they are fully aware of this. Large tranches of the process are just a monumental waste of time and resources from both sides and that's from someone who benefits by it. You can do a lot with this and play around to convey your message.

4/19/2011 01:01:00 pm  

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