General Procurement

West Coast Rail Franchise – the latest procurement fiasco

At midnight last night the Department of Transport released the following announcement:

Transport Secretary, Patrick McLoughlin, said “I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.”

Bombardier Zefiro High Speed Train

Any of us who tender for public contracts are only too fully aware of the sometimes less than perfect award criteria and a decision making process that owes more to being able to write a creative tender, stuffed with ISO standards, Prince2, ITIL and other accreditations, rather than a process that identifys the most suitable supplier, but how can things go so wrong with such a high profile decision?

The whole competition is going to be re-run, costing 10’s of millions for the taxpayer including the re-imbursement of the four suppliers’ bid costs of around £40 million.

Interestingly the Transport Secretary also said, “The flaws uncovered relate to the way the procurement was conducted by department officials. An announcement will be made later today concerning the suspension of staff while an investigation takes place.”

The Permanent Secretary to the DfT, Philip Rutnam, added, “The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance”.

Not unusually though it took the threat of a legal challenge to get the contracting authority, in this case the DfT, to take a proper look at their procurement process and admit that they had got it wrong. Why is it that contracting authorities too often close ranks and refuse to consider the possibility that maybe they didn’t get things quite right?

My company, Millstream, has been involved in two tenders in the last 12 months where the award decision has been challenged and the contracting authority has been forced to admit it made mistakes and then re-run the tender. This is hopelessly inefficient and wasteful, both for the candidates and the contracting authorities. We’ve been involved in many more where the process has been badly flawed and candidates have been unfairly excluded and I am convinced that the final decision has not delivered value for money for the taxpayer.

Ironically it seems that the threat of a legal challenge is making procurement officers, rely more and more on very objective marking schemes, which set out in great detail how marks are going to be awarded. The criteria frequently rely on international standards, or standard methodologies as these are easier to specify than the softer issues such as customer satisfaction, or other qualitative or aesthetic aspects. All too often the use of these criteria remove almost all discretion from the procurement officer and if the allocation of scores hasn’t been done very carefully it will frequently result in the ‘wrong’ decision.

I often use the analogy of buying a car using this same process. You have an idea of what you’re looking for and what your budget is going to be, but before you go around to the showrooms you draw up a list of criteria, such as price, fuel economy, number of seats, boot space, perhaps even full life costs such as servicing, etc.  You allocate marks to each of these criteria and then go to each of the showrooms. All of the cars that you are interested in will fulfil most, if not all, of the criteria, so the difference between them often comes down to price, or perhaps criteria that aren’t really that important, or even understandable to you, such as brake horsepower. Once you have completed your completely fair and objective evaluation, the result is that you should buy the Skoda, while you actually prefer the BMW, or the Lexus. The reason for this ‘wrong result’ is that you didn’t design the criteria in a way that truly reflected your needs and didn’t allow yourself enough discretion. Of course, as a private individual you don’t have to stick rigidly to these imperfect criteria, recognising that while they were useful, you hadn’t allocated marks for comfort, or image, or quality of engineering (‘Sounds like a Golf’) and so after consideration you buy the car that you want.

Public procurement in the UK, in fact in Europe, needs to take a step back from this rigid, objective decision making process and design procurement procedures that utilise the expertise of the people who will be using the equipment or services to exercise discretion in determining what best fits their needs. I can hear the chorus of ‘the European Directives don’t allow us this discretion,’ but that’s not the case, the Regulations themselves specify quality as well as aesthetic and functional characteristics, as two of the permissible criteria.

Let’s get better at specifying what is actually important when buying a product or service and allow procurement officers more discretion to choose the best when they can actually see the candidates in front of them. We’ll see fewer procurement staff suspended for making flawed decisions, but more importantly we’ll see less waste and better public services as a result.

9 replies »

  1. Hi there

    Can anyone advise me if under the Public regs you can tender a framework agreement under the negotiated proceedure?

    • Hi Anthony,

      The short answer is yes you can. The slightly longer answer is that regulation 19 of The Public Contracts Regulations (http://www.legislation.gov.uk/uksi/2006/5/regulation/19/made) reads as follows:

      Framework agreements
      19.—(1) A contracting authority which intends to conclude a framework agreement shall comply with this regulation.
      (2) Where the contracting authority intends to conclude a framework agreement, it shall—
      (a) follow one of the procedures set out in regulation 15, 16, 17 or 18

      Regulations 15-18 set out the requirements for the Open, Restricted, Negotiated and Competitive Dialogue Procedures respectively, so any one of the four procedures can be used when awarding a framework agreement.

      Tim

  2. We now offer advice to the Minister who may wish to obtain answers to the following (noting we are simply asking questions, not implying wrongdoing). As background please bear in mind the statement in Hansard Column 566W 18 September 2012, ‘As a result of a legal challenge which the Government intends to defend robustly, we have not yet signed the contract with First Group and therefore the competition remains live. We expect to sign the contract soon.’

    Q1. What role did the external advisers, Eversheds LLP and WS Atkins Plc play in the process noting the wording in the Invitation to Tender dated 20 January 2012 “Eversheds LLP and WS Atkins Plc are acting for the Department in relation to the award of the InterCity West Coast franchise…. ?

    Q2. Were any other advisers retained, and particularly for the financial analysis, of the tender evaluation?

    Q3. Is a claim against any professional adviser’s Professional Indemnity Insurance being contemplated?

    Q4. Did any of the advisers limit their Limit of Liability on their PII?

    Q5. Who wrote the tender evaluation criteria and who signed off the evaluation model?

    Q6. Who tested the financial evaluation model with test data prior to it being applied on the actual tenders?

    Q7. Who were the members of the tender evaluation team? Were their roles specified in writing?

    Q8. Was there a tender evaluation guidance briefing document prepared and issued prior to receipt of the tenders?

    Q9. What tender evaluation clarification meetings were held with each of the bidders?

    Q10. What risk mitigation plans existed in the event that the procurement process collapsed?

    Q11. What is the total cost being paid by DfT for all external advisers?

    Q12. How, precisely were the external advisers selected?

    Q13. Were the external adviser’s fees subjected to Treasury negotiation as has happened with other suppliers/contractors?

    Q14. What impact will the West Coast debacle have on other Government procurements where there are continual allegations of poor decisions on contract award?

    Q15. What plans does Government have to up-skill ‘Project’ procurement teams?

    Q16. What specific training did the West Coast Franchise procurement team have?

    Q17. Do you realise that SME’s are effectively being shut out of Central Government advice by creating tender evaluation models that only the large organisations can win?

    Q18. Was there a procurement risk model for this procurement?

    There has been informed comment, including the Daily Telegraph on Thursday 4th October 2012 ‘The Great Whitehall Railway Disaster’. It includes ‘Worst of all, it seems to have taken only three weeks to uncover the fatal flaws, which suggests they were not hidden that deep, and should have been much easier to spot.’ This begs a very important question. What was the process for evaluation? Was it people doing evaluation in isolated cells with no other person(s) checking their work? Had the case gone to court we would have discovered all the answers but, of course, we anticipate that there will be a very selective release of actual events.

    Now consider another comment from the Daily Telegraph. ‘Private-sector bidders are nearly always more experienced and wily (sic) than the civil servants, who are not nearly as well paid as their opposite numbers.’ When the current Government came to power they made a great play on how they would want civil servants to experience the real world by being placed in private-sector organisations. We, Brian Farrington Ltd, immediately wrote to the Minister offering that facility at no cost to the Government. The Minister did not reply but a civil servant sent a cursory reply and from that day to this there has been total silence! We suggest that it is not a civil service-wide pay issue it is business acumen and commercial competence that is the real issue.

    So, what next? We can only predict. Richard Branson will be offered an extension to the existing contract. He will agree providing it is for an extended period, say five years. Fares will continue to outstrip inflation and the Government will be inactive in tackling it. All the bid costs will be repaid and the current estimated figure of £40 million could be in grave error! Incidentally, when the bid costs are claimed who will conduct due diligence to prove their accuracy and veracity? The Government will be sued by First Group because of their deteriorating share price and lost profits. A settlement will be made out of court and taxpayers will never know the extent of the settlement. No action will be taken to tackle the larger issue of Government procurement and the unfairness of some contract awards. The large external adviser consultancies will continue to thrive and SME’s will continue to be disregarded, despite the competence they possess.

    WATCH THIS SPACE!

    Twitter @ProcureChange

  3. All is fine and well with the point of the article and I’m in full support. However on closer inspection it becomes apparent that the goal is not attainable via simple measures.

    “Let’s get better at specifying what is actually important when buying a product—”
    Indeed. It does take some courage for a contracting authority to say that they are prepared to spend a bit more in order to get exactly what they need. Having done this, the conracting authority then needs to specify the (objectively measureable) characteristics which identify the suitable offer. This is where the process usually grinds to a halt. For instance, could you specify the characteristics which make you prefer the BMW or Lexus instead of the (perhaps more economically viable) Skoda? Do bear in mind that, even if successful, you could actually still end up with a top-of-the-line Skoda (or VW, for that matter).

    Keeping that in mind I actually find it more staightforward (and more transparent, for that matter) to just explain that you want a BMW or Lexus rather than devising an intricate system of evaluating tenders… that should really not be compared in the first place (Skoda vs Lexus).

    • Margo,

      I agree that it’s very difficult to specify all of the characteristics that make one product more ‘suitable’ than another. But I disagree that they have to be objectively measurable and I believe that’s the big problem with public procurement at the moment, i.e. the belief that everything needs to be quantifiable. The Directive and Member State legislation specifies that aesthetic chracteristics are acceptable criteria. I don’t think you can objectively measure such characteristics and that’s why procurement officers should be given the necessary discretion based on their judgement. That judgement shouldn’t be biased towards one supplier or a particular member state, but they should be allowed to use their judgement, rather than following a mathematically driven assessment process.

  4. Agree with allowing more discretion and the use of broader qualitative criteria (functionality, aesthetics)and also avoiding a bias towards ‘tick box’ factors (ISOs, accreditations etc). I think the key thing is in having the courage to weight those softer criteria such that they counter-balance the ‘tick box’ factors – and to allow discretion to play a part without then being accused of bias or undue influence.

  5. The analogy to buying a car is very good! I shall use that to explain the process in future.

    Two of the reasons that cause this to happen is the public sector’s intense desire to minimise risk and to try and achieve a level playing field… sadly it often doesn’t work.

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