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Tim Williams

“Innovation in Procurement” the next new buzz phrase?

John Denham, the Communities Secretary who is responsible for local government, yesterday held a meeting with innovation and procurement experts from the private sector, academia and the public sector.

Mr. Denham started the meeting by saying that “Councils have proved they can be efficient….” well I think that’s news to most taxpayers, who would like to see a considerable improvement in the efficiency of their local authority. He went on to say that “given the economic climate their £42 billion buying power must be made to work harder,” in contrast to the earlier hollow praise I think that’s something we can all agree on.

Mr Denham set out three new approaches that his officials belive that councils should consider:

  1. think more carefully about how to use the buying power that big budgets bring – as big players in several markets or as early adopters of fledgling or innovative markets;
  2. think about how collective buying power can be used to secure greater efficiencies and get future benefits with that money. For example when Government agrees housing contracts they now require apprenticeships to be offered to as part of that deal; and
  3. change the culture of government contracting so it asks industry to find value for money solutions rather than tender for pre-determined products.

In my view the third of these approaches is probably the most powerful and, if widely adopted, would reap the greatest savings. As an example from our own business, we are frequently asked to bid for the provision of web-based electronic tendering systems. We’ve been providing these systems for almost 10 years and so we don’t think it’s unreasonable to assume that we have learnt a thing or two about what works and what doesn’t work. Yet, when we get the invitation to tender it almost always includes a very detailed specification, not just of what the client wants to achieve, but also how we should do it. How does the client know? What experience have they got of running a website, or an electronic tendering system? We often hear talk of ‘outcome based specifications’ but I don’t think I have ever genuinely seen one.

The civil servants at the Communities Department included some examples of procuring for solutions, i.e. asking the suppliers how best to solve their problem, rather than telling them how they would like it to be solved. Two solutions that I think are worthy of a wider audience were as follows:

  • Each year, HM Prisons (HMPS) threw away about 60,000 foam mattresses and pillows, with the majority sent to landfill or disposed of as clinical waste. Instead of continuing with contracts to buy new mattresses they challenged suppliers to find a way to deliver zero waste, recycle all its mattresses and pillows not classified as hazardous, cut hazardous mattresses by 2 per cent per annum and bring costs down. After 30 tenders HMPS signed (in March) a contact which uses innovative new mattress covers that will reduce turnover and all but eliminate the need for clinical waste disposal. No mattresses will be sent to landfill, instead they will be recycled into useful products. Importantly, HMPS is projected to save in the region of £5m over the life of the contract, well ahead of the 2012 target
  • Durham County Council set up a food procurement project to cut the costs, improve the food and cut the carbon footprint of their distribution. Instead of pre-deciding how to meet those objectives, they asked suppliers how to do it. As a result, food has improved, costs have been cut, local businesses got involved leading to around 12 000 fewer deliveries – that’s 12 000 van journeys saved. Reducing carbon emissions in a local area is the fifth most popular LAA indicator. LB Lewisham calculated that 70 per cent of its carbon emissions were produced by its supply chain;

UK Construction firms fined £129.5 million for illegal anti-competitive bid-rigging activities

The Office of Fair Trading (OFT) has fined 103 companies including many of the UK’s largest construction companies such as Kier, Interserve, Try Accord, Carillion and Balfour Beatty for colluding with competitors to rig the pricing of contracts worth more than £200 million.

Kier was fined £17.9m, more than any other building company. Interserve was fined £11.6m, Try Accord £8.3m, Ballast £8.3m, Bowmer & Kirkland £7.6m, Carillion £5.4m and Balfour Beatty £5.2m.

The most shocking aspect is that these are considered to be respectable companies and not the archetypal cowboy builders that we expect to rip us off. And it is us, the taxpayers, that were being ripped off, as many of these construction contracts were for public sector projects, such as school extensions, refurbishment of council housing, new medical centres, etc.

The investigation focused on the practice known as cover pricing, where one or more of the firms invited to bid submits an inflated price, making a supposed competitors bid look more attractive. This gives the client a misleading idea about the real extent of any competition. Indeed in some cases the winning bidder made payments of up to £60,000 to the others that had submitted high bids.

Predicatably some of the trade bodies such as the UK Contractors Group (UKCG) and the National Federation of Builders have called the fines unfair and that they will cost jobs. Is that really the case though, these companies have broken the law and the fines only account for 1% of their turnover. The Public Contracts Regulations allow for companies guilty of such offences to be barred from participating in any future public contracts, so they seem to have got off rather lightly.

It seems Lord Mandelson has personally intervened to ensure that these firms are not blacklisted by the public sector and unusually the OFT issued a guidance note to public procurement staff at the same time that the outcome of the investigation was announced.

Not every commentator has been so sympathetic, even those who are concerned about jobs in the construction sector. Alan Ritchie General Secretary of construction union UCATT, said: “It is clear that construction companies can’t be trusted to run their affairs properly ….. The cover pricing scandal demonstrates why the construction industry cannot be trusted to police itself.”

Health board urged by police to pull out of contract with taxi firm

Strathclyde Police have asked Greater Glasgow Health Board to pull out of a patient transport contract as the firm has links to serious organised crime. The Glasgow Herald reports that the taxi firm, Network Private Hire, was raided in 2004 as part of the Operation Maple money-laundering probe.

The Scottish National Party MSP, Stewart Maxwell, has said that he will introduce an amendment to the Criminal Justice Bill to close the loophole which allows firms with links to organised crime to benefit from public contracts. In fact, the legislation which governs public procurement in Scotland (Public Contracts (Scotland) Regulations 2006), already includes provisions for treating a company as ineligible to tender if their directors have been convicted of certain offences, including money laundering.  

The problem in this situation seems to be that because the case is still running, the directors of Network Private Hire haven’t been convicted. On the basis that someone is innocent until proven guilty, it clearly presents a problem to barr them from participation in a public contract as they may be acquitted. Yet the firm apparently has links to the notorious McGovern family and Strathclyde Police are obviously convinced that they are guilty, otherwise they wouldn’t have written to the health board.

The Herald also reports that the Health Board tender did not include a requirement for the taxi’s to be licensed or stranger still that they didn’t require that they should be wheelchair accessible.  

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