European Commission investigates Glasgow Housing Association’s failure to openly tender

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Glasgow Housing Association (GHA) is a private not-for-profit company created by the Scottish Government for the purpose of owning and managing Glasgow’s social housing stock. The housing stock, of approximately 81,000 houses and flats, was previously owned by the Glasgow City Council.

Following a poll of the Council’s tenants, the vast majority of their social housing was transferred to the ownership of the Glasgow Housing Association. The transfer was mired in controversy at the time, there was a strong No campaign backed by the Scottish Trades Union Congress (STUC) and many commentators doubted that there was a genuine desire on the part of the tenants to transfer to another landlord. However, a condition of having Glasgow’s housing debt written off was a transfer whole stock. This was initially going to be to one landlord, however, the Scottish Government intervened and introduced the concept of Second Stage Transfer (SST) to smaller Housing Associations over time.

Taroub Zahran, the Chief Executive of Glasgow Housing Association, resigned from her position at the end of Taroub Zahran Former Chief Executive - Glasgow Housing AssociationSeptember after what was believed to have been disagreements with the Scottish Government and Glasgow City Council over the slow speed of stock transfer.

A total of 322 tenants in Glasgow transferred to a new landlord at the end of July following the transfer of homes from Glasgow Housing Association (GHA) to two community-based housing associations under the Second Stage Transfer process.

Provanhall Housing Association took control of 195 homes, and another 127 houses in Hyndland were transferred to Glasgow West Housing Association.

Provanhall and Glasgow West join Shettleston, Ardenglen, Cassiltoun and Parkhead housing associations which took ownership of GHA homes in March this year.

A further 21 Local Housing Organisations who currently manage approximately 19,000 houses on behalf of GHA are still progressing through the various stages of the SST process. Ballots for a further four potential transfers are planned for this calendar year, with transfer potentially by the end of the financial year.

The European Commission, who will have begun their investigation following a complaint, has asked the UK Government to provide further information on how these contracts were awarded as it believes that they were public service contracts and as such should have been awarded on the basis of an open and transparent tendering process. If the European Commission is correct that no open tendering process was conducted, the UK will have failed to fulfill its obligations under the Public Procurement Directive 2004/18/EC.

The penalty for failing to fulfill such obligations is often simply that the relevant member state has to demonstrate that it has taken measures to rectify the situation and to prevent a future re-occurrence. Although sometimes, if it is not satisfied with the action that has been taken, the Commission will ask the European Court of Justice to impose a financial penalty.

In 2004 the Commission sought to impose daily fines against Germany for two long term (30 years) waste contracts that had not been correctly tendered.The fines sought were €31,680 per day for the City of Bockhorn contract and €126,720 per day for the City of Brunswick contract, which would be payable until the illegal contracts had been cancelled. That’s €58 million per year for 30 years!

The German government were in a bit of a sticky situation here, as it was the City authorities that had entered into the contracts and so the Government had no direct authority. Fortunately they managed to negotiate an agreement annulling the contracts.

Tories will ‘unleash an army of armchair auditors’ to spend money better

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Francis Maude - Shadow Minister for the Cabinet Office

Francis Maude - Shadow Minister for the Cabinet Office

Speaking at the Conservative party conference in Manchester yesterday, Francis Maude, Shadow Minister for the Cabinet Office, said the party would publish online, every item of government expenditure over £25,000 and all government tender documents for contracts worth over £10,000.

The Shadow Minister said that he thought that this would allow ‘an army of armchair auditors’ to crawl all over the governments accounts and not only help them to spend money better, but it would also help to rebuild trust.

This isn’t the first time that politicians have promised to make government procurement more transparent:

  • In 2003 the Better Regulation Task Force published ‘Government Supporter and Customer?’ Recomendation No. 1 was that the government should advertise ‘lower value contracts from across central government and include information on future contract opportunities.’ This set the scene for the Supply2.gov website, which due to a woeful lack of support from the Department of Business failed to reach its true potential and is due to be replaced by a new website implementing the Glover recommendations (see below).
  • In 2005 the Office of Government Commerce and the Small Business Service published ‘Smaller supplier…..better value?‘ which pointed out the challenges facing SME’s and how the government could help by publishing their future contracts online.
  • Also in 2005 the Office of the Deputy Prime Minister (when John Prescott was still a force to be reckoned with) published the ‘Small Business Friendly Concordat: Good Practice Guidance’ which yet again urged public sector organisations to use their websites to publish ‘details of forthcoming bidding opportunities.’
  • In 2006 the then Scottish Executive published a ‘Review of Public Procurement in Scotland’ authored by John McClelland, which recommended that ‘a single public sector “electronic portal” should be established. Suppliers must be able to access all essential information on opportunities to offer services and bid for contracts for the supply of commodities and services to the whole Public Sector in Scotland.’ This report resulted in the establishment of the rather effective Public Contracts Scotland website in 2008, which is run by the (some say, brilliant) team behind Tenders Direct.
  • Most recently in November 2008, the Glover report or ‘Accelerating the SME economic engine: through transparent, simple and strategic procurement,’ as it was more formally known, yet again, you guessed it, recommended that:
    • ‘By 2010, contract opportunities above £20,000 across the whole public sector should be advertised electronically with standard indicative contract value ranges, and accessible through a single, free, easy to search online portal.’

So at numerous times over the last six years, various politicians, government departments, quango’s and notable report authors have called for more transparency in the publication of government contracts.

The main barrier to progress has definitely been the lack of a clear lead by central government, either to publish its own contracts, or to establish an infrastructure and clear guidelines or regulations to ensure that other public bodies publish their contracts. The secondary barrier has been an unwillingness by staff in local authorities, NHS trusts, etc., to publish their contracts. This unwilling attitude stems from a variety of reasons such as a fear that they will be inundated with suppliers, that they want to keep contracts for local suppliers, that they ‘know’ who the best suppliers are anyway. Provided the procurement activity is approached professionally these fears are either groundless, well intentioned, but illegal and ineffective, or simply wrong. All of them get in the way of efficient procurement, or as the Right Honorable Member for Horsham put it yesterday we need to ‘spend money better.’

 The Department for Business and the Office of Government Commerce have been making some progress towards implementing the recommendations contained in the Glover Report. Unfortunately progress appears to have slowed as the General Election looms closer. At least it seems that the Tories have a similar, if not even greater, enthusiasm to open up public procurement, so that regardless of who wins power next year we should have a new era of open access to government contracts.

CPV Codes – In principle brilliant, in practice, hopeless.

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Common Procurement Vocabulary (CPV) codes were implemented in 1993 as a standard classification system for public tenders across Europe. The codes are eight digits long and each one has a corresponding description, intended to cover a broad range of supplies, services, and works. However, it’s guaranteed that the one code you need, you’ll never find.

There are plenty of very useful codes in the system, and there are plenty weird and wonderful codes as well. Some personal favourites include:
39293500-7         Imitation jewellery.
35410000-1         Horse or hand-drawn carts and other non-mechanically-propelled vehicles.
33000000-0         Medical and laboratory devices, optical and precision devices, watches and clocks, pharmaceuticals and related medical consumables.
03141000-1         Bulls’ semen.
18320000-8         Brassieres, corsets, suspenders and similar articles.

I mean this classification system was written for the Public Sector right? So why any Awarding authority would be putting together a tender for not just any jewellery, but imitation jewellery I am unsure. Horse or hand drawn carts, plenty of those out on the streets. The medical CPV code has always made me chuckle- where do watches and clocks fit in to that one? To be fair they did revise that one in 2008.  Now let’s take Bulls’ Semen- do I even want to know? Lastly, all those naughty undergarments being tendered in the public sector, tut tut tut. 

So there are plenty of nonsensical CPV codes as we can see, but what about those ones you really need and cannot seem to find? It wasn’t until 2008 that there was an adequate CPV code for Web Design Services. What did purchasers select instead? Computer related services? Perhaps a bit broad.

When the CPV codes were revised in 2008 many important codes were cut, very specific codes were stripped back and the structure of the supplementary vocabulary was changed to take account of this.  For example, there were 43 different CPV codes for printing and now there is just one.  The idea is that you select the main CPV code for say “Printing” and then add the appropriate supplementary code for “books”, “magazines” or whatever.  Again you can kind of see where they were going with this but in practice, it’s hopeless! No one uses these supplementary codes, which is bad for suppliers trying to locate the right tender notices because the title and CPV codes are even more vague than before the change.

CPV codes were intended to boost transparency in public procurement and make it easier for suppliers to identify business opportunities. In my opinion, all CPV codes have done is cloud over what purchasers are really looking for and flood suppliers with irrelevant notices.

“Innovation in Procurement” the next new buzz phrase?

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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

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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

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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.  

To Bid or Not to Bid

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Selecting the right contracts to go for is critical to the growth of your business. So often we waste a huge amount of time responding to tenders we are destined never to win. It can be due to a lack of resources, limited experience or it simply just doesn’t fit with your core business.

Here’s a quick and effective checklist for deciding whether you should go for a contract or not.

Step 1
Rank your response from 1 to 5, with 1 as the most negative and 5 as the most positive answer. If the total score is below 20, you should seriously consider whether it is worth proceeding to Step 2.

1. Were we aware of the opportunity before it was advertised?
2. Do we know the decision-maker(s)?
3. Do we have a significant technical or other competitive advantage?
4. Have we done an effective job of pre-selling for this project?
5. Do we have a champion in-house who is motivated to win?
6. Have we allowed enough time for preparing the proposal?

Step 2
Answer yes or no to the following Qualitative Factors:

1. Will our price be competitive?
2. Does the opportunity match our target market area and services?
3. Does the project present us with an unusual opportunity to break into a new market?
4. Will the submittal effort be proportional with the expected fee?
5. Is the project consistent with our minimum/maximum project size objectives?
6. Can we make a profit doing this project?
7. If we cannot make a profit, are there any prevailing reasons to want the project?
8. Do we have qualified staff available to perform the work?
9. Do we have the staff and time available to prepare a quality proposal?
10. Do we have the track record/experience for the project?

If you have answered ‘no’ to more than two of these questions, you should seriously consider whether this is the right contract for you.

Welcome

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Welcome to the Tenders Direct blog.

We finally decided to embrace the social media phenomenon and have our own blog to provide you with information on developments in the world of public procurement but also to discuss directly with you and get your feedback and your thoughts about what is going on in this arena.

We will try to keep this blog updated as things happen and will also try to give our analysis and comment on any new developments.

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