Public sector procurement encourages ‘suicidal bidding’ for building projects, an industry body has claimed.
The Civil Engineering Contractors Association has criticised government purchasing processes, which it says still award contracts to the lowest bidder rather than the company offering the best value for money. CECA says that this can encourage companies to make ‘suicide’ bids, offering prices which are lower than they can afford.
CECA has published an action plan – Ten Steps to Smarter Procurement – as part of its campaign to improve public procurement. The calls come as the government prepares to reform construction procurement in June.
“This has obvious detrimental effects for all parts of the industry,” the organisation said. “Clients may find themselves with a contractor resorting to claims or corner-cutting in order to make a margin on the project, or even an insolvent contractor if the ‘suicidal’ bidding acts as its name suggests. The consequences of this could be particularly wide-ranging as employees and suppliers will also go unpaid. Additionally, reputable companies may find themselves forced out of the market.”
Alasdair Reisner, CECA director of external affairs, said: “Clearly there will be options for better management of procurement, starting with more capable and better-trained procurement officers.
“That is not to say they are all bad, some are very good quality, but if you look across the board, there are people procuring in ways that could be done better.”
CECA’s Ten Steps to Smarter Procurement are:
1. Blocking ‘suicidal bidding’ through move from price-based contracting
CECA recommends that the government mandates a more integrated approach, where delivery teams are chosen on the basis of quality, while being incentivised to make savings over the course of the contract.
2. Halting stop-start procurement
Clients often instigate competition for projects, only to subsequently put the process on hold, or even start afresh, with no recognition of the costs this has already imposed. CECA recommends that the government puts in place a reporting mechanism to identify all cases where procurement is signiﬁcantly delayed or cancelled.
3. Visibility of workload
CECA has welcomed the government’s promise to improve the visibility of public sector construction opportunities.
4. Standardise pre-qualiﬁcation
Contractors are continually asked to submit pre-qualiﬁcation questionnaires, a process that adds cost without adding value to the construction process – the costs are estimated to be £250 million to £1 billion each year. In 2010 the government worked with industry to produce PAS 91, a single standard pre-qualiﬁcation questionnaire. CECA welcomes the support given to PAS 91 by central government.
5. Standardise references
Currently clients request that suppliers provide past project references in order to build up an understanding of their experience when delivering speciﬁc types of work. CECA would like to see the government work with industry to develop a standard reference form that could be prepared following a project completion.
6. A new deal for frameworks
Over many years the construction industry has seen frameworks develop as a tool aimed at streamlining the delivery of a series of projects for a client. Such frameworks offer beneﬁts in terms of reduced procurement costs, but SME and regional contractors have often reported being left out in the cold by frameworks, with work awarded to a major supplier or suppliers. CECA seeks a new deal for frameworks, where the beneﬁts of a streamlined framework are combined with a more ﬂexible approach that allows SMEs and regional contractors to compete on a level playing ﬁeld.
7. Early contractor involvement
Over the last decade, the concept of Early Contractor Involvement has gained increasing support from across the construction industry. By bringing contractors on board early in the life of projects, clients can work with them to identify issues that may improve the delivery of the project once on site.
8. Limit tender list sizes
The number of contractors admitted onto tender lists has grown, the idea being that more competition leads to lower prices. However, these large tender lists mean that more contractors are having to spend money on their bids, with a reduced chance of winning the resulting tender. This leads to reduced investment in individual bids, poorer quality solutions, and increasing costs for contactors, which can only lead to greater costs for clients in the long term.
9. Improved quality of tender documentation
Contractors are often expected to provide bids on the basis of inaccurate or incomplete tender documents, putting them in a position where they have to manage the risk associated with any areas lacking information, leading to rising costs. CECA would like to see a commitment from government that it will expect public clients not to put work out for competition until there is sufﬁcient information to form the basis of a valid tender.
10. Inﬂation risk management
Contractors on long-term contracts are often left shouldering the costs of inﬂation, and have tended to build a margin into their bids to mitigate the risk of product inﬂation during construction. In order to tackle this problem, the public sector must work with the industry, using appropriate indices to capture the risks of inﬂation within the bid process, to ensure a fair and consistent approach going forward.
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