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Is Public Sector Procurement Fit For Purpose?

Posted: 28th September 2015

Professor John Nolan

Deputy Chairman

Construction Inustry Council

The Government has stated that public sector construction is 20% more expensive than elsewhere in Europe. Given that our consultants and contractors have excellent reputations internationally how can this have occurred in our home market?

In my opinion the major cause is the way we interpret OJEU when procuring our consultants. It generates a bias towards lowest price fees. This invariably militates against best value project outcome, which I would contend should be the main aim of every procuring authority.

Most OJEU enquiry documents that I have seen split the submission into two parts, quality and price, usually scored on an 80% / 20% basis. Of the 80% quality score the proportion that is focussed on relevant experience and track record generating cost effective, efficient designs is usually quite low and is generally swamped by other criteria on which most of us should score highly. This results in a significant bunching of the scores with a high proportion of the top scoring bidders scoring within 10% of each other. There are various ways of scoring the price element of the submission, but whichever way it is scored lowest price always gets the lion's share of the points for this part. Indeed I have seen one scoring method where the lowest bid gets 20% and the remaining bids get the fraction of 20% that is the lowest bid divided by their bid. The end result of this is that an outlying low bid which scored comparatively badly in the quality scores and might even have scored lowest on relevant experience and track record in cost effectiveness, can pick up enough "price" points to become the successful bidder.

The winning bidder will generally have a similar cost base to the rest of the market place so they can only make a profit by reducing the time expended on the project and the seniority and experience of the staff employed.

The graph below shows two curves. One is the opportunity for value creation with time on a project, maximum at inception stage reducing to zero at some stage during construction. The other is the cost of generating the necessary changes to create that value gain, zero at project inception and maximum when construction is complete.

The area between the graphs represents the opportunity for value improvement with time, clearly maximum at inception, diminishing to zero sometime around start on site, after which it becomes negative. Clearly the time when greatest project value can be created is at concept and preliminary design stage, but the consequence of our ridiculous procurement method is that we have contrived to minimise the experience of the personnel involved at this stage and the amount of time they can spend considering options. The outcome is often ill thought through designs which then get fixed by the planning process, greatly removing the scope for improvement in the tender process. In addition cheap entry price simply creates greater incentive to maximise variations later on and potentially generates needless disputes.

My practice generates a great deal of its business by working on "value engineering" tenders for Contractors. On a significant number of these we see the structure as little more than line diagrams with most of its elements labelled as "contractor design". I can't understand how anyone can make the right concept decisions if they are divorced from the detailed design and hence an understanding of its geometrical and cost implications. Not surprisingly we see many designs where we consider the structure to be ill considered and wasteful.

Anyone who believes that Contractors are the primary design innovators in our industry is missing the point made by the above diagram. Clearly the system needs to change to ensure that the design is done at the right time and not when it is too late. Get the front end right and the delivery end should be much less expensive and create far more value. Those that try to compare our industry to the automotive industry clearly don’t appreciate that virtually every one of our projects is a prototype that we have limited time to refine, compared to the years and millions of man hours that the auto industry spends on its prototypes.

So what should be done? In my opinion, we need a fundamental review of the PQQ process and its fitness for purpose. Clearly we are constrained by European law but, in my opinion, our interpretation is overly bureaucratic and skewing our project outcomes away from the "best value" that we have a right to expect.

I suggest that the following improvements should be considered and included in a national recommended template for procurement:-

  1. A "two envelope" procurement system one for quality and the other for price, where only the "price" envelopes of the three highest "quality" scorers should be considered;
  2. Compliance with a detailed "Schedule of Services" should be mandatory. It is easy to sell a loaf of bread more cheaply if you remove half the slices, but the packaging might obscure the deficiency!
  3. Compliance with some minimum standards such as Health and Safety should be mandatory and should become "pass or fail" criteria and removed from the scoring such that only bids that pass are considered further and hence the proportion of marks given to quality, relevant team and company qualifications and experience, track record for creating best value etc. can be increased and hence have a greater influence on the outcome.

A formal Value Engineering review carried out by an independent team should be mandatory for all public sector projects above a certain value, say £20million.

Finally we must put a stop to the explosion in the numbers of accreditation schemes. Membership can be costly, but keeping the information on all of them up to date can be both costly and time consuming. One national PQQ format that pulled them all together would save a huge amount of needless duplication, time and money.

Contributor: John is Chairman of Nolan Associates, Consulting Civil and Structural Engineers. He is also a Visiting Professor at the University of Birmingham, Chairman of a property company, non-exec director of a power company, technical advisor to the Board of Bournville Village Trust and is a Past President of the Institution of Structural Engineers.

John is currently Deputy Chairman of the Consruction Industry Council