Post Hero Image

Competitive tendering costs, is it worth it?

Competition in procurement can add value. Some may find that strange for a champion of collaboration to say, but that is to misunderstand what we at Constructing Excellence mean by collaboration. It does NOT mean no competition. It should mean intelligent healthy competition on the right measures of value, which is a positive force for innovation. The problem is that too often we see long tender lists, Dutch auction and lowest price award.

The release of the latest data from the MarketingWorks/Reading University bid cost survey work begs the question whether the amount of money spent on tendering is worth it, or whether we shouldn’t adopt a much more streamlined efficient way of selecting the best team to build the right thing on time for a fair price. Certainly it’s a lot of money, so you would expect a compelling business case…

Some ten years ago, in the aftermath of the Egan report Rethinking Construction, frameworks came into vogue. It wasn’t long before I was being asked “Want’s next after frameworks?”, to which my answer was “More frameworks – if you do them properly this time”. Last week I spoke at the re-launch of the North West Construction Hub in Manchester. I also sit on the board of Acivico, which manages the Construction West Midlands framework, and Scape are valued members of Constructing Excellence, so I have seen a number of frameworks doing it properly. Frameworks move procurement costs up front, but provided those costs can be over 5-10 jobs for all parties then it is easy to see that tendering costs as well as the time taken can be dramatically reduced.

The problems with ‘false’ competition on lowest price are well documented not just in the UK but throughout the world. In 2011 we published The business case for lowest price tendering, authored by our Collaborative Working Champions led by Kevin Thomas of IPI Initiatives. The health warning on the front said: “The use of lowest price tendering may seriously damage your financial health and reputation and may have undesirable and unexpected side effects. Please consider the consequences.”

We set out the traditional arguments in favour and then presented the evidence for better new ways – even when it is difficult to evidence supporting the old ways. The conclusion was stark: “There is NO business case”. However, some never read beyond the title, and took issue with me as to why we were promoting the approach, and others apparently used it as justification for the old ways (!), so I guess the tongue-in-cheek title backfired somewhat.

Those who read on see the catalogue of costs and controls required to mitigate the risks, including cost over-run, time over run, in-house management costs, legal costs and challenge, poor lifecycle performance, risk of insolvency, low morale, damage to reputation, no repeat business.  If we found a new procurement route with this track record today, we would never be able to promote its uptake, yet we are asked for a business case for more modern and appropriate approaches??

Thankfully the message is getting home to government, the Cabinet Office trial projects programme is demonstrating 5-15% savings from value-based procurement for early involvement, and one of the most innovative recent procurements was that by London Underground for Bank Station, which focused totally on whole life value in use. No lack of competition, simply a process focused on value not an illusory initial lowest price.

This article first appeared in Construction News on April 9th 2015