No contract protected against the risk of bid-rigging, says expert Procurement professionals in all sectors need to be aware of the risk of bid-rigging of contracts they tender, a procurement law expert has said. Louise McKee of Pinsent Masons, the law firm behind Out-Law.com, said a new awareness-raising campaign on bid-rigging practices launched by the Competition and Markets Authority (CMA …
The thing that confuseses me is that the bidding for a contract is like a race to the bottom. Whereas I get 'screwing' over a potential client is wrong, the entire methodology of bidding for work will most likely end up with poor service.
"The CMA said that bid-rigging can take a variety of forms, including where suppliers arrange between themselves to allow one another to make the most attractive bid for contracts on a rotation basis, or rival suppliers agree not to submit a competing bid for a contract in return for payment or access to parts of the work under sub-contracting agreements offered by the successful bidder."
I can see why suppliers do this. In trying to get work, you start to really cut costs to ensure income. But in doing so, you have cut costs OR you look to make it up in other ways. A couple of decades ago in another life, I worked for a County Council Highways dept. There was competetive tendering for work that was brutal - especially as this was just after a recession. It was well known that the bids were so low, that in some cases it was just to turn over money, but it meant that any, repeat ANY little thing that could be interpreted as outside the original contract was hammered for costs to ensure more money. I wish I knew the figures for bid against final costs during those periods but I guess it was a high ration.
'"Where businesses compete to win contracts, purchasers get fair prices, good service and choice, including more innovative products or services," said John Kirkpatrick, the CMA's senior director of advocacy in the letter. "However, if companies collude when bidding for contracts, purchasers end up spending more than necessary."'
Here it is stated that purchasers get 'fair prices, good service and choice' - if you have a race to the bottom, they will get, initially, fantastic prices, mediocre service and less choice, followed by higher prices as there isn't enough to go around for reasonable bids.
I except that I could be missing something fundamental with my interpretation, and wish Tim was around to tell me why I am wrong. Maybe it does all work out. Or maybe that competitive tender is just so rife with malpractice that people just think it works.
Kick backs or knowingly underbidding the actual cost. You see this a lot in UK government IT contracts. When we said it would cost, a hundred million, we really meant two hundred and it might end up costing a billion (which we knew all along but would never have won the bid if we had told the truth).
He's still writing plenty of articles elsewhere. Given the publication in question, I'm surprised the editors didn't help him adjust his style. I really liked the detail and support he gave for his arguments, but they were structured like a mystery novel and I would have to go through half his article to figure out what point he was actually trying to make.
I wonder how far this can be taken. In my last job I worked for a firm that had take off shored worked for a big US firm. I was rolled off a team not because the work wasn't there anymore but because a manager in the US had decided that although the time scale for the replacement had slipped to far over the horizon they but couldn't justify funding the team fully any more. A few months later it was time for the team to bid for the work again. Another, less senior manager from the US had emailed one of my colleagues with questions about budgets, time scales and resources required. Not unusual but far more detail than was normally required. My colleague happened to read down the rather lengthy email chain to see the emails between managers in the US and with an off shoring firm in India they had some contracts with already. The US managers had been passing on the details of our bid and had even promised that some if us would work for them for free to help them win the contract. The Indian firm also promised to have two or three people working for every one that they were billing for. Red faces all round but the work (sans the free help from us) still went to India, for a year anyway until it came back.
So, the CMA reckon bid-rigging is a problem, resulting in poor value for the taxpayer?
I suspect many, many public (and private) sector bids are rigged, but the real problem of poor value isn't the modest impact of that, but the vastly higher outturn costs of poorly specified bids, where big suppliers know that they can bid at a loss, and then clean up when the buyer starts to either change their mind on what they want, or asks for things that were evidently necessary to the supplier, but the buyer failed to include. And that also leads on to the subsequent inability of the buyer to avoid paying for failure by the supplier.
NHS IT, Universal Credit, DWP pensions modernisation, every government shared services project, every defence contract ever signed, regional fire control centres, MoJ Libra system, MoJ offendor management, Defra payments system......
I'd happily settle for rigged tenders if they actually delivered something that worked, on time and budget.
Several years ago an IT customer had a final choice between two suppliers. In the end they went with the one with the higher bid. Their reason was that they knew the company was always flexible and amicable about changes. The lower bidding company had caused them pain before by their aggressive charging for any changes.
Actually it's something I've come across a few times. Any PROPER tender analysis looks waaaay beyond the number at the bottom of the first page - does the number make sense ? Is the prospective vendor actually capable of supplying what we want ? Will they do it properly ?
EDIT: Another example might be, for some work on a roof, "will the cheap contractor cut safety corners ?". Eg, will they be fitting large panels on a roof, in wet and windy conditions, with no thought to fall prevention measures - something I've seen. So am I prepared to have anything to do with a company that doesn't give a **** about worker safety in return for a bit of a saving. Of course, that might actually translate to "is there a risk of my company name being pride of place in the headline photo in the local rag when someone falls of my roof ?"
On a personal level, I'll often pay a little more for other factors like : being able to pick stuff up from the local wholesaler, keeping a good retailer (ie one who actually knows why RG6 isn't a good substitute for WF100) in business so there are there for in the future, and of course avoiding "cheap tat" that I'll have to replace soon anyway.
With a previous job hat on many years ago, I was a very junior engineer in a military contractor (hence posting as AC). I recall seeing the summary of the analysis of 3 tenders for a project I was peripherally involved in. In essence it said "Vendor A is technically capable, and we can be confident that they know what they're doing and can deliver what we want", "Vendor B is nearly identically competent, but will deliver a modest cost saving over vendor A", "Vendor C is technically incapable of performing the contract and under no circumstances should we consider awarding it to them". C's price was half that of B's, and B's was only a little below A's.
Now, of course the contract went to C, but it wasn't just a case of "cheaper". There was a considered analysis that C could do the job with the right "hand holding" and assistance, and allowing for the extra costs that would push onto the upstream elements (the Ministry and us as the prime contractor), we'd still end up with a cost saving - AND we'd end up with another competent contractor for future projects.
As it happens, this was correct - we did have lots of problems as the contractor didn't really understand the processes and quality measures we needed, but there was an overall cost saving, and at the end of it the contractor did know what they were doing.
There were two unfortunate aspects though :
1) The MoD has a policy of moving people around so they don't get "stale" - so on a long project like this, you seldom have anyone left at the end who knew why decisions were made that way at the start. Yes it was written down, but given the truckloads of paperwork a big project creates, good luck finding the memo ! Thus it did indeed appear to be a simple "we just went with the cheapest" decision.
2) The said contractor, now knowing what's needed, wouldn't be bidding so low in future - so they wouldn't be likely to offer a huge saving on the other two.
I've seen it both ways in our own trade..... mainly from government run/backed institutions... councils, universities etc etc.
On one hand you suddenly find the 'institution' you have worked with for years suddenly can no longer deal with you as 'it all went to tender' but you were never even invited to apply. Said tender was buried on some obscure site read by no one. If you finally manage to get hold of the details of who won what, it's usually one big company who gets their fat fingers in to pretty well every pie, and a few commiseration prizes handed on the side.
On the other we have had one or two who, despite being more than happy with the work we do and prices we charge (having regularly got comparative quotes to make sure) are then forced to go to tender. "Don't worry - we'll make sure you win it.... we'll just build a spec that only you can do and that'll shut out the rest". Sounds nice (and we were horrified as we'd not spent a penny on bribery, just good customer service !), but that is a rarity, and points to that fact that lots of tenders/contracts are won by collusion, bribery etc etc and is a race where a lot of people cannot afford to buy the win. (we've managed to avoid the tendering process with them so far which both sides are happy with)
From the conversations I have with people who have had to use their contracted 'preferred supplier' the large part say it was a costly waste of money. As soon as the tender is won, said supplier sticks them on the back burner and treats them like mushrooms. So much for value for money for the tax payer.
And 'preferred supplier' can often be a mockery - when I questioned one clients legal department about the so called 'exclusive' tender/contract, it turned out that 'exclusive' meant that they try and give us most stuff, but couldn't force anyone at said 'institution' to actually use us...... so straightjacket for us, foot loose and fancy free for them !
Personally I think the whole process is generally a huge scam to lock out smaller players and line the profits of the big ones, all wrapped up in fluff and marketing bull about what a great system it is and how much the 'client' will save. It could possibly work, if it was all done completely honestly, completely openly and completely above board. Hmmmmm.... is that hell I hear freezing over ?
/whingeoff
:-)
Some years back the then incarnation of my employer needed a microwave repeater site built on a remote hill top. Tenders were called for and the cheapest bid, from a company who'd never been involved in this sort of work before, was accepted.
Regrettably when time came to assemble the tower and associated building the foundations were found to be wrong. At this point the a more experienced (and expensive) bidder was asked to complete the job - they took one look and said that all the existing foundations had to come out and be replaced, which meant re-engineering them as the ground they were going into was no longer "undisturbed" subsoil.
Yep, accepting the lowest bid certainly saved money on that job.
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