We must address the issue of lowest-cost tendering

Lowest-cost tendering has dogged the construction industry in recent times. Martin Lang, Director, Main Contracting, CIF explains why this practice needs to change.

Lowest-cost tendering is a much talked about problem within our industry. However, it is merely a symptom of the broader problem that is the current system of public procurement. It is becoming clear that the industry needs to get to a level of sustainable procurement.

We have seen a concerning number of high profile contractor collapses and examinerships in recent months. Many of these have in some way fallen foul of what turned out to be unsustainable procurement. To paraphrase TS Elliot, I think ‘the beginning is your end’ as far as procurement is concerned. What I mean by ‘sustainable procurement’ is the upstream decisions that are made when a client – like the Public Sector – decides to execute a project and the bottom falls in. If the client brief is not clear, that is the start of the issue, and this is something that we have seen across the industry for a considerable period of time.

CURRENT PUBLIC PROCUREMENT

Under the current public procurement rules, the process favours the lowest price rather than the best price. Therefore, if the initial brief is unclear, problems are inevitable as the design team works from that brief. It then goes out to tender with documentation that has not been adequately prepared.

Our members are brought in to tender for a particular project, knowing full well that in the event that they win the contract based on lowest price, not best price, once they sign the contract, there is no road back to review the original design, to point out deficits or request background information, etc. Once our members sign that contract, they take on all of that risk.

The original intent of the PWC in 2006/2007 was to have a fixed-sum contract, but that was based on fully-developed tender documents. Our members never have a problem with fixed remuneration or fixed-price contracts. So, if there is a deficit or flaw in the information, there must be latitude to recover that change to risk.

WHAT NEEDS TO HAPPEN

We submitted our medium-term strategy to the Office of Government Procurement in 2015/ 2016, and that is a substantial submission. We’re making progress, but the speed of progress is insufficient to address the deep flaws in the current process.

Originally, the contractor was also responsible for taking the quantum risk, but we got that changed last year. One of the serious risks in the Public Sector contracts remains, ‘inflation risk’ and that of background information. The risk should lie with the person in the best position to manage such a risk. The contractor is not in a position to manage, in a balanced way, the risk condensed from the beginning due to poor tender documents and lowest price criteria – which is a race to the bottom.

SUSTAINABLE TENDERING PRACTICES

There has to be an intelligent approach at the beginning, before tender documents are developed. There are procurement methods that address these issues, we see these working in the private sector.

We are trying to amend Public Sector contracts to make them more fair and balanced. We accept that contractors take risks, that’s their business, but those risks must be balanced and based on firm information.

The reason that we have these simplistic, lowest-dprice tendering awards is that some public procurers take great comfort in making the assessment and issuing the award believing that the lowest price is not challengeable.

Quality, life-cycle project costs and value-for-money criteria must be at the heart of any sustainable procurement process, which inevitably results in more sustainable tendering practices for client, contractor and design teams. Although this approach requires more effort, it is essentially best practice and results in better outcomes and less adversarial and more collaborative approaches.

Martin Lang, Director, Main Contracting, CIF

 

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