With the Government spending around £250 billion each year on public procurement many businesses will be involved directly or indirectly in bidding for public sector contracts at some point.
Two reports have been published which provide valuable insights: the recent Select Committee’s report into the collapse of Carillion (the Carillion report) and the National Audit Office’s 2016 report on the collapse of the UnitingCare Partnership contract in Cambridge and Peterborough (the UnitingCare report). Both reports contain points of learning for the public sector and businesses contracting with it and many of the issues that were raised in those reports are issues that we regularly help our clients address.
If you are considering bidding for a public sector contract, here are our key recommendations:
- Before you invest time in bidding, take a step back and properly evaluate the opportunity. Consider, amongst other things:
- Has there been any market engagement and is there an opportunity to learn more about the project (and other potential bidders) before you reach a bid/no bid decision?
- Does the opportunity fit with your business strategy?
- Do the evaluation criteria play to your strengths and what are the prospects of you being selected?
- Can you assess risk effectively and therefore price appropriately?
- Does your business have the resources to bid and to deliver the project if selected? If not, do you need to bring others on board to bid with them collaboratively in order to have a realistic chance of success? If so, you will need to agree how you will deliver the project together and you will need a joint bidding agreement to govern roles, confidentiality, data sharing, how signing-off the final bid will be achieved, etc.
- The Carillion report noted that the Government’s pre-occupation with price rather than value and quality of service is a matter of grave concern because it may lead to unsustainable services. We recommend that you look carefully at the bid evaluation criteria. Is the tender exercise simply a race to the bottom on price? How is “value” assessed? If value isn’t assessed at all, or you believe that lip service is being paid to it, can you afford to bid for the contract? Is your service going to be sustainable for the duration of the contract?
- Consider the level of risk transfer. You as supplier will be expected to agree to a certain level of uncertainty/risk (usually on demand for services or cost of delivery), but you should be capable of managing that. The Carillion report found that whilst the Government’s guidance on risk transfer is sensible, too often it is ignored by the public sector. The Select Committee recommended that the Government should set out new procedures to ensure guidance on risk transfer is adhered to. Until it is, our recommendations are:
- Understand how financial, political and demand risks of the project could affect your business and whether and to what extent you will be able to manage them
- Be clear about whether you are being asked to manage risk that should really be taken-on and managed by the public body inviting the bid? The risk should sit with the party best able to manage it
- Be clear about risks you are willing to take on and those which you are not
- Be cautious when considering payment by results contracts. Can you influence the desired results sufficiently and if you cannot, could you bear the impact that would have on payment?
- If the contract requires cost reduction over the long term, is the cost reduction profile realistic?
- Some contracts still contain rights for the public sector to reset service levels and price if circumstances change. Avoid or constrain these rights
- Some contracts contain unlimited liability clauses. Assess these carefully, because they could put your entire business at risk and challenge them where necessary
- Do your due diligence
- Is what the public sector is telling you about the opportunity correct? Be wary of bidding based on what the public sector said it spent in previous years. Quite possibly it under-estimated.
- Is there enough information to quantify the risk you are being asked to take? The Carillion report noted that in some cases the public sector lacks information about the state of existing provision of services and in those circumstances, it should not outsource the need to understand what it is outsourcing.
- Is the scope clear enough to enable you to price accurately?
- Take VAT and tax advice on structuring your bid, particularly if you are partnering with another/other organisations. A key component of the UnitingCare contract collapse was that neither party had accounted for VAT liabilities, which significantly increased the cost of delivery.
- Do not sign a contract with too many issues outstanding. Is the list of issues manageable and how are you going to manage them? Remember that once the contract has been signed, unless it says otherwise (which is highly unusual) amendments can only be made if all parties agree them.