Category: Public Procurement

9th January 2020

Yesterday on the Financial Times website is a post by me on the Prime Minister’s adviser Dominic Cummings’ approach to public procurement (set out most fully here).

Articles for the FT and any other mainstream media site have to be a certain length and in a certain style – but here I can add more background and explain more fully what this is about and why it (probably) matters.

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To start with: what is public procurement?

One good way of understanding public procurement is the difference it makes to what public authorities can and cannot do, compared with what private individuals and companies can and cannot do.

A private individual or a private sector company can – at least in theory – contract with whoever they want, subject to the general law of the land.

A private individual or private sector company seeking a supplier is not generally obliged to hold competitions, to advertise, or even contract with the lowest or most economical seller.

(Yes, there are various laws against racial and sexual discrimination, and so on – but the commercial aspects of the bargain are largely unregulated for private entities.)

In essence, a private individual or a private sector company is free to make a bad bargain, and to pick and choose its suppliers as they wish.

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And, but for the law of public procurement, the same would be the general position for public bodies, subject to their general legal power (or “vires” as lawyers would call it).

But public bodies are not generally free to make a bad bargain, or to pick and choose its suppliers as they wish.

Public bodies cannot just hire and fire suppliers as they wish.

The law of public procurement instead regulates what public bodies can and cannot do when they are making purchasing decisions – whether for goods, services, or grand development projects – from paper clips to aircraft carriers.

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Public procurement is about process – the principles and procedures public bodies must follow when making purchasing decisions.

The principles are broad and apply to all purchases, while the detailed procedures – set out in long regulations – are usually for high-value purchases.

The principles of public procurement are straightforward and commendable.

Purchasing authorities must advertise and specify what they want; they must set out and follow a transparent process; they must apply evaluation criteria consistently; they must treat tenderers equally and must not discriminate in favour of incumbent suppliers or national champions; and, in the event the public body fails to accord with such principles, the disappointed tenderers must have a remedy.

Much of the applicable law for these principles comes from the European Union.

This is because the law of public procurement is as much a part of the EU Single Market as competition law or the law regulating State aid.

Public contracts are lucrative, and so the markets for those contracts should be opened up to all potential suppliers, especially those from outside the member state.

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Described in the way above, the law of public procurement is a Good Thing.

Who could possibly be against?

Well.

There is a difference between neat theory and messy reality.

In practice, the law of public procurement (at least for high-value contracts) is not only subject to these broad, sensible principles but also prescriptive codes set out in pages and pages of regulations, paragraph after paragraph, sub-paragraph after sub-paragraph.

These regulations convert any major purchasing decision into an elaborate, lengthy administrative process.

And this thereby means that purchasing decisions are (or seem to be) often captured by process.

And as tender exercises are expensive and time-consuming, they in turn tend (no pun intended) to be dominated by large specialist companies who can afford to sink months (even years) of time and thousands of pounds on each bid, without any guarantee of success.

Often the suppliers assume that they will lose more of these bids than they will win, and their commercial models reflect this.

And when they win, they can then sub-contract the work anyway.

Small and medium sized enterprises (SMEs) do not have a real hope of winning these tenders – as any long tender process is a huge burden, with a great deal of work without the prospect of any payment.

For SMEs to bid for such contracts routinely is impossible.

And the public sector bodies will not have any problem will this: there is a process to follow, and they have no costs pressures for the process to be any speedier or cheaper for anyone else.

Some public procurement exercises are conducted at the most leisurely of paces, without any thought for the commercial burden this places on potential suppliers.

The result is, in practice, a cosy, settled relationship, with the same small group of suppliers bidding for each high-value contract.

There will also be familiar faces: the same procurement professionals on both sides, meeting again and again, and then swapping sides as those with experience of purchasing for public authorities become valuable recruits for the suppliers.

There is, at least in my experience as a former government public procurement lawyer, a problem here.

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But it also can be said that the law of public procurement, like democracy, is the worst system, apart from all the others.

While the law of public procurement is over-prescriptive and uncommercial, a sudden abolition of the law of public procurement would create even more problems.

Without a law of public procurement, there would probably be even fewer tenders.

Settled incumbents would seek extensions and amendments, and officials would nod-along as this would be the path of last resistance.

For all its manifest faults, the law of public procurement does force public authorities to specify and openly advertise its requirements, and it ensures that the risk of a disappointed tenderer challenging a decision means that a process is followed as consistently and transparently as possible.

There is not even any legal requirement on public authorities to go for the lowest price, as it is open to set price against other factors for the most economically advantageous tender (or “MEAT” – yes, public procurement is a MEAT market).

Yes: at the margins, the approach promoted by Dominic Cummings, of appointing brilliant and charismatic project managers to hire and fire suppliers, could achieve some brilliant outcomes.

But for the mundane reality of the thousands of purchases public bodies make each day, there is the case that the law of public procurement ensures a bad situation is not as bad as it could otherwise be.

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So what can be done?

As a former central government public procurement lawyer (and I still practise in the area), there seems to me to two things which could be done to improve public procurement.

One before the public procurement exercise begins, and the other more-or-less comes afterwards.

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Before major procurements, there is a tendency of officials (and politicians) to over-specify and to set “bespoke” specifications (often called, without irony, “solutions”.

For major IT projects, for example, the specifications can seem like a flip chart of the inane “brainstorming” you get at one of those dire team “away days”.

(Shudder.)

The focus, of course, should be on commercially off-the-shelf products where possible, and on systems which have already been tried and tested.

For, believe it or not, public sector bodies are not the only large entities that procure complex works and services.

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And then we come to the contracts – the “terms and conditions”.

(Oh dear.)

Many of the supposed public procurement disasters – from PFI to superfluous aircraft carriers – are not directly down to the process followed but to the contracts signed at the end.

A contract, of course, is a legal instrument that regulates foreseeable risks for parties in a transaction.  

But for many major government suppliers the contract is not used to regulate risk but to eliminate it.

To make sure that the supplier gets the benefit of the contract price regardless of performance.

Hence the penalty payments, early cancellation fees, change control procedures, and so on.

What is distasteful about this is that government suppliers already have the happy benefit of the public bodies being reliable payers.

Public bodies rarely default on contract payments.

But government suppliers, and their lawyers, want more – and go through contracts seeking every possible amendment so as to free the supplier from any risk.

And they often get away with this for two reasons.

First, public bodies sometimes do not have access to experienced and skilled commercial lawyers capable of seeing the implications of often innocent-seeming provisions.

Such contract lawyers tend to work in the private sector.

Second, suppliers use what leverage they have – knowing that certain projects are politically driven and “too big to fail” – so as to insist on contractual protections.

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The law of public contracts and public procurement can be improved – and Cummings and others are right to highlight its many problems.

But more important than wiping away procedures (even if they are far too prescriptive) is more transparency and better legal advice.

This, of course, is anathema, to Cummings, who dislikes both lawyers and freedom of information.

Nonetheless, if public bodies were to publish all public contracts after they were let – and no cynical hiding behind “commercial confidentiality” – then suppliers would be less relaxed about going for one-sided contracts.

As this is about public money, and as suppliers get the benefit of reliable payment, there is no good reason for non-disclosure.

Public bodies should also be stricter as to the burdens that lengthy procurement exercises place on suppliers, so as to avoid SMEs being squeezed out by the conglomerates.

And public bodies should be under a positive obligation to set out publicly the worst case scenarios of contracts (penalty payments, early cancellation fees, change control procedures, and so on) before any contract is signed.

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As the UK leaves the EU, there is a case that the law of public procurement can be reformed.

The crucial principles of equal treatment and transparency need not be threatened by this.

Nonetheless, some public procurement regime will be required if the UK is serious about entering into post-Brexit international trade agreements – as access to lucrative UK public contracts are among the most valuable things the UK can offer in trade negotiations.

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The law of public procurement can be less detailed and prescriptive, as Cummings as others aver.

But this will not solve all the problems.

As I conclude in the FT piece, Cummings has not fully set out the specification of the problem, let alone procured a solution.

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