This statement from Accelerating Change reflects the government's latest thinking; that public authorities should be looking to achieve "best value" rather than lowest cost. They should take into account quality and whole-life costs, not just tender price.
The principle behind reverse auctioning, by contrast, is that those tenderers whose tenders meet the relevant requirements are invited to bid against each other on price, the lowest price being awarded the contract. So, are reverse auctioning and "best value" legally compatible for public authorities? Construction costs are rather like a balloon – if you squeeze it at one end (tender), it just gets bigger at the other end (claims). The ideas in Accelerating Change are intended to reduce the overall amount of air in the balloon by integrating the supply chain, driving out waste, using key performance indicators, and so on. Can public authorities use reverse auctioning to achieve the same result?
The first question is whether the procedure is permitted under European Union procurement rules. Currently, when using the open or restricted procedure (the most common routes), negotiation with tenderers on fundamental aspects of the contract, particularly on price, is not allowed. Although reverse auctioning is not specifically mentioned, this looks like a prohibition on its use.
Contracts using the negotiated procedure, which is only available in quite restricted circumstances (commonly used for public-private partnership contracts) are inherently unlikely to be suitable for reverse auctioning. This is because the public authority will already be negotiating with one or possibly two tenderers on a range of aspects, including price.
The EU procurement rules are likely to change fairly soon, to expressly allow for reverse auctioning. This will be introduced as part of an updating of the rules to permit electronic tendering and will, for instance, enable tender documents to be transmitted electronically. This should mean greater efficiencies in the time and cost of the tender process. There will be various logistical issues to resolve, though, before reverse auctioning can be used successfully:
- Using electronic communication could cause unequal treatment of tenderers, although this will reduce in time as electronic communication becomes more widespread throughout the EC.
- Provisions must be made to deal with different languages and time zones.
- The confidentiality of tenders must be maintained during their evaluation. This cannot be done during a reverse auction, where details of other tenderers' prices must inevitably be given, so some way of dealing with this must be found.
- It would still be possible for a public authority to reject an abnormally low tender, but not by simply awarding the contract to the next lowest tenderer – as tenderers would not have bid on the basis that the second lowest would be awarded the contract.
The new rules are likely to permit reverse auctioning where the specification has been set out "with sufficient precision" in the tender documents. This would allow for the purchase of, say, photocopying paper by this method. It is, however, unlikely to be appropriate for a design and build form of contract, as a specification for such work can never, of its nature, be so precise; there must be some scope for design development by the contractor, which will vary from tenderer to tenderer. Similar arguments apply to the appointment of consultants.
The new rules seem to require that all those who have sent in admissible tenders should be allowed to bid in the auction. This could make it difficult for the public authority to weed out unsuitable tenders. There may be some that are technically admissible, for instance, but where the public authority has doubts about the quality or content of what has been submitted.
There is no easy answer to achieving best value; the question for public authorities is whether reverse auctioning is just squeezing the balloon or whether it will take some air out of the balloon as well.
Gillian Birkby is a partner in the construction department of Mayer, Brown, Rowe & Maw. Contact email@example.com.