Talk first, procure later: Competitive dialogue

Last month’s Budget confirmed the government’s commitment to support PFIs in infrastructure procurement.

Since 3 March, the Treasury Infrastructure Finance Unit (TIFU) has been providing temporary support for PFI projects that have not been able to raise sufficient funds in the current economic crisis. This support will be available until market conditions improve and aims to ensure that major construction projects can proceed in areas such as schools and housing. The first beneficiary of the support was the Greater Manchester Waste Management PFI project where TIFU, together with the European Investment Bank and commercial lenders, lent £120m to ensure the go-ahead of a £635m construction project.

Given the government’s commitment to ensure these major projects proceed, it is perhaps not surprising that the Office of Government Commerce (OGC) published “Formula for Success – Procurement Effectiveness in Major Project Delivery” a week after TIFU was set up. This guidance explains the benefits of a well planned procurement process and recommends that all competitors should be given the same opportunity to be part of that process.

A key element of the guidance is the importance it puts on early dialogue between senior public sector stakeholders and potential suppliers to develop policy and strategic thinking well before the procurement process starts. Developing such relationships helps both sides to establish a better understanding of what can be achieved and how areas of uncertainty can be managed efficiently.

From the public body’s point of view, it will have a better understanding of the issues that might be faced in delivery, while potential suppliers should be able to understand more clearly the results envisaged by the public body. Such early engagement enables those involved to explore a wider range of potential solutions and identify any risks and pitfalls.

Interestingly the guidance considers it to be a false economy to start the competitive phase in the procurement process too early in an effort to make or to be seen to be making progress. In particular, it stipulates that “using the competitive process to resolve issues that could have been dealt with before the start is likely to be more difficult and more costly”.

The guidance considers it a false economy to start the competitive phase too early

What the guidance seems to be telling those responsible for major publicly funded projects is: talk now, procure later – and beware of the dangers of the competitive dialogue.

As a recent article in Building noted (9 April, page 57), under the EU Public Procurement Rules, the competitive dialogue is one of the procedures a public body can follow when awarding “particularly complex contracts”. The competitive dialogue has been popular with public bodies but can be an expensive and time-consuming procedure, especially for the tenderers involved. This fact is acknowledged by the OGC in the guidance, which notes that suppliers’ bid teams are a limited resource that feed back into the cost of the business and in the longer term this cost is passed on to the customer, including public bodies.

The OGC is therefore sending a clear message to those with responsibility for major projects – engage with business and identify your needs before you start the procurement process.

As far as the OGC is concerned, such dialogue is allowed under competition rules as long as all competitors are given the same opportunity to enter into discussions. However, one wonders how the government will manage such discussions while ensuring the involvement of all potential suppliers.

In the future, will we see government bodies launching industry-wide consultations on the scoping out of large infrastructure projects? Would such consultations not be costly and time-consuming? In the absence of industry-wide consultations, would government bodies be leaving themselves open to challenges from suppliers who feel they have been unfairly excluded from the pre-procurement dialogue?

The guidance attempts to focus government decision-makers’ minds on properly defining major projects to ensure better value for money. But how will the guidance work in practice alongside the procurement rules? Only time will tell.