There’s no excuse for bid rigging, but there may be certain facts that explain it. Like, for example, the whole way competition is supposed to work in our industry
I once asked one of the contractors I use whether they preferred to negotiate a price for a project or put in a tender. “Negotiating is better for continuity,” he said, “but it’s good to tender from time to time as it gives you a chance to win a job at a price you’d really like to do it for.” In other words, if the estimator knows more about the matter in hand than the person who wrote the documentation, it provides an opportunity to build-in a decent return. For example, an estimating chum of mine told me he’d once won a tender where he’d been asked to give a price for digging a vast hole and taking away the spoil at one end of the bill … and importing 500 tonnes of fill and a layer of topsoil at the other.
I don’t like tendering if I can help it. Not so much because I disapprove of it in principle, but because of how it tends to work in practice. The problem is that once you’ve invited people to bid, you’re almost dutybound to give the work to the firm that submits the lowest price. So one offer may have been submitted by a builder whose work I know and whose pricing I understand, and another may undercut it by 20%. My first reaction upon opening that envelope is not elation at having saved the client a shedload of money. Rather, I know that I’m in for a dispiriting few months fighting off claims and breaking the news to my client that the builder has stopped work on the spurious grounds that I haven’t prepared full-sized drawings that locate the step-irons in the manholes.
A similar thing seems to occur on an altogether grander scale at the PFI level. When I read that a consortium’s bid costs can add up to half a million, I wonder just how many jobs they can afford to lose, and just how keen they are to pay their architects when they do. As for the ones that make it to the preferred bidder stage – surprise, surprise, you read that its final price turns out to be twice as high as first suggested; but by the time this has been established the other tenderers are no longer interested.
All of which brings me to the topic that filled most of last week’s magazine: the Office of Fair Trading’s investigation into cover pricing. The truth is that tendering for work you’re not going to get is wasteful and expensive, and to compensate for this, I’m sure some tender manipulation goes on. If you go to six tenderers for a brick building, and each goes to three subcontractors then you can get 18 bricklayers pricing the same piece of work. In this case, putting in false bids is not really villainy, it’s expediency.
There is a good story in Bryan Appleyard’s biography of Richard Rogers where he describes the way the French government prevented itself getting stitched up by a French construction industry somewhat disenchanted with the fact that it had to build a British design.
The general left unopened the revised tenders submitted by the French steel fabricators which were now all miraculously around £5.1m.
Tenders were sought for the structural steelwork. Six French bidders put in prices of £10m (or whatever). However, instead of appointing a QS to project manage the operation, president Giscard d’Estaing recruited a former general. He was from one of those scary French outfits like the OAS or the DGSE or Foreign Legion, and immediately smelt a French rat.
So, he asked the British team what it would expect the tender to be. “Well we’ve measured it and we thought the tenders for the steel should be more like about £5m. “Zut alors!” said the general. “Let us re-tender but this time let’s ask some foreign steel suppliers to bid as well.
This they did. In due course the general was presented with a new lot of envelopes, including one from Krupp, the German steel giant. “Zis is more like it,” he announced as he opened their tender, which was for £5.1m. He left unopened the revised tenders submitted by the French firms, which he (rightly) suspected would now all miraculously be in the £5.1m range. “Let’s get on with it – we have a building to build,” he barked. And after that there was no more price fixing.
I always tell my employers that there are no bargains to be had in the construction industry. There may be for insiders, but for relatively novice clients, getting the work done properly, on time and for a sensible price is a good deal in itself. If clients insist on contractors wasting time by endlessly tendering then firms are bound to put in unenthusiastic bids to protect themselves, and sooner or later some sort of price fixing is almost inevitable. Having said that, the OFT’s report is timely, otherwise the money will have run out by the time of the Olympics.
Gus Alexander runs his own practice in Clerkenwell