Rudi Klein So should the 112 firms accused by the OFT be hung, drawn and quartered? Or were there some mitigating circumstances …
The OFT’s investigation into 112 firms for cover pricing raises a number of issues. One of them is the fact that lump sum, lowest price tendering provides a fertile ground for cover pricing. When this is compounded by poor tendering practices, one has to question who are the victims and who are the villains.
In spite of all the work that has been done in the wake of the 1994 Latham and the 1998 Egan reports, tendering for public sector works – for contractors as well as subcontractors – still tends to be on a lowest price basis.
The way to avoid cover pricing is to select firms on the basis of value for money. Better still, decide what your value criteria are and then appoint those firms best able to deliver according to those criteria. In this context, price is secondary. There is plenty of help and support for client organisations wishing to do this. One of the best guides available is Selecting the Team, published by the Construction Industry Council, which can be downloaded from its website.
Moreover, practices such as cover pricing have no place in partnering relationships.
However, the real issue in this sorry saga is the imbalance in the protection afforded to those who invite tenders and the tenderers themselves. There is little that tenderers can do when faced with poor tendering practices.
Some years ago the Construction Industry Board, established in response to the Latham report, published guides for good tendering practice that were fully endorsed by the government, clients and industry. These guides have, largely, been ignored.
They set out key principles for good practice:
- Tender lists should be as short as possible
- Conditions should be the same for all tenderers
- Sufficient time should be given for the preparation and the evaluation of tenders
- Tenders should be assessed on quality as well as price
- Tender prices should not change on an unaltered scope of works
- Standard contracts should be used throughout the supply chain.
But I still see many complaints about poor practice. Unbelievably, some local authorities still invite tenders from 20 or 30 contractors. It is perfectly understandable for one of those contractors to take the view that it is pointless to spend a few thousand quid on preparing a tender, especially when he is asked to submit it within two weeks of receiving the invitation.
Recourse to law for tendering malpractices is extremely limited. Aggrieved tenderers may, of course, use the Public Works Contracts Regulations 2006 where they apply but there is no remedy available to subcontractors.
The case of Harmon vs House of Commons (1999) imposes a nebulous obligation on public sector clients to act fairly in the conduct of the tenders. Again, this is unlikely to reach down to the supply chain. What is needed, at least, is a tendering ombudsman who has the power to adjudicate in cases of poor tendering practice. They should also have the power to award a tenderer their bid costs. In the meantime, it would be useful if the Strategic Forum updated the Construction Industry Board’s codes of practice.
Rudi Klein is chief executive of the specialist engineering contractors group