Whitehall’s man in charge of public sector procurement has warned the construction industry that it must stop underpricing bids for government refurbishment contracts if companies are to avoid financial ruin
In a veiled reference to the financial disasters suffered by PFI contractors such as Jarvis,
Ballast and Amey over the past few years, John Oughton, chief executive of the Office of Government Commerce, said: “It is important for anyone bidding for refurbishment contracts that they price realistically. This is the challenge for contractors undertaking refurbishment work.”
Although Oughton did not mention any company by name, Jarvis chairman Steven Norris has publicly acknowledged that it underpriced many of its bids. He was recently quoted as saying: “It is quite a simple proposition – we have been losing money by making construction bids that are too low, so we are addressing that.”
Many of these contracts have been in PFI refurbishment work, which is harder to cost than new-build. But Oughton, speaking to Building in an interview to be published in the new year, said that contractors should possess the necessary expertise to price bids correctly.
In a wide-ranging interview, Oughton refused to rule out the acceptance of single-tender bidding for government projects. It is rumoured that the Department of Health considered this option earlier in the decade, as it struggled to attract companies willing to tender for major hospital schemes.
Oughton said: “The right procurement strategy depends on the project. I’m not ruling out other approaches.”
The OGC is a Treasury agency that focuses on procurement. It has a brief to help to cut £21.5bn of government waste, as recommended by Oughton’s predecessor, Sir Peter Gershon.
One way of cutting waste is to reduce the gap between offering a scheme to the market and reaching financial close with a bidder.
The OGC reduced the procurement time by 10% in 2003/04, and is confident of achieving a 15% cut by March 2005. By 2006 it hopes to get an overall reduction of 25%, which would reduce the procurement period for a large scheme to less than 12 months.