Pricing principles

Recent surveys carried out by CoESS (the Confederation of European Security Services) and Euro-FIET (which represents European trade unions), note that, depending on the country concerned, between 40% and 60% of business in the security services industry comes from the public sector. The survey also shows that 85-100% of public authorities admit to awarding these contracts on the basis of price alone.

In the UK, the statistics are not quite so depressing, but they still are bad. According to CoESS and EuroFIET, 60% of public contracts awarded to security companies in 1998 were done on the basis of being the cheapest bid under the old compulsory competitive tendering (CCT) rules.

But all that is about to change from April. In the UK, CCT was officially put to rest on 2 January this year and in its place will rise a new pricing principle for local government procurement procedures — Best Value.

According to the Local Government Development and Improvement Agency, of those councils that have a budget for security services, local authority spend on security contracts average £570,000 per annum.

The smallest security spend from a council is £200,000 per annum; the largest spend on security contracts is £2.2 million.

Best Value is intended to bring councils in line with the commercial world, where customer care and service count for something. It gives them a philosophy which does away with the false competition which CCT encouraged, and looks at ways in which the services provided to local communities are improved on an on-going basis. Most importantly, however, it emphasises quality of service and does away with the ‘cheapest is best’ attitude of old.

Quality counts

While cost will no doubt still be a factor, the new philosophy is likely to radically alter service provision, with local authorities being required to review contracts on an on-going basis, and include a partnership approach which will require them to work more closely with the private sector. Along with the need to challenge, compare, compete and consult (see the Four Cs), every year, services will also be reviewed under a performance plan. The whole process will also be audited and inspected.

According to Amanda McIntyre, senior policy adviser at the CBI, Best Value has been described as a ‘get out of jail free’ card, because under CCT all sides failed to deliver the Best Value for the public: “CCT damaged staff interest and stifled innovation. While Best Value is not going to be delivered overnight, the framework creates a much better climate than CCT for improving the way local authorities seek to add value from the private sector.

“CCT was also dictatorial and sector specific about where the private sector could bring in new practices. Best Value should make local authorities more open minded about how the private sector can help and more ambitious in what they can secure from the private sector.”

The CBI has been advising local and central government and trade unions on feeding in ideas on legislation and guidance as well as setting out priorities for the Best Value marketplace. Their objective is for local authorities to make strategic “make or buy” decisions – that is deciding at the outset whether services should be provided in-house (“make”) or be outsourced to private companies (“buy”).

The first hurrah

Such a shift has been welcomed by some of the top guarding companies, many of which moved away from tendering for local government contracts a long time ago (see “Kicking the price habit”, p36, SMT Dec ‘97). Their beef was that while guarding companies were invited to bid for public contracts, it was often the in-house security team that won the deal, based on it being the cheapest provider.

David Fletcher, chief executive of the BSIA, which represents some 65 guarding companies, said: “There are promising signs that local authorities are steadily moving towards choosing manned security contracts based on their overall quality and value for money, rather than simply on price.”

Fletcher flags up a booklet published by CoESS and Euro-FIET which will give local authorities guidelines on selecting Best Value when awarding contracts to guarding companies.

He said: “The aim is to make sure that people in local authorities tasked with evaluating tenders are using criteria that are not solely price-based. This is important to BSIA manned security members, which, as professional companies, offer a high standard of service that represents overall value for money.”

Tony O’Neill, managing director of Initial Security Services, says Best Value is a good and healthy thing for the security industry. “Moving away from the blinkered idea of just going for the cheapest bid can only make people more open-minded about what they want and expect from a contract — it’s all about broadening horizons. Obviously cost will remain an important factor in the tendering procedure, but a shift away from the ‘cheapest is best’ attitude will hopefully make people more aware of whether they really are getting a good deal or not.”

However, Jonathan Levine, managing director of First Security (Guards) Ltd, remains to be convinced. As a matter of policy, his company does not bid for local authority contracts. “We are still concerned about local authorities’ attitudes regarding pay rates, which is critical to the manned guarding sector. However the partnership approach is to be welcomed. It is a good idea to benchmark with other private companies and see where services can be complemented.”

New culture, new security view?

In theory, under Best Value, the nature of business between local authorities and private security firms should improve. Local authorities are aiming to achieve partnerships that embrace continuous improvements and offer private firms more chance to bring in innovation.

This also gives room for PFI-style (Private Finance Initiative) options enabling the private sector to offer capital projects and service package solutions. On a wider social scale, the private sector already runs PFI prisons. The same principles could apply to some local authorities’ smaller scale needs, where particular projects need service improvements as well as capital spending.

Says the CBI’s McIntyre: “If the private sector wants a share of the Best Value market, it needs to be geared up to meeting more diverse needs. The security industry should be aware of how they can contribute to reducing crime or fighting social exclusion or improving community safety.

“Security firms should be involved from the start as to what contributions they can make and how they can add value. It would require them to know which risks they could and couldn’t assume and to be able to structure contracts for continuous improvement and innovations.”

David Hoey, managing director of Elite Security Services, concurs with this view adding that the principles underlying Best Value have a better chance of implementation if there is more consultation with the security industry. “If councils want a partnership approach, they’ve got to consult security companies before they draw up the tender documents, and get workable solutions before they invite price bids.”

Time for change

Nobody is convinced of an overnight transformation, however. According to Hoey, antiquated practices have been employed by local authorities for too long and are the main stumbling block to change. He said: “Any existing contract which was awarded under CCT is not going to be changed in April. Contracts will simply be extended under the old rules, and I can’t see Best Value making any difference.”

CBI’s McIntyre also recognises it will take time to improve the tendering process and reduce bidding costs. “Any initiative of this scale takes about a decade to implement,” she said. “Moreover, local authorities also have work to do on raising procurement expertise and in handling complex partnerships. In particular, they will have to focus on negotiating skills, contract management and project management expertise,” says McIntyre.