Construction companies urge action on "suicidal bidding" in public procurement

May 4, 2011

Steps must be taken to block the practice of “suicidal bidding” in public sector procurement, the Civil Engineering Contractors Association (CECA) has warned.

In a paper outlining ten steps that would improve public sector procurement, CECA claimed that below-cost tendering – or suicidal bidding – was rife in the infrastructure sector, with less scrupulous contractors bidding at below sustainable levels in order to secure workload.

“This has obvious detrimental effects for all parts of the industry,” the association said. “Clients may ﬁnd themselves with a contractor resorting to claims or corner cutting in order to make a margin on the project, or even an insolvent contractor if the ‘suicidal’ bidding acts as its name suggests. The consequences of this could be particularly wide-ranging as employees and suppliers will also go unpaid. Additionally, reputable companies may ﬁnd themselves forced out of the market.”

CECA, which represents more than 350 civil engineering companies that account for 75-80% of the workload undertaken in Great Britain, argued that suicidal bidding was encouraged by a public sector procurement process which still in many cases awards work to the lowest bidder, rather than the supplier providing the best value solution.

It called on the government to mandate a more integrated approach to construction, “where delivery teams are chosen on the basis of quality, while being incentivised to make savings over the course of the contract”. CECA added that future opportunities should be awarded to suppliers which have shown a track record of delivering quality while reducing costs.

The association suggested public sector procurement was “often wasteful, inefﬁcient and slow, a combination of problems that lead to unsustainable costs for the private sector, and poor value for taxpayers’ money”.

In addition to tackling suicidal bidding, CECA’s other priorities for reform are:

Halting stop-start procurement: The association said that one of its members’ biggest frustrations was the fact that clients often instigate competition for projects, only to subsequently put the process on hold, or even start again afresh, with no recognition of the costs this has already imposed on the construction supply chain. This situation also means suppliers’ bid teams are tied up on ‘phantom projects’. CECA therefore recommended that the government put in place a reporting mechanism to identify all cases where procurement is signiﬁcantly delayed or cancelled. “Lessons should be learned to avoid such delays in the future, and where this occurs regularly with a given client, sanctions should be available to discourage the problem continuing”
Providing greater visibility of future workloads: “By providing a system that identiﬁes and tracks projects from their earliest inception right through to procurement and delivery, with relevant information made available to potential suppliers as the scheme develops, the industry will respond accordingly.” Suppliers could accordingly invest in skills and equipment more efficiently than if they are given little or no notice of the release of schemes to the market
Standardising pre-qualiﬁcation: CECA estimated that the overall cost of pre-qualiﬁcation to industry to be in the order of £250m to £1bn each year. The association said it hoped that the government would strengthen the mandate to implement PAS 91, a standard, across the public sector.
Standardising references: CECA said it would like to see the government work with industry to develop a standard reference form that could be prepared following a project completion, identifying details of the contractor’s performance that can then be used as evidence of capability for multiple future opportunities
Introducing a new deal for frameworks: While frameworks offered a number of positive points, they were also a source of concern, particularly for SME and regional contractors. These firms are often left out in the cold, forcing them to act as a sub-tier supplier or to exit the market. This could lead to reduced competition in future. CECA therefore said it wanted a new deal for frameworks, “where the beneﬁts of a streamlined framework are combined with a more ﬂexible approach that allows SMEs and regional contractors to compete on a level playing ﬁeld”
Government support for the principles of early contractor involvement: CECA also called for the introduction of clear models for how this approach can be implemented across the public sector “in a way that provides contractors with suitable payment for this early input, while allowing clients to beneﬁt from the improvements that this approach will offer”
Limiting tender list sizes: “Large tender lists mean that more contractors are having to spend money on their bids, with a reduced chance of winning the resulting tender,” the association argued. “This leads to reduced investment in individual bids, poorer quality solutions, and increasing costs for contactors, which can only lead to greater costs for clients in the long term.” CECA said the public sector had a duty to curb excessive tender lists, and urged the government to take steps to formally mandate this
Improving the quality of tender documentation: “One of the chief concerns raised by CECA in relation to all procurement, be it public or private sector, is that often contractors are expected to provide bids on the basis of inaccurate or incomplete tender documents.” The association said the solution to this issue, at least in the public sector, centred on a commitment from government that it would expect public clients not to put work out for competition until there was sufﬁcient correct information available to form the basis of a valid tender
Collaboration in relation to inﬂation risk management: contractors on long-term contracts are often left shouldering the costs of inﬂation, the risk of which is often entirely unmanaged, or managed by indices that are inappropriate to the types of goods used by civil engineering contractors, CECA said. It added that contractors have tended to build a margin into their bids in order to mitigate the risk of product inﬂation during construction, which leads to higher prices for the public sector. “In order to tackle this problem, the public sector must work with the industry, using appropriate indices to capture the risks of inﬂation within the bid process, to ensure a fair and consistent approach going forward.”

The government is expected to publish in June its proposals for reforming how the public sector deals with the construction industry.

Alasdair Reisner, CECA director of external affairs, said: “That procurement practice has emerged as our members’ main concern, at a time of relatively high inﬂation and worryingly low workloads, is a striking indicator of how serious the problems have become.

“In good times costly and inefﬁcient procurement was an inconvenience, but in today’s market, with razor-thin margins and savage competition, it really does present a real threat to the survival of many ﬁrms, as well as adding costs to already tightly stretched procurement budgets.

“This is a rare opportunity to improve industry conditions for private contractors and save taxpayers’ money at the same time. The government should seize this chance to cut unnecessary costs out of procurement and create better conditions for clients and contractors alike.”