Commercial road

Contracting authorities continue to have to find a balance between commercialism and compliance in procurement. Tarmina Dent looks at the nature of the challenge.

In the current climate of spending cuts and austerity measures, all of those in the public sector are reflecting on how best to bring about savings and ultimately do more for less.

In local government these challenges are compounded by central government’s desire to devolve more powers to the local level, while simultaneously cutting budgets by between 20-40%.

While across the board this will inevitably mean a reduction in head counts and a consolidation of the services that are provided, one area for making potential savings that is increasingly the focus of media attention is procurement. Such media interest in procurement is hardly surprising given that it makes up around 33% of all annual government spending (that’s around £220bn per annum) and there is a raft of examples of poorly executed and wasteful major government procurements. In 2010 the Institute of Directors claimed that in excess of £25bn per annum was being squandered through badly organised procurements.

Although central government is seeking to improve this and drive efficiencies and savings through various new bodies and initiatives – such as the Major Projects Authority; the Efficiency and Reform Group; the Government Construction Board; the Construction Strategy; and the Infrastructure Cost Implementation Plan – and the EU has issued a Green Paper on modernising EU policy, these developments are very much in an embryonic stage and it is therefore unlikely that those in local government will see a dramatic impact from them yet.

In the meantime, local authorities – which are taking on increased duties from central government, yet have ever decreasing resources – are facing a daily battle to keep the wolves from the door as increasingly knowledgeable unsuccessful bidders, competing for decreasing levels of work, seek to recover spiralling bid costs by raising procurement challenges.

Such challenges are not only costly to local authorities in financial terms; they also take considerable time, cause delay and divert diminishing resources, not to mention the negative publicity they can bring.

So why in the current climate, with such litigious bidders and procurement being in the limelight, are local authorities still finding themselves exposed to the risk of such challenges?

Aside from genuine errors on the part of the authority officers conducting the procurement, the reasoning for the exposure ultimately boils down to the various balancing acts that local authorities are required to perform.

Local authorities first need to balance the duty to provide front line services, meet their public service requirements and generally get results on the ground, with the statutory obligation to comply with the ever-expanding scope of the procurement regulations and recent case law.

For example, authorities need to ensure that they consider treaty principles of transparency, equal treatment and non-discrimination to below threshold and Part B service contracts; following the decisions in Lettings and European Dynamics authorities are required to disclose more information up front to bidders in terms of the selection and evaluation criteria and sub-criteria, weightings and scoring methodologies, together with increased formalities and information to be provided at de-selection to unsuccessful bidders. Such requirements are becoming unmanageable and cumbersome to local authorities, which are seeing a reduction in staffing numbers and resources to deal with such issues. In a nutshell local authorities are struggling to keep up with the pace of developments and lack the resources or time required.

Equally significantly, local authorities are often knowingly exposing themselves to the risk of a procurement challenge, having considered the wider commercial and political considerations and taken a view on this risk. Authorities are constantly performing a careful balancing act, between compliance with the EU procurement rules, and the commercial and political pressures on them. For example to bring about the required 20-40% savings to meet the spending cuts, local authorities need to review their existing contracts and seek to renegotiate them in order to make efficiencies and drive value and savings. Such variation or renegotiation of a contract could however be deemed to be a new contract and therefore a direct award, exposing the local authority to the possibility of challenge.

Similarly, central government has expressed its desire to open up competition for public contracts to SMEs and smaller enterprises, with an aspiration of awarding 25% of all government contracts to SMEs. Yet if such entities are not treated in the same way as other companies, arguably the local authority faces the possibility of a challenge for breach of the treaty principles in respect of equal treatment.

Furthermore, the use of resource freeing credit checks to ensure the financial robustness of bidders, could lead to a possible challenge against the local authority on the grounds of lack of transparency in how the credit check is formulated.

Finally, the Government is promoting the notion of shared services and for authorities to access existing arrangements rather than procure services for themselves, in a bid to drive down procurement costs. However unless the original OJEU envisaged such an arrangement with that entity, this could again expose the local authority to the risk of challenge.

While some of the issues and conflicts raised above are being addressed in the European Commission’s Green Paper, “Modernisation of EU Public Procurement,” this paper is still currently under consultation, with legislative proposals not due to be published until early 2012. In addition, it remains unclear the extent to which any final legislation will address the key aims of the Green Paper, to promote a simpler process; improve efficiency; give greater flexibility; and seek to ensure that procurement does not hinder other governmental policies.

One thing that is clear however, is that the Government will be keen to avoid further media reports of public sector bodies spending millions on procurement challenges, such as the recent challenge against Westminster’s £50 million parking contract, when front line jobs and services for society’s most vulnerable are being cut, as this not likely to be a vote winner.

In the meantime, local authorities will have to continue to perform this balancing act of commercialism verses procurement compliance, accept that in the current climate there is always some level of risk and hope that any change to procurement legislation removes some of the barriers and constraints currently in place.

Tarmina Dent is a solicitor at the London Borough of Richmond. She can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it.. The views expressed in this article are the personal views of the author.