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The Law of Unintended Consequences Drives Public Procurement To Frameworks

Like most governments and the Commission itself, the UK government wants to make public procurement more transparent and open up contracts to more suppliers, including smaller firms (SMEs). But sometimes the “law of unintended consequences” kicks in. That means we see outcomes that are not the ones foreseen and intended by a usually well-meaning and purposeful action. Here is a great example.

In the Public Contracts Regulations 2015, one of the steps taken by the UK government, which was beyond the requirements of the new EU directives, was designed to open up procurement by mandating greater use of the government’s Contracts Finder website, which lists public contracting opportunities. Here is the guidance from the UK government, and this is one of the key elements.

Contracting authorities are required to ensure that any new procurement opportunities, above thresholds, are published on Contracts Finder (in addition to, or instead of any other portal or publications route they may currently use).

Once a contract has been awarded as a result of a procurement process, contracting authorities must also publish details of who has won the contract, the contract value, and for procurements below the EU thresholds, indicate whether the winning supplier is a small business or voluntary sector organization”.

The threshold for publishing is a contract value of just £10,000 (€13,500) for Central Government and £25,000 (€33,500) contract value for non Central Government contracting authorities, including hospital trusts, local councils and so on.

Now those are really quite low thresholds, bringing a wide range of contracts into the scope of the law. In many cases, these are contracts that might not have been advertised widely. They may have been sourced using some sort of “approved or preferred supplier list”, or perhaps advertised on the contracting authorities’ own websites, or via a local / regional portal. But the new rules require advertising on the Contracts Finder website, which is of course available to any potential supplier across the EU. This has therefore increased the workload for authorities in two ways.

Firstly, they have to actually do the work necessary to place the advert on the Contracts Finder website, and then also complete the post- award submission to that site. That might not seem like a major burden, but another couple of hours work perhaps for busy, often small procurement departments can be significant.

Then, perhaps more importantly, the authority has to cope with what may be a much greater response from a wider range of suppliers. Combined with the banning of PQQs for lower value contracts, the authority may now face a much more onerous procurement process with many more firms bidding, and dozens or even more tender responses to evaluate and handle. It will also put other constraints on the process – so it means that bidders cannot be restricted to purely local suppliers for instance.

So this is where the law of unintended consequences comes into play. How will procurement people and functions react to these changes? Well, one way is to use frameworks that do not require open advertising or any submissions to Contracts Finder. Frameworks can allow authorities to restrict the competition to just a few suppliers (or in extreme cases, only one), and run a quick and simple “mini-competition” to choose the winner. And we are beginning to see evidence that this is indeed happening.

This article from dash.com describes how housing associations (which are considered contracting authorities) are increasingly using frameworks for fairly low value work. Since February, when the new rules came into force, the collaborative buying body Procurement For All, has seen a steep rise in the number of enquires it received from associations about frameworks in categories such as lifts and hoists, CCTV, fire equipment, digital tv, kitchens and bathrooms.

“Procurement For All, which is run by a consortium of six housing associations and has 21 landlord members in total, has reported a 30 per cent increase in activities on its small value frameworks as landlords look to adopt to the new rules … Keith Armstrong, Managing Director of Procurement For All, said: “We always knew that the new regulations would create more work for procurement teams, but are now seeing the full effects on low-value contracts that may have traditionally been awarded to contractors via an approved supplier list”.

We can see exactly what the UK government is trying to achieve with the regulations – more transparency, more open advertising, better opportunities for all suppliers including SMEs. But any change that increases the administrative procurement burden at a time when all public bodies are facing cutbacks on their own costs is going to be a problem. So authorities look for a solution that is compliant – but has a lower cost burden. And we end up with more use of frameworks, which, as we have argued before, can be highly uncompetitive, tend to close off markets, and are less transparent than advertised awards.

Unintended consequences indeed – and we may see more of this type of response as even greater efficiencies are sought in the public sector and procurement functions are put under greater pressure. It will be fascinating therefore to see just how many additional contract opportunities do find their way onto Contracts Finder.

Voices (11)

  1. Dan says:

    Hi Peter. The requirement to publish over-threshold tender on Contracts Finder doesn’t apply if you don’t advertise it at all – so if you pick your four or five favourite contractors and invite them to tender without an advert, then this doesn’t need to be published on Contracts Finder either. This doesn’t just have to be through frameworks. It will be interesting to see if this results in less tenders actually being advertised at all…

    1. Ian R says:

      Hi Dan.

      You’re right and a very interesting development seems to be that sub central public bodies are looking to review the local thresholds for tendering (Standing Orders) and I’ve notice quite a few review them upwards – to £100k or more, so that anything below that only requires a closed quote process.

      What I don’t understand is that in all other respects the Public Contract Regulations take precedence over local standing orders, but in this case it seems to be the reverse??

      Ian

    2. but isn’t that counter to the EU regulations? If it is over-threshold then you have to OJEU surely?

      1. Ian R says:

        Hi Peter.

        A Public Bodies standing orders may state something along the lines of: <£10,000 – one quote, <£75,000 – three quotes, EU threshold – full PCR compliant tender. The PCR’s state that the opportunity must be advertised in Contracts Finder if the body does anything the put the contract in the public domain, guidance then was issued which explicitly stated that if an authority’s local standing orders did not require a full tender (ie <75k in the example above) this is exempt from the requirement to advertise.

        As Dan says, the above standing order limits for quotes would apply to any contract whether it was awarded through a framework, a preferred supplier list, or flicking through the yellow pages (I'm sure we've moved on to a more digital equivalent now….)

      2. Dan says:

        Sorry Peter, I should have been clearer – I’m referring to the £10k/£25k threshold in my comment.

        The obligation to publish sub-OJEU tenders on Contracts Finder applies “where a contracting authority advertises a contract award opportunity” (Regulation 110)

        The Regulation then goes on to say “a contracting authority does not advertise an opportunity where it makes the opportunity available only to a number of particular economic operators who have been selected for that purpose (whether ad hoc or by virtue of their membership of some closed category such as a framework agreement), regardless of how it draws the opportunity to the attention of those economic operators.”

        You “may”, however, still publish on Contracts Finder even if you have not advertised any other way, but this would appear to be entirely voluntary.

        There could be implications around the ‘cross border interest test’, which would in theory require some level of advertising, but no-one has ever defined what ‘cross border interest’ actually means, so I’m not going to lose any sleep over it.

        1. Digby Barker says:

          Dan: I’m obviously missing something here but I thought ‘cross-border interest’ simply means an EO from another member state formally stating (in a complaint, after the event, to the EC presumably) that it would have expressed interest – in a contract opportunity which it has just found out about – had it been openly advertised. Of course, the EO could express interest to the CA concerned about a forthcoming opportunity if it learns about it in some indirect way soon enough. Publishing a PIN in the OJEU would be one way of minimising the CBI risk if it is not intended to advertise a low-value contract opportunity but I guess it could be a moot point as to whether publishing a PIN triggers the requirement for a subsequent CN to be put on CF.

          1. Dan says:

            The meaning of ‘cross-border interest’ has never been definitively settled, mainly because it arises from case law and not legislation – the courts keep changing their mind on what it means. What they do say is that if a sub-OJEU tender has cross-border interest then you need some level of advertisement (such as on an e-tender portal). Unfortunately, its generally not possible to know in advance whether this is the case (unless there’s a time machine kicking about somewhere). There’s little sense in having a law that you can’t comply with and that you can only be judged to have broken after the fact. And presumably publishing a PIN counts as ‘advertising it elsewhere’, therefore obliging you to also advertise it on Contracts Finder. The only way around it would be to advertise absolutely everything on Contracts Finder, which is extremely onerous from an admin point of view (there’s no control over the number of EoOs you receive and no PQQ stage allowed).

  2. Secret Squirrel says:

    Dan,

    How did you come to that conclusion? I read the opposite but would much prefer yours to be true so would be very interested in your read on it.

    Squirrel

    1. Dan says:

      Hi Squirrel, see my reply to Peter above. I’d like your opinion on this as I’d hate to be doing it wrong!

  3. KayEhm says:

    Public procurement is always beneficial. Organizations like the PPA at http://ppa-or.gov improve efficiency in the procurement process and reduce solicitation and procurement costs. They are supposed to provide a mechanism for increased standardization of industry tools, equipment and technology. This allows other public agencies to benefit from Master Price Agreements secured by PPA. The PPA works closely with NPPGov, the FireRescue GPO and the Law Enforcement GPO to secure publicly awarded contracts that can be offered to members of these organizations.

  4. Digby Barker says:

    I don’t think the increased compliant use of Frameworks is as big a threat to Value for Money as the failure to have effective competition below the OJEU Thresholds. Achieving the latter may well require more work on the part of already hard-pressed procurement teams but aren’t they likely to become even thinner if the CA doesn’t get good VfM overall ? Maybe the challenge is for procurement teams to develop more efficient admin procedures so that the work doesn’t take “another couple of hours”.