Belfast Telegraph

Companies still face problems in navigating procurement minefield

By John Simpson

The procurement systems, by which the public sector in Northern Ireland spends almost £3bn each year to purchase a wide range of goods and services are well articulated.

Additionally, the systems are subject to examination by the Public Accounts Committee and must satisfy EU Directives.

There is serious uncertainty about whether the public procurement systems are working to give best value for money.

Too frequently, suppliers and potential suppliers continue privately to complain that the systems are flawed. Unhappily there is also a history of some legal challenges to selected framework contract mechanisms.

The more telling criticisms allege that too often the cheapest bid is selected without adequate consideration of quality and long-term value for money.

In the current economic recession, some bids for contracts have become so critical for survival that unsustainable and even unprofitable prices are quoted whilst omitting adequate assurance on quality factors.

In the words of some potential bidders, it is "a race to the bottom".

Normally, this type of criticism gets little sympathy from officials. Since these complaints are essentially about "quality" and "loss-leading" as they affect "price" the complainants, anxious not to antagonise possible future purchasers, are fearful of being named.

Since quality judgements are more likely to be subjective, officials are aware that they are then more vulnerable to challenge, including possible referral for judicial review. Hence, there is a perception (at least) that quality questions tend to evolve with a generic "tick box" approach.

Qualitative criteria are easier to apply for standardised products, even though there will often be different models or capacities. Criteria are more difficult when professional services are being assessed.

Has the bidder demonstrated competence in the required service with the level of specialism sought? How is the line to be drawn between proven competence and unproven ambition?

For ministers and officials, the present depressed market is a welcome opportunity to get what they hope is simply better value for money. Severe cost cutting and intense competition are features that can offer benefits.

Consequently, there is no immediate sympathy from public officials on claims that decision making is being distorted.

The informal criticisms of public procurement methods, based on the experience of disappointed bidders, has now been re-enforced by the report of the Audit Office following an investigation into "collaborative procurement and aggregated demand".

This report is a serious critique of the way that public procurement of goods and services is functioning in Northern Ireland.

First, the organisational structure of procurement functions has too many players.

The Central Procurement Department (as part of DFP) is criticised as being inadequately managed, inadequately informed and lacking the leverage to create an efficient organisation to gain the possible benefits of less fragmented systems.

The telling evidence lies in the detail of how many departments and agencies operate their own procurement systems with too little evidence on the scale of aggregate demand for different specified goods and services and the lack of a plan to introduce effective category management.

If public procurement systems are to be further improved and if larger framework contracts are to be used to gain greater financial benefit for the public sector, as the Audit Office believes is possible, one of the possible consequences is that contracts will be more likely to be awarded to larger organisations, to the disadvantage of local SMEs.

The Audit Office rejects this concern saying that only 6% of local contracts in 2010-11 exceeded £1m and only 18% exceeded £100,000. This, the Audit Office suggests, points to adequate scope for SMEs to win awards.

Three strong conclusions can be drawn. First, local procurement organisations should take a clearer stance on specific quality assessments. Second, aggregation and category management should be developed. Third, criteria should be set to eliminate excessive under-cutting.

Public procurement procedures are far from "water tight".