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Government to challenge low contract bids

Contractors face “intense scrutiny” if they submit unrealistically low bids for public sector contracts, according to a senior official at the Department for Business, Energy, and Industrial Strategy (BEIS).

Fergus Harradence, deputy director for infrastructure and construction, told a webinar hosted by the Building Engineering Services Association (BESA) that any bids which appear unrealistically low will be rejected unless the bidder has a plausible explanation.

He told BESA chief executive David Frise that the new procurement rules contained in the government’s ‘Construction Playbook’ were designed to “reset the government’s relationship with the industry because at the moment it is not working for either party”.

Unrealistic bidding means the government does not get the quality projects it wants, and the industry suffers from low margins and lack of investment. It also leads to poor payment practices and unfair contract conditions that pass on too much risk to suppliers, added Mr Harradence.

“We need to get away from a situation where people are only able to make a profit by putting pressure on their supply chains…that is what led to Carillion,” he said. “We need the industry to behave responsibly and embed the rigorous comprehensive approach to quality that has been so successful in manufacturing.”

He said the playbook depended on everyone being more “open and honest with each other” and that government would prefer that projects appeared to cost more from the outset to avoid problems further down the line.

The Playbook was developed by the Cabinet Office in partnership with the construction industry and sets out how the government aims to achieve project delivery that is “faster, better and greener”. It includes advice to make wider use of digital and offsite methods and engage with suppliers earlier in the procurement process.

Social value also makes up 10% of awarding criteria according to the Playbook, which became mandatory for all projects procured by central government in England last December. The Cabinet Office is working with the industry to develop a clear definition of whole-life value, which is due to be published later this year.

“The fundamental principle is that contracts should be profitable,” said Mr Harradence. He also warned clients against issuing incomplete tender documents with poorly defined specifications, which increase the risk for bidders.

“We are starting from the basis that we want to do things differently. This persistent under-bidding for projects leads to ministers having to stand up in parliament and apologise for projects running over time and budget,” he told the BESA webinar.

He said too many clients were being given totally unrealistic expectations about how much a project would cost, which led to disputes and project over-runs. “There has to be a greater level of trust between the industry and its clients – this is absolutely pivotal. Without that trust, the process will run into the mud.”

Mr Harradence confirmed that anyone who underbid would face a detailed interrogation. “If they have a good explanation that’s fine, but it is better for projects to appear to cost more – than us having to go cap in hand to the Treasury for more money further down the line.

“We need to spend more time and money at the start of the process to get the design right. That will give clients greater reassurance that they will get the quality asset they need – and BIM can support that by giving a realistic production schedule and more transparency.”

Mr Frise said all BESA members would welcome the intention behind the Playbook and the move towards fully designed projects but would be watching carefully to make sure the rules were properly enforced and payment practices improved.

The government believes that greater use of digital systems and BIM models can improve transparency, according to Mr Harradence. “We want suppliers competing on the right basis – not on lowest price, but whole life cost, efficiency and social value.”

He added that as much as £35bn of the £50bn worth of projects currently in the central government pipeline could be delivered through offsite fabrication, improving productivity and quality.

Mr Harradencesaid the process of putting the Playbook together was the most open and productive exercise he had experienced in 20 years in government because the pandemic had made sure officials engaged online with representatives from the entire construction supply chain.

He also explained that the government was keen to see more people directly employed in the construction sector and that was behind recent policy changes like the revised IR35 scheme.

“We would prefer the industry directly employed a smaller number of highly skilled individuals rather than pulling in large numbers of unskilled people from overseas. That model is not viable,” he told the BESA webinar. This should also help to raise the profile of vocational training, he added.

“The vocational side has been the poor relation in our Higher Education system. It is often seen as something you fall into rather than aspire to. There’s more of a commitment now to change that…and it will be crucial if we are going to be able to do things like the effective retrofitting of buildings.”

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