The procurement process for smaller contracts currently being undertaken by the Crown Commercial Service (CCS) once again talks about engagement of SMEs but when you read into the detail the guidelines, terms and commercial framework seem to favour larger companies. In particular, the risk associated with blind bidding for work can be very dangerous for smaller companies as they may not be awarded enough ‘good’ government contracts to offset the ‘bad’ ones. As such the need to win large amounts and spread risk favours larger businesses and, in particular, the very largest.
Lack of resources
In my experience bidding for government work can be a lengthy and costly process and many smaller businesses don’t have the same resources as larger companies to put together winning bids. I welcome the intent of the CCS to make the procurement process simpler, however they have just swapped some challenges for others.
For example, smaller companies often have a regional focus, whereas government projects tend to be on a national scale. It is therefore extremely difficult for a smaller business to find the resources to fulfil large-scale contracts. In addition, the penalty clauses for not delivering are huge and this has the potential to break the company – more risk again! As a result, a lot of small businesses will continue to shy away from competing for public sector contracts. This is a real shame as there is no doubt that these organisations are often more specialised and can provide a better solution. However, the contracts which are suitable for these companies are often contained within a larger tender and given to one primary contractor as it is cheaper than tendering multiple parts of one project. The end result for smaller businesses is often lower margins and higher risk.
Risk versus reward
If we focus on the risk to small businesses, the requirement to commit to a ‘call off’ price for work by a specific measurable unit that can be taken up directly by any organisation using the framework is also fraught with danger. We operate in the facilities management sector and it is almost impossible to price for air conditioning maintenance per m2 when you haven’t seen the building, don’t know the number of assets in scope, their age or condition, their workload and their prior maintenance history. The same applies to cleaning, as how can you price to clean a m2 of office space when you don’t know the floor covering, the amount of staff using the space, if its open plan or modular etc?
Some steps in the right direction
Despite these challenges, the government is starting to introduce measures that have been designed to help smaller businesses contribute to large projects. Another big risk for many small companies is delayed payments. For those of us in the facilities management sector we rely on our people and a delay in payment may result in staff not being paid on time and businesses eventually folding due to exceptionally tight margins. However, in a bid to crack down on this, as of April 2017, large companies have to publically report twice a year on their payment practices and performance. The government has also started to exclude businesses from projects if they cannot demonstrate fair payment practices.
Whilst this seems like a good place to start, in my opinion, much more needs to be done to address the issue. If there is one thing that we can learn from the collapse of Carillion, it is that there is great risk in concentrating all public business in the hands of a small number of big companies.
So what is the answer? I think the CCS should have a process which selects smaller businesses on local and national capability. Once they have selected a long list of companies that meet the required standards of service and compliance, the end user can then select from this list to specifically quote for their contract based on a fair commercial and contractual framework. This will allow the bidding companies to price the work correctly and get the client the best value price, not the cheapest. More importantly it will ensure the providers do not play Russian roulette with blind pricing and any contracts awarded are sustainable for both the client and the contractor.
In conclusion, the government procurement process has developed a polarised market with a limited and stretched supply chain that ultimately cannot deliver what it promises over an extended period. I believe that outsourcing in the public sector can be improved by not allowing poor procurement to deliver low standards of service and sustainability.
Martin Reed is CEO of Incentive FM Group.