SMEs have something to celebrate with the arrival of the EU Procurement Directive in Britain, as processes will get simpler and less exclusive
This autumn the UK is due to adopt the EU Procurement Directive. This will impose a sea change for how the public sector will acquire services, works and supplies, unleashing significant potential for UK architecture.
To date, excessively ‘goldplated’ application of EU procurement legislation has meant the UK has been undertaking 24% of all public procurement in the EU and compared to other states, has been doing it inefficiently.
An EU commissioned analysis estimated that the economic cost of procurement, to clients and bidders, on low threshold value contracts, was up to 29% of contract values. At this level, the cost of one in four contracts has been expended solely on the procurement process. At median contract values these costs are still staggering at around 10%. Absurdly for the architectural profession, the estimated economic damage has been worse, with £40m spent winning £138m of contracts per annum (as estimated by respondents to the RIBA Procurement Survey, 2011). That is a cost to the practices alone of 29% of contract value.
Neither PI cover nor annual turnover requirements will be mandatory at bid stage
Lower relative costs at higher values have remorselessly driven the aggregation of contracts into ever larger, increasingly bundled and more centralised procurements.
The preponderance of these high value and often generic contracts, along with the excessive risk criteria, have been locking out UK micro and SME businesses from public work, denying market access and genuine competition with significant long term economic impacts. A central problem of this legislation has been that it’s based on the principal of a non-discriminatory open market. It should be noted that 97% of RIBA Chartered Practices are micro or SME sized enterprises.
Adoption of the new directive heralds considerable change. EU Procurement Directive 2014/24 (also known as the Classical Directive) will become UK law through the Public Contract Regulations 2014, superceding the 2006 version.
The legislation removes many hurdles to efficient cost effective competition. There is greater flexibility, and application processes should become simpler, faster and – with the emergence of full e-procurement – more streamlined. SME access has also been addressed and sustainability embedded.
The need to tender for services at the briefing stage, for pre-procurement activity and the definition of what a single procurement is, are clarified. So too is the ability to let some tender lots within a single procurement, where each of these individual lots is below €80,000, without further procedures. This should remove many consultancy tenders from EU procurement.
To put more emphasis on better outputs from assessments – including design quality – the structure of PQQs will change, with shorter, clearer presentation and many requirements able to be confirmed by self-declaration until clients seek verification after shortlisting. Questioning can only be strictly related and proportionate to the specific contract. This principle is reinforced throughout with more value placed on the education, qualification, registration and standing of professionals, without recourse to repeated evidencing.
The award of contracts for design services may be made only on the basis of the ‘Most Economically Advantageous Tender’ (MEAT) assessment rather than lowest price
ations will be mandatory at bid stage, and when used, turnover will be capped at twice a contract’s value. Removing PI cover from the requirements at selection stage opens up the market for single and integrated project insurance, which offers teams the possibility of more successful adoption of BIM.
Where experience is required it may typically be assessed over the last five years, but to ensure adequate competition, this period can be longer. The best possible way a responsible client can verify experience is to visit previously executed work and engage the clients and stakeholders. This can be used alone as sufficient evidence of a track record.
Architects will be freer to bid in consortia without any requirement to have a legal structure in place prior to an award. If the bid requirements applied to consortia are kept equitably minimal, it can not only open significant design opportunities for collaborative practice, but it places architects in a better position to lead consortia teams capable of challenging the contracting market.
Costs, life-cycle costing and contests
With the exception of design contests, which remain distinct, the award of contracts for design services may be made only on the basis of the ‘Most Economically Advantageous Tender’ (MEAT) assessment rather than lowest price. MEAT assessment will allow for a fixed price submission with assessment on quality only. The cost element at the award stage may also take the form of a fixed price (eg as in Germany a fixed fee scale) or fixed cost, allowing bidders to compete exclusively on the basis of quality criteria. This approach enables target costs to be determined at the outset in the procurement stage.
Where tenders appear to be abnormally low these may now be rejected by clients, if there is no reasonable explanation
Life-cycle costing has been defined and embeds sustainability over the complete life-cycle of a work, product or service. The way of evaluating this must be transparent, objectively verifiable and non-discriminatory using clear methods. This also fits well within the target cost approach, were sustainability targets may be set as the ‘cost’. But the new definition is complex and understanding it could become an issue for bidders – particularly those from inexperienced procurers.
Where tenders appear abnormally low they may now be rejected by clients, if there is no reasonable explanation (eg relative to time, cost, national employment laws and service delivery). The RIBA considers that a tender falling 12% or more below the mean of all tender submissions may show that the threshold at which that tender is set is deemed too low for architectural services.
Legal clarity, simplicity and incentives have been brought to the Competitive Procedure with Negotiation, which should permit more procurements through this empathetic route to design team selection, more quickly.
Design contests are a distinctly different procurement route from all others, specifically and mainly for architecture, engineering and planning. They offer enormous versatility, flexibility and opportunity, and when well-managed are highly cost effective. Improvements in legal clarity presage potential UK expansion of their use, where architectural design solutions are sought for individual buildings, client project folios and lots; or even for awards onto frameworks.
Smaller work packages
The idea of breaking up parcels of work – what is called disaggregation – has attracted UK opposition (in stark contrast to the Europeans). But despite lobbying, meaningful justification will now be required on an ‘apply or explain’ basis, as to why public clients are not breaking up contracts into more numerous lots – whether by size, type, location or nature of service – to open up contract opportunities and make them more accessible. The UK is the most heavily aggregated market in the EU and the most inefficient. The argument that a one size fits all, bigger is better solution has been evidentially disproven. Although no one denies the need for size when appropriate, any sense of a proportionate and sustainable market approach had got lost. In clients’ pre-procurement stage considerations, legislative support for disaggregation can now also be supported by The Public Services (Social Value) Act 2012, but creating a more level playing field for businesses of different sizes will remain a challenge.
The UK is the most heavily aggregated market in the EU and the most inefficient
Architects should be alert in competitions now being called for within Prior Information Notices (PIN) for restricted procedures, and competitive procedures by negotiation. This is a new provision which will accelerate clients’ selection processes by 30 days or more. Previously PINs have been used to forewarn the market of a client’s intended call for a competition which is then placed through issue of a subsequent Contract Notice, but for both these procedures architects will now need to screen PIN notices on OJEU for direct calls for competitions.
As architects are often employed as sub-contractors (Tier 2 suppliers), enforcement of 30 day terms and/or the possibility of payment through project bank accounts, with better opportunity to enforce fair terms against discriminatory sub-contracts, presages a reduction in the practice of transferring risk down supply chains.
What is most welcome in this new Directive is that the EU has a commitment to try and raise contract thresholds at the next round of negotiations of the World Trade Organisation General Procurement Agreement (GPA). The UK government has also undertaken to ensure it will not be applied to works below certain thresholds. There is minimal cross border trading at lower threshold values and UK national laws are already secure against public bodies tendering with impropriety, so raising the thresholds significantly would remove many lower value procurements from EU tender requirements entirely, reducing costs and time, and improving access.
The government is upgrading and extending its Contracts Finder website to provide a single point of free and easy access for all UK public contracts above £10,000, and is enhancing its Cabinet Office Mystery Shopper procurement complaints service. At present, notice data fields are inconsistent and UK public clients regularly issue 30% fewer contract-award notices than they do contract notices. New collation and e-procurement strategies are being developed to improve market transparency and generate regular reporting with a view to informing future EU and national procurement policy.
A new culture
It is often asked: ‘What is the RIBA doing for me?’. In conjunction with publications that brief clients as to best practice, the RIBA Client Service offering is under review and being restructured to provide full support across RIBA work stages to help clients achieve best value. New guidance is being drawn up specifically for Competitive Procedures by Negotiation and Design Contests, which it is hoped will expand their use across public procurement.
This all requires a step change in procurement culture, practice and education however, and the challenge is to ensure it isn’t again bogged down in UK gold plating.
This all requires a step change in procurement culture, practice and education. The challenge is to ensure it isn’t bogged down again in UK gold plating
My question would be: ‘What can you do?’. To embed better practice throughout this period of transformation, professionals should support public clients to upskill, raise the bar, de-risk their procurements to focus on quality assessment, offer access to best practice guidance, appropriately instigate referrals to Client Services and encourage use of more diverse procurement routes, particularly by design contest or negotiation by pushing their benefits.
Importantly for the profession, the government’s Mystery Shopper procurement complaints service will continue to respond to complaints of poor procurement practice throughout this transition period. Importance is being placed on this feedback to ensure reform is rapidly embedded, so architects should use it to report unfair, discriminatory, inconsistent, over-complex, onerous or otherwise poor procurement practices.
Grasping the opportunity on offer will dramatically reduce the artificial glass ceilings created by legal constraint to efficiency, growth, micro business and SME access, and the value gained from architects engaging with clients, fellow team members, stakeholders and end users. With the new rules, wasted resources can be diverted towards more and higher quality construction outputs that meet needs and improve the built environment.
This work has been supported by an RIBA 2012 Research Trust Award
Walter Menteth is director of Walter Menteth Architects and Project Compass CIC. He was chair of the RIBA Procurement Reform Group 2011-2013 and a member of Cabinet Office SME Panel
WHAT IS CHANGING?
• Clients will have to explain why they are not subdividing contracts into lots
• Clients may limit the number of lots awarded to any one tenderer
• The UK is committed to excluding single procurements from procedures that fall below the thresholds
• Consultancies with a tender value below euro 80,000 may be excluded from regulations
• PQQ requirements can be self-certifiable until verification at shortlisting stage or before award
• New incentives are provided for the Competitive Procedure with Negotiation (previously the Negotiated Procedure)
• PI cover at bid stage is not mandatory
• Annual turnover requirement at bid stage is not mandatory and if used is to be capped at twice a contract’s value.
• Previous experience may be assessed over longer periods
• Legal structures are no longer required at bid stage for collaborations
• Architectural services can no longer be awarded on the basis of lowest price
• Design services contracts can be awarded based on fixed price submission and design quality
• Abnormally low tenders may be rejected by clients
• The UK government is introducing a single access portal for all public procurement contracts above £10,000 (that is both above and below EU thresholds)
• There will be fair payment terms for sub-contractors.