UK: Competitive Dialogue Procedure – Is It Working For Or Against The Construction Industry?

Last Updated: 18 April 2011
Article by Nick Maltby

At the end of last year, HM Treasury published its review of the Competitive Dialogue procedure, or CD - this procedure was introduced in the EU public sector procurement directive for use in the award of complex contracts such as those covered by the Private Finance Initiative. Nick Maltby, of top 100 law firm Bircham Dyson Bell, looks at the outcome of the review.

Competitive Dialogue has now been with us since the beginning of 2006 and more than 1200 procurements have been undertaken using the procedure. But does it do the job for which it was intended?

Given the outcome of HM Treasury's report, it would seem the answer is - not entirely - a conclusion, which is at odds with many of the findings as its recent review found that there is much wrong with key aspects of CD procurement.

HM Treasury's undertook the review to establish the size of the UK CD market, identify the types of complex procurements being undertaken and better understand the skills and capacity of contracting authorities using CD.

And the report concludes, at a high level, that where CD is being used appropriately it provides a positive addition to the procurement toolkit - however it can become burdensome and expensive.

The report focuses on three main areas: Delivering Competitive Dialogue in the UK; Competitive Dialogue in Practice; and Key Areas of Concern.

Delivering Competitive Dialogue in the UK

We're struggling with a large public sector skills gap, according to the findings - few public sector employees have undertaken more than one CD procurement, with a resultant impact on how they can resource the procedure. There's also little idea as to how much a procurement might cost.

And there's confusion over the purpose of CD. While it was intended to deal with large and complex purchases such as infrastructure or large building projects, the review showed that at least half of the CD procurements were for projects of under £5m - in some cases it was actually used for purchasing detergent or printing a newsletter. As a result, going forward public bodies will be asked to justify their choice of procedure.

When it comes to using or understanding CD, matters are little better in the private sector outside the major construction, IT and outsourcing companies.

Competitive Dialogue in Practice

Many of those questioned believed that CD maintained competitive tension, but there are a number of issues with how the procedure is conducted in practice. According to the report, CD often begins without sufficient preparation and there is a tendency to use the process to obtain free consultancy. Too many bidders are kept in the process for too long - almost 15% of authorities are taking at least 6 bidders to final bid submission - and there are excessive, unfocused requests for information from authorities.

However, on a more positive note, the review did find that CD has largely managed to address the issue of protracted preferred bidder discussions and that there are fewer late changes to contracts.

But one major issue which remains is the disproportionate amount of bid costs being incurred by bidders before the closure of dialogue on procurements - it seems there is an overly prudent approach taken to clarify, specify and fine tune.

Key Areas of Concern

The report details four areas of concern but three of these (capacity to secure improvements, cancelled and delayed procurements and cherry picking) are problems when it comes to procurement generally, not just with CD.

But increasing costs of dialogue is very much unique to CD. The bottom line is that CD has significantly increased bid costs from 2 - 3% of capex to 5 - 6%. This fact alone would seem a significant argument against the use of the procedure.

The report highlights the amount bidders are being asked to spend while in competition - these are sums they would only have spent previously when they'd reached preferred bidder status. And that's against a very difficult economic backdrop, where all companies are anxious to secure work but keep costs to a minimum.

The issue, again, seem to be how the Dialogue has been conducted and what the proposals for closing it are. Disappointingly, the report has no magic bullet to cure this problem.


It's very difficult to know how to read this report. Reading between the lines, all is not as it should be in the CD world, notwithstanding the positives set out throughout the document. However, there are few signs from the recommendations that things are likely to improve dramatically in the near future.

The UK has more CD procurements than the rest of the EU taken together - and perhaps we should question why that is the case - but there is no international benchmark in the report, and no list of projects reviewed or organisations consulted.

Good procurement practice works whatever the process. It will be interesting to come back in three years time and review what, if anything, has changed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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