UK: Opportunity Knocks – But Who Will Be At The Door?

Last Updated: 18 January 2001
Article by David Kilduff

The announcement in July of the Chancellor of the Exchequer’s second Comprehensive Spending Review set a further series of challenging targets across the public sector. The last Review heralded a commitment to renewal of the underlying assets required for quality public services supported by a combination of targeted grant allocations and efficiency savings and this has been further developed in relation to projects in the areas of transport, health and education.

A key feature of the latest Review is the continued emphasis upon electronic government that remains at the forefront of labour's drive to modernise the way in which the public sector does business. This will of course have a major impact on the way in which services are planned, provided and resourced – creating demand for replacement infrastructure and opportunity in the effective release of that which is no longer required. Coupled with the impact of best value and the renewed drive for asset management strategies, 2000/2001 is likely to see a major increase in the level of public sector construction activity. Facilities management, into which many of the major constructors have diversified in recent years in pursuit of better margins and stability, will benefit similarly.

To maximise the opportunities that will inevitably arise, public sector bodies will look to bidders that are able to bring forward solutions that fit with local policies on transport, the environment, employment and so on. Bidders will need experienced and timely advice to help develop the scope and nature of the project in early market consultation and later bidding and negotiation stages. Whilst the development of standardised documentation by the treasury taskforce has helped in some way to limit transaction costs by helping parties focus on project specific issues, there remain significant cost risks in non-traditional public sector projects.

The best example of this is in connection with the PFI where there remains concern at the level of investment put at risk by bidders in the pre-procurement or market consultation phase and in the bidding phase itself. In his last report to Government, Malcolm Bates expressed concern at the relative lack of experience of public sector project management teams and identified this as one of his main areas for action. Government's response has been to promote Partnerships UK (PUK) to supply expert services to the public sector as well as pump priming by taking equity investment in lieu of fees. Whilst this may work for a handful of projects the fact is that it will not touch the vast majority of projects that will be coming forward.

History to date suggests that the public sector will continue to be reluctant to appoint a rounded, experienced team of advisers at an early stage to work with and support in an effective manner the internal resource of the organisation at a crucial stage in the development of the commercial, legal, financial and technical understanding of the project. This will often be further exacerbated by the adoption of a market consultation process which requires interested parties to contribute for nil return to the development of the public sector’s appreciation of what is possible. But the risk of abortive expenditure does not cease at this stage and continues through to the procurement process itself.

At selection stage, interested parties are often faced with a requirement to supplement seemingly exhaustive questionnaires by presentations at interview that are not limited to merely confirming the information already provided but extend to possible solutions in response to an indication of the public sector's likely requirement in advance of formal tender documents being issued.

Apart from the fact that this process is managed in the absence of the considerable detail associated with tender packages and data rooms, it also sits uncomfortably with the EU procurement rules that have specific requirements in terms of selection criteria and the need to separate evaluation issues.

Once into the process itself, any failure to define a strategy for the services and assets to be procured will feed into a lack of definition and commercial detail in the documents themselves. Too much reliance will be placed on 'innovation' in the sense that the public sector requirement may be incompletely defined and the parameters for submitting variant bids similarly vague.

Bidders must play their part by creating the environment in which best practice is fostered at all stages and competitiveness is blended with commerciality.

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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