Contractors who submit unrealistically low bids for public sector contracts face “intense scrutiny”, a senior government official has warned.
Fergus Harradence, deputy director for infrastructure and construction at the Department for Business, Energy, and Industrial Strategy (BEIS), told a webinar hosted by the Building Engineering Services Association (BESA) that any bids that appear unrealistically low will be rejected unless the bidder has a plausible explanation.
Speaking about new procurement rules contained within the government’s Construction Playbook, Harradence said: “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. 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.
Harradence said: “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.
“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.”
Offsite manufacture and direct employment
Harradence also predicted that as much as £35bn of the £50bn worth of projects currently in the central government pipeline could be delivered through offsite fabrication.
Meanwhile, he 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 said.
“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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Clients facing budget pressure will manage to convince themselves that the lowest bid is not unrealistically low in the face of almost any evidence to the contrary. Particularly if the project budget has been set unrealistically low as well. The unrealistic budget supports the low bid and the low bid supports the unrealistic budget. All the other prices and evidence are simply ignored.
If we ever get serious about changing the situation we will start by ending practices like judging the client’s in house team by simplistic metrics such as whether the quotes were cheap enough. Then we might move to awarding maximum commercial marks to the second placed tender. The solutions are there waiting for us when we are willing to start looking.