How to Avoid Procurement Legal Challenges

By Richard Kerr on October 3, 2012

Avoid Procurement Legal ChallengesThe Government’s decision to pull out of letting the West Coast Main Line contract to FirstGroup is a costly and high profile example of the ramifications of a formal legal challenge on a flawed procurement process.

This is quite a back-down from the robust response given by the Government when Virgin first announced its legal challenge of the decision to award the West Coast Main Line contract to FirstGroup. At that time a DfT spokesman was reported as saying: “We are confident our process is robust and that the decision was absolutely the right one for taxpayers and passengers. We expect to sign the contract soon.”

Evidently the DfT has now thought better of it, pulling the contract resulting in what’s estimated at £40m costs and a huge amount of wasted time and effort and fractured relationships, which, at best, will put the parties back to the start of the process.

Lessons Learnt Awaited

Two formal reviews have been instructed. The first to examine how the West Coast franchise competition went wrong, and what lessons can be learned; the second to look into the wider DfT rail franchise programme. There is a risk that the whole franchising programme will be derailed.

The Increasing Prevalence of Legal Challenge

In Best Practice Group’s experience there is a growing tendency for unsuccessful bidders to mount a legal challenge, often under the EU Remedies Directive. This case shows starkly how costly and destructive a successful challenge can be to the procurement process, the public purse, and people’s reputations. The time lost in flawed procurement exercises such as this often means that the requirement has moved on to such an extent that the procurement is not re-run.

Practical Steps to Take to Avoid Procurement Legal Challenges

In this instance Virgin’s perception was “The current [procurement] process is geared to selecting the highest-risk bid and needs to be independently audited to prevent a repeat of former franchise failures.”, and Shadow Transport Secretary Maria Eagle’s letter to her Government counter-part reported as stating FirstGroup’s bid was “significantly higher than any other bid” the decision being “almost exclusively a ‘bottom line’ one, driven by a particularly high pledge of payments to government”.

Such comments of course indicate the importance of having a balanced evaluation strategy which is robust and will withstand scrutiny in the event of challenge. Withstanding challenge is one thing, withstanding challenge whilst selecting the best provider for meeting the requirements and outcomes at the most favourable price, quality and time scale is quite another.

In our experience for a procurement process to be effective it must combine multiple threads; the key things being:

  • A clear process for the competition, and clear details of how the competitive process will run all the way through to selection of preferred bidder (and for the bidders to have confirmed acceptance of the process and its validity)
  • A fair competition to identify the most economically advantageous offer, whilst providing the environment for the parties to effect adequate and suitable due diligence to identify and effectively mitigate foreseeable risks, issues and known unknowns
  • A clear commercial model and payment structure which is designed to incentivise all parties to successful outcomes and on time on budget implementations
  • An evaluation method which, though based on obtaining the most economically advantageous tender, does not put pure arithmetical cost modelling above the certainty of delivery across the life of the contract.

Our experience is that often, particularly in the pubic sector, the buyer can place too much reliance on robust contract terms which seek to transfer all risk to the provider, and or on stringent financial clauses which give a false sense of security. The constant figures of project failures and cost over-runs are testament that the contract and financial penalties alone, even if they do seem to transfer risk, are simply not enough to rely upon for success. The above elements ensure that there is a fitting contract and commercial mechanisms, but more importantly a very clear route and understanding of what all parties must do to ensure success.

The inexplicable thing is that nothing within the above approach is pie in the sky or untested. These processes and techniques for ensuring a robust procurement process and successful projects and programmes already exist and are proven in several hundred instances, particularly in the public sector.

As it is, we await another lessons learnt – at taxpayers’ expense.

 Image courtesy of  istockphoto.

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