BBC File on Four – cost versus social benefit in train procurement

The final section of the recent BBC Radio File on Four programme (see parts 1 and 2 of our review here and here) looked at the award of the Thameslink train carriages contracts to Siemens rather than Bombardier, whose factory, unlike Siemens, is in the UK (Derby) .

The decision appears to have been based on bundling together the manufacturing of the trains with the financing for 30 years. Siemens “owns a bank” which gave them an advantage, according to the programme. I believe that interpretation of the methodology is correct – Department for Transport have published the tender documentation, including the evaluation process, so that was never a great secret.

I’ve taken a look at the documents, and it is clear to see what happened. The early stages of the tendering process looked at a wider range of factors, but the final BAFO stage was a pure whole life cost calculation – factoring in reliability, maintenance and failure costs, as well as financing, to give a true lifetime cost analysis.

That all seems sensible – but it looks like DfT did not take into account the impact on British jobs or follow the “community benefit” type strategy that the Welsh government is pursuing.

Is that the wrong thing to do? Siemens would argue they are employing a lot of UK workers in various parts of the supply chain, even if they don’t build the carriages in the UK. And ultimately, doesn’t the taxpayer want the best value supplier?

Back to the programme.

We’re now moving into the Crossrail procurement – again we see Bombardier and Siemens in the running. Now procurement policy has apparently changed. Bidders will be required to set out how they will engage with wider supply chain, provide jobs, etc. That all sounds more in line with what happens in Wales, described earlier in the programme. Justine Greening, the UK’s Transport Minister, calls it “responsible procurement” . The BBC interviewer, Gerry Northam, asked Francis Maude, the Cabinet Office Minister responsible for procurement, what he thinks of Greening's comments.

“I haven’t seen the exact quotation“ he said, not a good start, but he then got onto slightly firmer ground as he tried to tread the fine line between proper procurement, value for money, and supporting the community benefit type ideas.  He also pointed out that Siemens would create jobs in the UK as well.

The programme’s final wrap up was a very good summary from Northam . Governments want to support their domestic economies through public procurement, but they also want to get good value for their taxpayers. So do governments choose the lowest price bid and save the taxpayer money, or support  SMEs and the unemployed through creative use of public procurement and contracts? Because, as Northam finished by saying,  “what they can’t do is choose both”.

That is, in a nutshell, the issue and the problem.

And you can still listen to the programme here.

Voices (3)

  1. John Diffenthal:

    … and having made a comment about the difficulty of forecasting true lifetime cost, Gordon Murray has mentioned an example in his blog:
    http://drgordy.blogspot.co.uk/2012/04/tac-and-choice-of-fighter-jets.html

  2. Gary Barker:

    It is about time that the UK government established and economic policy that takes into account the social value of having British owned manufacturing, essential services and utility providers.

    Unfortunately for the past 15 years we have been ruled by government that knows the cost of everything, but the value of nothing.

    German and French governments have grasped this concept decades ago and have stuck to this policy. Now you can see the success they have in key manufacturing, technology and a willingness to invest now for the long term benefit of their society.

    The time is now for the British government to stop the cycle of decline and create the circumstances for encouraging investment in the UK, supported by UK funding.

    Gary Barker
    Nottingham

  3. John Diffenthal:

    “I haven’t seen the exact quotation” is a deflection which prevents the interviewer from probing very far into the detail of what was said. Other forms include (but aren’t limited to) I haven’t read the article / seen the interview.

    The concern I have in this piece is your use of the term “a true lifetime cost analysis”. It’s a forecasting model or an aggregation of forecast data provided by the suppliers. The only thing we know about forecasts is that they are wrong in timing or in value. We have know way of knowing at the analysis stage which forecasts are the most accurate. The error bars on the forecasts for the different suppliers may well overlap.

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