Exploding Carillion Myths – Some Nonsense We’ve Heard Recently

Over the past week or so, the Carillion failure has led to millions of words being written and spoken in the mainstream media. Much of it has been well-informed debate, even if political viewpoints inevitably get in the way sometimes of rational analysis. I’ve found Nils Pratley in the Guardian particularly good – not too partisan politically and very insightful.

However, we have seen some more dubious, ill-informed or just plain daft comments as well, from journalists, the public in “comments” below articles, and even at times politicians. So here are four of those myths, thoroughly busted.

  1. “The private sector should have no role in delivering public services”.

This tends to come from “comments” section although certain journalists and politicians have got pretty close to this viewpoint. But really? No role at all? So no pharmaceuticals or medical equipment to be used in the NHS? No taxi drivers taking disabled kids to work? No software from SAP, Microsoft or Google to be used in government? No fuel oil from BP in our fighter jets?

Clearly, such a broad-brush generalisation is ridiculous. There are very valid questions to be asked about where the private sector is best used, the extent, scope and range of outsourcing and private provision, but sweeping statements just don’t help the debate at all.

 

  1. “We couldn’t stop Carillion winning contracts after their profit warning / couldn’t take their financial situation into account”.

There is considerable scope under EU and UK procurement regulations to take the financial situation of bidders into account in procurement processes. There has to be some logic and reasonableness in what is done, but aspects such as the strength of the balance sheet can certainly be tested and can be enough to exclude a firm from bidding.

It is somewhat trickier if the situation worsens during the bidding process – indeed, Carillion won a large contract literally days after the profit warning was issued. That contract was probably the result of a year or more of bidding process. The problem there is two-fold. Firstly, whether the buyer stated that the initial financial evaluation could be re-considered at a later stage during the process (I have seen that point covered in tender documents) and secondly what would happen next if Carillion had then been excluded. Would the process have to be re-run? But in any case, it is not “EU regulations” or “the law” that means firms in a dodgy position can’t be excluded.

 

  1. “We shouldn’t always choose the lowest bids in tendering processes”

We have seen a lot of this type of comment, suggesting that Carillion bid too low on certain contracts and this was a contributing factor to their failure.  Alistair Osborne, usually a very good business correspondent in the Times, said “routinely picking the lowest bidder is asking for trouble”. We would love to ask him what he suggests buyers should do? Pick the highest bid? The second lowest? Choose randomly? Give the work to whoever bribes me (or the Minister) most impressively, the way it works in many countries?  However, the fact is that anyway the lowest bid doesn’t always win government contracts, which takes us nicely onto the next point, a slight variant on this -

 

  1. “Government buyers should look at more than just price when awarding contracts”

We / they do. I struggle to think of a single public sector contract I have worked on (as civil servant,  bidder or adviser) that only looked at price/cost. There are virtually always other “evaluation criteria” that consider other factors around quality, service, innovation, management processes, etc.  Indeed, in many cases we might argue cost is not given a large enough weighting in the overall evaluation methodology. So, I’ve worked on contracts where the most expensive bidder won, where the lowest bidder also offered the best quality and scored highest on those non-cost factors, and times when there was a tricky trade off – slightly higher costs for slightly better product or less risky bidder.

 

Voices (10)

  1. John Jones:

    I go back to a comment I made earlier in the week – Crown Commercial Service has, as “custodian” of the strategic supplier community to Government, has a duty of care both to itself and the wider government community ( and us as taxpayer’s) to understand better the financial and commercial exposure of its strategic suppliers – this includes formal D and B reports but also, informal discussions with Commercial Directors across. Government.

    An open internet search would /could have identified some cash flow issues being faced by Carillion on some of their high profile international contracts.

    Carillion cannot and should not be absolved of any poor commercial bidding practice , equally the Intelligent Customer Function within the commissioning department supported by CCS needs improvement.

  2. Peter Smith:

    Good point Charlie. The other thing is that the marking methodology for price has a big effect on how important “price” really is (or is not). It is not just the headline weighting that matters. I’d also point out that the most commonly used marking method for price would not stand up to challenge in court because it is intrinsically illogical and unfair. (Both the Oxford Uni Professor of statistics and I thought so when we were expert witnesses some years ago!)

    1. RJ:

      Hi Peter, I’m not sure what you consider the “most commonly used marking method for price” to be, but if it’s the one where the cheapest price ranks 100 points and then all other prices are scored as cheapest price divided by bid price multiplied by 100, so that a bid that is double the cost still scores 50 points (and a bid that is five times as expensive still scores 20!) then I agree. this means that even in situations where logic tells you that the weighting should be 70:30 or even 80:20 in favour of “quality” issues, you still have to weight “price” more highly simply to avoid the gold-plated solution always winning, regardless of whether it is ten times the cost of an acceptable, but maybe not quite so perfect, solution.

      In the private sector I’ve always preferred to take pricing completely out of the scoring process (if indeed I have to resort to formal scoring, rather than ranking) and to frame the question as “is the bid that scored 82% worth £x more than the bid that scored 78%?”

      Unfortunately, I’m yet to agree with my public sector colleagues how to include a similar assessment into their bidding processes due to “transparency” issues. Any thoughts welcomed. That being said, in my current (public sector) role, like you I have dozens of examples where the lowest bidder lost.

      1. bitter and twisted:

        I like this. If you cant put a price on a feature, why are you buying it ?

        1. RJ:

          Yes, it’s obviously easier to price a “feature” of a product and it does get a lot harder to quantify services, but it’s still worth the challenge – even to senior stakeholders wanting to book their favourite consultant or IT teams who happen to prefer a certain contractor or service provider.

      2. Peter Smith:

        Yes that is the method I’m referring to and i thin it would not stand up to a challenge in court.
        i think you can take your “private sector” method and engineer a scoring system for price that reflects that. The issue is you then have to overtly tell the suppliers the range and the value / price relationship e.g. “a bid of £50 will score 100 points and a bid of £150 zero with a pound a point in between”. But there are some issues with this approach too! I’ll publish something else on this soon…

  3. Final Furlong:

    Great comments Peter. Spot on.

    There is also an interesting strand of discussion aligned to ‘central vs devolved’ procurement. Many authorities awarding contracts to the same firm at the same time often pulling on the same resources, while it is encountering a major, often public issue. Seems that ‘central procurement’ solves this. Makes the brain hurt.

    Someone, perhaps a professor, should shape this into a white paper entitled “The Lemming Effect”. Contrary to popular belief, lemmings aren’t suicidal, but they do mass-migrate across large waters and lakes, and many often drown, having blindly followed the confident (yet short-sighted) lemming in front of them…

  4. Craig:

    “Government buyers should look at more than just price when awarding contracts” – I’ve seen this one written a few times too. No one, public sector or not, is buying based purely on price are they? A truly bizarre comment.

    1. Final Furlong:

      I have seen a tender where the evaluation criteria on price was weighted at 98%. Steel for a (large) bridge. But very rare. typically 60%. When social value is featured, price drops to 25%, or below.

    2. Charlie Middleton:

      I have seen contracts awarded by major Government departments which said they were something like 30% quality and 70% price but the quality questions were “Do you confirm you will meet the requirements in section 1?”, “… section 2?” etc. Each was a Yes/No answer and if you answered no to any of them you were excluded. So whilst it said 30% quality they did no real evaluation of quality and it was 100% price.

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