My Lords, I have Amendments 120 and 129A in this group. I will also speak to Amendment 119 in the name of the noble Lord, Lord Mendelsohn, and my noble friend Lord Best’s Amendment 131. Perhaps Amendments 119 and 120 should have come up on Monday, when we were discussing SMEs.
Amendment 120 seeks to address the barriers faced by smaller providers and charities through specifications that disqualify or discourage them from bidding. These typically stem from process taking precedent over
purpose, or from narrow or mistaken interpretations of procurement rules. Lloyds Bank Foundation research has found numerous examples of disproportionate thresholds being imposed—some of which we heard about on Monday—including requiring suppliers to demonstrate income unrelated to the size of the contract being tendered for, requiring evidence of having previously delivered contracts much larger than the one tendered for, or unreasonable insurance requirements.
Excessive requirements at the pre-qualification questionnaire—PQQ—and invitation to tender—ITT—stages can also act as significant barriers. To cite one example: a youth association applying to be added to a framework of suppliers linked to the troubled families initiative had to complete a 49-page PQQ and 99-page full tender. Greater clarity is needed about what a proportionate approach looks like.
My Amendment 120, which the noble Lord, Lord Mendelsohn, has also signed, seeks to add a requirement for contracting authorities to include consideration of the impact of conditions on the ability of a broad range of suppliers, including smaller businesses and charities, to access public contracts as part of their assessment of proportionality. Without this, there is a danger that smaller providers will continue to be disqualified on technicalities or by arbitrary barriers, even where they are well placed to deliver the service or are already doing so.
I have also added my name to Amendment 119 from the noble Lord, Lord Mendelsohn, which would allow for conditions requiring suppliers who seek to participate in a contract to be
“signatories of good standing on the Prompt Payment Code”.
All too often, we hear from small businesses of the Prompt Payment Code being honoured more in the breach than the observance, even by businesses that have signed up to it. Making adherence to the code allowable as a condition of participation seems an eminently sensible way of giving it stronger teeth and I hope that the Minister, who has been so responsive in his willingness to look seriously at many of the good ideas proposed by members of this Committee, will look at this one as well.
Amendment 129A to Clause 22, which is in my name, seeks to ensure that the advantages of flexibility in setting award criteria are not undermined by post-award negotiations or other price and cost uncertainties which could affect, or even invalidate, value-for-money considerations used in awarding contracts. To avoid this, the amendment requires the contract to include
“an objective mechanism for determining price and cost after contract award and before the goods, services or works are supplied.”
Only through such a mechanism for confirming value for money being put in place at the time of a contract’s award is it possible to secure maximum supplier contributions to improving value and reducing risks, including through the early appointment of specialists. This is an aspect of early supply chain involvement and having an objective post-award process to achieve the benefits associated with it.
To give an example, those benefits were illustrated by the innovations, cost savings, reduced carbon emissions and local business opportunities agreed by the Ministry
of Justice with the supplier and specialists engaged on its Five Wells prison construction project after their appointment and before commencement of work on site; this project featured as a case study in the Construction Playbook. So I hope that the Minister will consider this amendment carefully as a way of ensuring that value for money commitments are met in the procurement of any goods, services or works.
7.45 pm
With the leave of the Committee, I should also like to speak to Amendment 131 in the name of my noble friend Lord Best, who sends his apologies; he is speaking in the restoration and renewal debate as the Lords spokesperson on the R&R board. This amendment suggests a rather different approach to ensuring that the outcome of the procurement process will be public contracts that achieve quality and long-term value, rather than simply being cheaper than competing bids. I hope that the Committee will forgive me for explaining this in a little detail.
Each year, the UK housing sector spends more than £18 billion on procuring outsourced works, goods and services. Councils and public authority housing providers have discretion in their choice of a model for determining which tender to accept; it is of considerable significance which evaluation model they select. In her report following the Grenfell Tower fire, Dame Judith Hackitt recognised that procurement sets the tone and direction of the relationship between the client, the designer, the contractor and their subcontractors; a focus on low cost at this stage can make it difficult and most likely more expensive to produce a safe building.
Amendment 131 attempts to stop the continued awarding of public contracts on a basis that gives priority to lowest price, not quality and long-term value. The relative price evaluation model, which has been chosen by many public authorities and was used for the Grenfell Tower renewal, downplays the importance of quality, not least in respect of safety. Adopting this model encourages poor behaviour by those bidding, asking them to provide a price that they guess will be low enough to win the contract rather than a price that is realistic for the contract to be performed. This amendment would prohibit the use of such models.
Their unfortunate consequences are particularly significant for industries such as construction, where margins are low and competition is fierce. Because of the lack of “fat” in the prices bid, successful bidders often need to make up the money they have forgone to win the contract by either cutting corners or submitting multiple variations and claims. This in turn means that cost overruns and public contracts frequently turn out much more expensive than originally envisaged. Because the relationship has been established on a fictional price, the result of the procurement process is mistrust and frustration between the parties. This can lead to substitution of materials specified for ones of lesser quality, as was the case with Grenfell Tower, with resulting disastrous safety outcomes. Other results of this race to the bottom include poor payment practices down the supply chain, numerous disputes and claims, and lack of investment in employee well-being, training and safety provision, as seen in the case of Carillion.
Amendment 131 would mean that, in future, the other factors that generate value in a bid would receive a balanced evaluation, with the price being related directly to the quality of the individual bid. This would create the situation already envisaged in the Government’s playbooks and bid evaluation guidance but currently mostly ignored; it would be interesting to hear from the Minister how he expects that guidance and those playbooks to be better followed. By banning the use of relative price evaluation models, the amendment would transform the currently broken system that so unhelpfully leads to a bidding war based on price, not value. As the old adage goes, “Buy cheap, buy twice”. I hope that the Minister will take serious note of my noble friend’s amendment.