Case studies

Our 2016 investigation into UK Trade & Investment's specialist services contract found that UKTI agreed to negotiate a significant change to the contract after bids were submitted and before the contract was awarded. It was procuring the contract under the 'restricted procedure', whereby the contract should be awarded on the basis of the bids provided by those invited to the competition and there should have been no further negotiation. UKTI and its supplier did not formally record the outcomes of negotiations. Restricting competitive tension exposed it to a risk of significantly reduced value for money from the deal.

Our 2015 report on rail franchising recommended that the Department for Transport develop alternatives to its commercial approach to reduce the risk to value for money in the event of market interest and competition falling. This could involve introducing more negotiation and dialogue with bidders to a better deal.

We found good practice in the way that the Department for Work & Pensions set up its Work Programme (2014 report) contracts, where using two or three prime suppliers in each region helped sustain competitive tension. The Department could shift referrals between suppliers if performance differences exceeded a certain level. In addition, it could issue performance notices to prime contractor suppliers where performance targets were not met. Eventually it could terminate their contracts, with a range of experienced suppliers able to take their place. In practice, the benefits of this approach have not been fully realised as the contractual performance structure made it more expensive to terminate poorly performing suppliers.

In our 2016 report on nuclear power in the UK we found that government paid low-carbon generators the difference between the price they receive for electricity sold and a measure of the average market price for electricity in the UK market. This would cover the gap if the average price fell below the contract. These contracts are designed to create competition between projects and technologies as part of supporting awarding contracts competitively and improving value for money.

HM Revenue and Customs successfully negotiated cost savings on its Aspire contract (2014 report) in 2007 and 2009, but in doing so conceded safeguards designed to preserve competitive pressure. For example, it gave the Aspire suppliers greater exclusivity and suspended its right to benchmark services, thereby losing its ability to assess how well the suppliers were performing against commercial comparators. Recognising their importance, it restored some of the conditions that provided competitive tension in a further re-negotiation of the contract in 2012.

Our 2015 open book report highlighted ways that the Ministry of Defence deals with single source contracts. Where contracts are let without competition, it scrutinises suppliers' costs, systems and overheads to check whether costs are in line with the contract and to forecast the cost of defence equipment and support. It collates supplier information to support this.