As discussed in section 2.1, public officials seem to find it difficult to avoid using competitive tendering as a vehicle for low-price procurement. While such an approach may be appropriate for highly commoditised services where quality is readily determined and there is little need for innovation, it is extraordinarily dangerous with complex public services. It often leads to 'winner's curse' procurement, where the successful bidder bids too low, resulting in a 'race to the bottom' in workers' terms and conditions, weakening service quality, undermining profitability and ultimately compromising the political and commercial sustainability of the market itself.
The industry has pleaded with government over many years, not to engage in low-price procurements. They are fully aware that they and their competitors will find it difficult to resist the temptation to bid, and that the industry may suffer as a result.
Ministers and public servants need to understand that, for a time at least, companies may be induced to act against their medium- to long-term interests. Concerns about profitability and corporate brand will not necessarily act as a natural brake in aggressive price-based procurements. But the fact that departments and agencies have continued to pursue lowest price, in spite of being told repeatedly that government's objective was best value, suggests that the public sector finds it difficult to take these lessons on board.
Needless to say, the tendency to low price procurement and the unfortunate consequences that follow are exacerbated where ministers openly declare that government purchasing systems are to be explicitly used to drive down cost. This is one of those issues where the private sector has very little to contribute - it is government's responsibility to understand the reasons why procurements so often favour the lowest price over value-for-money, and to introduce systems and processes to compensate for the bias.
It is acknowledged that from time to time, governments will take the view that they must significantly reduce public spending over the short term, and that civil servants will be obliged to implement government policy. Done well, competitive tendering can be a powerful tool for delivering improved value-for-money, but there is a question whether it can be safely used when governments are facing extreme financial stress.