6.2 It is now widely - if in some quarters reluctantly - accepted among consultants that competitive fees are a permanent feature of their work. While I have received suggestions that consultants should return to compulsory fixed fee scales published by their professional Institutions, that is not regarded as realistic by many professionals themselves, let alone by other parts of the construction process. The Construction Industry Council, in its policy statement "Competing for Quality" (December 1992) states that "Professional fee scales are no longer relevant or appropriate"25. The Council's basic preference is for fees to be negotiated between client and professional consultant. CIC added that, if a competition route is to be followed, it should involve a proper prequalification process to ensure that firms of equivalent capability, capacity and skill for the project are invited to tender. There should then be clear procedures for inviting, opening, assessing and awarding tenders. The CIC asked the Government to require public authorities to follow such procedures.
6.3 In his reply26 to the Chairman of the CIC, Mr Ian Dixon CBE, on 12 February 1993, the then Secretary of State the Environment, Mr Michael Howard, made the following points:-
1. The procurement of professional services was not amenable to one system. Local authorities who were being required to introduce Compulsory Competitive Tendering (CCT) for professional services should be allowed flexibility.
2. The Government could not accept negotiation as the main route, though it might be suitable in some circumstances.
3. Government policy was based on the premise that competition was the best way to achieve value for money. But price had never been the sole criterion. Quality judgements were recognised as an ''essential part of good procurement practice".
4. He expected Government Departments to review the effectiveness of recent competitive fees "as a matter of course". The Central Unit on Purchasing also maintained an overview of project costs.
5. The Department, and other public sector clients, were involved in a study of the issue by the Construction Industry Research and Information Association (CIRIA). They were in discussion with Local Authority Associations and others about how to implement CCT.
6.4 Government Accounting and the Government's "Public Purchasing Policy: Consolidated Guidelines" have also made clear that value for money, not lowest price, should be the aim. This was endorsed in the White Paper "Competitiveness - Helping Business to Win" (HMSO, May 1994). This is an area of policy where it is difficult to assess the effects. Few professional consultants are likely to admit openly that they have personally reduced their services because of competitive fees. Such competition is now extremely widespread. A survey published by "New Builder", (25 March 1994)) of 327 professional services firms found that 39% of firms currently earn more than 70% of their commissions on a competitive fee basis. The equivalent figure for 1991 was 14%. Conversely, the proportion of firms negotiating more than 70% of their commissions has fallen from 55% in 1991 to 29% in 1994. This trend continued during 1993, a period in which market conditions showed some improvement for professional consultants, suggesting that clients now expect this to be the normal procurement route. Some well known firms in the survey were reportedly obtaining over 80% or even 90% of their work through competitive fees.
6.5 Since many firms have adapted their approaches to winning work to involve competitive fees, it might be thought that events had overtaken the concerns of the CIC. But there are some thought provoking comments from firms of architects in the report of the RIAS entitled "Value or Cost" (op.cit.). For example:-
1. "Much of their work is done as a technical loss Divisions in plan of work are crumbling. Will fight to minimise investment, visits to site will be limited and there is a fortnightly cost control meeting. Number of production drawings cut by 30%."
2. "We look to limit our service in the fee tendered service and are prepared to claim for extra services. We only make the client aware when appropriate. We cut back on [stages] A to D, and severely limit service after [stage] G, and are ready to claim for any additional efforts. We cut down on meetings/site visits/number of drawings and manufacturer's drawings. We do not do site minutes, we design it only once, and alterations will be on time."
3. "The fee tendered service may not exclude any of what used to be included in a normal service, but may alter depth, and probably rule out record drawings".
6.6 A recent survey27 by the Association of Consulting Engineers (ACE) found:-
a. 73% give less consideration to design alternatives;
b. 31% give less consideration to checking and reviewing designs;
c. 40% consider that the risks of design errors occurring are higher;
d. 74% admit that they are producing simpler designs to minimise the commitment of resources to a task;
e. 60% consider that capital costs of construction and operation are higher as a result of (d);
f. 84% assess the number of claims for additional fees to be higher;
g. 33% thought the frequency of problems on site are higher;
h. 49% said the frequency of visits to site are lower;
i. 29% said they pay less attention to environmental concerns;
j. 12% pay less attention to health and safety both in design and on the site;
k. 67% resist client changes to designs;
l. 69% see less trust between client and consulting engineer;
m. 79% are spending less resources on training graduates and technicians;
n. 77% are spending less resources on Continuing Professional Development training and courses;
o. 75% are spending less time on the writing of professional papers;
p. 56% are devoting less time to professional activities;
q. 94% bid low to maintain the cash flow or (on occasion) to test the market;
r. 35% bid low with the intention of doing less than in the enquiry;
s. 61% bid low with the intention of making up fees with claim for variations.
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(Source: ACE evidence, May 1994)
6.7 The selection arrangements of Government Departments vary. The DOE has a register of consultants (ConReg). As of 23 February 1994, there were 3239 names on it28. Other Departments such as the Ministry of Defence (MOD) and the Department of Transport (DOT) have their own databases for consultants (only for Project Managers in the case of MOD). The MOD (Defence Works Services) retains a Project Manager (PM) through a competitive tendering system involving two envelopes, and it is the PMs responsibility to retain the other consultants and to pay their fees. Both MOD (whose processes are currently under review) and the DOT give some weight to quality considerations29.
6.8 Clients have the right to expect the highest possible commitment to their project from their consultants. They should also know in advance how much they will have to pay for a full service or, if they want a restricted service, what it will involve and how much it will cost30 . Government Departments should give a lead to the public sector, and hopefully also influence private clients by their example.
6.9 There is a need for an objective and generally accepted system which will allow a proper qualitative as well as price assessment of consultant bids for creative professional services. Such objective criteria are essential for public sector procurers, in assessing value for money and in convincing public auditors that they have pursued a clear and defensible route in their choice of consultants. The National Audit Office have indicated that the selection of tenders other than the lowest in the wider interests of value for money is acceptable31 . There is a strong case for public sector clients to justify the appointment of any consultant on value for money grounds irrespective of whether they are the lowest bid. The Central Unit on Procurement Guidance Note no 13 "The Selection and Appointment of Works Consultants" also stresses the need to choose the best consultant teams, based on past proven performance, qualifications, experience, competence and availability of resource, and involving a prequalification system. It also warns against accepting a tender which will result in the consultants undertaking the work at a loss32.
6.10 At least three organisations are currently involved in preparing such detailed objective criteria for assessing quality as well as price. They have shown me their documents, either complete or in draft. They are:-
1. The Association of Consulting Engineers, which has already published "Balancing Quality and Price - Value Assessment and the Selection of Consulting Engineers".
2. The CIC, which as this Report went to press, was about to publish its own document entitled "Guidance for the Value Assessment of Competitive Tenders".
3. CIRIA, which is still considering a draft guide prepared for it by Davis, Langdon and Everest Consultancy Group, following extensive research of current practice in both the public and private sectors.
A consultation paper was issued in February 1994 by DOE relating to the extension of Compulsory Competitive Tendering to local authorities' construction related services. This suggests that it is for local authorities to make decisions on the appropriate balance between price and quality in evaluating tenders under CCT. The Local Government Management Board, on behalf of the Local Authority Associations, published guidance on assessment of quality in the application of CCT in March 1994. Neither document contains a numerical method of assessing quality, unlike those listed above, and were not intended to do so.
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25 "The Procurement of Professional Services", published by Thomas Telford Services Limited on behalf of the CIC, 1993. The policy statement ''Competing for Quality" is on pages 2 & 3.
26 Letter from the Rt. Hon. Michael Howard QC, MP.
27 The ACE surveyed 68 of its members who were representative in terms of size and discipline. 53 questionnaires were returned, of which one was discarded.
28 Parliamentary Answer by Mr Tony Baldy MP, Hansard, 23 February 1994, Written-Answers Col 262. See also a separate answer from Mr Baldy on 9 March (Hansard Column 296) regarding the use by other departments of CMIS and ConReg. Both replies were to Mr John Spellar MP.
29 "Obtaining quality and value through competition in the procurement of professional services - Research Report", (currently unpublished) by Davis, Langdon and Everest for CIRIA.
30 In that regard, the Ground Forum has recommended:-
(1) consulting engineers bidding for a commission should specify either their in-house expertise on geotechnical engineering, or how they intend to obtain it; and
(2) universal compliance with the National Site Investigation Specification. (Evidence, April 1994)
The Review has not been able to examine these specific proposals in the time available, but they should be considered by the taskforce recommended in paragraph 6.11 (5).
31 "We take the view that the selection of tenders other than the lowest is acceptable as long as the reasons for the choice are clearly and convincingly stated". NAO memorandum of 4 December 1992, reprinted in "British Construction; in pursuit of excellence" by Clive Priestley CB, published by the Business Round Table 1994, page 41.
32 See paragraph 9.1 to 9.7 of CUP 13 (which is currently being updated by the CUP).