6.33 The Interim Report stressed that clients should choose their contractors (and consultants) on a value for money basis, with proper weighting of criteria for skill. Choice of the lowest tender may neglect considerations of cost in use or indeed final (out turn) cost of the project. The Association of Metropolitan Authorities commented "as a matter of public accountability and, in some cases, legal requirement, local authorities are at present compelled to accept the lowest valid tender." (Letter to CIPS Assessor, April 1994.)
6.34 This concern was echoed by a senior official of a particular local authority:
"Local authorities are severely hampered by being forced to accept the lowest tender. I know that we are not so forced but the overpowering attitude of local authority officers is that for all intents and purposes we are ... I could envisage a quite dramatic reversal of the adversarial attitudes if local authorities, or any other employer group for that matter, chose the tenderer who quoted closest to the "average" price as a matter of principle and let the tenderers know that from the outset. It might cost the employers some money "up-front" but would allow for more accurate budgeting and forecasting than is currently the case". (Source: Letter from Mr John Lane, External Client Manager, Brighton Borough Council April 1994.)
6.35 The National Audit Office have made it plain that it is not necessary to choose the lowest tender. The best tender should be accepted. The NAO expect clear evidence that a public authority has been through a considered route of evaluating tenders if the lowest is not to be chosen. Some evidence to the Review has suggested that the lowest and highest tenders should automatically be discarded. I do not agree. One of those tenders might be the best one. Some public authorities see the danger of choosing a tender which is too low to generate any profit for the contractor. Leicestershire County Council has recently introduced a procedure for evaluating the performance of contractors. The Director of Property ,writes:
"The objective of this procedure is to provide a structured and equitable means of assessing each contractor's performance, against set criteria, which will include workmanship, site supervision, cost control, adherence to programme, contract administration etc. Evaluation results will influence the selection process for future contracts and poor performance could lead to contractors being considered for removal from the County Council's standing list ....
"Whilst the Department of Property continues to procure construction work for its clients on a "most cost advantageous" basis, because there have a limited number of instances where abnormally low tenders have been matched by substandard performance, it is intended that the evaluation procedure will facilitate a sensible "value for money" basis for future contracts, where cost and quality are the key factors.
"Initially, to assist in setting up a computer database, the performance of contractors on all contracts achieving practical completion in the last twelve months will be evaluated. The procedure will then be implemented for every current and future contract." (Source: Letter to contractors from Mr P A C Smith, Director of Property, Leicestershire County Council, 14 March 1994.)
6.36 That robust approach should be welcomed. Best procedures should be the norm. I have already made recommendations regarding selection/qualification procedures. They will take some time to introduce. Meanwhile, the DOE should include in the CSCP a recommendation that public authorities, including local authorities, should seek to evaluate all tenders on the basis of quality, likely cost-in-use and out turn price and known past performance, as well as price. It should also state that auditors will be prepared to accept that price should not be the only criterion, provided that a clear audit trail is established by which quality is assessed. A clear statement of Government policy along those lines will, by itself, be of significant assistance and comfort to public clients45.
6.37 It may be argued that if a responsible qualification system has previously been gone through, there is no need for further scrutiny of tenders. Indeed, the NJCC Code for Selective Tendering says so. "The object of selection is to make a list of firms, any one of which could be entrusted with the job. If this is achieved, then the final choice of contractor will be simple - the firm offering the lowest tender. Only the most exceptional cases justify departure from this general recommendation." Unfortunately, clients also need to protect themselves against apparently responsible qualified firms which are prepared to "buy" work at an uneconomic tender price simply in order to generate cash flow. When contracts are won on a price which can only produce a loss for the main contractor, the likelihood of a contract dominated by claims, and of disputes between main contractor and subcontractors, is extremely high. Clients, with their professional advisers, need to be able to reject an apparently financially advantageous tender because it is uneconomic. Alternatively, a higher tender may offer a client a new approach or save on the whole life cost of the project. In drawing up criteria for such decisions, the advice by the CUP relating to competitive fees for consultants is equally appropriate regarding contractors. "A loss making contract is normally a recipe for trouble"46. The criteria used for evaluation should be included in the tender documents. For contracts subject to EU requirements, this is already a requirement.47 Uneconomic tenders subject to EU directives cannot be rejected out of hand. Tenderers must be allowed to seek to justify them.
6.38 Preparation of tenders should not be hurried. The NJCC Codes of Procedure set out clear and specific time scales to be allowed for the submission of tenders, and these should be followed. If the main contractors are rushed to prepare their documents, it is inevitable that pressure will be placed upon the subcontractors as well. Other aspects of good practice contained in the NJCC Code such as opening of bids, notifying all tenderers of the outcome and post-tender project planning should also be adhered to as a matter of course by clients. A hasty project is unlikely to proceed smoothly Everyone will lose, and the client most of all.
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45 I understand that in CCT Guidance to local authorities which is due to be published in June on the "Avoidance of Anti-Competitive Behaviour", the Government makes clear that it is for local authorities to decide on the appropriate balance between price and quality and to select the appropriate tender accordingly.
46 CUP Guidance Note 23.
47 See CUP Guidance Note 26B paragraph 5.2.