The Construction Playbook says that the contractual 'payment mechanism and pricing approach including limits of liability should reflect the level of risk and uncertainty in the scope of requirement and will be subject to greater scrutiny' (p.51). The strategy, procurement process and contract for any public sector construction framework should recognise these requirements and ensure that they are adopted when calling off and delivering framework projects and programmes of work.
In order to ensure a fair return for suppliers, framework prices should identify fees, profit and overheads separately from other costs. This opens the door to framework systems through which clients and suppliers collaborate in examining other costs and in seeking efficiency savings as an aspect of improved value. However, the challenges identified by review participants include the tendency for the evaluation of fees, profit and overheads, at framework level and at call-off, to drive a race to the bottom in quoting the lowest fees, profit and overheads.
This is often combined with non-collaborative practices by which tier 1 suppliers recover additional profit from tier 2 and 3 supply chain members through means such as hidden discounts or supply chain rebates. Participants suggest that more effective evaluation practices should place greater emphasis on understanding how innovations, efficiencies and other benefits are delivered through the quoted fees, profit and overheads of prospective suppliers rather than comparing only the amounts themselves.