The direction of construction procurementOctober 8, 2018
10 years ago the procurement of public sector projects in Northern Ireland was characterised by: PFI and D&B, the contract of choice was JCT and contractors were selected using bespoke tender competitions (generally on lowest price or ‘most economically advantageous’ submissions). In the intervening years since the economic crash there have been significant changes to the contracting environment with:
- PFI projects all but dead and two stage tendering making an entrance;
- An increasing number of contractors being selected from frameworks
- NEC being the contract of choice with the Central Procurement Directorate (CPD) introducing standardised z-clauses; and
- The consideration of ‘mean narrow average’ tender evaluations.
Mean Narrow Average as a means of assessing the pricing section of tender is a recent reintroduction in the Northern Ireland market, first being used by the Department of Education in their consultant frameworks some years ago and by the University of Ulster for their GBD Development. Whilst there are clear advantages in preventing the race to the bottom which is clearly evident over recent years and which can put contractors and consulting businesses in difficulty producing below par results, one is also aware that it could have potential challenges under procurement law. Whilst CPD and local Construction Industry are supporting this evaluation tool, all parties are aware of the potential risks arising from a disgruntled unsuccessful bidder where Mean Narrow Average is used.
That being said, limitation periods set out in the Public Contracts Regulations 2015 may require action to be taken before results are known or risk being out of time unless the receipt of new knowledge can be proven. Also, more recently, CPD are considering the use of two stage tendering for the procurement of large public sector projects through consultation with the local Construction Industry after some high profile procurement failures.
Two stage tendering is the process which sees contractors competing for preferred bidder status at stage one with more detailed negotiations between the client and the preferred bidder at stage two. The advantages and disadvantages are:
- More flexibility than one stage tendering
- Increased Employer involvement in its project
- Can allow for an earlier start
- Pricing is on more complete information
- Risk allocation more developed
- Deeper understanding by the contractor of the requirements
- Less resource intensive for contractors at stage one
- Collaboration can lead to better relationship during the construction phase
- Methodology can adapt
- The time gained in starting early can be lost in protracted negotiations
- The preferred bidder may not be incentivised to be competitive once others excluded
- Potential for procurement challenges
- Additional fee incurred by the Employer for pre-construction services
- If agreement is not reached between the parties, the Employer will have to start again
- Recoverability of fees is an issue if parties do not reach agreement
Two stage tendering, prevalent throughout GB, therefore has many pro’s and con’s both practically and legally. As with all new procurement methods there will be lessons to be learned and the process will evolve with the industry locally.
Frameworks are becoming increasingly common as a means of appointing contractors/ consultants and are something we regularly see in our practice. There are a number of reasons for this:
- Political situation has impacted the procurement and delivery process for projects
- Reduced risk of procurement challenges by using an already established framework
- Cost of procuring reduced
- Economies of scale
It is therefore of vital importance that the industry is aware of frameworks being set up that include Northern Ireland. Frameworks have the potential to develop strong relationships between client organisations and the market which can be beneficial for both parties. There is a clear risk of being unable to tender for valuable works that traditionally would have been procured directly by the client.
The landscape of construction procurement is ever changing and with the potential move to two stage tendering, mean narrow average and the increased use of frameworks, only time will tell if the industry really embraces them or if the industry itself will refer the matters to the courts for adjudication.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.
This article is also available to view in the current issue of The Northern Ireland Market Intelligence Survey 2018.