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Councils stick to lowe est price

English local authorities spend more than £12 billion a year on construction.But, despite drives to improve procurement practice, a Construction News survey shows that councils are still giving most contracts to the cheapest bid. Russ Lynch reports

FOR THOUSANDS of contractors of all types, work from local authorities is their bread and butter.But, despite countless initiatives to drive best practice across central government in recent years, local councils are still lagging behind in the improvement stakes.

Using the Freedom of Information Act, Construction News surveyed 50 councils across England to find out exactly how they were procuring construction work.

The findings were depressing.Of 226 contracts let by the 35 councils that responded - representing more than £671 million-worth of work - 82 per cent were let on price alone. Partnering? No thanks.

On construction and civil engineering schemes worth more than £3 million, the survey showed that councils went for the lowest price on 64 per cent of contracts.

And when choosing successful tenderers for deals worth less than £3 million, councils opted for the cheapest bid in a whopping 93 per cent of cases.

The findings are at odds with a raft of procurement strategies sent along with the tender data, full of high-minded talk about best value and wholelife costs.

Take a spokesman from Dudley Metropolitan Borough Council: 'It is not our policy to let contracts on lowest price but we did here on all the ones you asked about.'

Then there's Leicestershire County Council - which plumped for the cheapest bid every time - whose procurement strategy states: 'We will ensure that we take account of not just the initial cost? but all the costs that will arise during the whole life of the contract.'

Our study, which councils were obliged to respond to under FOI, contrasts with the Local Government Task Force's survey of 77 local authorities last year.That found that 65 per cent of local authorities had let none of their last three contracts on price alone.

But the frustrating thing about Construction News's findings is that they come less than a month after the National Audit Office said central government could save £2.6 billion a year by adopting more advanced methods of procurement. How much more could be saved by a wholesale shake-up of local councils? Dennis Lenard, chief executive of improvement body Constructing Excellence, reckons the guidance is there - from the likes of the Government's spending watchdog, the Office of Government Commerce. But the problem is that authorities aren't forced to follow it.

He said: 'I am not surprised by your figures.The problem as I see it is the mixed messages.On one hand, we have a drive for efficiency and targets being set and yet each authority still has the autonomy to operate outside the OGC's guidelines and the methodologies we've set out in Rethinking Construction in Local Government.'

The Office of the Deputy Prime Minister belatedly turned its attention to the problem in October 2003 with the publication of its National Procurement Strategy. It found 'there was clear evidence that local government procurement needed to be professionalised'It also urged that councils look to best value - whole-life costs instead of lowest price - and it set up nine centres of procurement excellence across the country last year.These were given an additional £20 million by the ODPM last November.

Constructing Excellence and the LGTF have been working to promote best practice through the new centres. But progress is slow.

Mr Lenard said: 'We are doing some good work in the north-east and north-west but unfortunately we are struggling in many of the other regions to get buy-in, even though the evidence for savings is overwhelming.'

Constructing Excellence is preparing a protocol for local government procurement in June but getting wider involvement could take more than just winning the argument.Mr Lenard said: 'We will have some influence, but in order to have all adopt the approach we will need the Government to introduce fiscal incentives.'

According to LGTF director Peter Bishop, the sluggishness of local authorities to change has its roots in the last Conservative government's promotion of compulsory competitive tendering, leading to a 'them and us' rather than a partnering culture. Labour swept away compulsory competitive tendering in the Local Government Act 1999.

Mr Bishop said: 'We have come a long way since the days of CCT. Local councils are now applying quality and price on a whole range of contracts and the best are working with us and thinking about long-term relationships.

But there is undoubtedly a broad spectrum of performance and we can do a lot more.

'There are pressures. It can be asking a lot for a cash-strapped council to pay 10 per cent more up-front to gain benefits over the whole life of the scheme. And there's nothing wrong with the lowest price if you've selected your bidders on the right criteria in the first place.'

But other voices in the industry are calling for an inquiry to bring council construction procurement into the political spotlight following the Construction News findings.

Rudi Klein, chief executive of the Specialist Engineering Contractors Group, said previous calls to MPs on the ODPM select committee set up to probe the issue had fallen on deaf ears.

Professor Klein said: 'Under the Local Government Act, there is a statutory commitment to best value. If 80 per cent of all contracts are being let on lowest price, they're breaking their statutory duties.

'There are a lot of local councils out there that are unaware of best practice or ignore it completely.'

The SEC group also brought another aspect of the failings of local government as a modern construction client into relief last year, with a study into their use of retention money on contracts. SEC found that hard-up councils were using retentions withheld from contractors for cash-flow purposes rather than as any guarantee of quality and most had no plans to scrap the practice.

It all seems a far cry from the world of partnering and best value espoused in the glossy procurement brochures of the best practice brigade.

Nobody is suggesting councils shouldn't make their bidders work hard for a job and price competitively. But as margins are shaved away, firms will find it ever harder to nurture and train the industry workers of tomorrow.Unless these major spenders are prepared to look beyond the cheapest deal to the bigger picture, the construction industry - and councils themselves - will reap a bitter harvest.

The survey

IN FEBRUARY Construction News asked 50 English local authorities, using the Freedom of Information Act, for details of the last three building and civil engineering contracts let worth more than £3 million, as well as the last three awarded for less than £3 million.

We asked the authorities - a range of metropolitan, London boroughs and county councils - to provide copies of their procurement strategies and whether they had let the contracts on price alone.Nearly two months later, we have received full responses from 35 councils, giving a sample of just under 10 per cent of England's 388 local authorities.

Only one authority - Hertfordshire County Council - refused to respond to the request, claiming commercial confidentiality.The remaining councils have used the Act's third party exemption clause to delay releasing the information while they consult with the contractors which tendered the work.

Notes: Most councils supplied six contracts but some interpreted our request for 'construction and civil engineering contracts' as a request for three construction and three civil engineering contracts for more or less than £3 million and supplied up to 12 contracts.

*Liverpool City Council awarded the £109.5 million Kings Dock scheme to Bovis Lend Lease, which was £80,000 more expensive than Laing O'Rourke.