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E-auctions against the spirit of reform


Sir, What is so good about the e-auctions proposed by the Office of Government Commerce and used by North Tyneside council?

Certainly they sharpen up the competitive element in procurement, pushing the supplier to reduce his profit margin;

they reduce the cost of the competitive tendering process by shortening the bid cycle and standardising the procurement process; they mean that the procurement team is seen to be using modern ideas and technology to improve its processes and, importantly, they deliver savings on the price paid for the product or service involved.

Unfortunately, these methods of procurement in construction are seriously f lawed; they actually lock in cost, they fail to address service issues and ultimately they destroy the opportunity to increase efficiency and reduce real cost.

The 30 per cent-plus savings which Latham and Egan said we should strive to attain require improvements in project design, in product design, in site efficiency, in the procurement process and in logistics. These were to be delivered through encouraging supply chain integration and removing unnecessary costs.

Just reducing the suppliers' margins through e-procurement totally fails to deliver the reduction of costs needed to sustain reduced prices.

Even if an up-front saving is achieved this will be eroded by the rest of the supply chain. They will increase their mark-ups to address their perceived increase in risk and the lost opportunities from being excluded from the procurement process.

Suppliers who respond to these e-auctions also fail to understand their own costs. The biggest cost variable to a supplier in construction is the behaviour of his customer and the supply chain above him.

To commit to low margins without knowing how efficient that supply chain is will inevitably lead to losses, corner-cutting and disappointment for all concerned.

However, one must ask why the Office of Government Commerce feels that this approach is necessary.

Unfortunately, except for some noticeable exceptions, our industry has blatantly failed to deliver on the opportunities of supply chain integration.

So maybe we all deserve what we get.

Ron Edmondson Ightham, Kent