Contracts can go spectacularly wrong. When they do they provide everyone involved in procurement with important lessons.
In July, it transpired that G4S had failed to comply with its contractual commitments to supply an agreed number of trained security guards for the Olympic Games. This in turn led to international scale publicity about the fitness of the company to undertake government contracts.
Procurement is one of the three phases of the commissioning process. All three are involved in the G4S case and you need to understand these to make sense of the G4S contract
Phase 1. Costing and specification
During this first phase it is the functioning of commissioning to;
Identify exactly what is to be purchased – through consultation and market testing. This process must be completed in a manner which involves those to be affected by the procurement. It is time consuming, so planning well ahead is essential.
Draw up the specification – known in procurement legislation as the ‘technical specification’. This sets out in full exactly what is to be purchased. It is essential that providers know precisely what will be required of them when they tender. Crucially, the specification informs the providers of the outputs/outcomes and Key Performance Indicators (KPIs) to be purchased. In the majority of cases the specification forms part of the contract, thus making every requirement a contractual term – the delivery of the outcomes/outputs and KPIs therefore become contractual terms. Failure to deliver in any area becomes a breach of contract which, in turn, would be liable to termination.
Identify the budget – this is then linked to the detail in the specification. This linking enables costs and the prices paid for any given contract to be monitored in detail.
Phase 2. The procurement phase.
Treaty obligation, EU and UK law and regulation require a competitive process which is ‘fair, transparent and provides equal treatment for all tenderers’. Compliance with these requirements may involve a tendering process; but in some cases other process may be used such as “Request for Quote” (RfQ). But in any case there must be open competition. In the past few weeks the courts have, for the first time, awarded punitive damages for a failure by a purchaser to apply competition law. The contract was not huge, worth £34,000only; damages awarded were £60,000 plus costs.
Phase 3. Contract management. All of the contractual terms and specification requirements must be monitored. The results are used to inform decisions when the cycle starts again towards the end of the contractual period.
You get what you buy
So what went wrong with the G4S contract?
It appears that it was poorly specified. Apparently the number of guards required was increased in December 2011 from 2,000 guards to 10,400. In July, it emerged G4S would not be able to meet its required pool target and the army was called in.
The lesson here is – you get what you buy. Commissioners need to specify exactly what it is and exactly what outcomes are going to be required.
What happened with the G4S case was the specification was changed during the contract so that additional outputs were required. By doing that, it made it virtually impossible for the contractor to comply and impossible for them to manage the contract effectively.
The original specification hadn’t foreseen the level of personnel requirement at the start,.
So how might we apply this to a CCG? Let’s take flu jabs.
If CCGs can’t project at a very early stage how many vaccinations they’re going to need, then later on the it is very likely that contractor won’t be able to deliver the number required.
The purchaser has to think not only about the contract in front of them but also how they wish to take it forward in terms of numbers and changes.
Get your first phase right and everything flows from it.
So a vaccination campaign at the moment might be ‘all under fives’. Commissioners need to first define ‘all’ in terms of a number and second look not just at a contractor’s capability but their capacity – could the supplier accommodate a change in DH policy to vaccinate a new group of patients?
It’s important to understand there is no such thing as ‘tender readiness’.
Procurement is a developing, dynamic process whereby purchasers react to the environment in which they’re working.
CCGs face a particular challenge in procurement as they will primarily deal with services rather than simply supplies. For the latter, it’s very easy to be specific. The purchasing of services tends to be much more subjective and even when commissioners try to be objective, this can prompt accusations that you can’t treat people like you treat objects.
A more recent event has again underlined the importance for CCGs as purchasers to be careful that they manage procurement within the regulations. The failure in compliance by civil servants in appraising the tenders for West Coast Main Line service tenders has led to Government repaying to tenderers all of the costs of tendering; £100million in total and £40million to Virgin Rail alone. CCGs Face very real financial penalties if they make errors in the procurement process.
The entire G4S episode’s effect on procurement generally has been dramatic. Purchasers now know that the key to successful commissioning is performance management during procurement and in contract delivery. They want tenderers to demonstrate capability to monitor and report in detail on specification and contractual compliance. A recent tender asked as part of every question, ‘how will you measure outcomes?’
There is much to learn from the G4S and the West Coast Rail events by everyone involved in public sector purchasing
Janet is a CIPS Affiliate and Director of Tendering for Care, which specialises in providing support Health and Social Care tendering and procurement.