Government Says it Will Challenge “Unrealistically Low Bids”

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10 February 2021

Contractors who submit unrealistically low bids for public sector contracts will be subject to “intense scrutiny”, according to a senior government official.

The Department for Business, Energy, and Industrial Strategy has said that any bids which appear unrealistically low will be rejected unless the bidder has a plausible explanation.

Fergus Harradence, Deputy Director for Infrastructure and Construction, told a webinar hosted by the Building Engineering Services Association (BESA) that unrealistic bidding means the government does not get the quality projects it wants, and the industry suffers from low margins and lack of investment. 

It also leads to poor payment practices and unfair contract conditions that pass on too much risk to suppliers.

"We need to get away from a situation where people are only able to make a profit by putting pressure on their supply chains…that is what led to Carillion. We need the industry to behave responsibly and embed the rigorous comprehensive approach to quality that has been so successful in manufacturing.”

–Fergus Harradence

Deputy Director for Infrastructure and Construction

The new procurement rules contained in the government’s “Construction Playbook” have been designed to “reset the government’s relationship with the industry because at the moment it is not working for either party”, added Harradence.

“We need to get away from a situation where people are only able to make a profit by putting pressure on their supply chains…that is what led to Carillion. We need the industry to behave responsibly and embed the rigorous comprehensive approach to quality that has been so successful in manufacturing.”

Transparency and Social Value

Harradence said the playbook depended on everyone being more “open and honest with each other” and that government would prefer that projects appeared to cost more from the outset to avoid problems further down the line.

The playbook was developed by the Cabinet Office in partnership with the construction industry and sets out how the government aims to achieve project delivery that is “faster, better and greener”. It includes advice to make wider use of digital and offsite methods and engage with suppliers earlier in the procurement process.

Social value also makes up 10 per cent of awarding criteria according to the playbook, which became mandatory for all projects procured by central government in England last December. The Cabinet Office is working with the industry to develop a clear definition of whole-life value, which is due to be published later this year.

Persistent Under-Bidding for Projects

“The fundamental principle is that contracts should be profitable,” said Harradence. He also warned clients against issuing incomplete tender documents with poorly defined specifications, which increase the risk for bidders.

“We are starting from the basis that we want to do things differently. This persistent under-bidding for projects leads to ministers having to stand up in parliament and apologise for projects running over time and budget,” he told the BESA webinar.

He said too many clients were being given totally unrealistic expectations about how much a project would cost, which led to disputes and project over-runs. “There has to be a greater level of trust between the industry and its clients – this is absolutely pivotal. Without that trust, the process will run into the mud.”

Harradence confirmed that anyone who underbid would face a detailed interrogation. “If they have a good explanation that’s fine, but it is better for projects to appear to cost more – than us having to go cap in hand to the Treasury for more money further down the line.”

David Frise said all BESA members would welcome the intention behind the playbook and the move towards fully designed projects but would be watching carefully to make sure the rules were properly enforced and payment practices improved.

IR35 Scheme - Construction Sector Employment

He also explained that the government was keen to see more people directly employed in the construction sector and that was behind recent policy changes like the revised IR35 scheme.

“We would prefer the industry directly employed a smaller number of highly skilled individuals rather than pulling in large numbers of unskilled people from overseas. That model is not viable,” he told the BESA webinar. This should also help to raise the profile of vocational training, he added.

“The vocational side has been the poor relation in our Higher Education system. It is often seen as something you fall into rather than aspire to. There’s more of a commitment now to change that…and it will be crucial if we are going to be able to do things like the effective retrofitting of buildings.”

Picture: a photograph of a notebook on a desk with a pen

Article written by Ella Tansley | Published 10 February 2021

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