Richard Brooks 30 January 2018

Procurement considerations following on from Carillion's liquidation

As the dust settles from the news of Carillion’s liquidation, the unfolding procurement consequences for local authorities across the United Kingdom are being widely felt.

This insolvency – alongside the reported financial instability of fellow giant Interserve – demonstrates how over-reliance on a few big contractors has failed to deliver a viable long-term solution to local authorities’ need for efficient and cost-effective service provision and project delivery.

When it comes to public procurement, the last two years have seen significant confusion about the law on permitted financial viability checks during the qualification stage of procurement processes. Procurement guidance issued by the Government states that bidders should still be allowed to tender even if they do not meet the required turnover test, or fail a credit check, if they can pass the other financial viability checks that have been set by the procuring authority.

However, the standard questionnaire, which procuring authorities must use, could be much clearer about how other types of tests could or should be used to assess financial viability. Consequently, many procuring authorities are left with ineffective checks on the financial position of firms who may be carrying out their service-critical operations.

On the other side of the coin, there is also a clear “strain factor” – whilst there will now be renewed focus on demanding strong financial viability from contractors, the relentless focus on driving the “lowest price” at tender stage continues. Local authorities under considerable financial strain will find it difficult to prioritise balancing the quality factors against price in tender processes when affordability is still one of the only issues.

Sticking to a longer view is always difficult in a time of turbulence. However, each local authority needs to adopt the right balance in terms of supporting SMEs, having robust financial checks on contractors and considering affordability, if indeed outsourcing is the way forward. With this in mind, an alternative to facilities management and service outsourcing – as we have seen with Oxfordshire County Council amongst others – could be to go about bringing key services back in-house.

Whilst this might be attractive for services type contracts, it will rarely, if ever, make sense for one-off projects, so there is no avoiding adopting a strategic approach to viability versus affordability.

Richard Brooks is a partner and procurement specialist at Anthony Collins Solicitors.

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