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Water Industry Procurement: could Brexit provide a fresh start?

Could Brexit lead to a re-examination of the procurement rules which govern the water industry and other infrastructure sectors? James Brockett investigates

Eight most common complaints about infrastructure procurement

(Source: CECA)

1.Information requirements disproportional to bid value

2.Lack of client engagement during process

3.Too many bidders

4.Poor tender documents

5.Frameworks that deliver less than forecasted revenue and/or include secondary competition

6.Poor management of the procurement process

7.Quality of feedback post-tender

8.Lack of checking and enforcement of undertakings made by contractors in tender documents

Amid all the unanswered questions which have followed the June 23 referendum decision to leave the European Union, the issue of what happens to procurement rules has not been the highest profile. Yet it is a topic with the potential to inflame or enthuse people involved in providing public infrastructure – including the water sector – in equal measure.

Intended to provide a level playing field for suppliers across the continent, the EU’s Utilities Contracts Regulations provide a set of rules for the open tendering for goods, works and services and are closely related to the procurement regulations for public bodies. Any contract over a minimum level (currently £345,028 for goods and services and £4.32M for works) must have tender documents and contract notices published in the Official Journal of the European Union – OJEU – with the rules prescribing the timescales for the process and the required procedure for shortlisting and selection. There are separate rules for smaller lots, with one of the considerations being that similar packages of work are not artificially divided to get round the regulations.

But the regulations are unloved by many in the industry. Critics say they have failed in the mission of opening up European markets to contractors, while imposing red tape and unwelcome cost on bidders, and the fear of legal challenge and delayed projects for clients. So with the UK heading out of the EU following the expected triggering of Article 50 in March 2017, is it time for a rethink?

One organisation that is calling on the government to grasp the post-Brexit opportunity is the Civil Engineering Contractors Association (CECA) which argued the case for reform in a recent report.

“Civil engineering contractors are primed to deliver a substantial project workload over the coming years, yet their ability to deliver these projects in the most efficient way is increasingly being stymied by burdensome procurement processes on projects large and small,” comments Marie-Claude Hemming, CECA Head of External Affairs. “Our research suggests that this burden is caused, in part, by the rules that are enforced as a result of EU procurement regulations. While some of the EU processes are sensible, and ensure a competitive market for customers, the decision to leave the EU potentially opens the opportunity to look again at the bits that are not working as well.”

CECA’s report identified eight common frustrations that its members experience with procurement processes (see box), although it remains a matter of debate how many of these can be attributed to client companies’ application of the rules rather than the rules themselves.

Andy Clark, Head of Procurement and Contract Management at Yorkshire Water, says that for all the criticism it receives, it is important to remember that OJEU is fulfilling a key function.

“If OJEU didn’t exist we’d have to create something reasonably similar to it, because we want to operate in a fair and transparent way and to have that open competition happening,” says Clark. “There are certain prescribed periods and ways of working which are a bit inefficient, and I think if we were to do it for ourselves we would cut down some of those timescales and we’d be trying to find a more efficient route. But broadly the idea is right.

“There’s a certain mindset that it takes a long time to get through an OJEU process, but that’s normally because people haven’t been absolutely explicit about what it is that they want, and that can lead to the process being protracted because you then have to clarify with your suppliers what it is that you actually need. But if you’ve done that work up front, then actually an OJEU process can be completed relatively quickly.”

“If there are ways in which it can be made more straightforward to work your way through, particularly for smaller businesses, then we should look for those opportunities, while not losing the spirit that it’s good to get competition and be transparent.”

One specific criticism of the rules is that they encourage water companies and others to package work and supply arrangements into frameworks, to avoid having to repeatedly run a full procurement process; this creates barriers to entry for SMEs and new entrants. If EU regulations were taken out of the equation then direct procurement might become more common in some fields, providing more opportunities for the supply chain and cutting down inefficiency for the client.

“Avoiding the possibility of being taken to court by someone who appeals a procurement decision is an obsession of water companies,” says one senior water industry engineer.

“Any appeal would be costly and delay decisions and investment. So in practice, clients create systems to manage the OJEU rules via frameworks and the framework procurement processes. If water companies were free of EU utility directives than their procurement processes could be simplified, creating opportunities and efficiencies.”

The EU regulations have, of course, been written into UK law – originally in 2006 and then through an updated regulation which came into force in April this year – and there is no obligation on the UK government to change this law when Brexit takes effect. Industry insiders say their assumption is that the rules will stay in place for the next five years, even if the eventual intention is to change them.

It is a “realistic possibility” that the UK could conclude a trade agreement with the EU which would preserve public and utility procurement regulations as they are, according to Sue Arrowsmith, Professor of Public Procurement Law at the University of Nottingham and an advisor to procurement specialists Achilles. However, as an alternative to entirely going it alone, the UK could join the Government Procurement Agreement (GPA), a World Trade Organisation agreement which includes other major trading partners such as USA Japan and Canada. This regulates public procurement, but interestingly, allows privately-owned utilities a free hand. 

“In my view using the GPA’s more flexible model for award procedures opens up a golden opportunity to design a single, simple and much improved system for the UK,” writes Arrowsmith in a recent analysis. “However, whether the UK would take that opportunity is open to debate.”

Clearly these outcomes are political decisions for the future and are also dependent on what the coming negotiations bring. In the meantime many in the supply chain have more pressing unanswered questions surrounding possible cross-border tariffs.

“Clarity from Government on the process of exiting the European Union is important to give confidence to the construction sector through this period of change,” says Mark Esling, Business Development Director Saint-Gobain PAM UK. “Indeed, it’s an impossible task to say with certainty how the water industry landscape is going to look once the government has come to the end of the process of sorting out the practical details of Brexit.”

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