Post COVID-19 approach to reopening construction procurement activities.

The UK COVID-19 lockdown #1 marked a sudden and radical change for all private and public sector workers. Office workers were packed off home with their laptops and told not come in the next day, nor for the foreseeable future. Construction and refurbishment workers stayed at home until advised otherwise. Directors, CEOs and Managers were left with their short, medium and long term plans in tatters, unable to effectively and confidently plan the completion of existing projects or launch new projects. The preparedness of procurement staff, both on the supplier and buyer side, to carry out their respective duties was placed under significant stress.

However well businesses tried to put in place contingencies, the hitherto confidently prepared Business Continuity and Disaster Recovery Plans didn’t stand a chance of coping with the unfolding horrors of this pernicious coronavirus, which seemed to mutate and reinfect as soon as measures were put in place to address reinfection. Health and Science experts have been left doubting their own and each other’s scientific advice. Economists have been floundering with how best to ride out the storm. And politicians of all persuasions have had a hard time keeping up with the public mood and scientific advice, whilst curbing their combative instincts, but remaining true to their policies. No politician relishes being seen to be caving-in or capitulating, but neither do they welcome charges of obstruction.

What this crisis, and the likely local or national lockdown #2, #3 and/or #4, has taught us in the past few months, and should do in the future, is that we can never settle again for doing the same thing and hoping it works out better. Was it Albert Einstein who said “The definition of insanity is doing the same thing over and over again and expecting different results?” Well actually, no he didn’t, and neither did Benjamin Franklin, who is also quoted as the real source. It is more likely that the phrase was used in the 12 step philosophies used by Alcoholics Anonymous and/or Narcotics Anonymous in the United States, which both advised that you can’t possibly move on unless you change the way you do things.

What measures have been put in place?

Several measures have been put in place to encourage the public sector, construction and procurement professionals and organisations to maintain a certain level of continuity.

Both the Cabinet Office and Scottish Government quickly issued Procurement Policy Notes (PPNs) to advise how to use various clauses in the Public Contracts Regulations to cope with the unexpected circumstances, which “no diligent contracting authority could have foreseen.” This guidance was useful for organisations who were unable to get candidates to respond to both framework and contract tenders, and it meant that we could legitimately modify existing frameworks and contracts by extending their duration until such time that suppliers were able to respond. These PPNs also covered rules on urgency, absence of competition, frameworks, DPSs and acceleration.

They were followed up by PPNs on supplier relief during COVID-19, the provision of model interim payment terms for at-risk suppliers and guidance for construction contracts. Short of legislating, Cabinet Office and the Scottish Government encouraged contracting authorities to act immediately to ensure that at risk suppliers were in a position to resume normal contract delivery once the outbreak is over.

At this time the Construction Leadership Council and Build UK also issued guidance on Site Operating Procedures (versions 1, 2 , 3 and eventually, in May, version 4) and the Construction Industry Council weighed in with its own support and guidance for its members, including commentaries on the risk that clients and firms, in order to protect themselves, would seek to invoke contractual clauses to the detriment of other firms. The stark warning was:

“Our actions at this time will be remembered. All firms should think hard about how their reputation could be damaged by not doing the right thing.”

“Our common enemy is Covid19, and we need to unite, and work collaboratively to resolve shared problems. We owe it to our sector and the country to take all steps necessary to ensure that the industry is in good health to support the recovery, when it comes.”

As the economic and industrial ramifications of the COVID-19 crisis began to be more widely understood, it appeared that Governments in England, Scotland and Wales saw that the measures put in place to deal with the immediate threats were likely to instil a sense of permanent lockdown torpor. PPNs were issued to try to encourage “Recovery and Transition.” But the tone of Cabinet Office PPN 04/20, issued in June, indicated that far from seeing an end to the crisis, it was clear that COVID-19 would circulate long-term, creating a risk of periodic epidemics. It was going to be necessary to steadily redesign social distancing measures with new, smarter measures and carefully wind down economic support schemes as people were eased back into work. Contracting authorities and their suppliers would need to work in partnership to plan an eventual exit from relief and transition to new, sustainable operating models, involving pragmatism, reprioritisation and viability analyses.

In July it also became apparent that the minimum 12 weeks of lockdown was going to be far exceeded. There was a resultant change in emphasis from throwing money at keeping the workforce at home and businesses afloat, to throwing even more money at getting the workforce back to work and bribing businesses to take their employees back.

What have we learned?

What we’ve learned through the first three or four months of the COVID-19 lockdown period is that construction and construction procurement have been able to innovate to cope with the crisis in ways that could not have generally been foreseen.

We’ve discovered that, on the whole, we can act responsibly and fairly to support the response to Covid-19 and protect jobs and the economy. The Building Federations have actively encouraged a collaborative approach aimed at resolving issues as timely and cost-effectively as possible, and the industry can collaborate more than it thought possible to beat the uncertainty currently facing the construction and procurement sectors. Many professional bodies have signed up to the new RICS Conflict Avoidance Procedure (CAP) to resolve issues before they escalate into disputes.

In June, The Construction Leadership Council laid out their “Roadmap to Recovery” plan to secure the future of construction businesses nationwide, while setting the industry on a sustainable path towards recovery in a phased plan over the next two years.

Professional bodies have also set out their “Road to Recovery,” including the RIBA, which has drawn upon experience from previous crises to build financial and organisational resilience. This is based on being prepared, decisive, adaptable, future-focused and people-centred.

How can procurement organisations prepare for the return to full capacity and improve their processes?

Already, procurement organisations have taken measures to adapt their work patterns to the current pandemic. Programmes of work have been delayed or extended to cope with the reduced ability of potential tenderers to engage with the processes. Pre-tender Engagement has, in some cases, been carried out online with varied levels of success.

But how many organisations have used this ‘pause button’ period to re-evaluate their processes and plan for a return to more effective procurement practices? And how many construction companies will use their best endeavours to avoid what a disillusioned commentator has observed as “reverting to their underlying type”, where Profit will always win over Corporate Social Responsibility? We will soon find out, but for now we should err on the side of continuous improvement.

Pre-tender engagement (PTE)

In lockdown, we have experienced the joys (and occasional glitches) of conference and video calls, webchats, webinars and screen shares. We have also discovered that we can get more done at home than we thought, using new-found digital skills.

We should be using those enhanced skills to engage with the market to undertake effective pre-tender engagement, without devoting endless hours and CO² emissions to travelling to physical meetings. Only by going to the market and user base to gather information on how to best develop a particular procurement will we improve our current processes. Online engagement has opened the electronic door to greater participation and the hitherto ad hoc processes should be formalised to Business As Usual, with wider use of interactive webinars and conferences.

On-line PTE conferences should be easy to access for full participation, and include comfort breaks, conference materials provided in advance, presentations via webcam and or slides, using a fully secure online conference platform. Opportunities for live participant questions and comments should be provided, together with recordings of the addresses and presentations as a permanent record of the proceedings, with post conference feed-back and follow-up.

SME involvement

EU Directives and UK Regulations, together with guidance from Cabinet Office, Scottish Government and The Welsh Assembly have been encouraging public sector organisations to make access to public contracts and frameworks easier for Micro, Small and Medium Enterprises since 2015. With the forthcoming wind-down of the furlough scheme and the likelihood of a worsening health situation in the autumn and winter, SMEs who have taken advantage of furlough and Business Interruption Loan Schemes, will be hard hit.

It is unlikely that refurbishment and essential small works contracts will cease, and there will be increasing demand for postponed projects to be resumed and/or tendered. Although there will be a rush from the surviving large contractors to secure as many contracts as possible, there will be a shortfall of supply.

Procurement organisations may be in a position to fulfil the demand by putting easy-to-access small lotted procurements in place using small lots regulations and the urgency requirements in Pubic Contracts Regulations 2015 to accelerate timescales, but care must be taken to ensure that the resultant process is compliant.

Having adapted processes to suit the break-out from COVID-19, procurers should consider the advantages to SMEs and Clients alike and maintain those processes for Business-As-Usual.

Reducing regulation

Much has been said in the past about the good outcomes of the 2015 iteration of the Public Contracts Regulations. They encouraged public sector procurement organisations to put in place processes that considered SMEs, Sustainability, Whole Life Costs, Life Cycle Cost Analyses, Social Value, Social Enterprises and the like. The new regulations led to greater competition, greater savings and greater community benefit, without compromising on quality.

Although the Labour Party under Mr Milliband tabled a little-known Early Day Motion to annul the Public Contracts Regulations in 2016, there is little that can be achieved in revoking them entirely when UK leaves the EU. Indeed, much harm will be reeked if such revocation returns procurement to the bad old days of opaque lack of transparency and unfair, closed procurement.

Whilst the key principles of transparency and equal treatment should be retained, there are areas of the regulations that could be removed or varied, including:

• Higher thresholds of application
• Introduction of the UK e-notification service
• Flexibility of process (including negotiation)
• Reduction in the number of procedures (Competitive with negotiation, Competitive Dialogue, Innovation partnership)
• Clarity/auditability on how suppliers respond to opportunities, including information on what ‘best value’ or ‘most economically advantageous’ means.
• Improved challenge mechanism (not necessarily via the courts)
• General cleaning up of the ‘red tape’ requirements.

DPS (good or bad?)

Said to have been improved in 2015, the Dynamic Purchasing System is also a procedure that encourages Micro and SMEs to win public sector contracts. Whilst it is acknowledged that DPSs are for “commonly used purchases generally available on the market”, the rules don’t specify what this means, and procurement organisations have been using DPSs to cover all manner of high value bespoke and highly complex requirements.

However, Recital 63 of the relevant EU Directive states that a DPS should “ensure optimum use of public funds through broad competition in respect of commonly used or off-the-shelf products, works or services which are generally available on the market.” Using a DPS for high value, highly complex projects, without initially setting out a pricing structure, would not appear to ensure optimum use of public funds.

In order to maintain the SME-friendly advantages of DPSs and ensure optimum use of public funds, it may be necessary to reintroduce the ability for contracting authorities to request indicative tenders (as was available in the Public Contracts Regulations 2006) or to set out terms for the use of National or Regional Schedules of Rates or electronic catalogues. This is something that LHC will be looking at as we exit from COVID-19.

Innovation

Another procedure that was introduced in PCR 2015 was the Innovation Partnership Procedure for the procurement of products or services that were generally not available on the open market. LHC has used this procedure to develop its innovative OffSite Project Integrator framework.

But innovation in its wider sense should also be encouraged in the ‘new normal’, using the experience of the delivery of collaborative works, services and products during the COVID-19 pandemic. Young and entrepreneurial organisations should be provided with the opportunity to pitch new and exciting disruptive ideas to procurement organisations and break from the ‘tried and tested’ solutions

Collaboration

The history of the construction industry has forever been categorised as cyclical, normally triggered by economics, and we’re back in yet another trough. But how are we to emerge from this pandemic-inspired trough and learn from the mistakes of the past? Organisation after organisation has called for reform to deal with the ‘race to the bottom’ mentality and make things fair. But we should stop ‘calling’ and start ‘doing’.

Pan-industry collaboration for the common good is the only way to bounce back better. LHC has introduced the Framework Alliance Contract in all its procurements, with the aim of sharing objectives, introducing transparent performance measurement, aligning commercial interests and setting up collaborative governance, all of which collectively underpin shared risk management.

We encourage all players to adopt true collaboration and welcome the opportunity to discuss this over the coming months.

Conclusion

As John Eynon (Director, Open Water Consulting) recently said; “Whatever it is you do, the services you provide, the things you make or build, and whatever you maintain, there will always be someone down the road who will do it cheaper and faster” although probably not better.

Let us use the experience of COVID-19 to ensure that we emerge from the pandemic committed to innovating and doing things collaboratively and better.

The UK Government withdrew its guidance “Accessing public sector contracts if there’s no Brexit deal” on 17 January 2019.  However, it did pre-empt the withdrawal with its new guidance on 14 January 2019 “Public-sector procurement after a no-deal Brexit”

The online document sets out the provision of the new UK e-notification service, which “will be ready for use by exit day”.  Although no details of the new UK e-notification service have been revealed, many e-Senders have told Cabinet Office that they intend to integrate their services with the new UK e-notification service in early 2019.

Those contracting authorities who currently submit their notices direct to the EU Publication Office, will need to register with the new UK e-notification service. Further information about how to register will be published in early 2019 if necessary.

Latest News – Cabinet Office have now announced that in a ‘no deal’ situation, the new UK e-notification service will be accessible through a number of e-senders and also through the log-in details for Contracts Finder.

For procurements that have commenced before 11pm on 29th March 2019, contracting authorities will need to comply with the new “The Public Procurement (Amendment etc.) (EU Exit) Regulations 2019” from that point, eg subsequent contract award notices will need to be published on the new UK eNotification service instead of OJEU TED.  It is important to understand that the “UK e-notification service” is additional to Contracts Finder, which will still require publication of call-off Contract Award Notices.

“The Public Procurement (Amendment etc.) (EU Exit) Regulations 2019”.

This Statutory Instrument was created and laid before both Houses on 13 December 2018, has gone through various scrutiny sessions, and on 9 January 2019 a motion to approve was tabled by the Government in the House of Lords where it sits in the list of “Affirmative Instruments waiting for Affirmative Resolution” along with hundreds of other No-deal BREXIT related Statutory Instruments.

The principle purpose of the Statutory Instrument is to change EU references to UK references immediately throughout:

• Redefining the thresholds in £ rather than € (However, the thresholds remain as existing)
• Deleting any and all definitions and references to “the Commission” and European policies, directives and regulations.
• In some cases “EU obligations/law” is replaced by “retained EU obligations/law”
• Greater reference to Government Procurement Agreement.
• Allowing the Cabinet Office Minister to change or add to the exceptions to electronic communications to take account of technical developments.
• Adding new definitions and references to the SPD (Single Procurement Document)
• Change “EU Publications Office” to “UK e-notification service”
• Change “send/t” to “submit/ted”
• Change “ESPD” to “SPD”
• Omitting e-Certis references.
• Omitting the requirement for Contracting Authorities to recognise equivalent certificates from bodies established in other member States.
• Omission of the whole regulation 64 in respect of “Recognition of official lists of approved economic operators and certification by certification bodies” which removes the “Economic operators shall not be obliged to be registered on an official list or to provide a certificate issued by a certification body in order to participate in a public contract.” I assume this means that we can oblige tenderers to submit certificates.
• Omitting the exclusion of tenderers receiving state aid to provide abnormally low tenders. Although some commentators insist this means tenderers will not be able to claim approved state aid as a reason for abnormally low tenders.
• Where a procurement is commenced before exit day and includes follow up actions, eg renewal of ESPD and ESPD as proof in DPSs, renewal of certification, ESPDs of sub-contractors, exclusion grounds etc the regulations as unamended still apply.
• Where obligations are set up in a pre-Brexit contract or framework, the amendments listed in the SI do not take effect, if they contravene those obligations, eg in respect of activities permitted by a withdrawn regulation, technical specifications compatible with EU law and power to terminate contracts, which would be omitted from post-BREXIT regulations.

So who thinks we’ll leave with a deal, who thinks we’ll leave without a deal, and who thinks we won’t leave at all?

The Scottish Government has decided that organisations offering pre-tendered frameworks to public bodies are speculators – persons who make conjectures without knowing the facts or who risk losses for the possibility of considerable gains.

In their recent Scottish Procurement Policy Note SPPN 3/2017, they stated that they were aware of a number of organisations claiming to offer legally-compliant framework agreements to Scottish contracting authorities.  In some cases it appears to be clear to them that these framework agreements have been awarded without prior consultation with those authorities and may have been established without any real understanding of the authorities’ actual requirements.  For the purposes of the SPPN they refer to these as ‘speculative framework agreements’.

It must be assumed that whereas “in some cases” no prior consultation has taken place, it follows that “in some cases” prior consultation has indeed taken place.  It is galling, therefore, that the Scottish Government has decided to scare authorities into the belief that all pre-tendered frameworks are bad, even where the framework provider has tried extremely hard to establish likely requirements, scope and estimated values.  Market intelligence, collaborative alliances of public bodies, encouraging public bodies to open up about their requirements and budget spend are all useful tools in getting the facts that speculators may not care about.

However, any professional who works with public bodies is fully aware of how difficult it is to obtain forecasts of expenditure.  That is the nature of public bodies, where political nervousness, budgetary constraints, shifting funding patterns and short-term expediency all combine to thwart the provision of accurate, believable forecasts for the coming year, let alone for the term of a four year framework.

Any professional whose purpose and mission it is to assist public bodies in procuring contracts that provide good value for money for what the bodies are likely to require and provide better homes and communities will feel aggrieved that, through no want of trying, he or she has been lumped into the nasty category of profiteer.

What is even worse is that the Scottish Government now appears to have encouraged the Welsh Assembly to think the same way.

It is well known that the Localism Act has prompted many regional areas of the United Kingdom to strive to improve local businesses by attempting to legally discriminate against ‘outsiders’.  However, an attack on competent framework providers who strive to generate local provision for local demand is likely to backfire.  When the demand occurs there will be no means to satisfy it.