3Procurement processes
35.A key part of ensuring effective delivery through contractors lies in the procurement processes that DFID employs to secure the best supplier for the job. OECD DAC guidelines stress the need for effective procurement systems among donors, stating that “good public procurement systems are central to the effectiveness of development expenditure”.56 In recent years, the Department has introduced several innovations that have influenced the shape and behaviour of the supplier market in an attempt to ensure better management. One example is the increased use of framework agreements between DFID and a number of contractors, pre-qualifying those contractors against its criteria in a number of implementation areas. DFID’s Procurement and Commercial Department (PCD) was also one of the first teams in UK Government to adopt the new ‘Competition with Negotiation’ EU procurement process in 2015, ensuring that incumbency does not guarantee the winning of future contracts. This is intended to allow for “the maximum opportunity for DFID to negotiate with suppliers” affording the Department a stronger negotiating position.57 The value of effective, responsive procurement systems has been recently demonstrated in the case of DFID’s response to the Ebola crisis (see Box 2).
Box 2: Procurement and rapid responses: the Ebola crisis
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In our January 2016 report ‘Ebola: Responses to a public health emergency’, the Committee found that, after a Public Health Emergency of International Concern (PHEIC) was eventually announced, DFID responded swiftly to address the outbreak.58 This was due, in part, to PCD’s ability to quickly launch a procurement exercise to secure the necessary skills/materials through its rapid response procurement process, which DFID stated in written evidence “is fully compliant with the regulations but enables DFID to source rapidly in cases of extreme urgency”.59 This was vital given the need to quickly stop the spread of the disease. DFID was able to source six treatment centres in eleven days through this process, as well as providing Personal Protective Equipment and vital medicines, medevac services, three Ebola Laboratories, Facilities Management for the Treatment Centres and placing team members in-country to manage the daily supply chain logistics. |
36.PCD has been recognised for its procurement practices, winning a number of awards from the Chartered Institute of Purchasing and Supply (CIPS) in recent years. These awards were for work in sourcing contraceptive implants for 27 million women across the developing world and the purchase of long lasting insecticide treated bed nets, anti-HIV drugs and other products.60 We commend PCD for its efforts in driving down costs and delivering value for money for the taxpayer. We also note that in delivering on DFID’s objective of poverty reduction, DFID needs to do more than procure products and so much of its procurement activity is of a fundamentally different nature. Procuring goods is a key element of DFID’s work, but a significant share of programming focuses on goals related to institutional change—such as delivering better healthcare and education systems or stronger governance and rule of law. Through procuring services to support these objectives DFID has created a very different type of market. Evidence to this inquiry has suggested that DFID does not understand this market sufficiently well. In the process of this inquiry we took oral evidence from two contractors in confidence, who will hereafter be known as Contractor A and Contractor B. Contractor B raised concerns in oral evidence that “they [DFID] make a market and that market does not work well, because they do not understand it sufficiently well.”61
Procurement issues
37.An issue affecting the competitiveness of the DFID supplier market is the different information that each potential contractor has, with some contractors having more information than others. This can give some suppliers an unfair advantage and undermine market competition. One example is instances where procurement-sensitive information has been poorly handled by DFID. DAI Europe highlighted two cases in written evidence where information was found online containing detail beyond that included in the invitation to tender.62 While we commend DAI Europe for reporting this information to DFID, we are concerned that there may be more unreported instances where contractors may have gained an advantage by using such information to strengthen their bids, distorting competition in the market.
38.Other concerns were raised in evidence about contractors’ ability to bid for the research work that feeds into programme design.63 Contractor B gave an example of where a major contractor won a DFID research contract by undercutting a more qualified organisation. The contractor then was able to conduct this research and feed into the design of future programming, with the intention of using the insight it had gathered to ensure it was “ahead of the game” in any future tenders.64 Nick Ford told us that in such a case, the organisation might be excluded from bidding for related future work:
“If it had given them any perceived unfair advantage, then absolutely they would not be allowed to bid. If it was purely level and all the information was in the public domain, then potentially they could.”65
However, Nick Ford added that this power to exclude bidders “is not a carte blanche, because you need to be reasonable and proportionate under the regulations.”66 Procurement regulations can place a bind on DFID in this respect, as they restrict its ability to exclude bidders. In cases where bidders are not excluded it is not clear that DFID actually has the capacity to guarantee a genuinely level playing field. Contractor B told us that sharing information with potential suppliers at the bidding stage is not enough, as the organisation who took part in the research “will have already tied up the best consultants, talked to the local partners, got better information, got their consortium together, etc.”67 Similar concerns about the input of firms in project design were raised by ICAI in its recent report on the cross-Government Prosperity Fund.68
39.We have also heard a number of complaints about delays and cancellations in DFID procurement. In written evidence, Mott MacDonald stated “we note that the time between issuing a tender and contract starting has considerably lengthened in recent years due to increased procurement scrutiny.”69 DAI Europe wrote “when contracts are delayed for longer, it can become difficult and costly to retain a proposed team and the assumptions underpinning a project design begin to erode, often requiring re-designs.”70 Coffey added that “long delays can also erode local stakeholders’ and beneficiaries’ trust in the supplier and in DFID’s commitments. This, in turn, can hinder effective delivery.”71 While the appropriate level of procurement scrutiny is vital, associated delays have the potential to undermine the benefits of contractors as an effective channel for aid delivery.
40.Coffey International Development Ltd also noted an increase in the number of procurement cancellations and retenders, specifically citing five cancellations in the last eight weeks (at the time of writing).72 DFID did not acknowledge that there had been a recent increase.73 Such cancellations have serious implications for suppliers due to the high costs associated with bidding for DFID work—contractors told us that the costs of preparing a bid can be as high as £120,000 in the case of a large project due to the research, information and time required in preparing a bid.74 A cancelled tender is a lost investment to the contractor, and the costs of this are ultimately borne by the UK taxpayer as this loss is then recovered through the overheads charged for the next project. While we recognise that there may be instances where cancellation is necessary and desirable in some cases—it is better to cancel a tender at a relatively small loss than to misallocate millions in taxpayers money—we stress that DFID should ensure that such cancellations are minimised.
41.A related issue is that the cost of bidding is prohibitive for many smaller suppliers. As one contractor wrote:
“The cost of bidding for DFID contracts has increased significantly in recent years. In our experience, DFID tenders are more expensive to submit than those of other donors, and certainly of our private sector clients. This is due to both the competitive nature of the market and also the depth of content that DFID requires. We believe this represents a significant barrier to entry for both new and small firms.”75
42.We commend the ability of DFID’s procurement processes to source development interventions quickly when needed, particularly in the case of the Ebola crisis. While DFID should be recognised for using effective procurement to drive down the costs of goods such as bed nets and vaccines, we believe that the majority of DFID programming—such as improving governance—involves a very different approach than that of commercial procurement of goods. We are concerned about instances where procurement-sensitive information has been available to some bidders and not others, and also about the limitations on excluding bidders (imposed by procurement regulations) who have had a role in the programme formulation. Delays and cancellations are also a concern, and high (and rising) bidding costs are likely to work against DFID’s stated desire of expanding the supplier base.
43.DFID must make every effort to level the playing field in terms of information available. While we recognise that mistakes can be made in the way procurement-sensitive information is handled by staff, this can be overcome through greater transparency from the outset—publishing all information so that no single or group of bidders is at an advantage. Where a procurement is delayed or cancelled, DFID should take lessons away from this so similar events can be avoided in the future. Additional bidding requirements that come out of the Supplier Review should not impose significant additional costs on contractors, as these may drive those least placed to bear them (i.e. smaller organisations) out of the market thus reducing competition.
Framework agreements
44.Framework agreements are used by DFID as a means to streamline the procurement process. They enable PCD to simplify a two-step process—pre-qualification followed by tendering—to focus efforts on the tendering stage. By establishing a pre-qualified set of potential bidders through the framework, it allows DFID to tender in a single stage where only firms (or consortia of firms) appointed to the framework can bid. DFID currently has five active frameworks, containing 63 lead suppliers, and suppliers awarded frameworks undergo due diligence, technical assessment and benchmarking of fee rates to ensure value for money. In written evidence, DFID stated that:
“DFID uses frameworks as they are fast, efficient and easy to use. Internal reviews of current frameworks have shown that their use reduces the procurement timescale by 30% on average. A single supplier framework was recently re-tendered and is now delivering fee rates 15% lower on average than the original framework.”76
While the streamlining logic behind framework agreements is apparent, concerns have arisen about the way that they operate.
45.The main problem with framework agreements expressed in evidence is that they can have the effect of “locking out” organisations from bidding—particularly smaller ones. Contractor B told us that:
“Where increasing amounts of DFID work are let through framework contracts, if you are not on the right framework, you are simply locked out. [ … ] Frameworks have been useful in terms of streamlining procurement, but they have been quite rigid and restrictive in terms of market access, particularly for smaller players.”77
Public Administration International, a micro contractor itself, wrote that “DFID is making too little use of small, expert, technical suppliers and pays too little attention to how its commissioning affects small suppliers.”78 Another small contractor with professional experience in fragile states told us that they were ineligible to bid for work because they were not on the FCAS framework. They reported that when they asked DFID how they could become part of the framework, they were told they could not apply to join until the framework was retendered.79 They were completely locked out.
46.DFID told us both in written and oral evidence that current frameworks and opportunities are widely advertised; on the Gov.uk website, in the European Journal, on DFID’s supplier portal and through the DFID Procurement Twitter account.80 However, it cannot be assumed that advertising frameworks alone makes them accessible, particularly to smaller contractors. Nathan Associates wrote that:
“There has at the time of developing these frameworks been very limited clarity as to how they will actually work and what will be tendered through them. This made it difficult for smaller firms to ‘lead’ in lots and most were pushed towards a ‘tier 2’ role in which they participate as sub-contractors to the ‘lot leaders’. DFID is now moving towards new frameworks for private suppliers to participate in, with new rules once more and again, at this time it is very unclear how they will emerge. Each of DFID’s procurement routes needs clearer rules and guidance. When questions are asked to seek clarity, the responses often fail to give a definitive answer. The complexities, uncertainties and lack of clarity of DFID procurement systems also act as an unintended barrier to entry for new firms, particularly smaller firms.”81
47.We are concerned about the rigidity of frameworks that apply over such a long time period, as several of DFID’s frameworks have a life of four years which means suppliers—particularly smaller ones who are less aware of the processes involved in gaining access—can be locked out for lengthy periods.82 In guidance on ‘How to Prepare and Evaluate Tenders’, the CIPS states that the procurement organisation “should have some idea as to which organisations are likely to be potentially suitable supply sources”. However, it also notes “the disadvantage of this approach is that the systems need to be kept continuously up-to-date.”83 A review of DFID Frameworks by ADS Group, a trade organisation for UK companies UK aerospace, defence, security and space sectors, found that “Framework Agreements quickly became out of date; they did not reflect rapid changes in the nature of the supplier base.”84 Framework agreements need to be updated more regularly in order to be effective.
48.The disadvantage for smaller contractors caused by framework agreements was also supported by evidence from larger firms. The Centre for Development Results, wrote of changes to the Economic Development Framework and stated that:
“[ … ] smaller companies may struggle to demonstrate track record and ability to absorb the risk associated with programmes in such narrowly defined terms. [ … ] While frameworks have the ability to help make and shape markets, DFID has demonstrated a lack of technical understanding of the impact of these changes on the supply chain.”85
49.Smaller organisations do have the opportunity to participate in work procured through frameworks by forming consortia to offer specialist skills under the leadership of the prime contractor, though the way this operates in practice can also be problematic. Public Administration International wrote that, from a smaller organisation’s perspective “the system seems to have the effect of excluding them from bidding and from being included as genuine partners in work programmes, as opposed to having their names included to add superficial credibility to proposals.”86 Another small contractor stated in confidential written evidence:
“If you didn’t sign up to one of the big contractor consortia at the time, you’d be out in the cold ever since. If you did sign up, then you’re “locked in” to that lead firm and that consortia. There’s no freedom of association. This restricts access and choice to DFID, and reduces the power and influence of smaller firms within any consortia [ … ]”87
DFID was very clear in evidence that it does not condone these kinds of exclusivity agreements where smaller contractors are bound to larger firms,88 though in practice this appears to be a feature of the market.
50.These concerns are not new. In evidence to our predecessor Committee’s inquiry into DFID’s Annual Report and Accounts 2013–14 submitted in December 2014, The Springfield Centre wrote:
“DFID has historically benefited from the technical expertise of smaller, specialist organisations which are able to be more agile and innovative. However, now these organisations are beholden to large contractors, their ability to shape the work they do is limited and they become task-based consultants with less control of technical delivery. They are obliged to comply with the demands of larger contractors, having been unable to meet compliance requirements to be eligible for the framework agreements.”89
In its report, the Committee asked the question “does DFID understand how its way of commissioning is affecting suppliers as a sector, and not just in terms of the effectiveness of individual procurement decisions?”90 Evidence to this inquiry over two years later suggests that the answer to this question remains unclear.
51.DFID informed us that steps are being taken towards improving frameworks. In oral evidence, Nick Ford told us:
“DFID has put in place a number of frameworks since 2011–12, when we did our first wave of frameworks. We are now on to our second wave. We have taken on board quite a lot of learning from the first wave in the new set that we are running. [ … ] we are taking on board a lot feedback about what has worked well and what has not.”91
However, it appears that the wider trend across government is moving away from frameworks. In her former role as Chief Executive of the Crown Commercial Service (CCS), Sally Collier was reported as saying there had been a 40 per cent cut in the number of framework agreements as the CCS moved to “new contracting models”.92 Why DFID has moved into a new phase of framework agreements while the rest of government moves away from them is unclear.
52.We recognise that there are benefits to framework agreements, including the time and cost savings generated through greater administrative efficiency. However, there is a strong suggestion from evidence to this inquiry that they lock out organisations—particularly smaller ones with technical expertise—from bidding for DFID work. They can force smaller contractors into ‘second tier’ roles where their power and influence is reduced. In order for frameworks to work as intended and avoid narrowing the supplier base, they need to be updated regularly which is not current DFID practice.
53.DFID should undertake a review of framework agreements and justify how their benefits outweigh the costs reported in evidence to this inquiry. Where framework agreements are used, DFID should commit to regular reviews and updates, allowing new market entrants access to bid for existing frameworks at more regular intervals. DFID should also consult with smaller organisations on how to make bidding for frameworks more accessible, offering tailored guidance to ensure that its procurement processes are not a barrier to entry. DFID should also justify why it continues to use framework agreements when the trend across government is moving away from them.
56 OECD DAC, Harmonising Donor Practices for Effective Aid Delivery (2005)
58 International Development Committee, Second Report of Session 2015–16, Ebola: Responses to a public health emergency (January 2016).
61 Q2 (See Annex 1)
63 Q40 (See Annex 1)
64 Q40 (See Annex 1)
67 Q40 (See Annex 1)
68 ICAI, The cross-government Prosperity Fund: A rapid review (February 2017) para 3.37
69 Mott MacDonald (See Annex 2)
70 DAI Europe (See Annex 2)
71 Coffey International Development Ltd (See Annex 2)
72 Coffey International Development Ltd (See Annex 2)
74 Coffey International Development Ltd (See Annex 2)
75 Confidential (See Annex 2)
77 Q5 (See Annex 1)
79 Confidential written evidence (DUC0001) p1
82 DFID, Procurement at DFID (accessed 13 March 2017)
83 Chartered Institute of Procurement and Supply, How to Prepare and Evaluate Tenders (2013) p1
84 ADS Group, Review of DFID Framework Agreements (accessed 13 March 2017)
87 Confidential written evidence (DUC0015) p3
90 International Development Committee, Thirteenth Report of Session 2014–15, Department for International Development’s Performance in 2013- 2014: the Departmental Annual Report 2013–14 (March 2015) para 92
92 Chartered Institute of Procurement and Supply, ‘We’re moving away from frameworks’, says Crown Commercial Service boss Sally Collier’ (10 September 2015)
6 April 2017