We’re going through some uncertain times, what with Brexit and the collapse of leading players in the FM sector. Here, Julian Fris, Director at Neller Davies explores the role of emergency procurement in helping to weather the storm
There seems to be one certainty in business today; we will have uncertainty.
Whether its political, social or environmental, sudden shifts seem to be more commonplace and the consequential impact on services providers cannot be underestimated.
Exceptional circumstances, may mean the government and related public bodies have the capability to suspend the normal rules and regulations governing procurement and buy goods or hire companies to perform their services without following a full procurement process – be that a tender, competitive dialogue or other. A recent example in the UK could be the no-deal Brexit ferry contracts, or the aftermath from the demise of Carillion. But what constitutes an emergency and what changes in relation to procurement under such circumstances?
Normal procurement rules follow a set structure. We scope a requirement, prepare a contract notice and post on OJEU, Contracts Finder or other platforms and provide a descriptive document for potential bidders to determine whether they want to submit or not.
Applicants then submit a prequalification supplier questionnaire (SQ) which sets out financial, technical and compliance criteria which is then rated. Depending on the process a number of bidders (typically 5) are then shortlisted to bid, participate in dialogue, negotiate and so on. What is set out in the Notice determines the procurement red lines i.e. you can only follow the set process and cannot deviate. Where authorities don’t, they could be challenged at the end of the process during a 10-day standstill period. It is cumbersome but ultimately fair, and we adopt some of the good practice for private sector bids.
An emergency situation, however, is where there is a sudden unforeseen event resulting from a ‘force majeure’ that results in injury, loss of life or critical damage to property or infrastructure. These are typically emergency situations which can include natural or manmade disasters such as earthquakes, cyclones, tsunamis, volcanic eruptions, flooding, fires or contamination; failures of critical infrastructure or equipment, where there is a failure of a prison security system or critical hospital infrastructure; critical health or environmental emergencies such as a pandemic or food safety incident; or political emergencies such as a war, coup, or civil insurrection in the UK or countries where the UK offers support.
It could also be security emergencies such as a terrorist attack, serious crime or major cyber-attack or unforeseen events that make it impossible for government bodies to perform their critical functions in the necessary timeframe.
WHY WOULD IT HAPPEN?
If there is an effective procurement process in place these emergencies could be avoided. The difficulty is where a company has had a sustained period of poor performance but is still gaining business through a variety of legitimate means. The effect of ‘trading their way out’ of a crisis is only as good as the rigorous controls on costs that are applied on the business. If they are weak more business translates into greater exposure which impacts liquidity and ultimately results in business failure.
Similarly, a lack of good business continuity planning could expose an organisation to greater risk and they could abuse procurement rules. However, this is by degrees, a natural disaster which requires significant volumes of grain and will need a direct procurement.
HOW TO AVOID AN EMERGENCY PROCUREMENT
A vast number of procurement projects are routine and predictable. They are time limited and if run well operators can retain contracts for long periods but equally where there is change this should be smooth. Within that process, there should be effective business continuity and disaster recovery provisions which means that sudden changes can be managed within an existing arrangement.
However, a major catastrophic incident may mean normal service is suspended for a period of time and that the economically most capable companies may be brought in at short notice. This will be less about cost and more around capability to continue operating for the public good. Any decision should transcend the rules but with safeguards in place to ensure its not abused.
In a genuine emergency, the key consideration is finding a shortened process which gives assurances. Procurement teams need to be comfortable that they are buying safely for a company. ‘Safely’ could cover a multitude of checks, including financial stability of the business being contracted – something that is proving more of an issue in today’s FM marketplace.
There are a number of channels businesses can explore.
Framework agreements are effective because buyers have access to suitably pre-qualified companies. However, in some cases these are not appropriate and can be restrictive. You can draw down supplies or run a mini-competition. Our experience is mixed. However, dynamic purchasing may be more effective where bidders are invited onto a framework at any time and regularly update their details to meet a client’s requirement e.g. Achilles or Constructionline.
Direct awards can be made and these have to be signed off by an organisation’s Board and they have to justify their actions. On occasions this may go to the relevant Secretary of State for sign off.
In the situation of a complex FM contract, organisations can use step-in. If your appointed contractor cannot fulfil the need through performance or capability then the organisation can bring in a third party to take over that element of the service. Where it is performance related, this will be time limited and at the cost of the appointed provider and ends when they can demonstrate suitable competencies to do the job.
There are a number of other companies can explore, for example, entering into more strategic & collaborative partnerships with their providers. This could result in a more outcome-based approach which relies on a pre-established relationship and more effective e-risk sharing.
The key considerations companies need to make before adopting emergency procedures are:
⇒ Clarify that the situation meets the criteria for treatment as an ‘emergency’ and that this direct approach to procurement can be fully justified and isn’t deliberately uncompetitive
⇒ Identify, specify and prioritise the immediate procurement activities that will bring relief
⇒ Consider the operating environment and conditions ‘on the ground’
⇒ Find out what other government agencies and NGOs are doing and, where possible, collaborate and for example look at available frameworks
⇒ Consider your duty of care to suppliers and take appropriate measures to ensure their safety
⇒ How to ensure a level of accountability during the emergency and how to establish a management structure to coordinate and authorise necessary procurement once the situation has been stabilised