The Outsourcing Playbook

The Outsourcing Playbook

Consisting of an outline document and 14 guidance notes, the Outsourcing Playbook aims to provide a step-by-step guide to procurement best practice throughout the whole of an outsourcing lifecycle.

The collapse of building contractor Carillion, the descent into administration of government contractor Interserve and the well-publicised debacle of the West Coast rail franchised tender all cast a long shadow over the publication of this guidance.

The key messages that can be drawn from the guidance are that there are some obvious behaviours which need to be changed in the way that government operates on the market. The message appears to be that government as a customer, acting through its commercial lawyers and procurement officials, needs to act more reasonably.

There are a number of areas which are highlighted:

Reducing bid costs

The playbook suggests taking measure to reduce bid costs. This is a key driver for ensuring that it gets the benefit of bids from SMEs and voluntary sector companies. The message then is to ensure that the procurement process is reasonable and proportionate. These are however, not terms which are typically used to describe the government’s Model Services Contract which the guidance recommends for use, and describes as “a convenient and flexible model contract“. Bear in mind that this is a document which, in its current iteration, consists of a full 500 page template agreement before being completed with any project-specific detail. This is a model contract designed for a different era of IT service delivery – the kind of ambitious major IT project which, if not discredited following the cancellation of the NHS’ National Programme for IT, has been increasingly scaled down. Instead, changes in the IT service delivery landscape have meant that smaller, more nimble operators delivering specialist software solutions as a service have been encouraged, including through the government’s own G-Cloud framework.

Commercial contract terms

The guidance refers to a number of explicit commercial points which the government passes on as shared wisdom in order to prevent further embarrassing interviews for the business pages.  Contracting authorities should permit the bidders:

a) a reasonable risk and price allocation;

b) a reasonable limitation of liability; and

c) evaluate bids on the basis of “value” rather than short-term costs.

At the same time as there is pressure on public sector clients to reduce costs in order to provide a bare minimum of services, it seems a little unrealistic and unfair to expect procurement officials not to drive down costs, ensure price certainty and reduce public sector risk.

If the terms of the tender exercise provide for a price/quality ratio of 60:40 or more, the tender response will certainly be driven by a focus on costs, even expressed in terms of whole-life costs. It is this driver which leads to unrealistic pricing, which is really the lesson which costs business and which is also addressed in a specific guidance note.

Evaluation of bids

In this context, the analysis of how to evaluate bids is dealt with in a very cursory manner. There are a number of detailed questions, but, unlike the model for evaluating bidders for suitability to tender, this is not accompanied by a detailed template or mechanism. The guidance does however suggest how to deal with “abnormally low bids”, which it describes as bids that are more than 10% lower than the average; or below the “Should Cost Model”, or, as we used it describe it, the ‘public sector comparator’ or ‘reference bid’. There are a number of issues with this. As lawyers tend side-step using numbers, the legal tests have instead referred to a tender which is not “serious and genuine”, rather than one which refers to an arithmetic calculation.

The guidance is available at the following website.