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Don’t come back

I have written (HERE) of the need for speed in challenging the award of a public contract where the provisions of the Regulations governing such contracts have not been followed. (European Communities (Award of Public Authorities’ Contracts) Regulations 2006 (Statutory Instrument No. 329 of 2006) ).

The Regulations expressly embody a good idea; that the nation get the best value for money. It is not easy to ensure this.

For instance, one assumes the contract for the “regenerationâ€? of Ballymun was awarded on the criteria adopted in the 2006 Regulations (not pursuant to them; they post-date the Ballymun contract).

We now see (HERE) that the Ballymun contract is €500 million over budget.
Who can now say that the seemingly more expensive underbidder was not in fact the cheaper of the bids? (Assuming there was an underbidder).

The problem is endemic in such contracts (especially in IT contracts).

In truth, neither the contractors nor the public authorities seeking tenders genuinely know what the costs of such projects are; the tenders are guesses.

The man who built the Empire State building in New York was asked what the most important element was in the construction; he replied, “getting the contractâ€?.

Following that line of thought, the best guess is the one that seeks, not to estimate the actual cost of the project, but to guess the cost projection of the public authority for the project. That will secure the contract.

It is possible to try and ensure that the cost overruns do not fall to the account of the public, but that, too, seems to be hard to avoid as we see in the Metronet debacle HERE and HERE.

What Transport for London seemed to have overlooked was the freedom of the individual members of the Metronet consortium to become sub-contractors (they gave the contracts to themselves) When Metronet went into administration, Transport for London continued answerable for the claims of those sub-contractors.

It is an important element in the negotiation of such contracts to ensure, to the greatest extent possible, that there will be no re-negotiation of the contract later. The World Bank has this to say on the matter:

8.3.1Avoiding renegotiations
According to one study,55 percent ofwater concessions awarded in Latin America were renegotiated in the 1990s,many within two years ofthe award (Guasch 2004). In some cases, the operator or contracting authority may reasonably refuse to renegotiate.Moreover,developing a reputation for being hard-nosed could reduce the likelihood that the contracting authority will be exposed to opportunistic behavior in the future. In other cases,circumstances may have changed in ways that mean the current arrangements are no longer appropriate,and renegotiation can help both parties.
Often,both the contracting authority and the operator have strong incentives to renegotiate rather than terminate the arrangement:contracting authorities are often concerned that terminating the arrangement may result in an interruption to key services,while operators do not want to lose any past investment or future profit. Yet renegotiation changes a previously agreed arrangement.The contracting authority or the operator may try to renegotiate in order to reduce its risk exposure or to gain advantages it was unable to obtain in the initial agreement (Box 8.1).When the operator is selected based on the lowest tariff bid or highest concession payment,operators may engage in aggressive bidding strategies (lowballing) to win the contract and then seek to renegotiate for more favorable terms once competitive pressure is no longer an effective constraint.