Complex government procurements: lessons from the InterCity West Coast Competition?

11 Dec 2012

The final report of the Laidlaw Inquiry into the failure of the InterCity West Coast Competition was published on 6 December 2012.  The purpose of the report is to look ahead to avoid similar problems being repeated in future

The Report highlights a series of significant organisational and individual failings in the conduct by the Department for Transport (DfT) of the InterCity West Coast rail franchise competition, which were in a number of cases interlinked.  From these failings the Report identifies a series of  ‘lessons learned’.

What are the implications of these ‘lessons learned’?   In particular, is their significance confined to the West Coast Competition or do practitioners need to be alive to their possible wider relevance and transferability to the conduct of complex procurements more generally?

At the heart of the problems were difficulties that arose in connection with the mechanism to be used to assess the financial risk of the bids.  Key was the methodology to be used in order to determine the size of any Subordinated Loan Facility (SLF) needed to confirm the financial capability compliance of bidders.

The key ‘lessons learned’ in the Report’s recommendations respond to the following categories of problems identified in dealing with the SLF issue:

(1) Inadequate planning and preparation;

(2) Deficiencies in organisational structure and resourcing;

(3) Lack of efficacy in governance framework.

As to (1):

The Report records an almost universally acknowledged truth that complex procurement processes are particularly vulnerable to challenge by the losing bidders.  External advice should therefore be obtained throughout the whole of the franchising process.

The Report says consideration should be given to the extent to which a contracting authority needs flexibility to exercise commercial judgment during the procurement phase and whether that flexibility is best achieved b y way of formally including a period of engagement with the market following publication of the ITT.

The Report also identifies as key points having a contingency plan and a timescale that respects the complexity of the process.

However, market engagement after the ITT can raise potentially tricky areas of procurement law (as the Report appears to acknowledge).  Further, the flexibility to depart from particular deadlines may also not be straightforward where this involves extending the tenure of the incumbent during the period of any extension.

As to (2):

Many of the lessons learned in terms of recommendations for project leadership and obtaining access to appropriately skilled individuals to manage the process are important points of general application.

Of particular note here are the concerns about the failure to escalate and address legal concerns, which in this case had been expressed about the very issue upon which the process foundered.  Also of concern is the possibility that cultural issues may have led to an inadequate response to potential difficulties when identified.

As to (3):

Many of the lessons learned refer to sensible proposals for the management of franchise competitions designed to ensure that ‘blinkers’ are avoided and that committees and decision making processes are conducted in a joined-up way with issues addressed in the context of their proper significance for the integrity of the overall process.

Two issues in particular stand out from a legal perspective.  First is trying to ensure that decision makers are not unnecessarily prevented through “excessive recusal”  from dealing with  important issues that are escalated during the process.  Second, is the suggestion that where a risk of bidder challenge is identified, these are escalated appropriately and considered at the ExCo level with appropriate independent legal and commercial input where necessary.

Whilst these points make good sense in the particular context of this case exactly how one approaches these issues (particularly the first) may vary quite a lot from case to case.  As to the risk of legal challenge, this, as the Report acknowledges, is a fact of life in complex procurements.  Whilst it appears that risks were not properly evaluated in the instant case the fact remains that an unduly defensive view (based on overly cautious advice) can also be extremely damaging to an effective procurement strategy.  A high profile disaster such as the present could easily lead to a disproportionate counter-reaction leading to the undue dotting of ‘i’s and crossing of ‘t’s that has been the subject of disapproving comments from the highest levels of government.

Difficult judgments will continue to have to be made under considerable pressure in the context of such complex procurements.  It is to be hoped that the ‘lessons learned’ from the Laidlaw Report will help to ensure that future franchise competitions are successful but also that they are only applied elsewhere when it is appropriate to do so.  As the Report notes “… whilst there is no absolute certainty that the flaws in this process are isolated and wholly specific to that process, it would equally be wrong to assume that they are commonplace in the DfT or across other Government departments.