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Wednesday, 3 October 2012

West Coast franchise fiasco exposes a flawed government infrastructure process: my personal experience

I'm still covered by commercial non-disclosure agreements preventing me being too specific in this post.

The government has caved in and said it will re-open the West Coast Main Line franchising process due to "significant technical flaws".

I've been involved as a consultant on two large government civil infrastructure contracts similar in nature to rail franchises and today's announcement doesn't surprise me in the least.

The touchpaper was lit back in August when Virgin announced it would ask for a Judicial Review of the decision.

Judicial Review is a process that can be applied to most decisions by public bodies, forcing the body to justify its decision to a court and thereby ensuring fairness and acting as a safeguard against corruption and abuse of power.

I was advising bid teams on aspects of IT used to track budgetary performance over the lifetime of such contracts.

My client pulled together an impressive team to produce each bid for the half-billion-pound-plus contracts to manage large chunks of civil infrastructure.

This itself is noteworthy, an average of twelve people including consultants far more expensive than me over months was a price worth paying for a chance to win this lucrative work; the cost of this and other failed bids would be amortised over the lifetime of each successful project - essentially we the taxpayers end up footing the full cost of bidding one way or another.

Is this cost a necessary part of ensuring good overall value, or is it a costly charade?

When I learned we lost the first bid I was surprised.  The bid was strong and the feedback we received seemed to mark us down in areas I felt we were strongest.  I floated the idea of a challenge to another member of the bid team.

Judicial Review was the elephant in the room

Over the following year I did more work for my client which included some direct liaison with the government agency.  Over that time it became quite clear that everyone on both sides knew the bid process was flawed.

I'm going to be very clear here: I do not believe the process was corrupt; or even that the process was leading to disastrous results.

But it wasn't - from what I learned - fair; and it wasn't necessarily leading to the best results for taxpayers or for users of this particular civil infrastructure.

The problem I saw was that the process was idealised.

The process attempted to assess in detail how good the contractor would be over the lifetime of the process whilst at the same time limiting the opportunity for the contractor to profit too much at taxpayer's expense.

Both of these sound sensible aims, right?

Except that the government wants the best of all worlds.  Delegation and good value with minimal risk and no bad headlines from private companies raking millions from taxpayers for shareholders.

And this lead to a highly subjective process that was very hard to judge, accurately; and easy to spin by companies experienced at winning this kind of work.

The end results:

1.) The government agency is left to conduct a series of highly subjective assessments. Everyone concerned seemed to accept the end outcome was effectively a simple divvying of projects between a small group of experienced bidders based roughly on whose turn it is next and who's stepped out of line much recently?

2.) New entrants find it hard if not impossible to get a toehold in this market.  If they put forward an honest price it might look like profiteering alongside the experienced players who know how to turn profit to overhead and hide overhead as cost.  This in addition to the natural barrier of having no track record and none of the smooth words used to appease the assessor as to the company's competence in microscopic detail on every aspect of the contract.

Many people involved in the process seemed aware that few, if any, of these contract awards would survive Judicial Review.

This was the elephant in the room, but since there was a closed pool of bidders competing for lucrative work on a 5-7 year life cycle it was clear to me that those involved in the bidding were under no illusions: they would find it very hard to win any further contracts should they dare to launch a legal challenge.

They believed this because they hired for their bid teams consultants with OBEs and CBEs, former civil servants who used to run the very process they were involved in, and these consultants set out the unofficial rules of bid club.

Ramifications

The BBC notes:
"... the implications of the decision to scrap the deal went much further than just the West Coast Main Line.
There were about 15 rail franchises due to be decided before the next general election and the whole franchising process could now be thrown into doubt"
I'd add that this goes way beyond the rail franchises (with their equally subjective tests of "will this company give good customer service, run enough carriages with enough seats - over many years; will they go bust during the contract, etc...)

If more failed bidders start to challenge the processes involved in awarding these contracts the government will have a pretty tough few years behind the scenes and potentially in the courts keeping the trains running, the water flowing and the traffic moving.

But what should emerge is hopefully a cleaner, more objective evidence-based system to award large contracts.

And by evidence I mean historical performance and widely used well established metrics, rather than hundreds of pages of guff and bluster created by teams of highly-paid consultants designed solely to convince assessors.

As mentioned earlier, one of the downsides of this process is that companies spend literally millions on failed bids, knowing they'll be able to claw-back the lost millions - and more - on each successful bid.  Typically the ratio was one win in every three or four lost.

The closed shop approach might not be corrupt in the traditional sense; and it might not be fatally flawed in that we don't have bridges collapsing, we have clean water and the trains run; but it isn't great - it keeps out new entrants and consequently the taxpayer, rail user, utility consumer, etc, ends up paying more for less.

@JamesFirth

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