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Sunday, October 7, 2012

Another difference between government and private contracting

Although the scale of the deals were different, there is a common core to both stories below, apart from the obvious political meddling that can taint government contracting: what does the government do when it bungles the procurement vetting process, and how might that differ from the private sector?  Guam's case involves the solicitation of a health insurance contract; the UK's case involves the solicitation of a rail project management contract.

In Guam's case, the solicitation involved the procurement of health insurance for the government's employees. Being the political season and there being a family connection between one bidder and the administration, the Guam Parliamentarians determined to step in and remove the Executive from the role of procurer, rewrite the specifications and the procurement method for this one solicitation, this one time, and award the contract to all comers. In the UK's case, the embarrassment continues.

Guam:

Second Protest Filed Over Guam Government Insurance Contracts


3 of 4 health insurers protest bid process

Restart of bidding for health insurance sought

Health insurance measure debated


AG: Postpone health insurance bill


GovGuam health insurance procurement bill passes
UK:

This railway fiasco reveals all that's wrong with the Tories
It was an epic debacle. Last week the government withdrew the award of the vast £13bn West Coast rail franchise contract to FirstGroup, acknowledging that its own processes were faulty. Ministers, releasing the news at midnight to set the terms of the news story, spun that middle-ranking officials were to blame for the cock-up and had been suspended.

This is a first order crisis of the state. The structure of a hollowed-out Department for Transport was exposed as dysfunctional – and the proposed inquiry into what went wrong stank from the outset. It's a massive passing of the buck by frightened and callow politicians

If there is no trust in the process, meaning that companies can be expected to launch judicial reviews challenging decisions, then the expense will become prohibitive.
Anyone But Branson: Rail-bid civil servants 'exchanged derogatory emails about tycoon'
The Government awarded the new £7billion franchise to FirstGroup, but cancelled it before the planned handover in December after Sir Richard’s Virgin group, which offered £700million less, made a successful legal challenge on the grounds that the Government ‘got its sums wrong’.

Virgin executives have long been concerned about the perception of an ‘anti-Virgin’ bias and culture within the department characterised as ‘Anyone But Branson’.
Heads should roll after this rail bid debacle
If a blunder of this proportion had occurred in the private sector, the consequences would be very different.

the Department for Transport delivered a masterclass in bungling. It announced – in a statement sneaked out in the middle of the night – that the franchising process for the West Coast Main Line (WCML) would have to be re-run because of “flaws”. Specifically, mistakes were made in pricing in inflation and passenger projections when assessing the competing bids – surely an elementary error.

Patrick McLoughlin, the recently appointed Transport Secretary, wasted no time in blaming his department’s officials for the fiasco, and three civil servants have been suspended while further investigations are conducted. His predecessor, Justine Greening, who signed off the deal and who has since been moved to the Department for International Development, also has questions to answer.

Will heads roll? Don’t count on it. This, after all, is the state sector, where incompetence even on such a dizzying scale rarely leads to the culprits paying with their jobs. If a blunder of this proportion had occurred in the private sector, the consequences would be very different. As a result of failing to hire enough staff to meet its contractual obligations at the Olympics, G4S forfeited a £50 million slice of its fee and two senior executives lost their jobs. This debacle, in contrast, will cost the taxpayer £40 million in compensation payments to the bidding companies.

When it was announced in August that FirstGroup had won the 13-year West Coast franchise with a £5.5 billion bid, this newspaper was not alone in questioning whether the deal was credible. Sir Richard Branson, whose Virgin Group has run the line successfully for the past 15 years, has been vindicated in his description of the decision as “flawed and insane”.

Indeed, had Virgin not sought to take the issue to court, the miscalculation would have remained undiscovered – it was only in preparing its defence that the Department for Transport stumbled across the errors. The only consolation to be drawn from this fiasco is that the franchise had not changed hands before the flaws were exposed. And credit for that goes not to politicians or civil servants, but to Virgin and its justifiable anger over a deal that did not add up.

There's one final comment to make in regard to the last paragraph above. I refer you to a recent Guam Public Auditor decision noting gross errors that would not have gone noticed or corrected but for a bidder's protest: OPA-PA-11-002.

Notwithstanding the railing against and deflection of blame on protesting bidders, public contracting relies on them to police the system, as it is politically inadvisable to admit wrongs and correct them publicly, let alone dismiss staff. In the private arena, heads roll, personal prices are paid, and the mistakes tend not to repeat themselves so often, or at least by the same people.  Any attempt to frustrate the protest review process will result, ultimately, in more inefficiency and higher cost in the government.  It is not in the nature of the beast to control its own instinct for avoiding accountability.





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