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Failed boycott could spell disaster for consultants

News - Angry consultants failed to see through a threatened boycott of Transport for London's reverse auction last month.

TUESDAY 5 April could be the day consultants and contractors live to regret for many years to come. It was the day Transport for London (TfL) chose to stage a controversial reverse auction for 10 engineering consultancy frameworks worth a total of £1bn.

The Association of Consultancy & Engineering (ACE) was adamant: 'Do not take part, ' it told its members (NCE 24 March).

Reverse auctions are bidding processes in which companies which have already submitted a price are pitted against each other in an internet 'Dutch' auction. Winning bids are chosen on a lowest price basis. On the TfL frameworks, successful bidders are guaranteed a place on shortlists for individual contracts which will be bid traditionally.

Critics say that reverse auctions should only apply to product suppliers and not firms offering professional services.

They argue that using price as a basis for awarding contracts will force consultants to cut quality to balance their books.

'Using a reverse auction to procure professional services is akin to using e-bay to arrange open heart surgery.

It's madness, ' says ACE board chairman Desmond Scott.

So what happened?

Before last month's auction, there was a fl urry of phone calls between the chief executives of the top consultants, resulting in a pact to enter prices at the start of the bidding process, but to stick to them during the auction. Those firms understood to have agreed to do this include Arup, Atkins, Benaim, FaberMaunsell, MouchelParkman, Scott Wilson and WSP.

But the pact disintegrated. It is known that at least one firm broke ranks and joined many others in a price cutting frenzy.

None of the consultants that took part in the reverse auction would speak to NCE this week.

But those refusing to change their initial prices all saw their bid ratings fall by at least five places during the auction.

It is impossible to tell how many of those involved cut their initial prices. But judging by the time the process took it was at least two and maybe more.

Bidding for the 10 frameworks was expected to take 30 minutes each, starting at 10am.

So the whole thing could have been over that afternoon. But the fi al framework did not conclude until 11.30pm that night - almost 14 hours later.

The rules were simple - if anyone revised their offer inside the fi al three minutes of a 30 minute session then it could be extended by a further three minutes. The shortest framework took an hour to bid, which means that 10 price changes must have taken place.

The longest took two hours.

Clearly the industry was swept along with the abandon of a huddle of Las Vegas poker players. Even some those who vowed to stay out of the bidding admitted to getting caught up in the moment.

'We started off with a policy that we weren't intending to change our prices and on a good number we did not, ' said one staunch reverse auction opponent. 'But on one or two we did [lower our prices] where we didn't put in as good a bid as we could have and on one or two the thrill of the chase took over and we made small changes to see if it made any difference.' TfL says it is pleased with the way the process went. It says that on most frameworks, prices dropped to a common level and then no-one went below it. Firms were separable only on the discounts offered for speed of payment and volume of work awarded.

But most consultants - and contractors - remain unimpressed.

'If TfL perceives that it has got a good procurement process then it is very depressing. It has effectively used its muscle and I'm not sure if the consultants who dropped their prices have behaved very sensibly, ' said one consultant.

'It's very worrying. It's completely against where the industry has been heading for the last 20 years and will lead us straight back into a claims culture, ' warned a major highways contractor.

TfL points out that it used the reverse auction to assess the price component for framework deals that are assessed on the basis of 60% quality and 40% price. Assessment of the technical bids continues and it is still possible that the lowest price bidders will not necessarily win.

Bids were still being assessed this week, so it will be some time before the implications of this particular reverse auction process can be fully assessed.

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