TRANSPORT FOR London (TfL) framework contracts for consultancy services are heading for trouble after it emerged this week that firms are unwilling to work for the prices agreed.
Two major consulting firms admitted to NCE that they are submitting higher prices for work than were originally agreed when they bid for TfL's consultancy frameworks in 2005 and others are rumoured to be in a similar situation.
TfL controversially used electronic reverse auctions to procure consultants' services two years ago (NCE 23 March 2005).
Firms that prequalified were asked to bid against each other online to win the frameworks, with TfL selecting firms that submitted the lowest prices.
Firms said they would boycott the auction or submit rates and stick to them. However, once the auction began so did the undercutting (NCE 7 April 2005).
The award of a framework contract enabled consultants to bid for future TfL work, but also required them to stick to agreed fee rates for different kinds of work and different grades of engineer.
A director at one major consultant confessed: 'People thought that the framework contracts were set up for small beer types of work. We are now being asked to look at big things.
On relatively trivial work you can get by with someone who's inferior. Now TfL is asking for our A-team.' He warned that if TfL specifies a high grade of engineer it will have to pay industry rates.
'We're in an overheated market.
Unless there are sensible [rate] increases then TfL will struggle to get a first-rate team.' The result is that companies will submit bids at rates above those originally agreed and argue for a contract variation.
NCE understands that at least one consultant has done this.
Another consultant admitted that his firm would be in breach of contract if it submitted higher prices or if it downgraded the quality of its staff to match the rates agreed with TfL. However, he said that his firm was digging in its heels for higher pay and would argue for a contract variation if necessary.
TfL will come out of the impending fees debacle badly, predicted Benaim director Simon Bourne. Benaim refused to bid in the auctions. 'The key factor on price is the multiplication of the rates and the associated man-hours, ' he said.
'A skilled member of staff, working at higher rates, will carry out work in a shorter time than a less able member, working at lower rates. This will give a lower overall price, even though the headline rates are higher.
'Many institutional clients have no ability to recognise these pricing issues; their procurement systems are controlled by staff with little or no engineering knowledge.
'I'd think it not uncommon for there to be negotiations after award in an attempt to reinstate margins back to commercial levels. If this isn't possible, then margins can only be recovered by the project being over-resourced with less able staff.' TfL was not able to comment as NCE went to press.