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BMRB International Limited
Key findings:
- There is low awareness and little knowledge of CCT in the four service sectors covered by the research (sports and leisure management, building cleaning, catering and vehicle maintenance).
- There are few firms directly involved in the local authority sports and leisure management market. For companies to be interested in bidding in this sector, CCT must be seen to offer the potential for growth and diversification.
- There is a perception that local authorities' attitudes towards contractors vary, but overall authorities are seen to favour in-house bids.
- Key barriers to tendering include lack of knowledge about CCT, low profit margins, the complexity of the tendering process, the level of performance bonds and differences in culture between authorities and the private sector.
- The majority of respondents in the building cleaning, catering and vehicle maintenance sectors feel that the proportion of CCT work going to private firms in their service area would grow in the future and substantial proportions of firms in each sector believe that their firm is likely to bid for CCT contracts in the future.
Introduction
Local government manual services subject to Compulsory Competitive Tendering form a very large market for private companies. While many private firms have been eager to compete and have won contracts, competition in certain areas of local authority services has been much lower than in other areas. Research carried out for the Department of the Environment in 1994 found that the number of firms bidding for CCT work represents only a small proportion of firms which are capable of bidding (Ernst & Young, Analysis of Local Authority CCT Markets, DoE, January 1995.)
The Department commissioned further research among potential contractors in three blue collar service areas currently subject to CCT where the level of competition is relatively low (catering, vehicle maintenance and sports and leisure management) and for comparison in one area where competition has been good (building cleaning). This survey of potential contractors was carried out by BMRB International between October 1995 and May 1996.
The Study
The study investigated:
- firms' experience of working in markets which require skills related to local authority CCT work;
- private firms' awareness of the opportunities created by CCT;
- the reasons for non-participation in the CCT market;
- perceptions of barriers to bidding for CCT contracts;
- views on the profitability of CCT contracts and the factors affecting this;
- future plans in relation to CCT.
The Data
The research was carried out in two stages. Firstly in-depth interviews were conducted within the sports and leisure management sector, covering trade associations and nonbidding firms within the core sector and related sectors.
Secondly, a telephone survey was undertaken of the remaining three sectors among 596 nonbidding firms in the relevant areas (vehicle maintenance, catering and building cleaning). The sample was drawn from the Inter-Departmental Business Register (IDBR).
The firms within the scope of this research are defined as those operating in one of the four service areas which are of a sufficient size (in terms of turnover) and which have not yet bid for a local authority contract where they have been bidding against an in-house team.
The Findings
The key findings of the research are summarised below:
The Sports and Leisure Management Sector
Knowledge of and approach towards CCT in the past: There is low awareness of and knowledge about CCT among companies involved in sports and leisure facilities management. Key influences on interest in CCT include: the company's existing sphere of business activity, the profile of customers for whom a company currently caters, the perceived potential for growth and diversification in the area of management through CCT, and the potential significance to the company of changes in sport and leisure that are perceived to have taken place in recent years. It is likely that firms which do consider involvement in CCT will have very diverse reasons for interest in the market. For companies to be interested in CCT, it would have to offer one or more of:
- a potential for growth within the CCT contract itself;
- benefits to the existing business;
- a potential as a new sector of business for the company;
- reasonable profit margins.
Barriers to bidding for CCT contracts: There is a range of factors preventing or discouraging firms from bidding for CCT contracts. Key factors are:
- the uncertain economic climate;
- a perception of local authorities' attitudes towards CCT and a belief that odds are weighted in favour of the DSOs;
- a perceived gap in organisational culture between authorities and the private sector;
- the complexity of tender documentation;
- performance bonds (a particular disincentive to new entrants);
- the perception, particularly by larger companies, that contracts are too small and fragmented;
- the financial implications of TUPE;
- the length of contract. Anticipating some capital expenditure, entrants to this service sector looked for sufficiently long contracts to ensure pay back;
- the perception of relatively low margins and high risks;
- adequate management control, especially over key variables such as price structure, timetabling, potential subcontracting and marketing activity.
Increasing the appeal of sports and leisure management CCT to the private sector: There are a number of factors which might encourage more interest in CCT:
- the growth in the health and fitness area, which fits well with local authority facilities;
- possible saturation in some markets, encouraging companies to look at other developments;
- pressure on budgets having some positive effect on local authority attitudes to CCT in this sector;
- the limitations of planning restrictions and land prices on other growth routes, especially in the South;
- CCT as a development route with lower capital expenditure than buying/building/ owning facilities.
However, the overall conclusion is that interest in CCT in sports and leisure management, as currently structured, is likely to remain limited.
The Building Cleaning, Catering and Vehicle Maintenance Sectors
Tendering experience: Building cleaning firms have been more active than those in the catering and vehicle maintenance sectors in tendering for both private sector contracts and for non-CCT contracts in the public-sector. Vehicle maintenance firms are the least experienced in this respect.
Knowledge about CCT: The proportion of respondents who felt they knew 'a lot' or 'a fair amount' about CCT ranged from 31% in building cleaning firms to 25% of caterers and just 6% of those in vehicle maintenance firms. Larger firms tend to be more knowledgeable, although this distinction is less apparent in the vehicle maintenance sector. Where firms have formed impressions about CCT work, these are on the whole based on general knowledge and perceptions, rather than on what they know about specific local authorities.
Approach towards CCT in the past: The extent to which firms have considered CCT in the past varies by sector, and is shown in the table below. In each sector, large firms were both more likely to have considered CCT and to have rejected it in the past.
Barriers to bidding for CCT contracts: There is a range of barriers which prevent or discourage firms from bidding for CCT contracts. Key factors are:
- a lack of information or publicity about CCT and specific contracts;
- a reactive approach by firms, in so far as they expect to be approached directly about contracts, rather than to find out about them for themselves;
- the perception that profit margins for CCT work are low;
- the complexity of the tendering procedure and documents, and hence the amount of work likely to be involved in tendering;
- the belief that private firms have little chance of winning contracts;
- the perception that tenders are evaluated on the basis of price rather than quality.
Perceived benefits of CCT work: The main benefits which firms associate with CCT are:
- continuity of work;
- enabling long-term planning and employment of staff;
- allowing new business opportunities;
- the ability of local authorities to guarantee payment and providing a regular cash flow.
Building Cleaning Catering Vehicle Maintenance Base
209
167
220
%
%
%
Never occurred to us that we might bid for them
15
32
52
Thought about bidding for them, but haven't had the opportunity
49
32
41
Had the opportunity to bid for them, but decided not to
36
36
7
Ideal contract size: Many firms knew little about the size of CCT contracts in their service area. CCT contract sizes are likely to suit many building cleaning firms, but are too large for many vehicle maintenance companies. Many catering firms find education and welfare contracts too large, but should be able to cope with other catering contracts.
Perceptions of the private sector success rate: Building cleaning firms tend to underestimate the success rate of private firms in their sector, catering firms have a reasonably accurate perception of success rates and vehicle maintenance firms overestimate private sector performance. Respondents in all sectors gave an average success rate of around 60% of contracts as being satisfactory. The perceived low probability of building cleaning firms winning contracts is an issue which discourages firms from bidding, suggesting that competition in this sector would increase if private firms were made aware of the relatively high success rate of the private sector in this service area.
Future intentions: Most firms in each sector believe that the proportion of CCT work going to the private sector in the future will grow, with few seeing it as a declining market. Around four in ten building cleaning and catering firms and five in ten vehicle maintenance firms interviewed thought that they would definitely or probably bid for CCT in the future.
Increasing the appeal of CCT to the private sector: Key factors which will help increase the appeal of CCT contracts to firms in all sectors are:
- more advertising, publicity and information about both CCT in general and also about individual contracts coming up for tender;
- the simplification of tender documentation and of the tendering process;
- ensuring that there is seen to be fair competition between private firms and in-house teams;
- shifting the focus of tender evaluation towards quality rather than price alone.
'CCT Non-Bidders' by BMRB International Ltd, is available from retail outlets of the Stationery Office (ISBN 0117533424), priced at £24.00.
For further information on the research contact:
Joe Biskupski, Local Government Research Unit, Department of the Environment, Transport and the Regions, Eland House, Bressenden Place, London SW1E 5DU
Telephone: 0171 890 4125. Fax: 0171 890 4099. E-mail: lg3.doe@dial.pipex.com
Published in December 1996
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