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BMRB International Limited
Key Findings
- Firms involved in the CCT market tend to be relatively large enterprises, independent and UK-based.
- Firms regard CCT as important in providing a new business opportunity, either for them to expand their current business, or to move into new areas of work.
- Contractors are generally optimistic about the future with regard to CCT, and eight in ten of those interviewed considered it likely that they would continue to bid for contracts.
- In their past experience, however, contractors perceived barriers. There was a feeling that local authorities had not wanted to employ private contractors and therefore tended to favour in house bids.
- Two thirds of firms claimed that they had had grounds for complaint against a local authority in connection with some aspect of a tender, and over a third had actually made a complaint in the past.
- Tender documents were perceived to be too complex, and should be simplified or standardised. Contract conditions were not generally a problem, with the exception of requirements for performance bonds. Where firms had needed extra information in order to tender, this had frequently been difficult to obtain.
- TUPE was widely regarded as making contracts less attractive.
- The issue of fairness in tender evaluation was a cause for concern, even when contractors were talking abut a contract that they had won.
- However, firms' experience of operating contracts was generally positive, the relationship with the local authority throughout the life of the contract was good, and the firms almost invariably claimed that they would work with the authority in question again.
Introduction
The 1988 Local Government Act increased the range of compulsory competitive tendering, creating a very large market for private companies. Most previous research on CCT has concentrated on the experience and views of local authorities. This study looks at the experience and views of private sector companies, interviewing firms that had either bid for contracts (whether successful or not), or those that had registered interest in tendering with local authorities, but did not subsequently bid. The study looks both at the private sector's general perceptions of CCT, and at the individual companies' direct experience of particular contracts.
Background
The 1988 Local Government Act extended compulsory competitive tendering (CCT) to the following local authority services:
- refuse collection
- street cleaning
- building cleaning
- school and welfare catering
- other catering
- vehicle maintenance
- grounds maintenance.
The competition provisions of the Act were subsequently extended by Regulations to include management of sports and leisure facilities.
Under this legislation, if the value of work in one of these defined activities exceeds £100,000 and the authority wants its in-house team to bid, the local authority must subject the work to competition. Legislation and Department of the Environment (DoE) guidance is intended to ensure fair competition between in-house staff and private contractors, and that the maximum value for money is achieved in the provision of local services.
These local government services form a very large market for companies operating in these service areas, amounting to billions of pounds. Many private contractors have been eager to compete and many have been successful in winning contracts. Available data suggest that the aggregate share of the private sector in these markets is now about a third of all contracts let under CCT. However, the success rate varies considerably by service area, and the percentage share of work by value is much lower than the number of contracts, indicating that the contracts gained by private firms are smaller, on average, than those won by DSOs.
Most previous research on the operation of CCT has focused on the experience of local authorities. Little is known about the viewpoint of the private sector, apart from a small-scale qualitative study which was carried out in early 1993. To fill this gap, the Department of the Environment commissioned a national survey of private contractors operating within the service areas defined by the legislation and known to have been interested in CCT work. This study reports the findings of this survey, which was carried out by BMRB International in May 1994.
The Study
The survey only relates to CCT in England, and is designed to examine CCT procedures from the perspective of private sector firms. It consisted of face-to-face interviews with senior executives and managers at 220 firms, an effective response rate of 67% of the firms operating in the relevant service areas and known to have an interest in CCT work. The study aims to investigate:
- contractors' experience of and attitudes towards CCT;
- contractors' knowledge and understanding of CCT legislation and procedures;
- contractors' perceptions of the size, make-up and profitability of CCT markets;
- contractors' experience and views of the tendering process;
- contractors' experience of working as contractors to local authorities;
- contractors' future plans in relation to CCT.
The Data
The firms within the scope of this survey can be broken into three groups:
- contractors who have been successful in winning CCT contracts from local authorities;
- contractors who have tendered for local authority CCT contracts but failed to succeed; and
- contractors who have formally expressed interest in tendering but have not yet done so.
The main source available for a list of the relevant firms was the Institute of Public Finance's 'Contracts Register'. Additional published sources, principally the Local Government Management Board's CCT Information database, and the CDC 'Contracts Handbook', were also used, but were only able to provide information on firms that had been successful in winning local authority contracts.
The Findings
The key findings of the survey are summarised below:
- Firms involved in the CCT market tend to be relatively large enterprises, over half of those interviewed employing at least l00 full-time staff and about a third having a turnover in excess of £10 million. Most are independent, UK-based firms. Companies operating in the areas of building cleaning and grounds maintenance account for around 60% of all firms in the CCT market.
- The majority of firms interviewed were already in existence when the 1988 Legislation was introduced, although one in six were set up specifically to apply for local authority work. Most sports and leisure management firms had been established for this purpose and these firms tended to be heavily dependent on local authority work. Refuse collection and grounds maintenance firms also obtained a relatively high proportion of their business from local authorities.
- Contractors regard CCT as important in providing new business opportunities, either for them to expand their current business or to move into new areas of work, as well as providing long term contracts and no problems of bad debt.
- Most firms had been selective about the contracts for which they bid, choosing contracts on the basis of geographical location, size of contracts and mix of work.
- Private contractors tend to have limited knowledge about both CCT legislation and the CCT market. Most firms were aware that the CCT tendering procedures are covered by government regulations, but less than half could name the Department of the Environment as the organisation responsible. Large firms, members of trade associations and firms which had made successful bids were more likely to be aware of what was covered by the legislation.
- Two thirds of firms claimed that they had had grounds for complaint against a local authority about anti-competitive behaviour on some past tender, and over a third had actually made a complaint in the past. Around half said that they would be unlikely to make a complaint, and the majority agreed that they would get less work in the future if they did make a complaint.
- Contract conditions were not generally a problem for firms, with the exception of authorities' requirements for performance bonds.
- Firms' views of contract specifications were more positive and they generally welcomed the full and precise specifications produced by authorities. However, many thought that specifications gave too little scope for putting forward new and alternative ways of doing the work.
- The tender documentation that firms were required to submit was perceived as being in need of simplification and standardisation to facilitate the tendering process, with many contractors believing that authorities deliberately made tender documents complex in order to discourage private firms from bidding.
- When discussing a specific recent experience of tendering for CCT work, fairness remained a cause for concern. Only three in ten respondents whose firms had won the contract in question, and 11% of those who had been unsuccessful, were 'very confident' in the fairness of the tender evaluation.
- Only four in ten firms which had failed in their bid had received feedback from the local authority concerned as to why they had been unsuccessful.
- Firms' experience of operating contracts was generally very positive. Contractors had generally found little difficulty in meeting the requirements and conditions required for the contract in question. Relationships with the authority concerned were generally very good, and respondents almost invariably claimed that they would work with the authority again.
- Contractors are generally optimistic about the future with regard to CCT. The majority felt that local authorities now had a more favourable attitude towards contracting out services than five or so years ago, and respondents were more likely to believe that it had become easier to bid for CCT contracts than that it had become more difficult.
- Six in ten of those interviewed felt that the private sector share of CCT business could grow and most believed that the CCT market would be of some importance to them in the future. Eight in ten of those interviewed considered it likely that they would continue to bid for CCT contracts, whilst six in ten thought that they would definitely do so.
Conclusions
Private sector companies regard CCT as an important opportunity for new business, providing reliable long-term work with no problems of bad debt. Contractors are optimistic about the future, and feel that local authorities have become more favourable to competition and contracting out than five years ago. Contractors' experience of working with authorities is positive, and more firms say they will bid for local authority contracts again. However, there remain perceptions that some authorities continue to give preferential consideration to in-house bids, and concerns about the complexity of tender documentation contractors are required to submit and requirements for performance bonds.
'CCT: The Private Sector View' by BMRB International Ltd, priced at £10.88, is available from:
Department of the Environment, Transport and the Regions, Publications Sales Centre, Unit 8, Goldthorpe Industrial Estate, Goldthorpe, Rotherham S63 9BL
Telephone: 01709 891318. Fax: 01709 881673.
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 January 1995
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