The cheaper, the better

Public sector finance: Paul Gosling on new guidelines for contracting

New draft guidelines to be announced this month by the Government should make it easier for businesses to win local authority contracts. The Department of the Environment will propose reducing the de minimis limit for contracts, below which competitive tendering is not required. Contractors have complained that councils have split work into small contracts, each under the de minimis limit, to avoid compulsory competitive tendering (CCT) rules.

The DoE has been intensively lobbied by the private sector to remove barriers to open competition. There has been particular annoyance within the private sector at the few contracts councils awarded under white collar CCT, after businesses invested heavily to win work.

Last month, the DoE took a decisive step to push councils to award more out-of-house work by shifting the emphasis from quality to price. Councils now have less scope to reject bids on the grounds of failure to meet quality thresholds. Unless there is evidence to the contrary, authorities must assume that reasonably priced bids from the private sector will meet quality specifications.

Councils will also have to demonstrate they have not put private contractors at a disadvantage in the tendering process. The Environment Minister Sir Paul Beresford says that all complaints of councils' anti-competitive behaviour will be fully investigated.

Cliff Davis-Coleman, secretary of both the Public Contractors Association and the Housing Management Association, which led the lobbying of the Government, said the amendments to the regulations meet almost all of their concerns. "On the whole, we are pretty satisfied," Mr Davis-Coleman said.

The main area where contractors remain unhappy is over the specification of information technology systems. Contractors want more freedom to choose which IT systems they use, rather than be bound by those already adopted by authorities.

But what pleases the contractors seldom pleases councils. "The changes are completely unnecessary. We are not convinced that authorities have been behaving anti-competitively. It will make it more difficult for authorities to win contracts in-house," said Lesley Courcouf, public services assistant secretary at the Association of Metropolitan Authorities.

Ms Courcouf is equally worried that councils will now have less say in the way contracts are carried out, and she expects performance standards to fall. "We say they should be able to ask contractors for their method systems, to explain how they would do certain types of work." But this will be more difficult under the new rules, she believes.

The trade unions go further, accusing the Government of recklessly forcing the public sector to contract-out more work in the run up to a general election they expect to lose, as a farewell favour to business. Colin Meech, of the trade unions' Privatisation Research Unit, described the process as the Tories' "scorched earth" policy.

Bradford council has found that, in practice, the CCT policy has often had the opposite effect to that intended. The tendering process for housing management contracts cost Bradford pounds 1m, yet failed to attract a single outside bidder. Meanwhile, small and medium-sized local contractors have been squeezed out by bigger outsiders, particularly French corporations. Andy Mudd, chair of Bradford's CCT committee, said: "It is a Trojan horse for Europe-based multinationals."

This view is supported by research conducted for the Equal Opportunities Commission's report on CCT, which found that the policy had lost 74,000 jobs, of which only 12,500 were within councils. The rest were lost within the private sector, as large companies drove out the smaller ones.

But it is clear that CCT has made public services more efficiently delivered. The Chartered Institute of Public Finance and Accountancy (Cipfa) last week published a survey of the effects of CCT, and its equivalent within government departments, market testing.

Contrary to received wisdom, the survey found that service quality was improved by competitive bidding. It also confirmed research that significant savings could be achieved, varying from 5 to 50 per cent, according to Cipfa.

None the less, the survey did find that savings and improvements were generally greater within government departments than in local authorities. This might be explained, said the report, by opposition to CCT by councils, limiting the benefits of competition. More likely, it was because there has been greater scope of savings and efficiency improvements in central government, which, the survey recognised, has often been less well run than local government.

Evidence that ministers and senior civil servants were keener to overhaul local authorities than to sort out their own ministries, will come as no surprise to people in local government. It is what they have been saying for years.