Update on pilot Narrow Average pricing mechanism

11/03/2020

Current position

On 13 February 2020, the Construction and Procurement Delivery division of the Department of Finance (CPD) confirmed to Northern Ireland Construction Group (NICG) that, for now, no projects will be tendered using the pilot Narrow Average pricing mechanism for Construction Services contracts or the pilot ‘Average of the Lowest Three’ pricing mechanism for Construction Works contracts.

CPD intends to issue a paper to the Procurement Board seeking direction on the next steps. The Procurement Board was due to meet on 18 February 2020 but it has been postponed until 1 April 2020.

It is important to note that whilst the pilot Narrow Average approach has been suspended, the Procurement Guidance Note PGN 07/14 Sub-economic Tendering in Construction Professional Services Contracts remains effective. This promotes the use of the Adjusted Lower Average for Professional Services contracts below the EU threshold.

Projects above EU threshold will be assessed on the basis of the Most Economically Advantageous Tender (MEAT). This can be 100% price based, a mixture of price and quality or 100% quality with the fee level set by the client.

What happened?

1. Threat of legal challenge. Narrow Average suspended

On 3 December 2019 CPD informed the NICG that it had received a threat of legal action from a Quantity Surveying practice in relation to a tender which had utilised the pilot Narrow Average pricing mechanism. CPD stated at this point that it was suspending the use of the pilot Narrow Average for Construction Services and would be meeting with the NICG to consider a way forward.

2. NICG requests details of Narrow Average pilot to date

On 10 December 2019 NICG requested details of the projects that had been successfully tendered using the pilot Narrow Average pricing mechanism. The information requested for each project was:

  • Project
  • Estimate (if one was published as part of tender)
  • Price/Quality % split
  • List of bids received (anonymised if needs be – although names may be available under FoI? Interested to know), prices submitted, price scores and quality scores
  • Narrow Average
  • Winner identified

3. NICG/CPD meet to agree way forward

On 11 December 2019 CPD met with the NICG. CPD set out the details of the procurement that led to the threat of legal challenge. CPD also reported that some public sector clients had raised concerns about the increased fee level arising from the use of the Narrow Average. The procurement which was threatened with legal action was an open tender with no prequalification process. The Narrow Average was not intended for use in this way. The tender was not for a construction project but a checking project for measured term works. NICG and CPD discussed steps to further reduce the risk of legal challenge to the Narrow Average pricing mechanism in the future. This was with a view to getting the suspension of the pilot lifted. NICG agreed to quickly draft a paper detailing appropriate measures.

4. NICG send proposals to further reduce risk of Narrow Average legal challenge

On 12 December 2019 NICG sent CPD an 8 point plan to further reduce the risk of legal challenge to the use of the Narrow Average. In summary, the points were:

  • CPD should restrict the use of the Narrow Average to procurements with a prequalification process
  • CPD to ensure that tender documents provide a more detailed explanation of the purpose of the pilot, should encourage bidders to contact their professional body if they have a query and to request that bidders raise any concerns about the pricing mechanism in advance of submitting their tender
  • CPD to agree to an approach to dealing with a disgruntled bidder
  • All relevant Professional Bodies to remind their members of the rationale behind the Narrow Average approach and to show the widespread support for its continued use
  • CPD to ensure that professional body membership is a requirement for bidders to ensure bidders adhere to the highest professional standards.
  • CPD to improve transparency of tender results
  • CPD to consider the suitability of the Narrow Average pricing assessment for projects that fall outside the typical construction and civil engineering projects.

5. CPD announced sudden change from Narrow Average to Average of Lowest Three

On 19 December 2019 NICG received a short note from CPD stating:

“Further to discussion at the recent CIFNI/CPD Services Sub-Group Meeting, I am writing to advise that CPD will be aligning the Works and Services pricing mechanism across both areas. This in effect will move the award of services contracts from the ‘narrow average’ to the ‘average of the lowest three’.
In addition, CPD intends to present a paper to the Procurement Board in February 2020 regarding this pilot. I will keep members informed of all developments.”       

6. NICG expressed disappointment at decision, way decision taken and communication of decision

On 20 December 2019 NICG responded expressing disappointment with this decision, the way in which the decision was taken and the absence of rationale provided for the decision. NICG rejected the sudden policy change and asked for the decision to be reconsidered. This email was acknowledged by CPD on 23 December 2019 with a commitment to meet early in the new year.

7. CPD focuses on increase in fee level as rationale for move away from Narrow Average

On 14 January 2020 NICG sought a substantive reply from CPD as they had made no contact. CPD responded on 15 January 2020. The key line from that response is, “Similarly, on the professional services side we have reviewed the data available from the first raft of projects and have compared the impact of our intervention with the works initiative. It is clear from the information available that the impact of our intervention on the professional services has been proportionately greater than on the works side. As a result we have decided to align the two mechanisms as far as possible.”
CPD confirmed that schemes would be issued that week using the “average of the lowest three” pricing mechanism.
In response NICG requested a meeting to find a better route through these problems. NICG again requested the data relating to the use of the pilot Narrow Average on projects so far.

8. NICG again requests information on sudden policy change

By 22 January 2020 CPD had made clear that it would not be changing its mind and that no meeting with NICG would be held. NICG requested information to help manage any negative consequences of this sudden change of policy. The information request was:

  • The details of the proposed mechanism (average of the lowest three) as this has not yet been shared with the professional bodies
  • The list of projects that will utilise this mechanism
  • The items of public data relating to the Narrow Average pilot upon which this policy shift has been based (see email request of 10 Dec 19) and CPD’s analysis of it.

9. CPD restates rationale for policy change as being the relative increase in fees

On 24 January after further correspondence regarding the release of information CPD said, “CPD is in the process of refining some high level data, nevertheless as [NAME] alluded to in his email to you of 15 January, our view remains that the impact of the  ‘Narrow Average’ intervention on the professional services has been proportionately greater than on the works side.  CPD will share information with the industry, as appropriate.” NICG asked for confirmation the requested information would be issued immediately. CPD has yet to send a response.

10. CPD commits to using the Average of Lowest Three in the meantime

On Tuesday 4 February 2020 there was a meeting of the Construction Industry Forum for Northern Ireland (CIFNI). CIFNI is chaired by the Director of CPD and consists primarily of director level representatives of the leading public sector clients and representatives from NICG.
At this meeting CPD restated its intention to continue to utilise the ‘Average of the Lowest Three’ pricing mechanism on both Services and Works contracts in the time being.
The primary reasons given for moving away from the Narrow Average related to the increased fee levels, however secondarily the issue of the legal risk was also raised.

11. Word out that CPD is pulling pricing pilots for both Construction Services and Works due primarily to legal concerns

On Friday 7 February 2020 NICG heard unofficially that CPD was planning on stopping the pilot pricing mechanism for both Services and Works.

12. Official confirmation received that CPD is stopping the pricing pilots

On 13 February 2020 NICG informed NICG that is was stopping the pilot Average of the Lowest Three pricing mechanism for both Services and Works.

For services this completed a downward journey from pilot Narrow Average, to pilot Average of the Lowest Three to no pilot at all within the space of 2 months.

13. Impact of CPD policy shifts start to take effect

As a result of this decision live tenders were delayed as the change came into effect immediately.

What Next?

The aim for RSUA now, in conjunction with our sister organisations in NICG, is to find a way to quickly get a mechanism put back in place that ensures that the lowest price is not the determining factor in the procurement of Construction Services contracts, both below and above the EU threshold.

In the very short term, RSUA encourages public sector clients to consider using 100% quality assessment with a set fee.

The following steps are in train, through NICG:

  • RSUA is arranging meetings with the other bodies in NICG and CEF to agree a response
  • RSUA is seeking to ensure that members of the Procurement Board are well briefed in advance of the next meeting on 1 April
  • RSUA will be requesting a meeting with the Finance Minister, Conor Murphy.
  • RSUA will continue to seek the information requested under the Freedom of Information Act and raise our concerns about the lack of transparency.
  • RSUA is seeking information from the Education Authority about its use of the Narrow Average and its use of the Adjusted Lower Average
  • RSUA will seek a robust evaluation of the pilot.