Architects of their own demise

Thursday, August 16th, 2012

 

Architects of their own demise.

In a recent case (European Commission V Federal Republic of Germany), Germany was found to have infringed the European Procurement Directives.

When I say Germany, I don’t mean the entire population but the actions of the municipality of Niedernhausen has caused the State to be in the dock. In awarding Architectural Services for Construction of a Recreation Centre, the municipality was alleged to have breached the Directives. In summary,  the municipality did not advertise the Architectural Service contracts throughout Europe as required under Directive 2004/18/EC.  By splitting the requirements into phases the subsequent contracts fell below the threshold. The Courts conclusion was that these “Phases” were an artificial construct. The totality of Architectural Services should have been considered and, as such, would have exceeded the threshold. The Services should have been awarded in accordance with the Directive.

Aside from the Directives’ thresholds, value manipulation is not new. It has been an activity ever since financial and budget constraints had been laid down by organisations in the public and private sectors .

Whilst the Directives are generally well thought out and try to prevent manipulation by the aggregation of services over time, often in-house policies, rules or Standing Orders are not always as sophisticated. Below is an example of a Local Authority’s Standing Orders

  • Up to £999 – use framework contract if one exists. If no framework contract exists purchase from an appropriate source which ensures best value for the Council.
  • £1000 to £49,999 – use framework contract if one exists. If no framework contract exists get three written quotes in consultation with Procurement Team.
  • £50,000 – speak to Procurement Team

Naturally, the EC Directives’ thresholds add a further level of complexity to the above.

To illustrate the potential weakness of the above rules , imagine now, the holder of a Procurement Card,  who needs two items each costing £500. They may under the above rules:

a)      Follow the rules and contact the Procurement Department

b)      Ignore the rules and buy the items at a total of £1000 and hope they don’t get found out

c)       Tell the vendor that they must  drop the price by £1 or they will have to get competitive quotes

d)      Place two purchase orders.

Our experience is that some people like an easy life and some will choose options b, c, or d. This is justified by the buyer, on the basis that it is not breaking the rules but just bending them over the small matter of £1.

That justification is incorrect.   A rule is set for a reason. Whether the threshold is right or the rules associated with them appropriate, is another matter. Whilst there may be case for arguing for a change, agreed rules must be abided by.

In a statistical analysis of the purchase order values that have been placed by an organisation, you may find a disproportionate cluster of values just below a threshold and a dearth of occurrences just above a threshold.

This is the result of a number of factors, most of which are of human origin. Users and Buyers wishing to avoid complexity and Suppliers who, knowing the rules, wish to restrict competition

At what point does bending the rules become habit and at what point does this have an impact on your organisation.

Need any help to review your operations spend, please give me, Ray Gambell, on +44 (0) 1744 20698 or email r.gambell@brianfarrington.com.