Virgin Rail and the right to challenge

The origins of the Virgin Rail scandal last month rapidly became lost in the recrimination and blame, as the Department for Transport attempt to apportion culpability and pundits discuss the role and capabilities of the civil service. When self-styled “tie-wearing adventurer” Richard Branson launched his legal challenge to the West Coast franchise decision two months ago, it was widely regarded as a knee-jerk, even ill-considered action of a man known for scrappy battles on behalf of his business.

The DfT was due to award a long term franchise to FirstGroup until “significant technical flaws” became evident during their preparations for the Virgin lawsuit. These flaws became evident in the risk assessments of First’s winning bid.

Virgin faced substantial risks in mounting a challenge to the DfT. Some of these risks were revealed in the initial media coverage of the challenge that portrayed Richard Branson as an opportunist and a sore loser (not helped by Virgin Rail’s relatively poor public reputation). If the legal case had failed Virgin’s commercial reputation (and finances) would have suffered.

They had a number of options, all of them risky:

Under Public Procurement law Virgin could mount a formal challenge. To do this they would have to allege that the contracting authority has run the process in an unfair or opaque manner. If they were successful in this, the contract award would have to be suspended while the issue is resolved – allowing more time to discover exactly what happened (and why they lost).

Their second option would be a judicial review. They would need to show a public interest in such an action – easily achieved, given the political climate – but the latter stage would be more difficult. Virgin would essentially have to prove that no reasonable authority would have made the contract decision. Before the events of last month, this was considered unlikely to happen.

In the event, Virgin were able to prove that large parts of the process was flawed. The DfT has spent the last few weeks apportioning blame, mainly directing it at the civil servants involved. In turn, there has been a lot of scrutiny directed at the structure of the procurement process –

A great many qualified professionals have been lured out the public sector by higher wages in recent months, and this, combined with poor systems of review, greatly contributed to the fiasco. We have been discussing government initiatives on this blog for months – all of them seem doomed to failure if the Civil Service can’t do something to arrest the skills gap in government procurement.

Richard Branson’s decision to challenge has been vindicated. The DfT has ordered a number of independent reviews and Virgin has been awarded a short term contract under circumstances that some rivals claim were actively uncompetitive (there should have been a tender for the contract extension). Since the fiasco Virgin has changed strategy dramatically, aiming to expand its market share into the East Coast lines that GNER and National Express mismanaged back into government hands three years ago (under contracts similar to the one offered to FirstGroup). They will likely also retain the West Coast franchise in the long term, if they can see off competition from Abellio.

Virgin Rail weighed up the risks inherent in challenging the bid and made the strategic decision to do. Meanwhile, we’ve been noticing that numerous tenders are having their deadlines put back – maybe as a result of jumpy procurement officials? Win that Bid can help you weigh up the risks in your own bids, and comprehend the contracting authority.

Have you been paid yet?

Recently an alliance of small business lobbying groups sent a letter to the Business Minister Mark Prisk, highlighting one of the biggest problems facing companies tendering for contracts in the UK today: late payment.

The numbers present a clear picture of the both the scale of the problem and who the mostly likely perpetrators are.

  • Large companies are responsible for 48% of late payments and account for most of the £24 billion owed to small and medium suppliers in the UK.
  • Late payments for UK Government tenders or charity work constitute just 9%, less than public/private concerns.
  • Both the public and the third sector have improved their record in recent years .
  • Prominent excuses given include a lack of payment authorisation and reports that the “cheque is in the post”.

Encouraging Prompt Payment?

Businesses can be scared to “name and shame” large corporations who mess around with their tender contracts, despite the fact that late payments break businesses. In these circumstances, it can be difficult to know exactly who to complain to. A poor UK government tender PQQ structure can be flagged up for the Cabinet Office to look into, but what about a multinational?

You could try encouraging prompt payment by the tender issuer. The letter to the Business Minister suggested a clampdown on “prompt payment discounts”, a strategy in which suppliers offer discounts on products in exchange for guarantees of payment on time. Several business advice websites suggest doing just that to incentivise punctual payments for commercial tenders. A company considering this should ask themselves whether they want to be paying the buyer extra to do what they claimed they were going to do on the tender contracts.

What can businesses do?

The best answer – and unfortunately the most complex to implement – is to make your business more resilient in times of unexpected cash flow problems relating to late payment. We can help you transform the capabilities of your business. Firstly, it’s important to consider how many sources of income the company has. It is dangerous for a company to rely on just one major contract or tender.  Another important safeguard to pursue is a high credit score. Being transparent about the financial state of the company can be helpful in other aspects of winning bids, especially for new companies who may not be able to provide the several years of financial data requested by most UK government tender PQQs. Win that Bid’s Bid Management service can help you assemble the right documents.

Don’t let yourself get pushed around.

Companies should also research the organisation issuing the tender. The sources of information aren’t always immediately obvious. This is an area in which a consultancy like Win that Bid can really help you in assessing whether to pursue an opportunity. Carrying out credit checks on potential customers is a good start. Communication between the supplier and the customer is always important: You should be clear about what the payment terms of the tender contract are and request clarification if they aren’t clear. And if the customer does try to change the terms of the contract, a supplier should make it clear that it expects something in return.

Hello World

Fresh into the world this morning – did you know that every year, public sector organisations award contracts worth billions of pounds to private businesses in the UK and across Europe?  Besides the very large contracts announced periodically, many lower-value contracts are offered every day.

Are you in the running to get a slice of the pie?