“So enormously important that it is contracted out to private companies chosen on lowest price”

Ben Sandilands over at Crikey yesterday on Sydney airport’s recent ineffectual but very expensive security stuff-up:

But whatever the details, tracing these people proved totally beyond the capabilities of the massive Sydney Airport investment in security, which is so enormously important that it is contracted out to private companies chosen on lowest price.

The thing is, that’s true about all sorts of areas that previously were the responsibility of government, where the consequence of taking these sorts of shortcuts – although potentially catastrophic – won’t be felt for some time. Possibly under the next mob’s administration. When those responsible who are completely lacking in shame can blame them for the increased cost of cleaning up your mess, whilst simultaneously contrasting their expenditure with how much money the incompetents saved when they created that mess in the first place.

And our short-term obsessed governments and public agencies keep doing it. And are applauded for doing it.

Other examples of tendering on the basis of price rather than quality of service provision:

I’m sure you can think of many others – please feel free to share them in the comments.

The important thing is to keep this in mind next time a government is crowing about how much more cheaply it can get things done by tendering them out to the private sector. Particularly when it’ll be some time before you see (and are forced to pay for) the results of the corners being cut …

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7 responses to ““So enormously important that it is contracted out to private companies chosen on lowest price”

  1. narcoticmusing

    More examples? Trains, any type of construction (including hospitals), high capacity cabling from power stations (now that hasn’t caused any issues has it… oh well excluding Black Saturday).

    The bigger problem is that these ‘cheaper’ shortcuts end up costing more in two ways. The first is predictable. You buy a cheap couch, it wears out faster. Or maybe there was something cut from the scope that maybe should’ve been included (say, ‘communication for bushfires’ system rather than a ‘communication for emergencies’ system).

    The second is in the dreaded, being held over a barrel, blackmail contract variation. ALP constantly get stuck on this one. Here’s how it goes. Lowest bidder dramatically underbids everyone else. Everyone else says ‘it can’t be done for that price!’ Rather than sending up red flags, Government sign up. Lowest bidder refuses to sign standard Govt contract. Government concedes to get that juicey low price. Then we have two outcomes:
    a) the contract has delicious loopholes that allow for variation in purchasing, so the contractor can pass on any increase in cost of purchasing stuff to Govt (which was why they tendered so cheap – they lied about the cost of purchasing).
    b) the contractor outright says they can’t complete it for what was agreed. They threaten to pull out, even accepting the breach of contract penalties. This is a form of “economic breach”. Economic breach is where is it more profitable to breach the contract and pay damages for the breach than to continue. In this special case, the contractor knows that it’ll cost the Govt the cost of the entire tender all over again to find another contractor. They know the Govt won’t want headlines so will settle out of court. They know all this so blackmail government. The result? Government concedes to a predicted contract variation, windfall to contractor.

    Who is to blame? 1) Govt for not having balls; 2) media for beating govt up for defending themselves against contract breach; 3) contractors for being not just being self interested (which is fine), but for behaving in a manner than is arguably unconscionable.

  2. A competent government would only enter into that sort of deal with a consortium with a proven track-record, so they couldn’t pull that stuff repeatedly and get away with it.

    But what qualifications do you need to be an MP? Highlights how stupid is all this rot about “competent economic managers” in the big old parties.

  3. narcoticmusing

    Even worse is the 3rd scenario I didn’t mention Jeremy – that is where the contract is given by the Minister and the department finds out about it later and has to run around trying to make it all work. They have no negotiating position; have to concede to whatever the contractor wants… that is the most frightening situation.

    Proven track record means little if there is:
    a) a monopoly or duopoly for the services required (there are many things with limited number of manufacturers
    b) the tender is for something no one wants to do, so you have to take whatever you get
    c) everyone in that sector is like that (eg consultants)

  4. Over here in the West a private company is used to transport prisoners. A while ago a prisoner(Aboriginal) was what could be best described as cooked like a cans of peas in the back on one of their vans.He unfortunately died. I mention the word Aboriginal because racism against our Aboriginal communities is an art form here. A bit like Qld actually, but with out the religious connotation.We still have gunslinger MP’s in the West who would like to see the privatisation of our police force. As if it hasn’t got enough problems already.

  5. Serco. A contract to run the government itself is probably in their sights and probably not beyond the realms of what is ridiculous irrational and therefore quite likely to happen.

  6. A good point though somehwat naive. This is the way procurement is done in Australia in countless industries! Not only results in poor quality products or/and services but usually drawn out costly disputes. Solution? Perhaps regulation. I’ve always thought tendering processes should involve taking out the highest and lowest tenders then look for the middle one – will probably be the price that gives best bang for buck,.

  7. narcoticmusing

    We need a system that looks for the most fit for purpose, not the cheapest or more expensive. The tender evaluation process should, ideally, also include some consideration of IF a project can be done at the quoted costs.

    The problem is that that would add even more expense to the project. Why? Because public servants don’t have those skills – if they did, they wouldn’t be going to tender. The whole idea of a tender is ‘do something I have no expertise in’. Which means, like the scenario of a person going to a mechanic, the person issuing the tender has no idea what is or isn’t reasonable. The only way to do that would be to have a tender for the tender (which is often done with big projects). So first tender hires consultants to draw up requirements and evaluate the tenders. 2nd tender actually procures the goods/services. This adds far more money and in most cases, would not provide much benefit because a) consultants are useless and overcharge to tell you the time on your own watch (thier lingo not mine) and b) conflict of interests are rife.

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