Understanding the Public Services Industy

Public Services Industry Review
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Pre-Qualification / Bid Criteria
Government often restricts competitions to organisations with a clear track record
in the area in order to ensure they have the appropriate expertise. This can limit the
ability of new entrants to break into the market.
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Lack of Shared Information
Where there is a lack of shared information on current service levels or the costs of
providing them, incumbents are likely to have an advantage over other bidders.
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Ability to Manage Risk
Private and third sector organisations can only take on financial risks up to the level
of their balance sheets and should only be expected to shoulder risks that they can
influence, such as cost overruns.
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Transition Costs
A challenger to the incumbent provider of a service will incur start-up or transition
costs if it wins the bid. Where these are likely to be significant, they could outweigh
other cost advantages and thereby limit competition.
4.31 The UK government does not have an explicit competitive neutrality framework,
preferring to work through a variety of policy measures such as competition law,
government accounting rules etc 46 . Although a number of these issues lie outside
the remit of this Review, there is a need to ensure that the government’s strong
commitment to a level playing field in procurement is being delivered.
Recommendation 3: Competitive Neutrality
Commissioning processes and bid evaluation should strive for a level playing field
(‘competitive neutrality’) between public, private and third sector bidders.
- HMT should continue to provide guidance to commisioners on how to consider
the following factors when evaluating bids 47 :
- tax treatment – including income tax, VAT and investment tax reliefs; and
- pension obligations and costs.
- Commisioners should ensure that this guidance is followed and also that:
- pre-qualification and bid criteria do not unnecesarilly restrict SMEs or third
sector enterprises;
- information on current service levels and costs is provided to all potential
bidders to avoid favouring incumbants; and
- the costs of transition from incumbent to a new provider are clearly
considered when comparing bids.
46 For example ‘Managing Public Money’ contains guidance on how to ensure that public bodies selling services into
competitive markets recover the full costs of providing that service.
47 Guidance on VAT and pensions is already available in HMTs (May 2005) Improving financial relationships with the third
sector: Guidance to funders and purchasers.
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