Procurement Act 2023 – To negotiate or not – that is the question

The adoption of Competitive Flexible Procedure (CFP) allows for the introduction of negotiation or dialogue into the procurement process, but what considerations need to be made?

In the latest blog in our Procurement Act series Echelon Group CEO Mathew Baxter builds on the content of our previous blog on CFP, to explore when and how negotiation and dialogue should be used.

One of the key aims of CFP, introduced under the Procurement Act 2023, was to give Contracting Authorities increased flexibility around the commercial side of procuring new contracts, through the use of dialogue and negotiation.

Although they are similar, there is a difference between the two, with the Cabinet Office defining them as follows:

Dialogue – aimed at improving all parties’ understanding of the requirement, can happen at any or all stages of the procurement.
Negotiation – a strategic discussion aimed at improving the supplier’s offer and creating an agreeable set of terms.

As with many elements of the Act guidance is a little vague, and there is no structured model for a CFP process. However, the Cabinet Office have several suggested models within their guidance, including:

Negotiated Tender Approach – an initial round of open or selective tendering occurs, followed by formal post-tender negotiations with one or more suppliers to improve the final offer.
Multi-Stage Dialogue for Complex Projects – a “design your own” approach that may include an initial expression of interest, followed by shortlisting, interactive workshops, a, preliminary tender, a, second round of dialogue, and then a final tender.

Although encouraged within the ethos of the new CFP, there is also no obligation to include either dialogue or negotiation.

Simple Two Stage Process

To demonstrate this one of the suggested models within the Cabinet Office’s guidance is titled the “Simple Two Stage Process” that is comparable to the Restricted Procedure under the PCR2015.

Simple Two-Stage Process – the Contracting Authority (“CA”) runs a participation stage to create a shortlist based on suitability, followed by a second stage issuing invitations to tender (ITT) to those shortlisted, without negotiations.

So, when should a Contracting Authority consider utilising either Dialogue or Negotiation and which should it chose?

The first question is fairly binary. If the product/service/works being procured are straightforward and/or the CA has a fairly fixed view on how they want them delivered it is unlikely that either option will add any value. However, where there the CA cannot explicitly specify its requirements, or where there is an opportunity to use the process to hone the offers, there is a real opportunity to use these interactions to drive better outcomes.

But, which to use? Dialogue is seen as a “softer” approach, which enables discussions between the CA and bidders. This is seen as more of an exploratory process, focusing on the “what” and “how” that is being procured can be delivered, whilst negotiation is more around optimising what is already specified, often focusing on the value, price and/or quality of the final offer.

Both options are great tools in the armoury of procurement teams and, when used properly, in our experience will always deliver positive outcomes.

Essentially, as long as you are transparent and fair, and consider procurement objectives, and procedural requirements such as time limits, CFP enables you to design a bespoke, multi-stage process tailored to specific procurement objectives.

While CFP is designed to encourage flexibility, guidance from the Cabinet Office emphasises designing proportionate processes. You must be 100% clear in your tender notice what your process is, how many stages there will be and what will happen at each stage, for example, if you’re using deselection and whittling down the number of contractors after each stage, as well as outlining the reasons behind your decision-making process.

Preliminary market engagement

In short, there needs to be a huge emphasis on that front end of designing the process and the Cabinet Office guidance is clear that preliminary market engagement should be used to full effect to help shape that process. So, you should be able to justify why you’re using your chosen process, looping back to the preliminary market engagement.

Also, I would advise that the process is structured with sensible timescales, allowing time in between each of the stages for people to absorb the relevant information from the previous stage of engagement and to reflect upon it. I believe this is vital to get the maximum value out of negotiation.

Preparation is also key and it is important that all parties are properly equipped. Training for all stakeholders is essential to getting the best out of the dialogue sessions – you need to make sure that the right people are in the room on both sides, and that everyone has knowledge of the bid.

You need to be asking questions around who will lead and facilitate, as well as who will make sure that the suppliers are fully briefed and sending the right people.

We see Competitive Flexible Procedure and the increased use of negotiation as having a huge amount of value to both client organisations and contactors/suppliers, but it has to be done properly if it is to have any value, otherwise it runs the risk of just becoming hot air.