0 One size does not fit all!

tim lodge Over the last thirty-five years or so, and like it or not, our society has wholeheartedly accepted that the market knows best in commercial matters. We are all buyers or sellers in that market, be it of goods, services or labour, and our right to buy and sell these things in a free and unfettered manner is a central principle of that doctrine.

As the owner and director of an SME, I have developed my business entirely within this context. Identifying the price to be asked for the product or service you provide in order to make the sale is half of what running a business is all about. The other half is trying constantly to improve the quality of the product or service so that it can compete more vigorously in the marketplace.

This philosophy, and the belief that we can create a better world by these means, is in fact enshrined in law, for example through the European Commission and the Office of Fair Trading; I'm not alone here.

So, I become particularly incensed when I see the rules, such as they are, being flouted. Which brings me to the main point of this article - framework agreements.

Framework agreements have become more and more common over the last decade or so, and their use is continually on the rise within the sports industry and elsewhere. The advantages they bring were summarised by Bob White, founder of US construction company, Mace, speaking in 2007.

(i) Clients can use them as significant drivers of change
(ii) They result in reduced competitive bidding/long-term relationships
(iii) Innovations and cost savings can be delivered through supply chain relationships
(iv) They will deliver continuous improvement agendas
(v) Long-term collaboration on capital programmes and long-term service revenues boost margins
(vi) They help to spread the overheads over a larger workload and produce fewer loss-making projects (less risk, less volatility)
(vii) They can improve performance-based reward mechanisms
(viii) They encourage deeper relationships between clients/contractors/supply chain demanding new upstream and downstream skills

There is a lot of business jargon here, but I feel the need to break this down a little.

(i) Clients can use them as significant drivers of change

Clients will do whatever it takes to achieve the best result for what they are led to believe is the right price, and this is true however the services are being provided. By its very nature, a framework agreement is inward and not outward looking so it is difficult to see where this change might come from. Innovations developed and available from outside of the framework will not become available to those within it.

(ii) They result in reduced competitive bidding/long-term relationships

But competition is good and it is the mechanism by which the market operates, achieving improved product quality at the lowest prices the market will sustain.

There's nothing inherently good about a long term relationship, a relationship can be either good or bad, as many of us can no doubt testify from personal experience!

(iii) Innovations and cost savings can be delivered through supply chain relationships

I don't see how the guarantee of work of a particular and pre-determined form can really stimulate innovation. Companies will provide only what it is agreed they should at the outset because, to do otherwise, would expose them to unnecessary risk. We have examples of precisely this phenomenon in our recent experience with both natural turf and artificial sports ground projects.

Privately funded projects are willing to accept innovative methods, whilst publicly funded projects, the sort that are regularly channelled through framework agreements, are not.

Similarly, when the market is made to apply at all levels in a chain, cost savings are more likely to be achieved. It is generally accepted that competition leads to price reductions, so the removal of competition can only push prices up.

What I think is being referred to here are the actual costs of engaging in competition, for example those of undertaking appropriate procurement procedures. The independent private sector, engaged directly on the battlefield as it were, will happily absorb these costs as part of the business of doing what it does. It tends to be the public sector that has to cover expensive procurement costs, so this is an area where a framework serves only the client, the public sector or the government; it does not serve the industry as a whole.

(iv) They will deliver continuous improvement agendas

Only from within the capacity of the framework providers and to an extent they are comfortable with. Any improving innovations developed outside of the framework will not be available. Also, with the assurance of work, where is the incentive to achieve improvements at all? Why not simply do what has been demonstrated to work in the past?

(v) Long-term collaboration on capital programmes and long-term service revenues boost margins

Large and long-term contracts have the potential to generate a good deal of profit. This is not news nor is it a phenomenon confined to framework agreements. Let's not be naïve here, bigger margins mean greater costs to the client and, in the absence of competition, what contractor would ever want to reduce margins?

(vi) They help to spread the overheads over a larger workload and produce fewer loss-making projects (less risk, less volatility)

These are two quite different things. Overheads will be reduced within a framework for sure, but, as with procurement procedures, most individual companies would absorb this as part of their competitive approach. The advantages for the industry and for the client are, therefore, small. Indeed, the cost of procuring a framework agreement itself could very possibly approach the value of the potential savings within.

Projects that are without risk should definitely be exposed to the full glare of free-market competition because, by definition, there will be many who could accomplish them, so the downward pressures on prices will be most severe.

(vii) They can improve performance-based reward mechanisms

Who are you Bob, my mother? Most of us want to do a good job and we all want to get properly paid for doing so. That's the reason things happen, not because businesses want a pat on the head from government, thank you very much!

(viii) They encourage deeper relationships between clients/contractors/supply chain, demanding newupstream and downstream skills

Well, of course. But we're back to this cosy and insular mentality from which externally developed ideas are excluded. If you follow this logic, you have to leave the free market behind entirely and nationalise everything.

The forming of relationships is a very basic human need; we do this in order to feel right about ourselves. But I don't think this applies to companies or institutions. For myself, I like the free market environment. It's cold occasionally, but invigorating, like a strong breeze.

Governments in particular have an obligation to encourage and promote the whole of industry, not just the chosen ones from within it.

So let's abandon this drift towards the dominance of the sports construction industry by framework agreements, and allow the heat of fair competition to forge new and better ways of serving our sportsmen and women.

Dr Tim Lodge, Agrostis Sports Surface Consulting. www.agrostis.co.uk

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