'Don't be afraid to pull plug on suppliers', buyers told

8 May 2002
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09 May 2002 | Robin Parker

Government spending watchdogs have accused defence purchasers of letting suppliers dictate price levels.

The Ministry of Defence is often locked into price negotiations by their suppliers, and purchasers should be prepared to pull the plug on them rather than let them influence acceptable price levels, according to a report from the public accounts committee (PAC).

The committee argues that the MoD's policy of "no acceptance price no contract", mandatory on all non-competitive contracts above £1 million, is often only loosely adhered to.

The policy requires buyers to stop talks if suppliers do not commit to an acceptable price.

Negotiations have collapsed in only two of the 1,850 such contracts placed to date.

The PAC says "acceptable" prices are not the same as prices agreed at the outset, and argues that procurement strategies must be revised if an acceptable price could not be agreed within a reasonable timescale.

Edward Leigh MP, chairman of the committee, said: "If negotiations are proving too protracted, pulling the plug with that particular supplier would send the clear, and very healthy, message to contractors that they cannot assume they hold all the cards."

In its report, Non-competitive Procurement in the Ministry of Defence, the PAC says the concentration and globalisation of the defence industry will reduce the competitive options open to the MoD and make it dependent on long-term relationships with a smaller group of suppliers.

The PAC wants a monitoring system of long-term trends influencing procurement activities to replace the MoD's current policy of subjecting 75 per cent of defence buying to competition.

A ministry spokesman said the department is aware that its current processes will continue to be reviewed for their consistency and it will respond formally to the PAC "in due course".

A National Audit Office report last year revealed that the MoD's "Lessons learned" database of defence procurement contracts had no specific section on non-competitive contracts.

But it acknowledged that a target set in 1993 to price 90 per cent of non-competitive procurement at the outset had been met.

SMmay2002

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