Bid to drive down costs with online auctions may put quality at risk

Edinburgh Council has pioneered an online auction for providers. But critics are worried that auctions will have a detrimental effect on service quality, writes Simeon Brody.

A method of procurement that shaves £500,000 off a council’s care homes bill is bound to attract attention from other authorities.

Edinburgh Council recently introduced an internet auction, run along similar lines to eBay, to find a provider of temporary staff for its residential care homes (Edinburgh internet auction interests councils but alarms care providers, 9 March).

But unlike eBay, Edinburgh’s “reverse auction” involved real-time, online bids decreasing in value rather than increasing, with approved providers given four hours to undercut each other.

The result was a contract price that plummeted by 17 per cent from the previous year’s cost, from £3m to £2.5m. The council insists that quality has not suffered, as all the bidders had to comply with 50 evaluation criteria including reputation and staff qualifications. And once the bidding was complete, the council insisted that it judged all the bids on the basis of quality as well as price.

While it is not unknown for local authorities to use reverse auctions to procure products such as stationery, Edinburgh would appear to be the first council in the UK to extend the practice to social care.

But Alex Davidson, vice-chair of the Association of Directors of Social Work’s community care standing committee, says a handful of other Scottish councils are already discussing how they can introduce similar systems. He says a reverse auction is “quicker and sharper” than a normal tendering process.

“It’s very much in common with the drive for efficient government. If it works, it’s certainly worth a look. It does seem to have worked well for Edinburgh – that’s a lot of money to put into other services,” he argues.

The Association of Directors of Social Services is also looking at the idea for England. And Camden Council, in north London, has taken steps to introduce more transparency in contract tendering.

Bidders for a £1.6m Supporting People deal had their contract price, staff and management costs and tender evaluation score made public at the end of the process.

Jeremy Swain, chief executive of homelessness agency Thames Reach Bondway, which was not involved in the tender, welcomes the transparent nature of Camden’s process.

But he warns that this openness about bids could result in a continual lowering of the price for support, and may tempt organisations to come in at a price they could not really afford to secure the work. 

The deflationary pressures on price would be even greater for a live auction, and Swain warns: “This is more worrying because it could lead to an intemperate bid being put in.”

He says the danger in any auction is someone bids a price in the heat of the moment which they can’t really meet. Six months down the line a contract could collapse and service users would be the ones to suffer.

“There is a need for organisations to hold the line on cost,” he argues, predicting that smaller agencies will inevitably be the ones to suffer if prices are pushed too low.

Andrew Cozens (pictured), strategic adviser for children, adult and health services at the Improvement and Development Agency, also has reservations about introducing reverse  auctions for social care.

“If you have a process that is simply about the lowest-cost option it’s not necessarily going to guarantee a quality and reliable service,” he says. “There’s a correlation   between aggressively negotiated contracts and high staff turnover.”

Cozens recommends a more collaborative approach, where services are designed in conjunction with preferred providers. Councils should spend time and resources building up the capacity and workforce in the independent sector, he says.

If councils were to adopt reverse auctions, he warns, providers could operate like a cartel by agreeing not to bid below a certain level and by monitoring each other to make sure they do not break ranks.

These issues will have to be confronted if, as seems likely, more councils consider using reverse auctions to buy social care services.