Procurement in a Nutshell – Grenfell Tower Report: Key Procurement Lessons
19th September, 2024
The Grenfell Tower Inquiry recently published the Phase 2 Report which investigated the causes of the fire in West London, in June 2017, which tragically claimed 72 lives.
The report details recommendations for change in both the construction industry and central and local government.
In particular, the report addresses a number of procurement failures which resulted in the appointment of architects for the refurbishment of Grenfell Tower, that lacked the necessary expertise for such a project.
This Nutshell will evaluate these procurement failures, and discuss how, moving forward, contracting authorities should learn from such disastrous mistakes.
While we were reluctant to discuss procurement-related issues in the wake of such a tragedy, we feel it is important to raise awareness of seemingly ‘innocent’ decisions which can contribute to catastrophic consequences.
The report can be found here, and for ease of reference, the procurement failures are detailed in Volume 4.
Background information
Although Grenfell Tower was owned by the Royal Borough of Kensington and Chelsea (RBKC), it was managed by the Kensington and Chelsea Tenant Management Organisation (TMO). RBKC provided the funds required for refurbishing Grenfell Tower but TMO procured the services needed to carry out the project and oversaw its execution.
Avoiding the procurement process
It was the intention of TMO for Studio E to provide architectural services in relation to the refurbishment of Grenfell Tower, with the view that such services would in due course be transferred to the principal contractor Rydon.
In anticipation of Studio E’s appointment, TMO stressed that all commissions on the project were subject to the limits established under the Official Journal of the European Union (OJEU). The report has confirmed that TMO’s intention in highlighting the OJEU limits was to ‘direct Studio E to produce a fee estimate that would fall below the financial threshold for service contracts [namely £174,000] in order to avoid a public procurement process’.
Studio E’s fee proposal was £323,000 for all stages of the refurbishment work. However, Studio E allocated £161,000 for works to be completed before the transfer of architectural services to Rydon. It was this fee which TMO determined was to be subject to OJEU limits.
The evidence provided by the report has shown that Studio E’s fees were always expected to exceed the OJEU limit, and therefore by capping its fees, TMO sought to avoid a competitive procurement exercise for design services on the project.
As a result, ‘the appointment of Studio E as architect for the project involved no element of competitive procurement whatsoever’. It has been found that Studio E did not have any previous experience of providing architectural services in respect of the refurbishment of an existing residential high-rise building. The report has therefore stressed that, by failing for purely financial reasons to follow the proper procurement process, the ‘TMO deprived itself of the opportunity to appoint a firm of architects with relevant skills, knowledge and experience’.
Studio E has also accepted that due to their lack of relevant experience, if a competitive procurement process for architectural services had been undertaken in relation to the Grenfell Tower refurbishment, it was unlikely that they would have qualified for the appointment.
The avoidance of a proper procurement process, which ultimately led to the involvement of inexperienced and unqualified architects on the Grenfell Tower project, is now prohibited by the Public Contracts Regulations 2015 and also, from February 2025, by the Procurement Act 2023. The Act, at section 4(3), makes clear that ‘a contracting authority must not exercise discretion in connection with estimating the value of a contract with a view to securing that any requirement of this Act does not apply’. The consequences of Grenfell, combined with the anti-avoidance provisions now enshrined in upcoming procurement legislation, should ensure that contracting authorities think twice before seeking to circumvent the procurement process.
Manipulating the procurement process
The TMO procured the selection of the principal contractor for the refurbishment of Grenfell Tower under the OJEU process.
Ultimately, only three companies, namely Mulalley & Co Limited, Durkan Limited and Rydon Maintenance Limited, submitted tenders.
Following their formal evaluation, Rydon’s bid was confirmed as being the lowest price and also achieved the highest score on quality.
As a result, Rydon (but no other bidder) had been told by the TMO that it was “in pole position” and would be awarded the contract if it could indicate that it could make significant reductions in its price through value engineering. These discussions culminated in an ‘offline’ meeting on 18 March 2014, at which the TMO and Rydon agreed that if Rydon were awarded the contract it would reduce its price.
These discussions between the TMO and Rydon, which the report stresses took place at a time when the procurement process had not been completed, were not contemplated by the legislation relating to procurement.
Rydon was given an opportunity to amend its price in advance of the award of the contract, an arrangement for which the TMO could provide no reasonable justification. This provided Rydon with an unfair advantage against other bidders, which if known, would have likely caused the award of the contract to be legally challenged.
Furthermore, the actions of TMO, in manipulating the procurement process to reduce costs, undoubtedly contradicts the objectives embedded within the new Procurement Act 2023. TMO did not treat suppliers equally (section 12(2)) nor did they act with integrity (section 12(1)). To reiterate, the tragedy of Grenfell in addition to the obligations enforced through the 2023 Act, should act as a necessary reminder to contracting authorities that the procurement process must be conducted fairly and transparently.
How can we learn from Grenfell?
It is clear that the TMO was unduly concerned with reducing costs when they sought to procure, or avoid to procure, the appointment of ‘expert’ contractors.
The report affirms this conclusion by making clear that the decision to appoint Studio E was driven by a desire to reduce costs, and thereby avoid a proper procurement exercise. Costs also played a key role in the appointment of Rydon as principal contractor, as evidenced by the private discussions that took place before it was awarded the contract.
From our experience, contracting authorities are often tempted to exploit the procurement process in order to minimize delay, and alleviate financial burdens. However, the Grenfell Tower tragedy has undoubtedly highlighted how ‘cutting corners’ when procuring goods and/or services can have very serious ramifications.
Moving forward (from next February) contracting authorities should note their obligations under the Procurement Act 2023.
For further information please contact Melanie Pears or Tim Care in our Public Sector Team.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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