News Article

Debt Collection

Do large tenders put off small collectors ?

By CreditMan Wednesday, November 2, 2011

With any purchase being routed through procurement these days, are those in charge really best placed to know how to go about getting the best collections partner?

By Chris Vicary - Business Development Director Oriel Collections Ltd

I enjoy watching Question Time with my two sons. It was interesting listening to Caroline Flint, the Labour MP for Don Valley, on the question of good and bad business behaviour and the party’s policy on rewarding good business practice.

As an example, she mentioned that when government puts out tender documents, there should be questions like: “How many apprentices are you going to train, if successful?”

This goes to the core of the problem with our politicians and a lack of understanding about how to get government off the back of business. Why do people like Ms Flint not understand that a successful business, not one tied up in red tape, that can win tenders, will automatically attract better candidates who would require first-class training anyway?

Obstacle for smaller agencies

In our industry, the burgeoning power of procurement departments and the unremitting growth in a European-led tendering culture, with its reams of pointless questions about green policy and human rights issues, is becoming a major obstacle to smaller debt collection agencies’ ability to compete for business from the public sector.

There seems to be little control exercised over the size and complexity of these documents and, for hard-pressed management, the time involved in completing them is not worth the effort – especially when the decision criteria is rarely, if ever, made clear.

Examination of the guidance for public servants and the centralising of the purchasing decisions points to another worrying conclusion: that many decisions are probably made on price only, instead of justified success projections and service levels, all of which are frequently requested in tenders. If public-sector tenders become the sole preserve of a few big agencies, more ‘minnows’ will go out of business, which is bad for clients and bad for the industry.

The directive on public sector contracts of £50,000 and the European Union Directive on Public Procurement for contracts of £99,965 or over needing to go through a tendering process was, in principle, a good thing. However, in reality, little has changed.

Value for money?

The tender has become the sole province of the procurement industry, whose driving objective is to secure value for money.

Outsourcing decisions have, therefore, moved lock, stock and barrel from the credit manager, who knows exactly what is going on, to a ‘remote’ team of people who do not understand credit control but who are charged with producing tender documents and decision-making criteria across the organisation’s entire purchasing activities.

Tender documents have become too general and not specific enough – probably because most are being adapted from a generic template. In view of the monolithic structures of some public-sector organisations, few will actively collaborate with the relevant department over the tender document, or may get short-changed if they do. And, if price is the tenderer’s only real consideration, are these 70 page tenders really necessary?

Discussions with credit control managers generally in the public sector leave one in no doubt that most procurement departments look at price first and, in many cases, fail to understand how a debt collection agency could justify a higher commission by explaining exactly why this would enable it to collect a lot more of the debt.

If this is the case, why not just devise simple questionnaires that ask about licences held, service levels, insurance and financial arrangements, plus the price and success projection?
Are tenders, by their sheer size, driving smaller agencies away from bothering to engage in the process at all? After all, a growth industry needs to protect its growth. Who is asking exactly how much of this information is actually needed?

‘Via Procurement’

As the tender culture has taken root, it has started to infect decision-making, even when there is no requirement to go to tender.

Routine enquires to credit control departments about offering debt collection services are met with a stock response of “this all goes through procurement” and, even when an enterprising credit control manager does agree to see you and wants to make a move on a proposal you have supplied, they are always told to route the document via procurement, even though the eventual contract value may be fairly small.

Getting several quotes is fine and responsible, but the culture of passing the buck for the decision to the centre is endemic and, in many cases, patently not necessary. This is top-down management of the worst kind with no responsibility for the debt issue remaining with the team paid to reduce it.

Whilst government debt has become more accessible, we have still a long way to go. I have lost count of the number of times I have been to see councils who tell you that 98% of their council tax gets collected but that the £2m they have got waiting to go to court cannot be processed because of ‘resources’.

Why is debt like this sitting in a cupboard? Why is it not out there for agencies to bid for?

Urgent attention

We can summarise the way forward into five key areas that need urgent attention:

• Make tenders free and more accessible – the government are fond of telling us how ‘transparent’ they are, with a great deal of consultation documents available online. But when a council decides to write-off millions of pounds of taxpayers’ money it usually takes a good journalist to bring it to the public’s attention. All government departments must be made to publish their uncollected debt figures online and when tenders are offered, they should be free to access and apply for.
• Simplify the tender documents – there is too much control from procurement departments: this is true in the private sector, as well, with banks and utilities the worst culprits. It is obvious from many that the credit control and debt recovery departments are barely consulted, if at all, on what information should be asked for. For example, a utility company in a recent tender asked for agencies’ corporate policies on the 10 principles of the United Nations Global Compact! If this question went to the company’s head of debt recovery for approval first, he or she is patently in the wrong job. The tender documents must be detailed but not onerous – perhaps a rule of thumb should be that if they take more than three hours to complete they need editing down, because a fair number of smaller DCA owners would have given up at page 2.
• Publish the ‘weighting’ on Page 1 – if the commissions and fees are going to drive the decision-making, this should be made clear at the outset so that it can be challenged and public servants gradually educated about how to value tenders for debt collection. If an agency turning over less than £1m annually has not a hope of being selected, let us also see it at the beginning. The decision criteria should be clearly explained in the introduction notes. For example, a government procurement officer may have seen earlier documents that assume that 5,000 accounts for placement are too great a number for an agency employing less than 20 collectors to handle, so this just becomes ‘received wisdom’ and is never challenged.
• Empower the line manager – although, on the one hand I am arguing for more access to simple, well-written and shorter tenders, there are too many government departments, and those in other sectors who have taken their cue from European directives, that are unable to get their debt out for collection quickly to an agency who has contacted them, presented their services and quoted a competitive commission, because of the need to “go through a procurement process”, even though the contract price is fairly small. This is just a smokescreen for more ‘red tape’ and obfuscation, with no one seemingly able to make a taxpayer’s decision. There needs to be consultation on the benefits of raising the £50,000 annual contract limit for tenders to take account of the general economic gloom and the need to foster a more dynamic business environment. But more importantly, heads of finance must start to free up their line managers, who are sitting on mountains of debt, and empower them to take responsibility for reducing it, by getting quotes and making their own decisions, not just being made to pass the buck.
• Purchasing consortiums, the door is not always closed – most purchasing consortiums will only re-tender in areas where there has been sufficient take-up of the preferred suppliers business by the members.

Whilst the arguments for huge industry savings resulting from ‘scale’ purchasing are obvious, it can also be argued that it is, by nature, an anti-competitive practice. We need to educate credit managers who are members of purchasing consortia, that ‘preferred suppliers’ means that they are recommended, not obligatory and, that a quick examination of fees, success rates and service to other members by reference, will quickly give them a comparison to make with your offer.