Advisory to Government Agency on Determining Fair Rates for Services
CCCS was approached by a government agency for advice on its plans to survey industry players to indicate their rates for services. The purpose of this exercise was to assist the agency in determining fair rates for such services. However, there was the possibility that industry players who responded to the survey may collude to inflate their submitted rates, and the agency was considering measures to discourage such behaviour.
CCCS noted that, even without the need to collude, the survey provided an incentive for each industry player to submit inflated rates if they were aware that the submitted rates would influence the agency’s determination of rates to be paid.
To mitigate this risk, CCCS offered some suggestions for the agency’s consideration: Firstly, it should be explicit in the survey that industry players should independently present the actual rates that they have recently charged for their services, after taking into account any discounts or promotions. A statement revealing the agency’s intent to use the submitted rates for determining a fair rate to be paid by the agency should be removed. Industry players may be encouraged to submit more competitive rates if they thought that the agency intends to use the rates for selecting the industry players to engage. CCCS also advised that more objective sources of information should be obtained, including rates paid by other customers and previous invoices. The agency should consider requesting qualitative information, such as the industry player’s experience or track record, to understand any differentials in the submitted rates.
Lastly, an alternative approach which combines both the survey and the procurement process can be considered by the agency. Specifically, industry players could be invited to submit their proposed rates and highlight that the eventual winners of the procurement process would be based on their proposed rates and quality attributes. This would allow the agency to better elicit a set of fair and competitive rates from industry players, supporting the value for-money principle that underlies government procurement.