Public sector construction contracts are worth over £2bn a year. But many firms are put off bidding for them because of the cost which has risen dramatically in the past five years. A survey from the Scottish Building Federation claims the firms bidding for such contracts have to spend almost £100m a year – 4.4% of their total value – a rise, in some cases, of as much as 50%.
Vaughan Hart
MD, Scottish Building Federation
The firms surveyed said there were times when up to 30 firms bid for work and up to 15 would be shortlisted. They had to fill out quite complex pre-qualification questionnaires (PQQs) which cost them £1,000 per £1m to complete. Once on the shortlist, they would spend another £3,700 per million to complete the procurement process. This meant that as many as 70% of contractors also said they lacked confidence in the system.
The Managing Director of the Federation, Vaughan Hart pointed out that event at the best of times, “construction is not a high margin industry. If you consider that the cost of tendering for public sector contracts is now more than 4% of contract value, most contractors will be fulfilling these contracts at best at break even and at worst at a financial loss.
“With budgets as tight as they now are, public authorities are sharper than ever before on price. I know a number of contractors are actively avoiding the public sector market because they feel they’d have to make suicidal bids to secure the work.”
He called on the Scottish Government to introduce financial incentives for public authorities to run “a more efficient and cost-effective tender process.” In particular, he suggested either cutting the tender costs to shortlisted contractors or reducing the number of shortlisted companies. “Consistent enforcement of the standard pre-qualification questionnaire would help to reduce public procurement costs further,” he added.
The Scottish government is currently looking into construction procurement and is planning new legislation to reform the process. “Scottish ministers are listening to the concerns of industry,” said a spokesman in a statement. “This is one of the reasons why the deputy first minister has set up an independent review of the way in which the public sector carries out the procurement of construction works. We understand that the review is aware of these issues, and we look forward to receiving their recommendations.”