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Procurement method will increase contractor workloads, says government

Reassurance is being sought by contractors throughout supply chains that new procurement models trialled as part of the government’s drive to increase efficiency will boost workloads.

The week after the government revealed its trial projects for radical new procurement methods, a survey has revealed that main contractors and their supply chains feel existing procurement practices are worsening on the ground.

The government announced a series of seven projects that will trial new procurement models, including integrated project insurance, cost benchmarking and a two-stage open-book process – intended to improve collaboration and efficiency.

The trials have met with some cynicism – prompted by previous failures to improve supply chain integration or public procurement. But the fact that high-profile chief executives are working closely with the government on these trials is providing reassurance for the industry.

Chief construction adviser Paul Morrell said the incentive for contractors was that the government will pump savings back into projects, leading to increased workloads for contractors that can find cost savings.

UK Contractors Group director Stephen Ratcliffe said there was support for the moves outlined by the government last week.

He said: “Contractors do think this is a worthwhile objective and the fact that the likes of [Balfour Beatty construction services chief executive] Mike Peasland and [Kier chief executive ] Paul Sheffield are involved in the working group shows that.”

A contractor source told CN main contractors have concerns over a lack of evidence on project bank accounts and are still digesting the difference new procurement models could make to their businesses in future.

Roy Bloom, commercial director of Interserve, which participated in a working party of strategic suppliers and presented a report to the Construction Clients Board ahead of the publication of the government’s procurement strategy, said contractors supported the government’s efforts to become a more efficient client, particularly at the pre-construction stage.

However, he said project bank accounts and integrated project insurance were “unlikely” to produce the savings expected from a market that currently has a lowest-price dominated structure.

“Such changes to embedded practice introduce more bureaucracy, which will land on most contractors as an added burden to the recent changes necessitated by the Local Democracy Act,” he said.

“Trust must play an integral part of any procurement process that is to produce a best-value solution for the client and trust extends not only
to the contractor’s pricing, where realistic benchmarking has its part to play, but also to the use of fair standard terms of contract and other complementary efforts to reduce the cost of bidding.”

Mr Morrell told CN he agreed that reducing the burden on contractors, applying fair contract terms and embedding trust were all part of the process and that neither project bank accounts nor integrated project insurance would “change the world” on their own.

But he said the “dominance of lowest price” was proving as hard to remove from supply chains as it had been among clients.

He said: “Ironically, the move to project bank accounts was motivated principally by the observation that lower levels of the supply chain were not getting the benefit of the improved trust and fair contract terms that the government is seeking to foster in its own procurement practice.

“Obviously this is particularly critical at a time when access to credit is so tight, but it also sends a message: that contractors should make their margin by building, not banking – which once again should send them back into their supply chains for ideas, and not for subsidy.”

Drivers Jonas Deloitte head of Sustainability Jon Lovell said main contractors should consider implementing an “apprenticeship model” where support is provided for SMEs through taking on and training up individual companies.

He said: “Such an investment in supply chain partnerships, particularly if focused on bringing forward the skills and capabilities necessary for delivering very high standards of energy efficiency, would give them longer-term competitive advantage as licences to operate become more closely linked to actual performance achieved in completed and occupied projects.”

However, while the new procurement models demand integrated supply chains, a Constructionline survey shared exclusively with CN has revealed the scale of the difficulties facing the construction industry.

The survey, by the UK’s largest register of pre-qualified contractors and consultants, showed on projects where respondents were acting as a subcontractor, 57 per cent have seen payment times lengthen over the past year, while 41 per cent said they were seeing more demand for retentions.

More than half of respondents said they have faced a longer wait for payment in the past 12 months from clients.

The survey of more than 1,300 registered users, of which 82 per cent were contractors, showed the scale of the challenge facing the government in improving relationships with contractors after 65 per cent said clients are not providing enough support to contractors during the bidding process.

Central government ranked bottom of the pile (6.8 per cent) when respondents were asked which sectors are most prompt with payment.