How will the Construction Strategy work for SMEs?
The Construction Strategy has been widely welcomed by the major contractors and consultants. However, smaller builders are worried that it will make it harder, not easier, for the government to fulfil its stated intention to open up public sector work for the businesses that are the lifeblood of UK industry. That’s because there’s a clear tension between the government aggregating its buying power and setting up frameworks to deliver large volumes of work; and creating the smaller opportunities that are ideal for SME builders.
In order, in part, to tackle these issues, the Cabinet Office has asked Stephen Allott (pictured above) to be its independent SME adviser, across all government procurement. Cambridge graduate Allott has chaired the boards of seven technology SMEs and led the successful growth of one business from 50 to over 800 people. He founded the “Cambridge Computer Lab Ring”, an influential network of computer scientists, and is a judge for the Cambridge University Entrepreneurs Business Plan competition.
We got together a group of small and medium-sized builders, experiencing public sector procurement at the sharp end, to grill him on how the government plans to make things better.
John Armitage of Peter Armitage
Q1 How does the government intend to make it easier for SMEs and micro businesses to access frameworks?
The procurement reforms that the government is pushing through are all designed to make access easier and fairer - though there is more to do. In the case of frameworks, I know that the Cabinet Office will shortly be publishing “a guide to frameworks” for the construction sector, setting out the criteria that it believes distinguish the good from the bad. The kinds of characteristics it will look at include:
- Work should be bundled in a way that does not take it out of reach of smaller businesses that would have been capable and competitive in taking on any individual project in the programme, unless the framework is also designed and managed to capture economies of scale and learning
- Appropriate value bands, so that the upper value is not so high as to deter or disqualify SMEs from capturing work at lower values that they are perfectly capable of handling
- A pre-qualification questionnaire (PQQ) process that is as lean as possible without criteria that are artificially high
- Opportunities for SMEs advertised as widely as possible, particularly on the government’s Contracts Finder service.
Gerald Swift of L Swift & Sons Builders
Q2 Why are tender documents including PQQs [seemingly] created by people with no practical experience of building?
That sounds frustrating. All central government departments with a significant construction programme have a team with specialist construction skills and experience, and others have access to advice, so this shouldn’t be happening. But if this is happening and PQQs still appear burdensome or irrelevant, either from central or local government, contact the Mystery Shopper team at the Cabinet Office. They can act on the specific incident, keeping your identity anonymous, and in many cases have managed to change the procurement process.
Q3 We are finding we have to join multiple pre-qualification schemes depending which one is flavour of the month with local authorities and the NHS. The cost is starting to become horrendous for SMEs given the money and time involved. Can we have one such government (or even private) run scheme?
As someone who has run a small business myself, I can sympathise with what you are saying. Across government I am starting to see much simpler processes. In the case of construction it has focused on the development of PAS91 to standardise the PQQ process. This is now mandated across central government - so in one sense we do have a streamlined scheme there. As you point out, the wider public sector is a different story. The Mystery Shopper process is available to report missed opportunities to use PAS91 (or replacement with an unnecessarily bureaucratic alternative) in the wider public sector, and this will help us to shine a light on what is happening out there. The results [of investigations by the Mystery Shopper team] are published on the Cabinet Office website for all to see.
It’s also worth being clear that authorities should not make paid registration with a third party accreditor/pre-qualification scheme a condition for bidding for contracts. A procurement policy note can be found on this issue on the Cabinet Office website.
The qualification process will always need to retain enough flexibility for respondents to differentiate themselves from their competitors. But we need to avoid waste and duplication. For example, even where PAS91 is followed in principle but is then made burdensome by the addition of a host of irrelevant appendices, we would like to hear about it via Mystery Shopper.
Patrick Matthews of Bow Construction
Q4 Given our experience of being required to fill in a 45-page PQQ just to apply for the £0-2000 band of a local authority framework, why are local authorities not obliged to adopt less bureaucratic PQQs and take steps to ensure small local traders are not excluded?
Central government does not have the same power to mandate that bureaucratic PQQs are scrapped when it comes to local authorities as they are independent bodies, but that doesn’t mean that nothing is being done. My team and I aim to spread best practice and it’s my belief that ultimately local authorities will take up this mantle not because they are told to, but because it is in their best interest. SMEs are often better value, hugely innovative and extremely agile. Local authorities have much to gain from ensuring local SMEs can access their contracts.
Many know this already and do it well. Things are changing for those who don’t - in addition to the Mystery Shopper service, the Local Government Association recently created its procurement pledge and said clearly that it wanted it to support SMEs.
Q5 Why do some local authorities say they are obliged to comply with EU procurement regulations when others appear to be able to operate differently, even when the type of work and value of the contracts is the same?
All public authorities are bound by the same EU procurement regulations, so it’s difficult to answer you on this one. Some types of procurement will not attract application of the full set of rules either because they are lower value or in sectors deemed by the EU Commission to be ‘Part B’ and not of interest to other member states. It is possible that some construction work will fall into these categories. The best advice I can give you is that if you think the process is unfair, report it anonymously via Mystery Shopper and the Cabinet Office will look into it on your behalf, regardless of whether it’s a local authority or a central government department.
Bola Abisogun, Urbanis
Q6 I note the government’s intention to ensure that 25% of all procurement spend is procured with the micro/SME sector; how does the government intend to deliver this and is there an indicative timeframe?
The government’s 25% aspiration does not include local spend - it is central government spend both directly and in the supply chain by 2015, across all sectors, not just construction.
In terms of how, the government has instigated a wide ranging programme of procurement reform. This includes the Contracts Finder website to inform SMEs of upcoming opportunities, changing the procurement process to make it fairer by scrapping PQQs for below threshold procurements, investing in dynamic purchasing systems and setting up a pilot “Solutions Exchange”, where SMEs can lodge their solutions to the government’s challenges.
We are starting to see progress - central government’s direct spend with SMEs is on track to have doubled from 6.5% when the government took office to 13.7% by the end of the financial year 2011/12.
The government is also publishing unprecedented levels of data on SME spend for public scrutiny. This was never measured before - so we need to keep tracking it and see how those percentages continue to change over coming years as data improves. In construction in particular, we know that many SMEs do business with the government in a subcontracting relationship, and that it is important to measure and account for the spend that goes indirectly to SMEs in this way. In future, the government plans to publish data on this too.
Q7 For sub £100k contracts, how does the government expect local authorities to involve micro firms in particular? Will all relevant contract opportunities be ‘standardised’ and the use of the PAS91 pre-qualification encouraged?
Things are changing in the local authority sector and the LGA has recently spoken out about these issues. We are encouraging local authorities to abolish the use of pre-qualification for procurements below the £100k services threshold. Procurement for construction works has a higher threshold and the use of PAS91 is encouraged where pre-qualification is necessary.
Ultimately, lengthy and bureaucratic processes help no one. We are sharing all of our learning so that local authorities can recognise and seize the opportunity
Q8 The presence of the Cabinet Office Mystery Shopper scheme goes some way to assist micro / SMEs to report both good and bad practice. Will the government undertake to ensure that feedback from all government procurement exercises is re-circulated to all other public sector procurement departments so as to ensure greater consistency of procurement methodology and strategy?
The results of the Mystery Shopper cases are already published on the website. But you are right that disseminating the learning is important - the Cabinet Office is planning to issue a procurement policy note that summarises the lessons learnt from investigations and I will talk to the team about how this can be shared further with the wider public sector.
SMEs: What the coalition has done
The government has said that opening up government work to SMEs is a priority. It has an overall target to ensure 25% of all government contracts are awarded to SMEs.
Measures to ensure this happens include:
- The introduction of a standardised pre-qualification questionnaire (PAS 91) across central government. Its use was made mandatory from December 2010
- PQQs eliminated entirely from all central government procurements under about £100,000
- Launch of an online “Contracts Finder” service, which will publish procurement and contracting information in one place at www.contractsfinder.businesslink.gov.uk/
- Launch of the “mystery shopper” service where suppliers can tell central government directly if they see a tender they don’t understand. SMEs can voice concerns by emailing email@example.com
- The formation of an SME Panel to hold government to account on delivering these measures
- SME Product Surgeries to enable selected SMEs to pitch products and services to a public sector panel
A view from the front line
We are general building contractor with an annual turnover of about £2.5m a year employing 12 people. Most of our work is for local councils and hospital trusts.
Our council procures its building services through a four-year framework, quoting that as its total value of contacts exceeds a €5m threshold, they are obliged to comply with the EU procurement regulations. There are six value bands and three geographical areas in the county, amounting to some 90 slots involving about 30 different contractors.
The framework application form is the same whether applying for the £0-£2,000 value band or the £2m-£4m value band. This shuts out small contractors
Each contract is tendered for individually as they arise by the up to eight contractors listed in the appropriate value or area slot. This has resulted in many local contractors being shut out of the framework for the next four years and only one local contractor included in the medium and higher value bands.
The council says the EU regulations oblige it to be open to all applicants and it must not discriminate against contractors from outside the county. It has been unable to confirm which piece of the EU regulation it is referring to to date. The result is that the council is paying too much for its building services and our local industry and economy is suffering. We carry out very similar, if not more, works for the other councils and all the hospital trusts in the area. They appear not to be obliged to any EU procurement regulations. How are they able to operate on a different basis to our council?
Application to the framework is by completion of the council hybrid PQQ. This amounts to 45 pages which is to be returned in duplicate and on disk. The form is the same whether applying for the £0-2,000 value band or the £2m-4m value band. This effectively shuts out the small contractors who cannot compete with the regional or national contractors who are able to tick all the boxes regarding quality systems, environmental policies etc. The council requires the Contractors Health and Safety Assessment Scheme of successful bidders but does not accept Constructionline as a prequalification. Similarly the PAS91 format does not fulfil its requirements. The result is a lengthy form subject to a marking system which is dominated by the regional or national contractors.