Increased public sector spending was supposed to be great news for construction firms. But, according to a survey released this week, these local contractors have missed out on the bonanza. Katie Puckett finds out why the growth of framework agreements is threatening the industry’s smaller businesses
John Cawrey has built up his Leicestershire contracting business on a steady stream of work for local schools and the council. With a turnover averaging £3.5m and 28 staff, Cawrey Ltd is a minnow of the construction world, but its director prides himself on providing a quality service to customers on even the smallest jobs.
Despite this, in recent years, his work for public sector clients has dried up.
“We’ve pretty much been excluded from the pot. We used to do quite a bit of work for schools and local authorities in the area, but in the last five years it’s dwindled to nothing.”
Cawrey’s firm has lost out partly because Leicestershire council has spent most of its budget on rebuilding four schools at a cost of £40m, but also because his firm failed to secure a place on its capital works framework agreement, set up last August. The lower tier covers jobs from £200,000 to £1m, but even this was too big a challenge for Cawrey to take on. “It was a minimum of £1m work a year,” he says. “We couldn’t cope with that level of commitment.”
Cawrey’s is a familiar story across the UK. A survey by the National Federation of Builders (NFB), released exclusively to Building, has found that, of 460 SME firms questioned, one-third were reporting a drop in work from the public sector. According to the study, smaller companies had been hardest hit.
Most of the firms surveyed attributed their drop in public sector work to councils’ adoption of framework agreements, where the minor works that are the bread and butter of small firms are often bundled up into larger long-term contracts. Just over half of respondents said public sector procurement practices had not helped SMEs – only 12 firms out of 460 said they had.
Small firms complain that frameworks effectively shut them out – the packages are too big and pre-qualification and tendering place enormous strain on companies without teams of admin staff. About 85% of those who still work for the public sector said it was through traditional contracting arrangements. But they fear these opportunities will not be around for much longer. Overall, 40% of respondents were looking for work in new markets to replace the revenues they’d lost.
Almost 2 million people work in construction in the UK, and 42% of these are in companies classified as SMEs. Firms like Cawrey’s are the lifeblood of the industry, but they’re under threat from the government’s drive for efficiency.
“For our members, this has been a huge issue,” says Julia Evans, chief executive of the NFB. “Increasing work in the public sector is not coming through to members – they’re getting less than they were expecting and they expect it to get worse.”
Frameworks are an extension of collaborative working, recommended in the Latham and Egan reports and numerous government publications since. The idea is to improve relationships and standards; in practice, they are a bureaucratic minefield.
For Cawrey, just filling out the forms would have been a massive strain. He says that when the firm was on the council’s preferred supplier list, enquiries took about a week for one person to respond to. The framework documents would, he says, have been three or four weeks’ work for two people.
Now he is almost totally dependent on private developments. “It’s a riskier area for us. You’re dependent on the housing market which is a bit of a rollercoaster,” he says. “We’re a fairly forward-looking company. We don’t want things to stay the same but we feel small contractors should have been given a chance to compete with larger firms.”
“The call-out stuff was our bread and butter,” says David Lowe, managing director of contractor Philip James. It has a turnover of £1.5m-2m and employs 10 people. It used to do 750-850 jobs for Leicester city council a year but that’s dropped off since April, when the council set up a framework to undertake projects under £35,000 and maintain 1,000 buildings, half its estate.
To the contractors that won, Inspace and Sodexho, the deal is worth £2.5m over three years. “The councils now use big companies with call centres,” says Lowe. “I doubt we’d get on the framework because of the size they want you to be. There are four or five local firms that used to do that sort of work now competing for the same private work.”
It’s not only the smallest companies that are losing out. Martin Sibthorpe’s company Sibmar Construction has a turnover of £12m and employs 52 people in Essex, but it’s still not big enough to handle even the minimum workload. “Some contracts are £100m; some may be only £5m. But that still excludes us, as sometimes they say the framework can represent only 10% of your turnover. So you’ve got to have a huge turnover to get on it.” Public sector work has accounted for 90% of Sibmar’s turnover in the past 27 years, but it’s moving into commercial development.
The application process for frameworks is not only onerous for small contractors, often the questions are impossible to answer.
Pre-qualification questionnaires may request details of “project management systems and procedures” or “evidence of benchmarking KPIs”, scoring answers on a points system.
“It’s a bit like answering exam questions,” says one contractor who didn’t want to be named. “You’re trying to prove how smart you are. We didn’t provide enough buzzwords so we didn’t get through. There was a question on how we ‘implement partnering with our supply chain’.
“We don’t have anything like that. We have an informal approach – we’ve been using one scaffolding company since 1989 so we must have been partnering successfully.
Not only do I know the workforce, I know their families.”
Keeping it local
EU law governing public tenders is a blunt instrument to apply to successful local relationships. Previous relationships cannot be taken into account, so where small companies have many years’ experience working for just one council, this cannot be given due weight in their application. The NFB’s survey also showed that many small contractors are unaware of tendering notices for frameworks – few are accustomed to trawling the Official Journal for work and several said the first they knew about a framework was when enquiries stopped coming in from regular clients. EU rules don’t allow councils to invite companies to tender.
“We worked with Community Housing Association for 20 years on and off and we rang them to find out why we hadn’t received any enquiries for a while,” says Sibthorpe. “They said ‘you’re not part of the framework’. We missed the boat.”
A spokesman for Leicestershire council said it would evaluate its frameworks before deciding whether to extend them. “Everything is about efficiency now,” he added. “The principles of frameworks are a good idea and a lot of authorities are going down that road.”
From his point of view, local firms can’t match the performance of national contractors, but he doesn’t believe it’s all about size. “I don’t feel they’ve kept pace with the larger contractors in areas like health and safety or quality control. Just because they can’t take on the big boys, it doesn’t mean they can’t take processes up to a higher level on a smaller scale. It puts them at a disadvantage when filling out a pre-qualification questionnaire.
“Why can’t local contractors band together and hire someone to look at elements of their business, or submit a joint bid for a framework? They could pull themselves up by the boot straps and present themselves as a more efficient establishment.”
A spokesman for Inspace said: “We have a network of offices around the UK and we employ direct, locally based labour for this type of work. We believe we’re flexible and clients can benefit from continuous learning with us.”
Egan suggested there would be opportunities for small contractors working for larger ones. But just 18% of those surveyed by the NFB were acting as subbies for a framework contractor. The idea also gets short shrift from firms Building spoke to.
“I would be reluctant,” says Mike Wootton, managing director of Exbury Homes, a £1.3m-turnover contractor in Portsmouth. “I know if I work for an RSL [registered social landlord] I’ll get paid; that’s the benefit of working for them.”
“We have a policy of not working for other contractors,” says Peter Beighton, managing director of Derby’s Beighton Construction. “Why not? We haven’t got a legal department. It’s frightening. We had a bad experience once. We got in an adjudicator and it ended up costing more than we were trying to recover.”
Being cut out of public sector work has consequences for standards across the industry. Bill Rabbetts, chair of the Strategic Forum’s SMEs group (see below), is concerned that small contractors will be cut out of initiatives to drive up standards led by the public sector – in health and safety, for example. “The Health and Safety Executive identified that improvements have to be made in the SME sector, but it’s desperately hard to interface with these companies. One way to drive standards up is through the public sector setting standards.”
It could also affect the number of new recruits coming into the industry. Andrew Oldershaw runs Oldershaw Brothers, a £400,000-turnover firm in Leicestershire. “It’s traditionally firms like ours who take on apprentices and train them. If you haven’t got the bread-and-butter work, you don’t have the confidence to train youngsters. Private work is often very competitively priced and it does slow a job down.”
The communities department says its only input into local authority procurement is to offer best practice advice. “We have aimed to help reduce as far as possible the admin burden on small firms, to encourage them to participate in public sector opportunities. The latest independent evidence, soon to be published, shows numbers have increased in the past two years.”
Neither is the picture painted by the NFB survey unremittingly bleak. A fifth of firms have downsized, but an equal proportion have hired new staff and trainees as a result of winning more work. Rabbetts cites a framework set up by a group of housing associations that covers an area from Hampshire to Cornwall but includes small firms by allowing them to tender just for smaller jobs and in specific geographical areas. Evans at the NFB praises the efforts of Birmingham council. But these are the exceptions. Unless national and local government wake up to the damage being done to construction’s grass roots, it could be too late.
How to make frameworks work for SMEs
Accept SMEs don’t want to be subbies
Latham and Egan expected SMEs would still work in frameworks, as subcontractors to larger companies. They’re not. Many major contractors have poor records of paying on time – proof that partnering doesn’t always extend down the supply chain. Government needs to make sure indirect suppliers are treated properly.
Re-evaluate how frameworks are being implemented
There’s nothing wrong with frameworks in principle, the NFB believes, it’s how they’ve been set up so far. Clients should look again at the pre-qualification and tendering requirements to make sure they do not automatically exclude SMEs. Companies should be working on jobs appropriate to their size. Smaller-value jobs should have their own band.
Simplify and tailor tender processes
You can’t use the same methods for checking the performance of a sole trader and a national giant. Firms already pay out for accreditation under Constructionline, CHAS, EXOR and the like – why can’t this count towards a framework application, rather than forcing them to duplicate these efforts?
Bill Rabbetts is chairman of the Strategic Forum SME Working Group and former chairman of the National Federation of Builders