Contractors and the MOD are clashing over issues of trust, subcontractor payments and open-book accounting.
Prime contractors are concerned that the MOD wants to use auditors to check that figures in bids are correct. A source from a prime contractor said: "It's a matter of trust. The MOD wants our trust. It should show the same trust in return.
"We are prepared to open our books and have no objection to the MOD checking the figures, but spending a fortune on auditors defeats the whole idea of prime contracting – reducing waste." Mike Burt, head of procurement practice and development at the Treasury, described the lack of trust as "the stone on which prime contracting is foundering". He added: "An audit puts the defences up straight away. But there is a question as to whether an adequate level of trust can be achieved." Ted Pearson, who is developing prime contracts at the MOD, said: "We have no problem with prime contractors certifying their figures, but we must also test those figures." Symonds director Tony Harden, a key figure in the Kvaerner-Symonds prime contracting joint venture, expressed concerns about the accuracy of open-book figures.
"We are struggling to get more subcontractors to open their books to us, so that the figures we are presenting to MOD are more reliable." He added that there is also a row brewing over how fast subcontractors will be paid under prime contracting.
"MOD is worried about subcontractors being paid within 30 days. For most, that is not a problem. What we don't want is the MOD to introduce an elaborate system of checking this – that will slow us down," said Harden.
Pearson confirmed that a condition of prime contracting would be payment within 30 days. He said it would not need an elaborate system for checking."I'm sure subcontractors will bring any abuse to our attention," he said.
Harden is also worried that the prime contracting message is not filtering down through the organisation. "The people at the top understand the principles but has the MOD got people below who can understand it?" asked Harden. "We are already finding shop-floor people who are not talking the right language." Conditions of contract were discussed at a two-day workshop last week. Pearson said three preferred bidders will be chosen for each contract, and that initial discussions will not require detailed design drawings. Instead, prime contractors will be expected to use computer-generated fly-throughs or models to help the client visualise the project.
The contract develops along the lines of construction management, using value engineering in the design process, until a point is reached where the prime contractor offers a guaranteed maximum price. Any subsequent costs or savings are shared between prime contractor and client. The prime contractor is expected to pass the savings down the supply chain.
There will be no retention in the new contracts, said Pearson. This will be replaced by a parent company guarantee.
The race is on to resolve the outstanding issues. Pearson said: "We've got weeks rather than months to settle the conditions of contract." Preferred bidders for the first prime contracts are due to be announced next month.
- Firms have until next week to make an expression of interest in NHS Estates' first prime contract. The project will be to redevelop the Langworthy Clinic in Salford to provide a 1700 m2 healthcare facility. The second prime contract is due to be advertised shortly.
NHS Estates' procurement policy will be outlined at the Healthcare Engineering and Estates Conference next Tuesday and Wednesday. The conference is to be held at the Wembley Conference Centre.
The conference will be addressed by NHS Estates chief Kate Priestley and the chief executive of Laing Construction, Paul Whitmore.
