NHS Estates want to work with fewer contractors. Current proposals favour large national companies. With the first framework adverts due in September small contractors don't have long to lobby for changes
Construction managers have voiced fears that a new procurement system to be introduced by £1.3bn-a-year client NHS Estates will edge out small builders.

The major concern is how the work will be divided up. Projects of more than £25m will go to one of six national contractors and all work between £1m and £25m will be divided up regionally, with a list of six contractors in each area. The number of regions is yet to be decided, but there will be at least eight.

It is feared that the £1m limit will exclude small, local contractors who have built up relationships with NHS Trusts over many years. Barry Stephens, deputy chief executive of the National Federation of Builders says that his members are concerned about the limit following a presentation to the NFB by NHS Estates.

"Regional contractors who have done a lot of good work in the past for NHS Trusts are not going to be able to have a lead role with the proposals as they stand now. We are writing to NHS Estates chief executive Kate Priestley to ask her to consider changing this threshold."

To get work, small firms would have to be one of six on the preferred regional contractors list who will qualify for tenders of more than £1m under Procure 21 - the proposed procurement regime. It is feared that work will be awarded to large consortia that have the capability to set up complex supply chains.

These concerns were also expressed at the first in a series of NHS Estates consultation workshops in Newcastle. The consultations will run throughout the summer to survey opinion of Procure 21 in the private sector. One attendee said: "Many people expressed the view that the £1m limit is too low. Raising it would open the door for smaller businesses who have relationships with trusts."

There was also a concern that the lower limit would make it difficult for shortlisted consortia to make a profit. The argument is that managing supply chains is expensive and so contracts have to be quite large to sustain the overhead.

Contractors were told if they were one of the preferred six regional contractors, that they could expect an average of two jobs a year worth an average of £10m all together. But in theory it could amount to as little as £2m, says the attendee. The consensus was that the lower limit should be raised to between £3m and 5m, to make setting up a supply chain worthwhile, he adds.

John Orr, senior head of estates and facilities for NHS Estates recognises the problem of the ideal threshold: "It is something that we are considering now. We have had the same comment from other parts of the construction industry."

One suggestion to the problem is bundling smaller jobs together, as local authorities have done with schools. Putting smaller contracts together would also mean that they could qualify for PFI status.

However, Defence Estates was criticised for using a similar method and Kate Priestley has previously rejected such a move in an effort to protect smaller contractors from this more costly and time consuming method of contracting.

Another problem identified at the Newcastle workshop was that each contract of more than £1m would be a competition between two of the six pre-qualified supply chains. Therefore, it is possible that even if a contractor is on the preferred list, it may never win any contracts.

It seems as though lessons have been learnt from the experience of Defence Estates however. There was relief at the workshop that NHS Estates would use existing government models for Procure 21 contracts, rather than bespoke ones. This would eliminate some of the problems contractors are experiencing with Defence Estates contracts. For example, Defence Estates has abandoned pay-when-paid clauses, which forces main contractors to pay subcontractors before they have been reimbursed themselves. The introduction of a fitness for purpose clause has also caused furore. It means that contractors could be sued months after finishing a contract, if the client decided on a use for the building different from that as built by the contractor.

The next Procure 21 workshop will take place on 17th July in Bristol. The contracts for the West Midlands and North West pilot areas go out to tender via the official journal of the European communities (OJEC) in September. This will be for all work in the middle band: £1m - £25m. Work is due to begin in the pilot areas in April 2001.

What is Procure 21?

Procure 21 was launched in April by NHS Estates. Its aim is to follow the recommendation of the Egan report and the example of Defence Estates in making its procure-ment process more efficient. NHS Estates estimates it can save £300m of its £1.3bn budget through Procure 21. It aims to do this by radically scaling down the number of contractors used by drawing up preferred contractor lists, or principal supply chain partners (PSCPs). To get on to one of these lists, a contractor must show evidence of supply chain management - the ability to efficiently and cost effectively manage its subcontractor supply chain, through, for example, setting up partnering arrangements with subcontractors. A contractor will need to have the capacity to design, build and finance a project within its supply chain. Other pre-qualifications to be a PSCP are: experience in hospital projects, evidence of partnering, an understanding of the NHS culture, proven ability to innovate and a willingness to take part in continuous improvement. NHS Estates will use existing key performance indicators to judge a contractors’ performance on these issues, but is also developing its own benchmarks. NHS Estates will form long-term partnerships with contractors to cut down the cost of the tendering process, and so improvements can be passed on from one project to the next. It will also improve the NHS as a client by setting up specialist consultant teams to work alongside trusts, to make them more expert at procuring construction. Finally, NHS Estates wants to standardise the construction of NHS buildings through common design standards and encouraging the use of pre-fabrication.

Procure 21: The proposals

Contractors will have to qualify for preferred status before being able to tender for work. Each contractor on the list will then sign a framework agreement with NHS Estates, which will last five years. The agreements will be assessed every six months or so. Adverts are due to appear in September. • Projects of more than £25million: will be contracted out to a list of six national contractors • Projects between £1million and £25million: will be contracted out regionally to a list of six contractors in each area • Projects below £1million: NHS Trusts will use the Constructionline database to appoint contractors

Source

Construction Manager