Member Article

Northern construction firms failed by government procurement

Three of the North’s largest building contractors say the Government’s procurement strategy is curtailing the region’s industry and failing the taxpayer.

In an open letter to Government ministers, Surgo Construction, Esh Group and Tolent say the current procurement strategy favours the largest national companies.

The group say current public sector construction strategy is endangering jobs across the North East, Yorkshire, Cumbria and the North West.

Earlier this month, Cabinet office minister Chloe Smith announced that reforms to public sector construction had saved £447m in the last year.

Ms Smith announced cost benchmarking for departments and also pledged to raise the amount of business through SMEs.

Below is the letter from the firms:

There has been a great deal of publicity about the downturn in the construction sector nationally as a result of the cuts to public sector spending. But in the northern regions, which have traditionally relied more heavily on public sector funding, the situation is much worse.

What is more, the national strategy for procuring public sector construction work favours the largest national companies.

Competitiveness and Fairness

There are building firms working up and down the country which have recently bid for a place on a national procurement panel for the Priority Schools Building Programme. While twelve firms have been selected for the north panel and twelve for the south - nine of the firms selected are on both. How can this deliver fair competition?

We know, because we have tried, that it is impossible for firms the size of ours, to qualify for a place on these procurement panels - even as a joint venture with a combined annual turnover of £250 million we were still ineligible.

The thinking behind the Government’s procurement strategy has been shaped by lobbyists and representatives from large construction companies which have persuaded Whitehall that it will save money to work in this way.

Great in theory? We know that in practice, this is simply not the case. And moreover, what of the growth prospects for smaller regional firms which lose the opportunity to become the multi-nationals of tomorrow?

For example the Scape Framework, used for local authority procurement, requires contractors to have an annual turnover of over £500 million to be eligible to carry out jobs starting at £2 million. Few regional contractors meet this turnover criterion whereas many are more than capable of carrying out the work.

Value

The questionable concept of ‘value’ is no more clearly demonstrated than in the northern region where the Scape framework has only one contractor on it. Without the element of competition how can there be any guarantee of competitive pricing or best value for the taxpayer? Local authorities, suffering from restructuring and working with fewer staff, are drawn to the idea of using Scape because it offers a shorter tendering process. The delays surrounding the re-launch of the NEPO procurement portal have served to worsen this state of affairs.

In our view, using a framework for time or ease rather than best value, is lazy procurement.

Jobs

Surgo Construction, Esh Group and Tolent have been trading for a combined 180 years. We directly employ over 1,500 people throughout the North of England, actively developing and ‘growing our own’ senior teams of tomorrow as well as proactively using the local supply chain to ensure that any construction spend remains in the region where the contract is located.

Whilst local supply chains and sub-contractors are supposed to be used by national contractors, frequently they are not. This leads to a further erosion of the scale and quality of job opportunities available.

Additionally, on the occasions when sub-contractors are used, they are often asked to manage the training too. This is because many national contractors have withdrawn their offices from the regions leaving senior decision makers, not even based in the location where the contract is underway, to carry out the contract management.

So when we hear talk of ‘up-skilling’ and ‘raising the level of qualifications and training in the region’ we have to ask ‘why?’ because if the procurement process continues in this way neither senior leaders nor highly skilled managers will be needed – just a team of people to do the operational trade work for others.

Investing in the future

And finally there is the issue of reinvestment of profits.

Ten of the contractors on the northern framework panel are headquartered in the south, therefore surpluses made on projects undertaken in the north of England all disappear straight down the M1.

This means that the north is once again left without the benefit of employment for local people, the chance to retain skills in the region or the option of reinvesting cash surpluses for training the workforce of the future.

Is it any wonder that so many regional construction companies have gone out of business? The knock on effect down the supply chain is massive.

As individual businesses, Surgo Construction, Esh Group and Tolent are standing together to bring to the attention of local and national government the effect that these policies are having on regional contractors.

We urge you to support our efforts.

This was posted in Bdaily's Members' News section by Tom Keighley .