The government’s latest ideas on breaking down the “oligopoly” of major suppliers, including construction companies, have stirred up controversy across the industry. Some interpret the measures as an attempt to focus on reducing costs at the expense of wider policy aims of promoting efficiency and innovation, while larger firms fear it will mean the break up of long-term frameworks.
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It is easy to stir up emotions by talking about the risks associated with dealing with SMEs, such as the potential for business failure and loss of economies of scale. But SMEs are not part of the problem, they’re part of the solution.
The fact is that a substantial proportion of project works are actually delivered by SMEs subcontracted to larger contractors. In such instances, all the client has gained is an extra layer of management and cost, and the feel-good factor that they are working with one of the biggest.
For some clients, “going large” is a form of insurance policy: they choose to pay to protect themselves against a perceived increase in the potential for failure. But an alternative scenario could be that the client selects a smaller, more appropriate contractor to deliver the project, and puts aside a contingency sum to cover a worst-case scenario. If the project is delivered, on time, within budget and to the required specification, the contingency fund can be carried over to the next project.
Another approach is for local businesses to form consortia for bigger contracts, providing a boost to local economies and, incidentally, aligning with the coalition’s localism agenda. Appointing a single large contractor can only ever give the client a “best average” set of capabilities: no major contractor, however skilled, can be an expert at every type of project. But a carefully constructed consortium of SMEs is likely to bring together a whole range of specialist technical expertise across the required areas.
But the shake-up in public procurement has to go further than promoting the interests of SMEs. To benefit all contractors, the government could have done more to simplify and standardise pre-qualification, in the first place by making the new PAS 91 questionnaire mandatory for all central and local government departments. Instead, it’s left to each individual local authority to decide how to pre-qualify its suppliers.
PAS 91 could also benefit from a requirement to set out the minimum, and perhaps also maximum, turnover levels needed to be included on each tender list. This would eliminate wasted time and cost for both those who are clearly unable to satisfy the required criteria, and those who must adjudicate on submissions made.
Of course, some clients set minimum annual turnover levels that de-bar SMEs from projects they could have delivered. Looking for turnover of, say, 10 times the project value is, in general, just not necessary and wouldn’t happen in an ideal world.
But back in the real world, certain projects may be so critical to a client’s business that it is understandable if they choose to segment the market in this way. However, if that’s the case, clients need to be up-front and tell bidders exactly what they’re doing and why.
Industry bodies such as the West Midlands Centre for Constructing Excellence (WMCCE) have a vital role to play in promoting change. Its report, Opportunity in Austerity, released last year, identified many SME-friendly procurement strategies that the government could adopt, including more targeted advertising to reach SMEs and the publication of engagement guides.
Defence Estates is a good example of an SME-aware client. While it will only enter into Regional Prime Contracts with very substantial contractors, its OJEU adverts also invite SMEs interested in supply chain roles to get in touch. In effect, it offers a “dating” service for interested smaller suppliers.
To usher in the innovative, more dynamic system the government says it wants, we need all public sector clients to be more engaged and open with all parts of the industry.
Martin Chambers PPCIOB is framework director at medium-sized West Midlands contractor Shaylor Group, which he joins from Lend Lease.
