The new government guidance on procuring steel for public sector construction and infrastructure projects over £10m has been welcomed in the industry, but the Construction Products Association has raised questions on the impact of last week’s emergency measure.
The new guidance, published by minister Matthew Hancock in his role as chair of the newly convened Steel Procurement Working Group, is attempting to address the rising level of imports of fabricated steel and boost the market share of struggling UK producers.
According to the new Procurement Policy Note, public sector clients should ensure that Tier 1 contractors provide “supply chain plans” that set out how, and from which supplier, steel will be sourced.
Tier 1 contractors and their subcontractors – such as steelwork fabricators – will also have to openly advertise supply chain opportunities for the provision of raw steel if no contractual arrangements are in place by the date of the main contract award.
And procuring organisations, while urged to award contracts on a value-for-money basis, will also have to consider “social criteria” in decision making.
These include “taking into account the benefits of employment and supply chain activity”, meaning procurers should assess the impact on jobs, health and safety, training and the environment when awarding contracts.
“The key change the government could make to help UK steel manufacturers is to quickly reduce the taxes that are making large manufacturers uncompetitive rather than just ‘guidance’ that affects limited areas.”
Dr Noble Francis, CPA
According to data from BIS, imports of fabricated steel have risen 111% in the past five years, imports of steel used for piling has increased 80% in the past five years, and imports of construction steel tubes has risen 51% in the past five years.
Sarah McCann Bartlett, director general of the British Constructional Steelwork Association, said: “BCSA strongly supports the use of a UK based supply chain for structural steelwork. Using UK steelwork contractors delivers a range of advantages to clients including shorter lead times, contractual security, exceptional quality of design work, better logistics on site and an excellent health and safety record.
“The delivery of steel framed buildings and steel structures is almost wholly done by UK based steelwork contractors, with 98% of UK structural steelwork demand fabricated in the UK. It is vital to the UK’s economy that government expenditure on major projects deliver a broader economic benefit to the UK by using local supply chains.”
The guidance was also welcomed as an example of “responsible sourcing” policy. Professor Jacqueline Glass, who leads the Action Programme for Responsible Sourcing, based at Loughborough University, said: “While there are clearly timely and current political and economic motivations behind today’s announcement, I think this kind of transparency is long overdue in construction. It’s time that clients and funding bodies knew exactly where materials come from, so they can make informed choices.”
But Dr Noble Francis, economics director at the CPA, said that the guidance may have relatively little impact, as it affects only public sector works when the bulk of the structural steel coming into the country was destined for commercial projects.
He also believes that energy prices are the key factor making UK steel uncompetitive compared to cheap overseas imports – principally from China – and that this is the area where the government needs to act. And he warned that a failure to reduce reliance on imported steel could create cost pressures in UK construction projects in the future.
He told Construction Manager: “UK large and very large manufacturers face energy prices that are 54% higher than the EU average due to government taxes, which is one of the key reasons that UK steel manufacturers are hindered in competing.
“The key change the government could make to help UK steel manufacturers is to quickly reduce the taxes that are making large manufacturers uncompetitive rather than just ‘guidance’ that affects limited areas.
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“Obviously, the closure of factories [including SSI in Redcar and job losses at Tata Steel] will lead to a further, and sustained, rise in imports of steel and a fall in exports. The increase in closure of UK steel factories will make the UK more reliant upon imports, which increases risk and uncertainty, especially for large commercial and infrastructure projects.
“At the moment the price of steel is relatively low and the appreciation of sterling has meant that imports are cheaper. However, over time, if global demand rises then imports could become more expensive. With no domestic competition, that directly increases costs for projects.”
Meanwhile, Shaun McCarthy, director of Action Sustainability and the Supply Chain Sustainability School, pointed out that pubic purchasers are already required to consider social issues under the Social Value Act, but said that the application of these criteria by contractors was inconsistent.
And Ian Nicholson, managing director of procurement consultant Responsible Solutions, warned of possible inconsistencies in public sector policy flowing from the new guidance. “There are clearly major concerns currently with regards to steel procurement, so moves to level the playing field and demonstrate transparency are welcome.
“However, placing detailed reporting requirements on just one particular commodity does introduce the possibility of confusing rather than helping, at a time when contractors and their suppliers are already being asked to consider wider supply chain transparency and responsible sourcing issues for all their purchases.”
