ÐÇ¿Õ´«Ã½

For those of us working in the public sector, the Gershon review of public sector expenditure and the march to cut costs through better procurement practice will by now be set firmly in our minds. This culture change to modernise the sector has been welcomed by many as a long time coming and seen as a start towards the promised land of reduced costs, enhanced profit and an improved product.

To achieve these objectives, clients and government have established that they will do so through the procurement process, including volume building, procurement consortia and better supply chain management. The whole industry, particularly in the social housing sector, is in the grip of procurement fever with pre-qualification and bids aplenty.

But where is the money coming from for all this innovation? The clients certainly aren't paying for it. They are likely to say that they are using the expertise of the private sector to provide skills they don’t have and bring together partnerships that can deliver more efficiently. This all sounds pretty feasible and in line with the way government wants to go, but the reality is different. Despite a significant amount of good practice guidance on how to get the best out of the process, public sector procurement practice is adding little to the industry but cost.

It doesn’t take a highly skilled construction economist to work out that if contractors have to spend more to get work, then any savings are bound to be diluted. At the moment this is ignored because clients don’t see this expenditure as a direct project cost.

Yet any QS worth their salt will be able to tell the client that the only way contractors and developers recover costs is through construction activity, so if their costs increase then the whole cost of construction must go up. The costs related to pre-construction will be somewhere and contractors will not be swallowing those costs in the name of innovation and good will.

Any QS worth their salt will be able to tell the client that the only way contractors and developers recover costs is through construction activity

The CIOB Pre-Construction Society estimates that a company spends 1.5-2% of its turnover on preparing bids and pre-qualification. That doesn’t sound much, but if a client was asked to add 2% to a £200m regeneration project to pay for the bids I doubt they would be too keen.

It has even reached the point with some procurement routes, particularly PFI, where the cost to bidders actually deters companies from getting involved as it can run into millions of pounds. Not exactly adding value to an industry, but is it any wonder? Five years ago, the DTI’s Constructionline was launched as an Egan-compliant end to the onerous and expensive task of pre-qualification to make the process more efficient. Unfortunately this is not born out by my experience. Pre-qualification has increased massively since the government’s decision that housing associations are public bodies and come under the remit of EU procurement rules both in quantity and complexity, with contractors being asked to jump through more hoops than ever. So what is Constructionline achieving other than providing jobs for civil servants?

Would it be different if clients paid bid costs? I suspect so. I am convinced we would soon start to see shorter tender lists and much more focused pre-qualification that actually added something and made clients decide what information they really needed to shortlist, rather than the copious amount of detail they usually ask for. Or what if the industry simply started to show bid costs, for all bidders not just the winners, and added them to the project cost – that would open a few eyes.

Some people might see the numbers as small fry but consider if the industry saved 0.5% per year through better procurement on a market of say £80bn. We could probably build a bunch of schools or over 600 £60k houses.