News round-up: March 2012

Coalition failing SMEs, says survey…

Small firms claim they are being excluded from government contracts. Michael Glackin reports

More than three quarters of small and medium-sized contractors insist they are being excluded from government contracts because of their size.

The findings emerged in a survey commissioned by Construction Manager, and call into question the coalition government’s much-touted commitment to increasing the number of small and medium-sized businesses involved in public sector contracts.

The survey, carried out for CM by Constructionline, canvassed the views of a cross-section of construction SMEs comprising consultants, general contractors and specialists. It also revealed that more than 86% of small firms believe the procurement policies of both central and local government create barriers to SMEs winning work. Almost 1,000 firms responded.

The stark findings underline industry complaints that the shift in public sector procurement to large aggregated contracts — which can only be carried out by large, usually multinational, contractors— has left an increasing number of construction SMEs squeezed out of the system.

The results come as the government began trials on three procurement models recommended by a task force looking at improving procurement. And north of the border, the Scottish parliament is revising its processes for public procurement to try to make it easier for SMEs to win work.

The CM/Constructionline survey found that 75.5% of SMEs think their size prevents them from winning public sector contracts. It also found 94% of contractors believe the government had failed to include SMEs in its procurement system.

The coalition has said it wants 25% of government contracts by value to be awarded to SMEs. But that target has not been met and the latest figures from the Department for Business, Innovation and Skills reveal a fall in the amount of money spent with SMEs at the start of this year.

A spokesperson from the department said: “We are on track to meet our 25% spending target with SMEs. We are already working to achieve economies of scale and at the same time increase procurement through SMEs by working with Research Council UK’s Shared Services Centre to purchase more through this facility.”

He added the fall in money spent on SMEs by government departments so far this year was “a slight drop caused by normal seasonal variations”.

Construction SMEs account for around 80% of construction jobs and more than 60% of the sector’s annual turnover.

But more than 86% of those polled said construction SMEs lacked a voice within government.

The Constructionline survey makes clear that SMEs believe their importance to construction’s economy is ignored by government and that departments have failed to take on board their concerns over barriers to the procurement process.

Suggestions for improving access included simplifying the procurement process by reducing the amount of red tape involved in applying for public sector contracts. PQQ’s emerged as a consistent bone of contention, with many complaining they require too many resources to complete and are biased towards large contractors because of their emphasis on sustainability and health and safety.

Many of those polled said government should also promote the use of regional companies in public sector procurement.

Alan McEwan, head of London-based consulting civil and structural engineers Alan McEwan Associates, said the government should abandon framework agreements altogether and establish a more flexible tendering process.

He said: “One large delivery partner means a client is putting his eggs in one basket and losing competitiveness. You keep prices down through competition, not monopolies that allow big contractors to swallow up all the work. I cannot see how the current system saves the government, or the taxpayer, money in the long run.”

Earlier this month David Pitchford, the head of the government’s Major Projects Authority, admitted that less than half of its biggest construction projects would finish within budget.

Capital projects have borne the brunt of government spending cuts, but the public sector remains construction’s largest client, spending more than £30bn across the UK last year.

Philip Prince, marketing director with Constructionline, said:  “You can argue that major contractors always win frameworks, but if you break it down there are a lot of smaller and regional contracts going to SMEs, both directly and through subcontracts with larger firms.”

Teamwork brings framework tendering success

More than half of contractors surveyed (61%) said they would consider teaming up with other small businesses to bid for framework agreements, an approach pioneered by the National Federation of Builders that has met with some success.

By combining together in a consortium, typically consisting of around half a dozen firms, smaller contractors are able to compete with larger competitors on frameworks that require contractors with higher turnovers.

Paul Bogle, policy manager with the NFB, said there had been a “noticeable increase” in the number of NFB members wanting to form a consortium to bid for public sector work in the past year.

Bogle said: “We now have five different consortia in various parts of the country. Each one is based on a limited liability partnership which basically acts as an umbrella company to allow the firms within the consortium to bid for frameworks. It increases a firm’s skills and scope to a client. Two of our consortia have won framework agreements so it does work.”

Bogle said the consortium model tends to suit medium-sized regional contractors rather than specialists and very small companies, but hopes that as more contractors combine for contracts the model can adapt.

“It is definitely making a difference to SME contractors. Even those firms that failed to get onto frameworks say getting as far as the interview process through a consortium has helped them gain a better understanding of what clients want.”

That said, ambitious plans for a national roll out of the scheme,  first outlined last year, have failed to materialise and it is unclear whether government departments are fully receptive to the model for procuring construction services.

…but EU shake-up may help them

Proposals to revise the highly unpopular EU procurement rules which govern the awarding of public sector contacts could make it simpler for SMEs to win work and quicker for clients to procure.

Mark Robinson, chief executive officer of Scape Building, which procures work on behalf of a consortia of midlands-based local authorities, said that proposals currently out for consultation could potentially reduce the costs that councils often have to spend on re-tendering for repeated contracts.

”The draft directive gives more clarity and more flexibility and clarifies some of the more complex areas that have previously caused confusion and litigation,” said Robinson.

  “Small and medium-sized enterprises will be free to bid for public sector work without having to submit complex paperwork proving their suitability each time. Procurement of social, health and education service schemes or projects valued at less than €500,000 won’t be subject to EU rules at all. And contracting authorities can be more flexible in adapting a contract without having to go through a new award process if external and unforeseen circumstances arise.”

Further benefits include the mandatory use of electronic resources to accelerate application procedures. Contracting bodies will also be able to assess life-cycle costs when assessing the financial aspects of bids rather than the traditional price-only criterion. Contracting authorities will have the option to use the negotiated procedure when they want to, and a new tender procedure to procure innovative partnerships has also been incorporated.

“All that has got to be good news for the many cash-strapped organisations across the UK. The only downside is the new rules are unlikely to come into force until 2014, and we could do with this red tape being cut now,” said Robinson.

Alan Muse, director of QS and construction and project management at the RICS, also welcomed the consultation and said the EU approach would dovetail with the government’s drive to simplify procurement processes.

Meanwhile, Design Council Cabe is calling for the current tick-box procurement system to be replaced with a code of practice that gives smaller firms a chance. Its proposals have been submitted to the All-Party Parliamentary Group for Excellence in the Built Environment, which is holding an inquiry into construction procurement.

Aberdeen’s garden of Eden

This is the winning design to transform Aberdeen’s city centre with the creation of  70,000 square feet of green space within eight distinct gardens, an iconic cultural and arts centre with cafe and other facilities and two new plazas. The winning design comes from Diller Scofidio & Renfro, who collaborated with local Scottish architect Keppie Design and landscape architect Olin Studio.

Photograph: Avanti Architects

Haggerston is a class above

Willmott Dixon and Avanti Architects have recently handed over the final phase of Haggerston School. The 77-week, £13.5m design and build contract project involved the refurbishment and modernisation of the  iconic grade II-listed school in Hackney, London, together with the construction of a new Art, ICT and Technology block. The existing buildings were designed in the mid-1960s by modernist architect Erno Goldfinger and Haggerston is regarded as one of the outstanding school buildings of the period.

Government BIM hubs tackle glitches

Main contractors are to be invited to join regional BIM “hubs”, bringing together the industry and public sector clients to iron out implementation problems as the industry gears up to meet the government’s BIM challenge.

Meanwhile, civil servants will share BIM expertise at cross-departmental workshops, which will cover subjects such as how to brief for BIM.

And a new micro-site dedicated to communicating the lessons learned from the first wave of BIM-compliant pilot projects will soon be set up. The site will publish key performance indicators from the projects on issues such as design clashes and the number of requests for information.

The initiatives were outlined by David Philp, head of BIM implementation at the Cabinet Office, at a meeting organised by software supplier Tekla. His presentation came as the first Ministry of Justice contracts mandating the use of BIM went out to tender at the end of February. 

Philp, who is on secondment from Balfour Beatty, urged the industry to focus on small, achievable steps rather than being distracted by visions of BIM revolutionising the industry.

“People are thinking far into the future about what we’re not ready for, when what we need is explicit conversations about what people need to do now,” he said.

But he added that he was confident there are sufficient Tier 1 and Tier 2 contractors ready to deliver BIM projects to ensure the MoJ contracts are subject to robust competition.

The pilot projects will be expected to demonstrate Level 2 BIM — which all public sector projects are expected to meet by 2016. Essentially, this means that the various design disciplines create their own 3D design models, but these are then shared by a collaborative project team.

Philp said Level 2 is well within the industry’s capabilities: “The design models [for the projects] are built, and in terms of the insurance and legal questions, not much changes — suitable contracts already exist.”

He added that subcontractors lower down the supply chain should not feel excluded as they can simply add their data to the project BIM model via a standard spreadsheet.

Research reveals supply chain risk

One large construction business in 10 is substantially reliant on high-risk suppliers, illustrating the fragility of many companies’ supply chains.

The findings come in research of 200 UK companies, including some of the UK’s largest corporates, commissioned by procurement services provider Achilles. It found that 10% of construction businesses believe that more than half of their suppliers are "high risk".

“High-risk suppliers are worryingly prevalent in the current economic climate, at a time when businesses need transparent relationships and absolute security of supply,” said Adrian Chamberlain, CEO of Achilles Group.

Strike over wage agreement off

Britain’s largest union, Unite, has confirmed it has called off all further strike action against seven M&E contractors after the Heating and Ventilating Contractors Association (HVCA) withdrew its proposal to introduce a new wage agreement.

The move sees the withdrawal of controversial Building Engineering Services National Agreement (BESNA) contract, which the union claims would have imposed new semi-skilled grades outside of existing Joint Industry Boards agreements and would have led to pay cuts and poorer terms and conditions.

The agreement by the five remaining companies follows the earlier withdrawal of the BESNA contracts by Balfour Beatty Engineering Services and NG Bailey.

Fees hike hits sandwich courses

The dramatic hike in university tuition fees is already resulting in a sharp decline in the number of popular construction sandwich courses offered by universities, according to the results of a CIOB survey.

The survey also suggests that the number of mature students being sponsored by their employers on part-time degrees is also likely to decline.

Meanwhile, a survey of construction employers undertaken by the UKCG also found that employers are turning away from sponsoring or employing "sandwich" students as the impact of £9,000-a-year tuition fees starts to bite.

In January, the CIOB surveyed 45 universities that offer CIOB-accredited construction courses, receiving 17 responses. Asked whether the new fees had already affected applicant numbers, 61% said they didn’t yet know, 28% said they had and 9% said they hadn’t.

The results also showed that courses where students spend 12 or six months of the course working for an employer had already been hit. All 17 of those that responded said they would not be offering sandwich courses starting in September.

The UKCG also conducted its survey in January, receiving responses from 20 construction employers. This revealed that only 13 were planning to sponsor students on construction sandwich courses starting in 2012.

Apart from sponsored students, the group was planning to employ 82 sandwich students (on six or 12-month placements) in 2012 — an average of four per company. For summer placements, the respondents indicated they would be taking on 59 students in total.

The new fees system is also likely to reduce the number of students sponsored by their employer to study part-time. Previously, part-time students — or their employers — had to pay the fees upfront, but now both full-time and part-time students defer payment until after graduation. The change could make part-time courses more popular for students who can combine earning and learning.

But sponsoring employers will now find that fees have rocketed. "Construction employers often sponsor older students through degree courses, but the new fees will obviously affect the part-time route. They typically now cost £4,000 a year, but last five years — so the employer now has to find £20,000," said Rosalind Thorpe, head of education at the CIOB.

NHBC takes its training expertise Down Under

The NHBC has acted as a consultant for a new Construction Management Simulation Centre in Melbourne, Australia.

This follows the success of the NHBC Training Services’ centre in Coventry. This new training facility uses actors and state-of-the-art, real-time virtual reality construction imagery through a 180-degree screen, which features a wide variety of scenarios, from a small, rural housing scheme to a multi-million pound high-rise office.

Michiel Schrijver, the creator of the first centre in Leeuwarden in the Netherlands ,recently signed an agreement with the Master Builder Association of Victoria in Melbourne to deliver the UK version, ACT-UK, for the Australian construction market. 

Dave Towell, training services project manager at NHBC, joined other educational specialists and product developers from the UK and Netherlands to help on key aspects of the proposed centre.

Development work undertaken by NHBC included the tailoring of courses for the Australian market on issues such as industrial relations, dealing with project delays and managing site quality and assisting the "actors" with construction terminology and cultural differences.

Towell said: “This project has been a great opportunity to use our experience of this form of construction management training on an international scale and further enhance the reputation of NHBC. Directors of the Master Builders Association of Victoria were very impressed by our warranty model and how we support builders and protect homeowners to raise industry standards in the UK."