Why public sector procurement is not supporting SMEs

Jamie Barrett FCIOB, managing director of building consultancy Evolution5, on the continuing barriers SMEs face in bidding for public sector contracts.

Jamie Barrett, MD Evolution5

The government stated its aim to improve localism and to support SMEs particularly on public sector projects. But there seems to be a complete dichotomy between this well intentioned ethos, and the current state of public sector procurement, which in our view, completely favours the biggest, multi-national construction consultancies over smaller practices – and the UK’s largest major contractors over regional building companies.

Evolution5 is a construction consultancy and SME offering construction management, project management and cost control services to the public and private sectors. A large proportion of our work is in the public sector: projects for schools, colleges, universities and NHS trusts, ranging in size from £1m to £20m.

But despite the consultancy’s experience in the public sector and the fact that it is a progressive and established business, it has had absolutely zero success in more than 100 PQQs in the last eight years. This is especially disappointing when the team has taken expert advice from highly experienced, independent public sector procurement specialists and had professional input in the quality of their proposals, high levels of staff training, requesting feedback on every single one and ploughing that knowledge and experience back into the next opportunity.

At the same time, our customer satisfaction scores across the board are outstanding: 100% of our customers, which includes a high percentage of public sector organisations, would use our services again. This suggests that something is radically wrong with the public sector procurement system which does not promote SMEs.

A flawed route

At best, the current procurement methods for public sector building schemes are severely flawed. Long before any pre-qualification questionnaires (PQQs) or invitations to tender (ITTs) are issued, public sector projects have to go through protracted internal governance procedures. Then there are the budget setting cycles and complex sign off processes. Time-sensitive projects often run behind schedule before they have even been approved. Going through OJEU can then add up to six more months to the procurement process.

As a result, many public sector organisations look to avoid going through OJEU every time by setting up frameworks – but the way these frameworks are procured too often rules out SMEs and definitely favours larger national or multinational companies – whether for contracting or building consultancy services.

The biggest issue for SMEs is that no two public sector clients, whether NHS trusts, local authorities, schools or universities, use the same procurement approach. Each body will use their own format and this means we have to reinvent the wheel for every single tender opportunity. And the clients have unrealistic expectations for how long a PQQ takes to complete. They estimate no more than two hours – but the reality is at least half a day and we find a full day is most likely.

The government has gone some way towards simplifying the process with Constructionline (CL) registration and with the development of PAS91, a publicly available, best practice standardised document for supplier assessment. Constructionline registration is very thorough and offers a common sense approach, but PQQs still ask for all the same information that is available via CL which is just not efficient for the supplier to provide in a different format time and time again.

So why do PQQs not simply ask if you are CL pre-qualified? If yes, then only project-specific questions need answering. Why is there not more confidence in Constructionline?

The introduction of PAS91 was another sensible development and an attempt to simplify procurement. The time that could be saved for SMEs – or any member of the supply chain if PAS91 was used would be significant. But despite the availability of such a good document, the vast majority of public sector organisations still use their own forms – some of which were originally drafted as far back as the 1980s, making each PQQ submission a bespoke, time-intensive document to produce every time.

How many public sector organisations even know PAS91 documentation actually exists? Why is this approach not widely used?

The challenge for SMEs

The huge challenge for SMEs is that large multinational consultancies and the major contractors have whole departments dedicated to working on PQQs and tender submissions. The average SME simply does not have these resources so entering into public sector procurement takes senior staff away from fee-earning work and this puts significant pressure on these businesses. And whilst submissions from SMEs may be technically excellent, they will never be as polished as those produced by major companies with many more resources – when every document has to be bespoke.

Another example is insurance. In both OJEU and non-OJEU PQQs, professional indemnity insurance is set so high that SMEs are completely eliminated at the outset. Why would you need £10 m of professional indemnity insurance to be in place for project management or cost control services on a £1 m building project – when the services being tendered for do not involve design or engineering the building? But we see this requirement all the time and £10 m of insurance is prohibitively costly for an SME.

Overall, and very worryingly, there seems to be no appetite in the public sector for change to deliver the Government’s laudable ambitions of increasing public sector work with SMEs and improving localism.

The issues post-PQQ

If the first stage of the tendering is successful, then there is a further lengthy and resource-intensive process to go through which again is a major challenge for SMEs.

Frameworks for construction are largely populated by the biggest companies – but in our view, these frameworks do not necessarily offer a best value route to procurement.

Our experience has shown that public sector organisations have a strong tendency to ‘do what they’ve always done’ rather than look at alternative solutions, and methods of procurement and suppliers who could potentially offer better value.

As an example, construction management is rarely considered as an alternative to design and build or traditional procurement. This is simply down to a lack of understanding of the advantages. And this is at a time when contractors are becoming far more risk averse and selective about the projects they are tendering for post-recession – creating issues for clients with less attractive packages of work.

How opportunities for SMEs can be improved

Our recommendations for change include:

• Standardised PQQs using either Constructionline registration to pre-qualify or the PAS91 standardised documentation. Only evidence of project-specific skills and experience would then need to be provided, radically reducing the time spent on PQQs.
• A clearly defined set of accreditations, qualifications and professional memberships to ‘qualify’ SMEs for public sector tendering opportunities.
• Sensible cost banding of projects – clearly not all SMEs would have the        resources to deliver a £100m project.
•  There   is no clear non-OJEU process for smaller work packages – for example, school projects up to £1.5m. There has to be a better way of communicating these opportunities to SMEs. A supply chain database would help address this. Currently even small packages go to the major supply chain partners on the frameworks – because it is just easier but this is leaving SMEs out in the cold.
• More public sector clients need to actively and genuinely demonstrate a commitment to localism and to supporting SMEs by making it possible for these fantastic, flexible, agile, customer-focused and innovative organisations to become part of the supply chain.

Failing that, central government needs to mandate a suitable process.

www.evolution5.co.uk is a Chartered Building Consultancy based in Southampton