Professor Rudi Klein gives his message on procurement

As the problems of procurement increase, we need a regulator to battle bad behaviour plaguing the industry

 

 

Traditional construction procurement is expensive and wasteful. According to UK Government research, there are between 50 and 70 sub-contractors on the average project. Each requires a margin, each wants full overhead recovery and each will, no doubt, put in a contingency for risk.

 

In addition, each interface has to be managed. The scope and opportunities for disputes are endless. Risk is not managed – it is transferred along the supply chain facilitated by onerous supply chain contracts.

 

It is no wonder that countless inquiries and reports on construction (including reports on the Edinburgh schools defects and the Grenfell fire tragedy) have concluded that the extent of the fragmentation in the delivery process, combined with lowest price and wholesale risk transfer, are driving poor quality. The Carillion collapse also highlighted the risk of placing large volumes of work with the UK’s big outsourcing companies.

 

 

Is anything changing?

The answer to the above question is a resounding no. A year ago, a House of Commons Select Committee observed: “UK Government has often transferred risks to contractors that they cannot possibly manage.”

This observation can equally be applied to most public sector procuring organisations. Moreover, as we all know, risks passed on to Tier 1 contractors are invariably dumped on their supply chains.

 

The Procurement Reform (Scotland) Act 2014 was introduced to bring about greater fairness and transparency in the procurement process. It places a duty of sustainable procurement on public bodies, which includes improving SME access to public procurement. Again, this has made little difference. 

 

The need for a regulator

Changes in the way that public bodies procure will not happen of their own accord. This is the reason for the campaign run by SELECT and SEC Group Scotland to persuade the Scottish Government to appoint a Procurement Regulator. A statutory office of Procurement Regulator would be endowed with the following powers:

  • To challenge poor practices whether emanating from public sector clients or firms in the supply chain

  • To develop a code of ethical conduct to govern the behaviour of public bodies and supply chain firms

  • To apply sanctions such as fines on clients and firms which ignore directives from the regulator to improve their behaviours.

  • Unless we bring pressure on the Scottish Government and the general public sector to improve their practices, nothing will change. Let’s get on with it.

OUR KEY MESSAGES ON PUBLIC SECTOR PROCUREMENT

 

  • No retentions or, at least retention monies to be protected

  • Public bodies should insist on using Project Bank Accounts to ensure everyone is paid within 30 days

  • Public bodies should collect data on the payment performance of all contractors and exclude poor payers from bidding for public sector works

  • Training for public sector procurers should focus on promoting greater engagement with specialist contractors and helping clients to specify their ‘success factors’ or value propositions

  • No Tier 1 bespoke subcontracts on public sector works

  • Use of competent and capable firms must be required at all levels (trade association membership should suffice) especially where firms are able to certify compliance with regulations under the building warranty scheme

  • When submitting bids, main contractors should name the sub-contractors they propose to use (and use them)

  • Pre-qualification to be standardised throughout the supply chain

WHAT IS PROCUREMENT?

 

The client decides there is a business case for the proposed works and determines their ‘success factors’ for the project. Procurement is the process of deciding how to deploy and select the necessary resources to deliver the works in the most efficient and cost-effective way, i.e. how to obtain the value (not price) that best delivers the client’s ‘success factors’.

 

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