BQ - There’s a lot of controversy about procurement in your industry. How important is it?
Brian Manning - Procurement is the lifeblood for construction companies. It’s first on our business agenda, and success in this field will make the difference between growing the business and shrinking it. But procurement, particularly in the public sector has become
a minefield. This threatens the very existence of long established companies and stunts
the ability of many SMEs to grow.
What’s the threat it poses?
Looking back, many household names of today had to start somewhere to grow. But they didn’t face the barriers that public procurement presents today. Times change, and we recognise the public sector is under pressure to procure both efficiently and to avoid challenge. This drives the process. But there are concerns that with reduced spend and lowest common denominator procurement, the wider impact is missed.
What does procurement involve?
Six steps basically...
1. The client advertising a contract or now, more likely, a framework which covers a number of projects over a period that could be up to five years, then allow extensions beyond that.
2. Companies express interest and request a PQQ (prequalification questionnaire) and marking criteria.
3. Companies set to work answering the questions which invariably involve, financials, health & safety, past experience, references, cvs of staff, response to innovation and sustainability, socio-economic factors, company policies in environmental, equality and diversity, and quality assurance.
4. PQQs are marked by the client and, for example, there may be over 50 PQQs
returned with around six asked to move forward to tender stage. This will involve more detailed analysis of projects and commercial aspects such as price. Bear in mind, with frameworks much of pricing is against a model, and individual projects awarded under the framework may differ widely from the model.
5. This could be followed by interview by panel, reality checks on projects
ongoing, constructive dialogue, value engineering if the project is known before final award.
6. The award could involve a number of successful companies or one company.
Is this outrageous?
It’s easy to be critical of the long winded process to be followed. We think it far more constructive to concentrate on detail of the process, and try to create a level playing field for all companies, rather than play to strengths of large nationals that invariably benefit from how the process is structured, and the questions asked.
Can you elaborate?
Examples of this would be:
• Large £billion frameworks giving national coverage that automatically rules out regionals by virtue of minimum turnover stipulations and geography.
• Single source frameworks such as Scape, which take food out of the mouths of regionals, allowing one company to take all.
• Questions that ask for previous experience over and above what’s actually required, allowing national contractors to draw on experience across the country.
For example, if you are asked to give previous experience of building a police headquarters, then regionals may struggle, since how many police headquarters have been built over the last three or five years in the North East?
The question is: what’s the nature of the police headquarters, could similar experience be suitable?
Suppose the question is: how do you grow and gain the experience if you’re not going
to be given the opportunity to build something, unless you can demonstrate you’ve built it before? The answer is: look at overall competence and ability to innovate.
Is there a solution?
North East Chamber of Commerce, working with Bond Dickinson law firm, have put a lot of work into this and come up with a document - Unlocking the Barriers - which aims to highlight good practice and create a level playing field.
We’ve a practical example of this at Esh. We teamed up with Surgo and Tolent to bid for
a large £multibillion education framework.
We formed a joint venture company to bid, but were informed we’d still need to fill in
the PQQ as individuals, and it would be marked on the lowest score. We thought it was logical to bring together the strengths of different organisations and that’s what we’d set it up to do. No points for innovation here and trying to keep work in the regions.
Is there prospect of change?
To be fair to the EFA, they’ve now put together regional frameworks and, along with our partners, we’re bidding for the North East and North West areas which could be worth around £1.375bn over the next four years. For areas like the North East, Yorkshire and Cumbria this could be massive for regional contractors. And can you imagine the effect if this was replicated in areas such as government ministries?
Where do you go from here?
Local authorities in the North East have a spend of around £1.6bn. To be fair again, they’re trying to spend this locally. But this seems addressed more towards smaller value works of under £50k. They have, as well as procuring locally via each local authority, a stake in NEPO (North East Procurement Organisation) which we would describe as regional procurement.
Both ourselves at Esh and NECC via its Buy North East Group have been pushing for this regional procurement vehicle to be used more to avoid local authorities using national vehicles such as Scape when they need to procure in a hurry. It may be worth explaining that clients can sometimes jump onto frameworks that have been set up to cater for speedy procurement and avoid the bid process.
This again favours nationals as invariably they are national frameworks.
Why not a subcontract?
Some procurers view locals/regionals as ‘tier 2’ and suggest they talk to the nationals about working as subcontractors. But companies such as Esh, Surgo, Tolent and many others would view themselves as competitors. It’s very much horses for courses and it’s obvious that on large projects such as Tyne Tunnel, national contractor experience will be needed.
But it’s so important to get regionals to the
top tier to improve;
• Numbers of private businesses with decision makers in regions.
• Impact on competition. If same view nationals compete for every contract, what happens to long-term value for taxpayers?
• Payments to supply chain.
What makes things worse?
What makes it worse is that in the regions where Esh and many of our regional competitors work we are heavily involved in the community, looking to recruit across the breadth and depth of the skills available, from site operatives to graduates. If procurement continues to fail us and we have to resort to working for nationals, then the skills base we will require no doubt will be lower. What of the profits, where do they go? Esh has recently made bonus payments approaching £1m to its directors and staff for 2013 performance. We will also be making dividend payments of around £1.5m to shareholders who include our staff. This money will find its way into the areas in which we work across the North and will not be shipped south to London.
This same point was made in a recent survey by High Pay Centre so it’s not just us saying it.
So how do you win through?
It’s only because at Esh we have such a diverse range of construction expertise across sectors both public and private that we can ride the waves and come up with some regional successes in terms of frameworks and projects. We also recognise that we work with very enlightened clients in the private sector such as Northumbrian Water and Yorkshire Water, which do not get unintended consequences from the bid process. The same can be said for many of the housebuilders we work for. Their processes are not as long and tedious, yet they get best value - and relationships go back decades.
As we write this we are delighted to hear we’ve succeeded in securing a position on
all four NEPO construction frameworks.
This is tinged slightly when we see we’re the only regional company to make it. Never mind, we now have a vehicle to try and grow the business if we can get regional procurers to use NEPO.
The battle continues...