Blog: Public procurement changes are music to the ears of construction SMEs

Ian Taylor
Ian Taylor

By Ian Taylor, PfH Scotland

Changes are afoot in public procurement that ought to be music to the construction world’s ears – especially SMEs.

They have the potential to strip away bureaucracy and create a more level playing field. But it’s a two-way deal and the potential benefits for firms brought by the shake up are more likely to be maximised if they invest time in their relationships with contracting authorities.

Scotland’s public sector spends around £4bn a year on construction and is a major customer in a vital sector. Leadership organisation, Construction Scotland estimates that for every £1 spent on building output, a further £2.94 is generated in the economy.

However, it has long been recognised that the processes involved in public sector procurement often put SMEs at a disadvantage. A combination of red tape and the costs involved in bidding for contracts can squeeze small firms out of the supply chain because they do not have the resources or capacity to compete.

This is a particular concern in the case of Scotland’s building industry, where SMEs provide approximately two-thirds of construction jobs.

But the tide is turning. In late 2013 a review of public sector procurement in construction, commissioned by the Scottish Government, set out a series of recommendations designed to achieve better value for money, greater sustainability and make it easier for SMEs to engage in the process. In part it’s about giving contractors greater certainty over future need and involving them at an earlier stage in procurement.

From April next year the Procurement Reform (Scotland) Act and three new EU procurement directives will usher in new regulations that effectively formalise many of the review’s key messages. Importantly, they stipulate that all social landlords are now deemed ‘public contracting authorities’ and are therefore bound by the changes. Given that the government’s Review of Scottish Public Sector Procurement in Construction estimates that as many as 50 housing associations are engaged in development work in Scotland at any time, this could have major implications for the construction industry.

Indeed, my own organisation, PfH Scotland is now working with its members – who collectively own and manage 60 per cent of social housing in Scotland – to help them prepare for the new regulations. A major focus has been to work with SMEs and engage them in the procurement process so as to help landlords maximise their impact on local economies.

Part of our role is to ensure framework agreements are in place that reflect both landlords’ needs and the requirements of the Act. Among the changes is a sustainable procurement duty that requires social landlords and other public bodies to show how their spending contributes to the social, economic and environmental wellbeing of their area. That includes demonstrating how they are helping to involve SMEs.

If an organisation’s combined contracts are worth £5m or more they will now have to prepare an annual procurement strategy. This gives contractors both added certainty and a document with which to hold authorities to account.

One of the biggest boons for the construction industry, particularly smaller firms, is that the Act means more contracts will now have to be openly tendered. Thresholds have been lowered to £2m or more in the case of construction contracts and £50,000 for all goods contracts.

As stated from the outset, this is a two-way deal. Scottish Government has opened up – and hopefully simplified – the procurement process in a way that should make it easier for businesses of all shapes and sizes to engage and reap the rewards. But they have to do exactly that – engage.

The review of public sector procurement in construction highlighted how the industry needs to change and in many respects, get its own house in order in relation to the way firms in the supply chain treat each other and the disruption caused by ‘suicide bids’. But 18 months on from that review we now have legislative changes which should pave the way for the kind of collaborative public sector procurement that its authors hoped for.

  • Ian Taylor is head of operations for Glasgow-based PfH Scotland, a purchasing consortium and consultancy for social landlords across Scotland.
  • Share icon
    Share this article: