A regional construction lobbying organisation, Construction Alliance Northeast (CAN), is calling on the government to take a long, hard look at public sector procurement in the wake of the recent demise of North East based Owen Pugh and the continuing financial difficulties faced by some of the UK’s largest building contractors.
CAN, which was established almost two years ago, was formed to highlight the need for organisations to adopt ‘intelligent procurement practice’ so that regional SMEs get a better chance to compete for contracts in the open market. This would reduce reliance on the national contractors that populate most of the major government frameworks to deliver public services contracts.
From recent media coverage which has detailed the difficulties faced by some of the national firms with profit warnings and in some cases, where assets are being sold off to shore up their balance sheets, CAN views the government’s continued backing of these firms with billions of pounds of public sector contracts to be ill-conceived and a reminder of what can happen when companies become too big to fail.
Mr Alexander said: “The recent demise of Owen Pugh, which is very sad, has focused attention again on the importance of a strong regional construction industry. Although there were a few factors at play here, John Dickson, the firm’s chairman, has been quoted as saying that ‘bully boy tactics’ were adopted by the main contractor.
“Many public bodies including local authorities rely heavily on these firms and when they are squeezed for cash, this goes all the way down the supply chain. Brexit could provide the perfect opportunity to think again about procurement practice.”
CAN’s comments come at a time when the government has expressed its intention to launch a consultation on the practice of cash retentions under construction contracts.
They also follow the publication of independent research conducted by Pye Tait Consulting of Harrogate which indicates that retentions may not be performing their intended purpose at all.
Originally introduced to mitigate risk – to ensure that a contractor, of whatever tier, returns to a project to remedy any defects that might arise after contract completion – most of the sub-contractors surveyed said that it was their desire to maintain a good working relationship with the main contractor as well as a good reputation in the market, which led to them rectifying any faults.
It went on to say that delays in paying the retentions are commonplace at each tier of the supply chain and can be as long as several months.
Given that the statutory guidance for public sector buyers and suppliers, which came into force in February 2015, states that undisputed, valid invoices should be paid within 30 days down the public sector supply chain, it is hard to see how this situation has been allowed to prevail.
Public sector buyers must pay prime contractors (Tier 1 suppliers) within 30 days and must ensure that their prime contractor includes equivalent 30-day payment terms in any subcontracts through the supply chain.
Jeff continued: “Crucially, the Pye Tait survey shows that the money could be put to much better use if it wasn’t being retained: 47.8% of contractors said they would use the money to invest in new equipment and facilities and 22.2 per cent of respondents said they would use it to employ apprentices, when they did not do so already.
“The region cannot afford to lose major employers like Owen Pugh. CAN’s aim is to encourage the use of regional SME contractors whenever possible so that project profits are kept in the region. This will create the positive cashflow to invest in training and apprenticeships which are so essential for future growth.
“The government says it is keen to promote innovation, efficiency and skills. I think it is high time the government totally overhauled the procurement process and did not just focus on the issue of retentions. With our departure from the EU it is a good time to start thinking about the sustainability of an industry which is so vital to the UK economy, particularly in a region like the North East.”