Big struggle to break down the contract barrier

As North East construction contractors launch a campaign for a rethink on public sector procurement strategy, business reporter Robert Gibson takes a look at how time-saving frameworks may favour national giants over renowned regional companies

Regional companies have the expertise but not the size to join procurement panels
Regional companies have the expertise but not the size to join procurement panels

In theory, it looked like a fine example of cooperation between construction firms. The region’s three largest independent contractors – Newcastle’s Surgo Construction, County Durham’s Esh Group and Gateshead’s Tolent – would join forces for a collective bid through the Department for Education’s Building Priority Schools programme.

But despite a collective turnover of �250m and a range of skills more than proven through decades of work throughout the North East, the consortium met only with obstacles and ultimately outright rejection.

“When we put in our application, their response was to treat us as three separate companies,” said Tolent’s chairman John Wood.

“We had to fill in pre-qualification questionnaires and they judged us in each section on the lowest score out of the three.

“Some of the questions were absolutely ridiculous and the first tick was to have a turnover of over �350m.

“But we’re perfectly capable of doing the work and just want a kick of the ball.”

The fiasco is only one example of what the companies see as the harm caused by a procurement policy that favours huge national companies over smaller regional ones.

The Government’s strategy, they go as far as to say, has been shaped not by the public interest, but by lobbyists and representatives from companies who have persuaded Whitehall they can save public money.

Meanwhile, the impact on the regions has been severe.

Surgo, for example, the smallest of the companies, has seen turnover drop from �60m to �25m in just a few years as public sector work has dried up.

Employee numbers have likewise gone from 250 to just over 100, while the company’s once-thriving apprenticeship scheme has all but disappeared.

Indeed, the situation has left the three firms so frustrated they’ve sent a letter to Northern MPs and ministers calling for urgent change.

“Not only is it threatening the future of many sound, well-financed and highly skilled northern firms,” they wrote, “but the livelihoods of many thousands of people across the North West, Cumbria, Yorkshire and the North East.”

It’s easy to understand their frustration.

Surgo, Esh and Tolent have, after all, been trading in the region for around 180 years, directly employing more than 1,500 people across the North of England.

Yet they, along with numerous other regional firms, have been left out of a 12-strong northern panel dominated by national companies.

To make matters worse, nine of those companies also sit on the southern panel and 10 are headquartered in the south.

“Therefore surpluses made on projects undertaken in the North of England all disappear straight down the M1,” the companies said in their letter.

“This means that the North is once again left without the benefit of employment for local people, the chance to retain skills in the region or the option of reinvesting cash surpluses for training the workforce of the future.”

Wood believes best value for money can be achieved through a simple tendering process - though it’s likely, of course, the Government would disagree.

In any case, some argue the greatest threat to competition comes from frameworks set up closer to home – particularly that of Scape, a local authority-controlled company whose shareholders include Gateshead Council.

The company’s objectives are to bring economy and efficiency to the whole building process, something it claims to achieve through the development of standard designs and strategic procurement arrangements.

However, a turnover of more than £500m is required to become a major Scape partner, despite the fact that the jobs involved might start with a value as little as £2m.

Surgo, Esh and Tolent have also expressed indignation that only one contractor, Willmott Dixon, is currently listed for major jobs in the North, which could include schools, leisure facilities, council offices and police headquarters, as well as housing and care home accommodation.

The North East contractors accept the company won the position fair and square – and, for the record, Willmott Dixon reports saving local authorities significant sums of money – but they question the benefits of the move.

“Without the element of competition, how can there be any guarantee of competitive pricing or best value for the taxpayer?” the letter said.

“Local authorities, suffering from restructuring and working with fewer staff, are drawn to the idea of using Scape because it offers a shorter tendering process.

“In our view, using a framework for time or ease rather than best value, is lazy procurement.”

Certainly, such views are swiftly gathering support, with everyone from the CBI to the North East Chamber of Commerce taking an interest in the campaign.

Several MPs, including Blaydon’s Dave Anderson, Jarrow's Stephen Hepburn and Gateshead’s Ian Mearns have also given their backing.

“My sympathies are with the contractors who make a strong case, which I have asked the Government to reply to in detail,” Mr Mearns said.

“They make a very strong case for amending public procurement policy to make sure that there is proper competition and more companies like Tolent, which is in my constituency, can compete for contracts.

“It’s not possible to rebalance the economy by excluding significant regional-based businesses.”

Liberal Democrat peer and former Newcastle City Council leader Lord Shipley has even raised the issue in the House of Lords.

Speaking during a debate on the Government’s role in the economy, he said: “We seem to be developing a procurement system between national and local government that favours big national construction companies at the expense of mid-sized regional ones.

“This is potentially damaging to regional growth.”

Referring to the nine firms on both the northern and southern panels, he added: “We talk a lot about a lack of competition in the banking and audit sectors, but are we heading in the same direction in the construction sector with the big nine?

“It is impossible for medium-sized firms to qualify for a place on these procurement panels.

“Even as a joint venture with a combined annual turnover of �250m, they are still ineligible even though they may have done excellent and relevant work in the past.

“Since all these firms ask for is the right to compete and to tender, it is hard to see what public interest is being served in preventing them doing so.

“There are serious implications for the prospects of regional firms because they will lose the opportunity to grow bigger and generate more jobs and wealth in their local areas.”

Scape was formed under section 95 of the 2003 Local Government Act and incorporated on December 21, 2005.

Over the last five years, with partners, it has delivered 1174 projects, of which all were delivered to budget and all but one on time.

Operations director Steve Elkin said: “Scape spends at least nine months on each of its rigorous, robust, thoughtful and thorough framework procurements, in order to ensure best value for every single client which uses its frameworks.”

It was efficient and took uncertainty out of the equation, he added: “How can a public sector organisation be accused of “lazy procurement” when they seek out and use a procurement vehicle that provide a 100:0 bet rather than a 50:50 one? Any argument contrary to it is nonsense as public money is clearly not being wasted.”

The Department for Education had not responded to The Journal’s request for comment by the time of going to press.

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