Best price does not equal best value for Scotland
Construction touches all our lives, through the houses that we live in, the schools and hospitals that we visit and the roads and bridges that we often use in our daily activities. It’s quite literally the foundation of everything we do.
The importance of the construction industry to the Scottish economy is easy to demonstrate. It employs more than 170,000 people, contributes turnover in excess of £20 billion and makes up nearly 9 per cent of our gross value added. For every £1 spent on construction output, a total of £2.84 in economic activity is generated in the local economy.
There’s also the economic growth that’s unlocked every time a new road, railway, port, bridge or airport is built. When public sector investment installs utili
ties, provides schools, health facilities and public housing, it can kickstart much greater levels of private investment in offices, homes, leisure facilities and manufacturing premises.
In November 2018, Construction Scotland launched its new strategy, which set out the industry’s priorities for actions to improve its performance and growth. Procurement reform is right at the top of the list. This is because the way work is procured has a massive impact on the performance of the industry and on the proportion of the direct economic benefits of construction – such as workers’ salaries, payments to subcontractors, profits made and taxes paid – that stay in Scotland.
We’ve been engaged in consultation on public procurement reform for many years and, as an industry, we don’t believe that reform has gone nearly far enough. It falls short of the fundamental changes that we believe are needed to improve the way we do business with each other in this country.
In particular, we must tackle the fact that, in Scotland, the perception is that accepting the lowest price in a construction procurement competition represents best value for the economy. Construction is an inherently risky process, as actual ground conditions are hard to predict with accuracy and “bespoke” designs mean that every project is a prototype.
Adequate resource allowances and reasonable levels of profit are essential to enable contractors and their supply chains to build resilience against the considerable risks involved. Reasonable returns are also needed to allow investment in training and skills, to carry out research into innovative ways of working and to purchase equipment that will improve productivity and provide better value for customers.
Without such resilience, companies go out of business, putting the livelihoods of the entire supply chain at risk and potentially adding significant burden to the public purse. I’d like to see procurement that is not based solely on price, but on many other factors that will allow us to maximise the economic impact of our projects.
Since the publication of our strategy last year we have agreed to hold formal engagements with the Scottish Government, which are led by the procurement directorate. During these sessions we have started to consider how we can work together with the Government and stakeholders to explore a better way of procuring and of involving small and medium sized enterprises (SMES).
By 2022, I would hope that we are able to take a far more strategic approach to making capital investment in order to improve economic outcomes, with a real focus on reducing economic leakage.
I believe that in order to nurture Scotland’s next generation of construction success stories we must adopt approaches that suit Scottish needs and reflect the resources we have. This way, we could maximise the opportunities for our SMES to deliver on a regional basis and to make the best that we can out of every pound invested in capital projects in Scotland. In short, it’s time for a rethink.
Ron Fraser, executive director, Construction Scotland.
I’d like to see procurement based on factors
to maximise economic impact