SMEs are facing a ‘pass or fail’ test on £2.1bn of construction work as local councils use credit reports as a ‘blunt instrument’ to assess bids, it was claimed today.
The National Federation of Builders says more than one in 10 councils are relying on the reports alone to determine whether they should give work to smaller companies.
It argues that some of these checks do not provide variations in smaller contractors’ accounts.
The trade body is calling for clear, consistent advice from the Cabinet Office and the Local Government Association about the use of credit reference agency (CRA) reports.
Julia Evans, chief executive of the NFB said: “The use of credit reports as the sole or principal means of assessment can lead to SME contractors being discriminated against as this approach fails to take into account variations in smaller contractors’ accounts.
“The NFB wants to discourage the use of credit reports in this way.
“Such usage wields CRA reports as an unnecessarily blunt instrument for deciding who passes and who fails in the tendering process and does little to support the very good and supportive practices of many local authorities.”
The NFB said the use of Pas 91 for pre qualifications can both reduce costs during tender stage and create a level playing field, while lending itself to some robust questioning.
It wants government rules which apply to OJEU notices above the threshold of £4,348,350 – which do not require independent credit reports – to apply to smaller contracts too.
While the NFB says CRA reports can be helpful as a part of a wider financial evaluation process, it calls for a fuller financial assessment that removes a barrier for SMEs, offers local authorities “an informed rather than a limited view” and makes public procurement more equitable and transparent.
The NFB surveyed 348 authorities and received 288 responses, which is an 83 per cent response rate. Over 13 per cent of local authorities said they used credit reports to make pass or fail judgements.
The report, entitled The use of credit reference agency reports in local government procurement, also found that two-thirds (66%) of respondents use credit reports as part of the procurement process.
Jim Bligh, head of public services at the CBI, said: “This report shows that some local authorities are using credit checks as a blunt instrument to manage their suppliers.
“What is needed is sharper, more targeted engagement with the market that ensures the best providers can provide.”
The NFB said the Cabinet Office has welcomed the research, while the endorsement of the PAS 91:2013 standard, which has been produced with the aim of streamlining and reducing the cost of pre-qualification in construction procurement processes, can ensure potential providers, whatever their size or constitution, “are treated fairly and with equal diligence during the financial appraisal process”.
Around 40 per cent of the demand for construction work has traditionally come from the public sector.
Estimated average annual value of work on pass/fail basis (excl infrastructure)
|Wales £164 million|
|Yorkshire & Humberside £88 million|
|North East £331 million|
|North West £275 million|
|East Midlands £69 million|
|West Midlands £124 million|
|East £226 million|
|South West £232 million|
|South East £416 million|
|London borough £260 million|