Public sector clients are currently coming together to form regional collaborative procurement hubs. This idea provides economies of scale and added value to the client for up to four years.
However one of the constraints is that these procurement hubs are formed for value of work in excess of £250 million, and tendering organisations must meet a turnover threshold, which is a challenge for the majority of SMEs.
There have been some positive responses though. Clients are taking on board the concerns of the SMEs and are allowing contractors to come together and form consortia in applying for these frameworks and be evaluated in the same manner as the big contractors.
The Builders Consortium South West (BCSW) is one of those success examples where four SME contractors (C S Williams (Taunton), E R Hemmings (Building), R J Leighfield and Pearce of Barnstaple) came together through a limited liability partnership. Working under the guidance of the National Federation of Builders (NFB) they applied and won a place on the Construction Framework South West, developed by Devon County Council.
The ability to work together and cooperate is the essential cornerstone of a successful consortium. The MDs and leadersof those SMEs share the same values, culture and business ethos and have developed a working relationship of trust between them.
As well as a turnover threshold, frameworks require supply chain partners with the ability to cover a defined area and a wide range of services. Taken together, the contractors in the consortium must be able to demonstrate experience across broader project types and specified region. From the outset, the contractors need to divide up ‘the kingdom’ and outline the territories that each is willing to cover.
The consortium uses their collective knowledge, skills and expertise to develop the bid, which leads to sharing in the good practice across partners.
Forming a consortium in order to meet the turnover threshold for a framework PQQ is the easy part.
To have any chance of success a consortium needs to outshine its potential rivals who are often going to be major, national or international contractors. There has to be a complete shift in the mindsets, systems, and approaches of each business. The businesses have to start to think like a Premier League organisation and change the way they work. The partnership, while retaining the unique dynamism its members provide, must also start to implement the management processes and systems required by progressive clients. This will inevitably involve greater training to hone skills in areas such as supply chain management as well as integrating not just the boardroom into the consortium, but middle management, and those on site.
The client has a contractual relationship with the consortium. The consortium then simply sub contracts the work to one of its members. The consortium itself is a non-profit making organisation. Payments come straight from the client to the consortium (through the lead organisation) that then pays the other members on the day of receipt. This not only simplifies the process for the client but in addition, as the consortium has no margins - as would be the case with contractors subcontracting -in theory it is cheaper for the client too.
Not all the work has to go through the consortium though. Individual companies retain their brand in the project and this ensures that individual organisations do not lose their identity.
The NFB has helped to foster six consortia
- A2S - Shaylor Group PLC; A C Lloyd (Builders); Adroit Construction Services
- FirstShire - T Denman & Sons, J R Allen and Sons, A R Smith Electrical, Ashwell Maintenance, William Freer, G Taylor Electrical, R & H Technical Services
- SECC - Baxall Construction, Coombs (Canterbury), E R Armfield, Wilding Butler Construction
- FourCornwall - E R Jenkin & Sons, Gloweth, R M Developments, Ron Bullock Building Contractors
- BCSW - C S Williams (Taunton), E R Hemmings (Building), R J Leighfield and Pearce of Barnstaple
- NW3 – The contractors are John Turner & Sons; Lockwoods Construction, Lockwoods Technical Services, Lockwoods Electrical, PLP Construction
The latter two have both successfully won places on regional frameworks and the others are currently tendering. The NFB has developed “A Guide to Consortia” which is being rolled out across the country through a series of workshops. Details can be obtained from NFB Training on 08450570041.
Benefits of forming a consortium of SMEs
- Local clients can use local SMEs with knowledge of their needs
- Better value on publicly funded work:enhances local employment and training opportunities, sustains local businesses, reduces carbon footprint as well as re-circulating money back to the wider local economy - every £1 spent in construction equates to £2.84 back into the local economy (source: CBI sponsored research)
- Local SMEs share knowledge and raise standards
- Economies of Scale for SME - Access to deals previously only available to main contractors from suppliers
- Human capital can be shared across the consortium as required, so it provides the means to level resources rather than making people redundant.
Dr Eunice Maytorena-Sanchez is lecturer in Construction Project Management at Manchester Business School Worldwide
Vassos Chrysostomou, is a partner at IBE Partnership, visiting fellow at Manchester Business School Worldwide and the National Federation of Builders’ consortium facilitator