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Public tenders cost Scottish firms nearly £100m a year

Public sector procurement is costing the Scottish construction industry around £94m a year, research by the Scottish Building Federation has revealed.

A survey of SBF members found that the cost of tendering for public sector contracts has sky-rocketed over the past five years, with 92 per cent of contractors reporting that the cost of bidding has increased.

More than half of the respondents said costs had risen by between 20 and 50 per cent.

SBF managing director Vaughan Hart said high tendering costs mean contractors are now “avoiding the public sector market because they feel they’d have to make suicidal bids to secure the work”.

“Consistent enforcement of the standard pre-qualification questionnaire would help to reduce public procurement costs further”

Vaughan Hart, SFB

The survey comes as the Scottish government is undertaking a review of construction procurement and preparing legislation to reform the public procurement process.

Mr Hart called for “urgent action” to make the public sector tender process more efficient and cost effective.

“[Public authorities] should be encouraged to consider a means of reducing the tender costs to shortlisted contractors or reduce the amount of shortlisted companies in the first instance.

“Consistent enforcement of the standard pre-qualification questionnaire would help to reduce public procurement costs further,” Mr Hart added.

SBF survey results:

70 per cent said they lacked confidence about the future pipeline of public sector work.

54 per cent said the cost of tendering had increased by between 20 and 50 per cent since 2008.

62 per cent said unsuccessful tenderers should be able to recover a proportion of their bid costs.

On average, contractors expected to spend almost £1,000 per £1m of public contract value on filling out pre-qualification questionnaires.

Once shortlisted, they would spend almost £3,700 per £1m of contract value to complete the procurement process.

The SBF calculated the annual cost of participating in public procurement is 4.4 per cent of the total value of the contracts, which is equivalent to £94m a year based on a public sector construction spend of £2.14bn in 2009/10.

Mr Hart said: “Even at the best of times, construction is not a high-margin industry. 

“If you consider that the cost of tendering for public sector contracts is now more than 4 per cent of contract value, most contractors will be fulfilling these contracts at best at break even and at worst at a financial loss,” he added.

The survey was completed by 19 contractors in June, each with an annual turnover of more than £1m.

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