Colin Judge, Principle Advisor, Construction Procurement Policy, Scottish Government

Transcription

1 Appendix 1 Project Bank Accounts (PBAs): Colin Judge, Principle Advisor, Construction Procurement Policy, Scottish Government Member Question (MQ): Are there any drawbacks to PBAs e.g. would a main contractor do more work to avoid having to pass money on to local subcontractors? Where the main contractor would have benefitted from interest previously, would they increase their quotes to cover that loss of income? A: the evidence available from England (where PBAs have been in place for 6/7 years) shows that main contractors are NOT changing their business models to accommodate Project Bank Accounts or arrangements about how they use subcontractors. It remains to be seen if this would be the case for Scotland too, but I would sceptical about this changing established business models that national construction contractors have in place. MQ: How far does this new arrangement go down the line? presumably it could stop at one local sub contractor and not filter down? Will it stop some companies going out of business? we have an example in our area when a company went out of business because of the sub contractor supply chain and the Council could not intervene in the relationship beyond the main contractor. A: The policy of the UK Government is that they are seeking their Departments to apply PBAs to 80% of the supply chain (unsure if this is volume or value) The Scottish Government is still forming policy on this but it is likely to be one of inclusion unless exclusion can be justified. The general presumption would require opt-out rather than opt-in. it is recognised that some sub sectors of construction may not be suitable for PBAs. Northern Ireland experienced a major corporate failure two or three years ago and political direction since then has seen the Government adopting a policy of three tiers level of penetration (Main contractor; sub-contractors; and sub-sub-contractors).

2 After the Council has a contract with the main contractor it has no power to enforce or intervene in the arrangements between two private companies. However it can strongly encourage the main contractor to have a PBA in place to support subcontractors. Collaboration and co-operation of the main contractors comes into play here while it is recognised that these companies no longer have the utility of the clients cash lying in its bank account until it chooses to pay the sub-contractors, the Minister is clear that the macro economic benefits of prompt payments to firms that deliver work on site is what we want to see, rather than benefitting the shareholders of large construction firms. MQ: Could the main contractor set up its own Direct Labour Organisation? What are the likely changes in the relationships between contractor, sub contractor and sub-sub contractor? Can you give us examples of positive and negative benefits for main contractors? Are companies finding this very bureaucratic? Do the big companies think about the concept of this non-negotiable change? A: The big construction companies in Scotland, Scottish Futures Trust, Transport Scotland and Western Isles Council for example have all been happy to embrace the change and work to this agenda - we are encouraging maximum possible participation. PBAs don t impinge on the main contractors ability to manage the supply chain. They should be able to manage the experience where work hasn t been done or not to standard. It is appropriate to question if the main contractor controlling subcontractors by the stick of withholding payment is the kind of contractor relationships that we would want to encourage. Scottish business and commerce are behind a more positive relationship being fostered. No sub-contractor in England involved in a PBA has gone out of business through late payment. Our pilots are very early stage first payment for the Monklands Hospital Project was just last month - and lessons learned are going to be shared and we will have evidence then. There is also no evidence from the English experience that any big contractors have increased significantly in size by forming DLOs or changed their arrangements because of PBA arrangements although we don t know what will happen in Scotland. We recognise that we are at an early stage and are keen to monitor this particular aspect. However, I would suggest that PBAs in and of themselves wouldn t be enough to merit re-engineering of an organisation to deliver public works contracts.

3 MQ: How does the PBA approach work in relation to invoicing if a contractor has several contracts running for different projects? e.g. delivering materials to a number of different sites/projects all run by the same main contractor so normally one invoice would be issued for the whole lot. A: Firstly, material suppliers tend not to be vulnerable to late payments/delays than other types of sub-contractors so this scenario is unlikely to arise. However if it were the case it is incumbent on the sub-contractor to issue separate invoices for separate projects if they want to be paid in days rather than weeks. For the main contractor, there would need to be a judgement about the value of the contract against the cost of the administration of disaggregating invoices for individual projects/pbas. MQ: how much administration is involved in the setting up of bank accounts for separate contracts? Can you use dormant accounts or does each new project need a new PBA and all the rigmarole of getting proof of identity etc? A: The Scottish Government Banking Services contract has recently been renewed and as part of the bidding process the banks were asked to set out how they would operate a corporate bank account. The successful bidder Royal Bank of Scotlandwill be pursuing this approach. The Council could set up one PBA with separate reference numbers for individual contracts and payments made against them, but this would be really for a mature and experienced user of PBAs. Scottish Government is happy to work with Councils to assist them in developing their use of PBAs. Barclays Bank and RBS, possibly also HSBC are supportive of PBAs they prefer PBAs to be set up on an internet based platform because there is a great deal of synergy with the processes and systems of PBAs. MQ: Will PBAs have any effect on the chance of monopolisation by larger companies? Will they be the only ones that have the infrastructure to deal with this approach? A: Some research done for the Cabinet Office (tracked through Companies House) uncovered compounded mark ups and hidden costs under the guise of subsidiaries parent groups but with most of the work on site undertaken by a single corporate entity under a range of names. We don t think that PBAs will make this any more likely there is huge competition within different cost centres within large firms but their overall objective must be to retain as much wealth in the parent group. PBAs are unlike to exacerbate that position.

4 We are at the early stages in the pilot so no hard evidence about the impact on the internal supply chain. There are also more radical things at play than PBAs e.g. London Underground, a very specialised but very valuable market, is changing the way it operates by becoming a construction manager and self employing sub contactors. This will change the structure of the market. We are not seeing anything similar to that in Scotland. MQ: Would PBAs go against our region because we are largely Small/Medium Enterprises and have none of the big firms that are engaged in PBAs? A: European regulations give you the opportunity to interrogate firms about the composition of their supply chain. The Council could consider applying this voluntarily below the 3M threshold the Procurement Scotland Act enacted last week has provisions for regulated procurement over 2M which give rise to similar opportunities to ascertain how a firm that is going to contract with you has actually composed its supply chain e.g. is it back to back arrangements with in-house entities in the same parent group or is it using a wide range of local companies? Public Contracts Scotland (PCS) website and Grow Local Caroline Caniffi Senior Policy Implementation Officer, Scottish Government Laurie Wilcox- Procurement Capability Development Manager, Scottish Government MQ: We have a lot of small and medium sized businesses here in Dumfries and Galloway what sort of size of suppliers is needed for using the PCS? And how do we ensure that our businesses know about it? A: the lowest tender on the system was for 400 and it goes right up to multi million pound contracts like the Forth Road Crossing, so it s at everyone s level. The size of the supplier really doesn t matter. In terms of businesses knowing about it, I regularly go to Meet the Buyer events where we promote the website. Your Council should have a link to the PCS website and anywhere you think that a supplier is likely to go - make sure you make the link for them to the PCS website. Encourage them to get a profile, register on the site and then they will automatically receive alerts. You can also tell them that soon you will have a Contract Register that is for years in advance so it ll be really good for their forward planning of business. It s important that your Council has a clear policy on the use of the PCS, that you mandate its use within the Council and so when people contact you, you can tell them that we advertise EVERYTHING on PCS. That means that it saves you time talking to cold callers and everything is in the one place and everyone knows about it

5 Using PCS also provides you with a clear audit trail - if a supplier says you never told me about that opportunity - you can provide evidence like alerts etc. PCS is one of the most intuitive systems it does what it says on the tin, you don t need any special training to be part of it. There are no issues with suppliers not knowing how to use it and they really like it it saves them time and effort trawling about for possible opportunities as everything is in the one place. MQ: How can we maximise the benefits that a contract might bring to our region like local employment and training? A: Firstly could I highlight that it is illegal under legislation in Europe to discriminate between suppliers because of their location you must treat all suppliers equally regardless if they are local or not. Advice that appears to be contradictory to this is that Scottish Futures Trust (the Hubs) can allow for a percentage of the contract to go locally, as they are not governed by the same public procurement legislation. While they are separate entities they usually do work within the same broad parameters. They do have and use their flexibility to make targets around ensure broader social benefits. Terms and conditions can be used as ways of encouraging local benefits e.g. a fresh fruit contract can specify that it must be delivered within twenty minutes of being picked (which therefore means it must be reasonably local). Training opportunities, not actual money can also be built in e.g. the Scottish Crime Campus which tries to fight serious organised crime had in the contract specification for the construction that x amount of training opportunities for entrants to various trades and x local employment opportunities had to be available. Be creative but be legal! Look at how we can harness control and make an impact on economic development in the area that a construction is being built in. MQ: There are tensions between what we want to achieve for local suppliers and getting the best value for the public pound. Also, what percentage of public procurement is going through the PCS? A: You must advertise sufficiently to ensure that you are not discriminating but how you advertise is still a matter of choice. So you can t just advertise in a wee monthly newsheet that only local businesses know about. The PCS solves that problem because it meets everyone s requirements for advertising. We are now seeing the very vast majority of public sector spend on the website and a new development is lodging of contract award information will allow actual spend and contract information to be known.

6 MQ: Will keeping and using Community Benefit monies from Windfarm Developments in our region be more difficult in the future because of new Guidance? Initially it will be easy to spend as there are many small projects on the stocks. But in 8, 9, 10 years it may be harder to find small projects and the developer may take the money back if it s not spent. Could we use a PBA approach? A: Community benefits in procurement terms tend to be e.g. a supplier providing training opportunities. To realise the benefits of community benefit monies from windfarm developers the Council needs to look long term e.g. a 25 year term. This would be outwith the a standard PBA but an ESCO account could be set up to protect the monies that otherwise would be lost to the Council MQ: In D&G we pride ourselves that best value for the public pound is important but we are concerned that we may end up with contracts being awarded on price only? A: Council Policy guides you on this and Scottish Government does not advocate price only - a quality assessment should be built in to the tender to ensure you get the best intellectual capacity of the supplier solution you require. There are a number of Centres of Expertise that provide framework agreements with a range of suppliers. You can choose to buy off that framework or choose to buy elsewhere. The work of the Centre for Excellence for Councils is called Scotland Excel and it provides a central procurement facility to give Scottish local authorities best value. You pick and choose what you want to get the best deal. It s not mandatory. As part of procurement reform, every public body has a audit called a Procurement Capability Assessment (PCA) every year. This maps you against best practice and identifies areas for improvement. Scotland Excel is involved in the PCA but it s not a legal audit. MQ: a number of local contractors don t want to tender for Council jobs because there are so many hoops to jump through, it takes a long time for decisions; and there are many rules and regulations. How can we improve this? A: We ask contractors what we can do to make their life easier when we have Meet the Buyers events and we talk to them about the PCS. It makes their life easier by allowing them to register in one place, once, and follow the same approach for a number of different public sector organisations.

7 Another initiative is the Civil Engineering Contractors Association which is engaging in a new arrangement where there is a standard pre-qualification questionnaire (for goods, works and services) that is saved and reused updated if required - so that it reduces paperwork and time. MQ: The website is only as good as the info on the database. If you haven t had a contract go through the website, then it doesn t appear in the contract analysis. So can you tell us how complete you think it is and what and business access there is? A: The website is public facing but businesses have to register because it is commercial information that is on it. We estimate that there is about 60-70% of public contracts on it. It is populated when you put an award through PCS and Council Procurement Officers can add additional information about spend that is not going through PCS. It is about 1500 to purchase the toolkit and there are two real benefits for the Council - it saves time and effort in dealing with FOI enquiries because officers can say it s there already; and it is good practice in terms of transparency of procurement arrangements. MQ - How far can you drill down in the figures? To what level of detail can you see on site? A: There is just basic information at this stage time will enable trend information and filtering to get relevant data. You can find out what is being bought; suppliers name and postcode; spend transactions; departments involved; invoice; classifications of spend; charitable status of the organisation; proximity to local authority/ies; number of employees; supplier risk category; and more. Councils Procurement Teams can run reports and get the data for analysis. Senior managers can get the strategic level information they want to understand their buying and trends e.g. what s our spend locally? Are any of our major companies at risk or experiencing big changes in their fortunes? However it takes time and resource to do this work.