Select Committee on Treasury Minutes of Evidence



1.  Member of North Staffordshire Chamber

  Construction Line was intended to be a central body that carried out evaluation of all types of contractors and sub-contractors for the benefit of Local Authorities. Unfortunately, the system does not work as it should as there are still many Local Authorities who still circulate their own questionnaires and then make their own decisions.

  Some Authorities require £5 million product liability where £2 million would be quite sufficient, particularly for small contracts. This increases all insurance costs unnecessarily.

  On several Authorities' tenders it is required to submit all sorts of paperwork at the tender stage. This is time-consuming and a waste of paper for the unsuccessful bidders. Some of the documents required include: Method Statements, Risk Assessments, Health and Safety Policy, Racial Discrimination Policy, Disabled Workers Policy, Quality Assurance, Insurance details, etc.

  If pre-qualification worked none of this paper would be required at the tender stage. The purchaser may want to see it all again prior to placing a firm order, but then only one successful bidder is involved.

  In some cases it is not possible to pre-qualify for a Local Authority or to tender because they have an approved list of suppliers. This is understandable, but how can doors be opened with the advent of a new product or idea.

2.  Member of North Staffordshire Chamber

  Problems which make it difficult for small businesses to procure from public bodies.

  Over recent years, our company has managed to get on more lists but the process is not easy.

    (a)  Local authorities ask for professional indemnity insurance (which is fee based), but our company has product indemnity insurance, which includes a small element of professional indemnity. It takes a long time to explain why we have to have one instead of the other. We lose many contracts because of this.

    (b)  The level of insurance sought is steadily increasing, it has gone from £1 million to £10 million in recent years. We must have this in order to go on the tender lists. This increase creates an additional cost of several hundred pounds, (typically £700) which is repeated every year for the duration of the contract/life of the product. The cost cannot be passed on to the customer.

    (c)  The burden of paperwork to get on tenders lists. Up to 30 pages each time, always asking the same questions. The company is a member of "Construction Line" which indicates it satisfies a number of criteria and shows the company is approved up to £1/4 million contract. Therefore, why do we have to answer the same questions over and over again?

    (d)  We have difficulty getting to the right person in our local authority. For example, as many as eight different people might deal with lifts in various departments, one for purchasing, one for checking contracts, one for specifying etc. It is not easy to get the names or to get to speak to the right people in the right order. Again, we lose out on contracts while being passed around from person to person.

  At the same time, there is an increasing number of directory companies ringing, who ask £400 to go into a directory for a particular region's public bodies. We decline entries, but the number of phone calls is becoming a nuisance (three a week).

3.  Feedback from Sussex Chamber

  I have a number of building/construction companies who undertake work with public organisations. The main issues they face are having to evidence quality standards, eg ISO 9000 achievement and/or IIP. The second one is that as a small business they often do not have the knowledge or skills about the procurement process itself and the issues they have to address when submitting tenders for work, eg contracting on a large scale, having the workforce to deliver large contracts, having the resources to finance large works prior to payment at the end of the job.

4.  Feedback from Leicestershire Chamber

  Public procurement by local government is not very transparent to small businesses—partly because many local authorities use select list procedures and/or subscribe to purchasing schemes, which closes the market information flow to the private sector unless they know about this.

  Larger government and utility purchases are subject to notification procedures, for example Official Journal of the EC, but the national publicity of tendering is not particularly consistent—it is tempting to say that minimal effort is made to promote these tenders in an accessible way to local and national markets. The trade press seems to be used in preference to local newspapers, which may tend to exclude small businesses that have no subscription to controlled circulation or commercial publications.

  Public bodies have not made a practice of posting tendering opportunities on their websites—one has to question why, given the low cost. Certainly they are less reluctant to place job opportunities on their websites.

  Some of the requirements to register health and safety, equal opportunities and environmental policy statements in tender applications deter a segment of small businesses who have given these lower priority.

5.  Feedback from Hull Chamber

  Hull City Council sold off 45 per cent of the municipally owned Kingston Communications in 1999, which netted them a capital windfall of more than £200 million. It decided to spend this money on some local road improvements, refurbishment of council homes—including double-glazing etc, building a sports stadium and a number of other projects. Combine this with the SRB and European funding in the area and there are many millions going into local development.

  However, little benefit is being felt by local business. The Council says it is using the best designers, architects, consultants, construction contractors for the jobs—fine you might think. What it is not doing, is doing anything significant to build the capacity of local firms to deal with the work. At the same time it is drawing more and more of its activity in house, through its ever expanding DSO (indeed some of the money will be used for a new DSO depot) which is growing whilst the local construction sector is contracting.

  Our basic argument is that with all of the money sloshing around going to build local authority and non-local private sector capacity, local firms will end up weaker when the projects are finished, not stronger.

  The feeling from members who are missing out on the work seems to be that the Council is afraid to go with local firms with less experience and perhaps higher costs. Whilst you might argue that this is for the market to determine, you could also say that its in-house DSO development is distorting the local market, thus reducing competition in the long term.

6.  Feedback from Bristol Chamber

  1.  Contracts are for £95,000 or more, which is a barrier for SMEs. To many SMEs a single contract of that size would be prohibitive in cash flow terms and also in capacity, exposing them to risk by making them too dependent on a single, public sector customer.

  2.  The time factor involved in responding to tenders is very great. Financial and other data has to be gathered in every case to support the bid. There is no harmonisation of this requirement, so it must be gathered and reshaped each time a tender is submitted.

  3.  There is no continuity to the detailed information that the tenders require: all ask for proof of financial viability in the form of accounts. Sometimes they must produce accounts for three years and sometimes for more. No other form of proof is acceptable. Companies less than three years and sometimes less than five years old are therefore prevented from bidding altogether.

  4.  European PP legislation requires that when a contract is let, the notice of that award is also posted. This is meant to allow smaller companies the opportunity of tracking the outcome and approaching the main contractor with a view to sub-contracting opportunities. In practice, this does not work as the main contractor will already have selected his sub-contractors and tied them to a price before submitting his bid.

  5.  Access to the tenders information is also a barrier. Whilst the information is available on the net, free of charge, it is so cumbersome to search the database that it requires expert skills. Fresh data is published each day and each tender notice only appears once. If it is missed by the company the application deadline will be missed. SMEs do not have the resources to search in detail daily.

7.  Feedback from Bristol Chamber

  As Bristol offers a Tender Alert Service, I approached our Information Team for their experiences.

  These are their comments:

  Companies must be aware of the time consuming factor involved in the whole process. There are sometimes several stages to go through before winning a contract. Companies need to be ready to spend time filling in the paperwork/forms provided by the awarding authorities and also gathering the information required (financial information, samples, company history, etc). On the other hand once it is done companies can usually use them again.

  One thing that I have recently been asked about is the fact that most public authorities will ask for three years accounts details. This is not usually a proviso since they are simply being asked to prove their financial eligibility to provide such large contracts and therefore other means of showing financial viability of the company should be welcomed. However, I feel that this may put certain small businesses off applying in the first place.

  Tender alert only advertises contracts over £95,000, which is also going to cause a barrier for certain businesses that are not in a position to apply directly for the contracts. One subscriber I am sure actually follows the tender application process and then bids to suppliers further down the chain who want smaller contracts with smaller outlay. It seemed like a rather cumbersome process to be able to get public sector work to fit a certain budget.

8.  Feedback from East Midlands Chamber

  Most small companies I speak to have no idea on how to get onto local authorities list of preferred suppliers, when I have made specific enquiries it seems inevitable that the tenders have gone out to this preferred group and local small companies remain blissfully ignorant.

9.  Feedback from Barnsley Chamber

  SMEs tendering with Local Authorities tend not to get any feedback on why they were unsuccessful. They feel they should be helped so that next time they can ensure they meet the criteria. Perhaps there should be workshops for SMEs on tendering procedures. Local Authorities should also consider how their actions impinge upon the local supply chain.

10.  Feedback from Cardiff Chamber

  Rather than highlight specific problems that companies have experienced, our concentration is on general barriers to involvement that prevent SMEs from getting involved in the public procurement process:

    —  access to information, not knowing where to find the opportunities;

    —  capacity to deliver the entire contract, very small companies often have the perception that the contracts would be beyond their capacity to deliver. In response to this issues in relation to TEDs, we have and are setting up networks of companies that are working together to put in bids, these are now beginning to deliver tangible benefits to the companies involved;

    —  with some departments there appear to be issues regarding the strength of the procurement rules, causing products for example, printed materials to be sourced at high rate, when they could be sourced locally much more reasonably.

  My colleagues that work with companies on this are convinced that what they need is capacity building to help them into and to understand the process involved.

11.  Warrington Chamber member

  We are a firm of solicitors having a total staff of about 50 and a turnover of about £3 million per annum. We already act for some government agencies and local government.

  We have recently suffered from the sort of situation you are asking about in that we were previously on a select list of solicitors who were asked to tender for some legal work for the Probation Service. This would have involved some property work in connection with a disposal of existing premises and new offices.

  The project was unexpectedly put on hold during the last financial year and we were told that we would be re-invited to tender when the go-ahead was given for the scheme in a revised format in the new financial year.

  Not having heard anything further I have recently enquired as to the timescale etc for the project and the new tender exercise. I have been advised that with effect from 1 April 2001 a list of nominated firms of solicitors has been issued by the National Probation directorate with regard to the provision of property legal work. The local office is required to instruct a firm of solicitors on that list for all future property work.

  We are not on that list. We were not invited to submit for selection to be on such a list. I have not seen any procedure, which would have allowed us the opportunity of being considered to be on such list. Presumably this has been handled centrally on a nation-wide basis.

  The effect has been that work that we did have the opportunity of tendering for—and then hopefully doing—is now not being offered to us. It is not work that is outside our experience or capability. This is an example of public procurement that small businesses locally could have been engaged to carry out but which has been lost to bigger law firms.

  Hopefully this is a good specific and recent example of the very problem that Nigel Griffiths wishes to address. I am sure the same circumstances apply with other public procurement for legal services, which could otherwise be procured just as effectively though small businesses often local to the source of the work.

12.  Warrington Chamber member

  One of the problems we experienced in the past was the "Big equals best" syndrome and, for example, minimum turnover requirements, in order to be even considered, such as £1 million per annum.

  I appreciate that ability to cope has to be considered but how do you grow if you are supposed to have grown already in order to tender?

  There is a fundamental yawning gap between what government and local authorities regard as a small business, and the reality of what actually are small businesses.

  Their concept of what is a small business is, to an actual small business, quite a large one!

13.  Warrington Chamber member

  Recently we tried to enquire about providing design and marketing services to The Countryside Agency and The Environment Agency. In both cases they have already done things like awarded national/European three year contracts, seemingly to very large operators, though some tender process that we are not aware of, and there appears to be no way in.

  We have a particular specialism that could really provide benefit and add value to both of these organisations, especially with current issues such as post foot and mouth/environmental solutions for the rural economy, yet it seems impossible to "break in". The Countryside Agency and The Environment Agency are our two most ideal target clients, so the Minister's advice would be welcome!

14.  Warrington Chamber member

  We subscribe to a magazine called Contrax Weekly, which gives lists of Government and local authorities' tender lists. However, the vast majority have such onerous conditions of qualification and award criteria that it is not even worth applying for the tender documents. Therefore the vast majority of work is given to larger contractors. For example, we list below a typical requirement for a tender received today:

  Qualifications: Proof of suppliers' economic and financial standing is required and is to be demonstrated by certificate issued by the competent authority in the Member State of the authority awarding contracts, to the effect that the supplier has fulfilled obligations relating to the payment of social security contributions in accordance with the legal provisions of the country of the authority awarding the contracts, or declaration on oath or solemn declaration; certificate issued by the competent authority in the Member State of the authority awarding the contracts to the effect that the contractor has fulfilled his obligations relating to the payment of taxes in accordance with the legal provisions of the country of the authority awarding the contracts, or the declaration on oath or solemn declaration; appropriate statement from bankers/banker's reference; signed and audited accounts for the previous three years including the presentation of the undertakings balance sheets or relevant extracts from balance sheets confirmed by independent audit; statement of the firms' overall turnover and the turnover in the respect of the service to which the contract relates for the previous three years.

  Evidence of suppliers' technical capacity to provide the goods required is to be demonstrated by: details of any other contracts of supplying this type of service complete with customer references; details of quality control/assurance policies operated by the company; confirmation of year 2000 compliance on all systems/ services used; arrangements to meet and review the contract to confirm quality and due diligence and for shortlisted; product evaluation sessions on a date to be confirmed.

  Award Criteria: Most economically advantageous offer with due regard to service delivery, price quality and technical merit but not necessarily in that order.

  As you can see from the clauses above, tenders are biased to large and long-established companies as opposed to small firms.

15.  Warrington Chamber member

  As an SME that responds to many OJEC notices (with a reasonable degree of success) I think our main complaints are as follows:

  1.  Unrealistic deadlines set for response to tenders. We frequently find that ITTs are issued, and then the contact person is away on annual leave, and we are therefore unable to respond as fully and/or as well as possible. Larger organisations are inevitably better resourced to cope with tighter deadlines.

  2.  Failure to allow face-to-face meetings as part of the procurement process. I appreciate that time is often limited, but this often enables an SME to gain credibility with a potential customer and understand their needs in greater detail. For a large corporate, the strength of their brand name is often enough to ensure they reach the second stage of the procurement process.

  3.  Failure of public sector personnel to actually read proposals prior to presentations/meetings—a common occurrence! We naturally feel aggrieved if we have spent considerable time responding to ITTs and then find that there has been little or no preparation on the part of the potential client.

  4.  The cost of tendering is a definite obstacle for many SMEs. We were successful in winning a £1.7 million contract with NHS Direct in 2000, but this involved several weeks of negotiations in London. Inevitably the cost of transport was substantial (return rail ticket at £150 from the NW to London), and we had several people involved as part of our bid team. Moreover, there were also substantial legal fees incurred as part of the negotiations.

  5.  Public transport is a major headache! I would rather take the train, but the costs are prohibitive for an early morning meeting, and trains are not that reliable.

  As I said, we operate largely in the public sector with a substantial degree of success, but there are still significant hurdles to overcome.

16.  Warrington Chamber member

  We are a small translation company working in North East Wales with a turnover in the region of £150,000 per annum. Almost all of our clients are public sector organisations/government departments.

  We have two comments to make with regard to practices and procedures:

  1.  The use of indecipherable jargon (we translate a huge variety of official documents and sometimes have to re-write the English in order to make sense of them). We are therefore in a position to know what people are faced with when trying to sell to the public sector. This can be a very serious barrier to trade for anyone unfamiliar with the terminology used, for example, in tender documents.

  2.  Extremely late payment (eg in excess of 90 days)—This can result in serious cashflow problems. It seems the public sector is blissfully unaware of late payment legislation and is even more loath to conduct business with those who use it! When quoting for any job, we make our clients wholly aware of our terms (ie payment within 14 days of date of invoice). However, this is often totally ignored and whilst our patience has to last until we are paid, the VAT man will insist on being paid on time!! We have tried arguing that we will pay him when government offices have paid us, but the point we are trying to make is not appreciated.

17.  North Derbyshire Chamber

  Just a small amount of feedback on public procurement, based on discussions with clients visiting our meet the buyer events:

  It is difficult to contract with the public sector for a number of reasons:

    —  it is difficult to know who is the right person to deal with and then to get through to them if you're not already known;

    —  there are procedures that they don't always know about;

    —  there are complex steps to get onto approved supplier lists;

    —  sometimes if they jump through all the hoops they feel they are just being used to make up the numbers ie three proposals, which may take a lot of time to prepare and will go to a better known, larger or more established contractor.

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