Out-Law News | 15 Feb 2019 | 9:02 am | 2 min. read
A new report (40-page / 901KB PDF) has made a series of recommendations to improve the investment environment, including that the government instead switch to producing a 'Pledged Project List' of investment opportunities approved for delivery and procurement in the short-to-medium term. The report was produced by a procurement-focused working group of industry experts, which is part of think tank The Infrastructure Forum.
"The chill winds of a global economic slowdown and Brexit uncertainty are having a detrimental impact on the construction sector, as seen in the latest ONS output numbers," said infrastructure expert Graham Robinson of Pinsent Masons, the law firm behind Out-Law.com, who was part of the working group behind the report. "Now is the time for the government to give the construction sector, employing some three million people and responsible for over 10% of Britain's economy, greater certainty over future spending and investment plans."
"With only 8% of the government's £413 billion National Infrastructure and Construction Pipeline ready for contractors to gear up for delivery, it is difficult for construction firms to invest in the skills and innovation needed to become more productive. Greater certainty is needed, along with the skills within government to help with modernising procurement and to get the balance of risk transfer optimised," he said.
The latest version of the government's pipeline lists 684 current work streams, made up of both individual projects and broader programmes. The programmes, which make up 60% of the pipeline, lack the detail needed by firms to gear up for procurement; while of the 278 projects, 128 are already under construction. This means that only 8% of the pipeline, or £30.24bn of the £413bn total value, offers realistic investment potential for contractors.
Chief executives of construction companies and procurement experts interviewed for the report told the working group that UK contractors tended to be "undercapitalised, heavily reliant on subcontractors and subject to minimal margins" compared to contractors on the continent. The report goes on to highlight three unsustainable behaviours seen in the UK industry: high risk transfer from the public balance sheet to the private sector; contract awards based on lowest cost; and inadequate investment in skills.
The report's recommendations are based around increasing transparency and certainty for contractors, and addressing the examples of unsustainable behaviour. They include the production of the proposed Pledged Projects List, which would be more tightly-focused and only include projects that have been approved for delivery by the relevant government department or public authority and which will be procured in the short to medium term; and greater transparency by the Infrastructure and Projects Authority (IPA) over the potential for high-value projects currently under construction to fall into financial difficulty.
A new definition of 'value for money' should be adopted by the government, requiring public bodies to take into account a wide range of "social value" factors during the procurement process beyond financial costs. The report also recommends that the cost of bidding for work be reduced, to drive competition and diversification in the industry; and that the Cabinet Office set up a dedicated procurement team to support the public sector and develop expertise.
The report also recommends the introduction of a system that would enable contractors to make unsolicited proposals for projects, to increase the number of projects in the pipeline and promote innovation. It cites a model used by the South African government, through which contractors are incentivised for unsolicited proposals and the costs of development reimbursed.