High costs and small chance of success putting Scottish firms off bidding for public contract "lottery"

The current system is a "lottery", according to the Scottish Building Federation (SBF), which said that firms have only a one in 36 chance of securing new work from each pre-qualification questionnaire completed. The body was reporting on the findings of the latest Scottish Construction Monitor (11-page / 490KB PDF), its quarterly survey of employers in the Scottish construction industry.

The survey comes as the Scottish construction sector announces a fresh wave of insolvencies, according to the Herald. West Lothian civil engineering firm Ritchie Brothers (Scotland) has gone into liquidation, according to the paper, while James Scott Builders and Company has been declared bankrupt.

"I've heard employers representing businesses of all sizes argue they would have better odds of generating revenue by placing bets at the roulette wheel than tendering for public contracts," Michael Levack, chief executive of the SBF, said. "It's particularly concerning that so many SMEs in the industry are avoiding public procurement altogether because they find the costs so prohibitively high. Scottish ministers have set great store by their commitment to give SMEs greater access to the public procurement market. This survey demonstrates the urgent need to tackle sky high procurement costs if more smaller construction firms are to be persuaded of the benefits of tendering for public contracts."

The Scottish Construction Monitor measures general confidence within the sector by asking businesses how "confident" they feel about the outlook for their business over the next 12 months compared to the past year. Business confidence has fallen for the fourth consecutive quarter according to the survey and now stands at minus 40 - a drop of 34 points over the past year, and three points lower than where it was in the third quarter of 2010 when "the impact of the previous recession was at its height", according to the SBF. 68% of the companies surveyed believe that their prospects will get worse over the next 12 months.

An average of more than three out of every four pre-qualification questionnaires completed by construction firms for public tenders failed to secure those firms a place on the tender shortlist, according to the survey. Even those firms that made the shortlist were unsuccessful in an average of seven out of every eight full tender submissions, the SBF found.

The Scottish Government is currently consulting on the creation of a new national legislative framework to underpin the way in which the public sector buys goods, work and services. The new system will, it has said, ensure a "transparent, streamlined and standardised" framework that is "friendly to Scottish businesses", and could create a duty for Scottish public sector bodies to consider ways to make it easier for small and newer businesses to access contract opportunities.

As part of the consultation, the Scottish Government is also considering the introduction of a "single online portal" to advertise all contract opportunities. Public Contracts Scotland (PCS), the national procurement portal established in 2008, has not been universally adopted by public bodies according to the consultation, although existing policy is that all contracts for £50,000 and above should be advertised on the database.

Levack said that he was "pleased" that the Scottish Government was consulting on the new framework, but added that "we already know that that the current procurement system is broken and the measures needed to fix it".

"With the industry now facing a second recession in the space of four years and confidence continuing to slide, Scottish Ministers need to act immediately to streamline the procurement process and provide fairer and more cost-effective access to publicly funded building contracts for firms of all sizes," he added.

The Scottish Government has claimed that over 45% of its annual £9 billion public sector spend in 2011 was with small or medium-sized businesses. Construction is the largest single area of procurement spending, it said, accounting for more than £2bn each year.