PROJECT BANK ACCOUNTS (PBAS)

As from 31 October 2016 Scottish Government has mandated PBAs for works over £4 million procured by Scottish Government bodies. PBAs enable all participants involved in construction works to be paid from the same “pot” (thus avoiding the need for cash to cascade down through tiers of contracting). Scottish Government needs to continue promoting them.

Priority 1: Increase the use of PBAs across the whole of Scottish public sector construction.

CASH RETENTIONS

Cash retentions are an age-old practice specific to the construction industry. They are monies withheld from due payments ostensibly as security in case a firm does not return to rectify defects. In practice the system is misused and abused particularly to the detriment of small firms in the construction supply chain. At any one time approximately £120 million worth of cash retentions are outstanding in public sector construction in Scotland. Much of this reflects the profit margins earned by SMEs.

Priority 2: The UK Government is due to publish its review of the retentions system. The Scottish Government should back small firms in Scotland’s construction industry by urging Westminster to legislate to protect retentions by ring-fencing them until due for release. This has already been done in the US, Australia and New Zealand.

Alternatively Scottish Government should consider Scottish-specific legislation to achieve this.

PRE-QUALIFICATION

SMEs have traditionally incurred massive costs in pre-qualifying for public sector works (either directly or as sub-contractors). This has been due to the duplication involved in repetitive form-filling by way of responses to multiple non-standard questionnaires.

From April 2016 Scottish Government (in line with EU legislation) has insisted that all public bodies use the European Single Procurement Document (Scottish Procurement Policy Note PPN 06/2016). Use of this EU questionnaire is also advised for below EU threshold procurements.

Priority 3: Scottish Government should mandate the use of the European Single Procurement Document as the standard questionnaire for all public sector construction procurements including all supply chain procurements. Such measures will result in significant savings both to the public purse and to SMEs.

PROCUREMENT

Currently the UK Government is piloting new construction procurement models to achieve greater efficiencies in the delivery of construction and infrastructure projects. One of these models is Integrated Project Insurance (IPI). This involves the appointment of all the delivery team at the outset of the project to work with the procurement authority to robustly manage project risk from the outset.

The aim is to produce a cost plan which represents the most efficient and effective way of realising the authority’s success factors. This should produce savings of up to 20 per cent on project costs through eliminating the waste associated with traditionally procured projects. The cost plan is then insured under a financial loss policy. Overruns are met by the insurer subject to an excess shared by the delivery team members.

Priority 4: Scottish Government is urged to pilot IPI projects as a way of achieving substantial savings on publicly-procured construction and infrastructure.