the impact of public sector procurement on SME construction companies

Transcription

1 the impact of public sector procurement on SME construction companies Part funded by 25

2 2. National Federation of Builders September 2007

3 Acknowledgements. 3 Acknowledgements The National Federation of Builders wishes to thank all members who took the time to complete the scoping questionnaire and the local authority officers for their contributions. We would like to thank the Strategic Forum for Construction for its support and in particular, Bill Rabbetts, the chair of the SME Group. We would also like to thank Bob King for his help and advice.

4 4. National Federation of Builders September 2007

5 Contents. 5 Contents Executive Summary 09 Introduction 13 Context 15 New ways of working 15 Efficiency agenda 15 Implementation 16 Public sector workload and 16 construction industry capacity SMEs and frameworks 16 Defining SMEs 17 Towards a scoping study 17 Methodology 19 Project management 19 Approach undertaken 19 Sampling frame 19 Timescale 19 Issues of confidentiality and anonymity 19 Data management 20 Data analysis 20 Finding 21 Respondent profile 21 Were respondents working 22 for the public sector? Success rates for winning 39 public sector work Difficulties 40 Impacts of public sector procurement 41 Are public sector procurement 42 practices helpful to SMEs? Regional Experiences 43 Findings from Local Authorities 44 Discussion 45 Conclusions 49 Appendix 1 Survey 51 Appendix 2 Regional experiences 55 Appendix 3 Findings from Local authorities 65 Introduction 65 Southern region 65 South West region 65 Midlands region 65 Eastern region 65 North East region 66 North West region 66 Wales 66 References 67 Was there a change in the 25 volume of public sector work Past 25 Future 26 Reasons for change 27 How did work for the public sector 28 vary in different work areas? How was respondent s work for 33 the public sector procured? Frameworks 33 Subcontracts 34 Outside a framework 35 Where did respondents look for work? 37 Bidding 38

6 6. National Federation of Builders September 2007

7 Table of Figures. 7 Table of Figures Figure 1 Definitions of SMEs by staffing levels 17 Figure 2 Definitions of SMEs by turnover 17 (from 30 April 2007) Figure 3 Constitution of the UK 17 construction industry Figure 4 Location of respondents 21 Figure 5 Turnover of respondents 21 Figure 6 Staffing numbers of respondents 22 Figure 7 Respondents who work in the 22 public sector Figure 8 Percentage of public sector work 23 by turnover Figure 9 Companies who work in public 23 sector broken down by turnover Figure 10 Proportion of turnover for the 24 public sector by turnover bands Figure 11 How respondents volume of 25 public sector work at present compared to five years ago Figure 12 How respondents volume of 25 public sector work at present compared to five years ago broken down by turnover Figure 13 How did respondents expect 26 public sector workload to change in the next five years Figure 14 Respondants projected public 26 sector workload in the next five years Figure 15 How respondents expected 27 workload for the public sector to change in the next five years broken down by turnover Figure 16 Perceived reasons for changes 27 in public sector workload Figure 17 Respondents perceived reasons 28 for changes in public sector workload broken down by turnover Figure 18 Changes in respondents workload 28 in schools in the past two years Figure 19 Changes in respondents workload 28 in schools in the past two years broken down by turnover bands Figure 20 Changes in respondents workload 29 in the NHS in the past two years Figure 21 Changes in respondents workload 29 in the NHS in the past two years broken down by turnover bands Figure 22 Changes in respondents workload 30 in social housing in the past two years Figure 23 Changes in respondents workload 30 in social housing in the past two years broken down by turnover bands Figure 24 Changes in respondents workload 31 in other local authority work in the past two years Figure 25 Changes in respondents workload 31 in other local authority work in the past two years broken down by turnover bands Figure 26 Changes in respondents workload 32 in other central government work in the past two years Figure 27 Changes in respondents workload 32 in other central government work in the past two years broken down by turnover Figure 28 Number of companies who undertake 33 work for the public sector within a framework Figure 29 Percentage of work done for the 33 public sector within a framework Figure 30 Percentage of work done for the 34 public sector within a framework compared with work not within a framework broken down by turnover Figure 31 Number of companies who undertake 34 work for the public sector through a sub-contact with another contractor who is within a framework Figure 32 Percentage of work done for the 34 public sector on a subcontract with a another company within a framework Figure 33 Percentage of work done for the public 35 sector on a subcontract with a another company within a framework broken down by turnover Figure 34 Number of companies who undertake 35 work for the public sector outside of a public sector framework Figure 35 Percentage of work done for the 36 public sector outside a framework Figure 36 Percentage of work done for the 36 public sector outside a framework broken down by turnover Figure 37 Location of where respondents 37 compete for work Figure 38 Location where respondents compete 37 for work broken down by turnover Figure 39 Did respondents bid directly for 38 public sector frameworks? Figure 40 Respondents bidding directly for 38 public sector frameworks as broken down by turnover Figure 41 Maximum size of contract that 38 respondents bid for Continued overleaf

8 8. National Federation of Builders September 2007 Figure 42 Maximum contact sizes broken 39 down by turnover Figure 43 Respondents success rates compared 39 to two years previously Figure 44 Respondents success rates compared 40 to two years previously broken down by turnover Figure 45 Difficulties experienced when bidding 40 for public sector work Figure 46 Difficulties experienced by 41 respondents when bidding for public sector work by turnover band Figure 47 The impacts that changes in 41 public sector procurement practices had on respondents companies Figure 48 Were new procurement methods 42 helpful to SMEs? Figure 49 Were new procurement methods 42 helpful to SMEs? (by turnover)

9 Executive Summary. 9 Executive Summary Introduction and context The purpose of this report is to set out the findings of a scoping exercise undertaken by the National Federation of Builders (NFB) during the early part of A scoping exercise is an effective means of examining a particular event or happening from the perspectives of those involved in it (Mason, 1996). It is important to note that such an exercise does not attempt to evaluate or make judgements in relation to the findings nor indeed to suggest recommendations for changes to policy and practice, rather its function is to develop an understanding of the current position or baseline which, in this case relates to the implementation and where appropriate, the impact of public sector procurement frameworks on Small and Medium Sized Enterprises (SMEs). The key aims of study were to: Identify whether different parts of the sector (in terms of staffing levels and turnover) have experienced a change in their business as a result of implementation of public sector procurement frameworks Explore what difficulties have arisen as result of any change Determine whether changes have led to the need to develop new skills, reconfigure existing services or explore new markets Assess the extent to which public sector procurement frameworks are being implemented within local authorities. In order to address these aims, a short questionnaire was distributed to all NFB members and, as a means of contextualising these findings, a short questionnaire was forwarded to named individuals working within local authority procurement teams (n=386). The purpose of this questionnaire was to develop an understanding of the way in which procurement frameworks are implemented within their respective localities. Key findings The evidence base for this study consisted of responses made by 460 companies representing 27% of NFB membership. The majority of respondents were located within the 500k- 2m and 2m- 10m turnover bands (n=292, 66%) compared to 18% (n=78) of organisations with a turnover of less than 500k and 16% (n=69) of those with a turnover of more than 10m. Impacts Experienced Nationally, 6 (n=319) of respondents undertook work within the public sector and of these 64% (n=205) reported that this represented more than half of their turnover. Differences between turnover bands were noted with companies within the higher bands being more likely to undertake a relatively higher proportion of their work in this way compared to those in lower bands. Just under a third of companies (n=147, 32%) noted that the proportion of public sector work had decreased during the past five years and expected that this downward trend was likely to continue over the next five years. At a global level, the most frequently cited cause of this trend was changes in public sector procurement practices (83%) with changes in the volume of public sector work being noted as a secondary factor (32%). A quarter of organisations reported making changes to [their] internal business strategy although it is unclear whether this was a direct response to the above or whether other factors were coming into play. When segmented by turnover, this consistency of opinion prevailed, howeve; a larger proportion of companies with a turnover of less than 500k noted changes in the volume of public sector work as being the most significant factor in this downward trend. This suggests that relatively smaller enterprises are disproportionately experiencing a decrease in the availability of public sector work, a situation which may have arisen as a result of the drive towards efficiency gains in local authorities (Gershon, 2004), the establishment of frameworks or a re-prioritisation of maintenance and/or small scale projects. The contents of both the Egan Report (1998) and Transforming Local Government Construction: The Power of Frameworks (Local Government Task Force, 2006), highlighted increased opportunities for SMEs through sub-contracting. However, the findings from this study indicate that such

10 10. National Federation of Builders September 2007 opportunities have either not materialised or are not being pursued. Only 18% (n=59) of SMEs reported that they were engaged with larger companies in this way and these tended to be SMEs with a turnover of between 500k and 2m. Working on a sub-contract with another company on a framework was just one method by which companies described how they undertook public sector work. Just under half of the respondents working in the public sector did so within a framework (n=133, 42%). The majority of work undertaken within the public sector was outside of a framework through traditional procurement methods (n=273, 85%). However, it should be noted that these approaches are not mutually exclusive, with some companies adopting one or more of these depending on the type of work available. In terms of bidding for contracts, companies in the lower turnover bands tend to seek work relatively locally (up to 25 miles). However, there is evidence to suggest that as turnover increases so does the geographic area; companies with a turnover in excess of 10m are more likely to compete for work regionally or indeed nationally. At a national level, a total of 1020 frameworks were noted as having been bid for with a corresponding success rate of 32% (n=324). Of the 144 companies that reported a change in their success rate during the past two years, 83 (58%) noted a deterioration while the remaining 61 (42%) noted an improvement. Proportionately, improvements tended to be experienced by companies with a turnover of more than 25m with deteriorations more likely to be experienced by those with a turnover of less than 500k. Difficulties Organisations with a turnover between 500k and 2m in the South West and Eastern England experienced the most difficulties when bidding for public sector work and these manifested as a lack of an awareness of tendering and its attendant processes and contract packages being too large. The absence of comprehensive information from their respective local authorities means that reasons for these difficulties cannot be offered. In contrast, organisations within the same turnover band in the Midlands, North East, North West and Wales experienced the least difficulties. There was no apparent relationship between turnover and difficulties experienced within the Southern region. The most frequently cited causes of difficulties reported across all turnover bands tended to be resources needed for pre-qualification, the pre-qualification process itself and tendering procedures. Resulting Developments Organisations reporting the least impact resulting from public sector procurement were those with a turnover of less than 2m irrespective of the region, although one exception to this was organisations based in the East of England. The impacts noted, in terms of frequency, tended to be the need for organisations to explore new markets, bring in different skills and expertise and to provide additional training for staff. The development of partnership arrangements or consortia recommended by the contents of the reports prepared by both Latham (1994) and Egan (1998) tended not to be particularly high on organisations agendas. Indeed in the South West and Wales, it was not considered important at all. The need to introduce government best practice was seen as a significant feature within the South, but not so in the South West. Respondents from the other regional ranked it at mid point in their priorities. Local Authority Perspective One of the aims of this study was to develop a comprehensive picture of procurement practices in order to contextualise the experiences of SMEs. Unfortunately, this aim has not been met due to the exceedingly low response of local authority procurement teams (n=15, 4%). Conclusions The findings of this scoping exercise have enabled a baseline picture to emerge in terms of the recent experiences of SMEs in relation to public sector work.

11 Executive Summary. 11 It is clear that SMEs are experiencing a downward trend in the availability of this type of work which a large number of companies attribute to changes in procurement practices. However, given the paucity of data from local authorities it is difficult to state with any certainty whether such changes in practices result solely from the appointment of frameworks or a combination of factors including the impact of the efficiency agenda and a general reduction in public sector budgets. Irrespective of the cause, SMEs are, in general terms, facing new challenges which for some have meant the need to employ specialist bidding staff (n=47, 10%), the need to bring in different expertise and skills (n=92, 20%) and provide additional staff training (n=85, 18%). The positive outcomes for some companies have included the need to expand (n=55, 12%) or to increase trainee numbers (n=38, 8%). Just under a fifth of companies reported no impact.

12 12. National Federation of Builders September 2007

13 Introduction. 13 Introduction The purpose of this report is to set out the findings of a scoping survey undertaken by the National Federation of Builders during the early part of A scoping exercise is an effective means of examining a particular event or happening from the perspectives of those involved in it (Mason, 1996). It is important to note that such an exercise does not attempt to evaluate or make judgements in relation to the findings nor indeed to suggest recommendations for changes to policy and practice; rather, its function is to develop an understanding of the current position or baseline which, in this case, relates to the implementation and where appropriate, the impact of public sector procurement frameworks on Small and Medium Sized Enterprises (SMEs). The report begins by providing the context within which public sector procurement frameworks are located. This section describes briefly the development of frameworks and sets out their intended purpose in terms of increasing efficiency, effectiveness and opportunities for joint ventures between contractors, consultants and clients. It was intended that such joint ventures would encourage partnering and promote the positive attributes associated with being part of a supply chain, particularly for SMEs. The methodological approach underpinning this report is outlined in section 4, with section 5 providing a detailed description of the findings from a national perspective. Finally, the discussion and subsequently the conclusion draws on the evidence base contained within this study in order to summarise the impact of public sector procurement frameworks on SMEs.

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15 Context. 15 Context New ways of working The public sector is the construction industry s single largest customer. Public sector capital projects can far exceed the size of those of private clients. Smaller, more routine public sector works are often a most regular and reliable source of work for many contractors. In recent years, the way in which some areas of the public sector have sought to procure from the construction industry has changed considerably. Traditional procurement has tended to be based on lowest price tendering. Procurers such as Local Authorities and NHS Trusts maintain lists of local and preferred contractors from which they select companies with whom they procure as the need arises. Such lists typically include a range of firms, diverse in size and skill-base. These can frequently be local companies with whom procurers have formed long-term relationships. Taking price as the most significant element of a tender creates many problems for public sector procurement, especially on high value capital projects. Failure to consider the qualitative elements of tenders has led to projects that can be blighted by delays and cost overruns, with relationships between client and contractors often characterised by anamonosity adversity and defensiveness. The reports by Sir Michael Latham, Constructing the Team (1994) and Sir John Egan, Rethinking Construction (1998) proposed a new collaborative relationship between clients, consultants and contractors aiming to move away from the difficulties of lowest price tendering. Furthermore, Egan identified possible efficiencies and savings in terms of time, cost and defects though the introduction of more collaborative working. Early responses to Latham and Egan were focused around partnering on individual projects. Contractors were chosen on the basis of quality, as well as cost, along with shared commitments to values. Improvements were seen in quality, costs, timescales and relationships, while documentation and performance measuring were made easier. However, it was found that only parts of the supply chain were included in this and collective learning and experience was dissipated after projects were completed. To combat this problem and to further exploit the efficiencies of partnering, associations were sought on programmes of work rather than just on individual projects. This was achieved through tendering programmes of work to contractors over given periods of time through frameworks. A framework agreement is an arrangement where a long term relationship is established between a client and a number of contractors under which specific call-offs to form individual contracts can be made throughout the life of the agreement. Duration of agreements vary, with four years being common. Efficiency agenda The National Audit Office s report Modernising Construction (2001) identified that as well as potentially improving the build process and relationships between contactors and clients, frameworks also aimed to deliver cost efficiencies for clients who use them. Since 2003 efforts to improve efficiencies within government have been stepped up in order to release more resources for front-line public services. This approach will help meet the government s commitments on public sector improvement. Changes in procurement practices within local government were to a great extent spearheaded by The National Procurement Strategy for Local Government in England which was launched jointly by the Office of the Deputy Prime Minister (ODPM) and the Local Government Association (LGA) in Its aim was to help local authorities change their procurement methods, use their buying power more effectively and work further in partnership. The strategy created nine Regional Centres of Excellence to assist authorities to build their procurement strategies, a key area of which was procurement of construction. Further impetus for efficiency savings came from Sir Peter Gershon s Releasing Resources for the Front Line (2004) and the government s spending review in the same year. The results of that review included a target for efficiency gains in local government of 2.5% per annum, with the intention of saving at least 6.45 billion by 2007/8.

16 16. National Federation of Builders September 2007 Many frameworks before this date had focused on larger capital projects. As the efficiency agenda began to bite, smaller areas of work were being packaged into framework agreements. This was an especially big change for local government, which had previously used traditional procurement methods. Implementation Regional Centres of Excellence across the country, with other organisations such as the Local Government Task Force have all produced guidance and policies that encourage regional tiers of government to package work into larger frameworks (see for example LGA (The Power of Frameworks 2006). The largest framework of this kind in local government was developed by the South East Centre of Excellence (SECE) and reported in Framework for Major Projects and Programmes of Work (SECE, 2005). The SECE, which covers the South East region (7 Counties, 12 Unitaries, 55 Districts, five Police Authorities, eight Fire Authorities), advertised a Framework for Major Building Projects or Programmes of Work in August Appointing contractors in August 2006, its aim was to implement the National Procurement Strategy for Local Government in England, and meet the targets set by the Gershon Review. The Framework, which appointed contractors in mid 2006, was established to deal with any project of a value of between 1m and 30m. Subsequently sub-regional arrangements allowed smaller projects of a value of above 250k to be incorporated within the framework. The efficiency agenda continues. It seems that government policy to date is still encouraging ever larger amounts of work to be packaged into frameworks to gain maximum value and efficiency for the public sector. Public sector workload and construction industry capacity Public sector construction output grew by one third between 1999 and 2003 from just under 24b per annum to around 33.5b per annum. Capital investment was predicted to continue rising between 2005 and 2008 through increased public spending on projects such as Building Schools for the Future, as well as increases in spending on NHS capital resources and social housing stock. SMEs and frameworks Frameworks package up smaller pieces of work into larger programmes of work lasting for longer periods, of greater value and having more complex routes of entry than traditional procurement methods. While this approach demands a new method of tendering for companies of any size bidding for public sector work, such demands on organisational capacity may impact disproportionately on SME companies. However, some effort has been made to mitigate the possible effects of frameworking on SMEs. In March 2005, the Small Business (SME) Friendly Concordat was launched by the ODPM. This is a voluntary, non-statutory code of practice and according to its contents procurement strategies should: require consideration of SME involvement to fully exploit lower costs, innovation, competition and improved services ensure all options are considered to make sure Best Value is delivered identify steps needed to improve SME capability and thus further enhance competition. Transforming Local Government Construction: The Power of Frameworks (2006), a report written for the Local Government Taskforce, identified a number of local authorities where efforts had been made to include SMEs. For example, Norfolk County Council has a framework of projects of up to 500k, achievable for many small companies and Hampshire County Council is cited as designing a framework for projects of up to 2.5m, again specifically aimed at SMEs. However, the report also pointed out that many opportunities for SMEs exist as part of larger companies supply chains, rather than as principal contractors in their own right. While specialist contractors are used to working on sub-contracts with larger companies, such an approach may constitute a major change in working practices for many general contractors.

17 Context. 17 Defining SMEs One of the initial challenges experienced during this scoping exercise was identifying a universally accepted definition of SMEs. Although many definitions exist, UK definitions are usually based on staffing levels. The breakdowns are illustrated by Figure 1 below. micro small medium large staff Figure 1 Definitions of SMEs by staffing levels. Source DTI ( Whilst codifying companies by numbers of employees is helpful, it can never be exact in the construction industry. Many firms utilise directly employed staff, labour only subcontractors and specialists on a contractor basis. Definitions of SMEs by turnover levels are not commonly used within the UK, although theyare more useful within a construction industry context, providing a standard and measurable indicator (See Figure 2 below). Turnover Balance sheet Small Medium Large 5.6m net (or 6.72m gross) 2.8M net (or 3.36m gross) 22.8m net (or 27.36m gross) 11.4m net (or 13.68m gross) Figure 2 Definitions of SMEs by turnover (from 30 April 2007). Source DTI (ibid) 22.8m+ 11.4M+ With 0 employees Micro (1-9) Small (9-49) Med (49-249) Large (250+) total enterprises 803, ,075 14,585 1, ,775 employment (/1,000) turnover (/ 1m) ,995 50,632 35,236 30,607 23,281 71, ,011 Enterprises 87.03% 11.16% 1.58% 0.20% 0.03% employment (/1,000) turnover (/ 1m) 42.11% % % 14.50% 11.03% 33.77% Figure 3 Constitution of the UK construction industry. Source DTI (ibid) Towards a scoping study SMEs are an important part of the composition of the construction industry, providing employment for large numbers of people. The National Federation of Builders is the UK s primary trade association for SME contractors working within the UK built environment sector. The contents of this report document the findings of this scoping exercise with particular emphasis given to the anticipated or actual effects of the changes experienced by SMEs as a result of the implementation of public sector procurement processes. SMEs play an important part in the UK economy. In construction they constitute 42% of the industry by turnover and 41% of the industry by numbers of employees (see Figure 3).

18 18. National Federation of Builders September 2007

19 Methodology. 19 Methodology In order to develop an understanding of the impact of public sector procurement processes on SMEs, the National Federation of Builders undertook a scoping exercise during February 2007, targeted at its members (see appendix 1). The key aims of this were to: Identify whether different parts of the sector (in terms of staffing levels and turnover) have experienced a change in their business as a result of implementation of public sector procurement frameworks Explore what difficulties have arisen as result of any change Determine whether changes have led to the need to develop new skills, reconfigure existing services or explore new markets Assess the extent to which public sector procurement frameworks are being implemented within local authorities. As a means of contextualising the findings, a short questionnaire (see appendix 2) was forwarded to named individuals working within Local Authority procurement teams (n=386) in order to develop an understanding of the way in which procurement frameworks are implemented within their respective localities. Project Management A steering group was formed as a means of guiding and providing advice on this initiative. It consisted of the Chief Executive and the Policy Manager from the National Federation of Builders and individuals representing the SME group of the Strategic Forum for Construction. The forum consists of representatives from the Construction Industry Council (CIC), Construction Products Association (CPA), National Specialist Contractors Confederation (NSCC), Construction Confederation (CC), and the Construction Industry Council (CIC) who attended the steering group on an ad hoc basis. Approach Undertaken The most effective approach for eliciting views from a large number of people is a postal or e-based survey offering an opportunity to cover a wide geographical area at comparatively low cost. However, the associated disadvantages are that response rates tend to be lower than with other methods of data collection (telephone or face-to-face interviewing, for example) and the questions contained within it need to be kept relatively simple, straightforward and unambiguous since there is no control over how respondents interpret the questions once it has been mailed (Bulmer, 1982). A decision made early in the planning stage of this exercise, influenced by the existence of limited resources, was the use of closed-ended questions. Whilst these limit respondent s freedom to answer questions comprehensively, they do allow for comparisons to be made within the population under examination. Sampling Frame In order to reach the maximum amount of people possible, the sampling frame, or list of potential respondents, consisted of all members of the NFB and all local authority named contacts (purchased from a commercial list provider), who were understood to have responsibility for procurement processes. It was anticipated that this two-stage approach would generate data from both NFB members and the localities within which they primarily work thus yielding a comprehensive picture within which to contextualise the findings. Timescale The questionnaire was piloted with 10 companies in NFB membership, adjusted incorporating the comments and distributed by to potential respondents on 14 January 2007 giving a period of four weeks to return the completed form. Faxes were sent on 20 February, and reminder faxes were sent on 14 March with an extended closing date of two weeks (to 28 March). The purpose of the Local Authority questionnaire was to develop a sense of practices at a local level and because of its brevity, it was not piloted. It was distributed during early April Issues of confidentiality and anonymity It was acknowledged that some of the information provided by the organisations may be construed as commercially sensitive so assurances were given

20 20. National Federation of Builders September 2007 in the covering letter accompanying the questionnaire (see Appendix 1 Survey) that the contents would be treated in confidence and no verbatim comment would be attributed to any individual or organisation he/she represented. Data Management In order to achieve the objectives (outlined above), ensure that the analysis is both valid and reliable and the results credible to all audiences, it is essential that the methodology is systematic and comprehensive so that all data is included and analysed using the same procedures. At the same time, the analysis procedure is dynamic; that is, it can develop over time while retaining the ability to permit easy retrieval of the data (Wolcott, 1994). This procedure consisted of the following four stages: Immersion: A two-stage process whereby the data is reviewed by means of macro-micro analysis. In the first stage the questionnaires were examined as a whole and summarised, seeking recurrent or common themes. In the second stage, the content of the forms were examined line-by-line seeking detailed support for the themes identified in stage one Coding: The process by which specific data are identified as significant or interesting and then marked so that they can be located for further analysis Thematic Summary: The grouping of the data and their codes into themes as they emerge from the coding process Analysis: A process by which the data are described, interpreted and explained. Data Analysis The purpose of coding within this context is that it provides a relatively mechanistic and static method where the emphasis is on standardisation, measurement and number (Strauss and Corbin, 1998). By so doing, it enables an understanding of the data to develop through: Discovering and identifying themes, patterns and categories in the data Building an understanding of phenomena Making comparisons and contrasts Building a logical chain of evidence Facilitating analysis from different perspectives through the development of themes Freezing particular actions, events or issues at the time they are coded. While coding of the contents of the questionnaires may be construed as preliminary analysis, the data was, at that stage, still relatively raw. The process of making sense of this data occurred during the next stage of analysis where descriptive accounts of what was actually being said or reported in the questionnaires were prepared. This was achieved by cross sectional indexing of the data (i.e. aggregating the coded data) which provided an opportunity to form a series of categories arising out of the data. The NFB data was analysed at two levels national and regional. The national picture provides an overview of the actual or anticipated impacts on SMEs as a result of public sector procurement processes. Data relating to the regions (located in Appendix 2 Regional Experiences) provides a more detailed perspective of companies within their respective localities. Responses from local authority contacts were treated in the same way as those received from NFB members. This approach enabled some broad sub-headings of emerging themes, thus giving a descriptive sense of what each section was about. The advantages of formulating a descriptive account were three-fold. First, it allowed for a systematic overview of the data giving a clearer idea of its scope and coverage. Second, in developing a systematic view, it enhanced the ability to locate and retrieve issues, topics and information which did not occur sequentially or which were not immediately visible or accessible. Third, it helped in the development of conceptual, analytical and theoretical thinking. The approach undertaken in formulating the descriptive account has added to the validity, reliability and consequently, the robustness of the findings.

21 Findings. 21 Findings This section reports the findings of the scoping exercise and is organised by using the questions contained within the NFB questionnaire, as sub headings. Primary emphasis is given to reporting the findings from a national perspective accompanied, where appropriate, by commentary relating to regional experiences. (A detailed description of regional experiences is located in Appendix 2). Figure 5 and Figure 6 represent the turnovers and staff numbers of respondents companies. These classifications are particularly important as the definitions of SMEs are made by segmenting numbers of staff and company turnover (see p17 Defining SMES). 160 Respondent Profile 130 The purpose of the initial questions was to develop a short and concise profile of the organisations which responded. The questions asked for information relating to regional location, average annual turnover and staff numbers Under 500k 500k 2m 2m 10m 10 25m Over 25m 17 London 24 Wales 28 North East 32 West Midlands East Midlands East of England Yorkshire and the Humber South West Figure 4 Location of Respondents. (Base=460) Figure 4 above, illustrates the regional areas where respondents companies were based. The classifications are those used by the government and correspond to the areas of the Regional Offices, the Regional Development Agencies, and the Regional Assemblies North West South East 23 No Answer Figure 5 Turnover of Respondents. (Base=460) For the purposes of this study respondents companies were divided into five principal categories. These categories have been used within this report primarily because of the difficulties in identifying a universally accepted definition of SMEs, although for the purpose of this report, turnover will be used as the key definer (see p17 Defining SMES). Just over half the respondents (n=238, 53%) may be considered as small enterprises with turnovers under 2m, while 35% of respondents (n=135) may be considered as being medium sized and a further 8% (n=36), with a turnover over 25m, being regarded as large enterprises.

22 22. National Federation of Builders September Respondents working for the public sector The survey sought to ascertain whether respondents were undertaking work for the public sector. Respondents were asked to state the volume of public sector work as a proportion of their turnover. Given the categories provided in the questionnaire (0%-100% of turnover undertaken for the public sector at 10% increments), it was possible to ascertain which respondents worked for the public sector and which did not and furthermore what percentage of their business was for work in the public sector < > 250 No Answer 141 Figure 6 Staffing numbers of respondents. (Base=460) Figure 6 above represents breakdown by staffing numbers. While codifying companies in terms of employees is helpful, it can never be exact in the construction industry. Many firms utilise not only directly employed staff, but also labour-only subcontractors and specialists that will not be employed in the same way as many other industries (see p17 Defining SMEs). Do public sector work Do not do public sector work Figure 7 Respondents who work in the public sector. (Base=460) As Figure 7 illustrates, 319 (6) companies derive at least some of their turnover from the public sector. 141 (26%) companies said that they did not undertake any public sector work.

23 Findings Do public sector Do not do public sector 114 5% 41% 1% 71% 1% 84% 3% 88% 3% 86% % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Figure 8 Percentage of public sector work by turnover. (Base=319) Under 50% of turnover for public sector Over 50% of turnover for public sector Figure 8 shows that of the 319 companies working in the public sector two thirds of these (n=205, 64%) derived less than half their work this way compared with the remaining third of companies (n=114, 36%) which noted that more than half of their work was secured in this way. Under 500k (n=78) 28% 500k 2m (n=160) 15% 2m 10m (n=130) 10m 25m (n=33) 11% Over 25m (n=35) Figure 9 Companies who work in public sector broken down by turnover. (base=436) Figure 9 and Figure 10 represent respondents working for the public sector divided by turnover categories. Figure 9 illustrates that as turnover increases, so does the likelihood of work in the public sector. Over half of respondents in the lowest turnover band (n=42, 54%) did no public sector work.

24 24. National Federation of Builders September 2007 Over 50% of turnover for public sector Under 50% of turnover for public sector No public sector work In general terms it seems that the larger the company (in terms of turnover), the more likely it is that they: a. work in the public sector, and b. have a greater part of their business in the public sector. 5% 1% 1% 23% 32% 3% 42% 3% 40% (Few companies derived 100% of their turnover from public sector sources only six companies, or 1% of respondents noted this to be the case). 32% 48% 52% 54% 44% 46% 28% 15% 11% Under 500k (n=78) 500k 2m (n=160) 2m 10m (n=130) 10m 25m (n=33) Over 25m (n=35) Figure 10 Proportion of turnover for the public sector by turnover bands. (Base=436) Figure 10 illustrates the amount of turnover companies derived from public sector work. It shows that larger companies are more likely to derive more of their turnover from public sector sources than smaller ones. Only of companies with a turnover in the under 500k category did more than 50% of their turnover for the public sector, that figure generally rose as turnover bands increased. However, it should be noted that companies within the classification of small enterprises (turnover band 500k- 2m) are likely to do significant amounts of their turnover for the public sector. In all categories above 500k, over half the companies did at least some of their work for the public sector, with an average 34% of companies deriving over half of their work (by turnover) in this way.

25 Findings. 25 Was there a change in the volume of public sector work? Past Respondents were asked to compare whether they felt that the current volume of public sector work that their companies were undertaking had changed compared to five years ago. This timescale was deliberately selected on the basis that the process of implementing procurement frameworks was still in its infancy at this time and thus had a correspondingly low impact. 213 Figure 11 illustrates that 56 (12%) respondents felt that the volume of work had increased compared to five years ago. The largest proportion (n=213, 46%) reported no change, while 147 (32%) said that the amount of public sector work they were doing had decreased. No change Less More 6% 61% 4 4% 38% 3% 31% 6% 34% 48% 43% 34% % 27% 26% 56 More No change Less 44 3% Under 500k (n=78) 14% 500k 2m (n=160) 15% 2m 10m (n=130) 18% 10m 25m (n=33) Over 25m (n=35) Figure 11 Respondents volume of public sector work at present compared to 5 years ago. (Base=460) Figure 12 How respondents volume of public sector work at present compared to 5 years ago broken down by turnover. (Base=436) Figure 12 illustrates a positive relationship between turnover band and an increased proportion of public sector work undertaken compared with five years ago. In this respect, the higher the turnover, the greater the likelihood of increased work. SMEs (companies with turnovers of less than 25m) were more likely to report that their turnover for the public sector had lessened or stayed the same, while large companies with turnovers of over 25m were more likely to report that their levels of work had increased or stayed the same.

26 26. National Federation of Builders September 2007 However, more respondents in the lowest turnover bands felt that their workload had stayed the same, where an already low number of respondents did work for the public sector see (Figure 9). (There were a further 19 companies (4%) who according to the survey no longer worked in the public sector, but did five years ago. These were all companies of turnovers of under 10 million). No change Less More 5% 7% 68% 56% 36% 0% 27% 3% 31% Future % 58% 46% % 18% 5% 14% 12% 15% 20% 60 More No change Less 43 Under 500k (n=78) 500k 2m (n=160) 2m 10m (n=130) 10m 25m (n=33) Over 25m (n=35) Figure 14 How respondents expected workload for the public sector to change in the next five years broken down by turnover. (Base=436) Figure 13 Respondents projected public sector workload in the next five years. (Base=460) Respondents were asked whether they felt the volume of public sector work their companies would be doing in five years time would change (Figure 13). The largest proportion of respondents (n=202, 46%) felt that they would be doing a similar level as they undertake currently, while only 12% (n=60) felt that they would be doing more. Just under a third (n=155, 32%) felt that they would be doing less. As Figure 14 shows, where companies thought there would be more work for the public sector, this optimism, whilst modest in itself, gently increased as turnovers rose. However, the majority of companies in all turnover bands felt work would either not change or decrease.

27 Findings. 27 Reasons for change Respondents were asked to indicate the reasons for any perceived change or shift in workload for the public sector. Changes in volume of public sector work Changes in public sector procurement practices Changes in internal business statergy Changes in volume of public sector work Changes in public sector procurement practices Changes in internal business strategy Frequency cited 66 32% % 50 25% Percentage of companies citing reason Figure 15 Perceived reasons for changes in public sector workload. (Base=203) As Figure 15 illustrates, the most frequently cited reason for variations was considered to result from changes in public sector procurement practices (n=169, 83%), followed by changes in the volume of public sector work (32%). Adaptations made to a company s internal business strategy (as opposed to external factors) were noted by 25% of respondents. 61% 78% Under 500k (n=78) 33% 27% 70% 500k 2m (n=160) 24% 27% 93% 2m 10m (n=130) 20% 2 92% 10m 25m (n=33) 21% 43% 83% Over 25m (n=35) Figure 16 Respondents perceived reasons for changes in public sector workload broken down by turnover. (Base=203) When segmented by turnover (Figure 16), there was an apparent consistency in that the reasons given for any changes were attributed to the implementation of procurement processes. However, changes in the volume of public sector work were noted as being significant for companies in the lowest turnover band. 3

28 28. National Federation of Builders September 2007 How did work for the public sector vary in different work areas? As Figure 18 to Figure 27 show, the survey sought to ascertain how respondents felt the volume of work that their companies were doing for the public sector had changed over the last two years in different work areas namely: schools, the NHS, social housing, as well as other local authority and central government departments. In terms of work for schools, represented by Figure 18 above, the largest proportion (n=141, 31%), stated that their companies work in this area had decreased over the past two years, 67 (18%) said that it had increased, and 81 (18%) said that there was no change. No change Decreased Increased 6 37% 17% 24% 23% Increase Decrease No Change No Answer Schools NHS Social housing local authority central goverment 14% 8% 13% 10% 4% % 25% 16% 27% 17% % 18% % % 4 52% 44% 61% 8% 21% 3% 21% 26% 16% 22% 42% 1 12% 3 24% 20% 40% 17% Figure 17 Work for the public sector by area. (Base=460) Schools 171 Under 500k (n=78) 500k 2m (n=160) 2m 10m (n=130) 10m 25m (n=33) Over 25m (n=35) 141 Figure 19 Changes in respondents workload in schools in the past two years broken down by turnover bands. (Base=436) Proportionally, the greatest increase in work in schools occurred in the 10m- 25m turnover band, with the greatest decrease being expressed by companies in the 2m - 10m turnover band. Increased Decreased No change Figure 18 Changes in respondents workload in schools in the past two years. (Base=460)

29 Findings. 29 NHS 226 No change Decreased Increased 7 52% 33% 28% 26% % 24% 11% 4 Increased Decreased No change 1 20% 32% 45% Figure 20 Changes in respondents workload in the NHS in the past two years. (Base=460) 3% 10% 3% 14% Likewise work for the NHS, represented by Figure 20, shows that many respondents felt that their work in this area had decreased (n=114, 36%), while only 37 (12%) said that it had increased (Only 3 companies reported that they had worked in this area in the past and did not now). Under 500k (n=78) 500k 2m (n=160) 2m 10m (n=130) 10m 25m (n=33) Figure 21 Changes in respondents workload in the NHS in the past two years broken down by turnover bands. (Base=436) Over 25m (n=35) Again, companies with the highest turnover tended to experience a greater decrease in the level of work within the NHS. The trend identified in the work for schools figure is replicated here. That is the proportion of respondents citing decreases and increases expands with the size of company. The larger the company, the more likely they are to see change (be it positive or negative).

30 30. National Federation of Builders September 2007 Social Housing 240 No change Decreased Increased 81% 57% 34% 25% 40% 88 26% 27% 17% % 1 16% 22% 18% 21% 27% 34% Increased Decreased No change Figure 22 Changes in respondents workload in social housing in the past two years. (Base=460) Figure 22 illustrates changing workloads for social housing. More companies reported a decrease (n=72, 23%) than an increase (n=60, 1). Of those, only three reported having done work in this area in the past, but not at present. 1% 6% Under 500k (n=78) 8% 500k 2m (n=160) 2m 10m (n=130) 10m 25m (n=33) Over 25m (n=35) Figure 23 Changes in respondents workload in social housing in the past two years broken down by turnover bands. (Base=436) Figure 23 shows that companies with a turnover above 10m were more likely to have experienced an increase in work on social housing than those with turnovers below this amount. In comparison with both schools and the NHS, there was an apparent increase in work from within social housing, reported particularly by companies with a turnover of more than 10m.