They have called on public sector clients to run smaller shortlists to help reduce the burden on the industry.
A survey by the Scottish Building Federation found that firms spend an average of almost £1,000 per £1 million of public contract value on filling out pre-qualification questionnaires (PQQs). Once shortlisted for a contract, they would spend an average of almost £3,700 per £1 million of contract value to complete the procurement process.
Public sector construction contracts are estimated to be worth more than £2bn a year in Scotland.
Most of the 19 contractors responding to the survey said that their expenditure on tendering for public contracts had gone up by between 20% and 50% in the past five years.
On the basis that an average of 15 firms might submit a PQQ for each contract and an average of eight firms are shortlisted, the SBF has calculated the annual cost to construction firms of participating in public procurement is now £94m a year, or 4.4% of the total value of the contracts.
However, firms responding to the survey highlighted incidences where as many as 30 firms had tendered for a contract and up to 15 firms were shortlisted.
SBF managing director Vaughan Hart said clients should simplify their tender procedures. He said: “Even at the best of times, construction is not a high margin industry. If you consider that the cost of tendering for public sector contracts is now more than 4% of contract value, most contractors will be fulfilling these contracts at best at break even and at worst at a financial loss.
“With budgets as tight as they now are, public authorities are sharper than ever before on price. I know a number of contractors are actively avoiding the public sector market because they feel they’d have to make suicidal bids to secure the work.
“The solution must be to introduce a financial incentive for public authorities to run a more efficient and cost-effective tender process. They should be encouraged to consider a means of reducing the tender costs to shortlisted contractors or reduce the amount of shortlisted companies in the first instance.
“Consistent enforcement of the standard pre-qualification questionnaire would help to reduce public procurement costs further.”
Mr Hart concluded: “Recovery in the private sector remains very slow and construction firms are more dependent than ever on the public sector for a reliable long-term pipeline of work. That being the case, action is urgently needed to ensure that public procurement is internally efficient. Otherwise, the substantial costs of procurement to building contractors will continue to impede industry recovery.”
The survey ran between 1st June and 1st July 2013 and was submitted to 96 members of the Scottish Building Federation with an annual turnover of £1m or more. In total, 19 contractors completed the survey.