Warning over ‘suicide bids’ for work by desperate contractors

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LEADING members of Scotland’s struggling construction industry have issued a plea to public sector procurement bodies to take action on contractors submitting “suicide bids”.

At a round-table discussion hosted by the Royal Institution of Chartered Surveyors (Rics) Scotland, it emerged that some companies are bidding as low as 20 per cent below the actual cost of the contract in a desperate attempt to win work.

As a result, local authorities and other government procured projects are at risk of running up higher bills if the company fails, or the project falling into acrimony as the building contractor attempts to drive up prices after deals have been signed.

Robert Cooke, a director of Marshall Construction and president of the Scottish 
Building Federation (SBF), warned that the practice was endemic through the construction supply chain.

He said: “Clients aren’t 
asking the question about 
why this contractor’s bid is 20 per cent lower than the other contractor. He’s not bothered. But they should ignore the lowest price.

“I appreciate it is not easy. It is difficult to function in these times for both business and 
local authorities. We are all in business. But we can make it better for us all.”

John Edwards, a partner in surveying practice Brown & Wallace, said low bids were unsustainable for the contractors, but initially attractive to the buyers.

He said: “In fairness, we are dealing with local authorities and public bodies that have had savage cuts to their budgets as well. If a contractor 
goes in with a price 17 per cent below where it should be, it is difficult for the local authority to argue against that. But in the long term, when it comes to settling the final account, there are claims and issues that stem from work being done at that price.”

Steven Brady, commercial director for Bam Construct UK, added: “We’d like to see more action from professional bodies to discourage suicidal bidding. Public procurement is geared towards the lowest price – we try to encourage them to discount bids that are the lowest.”

The gloomy tone of the meeting, chaired by Scotland on Sunday, was underpinned by recent research from Rics which predicted that the 
Scottish construction market was set for further contraction in 2013. Supporting research from the SBF expects the industry to lose another 22,850 jobs this year – a reduction of 14 per cent – which will see 
direct employment fall below 140,000.

This is despite the glimmer of optimism seen around a number of projects backed by the Scottish Government, which in the autumn said it would make £394 million available for capital building and infrastructure projects. The Scottish Futures Trust has also secured a number of “hub” projects, although projects for schools and healthcare and transportation worth an estimated £330m hit delays in 2012.

The group was supportive 
of Scottish Government efforts to streamline the planning 
system, although its efforts were said to be undermined by European legislation.

Simon Harrison, managing partner at Blue Planning, said: “The British planning system is the best in the world. But 
we have so much duplication because it addresses things that might be important to 
Poland or Bulgaria, where they don’t have the fundamentals of planning.

“The government has been looking to streamline the planning system, and the new one in Scotland is being heralded around the world as leading the way. Planning authorities have been very good at reducing the amount of documentation required. But at the 
same time European legislation requires the production of ten times the amount of documents that nobody reads. It slows things down.”