In a small Yorkshire seaside town during the last downturn, the owner of a small building firm approached his local authority with a solution.
His team would repair the town’s potholes at cost price. The work would maintain the employment of 20 local men. Without it, the builder would have to sell his vans, plant and machinery to pay their redundancy costs, effectively folding the business.
The local authority understood his predicament, knew the immediate and lasting impact it would have on 20 households in the community, but was powerless to act. It had signed a long-term framework agreement with a large outsourcing group for all maintenance work. If the council had the money to repair the potholes, it would need to contact the group’s closest office more than 80 miles away in South Yorkshire.
In a large post-industrial town in the North-East, a family-owned roofing firm had proudly maintained social housing stock for three generations. But this local business, a supporter of local suppliers, provider of apprenticeships and pillar of the community, went bust after the work was bundled into a 10-year framework agreement and awarded to a construction giant. On winning the contract, the group offered to subcontract the work to the local firm. Minus the plc’s cut, the price was not commercially viable. Another business fails, another community suffers.
These stories are repeated up and down the country but the message I want to get across, as a steadfast supporter of small and medium-sized construction firms across the UK, is that it doesn’t have to be this way.
I remember the arguments made by the large contractors during their ascendancy: that government is not a sophisticated customer; that too many civil servants are involved in buying goods and services; that duplication of roles is widespread and that local authorities are getting ripped off.
The solution, it was argued, would be for as many as contracts as possible to be packaged up into framework agreements, which would be much more efficient, offer more consistent levels of service and provide better value for money for the taxpayer. The City of London loved it, seeing these agreements as low-risk multi-million pound revenue streams flowing years into the future.
In fact, as the collapse of Carillion and the ongoing struggles of its surviving peers are demonstrating, the opposite is true. For the provider, framework agreements can cause enormous financial problems.
Margins are tiny, cash flow is negative – workers typically need paying weekly while contractors only invoice monthly – and economies of scale fail to add up as the cost of delivering public services at a national level becomes apparent.
For the customer, outsourcing drives down on accountability, doubles up on profiteering, erodes standards and ties in contractors with poor levels of performance.
The whole concept does not work. As the CEO of one outsourcing giant admitted to the House of Commons’ Public Accounts Committee this month: “We were more interested in booking additional contracts versus really being a true partner.”
It also turns out that nearly a quarter of public sector contracts were awarded to sole bidders last year, according to OpenOpps, rubbishing the argument that competition is driving good value for the taxpayer.
The solution is simple: let’s get back to basics. Local authorities should be able to hire local building firms to repair potholes, build walls or put up lampposts. It would be better for the local economy, the local community and the local environment, as well as boosting productivity, employment and accountability.
Just look at what has been achieved in Preston, which was named the most improved city in Britain following the council’s efforts to encourage local employers to buy local goods and services wherever possible.
Preston has witnessed a large reduction in its unemployment rate, measured at 3.1 per cent in 2017; down from 6.5 per cent in 2014. The city has also delivered above-average improvements in work-life balance, health, transport and skills, according to the Demos-PwC Good Growth for Cities Index. Preston’s leaders call it Community Wealth Building. I call it common sense. I bet they even have fewer potholes.
Ian Anfield is managing director of Hudson Contract, the payroll and contracting group.