Welcome to the ‘Opinion’ section, a new platform where each month SEWSCAP will be asking industry leaders and experts in their field for their thoughts on the big issues / debates affecting the construction industry.
Tackling Supply Chain Issues…The Way Forward!
Past Chair of the Institution of Civil Engineers (ICE) Wales Cymru, Ken Evans, explains what needs to happen to help contractors cope with ongoing supply chain issues
Everyone working in the construction / civil engineering industry is well aware of the pressures and issues that have hampered the delivery of projects over the last few years; from Brexit and the impact that has had on material availability, the war in Ukraine that is currently impacting the cost and quality of bitumen, the lack of young people coming into the industry, to the overall rising cost of materials that at one stage seemed to be escalating by the week.
Let’s be clear, contractors have to navigate a broad sphere of issues that constantly keeps them on their toes and 2023 is going to deliver a whole raft of them.
Public procurement is in for a big shake-up! In Wales, the new Social Partnership and Public Procurement (Wales) Bill is awaiting Royal Assent and will see the establishment of a Social Partnership Council, and in England the Procurement Bill is making its way through parliament. Businesses involved in winning public contracts will need to familiarise themselves with the Common Assessment Standard – an industry-led pre-qualification system covering a range of compliance topics from health and safety to modern slavery and corruption.
There will also be Building Safety reforms following the introduction of the Building Safety Act in 2022. And, social value, quite rightly, will take on more and more prominence with a more person-centred focus being demanded, resulting in genuine, tangible impact and community legacy. This is something the SEWSCAP and SEWH frameworks have been leading on for the last two years, educating contractors in the process, and should be applauded for.
But possibly the biggest issues being faced are the ongoing challenges of supply chain costs and labour shortages, leading to more pressure when tendering. Whilst costs may have stabilised somewhat, problems have been severe and this has had a huge impact.
For example, the supply trade is still unsure about what prices to quote for materials, as by the time a tender is complete the prices have invariably risen. This raises issues when completing a tender; numerous suppliers now need to be approached for quotes in order to get competitive prices, whereas previously, when costs were more stable, you could approach a supplier, knowing you were already getting a competitive price. This process now adds more complexity onto tenders, ramping up the pressure to complete a tender on time.
This issue also affects retendering; supply chain costs will no doubt have risen from the costs quoted for the original tender, making retendering more problematic.
But there is a way forward…communication and collaboration!
To help overcome supply chain issues there needs to be greater communication via workshops and round table discussions. These must include all potential partners, from contractors and Local Authorities, to frameworks and education providers. Only through this type of collaboration will there be greater understanding of the pressures and cost issues that exist within the supply chain that has a huge, knock on effect to project timings and delivery.
Reinforcing this should be renewed focus on education providers and case studies, highlighting companies who have successfully attracted the next generation into construction and civil engineering. They should be encouraged to explain how they managed to recruit, what they got right, what not to do, and educational establishments should be supported in getting the right messages across to students.
There also needs to be better focus on Risk Allocation within projects and it is crucial that Terms and Conditions reflect specific situations on each project so everyone is aware of the issues, and responsibilities.
It’s not rocket science, but unless there’s greater communication, supply chain issues will continue to hamper project delivery and ultimately, that benefits nobody!
Project Bank Accounts are a Win-Win
Explains Penny Haywood, Category Manager for SEWSCAP & SEWH
If someone offered your business improved cashflow due to payments being received more quickly than your usual payment terms, less time wasted chasing payments and managing payment disputes, leading to reduced stresses on the business and your staff, would you welcome it?
This is exactly what is being offered through Project Bank Accounts (PBAs), promoted by Welsh Government’s PBA policy (Welsh Procurement Policy Note (WPPN 03/21) as a means of facilitating fair and prompt payment for SMEs who play a critical role in public sector supply chains but who can find themselves on the receiving end of extended payment terms and poor payment practices.
But what exactly are PBAs? They are simply ring-fenced bank accounts backed by trust status and set up through many of our major retail banks, that act solely as a mechanism for making payments. Traditional multi-layered payment terms between subsequent tiers in the supply chain have resulted in sub-contractors commonly having to manage 60-90 day, or longer payments terms in some instances. PBAs can change all that, making payment in 3-5 days from the deposit of money into the account following the usual certification of the payment schedule and submission of a correct invoice. For a sub-contractor this can mean being paid in 7 to 14 days from submission of their invoice.
PBAs represent best practice in ensuring fair and prompt payment in the supply-chain, ensuring improved cash flow, helping to reduce supply chain failure for Welsh business. In addition, as they speed up payment, they provide the opportunity to put that money to work more quickly to the benefit of our economy and local communities. Businesses who have benefitted from PBAs have reported being able to bring forward the purchase of new plant and machinery that improve their productivity and competitiveness. Quicker and more certain payment also has the potential to build business confidence to create training and high-quality employment opportunities.
For many Welsh businesses PBAs must sound like Christmas has come early. And yet, a recent PBA survey undertaken by Constructing Excellence in Wales (CEW) with a split of micro and small business (47%) and medium sized business (53%) found nearly a half of respondents characterised their understanding as either having ‘no knowledge’ of a PBA or ‘a basic understanding but unclear about how they worked or the benefits of using one’.
It appears, the larger the organisation the better the knowledge of PBAs. This highlights a real need for better communication to micro and small businesses who do not have the time or staff to study the detail. Not only will their cash flow improve dramatically through faster payments, but there is protection of any money held in a PBA for payments to sub-contractors signed up to the PBA arrangement in the event of insolvency of the main contractor.
Work still needs to be done to raise awareness amongst businesses in our supply chains of the benefits of PBAs and how they operate. In particular to dispel myths about ‘red tape’ and costs to SMEs who join a PBA...
The need to embrace PBAs couldn’t be more urgent as the latest figures from *Begbies Traynor’s ‘Red Flag Alert’, which monitors the financial health of British companies, as reported on BusinessLive this October explains; More than 17,500 Welsh business found themselves in 'significant' financial distress during the third quarter of 2022 and Wales saw a 4% increase in the number of companies struggling between July and September 2022 to 17,527. This was a 5% rise on the same period in 2021. Construction businesses in the region are the most affected, with 2,796 companies in significant financial distress during the past three months.
And it’s easy to sign up to a PBA; Some sub-contractors will be invited to join the PBA but anyone can ask to join. The sub-contractor simply signs a Joining Deed which is supplied free of charge by the Welsh Public Sector client or main contractor. Payment via a PBA is also free of charge to sub-contractors. Bank administration and payment transaction costs are paid by the account holder(s) who will be the Welsh Public Sector client and/or main contractor.
PBA policy says that in all cases where a PBA is applied, Tier 2 or lower tier suppliers who account for at least 1% of the net contract award value must be invited to join the PBA and Tier 2 or lower tier suppliers who account for less than 1% of the net contract award value, should be allowed to request to join the PBA. Acceptance of such requests should be made conditional upon the agreement of both the WPS and main contractor.
So, for SMEs working within the construction sector, PBAs really do represent a win-win scenario. They just need to embrace what’s on offer and reap the benefits!
‘Social Value’… Small Words with Big Importance
ANTZ CEO, Jen Pemberton, explains why the construction industry needs to understand the words ‘social value’ as clearly as ‘mortar, aggregate and insulation’.
I’ve heard the words ‘social value’ described as ‘fluffy’, ‘a tick-box exercise’, and ‘something we can sort with the buying of a new kit for a local football team, painting the walls of a community hall, or collecting some litter along a river bank’.
It is now crucial that the UK construction industry fully understands what ‘social value’ actually means and looks like; how when engaged properly, it delivers sustainable, tangible change to a community and is genuinely impactful. It doesn’t mean delivering something you think is needed, such as numerous soup kitchens because the media or a Local Authority mentioned homelessness in its region! It is imperative for construction companies to understand the specific social issues within the tendering area.
Don’t take my word for it; if construction companies want to continue winning work with the public sector, which accounts for approximately a quarter of construction output in the UK, they need to take heed of the legislation that puts social value very prominently within the tender process.
In Wales, the importance of social value is recognised through the Well-being of Future Generations (Wales) Act 2015 which requires public bodies in Wales to think about the long-term impact of their decisions, to work better with people, communities and each other, and to prevent persistent problems such as poverty, health inequalities and climate change.
It sets out five ways of working that public bodies need to achieve if they are to reach the well-being goals set out in the Act. These are:
- Long term - The importance of balancing short-term needs with the needs to safeguard the ability to also meet long-term needs
- Integration - Considering how the public body’s well-being objectives may impact upon each of the well-being goals, on their objectives, or on the objectives of other public bodies
- Involvement – The importance of involving people with an interest in achieving the well-being goals, and ensuring that those people reflect the diversity of the area which the body serves
- Collaboration – Acting in collaboration with any other person (or different parts of the body itself) that could help the body to meet its well-being objectives
- Prevention – How acting to prevent problems occurring or getting worse may help public bodies meet their objectives
The Act is reinforced by Procurement Policy Note WPPN 01/20 which provides public sector bodies in Wales with advice on the Welsh Government’s overarching policy objectives and the reporting of outcomes in relation to social value clauses / community benefits.
The Policy Note is for the attention of all contracting authorities in Wales, including, Welsh Government departments, NHS Wales Bodies, Welsh Government Sponsored Bodies, Local Authorities and the wider public sector and became effective from November 2020.
In other words, if construction companies want to win business with the public sector in Wales, they need to understand how to deliver tangible social value that is relevant to the communities they will be working in. By doing this, businesses can build stronger cross sector relationships, grow their business and give back to the community.
Delivering social value within the communities in which a business operates should be as normal a part of the business strategy as health and safety and HR.
A construction company needs to bring its supply chain and partners along with them on the journey, delivering real, sustainable change in both the community and commercially, by aligning their social strategy to their commercial strategy.
This approach is critical and means not only business growth can be achieved, but a company’s staff and that of its partners get to be part of something powerful, helping boost their own confidence, morale and sense of worth. For any business engaged in delivering real social value it’s a win-win.
Key to executing a successful community programme that delivers true social value is ensuring a person-centred approach is taken with all community partners having a ‘seat around the table’ and an ‘equal voice’ when discussing how a programme of engagement should work, how best to reach out, what success looks like and how to deliver it. This reduces self-assessment and box ticking that has evolved in social value reporting.
Every programme of engagement is different and only by listening to the community itself and taking a person-centred approach can an organisation begin to understand how to bring about the right level of sustainable change.
This is even more important due to the effects of Covid on communities and the need to now ‘Build Back Better’, addressing major weaknesses in the economy and the deep-seated inequalities in society that mean the most vulnerable people have been hit the hardest.
They may be two small words, but ‘social value’ really does have a huge part to play in the growth of business and communities in 2022 and beyond.
For more Information contact:
Alexandra Robinson - Account Director UK & Europe, ANTZ
Tel: 01619895288 | 07775661982 Email: [email protected]