Scottish building firms are shunning public-sector work because the bidding process is too expensive to make winning the contract worthwhile.
New research has revealed it costs Scottish building firms nearly £100 million a year just to bid for public-sector contracts, which are worth around £2 billion a year.
The survey, by the Scottish Building Federation, found the cost of bidding for these contracts has risen so much over the past five years it is beginning to deter some firms from competing for them.
SBF managing director Vaughan Hart 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.”
Based on feedback from its members, the SBF estimates it costs a firm £1,000 for every £1m a contract is worth to complete a pre-qualification questionnaire.
Even after completing the questionnaires, which are usually more than 40 pages long, there are usually at least seven other bidders they will be competing against although there are often more.
If they make the final shortlist it costs them even more to complete the procurement process: around £3,700 per £1m of contracted value.
Mr Hart said: “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,” he added.