Construction procurement reform saves £447 million

4 July 2013

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4 July 2013 | Andrew Allen

Reforms to public sector construction have generated £447m savings in the last year, according to a speech by Cabinet Office minister Chloe Smith.

Smith announced the latest set of benchmarked government construction costs, which are designed to give public sector customers an indication of how much they should pay. She described the benchmarking system as a “key” efficiency reform and said its ability to deliver projects 15 to 20 per cent cheaper meant the public sector would reinvest £1.2 billion in projects by 2015. This would equate to around 60 new secondary schools, she added.

The new benchmarking figures provide more granular department cost benchmarks and data direct from local authorities, according to Smith. “We have now published department cost reduction trajectories and construction cost benchmarks, which help inform central government and wider public sector clients as to what they currently pay for construction and what their construction should therefore cost,” said Smith.

Since 2010 the Education Funding Agency has reduced the average cost of a new secondary school from £2,450 per square metre to £1,460 per square metre, she added.

Changes to public sector procurement to benefit SMEs were also underway, she said, to raise the amount of government business to SMEs by 2015 to 25 per cent. “These reforms are starting to pay off. Overall government has increased its direct spend with SMEs from 6.5 per cent in 2009-10 to 10 per cent in 2011-12,” said Smith. “And in 2011-12 figures from government’s top suppliers shows SMES had benefitted from a further 6.6 per cent of spend in the supply chain.”

She identified prompt payment down the supply chain as “critical to the survival of many SMEs” and said all central government contracts were now contractually obliged to pay to tier three suppliers within 30 days. The government was also trying to roll out Project Bank Accounts, a project which aims to pay prime suppliers at the same time as subcontractors down to tier three, across government construction projects.

“Last year alone £1.1 billion worth of projects signed up to use Project Bank Accounts and I’m pleased to announce today that in 2012/13 we exceeded our target of £2 billion, with nearly £2.2 billion of spend having been committed via Project Bank Accounts since their introduction,” Smith said.

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