The Scottish Government recognises the significant pressures currently faced by the construction industry due to the dramatic rise in the cost of fuel and materials, inflation, and stretched public budgets. These pressures, coming on top of the continued impact from COVID-19, material supply issues and wider economic climate changes, are significantly impacting both public client bodies and members of the construction industry.
In order to help address and mitigate these challenges, Scottish Government have a number of guidance measures that public sector bodies should be aware of when procuring and managing their construction projects. As a reminder, these are set out below.
Construction Policy Note (CPN 3/2021)
Scottish Procurement and Property Directorate issued CPN 3/2021 in 2021 providing advice for Contracting Authorities to manage and mitigate market pressures affecting the availability and affordability of construction sector resources. If a contactor seeks relief from or waiver of their contractual obligations, the contracting authority should refer to the relevant terms and conditions and seek legal advice as needs be to inform their decision. Contracting authorities should also re-examine their models for the design, procurement and delivery of their forward construction portfolio programme. This advice still stands and should be reviewed where applicable in relation to recent and future cost rises.
Prompt payment and Project Bank Accounts
Delayed payments can cause significant pressures in the construction industry, especially on sub-contractors and further down the supply chain. The Scottish Government have addressed this by providing guidance for wider public sector contracts encouraging prompt payment and the use of Project Bank Accounts.
The Scottish Government’s Client Guide to Construction Projects includes a chapter on Fair Payment, where advice on Prompt Payment is consistent with the wider Scottish Government procurement policy Scottish Procurement Policy Note 2/2022. This provides a standard clause for public bodies’ use, requiring contractor and sub-contractor invoices to be paid within 30 days throughout the supply chain of public contracts. A point of contact in the public body must also be provided should the sub-contractor have any difficulty in securing the timely payment of an invoice. The SPPN also asks public bodies to consider the past payment performance of those bidding for public sector contracts. The Scottish Government is committed to paying our contractors promptly, targeting to pay valid invoices within 10 days of receipt, going beyond our contractual commitment to pay within 30 days. Further advice on contract payment terms is included in Construction Policy Note 9/2020.
To ensure that payments are made directly and simultaneously from public sector clients to members of a construction contract supply chain, bodies subject to the Scottish Public Finance Manual must include Project Bank Accounts in tender documents for contracts over the applicable value thresholds. The Scottish Government Project Bank Accounts Guidance defines these thresholds as £2M for building projects and £5M for civil engineering projects.
Sustainable tender pricing
Although costs are increasing, it remains important the public sector actively seek to identify abnormally low tenders to encourage sustainable prices and successful delivery of projects and services. Construction Policy Note 1/2021 reminds the public sector clients of their responsibilities in handling abnormally low tenders and highlights the importance of bidders putting in realistic and sustainable bids.
Whilst Local Authorities, or other bodies not governed by the Scottish Public Finance Manual, are not under obligation to take or follow Scottish Government advice, they are strongly encouraged to carefully review Scottish Government guidance and apply it where appropriate.
The Scottish Government will continue to liaise with both public sector bodies and construction industry representatives and continue their ongoing work with the Construction Leadership Forum to support the sector in managing the current sector challenges.