Scottish Government have issued three new Construction Policy Notes (CPN) on retentions, pipeline and procurement practices in construction.

Reporting of Retention Policies CPN 1/2024

CPN 1/2024 is another step towards Scottish Government’s long-term aspiration to reduce and remove the need for retentions.  It focusses on visibility of policy and practice across the public sector.  The aim is to measure the implementation of CPN3/2022, introduced in February 2023 that “requires retentions, where they are considered necessary, to be applied carefully and fairly as the commercial element of a project delivery strategy seeking to eliminate potentially defective work”.

CPN 1/2024 advises public bodies of new requirements for publishing information on their use of cash retention in construction contracts.  To achieve this, it requires each public body in scope of these provisions to undertake the following actions:

  • by 31 August 2024, publish a retention policy statement on its website and then review and where necessary revise it by each subsequent 31 August thereafter
  • from 20 February 2025, publish a retention policy compliance statement on its website for every project, initially as soon as possible after practical completion, whose contract was awarded on or after 20 February 2023

This CPN is designed to support two recommendations, agreed by Scottish Ministers, from the report of the short life working group on retentions. They will be incorporated into the Retention in Construction Contracts chapter of The Client Guide to Construction Projects with the following aims:

  • to raise awareness of retention use in the public sector
  • to promote transparency among public bodies
  • to facilitate knowledge, understanding and decision-making among contractors

It should be useful to companies in the supply chain too in ensuring that they are not having retentions imposed that extend those in upper contracts.

Challenging lowest price procurement (CPN 3/2024)

CPN 3/2024 is entitled “Graduated Pricing Mechanism Guidance” and focusses on detailing an alternative method of determining the price score in tender assessments – the Graduated Pricing Mechanism (GPM). This alternative method, will be incorporated into “Chapter 7: Construction Procurement Route Two” of the Construction Procurement Handbook of the Client Guide to Construction Projects.  The aim here is to assist public bodies plan, procure and manage construction projects and support contractors and consultants in developing their understanding of how the public sector delivers construction projects.  It is applicable guidance under the Scottish Public Finance Manual.

The notice recognises that Whilst the policy requirements for tender evaluation are to assess both price and quality, the misconception that lowest price always wins encourages some contractors to adopt the poor practice of submitting artificially low tender bids. To reduce the incentive to submit artificially low bids, the GPM has been introduced to diminish advantage to be gained by such practice. Construction Procurement Handbook, Chapter 8: Abnormally Low Tenders provides guidance to assist clients identify and handle abnormally low bids.

The Graduated Pricing Mechanism (GPM) is a consistent method that can be used to calculate the price score of tender submissions which respects the principle of equal treatment but reduces the incentive to submit low bids. The principle is that the lowest price is awarded the highest score (i.e. 100 marks) with other prices submitted incurring a percentage deduction to their score depending on their distance from the lowest price and proximity to the median price. Further details of the methodology are set out in the link below.

Setting out the construction pipeline (CPN 2/2024)

Finally CPN 2/2024 draws attention to the Construction Pipeline Forecast Tool and encourages all public bodies to upload data on their planned and potential construction projects over £200,000.  The Tool provides a centrally coordinated repository for recording where and when future construction work is likely to be conducted by the public sector. It has been developed in partnership with industry and public bodies.

What are CPN’s

Construction Policy Notes (CPNs) alert contracting authorities to new policy, guidance and other matters relating to public sector construction.  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.