The UK’s public procurement system effectively excludes small practices and we need to lobby government to fix it, writes Tarek Merlin
There is a growing problem with the procurement process in this country that currently explicitly excludes small practices and we need to do something about it.
Turnover thresholds and professional indemnity (PI) insurance requirements are set so high that they currently exclude 70 per cent to 90 per cent of all architecture practices working in the UK. Something needs to be done to reframe the culture of procurement in this country to better engage with small practices.
If, like me, you run a small architecture practice, it is likely that you have filled out a couple of pre-qualification questionnaires (PQQs) in your time. Likely, too, that you have noticed they sometimes seem designed to exclude small architecture practices like ours.
The minimum turnover thresholds and insurance requirements are there specifically to protect the client’s risk profile and, in the eyes of procurement managers, small architecture practices pose a threat.
It doesn’t matter if you’ve studied for seven years, passed your professional exams, signed up to a professional body and abide by its code of conduct, completed various different projects and served your clients impeccably – if you don’t have the right turnover or insurance level, you’re out. In some cases, if you haven’t completed three projects exactly like the one you are pitching for within the past three years, you’re also out.
The government has a target to attract, support and appoint SME architects: they want one third of all procurement spend to go to SMEs by 2020. Sounds very positive doesn’t it? So what’s going wrong? Well, for one thing, the government’s definition of an SME – in fact defined by the European Commission – is a business that has up to 250 employees, a turnover of up to £25 million, and gross assets of up to £12.5 million.
According to the RIBA Business Benchmarking report 2017, 70 per cent of architecture practices in the UK have up to 10 employees; and almost 90 per cent have 20 employees or under. Turnovers for businesses like these are less than £1 million and the assets of a small architecture practice are generally the people, so fixed assets such as computers, printers or furniture are low.
From the RIBA’s 2017 Business Benchmarking Report
- 45 per cent of practices are 1-5 people with a turnover from £50,000 to £150,000
- 25 per cent of practices are 5-10 people with a turnover from £300,000 to £350,000
- So, 70 per cent of practices are 10 people or less, and are turning over less than £350,000
This disparity has a direct impact on the procurement process in the UK. Thresholds for minimum turnovers are typically set to be no less than £3 million, and PI Insurance no less than £10 million. So, all these small companies, with their turnovers of less than £1 million and PI insurance of less than £5 million, will not survive the first round, if they apply at all.
In other words, public procurement in this country is currently excluding 70-90 per cent of architecture practices working in the UK.
We need a new definition for what SME is in architecture
Clearly, we need a new definition for what SME is in architecture. The government definition for a micro-business could work: ‘a micro-business is a business with up to nine employees’, but we would also then need a separate micro-business target within the government’s overall SME target, to make sure that procurement is fair and relevant to these businesses, bearing in mind they make up the significant majority of the profession.
In order to make this happen, we need to instigate change at a strategic government level so as to advise procurement managers, who in turn advise local authorities and other institutions at a regional and local levels, to create special procurement process for micro-businesses.
To be specific, the turnover thresholds need to be in the region of £250,000 or less and PI Insurance of £1 million or less. And for some small contract value projects of, say, £100,000 or less, the entire prequalification questionnaire should be eliminated.
Some of this is already happening. PQQs have been abolished for some low-value contracts and the government’s Contracts Finder website is making the process easier, but we need more to be done.
During her time at Peabody, Claire Bennie oversaw the design and delivery of some very successful housing association projects, some of them with small practices. Pitman Tozer was a five-strong practice when it was appointed by Peabody to deliver a 67-unit scheme in Bethnal Green, London. The project was successfully completed in 2014 and Pitman Tozer is now a much larger practice with a very successful portfolio of work.
Pitman Tozer’s Mint Street development for Peabody in Bethnal Green
Source: Kilian O’Sullivan
Why isn’t this success story more common?
There will always be a perception from the clients’ side that small practices represent a certain level of risk. Whilst we will continue to challenge this and show how risk can be mitigated, there is another route to consider: partnering with a larger practice.
What if all tenders demanded that practices which meet the PQQ requirements must enter with a small practice that doesn’t?
What if all tenders for large public procurement contracts came with a stipulation that any practice that meets all the PQQ requirements must enter with a small practice that doesn’t? This removes perceived risk from the client body and ensures that smaller practices get a piece of the pie, increase their turnover and grow in numbers, eventually returning the favour to others coming up.
Haven’t you just handed over the risk from the big client to the big architecture practice, you ask? Well, these are two like-minded business models working together to the same goal, so the perceived ‘risk profile’ is not the same as a client-architect relationship, as it’s not the same kind of risk. And what is this perceived ‘risk’ anyway? That the small business would not be able to fulfil their duties? Or go under? Well, the big practice would still be getting paid to do the job, so would continue on with the appropriate fee level to support that.
That the small practice wouldn’t have the right quality assurance procedures, liability insurances, or would do something that would jeopardise that liability? OK, but isn’t that exactly what a big practice undertakes to protect the client from when, say, they employ someone?
In fact it affords greater protection for the larger practice employing the smaller practice, with the small practice indemnifying the larger one via its own insurances, the extent to which would be representative of its input into the project. The contract precedents for this kind of arrangement already exist: a suite of well-used partnering and subconsultancy contract forms. It’s all there ready to go, we just need to start using them more.
If you, like me, want to help make this change happen, then join us in this debate. We are establishing a small informal steering group to discuss, and we have been speaking with some very interesting people from varying sectors, big and small, with intentions to bring about positive change.
Changing the culture of procurement will not be an easy task and will require further engagement; but it is something that must happen if it is to better reflect the large number of small architecture practices which are currently excluded from the process.
Tarek Merlin is director of Feix & Merlin Architects