The specialist engineering contractors’ (SEC) Group northern ireland represents the largest element of construction (by value) in Northern Ireland. Its member organisations – listed on the front of this report – mainly comprise SMEs involved in various aspects of construction engineering from steel fabrication and lift installation and maintenance to mechanical, electrical and plumbing installation and maintenance.

Over the years two issues have given rise to major concerns for these firms – lack of cashflow security and the needless cost associated with wasteful duplication in public sector pre-qualification processes. SEC Group northern ireland has been working closely with the central Procurement Directorate (CPD) Northern Ireland to address these issues.

CPD leads on promoting the Public Procurement Policy launched by the Northern Ireland executive over twelve years ago. The executive and CPD have been pro-active in driving good practice and fair treatment along the construction supply chain. But, as this report shows, much more work in this regard needs to be done. Tthis report, which has been compiled by my colleague Sarah Greatorex Ba, Ma, MBa, SEC Group executive secretary, is in support of the work being carried out by the CPD and the centres of Procurement excellence (CoPEs) in improving payment practices and reducing the cost of pre-qualification.

The survey, upon which this report is based, covered local councils, education boards, and health trusts in Northern Iireland. Similar surveys have been conducted for the rest of the UK. Responses to the questionnaire were obtained under the freedom of information act since an initial voluntary survey failed to elicit sufficient responses.

The public sector in Northern Ireland spends almost £2bn a year on construction procurement. This report reflects the responses from twenty-eight public bodies; there were responses from seventeen of the twenty-six local authorities. In analysing the responses we have drawn up a number of recommendations which we intend to pursue with the Northern Ireland executive and colleagues in CPD.

1. Recommendations

Recommendation 1

The Executive is invited to establish an Office of Procurement Ombudsman to seek out and investigate bad practice generally with effective powers of enforcement.

Recommendation 2

It is suggested that the Executive seeks an explanation from those public bodies which are not taking any measures to promote fair payment along the supply chain.

Recommendation 3

We suggest that throughout the public sector in northern ireland there should be a standard pre-qualification question that asks (in the absence of a PBA) whether the Tier 1 contractor can pay its Tier 2 contractors within 30 days of the main contract due payment dates.

Recommendation 4

Given the disparity in the distribution of risk in the public sector with regard to cash retentions we urge the Executive to introduce legislation, as exists in many other jurisdictions, to require that retention monies are placed in trust.

Recommendation 5

The Executive, CPD and the CoPEs are invited to agree targets for progressing the use of project bank accounts throughout the public sector.

Recommendation 6

It is proposed that CPD establishes a project bank account users’ group to promote more widespread understanding of project bank accounts.

Recommendation 7

CPD and the CoPEs are invited to promote the exclusive use of the health Estates web-based pre-qualification template across the public sector – up and down the supply chain. Consideration should also be given to:

(a) A “one-stop shop” or public register for storing firms’ pre-qualification data (such as the new procurement portal, eTenders NI), and

(b) Only making available public sector contracts to firms which have demonstrated their technical competence through accreditation by independent schemes or arms-length trade association schemes.

Note: as from 1 October 2014 Health Estates has become part of the new division in CPD – Health Projects.

Recommendation 8

CPD together with industry is invited to develop a standard approach to determining notational values for use across the public sector. Consideration should be given to a formula based on technical capabilities, resources and financial standing.

Recommendation 9

Given that the regulations transposing the revised EU Public Procurement Directive will require contracting authorities to give reasons for not dividing contracts into lots, it is suggested that CPD develops guidance on this to detail the matters to be taken into account.

2. Executive summary

During the course of 2014 the specialist engineering contractors’ (SEC) Group conducted an extensive survey throughout the UK non-central government public sector of payment practices and pre-qualification. This report covers the Health Trusts, Education Boards, Councils and the Police Service and Fire and Rescue Service in Northern Ireland. The results of the survey have been published in separate reports applying to England and Wales (relevant data was extracted for the purpose of compiling a separate Welsh report), Scotland and Northern Ireland. A full list of the Northern Ireland participants in the survey can be found in Appendix 1. The majority of those questioned responded. The questionnaire used in Northern Ireland is attached as Appendix 2.

The highlights of the Northern Ireland survey are:

  • 48% of the Northern Ireland public sector bodies responding to the survey have monitoring arrangements in place to track payment performance in the supply chain. 67% of those not monitoring do not take any measures to ensure fair payment in the supply chain.
  • Many public bodies in Northern Iireland are paying most of their tier 1 contractors within 10 days (and all pay their tier 1 contractors within the statutory 30 days) but it is unlikely that this performance is being replicated along construction supply chains. Furthermore there is anecdotal evidence that the payment performance of some public bodies is not as glowing as might be suggested by their paying within 30 days. The 30-day periods may commence from the date of authorisation of invoices/payment applications which could be a long drawn-out process.
  • 14% of public bodies are taking further measures to improve payment performance in the supply chain.
  • 30% of public bodies are already using project bank accounts or are about to try them; however there is a need to improve understanding of them in the wider public sector.
  • Almost all authorities deduct cash retentions. These are ultimately funded by small firms in the supply chain; the retention percentage applied tends to be lower than in the rest of the United Kingdom – usually 3%.
  • The overwhelming majority of public bodies use cash retentions as working capital.
  • There is still a long way to go in standardising the pre-qualification process in Northern Ireland. Only two local authorities are using the CPD template exclusively. Health estates, now part of CPD, has made significant progress in standardising pre-qualification procedures.
  • There isn’t a standard approach in the Northern Ireland public sector to determining notational values; in practice many public bodies set these values too high which excludes SMEs from procurement opportunities.
  • 72% of Northern Ireland public bodies do not seek to break large contracts into smaller lots to encourage SME access to procurement opportunities.
  • In general, it is possible to perceive greater awareness of innovation and change, and readiness to adopt new procedures amongst those public bodies covered by the Public Procurement Policy – i.e. Health Trusts and Library and Education Boards

We make a number of recommendations which are listed in section 1 of this report.

3. Extent of monitoring by universities of tier 1 contractor payments to tier 2 contractors


Fig 1: Extent of monitoring of payments to Tier 2 contractors

“Fair payment will apply equally between the client and lead contractor and throughout the supply chain.”

Model ‘fair Payment’ charter. (Appendix A to the Code of Practice for Government Construction Clients and their Supply Chains.)

It is clear from the responses that many public bodies in Northern Ireland do not monitor onward payment to subcontractors, possibly because they feel that their contracts are robust enough to protect the sub-contractor. However, 48% do monitor payments along the supply chain. They follow strictly the code of Practice for Government construction clients and their supply chains, and hold regular monthly meetings (which form part of the Code of Practice) to ensure that payments are being made. This percentage is much higher than that found in england and Wales where only 25% of public bodies monitor payment along the supply chain.

4. Measures taken to ensure timely payment other than monitoring payments

“Why should we interfere in the commercial practices of private sector contractors? The reason is that this is so important is because the businesses at the receiving end of [poor practices] are more often than not small and medium enterprises on whom we are depending to help rebuild our economy.”

Statement by the (then) Finance Minister Sammy Wilson to the Assembly, 16 January 2012.

Of those public bodies which do not monitor payment performance in the supply chain 33% insert a clause in the main contract requiring timely payments to sub-contractors. In some cases there is the threat of terminating a contract in the event that supply chain payments are not being discharged.

Whilst this approach is to be supported (because it sends out a message that poor payment performance is unacceptable) it does rely – to a great extent – on firms in the supply chain making a complaint of non-payment (or late payment) to the client. Given the very parochial nature of the construction industry in Northern Ireland it is highly unlikely that firms (especially small businesses) will want to prejudice future commercial opportunities by making such complaints. One way of resolving the problem is to insist on the use of project bank accounts which ensure that payments get to firms in the supply chain.

Additionally there is a need in Northern Ireland for a more pro-active approach from the executive to root out bad practice. In Canada, for example, this role is filled by a Procurement Ombudsman.

Recommendation 1

The Executive is invited to establish an Office of Procurement Ombudsman to seek out and investigate bad practice generally with effective power of enforcement.


Fig 2: Measures taken to ensure timely payment other than monitoring payments

There are ten public bodies (all local authorities) which are not monitoring payments to sub-contractors and are not taking other measures to ensure cashflow along the supply chain:

Armagh – Coleraine
Antrim – Cookstown
Banbridge – Down
Belfast City – Dungannon & South Tyrone
Castlereagh – North Down

Recommendation 2

It is suggested that the Executive seeks an explanation from those public bodies which are not taking any measures to promote fair payment along the supply chain.

5. Average time taken to discharge payment to main/direct contractors


Fig 3: Average time taken to pay Tier 1 contractors

In Northern Ireland all public bodies pay their contractors within the statutory 30 days.

Indeed, all of them also stated that at least 60% of their payments are made within 10 days.

However these statistics need to be treated with some caution. Some of the average times in the table above may mask the fact that payment periods commenced from the date when payments were authorised rather than from the payment due dates. There have been a large number of complaints from firms of substantial delays in verifying and authorising payments. One example was given of a payment taking 252 days from the date of application/invoice! This has been the result of either a lack of resources within the relevant public body or a lack of urgency amongst consultants responsible for valuing and certifying work. To address this SEC Group Northern Ireland has issued a Guidance Note which is at Appendix 3.

In November 2008, the (then) Minister for Finance and Personnel committed Northern Ireland Departments and agencies to speed up payments by paying suppliers, wherever possible, within 10 working days of presentation of a valid invoice. Since tier 1 contractors are benefitting from this rapid turnaround of payments, one would expect to see this replicated in the supply chain. But anecdotal evidence provided by many SMEs in the specialist engineering sector indicates that this does not happen.

“In compliance with the procurement guidance and the requirements of the NEC3 form of contract, the Board makes payments to contractors within 30 days.”

North Eastern Education & Library Board

5. Average time taken to discharge payment to main/direct contractors

Given that the bulk of the delivered value is in the supply chain, public sector clients may need to consider whether they can do more to improve payment performance in the supply chain.

It would appear that where the ‘Code of Practice for Government construction clients and their supply chains’ is applied, the requirement for monthly reporting by tier 1 contractors of their payment performance is proving effective. The CoPEs have authority to issue a Certificate of Unsatisfactory Performance to those tier 1 contractors failing to implement fair payment as defined in the main contract. The consequence of receiving such certificate is that the contractor is excluded from tendering competitions undertaken by CoPEs for a period of twelve months. There is some evidence that this is also proving effective.

Recommendation 3

We suggest that throughout the public sector in Northern Ireland there should be a standard pre-qualification question that asks (in the absence of a project bank account) whether the Tier 1 contractor can pay its Tier 2 contractors within 30 days of the main contract due payment dates.

6. Extent of use of cash retentions in works contracts

The proportion of public bodies applying a cash retention is similar to that in other parts of the UK. It is disappointing that the use of a cash retention remains widespread; in Northern Ireland it appears that the size of the retention is smaller than in other parts of the UK. It is normally no higher than 3%, and is generally reduced to 1.5% after practical completion or handover. We do not know whether or to what extent the 3% deduction is also the same along the supply chain. Anecdotal evidence from firms suggests that the usual percentage deduction is 5%.


Fig 4: Use of cash retentions

“Cash retention of 3% is applied until the issuance of the GC Works Certificate of Completion. Upon Practical Completion this is reduced to 1.5%. The remaining cash retention is released upon issuance of the GC Works Maintenance Certificate.”

Western NHS Trust

It is not always appreciated that the bulk of the cash retention provided by tier 1 contractors is an aggregation of the retentions deducted from small firms in their supply chains.

Four local authorities in Northern Ireland do not deduct cash retentions. They are:

Antrim – Cookstown
Newtownabbey – Strabane

7. What public bodies do with cash retentions

For the vast majority of the respondents (and this proportion is larger in Northern Ireland than in the rest of the UK), the cash retention forms part of their normal working capital until it needs to be paid out.


Fig 5: What public bodies do with cash retentions?

On public sector works supply chain firms are at risk of losing their cash retentions (which cash is legally theirs). Tier 1 cash retentions held by public bodies are not at risk since public bodies do not go into insolvency. However such risk is ever present for tier 2 contractors (and below) delivering public sector works.

In november 2012 the Patton Group collapsed; the bulk of its work was within the public sector. The majority of the Group’s sub-contractors lost cash retentions totalling almost 5 million.

Recommendation 4

Given the disparity in the distribution of risk in the public sector with regard to the security of cash retentions we urge the Executive to introduce legislation, as exists in many other jurisdictions, to require that retention monies are placed in trust.

8. Use of or proposed use of project bank accounts (PBAs)

“From January 2013, Project Bank Accounts will be introduced in government construction contracts awarded by Central Procurement Directorate departments.”

Statement by the (then) Finance Minister Sammy Wilson 8 January 2013

The proportion of public bodies already using or intending to use PBAs is 23% higher in Northern Ireland than in england and Wales. This is accounted for by the Northern Ireland executive mandating the use of PBAs for all centrally procured projects over £1 million. Project bank accounts – a key part of the UK Government’s construction strategy – are used by a number of central government clients in the UK including the Highways Agency, Ministry of Justice and Defence infrastructure organisation. Northern Iireland was the first devolved administration to fully adopt PBAs. The payment method involves paying the supply chain from a single ring-fenced project bank account and is designed to stamp out late payment problems.


Fig 6: Use of PBAs

Recommendation 5

The Executive, CPD and the CoPEs are invited to agree targets for progressing the use of project bank accounts throughout the public sector.

In the table below are listed the detailed comments of those bodies – three Health Trusts, two Education Boards, and one District Council – which are about to use PBAs. Of the others, Moyle states that none of their projects warrant PBAs echoing a commonly-held (albeit erroneous) belief that PBAs are suitable only for large projects. The North Eastern Education & Library Board state that they currently have no active construction works that would suit, again implying that some projects might be unsuitable because they are too small.

8. Use of or proposed use of project bank accounts (PBAs)

Derry and Newtownabbey Councils state that they currently use a separate cost centre specific to capital projects, but this suggests that they do not understand or know of PBAs. It should be noted that CPD has produced detailed guidance on PBAs. this was contained in Procurement Guidance Note PGN 03/14 published on 30 July 2014.

Recommendation 6

It is proposed that CPD establishes a project bank account users’ group to promote more widespread understanding of PBAs.

9. Plans for improving payment performance in the supply chain

With regard to plans for improving payment performance there appears to be greater activity in Northern Ireland than in England and Wales. It is extremely encouraging that there is a range of activity being put in place to improve payment performance. Below is a table setting out the responses received.


Fig 7: Public bodies taking further action to improve payment performance

10. Standardising construction prequalification – use of the CPD’s pre-qualification template

Only two respondents, craigavon Borough Council and Strabane District Council, stated that they use or would be using exclusively the CPD pre-qualification template. Almost all, however, said that they would be using it (or a similar template provided by their coPe), with some additional questions relevant to their particular procurement needs. Health Estates, now part of CPD, are clearly a long way down the road in standardising their template for use by the Health Trusts:


Fig 8: Use of the CPD template

Recommendation 7

CPD and the CoPEs are invited to promote the exclusive use of the health Estates web-based pre-qualification template across the public sector – up and down the supply chain. Consideration should also be given to:

(c) a “one-stop shop” or public register for storing firms’ pre-qualification data (such as the new procurement portal, eTenders NI), and

(d) Only making available public sector contracts to firms which have demonstrated their technical competence through accreditation by independent schemes or arms-length trade association schemes.

Note: as from 1 October 2014 health Estates has become part of the new division in CPD

“Health Estates (HE) has developed a ‘Streamlined PQQ’ web form template on eSourcing NI which utilises the DHSSPSNI Register of Contractors for Building & Civil Engineering, Mechanical and Electrical Services that is used to procure projects in the Health & Social Care (HSC) and Public Safety Sector between the value of £30k and the EU Procurement Threshold for works.

Health Estates (HE) together with other Centres of Procurement Expertise (CoPE) is working closely with CPD on the implementation of a new eTendersNI service which will be available for use by all public sector organisations in Northern Ireland (late 2014). The primary objective of the eTendersNI service is to provide a common look and feel to both buyers and suppliers irrespective of the contracting authority undertaking any particular procurement and to reduce duplication of input, saving time and resources. HE will be responsible for rolling out the new service within the HSC and Public Safety sector and to put in place any additional arrangements to configure the service and to train users.” (emphasis added)

Western NHS Trust, S Eastern NHSs Trust

11. Notational values used in relation to the value of contracts proposed to be let

This question on notational values produced a range of responses. There is clearly no fixed or standard method of approaching notational values although some of the respondents used constructionline’s notational cost bands to work out a suitable value. In some cases the notational value is made dependent upon the value of the contract.

Some bodies use a risk-based appraisal of the supplier’s financial profile, but with no strict relating of the contract value to turnover. Where a figure was given, the notational value was twice the value of the contract, but only three respondents gave this answer. Two others stated that the notational value must be at least the same as the annual contract spend.

Recommendation 8

CPD together with industry is invited to develop a standard approach to determining notational values for use across the public sector. Consideration should be given to a formula based on technical capabilities, resources and financial standing.

12. Policy on creating smaller lots out of large contracts

The perceived failure of many procuring authorities in Northern Ireland to consider dividing large contracts into smaller lots is a source of frequent complaints from construction SMEs. For public bodies a major risk in not dividing contracts into lots is the insolvency of the contractor.

The large Health Trusts and Education Boards do apply a system of division into lots for some large contracts, where appropriate. There is no value trigger for the division into lots. In fact the policy on dividing into smaller lots is not necessarily related to the size of the contract, but more to its complexity. The building of a large and complex hospital, for example, would be put out as one lot because of the importance of the coordination of all aspects of the construction project. On the other hand, more routine maintenance contracts for the same organisation (but possibly in different locations) might well be broken down into lots.


Fig.9: Division into lots

Recommendation 9

Given that the regulations transposing the revised EU Public Procurement Directive will require contracting authorities to give reasons for not dividing contracts into lots, it is suggested that CPD develops guidance on this to detail the matters to be taken into account.

13. Conclusion

Payment Practices

Whilst public bodies in Northern Ireland appear to be paying their tier 1 contractors well within the statutory 30 days, there is still a long way to go before this becomes the norm along the supply chain. Well over 60% of public bodies do not have measures in place to ensure that fair payment travels along to supply chain firms which, ultimately, provide most of the added value. This undermines the efforts of policy-makers in the executive to promote the well-being of small construction businesses which, after all, provide most apprenticeships and job opportunities and are, therefore, a major force for growth.

The extensive reliance on cash retentions is also another cause for concern. The extent to which public bodies use cash retentions to fund their other activities suggests that the main motive for deducting them is to provide additional liquidity (rather than to provide a means of security in the event that the work and/or materials are not in conformity with the contract).

It is suggested that, as a matter of priority, two issues require to be addressed:

  • the failure by the majority of public bodies to put in place measures to ensure cashflow protection in the supply chain, and
  • lack of protection for cash retentions provided by Tier 2 contractors and below on public sector works.

On a more positive note almost a third of public bodies are using PBAs or intend to use them. This is beginning to represent payback for the painstaking efforts of the executive and CPD to promote their use.

A concerted effort is still needed, however, to spread the use of PBAs through the wider public sector in Northern Ireland. Ausers’ forum and seminars on making PBAs work will all help.

Pre-qualification

Within Northern Ireland construction firms have four key concerns relating to pre-qualification.

  1. The lack of progress by public bodies in standardising the pre-qualification process.
  2. The failure by many public bodies to utilise constructionline as the exclusive pre-qualification database and, instead, repeatedly requiring the same or similar data from firms each time they express an interest in bidding for work.
  3. The exclusion of SMEs from public procurement by insistence on supplier turnover thresholds which are excessive or unnecessary for the value or type of contracts proposed to be let.
  4. Requirements, notably those relating to technical competence, often do not attach sufficient importance to a firm’s membership of independently assessed schemes, many of which have been established by reputable and respected trade associations. The CPD pre-qualification template is not generally used without additional questions or requirements. It appears that Health Estates and the CoPEs, in collaboration with CPD, have now developed a web-based template for use across the public sector.

Given the lack of exclusive use of the CPD template, the issue that arises is whether CPD will now take over the Health Estates version and ensure it is used exclusively across the public sector up and down the supply chain. This must be the aim if we are to avoid the needless cost to businesses of the multifarious pre-qualification requirements that now abound throughout the public sector.

Furthermore there should be one publicly-kept register or database of firms in Northern Ireland eligible to provide public sector works and/or services (irrespective of whether these are to be provided via direct contracts or sub-contracts). This will remove the need for repeated requests to firms to provide pre-qualification information even from authorities for whom they have previously worked. The register should only include those firms which have demonstrated their technical capabilities through membership of independently assessed competence schemes such as those put in place by the trade associations.

With regard to the pre-qualification process the final issue relates to notational values. The results of the survey show that there isn’t a standard approach in northern ireland public sector construction to determining notational values. The executive and CPD are invited to consider how this may be achieved. A formula based on assessment of technical capabilities, resources and financial standing would be preferable.

Public sector policy on breaking contracts into small lots it seems that the overwhelming majority of public bodies do not consider this issue. This result is rather surprising since it is in the interest of all local authorities to actively consider how they increase public procurement opportunities for small firms in order to benefit the local economy and to add value to that which is delivered. Nonetheless it is gratifying that those bodies regularly procuring construction work – Health Trusts and Education Boards – are giving active consideration to this issue. There is clearly a need for best practice guidance and monitoring to convince public bodies that smaller is often better especially in terms of value to both local taxpayers and local economies.

Download Appendix 1: list of respondent universities

Download Appendix 2: Questionnaire

Download Appendix 3: SEC Group northern ireland Guidance note

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