By Peter Silcock, chief executive, CCNZ
OUR ASSOCIATION HAS supported pre-qualification as it is a mechanism to exclude cowboys from bidding for work and to reduce compliance costs through not requiring contractors to present the same information repeatedly.
However, our objective of reduced compliance costs has not been realised. Over the past few years we have seen pre-qualification used by more and more clients and at the same time we have seen a proliferation of commercially run pre-qualification systems. Every week there seems to be another system being offered to contractors or adopted as a requirement by a client.
The quality, cost and veracity of these systems vary significantly. They range from extensive business assessments to down and dirty online tick-box systems. Some are run by multi nation operators while other are developed by specific companies or local authorities.
The reality is that we now have dozens of pre-qualification systems operating. This means that contractors working for a range of clients are having to subscribe to and maintain multiple systems. One contractor told me that his company maintains 12 different systems.
This is creating massive inefficiency and adding rather than reducing compliance costs for contractors. These are costs which will, of course, ultimately get passed on to clients.
There is an advantage for clients in that they have a ready list of contractors that meet their requirements in terms of quality, track record, health and safety, capability and capacity. It means they know who to approach with their RFPs and their tender evaluation teams don’t have to sift through the same mountain of paper over and over again. It also means a contractor that regularly works for one client doesn’t have to continually resubmit the same information with each tender.
The attraction for clients of specifying a particular pre-qualification system is that it enables them to reduce or eliminate the direct costs of managing their own system for holding information on contractors. They simply need to ask the contractor to provide evidence that they are a current subscriber to ‘X’ system?
But do these systems really add value to the industry or do they just add to the industry compliance costs and line the pockets of the scheme operators? The reality is that for some systems at least paying your annual subscription is the way your system is kept up to date!
The research CCNZ did last year with Teletrac Navman asked some questions about pre-qualification. Of the people that knew about their company pre-qualification/Contractor Management Systems about 40 percent of them said they operated only one system, 20 percent two systems, 20 percent three or four systems and 20 percent five or more systems.
The survey revealed that the costs of running the systems varied, 10 percent said $100,000 plus, 20 percent said $50,000 to $100,000. If we extrapolate that out to say 30 percent of our members are investing $50,000 per year each that amounts to $5.7 million. Taking into account that many of our large companies will be investing considerably more than $100,000 and adding the other 70 percent of the industry, I think we would be safe to say this is costing approximately $10 million to $15 million per annum.
That is a massive cost to load on to the industry. Something worth trying to reduce.
While contractors understand that they need to meet the requirements of clients we also need to ask the question: are the needs of our clients so varied that they need different pre-qualification systems?
Most of the systems operated today are commercial systems and therefore it is very unlikely that they will willingly rationalise. These systems are quite rightly specified by clients. The civil construction industry desperately needs our major client groups, central and local government, to take some leadership on this.
These issues were discussed at a recent CCNZ Executive Meeting and it was agreed that we need to promote and facilitate these discussions both regionally and nationally.
This article was first published in Contractor‘s March issue.