Window of opportunity to drive extreme value from projects

The Building Cost Information Service are reporting that tender prices are not expected to return to pre-recession levels in the next five years. The next two few years were always expected to be tough but they predict that prices will continue to fall until growth returns in 2011. Worryingly though, building prices will rise steeply from then.

If their data turns out to be correct there is a small window of time to deliver extreme value on developments while build costs, land prices, interest rates and demand are all low. If developers are able to access funding the contracting industry is currently willing to price at  cost just to stay in business. We would never advocate stripping out all profits because that is the road to disaster but open book tendering with pre-determined margins are increasingly attractive to both client and contractor alike.

We are seeing mounting evidence that clients are looking to dip a toe back in the market, so hopefully some of those unloved tower cranes will come back to life next year.

OFT cover pricing investigation results

After five years the Office of Fair Trading has released a press statement and published the outcome of the investigation into cover pricing.
The decision follows an OFT Statement of Objections in April 2008 after one of its largest Competition Act investigations.

The OFT has concluded that the firms engaged in illegal anti-competitive bid-rigging activities on 199 tenders from 2000 to 2006, mostly in the form of 'cover pricing'.

Cover pricing is where one or more bidders in a tender process obtains an artificially high price from a competitor. Such cover bids are priced so as not to win the contract but are submitted as genuine bids, which gives a misleading impression to clients as to the real extent of competition. This distorts the tender process and makes it less likely that other potentially cheaper firms are invited to tender.

In 11 tendering rounds, the lowest bidder faced no genuine competition because all other bids were cover bids, leading to an even greater risk that the client may have unknowingly paid a higher price.

The OFT also found six instances where successful bidders had paid an agreed sum of money to the unsuccessful bidder (known as a 'compensation payment'). These payments of between £2,500 and £60,000 were facilitated by the raising of false invoices.

The infringements affected building projects across England worth in excess of £200 million including schools, universities hospitals, and numerous private projects from the construction of apartment blocks to housing refurbishments.

Eighty-six out of the 103 firms received reductions in their penalties because they admitted their involvement in cover pricing prior to today's decision.

The OFT has also informed nine companies originally listed in its Statement of Objections that it will not pursue allegations of bid-rigging against them as it considers it has insufficient evidence to proceed to an infringement finding.

Related guidance issued today by the OFT in conjunction with the Office of Government Commerce cautions procurers against excluding the infringing firms from future tenders, as the practice of cover pricing was widespread in the construction industry and those that have already faced investigation can now be expected to be particularly aware of the competition rules.

Simon Williams, the OFT's Senior Director for this case, said:

'Our investigation has uncovered significant infringements of competition law on nearly 200 projects across England. Bidding processes designed to ensure clients and in many cases taxpayers receive the best possible choice and price were distorted, creating a real risk of increased prices. This decision sends a strong message that anti-competitive and illegal practices, including cover pricing, must cease. The OFT welcomes initiatives by the leadership of the construction industry to add weight to that message through a clear compliance code which we hope will help to embed more fully a culture of competition within the construction sector.'

The wording is interesting because while enormous fines have been issued, and the firms involved have undoubtedly been in involved in anti-competitive practices, the OFT does not appear to have quantified any losses. It remains to be seen if clients, especially the public bodies such as councils and health authorities, try to quantify potential financial losses and pursue contractors through the courts... if they are in a position to pay in these financially straitened times.

BPF says that town centre life support plan is not enough

Retail spend has experienced something of a mixed bag recently with some high street traders like Next seeing reasonable increases in profits alongside the supermarkets while French Connection and John Lewis are manning the barricades in the face of worsening figures.

Overall the retail figures for August remain flat with traders looking towards a Christmas boost to lift them out of the mire.

The Homes and Communities Agency £3m initiative to rejuvenate 57 town and city centres is attracting plenty of criticism. The number of vacant shops has tripled and there seems to be little prospect of a take up in retail space in the near future as large city centre retail schemes fall victim to the recession.

Ian Fletcher from the British Property Federation recently said 'First we had Hazel Blears’ craft fair solution and now we have £50,000 hand outs that are barely a drop in the ocean compared to the extent of the problem.’

The intention seems to be to fill empty shops with amateur art galleries and community cafés. That might not impress the owners of commercial cafés and galleries and £3m isn't anywhere near enough to make a huge difference nationally but it might provide lots of small catalysts for arts and community groups to keep the high street a little more active until economic times improve.

This might not be much of a shot in the arm for the beleaguered owners of empty properties as they battle with empty rates bills but it will provide some benefit for the third sector.

Provesta is working with an art collective to set up a network of community art galleries in the South Yorkshire region. More of that in another post.

... and the bees stole the show

I had a great opportunity to attend the From Bees to Best Practice event organised by BITC at the beautiful Temple Newson near Leeds. That's me far right, dressed to kill!

The purpose was serious though. The speaker from Leeds Beekeepers outlined the issues around colony collapse that has seen the European honey bee population decimated by half in Yorkshire, and more in some places. That might not sound like a problem but bees provide the pollination that's vital for food production. Without them our dinner table would be bare.

The problem of colony collapse seems to be complex, and the result of a number of factors. Since its appearance in the UK after WW2 the Varroa mite has affected hives, killing bees and their young. Wetter summers and warmer winters have affected how bees hibernate over the winter. Pesticides also play their part. The combination weakens the colony often resulting in the complete elimination of a hive of maybe fifty thousand bees.

A visit to the ICON Business Centre highlighted some of the environmental protection measures that have been included. From chilled beams to grey water recycling and the sedum roof we saw a well designed example of the current tools coming into use, though it has to be said that the actual execution occasionally left a little be desired.

So far so good but of more interest to me was how the operators of the centre had bought into the green vision that their building provides. By occupying the building they have taken a real interest, almost to the point of evangelism. It really matters to them and their enthusiasm is infectious.

It's still early days for the environmental building movement but these examples put it into the mainstream and people are absorbing the clues simply by being there. This can only help secure the investment potential of being environmentally responsible.

Agfa Graphics lithographic plate plant provided the last site visit. Recent improvements in technology have reduced energy and materials consumption, with significant reductions in waste, much of which is now recycled rather than going to landfill. They haven't found a viable solution to dealing with some of the chemical effluents, but for now it is being managed safely while they look for a solution.

All in all it was a fascinating day looking at best practice... but the tiny bees were still the stars of the show!