Construction BUSINESS

CIF Regional Director, Western & Midland region, Justin Molloy discusses the pros and cons to bundling projects.

Bundling projects refers to the practice of combining a number of smaller projects into one larger project under a single contract. It is assumed that one of the major benefits of bundling construction projects is, that due to the economies of scale, one large project will cost less to deliver than a number of smaller projects, but is this assumption correct?

In a report prepared for the Vancouver Island Construction Association– “Fact or Fiction? Dispelling the Myths about the Bundling of Construction Projects”  [1]  it stated:

“Our extensive research on the subject of the bundling of construction contracts discloses a common thread. The actual evidence of the impact of project bundling does not support the claims made about its benefits, including substantial costs savings. Furthermore, the analysis set out in this paper leads to the conclusion that the costs of bundled projects may be considerably higher.”

The report identified three fundamental problems:

• No factual basis for promised savings
• Competition reduced
• “Hollowing Out” of economy

Whatever about the benefits of bundling, perceived or otherwise, it has many drawbacks:

• Bundling reduces competition by shutting out capable SME regional contractors from the tender process.
• SME regional contractor’s impact positively on their local economies, they employ locally, they buy locally and they spend locally. Therefore, when they are excluded from tendering for construction projects in their own locality the entire socio-economic development of that locality is negatively impacted upon, e.g. local employment opportunities are reduced, as are the benefits of the multiplier effect on the rest of the local economy.
• In some instances even the larger contractors may not be interested in tendering for these projects, i.e. the cost of preparing tenders may be excessive, the demands on their bonding capacity, cash flow and other resources may adversely impact on the their ability to tender for other projects.
• Bundling eliminates the ability of a contracting authority to spread its risks, i.e. rather than use a number of contractors to deliver different projects, the contracting authority is totally dependent on one contractor to deliver all of the projects.

The European Union and the Irish Government both recognise the importance of the SME sector and the need to ensure that it is not excluded from the public procurement process.

In a recently published European Commission document titled – “EU Public Procurement reform: Less bureaucracy, higher efficiency” [2]  it stated:

“The reform of public procurement legislation makes it easier for small and medium-sized enterprises (SMEs) to participate in public tenders, because:

• Contracting authorities will be encouraged to divide contracts into lots, making tenders more accessible to SMEs.
• The turnover required to participate in a tender procedure will be limited, allowing more SMEs and start-ups to participate.
• The documentation requirements for procurement procedures will be considerably decreased.
• The mandatory use of eProcurement will allow SMEs to exploit the full benefits of the Digital Single Market and will bring efficiency gains.”

In a Department of Public Expenditure & Reform circular – “Circular 10/14: Initiatives to assist SMEs in Public Procurement” [3]  it states:

“1.     In the context of the reform of the Public Service and the establishment of the Office of Government Procurement, it has been decided to update and strengthen measures aimed at facilitating SME participation in Public Procurement in order to reinforce their application across the public sector. ………..

2…………….. The OGP is committed to ensuring that SMEs are fully engaged with public sector procurement and the opportunities presenting. In conjunction with the Department of Jobs, Enterprise and Innovation, the OGP has set up a high level group on SME access to Public Procurement. The focus of this group is to develop and monitor strategies for SME access to public procurement . The group also has regard to the Government’s Action Plan for Jobs and specifically those actions aimed at maximising procurement opportunities for SME in the public sector.

4.2     Sub-dividing Contracts into Lots
The sub-division of contracts into lots facilitates access by SMEs, both quantitatively (the size of the lots may better correspond to the productive capacity of the SME) and qualitatively (the content of the lots may correspond more closely to the specialised sector of the SME). Lots may be also decided on a geographic basis, a work package basis, an internal organisation structure basis, etc. …..”

Given the commitment at European and National levels to make it easier for SMEs to participate in the public procurement process, and considering the negative impact bundling has on the SME sector, the decision to bundle projects should be the exception rather than the rule.

Before a contracting authority decides to bundle projects for public procurement they should first:

• Consult with the wider construction industry.
• Consider the impact bundling may have on the socio-economic development of the regions where the projects are to be delivered.
• Carry out a full cost – benefit analysis for any proposed bundling of projects.
• Be cognisant of European and Government guidelines that support the participation of SMEs in the public procurement process.