| The procurement process is expensive, and represents a greater burden for smaller projects. |
The median cost incurred by authorities for external advisers was £750,000. Contractors reported much higher median costs of £2,800,000 (although only six contractors provided information).
The average cost of authorities' advisers as a percentage of capital cost was 3 percent, and the range was 1 percent to 9 percent. Higher percentages generally related to the smaller projects, reflecting the fact that costs do not vary much with project size. In interviews contractors commented that it was difficult to justify bid costs for projects with capital value below £40 to 50 million. In the schools sector, bundling projects has successfully reduced authority costs as a percentage of capital investment; average authority costs in this sector were 2 percent of capital costs.
Where bundling projects is possible, this can reduce the relative size of the authorities' costs. It would be worth considering whether more bundling of projects is possible, in particular in the health sector, if further small capital value projects are proposed.
Contractor costs are ultimately passed on to the public sector. Competitive pressure should drive these costs down, within the constraints of the bid requirements. Costs might be reduced further through the use of exemplar designs or standard contracts, by postponing due diligence requirements until later in the bidding process and, as discussed above, by bundling projects. These options must be weighed against their impact on value for money.