Local authorities could be inadvertently overpaying building contractors to the tune of £300m or more each year by failing to exercise their contractual rights and by insufficient analysis of payments.
Consultant EC Harris says the findings are based on a study of contracts between former public sector bodies such as utility and energy companies and their building contractors, where savings of up to 7% of contract sums can be made through rigorous policing of contracts.
Bill Green, head of local government at EC Harris, says local authorities frequently use the same contractors as utility companies and similar levels of savings could be expected.
Local Authorities typically spend 20% of their income on contractors, paying over £10bn each year through the new types of contract. Errors stem from councils not fully auditing suppliers' charges, often because of a lack of analytical skills in open book accounting and because of headcount reductions which, ironically, have themselves been driven by cost-cutting initiatives, according to Green.
Green says that in future local authorities must go back to the original wording of their contracts. Contractors' timesheets are one area that should be questioned, for example. Their accuracy should be verified as a matter of course but local authorities should also step back further to question how labour was allocated in the first place.
Many local authorities have moved to the new engineering contract for procuring construction work and these are better than fixed-price, lump-sum contracts, says Green but vigilance is required to ensure that local authorities obtain the full benefit.
Similarly, he says councils should examine how materials are purchased and whether it is local authorities or the contractor that are gaining from the discounts available for bulk purchasing.
"Local authorities look likely to get the go ahead to start house building again soon; what a great time to ensure that they have got the processes in place to catch that value," he comments.
Brian Standen, director of finance and commerce of 4ps, the partnership and project delivery section of the Local Government Association, says that although precise figures are difficult to ascertain, EC Harris is right to suggest that councils need to make certain they have the correct processes and skills in place.
"This would ensure that both the correct contracts are let in the first place, but also appropriate processes are introduced to manage the contracts once let," he says.
"Local authorities have already made significant steps to achieve this, but further improvements can still be made."
