Public Procurement and Property

Addressing Rising Construction Costs in Scotland

October 4, 2022 by 2 Comments | Category Construction, Procurement news, Property

We welcome a blog from our Property and Construction Division on addressing the rising construction costs in Scotland.

The Scottish Government recognises the significant pressures currently faced by the construction industry due to the dramatic rise in the cost of fuel and materials, inflation, and stretched public budgets. These pressures, coming on top of the continued impact from COVID-19, material supply issues and wider economic climate changes, are significantly impacting both public client bodies and members of the construction industry.

We are working closely with the construction sector, through the Construction Leadership Forum and other industry discussions to understand the impacts that this challenging time is having on the industry, on both large and small organisations.

In order to help address and mitigate these challenges, Scottish Government have a number of guidance measures that public sector bodies should be aware of when procuring and managing their construction projects.

Advice has been issued through CPN 3/2021 to contracting authorities on how to manage and mitigate market pressures affecting the availability and affordability of construction sector resources.  This advice covers existing contracts, but also advises on managing the design, procurement and delivery of forward construction portfolio programmes.

The Scottish Government recognises the significant pressures that can be caused by delayed payments in the construction industry, especially on sub-contractors and further down the supply chain. The Scottish Government have addressed this by providing guidance for wider public sector contracts encouraging prompt payment, the use of Project Bank Accounts, and consideration of the past payment performance of those bidding for public sector contracts. The Scottish Government is committed to paying our contractors promptly, targeting to pay valid invoices within 10 days of receipt, going beyond our contractual commitment to pay within 30 days. Further advice on contract payment terms is included in Construction Policy Note 9/2020.

To ensure that payments are made directly and simultaneously from public sector clients to members of a construction contract supply chain, bodies subject to the Scottish Public Finance Manual must include Project Bank Accounts in tender documents for contracts over the applicable value thresholds. The Scottish Government Project Bank Accounts Guidance defines these as £2M for building projects and £5M for civil engineering projects.

Although costs are increasing, it remains important the public sector actively seek to identify abnormally low tenders to encourage sustainable prices and successful delivery of projects and services.  Construction Policy Note 1/2021 reminds the public sector clients of their responsibilities in handling abnormally low tenders and highlights the importance of bidders putting in realistic and sustainable bids.

Whilst Local Authorities, or other bodies not governed by the Scottish Public Finance Manual, are not under obligation to take or follow Scottish Government advice, they are strongly encouraged to carefully review Scottish Government guidance and apply it where appropriate.

We will continue to liaise with both public sector bodies and construction industry representatives and continue our ongoing work with the Construction Leadership Forum to support the sector in managing the current sector challenges.

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  • Louis Perera says:

    This blog doesn’t address rising costs in the Construction Industry – it deals with payment terms and alt’s. Local Authorities are going to have to cancel projects due to the increased cost of materials and labour leading to revised estimate development costs far exceeding available funding – how will that be resolved?

    • Melissa Reilly says:

      Our published advice sets out policies and guidance that are relevant to procurement practices in the current environment of rising costs. The rising costs are putting pressure on both clients and contractors, and it is important that we continue to procure fairly, whilst spending public money responsibly, even in these circumstances.
      Scottish Government Construction Procurement Policy team is very interested in ideas about how we can achieve sustainable prices in the industry, especially when budgets are limited. If you are interested in sharing your experiences on construction costs and procurement from a Local Authority perspective and working with us to resolve the issues currently faced, please contact to discuss how you can get involved.

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