the guild of builders and contractors

Penalties for using red diesel

Tuesday, July 27, 2010 by Administrator

New penalties came into force on 1^st April 2010. The new penalties are a percentage of the potential lost revenue to the Exchequer. Penalties range from 10% of the lost revenue to 100%, depending on how much help is given to HM Revenue and Customs and the intent of the offender. They are significantly higher for people who deliberately try to avoid paying the right amount of tax in order to gain an unfair advantage.

A very important aspect of the penalties is that anyone running a business can be penalised if an employee or advisor commits what is referred to as "wrongdoing" - if they, for example, use red diesel bought for legitimate use (in farm machinery etc.) in their own car.

The penalty can be avoided if the business can show that it has taken reasonable care to avoid this by, for example, setting up procedures to prevent the wrongdoing.

Under the new law, Schedule 41 of the 2008 Finance Act, company directors and company secretaries can also become liable for a penalty if they gain personally from a deliberate wrongdoing through the company.

Mike Eland, Director of Enforcement and Compliance at HM Revenue and Customs said:

"We aim to support people who take care to pay the right amount of tax. Part of that support is to come down hard on those who deliberately evade paying. These new penalties are tougher and more consistent. Defrauding excise is not worth the risk."

The penalties will apply where someone:

• Handles goods on which excise duty has not been paid or deferred;
• Uses a product in any way that means more excise duty should have been paid; or
• Supplies a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of duty should have been paid.

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Capital Gains Tax

Friday, May 28, 2010 by Administrator

The Government would appear to be set on a path of increasing capital gains tax from the present 18% to 40% or 50% on all gains on non-business assets, such as shares and second homes. This would be a fundamental breach of conservative principles and manifesto pledges and as such must be condemned and challenged even if it means another General Election. The policy is being forced on the Conservatives by the Liberal Democrats because of their pledge of taking the poorest out income tax - those earning under £10,000 would not pay any tax.

Apparently the planned move is aimed at curbing short-term speculation but there is no doubt that it will harm business and act as a brake on entrepreneurship. John Redwood MP quite rightly suggests that the proposed tax rise should be replaced by a form of taper relief, where the longer an asset has been held, the lower the tax that is paid on it. Mr. Redwood is quoted as saying: "The Government has said it wishes to assist a substantial private sector led revival, and wants to see the enterprise sector create more jobs and homes for rent. The Government needs a policy which allows reasonable freedom for people to invest, encourages those who are responsible and who make provision for their families and their futures, and is fair."

Mr. Redwood suggests tax gains of under a year should be taxed the same as income, but at a top rate of 40%, rather than the current 50.

Longer term gains should be taxed at lower rates of 30% for two year gains, 20% for three years and 10% for four years. He said this would act as "stimulus to long term investment" and boost revenues. He adds: "I would myself go further and offer no capital gains after five years, to send a strong signal to the world's investors that the UK is back in business as a favourable location. I have been swamped with support for these suggestions, both from around the country and from Conservative MPs. It would send a strange signal if a Conservative led coalition government decided to more than double the capital gains tax rate set by a Labour government. It would damage the revenues and be unfair to anyone who saves, is prudent, or who ventures their money for the greater good."

The current uncertainty is causing a number of owners of second homes to sell now before the new tax rates become law. If capital gains tax is increased to 40% or 50% all gains on non-business assets, such as shares and second homes regardless of how long the assets have been held there will be a sharp decline in the number of properties available for rent and a reduction in the number of new homes being built.

Surely this is such a fundamental issue that Conservative back benchers should bring great pressure on David Cameron to adopt Mr. Redwood's suggestions even if it would mean a break with the Liberal Democrats.

Short-term gains on any assets should be treated as earnings and taxed as earnings at whatever rate of tax is applicable to the individual. However "short term" should be defined as one year. Any gain made over a longer period will include inflation which should not be taxed. The purchase of all assets will have been purchased with tax paid funds.

Members - any comments?

 

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Framework Agreements

Friday, May 28, 2010 by Administrator

Since posting our blog item "ethical procurement in the construction industry" we have received a number of questions and comments concerning "framework agreements" and in particular who these agreements benefit and whether or not they assist with cost effective procurement.

The perceived benefit for the building owner is that the procurement process has only to be carried out once for works being carried out over a term period of three to four years. However the process of entering into a framework agreement is lengthy and bureaucratic. High value contracts have to be advertised in the Official Journal of the European Union and this often results in a large number of interested companies applying for tender documents. A pre-qualification process is used to reduce the number of interested parties down to a short list of six to ten acceptable tendering companies. The cost of completing the pre-qualification documents and the marking criteria is usually such as to eliminate small and medium size firms who would almost certainly provide the best value for money solution. However at the pre-qualification stage price is not taken into consideration. The result is that the short list of firms included in the final stage of tendering are nearly always larger organizations with larger overheads and therefore higher prices than many of those eliminated at the pre-qualification stage. If the framework agreement results in a term contract with a single company both client and contractor are bound in for the period of the agreement. If the marketplace becomes more competitive during the period of the agreement the client does not benefit and if it becomes less competitive the successful company does not benefit from higher prices. Even if just three or four companies were selected from the short list to enter into a framework agreement on a the basis of restricted tendering on a project by project basis, the costs to the client would be higher than using smaller firms as the smaller firms would have been eliminated at the pre-qualification stage.

The problem would be solved by clients, especially those spending tax payers' money, not adding together all potential expenditure for a three or four year period and then, because of the ludicrous EU rules, having to procure the services by the framework system. In the light of the severe financial problem being experienced by EU Member Governments perhaps the EU bureaucrats will spend less time and money on bureaucracy and leave individual countries to manage their own affairs more economically.

It is usually the laziness and ineptness of those spending tax payers' money that want to find the least time consuming way of procuring the services of consultants and contractors rather than inviting tenders on a project by project basis. There are many competent and well qualified small and medium size firms of consultants and contractors that are far more competitive than the ones used on framework agreements. From our direct knowledge their schedule rates are frequently less than half of those of the larger firms.

The Guild would be pleased to provide detailed information to the newly elected Government of many examples of Government Departments and other organizations spending tax payers' money paying far too much for construction work and related professional services - assuming that the Government are genuine in their stated objectives to reduce costs and manage the economy efficiently!

The EU Public Sector Procurement Directive covering public procurement of services, supplies and works defines a framework agreement as "an agreement with suppliers, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and quantity". A framework agreement can be a "term contract" or a "call-off" arrangement. In the construction industry framework agreements are used by most government departments, local authorities and some major public companies. Architects, structural engineers, mechanical services engineers and CDM Co-ordinators services are often procured by framework agreements as is maintenance building work.

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Visitors to Our Website

Wednesday, April 28, 2010 by Administrator

More people now visit our website each month. Google, the best known search engine, report that our site received over 2000 visitors in February 2010. Of these over 60% used the "find a builder" section and made more than 2 specific searches.

All Corporate Members are included in the website database under the appropriate category. Corporate member's entry includes a direct link to their website. We urge all Members to check their entry and notify the Membership Secretary of any required additions or amendments.

Members of the public and some builders have commented that we are short of some specialist contractors in some areas. Trades mentioned include plumbers, electricians and roofers. We are targeting these trades at present, however if any member knows or competent and reliable specialists who would be eligible to become Corporate Members we would be pleased to invite them to apply for membership.

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Ethical Procurement in the Construction Industry

Thursday, December 24, 2009 by Administrator

Ethical procurement in the construction industry.

Contractors and consultants spend considerable resources in tendering for work. We believe that clients are entitled to take precautions to ensure that the competence and resources of tendering contractors and consultants are adequate and that the personalities involved are likely to be able to form part of a cohesive team leading to the successful completion of the project.

Pre-qualification would appear to be the best way forward. Many projects advertised in the Official Journal of the European Union (OJEU) indicate that the selection criteria is based 70% on technical competence and 30% on price. In these circumstances it would appear reasonable for the client to use a pre-qualification procedure to produce a short list of 6 to 8 suitable qualified contractors or consultants that pass the technical competence stage leaving only the price and any qualifications to the submitted tender to be considered before selecting the successful tenderer. To ensure the total integrity of the tendering process all tenders should be opened at the same time with two or more people in attendance. Where public, shareholders or taxpayers money is funding the project we believe that clients should award the contract to the most economically advantageous tenderer. In short, ethical procurement entails pre-qualification of all matters except price; followed by acceptance of the lowest tender taking into consideration any exclusions and/or conditions.

Pre-qualification questionnaires are often lengthy and require the submission of numerous copy documents and specific answers resulting in submissions of well over 150 pages and taking 30-40 hours of executive time. It can be argued that this is time well spent if it results in the inclusion in a short list of contractors or consultants invited to tender where only price will determine success. However where a pre-qualification process results in a short list of tenderers all of whom quote for the work only to find further conditions being applied resulting in price not being the determining factor this is, in our opinion, not ethical. Surely it is onerous upon the client to ensure that the pre-qualification process is sufficiently comprehensive to admit to the final pricing stage only those contractors and consultants that are totally acceptable and would be awarded the contract if their price was economically advantageous - the lowest in plain English.

A recent example of unethical procurement involved 22 consultants responding to an OJEU advertisement to work on a £15 million build cost project. The pre-qualification questionnaire required 30 hours of executive time and resulted in a document containing over 100 pages from each applicant. Six consultants were shortlisted and the tender prices were: £8,500, £18,750, £18,850, £21,000, £30,750 and £33,000. The work was awarded to the consultant who bid £18,850 on the basis of further information being requested as well as an interview. The lowest tender was not invited to an interview. The reason given for the decision against the lowest tenderer was that it appeared that they would not give sufficient time to the project. In this instance the client was a substantial public body spending tax payers' money. We believe that this is one of the worst cases of unethical procurement and a failure to spend tax payer's money with integrity. It could be that the tendering process was engineered in favour of the firm that was awarded the contract. Higher Government authorities refused to investigate the matter as did a Member of Parliament.

We would be interested to receive comments and other instances of unethical procurement procedures particularly where taxpayer's money is being spent.

 

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Our New Website

Wednesday, November 11, 2009 by Administrator

Our new website became live in October 2009.

There are a number of additional features that should prove useful to members as well as potential clients and the public in general. The search for members is now much simpler to use and the "links" section provides access to an enormous amount of information relating to the construction industry.

Membership can now be verified by name or part of a name. The search results indicate basic information about the member, including: full name, address, telephone number, email address and website. For corporate members a "more" facility provides a brief description of the activities of the member. This information is provided by the member and inserted by the membership secretariat.

In addition to builders our members include: specialist contractors (e.g. electricians, plumbers, roofing contractors, and kitchen and bathroom specialists), construction consultants (e.g. architects, designers, structural engineers, quantity surveyors, CDM Co-ordinators and health and safety professionals) and suppliers of building materials. These can all be found in the "find a member" section.

The "links" section gives direct access to other websites that provide a wealth of very relevant information to all involved in the building and construction industry as well as interested members of the public.

The website also contains a director general's "blog" and members are encouraged to comment on the subjects included and also to suggest subjects and opinions for a "forum" that will commence shortly. Comments and suggestions should be addressed to the Membership Secretary by post or email info@buildersguild.co.uk

As this is a new website we would appreciate being advised of any errors or omissions.

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Taking a Cover Price or Collusion?

Monday, October 12, 2009 by Administrator

The Office of Fair Trading has fined 103 construction companies a total of £129.5m for colluding on building contracts for local authorities. The decision followed what was one of its largest ever Competition Act investigations.The OFT said that the 103 firms engaged in "illegal anti-competitive bid-rigging activities" on 199 tenders from 2000 to 2006, mostly in the form of 'cover pricing'.

The Guild of Builders and Contractors believe that all clients, whether private, government department or local authority, are entitled to expect fair and honest tendering for their construction projects. Construction companies invited to submit a tender for a building project should either price the work without collusion with other tendering contractors or ask the client to be excused from submitting a tender, perhaps due to pressure of work or some other legitimate reason. Clients should not prejudice building contractors from tendering for other or future works just because they acted openly and honestly in asking to be excused from tendering on that occasion. The practice of taking a "cover price" from another tendering contractor fails the integrity test for a number of reasons. Firstly, each cover price tender reduces the number of genuine tenders the client will receive. If the client is advised early in the tendering process that a particular construction company is unable or unwilling to submit a tender the client would have time to invite a replacement construction company to join the tender list. Secondly, the taking of a cover price from another tendering contractor means contact and provides information to the other tendering contractor that could result in a less than competitive price. Any collusion could result in bid-rigging.

The practice of taking a cover price results in companies submitting higher tenders knowing they will not be chosen but showing a continuing interest in tendering for further contracts. Clients, sometimes ultimately the taxpayer, received a false impression of the level of competition and could end up paying inflated prices.

Apparently the Office of Fair Trading uncovered six instances of bid rigging where the successful contractors had paid an agreed sum of money to the unsuccessful tenderers. In 11 instances, the lowest tenderer had no genuine competition because all other tenders were cover prices. The client probably paid a higher price than it should have for the construction work.

The illegal anti-competitive bid-rigging affected a series of building projects, including schools, hospitals and residential schemes, worth a total of more than £200m.

Members - any comments?

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