28 May 2012
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ISG in u-turn over subcontractor fees

ISG has abandoned a controversial £300 registration fee it was charging subcontractors to pre-qualify for its national supply chain, reports Construction News.

The fee, which charged firms £300 + VAT (£360) to apply for “approved status” on the national supply chain for 24 months, was part of an online prequalification process.

According to a letter issued by ISG to subcontractors at the end of April, it was designed to give subcontractors “one formal approval” recognised across ISG, rather than having to apply separately to ISG Construction/ISG Fit Out and ISG Retail.

But industry figures including Rudi Klein, chief executive of the Specialist Engineering Contractors Group and Suzannah Nichol, chief executive of the National Specialist Contractors Council criticised the fee, which was in stark contrast to the free online pre-qual processes now used by most major contractors that absorb the procurement costs themselves.

When CN put the complaints to ISG, alongside findings from its own survey showing the majority of firms that do not charge, the contractor responded the following day. A spokesman said: “We have now taken the decision to withdraw the nominal fee associated with registration.”

Nichol welcomed the decision, saying it “demonstrates that by working together the whole construction supply chain can become more efficient”.

Interserve construction director Roy Bloom said charging of a fee to pre-qualify for work “can only be considered to be a taxation of opportunity” and sits very uncomfortably with government moves to standardise prequalification procedures.

But pre-qualification fees are not the only method used to extract administration costs from subcontractors. Willmott Dixon has adopted a controversial management charter that requires category A suppliers to pay a 1% levy on any work won.

And though Balfour Beatty does not have direct administration fees, it told Construction News that there were some “small pockets” of its business that avoid admin costs by referring subcontractors to third-party companies that may levy charges.