§ Mr. Tebbitasked the Secretary of State for the Environment what progress has been made in the discussions with the construction industry and the local authority associations which were envisaged in the statement by the Prime Minister on 8th October 1973; and if he will make a statement.
§ Mr. ChannonIn the light of the discussions so far the Government have decided that in present circumstances their policy of requiring firm price tenders for thoroughly pre-planned projects when the contract period is not longer than two years should be varied on a trial basis, and that until further notice firm price tenders should normally be invited for any such public sector projects only when the contract period is one year or less.
Client authorities will remain free to enter into firm price contracts when the contract period exceeds one year where they judge this to be in the public interest. Only in exceptional circumstances, however, will contracts for thoroughly preplanned projects be placed on the basis of variable prices when the contract period is less than one year.
Within the next few months an index-based formula method for variable price 391W building contracts as recommended by the EDC for Building will be adopted for public sector contracts; an index-based formula has already been adopted for civil engineering variation of price contracts. For all such contracts the non-adjustable element will be 15 per cent. of the contract amount. Discussions are continuing on the detailed application of the index-based formula for building contracts and further guidance will be issued in due course.
The new arrangements will be closely monitored to determine,, as far as possible, the effect on prices. It has been made clear to the industry that the Government expect to see a great narrowing in the gap between costs and tender prices.