Councils 'misusing' credit-rating checks on SMEs

Local authorities are unfairly shutting out SMEs from winning construction work by misusing credit-rating checks, a report by the National Federation of Builders (NFB) claims.

Just over one in ten (13%) local authorities admitted using credit-rating checks to asses bidders on a pass or fail basis, contravening EU procurement regulations.

EU procurement regulations do not allow the use of credit-rating checks for pure pass or fail judgments on firms on contracts valued over £4.3m.

Yet, on the basis of its findings, the NFB estimates £2.1bn of public construction work is procured on this basis.

Credit-rating checks are compiled by credit reference agencies on the basis of a range of factors, including a firm’s financial reports and corporate structure.

The NFB says credit-rating checks are unfairly biased against SMEs as SME finances are more susceptible to anomalous fluctuations and are more open to interpretation.

Two-thirds of local authorities said they used credit-rating checks as one of a range of weighted factors in the procurement process.

The number of local authorities that use credit-rating checks on a pass or fail basis could be higher, as 10% of local authorities stated they used checks but did not clearly state how they are used.

The NFB survey’s response rate was 83%, with 288 out of 346 local authorities responding.