Highlands and Islands Enterprise's framework agreement with four main contractors has excluded Orkney-based construction firms from acting as main contractors for work they have traditionally carried out in the islands, according to local Scottish Building Federation director Stephen Kemp.
He said: "When I complained to the minister I was told that something like 80 per cent of a job had been contracted locally - but if you do 80 per cent of the physical work as a sub-contractor, nowhere near 80 per cent of the contract value goes to you,"
Mr Kemp, who heads Orkney Builders, told The Herald. "Those local contractors who were excluded could have done the whole job, realised the benefit, and had the confidence to take on apprentices."
HIE is currently using its framework agreement covering the whole Highland region to commission two industrial sheds, Mr Kemp says.
"We are once again going to find ourselves at the bottom of the food chain. The public sector simply cannot be obtaining value for money by tendering these projects in this way."
He was commenting on The Herald's SME-SOS campaign highlighting key obstacles which act as a brake on Scotland's vital small-business sector.
Stewart Nicol, chief executive of Inverness Chamber of Commerce, says he can see the trend towards national advertising, bigger contracts, and framework agreements. "I do understand why value for money matters, but benefit to the local economy is just being driven out."
Mr Nicol complained at the end of 2012 that eight construction contracts worth £25 million had all been awarded by Highland Council out of Scotland, to companies in Ireland and Northern Ireland.
He said there seemed to be "a greater tendency in other European countries that local businesses win the contracts".
Highland Council responded that it worked with local businesses, many of whom won contracts outside the region, and that Irish firms appeared to be paying lower wages.
Mr Nicol said: "I have repeated evidence from far broader than the construction industry that this is what is happening.
"The unintended consequences seem to be that local businesses who are utterly competent at every level and can meet the cost criteria are forced to bring in people from other parts of the country." Successful consortia would "position their tenders in such a way as to promise benefits to the local economy".
James Wilson, grocery wholesaler and supplier to Orkney Islands Council, lobbied the Scottish Government over its new Procurement Bill now passing into law. Assistant director Colin Kirkpatrick said: "There are numerous examples of big companies from the mainland displacing all social and environmental benefits that could have been enjoyed by the local community had the contracts been awarded to still-competitive bids by local firms."
The local firms had then been subcontracted to do the work, at "a fraction" of what they would have earned as main contractor. Mr Kirkpatrick said in his sector, "on paper and through the national online portal these national businesses can appear initially to be able to provide a competitive service", but too often there were "huge add-on costs due to complete ignorance of island conditions".
Orkney Islands Council says it has rules in place "to ensure a high level of transparency in all stages of the procurement process". Contracts up to £50,000 might not be advertised but required three quotations, while higher value contracts were subject to Scottish and EU regulations.
Mr Kemp said: "We have a big industry in Orkney, most of our buildings have been built by local contractors with lifelong local operating experience."
But Scottish Water had last year brought in a national contractor to build 170 miles of water-main in Orkney, Mr Kemp said. "They need machines, traffic lights, fencing and labour. Almost everything was imported into Orkney in the case of this contract. We have local, experienced groundworks contractors who lay water mains on a daily basis around Orkney."
He added: "Orkney has a very small and fragile micro-economy, but the vision we see from this ever-increasing centralised mindset is very frustrating and flies in the face of local progression."
HIE said it had appointed four firms as prime contractors for the majority of building projects across the region. "This framework allows the agency to proceed with construction projects quickly, after a mini competition under the framework, ensuring healthy competition between suppliers and demonstrating best value. However, we use our website to publish contracting opportunities over £50,000 when they arise and publicise successful suppliers."
Scottish Water said it had this year announced the creation of new water and waste-water infrastructure alliances for its 2015-21 investment period. "As part of this, we have been listening to the views of SMEs in the supply chain and have been taking steps to enable local contractors to have an increasingly important role in helping to deliver the overall programme - both as direct contractors and as sub-contractors."
The result would be "one of the most comprehensive-ever SME frameworks, covering capital maintenance spend primarily in rural communities".