Appendix 2
Minutes of Evidence
26 November 2008
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Ms Jennifer McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Mr Wilfred Mitchell |
Federation of Small Businesses |
1. The Chairperson (Mr McLaughlin): I welcome the representatives from the Federation of Small Businesses (FSB): Wilfred Mitchell, who we have met often; George Dorrian, policy officer; and Jonathan Walmsley, public affairs officer.
2. Wilfred, in case you are not aware, the session is being recorded by Hansard so please switch off any telephones that you have as they will interfere with the recording. You may want to make some initial comments.
3. Mr Wilfred Mitchell (Federation of Small Businesses): Thank you very much. I am Wilfred Mitchell, policy chairman for the Federation of Small Businesses in Northern Ireland. My colleagues here today are George Dorrian, also a policy officer, and Jonathan Walmsley, a public affairs officer.
Public procurement opportunities have great potential to benefit small businesses, especially in these difficult economic times. That is an area that the FSB in Northern Ireland has identified as a policy priority and is researching its development.
4. Part of that work will involve examining examples of best practice elsewhere. Initial findings indicate that almost three quarters of SMEs rarely, or ever, bid for Government contracts. Furthermore, more than three quarters of SMEs believe that there are barriers that prevent awareness of Government opportunities. More than half of SMEs believe that the tendering process for Government contracts requires more time and resources than their business will allow.
5. In general, SMEs find it easier to sell to the private sector than the public sector. The success rate in winning private-sector contracts is double the success rate in winning public-sector contracts. There is concern that the procurement process is becoming increasingly geared towards large organisations, particularly in the construction sector. That is negatively affecting local SMEs in the sector.
6. In light of the current economic conditions, many SMEs are struggling, and we appeal to the Assembly to do all in its power to break down existing barriers. We have some key recommendations: improved access for SMEs to information on public-procurement opportunities; clarification and simplification of the bidding process; a reduction in bureaucracy; an increase in the processes’ transparency; and the introduction of adequate support schemes for SMEs.
7. In 2007, we visited Atlanta, Georgia, to examine best practice. That region has achieved successful results over the past 25 to 30 years, with at least 28% of SMEs obtaining public procurements. Those models should be considered.
8. Mr Weir: Thank you for the presentation. You mentioned Georgia; I presume that you visited Georgia in the United States rather than holding back Russian tanks. The Committee has heard evidence from central Government, and members noticed the lack of sharing of knowledge and the lack of learning of best practice. Do you have other specific examples that demonstrate best practice?
9. Mr George Dorrian (Federation of Small Businesses): The most recent example of best practice with which we have been involved in Northern Ireland was the 2012 Olympic process. Our members have reported positively on that process. Many local organisations engaged in the process, and several national representatives visited Northern Ireland to explain the process to the businesses. Although we do not yet know how many businesses have been successful, the number that signed up to the process was higher than with normal public procurement contracts.
10. Mr Weir: The problems in the construction industry have been uppermost in people’s minds recently. Does the FSB or the SME sector have an opinion on how the public procurement process is working for the construction industry, and whether it is fit for purpose?
11. Mr Jonathan Walmsley (Federation of Small Businesses): The SME sector is experiencing difficulties with time frames. Businesses must produce evidence of four to five years’ tendering experience.
12. The Chairperson: Can they not meet that threshold?
13. Mr Dorrian: Unfortunately, for obvious reasons, members are reluctant to come forward. The biggest issue that has come to our attention recently concerns construction framework agreements. There is a perception that frameworks are being bundled up in order to exclude small and medium-sized enterprises in Northern Ireland.
14. Mr Weir: Is there any possibility that you might issue an anonymous questionnaire? We were advised about, and you have reinforced, the view that a number of people in the construction industry are reluctant to talk. In part, people think that if they are seen to be giving off too much about what the Government are doing, they might be disadvantaged during procurement processes. I wonder whether you might find a way around that problem by issuing, for example, an anonymous questionnaire.
15. Mr Dorrian: The Policing Board, which is another of our recent business clients, might provide a model for that. Much of the feedback from its members was anonymous, and the reply rate was much higher than we usually expect. So, a model exists to do that.
16. Mr Mitchell: It may be worth sending an appropriately worded questionnaire to our members.
17. Mr Weir: Obviously, that is a matter for you; however, such a questionnaire might be helpful to you and to us, because, given that you must speak generically about small businesses, you are less directly exposed to the market. Many of your members might be reluctant to come forward to give evidence because they feel that they would be whistle-blowing and, regardless of whether that might be a perception or reality, they feel that they might suffer, explicitly or implicitly, a level of disadvantage. Therefore, such a questionnaire may be a productive way forward.
18. Ms Purvis: In your report, you said that many SMEs experience difficulty even getting hold of information about tenders and specifications. How much of that difficulty is due to the fact that larger contracts are advertised in one place; whereas smaller contracts are advertised all over the place? Moreover, is the time and effort that small businesses must put in to finding that information a factor?
19. Mr Walmsley: With regard to time and effort, our members have told us in surveys that a considerable chunk of their week is taken up with bureaucracy and that they want simpler application and tendering processes.
20. Ms Purvis: Have they requested a central source for such information?
21. Mr Walmsley: A central source for information is a good idea. Although Invest NI operates a tender-alert service, awareness of that scheme is not overly high among our members.
22. Ms Purvis: CPD told us that it has implemented a number of initiatives in order to help small and medium-sized and social economy enterprises access Government contracts. What experience have you and your members had of that support, and, given what you said about a single point of information, could CPD do more to help SMEs gain such access?
23. Mr Mitchell: I am not aware of any support reaching the Federation of Small Businesses. The cost of insurance, such as public-liability insurance, is a problem that employers often encounter when filling in forms. When they attempt to fill in the first couple of lines on an application form, they are forced to drop out. Therefore, we are seeking a willingness to encourage small businesses and a general principle to remove simple barriers, such as those associated with filling in application forms. If applicants cannot afford insurance, they will believe that there is no point going any further with an application. Very often we are not able to reach those other barriers, because people do not get past the first one or two.
24. Mr McQuillan: Following on from Dawn’s question, you have said that one of the things required is the provision of support schemes for SMEs. What other forms of support would be desirable?
25. Mr Mitchell: Support could perhaps be offered in relation to education or self-help. That would help SMEs to fill in application forms, overcome misinterpretations and educate them in what they may have to do in the future.
26. Mr McQuillan: Who do you envisage carrying out that role? Should Invest NI be taking a more proactive role or should that role be carried out by another organisation?
27. Mr Dorrian: In relation to Invest NI — and returning to one of the questions that was asked earlier — that organisation currently runs many events for its client companies. If those events could be extended to include the wider small-business community, that would be very welcome.
28. Certainly, the numbers show that 300 companies used the service to stimulate new business. That is 300 from perhaps 100,000 small businesses in Northern Ireland. If that communication could be extended to small business, that would be a positive move. Most small businesses in Northern Ireland are not clients of Invest NI; therefore the establishment of some sort of system to widen awareness is required.
29. Mr McQuillan: You need to be clearer when you say that there is a need for some sort of system to be established. If you do not know what you are asking for, it is very difficult to be given it. You need to be more specific in relation to what your needs are and then request that support. We can then examine your proposal and see what we can do to help.
30. Mr Dorrian: One area of support would be the creation of awareness campaigns in relation to the qualification questionnaires, and the issuing of guidelines as to what SMEs need to have in place before they attempt to access the system. They could spend two or three days out of the working week investigating the system; therefore it would be helpful if there were a process either online, or somewhere else, where they could input their details and see if they were eligible or suitable. An easy, one-stop shop is what is required, and the technology is there for that to be established. Those businesses may be unsuccessful at a later stage, but a system to give them guidance and get the ball rolling is what is needed.
31. Mr Walmsley: Additionally, the model of the Invest NI tendering workshops would be very helpful for SMEs. As George has said, Invest NI has assisted around 300 small firms through those workshops and has generated around £250 million for the local economy. A process that widens that out to SMEs would be very helpful.
32. Mr Mitchell: The taxman may be another model to use. [Laughter.]
33. Mr McQuillan: I do not think that we should go down that route.
34. The Chairperson: You nearly scared the life out of the Committee with that suggestion.
35. Is any encouragement given to SMEs — particularly the small businesses — to cluster and join together to compete for public-procurement contracts or do they approach it individually, and as competitors to each other.
36. Mr Dorrian: Largely, that is done on an individual basis. It is very difficult to get a number of SMEs to come together.
37. The Chairperson: Therefore, the potential benefits of that approach are not considered in either the workshops or the training programmes that currently exist?
38. Mr Dorrian: Not that we are aware of. The examples that we have are very much on an individual basis. The model that we referred to earlier — the 2012 Olympic process — was very keen to encourage clusters and groups, and that was one of its keynotes. However, in the wider sense that is not the case.
39. The Chairperson: It is not really in their culture, is it?
40. Mr Dorrian: That is another aspect.
41. The Chairperson: They are very individualistic and independent, I suppose.
42. Ms J McCann: I thank the witnesses for their presentation and their briefing paper. To sum up, the FSB seem to be suggesting that the processes must be opened to include more to small and medium-sized business and social economy enterprises.
43. In the paper provided, you state that 99% of the businesses here would be classified as small or medium-sized businesses. Furthermore, you state that three-quarters of those businesses do not apply for Government contracts, because they know that they would be unsuccessful. Clearly, that must change particularly given the economic downturn and the resulting need to create employment opportunities for local people.
44. You were present during the last evidence session, and you heard about the legal requirements under the EU regulations. Obviously, that is put up as a factor whenever anyone is trying to open up the process.
45. The Chairperson referred to clusters. I know that a number of private social partnerships have been set up to bid for public-procurement contracts, particularly delivery of services in local communities in the North Belfast and West Belfast constituencies. Have you ever considered linking up with some of the social-enterprise projects? Are the smaller businesses that have applied for contracts, but not secured them, happy with the feedback that they receive from the Central Procurement Directorate to say where they went wrong? Many smaller businesses are frustrated because they keep applying for contracts but do not get anywhere. However, no one is telling them where they are going wrong. Could the whole procurement process be opened up to smaller businesses in the social economy? Are there any small steps that we can take now? Is creating private social partnerships a way forward?
46. Mr Dorrian: On the first point, we have arranged a meeting with the North Belfast Partnership to take a look at issues such as that. We met the partnership a while ago, and it had approached us again. We are looking to put something together.
47. Very little feedback comes in a structured fashion. It is more informal, such as making telephone calls and finding out. I have a list of names in front of me and, for them, feedback is an issue that needs to be addressed. Feedback comes largely on hearsay, who was there at the time, and contacts.
48. Mr Mitchell: I think that you are right. If feedback were delivered in a structured form, we could look at each of the issues and see what has to be done to address them. However, that has not come together; it is more ad hoc at this stage.
49. Mr Walmsley: A full explanation that sets out why firms did not secure a contract would be helpful. This is purely anecdotal evidence, but one of our members told me about a tender that his firm had applied for, and which went to a larger firm. Nevertheless, his firm was subsequently subcontracted to do the work.
50. Ms J McCann: That happens all the time.
51. Mr Walmsley: The firm was given no explanation as to why it did not receive the contract first time round.
52. Mr Hamilton: Most of my points have already been answered. However, there are a couple of others that have not. You have outlined some of the barriers that small and medium-sized companies face. Aside from those barriers — even though they are major issues — some of the problems of smaller firms is that they do not have the capacity in-house to bid for the most simple public contracts. Is any assistance offered directly to firms — or to yourselves to pass on to your members — to heighten that capacity in the sector for people to bid for contracts?
53. Mr Mitchell: I think that that issue was raised. However, we are not aware of anything.
54. Mr Dorrian: Members, who are also clients of Invest NI, will receive assistance more formally, but that would be a very small number. The business and economic development section of North Down Borough Council ran workshops but, other than that, there is nothing structured. It was just an evening at the SIGNAL Centre of Business Excellence.
55. Mr Hamilton: There should be something along those lines where guidance could be given.
56. Mr Dorrian: There should be something along those lines. It would be helpful if there were facilities at local government, and if the economic development departments were to run workshops on that basis. If companies organise events, business people will attend, and that is important, but, if there are more technical issues, they will not attend. However, if business people know that such events will benefit their business, they will come out for them.
57. Mr Walmsley: To put it into perspective, although SMEs account for around 98% of the economic environment here, the majority of the businesses that we represent have fewer than 10 employees. Therefore, they simply do not have time to fill in tendering documents, which are quite complicated.
58. Mr Mitchell: Jennifer McCann hit the nail on the head earlier when she mentioned that people are not getting feedback on the reasons why their contracts are being turned down. There could be patterns for those failures, or there could be specific areas that could be addressed easily.
59. The Chairperson: There is a debriefing for larger contracts, which I am sure is very valuable for larger contractors. However, it would be equally valuable to SMEs — even if only to find out what they are doing wrong, or to find out whether the process is as objective as it should be.
60. Mr McNarry: I really like your slogan “Keep trade local". It is a good byword, and I hope that everyone can live up to it. When we got ensconced up here during the Programme for Government times, we heard evidence from a very successful bus manufacturer who told us that if people want to do something, they can. He had ambition.
61. I will make a generalisation — and it is something that the Chairperson referred to earlier. It is a massive jump from a small to a medium business, and it is even a big jump to go into a small business. Are you aware of any rewards out there to encourage growth? If not, perhaps there should be. However, if they are seen as a hindrance or are dismissed, then we should take the figures that you offer and have them analysed. I accept the beef and support the beef, but how many people actually have a real beef? Are the rest just attached to numbers because of membership, etc?
62. I listened to the now infamous Mr Peston on the BBC last night, and it was very clear that the big boys will survive, but the small boys will find it difficult in the current economic climate. What we are discussing is very pertinent to the situation in which we all find ourselves. We are all major shareholders in banks now, but, when one sees the Bank of England having to more or less demand that the banks and the Government pull their finger out, one wonders what is going on. What role do the banks play in terms of cash flow for small businesses if they are not actually helping big businesses? I am really talking about how confidence is generated for your members to get on the procurement list.
63. Simon was quite right in what he said. The ability is not there — it is about capability. Is there any point in trying to say that there should be some kind of funding to help people into the tender process, because you need to be cute in this matter? This is a make-or-break situation for many people, and I am hearing that many of your members are opting out. There is a greater need now to opt in, because the work will be in shorter supply due to the economic situation. There may need to be a fund for this, but I do not know whether there is. I do not want to be too dismissive of Invest NI, but everything that it gets involved in seems too complicated for the type of people that we are talking about. We need to simplify that, because, as the representatives from Quigg Golden Ltd said previously, sometimes simple is best.
64. Are there rewards to help people grow? Are there any funds of the sort that Simon mentioned, because that is almost a stopping point? Owners of small businesses make decisions, but the bank has them by the short and curlies with regard to securities. That must be a horrendous worry for owners of small businesses. Can the banks be further pressured into providing the funding that will enable you to tender?
65. Mr Mitchell: I will ask Jonathan to tell you about what we have done. We put a lot of pressure on the banks. It is interesting that last night’s programme said that it was only the big businesses that would survive. All the world leaders have accepted that the economy depends on the small businesses. That is crucial, and you are correct about the banks.
66. Mr Walmsley: We are calling on banks now. A lot of our members are coming to us and talking about the terrible pressures that banks are putting on them by way of calling in loans, for instance. You talked about the jump from small to medium businesses. A lot of our members tell us that they are encouraged to start up a business, but then they are in a state of limbo; there does not appear to be a process to help them to the next stage.
67. Mr Dorrian: There is a gap between starting a business and moving it from domestic to export. There is no incentive for the owner once the business is up and running.
68. The Chairperson: Let us be careful not to go off the topic. We are not discussing the broad remit of the Federation of Small Businesses, or even the small businesses. Today’s discussion is on public procurement.
69. Mr McNarry: I am considering the position of small business being in the position to chase the procurement, because I am not sure whether the situation is as bad as it could be or whether it is confined to a percentage of your members. If it is confined to a percentage of your members, I want to know whether there is a trail-off on it.
70. Mr Mitchell: If a small business that has a contract for procurement went to the bank today to ask for more money or an increase to its overdraft, it would have difficulty getting it.
71. The Chairperson: Following on from David’s line of questioning, if our Committee and the Assembly moved to the position of making procurement more possible for the SME sector as part of our response to the wider economic pressures — including the pressures that banks contribute — there is the question of capability and capacity when it comes to interfacing with the procurement process. If we decide to attempt to make it more straightforward, simple and objective, will there be a support mechanism that would improve that capability? I want to focus the discussion on procurement.
72. Mr Mitchell: We do not think that it is there, but we would welcome that. We believe that is where some of the problems are. That knowledge is clearly needed.
73. Ms Purvis: I have been contacted in recent days by various small businesses. Is there a difference in the small and medium-sized businesses that are gaining contracts? Are those who provide services or products, or those in the construction industry more likely to get contracts? Is there a disparity in the type of contracts won and by whom?
74. Mr Dorrian: The vast majority of contracts are for services, but I have no further breakdown of the figures for the three areas that you mentioned.
75. Ms Purvis: I am going off the subject, but is the help provided by Invest NI aimed more at exporting businesses?
76. Mr Dorrian: Yes; almost all those companies are focused on export.
77. Ms Purvis: So there is no help for small service providers at present?
78. Mr Dorrian: No; not as far as we know.
79. Mr McNarry: Has a value been placed on the business that you attained from the procurement process? Does anyone know how much that is worth?
80. Mr Dorrian: I have not seen any figures on that.
81. Mr McNarry: The business must go somewhere; I am just wondering how much it is worth.
82. Mr Walmsley: One way to think of it is that 300 companies can generate £264 million and there are 132,000 small to medium-sized enterprises in Northern Ireland.
83. The Chairperson: Yes, but those companies work across the economic spectrum, and it is the impact on the public purse that concerns the Committee. I note that Glover is considering the Government target that SMEs should win 30% of all contracts in the public sector.
84. Mr McNarry: What are the contracts worth now, what are we chasing, and how much could small businesses handle?
85. The Chairperson: The FSB is on list of stakeholders that the Committee is consulting, and you will be provided with the opportunity to make a written submission. Perhaps that will give you the opportunity to put on record more information arising from today’s discussion.
86. That ends members’ questions. Thank you, Wilfred and colleagues for your assistance and patience. You gave the Committee much more time than had been allotted to you. It has been a most helpful meeting, and we look forward to receiving your submission. If any issues arise that would specifically help the Committee to frame its approach to the inquiry, we will write to you about those separately. The submission is your contribution to the review, but the Committee may also require your assistance on particular issues, and we will let you know should that be the case.
26 November 2008
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Ms Jennifer McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Mr Edward Quigg |
Quigg Golden Limited |
87. The Chairperson (Mr McLaughlin): We now welcome Edward Quigg, James Golden and Caroline Eccles of Quigg Golden Limited, contract consultants. I understand that this is your first appearance before the Committee, so you are very welcome. If you would like to make some opening remarks, Edward, after which we will have a question and answer session. Simply cover the salient points, because I find that the questions are, perhaps, the best way to get to know each other and to drill into the subject matter.
88. Mr Edward Quigg (Quigg Golden Limited): The background to the document that I produced for the Committee is very simple, and you will be glad to know that I do not intend to take the Committee through it word for word. The terms of reference document that the Committee Clerk forwarded to me is accurate in identifying the issues currently affecting the construction industry in Northern Ireland. I have taken the liberty of identifying one or two other issues which I have included in the document, and which members may decide are worth considering.
89. The first issue deals with putting policy into practice and the lawfulness of procurement procedure. There have been a number of disputes in Northern Ireland about the public procurement of construction works. I am sure that the Committee is aware that two contractors — Henry Brothers, and McLaughlin and Harvey Limited — mounted framework challenges for construction work that was worth some £1·5 billion collectively. In each of those procedures, the courts ruled that they were unlawfully conducted and, therefore, had to be scrapped. That work is now on hold until such times as the Central Procurement Directorat e (CPD) decides, along with the industry, how they should proceed.
90. I am aware of at least 13 other disputes that have been settled by the public sector or have resulted in an award in favour of the contractor. Therefore, such challenges are not simply limited to the two cases that I mentioned. This is a big problem. It is fair to say that Northern Ireland is the UK leader in dealing with procurement issues, because we have had so many of them, which is not necessarily a good thing. I have tried, in the document before the Committee, to identify why that might be — or, at least, my initial view on the matter, which is something that the Committee will have to consider when taking evidence from the stakeholders.
91. I would like to express a word of warning: stakeholders — that is, the construction companies – are extremely nervous about commenting in a negative way about how procurement is being carried out in Northern Ireland at present, because they do want to the bite the hand that feeds them. The Committee should be aware, when taking evidence, that witnesses are very nervous because they do not want to criticise the people who are assessing their competency.
92. The terms of reference also addressed the issue of social clauses and the ability to include them in construction contracts. There is no difficulty with doing that if it deemed that you want to include social clauses for, for example, putting the long-term unemployed back into work or for green issues, such as recycling materials and using wood from environmentally friendly forests. There is no difficulty with doing that. However, the CPD must be careful about how that is done.
93. It is perfectly OK to specify in the contract that a contractor must comply with those issues. The difficulty, at present, is that there is no practical way of enforcing that. If a contractor does not do those things, ultimately, you can determine his contract and kick him off. That is what I refer to as a nuclear option, because it is draconian and disproportionate, and, therefore, is never done. A proportionate incentive and sanction must be built in to a contract, so that if a contractor fails to do the things that he said he would do, he faces a proportionate penalty; and if the penalty is proportionate, it might be imposed.
94. From a lawfulness point of view, however, taking social considerations into account at an award stage is extremely dangerous. The European Court of Justice is in a state of flux. For example, if one takes into account at award stage a contractor’s apprentice scheme that could be successfully challenged. I have said in the document that the CPD should take expert advice if it intends to do that, because it is not clear whether that is possible.
95. The terms of reference raised the issue of opening up the market to small and medium-sized enterprises (SMEs) and social economy enterprises (SEE). SEEs do not really play a key role in the construction industry. As regards SMEs, the answer is simple: plenty of work must be let on a simple basis in suitably sized packages. Much research has been carried out on the matter throughout the European Union, and my submission document refers to a paper by the European Commission which provides guidelines as to what should be done.
96. One issue is letting the work in suitably sized packages. Two frameworks that have recently been challenged represent about £1·5 billion of work, yet the individual projects that will be constructed under that framework will be much smaller than the overall project. Therefore, by bundling the projects together into one competition, SMEs are excluded from taking part in the tendering process. There is a role for SMEs that can offer best value, but work is not being let in that way as much, perhaps, as it could be.
97. Another issue that the Committee may wish to consider is the appropriate use of a contract form. I do not want to get bogged down in detail, but, at the moment, there is a move to use a target cost-type contract, which shares the pain and gain, depending on the financial out-turn of the project. If the project goes over budget, the contractor shares in the pain, and if it comes in under budget, the contractor shares in the gain. That procurement method is entirely suitable if the contract is large enough to merit it. However, I have heard of that type of contract being used for £1·5 million of construction work.
98. In my view, that procurement method is entirely inappropriate in that situation. The use of such a contract should be limited to occasions when the value of the project is high enough to justify the administrative burden involved. Equally, the use of early contractor involvement is very sensible. That option brings contractors in at design stage and asks them to help with the design process in order to produce an economic building. Again, such an approach is entirely sensible when the value of the work and the type of work merits it. It should not be the norm.
99. The final issue that the Committee might want to consider is tendering based on the duration of the contract. We tender on price and on what is referred to as quality submissions, when we consider how good the contractor is. However, we do not ask contractors how long it will take to complete the build; we tell contractors that. That approach does not seem sensible, because it is contractors who are best able to decide how long it should take to complete a project. That is factored into the awards, so a contractor who says that he will complete the build in 10 weeks can charge a higher price and still win the contract.
100. EU-wide, contractors are asked to price on duration as well as on price. In the UK, however, it is believed that employers are better able to specify the duration of a project. It is sensible for them to specify a range with maximum and minimum points, but we should let contractors tell us the duration. Depending on their methodology, they may wish to accelerate the works and can do so efficiently. Let them tell us that.
101. Towards the end of the document, I set out questions that the Committee may wish to consider in its evidence-taking. I will not go through them, but I have set out what I believe is a way forward. To summarise, unless one can justify a more complex approach, one should keep it simple. Some of the very complex procedures that procurement bodies are adopting are leading to disputes, and overcomplicating the process creates more opportunities for mistakes to be made and, therefore, for the process to be declared unlawful.
102. When dealing with relatively small construction works such as less than £5 million, and which are designed by the employer, price and duration should be considered. Adopting such a simple tender process would open the market up to SMEs. With a large or complex project, there is justification for using target-cost contracts, early contractor involvement and what, from time to time, may be referred to as more sexy procurement methods. However, those methods must be justified. For projects somewhere in between, one should be able to opt in or out, depending on the nature of the project.
103. Those are the issues that I wanted to talk the Committee through, and I am more than happy to answer any questions that members might have.
104. The Chairperson: That presentation was excellent.
105. Mr Weir: I would like a few points clarified. You mentioned legal requirements and the issue of over-complication. You mentioned the two high-profile cases that have been settled, and another 13 of which you are aware, and there may be others. Apart from the issue of over-complication, are there any other areas that you think it would be useful for the Committee to explore when trying to determine why those sorts of legal challenges keep arising? Are there any particular areas that you feel the Committee should be probing in relation to that?
106. Mr Quigg: There are two principle reasons why contractors would like to challenge and dispute tendering processes. One is the size of the contracts. The contract tendering for the IST framework, which was challenged by McLaughlin and Harvey Limited, was worth between £500 million and £800 million. When that firm was told that it was not getting on the list, it simply could not afford not attempt to challenge it. Therefore, letting very large contracts in comparison to the total public sector construction spend is inviting trouble.
107. Secondly, in my opinion the procuring bodies have a tendency to over-mark quality. The CPD’s own guidelines say that quality in repeat-type typical construction work should be marked at between 5% and 10% — price being the balancing factor — yet I have seen maintenance contracts let by health estates in which quality has been marked at 70%. Quality is marked according to the answers given by the construction companies to a number of questions. That is a very subjective approach, and it is, therefore, very easy for a contractor to claim unfair treatment, or to complain that they did not get the work even though they are as good as their peer. Therefore, that leads to contractors wanting to challenge decisions. Ultimately, however, the challenge will fail unless the process has been unlawful.
108. It is sad to say that there has been a total failure to stick to the rules. I cannot understand the underlying reason for that, but one example is the case that was disputed by McLaughlin and Harvey Limited. Apart from the technical breach, which was referred to in the CPD’s submission to the Committee, the marking scheme was drawn up only after tenders were received. Only then was it decided what weighting should be given to various characteristics. The process was carried out over two months, and yet the CPD could not produce one note of what its assessment was. That is very strange. In relation to some of the other cases of which I am aware, it is as if everyone knows what the rules are, but decide not to stick to them. I cannot understand why that is the case.
109. Mr Weir: Those appear to be schoolboy errors. I understand your point that the more the qualitative and quantitative nature of factors are considered, the more subjective the process becomes. There are more grey areas, and, therefore, the process is more open to legal challenge.
110. You spoke of a distinction between having potentially allowable built-in social factors in contracts, such as taking into account using the long-term unemployed or particular types of material, and taking into account the issue of individual schemes or firm schemes at award stage, which clearly would be illegal. What could be a potential grey area when putting together a procurement process, in order that, from a social economy point of view, it is not seen to favour or exclude particular companies? For example, I presume that it would be potentially illegal to require tendering firms to have a particular type of scheme in place, as that would seem like an unfair disadvantage to firms without such a scheme. Presumably that would pose a legal danger.
111. Mr Quigg: That is true. What can be done at selection and award stage is: first, firms that do not comply with legislation can be excluded. Therefore, an employer who does not follow equal opportunities legislation can be excluded. That is simple.
112. Secondly, at selection award stage, the capacity of a firm to comply with what it will be asked to do can be examined. For example, if the contract states that 10% of the workforce must be apprentices, and if, at award stage, a contractor says that he does that anyway, that contractor has demonstrated his ability to do that. However, if another contractor says that he has never done that and would not know how to go about it, he can be marked less highly because he has not demonstrated his ability to do what he will be required to do.
113. Mr Weir: However, to take that example of apprentices, if we were to say to the firms that will be awarded contracts that they must put in place a scheme that would have a certain number of apprentices, that would be legitimate, but, say, we were seeking a certain number from a firm that already had a scheme in place, would that firm fall on the wrong side?
114. Mr Quigg: That would probably be unlawful.
115. The Chairperson: Just to be clear, when does that discussion take place? Does it happen during pre-contract negotiations or at the pre-qualification stage when people are trying to get on the list?
116. Mr Quigg: The first stage would be for the procurement body to decide what it wants at an early stage. In Northern Ireland, there should be discussions between the construction industry and CPD as to what is wanted, so that people can point their firms in that direction. Ultimately, the contract documents that come out from CPD, or whoever, state what must be done and how the firms will be marked. The discussion happens at that stage.
117. A bone of contention with some construction firms is that they discussed those issues and were encouraged to put in place quite heavy management and training systems in their organisation, only to discover that a competitor who did not do any of that and, therefore, did not incur any of the cost of doing it, was winning the work. The process must be fair; if a firm is being asked to do something, it must be rewarded and allowed to earn that money.
118. Mr O’Loan: Can you summarise what you see as the intended rationale for using a framework method? You have already talked about the size of frameworks. Do you think that they are a good idea generally?
119. Mr Quigg: Probably not. There are occasions where I can see framework agreements being a good and useful practice. I do not know the rationale behind the way that the two framework agreements were let, because I cannot follow it. I cannot justify what someone has done, and whether I would have done it in the same way. However, to award £1·5 billion of work in two competitions, bearing in mind the size of the public-sector market in Northern Ireland, is very disproportionate. It has not proved to be successful.
120. I do not think that the advantages of doing it in any way outweigh the disadvantage of doing it. We talked about opening the market to SMEs. However, the top company in the IST framework was a joint venture between Farrans (Construction) Ltd, Heron Bros Ltd and Tracey Brothers Ltd — three very large, very competent construction companies in Northern Ireland — yet they did not feel that they could go in on their own. They had to join forces to be able to compete and to get on the list.
121. Mr O’Loan: Is there any argument that encouraging companies to form consortia could be good for public procurement? Could there be greater efficiency and economy for the public sector as a result?
122. Mr Quigg: I have not seen any arguments that would persuade me of that.
123. Mr Golden: That is part of the thinking behind the development framework. By forcing the construction industry to step up to the mark as regards consolidation will deliver economies of scale and higher quality, but that is with the intention of assisting small and medium enterprises. It is a justifiable policy to have consolidation in the construction industry, and to deal with larger entities within the industry, but that is largely intentioned with the idea of encouraging small and medium-sized enterprises.
124. Mr O’Loan: If it is used, does the process permit SMEs, including quite small ones, to get in on a subcontract basis?
125. Mr Quigg: Yes, absolutely; there is no difficulty with SMEs coming in as subcontractors. The question is whether it is acceptable, as a policy, to tell small or medium-seized enterprises that they cannot work as a main contractor, but that they can work as subcontractors. Caroline and I have been involved in a case where my client had done the same work for 30 years, and was then told that he did not pre-qualify. The eventual winner was then going to appoint him to do 100% of the work; 100% of it would be subcontracted to the same man and the Centre of Procurement Excellence said, on affidavit, that that would be fine, and that it did not have a problem with that. The same people would be doing 100% of the work, and the only difference would be that the person who pre-qualified would take a percentage.
126. The Chairperson: Value for money.
127. Mr McQuillan: Regarding all those bigger firms merging in order to get into the procurement exercise, is that not doing away with part of the competition?
128. Mr Quigg: Yes, it is. First, they are merging only for the purpose of that one competition; they will compete against one another elsewhere. However, there is an argument that it is doing away with part of the competition. In fairness, if five people are competing, that should give a reasonable spread that should ensure competition. It has encouraged contractors who have traditionally not been based in Northern Ireland to compete for the work. Firms from the Republic of Ireland and England have taken part in that competition because it has attracted them. There is an argument that that will help to increase competition by bringing them in — giving them a big enough carrot, if you like.
129. Mr McQuillan: A double-sided coin?
130. Mr Quigg: Yes.
131. Ms Purvis: Thank you for your report; it is excellent. You said that the inclusion of social clauses poses no difficulties particularly in relation to specifications. Some of the briefings that we have had suggest that there could be difficulty with regard to the size of the award and also in relation to EU legislation. I wonder if this is in terms of equality and being able to appoint or employ who you like, or if it is for some other legislative reason. There seems to be a very restricted view coming from CPD about the inclusion of social clauses. Some Assembly Members want to see public procurement opened up to include more and more social clauses, not only regarding employment, but sustainability and environmental issues. I am trying to find out where the barriers are to that.
132. Mr Quigg: I will try to answer that. In stating that the way in which the contract is carried out means that you must comply with all of the requirements therein; there is very little restriction. If you wanted to introduce a clause stating that you would only employ people from Northern Ireland, then that would be a restriction because that is infringing the principles of the EU Treaty. For most of the types of clauses that people have wanted to introduce, there is no difficulty in specifying that in the contract.
133. However, a big problem arises where a contract is awarded, or a contractor selected, based on track record, experience or promises to do things. If you try to do that at award and selection stage, it becomes difficult: people will then talk about infringement of EU directives. As I have said, the European courts are, to some extent, sending mixed messages about social clauses. A ruling was made on a contract in Paris, which stipulated that a certain number of local unemployed people had to be employed. It was decided that that was not a factor on which a contractor could be selected, or one which could be taken into account at selection or award stage. What you could do is make it a condition of the contract, so that the successful bidder would have to comply. That is the difference.
134. Ms Purvis: Therefore, it is best that the conditions of the award are laid down at the specification stage, rather than made at selection or award stage?
135. Mr Quigg: Yes. Let us take an example: the use of wood from sustainable forests. Contractors should not be asked what their policy is on that, or what they have done in the past; rather, it should be a term of the contract that, say, at least 50% of the wood should come from sustainable forests. At award stage, the contractor can be asked to demonstrate his technical ability to comply with that provision. He would have to demonstrate that he understands what that issue is about and that he has a supply-chain management system able to verify that. If he can show that he can do it, that is as far as you can go with it. I do not know if that has helped.
136. Ms Purvis: It has. Thank you.
137. Mr Golden: Allow me to make a point about social clauses. The biggest problem by far in achieving the social aims that social clauses are supposed to advance is at enforcement stage, rather than getting them into the contract. Making social clauses clear enough to be enforceable, and ensuring that they are enforced at contract stage, is difficult.
138. Ms Purvis: That is something I wanted to ask about. You talked about a proportionate sanction, something that will affect the contractor’s pocket. I worry that that would lead to more litigation and more protracted negotiations. If the contractor does not comply with the terms of the contract, he is liable to make a lump-sum payment, or an award will be made to the contractor if he does comply. Which do you think is best: to try to recoup money for failure to comply, or to award it for compliance?
139. Mr Quigg: It depends on the issue. Some things can only be done as a penalty, as opposed to an incentive. It depends on the nature of it. The member has identified one factor — it can create more disputes. However, the construction industry is getting better at dealing with disputes. The decision of whether the contract has been complied with is made by the contract administrator. The penalty or incentive will be subtracted or awarded in the same way as any other variation. It is dealt with in the same way as a wall that is built 10 metres longer than specified on the drawing.
140. Two weeks ago, I met the secretary general of the Joint Contracts Tribunal (JCT), which is the drafting body for the standard form of building contract. We talked about this. He will consult to see whether JCT can produce standard clauses that will implement that. I hope that that will take away the worry. However, sanctions and incentives must be proportionate, or there is no point in having them. There is always the danger that contractors will ignore such clauses, ask what you are going to do about it, and get away with it.
141. This is at a tangent to the discussion, and I hope you do not mind my introducing it, Chair. In construction, there is now an adjudication process to deal with disputes. It is a 28-day process to resolve disputes, and it could easily deal with this.
142. I brought that up because, when I was asked to come here by the Committee Clerk, I noticed that a reform of adjudication procedures is one of the matters under consideration. I was surprised to discover that CPD was consulting on such a reform, because, for the last two years, I have been involved in the reform of adjudication procedures in the UK, through the Adjudication Society. No adjudicator or person who represents anyone in adjudication in Northern Ireland has been approached by CPD in relation to that, yet we understand that a review is being undertaken. That sort of thing rocks people’s confidence in such processes.
143. Adjudication has totally changed the way that construction disputes are dealt with. It is extraordinarily important to the industry, and it seems that a review is going on, yet there is no consultation on it. I am sorry; I know that that is at a tangent to the matter. I thank the Committee for its patience.
144. The Chairperson: That issue will come back to the Committee when the proposed legislation is introduced — probably after the summer recess.
145. Ms Purvis: I have one final question. The Committee heard some research statistics on SMEs earlier. One of the complaints from SMEs is the overemphasis that is placed on price by the awarding body. However, in your submission, you say:
“Price and duration has to be the dominant award criteria".
146. If we are to try to open up more opportunities for SMEs, how can we reconcile those views?
147. Mr Quigg: I suppose that the cop-out response is that you must ask the SMEs what they want. I looked at the issue, and I thought that one of the barriers to SMEs was the pre-qualification questionnaire, which is a bar that businesses must get over in order to get on to the tender list. I felt that it was biased in favour of larger contractors and, therefore, made it more difficult for SMEs to take part in public procurement. Therefore, I felt that simplifying the questionnaire and setting the bar lower and then asking for details of price and duration might attract SMEs. SMEs may be saying something different; they are the experts. I have looked at the issue and offered my view on it.
148. Mr Golden: I am sure that what Mr Quigg said is applicable to the medium-sized enterprises — especially the larger ones — but not to the small enterprises. There is tension within the industry about how to deal with such matters.
149. In my direct experience, the smaller enterprises in construction, which are the building blocks that make it all happen, cannot paint a picture — many of the quality questions that are being asked are mere picture-painting exercises, rather than questions that are objectively assessed. Many of the smaller contractors cannot present the picture as clearly as the larger ones can, but they are often presenting quality. The way in which they are assessed is subjective and inconsistent. If the process were consistent over a long period, I presume that it would settle in and smaller enterprises could compete. However, the remarks in the paper, to which you referred, apply only to the larger end of the medium-sized enterprises, in my experience.
150. Ms J McCann: Thank you for your presentation. You have already answered some questions that I wished to ask, but I want to ask about the social clauses. Recent procurement guidelines are supposed to be centred on the concepts of equality of opportunity and sustainability. It seems that, every time we propose including social clauses, we face the argument that, if we go down that road, we will be in breach of EU regulations. Is there anything in the EU regulations to say that a project should not be marked on the social value that it will give?
151. Mr Quigg: Yes. I must be clear about that, and perhaps I have not been. At the selection stage of determining who is best suited, you must be extraordinarily careful not to take such factors into account. You cannot state that firm A is more socially responsible than firm B. However, after the selection has been made, the contract can require the successful company to fulfil many requirements.
152. Without knowing the specific social clause that you would like to be included, I cannot understand how someone could say that it would impinge on EU regulations — unless it is something such as being willing to employ only Northern Ireland workers and not Spanish workers. That is highly discriminatory on the grounds of determining the nationality of workers and, therefore, the clause would be declared invalid.
153. Ms J McCann: My question was more about recognising a project’s social value and what it delivers in local communities, as opposed to its monetary value alone.
154. Mr Quigg: I cannot see how that decision is relevant to the relationship between you and the contractor. Many factors could be taken into account in determining the need for a project, whether to allocate some of the budget to it, and whether it should be done in-house or by the private sector, and social value may be a consideration in that case.
155. However, it is not a relevant consideration in the relationship between the public sector and the contractor who carries out the work, because contractor A will be no better at adding value to the social economy than contractor B or contractor C.
156. Mr Golden: Perhaps I misunderstood the question too, but the legislation specifically states that factors such as aesthetics can be taken into account in considering the design and build or value of a project. Therefore, I do not understand how a project that is delivered from a social perspective would be automatically excluded. I imagine that the devil will be in the detail.
157. Ms J McCann: It is particularly relevant to social-economy projects when contractors are not marked according to the social contribution that they deliver to the community when bidding for a contract, but simply on monetary contribution.
158. Mr Golden: If you try to procure in a way that would discriminate against EU-wide procurement, you will run into difficulties. As long as you were happy, for example, that a project contributed to the social development in Berlin or anywhere in the EU, that would be fine. However, I completely understand why a clause that would require particular social value could be discriminatory in an EU sense.
159. Mr Quigg: Yes; that is correct. If Ms McCann is suggesting that she wants to give the job to contractor B because that contractor employs the long-term unemployed and a certain percentage of disabled people, she would run into trouble.
160. Ms J McCann: Is that in the EU regulations?
161. Mr Quigg: Yes, because you would be selecting and awarding a contract on a basis other than the highest economic advantage. You can state that everyone is welcome to tender for the work but that whoever wins the contract will have to do x, y and z, and that is not a problem. However, if you want to say that contractor A is 10% more expensive but that all that he does for the community should be taken into account, you will run into difficulty.
162. Ms J McCann: So any social value would have to be stipulated in the tender process?
163. Mr Quigg: Yes, that is where you can state what you want the contractor to do.
164. Ms J McCann: My second question is about the thresholds. There is a certain threshold at which EU regulations come into force and a threshold beneath which they do not apply. Is that right?
165. Mr Quigg: That is not quite correct. Perhaps I am being slightly pedantic, but, if the value of a construction contract is over approximately £3·5 million, EU directives must be applied. Even if the contract is worth less, your hands are not free because you must still comply with the principles of the EU treaty: the free movement of goods and services; no discrimination on grounds of nationality; and so forth. Therefore, even if you are below that threshold, you still have to comply with certain requirements, although they are less stringent — you cannot do what you like.
166. Ms J McCann: If contractors break the terms in their contracts, is disallowing them another contract a proportionate penalty?
167. Mr Quigg: In the selection procedure, you can ask that the contractor demonstrates that he has satisfactorily completed similar works in the past five years. If a contractor has not completed similar works in the past five years because he did not comply, that is a reason for not selecting him. I am not sure about suspension as a penalty for breaching terms of a contract — my gut feeling is that you could not do that, but you might be able to.
168. Mr Golden: The difficulty is that, although you would exclude contractors who have failed, you will also allow people into the competition who never would pass. Just because someone comes from outside, that does not mean that they will provide a better quality of service or that social aspects will be included properly in the contract.
169. When I referred to proportionate penalties, I meant defined penalties in the contract for people who do not comply with certain measures. For example, if someone is caught using timber that is not from a renewable source, the damage is liquidated as £1,000, which comes out of the contractor’s account. Similarly, if a contractor states that he will use a certain amount of apprentices and fails to do so, there is a proportionate financial penalty.
170. I suggest that course of action because it is in the contract, which means that you do not have to go to court and sue the contractor to get the money, and it is not something that will continue into a bigger arena. If a Government organisation tells a contractor that he will never work for it again if he does not employ the correct number of apprentices, it is in the contractor’s interest to dispute that because the penalty is so severe. When I talk about proportionality, I mean small penalties for small breaches to encourage people to conform rather than ignore the rules.
171. Ms J McCann: I understand that, but the difficulties arise when there are contractors who habitually breach the terms of their contracts. That does not give other people who would act differently an opportunity.
172. Mr Quigg: All the contracts provide that habitual offenders are served a notice stating that they will be kicked off site if their breaches of contract are not remedied. Although it is the last resort, that option still exists to deal with a habitual non-performer. An earlier sanction regime is required.
173. As James said, if you try to suspend a contractor from future work, he will dispute it. Equally, from an employer’s viewpoint, because it is such a big issue for the contractor, it is less likely that the sanction will be imposed, which renders it ineffective, because everyone knows that it will not happen.
174. The Chairperson: Given that some contractors may decide that they can take the hits, how do you financially calculate the balance between incentivising contractors who perform and penalising those who breach their terms of contract?
175. Mr Quigg: I have suggested two ways, although I am sure that there are others. One is attaching a lump sum to work being done. Another is through key performance indicators whereby the contractor is told everything that needs to be done, and, depending on his mark, the contractor gets paid a percentage more or a percentage less. However, that creates the danger of the contractor calculating that, financially, it is better to breach the contract and take the hit, rather than to comply. In that case, the problem is that the penalty was not set at the right level.
176. The Chairperson: The contractor could, therefore, be in breach yet still satisfy the contract.
177. Mr Quigg: The contractor could be in breach, but no one would terminate the contract if it was a minor breach.
178. Ms J McCann: Will a contractor who has breached a contract and been turfed off the job be able to secure future contracts?
179. Mr Quigg: If a contractor has his contract determined or has failed to complete work, those factors can be taken into account at the selection and awards stage.
180. Mr Hamilton: This is such a serious and technical subject, but I am going to ask Edward the question that has been on the tip of my tongue since he walked in, and which may elicit a more interesting and riveting discussion: are you any relation to Eoghan? [Laughter.]
181. Mr Quigg: No.
182. The Chairperson: A penalty clause would be attached to that.
183. Mr Quigg: It has helped people to spell my name, especially when I am working in London.
184. Ms Purvis: You hair is different than Eoghan’s.[Laughter.]
185. Mr Quigg: That is only because it is growing back.
186. Mr Hamilton: At the risk of making the Committee sound as if it is obsessed with social clauses, I have a couple of questions on whether such clauses are appropriate. Are there contracts in which a social clause, or a clause of that kind, is not correct, whether because of the size, scale or complexity of a contract? Can social clauses be applied to every contract, or are there some contracts for which they are more trouble and hassle than they are worth?
187. As you rightly identified, the Committee is, obviously, concerned that small and medium-sized enterprises get a fair shot at accessing contracts. Correct me if I am wrong, because I am as new to this as many other Committee members: SMEs already have difficulty getting contracts without the inclusion of social clauses; does the inclusion of such clauses inhibit or hinder SMEs from getting a contract at all?
188. Mr Quigg: If I take off my civil engineer’s hat and put on my lawyer’s hat, the answer is that it depends on the social clause. An obvious example is an equal opportunities policy for employees, which is, arguably, a social clause. I do not see any contract being let in which it would not be appropriate to have such a clause. SMEs will not find that a barrier because, in common with any employer, they have equal opportunities duties.
189. If the social clause was that X percentage of people with a disability must be employed, or that there must be X number of apprentices, there is an argument that, in the small and medium-sized enterprise category, small companies in particular would find it difficult to comply because they are so small. However, medium-sized companies should not have that difficulty.
190. The answer, therefore, truly depends on the social clause. One must ask whether it is something with which every employer — regardless of size — should comply; in which case, it should be included. If it is something with which only larger employers should comply — such as those that are involved in the scheme — then its inclusion should be limited to contracts that concern only those larger employers.
191. Mr Hamilton: Are some contracts beyond the possibility of having a social clause included, or are there social contracts to which companies should adhere as a matter of right, and which should be in any contract?
192. Mr Quigg: Yes. Those could be called the minimum-hygiene social clauses that are desirable, such as the equality clause. In all honesty, I do not know of any reason why that should not be included across the board.
193. Mr McNarry: Gentlemen, you are a breath of fresh air, which I appreciate. Thank you very much for your file, the contents of which we will read very carefully. Edward, I noticed from your CV that you have acted as a crisis project manager. Are you available to do that at the drop of a hat from time to time?
194. Mr Quigg: Yes — for the right money.
195. Mr McNarry: That is a good answer. We could, perhaps, do with you up here. Your document states that the solution — rather than being found in the contracts — was generally found by refocusing the design teams and the contractors. Perhaps you could briefly elaborate on that, and also suggest something that you would like to see the Committee highlight as a net result of our work.
196. Listening to the answers that you gave and to the recent questions, is there a risk that so many clauses could be inserted that contractors — particularly small subcontractors — could be unwittingly trapped, as they are anxious for work and they could get roped into something, and large contractors will be concerned only with looking for errors in the contract. Large contractors do that already, which is probably where you come in and make a living. I have been there. In other words, they will be delighted so sign up because they have already gone through the contract and know that they will be able to recoup losses.
197. I know that that is what happens. If we extend that, the small boys could become unwittingly trapped and the big boys will have a field day. Are we so good that we could draw up a contract in which people would not be able to pick holes?
198. Mr Quigg: You highlighted several points. It is fair to say that small and medium-sized enterprises and larger contractors are sometimes their own worst enemies. When one investigates why they get excluded from competitions, sometimes they simply have not answered the question that they were asked. They are not totally off the hook in that regard.
199. As far as building too many clauses into a contract is concerned, it is all about keeping things simple. Unless making a contract more complicated can be justified regarding policy or saving the public purse, things should be kept as simple as possible.
200. Mr McNarry: I appreciate that, and I agree wholeheartedly with the idea of keeping things simple. However, how on earth do we keep things simple when we are dealing with bureaucracy?
201. Mr Quigg: You employ consultants.[Laughter.]
202. The Chairperson: Experience should have told you that, David.
203. Mr Quigg: Not those that you have used in the past, however.
204. Mr McNarry: Oh, right.
205. Mr Quigg: It is a big difficulty, and it relates to the amount of cases that are going through the courts. Peter Weir referred to schoolboy errors being made. The more complicated the process, the more likely it is that those errors will be made. Therefore, the process must be kept as simple as possible. Rather than trying to reinvent the wheel every time works are tendered for, there should be standardisation. We have tried and tested contracts and specification that can be amended, but everyone should stick to any new standardised process that is produced.
206. Small and medium-sized enterprises will, hopefully, not be penalised if the process is kept simple. The more complex procurement should be used for only larger-value work, which small and medium-sized enterprises would probably not be chasing. With regard to larger contractors seeking opportunities, that, I imagine, is part of the thrills and spills of tendering. The simpler the process, it is less likely that you will create a trap for yourself, or an opportunity for a contractor. Furthermore, if a standardised process is adhered to, revision 2·1 would remedy a situation in which a contractor attempts to exploit an opportunity. The opportunity for exploitation will increase dramatically if people try to reinvent the wheel every time works are tendered for, because the documents will not have been tried and tested or exposed to contractors for a sufficient time period.
207. Mr McNarry: My constituency of Strangford is highly populated by contractors and subcontractors. I find it very difficult to deal — or cope — with the serious allegation of a backhander culture. Can that backhander culture be stamped out?
208. Mr Quigg: A procedure can be designed that limits the opportunity for that culture to exist. Some 10 or 15 years ago, contracts were awarded to contractors based solely on the lowest price. Some contractors abused that system by submitting blank documents or documents with one or two sections left blank. They would then pay someone to complete the work for just less than the next lowest price. However, that problem was fixed. Contractors were obliged to complete documents in full, and those were then opened in front of several people.
209. The current system is extremely exposed to corruption. Consider what happened in respect of the IST framework, for example. I must be clear that there is absolutely no allegation or suggestion of wrongdoing, but it is not difficult to see. I mark essay papers for Queen’s University. I could award an exam paper 65 marks if I was in a good mood, and 55 marks to the same paper if I was in a bad mood. No one could say that I had done anything wrong in that situation.
210. Similarly, no one is able to produce notes about what has gone on when tender weightings are produced only after tenders have been received. In that current system, it is extraordinarily easy for someone on the marking panel to be very sympathetic to one tender over another. The way to stamp down on that is to make the system as objective as possible. The more subjective the process, the more opportunity there is for people to massage the marks up or down. The system is exposed to people who are inclined to do that. It is a big problem.
211. Mr McNarry: We might return to that matter, because it is a major problem. Do you wish to highlight any other issue to the Committee?
212. Mr Quigg: Every project can be procured in a different way. There is a danger in some of the ways that target-cost contracting, including early-contractor involvement and complex award procedures, are being used in low-value works. Many low-value works are being grouped to form mega contracts, and, therefore, SMEs are being excluded from the place. I have suggested three categories into which projects could fall, and it will be interesting to see whether any stakeholders pick up on that.
213. If a £100 million complex is being built, a case can be made for taking early contractor involvement, for working with target costs and for doing so in a sophisticated way. However, that is not appropriate in the case of a school that costs £1·5 million. If such a process were taken, SMEs would be excluded.
214. Before I came to the Committee, I talked to many contractors in order to sound out what they felt were the issues. The big lesson that I took from that was that they were very nervous about biting off the hand that feeds them in today’s marketplace. Bearing that in mind, perhaps pictures could be painted that are rosier than they are. I suppose that if contractors do not complain now, they cannot complain later.
215. Mr McNarry: You may not be able to answer my last question now, but you may be able to come back to us. Is there anything in this field that should be considered as cost-saving efficiencies that bring added value?
216. Mr Quigg: Cost savings will be achieved if the smaller-scale works are opened up to SMEs. Ultimately, they are more efficient because they do not carry the same overheads, and, therefore, they have a place. Equally, however, some of the procedures that are used in larger value contracts, such as target costs and early contractor involvement, will introduce better value. I have no difficulty with that; it is horses for courses. In my opinion, too much of it is trying to be too sophisticated and too clever. It must be simplified and standardised, which will save money.
217. Mr Golden: One way in which considerable efficiencies could probably be made is by trusting the supply chain. Contractors and those with whom they work should be trusted to deliver solutions. The Latham report, with which I am very familiar, and the subsequent Egan report, produced by Sir John Egan in England, emphasised that leadership by the public sector and trusting the private sector is a way of achieving efficiencies. It is obvious from the way in which design-and-build contracts are being procured that there is an ingrained lack of trust, which leads to inefficiencies.
218. I will illustrate that with an anecdote. A colleague of mine who is an architect thought that design-and-build contracts would be the death of architecture. He thought that design-and-build contracts would mean that an architect would be wheeled in once to design one building, which would be reproduced 50 times. I suspect that that might also have been on the minds of Latham and Egan. In fact, he is delighted with design-and-build contracts because the way in which those contracts are procured means that an architect will work with the contractor and another architect has to be employed by the public sector in order to check that the architect who is working for the contractor is doing what they think is the right thing. Therefore, it is now architects galore.
219. Mr McNarry: Is that because architects do not trust each other?
220. Mr Golden: A lack of trust — not by architects [Laughter.] — is inculcated in the system. For example, a school may need to be built to fit a certain number of pupils in a certain kind of environment that will have a certain level of heat efficiency and use a certain amount of electricity. Instead of having the confidence to ask a contractor to deliver on that and saying that the contractor will be sued if it does not deliver, we are wedded to traditional contracting in that we want to control everything from where the doors go to what colour the walls will be.
221. The contractor should be allowed to get on with it and be allowed to develop repetitive techniques in order to become more efficient. If that was freed up, if the level of trust was developed and if we accepted the solutions that the private sector gave us, there would be dramatic savings in the industry.
222. The Chairperson: As the Committee proceeds with the inquiry, it may be valuable if you would consider returning to a subsequent meeting, because I suspect that we will reach some issues that we may want to rehearse with you.
223. Mr Quigg: Yes; I would be delighted to return to the Committee.
224. The Chairperson: I am aware that other witnesses are waiting and that they have been very patient; however, I just want to finalise this discussion. There is a current project — Workplace 2010 — that has run into some difficulty because the fall in property prices has affected the capital receipts that were estimated, and because, of the two preferred bidders, one is considering eating up the other. The options facing the Executive are to continue the suspension until that situation clarifies itself, or, perhaps, to review the entire project.
225. I am intrigued by the reference that you made, because I was thinking that if that package was disassembled, would that not provide opportunities for local contractors and the local construction industry to engage in the project. That is a mega project that has attracted two mega players, and the locals have been squeezed out of the picture altogether.
226. Mr Quigg: That is a problem. I am sure that you have heard of PFI and PPP, and one of the difficulties with such schemes, particularly the larger ones, is that there is a lack of competition. Royal Brompton Hospital was a classic example of that. Initially, three bidders went through to the preferred status, one then pulled out while the other two kept going but, at the very end, another bidder pulled out. That left only one bidder and, therefore, the public authority said that it could not continue because there was only one bidder and the entire system had to be scrapped, which resulted in a delay of two or three years. By establishing what may be called mega projects, there is a danger of reducing competition and excluding lots of contractors who would do the individual projects very competently.
227. The Chairperson: Those contractors could, incrementally, achieve the same objectives.
228. Mr Quigg: Yes. The question then arises about whether the cost-benefit analysis really exists and whether you are persuaded by the argument for allowing a project to be undertaken as a mega contract.
229. The Chairperson: That was very interesting. We may, from time to time, correspond with you if issues arise in our work. I want to flag up the possibility that we may ask you to come to the Committee again.
230. Mr Quigg: I would be quite interested to do that. We can see how the review goes.
231. The Chairperson: Thank you very much. We must move on quickly.
11 February 2009
Members present for all or part of the proceedings:
Mr Simon Hamilton (Deputy Chairperson)
Mr Roy Beggs
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Witnesses:
Mr Declan Magee |
Carson McDowell Solicitors |
232. The Deputy Chairperson (Mr Hamilton): The next item on the agenda is a discussion of public procurement practice. I advise members that, in our discussion with the witnesses, they should be mindful of the legal confidentiality attached to individual procurement cases; any discussion should stick to general terms rather than specific ones. I welcome Declan Magee and Catherine Thompson, who are both public procurement consultants with Carson McDowell Solicitors. I invite Declan and Catherine to make a brief presentation to the Committee; I am sure that there will then be a few questions.
233. Mr Declan Magee (Carson McDowell Solicitors): We have not prepared a presentation, but I believe that copies of our firm’s recent update on procurement have been circulated to some members of the Committee. We are here to answer any questions that Committee members may have in relation to public procurement and its growing influence in the legal sector in Northern Ireland. I am a partner in the litigation department of Carson McDowell Solicitors, and my remit includes any legal challenges brought to the courts in relation to procurement processes, either from private entities who submit tender responses or from public-sector organisations seeking to defend legal challenges.
234. Catherine works in the corporate team in Carson McDowell Solicitors and has a greater influence in advising our public-sector clients on how to procure safely and ensure that their systems are robust enough to withstand a challenge. We are here today because we have different experiences in the contentious and non-contentious areas of public procurement in Northern Ireland. We are happy to address any questions that the Committee has about those areas.
235. Ms J McCann: My question relates to small- and medium-sized businesses and social-economy enterprises. We have had discussions with some such businesses and enterprises, and they have told us that it is very difficult to get into the tendering process. Is that your sense of the situation? How can that process be improved for them?
236. Environmental and social aspects of public procurement have been flagged up by the Central Procurement Directorate (CPD). Is there any legal barrier to including those social clauses at the tendering and contract stages? It seems that value for money is given the highest priority and is regarded as more important than social and environmental benefits. Is there a legal clause that prevents social and environmental clauses being included? If there is, how can that barrier be overcome by small- and medium-sized businesses and social-economy enterprises?
237. Mr Magee: The difficulty that small- and medium-sized entities have with the procurement process is that it has become so labour-intensive for them. The days of being able to put in a straightforward tender submission to a public-sector body are going. A number of different procuring exercises are going on at the moment that requires companies to assign a procurement specialist to them. That can prove to be a heavy economic drain on small- and medium-sized enterprises (SMEs). As a result of the time that is required to prepare their responses, those businesses must carefully pick the tenders that they submit.
238. I found that some of the recent Roads Service procurement exercises placed a heavy onus on health and safety considerations. Roads Service asks many questions that must be answered in great detail in order to establish that organisations have the necessary health and safety standards to do work for the Roads Service, whereas the Construction Employers Federation (CEF) has a process called Safe-T-Cert, which is a very detailed exercise that businesses can go through in order to become certified by the CEF.
239. It would help small- and medium-sized businesses if that certification were deemed proof that they had undergone a recognised process to obtain third party accreditation from an organisation such as the CEF. That would remove the requirement to complete a separate detailed and substantive health and safety section in tender applications. It would be beneficial to have anything that provides small- and medium-sized entities with the ability to fairly procure projects locally and reduces the labour-intensive nature of the procurement process.
240. Ms J McCann: Is it possible to insert the social clauses at the tendering and contract stages? The Committee has heard evidence indicating that there are legal barriers to doing that, even in cases in which the contract might provide social and economic benefits — do any such legal barriers exist?
241. Ms Catherine Thompson (Carson McDowell Solicitors): The regulations provide for what can be judged at each stage of the process. The contractors or providers are chosen at the selection stage; the contract is awarded on the basis of the proposed methodology at the award stage; then there is the contract stage — those are the three stages.
242. The regulations impose, in a way, barriers to incorporating certain social criteria at the beginning of the process. The process is complicated; the current law has a lot of grey areas and there have been quite a lot of court cases. However, there is more freedom to insert conditions into the contract. A detailed discussion about particular questions and particular social criteria would be required; we would normally suggest taking specific legal advice on the different criteria.
243. Ms J McCann: Can conditions be included at the contract stage so that the social clauses are part of the contract?
244. Ms Thompson: The terms that are included in a contract depend on which criteria are being considered. There is scope to insert certain environmental and social criteria not only at the contract stage but prior to it, but that would depend on the nature of those criteria.
245. Mr F McCann: Social clauses — or the lack of them — is something that people have been lobbying us about. In the past, when tenders for contracts were awarded, several major contractors came in and, rather than allowing local people to compete, they brought a workforce with them. That raises a number of major concerns. Is there any regulation stating that jobs should be competed for on an equal footing, rather than companies being allowed to come in and bring an entire workforce with them? That practice is having an impact on local contractors.
246. Mr Magee: Yes, it is possible to have such a condition. I am aware that some of the tenders for various infrastructure projects for the London Olympics contain such provisions, whereby part of the criteria for getting through the invitation-to-tender stage is that the applicant must indicate its procedures for bringing in long-term unemployed people from the locality of the project concerned.
247. The Deputy Chairperson: From your experience, can you suggest how more flexibility can be found in existing European procurement law in order to encourage SMEs? Northern Ireland is heavily dependent on SMEs but there is a sense that they are losing out to bigger companies from here and elsewhere, and that is part of the reason why we are having this discussion today. Is there a case for splitting contracts into smaller lots by way of thresholds, for example, in order to allow SMEs to compete more vigorously for contracts? Do you have any other ideas of how to achieve that?
248. Mr Magee: The main thing is to break up the contracts, as you rightly point out. Recently, some difficulties were encountered when vast projects were vacuumed up into framework scenarios. That automatically makes it difficult for small- and medium-sized entities to tender fairly for that work, and makes it more attractive to non-local firms to submit a tender. Therefore, although frameworks have their advantages in some circumstances, when a number of different contracts are packaged together to the scale that they were in the two recent frameworks, that presents a barrier for local firms, as it makes it difficult for them to get a fair return from local procurement practices.
249. Given the current market situation, it is in the interest of the public purse to split up contracts, because so many different entities are keen to obtain public work. It is in the interest of the Northern Ireland taxpayer to reconsider whether the public purse should be tied to four or five companies for a long period. I think that the short answer is yes — contracts should be split, as you have suggested, so that more people have the opportunity to go for them.
250. Mr F McCann: What are the benefits and drawbacks of using large framework agreements in the NI public-procurement market?
251. Mr Magee: The benefit of a framework agreement is meant to be the existence of a more collaborative spirit between contractors and clients. If a contractor and a client are thrown together for a four- or five-year period, they will want to create a situation in which they want to work together and that will enable the contractor to learn other elements about the client. That will reduce the risk of contentious situations arising and is the basic benefit of the framework set-up. It is believed also that frameworks make procurement easier on the public purse, because four or five entities can be called on to tender for projects rather than having to go through the full procurement process. Certainly, frameworks have their advantages.
252. In Northern Ireland, the problem was that we tried to introduce two significant frameworks, which meant that we went from one extreme to the other. So much work was pulled together in those two frameworks, which were both limited to five entities, that it was always going to be a risky situation. In creating the frameworks, a number of different public procuring bodies — which may have had good relationships with a number of different local firms — were told, all of a sudden, that the number of public procuring bodies would be limited to a set number of contractors, probably five. Therefore, creating the frameworks was always going to be high-risk, and a number of different companies felt threatened by the fact that so much work was going to be cut away from them. To be frank, the disadvantages of those two frameworks were obvious and that should have been obvious at the outset.
253. Frameworks are a good idea for procuring work such as professional services and consultancy. It is clear that they have advantages — they remove much of the labour-intensive element of the procurement process. However, the two frameworks that were used in Northern Ireland simply sucked up too much work and did not work in the local market. The situation is different in England, where there are 20 or 30 frameworks and if a firm does not hop on one, it can hop on the next one that comes along. Creating two frameworks in Northern Ireland was always going to be a recipe for trouble, given that the number of companies was limited and they had so much work under them.
254. Mr F McCann: In another Committee that I am a member of, we discussed whether housing association projects could be grouped together so that larger procurement contracts could be put out to tender. One of our concerns was that local companies would be unable to bid for those contracts because they would be far beyond their means. In the past, major multinationals have applied for contracts, sliced off a profit from the top, and then subcontracted out the work. Is there a legal way to stop that happening? Our concern is that that affects the local workforce as well as the quality of work and the finished product.
255. Mr Magee: The fact is that it is a European market; if a contract soaks up between £400 million to £600 million, it will attract UK and European-wide entities such as Laing or Balfour Beatty. That is a source of frustration for local companies, because those larger companies tender for a project and then bring in local subcontractors to do the work — the profit goes out and the workers stay here. The lesson is to make it less attractive for the UK and European entities to tender for those projects.
256. The current market is highly competitive; if a £15 million project is put out to tender, so many firms will tender for it that it will be keenly priced. In my experience, there has not been a particularly contentious situation between the local contractors and the public tendering bodies in Northern Ireland. The idea is that frameworks will bring this great collegiate spirit; however, I do not think that there has been a contentious relationship between the local contracting companies, the construction industry and the procuring bodies here. The rationale for having frameworks is that they will bring all the different interests together, but I think that we are pretty much together as things stand.
257. Mr Paisley Jnr: In your experience, what are the main reasons for legal challenges being taken in Northern Ireland? Have you noticed any trends developing?
258. Mr Magee: If a client is told that their tender has been unsuccessful, there may be a very sharp, hot period in which they will approach us. They may or may not have had a full debrief but, by and large, everyone who comes to us with a potential challenge has a genuine grievance about the way that the procurement process has gone. I have never had a client come in to say that they have not got a job but would like to have a crack at getting on the project. Without exception, everyone who comes to us has a genuine grievance about the procurement process.
259. The problem is that there is an Alcatel period, which is a pretty short standstill period during which the companies that tendered can communicate their dissatisfaction with the procurement process to the procuring body. That quickly brings about a siege mentality, as the client is unhappy because they think that they should have had a good chance of getting the job; also, the procurement process is being criticised, which causes the procuring body to become unhappy. The Alcatel period provides only a tight window in which to appeal a decision before a contract is awarded. By and large, companies are not interested in being awarded damages; they want a fair crack at getting the job.
260. In such a scenario, the next step is to advise the client to apply for an injunction to stop the contract being awarded. The client is not interested in receiving damages in 18 months’ time. Paying damages is not in the interest of the public purse either, because it means that it will pay double for a contract.
261. As I said, there is a very hot period of approximately 10 days before the award is made and the reason that we are drawn to making a court injunction application is because that contentious situation arises at a very early stage. Once the court process starts, it is very hard to stop. When our public-sector clients are dealing with a company that is unhappy with the procurement process, we advise them to try to let that hot period cool a bit.
262. Often, we engage in correspondence with the private entity that is dissatisfied. If the client is happy to do so, we propose that the dissatisfied tendering party be shown the winning submission, because, by and large, the procuring body has made the right decision. If that hot period is allowed to cool a bit and if the unsuccessful tenderer is allowed to see the successful tender, they will not, by and large, raise a challenge. That is because the matter has been allowed to cool and everybody has aired their views and issues, and usually the process continues without a challenge. The industry is looking at providing an avenue that tenderers could go down, which is a very good idea.
263. Mr Paisley Jnr: Would that be something like a debrief after an interview?
264. Mr Magee: It is post the debrief stage. For example, before a legal challenge is mounted, we would contact a retired judge and tell him about the issues and points that have been raised by both the dissatisfied tenderer and the procuring body. The judge will give a quick and dirty analysis of whether he thinks that the challenge has any merit. That analysis would, therefore, be made at an early stage, before a legal challenge is mounted. If a retired judge says that he does not think that there are any grounds for a challenge, nine times out of 10, a legal case will not be taken.
265. The regulations specify that a party must have a valid remedy, which is usually an injunction. The objective is to reduce the number of people who go to court to raise a challenge. Such a system — which I know that the CEF is working on — could eradicate a large percentage of the legal challenges that are taken. No one wants the entire public spend to be paralysed through procurement challenges.
266. Mr Paisley Jnr: The role is similar to that of an ombudsman?
267. Mr Magee: Yes; that is exactly right.
268. Mr Paisley Jnr: In your experience, have you identified a common error in procurement exercises that normally results in tenderers presenting a case to you?
269. Mr Magee: No. Procurement is such a varied beast. Every client wants different criteria and goes about the tendering process in a different way. The CPD does a pretty good job, by and large, but it covers only one aspect of the procuring of public money in Northern Ireland. If that body, or another body, were to cover more of the public spend in Northern Ireland, there may be more symmetry in procurement processes and we may see the same issues arising. However, at the moment, procurement is a pretty varied beast as regards the issues that arise from it.
270. Mr Paisley Jnr: Again in your experience, is there more procurement litigation in Northern Ireland than in the rest of the UK or the Republic of Ireland?
271. Mr Magee: Yes; unfortunately, we are a market leader.
272. Mr Paisley Jnr: Why is that?
273. Mr Magee: The market here is a lot tighter.
274. Mr Paisley Jnr: What do you mean when you say that it is a lot tighter?
275. Mr Magee: People here are more aware of their legal rights. Also, there may be an impact from the publicity that the challenges have received; that has a snowball effect. The two frameworks have received quite a lot of publicity, and people are aware of their ability to challenge contracts. From our experience of advising people in Scotland, England and Wales, procuring in Northern Ireland is pretty good — public procuring exercises in other parts of the UK are probably behind ours in relation to compliance.
276. Mr Paisley Jnr: Are we market leaders because there have been a lot of successful outcomes and clever lawyers — such as you and Ms Thompson — can get successful outcomes, or is it due to the fact that there is a litigation culture here?
277. Mr Magee: No. It is important to think about the reason why the regulations were brought in, which was to have an open and transparent public procuring process throughout Europe, so that everyone had a fair crack at the contracts and they were not were being awarded on the basis of historic reasons, such as people knowing each other. The courts will always view such cases very carefully, because the reason for the process is to ensure objectivity and transparency. I would be surprised if, in five years’ time, the experience that we are going through now had not been replicated in England and Scotland.
278. Mr Paisley Jnr: Therefore, we are not only market leaders, we are trailblazers.
279. Mr Magee: Yes; we can take some comfort from that.[Laughter.]
280. Mr McNarry: That will provide pensions for Carson McDowell Solicitors.
281. Mr Magee: Yes; and why not?
282. Mr Paisley Jnr: Don’t kill the goose that lays the golden egg.[Laughter.]
283. You mentioned a process involving a retired judge reviewing cases — which I referred to as an ombudsman-type role — that may reduce some of the need for litigation or resolve some of the problems before they reach the injunction process. It is not that I want to talk you out of business, but could anything else be used to reduce litigation in the future?
284. Mr Magee: I am more than happy to be talked out of business because what I gain on litigation, Catherine in the corporate team loses. Everyone is impacted by the outcome of cases. We have discussed why there are so many challenges: another reason is that public bodies seem to be conscious of their budgetary position; if they do not let a contract in a particular year, the money for that drops out of their budget. That is another factor that is mentioned regarding why people cannot come to an accommodation and understanding in relation to a particular challenge.
285. As regards reducing the number of legal challenges, even if there were an agreed process whereby dissatisfied people could take their case to a body that would do a quick and dirty analysis of it, we could still never get away from the fact that the regulations contain a provision allowing tenderers a fair remedy, which tends to be an injunction. We want to stop people getting to that provision in the regulations. At the moment, the siege mentality is the norm and we must try to get away from that.
286. The Chairperson: Following on from your responses to Ian’s questions, what element of the cases that you see do you regard as people taking a bit of a punt?
287. Mr Paisley Jnr: A grievance punt.
288. The Chairperson: People may have invested a lot of time, energy and resources in tendering for what may be a substantial project, which would have given them a lot of work for a long time. They may be so annoyed that they did not get the contract that they may think that they have lost enough and decide to take a bit of punt to see what happens. From some of your answers earlier, I got the sense that an element of that is happening; is that a fair comment?
289. Mr Magee: No; the opposite is the case. The number of clients who ask us to just have a crack at making a challenge is zero. In the case of a challenge, private companies are taking on the people who feed them work. It is extremely expensive to take procurement challenges. There are risks, and companies need to spend a lot of time preparing for, and being involved in, a case. I have never come across a company saying that it wants to give a challenge a go simply because it lost out on a big contract.
290. The Deputy Chairperson: From a company’s point of view, that is not be the right basis to go on anyway.
291. Mr Magee: No; it is not. We often have clients who have genuine concerns but who do not wish to challenge the procurement process, even though we have told them that the process was not compliant, because they do not wish to bite the hand that feeds them. In my experience, a company has rarely, in fact never, asked us to have a crack at a challenge after we have told them that the process was compliant. We would not take on such challenges.
292. Mr O’Loan: Following on from Ian’s last question, I want to discuss the proactive approach that the public sector can take to avoid getting anywhere near a situation in which a legal challenge is made. What steps can the public sector take to ensure that it is fully compliant with legislative and common-law obligations in procurement?
293. Mr Magee: The public sector’s systems for ensuring compliance are pretty good. The main thing is that the public sector learns the lessons from the cases in which it is unsuccessful, but I am not sure whether it does. The Department of Finance and Personnel (DFP) is appealing both the framework decisions to the Court of Appeal. I have a vested interest in that I am involved in one of those cases, but I have absolutely no idea why the Department is doing that. It does not serve anyone in Northern Ireland to have the frameworks frozen for another round of legal battle. The reasons why both cases were unsuccessful were clear.
294. The appeals impact not only on the construction sector but on directly related professional-services frameworks. When the framework agreements initially went out to tender, there was a framework for the consultants and a framework for the professional services — not lawyers, but quantity surveyors, architects and engineers. When the frameworks were put to the industry, all the professional services had to decide whether they went with the clients or with the contractors. It was very rare that they elected to ride both horses.
295. I am not sure why DFP is appealing the decisions. That impacts not only on the construction firms, but on the wider professional sector, which has been as badly affected by the slowdown as the construction industry has been. There are engineers, surveyors and architects who have been affected badly by the fact that they elected to go with the contractors and have no work as a result of that decision.
296. The systems for ensuring compliance are not bad; I would give them a mark of seven or seven and a half out of 10, especially the CPD processes — they are not that bad. It is important that the public sector learns the lessons from the decisions that have been emanating primarily from Belfast; however, it is in pretty good shape.
297. Mr O’Loan: You have answered one of my supplementary questions. Do you feel that DFP is being too dogged in its stance on the appeals and is unwilling to say that it has made a mistake and that it needs to learn from that?
298. Mr Magee: I am baffled as to why DFP is appealing. I must declare that I have a vested interest because I am involved in one of the cases; however, had we been involved on the other side, I would not have advised DFP to appeal. I appreciate that elements of the advice on those defences are not coming from within Northern Ireland, but I am strongly of the view that taking the cases to the Court of Appeal and thus delaying them for a further period, is not in the interests of the Northern Ireland public.
299. Mr O’Loan: That is a very important piece of evidence. Your stance is that even though some major, embarrassing public challenges have been successful, the overall quality of the public procurement system — certainly at CPD level — is, nevertheless, pretty good, although clearly not good enough, given that those challenges have been successful. Is there also an issue with the system below the CPD level — that is, with the centres of procurement expertise in Departments?
300. Mr Magee: Yes; that is right. The cases that I have been involved with have not only been challenges relating to the CPD. If there were a centralised process of procuring — that is, a unified and more structured procuring body that oversaw public procurement and took on board the issues that arise from cases — that would create a higher degree of confidence that the issues that are faced by one centre of procurement expertise would feed through and inform all of the procuring bodies in Northern Ireland. It would be good for both industry and the public sector to have a centralised body that has more control.
301. Mr O’Loan: Some of us thought that the CPD ought to be performing that function but it does not appear to be doing so; not on the basis of that evidence, at least. There is a final and more particular point that I want to ask you — I do not know how far you can go in answering it, but obviously you have a lot of experience of the recent litigation processes. Can you say anything about the manner in which the public sector — particularly the CPD — handles those actions and the quality of its systems for dealing with litigation cases?
302. Mr Magee: The two main challenges have been in relation to frameworks. In relation to the IST case that I was involved with, the judgement speaks for itself as it outlines clearly the main deficiencies that were found, particularly the lack of evidence from what was indicated as being a thorough, lengthy process of analysing the shortlisting process. That was one element that became very clear.
303. The other main point that arose from that decision was in relation to the aim of the regulations, which was to ensure that there was an open and transparent procuring process. In that instance, there were developments later in that process that did not follow the guidelines that were coming from throughout Europe about what was required in order to have an open and transparent process and what could and could not be done.
304. In relation to the schools framework the flaw was slightly different as it related to the way that the pricing system had been analysed and prepared, which may not have been reflective of the true market prices that tendering companies work with. I cannot say that lessons are not being learnt from those cases, nor can I cannot comment on what the CPD is putting in place to learn from these issues; the fact is that a different suite of issues arose in each case. The ways that the criteria are applied tend to be the problem.
305. Mr O’Loan: Irrespective of what has happened before a challenge is made, is the CPD good at handling the challenge?
306. Do I understand by your silence that you want to pass on that question? [Laughter.]
307. The Deputy Chairperson: You do not have to answer.
308. Mr O’Loan: You can plead the fifth.[Laughter.]
309. Mr Magee: I cannot recall whether I have parliamentary privilege.
310. Mr Paisley Jnr: I think that he has answered already.
311. Dr Farry: How does Hansard report a long pause?[Laughter.]
312. Mr Magee: I am not sure whether the CPD fully reflects on issues that are raised at an early stage. There may be a better way of dealing with those issues — the ombudsman idea that was mentioned earlier, for example. I suspect that the CPD may not appreciate at an early stage the flaws in its system, because, quite often, procuring bodies — especially in Scotland and England — will recognise a problem and rectify it, but that is the exception rather than the rule here. In other jurisdictions, flaws in procuring processes are realised and dealt with before the hearing stage is reached. That is a problem from the taxpayer’s perspective, as there is no recognition at an early stage that a process may not be compliant.
313. Dr Farry: The European Commission recently agreed accelerated procedures that will see the process reduce from 87 days to 30 days for major procurements, as an exceptional measure to help the economy. How can the benefit of that be maximised in Northern Ireland?
314. Ms Thompson: I have not yet had to advise on that, because it is a recent change. We want to get the requisite projects lined up and ready to go. However, the preparation at pre-procurement stage is the most important stage for a lot of procurements. It is important to get everything set up before the Official Journal of the European Union (OJEU) process begins. Therefore, a lot of planning will need to have been undertaken before the accelerated procedure is used — the planning stage is crucial to that option being taken-up.
315. Dr Farry: On the topic of European-wide issues, I am conscious of the economic downturn that we are all facing. Are you expecting an upsurge in litigation, which may reflect a potential bias from national or regional Governments trying to keep procurement contracts local?
316. Mr Magee: The short answer is no. I would be very surprised if procuring bodies started putting in criteria that were so locally focused that the process would not be compliant. There would be challenges from non-domestic firms if that were to happen.
317. Dr Farry: Is that a black-and-white process, or are there some grey areas?
318. Ms Thompson: The founding principles of the EC treaty and the European Commission include non-discrimination, equal treatment and transparency. I have never come across anyone in Northern Ireland who would question those principles or who would go down the road of only buying local; I think that is very unlikely to happen.
319. Dr Farry: I have confidence in our Government, but do Northern Ireland companies have difficulties when they are trying to do business with other European countries that may not have the same culture of compliance with European regulations?
320. Ms Thompson: I do not have a lot of experience outside Northern Ireland, England and Wales, but the principles have been around for long enough now that there should not be any distinction. Everyone in Europe should comply with the directive and with those principles. Hopefully, therefore, no issues would arise if Northern Irish contractors were tendering for contracts in Europe.
321. Dr Farry: Returning to the issue of speed, do you have any suggestions regarding how the tendering process can be made simpler, more streamlined and more user-friendly for SMEs and social economy enterprises?
322. Ms Thompson: One of the major factors that we are addressing in Northern Ireland is accessibility to information. The 2004 directive, which was implemented here as the 2006 regulations, has permitted the electronic transfer of notices. A lot of information can now be gained from the Internet, so people can find out what tenders are coming up. Many public-sector organisations are posting their tenders on their websites; that is a good start and that practice should continue. Moreover, many organisations are considering standardising documentation to ensure that SMEs have the wherewithal to obtain and provide that information at not too much expense. Those are important measures that can be helpful.
323. Ms Purvis: In your experience, what are the dominant award criteria for public procurement contracts in Northern Ireland?
324. Mr Magee: The award of contracts has moved away from the lowest price; that is a welcome development and will continue to be the case. The awarding of contracts hinges on contractors’ quality and experience. Selecting on the basis of lowest price brings its own problems. No one from the procuring bodies, or from the sectors that procure, wants to return to awards based on lowest price. As the market gets tighter and more competitive, prices will become more similar, and I believe that quality and experience will remain the determining factors.
325. Ms Purvis: How can quality criteria be marked objectively?
326. Mr Magee: There is a variety of ways to do that, the best of which is to examine other examples or similar projects. At times, issues arise as to whether those examples are properly analysed and verified. That aspect might — and should — come to the fore more, whereby similar projects and experiences are analysed and tested by the procuring bodies.
327. Ms Purvis: Will you give an example?
328. Mr Magee: I know of examples of public-utility companies in Northern Ireland having tendered for equipment needs and having requested that tenderers satisfy them of their equipment standards and their availability to cover particular aspects of work. Some of our clients have known that they were the only company with the required equipment and that their competitors did not have the equipment to satisfy the tender criteria, yet our clients were still unsuccessful in the tender process. We have had to lean on those processes because we know that, had the tenders been analysed properly, the procuring body would have been satisfied that the company that won the contract was unable to carry out the required work.
329. Ms Purvis: Should the criteria be tested more rigorously?
330. Mr Magee: Yes. We should be moving away from awarding contracts to those tenderers who write the best essay and submission, because it is not a true test of a company’s ability to do the work.
331. Ms Purvis: Will that result in more bureaucracy and be more time consuming?
332. Mr Magee: Yes. However, if that results in public money being spent better, it is worth doing. There is no point in awarding contracts based on goodwill because that will, ultimately, lead to the system being abused and a contractor being unable to do the work.
333. Ms Purvis: In your experience, what proportion of contracts is now awarded on the basis of price or contract duration only?
334. Ms Thompson: In the past 12 months, I do not know of any contracts that have been awarded on the basis of price only. I advise the public sector on compliance with the regulations. The majority of awards are made on a qualitative basis ie to the “most economically advantageous tender", as is stated in the Public Contracts Regulations 2006. That allows for an assessment of quality and functional characteristics, which procuring bodies are permitted to use under the regulations, rather than selecting the lowest-priced option.
335. Ms Purvis: Is contract duration a criterion that is high on the list?
336. Mr Magee: Contract duration tends to be stipulated in the terms of the contract and tends to be a specified period. Contracts now last for longer periods, because there is, unfortunately, a natural fear of procuring. People think that procuring for a longer period places them in a safe zone where they cannot be challenged. The average duration of contracts has started to lengthen.
337. The Deputy Chairperson: Are procuring bodies allowed to give a ballpark figure when drawing up tenders? Can they state a certain sum that they expect the cost to be close to?
338. Ms Thompson: Procuring bodies have to give an estimated value that covers the life of the contract. For example, it may be decided that a three-year contract is required for a project. If there is an option to extend that contract by another two years, subject to performance in the initial three years, a value would have to be given for five years, because that is the potential full life of the contract. In any European advertisement, it is essential that that box is ticked as it ensures that tenders are received from companies that are capable of doing the job. On the flip side, companies will not tender for a job if they deem the value or scope of the contract to be too large. It is important that figures are set out as accurately as possible at the outset.
339. Mr Magee: Take the example of a health trust carrying out a procurement exercise for a hospital in which the main aim is to ensure that a hospital is well built within time; the trust may undertake that exercise through a set-price, open-book procedure that gives good collaboration between contractors and the trust so that they can see the various costs and profits. Therefore, the price for doing the work is set and there is not the scope for additions, variations or top-up fees. That is one example, but there are a variety of different ways of completing a project within budget.
340. The Deputy Chairperson: Further to Dawn’s question about the contract not being awarded purely on the basis of cost, if a guideline price is given and a local company cannot get anywhere near it, price would be the determining factor that knocks that local company out of the procurement process. The local company would not even get past the starting gate.
341. Mr Magee: By and large, price is a strength for local companies. Unless a project is particularly significant, local companies tend to be as cost-effective as companies that come from other jurisdictions to carry out the work. If price is a strong feature of the tendering process, that will favour local entities that are tendering for contracts.
342. Mr McQuillan: What are the main difficulties encountered by SMEs and SEEs when delivering contracts?
343. Mr Magee: As lawyers, that is a difficult question for us to answer. We tend to find that our clients are careful about what they do and do not tender for. A fair degree of time and effort is put into preparing a tender submission, and our clients ensure that the necessary skills, capabilities and subcontracts are all available locally. As regards getting involved in something and not realising what was involved, I have not come across that.
344. Mr McQuillan: Can small- and medium-sized enterprises join together to tender for a contract? Are there any examples of that?
345. Ms Thompson: That relates to the earlier point about the flexibility of the legislation. Splitting a contract into lots was one option that we discussed. A second option is for small- and medium-sized enterprises to come together as a consortium to tender for work; that is what is happening with a lot of the contracts that are going out to procurement at present.
346. Mr McQuillan: Would that allow SMEs to take on large multinationals?
347. Ms Thompson: Yes; that is the aim.
348. Mr McNarry: Thank you both for coming to the Committee; I have found your professionalism useful and helpful. Can contractors be challenged, at tender stage, to indicate what subcontractors they are likely to appoint?
349. Mr Magee: If it is anticipated that a company will call on subcontractors to carry out work, the tender process can have a provision that calls for those subcontractors to be identified. In the framework agreements, the full suite of people working on the contracts was spelt out in great detail. So, yes.
350. Mr McNarry: In relation to specifications, how acceptable to a client is the use of other approved material? In other words, on a like-for-like tender basis?
351. Mr Magee: That depends on how the specification is detailed. If the tender process is good and open, it will give the specification and also allow the tenderer to propose a cheaper way of fulfilling the contract. In the area of waste recovery, for example, the industry is perhaps ahead of the client. Those tender exercises should always be open, so that more cost-effective and environmentally effective procedures can be proposed.
352. If the specification is not open, clients can put in two or three different tender submissions, especially if they have several group companies. Tender processes should be as open as possible, so that out-of-the-box thinking can be encouraged. The problem with a lot of tender submissions is that some of them are very tight, and the applicant might have only 400 words with which to explain what he is going to do. In those situations, the tender is not open in nature, and the tenderer is watching where the commas and full stops go because the space is so limited.
353. Mr McNarry: How can local manufacturers of materials that can be used in contract work — particularly building work — be afforded the opportunity to have their materials used? That would be of benefit to Northern Ireland and to that company and its workforce. Certain materials may have to be approved, but if they are not specified — and I do not think that the law allows them to be excluded — how much locally manufactured material, which was not the material specified, would the client accept?
354. Mr Magee: We must be careful about suggesting that, for example, a contract which specifies that 80% of the material to be used in a project must come from County Antrim and 20% must come from County Down.
355. Mr McNarry: I would put it the other way round.[Laughter.]
356. Mr Magee: Returning to the key elements of the process — that is, transparency, openness and fair competition throughout Europe — it would be tricky to specify conditions such as those which I just mentioned. However, such conditions could be linked to the social elements in the tender documentation.
357. Mr McNarry: How does a design-and-build contract operate within the procurement system? Perhaps it does not; I do not know.
358. Mr Magee: A client can specify a variety of elements in a contract, in relation to what work it expects to be done and how that is priced. As long as a client complies with the various obligations of openness and transparency, it can tell tenderers that it wants a school, show them the land and ask to be shown what the tenderers will build and how much it will cost. There is great scope for design-and-build contracts; they are not affected by the regulations. At the end of the day, the specification comes down to client preference.
359. Mr McNarry: To go back to the point that Ian Paisley Jnr raised, there is more potential for some form of litigation if a company failed to win a design-and-build contract that it had been invited to tender for but felt that its design was better than the design that won.
360. Mr Paisley Jnr: A company might also suspect that its design was plagiarised.
361. Mr McNarry: That could happen. Certainly, there was a time when schools were all built in the same way, but I know that we are looking for something a bit more than that now. Design-and-build concepts are more acceptable to the industry now, because they are easier to read and follow, but it is a much bigger decision to make — for example, if the tender is for the building of a hospital.
362. Mr Magee: There will always be an argument between subjectivity and objectivity. No single answer covers all procurement projects. Courts will be loath to determine whether a client was right in preferring one design over another. In such a subjective area, a court will be reluctant to get involved in second-guessing what the client wants, unless the decision is badly out. The court is more concerned about whether the procedures were fair, just and complied with the regulations, rather than whether it prefers a different type of school to the one selected. A court will always be reluctant to second-guess the subjective element of the client’s decision.
363. Mr McNarry: Having heard from the Committee, are there any additional issues that you believe we should examine during the course of our inquiry? Has anything been left out? Would you like to put your head on the block?
364. Mr Magee: We all want greater public spend and fewer challenges. There should be a procedure for dealing with challenges before the litigation stage is reached — the ombudsman idea, for example. Once stuck in litigation, it becomes very difficult to pull one’s feet out of it. We are blessed with very good and responsible construction bodies, such as the CEF and the Quarry Products Association. If those organisations are shouting that something is not right for their members, it is not right for their members, by and large.
365. A dangerous scenario can arise when the industry cracks on with a tender process and makes comments about it, but the client does not listen to those comments. The main objective is to reduce the number of challenges, and the key to doing that is to have a facility that provides a quick analysis outside of concerns about timing and budgetary restraints.
366. Ms J McCann: You said that quality and experience were the dominant award criteria — how is that calculated? Are percentage marks awarded for quality and experience, for instance? Where do the social and environmental criteria sit in the marking process?
367. Ms Thompson: To clarify: experience and quality should not be assessed at the same time. Recent case law indicates that at the selection stage, the regulations allow for the experience of the tenderer to be considered. Therefore, the company’s experience is a pre-qualification hurdle at selection stage. After that, quality of the tender submissions can be assessed.
368. There is quite a restriction on how social criteria can be used at those two stages. It is easier to insert social conditions into the contract, which sits behind the tender. The fact that there are three stages makes it quite tricky to give a single answer to that question, because the way that those factors are judged will depend, first, on the criteria, and, secondly, the stage of the procurement process. We should be happy to reply in writing, if the Committee want to contact us with a particular question about that.
369. Ms J McCann: The Committee has heard evidence that makes it clear that the social and environmental criteria exist. I am interested to know what percentage is awarded to those criteria at the marking stage. For example, how are tender applications from enterprises that employ the long-term unemployed or provide apprenticeships marked? The Committee has heard that tenders are being judged on experience and price as opposed to social and environmental factors, yet we are being told that those factors are taken into account. I know that you cannot go into detail on that now, but I am keen to contact you in writing with some questions about that.
370. Ms Thompson: That is not a bad idea; thank you.
371. Mr Paisley Jnr: I am aware that the witnesses’ experience extends beyond Northern Ireland and across other jurisdictions. How do you rate the Northern Ireland public sector compared to that of our neighbours? Sometimes, we take a narrow view: we look at how we stand and see things as being very good or very bad. Bearing in mind that we are top of the litigation stakes, how do our procurement practices compare with those in the rest of the UK?
372. Mr Magee: We are pretty good; I would mark us at seven or seven and a half out 10. The last exercise in which we were involved in England related to a tender process for Manchester City Council. During one of its meetings, that council confirmed which company it had decided to award a contract to; however, it had forgotten to hold a procurement process. Lo and behold, the council carried out a procurement process and awarded the contract to the same body — unfortunately, that was not our client, which was a local company.
373. I believe that procurement practices here are fairly good. I have no doubt that we are going through the learning exercise and the core process that other jurisdictions will go through in due course. It would be unfair to say that the procuring processes in Northern Ireland are deficient compared to those in other jurisdictions; in fact, our processes may be better.
374. Mr Paisley Jnr: That was very helpful.
375. The Deputy Chairperson: Thank you, Declan and Catherine, for attending this morning’s Committee meeting and providing evidence. I am sure that all members will agree that it was useful and important to gain an insight on the issues from your perspective.
18 March 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Mr Roy Beggs
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Des Armstrong |
Department of Finance and Personnel |
376. The Chairperson (Mr McLaughlin): You are very welcome. We are joined today by Des Armstrong, who is the director of the Central Procurement Directorate (CPD), and Brendan O’Neill, who is the policy adviser for the directorate’s corporate services division. We are also joined by Brian Doherty, who is the deputy head of the Departmental Solicitor’s Office. Thank you for arriving earlier than planned, as it solves a logistical problem for us. I invite you to make some opening remarks, Des, which will be followed by a question-and-answer session.
377. Mr Des Armstrong (Department of Finance and Personnel): I wish to follow up on the remarks you made before this evidence session began, Chairperson, on what may or may not be said in an open forum. Brian Doherty is with us because he is an expert in the field, and he will advise us as we proceed.
378. I will give Committee members a brief background to the issue. EU directives set out the legal framework for public procurement. The directives apply when public authorities and utilities seek to acquire supplies, services or works — that is, civil engineering or building works. The two EU directives of particular importance are directive 2004/17/EC, which is for utilities, and directive 2004/18/EC, which is for the remainder of the public sector. Those directives have been implemented into national law by regulations, and they came into force on 31 January 2006. The intention has been to clarify, simplify and update the previous procurement regime and to introduce a number of new provisions. Therefore, we now have the Public Contracts Regulations 2006 and the Utilities Contracts Regulations 2006. Those regulations do not extend to Scotland — separate, but similar, regulations have been made there.
379. The purpose of EU procurement rules is to open up the public-procurement market and to ensure the free movement of supplies, services and works in the EU. The rules mostly require competition before contract award. Therefore, they reflect and reinforce the best value-for-money focus of Northern Ireland’s public-procurement policy. The definition of best value for money is:
“optimum combination of whole life cost and quality (fitness for purpose) to meet the customer’s requirement".
380. It is important to note that the EU procurement regime that the directives and regulations describe is not static. It is subject to change and is driven by evolving European and domestic case law, by communications from the European Commission and by new and revised directives and amendments to the UK regulations.
381. In addition to the EU member states, the benefits of EU public-procurement rules also apply to a number of other countries, because of an international agreement — the Agreement on Government Procurement (GPA) — for which the World Trade Organization (WTO) negotiated. Compliance with EU rules ensures compliance with the GPA, where it applies, and that ensures that GPA suppliers have the same rights as EU suppliers. GPA members include Canada, Hong Kong, China, Norway and the USA.
382. The Committee is interested in the experience of small and medium-sized enterprises (SMEs). The only references in the directives to SMEs lie in provisions on subcontracting and in a relief that the USA has negotiated from the GPA. That relief is designed to allow access to contracts to reserved sectors and minority communities in the USA.
383. The 2006 UK regulations introduced a number of significant changes, which we may touch on later in the session. The main changes are as follows: we now have a single set of regulations for supplies, works and services, whereas previously they were split across three sets of regulations; there is a requirement for a 10-day standstill period at the award stage, before contract signature, to allow those who have tendered unsuccessfully to consider taking action in the courts; and there is a need to inform those who have tendered unsuccessfully of the characteristics and relative advantages of the successful tender. The new regulations expressly provide for framework agreements.
384. Mr Hamilton: Thank you for your introduction. I want to address the updated table of the number of legal challenges to contracts, which is contained in your submission. To a layman, it seems to be a cause for concern. From 2005 to the present is a short period, yet there are 12 cases. The legal costs borne by the taxpayer in only six of them are listed, and they total more than £4 million. Some of the costs that are not listed in the other six cases may be relatively insignificant, but, with £4 million spent on half of the 12 cases, it is clear that a great deal of money is involved. I am sure that other members and the public agree. It may not seem a great deal of money to members of the legal profession, but everyone else will be concerned.
385. Why were those cases brought? Is there a common theme, or is each case different? What are the implications for the procurement system in Northern Ireland? In your experience, does a total of 12 cases, brought over a four-year period, constitute a high level of legal challenge? How does it compare with other jurisdictions in the UK, and further afield? Is that our fair share of legal challenges? To me, it looks like a great deal of money, but is it when compared with Scotland, Wales, England and further afield?
386. Mr D Armstrong: My first point is that the table shows firms that have tendered unsuccessfully exercising their rights under the regulations and directives. They have the right to take legal action, and we cannot avoid that: legal action is driven by the directives. We must learn the lesson that legal action is expensive. In EU procurement law, the time frames for legal action can be lengthy. Before one goes to court, it takes time to prepare the material to be presented. Time must also be allowed for the courts to reach their decisions and to take any clarifications that they need.
387. Obviously, set procedures in the legal system, such as the payment of legal fees, need to be facilitated. If the cost of each case were added up, the total would be fairly sizeable. Without detracting in any way from the legitimacy of the courts or unsuccessful tenderers to take legal action, I suppose that we could agree that the money could be spent in other ways.
388. We get a sense that the change in the regulations has driven the number of legal actions being mounted. Before the regulations changed, it was sufficient for contracting authorities to announce the award of a contract and to let the unsuccessful tenderers know who had been successful in the tendering process. The change in the regulations to provide for the 10-calendar-day standstill means that unsuccessful tenderers can now take legal action and ask for information. It is possible that that alone has allowed for a greater consideration of legal action, because unsuccessful tenderers can seek legal advice if they find out that they have been unsuccessful.
389. We appreciate that participation in procurement competitions draws on organisations’ resources. Unsuccessful organisations experience a loss of the information that they must provide for the tender. There may also be concerns about the business impact on those organisations in the longer term. Unsuccessful tenderers will look at the award decision in a number of ways. We have discussed whether more cases are raised in Northern Ireland than in some of the other jurisdictions. Feedback from Scotland and Wales suggests that Northern Ireland is more active.
390. Mr Brian Doherty (Department of Finance and Personnel): It is quite difficult to pin down the reason why there may be more legal challenges to Government procurement in Northern Ireland than there are in other jurisdictions. Recently, big cases — one case in particular and another to a certain extent — have focused on the new procurement techniques that are used in Northern Ireland. There is UK-wide policy on the use of frameworks and partnership procurement, which has been adopted and openly promulgated here. However, that policy appears to have created a particular attention. The Department of Finance and Personnel would say that it is following the policy that the Executive adopted in trying to derive best value for money from the system. However, we now face some fundamental questions that the courts have raised about aspects of that technique.
391. I do not know whether that addresses specifically the reason why more legal challenges to Government procurement in Northern Ireland are mounted I must say that it is quite difficult to pin down the reason for that. One reason could be the controversial partnership technique that is used here. We know that that technique is used in other jurisdictions, so perhaps Des can assist by explaining the extent to which it is used in those jurisdictions. Given that we presented that technique more openly, or used it more here, we were perhaps more liable to have it challenged.
392. Challenges on new techniques are not unprecedented. Roughly a decade ago, the very concept of using framework agreements was attacked. The technique was challenged in a Northern Ireland procurement case, even though it was being used across the UK. I am always tempted to consider whether part of the reason for that is because there is a greater claim culture here. That is not to take away from work we, as legal advisers, and the Department do to try to keep as close a hold as possible on the accuracy of the techniques that we use, or their legitimacy.
393. One aspect of opting for a new technique, which was perhaps contemplated at the time that the legislation was passed, is that one must draw people to the latest understanding of how the public sector thinks that it can get the best value for money in current circumstances. I understand that the Department of Finance and Personnel and the Executive accept that the partnership technique in particular is one way in which we can get best value for money.
394. Mr Hamilton: Not that that is not interesting, and it does mirror some of the evidence that we have received from folk who practise in the industry, but we do seem to be slightly ahead in where we are at. The belief was that other jurisdictions would see similar legal challenges; however, the previous regulations were lifted and shaken about, the pieces of which are now falling into place and will settle over time, and we seem to be slightly ahead of other jurisdictions.
395. Brian mentioned the frameworks, a subject that is hard to avoid, and one that we will probably spend most of our time developing. Of the £4 million in costs, £2·535 million relates to two frameworks contracts. Although there are acknowledged and accepted advantages to a frameworks approach, it can be argued that having super-contracts of such significant value increases the likelihood of a legal challenge, which is what we are talking about today. If big companies going for those huge tenders lose out, in those circumstances, they are much more willing to put in a legal challenge. In the past, when a tender was broken down into more manageable, bite-sized chunks, companies were perhaps not that keen to mount a legal challenge. They accepted that if they did not get the contract, there were other opportunities out there.
396. However, for the frameworks that those companies are excluded from — for which they are not on the list at all — it is almost a necessity, not a temptation, to give a legal challenge a bit of a go. Companies recognise that, given the immense value of the contract, they must challenge it on the off-chance that something has gone wrong during the tendering process. Does that approach — certainly in the initial stages — invite those challenges, and the substantial legal cost that accompanies them?
397. Mr D Armstrong: In order to explain how we arrived at the procurement strategies that decided that framework agreements would be of benefit to the schools modernisation programme, and to the clients of the Central Procurement Directorate’s (CPD), I need to state that there are slightly different drivers in the CPD framework than there are in the schools framework. In the schools framework, there is a backlog of infrastructure investment in schools and quite a stepped rise in the amount of moneys that will be available in future. Therefore, a real opportunity existed to grab that resource and ensure that the procurement process was as efficient and as quick as possible to allow projects to be completed as quickly as possible.
398. By using framework agreements, we believe that we can shorten the procurement time frame by around five or six months, which represents almost one year of a child’s education. If one can provide a school almost one school year quicker, there are obvious educational benefits. In CPD’s situation, because we do not hold the budget, clients tend to come to us with a business case that has already been approved. In the past, we found that we would say to those clients that, although a business case was very good, they would have to come back in around eight months when we might have a designer for them. Once the design is complete, clients would have to come back in another eight or nine months by which time we might have a contractor.
399. There was a sense that we needed to get the infrastructure and the expenditure moving more quickly. Framework agreements were seen as a way in which to do that. There are advantages, in that they allow particular contractors and designers to focus on various bits of the market and to develop their expertise within that market, thereby providing a better service to the public sector. Those are the sorts of benefits that come out of framework agreements.
400. At the time, we did recognise that, although infrastructure spend by the Government was rising, the construction marketplace was rising substantially as well. In Northern Ireland, there is a perception that the bulk of construction spend comes from the Government, but that is not the case. Government spend is around 40% of the construction market; therefore, 60% of the market was going buoyant. Part of the strategy of the framework agreements was to grab resource and point it toward the various areas of infrastructure deficit. That would allow us, if one likes, to capture some resource and to make the Government’s business with those organisations more substantial. There is a balance to be struck in how to influence a contractor or designer’s business plan.
401. The system has been used in Wales. Welsh Health Estates uses a very similar framework arrangement to that which was intended for CPD. Before CPD developed the procurement strategy, it had a look at a number of organisations with sizeable procurement spend ahead of them, just to see that it was taking on board any teaching that those organisations had on best practice. Framework agreements are the right things to do. However, there is the question of whether current market conditions will allow us to go with them. Obviously, there are different types of pressure on the resource available.
402. In our discussions with contractors, they are indicating clearly that they believe that there is a place for framework agreements. It is a matter of how we work with the local market to give it an opportunity to get into those framework agreements and to ensure that we do not end up with some of the problems that we have had in the past.
403. Mr Hamilton: Finally, on a related issue, I accept that there are advantages to framework agreements, and I would not turn my face against the whole notion of framework agreements. However, the unfortunate experience of those major contracts is what we have before us — legal challenges. Those legal challenges put a cautious spin on the whole issue: are framework agreements right or wrong? There has also been fairly negative media coverage of the issue.
404. I understand that Northern Ireland Water is proceeding with a similar approach. Given that those challenges are there, and that we are awaiting their outcomes, is it wise for Northern Ireland Water to be pressing ahead with a framework arrangement — albeit under a different name; I think that they are calling it “alliance" — or would it be better for it to await the outcome of those legal challenges?
405. Mr B Doherty: That is an interesting question. There is a balance to be struck: to what degree does one feel one ought to adjust the technique being used, at least in the interim period; or does one feel that the case is robust; or does one wish to apply for interlocutory relief, which was received in both of those key cases that DFP procurement side was involved in in the initial hearings, so that one gets a certain cover from the courts in the interim period? Of course, that comes with the risk that one may be asked to give an undertaking to pay damages for what may have been lost by those who are otherwise in that period precluded from the opportunity of getting into a contract with the Department.
406. There is a delegate balance to be struck. It comes down, in part, to the use of the technique and, in part, to the case in question. The Department may wish to say more about what it is doing in those cases.
407. Mr D Armstrong: I am not familiar with Northern Ireland Water’s framework arrangements. However, in the utilities area, framework arrangements have been used widely, because of the downward pressure that regulation puts on to funding for those organisations. The concept of strategic partnering is much more widely established in the utilities sector. Much of the procurement for utilities companies in England and Scotland has been carried out in that way.
408. There is the question of whether it is correct to proceed in that way at the moment. In the McLaughlin and Harvey judgement, for example, and even the Henry Brothers case, I do not think that the courts said that frameworks were illegal, because they are provided for under the regulations. As regards the issues around the selection process, and how one arrives at the eight, or the six, suppliers that would be on the framework arrangements, it was not that the framework arrangements were illegal — the problem surrounded the method used to select those that would participate in the framework arrangements.
409. Mr B Doherty: I absolutely agree with that. The one issue in the education procurement — the schools case — was not the framework per se but the partnership approach and whether, at the time that the award was made, and at the time that people were put on the framework, and at the time that the award was given over, sufficient expression had been given to the “economic" element of the most economically advantageous tender.
410. The Department strongly believes that it is a sufficient articulation. The whole idea of the technique is to gain better value for money. It is proper to note that a finding of wilful discrimination has not been made against any party that is involved in those processes as a result of the court’s identifying perceived difficulties of compatibility with community law. It has simply to do with the technical technique, as opposed to any favouring.
411. In a sense, we are all travelling in the same direction, in that we are trying to get best value for money. In the case of the Government here, we are trying to utilise the freedoms that we still have under those directives and constraints to get the best value for money and to get firms to work to the best advantage in order to meet the Department’s objectives. For example, if one group of contractors were to carry out ongoing work on schools’ procurement, that should increase their experience and learning, as well as that of the Department, during the process. Des Armstrong will be able to describe that better than I can.
412. It was believed that that process would be able to drive down the ongoing costs. In a sense, the process has been bona fide, but there is now a difference of opinion over the legitimacy of aspects of the technique that has been used.
413. Mr D Armstrong: The impact of the judgements on the frameworks applies to all procurement. It is not restricted to frameworks. The selection of a contractor or a supplier on the basis of a quality submission and a financial submission impacts across all procurement.
414. Mr McNarry: Is all the legal preparation work done in-house?
415. Mr B Doherty: There has been a mix, in that outside legal advisers were involved in the original preparation of the contractual documents. That was a bought-in legal service, both for reasons of the quantity of the legal service that was required and the knowledge of the outside service compared with what could be provided internally. To the best of my knowledge, Northern Ireland is no different to the commercial contractual areas of our colleagues in other parts of the UK.
416. Although the private-sector contractors were drawn in to a degree because of their knowledge of the contractual documentation, the cases have been defended by the Departmental Solicitor’s Office in conjunction with the use of counsel. In both of the larger cases involving the Department, we have also used the skills of a Treasury counsel.
417. Mr McNarry: Is a procurement process used when appointing or using, for want of a better word, outside people?
418. Mr B Doherty: That process is carried out by the relevant Department.
419. Mr D Armstrong: Legal services are subject to the same regulations. It is covered by part B of the regulations. Part B means that the full requirements of the directives do not apply, so advertising may not be required and the mandatory standstill period may not have to be used. In broad terms, a procurement is in place.
420. Mr McNarry: That is interesting, and good to know. Of the 12 cases that your submission presents, two resulted in no damages being paid, two cases were withdrawn and four are not finalised so cannot be commented on. Four were “settled pre hearing" — I take it that that means that they were settled out of court.
421. Mr B Doherty: Yes, that is correct.
422. Mr McNarry: It is important that we can agree on that. One of the cases that was settled out of court is that of Workplace 2010. Your submission shows that the cost was £1·2 million. Can you separate the damages that were agreed from the legal costs?
423. Mr B Doherty: I have not been at the centre of preparations for settlement in that case, but I would have thought that the answer is yes.
424. Mr McNarry: It would be useful if we had that information, because that is the only case, as far as I can see, in which it is possible to identify legal costs and damages, so I would be interested in knowing the breakdown. I see no indication of the court awarding damages in any of those 12 cases.
425. Mr B Doherty: To the best of my knowledge, that is correct.
426. Mr McNarry: Is that a sign that, on the margins, the relevant Department is more willing — of course, both sides must be willing — to do a deal than to go the whole way in court and to take a risk with regard to what the judge may award? Legal costs are legal costs, but I am referring to the level of damages. There are 12 cases here, although I understand that four are not finalised.
427. Mr D Armstrong: I would need to look into the detail of those cases a bit more. I am not familiar with that detail because the support is provided by other centres of procurement expertise. However, you may wish us to come back on that point.
428. Mr McNarry: I only raised the issue to find out whether a judge had decided — like it or not — to award damages. What is taken out of other people’s hands is the decision to include damages in an out-of-court settlement. That is why I am interested in Workplace 2010. If that is how things are to be done, it would be as well to tell us so.
429. I know that most people prefer to settle out of court for commercial reasons, because they have no idea what a judge will do or say, and, although they can pursue a case, they must pay big bucks for that kind of legal representation. That is why I asked who handled your matters. Should I take it that, on the margins, when you are deciding whether to settle out of court, the Department briefs counsel fully about how much it is prepared to settle for?
430. Mr B Doherty: In any case with which I have been involved, I have worked very closely with counsel, and I would always want counsel to be in the cockpit for the final decision-making on settling a case.
431. A more general point that I was going to make earlier, with which Des will be very familiar, is that we are not likely to settle any case unless, on the balance of probability and risk and taking account of commercial considerations, it is considered wise to do so. Some years ago, the problems that can be created by such precedents were experienced, whereby settlement became the order of the day.
432. Previously, in our sister Assembly in London, public-liability claims became a particular cause of difficulty, so resources were found, and efforts were made, to demonstrate that getting damages, or settlement in lieu of damages, is no easy matter. That is the background to this issue.
433. Mr McNarry: I appreciate what you are saying about that approach; however, we are interested in how public money is spent. It is the control of public money, up to the point at which someone briefs counsel, which determines what the deal is here. I see a trend of settling out of court, only from the 12 cases that you have presented. Is that a fairly indicative trend? You may want to come back to that and give us a clearer picture; I would appreciate it if you could do that.
434. Court cases are a contest, as you well know. I would be concerned if public money was being spent on the basis that people might feel that it is prudent, or worth their while, to make a challenge in the secure knowledge that the Department does not take the full risk — and I realise the risk of going for a judgement — and is prepared to settle out of court, which would include damages and a share of legal costs. I do not want that to be the case, but I want to know whether you can give us a clearer picture.
435. The second aspect of the situation is the role of the Central Procurement Directorate, which provides a professional procurement service to public bodies. There are also various centres of procurement expertise. Is it true that known legal obligations are not being followed by Departments and other public bodies?
436. Mr D Armstrong: The regulations provide for a challenge, if that is the case. Each of the centres of procurement expertise has a complaints procedure in place in the event that an unsuccessful tenderer feels that the process was not compliant with policy or the regulations. We ask the centres of procurement expertise to provide us with details of all complaints that they receive. That information is brought forward to the procurement board. We seek feedback from suppliers in a number of ways.
437. Mr McNarry: I realise that this is not the best question to ask, but I will ask it directly: is it true or is it not?
438. Mr D Armstrong: With regard to what centres of procurement expertise do?
439. Mr McNarry: Do Departments fail to pursue their legal obligations?
440. Mr D Armstrong: My experience in dealing with the heads of procurement is that we are clear about public servants’ obligations to follow EU law and how that is applied in procurement competitions. On occasions, unsuccessful suppliers may feel that the process has not been compliant; such instances may lead to legal cases. However, all of the centres of procurement expertise are accredited on a regular basis by the procurement board. We began an accreditation process at the beginning of the year, and there are other mechanisms through which unsuccessful suppliers can raise concerns.
441. The Chairperson: It is not about the process. We seem to be developing what would, by any objective judgement, be the best-practice approach. Have the legal challenges that have been made demonstrated that Departments or other public bodies have not always followed their legal obligations? Has the experience of such challenges demonstrated that mistakes have been made or that legal obligations have not been understood or followed?
442. Mr D Armstrong: I said at the start that case law, in itself, is a way of fleshing out the bones of regulations and directives. On the matter of the CPD framework, a number of significant case-law judgements were handed down before the procurement strategy was developed, before the procurement process was put into effect, and, indeed, after the pleadings had taken place in court, but before the judge had made his decision. We are in an area in which directives and regulations provide a great deal of information and guidance, but in which the case law can be ahead of a particular situation.
443. In the case of McLaughlin and Harvey Limited v the Department of Finance and Personnel, the method that was used was a direct reaction to changes in the regulations. The new regulations that came in placed an onus on contracting authorities to develop award criteria and to make them known to the marketplace. It also placed a requirement on contracting authorities to be able to explain the relative merits and advantages of the successful bid against an unsuccessful bid.
444. The second part is an additional piece of work that was introduced by the regulations, which came into force in January 2006. The case of McLaughlin and Harvey v the Department centred on how the Department handled the dual requirements of the regulations, one of which is to let the market know how much information was required, and how it would be judged by the competition. The next requirement was to be able to explain to unsuccessful tenderers, after the contract had been awarded, why the winning tenderer was awarded the contract in comparison to their bids.
445. Mr McNarry: I understand that. I have been informed that Departments are not following known legal obligations. I do not have any basis or great evidence for that; that is why I asked you whether it was true. If you had said that it was true, I would have asked why that was the case. We need to do a bit more work on this and present more evidence whereby we could say that these legal obligations are not being followed.
446. Simon Hamilton talked at length, interestingly and correctly, on major projects and big companies. There are very extensive costs to prepare a tender on major projects. I only have the details of the 12 cases that we are addressing. Is there any danger that we could put people off from tendering because there are difficulties with the process? We could be developing a record for that, and they may wonder why they should go to the expense of tendering. That has been said in relation to Workplace 2010. People are asking why they should go to all the expense of tendering when the procurement service’s policy can be a frustrating waste of time. Why would people want to go through that? Therefore, the risk is that we would be left with, not the best tendering, but what we already have.
447. Mr D Armstrong: We need to look at the type of projects that are being procured. In some way, you need to segment the market. Projects such as Workplace 2010 are complex in that the client sometimes cannot determine the service that it needs until it starts to engage with the market. Again, the regulations have changed in terms of replacing what would have been a negotiated procedure — negotiations require both parties to come to a conclusion. Some of the costs that are involved are around coming to that conclusion, getting parties to settle through a negotiated procedure on an award.
448. That has now been replaced by a competitive dialogue process that is supposed to end the procurement dialogue cleanly, and to get final bids. However, the feedback that we have at the moment is that there seem to be some issues and some problems. Those complex procurements require the tenderers to put quite a bit of resource into place so that they can commit, for a long term, on a procurement and its outcome. That is sensible.
449. We have received feedback on the more routine procurement processes, which, perhaps, are less complex and which are used in instances in which clients have a better idea of what they need and how the market might provide it. The feedback suggests that there is some duplication in those processes and that we are asking for the same thing in a different way. That loads costs into the marketplace. We received feedback from the Confederation of British Industry survey, and we received some directly. In the area of construction, for instance, we have tried to use the Constructionline method, where suppliers can load up their information on a one-time basis. That information is kept up to date and can be drawn directly into a procurement process.
450. There have been occasions when public-procurement authorities have asked for additional information or the same information that is held. If we move all the centres of procurement expertise into e-sourcing NI — the electronic tool — we are hopeful that, as part of that, we will seek to standardise the whole template of information. CPD has developed a number of templates as part of bringing forward the initiative, and we are encouraging the centres of procurement expertise to use those templates with the minimum of changes. Therefore the Northern Ireland public-sector’s approach to the marketplace should be more consistent. I would like to engage with the industry side to ensure that the information that we are asking for meets their needs. I would like to try to strip out any wasted effort.
451. Mr McNarry: People have approached each of us in our constituencies and said that they would like procurement to be more user-friendly. Although we are not protectionist — and I should not even say that word — we would be sympathetic to that. I want to make sure that people will not be tendering merely because they know that the Department is a soft touch on the route to court and too easy to settle. That is how it looks to me, but, hopefully, that it is not the case. I want to ensure that the Departments are functioning within their legal obligations and that people are not put off from tendering. I accept the explanation on the complex issue, but it is good to hear that you are picking up on the feedback that is coming in on the more fundamental procurement exercises.
452. Mr D Armstrong: The move away from the acceptance of the lowest price has added costs to the procurement process. In the past, suppliers were able to use their own pricing information for any requirement that was scoped up. Now, all contracts are awarded to the tenderer who has made the most economically advantageous tender. That requires that an assessment of the quality bid, as well as a costing bid, is carried out. Inevitably, suppliers have to provide additional information. That is of benefit to the winning bid and to the public sector as it is a better overall position to be in. I am clear, however, that more needs to be done in the centres of procurement expertise.
453. Mr McNarry: The figures tell us that four are not finalised and four are finalised. That is over £4 million. I know that that is based on just 12 projects, but we do not know how many there may be. That is a lot of money that could be used elsewhere.
454. Mr F McCann: The Committee heard evidence concerning the CPD integrated supply team framework agreement. During the court case, it was discovered that the tender-marking scheme was drawn up after tenders were received and that the panel of three individuals who carried out the assessment over a period of two months could not produce notes of their deliberations. How could CPD allow that to happen?
455. Mr D Armstrong: The regulations contain the requirement to have the overt criteria specified, to provide a debrief to the unsuccessful tenderers and to be able to link their position to the successful tenderer. We prepared a detailed document on that framework for the marketplace, which showed not only the criteria and sub-criteria, but went beyond that and gave an indication as to how the tender would be marked.
456. We had another bit of the document provided for panel members, in order to assist them to provide the debriefing information, which is the second part of the regulations. The judgement in the case indicates that that approach was flawed. However, we believed at the time that we were following best practice. We had used the toolkit that the Office of Government Commerce had put forward in its guidance as to how evaluation should be made.
457. The practice was that the documents would go to the market and the assessment panel would be put together after the procurement process had started. Before the documents were opened, the assessment team would be brought together to allow it to make the assessment. The approach that we took was ruled unlawful; however, as members know, we have lodged an appeal on that basis. I cannot say more about that.
458. Mr B Doherty: The court did not find that that point was covered in European case law. Up to now, case law, as established by the European Court, is that weighting and selection criteria that are formulated before notice is put in the Official Journal of the European Union (OJEU), need to be published. It does not say that they cannot be designed afterwards. The heart of the dispute in this case is: how far down the criteria, sub-criteria, the weightings attached to those and, in this case in particular, the guidance prepared for the team that will look at the bids, does the Department need to go to meet EU requirements?
459. It may be asked why all of that material could not be designed and made available to bidders at the outset. The instruction that I have from the Departments is that to go down as far as is now indicated by the court is more than is good for the Department’s purposes when it needs to give separate guidance to its own evaluators to allow them space to decide between bids.
460. Mr D Armstrong: We have looked at the criteria used in a number of judgements. The case of Lianakis v Dimos Alexandroupolis in Greece, which came out in January 2008, gave some information as to where the cut-off line should be. There was then another case, called Letting International Limited v London Borough of Newham, which seemed to move the line a little further with regard to transparency. The case of McLaughlin and Harvey Limited v Department of Finance and Personnel moved the line substantially.
461. The issue is that award criteria need to, specifically, give commercial advantage to the contracting authority. It must be able to distinguish between one supplier and another. At some point, we have to close off transparency, but become transparent again when it is necessary to explain to someone why the tender has not been successful. That was our approach. However, the judge found that some of the information that we held for the assessment panel should have been given up, and some should have been retained. That leaves us in a difficult position in deciding how to proceed.
462. With respect to the debriefing material, we debriefed all those who tendered unsuccessfully. We received very good feedback from the tenderers: one of them said that it was the best set of information that he had ever received back from such a process, and that he would use it to improve his tendering performance in the future.
463. Mr F McCann: Does that include the notes of the panel’s deliberations?
464. Mr D Armstrong: The panel recorded its deliberations on a laptop computer. We must take into account the court’s ruling. The new system that we have, the e-sourcing NI tool, records a good audit trail as to when individual assessment-panel members have viewed documents and recorded information. We intend to issue fresh guidance to panel members, hopefully by the middle of next month.
465. Mr F McCann: Having sat on various panels, I know that everything that is written down is usually gathered up at the end of a process in case there is a challenge.
466. Mr B Doherty: In my view, the more transparency that is available in that respect afterwards the better, as is the case with personnel selection panels. Indeed, departmental officials spend quite a lot of time in the box explaining how they carried out assessments, and, had papers been available —
467. The Chairperson: You are implying that this is not rocket science. It applies at almost every level of recruitment, appointment and selection processes. A careful record of reasons for decisions should be kept, in the event that someone feels that he or she was less than fairly treated. Yet, the Central procurement Directorate seems to have forgotten that. Have you learned that lesson over again?
468. Mr D Armstrong: As I said, the assessment team in question logged its information on a laptop and developed information for a debriefing. We will have to look at that situation, for the purposes of transparency. If there is a criticism of our transparency at all, we must react to it and produce new guidance and procedures; that is well in hand.
469. The Chairperson: With regard to development capacity, the completion of the debriefing is something that is helpful. I do not know all the bidders, of course, but those who have talked to me about the process have found the debriefing to be a valuable exercise and much appreciated from their point of view in going forward and learning what it is that they have to do to win contracts and to address their own deficiencies.
470. Mr F McCann: As a layperson looking in, I would have thought that all of that would have been done at the start of the process, rather than in the middle of the exercise when the tenders come in.
471. Mr D Armstrong: That is a throwback to custom and practice, but we recognise that public procurement moves on, and each case that comes up will have some learning in it for us. We are determined to ensure that our processes are up to speed and that we can give confidence to the public and to those who are involved in public procurement, either as clients or suppliers, that we are running a professional service and that it runs in accordance with best practice. We have to learn those lessons.
472. Mr F McCann: In your experience, what are the dominant award criteria that are applied to public contracts in NI? How can quality criteria be marked in an objective manner? Are legal challenges not more likely where quality marks are too high a proportion of the award criteria? How do you ensure that tenders are marked equally, fairly and objectively? How much of the work that is due to be let under the integrated supply team and schools’ frameworks could now be put to tender under simple price and construction duration criteria?
473. Mr D Armstrong: We moved away from lowest-price procurement, which drove the construction industry in particular in a certain way and made it less efficient. A whole set of tendering processes existed through which contractors would bid low, get the work and then set out, as they had to, to recover profit by claims, or by cutting back on quality or health and safety. Northern Ireland had a pretty poor health and safety record, much of which was down to taking the lowest price tendered, leaving contractors unable to price properly for the work.
474. Having moved to the practice of accepting the most economically advantageous tender, we find that two issues arise immediately. The first is the proportion of price as opposed to quality; the second is the assessment of quality and how to demonstrate that that assessment is robust. As a procurement professional, there is a certain comfort in opening six envelopes and finding, when looking for the lowest price, a long list of numbers; if one tender is £1 above another, there is not an awful lot of debate about that.
475. With the quality issue, one must first ensure that the questions asked are structured in a particular way. For example, one might want to reduce the number of tenderers that will produce a full tender, and that would be done using the restricted process. We would invite expressions of interest and ask people to provide information on their experience. We would then allow them to enter into a full tendering exercise. That makes the assessment and award of the tender manageable, reduces some of the cost to the industry and reduces the abortive tendering costs.
476. We were in a situation that had a tendency to produce a light first stage. It was the second stage at which tendering would really be gone for, and experience mixed up with quality. The courts have now ruled that that is illegal. Contractors or suppliers, or whatever, must be asked for their experience at the first stage. In order to get the most economically advantageous tender, criteria must be created that can be demonstrated to add a commercial advantage to the contracting authority. For example, the supplier may be asked to outline how it will approach the delivery of a service or how it will approach the creation of a product. The questions used, and the weightings given, need to be linked back to the subject matter of the contract. The questions must be relevant to the contract, and we need to be able to explain the split.
477. In construction, there was a move away from lowest price. Some competitions have, pretty much, been run with quality as the first stage, and then a split of quality. At the moment, the Department is doing some work on how that price/quality split should be taken forward. Some of the legal cases suggest that the courts were concerned that there was an over-reliance on the quality submissions and that decisions on those quality submissions were more subjective — more a matter of professional judgement. That is an issue that we need to review.
478. Mr F McCann: You talked about the lowest price, and I know that recently, in another Committee, we have been discussing procurement and the construction industry. One of the concerns that came up was that major construction companies can come in and outbid local companies, although the contract may go over to the local companies, in that the major companies subcontract the work. Is there anything that prevents that from happening, because, when we get down to it, that is profit-slicing?
479. Mr D Armstrong: In Northern Ireland, we have been, for the most part, using local suppliers. In the current market conditions, other suppliers may be interested in the Northern Ireland marketplace. We have found that, when they do come to Northern Ireland, companies look for a local partner. The view is that that is an attempt to take the profit and force the work down the supply chain. I take a slightly different view: I think that we need to encourage that sort of thing to happen. Through the regulations and directives, the public-procurement process is quite clear: one cannot discriminate in favour of local companies. Given those directives, when an external company comes to Northern Ireland, it has to be allowed to tender for contracts. That presents an opportunity for local companies to become involved in the supply chain. What we need to do is to ensure that the supply-chain operation works well; that it feels like a Government contract; that there are back-to-back terms and conditions, and payment processes, in place; that we are not into the concept of “subby-bashing". If we can do that, and the construction area has decided that that is what it wants to do, I think that it can work very successfully.
480. Local companies have been involved in some major roads contracts here, in partnership with companies from outside Northern Ireland, and those local companies have gone on to win contracts outside Northern Ireland. Therefore, Northern Ireland firms have nothing to fear from working with companies outside Northern Ireland, provided that we create conditions that are appropriate for subcontracting.
481. Mr F McCann: One concern that arose was the question of major contracts being let out. There were questions around a company’s being awarded a contract and subsequently bringing its entire workforce with it. Therefore, as far as employment and delivery of supplies were concerned, there seemed to be no real benefit to the local economy, aside from what was being built.
482. Mr B Doherty: My point relates to the earlier theme regarding procurement rules, with which, I am afraid, we all must comply. The rule regarding consortium bids states that bidders can be any combination of companies working together, and it is not for the contracting authority to try to influence how that takes place or who wants to work with whom. However, when it comes to signing the contract, the authority is allowed to tell those bidders to form themselves into an entity with which it can contract. Therefore, that bundle of different companies or expertise is all brought together. The contracting authority is permitted to do that, but it is not permitted to say who works with whom or in what way. In a sense, we simply have to be receptive to what is placed before us, according to the procurement rule on consortia.
483. Mr F McCann: I thought that you could face in the direction of suggesting local supply and local employment.
484. Mr D Armstrong: There are a number of ways in which sustainable development can be best effected. One way is for a public-sector client to start thinking about sustainable-development issues when it is deciding what it wants to buy. Another way is for the client to start thinking about those issues when the contract is being discharged.
485. In the construction industry, we have agreed a number of initiatives, including advertising for opportunities in local supply chains and ways in which to try to bring people out of long-term unemployment. However, the industry is saying that it is going to keep people in jobs, rather than bring unemployed people back to work. There are also issues around apprentices.
486. The issue of how contract management is taken forward is an important one, because that is where many of the benefits can be found. If we have contracts in place that require back-to-back conditions — that is, the same terms and conditions between Government and the main supplier, and between the supplier and their subcontractors — that will work better.
487. Mr B Doherty: I have a copy of a flow chart from the document that the Executive have adopted on sustainable procurement, and it is a terrific way in which to point up the various methods from the beginning — from setting up the strategy to procurement technique. It allows one to build in the policies that are important to the Executive, to the greatest degree possible, in order to drive forward particular objectives, in so far as is possible within the European rules. All centres of procurement expertise (CoPEs) should pay attention to that, and they have been doing so.
488. The Chairperson: Earlier evidence that we heard on the topic indicates that contract compliance and contract conditions are ways in which to address, within EU regulations, the issue of the local market. There is an inherent issue for indigenous companies dealing with consortia or joint ventures, particularly if tenders attracts outside bidders with far superior in-house legal and technical professionalism to prepare and present their bids.
489. We have also heard evidence that, in some instances, up to 100% of the work was subcontracted out to local companies that were not in a position to compete originally, but that ended up “dealing“. I think that someone used that expression earlier. They delivered the actual work and the product. We have that degree of capacity locally. The disadvantage exists at the technical level.
490. The Committee considered the more social priorities that the Executive are dealing with — the long-term unemployed and people on apprenticeship opportunities. At contract level, one can consider, legally, the issue of rewarding full delivery and compliance with those conditions. The issue of introducing sanctions for those people who do not comply can also be addressed.
491. I was interested to hear Des say that we must look at the idea of contract compliance. Perhaps we should be a bit creative in having those requirements built into the contracts in the first place. I do not regard that as being discrimination: I think that it is a way for the Executive to go about their work in a professional way and to deliver for the local market. We need to retain capacity, and to build and enhance that capacity.
492. The Committee also received trade-union information. I mention that now because of the reference that has been made about experience elsewhere in the EU — experience in the South. Within EU regulations, it is possible to have a percentage of the contracts designated to local contractors. Are you aware of that?
493. Mr B Doherty: On the face of a suggestion put like that, I am somewhat troubled by it.
494. The Chairperson: Not as a policy directive. The contract conditions are designed to produce that targeted outcome. Social dimensions have been built into the contracts, and local contractors can address those dimensions effectively.
495. Mr B Doherty: There is absolutely no problem. We have advised Departments on issues such as the long-term unemployed in the past and have that put into the contract conditions, so that everybody can see that from the outset. In a sense, we are saying that this is neutral: the long-term unemployed can come from Sicily or Northern Ireland. The chances are that they would be more likely to come from Northern Ireland. That type of approach can certainly be taken. At the outset, it is the scale of the procurements that are put to the market. However, as Des would say, there is a good record of local firms competing for the bigger construction contracts, and so on.
496. I fully accept that there is a number of techniques that we can utilise. Interestingly, the trade unions played their full part in being consulted and in participating in the decision-making on the policy that the Executive have adopted. I am not quite sure, but there may be a stop date at which one could look and see whether that has been done —
497. The Chairperson: Yes, to determine whether we are getting those outputs.
498. Mr McNarry: This is one of those meetings at which one says, “So far, so good." It does seem to be working well, and our agenda is made up of lessons learned from legal challenges.
499. Mr Hamilton: You are about to ruin all that.
500. Mr McNarry: However, my problem is that there is no report to work off, and I feel that the Committee should have a report of some kind. You have been frank about answering questions on your presentation. However, it is nobody’s fault — except yours, I suppose — in that the heading of your submission includes the words, “Lessons learned", and I cannot find any lessons learned. No reference has been made to them.
501. Although the Hansard report of this evidence session will be helpful, I expect that you have an internal report — a list of dos and don’ts, or some kind of hit list that says, “Hang on, this is what happened to us because … Do not let it happen again."
502. The key issue is to protect against a legal challenge — you may correct me if I am wrong. We cannot operate on the basis that we expect there to be a legal challenge. It is hoped that lessons have been learnt on the protection against that, at least.
503. I see that £4 million has been spent in four cases. I wonder whether there are areas in which Departments are sailing close to the wind, and, therefore, may not be protected. Is anybody looking at that? In view of what we have learnt, what might be on the horizon? Is there a chance that something else might arise? That is why I asked you whether the recommended guidelines were being followed. Is there something there? If you know, fine; if you do not know, someone should look for it. It seems to me that there is always something ready to bite.
504. I need to hear that the work on procurement is done — as much as to protect Departments from themselves as anything else. Procurement could become a contestant charter in which people find out how they are supposed to submit tenders, and, subsequently, discover that they might earn more money from settling out of court than they would from carrying out the work.
505. What lessons have been learnt from the legal cases so far? If possible, I would like written evidence of that. What steps does the public sector need to take to ensure that it is complying with legislation and with common-law obligations on public procurement? How can it reduce the amount of future litigation? We need to cover those matters.
506. Your submission contains legal costs, and you have said that non-departmental solicitors have been used. Do the costs provided in your submission include outside legal costs? Are they a breakdown of in-house legal costs? According to what was said earlier, in-house legal seem to account for the greater percentage by far? It is not an expectancy, but does your budget include a war chest that is to be used if required? From where did you obtain the £4 million? Who gave it to you? Do you make a bid for £4 million or £20 million, which is to be used in the event that you take a hit? If your house is in order, do you return £3 million, for instance?
507. Mr D Armstrong: We certainly do not have a war chest.
508. Mr McNarry: Perhaps that was the wrong choice of words.
509. Mr D Armstrong: To obtain the funds that are needed, Departments follow the normal bidding process.
510. Mr McNarry: Do you bid as required?
511. Mr D Armstrong: That has been the case.
512. Mr B Doherty: That is more Mr Armstrong’s territory than it is mine. However, my understanding is that there is not a war chest, but bids must be made for unanticipated cases for which damages are required to be paid.
513. The Chairperson: Are the outcomes reflected in the monitoring rounds?
514. Mr D Armstrong: Unsuccessful tenderers have informed us that they are being approached by others, who are offering to help them make legal challenges. We recognise that the potential for legal challenges in Northern Ireland has increased. We need to ensure that the way in which we choose to handle that potential threat is considered carefully. However, now that centres of procurement expertise have been established, we can draw together the right people to take the matter forward. We must ensure that people in Northern Ireland have confidence in the public-procurement process, which, in the event of legal challenges, must be capable of being defended robustly.
515. The Chairperson: Assuming that you take cognisance of best practice elsewhere, has a lessons-learned report been produced for each of the contracts mentioned in your submission to which there has been a legal challenge?
516. Mr Brendan O’Neill: Yes. However, there is some confusion, because the Committee has obviously not received the lessons-learned report that we produced.
517. Mr McNarry: Things not arriving, or not arriving on time, would be nothing new for this Committee, but no matter.
518. Mr B O’Neill: There is a report —
519. The Chairperson: You sent it, so we will get it.
520. Mr B O’Neill: The background is that heads of procurement have regular meetings at which those matters are discussed, and papers are produced, through the CPD secretariat, that set out the information gleaned from the CoPEs. Lessons-learned reports evolve from that process, and they may well end up as guidance, which my unit would draft in conjunction with the heads of procurement.
521. The Chairperson: That is fine.
522. Mr B O’Neill: The nature of the issue means that each private office must submit their proposals via its Minister. Last week, we submitted our report to our Minister, with a covering note for the Committee Clerk. Obviously, there was a hiccup somewhere along the line.
523. The Chairperson: Another lesson learned.
524. Mr B O’Neill: Indeed.
525. Mr McNarry: It is hard to procure these reports.[Laughter.]
526. The Chairperson: I am glad that you raised that point, David.
527. Mr B Doherty: I cannot pick up on all the points made, but I can outline a few of the indicators on the way to our finally producing the report for the Committee. In answer to the question about the amount of legal costs, the figure given includes all legal costs. However, we will confirm that information.
528. On the lessons learned —
529. Mr McNarry: In your confirmation, I ask that you account for the £1·2 million in legal costs and damages. You have already indicated that you will separate legal costs and damages. Will you specify how much money was paid in legal costs to commercial companies? The balance, obviously, will be in-house costs.
530. Mr B Doherty: Yes.
531. The Chairperson: Do you recollect whether there are any confidentiality requirements for that case?
532. Mr B Doherty: I hope not. When I examine the matter more closely, I will discover whether there are any such considerations.
533. The Chairperson: In any event, you will be coming back to us on that matter.
534. Mr McNarry: Given that the matter was settled, there should not be any confidentiality requirements.
535. Mr B Doherty: I would have thought that the water-under-the-bridge case is more likely to be simple.
536. As legal challenges continue to be brought, it is important that Departments, in the light of the lessons learned from the centres of procurement expertise, continually adjust their positions. I, or a colleague, but usually both of us, regularly meets with the Central Procurement Directorate, and also with its CoPEs, to brief and update it and to answer its questions, giving it as much general advice as we can in the light either of legal challenges or of any other legislative and technical developments, or in the light of issues raised by the directorate on which we have been asked to advise. One CoPE might approach us about a matter that we believe everyone should know about. Our system operates pretty flexibly in such circumstances.
537. Mr McNarry: Des Armstrong’s remarks about the ongoing alertness — whether that is a red alert, I do not know — that people might attempt to make a legal challenge are helpful. That is the sort of protection that I wish to see built in somewhere. I hope that that has sent a message to the Departments not to be too casual. I sometimes think that Departments are not as on the ball as they should be with procurement.
538. The Chairperson: I suppose that that propensity should also be subject to lessons learned, as should past mistakes or learning-curve issues.
539. Mr McNarry: It is a sign.
540. Mr O’Loan: Thank you for your evidence so far: I hope that I do not duplicate any questions. If I do, please tell me smartly so that we can move as quickly as possible through the session.
541. Carson McDowell solicitors suggested that it may be useful to have a public-procurement ombudsman figure available, rather than our only course of redress to be to go down the litigation route. There may be a retired judge who might do what is referred to as a quick and dirty adjudication on the matter. What is your opinion on that?
542. Mr D Armstrong: I am certainly interested in anything that can help us to explain the awards decision and the impact on the unsuccessful tendered, and that can mitigate the likelihood of costly legal action. The question is how binding any adjudication would be, and where it would sit in a legal framework. I do not think that we could introduce something like that as a direct replacement for anything that is contained in the regulations. However, some sort of mediator could be brought in to try to take the heat out of the situation.
543. Mr B Doherty: I am sorry if I appear to be throwing cold water on the suggestion, because I am not at all adverse to it, but one problem is that there are debriefing requirements, and that they be as comprehensive as possible is part of the explanation process. If there is disagreement, and a Department is anxious to proceed with its procurement and award the contract, and the relevant 10-day standstill period has run out, it is possible for the courts to become engaged quite quickly. Once the courts are invited to come in, that is the forum in which the matter will be dealt with. Diverting from that is not easy, when there are Departments that wish to award a contract urgently — if that is where they are at, but that is not always the case — and when the disappointed bidder is anxious.
544. The Chairperson: Is there any international experience of mediation in such circumstances?
545. Mr D Armstrong: I am not sure about international experience, but we have mentioned it to representatives of the local construction industry, who have told us that they have come across such a model in Scotland. They are preparing some details to see how that might work in Northern Ireland.
546. Some of the cases have been at the leading edge of European case law. To reach an understanding on some of those cases requires the courts to present relevant case law in order to allow the judge to make a decision. Examples of the law are brought to a judge, and a judge then makes a decision on that basis. That is quite complex, but that is how it seems to work.
547. Mr B O’Neill: I did some work with the accession states when they were applying for membership of the European Union, and each of them — Poland, Romania, the Czech Republic and Slovakia — opted to establish a public procurement office. The president of that office would then examine the issues. That is permissible under the European directives. However, the United Kingdom as a whole, and as a member state, decided not to go down that route, and to adopt only the taking of a challenge through the High Court. We, in the United Kingdom, are limited to challenges in the High Court. We cannot challenge in the lower courts.
548. Other member states have gone outside the legal system and established offices of public procurement. It is allowable under the directives, but the UK as a whole has decided not to go down that route.
549. The Chairperson: Does devolution reopen that possibility for us?
550. Mr B O’Neill: That is an issue that relates to the member state.
551. Mr O’Loan: It is important that discussion continues on this. It would be very good if something could be found that would —
552. The Chairperson: Des, could the paper with the reference to the Scottish experience be forwarded to the Committee? We may or may not follow it up but, if there is some other experience, it might be worth looking into. Sorry, Declan.
553. Mr O’Loan: May I ask about your assessment of the impact of legal challenges, in relation to both direct and indirect costs to the public purse and also in relation to delays in projects?
554. Mr D Armstrong: With regard to delays, projects are now being brought forward on a project-by-project basis, using single, one-off procurements. That will increase the time frame, by comparison with running a secondary competition off a framework. The delay is automatic. My understanding is that none of the projects that are designed to go to the frameworks are being held: they are moving forward, one at a time.
555. There is a more serious issue with respect to the potential impact on achieving value for money. The whole premise of using the frameworks was that by using them we could deliver better value for money for the taxpayer in Northern Ireland. From our discussions with the construction industry through the sifting task group, we know that it is still looking at how frameworks might be re-established in order to get work to the marketplace as quickly as possible. The view at the moment is that the frameworks need to be broken down in terms of value. Some projects run to the market outside those frameworks. There is still a view in the construction industry that frameworks are needed in that respect.
556. Mr O’Loan: I could say more about that, but I will not.
557. I have a few supplementary points. With regard to the table that we were given, Chair, I will take your opinion and guidance on that, but, to me, it would be helpful if it could be elaborated on. Another couple of columns could be added to specify who took the challenge, and to provide a summary of the basis of the challenge, perhaps in a maximum of 20 words. I am not sure that the “Outcome / Current Position" column is complete. Sometimes, there is a financial outcome; sometimes it takes the form of instructions to do certain things. I am not sure that we have all the information at present. As to the “Total Cost" column, I doubt that it is fully complete. We need to know the Department’s legal costs, those of the applicant or challenger if the case went against the Department, and damages. It would be helpful if we had all that information.
558. Mr B O’Neill: This is a copy of the paper that goes to the heads of procurement. They took a decision not to include names, lest it be deemed to form a blacklist of people who take challenges. For that reason, we avoided using names in any of those documents.
559. Mr O’Loan: The Committee would be interested in seeing them for its own purposes.
560. The Chairperson: The information exists, obviously, but Brendan has raised a valid consideration.
561. Mr B O’Neill: We could produce a separate list for the Committee. The reason that the table contains no names is that the Committee received the same information that goes to heads of procurement.
562. Mr O’Loan: How would you react to the suggestion that you are not as economical in fighting these cases as your challengers are? In certain cases, awards were made against you and you know the costs of the challenge. Can you give us substantive evidence on that?
563. Mr B Doherty: The costs as we have produced them for the Committee will help it to form its view on the economies involved. If there were another element that I would introduce for consideration, it is the fact that, in the larger cases, there are points of principle involved. They do not sit there academically; they are intended to produce better results, better economies and, for instance, better buildings. They must be as robust as possible in bringing the right resources to bear. It is obviously important not to let arguments go by default in any way. I am just putting that forward as a consideration.
564. Mr McNarry: Are those the same points of principle by which the bankers were awarded bonuses, as in the case of Sir Fred Goodwin, which was discussed in another place yesterday?
565. Mr B Doherty: No. The points of principle that I am talking about are those that govern partnership procurement techniques, or which are used to find more economical methods of procurement. They are to do with matters of policy.
566. Mr D Armstrong: The question is really about the cost of providing the legal team to defend a case. I am not sure that I can comment on that.
567. Mr B Doherty: In a sense, there is a combined responsibility; it is bouncing on the table between us. Legal resources are, obviously, required in order to fight a challenge, and we will provide the Committee with further information about that. Equally, however, there is the economic rationale for doing it. If we are talking about the most economically advantageous tender, lawyers can argue the points, but the points and theories come from the experts on the procurement side, or those who are drawn in by the Department. They are an element in this as well. Whether the technique is one that the Executive wish to take forward, it certainly falls four-square within the policy as it has currently been adopted. It is not for me to evaluate the costs against the policy gains. We can, however, certainly help identify the costs.
568. Mr O’Loan: It would be interesting to have that information, if you could present it to us in as full a form as possible.
569. The point has been made about the process being very labour intensive for small and medium-sized enterprises. I will offer one example — you can extrapolate it more widely if it can be done — which is to do with the delivery of health and safety requirements. Could those be short-circuited by a system of accreditation that is, perhaps, run by the industry?
570. Mr D Armstrong: There is no common recognised health and safety standard applied across Europe. Therefore, we must ensure that we do not preclude people outside Europe because they do not have a local registration system in place, or one that we know of. We must ensure that the market is not a barrier to trade in that respect. We must then look at anything that might be proposed as an accreditation system and ensure that it is compliant with other legislation such as the Construction (Design and Management) Regulations 2007 (CDM) and the duties that those regulations impose on contracting authorities to ensure that a contractor is competent and is applying the right resources.
571. We have been working with the industry to try to come up with a more standardised approach to assessment. Again, a lot of this is around the fact that, if we hold some information, can we recognise that, can we ensure that we do not ask for it again, and can we offer additional information? There has been a fair bit of debate about health and safety, and we have been involved in a drive to improve health and safety performance in Northern Ireland. Others may promote their accreditation schemes as a way of fulfilling the regulations, but we must ensure that they are compliant.
572. Mr O’Loan: Again, beyond encouraging what can be done in that area, you are thinking along those lines and we would want to encourage that.
573. The point has been made that CPD, contrary, perhaps, to some views, is not bad at what it is doing.
574. The Chairperson: That is a kind of compliment.
575. Mr O’Loan: However, to some degree, there is a reluctance to learn key lessons at key times, and to keep ploughing a furrow that is not productive — in particular, in going to appeal on at least one of those major cases in which the decision has been made on a significant point of law. Why not simply get on with life and learn the lesson rather than obstinately digging your heels in?
576. The Chairperson: I am not sure whether that was a question.[Laughter.]
577. Mr Weir: It was like an A-level exam paper question.
578. Mr O’Loan: It was a question.
579. Mr D Armstrong: Informed decision-making is one of the key principles of public procurement. We must ensure that any decision that we make is informed, that we have taken the right advice and that we know the likely consequences and outcomes. Public procurement in Northern Ireland is not perfect, but I assure you that we have the necessary mechanisms in place to deal with issues and learn from mistakes.
580. A lot of procurement is driven by human beings, and, as we know, human beings do things at certain times. It should be borne in mind that we have spent around £4 billion in public procurements in the course of these cases. The figures involved in public procurement in Northern Ireland are large, but we recognise the importance of ensuring that that money is spent well and that there is confidence in the process.
581. The Chairperson: As part of the new professional way of going about this, is there a process by which you examine what CPD presides over and compare that with traditional procurement methods? That would establish whether value for money is being delivered. The legal cases represent one perspective, but then there is the broad swathe of work that is rolled out under the new system with the central objective of delivering better value for money. Do we compare the new with the old to see if better value for money is being delivered?
582. The reason for my question is that we were once given an example of work that was being carried out at the Armagh Observatory. That was essentially remedial work — internal walls being taken down or whatever — and it did not appear to represent value for money in respect of the requirements of local management. Indeed, given how the work could have been carried out if it had been left to the local director, it appeared to be anything but good value for money. That is not a very good example because it is just off the top of my head, but it suggests that traditional procurement methods may have worked better in some instances.
583. Mr D Armstrong: You asked whether we do anything to measure the effectiveness of public procurement. We achieved our target of identifying and recording £250 million of value-for-money gains. We are now setting up a system to record not only value-for-money gains in cash terms but to look at sustainability. We are looking at what is being put into contracts and what can be recorded as effective sustainable-development benefits for public procurement.
584. We have heard similar stories to the example that you outlined. Some local organisations feel that they will get a better deal if they bring in a plasterer or joiner that they have found in the Yellow Pages. However, that approach creates issues in respect of transparency in the management of public money to order and pay for work. Some of the systems that we have put in place to correct that cut across well-established processes and practices. That can cause concern as well
585. The Chairperson: The meeting of the £250 million target seems to indicate that the current approach represents better value for money.
586. Mr D Armstrong: Much of that £250 million was directly due to the more modernised approach to public procurement, and the target would not have been met if a lot of the traditional methods had still been in place.
587. Mr McQuillan: You have presented a paper outlining 12 legal cases; are those all the legal challenges that have been made against Government procurement since 2005?
588. Mr D Armstrong: Yes.
589. Mr McQuillan: Are you aware of any more that may land on your table in the near future?
590. Mr D Armstrong: In the past few weeks, a couple of judgements have come to light in the criminal justice sector. Those are not included in our submission because those bodies are not covered by public procurement. A case involving Federal Security Group and the Police Service is in court, and a judgement was made in a case involving Federal Security Group and the Court Service. Those two cases are not included in our submission because they are not currently covered by public procurement policy.
591. Mr McQuillan: The next time you come to the Committee, can we expect to see many fewer cases because of the lessons that have been learned?
592. Mr D Armstrong: There are lessons to be learned from all the cases. We have not made a very good job of presenting those cases to you, but the lessons are recorded and will be covered in a subsequent report. Lessons are being learned, and, as procurement people, we are talking among ourselves to ensure that staff are aware of what happened and how to prevent a reoccurrence.
593. Mr McQuillan: What costs do you expect from the cases that are waiting on the outcome of a legal judgement? Can you provide an estimate or a guesstimate?
594. Mr D Armstrong: In the case involving McLaughlin and Harvey Ltd, there is no likelihood of damages being awarded under the current judgement. The issue is the importance of award criteria and how that might impact on the achievement of best value for money going forward and whether that needs to be clarified by the Court of Appeal or through the European Court of Justice. We need to make that decision, and, in doing so, we need to ensure that we have an idea about what the ongoing legal costs might be for that process and what the time frame might be.
595. Mr B Doherty: In a sense, we have to weigh up the arguments that are put by the other side, so, at this point, there is a degree of difficulty in providing a precise answer.
596. Mr McQuillan: Are you aware of any cases in which the public authorities have taken legal action against contractors for the purposes of enforcing social or sustainable costs?
597. Mr B Doherty: I am not aware of that.
598. The Chairperson: Brendan, you said that a report will be compiled on the lessons that have been learned. Will that report also include action points that have arisen?
599. Mr B O’Neill: Yes, the report will set out a brief history of the case, the lessons that have been learned and the action that a centre of procurement expertise or a Department needs to take to ensure that that is followed through.
600. The Chairperson: What is the mechanism for responding to or monitoring the performance of Departments under the broad procurement strategy. Does that fall to the procurement board, to CPD or to both? The procurement board is chaired by the Minister.
601. Mr D Armstrong: Yes, and all the permanent secretaries in the Northern Ireland Departments are on that board, along with the Treasury Officer of Accounts, the director of Central Procurement Directorate and an observer from the Northern Ireland Audit Office and from the Strategic Investment Board. In practice, the monitoring of public procurement performance is developed when CPD asks the centres of procurement expertise to report on their performance. The CPD occasionally brings that forward into an overall report with some recommendations, and that is presented to the procurement board.
602. A couple of parts of the process are useful. Departments are required to provide annual procurement plans to identify the sizeable projects that there might be going forward. That gives us an opportunity, through the centres of procurement expertise, to talk to Departments about what they might want to do on sustainable development. It also gives us some idea of what the workload might be when considering procurement for larger projects going forward.
603. Public procurement, substantially, has to go through centres of procurement expertise. The target is to have 95% of public expenditure directed through centres of procurement expertise. The concept is that the expertise in those centres will lessen the likely risks of legal action — leaving aside the 12 cases. Therefore, there is a mechanism in Northern Ireland for having a good grasp of how public procurement is managed. We also use those structures to put any warning that might come from England or from Brian’s people into that system.
604. The Chairperson: What happens when a challenge emerges, or when there is notification of a challenge? Does it go immediately to the Department, to CPD, or to the procurement board for assessment and direction?
605. Mr D Armstrong: The challenge is directed immediately towards a Department, and it will then involve Brian’s people.
606. Mr B Doherty: In addition to responding to the need for advice that might arise at the time, it almost becomes an agenda item to bring forward to any further general briefing meeting or update meeting that we have with CPD. There are a number of other sources used. For example, all European Court decisions across the remit cross my desk. Any procurement decisions are picked out immediately and clicked off to CPD, so that it is made aware of them, and, if officials have any issues arising from that, they can come back and ask for specific advice.
607. There is also a meeting of legal procurement experts across the UK held in London every quarter, and we aim to have a representative at each of those meetings to gather information on what is happening elsewhere, including techniques, as well as any difficulties that others are having. We will feed that back to our colleagues here.
608. The Chairperson: The communication end appears to be quite effective. Has it ever resulted in an amendment to procurement practice, in advance of a legal challenge emerging? Has it required a change of tack?
609. Mr D Armstrong: I am looking at one of the sheets from the report on the lessons learned, which, unfortunately, the Committee did not get.
610. The Chairperson: The report that we did not get — we are going to harp on about that.
611. Mr D Armstrong: It begins with a need to carry out a root-and-branch review of the terms and conditions to ensure clarity. Therefore, there are definite, clear words on paper that say that we need to do certain things. There is recognition that, in this case, we used standard terms and conditions that were used across a particular sector. There is also recognition that there is a need to review those because of the work that was done on that challenge. Therefore, it is clear that lessons have been learnt.
612. Heads of procurement meet in advance of the procurement board meeting, and, as a result of the issue with legal challenges, we have decided to meet more regularly to ensure that we are all familiar with any issues that are arising. Below that, we have a network of procurement practitioners who will look at the detail of tender competitions and make changes as necessary.
613. Mr McQuillan: There was a case only last month that started on 6 February and finished on 13 February. Costs were borne by both parties, but have we learned anything at all?
614. Mr D Armstrong: I have just referred to that case. We need to look at what happened in that case, as a standard set of terms and conditions were used, but they need to be reviewed. Therefore, there is a definite lesson to be learned from that.
615. The Chairperson: That was a very interesting session, and it turned out that we needed the extra time. Thank you all very much. We will follow up on two or three issues, including Workplace 2010 and the reference to the Scottish experience. We are interested in hearing about that, and we are interested in getting a copy of the delayed report on the lessons learned.
616. Mr McNarry: Are you sure that you actually have that report? You are not bluffing us.
617. The Chairperson: We have every confidence that the report is on its way.
618. Thank you. It was a very interesting session.
29 April 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Mr Des Armstrong |
Department of Finance and Personnel |
619. The Chairperson (Mr McLaughlin): Good morning, Des and Stewart, you are very welcome. Please make some preliminary comments to the Committee and then we will open up the discussion.
620. Mr Des Armstrong (Department of Finance and Personnel): To maximise the time available we will keep our opening remarks brief. I hope that the Committee has received a summary paper along with the report.
621. At the outset, I wish to say that the engagement that we have had with the construction industry has been very useful. We drew together good representation from the industry and from the Government construction clients. At the first meeting of the task group, there was a frank exchange of views and opinions, which really helped to move the process forward, and we got down very quickly to the crux of the matter, which is how the industry works as a partner with Government.
622. This is very much about building on our partnership arrangements with the industry, and we have been engaged with the industry through the Construction Industry Forum for Northern Ireland (CIFNI) for some time. It also builds on our work in July 2006, which looked at how a sustainable construction industry could be developed in Northern Ireland over the longer term. The purpose of that was to deal with the challenge of delivering the investment strategy, looking at how the industry could be developed beyond the end of that strategy, how it could seek work outside Northern Ireland, and what development individual firms would need to make that happen.
623. To support that type of work, we set up the constructing excellence centre, as a partnership between the Construction Industry Group for Northern Ireland (CIGNI), the Government construction clients, and the University of Ulster. We have been doing some work with the centre on how Departments have the capability to manage construction projects. We have received a report from the centre, which will be the subject of a discussion at the next meeting of CIFNI on 9 June. This is follow-on work to that.
624. Mr O’Loan: I have a few issues. I have looked at the documents. In some ways, I am saying what has been said before, but I feel that it needs to be said. In all these conversations, the system is presented as being very sound; and here we have a further mechanism for good consultation between CPD and the outside firms involved. Yet, when I talk to construction firms and architectural practices, I get very poor feedback on how procurement is working here: they are not happy at all. When we look at the paper that we were given last week on the legal cases and lessons learned, it seems that there is a fair bit going wrong in the system, and it goes back to the fundamental reason why the Committee is holding an inquiry, which is that it is necessary and because the system is not fit for purpose.
625. Mr D Armstrong: The Committee would not expect me to agree with that assessment directly. One must recognise that for each competition that we run there will be one winner and a set of unsuccessful tendereres. Therefore, views on the procurement process can be determined by whether one is successful or not.
626. As far as construction is concerned, the industry has failed to recognise the substantial amount of construction work and the increase in the workflow that have been taken forward over the past three or four years. For some reason, growth due to the investment strategy has not really found its way into the psyche of the industry. We still hear statements that the £1·4 billion or £1·6 billion is not being seen at ground level. That is not realistic. When people drive through the centre of Belfast they see a selection of tower cranes and the work that has been carried out on the Westlink and the M1. Belfast is being worked on from one end to the other.
627. The Chairperson: They may have been talking about west of the Bann.
628. Mr D Armstrong: There is a good project in Enniskillen — the Waterways Ireland building — which returns the highest environmental performance of any project that we have carried out in Northern Ireland. It stands alongside any standard that could be picked up in the UK.
629. A lot of activity has taken place. However, the construction industry’s concerns about procurement are very diverse. In the past, we have relied on CIGNI to carry through any communication to the industry.
630. The Chairperson: The Committee’s inquiry will be strategic. I suspect that there is some validity in your observation that the local construction industry has either not responded to the investment programme or does not have the composite vision of it. Has there been any analysis of the extent to which the local construction industry has benefited or has been able to win contracts?
631. More importantly, the Executive have taken measures to make procurement easier to access, especially for the SME sector, including the construction industry, in order to help it win contracts. Have those measures had an effect? The Committee will be looking at the baseline situation when the Executive was formed and how that has changed as the investment strategy has been rolled out and as the procurement process has been amended to make it more accessible and easier for local SMEs to win contracts.
632. Mr D Armstrong: To give the Committee an idea of the benefit that local firms have had, we asked our colleagues in Government Construction Clients Group (GCCG) to give us an indication as to how many contracts were awarded in the past 12 months and the types of firms that were awarded those contracts. We found that more than 90% of the contracts had been awarded to local firms. That goes against —
633. The Chairperson: As opposed to being subcontracted by —
634. Mr D Armstrong: Those contracts had been awarded to local firms, and that is totally at one side of the spectrum. I do not know from where the perception has come, but the industry perceives that the investment strategy has, somehow, been bundled up as being —
635. The Chairperson: Perhaps we need to tell them. Perhaps we need to do more.
636. Mr D Armstrong: That is what we have recognised. Part of our engagement with the construction industry must involve reassuring stakeholders that the procurement process is open and transparent, that it is effective and that it brings benefits to the local industry. We may have missed that point in our communications.
637. The Chairperson: I think so.
638. Mr O’Loan: As regards the use of most economically advantageous tender (MEAT), it has been suggested to me that the word “economically" is the only relevant word in that phrase. Ultimately, cost is what matters. I can think of an instance, outside the construction system, which was about cost. The specification was not well-designed, and the public sector was not getting a good deal. It thought that it was getting a good deal because the money was good, but it was not looking at the big picture.
639. Mr D Armstrong: I accept what you say if one were moving to procurement whereby one produced the specification for a client and took the lowest price: that has been shown in a number of reports, particularly in construction. However, if one draws up a specification and asks contractors to bid on the basis of lowest cost, and one accept contracts on that basis, it has been shown that that does not deliver value for money. Substantially, all contracts in recent times have been moved to assessment under quality and price.
640. Price has to be an important part of the equation. However, the combination of price and quality is now well-established in the construction industry, and it is being monitored carefully by the Procurement Board because any departure from the process must be explained by a senior official. An issue may arise whereby the perception of the industry is that the quality submission is not being enforced when it comes to contract —
641. The Chairperson: Did you say “equality" or “quality"?
642. Mr D Armstrong: I said “quality". The perception is that the quality bid is not being enforced by the requirements of the contract. Also, the industry has told us that we, as clients, need to create that level of quality: we need to be demanding clients. If we ask for something as part of the quality submission, we must ensure that it is put in place. As part of the conversations that we have had in the task group, it has been recognised that we need to re-examine contract management procedures as well as the procurement process that sets up those contracts: we need to ask whether the contract management procedures are sufficiently fit and robust to ensure that the commitments given by suppliers, along with the price, are put into effect?
643. The Chairperson: Are compliance, rewarding delivery, and non-compliance sanctions also part of your considerations?
644. Mr D Armstrong: In assessing whether the terms of the contract have been applied —
645. The Chairperson: Yes, but with respect to price and quality?
646. Mr D Armstrong: Yes. We need to look at both aspects and they need to be clearly delivered as part of the contract. Depending on the type and conditions of contract, there are different sanctions that one can take. Ultimately, one could run to breach of contract. Dealing with contractual issues is another set of issues that needs careful consideration.
647. As part of this discussion, the industry has said that Government must become a demanding client and force quality through. We want the industry to understand that that is what we will do.
648. Mr O’Loan: My final question is about endorsing a point that the Chairperson has made about small and medium-sized enterprises. We are still seeing, in evidence and in written submissions to the Committee, that such firms, which can be of decent size and have a substantial portfolio of work and proven experience, feel that they cannot get work here. There are two reasons: contracts are bundled together so as to be too big for them; and the whole process is extremely demanding for them. This is difficult territory: if the process is not right, then legal challenges may be made, which invite the response that the process is made even tighter.
649. We hear statements to the effect that other countries can use the system to make it friendlier to local businesses and give them a bigger slice of the cake. It enables them to get through the door more easily. We have to think about that.
650. Mr D Armstrong: As I said earlier, a substantial number of construction contracts awarded in Northern Ireland have gone to local companies, many of which would be rated as SMEs. Construction operates on the basis of subcontracting, which is a legitimate business practice. However, it requires clients to focus on ensuring that subcontracting arrangements are fit for purpose, because contractors rely substantially on the supply chain for effective delivery. Parts of the supply chain will be involved in design work as well as the provision of labour and different types of systems.
651. How supply chains operate is important for Government to recognise. SMEs must be assured that working in direct contract with Government is OK and is a good thing. They also need to know that where they are working with Government in a subcontracting arrangement, appropriate terms and conditions will be applied also. Many opportunities for SMEs occur in the supply chain, and it is a legitimate place from which they can draw business.
652. The Chairperson: Yes, but that does not mean that there is a stereotypical perspective. Subcontracting is only one dimension in the construction trade.
653. In a sense, we are trying to maximise the impact of the investment expenditure programme, and we may have to challenge cultures in Government as well as in the industry. If SMEs are being treated as SMEs, and if they already perceive that it is difficult to penetrate the procurement system because it is too complicated, expensive and cumbersome, they may not compete for all of the contracts that they could compete for. I do not see evidence of any attempt to encourage SMEs or to develop advice and support that would allow them to come together in a type of joint-venture approach. By doing so, they could create a critical mass that would enable them to compete for some larger contracts. That is how I see us delivering the opportunity to sustain and retain jobs in our economy at present. If SMEs feel that there is no point in competing for contracts, and if the Government are saying that SMEs can fit into the supply chain somewhere, the consequences of that in the circumstances of a downturn are inevitable.
654. Mr D Armstrong: I will give a couple of examples of where that type of joint-venture approach has taken place. Central Procurement Directorate has operated a framework for professional design services. In the past, Government would have chosen various professionals and put them together as a team. We have now left it to the market to do that. In effect, partners have come together in consultancy practices and have bid, as a unit, to do work for CPD. The framework has worked very successfully for us and is about to be refreshed.
655. The Farrans and GRAHAM companies are another example. They worked as partners with the main contractor on the Westlink project and have won a major contract in Scotland by taking their partnership and bidding for work in their own right. The strategic partnership approach that is being used in Belfast schools involved local contractors who created the physical infrastructure. They have also bid for work outside Northern Ireland. Part of the strategy for a sustainable construction industry in Northern Ireland involves encouraging those partnerships to happen.
656. In developing the strategy for a sustainable industry, we have recognised that we need to bring some of the smaller players together. They can come together through bidding for contracts directly, but in such instances, we look very carefully at the level of financial standing needed to allow partners to come together and work as a consortium. This is carefully assessed before the criteria are set. There are examples of local companies that have come together to do that.
657. However, all of this has to be set down within the procurement rules and with the assurance of value for money. There is an issue about overstretching firms. People operate their businesses at certain levels. When one overstretches them, one is asking them to take on more resources, responsibility, risk and liability. Normal practice has been that a contractor pays out the money, claims it back and is then paid. There is a fair bit of time involved in that process, which could have an impact on cash flow. There is a complex set of business pressures on construction firms, and, in the construction industry, cash flow is a big issue that requires great care.
658. Mr F McCann: There is public perception that — and one thinks of the Westlink, but there are others — many major companies that have won contracts bring their own workforces with them. Can that be monitored? Is the impact of that on the local workforce, or whether the local workforce is getting the jobs, monitored?
659. Mr D Armstrong: I do not think that we monitor. The premise of European procurement legislation is to allow for the free movement of labour and firms.
660. Mr F McCann: Knowing the terms of one of the firms you mentioned, I know that it had little or no impact on the locality in which the work was being done, which included some of the most deprived areas of Belfast.
661. Mr D Armstrong: Some requirements put into contracts have sought to help the long-term unemployed and apprentices. Naturally, if we put such requirements into contracts, we hope that it will be more likely that the local situation will benefit and that local unemployed people will be drawn into projects.
662. Mr F McCann: Is the impact for the unemployed across the North assessed when major contracts are being worked through, when sites are visited, and when the work has been completed?
663. Mr D Armstrong: We have not gone as far as looking at the wider social impact of particular infrastructure projects. We are starting with sustainability and are developing that in contracts to the overall benefit of the Programme for Government.
664. The Chairperson: Social clauses require you to monitor whether projects offer benefits as regards, for example, reducing long-term unemployment.
665. Ms J McCann: I want to tease out the issue of social clauses. We hear that it is now in the gift of Departments and Ministers to put social clauses into the procurement process from the advertising stage through to the delivery stage. That does not seem to be happening in a way that is delivering, for example, the Programme for Government. I know that the construction industry has an impact in delivering the investment strategy.
666. Are you confident that social clauses, and measuring social outcomes throughout the procurement process, are being implemented sufficiently vigorously? Are Departments driving that work? Small and medium-sized enterprises and businesses in the social economy sector say that the process is not being driven as it should in order to create employment opportunities and challenge poverty and disadvantage.
667. Mr D Armstrong: There is only so much of a policy that can be driven by procurement, and some of those wider issues sit outside the procurement process. Nevertheless, the construction industry now has a clear set of contractual requirements, and those requirements are being applied to contracts such as the ILEX project. The contractor for that project has been appointed, and he has told CPD that he wishes to work out with the client the best way to assure you that you will not only get the bridge work but the benefits from the social clauses. We intend to work with the contractor to identify issues that must be overcome to deliver those things. It may mean that other Departments or agencies will have to help him identify the resources he needs. For example, if the contract stipulates that long-term unemployed people must be used, other agencies and, perhaps, the local third sector, must be made aware of that and must help meet that demand. Everything cannot be driven by the procurement process, although it can be used to create demand, which must then be satisfied in a way that helps the supplier.
668. Ms J McCann: Are you confident that, in the example that you have given, the number of long-term unemployed people awarded quality apprenticeships was in proportion to the value of the contract. When companies tender for contracts, should the requirement to create quality apprenticeships not be pitched at a higher level, and that more long-term unemployed people are employed in the workforce? At the minute, the requirement is minimal. There does not appear to be a big drive to get the maximum benefit.
669. Mr D Armstrong: In order to arrive at the required number of apprenticeships, we looked at the forecasts of ConstructionSkills for the industry and we felt that we had arrived at a reasonable proportion to be driven by Government spend. With apprenticeships, one cannot over-boil the situation and end up with oversupply. I am not an expert on apprenticeship training, but I hear from the industry that there are issues regarding dropouts and people not completing their apprenticeships. At the same time, one must not create a situation in which young people are awarded apprenticeships only to find that there are no jobs for them on completion. There needs to be a demand profile that can be facilitated reasonably by a requirement. Contract requirements must be reasonable, or they may impact on those who might want to tender for contract.
670. Ms J McCann: On a wider subject, in a recent report, InterTradeIreland said that there must be better North-South co-operation between businesses, particularly smaller businesses, given that approximately 99% of the businesses in the North are SMEs. Given that approximately £6 billion a year is spent on the public procurement of services and works and that most of that money goes to overseas companies, those businesses are asking whether there is some way that small and medium-sized businesses from the South can tap into public procurement contracts here, and, likewise, that small and medium-sized companies here can tap into contracts in the South. Is anything driving procedures to make them more compatible?
671. Mr D Armstrong: With respect to opportunities in Northern Ireland, we now have the e-sourcing NI tool, which CPD introduced last year and which the Procurement Board has now approved as the template for the future. We have agreed a programme with all the centres of procurement expertise that they will come on board with during the rest of this year. Therefore, public-procurement opportunities will be visible on that portal.
672. It is about increasing awareness of opportunities. However, advertising opportunities could present problems such as over-interest, with many SMEs bidding for the same type of work. That means that all of those bids would have to be assessed, thus slowing down the award process. Indeed, there has been similar activity in the education sector in which some projects designed for the frameworks were not taken forward. That created huge interest among contractors who wanted to bid for those projects, and a large demand for contractors to submit pre-qualification questionnaires, which then had to be assessed.
673. Therefore, all of those things must be balanced to ensure that there are as few barriers as possible and that people are aware of the opportunities. However, I keep returning to the point that the opportunities need to be either direct contract with Government or working as part of a well-managed and resourced supply chain. It is there that the maximum benefits will be developed.
674. Ms Purvis: Are the social, environmental and economic clauses that you discussed with Jennifer McCann contained in any of the seven principles you have produced?
675. Mr D Armstrong: They are covered under “Principle 6 – Best Value for Money", which includes a clear commitment not only on price, but also on the wider social, economic and environmental measures in relation to supply chains. Indeed, principle 6(d)(i) relates to:
“promoting equality and sustainable development included by Government Construction Clients as contractual requirements"
676. and principle 6(d)(ii) relates to progress reporting on the implementation of those requirements. Therefore, specific reference is made to those factors in the principles.
677. We have now moved to the point where we know that the best value for money is not just about a combination of price and quality but that it also includes social, economic and environmental measures where appropriate.
678. Ms Purvis: Returning to the point that Declan made earlier in relation to SMEs, paragraph 8 of your report states that: “The Task Group also considered the most appropriate procurement and contract strategies that should be adopted by the public sector. They concluded that Framework Agreements have the potential to deliver better value for money than stand-alone contracts."
679. The Committee has received evidence suggesting that frameworks have tended to exclude or disadvantage, unfairly, SMEs due to their relative size, the nature of the selection criteria and because they excluded businesses for a long period of time, up to four years. Has any consideration been given to reducing the size of the frameworks and change the selection criteria?
680. Mr D Armstrong: I do not believe that the selection criteria will be changed. We will still be looking for a high-quality supplier who can provide the best value for money.
681. Ms Purvis: Yes, but the insurance requirements are beyond SMEs. Requirements regarding business turnover are excessive in comparison with those of some SMEs. It is about ensuring that the criteria fit the contract on offer.
682. Mr D Armstrong: The industry has said that one of the important things, in relation to the frameworks, is that they provide an opportunity to bid. The construction frameworks that we tried to develop were in a different time, when the economy was in a different position and when the construction industry was likely to be short of resources to do the types of work that Government and the private sector wanted. At that time, the procurement strategy established for those frameworks was fine and could have been closed off at any point in time.
683. Frameworks are not contractual commitments in the same way as long-term contracts; therefore they afford flexibility. If one finds that a framework is no longer appropriate or is not delivering value for money, the decision can be taken not to put any further work into that framework. There are some advantages over a long-term contract.
684. Even so, the industry says that it wants to see, and would support, a more frequent refreshing of the frameworks, or lesser value being placed on each framework. The industry prefers a number of frameworks to be working at the same time, adding to the value, and those being refreshed almost by a programme that allows the procurement process to be managed properly. That is something on which we can work with the industry to ensure happens.
685. As to entry points, we need to ensure that companies have sufficient financial standing and are not overcommitted. Those requirements need to be examined carefully. We have some guidance, through the Office of Government Commerce (OGC), as to how a supplier’s financial standing may be assessed. One has to be careful about how one settles on the criteria to allow firms to tender for work.
686. Ms Purvis: It should be about making the framework appropriate to the size of the contract, rather than having a very large framework that an SME cannot get on to because of turnover and other requirements.
687. Mr D Armstrong: We found that SMEs are on those frameworks and that local SMEs are forming partnerships. The option of allowing firms to come together in partnerships is available. We can provide information that shows that those frameworks are going to deliver that.
688. Ms Purvis: I am thinking of smaller businesses at the other end of the scale.
689. Mr D Armstrong: Yes, the micro-businesses.
690. The Chairperson: The value-for-money criterion is clearly dominant: that is sensible and I am not challenging that. However, is it possible to codify what is meant by social inclusion or social clauses? That should not be an afterthought or a less significant criterion. Where can we refer to in order to judge whether we are meeting those targets? Is it in any of the principles? I did not see that it was there.
691. Mr D Armstrong: It lies in the principle of best value for money.
692. The Chairperson: Is it codified within that?
693. Mr D Armstrong: We have taken the approach with the construction industry of imposing contractual requirements. The issue with sustainability, at present, it is an undefined term, and individuals or organisations may take different views as to what it means.
694. The Chairperson: They will. That is predictable. What I am saying is that the Assembly parties are anxious to achieve maximum value for money and maximum benefit for money by using a social-inclusion approach. How can we hold ourselves to that target? How can we deliver on it? If this is an undefined term, no one can be held to account.
695. Mr D Armstrong: We will be able to report on the aspects of procurement policy or applications that have delivered visible benefits. We have identified in the construction industry those aspects that span social, economic and environmental categories. Part of the work of the centres of procurement expertise is to ensure that they start to clock up the benefits that are coming through on the contracts. We are very alert to the fact that in the future we will be asked how many contracts and how many benefits have been delivered through them? We are alerting the centres of procurement expertise to that, and to look at how we might record that. The e-sourcingNI tool includes the possibility of inserting that as part of the contract management module. As part of contract management, we should be able to pick up the success that we have had against those particular items and make sure that that is collated and reported.
696. The Procurement Board will have an interest in how its guidance on equality and sustainable development is being applied; and, again, it will fall to CPD to work on that.
697. The Chairperson: Coming at this from a different angle: has experience demonstrated that there is an upper level in the value of a public contract that SMEs have not passed and that they are operating in a certain stratum within the overall spending profile and not beyond, except as clients or subcontractors?
698. Mr D Armstrong: Again, that falls to the guidance.
699. The Chairperson: Coming back to the frameworks, it has been mentioned that they tended to be too big to be digested by the local SME sector, and we are looking at that now. I am just trying to find out how anyone measures the effectiveness of the responses or amendments to the process.
700. Mr D Armstrong: We could do some work to look at the frameworks that have been appointed, or would have been appointed, to give you some indication of the level of SME activity within those frameworks?
701. The Chairperson: That would be helpful, given that they make up 99% of our local industry.
702. Mr D Armstrong: I am anxious, with respect to perceptions, that there is a need for data and information. Therefore, we will do some work on the level of SME success.
703. The Chairperson: I am coming close to abusing my position as Chairperson.
704. Mr F McCann: Some of my questions have been asked. I will pick up on some of the evidence and points made about new businesses. They are unable to provide three years of accounts, which almost rules them out of applying. Furthermore, there is no real clear definition of an SME, the bulk of which employ between 10 and 20 people and are ruled out because of their size.
705. Furthermore, jurisdictions such as Scotland and France seem to push the boat out continually regarding social clauses and local employment. I get the impression at various meetings that we seem to be reluctant to push our boat out as far as it can go. I know that there are legal constraints, but, on some occasions, if we do not try something, we might never be able to provide employment.
706. Finally, does the Department monitor how many contracts go overseas and how many are won by local companies?
707. Mr D Armstrong: That information has not been monitored in the past, but we will be able to provide it in the future. Procurement information will be coming through on the eSourcingNI portal, which will give us very good management information. There is always the risk of protectionism, but it is not for me to comment on that.
708. We are in discussions with Wales, Scotland and the OGC regarding what other jurisdictions are doing, and we had a meeting on construction matters about 10 days ago. We are seeing what they are doing, and although the situation is not perfect in Northern Ireland, we are moving ahead on the important areas that we have to address. Procurement is something we need to continually improve in order to reassure everyone that we are doing what we can with the funding that is available to us. However, the success rate for local suppliers in Scotland and Wales is not as high as it is in Northern Ireland.
709. Mr F McCann: I notice that the evidence states that there is no clear definition for an SME.
710. Mr D Armstrong: We are happy to look at the definition and at how the financial standing issue can be addressed and is being addressed.
711. Mr F McCann: What about new companies that do not have accounts for three years and feel disadvantaged because they cannot apply for contracts?
712. Mr D Armstrong: I will take that as a specific point to look at.
713. Mr Hamilton: The thrust of questioning and probing has been about how we can help local companies, whether they are small, medium, large, or social, to take more advantage of the procurement process and the many millions of pounds that are bound up in that.
714. On the back of their work on the Westlink contract, Farrans and GRAHAM came together to take a contract to build a road in Scotland. There may be an MSP in Edinburgh today who is asking what can be done to prevent those so-and-sos in Northern Ireland from taking contracts in Scotland. There are swings and roundabouts in this issue.
715. Principle 6(d) is about and sustainable development and includes proposals for promoting equality and sustainable development and making them contractual requirements. That is one half of the equation. How will that be enforced? Are you considering the flip side in the form of sanctions for not meeting those requirements and rewards for attaining that performance?
716. Mr D Armstrong: As regards sustainable development, the practice in the environmental area is better established than it is in the social and economic areas. For the construction industry, the Department has placed a focus on site waste-management plans and on building structures with good energy performance. That is more akin to a traditional approach in construction.
717. The social and economic benefits are fresh requirements. Therefore, we have alerted the centres of procurement expertise that they need to look again at their contract-management procedures to ensure that everyone is aware that, as well as the hard infrastructure that we have always asked for in the past, we are now asking for those additional items. We want to work with the centres to look at what contract-management procedures are in place to ensure that those are effectively applied and deal with a situation where we feel that a supplier is not delivering on those commitments.
718. As I have said previously, we need to recognise the benefit that Government spend can make to the economy through its impact on individual businesses. In return for that, the Government need to get back the maximum for the money that they have made available. If there are commitments in contracts to do things, it falls to us to ensure that those are delivered. Rather than getting into a contractual dispute, we want to work in partnership with suppliers to ensure that they realise that the requirements are important and that we intend to ensure that they are delivered.
719. Mr Hamilton: Principle 1 is about visibility of opportunity. Much of the grumbling and complaining about the procurement process may come from people who are not necessarily that involved in the process or are aware of what goes on. It is useful to highlight what is going on through regular updates on websites, certainly for the big boys. Does CPD or any of the centres of procurement expertise actively talk to local businesses about opportunities? I do not mean that that should be done on a contract-by-contract basis, as that would be ridiculous, but local businesses could be educated about the procurement process and be shown how to get information on a regular basis. Do you do that already?
720. Mr D Armstrong: No. We have guidance notes on the website, on which we rely heavily. We will carry out work to see how effective that is.
721. Recently, we worked with the CBI on a conference that we held specifically to allow us to explain how the procurement process works, to demystify it, and to explain that we must operate within the boundaries set for us by European directives. Part of the conference aim was to get feedback from suppliers and to let them tell us their experience of Government procurement in Northern Ireland. We then had a break-out session in which each of the centres of procurement expertise held a surgery. First, they dealt with suppliers’ general questions, after which they were available to address individuals’ concerns about their own particular procurement.
722. There is a need to continue that kind of engagement. We are planning to hold a further conference with the Construction Employers’ Federation in June 2009, with a view to outlining the work that we have done on the task group and explain Government requirements. At that conference, we will also say that we expect the construction industry to come to the process as good suppliers and be able to deliver the best value for money for Northern Ireland’s expenditure. There are two sides in the process. It might be interesting to hear the views of some Government construction clients against those of some suppliers.
723. Mr Hamilton: That level of engagement is positive. You said that there is one winner and many losers. It is easy for suppliers who are unsuccessful to sometimes, say that: “You cannot work with that so-and-so sitting up there", without getting the other side of the story. Equally, you cannot hide behind EU rules and regulations.
724. You used the term “demystify". It would be helpful to get out there and speak positively to businesses, whether that is through the CBI, the Institute of Directors, the Construction Employers’ Federation, or the Federation of Small Businesses, to explain how they can be involved.
725. Mr McQuillan: Do you view local Government procurement as part of the process or separate altogether?
726. Mr D Armstrong: Local Government procurement is not bound by Government procurement policy. The review of public procurement recognised that there is a different legal standing for councils in Northern Ireland. Therefore, the policy that has been set for Government Departments is applied at councils’ discretion.
727. Some of the developments that we have had with the local construction industry have not flowed as well as we expected because some councils have taken on the policy and others have not. That has caused a wee bit of confusion. We have taken approaches to look at how the review of public administration might have impact and to try to put on the agenda that when organisations are brought together, procurement spend increases and becomes more significant. CPB is happy to help to explain that policy —
728. The Chairperson: You do not have a role at present?
729. Mr D Armstrong: No. We do not have a role beyond volunteering our advice.
730. Mr Weir: There will be greater emphasis on local Government procurement, particularly post-2011. There will much pressure to meet the level of efficiency savings needed to deliver the best value for money from the opportunities that arise.
731. I want to pick up on Adrian’s point. I appreciate that there are constraints, or, at least, that there are not the same number of opportunities for local Government procurement as there are for central Government procurement. Local government and central Government need to take a reasonably proactive approach so that, even if they cannot operate according to the same policies, there is closer co-operation.
732. There is willingness in local Government to take advantage of best practice and, indeed, to ensure that there is closer co-operation. For example, the Local Government Association has organised a local economic-development summit, which will take place this afternoon. I am not sure whether you plan to be there. One of the sessions, with which I have been directly involved, will deal with procurement. So there is not just willingness but a desire on the part of local government to tap into the best methodologies for procurement. That needs to be more proactively explored, even if it cannot be enforced.
733. The Chairperson: One would have thought that the economic development pillar of the review of public administration discussions would have created an almost irresistible argument in favour of formalising the procurement processes.
734. Mr Weir: In the review of public administration process, policy development panels are looking at issues: I am not sure which panel is looking at this one. Procurement can play an important role in, for example, shared services. One of the panels is concerned with finance. In finance, there may be mutually beneficial savings for local government. I think that the door is open, and if it were pressed — I was going to say pressed from both sides but then one would get stuck. The analogy slightly breaks down there, but there are opportunities.
735. The Chairperson: A revolving door would not be much help either.
736. Mr Weir: That is correct — we would end up at opposite sides.
737. The Chairperson: The reference at principle 7(b) to an alternative dispute resolution procedure sounds interesting. What does that entail?
738. Mr D Armstrong: It is something in which the construction industry is very interested. It has been in contact with Scotland, has seen the Scottish model, and is to explain a Northern Ireland version to us. We are waiting on the industry coming forward with that information.
739. As regards my views on a regulated public procurement process, some things could give reassurance, up to a point, that the process is open, transparent and fair. However, it cannot replace the absolute entitlement to go to court. However, at the centre of procurement expertise, we sometimes receive complaints about particular aspects of procurement. We have a formal complaints procedure. There is a two-stage approach in CPD. The director or provisional director does his bit, and if he cannot resolve the matter with the complainant, it then comes to me and I will have it reviewed. We have had some comments that that looks as though we are acting as judge and jury in our own case and that the procedure is not as open as it could be. If we had an alternative procedure, by which we could quickly get an independent view and which may or may not be binding on the parties, it might calm some of the concerns that we are closed to —
740. The Chairperson: I presume that, if you got agreement, it would become a binding resolution?
741. Mr D Armstrong: If we could assure firms that their bid has been handled in a fair and reasonable way, and that there is no case to answer, that might encourage them to realise that it has been looked at by an independent party, to take rejection on the chin and look for the next opportunity. We would be willing to look at that as a part of the complaints procedure that centres of procurement expertise have to have in place. I have some concerns as to how it might work alongside the legal entitlement to go to court.
742. The Chairperson: I hope that this is not just an endless piece of string and I hope that there are timelines involved. Will you please keep the Committee up to date? There are certain actions against the principles that have been enunciated. It would be helpful if the Committee could be given an update.
743. Mr D Armstrong: The intention is that much of the activity will be taken forward by smaller task groups that will work through the summer. The next CIFNI meeting is in June and there will be a follow-up in October. Perhaps we could update the Committee after that.
744. The Chairperson: We are in the midst of taking a broader, more strategic approach to procurement, but you have given us very useful information this morning. We will have a continuing interest in how those protocols work out in practice, and we will come back to you on that.
745. Thank you very much for your assistance.
13 May 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Ms Jennifer McCann
Mr David McNarry
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Mr Mark Dougan |
Ulster Community Investment Trust |
746. The Chairperson (Mr McLaughlin): We will hear from the Ulster Community Investment Trust (UCIT), which is represented by its chief executive, Brian Howe, and its research, policy and fund-raising officer, Mark Dougan. You are very welcome. I apologise that the previous evidence session overran; I hope that you were not too inconvenienced. I ask Brian to make some introductory comments, after which members will ask questions.
747. Mr Brian Howe (Ulster Community Investment Trust): I will give a brief background of our organisation. UCIT is a charity that finances the social economy and that began operating in 2001. At that stage, we received approximately £8·5 million funding from Government and took over a loan book of about £6 million. Since 2001, we have invested about £22 million into approximately 150 social enterprises.
748. We help the social economy to grow, and we help to create jobs, income and wealth for local communities. Therefore, we are part of that sector, and we want to continue to support social enterprises, of which there are a large number. We estimate that approximately 1,200 social enterprises operate throughout Northern Ireland, and they employ in the region of 20,000 people. We recognise that the sector needs to grow and become more professional. As part of that, the whole sector should be able to access work through procurement. That is what the Committee is concentrating on at the moment.
749. From our point of view, procurement and having a level playing field for the social economy are important. We think that we could establish a brokerage service for the social economy. Many of the players in that sector are very small. However, they do a lot of good work in various areas. We propose to set up a brokerage service that would build those groups into a cohesive unit that could bid for jobs in public services — in health care, for instance.
750. We see ourselves joining with others in the social economy. One group that we are interested in joining with is the Social Economy Network, which has access to the sector and its members. Another organisation is the School for Social Entrepreneurs, which works alongside the University of Ulster and could build the capacity of the sector. We would provide the finance, it would provide the capacity building, and the Social Economy Network would provide access to a broad range of organisations.
751. In order to achieve that, we see further funding as being necessary. We are not suggesting that we need funding to set up the service; however, we need money that we can provide to those organisations. That is necessary not only to help them grow, but to help them take on those jobs. Our suggestion to the Committee is that part of the available dormant funds should be ring-fenced as a social economy loan fund. Part of the interest from that could be used for the brokerage service.
752. It may not be within the Committee’s remit, but our sector, and particularly our organisation, must be professionalised. One way to do that is by regulation, and we advocate that our organisation is regulated by the Financial Services Authority. We will be asking the Government here to lobby central Government to regulate the sector and to regulate us within that sector. We are asking for the Committee’s help in doing that, if it is within its remit.
753. The Chairperson: It is probably not. However, we certainly hear your case.
754. Mr Hamilton: You put forward some very interesting ideas. I like the fact that they are ideas to try to get the sector professionalised, which is important, and, perhaps more importantly, they are ideas to get the sector going, growing, and getting more work. You talked about establishing a brokerage service to encourage, assist and advise. That sounds like an interesting concept. How do you see that working in practice? Are there examples from elsewhere — for example, in the rest of the UK, in Ireland, Europe or beyond — of similar schemes working successfully?
755. Mr Mark Dougan (Ulster Community Investment Trust): Thank you for your question. We have done research looking at all the regions in the United Kingdom. A similar scheme, called an online matchmaking service, is provided for social enterprises by Futurebuilders England. That scheme is confined to the English region. The idea of that is to build co-operation and partnerships between social enterprises so that they can come together, increase their business strength, and go on to win public service contracts.
756. In England, there have been moves towards financing the social economy and building its capacity on a wider basis. Again, that has been done through Futurebuilders. In 2004, the Government put approximately £150 million into Futurebuilders and in 2008, they put in another £65 million, although I must stress that that is for the English region only. That money was to be used to scale up social enterprises so that they could go on to win public service contracts.
757. In addition, a programme called Capacitybuilders has been launched. The business support can be seen as working alongside the investment. Capacitybuilders has been designed to increase the business capacity of groups so that they can win public service contracts. The key is that the Government, within the English region, and the Scottish Parliament are recognising the need for social enterprises to win public service contracts. There are several reasons for that. Social enterprises are seen as important community stakeholders because of their sense of community ownership. They are run by local people for local people and are a good way of delivering public services to vulnerable sections of society particularly in disadvantaged communities. It is recognised across all regions that social enterprises have a very important part to play.
758. Equally, social enterprises are saying that they have an important contribution to make to the economy as a whole. As members are aware, the public procurement sector in Northern Ireland is worth approximately £2 billion a year: I think those are last year’s statistics. For the sector to grow, it is important that social enterprises play their part in public procurement as effective competition for the private sector. We are not talking about them working on their own; we are talking about them subcontracting with the private sector or working together in collaboration.
759. I have learned that last year the Scottish Executive have put £30 million into the social economy over a three-year period. That money, which went to Social Investment Scotland, a similar organisation to ours, is designed to allow social enterprises to scale up their operations and increase their business capacity and procurement readiness.
760. Mr Hamilton: We have taken an ongoing interest in capacity, allied to other issues. You talk about current capacity and the need to upscale and build up organisations; maybe even grow new ones. That is recognition that although there are currently 150-plus enterprises doing good work they are by and large quite small-scale, certainly in the wider economic sense. Those enterprises are getting a very small chunk of that £2 billion of public procurement every year.
761. We have been examining the possibility of inserting social and environmental clauses into major public procurement contracts, of which there are a significant number. Doing that would put pressure on existing social economy enterprises. Does the capacity exist to deal with a proliferation of social and environmental clauses or is that what you mean by upscaling and encouraging through a brokerage service? Do you see that as an essential cog in the wheel to get the sector to the level at which it could take advantage of more social clauses within contracts?
762. Mr Howe: There is a need to build capacity in the sector. At the moment, some organisations are handling large public procurement contracts very well. However, the sector is dispersed in the sense that a lot of small groups would love to do the work that they may not be able to do on their own. The idea of our offering a brokerage service would not be just so that we could bid for contracts but that we could upscale and help those organisations prepare to take on contracts. There is a lot of work involved in that.
763. Part of our work is to help grow the sustainability of the sector. Ultimately, we lend money to get it back. We are very conscious of the sustainability of the organisations that we are working with, the idea being that if there is a chance to win public sector contracts, we will support them in that. That is the idea of the brokerage service. However, a lot of work in skilling and building the sector will be required.
764. Mr Weir: Simon has covered some of the points that I was hoping to raise. Your submission is very useful and has a good focus, and I am aware of the good work that you are doing. You are to some extent a banking system for the social economy, if that is a not too pejorative term nowadays.
765. The Chairperson: That is a very pejorative term.
766. Mr Weir: On other occasions, people may think it an insult to be accused of being a banker.
767. I want to touch on a couple of points. First, you mentioned ring-fencing a level of funding within dormant bank accounts funding to help with brokerage activities. Have you given any thought to the ballpark figure that would be necessary for those sorts of activities?
768. Mr Howe: Yes. If we want to get into a brokerage service in a reasonable way, it is going to cost money. If there were a fund of, for instance, £10 million — that is just a figure I am using — and we were earning 5% interest on that, it would provide an income of £0·5 million a year. Most of that income could be directed towards the brokerage service because UCIT is sustainable in its own right. At this stage, it is very difficult to estimate the actual cost of the brokerage service. An economic appraisal should be carried out and, if the idea is shown to be feasible, a business plan should be prepared and the service properly costed. All of that work needs to be done. However, it could be achieved within that ballpark figure.
769. Mr Weir: Simon has already teased out some detail of the brokerage service with you, and I know that it is to some extent at the embryonic stage. However, as I see it, the idea seems to be potentially three-fold. First, there is what I would view as a degree of administrative and financial backup for social economy groups to help with bids. Secondly, there is the gathering together of smaller groups and helping to form them into consortia so that they can achieve the economies of scale needed. Thirdly, you indicated that there may be a situation in which the brokerage service bids for contracts and then seeks to subcontract them to various social economy groups. Are there any functions other than those three that you see the brokerage service performing, or is there anything else that we have missed out at this stage?
770. Mr Dougan: Those are the key functions. It is about getting in early and building the business capacity of the smaller groups and, as you say, connecting them with the private sector and larger social enterprises. There is also the function of segmenting the public procurement marketplace for those groups, educating them about public procurement opportunities and connecting them with the Central Procurement Directorate in its Meet the Buyer events. It is about getting social enterprise groups involved at that stage. Generally, your overview is exactly what the service would be involved in.
771. Mr Weir: I assume that part of the service is also about providing information. One of the major problems both for social enterprise groups and small businesses in the private sector is about getting a handle on the vast number of procurement opportunities that are available. The fact that one opportunity may be advertised on one website while others are advertised elsewhere means that it is difficult to get an overall picture of what is happening. Lack of co-ordination of information seems to be one of the problems.
772. Mr Dougan: That is where the market segmentation of public procurement opportunities will come into play.
773. Ms Purvis: Simon Hamilton spoke about social clauses. Some larger companies perceive social clauses in public procurement contracts to be a bit of a headache and a nightmare to try and work out. However, social economy enterprises already do much of what social and environmental clauses require with respect to environmental protection and economic regeneration by providing local employment and services. Therefore, social enterprises are probably best placed to take on large procurement contracts that have social and environmental clauses. Will you comment on that?
774. Mr Howe: As you rightly say, in most cases social enterprises have a double bottom line. They exist to provide services in the community and make a profit so that they can continue to provide those services. In many cases, organisations have a triple bottom line, because they also have an environmental aspect. I advocate including social clauses in public procurement contracts; however, such clauses should not be so onerous that they disadvantage others.
775. We are trying to professionalise the sector and get it up to speed with the “ordinary economy". The social economy sector needs to realise that it is part of that economy and that it creates great wealth for local communities. The public procurement service could help to professionalise the sector. It could help organisations realise that they are professional, that they have to bid against other companies and that unless they are properly structured and set up they are not going to win contracts, even if those contracts contain loads of social clauses. I certainly advocate the idea, but social clauses should not be so onerous that they exclude others.
776. Ms Purvis: One criterion for public procurement contracts relates to financial capacity and the financial health of a business, and that seems to disadvantage a lot of smaller or new companies and social economy enterprises. Given that a lot of smaller businesses do not have enough financial capacity, how do you see that aspect playing out? Who will take the risk? Will the brokerage service take the risk by providing security when tendering for contracts?
777. Mr Dougan: I take your point. Many smaller social economy enterprises were grant-funded, but most now have sustainable funding, having borrowed from UCIT, etc. However, they do have a weakness regarding their financial accounts. The brokerage service will connect smaller organisations that have a lack of financial history with larger social enterprises and the private sector. Therefore, the brokerage service will play a subcontracting role in local communities.
778. Beyond that, our aim is to build the business capacity of small social economy enterprises in respect of their financial accounts and how those are presented and professionalised. The connections that small social economy enterprises have with larger social enterprises and the private sector will be the key to them overcoming that obstacle and successfully winning public service contracts.
779. Ms Purvis: I like the idea of dormant bank accounts funding being used as an investment loan or fund. You provided examples of those being used in Scotland and England for the benefit of the social economy. A number of bids have been made here for dormant bank accounts funding, particularly by the community and voluntary sector. Is there room for everyone, or should it really be used for one purpose only?
780. Mr Dougan: Provision is being made in England for the establishment of a wholesale investment bank using a portion of the dormant bank accounts funding. The Irish Government used the Dormant Accounts Act, 2001 to redirect dormant account funds in the South to grant-funding. All of that money has been used up and questions are being asked about the sustainability of that decision. I did a wee bit of research into the money that the UCIT received from Invest NI in 2001 and 2002, which amounted to approximately £4·5 million. We have recycled that money, which now amounts to £8·2 million. Our original target was to support 30 projects, and we managed to support 83 as of this year. That money is still in play, and will still be in play for another 10, 15 or 20 years — for ever more, really. That gives members an idea of how that money can go on working repeatedly to build sustainable enterprises across Northern Ireland.
781. Ms J McCann: I want to talk about social clauses. During the Committee’s inquiry into public procurement practice, it has become clear that individual Departments have it in their gift to implement public procurement contracts so that the social investment is as valued as the monetary investment. You are correct; the social economy provides local employment that generates income for the wider economy. You gave us statistics about the amount of money that is being put into social economy enterprises in Scotland and England. The Scottish Parliament have conducted a proactive campaign to ensure that the social economy in Scotland grows and develops. Is it fair to say that that is not happening here?
782. As far as I am aware, the social economy here is perceived to be a small enterprise that does not help to build the economy, provide employment, or, as you said, tackle disadvantage and need. Tackling disadvantage and need is one of the key commitments in the Programme for Government. Are you making any headway in convincing Departments that the social economy is a viable enterprise that requires investment? Are you making any progress towards ensuring that, in line with the Programme for Government’s public service agreements, social economy enterprises can compete for public procurement contracts and can grow and develop accordingly? I am not always sure that many people are listening to us when we express that view here. I sense that Departments, Ministers and the Executive are not listening. Do you share my sense of frustration?
783. Mr Howe: You are probably right. We have not come here to criticise Government or criticise what they do for the social economy, because we have been funded by Government in the past. We are grateful for that funding and we would not be here without it. By way of example, Invest NI has just launched the social entrepreneurship programme, to which it will commit approximately £1·2 million during the next few years. That is the main vehicle for developing the social economy in Northern Ireland. We are playing our part in that investment because we are providing the loan finance, which does not come from anywhere other than the funds that we already have. However, I do not think that that is enough; it is far short of what is required compared to what is happening in Scotland where £30 million has been put into capacity-building projects. There is a great need to build the sector and put more money into it.
784. The problem here has been caused by the plethora of grant-funding that was available in the past. Organisations were built on the back of Peace I, Peace II and Peace III funding and International Fund for Ireland money. In a sense, that is coming to an end and organisations must be fit and ready to continue without grant-funding. Invariably, some organisations in the community and voluntary sector will need grant-funding consistently; and rightly so: for example, one cannot run a centre for blind people without some form of grant-funding. However, I am suggesting that social economy organisations are trying to become leaner, fitter and meaner so that they can take on their role in the wider economy, and we are promoting that.
785. However, we still feel that there is a need for investment in such organisations. Invest NI has directed money into foreign-direct investment and organisations have taken that money, set up in Northern Ireland for a while and left soon after, which has resulted in the loss of hundreds of jobs. The social economy sector has been constantly building up jobs on the ground and working away. In the current economic circumstances, such organisations are creating jobs; so a lot more funding is required for them.
786. Ms J McCann: You mentioned the capacity of some social economy enterprises to grow. I have had discussions with some that have linked with private companies to invest and try to secure public procurement contracts but which cannot get their foot on the ladder. A barrier still exists, even when those enterprises are building capacity and almost becoming part of a consortium with private companies. That seems to be the culture, and it is not only the case in the social economy sector, it is also happening with small and medium-sized businesses. Do you sense that you are making progress on eliminating those barriers? Building social and environmental clauses into contracts from advertising stage through to when the work is complete is the way to break down the barriers. That way, at least there is a format for enterprises, and they are not marked only on their financial capacity, as Dawn said, but on the social benefits that they provide. Those social benefits also benefit the economy: supporting social economy enterprises is not just about building the capacity of communities it is also about social benefits to the local economy.
787. Mr Dougan: There is evidence of a language barrier between the Departments in how they understand the social economy sector, and that causes a lack of awareness of social enterprises and what they are doing in communities.
788. I want to take up your point on how proactive other regions are, and add to some of the points made by Brian. The Department of Health has created a £100 million social enterprise fund for existing social enterprises involved in public procurement. Although the fund is for the English region only it gives a sense of how proactive and willing that Department is to bring together the social economy and public procurement. Across England, Scotland and Wales I get the sense that there are two elements in their drive to increase opportunities for social enterprises and public procurement; access to investment capital and provision of business support. To answer your question, Northern Ireland is falling behind on those two elements. For example, last year Wales announced a new £7 million investment in business capacity for 200 organisations over the next five years. That gives a sense of how proactive the various authorities are in driving new opportunities for public procurement for the sector.
789. The Chairperson: You mentioned some impediments and difficulties that the social economy sector encounters. Have you identified those difficulties in your research? It would be helpful to the Committee’s inquiry if you have identified and codified the obstacles. There may be cultural or language issues, but I am sure that there are other issues too.
790. Mr Dougan: We have tabulated some information on accessing finance over the last few years.
791. The Chairperson: Will you share that with the Committee? I am sure that that would be helpful.
792. Mr Dougan: Yes.
793. The Chairperson: Can you point to examples of contracts being awarded to social economy projects that did have access to the public procurement process?
794. Mr Howe: Yes; a number of organisations are involved in public procurement in a large way. You are probably aware of the Bryson Charitable Group.
795. The Chairperson: Yes; we will be hearing from that organisation.
796. Mr Howe: The Bryson Charitable Group is involved in a number of projects. A smaller organisation, Employers for Childcare, does extremely good work and is very well organised. Praxis Care has existed for quite a while and has grown hugely over the last while. Extern Recycle is a smaller organisation that does very good work, and The Orchardville Society is another example.
797. The Chairperson: I asked about individual organisations and you have given me some very good examples. I recognise the organisations that you have mentioned although I must confess that I would have forgotten some of them had I been asked to make a list. Has there been any experience in this region of groups collaborating in order to bid for contracts?
798. Mr Dougan: We are not aware of any examples of that.
799. The Chairperson: Dawn is indicating that she knows of an example.
800. Ms Purvis: A consortium came together to do the groundwork at the hospital in Fermanagh.
801. The Chairperson: I will talk to you about that separately, because it is something that we may need to look at.
802. Mr O’Loan: I am impressed by what UCIT is doing and by your approach to your work. Your story needs to be told louder, and it is healthy that you have come here to meet the Committee. Is your organisation unique in the sector? Who checks that you are behaving yourselves financially?
803. Mr Howe: We are unique in Northern Ireland but not throughout the UK. I hate using acronyms, but we are a CDFI (community development finance institution). There are many throughout the UK, and we are part of the Community Development Finance Association (CDFA). The Charity Bank, which came to Northern Ireland recently, is not dissimilar to UCIT, although it has a banking licence and is regulated by the Financial Services Authority (FSA).
804. We want to be regulated by the FSA. If the Department or the Committee has any sway in that matter then we would like to lobby to become regulated because that would enable us to access further funding. There are a number of larger players in the social economy. Housing associations and the credit union movement, for example, consider themselves to be part of the social economy. We have had discussions with those organisations, and they would happily invest large, essentially free, funds in us and we would provide them with a return. However, they need us to be a regulated organisation.
805. Invest NI carries out checks on our organisation, and our accounts are audited by PricewaterhouseCoopers. All of the Departments that have provided us with funding are given copies of our accounts, annual returns etc.
806. Mr O’Loan: I like your views on the strategic use of dormant bank accounts funding. You partially answered this question before: approximately what sum of money are you looking for? What proportion would that be of the money that is available?
807. Mr Howe: As far as we are aware from research that we have carried out, there is something in the region of £25 million in dormant account funds in Northern Ireland. We suggest that approximately half of that should go into some sort of loan fund.
808. The Chairperson: David, I think that it was you who first flagged up the work of the Ulster Community Investment Trust to the Committee.
809. Mr McNarry: I do not want that to go against them.[Laughter.] I was very impressed by their work. To their credit, the UCIT representatives have provided information that I was unaware of. As an elected representative, that puts me in a predicament, because there are obviously avenues that they can take and directions in which I can point them. Their proposals seem to be a fundamentally natural progression. The release and use of money, subject to scrutiny, without any real direct cost to the taxpayer, has obvious attractions. It is those attractions that I would like to see the Committee take forward.
810. I heard what was said about our remit, but there are a lot of people who would like to know more about what the Committee is talking about. However, there are no people from the media in the gallery. It is no criticism of your organisation, but it seems that when we get down to unearthing something, nobody is interested. Nevertheless, we need to try to take the matter forward, tap into the professionalism that there is, learn from it and see how it can be used.
811. I heard what you said in response to other questions. I am interested to know how weak the local social economy enterprise network is when it comes to punching its weight and competing in the procurement market.
812. Mr Howe: It is weak. However, it is a sector that is growing and being developed. Part of our remit has been to build that sector. We are not just a lender to the social economy. We spend a lot of time working with community groups and organisations to build their capacity. We do not have a large staff; we have eight and a half people, so to speak, working in Northern Ireland. A lot of our time is spent working with organisations; building, helping, handholding and mentoring them. We are confident that the organisations that we are working with are building their capacity, becoming sustainable and are fighting fit to take on those jobs.
813. In our proposal, we recognise that there is still a lot of work to be done. That is why we would utilise other organisations with the capacity to do that; including, as I mentioned, the School for Social Entrepreneurs, which has access to all the University of Ulster’s research and work. There is a need to grow and build the sector. However, it has become much more sustainable over the past few years. Organisations that are not fighting fit will go to the wall. That happens in every economy. If there are organisations that are not able to remain in business, we are trying to make sure that their assets are used by, or handed on to, other organisations that can use them.
814. Mr McNarry: There are 48,000 people unemployed, and that number is growing. I am not sure how many of the businesses that contributed to that unemployment can come back. Given the growth that there has been in your sector, are you able to identify a role in the procurement market that could help unemployment to be eased? Perhaps it is too early to tell.
815. It seems to me that the economy needs to be kick-started, and that is going to have to come from somewhere. I am caught as to whether private enterprise may have lost some of its entrepreneurial spirit and it may not take risks quite as easily Some of the things that you are talking about could be used to tackle unemployment. Is growth hindered by the downturn in the economy, or can the social economy take advantage of the downturn by giving it a boost that will help the economy to grow and will help social economy enterprises to get a foot in?
816. Mr Dougan: Every quarter, we carry out a business sector report on all our clients. Over the past two quarters, there has been a huge rise in unemployment and factories have been closing down, but our clients have been performing well. They are retaining jobs, and they are contributing to economic development in their local areas. Around 70% of our clients are based in areas of disadvantage, as recognised by the various targeting social need objectives. Social enterprises are retaining jobs at a time when they are being lost elsewhere. Many private sector companies often do not want to go into those areas and take the risk of trading. That is the key to the social economy. It has been growing organically in the areas that need it most, and it is already well placed to take public procurement opportunities and provide essential community services in those areas. Hopefully, that answers your question.
817. Mr McNarry: That is helpful. Finally, a lot of people are having problems with their credit rating. Given the current climate, is there a role for UCIT to assist with credit rating? I believe that the current situation is likely to last for some time. Is there a way of enabling a credit rating to be endorsed or guaranteed that is likely to be beneficial to someone in securing a procurement contract? Even if everything is going well with tenders etc, it can be very difficult for an organisation if it is told that it cannot be lent the money that it needs.
818. Mr Howe: At the moment, we are raising further funding for the sector, and it would be beneficial if the Committee could help us to lobby the banks to free up the sector. We envision UCIT approaching the banks to lend us the money. We will take the risk, because we have proven that we are happy to work with organisations in the sector and take on loans with them, and because we know them, work with them, and provide that handholding and mentoring and support, in general, those organisations have not failed. We have a few problematic accounts, but, in the seven years that we have been running, we have had no bad debt, which is phenomenal.
819. Mr McNarry: You ought to talk to the Presbyterian Mutual Society.
820. Mr Howe: I spoke with the society’s administrator to find out whether we could help.
821. Mr McNarry: That would be very interesting; perhaps we could go down that route.
822. Mr Howe: The banks are reluctant to lend to any sector at the moment, but we are approaching them and asking them to provide loans to UCIT at affordable rates, and we will take the risk and lend the money on to the sector.
823. Mr McNarry: Is there a history of UCIT acting as the middleman? I am sure that the banks are not really interested in which organisations UCIT is going to lend the money to, because you are accepting the risk.
824. Mr Howe: We have bid into that fund. In the South of Ireland, through the Government, the banks were convinced to provide an initial fund of ·€25 million into the Social Finance Foundation. In the past few months, that foundation — backed by the Taoiseach or someone else in the Irish Government — has convinced the banks to lend it another €75 million over the next 12 years, which it will lend on to the social economy. It acts as a brokerage service that takes funds and lends them on. Therefore, it acts as a middleman.
825. The banks have decided not to move into that sector, because they do not know it well enough. They are prepared to take a small risk on the interest income, because that is all that they are losing. For instance, if we borrow from the banks at 1% below cost of funds and we lend it to groups at 1% over, that represents a 2% spread, which is adequate to allow us to take that risk. The banks lose very little. Their corporate social responsibility is helped for a small amount of money. That is the proposal that we are intending to present to the banks.
826. Mr McNarry: Chairperson, I believe that it is reasonable to request that the Committee considers assisting UCIT to find a way into the banks on that issue. We could discuss this matter all day, but is it in order for the Committee and, perhaps, our guests to outline on paper their desired approach to that matter? The banks will attend the Committee soon enough and we will, I hope, bounce them off the walls of the Senate — I assume that you have arranged that?
827. The Chairperson: The banks and the lending institutions will attend the Committee. I am particularly keen to receive a document that provides a fleshed-out account of UCIT’s discussions with the banks before that meeting. Moreover, you mentioned earlier that you are seeking regulation; some detail on that would be helpful. Finally, the terms of reference for the brokerage service would be extremely helpful, because we want to discuss that matter with other witnesses during the inquiry. Those are our three requests.
828. Mr Howe: That is fine; we are more than happy to provide those.
829. The Chairperson: It has been some time since the Committee received an update on the dormant accounts issue. We participated in the development of that proposition, which eventually went to the Assembly. An update on that matter would be useful and would feed into our review of the procurement process. Anticipating the Committee’s view, I believe that we want to increase the capacity of local SMEs and social economy enterprises to access more and more procurement contracts. Today’s session was helpful. The follow-up information will be of further assistance, and we might correspond with you as our inquiry progresses. Thank you for your assistance.
20 May 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Witnesses:
Mr David Carson |
Central Procurement Directorate |
830. The Chairperson (Mr McLaughlin): I welcome the officials from the Central Procurement Directorate (CPD). We have David Carson, the director of policy and support division; Roy Mitchell, from works procurement division —[Inaudible due to technical difficulties.] — technology procurement. Today is the first time for us all.
831. Mr David Carson (Central Procurement Directorate): We are grateful for the invitation to present evidence. Small and medium-sized businesses (SMEs) represent over 99% of businesses in Northern Ireland. They are an important part of the supply base for the Northern Ireland Civil Service (NICS), its agencies, non-departmental public bodies (NDPBs) and public corporations.
832. The importance of SMEs to the local economy is recognised in the Programme for Government. Objective four of public service agreement (PSA) 11 sets a target for centres of procurement expertise (COPEs) to have in place appropriate systems to allow access by SMEs and social economy enterprises (SEEs) to opportunities for doing business with public-sector organisations. That target is also reflected in the procurement board’s strategy for 2008-2011 and in the Northern Ireland sustainable procurement action plan. Progress against both of those plans is monitored by the procurement board every six months.
833. As the lead body for public procurement in Northern Ireland, CPD is acutely aware that it is only through working with the supply base that we can help support the delivery of better public services and the achievement of best value for money for the taxpayer. Our policy in relation to SMEs is to encourage and support them to compete for public-sector contracts where that is consistent with value-for-money policy, UK regulations and EU procurement directives.
834. In seeking to develop stronger links with SMEs and facilitating greater access to public procurement opportunities, we have taken a number of actions, which are outlined in the background briefing that was provided in advance of today’s session and on which my colleagues will be able to give you some more detail. The actions include guidance for SMEs and SEEs on where they can find opportunities in the public sector and how to bid for work; guidance for public-sector procurement practitioners on how to remove barriers for SMEs; engagement with lead bodies and other interested groups, including the Confederation of British Industry, the Chamber of Commerce and InterTradeIreland, and attendance at regional SME events; engagement with the construction industry on specific measures to improve access to public-sector construction contracts for local construction SMEs; and the development of guidance, in association with the Department of Agriculture, specifically aimed at helping public-sector food and catering procurement practitioners to widen access to public-sector contracts for local food producers and suppliers.
835. There is also the development of the eSourcing tool, which allows SMEs and SEEs to pre-register and provides easier access to tendering opportunities. We are currently rolling that out across all our centres of procurement expertise. CPD has also taken part in a study being undertaken by InterTradeIreland on all-island public procurement that looks at competitiveness. It is particularly concerned with enabling SMEs to access public procurement opportunities across the island. The report is expected to be published in the near future, and I understand that the Committee will be provided with a copy.
836. We have also followed closely the outcome of the Glover review in England on accelerating the SME economic engine there, and are looking at its recommendations. We intend to review the recommendations made by Glover and InterTradeIreland in the context of the recommendations that will emerge from the Committee’s inquiry. That will help to avoid a piecemeal approach to implementing change, and may well include a review of our existing guidance.
837. Mr F McCann: I have a question on an issue that I referred to earlier; it probably goes to the heart of local procurement. Recently, a European judgement has been enacted here in relation to design-and-build for small and medium-sized contractors and builders. People who would normally offer land to housing associations and design the homes to be built on that land have been told that that is no longer possible. There is a lot of confusion in the sector. It will impact on thousands of jobs across the sector, and no advice has been given to the people involved. I talked to someone yesterday who was due to start a job next week — he has been told that the job has been cancelled. It will affect thousands of people across the North. The impression is that the judgement has been applied more strictly here than in most other parts, and many local builders will go to the wall because of it.
838. Mr Roy Mitchell (Central Procurement Directorate): I am not fully familiar with the situation. It may be an issue about whether a land transaction or a land transfer deal is deemed to be a contract within the definition of the construction regulations. Can it be treated as a land transaction, which is not a construction contract, or should it be a works or services contract? I do not have enough information to talk in any detail about it. However, I will find out more and give you some indication of CPD’s view of it. As I understand it, it is not an issue to do with design and build per se; it is because of the land transaction enmeshed in it.
839. Mr F McCann: It has impacted directly on design-and-build, especially for small and medium-sized enterprises. Many of those contractors are small and medium-sized enterprises, and they will go out of business. One of the difficulties is that people have got wind of the legislation and moved to stop the design-and-build projects, and have not handed on any information to other people.
840. The Chairperson: Mr Mitchell is indicating that he is not au fait with all the detail. This is one aspect of the general concern that smaller enterprises have about accessing public contracts. It is understandable, in different ways, why they would feel that way. Will you return to the Committee with a response to that, so that we might follow through with Fra McCann’s particular concern?
841. Mr Mitchell: Absolutely.
842. Ms Purvis: Small and medium-sized enterprises and social economy enterprises continually raise the issue of frameworks. Has consideration been given to the time frame and size of frameworks? Frameworks, by their nature, tend to favour larger companies. Also, the duration of the frameworks means that if SMEs or SEEs fail in one tender, they are excluded for up to four years. Given the size of Northern Ireland and our SME population, SMEs cannot compete on those terms. Are frameworks a method for providing a sustainable local supply chain? The experience of SMEs in Northern Ireland is that they have the reverse effect.
843. Mr Carson: Frameworks are widely used in the UK and Ireland. They are recognised as a key means of securing value for money and reducing the administrative burden and the time taken to bring work to the market. However, you raise a valid issue about the access of smaller businesses to frameworks. We have been actively looking at that, particularly on the construction side where frameworks tend to be larger. The issues that you raised about the duration and size of the framework, and the qualification to get on the framework, are being actively looked at.
844. Mr Mitchell: The Committee is probably aware of the work of the procurement task group that the Minister established in December. Its report to the procurement board earlier this month was endorsed. The task group represented the contracting and consulting sides of industry and Government construction clients. It recognised that there might be different models for delivering projects, and that single-provider frameworks, with one team delivering a number of projects, and multi-provider frameworks, with several teams competing for projects over time, were good models with which to go forward. However, the task group recognised the issues that Ms Purvis raised about duration and value and about people being locked out of frameworks almost indefinitely, so to speak.
845. There are recommendations, particularly on the multi-provider side. Frameworks should perhaps be limited to a shorter duration of typically two to three years rather than the full four years, and the value could be based on roughly £50 million per participant, although that would not be a guarantee to an individual participant. Therefore, a five-participant framework would be a £250 million framework. Some recent frameworks have been £700 million to £800 million. Therefore, there is a recognition that there should be smaller and shorter frameworks.
846. Although there may be a perception that the big players get in, there are many SMEs within the supply chains for those frameworks. Many local consultants are involved as subcontractors, designers, architects, engineers and other professionals. The system does not prevent SMEs from participating in and benefiting from those opportunities. The big benefit is that it provides longer-term potential for planning ahead and for making work streams more secure, rather than merely relying on individual contracts to come up now and again.
847. Ms Purvis: Why it is so difficult to implement social clauses in Northern Ireland? Other European countries use social clauses to build their economies, create sustainable companies and increase employment. However, through our inquiries, the Committee has discovered that there seems to be a blockage in the use of social clauses in procurement contracts in Northern Ireland. Social economy enterprises, which invest in and provide employment in local communities, are a prime example of a model that could be used in procurement to bring those benefits to the community. However, there does not seem to be a drive to use social clauses to benefit our whole economy.
848. Mr Mitchell: I am involved in the construction side. We use the new engineering contract (NEC) form, and we have drafted several supplementary clauses that include sustainability issues. For larger projects, the uptake of the long-term unemployed and apprenticeships are included. We have included the need to publicly advertise opportunities for local suppliers to participate in the larger contracts. Those inclusions were agreed with the industry through the Construction Industry Forum sustainability task group, with which the Committee may be familiar. Those clauses are now implemented fairly routinely on new contracts. It is, perhaps, too early to measure the success of that development, because the gestation period can be fairly long, particularly in construction. Many jobs that are currently on site were tendered a couple of years ago, before the introduction of those clauses. Therefore, there is not as much of it on the ground as we might expect to see in a year or two. We are putting those clauses in there, advising clients of their availability and outlining how they can help. Of course, the clients have an obligation to produce annual procurement plans, which indicate how they will use procurement to implement the sustainability agenda in their projects.
849. The Chairperson: You talked about capital construction; does that generic phrase cover all contracts, including the major infrastructural contracts, or is there a distinction? When you say “construction", is that a discrete aspect of economic activity?
850. Mr Mitchell: I am particularly involved in capital construction works — works contracts and consultant contracts. However, the bulk of the spend is on the capital works side, such as the Public Records Office Northern Ireland (PRONI) headquarters and the like.
851. Ms Purvis: SMEs and social economy enterprises are delivered on a plate in order to meet the criteria to build the economy and create jobs. However, I do not see them being valued very much.
852. In your paper you state that, by early 2010, all COPEs should be using eSourcing NI, the common-portal single-sourcing tool. Why will it take until then for them to do that?
853. Mr Carson: The roll-out programme is being done through one supplier, which will have to work with each COPE to implement the system. The system is fairly complex, so people will have to be trained up on it and get support from the supplier in order to implement it. Over a number of months, there will be a sequence of events to allow that to happen, and that is why the system will not be fully rolled out until 2010.
854. Mr Hamilton: We are concentrating on construction, because that is the big and visible part of the package, but there are also services and so forth. You mentioned that the overwhelming majority of companies in Northern Ireland are small and medium-sized enterprises. Recently, the Minister said that nearly all construction contracts in Northern Ireland are awarded to small and medium-sized enterprises, and that compares favourably with the likes of Wales, where the proportion of contracts awarded to SMEs is closer to 50%. A lot of factors, including geography, contribute to that.
855. According to the Department’s definition of small and medium-sized enterprises — those with fewer than 250 employees — many Northern Ireland companies that we might consider to be big are small, medium- or even micro-sized enterprises. We have talked a lot about construction, and I appreciate that you may not have the figures now, but what is the percentage of local companies that have been winning service, supply, repair or maintenance contracts? How does that break down among small, micro-sized and medium-sized businesses? It if were possible to get that, it would be quite useful.
856. Mr Carson: That recommendation is common to various pieces of ongoing work, both on an all-island basis and in GB, to better monitor the statistics associated with SMEs’ uptake of public procurement opportunities. That will be one of the key benefits of the eSourcing NI system. We have to have some means by which we will be able to ensure a company’s designation as a SME. You are right that some businesses that are big players on the local scene fall into that category. However, the information that we have gathered must be validated to ensure that it is accurate and robust. Recently, we have produced improved information, but more must still be done.
857. Mr Tom Gilgunn (Central Procurement Directorate): The system has been up and running for the better part of nine or 10 months. We have looked at the data, particularly in relation to some questions that were asked, and we are attempting to understand the detail that suppliers have given us. We are trying to ensure that that supplier-led information is adequate to, for example, answer the questions that you asked. We are working with our supplier to ensure that we drive that through and get the information at the detailed level that the Committee wants. We want to see it as well.
858. Mr Hamilton: In your paper, it says that CPD encourages SMEs to join together as consortia to bid for contracts. No one is suggesting that we hold their hands and go out and do the work for them, but to what level does that encouragement extend? Is there active encouragement? Is there anything more than just having a commitment to doing that?
859. Mr Mitchell: I have a fairly good example. We are in the process of establishing a new integrated consultant team services framework, where we gather together all the main design disciplines to provide design services for clients. We have one in place, but it is about to expire. It has 15 firms on it and 13 of those are SMEs, so there is a high representation of SMEs. Because they are consultants, a lot of them will be at the smaller end of the SME scale. Rather than having 249 employees, they may have 49 in some cases. In establishing that, we undertook a market-sounding exercise with the professional college of the Construction Industry Group, which is predominantly made up of SMEs. We met and agreed the broad shape and outline with which we and they would be content.
860. One of the key issues was size and turnover. We agreed that the framework will have perhaps six participating teams and each will have a lead member, the person with whom we contract. We have agreed that the team leader should have a turnover of at least £1 million — a not excessive turnover. We are also willing to accept joint ventures with each participant having a turnover of £500,000. That allows firms which cannot reach the critical mass of £1 million to come together.
861. We have taken that down into the next tier: the individual members. It is conceivable that the architect would be the leader, but he may not be. It could be the quantity surveyor, or any of the other disciplines. For all the other people whom you would think of as the next tier, subcontracting to that leader, the turnover required is £500,000. We have allowed joint ventures in there, with £250,000 as their turnover. That would probably be something like a four- or five-person practice. That is approaching the micro level. Therefore, although we could be giving them fairly large projects, quite small practices will have the opportunity to compete in this framework. We have received 29 applications: those are now being processed, so I am not at liberty to discuss them in any detail. We have done all we can to ensure that that joint-venture approach can be implemented if people are so minded.
862. Also, we are not making an excessive requirement for professional indemnity insurance. We are not even requiring them to have it at £5 million: we are just asking for a declaration that they can achieve £5 million, so that we are not putting firms to the expense of taking it out at this stage if they do not have it. We are trying to lessen the costs as much as we can in order to establish this framework. If they are successful in getting on the framework, and we are tendering for a large job that needs a particular level of insurance, they will have to meet it, or they will be unable to compete for that particular project. We have had a good response to that.
863. The Chairperson: Is there a data set or a graph showing how that kind of initiative is being taken forward and the difference that it is making? Presumably, the emergence of these joint ventures or consortia is a developing picture. However, it is important to be able to report it back to the sector, which, at times, does not seem to have much confidence that it is happening.
864. You seem to be indicating that you are dealing with joint ventures, and we do not even know who they are. However, we could track the impact of the initiatives and the opening up of the procurement process from last October or November, which was when the Executive decided to examine the issue. That would provide useful information.
865. Mr Mitchell: It is our intention to analyse the responses so that we know how many SMEs have come forward, how many have been successful, how many joint ventures there have been and whether the exercise has been worthwhile. I take some confidence from the fact that SMEs make up the vast majority of participants in the existing framework, which contained similar provisions. As I see it, there is no bias in the process against SMEs; it is up to them to sell themselves and demonstrate how they can provide the required services.
866. The Chairperson: Do you recognise that there is a strong perception, even thought it may not be entirely accurate, that the process is difficult for SMEs? Some SMEs may have excluded themselves, as opposed to being excluded by the process, but if the different approach has resulted in more participants and greater access, why not tell SMEs? Will you bring information back to the Committee on the difference that is being made?
867. Mr Mitchell: Yes, I will.
868. Mr McNarry: My questions seek information and are built around perceptions. Big contracts seem to go to outside design architects; in such cases, it seems to follow that outside contractors are used. Are more design-and-build contracts coming through? How do you cope with design-and-build projects in the procurement process?
869. Mr Mitchell: I am not sure what you mean by “outside".
870. Mr McNarry: I mean outside Northern Ireland.
871. Mr Mitchell: Much depends on the scale of the project in question. For example, if you are dealing with an international stadium, that is one thing — [Laughter.]
872. Mr McNarry: We were dealing with a national stadium, and we spent £4 million on a design team that did not lay a brick. That is my point about design-and-build.
873. Mr Mitchell: I will confine my remarks to projects with which I am more familiar. Typically, we find that we are getting local architects and local practices. I mentioned the PRONI headquarters — a local architect is working with the developer on that job. That is a specialist building, and there is a specialist need for someone with knowledge of buildings that hold archives.
874. Mr McNarry: I do not want to get into detail. I am talking about design-and-build projects and where they fit into the procurement process. How do you procure those projects from the start?
875. Mr Mitchell: First, the policy is to adopt the integrated design team approach, which involves the contractor as early as possible so that they can bring their expertise to the table rather than just being given the plans and being told to go ahead and build. That is important, because a contractor will have a lot of knowledge on how innovative techniques might be used. That is the concept.
876. Mr McNarry: Is there an original tender for that?
877. Mr Mitchell: Typically, we follow the Royal Institute of British Architects (RIBA) work stages — I do not know whether Committee members are familiar with those. At RIBA work stage D, one starts to see what a building looks like. You can see floor plans and layout of the rooms, the brick cladding and the roof. At that stage, the job can practically be submitted for planning approval. However, all the fine detail, the minutiae of the size of the beams and all the services —
878. Mr McNarry: I understand that, and I understand RIBA. What I am trying to say, and perhaps I am not explaining myself, is that a design-and-build concept is fairly exclusive to a team. Someone makes a presentation and is awarded a contract on the basis of that presentation. In other words, a number of design-and-builds are tendered for. I am specifically asking where that fits into procurement.
879. Mr Mitchell: I apologise if I was not getting to the point quickly enough. Our process is to develop those jobs to stage D in-house, with our own staff or our own consultants and the client, and to tender the project at that stage, when the job is well developed and well fleshed out. There are lots of opportunities for the contractor to influence the design, but he cannot come up with a radically different proposal. That is the model that we are taking forward.
880. Therefore, we are tendering on a well-thought-out scheme and the contractor has to come back with a target cost for which he will undertake to deliver the project and complete the finer design elements that are still outstanding at stage D.
881. Mr McNarry: Can you provide figures for the number, value and type of contracts that were awarded in the past three years to companies not registered in Northern Ireland?
882. Mr Mitchell: We could certainly do that for the contracts that CPD awards on behalf of our clients.
883. Mr McNarry: That would be interesting.
884. Mr Mitchell: Are you referring to construction?
885. Mr McNarry: Well, any contracts that might fit that bill. I can see that most of them will be in construction. However, that information might address some perceptions, as well. I would be grateful if you could furnish the Committee with that information.
886. Mr Mitchell: Yes.
887. Mr McNarry: Is it, or can it be binding on a company to seek an equal approved product for supply locally for a local contract?
888. Mr Mitchell: Yes. Typically, European rules do not allow us to specify products, but —
889. Mr McNarry: An architect specifies a product, the contract is awarded, and the contractor tenders on the basis of the materials specified, and he will use equal approved materials.
890. Mr Mitchell: Yes, that is the point. What the architect might do is set a standard, because in architectural terms it is difficult to say “I want a door". Someone could get a door from B&Q or a rather plush door from somewhere else. Therefore, architects will quite often specify standards, but that always comes with the caveat “or equal approved". The contractor always has the opportunity to come forward with what he thinks is a suitable product. In other cases, the product is specified in almost output terms of being high quality for a prestige building or a normal back-office building that does not need particularly high quality.
891. Mr McNarry: The point that I am trying to get at is, basically, giving a fair opportunity to a local supplier. One hears about contractors arriving in Northern Ireland loaded with all the materials. They have not sought a source of supply locally, and the local supplier then loses out. Invariably, the reason given by the contractor is that he is supplying what has been specified or what the architect has approved. If the architect is also outside Northern Ireland, and has been working closely with that contractor for any length of time, the matter ends there, with the local supplier losing out on the business. Perhaps we could look at there being something binding in order to give the local supplier an opportunity.
892. Mr Mitchell: What can happen, depending on the nature of the procurement, is that a contractor submits his tender based on particular products and suppliers. That then is his tender and, if that tender is accepted, I do not think that very much can be done to prevent the contractor from using that supplier. However, if he offers a more generic package and there are specifications to point him in the direction of the standard that is required, there is more flexibility.
893. Mr McNarry: Does anyone ever look at it?
894. Mr Carson: There is an issue here about discrimination that we need to be careful not to offend; that is a key principle of the EU directive. We are going into that territory if we specify that tenderers must use local suppliers or products; that would be discriminatory.
895. Mr McNarry: I was not saying that tenderers “must" do that. I was taking a similar line to that taken by Dawn earlier: there should be opportunities for local people. If a material is specified as being “equal approved", then, surely, a supplier could fit into that category. On the mainland, I have seen Italian companies arriving loaded to the gills with Italian products, leaving the English suppliers up in arms because those materials could be procured locally. These are Government contracts. Why does that happen? Is there something similar to “equal approved" for suppliers? If there is not, that is OK; maybe we could look at it.
896. I will give you a hypothetical situation. If a contract is let in Northern Ireland, and the workforce is not from here, the money is not retained here, and the main supply of the products does not come from here, Northern Ireland folk are supposed to buy into it. Is that the way it is?
897. Mr Carson: I think that that is the way it is. If the winner of the contract decides to bring in products, and there are associated costs, there is nothing that we can do.
898. Mr McNarry: So while the Italians, Spanish, Germans, Dutch and everyone else protect themselves, we do not.
899. Mr Carson: They have to comply with EU legislation as well.
900. Mr McNarry: I am not too sure about that, but no matter. I take your point. Let us say that, perhaps, we are honourable and honest about these things.
901. Mr Mitchell: Our experience, from the contracts that we have let, is that the bulk of major construction contracts are being awarded to local companies. For instance, looking at the Westlink project and the major building projects in Belfast, you can see local names in charge of those contracts.
902. Mr McNarry: Floods, you mean?
903. Mr Mitchell: For the purpose of Government contracts, we include a requirement that contractors must make known to the local industry the opportunities so that the SMEs, in particular, can get on to the supply chain. The origin of many products may be elsewhere, but it may be the case that they can be sourced through a local supplier or local fabricator who has a licence to manufacture them. That happens in window systems, for example.
904. Mr McNarry: I am satisfied with what you are saying. I think that this exercise is useful in dispensing with some myths or legends, but I do not want to create any greater ones. When a glut of work was available, these questions were not asked. Now that there is a downturn, they are being asked. My constituents are asking me why they are out of work; it boils down to that.
905. Is there any role for aid funding on projects? Does that have any bearing on procurement policies?
906. Mr Carson: I am trying to think whether it would. I do not think that it would affect procurement policy per se. As you know, contracts are let on the basis of the most economically advantageous tender, and I do not see that being affected.
907. Mr Mitchell: If the funding is perceived as public funding — and you get over the magic 50% figure — the body that is procuring the building becomes a contracting authority under the terms of the regulations, and it becomes a European competition. It cannot just be conducted locally or in any other informal way; it has to comply with regulations, even though the procurement exercise may not have been instigated by a Government Department. The rules that apply to public funding also apply to lottery funding and grant aid from other sources.
908. Mr Gilgunn: Mr McNarry, are you talking about a situation in which a separately funded body is going to contract; the scenario that Mr Mitchell was painting?
909. Mr McNarry: I am not saying anything. I am only asking whether there is a role, for example, if a Department decides to fund a project, and there are other sponsors aiding that project. I will not mention any particular projects, but let us say that the Government put in so much, and there is funding from the lottery and other sources. There you have a number of elements, all contributing money. It seems logical that if I were a funder, I would want to know who was using my money and whether they were using it correctly. I worked in Italy and Spain for 25 years quite lucratively, so I am not down on them, but they are the best at breaking the rules.
910. The Chairperson: Is that why you worked there?
911. Mr McNarry: It was, yes.
912. If an Italian company came here to do some work, they would know how to do it. However, after the contractors have gone, people invariably say,
“The Government funded this, the taxpayer funded this; that was not done, or that was not done."
913. Mr Gilgunn: I concur with Mr Mitchell. If a project is 50% funded by public money, the rules apply. If the level of public funding is less than 50%, it is a commercial decision.
914. Mr McNarry: How do you monitor that?
915. Mr Mitchell: Part of my division comprises client adviser branches, which are involved exclusively in those types of grant-funded projects. Once 50% of the funding for such projects comes from the public purse, the competition must be run on a European basis, to start with. Standards must be set, depending on the value of the project. In addition, we encourage the funding Department to transfer a lot of the obligations of Northern Ireland procurement policy onto the funded body, so that it will include the sustainability clauses in the contract, commit to fair employment terms and advertise opportunities locally. We transfer the things that the Department would have done itself had it been the contracting authority in its own right.
916. Mr Gilgunn: The payment of subcontractors is another important consideration.
917. Mr McNarry: Yes; I can see the importance of that.
918. Mr McQuillan: How useful is Constructionline for small and medium-sized companies in Northern Ireland? Is it a UK-wide tool?
919. Mr Mitchell: It is.
920. Mr McQuillan: Do we have something similar that is as useful?
921. Mr Mitchell: Constructionline is a useful tool. However, as an outworking of the procurement task group, another working group will be examining how Constructionline is used in Northern Ireland. Essentially, Constructionline does two things. It provides assurance about the financial standing of the organisation. The fee is fairly modest; I have heard that some people have been unhappy about paying the fee, but if your turnover is £5 million the annual fee is £400 or £500, which is not a large sum for joining.
922. Constructionline is helpful for SMEs. For low-value work, we have an agreement with the COPEs to use Constructionline to generate a short tender list without those registered to the service having to endure all those pre-qualifications, which saves the contractors’ money and saves the Department’s money. It is a quick way to generate a shortlist for very-low-value work.
923. The system allows accountants to independently assess financial standing and gives the clients confidence that tenderers are sound. Those are the two main issues. They also provide other information, such as whether they are SMEs or not. There is other data collection and some basic information on health and safety. I understand that that is under discussion with the construction industry and that it could be expanded to increase its usefulness. That is just something that has been mentioned to me.
924. Mr McQuillan: How many firms use Constructionline? Do you know that figure off the top of your head, or can you obtain it?
925. Mr Mitchell: I can obtain the figure, but I do not know it off the top of my head. It is a passport to work which is under the European threshold. We require the main contractors to register with Constructionline, and a large number have done so.
926. Mr McQuillan: Could that tool help small and medium-sized enterprises get their foot on the ladder as main contractors rather than as subcontractors?
927. Mr Mitchell: We expect that to happen, because they do the financial standing. We take joint ventures on contracts of a certain value. If it is not a European-wide competition, we look to Constructionline. The difficulty with European-wide competitions is that we cannot specify things like Constructionline, because the Italians might not have a Constructionline or anything similar. Therefore, we must rely on bank statements, audited accounts, and so on. However, for local competitions that are below the £3·5 million —
928. Mr McQuillan: What sort of competitions? Will you explain those tenders? Can you give an example of a contract that someone in Constructionline could tender for?
929. Mr Mitchell: They can tender for any contract. However, contracts above £3·5 million must be tendered across Europe through the Official Journal of the European Union (OJEU), which is another nice acronym, and we cannot specify Constructionline membership as a requirement. We have to ask for audited accounts to examine financial standing.
930. Below that level, we are not so constrained. For contracts below £3·5 million, companies should be registered with Constructionline. That automatically demonstrates that a company is in sound financial health. For contracts under £30,000, Constructionline generates a shortlist. It looks at the qualified companies who could do that work and makes a random selection of five names from which to tender. That saves much administration and expense, because one can imagine how many small firms might send an expression of interest for low-value work.
931. Mr O’Loan: There is a basic disconnect, not for the first time, between the CPD stance and the broad view of the industry. That is really why we are having this major inquiry. CPD seems to be saying that a sound system of proper and timely processes for tender awards is in place, with good information flow to potential suppliers and a large percentage of tenders being awarded to SMEs and further business for them downstream. However, the industry seems to think otherwise. I have never been so aware of suppliers’ level of discontent, particularly on the construction side, despite our being told that more money is being spent on capital projects than ever before. That is a fundamental issue.
932. I doubt that we can make much progress at this stage. The Committee will need to get all the evidence from the suppliers and the various interest groups and collate it. We should put that to you and get a response at that later stage.
933. I have only two questions. One, on Constructionline, Adrian has already and usefully asked. I will not go back over that. The other is about social clauses. To some extent, you have touched on that as well. We tend to think of social clauses as things that, for example, give some advantage to the unemployed, encourage apprenticeships or deal with environmental matters. However, take the broader issue of using social clauses to favour SMEs. To what extent is that legally possible? You have already touched on that, but can you elaborate? What is the potential for using social clauses with the explicit, defined function of advantaging SMEs? To what extent can we do that legally? Are there any other difficulties? More positively, what is the potential of social clauses that favour SMEs?
934. Mr Carson: I do not think that we can use social clauses to favour SMEs. That would run into areas of non-compliance. It is something that we are keen to look at, but the main object of the procurement process is to get best value for money. By stipulating an award criterion that favours SMEs, not only would we prejudice that, we might also be discriminating against other potential tenderers for the work. There is a problem with favouring SMEs per se.
935. Mr Mitchell: I support that view. On the other hand, we do everything we can so that SMEs are not disadvantaged. We can take some of the measures I mentioned earlier so that SMEs are put on an equal footing with other firms and can be successful.
936. Mr O’Loan: That is a significant answer which gives food for thought.
937. Dr Farry: I am almost tempted to engage in a defence of free trade and the single market after hearing David. Suffice to say, even in the context of —
938. The Chairperson: He usually loses this argument.
939. Dr Farry: No, no. I have 200 years of economic theory behind me on this. It is to one’s advantage to unilaterally observe the rules even if others do not. That is an important point to put on the record and bear in mind.
940. To what extent can social clauses be enforced, and how does one go about enforcing social clauses in a contract? Presumably, firms make a commitment to sustainability, apprenticeships or employing people who are long-term unemployed. How can it be demonstrated that that has been done? Is there a formal audit of companies who win contracts on that basis?
941. Mr Mitchell: That is an area that needs further work, to see how we can collect and monitor that process. The social clauses, particularly those coming in on the new NEC3 forms of contract, are in the very early stages. There is a lot of work out there under old forms that did not include such clauses.
942. The social clauses are certainly enforceable — they are conditions of contract, they are not aspirational. When firms submit their tenders, they explicitly agree to abide by that contract. If they do not, it becomes a breach-of-contract issue like any other and we must look at how we address it. However, the basic principle is that they are enforceable under the contract. As project managers, we need to work with the supply side to make sure that that information is reported to us. That is another of the procurement task group’s recommendations. There is an onus on:
“Government Construction Clients to monitor main contractors delivery of their commitments to … adhere to the ‘Code of practice for Government Construction Clients and their Supply Chains’ … provide Government Construction Clients with open book access to … accounts … administer subcontract tender processes".
943. They are required to live up to their contractual commitments, and we will monitor those things. There is probably not a great mass of information on that at present, but it will grow as more projects come online.
944. Dr Farry: It is certainly a more difficult, or perhaps subjective, process than simply inspecting a wall that has been built.
945. Mr Mitchell: Absolutely.
946. Dr Farry: You need to go in and look at personnel files, and so forth. It is at a different level.
947. Businesses often comment on the regulatory burden that is placed on them, and it is an issue, particularly for small enterprises. Often, the regulatory rules are tapered in such a way that they kick in only after a certain point. When you are considering social clauses, is there a certain trade-off in the depth of requirements that would be created against the burdens of compliance, particularly for small companies? How can we find the right balance?
948. Mr Mitchell: The sustainability task group that produced the proposals in the first place was composed of various client and industry representatives. It came up with numbers and proposals that everyone thought could be delivered. That was approximately a year ago in a different economic climate; some may be reconsidering those proposals now. The thresholds were set at £2 million for apprenticeships and £5 million for the long-term unemployed. The size of contracts won by a small contractor would fall short of those thresholds, and the burden would not, therefore, fall on companies who won small contracts.
949. Clients have to make up their minds. Although we write the clauses, the client decides whether to include them as part of their procurement plans. Typically, we are not spending our own money; we are spending on our clients’ behalf.
950. The Chairperson: If an agreed contract includes, for want of a better description, the social clauses, do you reward people who deliver on their commitments or specify sanctions for those who do not?
951. Mr Mitchell: We do not apply specific sanctions or award brownie points. Award criteria are not allowed in contracts that are not related to the purpose of the contract: if the purpose of the contract is building an office block, it is not about creating opportunities for the unemployed. The creation of such opportunities must, therefore, be included as a condition of contract, rather than one contractor promising to take on 10 unemployed people and another saying 20.
952. The Chairperson: We understand that from previous evidence. I was talking about whether the conditions of contract are delivered. The key question is: if those conditions are not delivered, what sanctions are included in the terms of the contract?
953. Mr Carson: We recognise that we need to do some work in that area. The most recent meeting of the procurement board discussed how to take forward the preparation of guidance for contract management. The question of sanctions would be specifically addressed in that guidance to ensure a consistent approach across the public sector on the implementation of contract conditions. Where a contractor is not delivering, that will be picked up on and addressed.
954. The Chairperson: It has to be more than just a cover-your-back type of exercise. It does have a qualitative impact.
955. Ms Purvis: A contract to build an office block in a particular area can have written into it at an early stage that the reason for the office block being built in that area is to contribute to the area’s economic regeneration and, therefore, to help with unemployment, et cetera.
956. Other European countries have used the EU rules on procurement to discriminate positively for their own businesses by saying that in applying the rules they are disadvantaging their indigenous industries. Therefore, we can use EU anti-discrimination and equality legislation to favour our own communities if they are placed at a disadvantage because of those rules. What consideration has been given to looking beyond the EU rules on procurement to invoke other EU legislation on discrimination and equality?
957. Mr Carson: That is an area about which I am not well qualified to speak. However, if there are examples and precedents of a different approach being adopted, we are certainly keen to look at them to see whether we can apply anything similar locally.
958. Ms Purvis: One case that springs to mind is the Dublin docklands development, where major benefit has been brought to the docklands community as a result of public procurement of massive construction projects. There are lessons to be learned there, and the Dublin Government would admit that they used EU procurement legislation in order to discriminate positively in favour of indigenous firms and to bring massive benefit to the local community. Perhaps that is something that you could examine.
959. Are minor-works frameworks used to any great extent, or is consideration being given to using them?
960. Mr Mitchell: What I am thinking of in that context is what we think of as measured-term contracts. Those are very popular. They are a good way to get low-value work done with minimal overheads because no competitions are held. Typically, they are set up as a single provider, which might be a team, a main contractor, subcontractors and, potentially, designers.
961. DFP has two such contracts at the moment, split into two areas, for building work valued up to £230,000. There are a number of others for small civil engineering works. The two major building contracts have run their course, and we are in the process of re-tendering them. Again, those can be contracts from which a lot of local firms benefit, particularly through subcontracting. For example, a contract might have a two-hour or four-hour local emergency response requirement. If that firm is based in Belfast and the work is in Strabane, that is a bit of a problem and there might well be a local subcontract arrangement.
962. Mr F McCann: In Dublin, a major advantage was that the company that was set up to run the docklands was given control over planning; that greatly eased the situation.
963. There is an impression that we are far stricter in interpreting European law than other countries. Do we keep an eye on that in order to ensure that we are not being disadvantaged, and are we far stricter in our interpretation of European rules?
964. Mr Carson: Generally speaking, I do not think that we are. We have a duty to ensure that we comply with the legislation, because the consequences of not doing so are, potentially, very damaging and involve litigation and all sorts of adverse consequences. I am not aware that we apply it any differently than is the case elsewhere.
965. Mr Mitchell: There is a general perception that that is the case, but I do not have any hard and fast evidence. Emerging case law on procurement often refers to mainland European cases. Infraction proceedings are going on across Europe on people who have breached, or are perceived to have breached, regulations. It is not just a free for all — a laissez-faire attitude. If people feel that they are being unfairly disadvantaged by the misapplication of rules, you can end up in court. That can bring any process grinding to a halt and result in additional expenditure for everyone.
966. Mr Carson: Contractors may not be as keen to go to the courts to seek redress in other areas. However, I cannot speculate about that.
967. The Chairperson: The broad policy and legal framework is set down at European level. There are two distinct approaches to that, and everybody has to operate within that broad superstructure of legislative requirement. There is the member state level and the regional economy level, and I understand that there is a world of difference if people take the regional economy approach.
968. Mr Carson: A local perspective will be put on these things at a regional level. They will seek to maximise or optimise what they can do within the legislation.
969. The Chairperson: One cannot act outwith it. Are we confined to a UK approach on this, or are we taking a regional economic perspective, while operating within that broader international legislative requirement?
970. Mr Carson: I think that we are. It is still work in progress and we are still moving forward in that direction. I have no evidence that, compared to other regions, we are any less willing to look at issues or to ignore local things.
971. The Chairperson: We are all in this together. This is not meant to be a hostile question, but have you researched that position or is it your assumption that we are no different from anywhere else? Have you looked at how other regional economies are approaching issues such as procurement and whether we could learn from them?
972. Mr Carson: We have regular contact with Scotland and Wales and the Republic of Ireland on procurement issues, and it will be interesting to see the outcome of the InterTradeIreland report on public procurement. We have that dialogue, and it has not thrown up anything. In fact, we are probably in the lead in some aspects of sustainability. That is my perception.
973. Mr F McCann: The impression is that the French Government seem to take a fairly strong stance on local employment and delivery issues. The same applies to Spain and the whole tourist industry.
974. The Chairperson: I accept that it might be a perception. However, it has certainly been reflected to us and we may see more examples of concrete evidence in the process.
975. Mr McNarry: It is ironic that we are talking about this in the midst of a European election and we are knocking all the member states. Some of them deserve to be knocked.
976. Mr F McCann: We are trying to learn how they do it.
977. Mr McNarry: Maybe they do it and then see what the consequences are. The consequences are not a slap on the wrist.
978. The Chairperson: They seek forgiveness rather than permission.
979. Mr McNarry: I do not think that they even do that. I think that they just keep going and see how much they will be fined.
980. There are allegations that the tendering process is not uniformly operated across Government Departments. If it is not, that is a challenge. How does that allegation fit in? Is there a one-size-fits-all policy? It appears that the format of documents and the information required differ considerably between Departments and from project to project. Have you come across that?
981. Mr Mitchell: There is truth in that statement. I do not think that what one Department does as opposed to another is as different as chalk and cheese. A restricted procedure is usually used in competitions for construction projects; first, you get expressions of interest, then you create a shortlist and invite contractors on the shortlist to tender. That way, you are not inviting too many people to tender, as that would put them to additional expense. There are differences in the pre-qualification process — the number of questions, the detail, the amount of information sought. To hark back to —
982. Mr McNarry: Why is it not a uniform process? Why would one Department have a different approach to another?
983. Mr Mitchell: We come from different backgrounds of doing a particular type of work for a particular client or customer base. Professional people tend to be like that; they have developed their own way of doing things, and —
984. Mr McNarry: Is it efficient?
985. Mr Mitchell: It is not perceived as being efficient inasmuch as a tenderer submitting two tenders may have to work to two different sets of documents. The procurement task group has highlighted that. One of the issues that we will be looking at is a standardised pre-qualification questionnaire, so that all —
986. Mr McNarry: Is that on the cards?
987. Mr Mitchell: Yes, and that is something that we are determined to work to. It cannot be standardised in the sense that someone being asked to build a hospital and someone else being asked to build a road or a common-or-garden — and I do not mean to use that term in a pejorative way —
988. Mr McNarry: Could you put us in touch with anyone that would want to build a hospital or road in or around Ballygowan? I would certainly welcome that.
989. The Chairperson: Who would put the money up?[Laughter.]
990. Mr Mitchell: You can imagine that prospective tenderers for different types of construction project would be asked different questions. There have to be differences to reflect the nature of the project.
991. The Chairperson: However, broadly speaking there would be consistency.
992. Mr Mitchell: There should be a consistent framework. I do not think that it is a case of chalk and cheese, as I said. Some people may ask an extra few questions; perhaps they are looking for more detail on health and safety. We are looking toward standardising health and safety questions and for some generality. Perhaps we can build up a bank of information that does not have to be resubmitted —
993. Mr McNarry: You say that that is on the cards; when is it likely to happen?
994. Mr Mitchell: Those working groups will be coming together and reporting on proposals in those areas up until December of this year.
995. Mr McNarry: Will we be automatically informed about the outcome? Could someone inform us?
996. Mr Mitchell: We can certainly inform the Committee.
997. The Chairperson: We would not be automatically informed. We would need to request to be informed. Well, we are requesting that.
998. Mr Mitchell: We will comply with that.
999. The Chairperson: The documentation that you submitted refers to the CPD guidance given to local SMEs and the social economy enterprises that are seeking to do business in the public sector. Have you evaluated just how useful they find that assistance? Have you sought any feedback in a systematic way? Does the sector feel that that is a useful service?
1000. Mr Gilgunn: In my experience, we follow that up by engaging 10 or 12 times a year in group sessions that are organised by district councils’ development committees and other bodies to interact with SMEs. My colleagues and I have attended a few of those sessions, and we know that they have been appreciated, as have the explanations of the process.
1001. The Chairperson: I am thinking more about the strategic development of your own function. The client base is obvious, so the question is how the CPD can, systematically and robustly, assess the value of the service and whether it is the best way to interact.
1002. Mr Gilgunn: We are cautious about that, because our connection with the marketplace has to be fair and equal. We tend to work through the groups; we do not have a direct, systematic connection with the marketplace per se. We work with industry groups and other third parties to try to assess the market. I give a lot of talks to individual companies and groups, and they do appreciate the effort in making the process simpler and ensuring that the opportunities are there. They understand that to a degree; the difficulty is usually when we meet people who have not been awarded contracts.
1003. I always say to my staff that awarding the contract is the easy part; sitting down with the people who did not get the contract is a different matter. Our processes are geared towards being able to sit down and explain to people why they did not get the contract, and build those processes up over time. It is in our interest and that of the public purse to have competitive markets, and we have to ensure that those markets exist. In that sense, the strategy is a long-term exercise. We encourage those relationships, and we have to be open to criticism and be able to understand it and respond to it.
1004. The Chairperson: What proactive steps are you taking to raise awareness in the sector of the eSourcing NI web portal?
1005. Mr Gilgunn: That is one of the key messages that we want to get across when we talk to the sector groups. I deal with Momentum in the information and communication technology sector, and I talk in particular about the legal side. At every opportunity, we explain the benefits of eSourcing NI and how to register. That is ongoing; I have to admit that it is not well structured, but we do offer that advice regularly.
1006. The Chairperson: You require companies to register with Constructionline, but that requirement is not there for eSourcing NI. I am thinking of the local sector, and of how things are done within the legislative framework that are not discriminatory but provide information that allows local enterprises to engage across as wide a range as possible. Do we know how aware local companies are of the eSourcing initiative?
1007. Mr Carson: If companies want to tender for public procurement opportunities, they must do it through the eSourcing system, as far as CPD is concerned. That is the mechanism that is used.
1008. The Chairperson: I am sorry; I have probably misled you. As Mr Gilgunn said, it is not about the people who have succeeded in gaining contracts. Perhaps the companies that have not obtained contracts do not have that level of knowledge.
1009. Mr Gilgunn: Without being rude about it, if they have not made bids through eSourcing, which is the way that things are done, they could not be unsuccessful tenders. By default, they know about the system. We broadcast as much as we can that the web portal is the way to tender for a contract.
1010. Our notices are usually in the ‘Belfast Telegraph’ on a Monday night and in the other daily newspapers on a Tuesday. That is when the opportunities are publicly advertised in the press. The bottom line is that people should log onto eSourcing NI and register. It is a fairly straightforward process. We are working on that to ensure that it is as user friendly as possible for SMEs.
1011. Mr Mitchell: One of the procurement task group’s 25 proposed actions is to promote awareness of the rollout of eSourcing NI and electronic tendering across the COPEs. An activity will come out of that in anticipation of all the COPEs being on eSourcing.
1012. The Chairperson: So they are all going to use a common portal?
1013. Mr Mitchell: Yes, early next year.
1014. The Chairperson: Will that make their existing individual portals redundant? Will they stop using them, or will we end up with a plethora of portals?
1015. Mr Mitchell: What happens in our portal, for example, is that if you click on the ‘Opportunities’ button, it takes you to the eSourcing NI portal. We have other guidance and information that is not exclusively about opportunities; it may be just to get the guidance to which you referred and other contact information.
1016. The Chairperson: Will the local COPEs retain their own portals and have a link to eSourcing?
1017. Mr Mitchell: That is how I anticipate that it will work. That is certainly how we operate.
1018. Mr Gilgunn: The design is that there will be a single engine to drive the tendering process.
1019. The Chairperson: The eSourcing portal deals with opportunities here and in Britain. It does not seem to identify opportunities in the South.
1020. Mr Carson: That is something that the InterTradeIreland exercise will address. It is asking SMEs specifically about the e-procurement system and what their perceptions are of it. I am sure that that study will make recommendations, and we will look at those.
1021. The Chairperson: Are you conscious that on an island basis, there may be missed opportunities in the interim? I suppose that we will benefit from the InterTradeIreland study, but we may not have to wait on it.
1022. Mr Carson: As I understand it, it is imminent.
1023. The Chairperson: I thank you all. You gave us more of your time than we asked for, but you can see the Committee’s level of interest. In the conduct of our inquiry, it is probable that we may have to write to you from time to time. I will not rule out the possibility of asking you to come back to talk to us again. It has been very helpful. On behalf of the Committee, thank you very much.
1024. Mr F McCann: When will the information about design-and-build be forthcoming?
1025. Mr Mitchell: I will chase that up when I get back to the ranch.
20 May 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Witnesses:
Mr George Coulter |
Construction Industry Group for Northern Ireland |
1026. The Chairperson: We are now joined by Dr Lynda Martin, the chairperson of the Construction Industry Group for NI; John Finlay, the vice-chairperson; and George Coulter, the secretary. You are most welcome. Please turn off any mobile phones. Even on silent mode, they interfere with the electronic Hansard recording.
1027. Dr Lynda Martin (Construction Industry Group for Northern Ireland): Thank you very much. I thank the Committee for this opportunity to meet with it and discuss public procurement in Northern Ireland. My name is Lynda Martin and I am the chairperson of the professional college of the Construction Industry Group. I represent the Institution of Civil Engineers on that college. I primarily work in the water industry. With me is John Finlay, the vice-chairperson of the Construction Industry Group for Northern Ireland. He represents the Royal Institution of Chartered Surveyors, and he works in all areas of the construction industry in Northern Ireland. I am also accompanied by George Coulter who is secretary and treasurer of the Construction Industry Group for Northern Ireland, and he is responsible for structural design on many projects in Northern Ireland.
1028. I will highlight our members’ main areas of concern, and, to maximise our time, I will keep my presentation brief.
1029. First, in our experience, there is a reduced number of tendering opportunities in Northern Ireland due to the introduction of long-duration framework agreements that freeze out many SMEs for too long. Losing one such tender can exclude a business from that source of work for up to four years. Those long-term frameworks with potentially large volumes of work attract large, out-of-region firms that might not otherwise be attracted to Northern Ireland, thus increasing the number of firms that apply for inclusion on framework groups, to the detriment of Northern Ireland firms.
1030. Secondly, the tendering process is too detailed, protracted and expensive — especially for SMEs. The quantity of information required is excessive. It requires a large amount of input from the SME and adds an unnecessary burden on the construction professionals in Northern Ireland. In contrast, under what we might call traditional procurement methods — where services are procured on a single-project basis — professional practices apply for the projects that are appropriate to the size of the practice and capability of the firm. Also, the tendering process is not uniform across Government bodies; there is considerable variation in format and information required between Departments and from project to project.
1031. The inclusion of social clauses in the construction industry is a relatively new concept which has considerable merits, although, as yet, we have little experience upon which to make meaningful comment. The inclusion of a social clause to promote opportunities for SMEs in Northern Ireland would be of enormous benefit to the Northern Ireland economy, and it would be a step forward if it could be included as part of the qualitative assessment of tenders.
1032. The Department of Finance and Personnel should address many problems, one of which is the fact that SMEs are excluded from long-term frameworks and have no opportunity to gain the necessary experience to compete for further work in that sector. Our construction professionals are among the best trained in the world, and, as such, are much sought after abroad. They are trained in the art of problem solving and are highly adaptable professionals.
1033. Too much Government work in Northern Ireland is procured through large frameworks that attract large outside companies, which causes Northern Ireland companies to miss out. There is too much emphasis on specific experience for projects, and that automatically precludes Northern Ireland-based professional practices. The current system freezes firms in their current position and does not allow them the opportunity to expand. Should that situation be allowed to continue, there will be a reduction in the number of quality jobs and in the skills base in Northern Ireland, thus resulting in a loss of revenue to the Northern Ireland economy. The experience of procurement of construction projects in the Republic of Ireland and its effect on indigenous firms appears to be different, with many local construction companies given the opportunity to grow and develop on local projects rather than being excluded by frameworks that favour larger firms.
1034. We recommend that the opportunities for local consultants be maximised by increasing the number of professional consultants on frameworks, and consideration should be given to minor frameworks. The risk of legal challenge should be minimised by increasing the number of opportunities for local professional consultancies, and long-term exclusion should be avoided. Consideration should be given to quality versus fees to reduce the emphasis on low-cost tendering and to shortening the protracted planning process in Northern Ireland, as it adversely impacts on the delivery of public contracts.
1035. The scale of turnover should be considered as a selection criterion to be appropriate to the local market, and future procurement strategies in Northern Ireland must have Northern Ireland scale and provide more opportunities to local firms to tender. The use of long-term exclusive framework agreements as a method of procurement in the Northern Ireland market should be reviewed.
1036. A procurement task group was established recently at the request of the Minister of Finance and Personnel. That group produced a report on procurement which we commend to the Committee for consideration, as it contains useful principles on procurement that will provide opportunities for firms of all sizes to bid for construction-related public-sector contracts. We also commend the Central Procurement Directorate on its willingness to consult us in respect of its recent tender for its integrated consultative team framework, in which it took on board some of our concerns with regard to increasing opportunities for local SMEs.
1037. Ms Purvis: You commended the procurement task group report. As I understand it, that report said that frameworks are the best way in which to go forward with procurement. You have outlined many of the difficulties with frameworks. Can you suggest what you would like frameworks to include to make them more accessible to SMEs and SEEs?
1038. Mr George Coulter (Construction Industry Group for Northern Ireland): I was involved in the procurement task group, and I am not sure that it came out entirely in favour of frameworks. The construction sector tried to push the idea of using clusters, through which smaller groups of work would be done and large frameworks that run for three or four years at a time would not be used.
1039. Although the task group received us very well, unfortunately, it sometimes had one ear cocked towards Treasury and Office of Government Commerce directives, and we were not able to drive all references to frameworks out of the report. On the task group, we were looking to create more opportunities for more firms in Northern Ireland to bid for work. Firms get into difficulties because there are huge arrangements that are costly to bid for. If a firm is not successful, it is locked out of the system for years at a time, which could put a business under. That is where the legal problems have come from recently, as firms try to survive. If a firm misses an opportunity but knows that another one is coming along shortly, it will not take it as hard and will look for the next opportunity. We put that point to the task group, and the principle of clustering is enshrined in the report, which will provide more opportunities and smaller jobs in shorter time frames. We hope that this Committee and others will police that and see that that principle does not become too diluted as time rolls on.
1040. Ms Purvis: You talked about the need to remove criteria that encourage consultants from overseas to apply. What are the criteria for experience?
1041. Dr Martin: For example, a prestigious project in Northern Ireland will ask for a consultant with design experience only in that particular type of project. We are trained to solve problems. I shall give an example of my experience, which is probably relevant. In the 1990s, I did a lot of work in clean-water treatment, which is one of my passions. Through a framework, Northern Ireland Water procured its clean-water treatment with designers and contractors to build the works in the late 1990s. The team that I was with was unsuccessful. If Northern Ireland Water were to tender again, it would ask for my experience in the past five years, but it is more than five years since I designed a water-treatment works in Northern Ireland. I am still perfectly capable, but my firm and I would be excluded. I find that to be very common, not only in the water industry but in all types of business.
1042. Mr G Coulter: Northern Ireland is a sea-locked area. New systems may be introduced from the mainland, and to get in to the tendering opportunity you are asked for your experience. In Northern Ireland, we have not had the opportunity. Those systems may have been trialled for a period on the mainland, and firms from the mainland bring that experience, while our firms have none. It is very difficult to have experience of a new system.
1043. Ms Purvis: A way round that would be that, if someone were brought from overseas, Northern Ireland people would be included.
1044. Dr Martin: I would not agree with that either. That would only give the profits for that work to an outside company. Their directors and main shareholders would spend that money somewhere other than Northern Ireland. We want to keep as much as possible of the money that is made from our industry in Northern Ireland. I do a lot of work on wastewater treatment, and the principles are the same. We are too focused on the type of project, rather than on the skill base that we have. We want to keep our skill base here.
1045. Ms Purvis: How does a firm get the experience of doing something new if it is not allowed to participate in something new?
1046. Mr G Coulter: The problem is that the new something tends to be the process of a large framework or some type of alliance. That is where we do not have the experience. We have the experience of the work. There has been one example of what you are talking about. For a number of years now the health estates have been running a performance-related partnering system. They have insisted that, when major firms come over from the mainland, they partner with local firms to input experience to the local economy. We were all very supportive of that.
1047. That system is not as strong as it was. It was discovered that Northern Ireland firms had as much skill to do the work as the firms from the mainland, although those mainland firms had a bit more experience of some of the peripheral processes. The recent documents from the Health Service say that the local firms should have control of documents and archives, because they are finding that the local firms are much more responsive. Once the large firm goes away again, if one wants to check a drawing or find a piece of information, they charge for that. Local firms do not; they retain the archive and leave it open to anyone who wants to examine it.
1048. Mr John Finlay (Construction Industry Group for Northern Ireland): The answer is to formulate the contracts in a way that brings in that experience, then to see how one could improve the technological base and knowledge of the local firm, and how that could be retained after the project was delivered.
1049. Ms Purvis: I am asking how that can be done.
1050. Dr Martin: For example, our company is involved with the new library at Queen’s University, but the architects that are designing it are based in North America. A new police training facility is being built in mid-Ulster, which is a good place for it to be built, as it is west of the Bann, but it is being designed by an American company. It will probably be designed in America, and the fees generated by that will be spent in America. The fact that it is a police training academy, and may be the first that has ever been built here, should not mean that it could not have been designed by the people here who have designed schools and hospitals. We seem to think that someone who can claim to have designed one previously can design it better. The skills required are here. The issue is how we present those skills for a Government body to judge.
1051. The Chairperson: How can we legally proof the process? If, for instance, that requirement was removed, or was presented in a way that allows local companies to develop the expertise, how would the process then be protected from challenge by those companies that would use that as a basis for a legal challenge?
1052. Mr G Coulter: What we were trying to do with the procurement task group was to see things in a Northern Ireland scale. We have companies here in Northern Ireland. We argue on scale. The Province has a population of slightly less than that of greater Manchester, yet there is a determination to establish huge frameworks. The Central Procurement Directorate has recently established a professional-services framework, and it was advertised as having fee revenue of between £16 million and £20 million. That drew the whole world and its mother to Northern Ireland, yet when one drilled down into the document, small pieces of work were arising from it; jobs worth £3 million, £4 million and £5 million. Those jobs were all perfectly within the competency of local firms. The fact that it was aggregated so much brought everybody descending in on us.
1053. Mr Finlay: There is a need to find a balance between the low end — jobs worth £1 million, £2 million and £3 million — and the need for a larger-scale operation for anything over £10 million to £20 million. Anything over £50 million will usually need more technological expertise, and that is when the requirement is brought in. There is a need to break it up, which would allow the different tiers that there are here to have a go. They seem to be completely excluded from the work. The integrated consultant team framework that was recently produced is all-encompassing. If the number of consultants is reduced to six, then the rest are going to be excluded.
1054. The Chairperson: Have you formally responded to that new procurement tender?
1055. Mr G Coulter: We have all responded insofar as we have all put in applications to be on the framework for the next four years. We have to do that.
1056. Mr Finlay: We input to the —
1057. The Chairperson: Did you challenge the £20 million threshold?
1058. Mr Finlay: We were asked to speak to CPD on two or three occasions, and to comment on four points. However, they were not about the size of the framework; it was about the documents that they were putting out and about the structure.
1059. Ms Purvis: Perhaps we should look at the Hansard report to see what was said in the previous session. My recollection of it is that the integrated consultant team framework was about reducing the size. They talked about having one lead partner where there was a turnover of £1 million, or two joint partners each contributing £500,000.
1060. Mr G Coulter: Two things are getting slightly mixed up. The overall framework is very large. We met CPD on a number of occasions. We asked them to bring down the threshold to allow local firms to bid for that work — and, to be fair, they did. They reduced the threshold, which allowed more Northern Ireland firms the opportunity to bid. Whether they will be successful will be revealed in the next couple of months. The threshold was reduced, but the funding remained at the same level.
1061. Dr Martin: If you offer a contract worth £3 million or £5 million, local Northern Ireland consultants will bid for the work, but if you raise its value to £20 million, external firms will be attracted. We have kept our turnover thresholds lower to enable us to compete on quality marks, we have attracted larger players by offering contracts of higher value. There is nothing illegal about keeping contracts small. There is nothing in the journal that says that we must make our projects larger. Our civil servants have decided, because they are driven by Westminster, that large is big and beautiful. I do not deny that procuring large frameworks saves time and money. Initially, the Civil Service will save money, which is good, but the long-term effect on Northern Ireland is bad.
1062. Ms Purvis: I am missing something completely. If the frameworks are upward of £16 million to £20 million, and some of the tenders within that are for only £3 million or £4 million, and they have lowered the threshold to let local firms compete, where does the £16 million to £20 million come from?
1063. Mr Finlay: The overall fees available are £20 million over four years. You split it by four, then you split it by the six teams.
1064. Ms Purvis: Therefore, reducing the time frame of the frameworks will reduce the cost of that.
1065. Mr Finlay: The frameworks could be smaller insofar as they deal only with one or two of the quotes or one or two of the projects.
1066. Ms Purvis: That is where your proposal for minor frameworks comes from.
1067. Mr Finlay: They are more numerous and there is a rolling aspect; in two years’ time, there will be another one to go for. If a firm misses one at least it will not be cut out of the process for four years.
1068. Mr G Coulter: Firms are excluded for four years, and that is where Northern Ireland suffers. Most of us work in the Northern Ireland community. A firm is excluded for four years, and then when the bid comes up again it is asked what its experience has been over the past four years. It is then excluded for life.
1069. Dr Martin: It puts you out forever.
1070. The Chairperson: That is a clear enough point.
1071. Ms Purvis: That was very useful.
1072. The Chairperson: If we develop at CPD level and take a proactive attitude to retaining as much of that revenue as possible within the local economy, we can do it within European legislation. However, if we go for the one-size-fits-all approach, or what might suit larger perspectives such as that of Westminster, that sort of injustice emerges, which affects local industry.
1073. Dr Martin: That is exactly right.
1074. Mr G Coulter: I also think that we should not decry our own contractors just because we are slightly smaller. There is a considerable level of expertise in the Province. There seems to be this view in the Civil Service that to do one, you must have done it before. The local example is the Waterfront Hall — an internationally-recognised building, built by a local firm that had no previous experience of it. If that building were being procured now, that firm would have no chance of winning the contract, because it had not done one before. There is too much of an emphasis on companies having done exactly the same type of work before.
1075. The Chairperson: I think that the Committee has got that message.[Laughter.]
1076. Mr McNarry: You may be accused of being from a protectionist lobby, and if that is the case, I am with you and will stand up for you. I am glad to hear what you are doing.
1077. I do not wish to lead you, but I get a sense, as the Committee gets more into this particular issue, that Government officials are out of touch with commercialism. Are those officials connected to you, and is there any way that you might offer to train them in some way, bringing them into a world that they, I believe, do not frequent too often?
1078. Mr G Coulter: It is an interesting question, and one that I have not been asked before.
1079. We would have to think about how we would train them. I have a sense that — and we have discussed this outside as well — when, for example, you are talking to Des Armstrong from CPD, who comes from a private-sector background, you get a sense that he knows what you are talking about and that he has an understanding and can make common ground with you.
1080. Mr McNarry: Sorry, who is Des Armstrong?
1081. Mr G Coulter: He is the head of CPD.
1082. However, it is different when you go below him to the career civil servants. For example, we met Des and the procurement task group, and we had a very productive meeting and agreed with him the way that we wanted to proceed. However, getting a document drafted with his civil servants afterwards was like drawing teeth. It was horrendous.
1083. The Chairperson: You needed four years’ experience?[Laughter.]
1084. Mr G Coulter: Yes. They seemed to have an ear to the Office of Government Commerce in London, and not as big an ear to the MLAs and the people who are driving them here. Des is good, but sometimes you sense when you go down a little bit that you are dealing with people who are driven by policy from Treasury, and not by what you guys want.
1085. Mr McNarry: That is very interesting. I think that we will bank that issue for the meantime.
1086. In your recommendations, you refer to a “Northern Ireland Scale." What do you mean by that? You say that selection criteria should be “appropriate to local market" and that we:
“must have a Northern Ireland Scale and provide more opportunities for Local firms to tender."
1087. I agree with all of that, but I need to explain it to myself. Therefore, can you explain it to me?
1088. Mr G Coulter: For years the Northern Ireland economy has gone through a process where a piece of work comes up and that work is procured by some methodology that has come out from the various Departments. The job comes out, we all tender for it and the appropriate firm is picked. Previously, there were lots of those opportunities about. However, in recent times, there seems to be a drive towards huge frameworks where you do not even know what work is coming through. Nobody knows what work will be on the current framework. It is simply a system or mechanism for pulling someone out. It creates a huge framework with a lot of fees, and it is huge for Northern Ireland. If one was doing the same thing in Northumberland or wherever in England, and you were not successful, you would have the opportunity to go to the next county. The opportunities here are not the same.
1089. Mr McNarry: Is the manner in which you are being asked to proceed cost-effective?
1090. Mr G Coulter: It depends on what you mean by cost-effectiveness. The establishment of frameworks is probably cost-effective for the Civil Service, because it does not have to do as much work. As to whether it is cost-effective for the Northern Ireland economy, that is a different matter. We suspect that it is not.
1091. Dr Martin: John and I share an experience which we feel quite passionately about, because it is the work that we do. Northern Ireland Water (NIW) — which is one of the COPEs, but does not seem to adhere to very much of what others do — is hoping to bring in an alliance system.
1092. In Northern Ireland, NIW has employed approximately 20 consultants, all of whom received a rough share of the potential work that was there. That meant that small or medium-sized consultants — in Northern Ireland terms — would perhaps construct a few pumping stations or water mains for NIW; larger consultants perhaps constructed water-treatment or wastewater-treatment works. That worked reasonably well.
1093. The new alliance system that NIW wants to introduce will employ two consultants, two contractors and two process houses, initially for three years but possibly up to eight years. The two successful consultants will be those who can demonstrate experience of working in that type of alliance. However, there are none in Northern Ireland. The successful consultants will be fairly large, because they must be able to do everything that Northern Ireland Water wants for the duration of that alliance. That excludes smaller consultants who can only do some of the work. There are only two consultants with such capacity. What will the other 18 consultants in Northern Ireland do for the next eight years? I do not know.
1094. Mr G Coulter: We are unsure how that situation benefits the Northern Ireland economy if those other firms go out of business. When Northern Ireland Water’s work will come up again in eight years — and that seems contrary to the public procurement legislation, which states that such deals should have a maximum of four years; this seems to go beyond that — and the other firms are gone and those two are left, I wonder how economically viable the bids will be. It is shrinking the market so much that it will cause long-term problems.
1095. Mr Finlay: We accept that, in the current climate, there will be consolidation in the market. That is not a bad thing. However, the issue is how far it shrinks. On the NI scale, we went back to CPD on turnover. The average consultant’s turnover is less than £2 million, which equates to approximately 20. That is an example of the scale.
1096. Dr Martin: They had hoped for £5 million, which would have excluded almost all Northern Ireland’s architects and chartered surveyors. There are a few larger ones, but not many.
1097. Mr Finlay: They are multidisciplinary companies.
1098. Mr G Coulter: We have got the bar lowered, and local firms have had the opportunity to price this framework. However, we must wait for the results in order to see whether anybody has actually got anything.
1099. Mr Finlay: Lowering the bar has allowed everybody else to bid.
1100. Mr G Coulter: They are not in until they win.
1101. Mr McNarry: I apologise in advance to you and to my colleagues for asking questions and then leaving; it is normally rude to do so. Your submission mentions shortening the protracted planning process that adversely impacts on the delivery of public contracts. What are you getting at there?
1102. Dr Martin: Many contracts for potentially large employers in Northern Ireland are being stalled by the Planning Service. They have been protracted for a long time.
1103. Mr McNarry: Do you have evidence of that? Can you provide a list?
1104. Mr G Coulter: Yes, but we do not have it at the minute.
1105. Dr Martin: Our professional college is innovative, and we are proud that we have brought together all the professionals in the Northern Ireland construction industry. Our architects, who feel very strongly about this issue, are not with us, but they contributed to the document. The Committee will meet the Royal Society of Ulster Architects (RSUA) during this process. That is an experienced body and it will have those numbers. We will speak to the RSUA and ensure that it brings that information. We are speaking on behalf of approximately 18 different organisations today. Unfortunately, our architects were unable to attend today because we were limited to three representatives.
1106. Mr McNarry: Does somebody have a piece of paper that says this is it for the next four years — this is what we are going to do; this is the money allocated; these are the contracts we are going to tender for; and these are the people? Then we could see Northern Ireland companies and jobs that risk being excluded. Does somebody have that? It is difficult to get an overall picture.
1107. Mr G Coulter: I do not think that such a paper exists. The Strategic Investment Board (SIB) is trying to reinvent itself now that there is not so much to invest. It is trying to produce a tracking system to identify the flow of jobs and what stage they are at so that we can all see that. That information has never been visible before. Although I have little time for the SIB, that might be something useful.
1108. Mr McNarry: To me, a picture tells a story. You said earlier how well-respected your colleagues are outside Northern Ireland in other fields of work. How many companies apply for work outside Northern Ireland and are successful in other people’s frameworks? We have a suspicion that companies might not get into other countries as easily as they can get in here.
1109. Dr Martin: We are facing some problems in that regard.
1110. Mr McNarry: It seems to be easier to get in here.
1111. Mr G Coulter: It is easier to get into Northern Ireland than it is to get into other countries.
1112. Mr McNarry: Have your members given up trying to get into other countries? Have they said that it is too difficult, or are they just beefing about it, without being able to say that they have tried and that there are obstacles? Outside Northern Ireland, we have a fine reputation in many professional walks of life, but I am thinking about bringing that economy back to Northern Ireland. You were saying that we are losing business to the Americans over the policing college.
1113. Mr G Coulter: Northern Ireland firms do not seem to be very successful on processes, but if a framework process were set up, we would be successful. The scale of Northern Ireland makes us look small in comparison with mainland firms. Northern Ireland firms have been reasonably successful in exporting some expertise, but that has come through personal contacts. For example, if Tesco comes here and uses a local firm, it tends to be impressed and takes that local firm back to do work for it on the mainland. That type of thing has happened.
1114. Mr McNarry: Do the Government provide any help on how to access the ladder? I assume that the Germans are given all the help in the world to access ladders to get into other countries.
1115. Mr Finlay: There is support to go abroad, outwith the UK; delegations have visited Romania and Poland.
1116. Mr G Coulter: We are involved in a joint venture with a German consultant engineer to look at a landmark scheme for Belfast. They were utterly shocked to find that there was a fee competition, because, in Germany, that is illegal. All firms charge the same in Germany, and the only incentive to pick one particular firm is because they do a good job, and not because they are cheaper.
1117. Mr McNarry: I must ask to be excused.
1118. The Chairperson: I do not wish to be unfair to other members, but Dawn has given me notice that she has to leave, so we are going to lose our quorum.
1119. Mr O’Loan: With reference to the point about supporting local business, obviously there is a big advantage in the openness of the system, and firms from here are winning work elsewhere. There was reference to a local consortium winning a major roads contract in Scotland. I know of local firms that are building schools in Scotland and winning frameworks there. Firms in the North want to be able to bid in the South, and firms in the South want to be able to bid in the North, and all that is very good. I do not see those as incompatible positions at all.
1120. We can value that openness and still say that we want to create opportunities and ensure that there are no barriers against our local firms fully participating in the public procurement process. Clearly, you are saying that there are significant barriers. Your critique of the large frameworks, is one example of that. Your points have to be taken on board. The CPD representatives were in earlier, and I talked to them about the fundamental disconnect between the positions that they are presenting and what we are hearing from the industry. That is really why we are conducting the inquiry. It is a very necessary inquiry.
1121. You referred to, and advocated the use of, social clauses that would encourage the SMEs gaining advantage under them. I put that specific point to the CPD representatives, but I used the word “favour" with the social clauses — that they “favour" SMEs. They were absolutely clear in answer to that: they regard it as being fundamentally illegal and as being an improper process. I do not know whether there is a big difference between the words “encourage" and “favour". How might social clauses be written to encourage SMEs?
1122. Mr G Coulter: That is a difficult one. At first glance, the social clauses appear to be more applicable to contractors than to professionals such as us, who are initially required to have a third-level degree. We may be able to work with some element of them; however, they are more applicable to contractors than to the professional side of the industry.
1123. Although I do not wish to criticise civil servants or to be seen as kicking them, they always seem to have problems with legalities and with interpreting public procurement rules. The Republic of Ireland, France and Germany do not appear to have the same problems with the same rules. Given that no one else has those problems, I am not sure why civil servants in Northern Ireland do.
1124. Mr O’Loan: You are raising a genuine point. Some people seem able to work within the system and use the rules —
1125. Dr Martin: And still manage not to discriminate against their indigenous industry.
1126. Mr O’Loan: Indeed, and others seem to find every difficulty possible.
1127. Dr Martin: There must be a mechanism to consult with an equivalent Committee in the South of Ireland in order to ask its advice. Unfortunately, there has been a downturn, but, two or three years ago, the Republic’s Government were able to use its economy’s growth to promote its local firms. We seem to have missed that opportunity, but we must learn from the South, because its Government were excellent at doing that. If a road scheme had to be built, the Government there ensured that local people were involved. It was local projects for local people.
1128. Mr O’Loan: You referred to reducing the emphasis on lowest-cost tendering. When we put that point to CPD, it said that it is not about the lowest cost; it is about a full value-for-money estimate. The acronym MEAT — the most economically advantageous tender — is used. I think that that acronym is unhelpful, because, funnily enough, it suggests that lowest-cost tenders are being used. However, for all the talk otherwise, many contractors and suppliers seem to hold the view that the tendering process is about the lowest cost.
1129. Training is not your area of work, but many concerns have been expressed about major training contracts being awarded to English firms that do not even have an office or a telephone number here. Yet, when contracts are awarded to those companies, they do not appear even to be at the starting point for delivery. Therefore, the suspicion exists that —
1130. The Chairperson: They are hoping to collapse local training organisations so that they can pick up their staff.
1131. Mr O’Loan: Yes, and that it was the bottom line that won the contract, rather than ability to deliver. Those views seem to be diametrically opposed.
1132. Mr Finlay: In a conversation with the Central Procurement Directorate about its most recent integrated consultant team framework, we said that it should not be lowest, and CPD agreed. CPD said that the quality:price split should be 80:20. Our view is that the quality offered by the top six or 10 companies should be similar. Everyone should be capable of delivering, so it will go down to price. The price part of the marking system is lowest cost, not the mean average that we suggested should be used, because the lowest cost produces the poorest service. From a consultancy point of view, you need to recover. Therefore, you knock off the top and the bottom and take an average. The average then gets the highest score, and positive and negative are based on that. I believe that the last framework has an element of lowest cost. If you assume quality, it should be similarly, if not closely, marked at the top end and come down to price at the end of the day.
1133. Mr G Coulter: It strikes me as slightly strange, as it must the Committee, that a company has won a competition for any work that comes up for the next four years, with no idea of what it is. This strange mechanism cuts the number of applicants to six. When a particular job comes up, that mechanism is used to appoint one of them. I am not entirely sure how that represents value for that particular scheme to anyone.
1134. Mr Finlay: As soon as the secondary tendering begins, each group will say that it must readdress the fee in its original tender because the parameters have changed.
1135. Mr O’Loan: We should not turf out the concept of frameworks, because they have their place in certain types of work.
1136. Mr G Coulter: Absolutely.
1137. Mr O’Loan: There may be an advantage to the public sector in getting value for money.
1138. Mr Finlay: Our concerns relate purely to the size and the breakdown of the frameworks.
1139. The Chairperson: What is missing from the debate, although the Committee has started to focus on it, is an assessment of the regional economic impact. That can be addressed while staying within the wider legislative frameworks. It appears not to be a current focus of the inquiry, but we may come back to you, as well as exploring the issue with other witnesses, because it is important.
1140. Mr G Coulter: Frameworks have a place; they are a useful system for subjects that are clearly identifiable, such as the supply of sandwiches, JCB diggers or dumpers. However, at one stage, the South of Ireland actually excluded construction from the regulations because it was considered to be an intellectual service. As construction work could not be easily defined, the industry was exempted from the regulations.
1141. Mr Hamilton: I agree with Declan. I am not entirely convinced that frameworks are as bad as they are portrayed to be. There have been legal problems, but in my recollection they have not focused on the frameworks per se but on the process. They have not been judged as unacceptable in their totality. Even your comments and submission concentrate on the size and focus, rather than the concept, of frameworks.
1142. We have heard in other evidence sessions from construction firms. Even when a big firm from outside Northern Ireland has won a contract or got on to the framework, it has subcontracted significant portions of work to local building firms. I am not saying for a second that local firms should be satisfied with getting a second dig; far from it. You said that local firms were missing out, but they can gain from certain aspects of the frameworks. Are you saying that, in your field of work, the entire picture is one of local firms losing out?
1143. Dr Martin: The service that we provide is not the same as buying a repetitive product, such as car maintenance or toilet cleaning. it is an intellectual service, and it is hard to define even when we know what the project is. Even I consider that it is ludicrous to try to have a one-size-fits-all definition for unknown projects. It makes no sense. I cannot see how bringing in as part of the framework an umbrella organisation that subsequently subcontracts the work to local firms represents value for money for Northern Ireland. That is introducing another tier, and there must be a cost there. If you can employ us directly without somebody above us telling us what to do, we will do just as good a job — if not better — and charge you less.
1144. Mr Hamilton: The argument is the one that Declan referred to, which is value for money. As much as we, as locally elected representatives, want to help local firms, there is also the pressure, particularly at this time, of value for money. I am not saying that that is the correct argument every time.
1145. Mr Finlay: It goes back to scale. My company is a multinational company, and the office here employs 24 people. I have the same problems gaining work, and therefore I can bring in that scale. However, we retain the intellect here, and we try to build on that and bring it in. There is an opportunity for a good section of the firms here to deal with the lower-value projects where that expertise is not needed.
1146. Mr G Coulter: The divide between construction and the professional end has been made. Obviously, if one is building something, one requires people on the ground to physically build it. Big contractors will come in and they will subcontract, and a lot of local people will get work on that building, and that is very good. However, it is not quite the same at the consultancy end, because it is an intellectual service and it can be carried out remotely from the site. If a large firm gets the contract, it will use its own slack resource to fill that space. It will look for a local firm to carry out supervisory or similar work only when it finds that it does not have enough capacity, and one does not learn a lot from that.
1147. Dr Martin: The design can be done in New York or Los Angeles — or Mumbai, where some of them are being done. It is not like construction; it can be farmed out all over the world and the people can be anywhere. What we provide must be provided locally.
1148. Are frameworks value for money? I am on one of the frameworks, as is Mr Finlay, and they are great. If one is on a framework, they are fantastic. Our framework started off fine, but some auditor came along and decided that it was not demonstrating value for money. We had all spent a lot of money tendering to get onto the framework. There are four contractor consortiums on the framework. As it is not demonstrating value for money, the auditors have decided that the four of us must now compete against each other. We have almost taken back a step. The initial concept was that we divided into regions and worked together as a team; we partnered. We put a lot of effort into gaining the framework because we thought that that would bring great rewards. Now we are a step back and the auditors are insisting that the four of us tender.
1149. Mr Finlay: The value for money in that case is money, rather than the partnering. The partnering that we have now in our region is working excellently because we have not had any contentious litigation with the contractor in the past four years. That is complete partnering because that contractor has delivered all the projects. He has had that workflow and that work stream, and he has known that he has been able to do that. However, that is only in one region. There is an opportunity for three other contractors to work in three other regions. It was not closing off the market.
1150. Mr Hamilton: I see the point that you are making. Equally, another part of me is saying that I am glad that there is someone in Government who is continuing to assess value for money on an ongoing basis. I have other questions that I could ask, but I know that we are running out of time. Perhaps the Committee could forward its queries.
1151. The Chairperson: It is obvious that a number of issues have not been teased out fully. The Committee will correspond with you, if that is OK. As the inquiry proceeds, we may come across additional issues that we would like to check with you. Thank you.
1152. Dr Martin: Thank you for your time.
27 May 2009
Members present for all or part of the proceedings:
Ms Jennifer McCann (Acting Chairperson)
Dr Stephen Farry
Mr Fra McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Mr Peter Weir
Witnesses:
Mr Mark Campbell |
Randox Laboratories Ltd |
|
Mr Nigel Smyth |
Confederation of British Industry |
|
Mr Peter Spratt |
Anderson Spratt Group |
1153. The Acting Chairperson (Ms J McCann): I welcome Nigel Smyth, director of the CBI, Peter Spratt, managing director of the Anderson Spratt Group and Mark Campbell, senior manager of Randox Laboratories Limited. You are all very welcome. There will be a Hansard report of the meeting, so all mobile phones should be switched off. Please give your presentation, and then members will ask questions.
1154. Mr Nigel Smyth (Confederation of British Industry): We welcome the opportunity to provide oral evidence today. I will make some comments additional to our submission and invite my colleagues to illustrate some of the problems that small and medium-sized enterprises (SMEs) have in accessing the Northern Ireland public procurement market. We will be delighted to answer questions from members.
1155. Public procurement policy has been a major issue for CBI for several years. Members will have seen from our submission that we completed a major survey of suppliers to the Northern Ireland public procurement market around 12 months ago. We believe that we have a good understanding of the key issues about which SMEs are concerned, and that is supported by a strong evidence base. Since we published our survey, we have had constructive dialogue with central procurement directorate (CPD) and the centres of procurement excellence (COPEs).
1156. At the outset, I emphasise the importance that CBI puts on maintaining an open, fair, transparent and competitive market. That is what businesses want, and it should be the best way to deliver value for money, which is something that we should all want. We do not want the playing field tilted to favour SMEs unfairly, but we want to create a culture and a system that ensures that they are given the maximum opportunity of winning contracts. There are many barriers in the way to achieving that; however, those can be addressed, and are being addressed, within the existing rules and regulations.
1157. In the current economic climate, with a worrying outlook for unemployment and youth graduate unemployment rising rapidly, it is timely to assess what more can be done to give local indigenous companies a better opportunity of accessing the £2·2 billion public procurement market in Northern Ireland.
1158. We do not believe that setting mandatory targets for the level of SME involvement is a sensible way forward. Instead, to give SMEs a better opportunity of winning contracts, a number of actions are necessary. First, bidding costs must be reduced. There are excessive demands for information and a lack of standardisation in requesting generic information across the COPEs. That is a major problem, particularly for smaller firms. Encouragingly, it is being addressed, partly due to the move to electronic procurement, but we need to keep a watchful eye on it.
1159. Secondly, tender documents and inadequate or inappropriate specifications are a problem. They could be SME-proofed. Let me give the Committee an example from a procurement process that I was involved in earlier this year. The draft specification demanded that for those staff nominated to work on the assignment, the firm should supply examples and details of previous experience within the last five years in internal audit services to non-departmental public bodies and the Northern Ireland public sector generally. Furthermore, it stated that the organisation was seeking a provider that was fully familiar with the operating environment and regulatory issues faced by NDPBs.
1160. When I read that, I felt that it was excessively narrow in focus and could prevent some companies that I know from competing. What was agreed on the revised tender that went out to the market was that staff nominated to work on the assignment should demonstrate previous relevant experience of providing internal audit services of a similar nature within the last five years.
1161. That is a very small example, but I use it to illustrate that the wording of a specification can very easily rule out new or emerging entrants to the market. Growing small businesses will find it a more significant barrier. We suggest that the Committee reviews half a dozen tender documents from each of the COPEs to assess the significance of the problem. I will be surprised if other witnesses do not raise the matter. From a CBI perspective, Departments could do more to maximise the opportunities for local suppliers within the existing rules.
1162. Thirdly, better provision of information would help SMEs. The evidence that we collated demonstrates overwhelming support for a web portal for all Northern Ireland procurement.
1163. Fourthly, COPEs should become world-class clients or intelligent clients. Last week, we submitted a further document that CBI has developed in recent months. It identifies the criteria that we expect from a world-class procuring organisation. As the Committee will know, key elements of those criteria include engaging with the supply base and understanding the supply market. We believe that organisations that can meet those criteria are more likely to create more competitive markets and deliver better value for money.
1164. COPEs undergo quality assurance assessments every five years. We believe that the criteria should be included in those assessments. We understand that this is being reviewed by CPD and the COPEs. However, we believe that it is vital that the independent assessments should include supplier feedback, which is not the case at the moment.
1165. There has been some debate about the size of contracts. The CBI supports the use of frameworks as an important way of reducing bidding costs. However, significant issues have recently been thrown up that need to be resolved. We have supported the aggregation of projects, but only to the point at which Northern Ireland companies still have a good opportunity of winning contracts. We also recognise that dozens of smaller companies will be involved as subcontractors, particularly in larger construction contracts. We must also accept that companies themselves have major responsibilities to ensure that they are taking the right steps to position themselves to win. We have outlined some of those steps in our submission.
1166. Success at home should also encourage success away from home. The public procurement market is a massive market across the EU and beyond. With sterling’s current weakness, there has never been a better time to encourage local companies to seek public procurement outside Northern Ireland.
1167. Mr Peter Spratt (Anderson Spratt Group): I am Peter Spratt, the managing director of Anderson Spratt Group, which is a small marketing services company based in Belfast. I do not want to delay the business, so I will make three quick points to augment Nigel’s comments. The local economy is particularly important to a business such as mine, and that may be representative of a lot of SMEs. The vast majority of our business is indigenous. The local economy, the public estate, and public procurement in the local economy — particularly at a time of economic challenge — are hugely important.
1168. There are three issues that I will very quickly reference at a practical level, which is where I hope to add some value to the debate. Over the past four years, much work has been achieved in public procurement processes. A number of frameworks and protocols have been established as the process has become increasingly formalised in its journey towards ultimate professionalism. However, there are still some challenges. A very marked challenge for SMEs is in bidding costs. A small or medium-sized company such as ours, of which there are many in the Northern Ireland economy, does not have the luxury of being able to assemble major bid teams whose business it is to spend the greatest part of their time bidding for public procurement contracts. We have to make that happen as the opportunities arise. The bids have to be responded to by senior officers of the business. There is a considerable opportunity cost in that in relation to time and money.
1169. Having said that, the decision of whether to bid is ours to make. However, there is an old maxim that states that if one is not working for the public estate in Northern Ireland, one is not working. The cost-benefit relationship of bidding can be particularly punitive. Time frames are often very unforgiving. Protocols have sought to formalise the time frames, but in the biggest competition in my industry thus far in 2009, which will, arguably, be the biggest this year, 15 days were made available for bidding responses. That is a recognised time frame in the protocol, but it is the minimum period. Sadly, we do not seem to get beyond the minimum as regards time frame responses. It would be encouraging if more time were made available. For instance, while that process is live, another tender became live, with a 28-day turnaround period being made available.
1170. There is, therefore, no standardisation of the time frame for turnaround. Similarly, there is often a seasonal rush around bank holidays, particularly the Twelfth of July holidays. A lot of competitions to bid are received in late June or early July. Subsequently, the folk to whom we need to speak to for clarification of the tender documents are, by that time, on leave, which makes it difficult to formulate a cogent response.
1171. Finally, tender documentation can be extremely complex. As members will have seen, documents can run to hundreds of pages in their attempt to explain what the brief is asking for. Now, with multiple procurement channels, there is no longer a single central procurement directorate under the auspices of DFP; there are also the COPEs. Increasingly, we are considering how to standardise the process, but we have not yet reached that stage. One set of tender documents can look not like another, so before a business can even decide whether it is in a position to respond, a considerable amount of work is often involved in absorbing the tender documentation.
1172. Much work has been done and progress is being made, but I, and the industry that I represent, want to see less focus on and obsession with process and more focus on outcomes. Fundamentally, it is a matter of people working in pursuit of the best available outcome.
1173. Mr Mark Campbell (Randox Laboratories Ltd): Thank you for the opportunity to be here. I am a senior manager at Randox Laboratories Ltd, which is a healthcare diagnostics company. Therefore, my comments will largely relate to the healthcare sector, although I imagine that they will be employable broadly.
1174. We manufacture blood tests, which mainly relate to illness, but we have extended them to genetics, which means that we can test for disease and the propensity for disease. We are a world-class manufacturer and have won five Queen’s Awards for Industry. Randox was the Northern Ireland Business of the Year in 2008 and the Northern Ireland innovator of the year in 2009. We employ 550 people in Northern Ireland and 250 people overseas. We could successfully sell our products to every laboratory in Northern Ireland, yet 99·87% of our product is exported overseas and only 0·13% is sold in Northern Ireland.
1175. Why is that so, given that we could sell a great deal more? That circumstance was partly brought about by a strategic decision made by the company several years ago that the commitment and effort required to sell in Northern Ireland was disproportionate to the results. That was borne out by our success in overseas markets; and, for the reasons that Nigel outlined, such as the cost of tenders, bureaucracy, and so forth, we viewed the effort that was focused on Northern Ireland as unproductive. We recently competed for a tender in Northern Ireland for which an assessment of cost, not taking into account the opportunity cost, was £15,000, and the tender was unsuccessful. Our company is of such a size that it can hold that cost, but many other SMEs would not be able to do so.
1176. However, that was then. Randox has made a strategic decision to work more in the local market because we consider that we can add significant value to it. I will outline some of our observations from the past year and a half. The healthcare market in Northern Ireland is dominated by large multinationals, and to enter it is problematic. The processes become highly reliant on several single suppliers. We have observed that an attitude of reliance, if not dependency, has developed. Many tenders have a discretionary element, in that one must buy to a certain value, beyond which that the customer can seek greater value for money.
1177. I sought advice from a particular senior clinician. He told me that I had to realise that, although I was offering efficiencies, the most important factor to him was his relationship with the main supplier. That is understandable under the circumstances, but I wondered whether any philosophy of seeking value for money was imbued in that process. I do not blame the customer; the customer will always wish to have a good relationship with a supplier, and a supplier too will seek a beneficial relationship. I wonder what more the procurement process could have done to help to generate a creative tension that would demand economies of scale in future procurements. The relationships between customer and supplier seemed quite cosy.
1178. I have a recent example of a large supplier that, towards the end of a contract, has undertaken an equipment refresh. That is a highly technical procedure that requires much staff time over many months to complete. The contract is up again in a year, and we ask ourselves how enthusiastic that site will be to go through the whole process again a year after they have completed it. I suspect that the tenderer, having sited some new equipment there, will be able to cost very effectively, because the cost of that equipment has been taken into account already.
1179. When tenders arrive, there is a clear and appropriate policy of future tenderers not visiting the sites involved in case that skews the pitch in some way. We note with interest that the sitting tenant has full access, whereas those who wish to tender do not, and there may, arguably, be some advantage gained there.
1180. I have asked organisations regulated by the tendering process about the equipment refresh, but did not get a very clear answer. It is not clear whether the procurement process takes a view on an equipment refresh where it can happen within the last year of a tender. We observe the issue as one of the relationship: if it is a relationship of reliance, is it achieving best value for money and could more be done to achieve that?
1181. We have also come up against a case of contract extensions. Many of the contracts are for five years plus a two-year optional extension. We were interested in a tender in Northern Ireland recently and had been speaking to the procurement people over the past year. However, we were disappointed to find that the tender had been extended. I do not know what benchmarking process was undertaken to ensure that there was value for money, but I can assure you that we were going to be exceptionally competitive to make our entrance into the market, but we were not given the opportunity to do so. I do not know how that was benchmarked and how rugged the assessment was.
1182. Visibility of upcoming tenders is problematic. One has to work hard to get a list of what tenders are coming up so as to plan ahead. Perhaps something could be done about that. I asked recently about an upcoming tender and the assessment of value for money, and it appears to be that price is, quite rightly, a major factor in resolving a tender. Price can often be weighted to 40% of a tender. I asked recently whether other savings, such as reduced staff levels, would be taken into account. The answer was no, that that would be very difficult. Therefore, if one had a slightly more expensive tenderer, but could save 10 staff over the next three years, the savings of 10 staff did not seem to factor into the cost of the bid, which seemed to me to be problematic. However, that featured elsewhere under additional value, but it was not clear how that would be scored against a very sharp 40% on price.
1183. My final comment relates to the philosophy of value for money. I have moved recently from the public sector to the private sector, and one of the areas that I have noticed most keenly is the value-for-money aspect in the private sector: people live, eat, breathe and sleep the value-for-money aspect. It must pervade one’s whole culture.
1184. I noted with interest some of the decisions that have had to be made by Departments recently. Two examples this month relate to the Planning Service increasing costs to secure employment and Translink increasing fares to secure employment. I make no issue with those decisions: clearly, they are problematic decisions that have to be made in difficult circumstances. However, one issue that arises in the back of my mind is whether that affects the culture of seeking value for money elsewhere in the organisation, and what steps could be taken within the organisation to ensure that that value for money should have primacy, whereas some other decisions, quite rightly, are made with other priorities in mind. Thank you for your attention. That is all I have to say.
1185. Mr McNarry: Thank you for your presentation. From previous evidence, I got the distinct impression that Northern Ireland plays to the rules while other places seem to bend them. Have you come across any examples of that?
1186. Mr Smyth: Northern Ireland does play to the rules: in fact, we go further than that. There is a risk-averse culture here. The argument in Northern Ireland is that we may go beyond the rules in that one has to dot every i and cross every t. I do not have any evidence from elsewhere, but our survey indicates that things are more bureaucratic and complex for companies that are working in Northern Ireland and GB. The argument, particularly from SMEs, is that that is unnecessary and makes their lives more difficult. I do not have evidence that people are not playing by the rules elsewhere: they may be smarter and cleverer in how they go about things.
1187. Mr McNarry: I was not saying that they were not playing by the rules; I said that they are bending the rules.
1188. Mr Smyth: I do not have evidence of that.
1189. Mr P Spratt: The rules are still work in progress. Sometimes, for fear of antagonising procurers and the part of the public estate that remains important to our sector, a smaller industry with less critical mass is perhaps less challenging of the rules than bigger lobbies. The 15-day rule has been enshrined in a protocol, and that is the minimum time that is available for the turning around of procurement in my sector. We acquiesced in that, when we should have been more robust in suggesting that the time frame was not workable. The rules are still work in progress and are capable of being amended. An ongoing debate to try to take them closer to a world-class culture of procurement is the responsibility of both the bidder and the procurer.
1190. Mr McNarry: Your colleague said that he had experience in the public sector and in the private sector. May I ask what that experience is?
1191. Mr M Campbell: I worked for the Ministry of Defence.
1192. Mr McNarry: Do you think that a culture is embedded in CPD that lacks professionalism and awareness of the private sector?
1193. Mr M Campbell: We have certainly had to work very hard to explain what we can do for the public sector. The public sector has not approached us, as a local company, to say that it is aware of our existence and inquired what we do so that we can think carefully about where we can add greater efficiencies. The energy to be able to articulate what we can do has come from us, and we are quite happy to undertake that. From our perspective, the rules are applied fundamentally. We dearly want to add significant value to healthcare in Northern Ireland, but we are told at points that we cannot access local hospitals because that might queer the pitch in some way. I assume that that is proper procedure. I said in my evidence that we note that current suppliers have daily access.
1194. Mr McNarry: Do you have any evidence of specifications altering after a bid has been accepted and a contract has been signed?
1195. Mr Smyth: There is significant anecdotal evidence for that. A high percentage of companies and respondents said that the specifications had changed. The key issue is whether Departments know what they want. The other issue is that some of the procurements are extremely —
1196. Mr McNarry: Is that fair, Nigel? I remember being told by a troubleshooter that people had the job of taking specifications apart. He said that a firm would bid on the basis that the specification was flawed: they had the knowledge and the professionalism. Is it fair that specifications are being produced that are subject to change, but only after a bid is made?
1197. Mr M Campbell: We have challenged specifications during the tendering process. Our observation is that specifications in the healthcare sector and laboratories area are highly technical. The procurement personnel seem to pass those over to the laboratory personnel, who have the technical competence to complete the bid.
1198. It is understandable that tenders are often written with a particular piece of equipment in mind. A specification might say that the handle must be on the left side, three inches from the floor, because that is what the customer has grown up with and has been used to over the past five or six years. However, there may be only one supplier who produces equipment with the handle in that place. Therefore, we often have to be rigorous with the specification prior to submission to challenge anything that we believe to be inappropriate.
1199. Mr Smyth: Our survey showed that half of respondents felt that some changes were made to specifications and that 22% of respondents felt that significant changes were made. One might expect some changes, but the customer-procuring side lacks an understanding of the overall impact and consequences of making those changes at the outset. A better dialogue and understanding may be needed between the customers and the marketplace.
1200. I want to respond to your question on commercial skills. That area came out quite strongly in our survey. When the findings were broken down, the typical response was shown to be “average" to “good". A small number of respondents described procurement as very good. Quite a significant figure, around 20% in each group, described it as poor. Therefore, different people have different experiences. Our view is that it can all be improved. There is a lot of work and activity directed at improvement. It is about getting good commercial skills and having people with the ability to do deals and get them through, because there is a lot of concern about delays in the procurement process.
1201. Mr McNarry: Can we obtain information about this? Without putting Mark in the dock, if he has details about it, would he be prepared to share it with the Committee or are they commercially private?
1202. Mr M Campbell: They are not. It was a straightforward contract for analysers and for reagents and chemicals that go into the analysers. It was awarded in —
1203. Mr McNarry: We do not need to know the details now, but if you are willing share those with us, and we can gain further information about the extensions being granted and under what circumstances that happened, that would be very interesting to the Committee.
1204. Mr M Campbell: My assumption, which I do not know as fact, is that the potential for an extension would have been stated in the contract. Our disappointment was that we were keen to be competitive but found that the contract had been extended. I am sure that there was a process that will have ticked the boxes to say that it was done properly. The process will have been followed, but, to reiterate Peter’s point, the question is how rigorously it was done. There could have been a better outcome.
1205. Mr McNarry: In the response from ASG and Anderson Spratt Group Holdings, under the heading “Experience of Assessment Panels", you say that: “Professional Procurement requires resource-and said resource requires to be both experienced and intellectually imaginative. We would encourage a rigorous and ongoing assessment of the assessor in this context. We would further encourage an examination of appropriate third party expertise-perhaps a panel of qualified assessors in different disciplines-which might be drawn upon as necessary."
1206. Will you explain what you are getting at there?
1207. Mr P Spratt: My business is in intellectual capital, which is often more qualitative than quantitative and can be difficult to assess. Procurement in my industry, by definition, has to be sophisticated and well informed by industry experience and the professionals attached to it. I sit on a board in the public estate that uses third-party expertise when required to inform decision-taking in specialist areas. The CBI has encouraged some reciprocal seconding between procurer and potential bidders to facilitate understanding. The nature of assessing the work in which I am engaged requires inherited learning and professional experience and, sometimes, rigorous training. We are not sure that that is readily available to the public estate.
1208. Mr McNarry: Your point is well made. Your company is known to me and it has a fine reputation. It is interesting that you go as far as saying that, and we should take note of it.
1209. Mr Smyth: I have had one specific experience in the past few months. I was on a tender with two colleagues. We had done our homework. We had spent three hours earlier in the week on preparation and came to the meeting well prepared. From a comment made to me by the CPD representative, it was clear that at some tender evaluation meetings other people had not done their homework. I thought that was worrying, because, if you have gone through the process, there is no way you could arrive at the meeting without spending three or four hours going through each of the tender documents. I do not know how big the issue is, but it was worrying that the fact that we had done our homework was commented on and welcomed.
1210. Mr McNarry: Needless to say, Nigel, if you are worried, we are minded to be alarmed.
1211. Ms Purvis: Thank you for your presentation. Nigel, you said that you were in favour of frameworks, but that there were some difficulties with them. Will you explain the difficulties?
1212. Mr Smyth: Recent difficulties have been in construction and another large framework in which legal cases have been launched against them, leading to a delay in the whole process. That was particularly the case with the construction framework and involved the construction of schools. That has led to a great deal of problems.
1213. The CBI supports frameworks as a way forward and as a way of reducing bidding costs. I understand that the construction employers have sat down with CPD in an attempt to find a way forward in developing a number of frameworks to suit large and small companies. There is a big investment strategy ahead of us, and several projects were aggregated, which we agreed to in principle. Those projects were legal, but I believe that there were mistakes in the tenders. Although I have not read the detail, I understand from people in the industry that there were some errors in the tendering process, and some of those have been challenged legally as a result. However, we do believe, in principle, that frameworks are a good way forward.
1214. Quite often, in the ICT sector, frameworks were over a three-year period. Going back a year, I was hearing concerns from very small ICT companies that were unsuccessful in being accepted into the framework and had to wait three years before being able to bid again. My understanding is that those frameworks have been reduced to 18 months. However, I now hear concerns that companies that have won the framework will have to go through the whole tendering process again in 18 months. It is very hard to achieve an overall balance.
1215. Overall, our opinion is that frameworks are a good way forward and a good way of reducing bidding costs. However, they do need to be thought through so as to give all key suppliers in Northern Ireland a good and fair opportunity at the potential marketplace.
1216. Ms Purvis: Representatives from SMEs who have appeared before the Committee have said that the timescales are too long and that once companies are locked out it is for the period of the framework. They have also said that companies must have a certain level of turnover to be entitled to bid for a framework; something which is not always possible for SMEs. They have also said that the need to demonstrate experience gained in the last five years often excludes SMEs. Do you have any comments on those points?
1217. Mr Smyth: As regards companies being locked out; that is the nature of a framework. I have provided the example of the ICT sector, where having the framework reduced from three years to 18 months has caused problems. It is very hard to achieve a balance in that area.
1218. At the moment, the construction industry is examining different levels of frameworks for different sizes of projects. However, as a result of the delays in the education frameworks, some projects are being rolled out individually, with a fairly low cost, which is leading to dozens of tenders being made. That process has lead to massive bidding costs, which the CBI believes will undermine the industry in the medium- and long-term. The contracts will be awarded to those companies with the lowest costs, and companies are bidding below cost at the moment in an attempt to buy the work. That situation is not sustainable.
1219. Your point in relation to the size of companies needs to be examined. Perhaps dividing frameworks in two, with very large frameworks for the very large projects and smaller frameworks for the smaller projects, could be examined. As regards the criteria, I have already given an example. However, care must be taken when drafting the criteria as some companies could be disadvantaged from competing. Expertise is required to make those decisions.
1220. Ms Purvis: I am thinking particularly of a SME being locked out of a framework agreement for four years when one criterion for that framework relates to experience gained in the past five years. When the next framework comes out, again asking for experience gained in the past five years, the SME will not have had an opportunity to gain that experience.
1221. Mr P Spratt: I believe that twelve companies were accredited when the framework in my sector was last articulated. Public procurement, by definition, looks for the best in class, and companies on the framework should be best-in-class providers or be capable of being so. The criteria for getting on to the framework are rigorous, and to achieve is a consequence of employing professional people, investing heavily in businesses and seeking to build value in businesses over years that get us to the position of being capable of responding to public procurement and achieving a framework position.
1222. Not all procurement comes exclusively from the framework, and some SMEs not on frameworks are capable of bidding at certain levels of contract and finance. CPD has advised us recently that some competitions, because of their nature, must be open and go beyond the framework environment.
1223. Ms Purvis: I understand. I was talking specifically about the framework.
1224. Mr P Spratt: Ours is a two-year framework with a rolling extension, if possible. However, on behalf of the fellow-travellers in our industry who made the framework, we worked very hard and invested very heavily to be there in the first place. That is commerce.
1225. Mr M Campbell: We have had experience of one framework, which we are a party to, elsewhere in the UK. It is a very lengthy framework; 10 years. From the outset, the framework provisions stated that new applicants who arrived with capability would be reviewed every two years. The potential was written into the framework for those who had been locked out to reappear in two years’ time with enhanced capability, so that they could join.
1226. Ms Purvis: In that case, what happens to a firm that comes into the framework? Is another firm booted out?
1227. Mr M Campbell: No. Everyone is kept in the framework unless someone volunteers to leave.
1228. Mr P Spratt: There does not seem to be a mandatory number allowable in the framework. We asked that question when our own framework was being developed.
1229. Ms Purvis: I read your submission on the extent and application of social and environmental clauses in public procurement contracts, and other regions have experience of using such clauses for the benefit of the small and medium-sized enterprise and social economy enterprise sectors as regards sustainable business, employment, using local produce and so on. I get the sense that some businesses in Northern Ireland, and CPD, see those clauses as a bit of a headache. What is your view on how such clauses can best be used to boost the local economy?
1230. Mr Smyth: The Equality Commission and CPD produced a volume last year about equality of opportunity and sustainable development. The guidelines are there.
1231. We agree that clauses have to be relevant to the procurement. There is the risk that people, or Departments, will try to achieve all things through procurement. In some bigger areas, such as construction, it is likely that we will be able to do more; for example, for the unemployed. There have been some pilot schemes that you will be aware of. However, in small, individual schemes, it will be much more difficult.
1232. The key message is that those need to be built in by Departments from the start and not be tagged on at the end. When Departments are undertaking a project or are considering procurement, they need to give considerable thought to equality of opportunity, sustainable and environmental aspects. Some procurement exercises offer more potential for social clauses than others. It is horses for courses and not a case of one system fits all. There is potential; however, we need to look at experiences elsewhere and learn from those. To do something for the unemployed should not be added as an afterthought.
1233. Mr M Campbell: Randox Laboratories Limited was formed in 1982 and started with six people working out of an old stable block. Its philosophy was to halt the brain drain from Northern Ireland. Prior to that, everyone who became scientifically qualified had to leave the Province. We now employ 550 people in the Province, ranging from highly-qualified technical scientists to non-skilled and semi-skilled workers engaged in manufacturing and packing. Our workforce spans the whole spectrum of the economic base and one of our drivers is to enhance employment in Northern Ireland. However, the issue comes back to the fact that we cannot apply social contracts until such times as we can tender fairly and openly and win contracts in the first place. That is our concern at present.
1234. Mr F McCann: I have one question. Should social clauses not be included in contracts? Mr Campbell said that he would have to work out whether the tender could be won before applying for —
1235. Mr M Campbell: I am not expressing a view on that: my point is that unless we secure the business, social contracts do not become an issue.
1236. Mr O’Loan: Thank you for your presentation. All your contributions contained very significant points. I have three general questions. What is your overall assessment, or rating, of the public procurement system here?
1237. Mr Smyth: “Could do better".[Laughter.] Our evidence shows that it is average to good. There are some very good bits and some that are less good, which are easy to identify because people who have had bad experiences do complain. There are some bad examples of procurement. People in the senior levels in COPEs and CPD know what they are trying to achieve, and they are trying to move the system in that direction. However, there is a typical curve with regard to experiences. In the past, there have been difficulties in getting skilled commercial people.
1238. Mr O’Loan: I count that report as being “not good enough". On meeting procurement officials, do you find them co-operative and responsive or are they defensive and resistant to change?
1239. Mr Smyth: My colleagues may want to comment on that from an operational level, but I will give examples from fairly senior policy level. In the past 12 months, our experience has been positive. There was constructive engagement when we produced our survey. There has been a number of meetings and involvement in workshops and conferences, from which a number of actions have arisen, which we have been able to take forward.
1240. It has been recognised that there is a need for better standardisation. It is frustrating, because, in Northern Ireland, there are the CPD and eight COPEs. We are looking at the standardisation of generic information in items such as company accounts. Each COPE requests that information in a different format. In business, you get on and do it; however, in Northern Ireland, it seems to take a long time to do it. Over the next number of months, we will move towards e-procurement, and that will speed up the process.
1241. Mr P Spratt: Dialogue is good at senior level. Recently, the attitude fostered towards CBI has been increasingly professional, convivial and sensible in pursuit of the end game. However, at operational level, there is sometimes an unnecessary tension; almost an “us-and-them" environment. The process is not combat; it is about a conversation in pursuit of something, but there is, sometimes, nervousness, tension and inertia.
1242. On the qualitative side, public procurement could benefit from greater levels of courtesy to the bidder. There should be recognition of what the bidder is trying to achieve, and speed and courtesy of response when further enquiry of procurement documentation is made. Sometimes, there is still an unnecessarily large separation between private sector and public estate.
1243. Mr M Campbell: Having met procurement people in the area in which we work, I have concerns about the resource pressures that they are under. They have a great deal to do, and it struck me that they were under-resourced. That reflects in some of the work that we have seen in other places, not in Northern Ireland. One sees cut-and-paste tenders, which do the job to some degree but ask some extraordinary questions because they are not suited to the specifics of what is being done.
1244. Peter mentioned that the process was becoming almost combative. I am concerned that litigation is a problem. If there is a sniff in the air of litigation, relationships become formal and one will get only the information that one requests and nothing more, and so on. That becomes harmful to the overall flow of information and positive attitude.
1245. Mr O’Loan: Is there is variation in quality across the COPEs, as I suspect there may be?
1246. Mr Smyth: Our survey concluded that one or two came out better, but that most of them had a typical curve. A lot of them were average to good, and some were slightly better than others. None was outstanding. Anecdotally, good work and good partnership are going on between certain leading COPEs, but they all have the spectrum of being not so good at one end and a small amount of very good at the other.
1247. Mr F McCann: Is there any evidence that SMEs shy away from becoming involved in the process because of the excessive costs in bureaucracy that seem to exist around the application, certainly at tender stage?
1248. Mr P Spratt: Yes. Speaking unilaterally; in cases where we thought we could have added considerable value we have sought not to respond for reasons discussed earlier. I define bureaucracy as punitive time frames and the extent of bidding cost vis-à-vis the potential return if work is achieved. Therefore, certain tenders are dissuasive. If they dissuade our business, they must be dissuading others, and that must deny public procurement the opportunity for “best in class" on occasions.
1249. Mr F McCann: Obviously, there is a wealth of experience among the people you represent. When the process began, did anyone ask you to look at a system that breaks through the bureaucracy and uses an easier method for people to get into the tendering system? Perhaps, that is illegal. Did anyone seek to tap into your expertise?
1250. Mr Smyth: No. We do not consider that to be our role. Our role is to identify what we believe to be the most significant barriers to procurement. We have now communicated that.
1251. Mr F McCann: Do you offer advice to the Department?
1252. Mr Smyth: Our role is to try to influence and coax CPD. During the past year, we have been involved in two workshops. We have tried to influence the Procurement Board’s work in various ways. We do not see ourselves as advisers to companies. As Peter said, companies have a major responsibility to put in the work and effort to achieve contracts. The CBI does not see that its role is to provide advice or assistance to companies. If companies have a problem, we can, perhaps, do a little signposting as regards with whom they can raise the issue.
1253. Mr McQuillan: The UK market is worth £120 billion. Do you see a role for Invest NI to help small and medium-sized enterprises to attract some of that money? Is it already doing so?
1254. Mr Smyth: To be fair, Invest NI is already doing so. In Northern Ireland, there are many good stories. I understand that within two years, Invest NI or its clients won around £500 million of business. I believe that we quoted the figure in our 2008 policy paper. Clearly, Invest NI’s work with the Olympic Delivery Authority has been high profile.
1255. We believe that more can be done. There is a terrific opportunity at the moment. Some multinational companies may be struggling because of the strong euro, and there are big opportunities for the UK market to exploit that and encourage more Northern Ireland companies. Our message to Invest NI is to look at the tradable-services sector, in particular, which has a relatively small level of export. Invest NI should look at that sector and determine what more it can do on a strategic level to increase exports. If we can win tenders in Northern Ireland, we have every opportunity to win in other markets.
1256. Therefore, work is under way. We believe that more effort must be made to communicate that message to potential suppliers. We must put our hands up, however: suppliers also have a responsibility. IntertradeIreland provides support, particularly on North/South tenders. Likewise, Invest Northern Ireland has a programme of activity also.
1257. Mr McQuillan: Are you fairly happy with Invest NI?
1258. Mr Smyth: Yes, we are happy. We see it as an opportunity. We have communicated with Invest NI. It is supportive. In March 2009, we ran a major conference. We have been encouraged by its response.
1259. Dr Farry: Welcome, gentlemen. I want to return to the point that was made earlier about social clauses. Your agenda is to try to reduce bureaucracy and improve the speed of the process. Will social clauses add to the system’s complexity or can they be part of a programme by which the process is made faster and simpler? Are those mutually exclusive, or can they reinforce each other?
1260. Mr Smyth: That very much depends on the nature of a contract. If one wanted to outsource school meals, a clause could be included stating the need to maximise the level of free school meals in order to encourage take-up. Therefore, if one is smart enough, one can develop clauses that are relevant to the nature of the procurement. However, if the argument is that we need to employ people from x, y and z, we are probably not going to get value for money on the back of that. It is a matter of being smart in how one goes about it.
1261. If the tender is very small, it is unlikely that one will be able to build in such a clause; whereas, as has been highlighted, efforts have been made in major contracts, particularly in the construction sector, to encourage unemployed people. There are issues around that, because this is about skilled people with health and safety training, so there are no easy solutions. We must be open and look at what is happening elsewhere in the UK and in Europe to see what we can learn. Social clauses may add to the complexity, but to a lesser extent if they are relevant to the procurement.
1262. Mr P Spratt: Social clauses must have meaning in the context of the brief that is being addressed. For example, we have recently been involved in work on waste management and recycling — a big and growing subject of debate in our times. It is important that our own credentials are in good shape, and that the clauses are clearly articulated in the briefing documents. They can be a bit fudged and soft round the edges, which has been my experience. One can be uncertain about what is being requested, which underlines the imperative of having clarity in tender documentation. I subscribe to them and their legitimacy in appropriate tenders absolutely.
1263. Dr Farry: Another potential trade-off is between the emphasis on speed and simplicity of process and rigorous fairness in allocating contracts. How is the balance struck? Does opting for a faster, simpler system create greater risk that a contract will not go to the most competitive bid or make the playing field less level than it would ideally be? On the other hand, it may lower the cost to businesses of interacting with the process. Is there a balance to be found between those different objectives?
1264. Mr P Spratt: As regards our own framework, that is work in progress. However, there has to be a balance. Public procurement, like everything, should be about meritocracy and, ultimately, fitness for purpose. Tendering is the pursuit of a fit-for-purpose provider or consortium of providers. Therefore, all types of things must be balanced, including speed of turnaround, financial competitiveness and capacity resource. Those are all criteria that are subject to continued examination within frameworks, and I do not believe them to be mutually exclusive.
1265. Dr Farry: Yes, because in theory one can go to the nth degree to demonstrate that a tender has been awarded on merit, but the cost of that may knock people out of the process.
1266. Mr P Spratt: We are all hugely sensitive to cost in today’s world. Mark talked about the enshrinement of value for money in the private sector. That becomes almost counter-intuitive in public procurement when a tenderer scores highest for lowest cost. That is all very well, and it is fine for any business, like mine, to take a flier and to say “let’s price to win", but, if doing so diminishes our capacity to resource that business intellectually in terms of people or capital inventory, we reduce the capacity of a business to respond properly as it progresses. Therefore, the relationship between cost and the capacity to deliver outcome must be rigorously explored and understood.
1267. Mr Smyth: Peter gave a good example of the timing involved. A massive amount of time is required for developing ideas and delivering a tender in the current process. Issuing invitations to tender for the biggest contract of the year at the end of June, at a time when people are going on holidays, and giving two weeks respond, has happened. The contract is put out at that point because the procurers are probably going on holiday. However, leaving the small and medium-sized enterprises in such a position does not seem to be a sensible or smart way forward.
1268. If it were a fairly straightforward £10,000 tender or whatever, two weeks may be fine, because the speed and time limit would not be major issues. However, that does not apply if the minimum time frame is stuck to for the biggest contract of the year. We want small and medium-sized enterprises to have the maximum opportunities. We are not trying to tilt the process unfairly towards them, because that would not deliver value for money, which is of the utmost concern. Nevertheless, we can make it a lot easier for them by cutting their costs and we should be thinking about ways of making it easier for local companies to win contracts.
1269. Mr P Spratt: I have one final point to add to that. Mark touched on notification of forthcoming procurements. The Departments are increasingly committed to following CPD advice to flag up, without being prescriptive about it, what services they may plan to procure during any financial year. That would be terribly helpful, because at least we would know well enough in advance, albeit we may have only a 15-day window, to be semi-prepared.
1270. Overall, considerable progress is being made, and it is being fostered by the level of dialogue that CBI is facilitating.
1271. Mr M Campbell: Before we move on from social contracts, I want to share an observation from our perspective, which is that when a local company bids against another local company or SME, equal criteria can be applied. However, our circumstances mean that we may be bidding against companies from the US or Japan. In such cases, we request that any social criteria included should be equally binding. If a social clause sought take-up from the long-term unemployed, for example, an American or Japanese company would, presumably, wave bye-bye to that element, whereas it would be binding on a local company and may be, therefore, disadvantageous. It is a matter of ensuring that, regardless of how the contract is constructed, it has an equal effect across the board.
1272. Dr Farry: I am struck by the need for consistency across the board, and I welcome your opening comments about how we are not talking about Northern Ireland as a hermetically sealed entity. Some local companies seek to bid for contracts outside Northern Ireland, and fair play to them. Northern Ireland is part of the UK and Europe. Equally, there are companies that we should welcome to Northern Ireland, so that they too can provide value, because that will have implications for local supply chains. It will also have cost implications because of our geographical location.
1273. On the issue of wider comparative experience, I was struck by your comments about the time and resources spent in preparing bids for tenders. How does the experience in Northern Ireland compare with experiences in other jurisdictions? Are companies here worse off, or is the situation more or less the same? Much of the effort involved is dead economic activity. Such activity may appear as a percentage of GDP but is not particularly productive to society.
1274. Mr P Spratt: I am in a better position to comment on the resourcing required when bidding in the private sector compared to public procurement. In comparatively recent times, we tendered for a contract under the auspices of the Scottish Executive, and the process was comparable with our experience in Northern Ireland.
1275. However, procurement and tendering in the private estate remains more precise and is not as over-engineered. Over-engineering can, as you said, result in dead economic activity. There can only be one winner at the end of the day, so bidders carry out much dead activity on public procurement. If that could be lessened to some extent, the same energy could be channelled in pursuit of something else.
1276. Dr Farry: To feed off that, does the tender documentation ask questions that strike you as not particularly relevant to the awarding of the contract? Is information sometimes sought purely for the sake of it rather than for its use in determining who should win?
1277. Mr P Spratt: That is sometimes the case. Mark made the point, and it is also my experience, that it can seem as though some tender documentation has been cut and pasted, and that it has been thrown together in a rush. In such cases some gratuitous information is sought that is not going to be of pivotal consequence. Therefore, the answer is yes, but I will not be specific today.
1278. Mr M Campbell: Every market differs, but areas across the UK are broadly comparable. Some overseas markets can be extremely innovative, fast-moving, and have much less of a bureaucratic burden. Historically, we found it was much more rewarding to engage there because we got a better return for our effort.
1279. Mr Weir: Thank you, gentlemen; it has been very illuminating. A range of issues was raised about social clauses. I am keen not to misrepresent your position. Is it fair to say that you see a degree of merit in social clauses but that you want to sound a note of caution? Are “appropriateness" and “balance" the buzzwords as regards social and environmental clauses?
1280. Mr Smyth: That is correct.
1281. Mr Weir: I am going to play devil’s advocate for a moment. On the one hand, you said that you are concerned that some of the tendering processes involve a degree of cut and paste. On the other hand, you said that you want to see as much standardisation as possible. Do you think that there is tension between the two? We all agree that we want to see standardisation; however, is there a danger that standardisation may lead to a greater degree of cut and paste being used?
1282. Mr Smyth: No; I think that we made it clear that requests for generic information such as company accounts and front-end information must be standardised; however, the details of a project need to be specific, so that companies can offer innovative opportunities. The tender should be as outcome-focused as possible. The request for upfront information needs to be standardised because it is being asked for in different formats by different bodies in Northern Ireland.
1283. Mr Weir: Finally, a lot of the changes that you suggested rightly focus on the process. You suggested reducing the cost of bids, providing better information, standardising generic information and enhancing skills, all of which are part of the process at certain levels.
1284. You said that there was a slight variation between the COPEs and the CPD. Should the structure of the CPD and COPEs be changed? If so, how should it be changed? Conversely, do you think that the structure is right, broadly speaking, and that the focus should be on addressing the process?
1285. Mr Smyth: The CBI’s position a number of years ago was that there should be one procuring organisation with divisions therein. That was the CBI’s response to the procurement review that was carried out in 2001. Our members made it clear that given Northern Ireland’s size, there should be only one procuring body. The last thing that we want is to have different guidelines. We had different guidelines, and there is a risk of that happening again.
1286. Last year, a consultation exercise on sustainable procurement was carried out, and an action plan and various things were developed. Our members keep saying that they do not the Water Service doing one thing and Roads Service doing another, and that there needs to be consistency across the board to make procurement easier. Although there is a need for expertise, the business community would argue that a greater level of centralisation would provide more consistency and produce better guidelines.
1287. Mr Weir: Do you wish to have more centralisation within CPD?
1288. Mr Smyth: We suggest that all bodies should be part of one organisation. Obviously, the Health Service, the Roads Service and the Water Service have their own expertise, but there would be greater uniformity and consistency across all the organisations if there were one procuring body.
1289. Mr P Spratt: Even more important than whether there is one procuring body is whether there is a common denominator in the processes to which we have to respond; that each COPE is not reinventing the wheel in the way it goes about doing things. For example, the way in which we respond to Translink should be broadly comparable with the way in which we have to respond to the Northern Ireland Housing Executive. The CBI has championed the notion of the single portal, because that could greatly facilitate understanding.
1290. It is very important that we do not standardise to the point at which that diminishes the capacity to be imaginative. Only stock data, such as company accounts, personnel profiles and previous experience, should be standardised. Imagination needs to be implicit and allowable to the bidders in order for them to respond to the bespoke requirements of the tender.
1291. Mr M Campbell: This point might be on a tangent from Mr Weir’s about process, which is terribly important. Peter Spratt made the point that process is all fine and good but that focus on outcome could be beneficial at times. We have been party to questions over several tenders in which the process had been followed to the letter and every box ticked, but where the outcome, from our perspective, was at variance with value for money and with what we thought was in the best interests of the local taxpayer.
1292. Process is very important, but if people are overworked and there is understaffing, the process sometimes becomes the end and not the outcome.
1293. The Acting Chairperson: Two of the priorities in the Executive’s Programme for Government involve building a strong and vibrant economy and tackling poverty and disadvantage. Those have not cascaded down into procurement policy yet, whereby the huge budget for public procurement, both in central Government and local government, could be utilised to build a strong economy and tackle poverty, disadvantage and need. I understand that you are saying that one size does not fit all. However, some type of social clause must be put into public procurement at the beginning to create employment opportunities, sustain employment and retain the skills base. It is not being used in the way that it could by all Departments. Implementing social clauses at all stages — from advertising to delivery — is the way in which those two commitments in the Programme for Government could be delivered. What are your thoughts on that?
1294. Mr Smyth: One has to have horses for courses. Projects in some areas can do more than those in other areas. I do not think that one can generalise. One can insist on X, Y and Z for any major contract. However, the question to be asked is whether that represents value for money or whether there is a better way of doing it. It depends on what one is trying to achieve. It is a hard question to answer. There is potential, and we could probably do more. However, there is also the potential for adding complexities. There may be tension between what one is trying to achieve through the social clause and the core procurement requirement. Our message is that where the social clause is sympathetic and lined up with the procurement objective, then one should be trying to maximise the social, environmental and economic aspects.
1295. Mr M Campbell: I agree with Nigel. I made the point earlier about the impact on bids. I understand that there is a huge amount of public procurement, and it would be fantastic if public procurement in Northern Ireland could be used to create employment in Northern Ireland. None of us would take issue with that. However, we need to be careful of paradoxical implications, whereby the inclusion of a social clause disadvantages a local company in some way, and a foreign company wins the contract. Therefore, there would be a detrimental benefit for Northern Ireland. We need to think about the way in which it is constructed so that it does not impinge on the efficiency of local companies who might be held, to a greater extent, to a social clause more than an overseas company might be.
1296. The Acting Chairperson: Were there any social economy enterprises among the 157 local suppliers who responded to your survey?
1297. Mr Smyth: The vast majority were SMEs and large companies. There may have been companies such as Bryson House. I am not sure whether non-profit-making organisations were included. I cannot go into the detail as my colleague carried out the analysis. There was a spectrum of companies from the smallest to the largest. It is fair to say that there would have been a relatively small proportion of social economy enterprises involved. We do not say that we represent that sector.
1298. Mr McNarry: By way of giving the Committee an insight into the commercial mindset on public procurement, do companies price bids in order to get on the ladder? Do they use loss leaders or reduced prices? Do CPD and the COPEs recognise that? I am aware that people price to get in, and once in, they learn a lot and work a lot. Commercially, is that an attraction and is it happening?
1299. Mr Smyth: I do not have enough evidence of that. Overall, I do not think that that is a big issue. There might be an issue in having a very attractive bid, but I do not think that companies go into this to lose money.
1300. There is a serious risk in the construction sector at the moment because of massive overcapacity. The feedback that I have received indicates that dozens of tenders are being submitted for some really small pieces of work, so there are massive bidding costs. There is a quite serious risk that some people will go into tenders just to buy the work and expect to make money from changes in the contracts. That takes us away from the quality aspects that we all want in relation to value for money. There is a serious risk that that could happen in the construction sector, but that is because of the particularly unusual circumstances at the moment.
1301. I am not close enough to be able to comment on the matter. If people want to develop a marketplace strategically, they could certainly bid more competitively. I expect that they will still want to make some money, but they may be prepared to work to a lower margin in order to get into a better position.
1302. Mr P Spratt: Although not attractive, the discipline of pricing to win has become an imperative for some businesses, particularly in these challenging economic times and in the hope that the bids will translate into appropriate commerce over time. However, as the maxim goes, if you are not in, you cannot win. Increasingly, we have found that our sector has become remarkably more price-sensitive than it was five years ago. Our sector has become much more attentive when it comes to defining cost.
1303. Another aspect linked to the issue is that procurers will sometimes inform us of the latitude in which pricing will be. In some instances, that almost dictates the margin that we may be allowed to retain. The price is not always at the discretion of the bidder.
1304. Mr M Campbell: That is the case in large EU tenders. Generally speaking, one will find that the anticipated price is published in the tender. The commercial world is competitive and hurly burly, and what Mr McNarry says does happen.
1305. Mr McNarry: I know that we are pushed for time, but I have one more question. I am not asking for a response, but one subject that we have not discussed is the credit crunch and the effect that credit is having on the ability of companies to stay in business after contracts are awarded. Could the CBI give us a short briefing paper on that issue? It seems that the credit crunch is something that comes into the situation. Companies are not just wary of the procurement process, they are also wary that they will get knocked back if they do not get the credit ratings.
1306. The Acting Chairperson: Are you happy to do that, Nigel?
1307. Mr Smyth: We will try. I am not sure what detail we will come up with. In the past six months, I have found that it is difficult to get information on financial matters from my members. I am not sure whether they would tell me the truth.
1308. Mr McNarry: I do not think that anybody would want to say; I am just trying to establish whether you had a rule of thumb.
1309. Mr Smyth: We do not have one at this stage, but we will have a look at it and discuss it.
1310. Mr McNarry: With respect, perhaps it is information that you should have and it is reasonable for us to ask you for it.
1311. The Acting Chairperson: It would also help us in relation to the session that we will have with the banks. Nigel, Peter and Mark, thank you very much for coming in today. I am sorry that we kept you longer than was anticipated, but it was interesting.
1312. Mr Smyth: We certainly welcome the opportunity.
10 June 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Witnesses:
Mr David Hamilton |
Martin and Hamilton Ltd. |
1313. The Chairperson (Mr McLaughlin): The next item on the agenda is the Committee’s inquiry into public-procurement practice. I welcome Mr David Hamilton. Thank you for your submission. Although your report is self-explanatory, I invite you to give the Committee a brief run-through of it, after which we will discuss it.
1314. Mr David Hamilton (Martin and Hamilton Ltd): I thank the Committee for the opportunity to come here to explain the situation. Since I wrote that report, we have found that the problems outlined in it have continued and, if anything, have become worse. For our company, as a medium-sized contractor, responding to the submissions that come in is onerous and ties up our administration totally. The cost of improving our administration to deal with those submissions is prohibitive for a company of our size, whereas large companies can have an administration department as they can justify financing it.
1315. My other worry is that being excluded from that pool of work over time will leave me without any experience to put on my curriculum vitae. The first question on an application form is always about past experience, but, after between three and five years of having been excluded, I will have nothing to write on that form. I do not know how I will ever get that experience again to allow me to complete those forms.
1316. I also question the value-for-money aspect of the contracts. The feedback that I get regarding contracts that have been procured so far is that they are disadvantageous in respect of providing value for money. I have asked a few questions and tried to get behind the issue and, without wanting to be derogatory or use the wrong word, it seems that some applicants provide information that is not fully true. For instance, if they are asked for experience and they do not have any, they will use a subcontractor’s experience on their curriculum vitae.
1317. Recently, a consultant told me that a contractor asked him how he could get ISO 14001 certification quickly, because he had stated in his submission that he had it and he had been successful in securing the contract. However, if he did not have that certification, he should not have stated that in his submission. That is the type of thing that is happening, because people are desperate for work, but I come from a background where I do not put something down on paper unless I have it. I have always been honest and straightforward.
1318. There has been a lot of talk about Companies House not having accounts submitted for obvious reasons, and one must wonder about the validity of the information that is being submitted. We now employ only half the people that we were employing when I compiled the submission to the Committee, because there is no work. The frameworks have led to our being excluded. We have been runner-up three times with quality submissions that we have made to big companies. We are doing very well to get to that stage, but, at the end of the day, it is not a job and it does not contribute anything to the company. I cannot see how we can raise ourselves to the point where we can be successful, given the current set-up.
1319. Mr O’Loan: David, you are very welcome. I share the view with others that it is important that we hear evidence outlining direct practitioner experience; it is particularly valuable to us. I am familiar with your firm, and I particularly welcome you here as a firm from Ballymena, in my North Antrim constituency. Will you tell us about the type, and scale, of the contracts that your firm works on?
1320. Mr D Hamilton: Our bread and butter is commercial work; we are not house builders or developers. Some 25% of our work is in education and 25% is in the restoration and conservation of historic buildings, funded mainly by the lottery. The remainder of our work had been for the private sector, in offices and churches, for example; however, that market has dried up because of the recession.
1321. Mr O’Loan: What is the value of those contracts?
1322. Mr D Hamilton: They go up to about £3 million in value, but we have done contracts worth up to £5 million. Contracts worth from £500,000 to £1·5 million have been our bread and butter, although we extended that to £5 million for one project. However, smaller contracts are our scene. We are a locally based Ballymena company. We employ people living in the area from Ballycastle to Newtownards. The Committee may be interested to know that 20% of our employees are small farmers who want to be close to home so that they can get back to do bits and pieces on their farms in the evenings. Those are genuine guys who are good workers and who have the skills that we need; they are not interested in contracts in Dublin or England. We are a local company that tends to work within a 45-miles radius from home.
1323. Mr O’Loan: Getting your perspective is very important. Yours is by no means an insignificant company; it has substantial resources. I spoke to representatives of a significant firm of electrical and mechanical engineers who made a similar point to yours, which was that if they were starting off with the rules as they are now, they would be unable to get up the ladder. There is a significant inhibitor in the system.
1324. You are critical of the framework system and you say that they render contracts beyond your reach; education contracts, for example, require bidders to have a turnover of £35 million. Why do you think that the public sector has moved so much towards frameworks? What do you understand as being the gains of the framework system, if you see any? I imagine that the standard response to a firm the size of yours is that you should form a consortium with other firms — how do you feel about that?
1325. Mr D Hamilton: The ethos of the framework system is that, from a Government point of view, there is one point of contact. There are eight approved contractors in the education framework and in the other there are five, and those are the firms through which work is procured. For example, if a group of primary schools require work to be done, there will be one framework and one point of contact, rather than a large number of small contracts to be administered.
1326. The new form of contract that has been introduced is the NEC3, and the ethos of that is to get away from confrontation in the construction industry. I am sure that members all know the format of the contract; essentially, the different tradespeople are brought in as a part of a team and all are in it together so a financial claims situation does not arise. However, to a large extent, such problems did not arise in Northern Ireland. In England, there was a lot of problems; for example, contracts ran over time and over budget. Here, projects are of a smaller scale.
1327. When bidding in the education framework, we were not tied in with anyone else, but we bid along with other contractors in other frameworks and were not successful. I have spoken with smaller contractors who have been in those frameworks who still find that they are getting no work, because the larger contractors look after themselves and the work is not being fed down.
1328. Furthermore, I have been an independent contractor for years and I do not want to be a subcontractor to a large contractor, because that will mean that our finances and everything else depend on it. In other words, our being paid depends on it being paid, but at what stage that happens is questionable.
1329. Mr O’Loan: Therefore, you have tried the consortium route but without significant success?
1330. Mr D Hamilton: We are not averse to participating in consortia. We put in a submission for one of the Government contracts as part of a consortium with the Patton Group from Ballymena. Five firms were chosen and we came sixth.
1331. Members may recall that the education framework came out quite quickly. A meeting was held in the Stormont Hotel and there was then a 40-day period in which to respond. We were probably quite conservative; we looked at it, read it, but we missed the opportunity by not reacting quickly enough. Once we realised that, we began to participate. However, we have not been successful in any of the others.
1332. We are now making quality submissions for other projects. We were runner-up for the Conway Mill project; we were beaten by 1·25 points. That is how close we have been. We went for a debriefing on that and found that we had missed out because of the social contribution element; we had not emphasised sufficiently that we would employ local labour. We came third in the Crescent Arts Centre competition, and we are waiting for a response on the Crumlin Road jail project.
1333. The Chairperson: Do you find the debriefing feedback constructive and helpful?
1334. Mr D Hamilton: Yes, we do. However, on the Crescent Arts Centre project, for example, our problem was that our programming was not good enough. I do not have a programmer in my company; that duty is shared among the contracts managers. It was found that our software was not as slick as that of the big companies, and we were marked down for that.
1335. Putting programming software in place and employing people with expertise to operate it would be another expense to me. It is a chicken-and-egg situation. If the money is spent and the software is put in place, a person with third-level education would probably have to be employed to operate it. They would have to be paid about £30,000 a year in addition to perks.
1336. Mr O’Loan: You talked about the system being very onerous, and you amplified that as you spoke about the different applications that you have made. Is every application that you submit significantly different, or do you see a potential for a once-and-for-all approach? Could you be registered in some way?
1337. Mr D Hamilton: Under the old system, we were required to have constructionline registration and Safe-T-Cert. A company was qualified if it had those things, so experience and the type of project were then considered. I see that as the way forward. We hanker back to the old days when the construction service and so on had approved lists. Those lists revolved, and the top six companies tendered for a certain project, and the next six tendered for the next, and so on. That meant that everybody got an opportunity. Those companies were all approved and passed a standard. There is a need for some standardisation because a lot of the questions are fairly standard and the submissions are quite alike. However, there will always be something different because that is how things are sorted out.
1338. The other issue is that, with the recession in the industry, one finds that the Central Procurement Directorate (CPD) receives anything from 30 to 70 returns. When one tries to select six companies from those returns, one needs to get down to the real nitty-gritty to pick the differences among those contractors. We would find it quite unfair if past experience was not taken into consideration. A company may have built a £1 million school, but that cannot compare to tendering for a £10 million or £15 million school. It cannot be said that that is experience of building a £10 million school, but that experience will get that company the marks because the applicants have to be sorted out in some way.
1339. I have ISO 9001 certification. I do not have ISO 14001 or ISO 18001, but when it comes to looking at safety, quality and environment, the guy who has the ISI 18001 will tick the box and will be selected. The system is currently biased towards the bigger contractors who have the resources and those things in place.
1340. Mr O’Loan: I am not quite sure what your written submission says about what I would call the quality/cost debate in the adjudication of contracts. What is your view on that?
1341. Mr D Hamilton: You can write “quality" down on a bit of paper, but delivering it in a construction project is totally different. I can sell myself on a bit of paper, but that does not necessarily mean that I will do a quality job.
1342. Mr O’Loan: Do you feel that something is currently lacking in the adjudication of the quality/cost issue?
1343. Mr D Hamilton: Yes. It is really about the presentation of a report.
1344. Mr O’Loan: I could ask other questions, Chairperson, but I know that other members have questions, so I will leave it there.
1345. The Chairperson: I am certain that that was very useful.
1346. Mr Paisley Jnr: David, you are very welcome. It is good to see you. You have painted quite a dire picture of the policy’s impact on local companies.
1347. Mr D Hamilton: If you have a word with companies in North Antrim — I talk to them on a regular basis — you will find that they are all in the same situation. Not one of them has a decent workload at present.
1348. Mr Paisley Jnr: Yes: 50% of your workforce has gone.
1349. Mr D Hamilton: We would have been unusual in the fact that we employed people. An awful lot of construction companies today employ six or 10 people, who would mainly be staff. Traditionally, we like to have in-house expertise.
1350. The Chairperson: You had a work team.
1351. Mr D Hamilton: Yes. We had joiners, plasterers and bricklayers.
1352. Mr Paisley Jnr: You had a reservoir of tradesmen.
1353. Mr D Hamilton: Yes. We then subcontracted work to make up the rest. Traditionally, we trained apprentices. We were very unusual in that regard, because the big contractors do not train apprentices.
1354. Mr Paisley Jnr: That is gone now.
1355. Mr D Hamilton: I can run through the list of my employees. Most of those guys have served their time with us and have been with us from anything up to 25, 30 or 40 years.
1356. Mr Paisley Jnr: So, you were training and developing people’s skills, but that situation has gone?
1357. Mr D Hamilton: Yes, that has gone. I felt that it was unfair to keep apprentices in work while paying off tradesmen who had mortgages and families to support.
1358. Mr Paisley Jnr: You also indicated that, because of their abilities and the amount that they can spend on administration, large companies can hoover up not only the big jobs that you would not be interested in, but all the small jobs, because they are under financial pressure to get work.
1359. Mr D Hamilton: I know that the big contractors got on to the lists for recent projects for the North Eastern Education and Library Board due to of the quality of their submissions. They can provide a level of information that the rest of us cannot. I have been battling on, however. I am fortunate that my daughter works in marketing, because she has been a great help in improving the quality of our submissions. We are sticking with it and will continue to do so. I know that a lot of contractors have just given up.
1360. Mr Paisley Jnr: You also said that there are companies that embellish their CVs and take the credit for work that was done by others. You may not want to name them, but do you have evidence that that has happened? If you have such evidence, it would give us a bit of muscle when we make our arguments to the Minister and the Department about changing the arrangements in the way that you wisely set out in your letter to the Committee.
1361. Mr D Hamilton: The evidence is based on hearsay, but I know that it is happening. I met a consultant last week who put that point to me. He was called by a client who was in a panic and who asked him how he might get ISO 14001 certification quickly, because he had used it in a submission that had been successful and needed to obtain it. I know that the other side of the coin applies to the big contractors. If they cannot include particular project experience on their CV, they will use a subcontractor’s project. In other words, if the question is asked of them, they will say that they are going to use a subcontractor who has done a project of the relevant type. That is not specifically set out in the application form, but from what I have heard about the way in which applications are assessed, as long as the jargon is in the answer, the marks will be awarded. It is not checked back.
1362. Mr Paisley Jnr: So there is a lot of spin?
1363. Mr D Hamilton: Yes.
1364. Mr Paisley Jnr: Some people in this room know about that.
1365. The Chairperson: Some people know more about it than others.
1366. Mr Paisley Jnr: Everyone is guilty.
1367. Mr D Hamilton: That is life. We pride ourselves on paying our bills, doing things properly and carrying on from there. The Government must encourage that and give strength to it. We cannot be seen to be going down the other road.
1368. Mr Paisley Jnr: You are from a typical backbone-of-Northern Ireland company; you have taken some real knocks.
1369. You talked about being tied up in administration costs and how it is almost prohibitive to make applications because of the costs involved. Can you put some meat on the bones of that? What is the average administrative cost of applying for a £1·5 million contract? How much would you prefer to have to pay just to stay in the game?
1370. Mr D Hamilton: A quality submission for a £1·5 million contract will involve two weeks’ administrative work. There will be health and safety, quality and environmental input, and quantity surveyors and estimators will be required to cost the project. In addition, there is a planning element, which involves drawing up a programme of work, and method statements have to be written. All of those elements are brought together. We rarely quantify it, because people do it in their working week, and we do not count the hours that they spend on a particular project. In certain instances — not regularly — we have brought in consultants to improve and polish our presentation.
1371. Mr Paisley Jnr: For a company the size of yours to ask one person to devote two weeks’ work to those administrative tasks is a considerable burden compared with that of a large company that would normally tender for contracts worth £10 million and which can easily afford to ask two or three people to do that work. That is where you are disadvantaged.
1372. Mr D Hamilton: Yes. The cost of administering a £1·5 million contract might amount to £3,000 or £5,000 with consultancy added.
1373. Mr Paisley Jnr: In your submission you write about a change in the system. That could form the bones of a motion that the Committee could table in the Assembly. Together with the Department, we would have to explore whether it would be possible to achieve the recommendations that are set out in the last paragraph of your letter. However, I think that the Committee has the basis for a motion to take the issue forward.
1374. The Chairperson: We will give separate consideration to that point.
1375. Mr D Hamilton: The housing associations pulled their framework on the morning of the submission, because, I think, they were scared of a legal challenge. That framework would have enabled companies with annual turnovers of up to £500,000, between £500,000 and £2 million, and over £2 million to submit bids. I encourage those types of frameworks because they put contractors into streams.
1376. Mr Paisley Jnr: That seems to be a more open way of operating and is linked to your recommendation for the continuity of contracts that are scheduled throughout the year.
1377. Ms J McCann: Thank you for coming here. Other witnesses have said that the current system is weighted in favour of larger companies and that small and medium-sized companies cannot get a foot on the ladder to bid for contracts. Your written submission states that the present system is ignoring the social, economic and environmental advantages of local contractors, and other witnesses have said the same.
1378. People responsible for public procurement have told the Committee that, when considering bids, social and environmental factors are marked up; however, evidence that we have heard from others does not bear that out. It seems that less weight is given to social and environmental factors than other issues. For example, you said that the framework system puts contracts beyond the reach of many businesses because they must have a turnover of millions before their bid will be considered.
1379. We are in favour of pushing social requirements from the point at which a contract is put together initially through to its delivery, because that will enable companies such as yours to employ quality apprentices and the long-term unemployed in areas of disadvantage and need. Would the inclusion of social requirements in contracts from the outset help small and medium-sized companies?
1380. Mr D Hamilton: Yes, very much so, and for the reasons that you outlined. The strength of a local company lies in the fact that it does not have to travel long distances to work, it can respond quickly and it has an interest in the area and will look after that environment. Some of the new contracts include a directive that requires companies to employ apprentices. However, larger companies will simply employ apprentices for the length of a project and then lay them off again. Companies must be required to prove that they employ apprentices on a long-term basis and that they work with local colleges to develop apprentices’ skills. That is an important part of it.
1381. Ms J McCann: I want to ask a question about subcontracting. A lot of small and medium-sized firms are forced into a subcontractor role because they cannot win a main contract. We heard evidence that, among other problems, subcontractors get only a small percentage of the moneys available. At present, do contracts include a provision to ensure that large companies treat subcontractors fairly and give them equality of opportunity?
1382. Mr D Hamilton: Yes, contracts must adhere to what is enshrined in European law generally; however, it is really up to the firms to administer that. For example, people have signed up to the quick-payment initiative, but there is nothing in law. The largest project we did as subcontractor was for McLaughlin and Harvey to build the in-situ concrete package at the Halifax call centre in the Gasworks. That project went well. However, being a subcontractor, we were well down the line of administration. Therefore, we could not talk directly to the architect or to the quantity surveyor. We submitted our valuations, and we got paid what the main contractor felt was right, and we could not make our case directly. That was frustrating because we were used to being at the higher level.
1383. We still subcontract, and we look at different factors. In the present recession, however, no big building companies are subcontracting work, because they are trying to keep their own people in work.
1384. Most builders here have a different mindset. That type of contract probably works well in England. I attended a lecture one night that was given by ChandlerKBS, which set up the education framework. I spoke to the representative, and he said that I should work as a subcontractor. I asked him where I would get the work, because the big firms do not subcontract. I do not want to be, for example, a joinery subcontractor. I would have to work on a decent-sized package for it to be worth my while. I cannot compete with labour-only joiners or labour-only bricklayers who work as subcontractors; that is not my market.
1385. Northern Ireland is a small entity. In a 10-mile radius of any city in England, the workload can be 10 times greater than that in Northern Ireland. Northern Ireland is also more rural. That creates a totally different picture.
1386. Ms J McCann: I was particularly interested in your comments about the social requirements, because we hear constantly that they are not being administered. Conditions to do with apprenticeships and people who are long-term unemployed are written into the applications in the tendering process, but the social requirements are not followed through to the delivery stage. Your comments have convinced me that that seems to be the case with some of the larger companies.
1387. Mr D Hamilton: Companies such as ours give employees 29 days of holidays a year, which has been standard in the construction industry for a long time. Our employees get holiday pay, sickness benefit, and, although they do not get a great pension, they get a lump sum when they retire. They have all the benefits of employment, and a subcontractor does not offer that. Expense is involved in providing that.
1388. Ms Purvis: You mentioned constructionline and Safe-T-Cert. Have you used the eSourcing NI portal, which brings together all of the tenders? How useful have you found it to be?
1389. Mr D Hamilton: Applications forms can be downloaded and uploaded from that portal. We have to use it, because it is the only way to be involved in projects.
1390. Ms Purvis: When the Committee began its inquiry, it found that many SMEs complained that tenders were often advertised all over the place. The portal brings all of them together on one website.
1391. Mr D Hamilton: That is not necessarily the case. Applications for tender are sometimes missing from the portal. Recently, I missed a tender to do with education. When I questioned it, I was told that it had been on the portal, but I did not find it. The applications only appear for a week, and then they drop off. After a certain period, it is reckoned that contractors do not have enough time to apply, so the applications are removed from the portal. If firms do not constantly look at the portal, they may miss an opportunity.
1392. Ms Purvis: According to the evidence that we have received, applicants have 14 days to apply. After that, the information drops off the website. Are you represented on the construction industry forum for Northern Ireland?
1393. Mr D Hamilton: No. I am not.
1394. Ms Purvis: Are you aware of the procurement task group report that the construction industry forum for Northern Ireland produced?
1395. Mr D Hamilton: Yes, I am aware of that.
1396. Ms Purvis: The task group report advocates the use of frameworks, and we have taken evidence from SMEs that the frameworks lock out SMEs because of their size, their annual turnover and the criteria that ask for experience gained in the past five years. One of the procurement task force’s proposals was to reduce the size of the frameworks — more for maintenance contracts than for construction contracts. How do you feel about that?
1397. Mr D Hamilton: The company is a member of the Construction Employers Federation (CEF). I am not personally involved, but I know a couple of guys who are, and I receive its reports. We have been involved in setting up some of the frameworks for education maintenance contracts. The process is not complete, but a couple of meetings were held to discuss how best to progress to suit the contractors, get the best value for money, and so forth. If I come across as being against frameworks, it is because, to my mind, they are enormous packages. However, if frameworks were to be made smaller, I would view them simply as a different form of procurement.
1398. Ms Purvis: Would you like the size of all frameworks reduced to help SMEs to compete better?
1399. Mr D Hamilton: Not necessarily, because there will still be bigger projects. As I said earlier, if frameworks were separately designated for contracts of up to £500,000, £500,000 to £2 million, and £2 million and above, contractors could work to their strengths. The Construction Employers Federation realised only recently that smaller contractors are among their members. The tendency had been for the larger contractors to run the federation, but we are now able to get our point across to it.
1400. Ms Purvis: You have read and been consulted on the report: is its proposal workable?
1401. Mr D Hamilton: I think so. I spoke to Ciarán Fox recently about it. As with so many aspects of life, it is a matter of compromising, and the proposal represents a workable compromise that should allow everyone some opportunities.
1402. Mr McQuillan: David, are you saying that you do not mind frameworks as long as everyone is equal within them? If everyone in the framework has an equal say, rather than one large company treating the others as subcontractors, would you be happy?
1403. Mr D Hamilton: Yes.
1404. Mr McQuillan: You said that your company has attained ISO 9001 certification. How much would it cost to attain ISO 14001 and ISO 18001?
1405. Mr D Hamilton: It is hard to quantify the cost, but it would probably be approximately £20,000 a year. It could cost even more, because it would require the employment of a specific individual to be responsible for it. At present, the company employs a girl to look after quality, and health and safety. We also employ a part-time health and safety inspector to carry out site inspections. However, to move to ISO 14001 and ISO 18001 would require us to employ another member of staff, as well as the accompanying administration and paperwork that would be involved.
1406. Mr McQuillan: Would the frameworks mean that you would not need ISO 14001 and ISO 18001 but could work with ISO 9001?
1407. Mr D Hamilton: I am not sure; I tend to be sceptical. I attained the old BS 5750 standard long before anyone else. However, as no one ever asked me for it, and I never needed it, I let it lapse because it was costing me between £2,000 and £3,000 a year. Therefore, when ISO was introduced, I was fairly slow to adopt it. However, we now have the relevant paperwork and are progressing towards ISO 14001. I am holding back because, at present, it is an expense that I do not need, but it could be put in place quite quickly.
1408. The consultants concerned would push me to go up to ISO 18001, because one big system that does everything replaces much of the Safe-T-Cert, and so forth. I am not adverse to that, but there must be some justification for doing that, and there must be a return to enable us to pay the bills.
1409. Mr McQuillan: Is there any justification for asking for ISO in the first place for contracts worth less than £5 million?
1410. Mr D Hamilton: The requirement for ISO is possibly justified for bigger contracts, but not for smaller ones, because it places an onerous requirement on contractors. At present, the market is distorted because of the recession. Therefore, everyone is looking for work, and we all know that prices are being driven down. At present, we are working at a loss. We just have to accept that, take it for a year, keep our set-up together, and hope that the situation improves. We do not need the expense of another layer of consultancy. If all companies accepted that level of certification, fair enough; we would accept it too.
1411. The Chairperson: Your comments have been helpful. Your perspective goes to the heart of the Committee’s concerns. You said that the new tendering process has brought its own difficulties. It has not made the system quicker or more efficient. You mentioned that the progress of projects has slowed down. Can you give us a specific example, or even a proposal, that you believe would address that? Apart from slowing down project delivery from a Government perspective, the system makes it difficult for local enterprise to be competitive in that environment.
1412. Mr D Hamilton: When I talk to clients, they tell me that their biggest problem is the level of submissions that they receive — between 40 and 60, even 70, big documents — all of which must be sorted through and analysed. They have to try to reduce that number to six. That takes a lot of time and slows the process down. What Declan O’Loan said makes sense: pre-qualification on many sections would bring submissions down to the specific requirements of a particular project, and that would be bound to be less onerous for us and, again, for whoever would assess those submissions.
1413. The Chairperson: Do you believe that that is doable in view of wider considerations, such as EU regulations? Can you set aside those requirements? Is there a way to short-circuit the process?
1414. Mr D Hamilton: Yes. I do not see why not. If a firm has ISO 9001, why does it need to answer all those additional questions?
1415. Mr O’Loan: The answers are implicit in the certification.
1416. Mr D Hamilton: Yes.
1417. The Chairperson: In a sense, the company is already pre-qualified?
1418. Mr D Hamilton: Yes. If, like us, a company is qualified to deal with construction contracts up to £3·5 million, the client will have copies of its insurance details and all relevant information. It will have the Safe-T-Cert and so on. Those requirements are already in place.
1419. The Chairperson: In order to make it possible, basically, for people to come to an agreed position, would you suggest a time frame for that accreditation? For example, when a company is qualified and is accepted and recognised, should that qualification remain in place for a set period?
1420. Mr D Hamilton: Yes. Obviously, it would be. Most Safe-T-Cert and constructionline registrations stand for one year. Each year, an audit is carried out on the ISO 9001. That is a high standard.
1421. The Chairperson: You do not suggest any change to that annual process of auditing? If people continue to meet the criteria, their accreditation should be accepted. They have a kind of stamped certification and, therefore, should not be required to resubmit all of the time.
1422. Mr D Hamilton: Yes. For example, car insurance is renewed each year. You send away your new certificate when it is renewed. That ticks the boxes and keeps you qualified. The same type of process could apply.
1423. The Chairperson: That has been helpful.
1424. Mr D Hamilton: I hope so.
1425. The Chairperson: Fra wants to ask a question. We have a late runner.
1426. Mr F McCann: I have two questions. I am aware that the discussion has covered much ground and a lot of questions have been answered. If there were two or three things that the Committee’s inquiry could do to help small businesses like yours to compete on a level playing field, what would you advise us to do?
1427. Mr D Hamilton: At present, if work were released, it would be of great benefit. Small businesses are finding that there is an absolute dearth of work. As I said, there seem to be no smaller, school projects of less than £500,000 or between £500,000 and £1·5 million.
1428. There is a lot less work in all the sectors in which we would normally have worked. For example, although we would not have done a lot of work with housing associations traditionally, we always had some projects going on with them, but that is no longer the case. The level of inquiries from the health sector has also dropped significantly. More work in those sectors would be a big help, because it would keep the market turning and keep businesses going and paying their bills until such time as the economy improves and house building and suchlike increases.
1429. Mr F McCann: Earlier, the Committee discussed how the latest ruling from Europe has hit housing associations particularly hard. Does that impact on your company directly? Are people interpreting European Commission rules too strictly?
1430. Mr D Hamilton: Yes; there should have been a lead-in phase, meaning that the rule would take effect in, say, two years’ time. Projects that are in the system — some of which are well advanced — have now been shelved. The public have lost potential houses, and developers have lost potential projects. To a large extent, those projects were good value for money because, in the current market, developers were glad to have an outlet for those projects and were accepting reduced prices for them. It was not a case of the public purse being bled.
1431. The Chairperson: Has Europe provided scope for a phased introduction? Is it the case that we are dealing with a more over-zealous approach locally?
1432. Mr D Hamilton: I am not involved directly in any of those projects, but I know of them. There have been well-advanced projects for which housing associations have had to tell developers that they can buy the site but will have to tender for the building work, which is embarrassing for them, especially when the project had been pulled together as a package. It will probably not make financial sense for the developer to sell the land to the housing associations, so those projects will fall flat.
1433. Mr F McCann: Do major contractors use their experience and size to get contracts and then top-slice the profit, leaving less for local subcontractors and builders?
1434. Mr D Hamilton: That is difficult to answer. As you know, the bigger contractors have more influence because they work on a wider basis. That is a true statement. The bigger contractors will have experience in all spheres, whether they are working for the Health Department, the Department of Education or Invest Northern Ireland. Therefore, no matter what project comes up, they have experience and contacts, and are known. Our influence would be a lot less and is much more limited.
1435. The Chairperson: Major contractors also have the in-house capacity. You indicated a particular problem, which is that, for understandable business reasons, they will look after their own interests first. The local dimension will, perhaps, come last in the pecking order.
1436. Mr D Hamilton: If any of those contractors had an additional contract that was above their capacity, they would go out and recruit a contracts manager, a good site manager and an additional quantity surveyor; they would not go to a subcontractor.
1437. Mr F McCann: My point is that some major contracts here worth between £50 million and £100 million have been won by companies outside the North. Those companies then employ local subcontractors.
1438. The Chairperson: In such instances, 100% of the delivery is by local workers.
1439. Mr F McCann: Yes, and those companies top-slice their profit before they deliver it down to subcontractors.
1440. Mr D Hamilton: One does not mind that, providing that it is a reasonable figure, because we all have to make money. That is why we are in business; we will not survive if we do not do that. However, I know where you are coming from, and I can sympathise with that. In my experience, that is how it happens. The large contractor will not lose money; the guys below him will suffer.
1441. Mr F McCann: That approach must affect quality.
1442. Mr D Hamilton: Yes, but that is where the NEC3 contract should come in. Its ethos and theory are great, but getting it to work is another story.
1443. The Chairperson: Thank you very much, David. We may be in touch with you depending on how our inquiry progresses. We are also considering the prospect of organising a conference as part of our work, so we may be in touch with you about that.
1444. Mr D Hamilton: I will be glad to help in any way that I can.
17 June 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Witnesses:
Mr Aidan Gough |
InterTradeIreland |
1445. The Chairperson (Mr McLaughlin): I welcome Mr Aidan Gough, who is director of strategy and policy, and Dr Eoin Magennis, who is policy research manager. I remind you, gentlemen, and those in the Public Gallery that the meeting is being recorded by Hansard. Mobile phones must, therefore, be turned off. To simply turn mobile phones to silent does not protect the electronic recording system from their interference.
1446. Mr Aidan Gough (InterTradeIreland): We welcome the opportunity to make a presentation on our work on cross-border public procurement on the island. It might be useful if I begin with some background information. Members will be aware that InterTradeIreland is one of six cross-border bodies that were created by the Belfast/Good Friday Agreement. Tourism Ireland was added subsequently.
1447. Our purpose is to exchange information and co-ordinate work on trade, business development and related matters. Our corporate plan identifies two key strategic objectives. The first is to generate business value by enhancing company competitiveness through co-operative North/South initiatives; the second is to improve the competitive environment for doing business on the island to the mutual benefit of companies in the North and in the South.
1448. Our work on public procurement meets both of those priorities. The Go-2-Tender programme that we operate assists companies to navigate the public procurement process in the other jurisdiction. It is a successful programme. To date, over 370 companies have attended workshops. Business value of £15·5 million has been reported in contracts that have been won by participants of the programme. From our point of view, the programme is value-enhancing, in that the rate of return is £73 for every £1 that InterTradeIreland invests.
1449. You have invited us specifically to discuss the findings of our most recent research, which explores mutually beneficial co-operative initiatives to enhance the capability of small and medium-sized enterprises (SMEs) in particular to access public procurement contracts across the border. I will quickly run through some of the key findings of that research, which we are currently finalising and will publish within the next month.
1450. As regards the scale, dynamics and characteristics of the marketplace, the total public procurement market in the North and South is worth around €19 billion. It is a substantial market. It breaks down to around €2·8 billion in the North and €16 billion in the South. In total, it equates to over 10% of GDP and presents substantial market opportunities for SMEs.
1451. In the North, the buyer market is more centralised than it is in the South, although the South is moving towards a similar centralised approach to public procurement. The Northern Ireland market continues to grow, but it looks as though the Southern market has peaked. Survey evidence suggests an upsurge in interest and a hungry and competitive marketplace for business. There is a low level of tendering activity into the other jurisdiction: only 3% of tender submissions in the North come from Southern companies, and the percentage going from North to South is much lower.
1452. Our findings and recommendations have been grouped around three key themes that seem to have been recurrent in evidence to the Committee. The first is visibility of contract information to SMEs; the second is access to contract information for SMEs; and the third is SME capability.
1453. As regards visibility, the research highlighted two key themes: first, a lack of visibility to SMEs of lower-value, sub-threshold contracts, not only in each region, but on a cross-border basis as well; secondly, higher visibility of Republic of Ireland public procurement tenders to Northern Ireland SMEs than vice versa. That is primarily due to the eTenders website.
1454. We are exploring a number of possible actions, including a single point of access to lower-value public-sector contracts, an awareness campaign to encourage registration of Republic of Ireland SMEs with the Central Procurement Directorate’s (CPD) eSourcing system, and encouraging Northern Ireland buyers to advertise open tenders on the Irish eTenders system. We are also exploring the possibility of a single sourcing system on the island that would have one point of access for all tenders across the island.
1455. The research on the accessibility of public procurement opportunities to SMEs has highlighted a number of key findings. First, the process of responding to public procurement contracts is perceived by SMEs as overly bureaucratic and resource-intensive. Some of the issues cited are the perceived repetition between tender stages, particularly between the pre-qualifying questionnaire (PQQ) and secondary competitions, and limited standardisation of qualification criteria in PQQs among buyers.
1456. Secondly, although the aggregation of contracts can create savings and efficiencies, the practice can inadvertently exclude SMEs because they do not have the critical mass for the larger contracts. Thirdly, SMEs are faced with a number of accessibility issues with regard to frameworks. There is a view that the returned benefit of framework agreements often does not justify the cost of the application process. A view expressed in the survey of SMEs was that the frameworks were too infrequently renewed, thereby excluding new companies in particular. That also precludes companies from gaining the necessary experience.
1457. Possible actions that could be taken include giving consideration to ensuring that financial thresholds, such as those for professional indemnity insurance or company turnover, are set at a level appropriate to the individual contract. Also, in instances of consortia or collaborative partnerships, buyers could consider the joint turnover of all companies involved, which is permitted by procurement regulations. Secondly, consideration could be given to dividing appropriate tenders into smaller lots where possible; that would naturally encourage more SMEs to tender for public-sector contracts. It was suggested by some of the SMEs that were surveyed that such measures could go so far as to include contracting authorities setting a specified percentage of contracts below an appropriately low ceiling.
1458. In regard to accessibility, a third possible action would be for more consideration to be given to the mutual recognition of standards across the border. For instance, in the construction sector there could be mutual recognition of standards such as Constructionline, Safe-T-Cert certificates, health and safety passports, etc. Buyers could also be encouraged to standardise the core components of the PQQs that are not sector-specific, which would reduce the administrative burden on SMEs. It could be done in a single jurisdiction first, and then perhaps on an all-island basis.
1459. Consideration could also be given to the creation of a central repository where suppliers could provide key statutory information on things like public liability insurance, detailed accounts, environmental policies and tax certificates. They would then not be required to provide copies of that information for every tender that they apply for. Finally, a constant call from the SME sector is that frameworks should be reviewed more frequently.
1460. The third area that I mentioned relates to the capability of SMEs to bid for the contracts. Inexperienced companies that have previously not been involved in the public procurement market and are now looking to that market cite a lack of knowledge or understanding of how to approach the market. That is a reason for not tendering, either in their own jurisdiction or on a cross-border basis, which is what we are interested in. Buyers also reported that a large number of SMEs that are bidding for public procurement contracts do not avail themselves of the debriefing process that is available after every tender competition. That is viewed as critical to enhancing capability on an ongoing basis.
1461. In the past, SMEs tended to fail more on compliance issues, whereas, in recent years, the evidence from buyers suggests that levels of compliance have improved substantially and that SMEs are now perceived to fail more on a failure-to-answer-the-exam-question-type approach. That points to the need for additional capability support for intelligent tender writing and, in particular, for cross-border tenders, where the level of understanding about buyers is more limited. We are looking to address those recommendations through our Go-2-Tender programme by making a number of adaptations to enhance the capability of SMEs so that they can be successful in that large market.
1462. The Chairperson: That is an interesting summary of a report which is going to be very relevant even though it is set in a cross-border context. It appears to have thrown up some issues that have a general applicability to the other evidence that we have already heard.
1463. Ms Purvis: Thank you for an interesting and detailed presentation, Aidan; it was much appreciated.
1464. In the report, there is a reference to the ‘European Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts’. How useful was that in enabling member states to apply the EU legal framework in a way that enhanced SMEs’ access to public contracts? That guidance was supposed to produce some national rules and practices. Will you give a summary of what those are and how they have been applied?
1465. Dr Eoin Magennis (InterTradeIreland): The key change in Northern Ireland has been how the issue of experience is approached. A number of rulings in the past couple of years have caused a shift. Until a couple of years ago, a company submitting a tender could be asked to demonstrate what experience it had. Now, procurement authorities across Europe and here do not like to ask that question in that way; rather, they ask companies to detail the experience that they have gained in a particular area in the past two or five years in order to open up the market. That has been a key shift.
1466. Buyers have some reservations about that because they feel that, although it opens up access, it makes it difficult to judge tenders if they cannot judge on experience and expertise. It has created some difficulties; instead of asking the question in a slightly different way, buyers have had to find other ways of judging experience, such as through the methodologies that are used in the tenders.
1467. Ms Purvis: That is really interesting, because a number of the groups that have given evidence to us have said that that requirement to have experience gained in the past two or five years is actually excluding them from tenders and, in particular, from frameworks that lock them out for five years. Companies are locked out of tendering for five-year frameworks, if they have not had the opportunity to gain that experience in the previous five years. That EU rule is supposed to help SMEs to gain access to contracts.
1468. Dr E Magennis: In essence, the EU hopes to make experience no longer a criterion on which a tender is judged one way or the other. I suspect that the intention is do away with the requirement for any experience.
1469. The Chairperson: That might have been the intention, but what is the direction of travel? That is what Dawn is trying to get at. Is it being used as a method to weed out some of the applicants?
1470. Dr E Magennis: That depends on how the rule is implemented. One of the difficulties was that buyers were always looking for experience, particularly in goods and services, within a short time frame. That meant that new entrants to the market were not able to get into that market at all. If you were in a framework three years ago, you would have had that experience, and if you push it out further, it becomes a balancing act. I still think that the intention is to move away from using experience as a criterion at all.
1471. The Chairperson: Obviously we can only be concerned about how the Departments or procuring authorities approach the issue here, but has your study demonstrated that people are taking a more rigorous approach to interpreting EU regulations than they need to, or are they taking the opposite approach, which is to build capacity and experience by being faithful to the regulations, but not using the regulations per se as a means of —
1472. Mr Gough: We have not made a judgement on whether one jurisdiction on the island is more flexible than the other. However, in rolling out the European directives, the two jurisdictions could collaborate so that we could have a competitive environment that is the same across the island and that benefits all businesses across the island. With regard to experience, the counterbalance to that is more engagement with companies at the pre-commercial stage, particularly around the innovative needs of buyers, where there is scope for more pre-commercial dialogue.
1473. Ms Purvis: In another part of your report, you talk about the limited understanding of the concept of sustainable development and procurement among buyers and SMEs, and we are gaining evidence of that through our inquiry. Given the potential of that, how would it work out through the EU legal framework? What can we do to raise awareness of that potential among buyers and SMEs?
1474. Mr Gough: We are adopting our Go-2-Tender programme, which takes companies through the procurement process. There is definitely a need for more education about what the whole process of sustainable development means, and awareness is the key. We are building that into our Go-2-Tender programme, which has already reached almost 400 companies. The key is to bring the buyers and SMEs together so that they are both aware and singing from the same hymn sheet.
1475. Ms Purvis: Do you think that more work needs to be done at a strategic Government level around the potential benefits?
1476. Mr Gough: If the SMEs are telling us that they are not clear what it means, then more work needs to be done.
1477. Dr E Magennis: Another key area is social economy enterprises, and there are two sides to that. One side is the sense that the procurement market is open to social enterprises, and the other side is the capability of social enterprises to enter it. As Mr Gough said, we recently looked at opening out the Go-2-Tender programme to social enterprises through working with the School for Social Entrepreneurs. It is about building up capacity and capability in that sector.
1478. The Chairperson: It seems to be an obvious thing to do.
1479. Mr O’Loan: Thank you very much for your report, which is hugely important, because it illustrates how much public business is available, and everyone can benefit in the longer run. The public sector can get better value, and firms can get more business. The more active tendering that we can get in both jurisdictions and across the jurisdictions, the better. You analysed the different types of environment in both jurisdictions, and you said that in many ways the North is more structured through the CPD and the centres of procurement expertise (COPEs), which is quite complimentary to us. You also said that things are a lot more fragmented in the South.
1480. A fair bit of clarification is required, because you go on to say that there are more examples of Northern Ireland SMEs winning business in the South than vice versa, and you refer to eTenders. If we are more structured in the North, and are putting our business up front and online, should it not be the case that it is actually easier for southern SMEs to access the system here than it would be to access a fragmented system in the South, where you have to look anywhere and everywhere to get a bit of business?
1481. Mr Gough: We find that the eTenders website is very widely and easily accessed.
1482. The Chairperson: Does it matter where you are?
1483. Mr Gough: It does not matter where on the island you are.
1484. Mr O’Loan: Is that the North’s e-tendering site?
1485. Mr Gough: No, eTenders advertises the Southern contracts.
1486. Mr O’Loan: I misunderstood. Your compliments about the North apply to the system and regulation around tendering, but the Southern e-tendering system is more effective at publicly presenting opportunities to businesses.
1487. Dr E Magennis: It is more effective. There is more visibility.
1488. Mr Gough: Exactly.
1489. Mr O’Loan: OK, there is a clear lesson for us there. What level of co-operation and empathy did you get from the governmental systems, North and South, when you were carrying out this survey? What interest did you get in achieving the type of objective that we are discussing?
1490. Mr Gough: We had very close engagement and co-operation with the major buyers in the North and the South. During the study, we had an advisory group drawn from the Departments of Finance, North and South, CPD, InterTradeIreland and the National Treasury Management Agency in the South. There was a very close engagement and a real willingness to share experience and best practice and to learn from each other.
1491. Mr O’Loan: OK. That is what I was looking for.
1492. SMEs have said a lot to us about the difficulties of penetrating the system and how hard it is to tender. You have referred to some of that — the recognition of standards and so on. How big an obstacle is that going to be? Given that we are working across two jurisdictions that will presumably have different legislation, what opportunities are there to smooth the path for SMEs? Some of that legislation is EU-based and will be common; some of it will not be. There may be different ways in which EU systems are put in place. That could create a minefield for SMEs crossing the border. How much real opportunity do you see for smoothing the path for SMEs?
1493. Mr Gough: There is an immense opportunity in the scale of the business: the market is worth €19 billion, so the incentive for SMEs is massive. We have also made a number of recommendations in the report to address and improve the visibility of contracts, the accessibility of contract information, and to developing the SMEs’ capability. Actions have to be taken across those three areas to improve the success rate of indigenous SMEs in the public procurement market. One specific example that we are considering is having a single point of access for lower-value public-sector contracts.
1494. Mr O’Loan: You referred to local authorities, in particular?
1495. Mr Gough: The vast majority of smaller contracts are coming through councils and local authorities. A good example of sharing best practice in improving the visibility of lower-level local authority contracts is a website called LAQuotes, which has been started by Kerry County Council. That is now subscribed to by nearly all of the councils in the South, so there is real visibility of lower-level contracts.
1496. Mr O’Loan: And we have no equivalent in the North?
1497. Mr Gough: Not to the same degree, at the minute.
1498. The Chairperson: Is that like an ad hoc development, or is there any kind of institutional direction on it?
1499. Dr E Magennis: Initially, it was fairly ad hoc. Kerry County Council took the initiative to do that, and then it spread through Munster and beyond, particularly through county councils, but including other local authority bodies.
1500. The Chairperson: Will your report pick up on the value of that? Will it be a recommendation?
1501. Dr E Magennis: We put in a recommendation to look at that as a model, with potential to roll out, not just South of the border but also in the North.
1502. Mr Gough: The relevant local authorities in the North are looking at that.
1503. Mr O’Loan: Your three key areas are visibility, accessibility and developing the capability of SMEs. I want to ask about the third. I presume that it means that we should be thinking about Invest Northern Ireland having a particular project on that. I imagine that that is the direction in which we should go.
1504. Mr Gough: We work closely with Invest Northern Ireland and with Enterprise Ireland on our Go-2-Tender programme, which addresses that requirement specifically —
1505. The Chairperson: We have not seen the full report, but we are talking about visibility. Will social economy enterprises (SEEs) have the same visibility? When we talk of SMEs, we could very often be talking about SEEs. It is your report, but it might be helpful if awareness and visibility of that particular important sector was raised in the report.
1506. Declan has focused on one of the things that is of particular interest to me. You can see the potential for efficiencies and cost savings in both jurisdictions through an enhanced or more visible procurement process on the island. Will your report emphasise that? Will it also address the wider economic benefits for both economies? I am relieved to hear that you did not meet much institutional resistance. I would have expected more, but that does not seem to have happened. People see the business benefit of this approach.
1507. Mr Gough: Without a doubt, there are two main competitive benefits. The first is a more efficient public procurement system; the second a more competitive system. It is a win-win situation for both buyer and supplier, if we get this right.
1508. Dr E Magennis: We all tend to think that people do things better elsewhere. The buyers in the South were interested to see what they could learn from this side of the border. Officials from CPD have assisted the new Department of Finance policy unit on public procurement in the South. That is trying to improve things on the buying side and looking at centralisation. It is interested in how centralisation happened in the North and how some of those systems might be applied in the South. There is sharing of practice there as well; it is an interesting situation, where the North has spread some of its practice into other jurisdictions. That might be something.
1509. The Chairperson: I think so.
1510. Ms J McCann: My question has been answered, but I would like to chip away at it a bit more.
1511. You mention different levels of development in the report, between the North and the South and between central Government procurement policy and that of local government. There seems to be an uneven playing field. You mentioned €19 billion, the huge sum of money that is available for public procurement. SMEs do not feel that they are able to access the market in the way that they should be able to. That applies particularly to social economy enterprises.
1512. At the moment, the South is creating a national public procurement policy unit, and local government here is in the process of creating a more centralised structure. Is this not an opportunity to consider public procurement on an all-island basis? I mean not just that the two structures should co-operate, but that there should be an overriding structure, to ensure that there is equal access for SMEs, North and South, and equal access for social economy enterprises.
1513. I want to touch on the social clauses. I know that that is something that has arisen in our inquiry. Do you agree that the implementation of the social clauses from the advertisement stage right through to the delivery stage would help the social economy sector in particular? Organisations in that sector would be judged on the jobs that they create in areas of disadvantage and need, the jobs that go to the long-term unemployed and the creation of quality apprenticeships, and that would offer the sector an opportunity to compete at the tendering stage in a more equitable way.
1514. Mr Gough: Businesses certainly welcome fewer differences in regulations and bureaucracy within marketplaces. The level of engagement between the two main buyer organisations in the North and the South is, as I said, a win-win situation due to the creation of mutual efficiencies and mutual benefits for companies North and South.
1515. Dr E Magennis: The implementation of social clauses is probably a practice that is more advanced in Northern Ireland. There are good examples of social clauses being applied on an individual basis for some contracts in Dublin; the Dublin Docklands Development Authority has one such contract and the Limerick Regeneration Agencies will look at social clauses for some of its contracts. It is something that is being rolled out more.
1516. With regard to accessibility and capability, a little more understanding is probably needed for both buyers and suppliers of what that actually means. In some cases there is probably a reservation that social clauses add an extra burden, which does not necessarily have to be the case. Therefore, education and awareness is probably required on what social clauses may mean and how social enterprises, as well as social SMEs and the local community, can benefit from them. Social clauses are coming to the fore; in 2003, this was not raised as an issue, but five years on it has risen far up the agenda.
1517. The Chairperson: That is very helpful. We look forward to the report being processed, adopted and implemented. There are some very important lessons and recommendations before us. The Committee looks forward to receiving the full report when it becomes generally available. I thank you for your assistance this morning; your evidence has been very helpful to our inquiry.
24 June 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr David McNarry
Mr Declan O’Loan
Witnesses:
Mr Colm Lavery |
Royal Institution of Chartered Surveyors |
1518. The Chairperson (Mr McLaughlin): I refer members to the submission from the Royal Institution of Chartered Surveyors (RICS) and its construction market survey. The Committee is joined by Ann Stewart, public policy executive with the RICS; John Phelan, head of the construction group; and Colm Lavery, the deputy head of the construction group.
1519. I welcome the witnesses and apologise for the overrun of the previous session. The Committee had a hot-and-heavy exchange with the departmental officials. I invite the delegation to make some brief introductory comments. Committee members have had the opportunity to read the RICS submission and updates. Please proceed with your evidence.
1520. Ms Ann Stewart (Royal Institution of Chartered Surveyors): We thank the Committee for giving us the opportunity to share our experience. By way of background information, our members have practices in land, property and construction markets. They are employed in multinational and local organisations; private practices; contracting firms; central, regional and local government; academic institutions; public agencies; and non-governmental organisations. Our construction membership represents the professions of quantity surveying, building surveying, building control and project management.
1521. As part of its Royal Charter, the institution is committed to providing advice to the Government of the day, and, in doing so, it has an obligation to bear in mind the public interest as well as the development of the RICS professions.
1522. The main concerns that I will highlight are the impact of the large frameworks on local small and medium-sized enterprises (SMEs) and the reduced workloads in construction markets. My colleagues will provide more detail on each area.
1523. It is clear that the downturn in the economy has had a major impact on the construction industry across the UK. However, we believe that the situation has been exacerbated in Northern Ireland due to the perceived lack of public work and the limited tendering opportunities for SMEs as a result of the large frameworks.
1524. Public-sector construction projects have traditionally provided certainty in the industry and offset any decline in private-sector work. However, continued uncertainty around public-sector work makes it difficult for the industry to plan ahead and to maintain staff levels. The potential impact of those reduced workloads on future construction skills in Northern Ireland is not often reported. Based on evidence from the last recession, it is widely believed by RICS members that there may be a damaging shortage of professional skills to manage the eventual upturn in the market.
1525. Therefore, the RICS recommends that the central procurement directorate (CPD) of the Department of Finance and Personnel (DFP) should co-ordinate the centres of procurement expertise (COPEs) to ensure that there is continued workflow to the markets and should implement targeted initiatives to avoid future shortages in construction skills.
1526. Mr Colm Lavery (Royal Institution of Chartered Surveyors): In 2007, the Northern Ireland construction industry readied itself in anticipation of the investment strategy for Northern Ireland (ISNI) 2008-2018. However, since the strategy was published, the anticipated workflow has not been realised. The RICS construction market survey for the first quarter of this year indicated that the total workloads in Northern Ireland declined at a faster rate than anywhere else in the UK. Workload expectations have also continued to deteriorate. The Committee has copies of that survey.
1527. The RICS acknowledges that work held up due to legal challenges against two large frameworks is now being released on a project-by-project basis. However, anecdotal evidence indicates that that process is very slow. RICS members are concerned that Departments do not have enough resources to deliver the work to the market within the original time frame set out in ISNI 2. Therefore, the RICS recommends that CPD and other Departments be provided with the necessary resources and the professional procurement expertise that is required to deliver work to the market in a consistent and timely manner.
1528. Large frameworks are also a key concern. A one-size-fits-all approach has resulted in the creation of two very large frameworks worth a total of £1·5 billion. However, both frameworks have subsequently collapsed or are subject to legal challenge. The RICS recognises the benefits of frameworks and is aware that they have been operating successfully in Northern Ireland for many years; for example, the frameworks that are managed by health estates. However, large frameworks exclude unsuccessful firms from accessing large chunks of public-sector work for up to four years. The situation is not helped by the excessively high selection criteria, which can exclude local SMEs at the first hurdle. For example, the requirements for insurance and company turnover are often set at levels that are beyond the capacity of most SMEs and which are disproportionate to the size and nature of the anticipated workflow.
1529. We are not saying that frameworks should not be used, and we understand that, under European procurement rules, frameworks cannot be tailored solely to the benefit of Northern Ireland companies. We simply believe that local SMEs should be given an equal chance to bid for local work.
1530. To ensure the success of future frameworks, the RICS recommends that frameworks be smaller in value to encourage a greater level of competition and less discrimination against SMEs. The selection criteria, such as requirements on insurance and company turnover, should be proportionate to the size and nature of the anticipated workflow. In recent procurement processes, that has been the case. The number of teams should reflect the total value of work on the framework and the number and size of projects to be let. The criteria should accurately define the technical ability and experience that bidders are required to have to distinguish successful bidding potential at an early stage and reduce bidding costs.
1531. It is essential that Departments are efficient in their procurement activities, and where there is inaction and budgets are not being spent, funds should be transferred to Departments that can use the resources to bring planned work forward to a marketplace. We also recommend that the Executive re-examine departmental construction programmes and bring forward future planned projects for 2009-2010.
1532. Mr John Phelan (Royal Institution of Chartered Surveyors): The Construction Industry Forum for Northern Ireland (CIFNI) procurement task group recently produced a report that outlined seven principles to recommend how procurement practice in Northern Ireland should move forward. Those principles attempt to resolve many of the problems that are outlined in our presentation. We welcome that report, and we recommend that DFP and the Committee for Finance and Personnel monitor procurement practice in Northern Ireland to ensure that the commitments that were given by all who were involved in the report are achieved in practice.
1533. An ongoing concern has been visibility of opportunity. In its original submission to the inquiry, the RICS recommended that a delivery tracking system go live as a matter of urgency. Since then, we are pleased to see that the delivery tracking portal is now up and running. That is a step in the right direction. We welcome the move to ensure greater visibility of opportunity. However, some of our members have run tests on the system and have raised a few concerns. The system is already out of date. Some projects are listed as being at pre-tender stage when tenders have already been submitted. Some projects are at the stage of pre-qualification questionnaire but are not listed at all.
1534. A further criticism of the system is that it does not always show who has won contracts, despite there being provision to do so. We would also welcome more information on pre-tender projects and when they will be expected to move to invitation-to-tender stage. That would provide consultants and contractors with much-needed information to help plan and target workload. ISNI 2 anticipated a workload of £20 billion. However, it is difficult to equate that amount of work to the projects that are listed on the delivery tracking system. We understand that a certain amount of the pot that is available is to be realised through Government assets, and that might affect matters.
1535. In light of the current downturn in the market, the RICS would be interested to learn what the current budget is for all projects under ISNI 2. If that has changed since publication, we want to know which areas of the strategy have changed. For example, the ISNI delivery plan for health has not yet been published. That raises questions about the budgetary ability to carry out the work that is outlined in the strategy.
1536. The CIFNI procurement task group report clearly states that the Government Construction Clients Group and the Construction Industry Group for Northern Ireland have agreed that the seven principles will be adopted in any future construction activity that is undertaken by bodies that are governed by Northern Ireland public procurement policy. Public procurement policy is defined to cover Departments, agencies, non-departmental public bodies (NDPBs) and other organisations that are largely — more than 50% — financed by the public sector. In the light of that agreement, we ask why other bodies such as local councils have not been included in the database. The Ministry of Defence (MOD) and Prison Service schemes are also not included.
1537. There has been little publicity regarding the launch of the information portal, except for its official launch at a recent procurement conference. That is a good example of visibility of opportunity being missed. Given the limited information regarding further opportunities and the incomplete and outdated details that are already on the system, the RICS is concerned that the information portal will not be updated regularly and will not achieve its objectives. There must be an obligation placed on all Departments, COPEs and CPD to keep the information up to date and to contribute to the system. Simply encouraging that to be done is not enough.
1538. Social clauses in contracts are a relatively new concept in Northern Ireland. In the current economic climate, firms may find it difficult to recruit people with little or no experience in construction, especially if they have had to make experienced employees redundant. At a professional level, it is more difficult for firms to employ the inexperienced or long-term unemployed as a third-level qualification is normally required. Contracting firms have a wider pool of employees and skills requirements and, therefore, they may be a more appropriate avenue for the application of social clauses. The best opportunity for social clauses is to ensure consistent workflow to the market. If there is enough work, recruitment to the construction industry will increase, as will the opportunity for social clauses within contracts.
1539. I thank the Committee for its time, and I welcome any questions that members might have.
1540. Mr F McCann: You have a list of recommendations. Have you talked over those recommendations with Departments? Did you get much of a response from them, especially regarding the difficulties that SMEs experience in tendering for contracts?
1541. I also want to ask you about design-and-build schemes. A recent European judgement has forced design-and-build schemes to stop. Have you taken any reading on how that impacts on the construction industry? Have there been any discussions on how people can overcome it? It certainly seems to have had an impact.
1542. You also spoke of the social clauses in contracts. Is there evidence that firms are already ceasing to implement social clauses because of economic difficulties?
1543. Ms Stewart: Our response to the inquiry has been made very public; it is on our website. Many of our members work in CPD, so they would have received a copy. All the recommendations listed in our response are also in our position statement, so CPD is aware of them. We meet CPD regularly to discuss any concerns that we have.
1544. CPD is very receptive towards the recommendations that we have put forward. We understand that there is a number of difficulties in achieving those objectives. When we were preparing those recommendations, the CIFNI procurement task group was coming to the end of its work and was in the process of producing a report. We had to wait on the outcome of that. Since then, we have not gone back to CPD to discuss the recommendations further. We want to wait to see how the report goes, and then we will go back to CPD, probably after the summer, to see how things have progressed.
1545. Mr F McCann: Do you expect any changes?
1546. Ms Stewart: We do expect changes; we have asked for them. We have asked for a commitment to the recommendations and the principles set out in the report. We absolutely expect changes. The report recommends that a number of actions be taken. For the delivery tracking system, the deadline is 30 June. The portal is live, but some of our members have criticised it, and we expect better than that. It is a really good step, and it is the facility that we have been asking for. However, there is a lot more work to be done on it. We expect changes to have been made, and we will discuss those with the Department in the future.
1547. Mr F McCann: My second question was on design-and-build schemes.
1548. Mr Lavery: I am not aware of challenges in that respect.
1549. Mr Phelan: We can come back to you on that point.
1550. Ms Stewart: Absolutely; we can look into it and get back to the Committee at a later date.
1551. Mr F McCann: What is the present position on social clauses in contracts? Have firms already started to cut back on the implementation of social clauses? Is there any evidence that they are they not taking on apprentices and the long-term unemployed? It clearly says in your submission that that could happen. Is there any evidence that it has already begun to happen?
1552. Mr Lavery: On a personal note, we have instigated sustainability clauses outside of RICS. From talking to our members at meetings, it is clear that they face employment law and human resources challenges in signing up new people while seeking to make people redundant because of the recession. They are finding it difficult to create jobs through social clauses in contracts when the market suggests that they will be under pressure to retain their long-term employees.
1553. Mr O’Loan: The written report that you submitted in advance was so good, accurate and well-presented that I do not have many questions; it will be extremely useful to the Committee.
1554. You said that the anticipated workflow from ISNI has been less than expected. However, that contradicts everything that we heard from DFP officials: for example, they told us that the gross out-turn for last year was approximately £1·7 billion against an anticipated £1·8 billion. Why is there a contradiction between what DFP officials say and your findings?
1555. Mr Lavery: On Monday, I was here for a meeting with two Ministers to discuss that very topic. The perception exists that not all Departments are spending money and that there is no visibility of where that money has been spent. The experience of members who specialise in certain areas in various Departments is that there is a lack of visible delivery of projects on the ground.
1556. Also, as we all know, legal challenges and other issues have caused delays. Therefore, we find it hard to believe that that money has been spent, at least not on projects or contracts on the ground. We have asked for greater visibility on a Department-by-Department basis of where the money has been spent. Everyone is aware that there is a great deal of expenditure on the road infrastructure, but how are the Department of Education and the Department of Health, Social Services and Public Safety performing in relation to their project budgets?
1557. Mr Phelan: In comparison with other Departments on the ground, roads have a very high value.
1558. The Chairperson: What has a high value?
1559. Mr Phelan: Road projects receive a high level of expenditure in comparison with the projects of other Departments. However, as far as employment in local SMEs is concerned, investment in road projects probably does not have the same impact as the same level of investment in a building project. Building projects have a much higher level of investment in people’s employment than in machinery. That can lead to the perception that the spend on roads does not have as great an impact on the ground.
1560. Mr Lavery: There is a spread of our members across all Departments. Some may be doing well working on utilities or roads, whereas others who specialise in building schools or other facilities see no visible signs of expenditure.
1561. The Chairperson: The Committee has already decided to hold a stakeholders’ conference on broad procurement issues in the autumn. With members’ permission, we should send to that conference the submissions that we have received and the Hansard report of today’s discussion. DFP should be asked to respond to your points about the lack of visibility and the deficiencies in the portal and available information. That would help the conference to achieve its objectives. It would benefit everyone, including the Department itself, for it to spend the summer months developing a written response to the concerns that have emerged as a result of the submissions that we have received.
1562. Mr O’Loan: You have called for no return to lowest-cost tendering. Do you agree that, for all the hoops through which people must pass in presenting information about their capacity to do a job, to some degree, lowest-cost tendering still exists? Although one must pass through all those hoops in order to put oneself in the frame, at the end of the day, the final decision comes down to lowest cost. Sometimes that final stage ignores the key elements of the bid that relate to quality. Do you agree?
1563. Mr Lavery: As one gets farther along the pipeline for a job, if it is part of a framework scenario, eventually the quality aspects of various submissions begin to converge. Inevitably, the decision sometimes comes down to cost differences. However, it is important that the quality aspects of bids are revisited and revised in order to progress.
1564. Mr O’Loan: If that were the case, I could not quarrel with the process. I was putting a rather different spin on things.
1565. Mr Phelan: In my experience, the quality requirement brings in a number of contractors who are capable of undertaking the scheme to a high level. Subsequently, as that smaller group moves to the final stages, cost ends up being a key criterion. The process that bidders must go through depends on how the contract has been drawn up. However, the intention is largely to ensure that quality is to the fore. Subsequently, cost becomes a part of the process. Anybody who tenders for a particular project should be able to prove that they are capable of producing the required quality. The RICS wants quality to be to the fore of construction in Northern Ireland, and that will result in quality public projects, which is what everybody wants.
1566. Ms Stewart: The quality criterion is essential in identifying the most economically advantageous tender (MEAT), which clearly involves demonstrating quality not just the ability to reduce costs. That must come through clearly.
1567. Mr Lavery: There must be a clear line on value for money, and there must be an assurance that quality and cost are being assessed jointly not individually, because the cost of providing a service relates directly to how one responds to quality. One must ensure that those factors are not assessed separately, because sometimes there is a danger that a bidder will not be able to deliver a service for a given cost. Given the current market conditions, there is a concern that people are so desperate to get work that they will cut costs and tender at a loss, which means that, in the long term, instead of delivering value for money, they deliver problems.
1568. Mr O’Loan: I think that CPD would probably agree with that assessment, as I do, yet there still seems to be a problem, which may relate to the fact that sometimes job specifications are loaded in such a way that firms believe that they are well capable of delivering them. It is not that people are insisting that they should win every bid; they know that they are in a competitive situation. However, there seems to be a genuine problem with bids being approved when there seems to be good reason for saying that they do not provide the best quality for the public sector.
1569. Ms J McCann: I apologise for missing the beginning of your evidence. I read your paper last night, and a couple of questions came to mind. You mentioned bringing forward public works. Recently, there has been a lot of discussion about bringing forward capital-build and public-works projects to help the construction industry. However, there seems to have been some sort of blockage in the system with respect to planning permission and other problems. Given the focus from the public and the Assembly on the issue, do you think that any headway has been made? In your submission, you state that the tracking system has not yet been put in place, yet we were being assured that everything possible is being done to bring those projects forward.
1570. I caught the tail end of the discussion on social clauses. When we talk about social clauses, we are talking about investment strategies being delivered through the Programme for Government in such a way as not just to grow the economy, which is essential, but to tackle poverty and disadvantage, which is also an essential component in growing an economy for everybody. By using social clauses, we are trying to ensure that people from disadvantaged and deprived areas in the North are given equality of opportunity and can tender for public procurement contracts.
1571. I know what you are saying about companies laying off people and about how taking on the long-term unemployed might not be an option for them at this time. However, in the longer term, to ensure equality of opportunity for all, companies that secure the public procurement contracts should be considering taking on the long-term unemployed and people who live in areas of disadvantage and need — and that is where many of the long-term unemployed come from. Not only that, but young people should be given the opportunity to take up quality apprenticeships. I just wanted to clarify that when we call for social clauses to be included in contracts, those are our aims.
1572. Overall, do you think the blockage that was mentioned earlier is now being unplugged, so to speak? Do you think that the investment strategy and the capital-build and public-works projects are being delivered in the way that they should be? To put it another way; has there been any change?
1573. Mr Lavery: Some aspects of the planning process have improved; for example, the fast-track system for major projects. Several very high-profile projects have taken five or six months to get right through the planning system, and that can only help the situation with the new headquarters for the Public Record Office of Northern Ireland (PRONI), the Titanic Signature Project and all the high-profile projects that can get construction started on the ground. That has certainly helped.
1574. There are two aspects to our organisation. Our members represent professionals in the construction and contractor side of the industry, but we also have professional members on the consultancy side. Although there have been some improvements in getting construction projects on board, the delivery tracking system is about identifying those construction projects and outlining what stage they are at so that an interested contractor can check on their progress. Consultants need to know what is in the pipeline on the client side before there is even an opportunity to appoint a consultant. The consultants need to bring forth a project before a contractor can get involved, so the delivery tracking system is about bringing the projects right back to inception. It allows for the pipeline to be more visible from the outset, and that visibility must continue as we move through the process, until we reach the stage whereby a contractor comes on board.
1575. There is evidence to suggest that it takes a lot of time to assess tenders, whether they involve consultants or contractors. Some small projects are getting expressions of interest from more than 40 firms, and it takes a lot of time to carry out an assessment, get it turned round, issue invitations to tender and compile a shortlist. We believe that some Departments have difficulty with resources, and during the summer months the situation will get worse rather than better. I certainly think that the process for tendering, assessment and award needs to be speeded up.
1576. Mr Phelan: There was talk of the £1·7 billion of investment for this year, and it would be useful to know what the investment is for this coming financial year, how it breaks down by Department and what the projects are. The portal could provide that level of detail. In the short term, that could be done for this year, and when we come to next year, everyone will have been aware at an early stage of what the investment is and how it breaks down. In that way, there will be no questions about whether the Departments have met their targets, because the evidence will have been published early. That would be useful. The portal has been a long time coming, and although it requires improvements so that we can see the evidence coming through, it is a great step in the right direction.
1577. Ms Stewart: To give an example of John’s point, the portal provides information about pre-tender projects. It does not give any dates to show when those projects are expected to come onto the market. Previous to the portal going live, CPD provided project lists, which were broken down into consultancy projects and contractor projects, and it gave the expected dates. It is difficult to understand why that cannot be done for the portal to make opportunities visible to contractors. The construction industry wants to see the opportunities that are in the pipeline so that it can ready itself for the work.
1578. Ms J McCann: You mentioned local councils. The evidence that we have received seems to suggest that although a procurement policy is being developed for central Government, there is no such policy for local councils. Therefore, small and medium-sized businesses and the social economy sector have a lack of awareness about what contracts they can and cannot apply for at that level. Is that situation improving, or is there still a gap between central and local government contracts?
1579. Ms Stewart: The CIFNI report states that any body that receives 50% or more of its funding from Government will be governed by public procurement policy. Councils are not included in the portal, so we have no sight of what work they have in the pipeline. We know that there is work with the Prison Service and the Ministry of Defence because of the tender opportunities that exist, but that information is not included in the portal. We do not know whether it is an oversight that councils are not included in the portal or whether there are any plans for them to be included in the future.
1580. Mr Lavery: Councils could benefit from some sort of marketing campaign, and the private sector could have a part to play in that. From our perspective, we play a part in marketing that as an option for local councils, and CPD could be involved in that, too. It is about giving people visibility and knowledge of what contracts are open to them. We all have a part to play in that.
1581. Dr Farry: In your submission, you say:
“Where possible frameworks should be geographically based."
1582. What do you mean by that?
1583. Ms Stewart: Our members have discussed that recommendation quite a bit. We are not sure whether it is possible to have geographically based frameworks under the European guidelines. However, if it is possible, the recommendation would create opportunities for local firms in their geographical areas and keep work more confined.
1584. Mr Phelan: We cannot place limits on who applies for a framework. Part of the problem with having a framework that covers all of Northern Ireland for a four-year period is that firms that are successful in the tendering process will do very well but those that are unsuccessful will be closed out of the market for four years. Such firms might be perfectly capable and might have been working in that market for years. If they have nowhere to go and their business depends heavily on getting that contract, they might have no choice but to mount a legal challenge or find other means to get themselves into that market. However, if the market were divided up into smaller frameworks of three or four large contracts or packages for an area, companies that miss out in Antrim could look at another package in Tyrone, which is not too far away.
1585. Dr Farry: So, you are not saying that frameworks should be based on the location of firms, which would be in clear breach of European rules; rather, you are saying that the framework should be segmented.
1586. Mr Lavery: A good example is that the health estates currently have a minor works opportunity in the five trusts. There are individual contracts for each of the five trusts, so if a firm misses out on one contract, a bid can be made for another.
1587. Mr Phelan: The problem for firms is that they can get locked out of a contract for four years, only to find that a criterion for other contracts is recent experience. Therefore, an SME that bids for work that it has not been doing for the past four years because it was not in the framework could almost be closed down as a result of going through the procurement process. The solution is to create smaller frameworks.
1588. Dr Farry: Is your organisation the Northern Ireland branch of the wider UK institution?
1589. Mr Phelan: Yes.
1590. Dr Farry: That may put you in a good position to answer my next question. I am interested in the segmentation of the market and how it works. How self-contained is the construction market in Northern Ireland? To what extent is it open to firms from the Republic of Ireland, the UK and the wider European Union? In contrast, to what extent can Northern Ireland-based firms access contracts outside this jurisdiction?
1591. Mr Phelan: It works both ways. Because we are an island, in the recent past firms may have found it less attractive to come here for relatively small contracts. Consultants would have partnered with local firms to deliver on large contracts here.
1592. We also have large firms of our own such as Lagan Construction, which has a wide international wing. Firms from the South are certainly more inclined to come up here now than they were two or three years ago, when work in the South paid a lot better than it did up here and there was no reason to cross the border. There is now a transfer of skills.
1593. Mr Lavery: There are quite a few contracting organisations that work in Scotland and England, and a fair amount of their turnover is from work outside Northern Ireland.
1594. Dr Farry: Were a large company from outside Northern Ireland to win a contract, to what extent would it use local SMEs as subcontractors and employ local people as opposed to bringing in workers from elsewhere? What are the patterns?
1595. Mr Lavery: Evidence suggests that such companies use the local supply chain. When a firm from elsewhere comes into Northern Ireland, it is usually because of the size of the opportunity and the firm’s experience and expertise. If a firm’s expertise and costings lead to it being awarded a scheme, the evidence suggests that it would use the local supply chain. Enniskillen hospital is an example; local suppliers such as P Elliott & Company are involved in that project. Therefore, as with any economy, it is cheaper to use local people than bring in labour from abroad.
1596. Dr Farry: I am slightly nervous about where all of this could be heading. I have a sense of the wagons being circled in Northern Ireland and a declaration being made that, as much as possible, Northern Ireland work should be matched to Northern Ireland companies. The world does not often work like that; it is more complicated and subtly layered.
1597. I am conscious of your organisation’s mandate in relation to the public interest and of the wider competitive framework beyond Northern Ireland and how all that works. Is there a middle path that could lead to any recommendations that the Committee might make creating, in turn, a trickle-down effect? In a sense, this is about having a level playing field that will ensure that SMEs are able to access contracts rather than one firm being favoured over another. When large companies win contracts, what more can be done to ensure that they use local suppliers and employees? How does the effect of social clauses trickle down through the system?
1598. Mr Lavery: The CIFNI report refers to supply chain practice. It contains recommendations that relate to fair payment and the opening up of opportunities to the local supply chain if an outside company is involved, which we would endorse and which would help the situation.
1599. Mr McNarry: Thank you for your report; it is well worth reading, and it is well put together.
1600. Do you have an insight into how self-employed specialist contractors and subcontractors are faring in the current situation?
1601. Mr Phelan: It is difficult to know. The employment statistics do not show whether a self-employed person has had his or her work reduced from six days a week to three days a week. The evidence is anecdotal. We know about certain people who still seem to be doing very well, but others are possibly not doing so well, and we do not have as much evidence on that area.
1602. Mr Lavery: The RICS does not have access to data on self-employed specialist subcontractors. The RICS membership includes small self-employed chartered surveyors, and, as in every situation, it is those who adapt quickly to the market and become involved in specialist services — which have possibly been created by the marketplace at this time — who will grow stronger and get through the situation. Those who do not adapt and who do not look at the possibility of joint ventures or other opportunities will find it more difficult to survive.
1603. Mr McNarry: I understand, but I am a bit concerned about the dependency on self-employed subcontractors in the construction industry. That came about mainly because the industry changed and did not want to employ people and so made them an offer that they could not refuse, which was to become self-employed. I am anxious that you might see a loss of confidence in a crucial element of the construction industry, which will mean that it is neither fit nor ready for any upturn. There will be a loss of skills and apprenticeships, which are hard to get in companies that are run by self-employed people.
1604. I hesitate to ask my next question, and you could just answer “No.". I have always recognised the dependency on the black economy, particularly in the construction industry. I am not encouraging tax evasion, but nobody turns down a cash offer — well, nobody who I know anyhow — unless they are over at Westminster.[Laughter.]
1605. Dr Farry: I remind the member that this evidence session is being covered by Hansard.
1606. Mr Lavery: I could not possibly comment.
1607. Mr McNarry: The black economy has a role, like it or not.
1608. The Chairperson: I am sure that you mean the informal economy.
1609. Mr McNarry: It has had a role in propping up certain things, like it or not. Is that coming across your organisation’s screen?
1610. Ms Stewart: That is a difficult area for us to look at because RICS represents the professional levels. As Colm mentioned, we represent professionals who work in private practice as well as those who work with contractors, so we do not look as much at the lower levels of subcontracting and apprenticeships. However, that is not to say that the downturn in the market does not affect professionals in the same way. One of our concerns, which we mentioned in the report, is that professionals are highly mobile and could leave Northern Ireland to find work elsewhere. The majority of those would be from the younger generations, and so we would have an ageing membership. If we do not have younger people coming through, there could be serious skills gaps in the future. One of the key reasons why we are urging the workflow to come from the Department is to ensure that there is work to keep people here. Therefore, the situation is having an impact at a professional level as well.
1611. Mr Lavery: From my perspective, this is where the issues of quality cost and value for money come into play; we must ensure that we get value for money. If, as so often happens during a recession, we return to a scenario in which costs are driven down, the people who have developed the expertise over many years and who inevitably constitute the higher cost base for any firm often find that their positions are the ones being reviewed, and those people are often lost. It is those people who have the skill sets to deliver value for money and who are training our apprentices for the future. We must be careful that we do not cut our skill sets out through the scenario of cost-driven tendering.
1612. Mr McNarry: Can you give an idea of what future work is on the table? What work is being costed that you could envisage being realised? Have you any sense of that at all from the information that you are receiving? Given that you operate at virtually the beginning of the process, if you do not have any idea about that, we will all be facing quite a difficult situation.
1613. Mr Lavery: The delivery tracking system is a step in the right direction because it makes visible what is under way at different stages of the process. A lot of work could be done to improve the system for the different stakeholders who use it, including recognition of the fact that there are different stakeholders and that they require different information. It is also vital that the system is kept up to date.
1614. Mr McNarry: Did something like what happened to Workplace 2010 make a dent; did it set your organisation back? Was there some kind of dependency on that on the part of those who were involved in it?
1615. Mr Lavery: It certainly set back those who were involved in it, and it obviously set back their anticipated supply chain. It has had a big impact, as we would expect with any large programme, such as the CPD major-works programme and the schools-modernisation programme, both of which suffered delays due to mitigating factors.
1616. Mr McNarry: You said that you thought that some Departments were in trouble with resources and that that would be a particular problem this summer. What did you mean by that?
1617. Mr Lavery: My organisation is involved in tendering work, and it is apparent that the process of assessing tenderers and awarding contracts does not always have the speediest turnaround.
1618. Mr McNarry: Do you think that the Departments are holding back on some things?
1619. Mr Lavery: Sometimes the reason is as straightforward as resource availability; in other words, the resources not being available to carry out the assessment.
1620. The Chairperson: Given the significance of, for example, the ISNI investment programme, is your criticism that there is a lack of development on building the necessary capacity to deliver?
1621. Mr Lavery: The necessary capacity needs to be built in. When someone says that a pipeline will be provided and people are then invited to tender for the opportunities in the pipeline, it must be understood that bid costs and tendering costs are quite significant. Firms are given a set time to apply, and from a business point of view — and we all have experience of a commercial environment — those firms expect to be able to see a pipeline so that they can manage their workforce and resources accordingly. There is a lack of connectivity, whereby the public sector does not understand the workings of the private sector.
1622. The Chairperson: The very clear expectation, which is, I think, shared by Ministers, is that the investment programme would have not only visibility but would be accelerated through the system, particularly in the context of the economic downturn. I suppose that a queue of people would be moving in on the issue of reduced costs. We are being told that tenders are reflecting a reduction in costs. Surely, however, those type of savings could be used to put more resources into processing the tenders and setting contracts.
1623. Mr Lavery: Process, accountability, who has the final sign-off and the visibility of the system after the tender is submitted are important.
1624. Mr McNarry: You make a recommendation in your submission that:
“It is essential that Government departments are efficient in their procurement activities. Where there is inaction and budgets are not being spent, funds should be transferred to departments that can use the resources to bring planned work forward to the market place."
1625. Does the RICS have any evidence of inaction or of budgets not being spent? I agree with the sentiment, which is logical. However, this is Government that we are dealing with.
1626. Mr Lavery: My understanding is that, in some cases, departmental underspends are reported in year-end and quarterly reviews. I understand that no Department has reported an underspend in the past year.
1627. Mr McNarry: They would not dare.
1628. Mr Lavery: On the ground, we are struggling to understand how that is achieved.
1629. Mr McNarry: Are you saying that that happens but that there is no system to jockey it? You are talking from a professional business point of view. Bear in mind that you are not talking to people who have an understanding of any of that; those people work three or four months behind the times — some would say three or four years behind the times. You are making a key point, and I am just trying to get underneath it.
1630. Mr Lavery: Where there are delays by one Department — and it might be through no fault of the Department involved; a legal challenge could have been mounted, for example — the construction industry requires assistance to keep jobs.
1631. Mr McNarry: The Committee heard of an instance not so long ago when work on a road not far from here could not be done. We had representations from the contractors who were in the middle of a contract and who had to down tools and wait until the money became available. That appalled me. You seem to be talking about the release of money just to get things moving and pointing to the fact that there is inaction.
1632. Mr Lavery: It is not so much the release of money as the process to get the money released. We are assuming that the money is there.
1633. Mr McNarry: I would not assume that.
1634. Mr Lavery: That is what we are being told. Schemes have been approved for funding and are making progress, and sometimes it is just the process of getting the scheme through economic appraisal, getting DFP approval, getting through to stages C and D, getting departmental sign-off, getting through planning, going back to the Department for final approval before tendering, going through the tendering process, being assessed —
1635. Mr McNarry: I get that picture. Could you, perhaps, paint some sort of picture for me? We have a Budget for three years. Do you get any inkling of where your business will figure in that Budget during that period when money is allocated for projects? Do you get the sense that that is being adhered to? You talked about tracking projects; do you get the sense that you have a greater opportunity to work on the basis that that investment will happen? Is that of benefit to you?
1636. I am anxious that you are not telling me, on the other hand, that the budgets are being jockeyed around. I think that they are being jockeyed around. If I could ever get underneath the mass of figures that we get, I could prove my own intuition. Is it easy for you? We are trying to maintain jobs here, as well as stability and sustainability. It must be very difficult for you to plan alongside what is happening here.
1637. Ms Stewart: While ISNI 2 was being planned — it was due to come out last year — our members in the industry readied themselves and were geared up for the work that would result. Contracting firms and practices took on more employees in readiness for that work, which was never realised. Much of the unemployment that exists is the result of the drop-off from that state of readiness. In the past six months, Departments have issued frequent press releases about the amounts of money that have been spent and the targets that have been reached. Our members, and other people whom I have spoken to in the construction industry, are surprised. This may be anecdotal evidence, but their feeling is that what those Departments are describing is not being seen on the ground.
1638. Mr McNarry: Is there too much red tape? What is the cause of this? We see those press releases — whoopee, here we go, brilliant — and then all of a sudden you are saying that we have hit a brick wall, and that there is a slowdown with resources etc. If that is unacceptable, then it is unacceptable and we need to do something about it.
1639. Ms Stewart: There was a period in which things slowed down significantly because of the legal challenges. We cannot get away from that. However, that work is starting to come forward, and it is visible. In some areas it is not as visible; I am hearing from our members that it is not coming forward as quickly as we might have hoped. The majority of the work —
1640. The Chairperson: Does your experience point you more to resource or capacity issues as opposed to any attempt to throttle back on the rate of expenditure and investment?
1641. Mr Lavery: Some Departments are champing at the bit to spend, but process and accountability in some Departments mean that things get stuck. Resources are an issue, as is whether there is accountability and push at director level to get those things through.
1642. The Chairperson: Help me with this, Colm. I want to follow the line that David McNarry was pursuing. We can focus from time to time on efficiency, performance and delivery, but David was quite specific. Is there too much red tape? Are you pointing to elements of the process that you think are top-heavy or unnecessary, or, in fact, is it about the capacity to carry out what would be regarded as due diligence that would stand up to legal challenge and examination?
1643. Mr Lavery: I think that it is both.
1644. The Chairperson: That is not helping me.
1645. Mr Lavery: It does not help you, but —
1646. Ms Stewart: Can I give an example? We have been urging for the delivery tracking system to come online for a long time. We met the Strategic Investment Board (SIB) and CPD last September, and we were given a commitment to the development of the tracking system. We had a procurement workshop at which the delivery of the tracking system was —
1647. The Chairperson: I am sorry. When was that?
1648. Ms Stewart: November 2008.
1649. The Chairperson: So, the first meeting with SIB was in September.
1650. Ms Stewart: We were informed that the system would be delivered in early 2009. It has not been publicly launched or widely publicised, but it is now up and running, although there have been criticisms of it. The industry looked at that process and wondered why it took so long for something that was promised, even beyond last September, to be delivered.
1651. The Chairperson: Those are the details and information gaps that John outlined in the submission.
1652. Ms Stewart: If we have to give an example, that is one of which we have evidence.
1653. Mr McNarry: Workplace 2010 has been taken out as well as the Maze stadium project. Substantial money was involved in those projects. From where you are sitting now, although you may not be able to see the replacements for those projects, are you able to see whether those gaps are being plugged?
1654. Mr Phelan: One part of the problem is that ISNI 2, which is on the website, has been published, but the Department of Health, Social Services and Public Safety has not yet published its investment plans. Therefore, we do not have the visibility to see whether the figure is £20 billion, or perhaps £10 billion now, or of how it breaks down. Subsequently, when the overall value is known, we could strip that down and ask what projects will be funded and when they will be released. When will the consultants be appointed, and when will a contractor be appointed? What process will be implemented? Which of the projects will be design and build and which will go down a traditional route? Which will go into frameworks? That level of detail is required to enable firms to plan their workloads.
1655. Mr McNarry: How do we follow delays to commitments? How do we get underneath that? I accept that the effects of the knock-backs with the Maze and Workplace 2010 will filter through, but you cannot find out what is replacing them. Other Committees may not be as intent on scrutinising the flow of money as we are, so how do we get under this to say that there are delays on commitments and to ask why there are such delays.
1656. The Chairperson: Every Department has a responsibility to report on its investment delivery plan and progress towards that.
1657. Mr McNarry: We heard about targets from the previous set of witnesses. I suppose that Hansard has reported that.
1658. The Chairperson: I am answering your question. That is how we would do it. Further to this focused discussion, the Committee should consider sending to the Department the submissions along with the range of issues covered and ask it to respond to them over the summer. I do not want to lose momentum on this issue. Perhaps we could include the Hansard report of today’s Committee meeting. It would be useful to do that and keep the Department on its toes, especially since it is the lead Department.
1659. Mr McNarry: That would be useful, and I thank you for taking us in that direction.
1660. The RICS recommends that:
“The Northern Ireland Executive should re-examine the public works construction programme and bring forward future planned projects into years 2009-2010 to ensure continued workflow."
1661. I am keen that we major on that; that is how we will get under it. We have got to hear from the Ministers, and we have got to re-examine the public-works construction programme. We must realise that there is a problem. There are 50,000 people unemployed.
1662. The Chairperson: We might have to consider how we get to that point, because we will have to give the Executive or the Finance Minister the opportunity to respond. However, you are probably on to something. Perhaps we should ask Departments to report back on the investment delivery programme and then address the point about what can be built into the 2009-2010 spending programme.
1663. Mr McNarry: I would appreciate that, because I am sure that I speak for every member of the Committee when I say that not only am I a Committee member, but I am a MLA who is representing a constituency. My constituency of Strangford is dependent on the construction industry at all levels — that is why I asked about self-employment and such matters. My constituents come to me to ask what work is available. They have heard that there is a possibility that work will be done on a hospital, for instance, and they want to know what I think is going to happen. That is why it is interesting to have representatives of the RICS here. They are on the first rung of the ladder, and they know what is going to happen. If they are having problems, those problems are bound to be magnified by the time that we get up the ladder a bit.
1664. Ms J McCann: Victor Hewitt informed the Committee that the quarry industry was asking for projects to be brought forward a year. When we asked whether that could be done, we were told that Treasury accounting rules disallowed it. I would like an update on that, because we asked them to go and look at the Treasury accounting rules to see if there was some way in which we could get flexibility.
1665. The Chairperson: There was some business with the accrual.
1666. Mr McNarry: There are always plenty of reasons. Civil servants can come up with a list of reasons the length of your arm as to why something cannot be done. We would like to hear reasons why something should be done.
1667. Mr Lavery: Initial thinking about the delivery tracking system was that it would be possible to identify clearly projects that were becoming delayed and then bring forward others that could be fast-tracked. The delivery tracking system would give visibility, so that if schemes slowed down for reasons beyond control, others could be brought forward.
1668. Mr McNarry: However, that probably involves getting the Minister to give something up. If he is holding on to part of his budget for a project, he might not want to give that up to another Minister. Kudos is a big word in politics.
1669. The Chairperson: We will not go there at this stage. We will take a look at that when we come to the end-of-year returns.
1670. Colm, Ann and John, thank you very much. Apologies again for the delay; it was a very helpful and worthwhile session.
16 September 2009
Members present for all or part of the proceedings:
Mr Peter Weir (Deputy Chairperson)
Mr Simon Hamilton
Mr Fra McCann
Mr Mitchel McLaughlin
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Witnesses:
Mr Clyde Markwell |
Royal Society of Ulster Architects |
1671. The Deputy Chairperson (Mr Weir): I welcome the representatives from the Royal Society of Ulster Architects (RSUA). They are: Mr Dawson Stelfox, the president of the society and chairman of Consarc Design Group; Mr Clyde Markwell, the chairman of the society’s professional affairs committee and a partner in Knox and Markwell Architects, and Mr Frank McCloskey, the society’s director.
1672. I remind witnesses, members and those in the Public Gallery that Hansard will be reporting this evidence session. Therefore, all mobile phones must be turned off completely, because they can cause sound interference on the recording system.
1673. Gentlemen, you are very welcome. Members have been supplied with a copy of your written submission, and we are more than happy to hear a brief presentation or any additional remarks that you wish to make. I will then invite members to ask questions. Thank you for your help in this process.
1674. Mr Dawson Stelfox (Royal Society of Ulster Architects): I do not intend to take up too much of the Committee’s time with my presentation. We are grateful to members for inviting us to give evidence today. Most of our information is included in the paper we submitted in February. However, two issues have strengthened in importance since then. Therefore, apart from the continuing and perhaps increasing crisis in the industry, there are two main issues that we wish to discuss today.
1675. There have been a number of cases in which firms, architects or other professionals from outside Northern Ireland, and indeed outside the UK, have been appointed to undertake large public projects without the involvement of local practices at the time of interview. That is a very worrying sign. I know that the Committee is concerned about the fate of small and medium-sized enterprises (SMEs). Therefore, it is particularly worrying when work here is effectively being commissioned to practices outside Northern Ireland. It is not that we do not welcome international expertise coming to Northern Ireland, but it should be done in conjunction with local practices and local expertise, so that there is a flow of information, knowledge and learning, and so that resources and money from Northern Ireland stay in the Northern Ireland economy.
1676. The second worrying sign, about which I will speak a bit more, is the move towards the establishment of frameworks for housing associations. This is imminent: it was mentioned in our paper, but we now know a lot more about it. Frank McCloskey has been speaking to representatives from some of the housing associations. We would also to speak about that today.
1677. The Deputy Chairperson: Thank you. Are you aware of any recent measures taken by central procurement directorate (CPD) to make the framework agreements friendlier to SMEs? If you are, what is the potential impact of those?
1678. Mr Stelfox: As the Committee knows, the RSUA is part of the professional college of the Northern Ireland Construction Industry Group. Through that group, we have been speaking with CPD particularly about the most recent professional-services framework, for which tenders are currently being assessed.
1679. There was quite a lot of discussion between the group and CPD to try to make that framework more SME-friendly, in particular though lowering turnover thresholds and allowing partnering, so that, perhaps, two small firms could come together to make a bid. However, CPD has not taken up other measures that we proposed, including the use of more minor-works frameworks; more flexibility for smaller projects and, in particular, measures to allow the community groups scattered around Northern Ireland that are commissioning work to continue to use the local firms that, in many cases, have done all the development work for them.
1680. There has been some movement on the professional-services framework, which is out to tender at the moment, but in our view there has not been enough movement to ensure that small practices, particularly those that are spread across the country, are able to continue to bid for public-sector work. Our biggest concern is that, with the concentration of work in frameworks in the future, a large number of practices — and smaller practices constitute the majority — will be ineligible from bidding for government work.
1681. Mr Hamilton: Will you elaborate on your general concerns and what you think are the worrying signs about the move towards framework arrangements for housing associations? There has been a general move towards frameworks in all areas of procurement including, potentially, procurement for water, and now for housing associations. I have an open mind on the benefits of frameworks. I am not entirely convinced of their merits and whether they maximise any potential benefit. Even if one considers frameworks to be effective; is four the right number to have? It seems to be in some way artificial. From the practitioner’s side; as architects, what do you see as the problems with housing-association procurement going down that route?
1682. Mr Stelfox: I will let Frank answer, because he has been speaking with housing associations about the issue very recently.
1683. Mr Frank McCloskey (Royal Society of Ulster Architects): Frameworks were initially designed to cope with substantial projects over a three-to-five-year period, but it seems that they will now be imposed on all kinds of procurement, which does not seem appropriate.
1684. As well as being the director of the Royal Society of Ulster Architects, I have a background in housing. Traditionally, housing associations provided small packages of work for architects around the Province. Our organisation is affiliated with 272 practices, and well over two thirds of those are very small; most have fewer than 10 members of staff, and some have fewer than five. Housing associations always used practices that had community knowledge, and there was a very good synergy between the architectural practice and the housing association.
1685. Imposing frameworks means that all housing projects will probably be done by a relatively small number of practices. The worrying thing is that it is likely that projects will go to very large practices that may not have expertise in housing. Dawson said that we are trying to persuade CPD to use a minor-works framework, so that at least there will be some work for the very small practices around the Province. However, large practices and large syndicates can also bid for minor works; and, given the economic situation, they are likely to do just that.
1686. There is one other point about SMEs. One could argue, and I hope that I am right in saying this, that probably all of the 272 practices in Northern Ireland are classed as SMEs. There are only 21 practices with more than 20 staff, and only a handful of those have more than 50 staff. But, even those practices could be described by the Committee as being SMEs. Outside Belfast, across the Province in all counties, there are very small practices that are even smaller than SMEs. With the downturn in housing and private work, those practices will have nothing if they lose the work from housing associations.
1687. Mr Hamilton: In my experience, in most housing projects there is a rubbing point that causes friction and needs to be ironed out with the architect, and it is useful if the architect has local knowledge and is easily contactable.
1688. You made a point about small-scale projects. As most housing association developments are small scale with respect to procurement, contracts do not need to be put out to tender on a European-wide basis. If the projects were to be packaged together, they would have to go out to tender on a European-wide basis. We have been quite fortunate in recent times, because probably 99·9% of that type of work has been done by local firms, from design stage through to building stage. If those contracts were packaged together and put out to tender at the European level, all and sundry will be able to bid for them. Whether people do or do not bid is debateable, and time will tell. However, we are exposing ourselves to a risk, because the existing system has worked reasonably well for local firms. Regardless of whether there are economies of scale, going down the route of adopting four frameworks seems dubious.
1689. Mr Clyde Markwell (Royal Society of Ulster Architects): We are not interested in protectionism. Dawson made the point that we have always been open to and welcomed outside expertise, from which have learned and the Province has benefitted — we totally agree that it is better to have a well-built environment.
1690. Northern Ireland is experiencing the effects of what happened in England and Wales, where changes in the procurement strategy were based on the recommendations of the Egan and Latham reports. The purpose of those changes was to try to drive a more economic solution by making larger packages available; taking the risk of defects out of buildings, and taking overruns out of buildings. That ethos has been applied throughout Northern Ireland in the frameworks that have been put out to date, and there is a continuing drive to eradicate the potential of expertise that has existed here for a long time and that has provided a very good service.
1691. I am nervous that we will lose the point of contact in the locality by opening everything up to large-scale organisations. That is not to say that large-scale organisations cannot provide a very good service: they can. However, there is no research or evidence to indicate that Northern Ireland has the same problems as England and Wales. For example, in England and Wales it was claimed that there were overruns and defects in education projects and that projects were not produced to a high standard.
1692. If you ask the Department of Education here, you will have difficulty producing negative statistics. Good examples and standards have been set here in the design and construction of buildings, which is reflected in other construction projects. My nervousness is that a whole ethos of procurement has filtered into Northern Ireland, which is to the detriment of SMEs.
1693. The Deputy Chairperson: Did you want to say something about that, Mr McCloskey?
1694. Mr McCloskey: No, I am fine. I just feel very strongly about what they are doing with housing associations.
1695. Ms Purvis: You are very welcome. As regards frameworks, CPD set up a procurement task group, which concluded that the use of framework agreements was a good thing. It listed a number of reasons why framework agreements were good for the contracting authority, how they reduced tendering costs for public-sector contractors and enhanced continuous improvement by transferring the learning from one project to another, developing the skills and competences of supply chain members and their workforces and improved working relationships. Our interest is in ensuring that public money is spent to best effect. Your paper suggests that frameworks are not always the way to go, certainly in the interests of SMEs. How do you counter the argument that frameworks are the best way to go?
1696. Mr Stelfox: There is quite a lot in that question, Dawn. I will try to break it down into smaller pieces. To pick up on Mr Markwell’s point, the use of frameworks is part of a general move by the Office of Government Commerce (OGC) towards construction excellence models. It is not just about how the Government procure buildings; it is also about how the buildings are constructed and is tied to the move from traditional procurement to design-and-build models and public-private partnerships (PPPs). It is difficult to separate those things.
1697. We acknowledge in our paper that there may be benefits in frameworks if they are used correctly for the right types of projects. There is a lot of repetitive work that provides the learning experience that you referred to, and there is a benefit there. However, lumping diverse projects together into a framework does not necessarily mean that the right people will be available for that diversity of work. Also, there will not be the same learning experience between the projects.
1698. One particular issue that we highlight is where community groups are developing community buildings in Northern Ireland. Once a group gets its 50% Government money, or perhaps as much as 90% from various sources, it has to go through the CPD process. For example, the Crescent Arts Centre development began with a firm of architects who carried out the initial design and worked with the client and all of the groups that use the centre to produce a good scheme. The development got all its funding, including lottery money as well as Government money, but as soon as it achieved 50% funding, it had to go through the CPD process in order to progress from the planning permission stage. The original firm was not even eligible to bid for that work because it was not included in the framework.
1699. There are all sorts of things that are wrong with that situation. The knowledge that was gained by the original architects over three years of working with the user groups was lost, and having designed the scheme and obtained the funding, they were not even eligible to build it. That represents a loss of knowledge and continuity in the system. Counter-arguments can be made.
1700. Ms Purvis: In a case such as that, would the traditional procurement method have been preferable?
1701. Mr Stelfox: Yes, absolutely. There is a particular issue with grass-roots community groups. I have done a lot of work with such groups, particularly on restorations. In the early stage, they are left on their own and do not get much advice or support from CPD until they have a viable project.
1702. In many cases, to make a project viable, groups go to their local architect, who works for a nominal amount of money, or sometimes for free, to get them started. The same applies to local surveyors and engineers. The project gets to the stage of being granted planning permission, and funding is applied for. Two or three years later, when everything is place, CPD, in particular, bears down with a heavy weight of bureaucracy and makes the groups jump through an extra set of hoops. In our experience, costs rise inevitably, and projects are taken out of the hands of local professionals and become part of that large procurement group. That creates a problem through the loss of knowledge and lack of continuity. In addition, it is not particularly efficient.
1703. I could go on at length on this subject because there are many examples. We are not saying that frameworks should not be used. They work fairly well in particular circumstances. The model developed by the health estates is slightly different and uses performance-related partnering (PRP), as developed by John Cole, the director of health estates. That model produces many of the benefits that you mentioned, Dawn. If, for example, a team that is appointed to one project performs well, it is awarded a second one, and, if it performs well on that one too, it is awarded a third project. The transfer of knowledge is achieved by rewarding good performance. Conversely, if a team does not perform well on the first project, it is not awarded a second one. There is, therefore, a good incentive for teams to perform well.
1704. That model has produced, in Northern Ireland, some of the best health estate buildings in the United Kingdom. The model is now well regarded because Northern Ireland has not gone down the road of design-and-build and PPP for its buildings in the health estate to as great an extent as England. Therefore, alternative models already exist.
1705. Mr McCloskey: The so-called benefits of frameworks generally have not been proven absolutely. If we consider the situation in England and Wales, particularly the use of frameworks in education, the results have been appalling, as is well documented. Theory is one thing, but what happens on the ground is quite another. Frameworks have proved to be expensive and not particularly successful.
1706. Significant buildings, particularly public buildings, should be the subject of design competitions. They should not be constructed through frameworks. I could cite specific examples, but I do not think that I should. Many of you will know about them and the resulting controversy.
1707. Mr McLaughlin: I am not speaking for the Committee, but I know that it has focused on the issue of frameworks. Even in good economic times, the Committee would have been concerned about preserving and developing capacity. That becomes particularly important during an economic downturn. We have focused on public procurement as a means of providing support for indigenous practice, and, in fact, are organising a conference on that subject a month hence. Frameworks represent orthodoxy, but some issues, such as wider British Government and European policies, require consideration. We must widen our focus beyond simple financial considerations and take into account quality.
1708. It is a matter of developing economic capacity. There is greater indigenous involvement in servicing the contracts and in retaining and expanding on the existing expertise in design-and-build capacity. I do not want that involvement to be corralled into a subcontracting mode, which is the direction in which we are being pushed. Generally speaking, you are making a pitch that reflects some of the Committee’s concerns. Have you considered some of the frameworks projects that have been brought forward? I do not expect you to be specific. However, are you in a position to indicate how a different approach would have been more beneficial to the economy and to the existing capacity and expertise?
1709. Mr Stelfox: We are at the early stages of seeing the built results of the first round of procurement through the frameworks. There is a bit of a time lag, because the move came about as a result of the Egan and Latham reports in the UK. It was not implemented here as quickly as it was implemented in England and Wales.
1710. The first proper assessments of projects are now happening in England and Wales. Those assessments examine the time taken for delivery, the cost of delivery of the building, and the design and building quality. In some cases, when it comes to PFI, assessments also look at the running and maintenance costs: the whole-life costs of the buildings.
1711. I do not think that any of the Northern Ireland procured projects are at the stage where proper assessment can be made. As Frank said, in many cases the buildings are more expensive to produce and take longer. The best way I can phrase it is to say that the quality varies. There are some very good examples and some particularly poor examples. It is fair to say that in England and Wales, there are some very poor examples of traditional procurement.
1712. The impetus for the change and the process was to take risk away from the Government as a client, because the Government had not proved to be a well-informed and active client in managing those risks, the risks of budget overruns and design quality. Frank may disagree, but I think it is too early to judge the use of the frameworks authoritatively. They have only been in existence for four years, and the first building are only now starting to be completed.
1713. Our paper calls for DFP to assess the buildings that have been procured through the first round of frameworks and compare them with traditional procurement. There are still plenty of buildings around that resulted from traditional procurement processes. We would like that assessment to examine whether all the benefits that CPD stated should be coming forward are being realised.
1714. Procurement stakes are raised when elements are bundled together to produce frameworks. That triggers, and has triggered, legal challenges to those procurements. If a contractor is not awarded one of those frameworks, then they will have no work in that sector for the next four or five years. It really raises the stakes. Members will be aware that there have been plenty of challenges. In my experience, that did not occur under the traditional procurement process, because if a contractor was not awarded one job, there were plenty of other jobs to tender for. Legal challenges are introduced when the stakes are high. CPD’s not unnatural response to that is to add another level of bureaucracy and checks, and it all builds up into a very cumbersome process. That takes away a lot of the benefits that Ms Purvis outlined. CPD would say that it was necessary in order to improve the speed and efficiency of procurement, and the time taken. I think that the Committee should ask CPD for an analysis of the time that it has spent in putting together the professional-services framework or the contractor-integrated-design-team-led procurements, because I think you will find that the costs of those procurement processes are quite staggering.
1715. Mr F McCann: Much of what I wanted to ask has already been dealt with by other members. I want to ask a couple of questions about procurement and housing associations.
1716. Some difficulties with those were raised in another Committee. It was pointed out that the process did not guarantee quality or local employment and that it certainly did not guarantee a mechanism through which local companies could tender. One of the first concerns that we raised was about local contractors being able to bid for the bigger contracts. The Department said that the process would eventually force most of the small builders to make bids together. Is there any evidence that that will happen?
1717. You said that there is already evidence that the processes based on the Egan report will not work as well as people had initially been told. Many complaints have been made about the quality and cost of the work on some of the maintenance contracts that have already been carried out.
1718. Was any work done over the holidays to try to work out a method through which local architects and builders can go ahead with design-and-build projects? Is there a danger of select lists of contractors being created that would totally exclude most architects and builders from applying for work?
1719. Mr McCloskey: If the housing association frameworks go ahead, there are likely to be four frameworks, with the possibility of having four practices and four architect-led teams on each of those. That accounts for 16 firms out of 272 firms. Given that that arrangement is going to last for four or five years, one must ask what the rest of the firms will do.
1720. My main point about the frameworks is that, as the saying goes, there are horses for courses. In some instances, they may well be very successful, particularly for a certain type of work such as repetitive work, as Dawson said. However, imposing frameworks on what has traditionally been small packages of work that have kept the economy across the Province going is such a nonsense that I get het up about it.
1721. Mr Stelfox: Increasingly, architects are collaborating with contractors on design-and-build contracts. The design-and-build framework was one of those subject to a legal challenge and I am not sure whether the Government decided to appeal that. Effectively, however, that framework is in abeyance. As a result, a number of single-project design-and-build contracts have come out.
1722. The Committee may know more about the extent of the backlog in the system; there is a huge backlog and delay in getting public projects into the marketplace. Some of the legal challenges may be part of that. Under some design-and-build frameworks, contractors put in their submissions between six and nine months ago but still do not know what is happening. There is a huge hiatus in getting projects to the marketplace, and that seems to be complicated by the procurement process. I am sure that it is also complicated by the legal challenges to the frameworks. Therefore, the CPD is doing all that it can to ensure that the next procurement that it makes is robust in case it comes to a legal challenge.
1723. Design-and-build contracts are a fact of life for architects. We all work with contractors, and we are tied in with a couple of contractors to work on design-and-build contracts. That type of contract works well on some types of projects, but not on others, particularly those with a high design element in a public building or those that involve working with community groups. Inevitably, design-and-build contracts dissociate the design team from the client and put a barrier in the way. That may work well with an industrial building, which would be a fairly basic project. However, a community group, for example, has specific needs and without direct contact between the group and the design team, the group may find that its needs get watered down in the process. A great danger with the design-and-build process is the dissociation of the design team from the client.
1724. Mr McQuillan: The CPD said that the frameworks will reduce the time that it takes to get a project on site by four months. Is that the case?
1725. Mr Stelfox: We have had a different experience. It depends on the point at which one starts to measure the length of time. I have no doubt that that is the case for projects that are ready to go now. Many projects are small-scale and do not have a lead-in period, whereas bigger projects do. For small-scale projects that are worth between £500,000 and £1 million and that do not need to be advertised through an Official Journal of the European Union (OJEU) notice, it is much quicker to use a traditional procurement route than a framework approach.
1726. It must be remembered that frameworks also involve a secondary tender process, which takes up a lot of time. The way in which the frameworks have been working, and are due to work, is that six teams are selected for the framework and they then take part in a secondary competition to bid for the project. The secondary competition also takes up time; it is not an awful lot longer than a traditional procurement single action takes for smaller projects. The frameworks will not save time for smaller projects; however, they will save time at procurement stage for larger, OJEU-sized projects.
1727. Mr O’Loan: Your paper is excellent and you have amplified that today by providing a substantial critique of what the Department is doing. There is a case for it to answer as regards its contention that the framework system provides economies of scale and value for money. I am going to act as devil’s advocate for a moment by presenting the Department’s thesis.
1728. Any profession will instinctively defend its interest. Even though the process might be painful, is there an argument for saying that it is necessary to consolidate the industry, through forced partnerships either among colleagues in Northern Ireland or with firms from outside Northern Ireland, as that might enhance the strength of the profession and put it in a better position to win significant contracts outside Northern Ireland? Northern Ireland is a very small place in which to do business. Is that a valid point?
1729. Mr Stelfox: That is a valid point, up to a point. Local firms are and have been collaborating with UK, Irish and international practices for work both in Northern Ireland and overseas. That collaboration is happening and allows expertise to flow both ways. We should not forget that there is a very high level of expertise in all aspects of the construction industry in Northern Ireland. It is a very good, professional industry on both the contracting side and the design side. Many local firms are winning work in Scotland, which is one of the few places where there seems to be quite a lot of work at the moment. A lot of tradesmen, architects, designers and contractors are working in Scotland.
1730. We have no desire to prevent the growth of that professionalism or the free flow of expertise, which tends to happen with the larger projects when the larger practices are involved. The danger, particularly in relation to housing associations contracts, is that if there is not sufficient public sector work for the small practices that are scattered around Northern Ireland, those practices will inevitably close. That will be to the detriment of the local economy and the local availability of professional advice and services. Those small practices perform a social function as much as anything else. Architects play a particular role in that by arbitrating between the client and the builder. Therefore, as well as running a business, we also play an adjudication and arbitration role. If that service is not available, people will lose out.
1731. We are very keen to develop the profession in Northern Ireland and enhance its capacity, but we do not want to see that becoming concentrated, which is what would inevitably happen if we go too far down the framework route. Expertise would get concentrated in 20 or 30 large practices that would inevitably be based in the greater Belfast area, leaving the rest of Northern Ireland without access to a professional service.
1732. Mr O’Loan: You raised two additional points at the start. One of those was to do with housing associations and has been dealt with. You also referred to a couple of recent cases in which large outside firms were awarded business. I thought that you said that there was not any opportunity for Northern Ireland firms to compete for that business. Will you clarify what you said?
1733. Mr Stelfox: One particular, fairly high-profile case was the new police training college at Desertcreat in Cookstown. I hope that I did not say that local firms did not have any opportunity to tender for it. Local firms did have that opportunity and in most cases they partnered up with large firms because it was a big and very specialist project. In most cases, Northern Ireland firms partnered up with an outside firm.
1734. The American firm that won the contract declined invitations from local firms wishing to team up with it. The firm won the work without any local expertise whatsoever on its team. It was awarded the contract without any commitment to employ local firms or practices. As far as I understand it, that was the position. Since the firm was awarded the contract, it has talked to local practices about support services for the work, but the point is that there should be a requirement that competing firms have people on the ground to deliver the service. There should also be a contribution back to the Northern Ireland economy.
1735. That is one example. I have heard of other potential examples, but our point is not that we want to stop international expertise from coming in; it is that we want to make sure that there is a mechanism to disseminate that expertise to the profession so that we all learn from it. Furthermore, the cost of that service, or at least part of it, should be spent in Northern Ireland as opposed to disappearing off, out of Northern Ireland. That one example is a warning that local involvement should be a requirement of tendering for public sector work.
1736. Mr O’Loan: Should it be written into the specification?
1737. Mr Stelfox: Yes.
1738. Mr O’Loan: Do you not think that that is adequately protected, given the outcome that you described? Was the creation of those partnerships not inevitable?
1739. Mr Stelfox: I do not claim to have any kind of inside knowledge. My understanding is that, at the time of submission, the company did not have a liaison with a local practice. In fact, it declined such an arrangement. The company won the job without that liaison. For pure practicality reasons, it needed someone to help it to deliver, but that person or firm would have a minor, supporting role.
1740. For large public sector works, there should be a mechanism to ensure that there is local delivery. An example of that is the new library at Queen’s University, which was a partnership between an American firm of architects and a local firm. The local firm of architects did a substantial amount of the on-site work, so such an arrangement can work and can be done. However, there must be a mechanism to make sure that that is part of the assessment process.
1741. Mr McNarry: Apologies for being late. I read your submission, and I am sorry that I did not hear what you had to say earlier. I know that we are talking about procurement. I am a member of the Committee for Culture, Arts and Leisure, and I must declare an interest in the sense that I look up to your profession for specific deliveries for communities and for Northern Ireland; therefore, I hold you in high esteem. Having said that, I hope that you will not knock all of it back on me.
1742. Are you in a position, or is it your role, to promote opportunities that people are not grasping or the Government are not acting on? That will have an effect on procurement down the line. I am aware that people come to the RSUA stating that they have a budget and wondering what they can do with that. I am also interested in what visionary aspects you can bring; whether you can tell Government or politicians that one project was wrong but, for example, there is a bit of land that could be used or a project that could be put right. Is that in your remit? Would that help to develop the width of procurement by generating more work and expanding on what can be done?
1743. Mr Stelfox: That is a big question. To deal with the procurement aspect, the use of competitions is a very good way of demonstrating the talent, vision and imagination that exists and showing how the right solution can unlock a site’s potential. Frank has run quite a number of competitions. We sponsor competitions and regularly speak to Departments about them; Frank is working on one at the moment. The very purpose of competitions is to do what you are outlining; it is for people with talent, if given the right brief, to go beyond what is presented immediately — the mundane aspects that are easily seen — and come up with something exceptional.
1744. The RSUA lobbied the CPD very heavily two or three years ago to have the new Metropolitan Arts Centre in Belfast procured through competition rather than a framework agreement, which is what they were intending. We were successful in that case. That contract was won by a small firm of local architects that have since go on to win the Young Architect of the Year Award in the UK. They would not have had the opportunity to bid for that work if it had gone through a framework; the opportunity came through competition.
1745. Clients, particularly in Government, are scared of competitions at times, partly because there is a cost of running them, and partly because the judges might pick a design that is too expensive or that the Government does not like. Clients seem to be very nervous of competitions. Frank has run many.
1746. Mr McCloskey: I have run different types of competitions. Many clients, including public sector clients, equate competitions with a design that is inappropriate or too way-out, but we always have more client judges on the panel than we do architects, so that problem can be taken care of.
1747. Mr Mc Narry: Can it be argued that being competitive can be cost-effective?
1748. Mr McCloskey: Yes, very much so.
1749. Mr McNarry: I think that some people do not see that.
1750. Mr Stelfox: The quality of the brief is important. Through Frank, the role that the RSUA plays is to offer clients — including Departments and many district councils around Northern Ireland — the expertise of developing the brief and running the competition to make sure that all aspects of the building are judged. We ensure that is not a pretty-drawing competition; it is about how the building will function, what it will cost, and how it will be procured.
1751. Mr Markwell: In January or February 2009, we offered assistance to the Planning Service at the time of the change between PPS 14 and PPS 21. We liaised with them and suggested how they could run a competition for the design of a rural project. We offered our expertise and assistance to them. We also offered our assistance with the design guide that it is talking about publishing.
1752. Mr McNarry: What was the result of that?
1753. Mr Stelfox: The Planning Service has taken up our offer of assistance but has not yet availed itself of it.
1754. Mr McNarry: The design guide is extremely important. Will you let us know what happens, because nobody else will?
1755. Mr Stelfox: How do I put this delicately? The delay is due to a change of personnel in the Planning Service. It recently contacted us again about getting our help with commissioning the design guide and running a competition. The competition will probably have two aspects; it will look at the single-house design and the new social housing clusters.
1756. Mr McLaughlin: So it was just the goalkeeper who had moved.
1757. Mr Stelfox: Yes, it was.
1758. The Deputy Chairperson: On that positive note, I thank you all for your evidence, including your submission. The value of your evidence is underlined by the fact that we have run over time due to the interest that it generated. Your submission, along with those of all other witnesses, will form the basis of our report. Thank you for your valuable contribution.
1759. I refer members to the response from the Department of Finance and Personnel to the issues that were raised during the Committee’s evidence session with the Royal Institute of Chartered Surveyors. That is just for noting at present, unless members have any queries.
1760. The members’ pack also contains a request from the ministerial advisory group for architecture and the built environment for Northern Ireland — whose slightly snappier title is MAG — to give oral evidence to the Committee as part of our public procurement inquiry. The role of procurement in improving design quality may be tangential to the main focus of the Committee’s inquiry, which is removing barriers of access to SMEs. I suggest that we write to MAG providing the terms of the inquiry and request a written response that addresses the specific issues of the opportunities of greater access to procurement. Are members content with that?
Members indicated assent.
1761. The Deputy Chairperson: The members’ pack also includes previous correspondence, including figures on SME involvement in public contracts. Assembly Research Services have considered that response and have identified a number of areas on which they think it would be helpful to seek further clarification from the CPD. Those include information from the CPD and other COPEs on the number of contracts that were awarded to SMEs over a number of years to assess performance and progress over time. Perhaps we could also query why there are so many acronyms in the sector. We also need clarification on the evaluation of the effectiveness of Constructionline and the eSourcing NI portal. We also need further information on contracts awarded to SEEs by the CPD and the use of social contracts in procurement contracts. I suggest that we request that further information from DFP officials in advance of the stakeholder conference, because it could be useful.
1762. Ms Purvis: Can I ask for a further request to be made to the CPD? The Department’s brief to the Committee refers to EU regulations and when they apply and states:
“If the works were not the main objective of the contract, but were incidental to another objective, the Regulations would not apply."
1763. That refers to the building of social housing in particular. Can we request that the CPD provides some information on instances in which regulations have not applied and where works have been incidental to the main objective?
1764. The Deputy Chairperson: We will incorporate that also. Are members content that we seek that further information?
Members indicated assent.
30 September 2009
Members present for all or part of the proceedings:
Ms Jennifer McCann (Chairperson)
Dr Stephen Farry
Mr Mitchel McLaughlin
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Witness:
Dr Glynis Davies |
Chartered Institute of Purchasing and Supply |
1765. The Chairperson (Ms J McCann): I remind members, witnesses and those in the public gallery that this session is being recorded by Hansard and that all mobile phones must be switched off.
1766. I welcome Dr Glynis Davies, the project manager of the Chartered Institute of Purchasing and Supply. Please give your presentation and then the Committee will ask some questions.
1767. Dr Glynis Davies (Chartered Institute of Purchasing and Supply): On behalf of the institute, I express my gratitude to the Committee for inviting me to give evidence. It may be helpful if I say a little bit about the institute which has 50,000 members in 150 countries. It was established in 1932 and was awarded a royal charter in 1992.
1768. The Chartered Institute of Purchasing and Supply (CIPS) promotes and develops high standards of professional skill, ability and integrity among all who are engaged in the purchasing and supply-chain management profession. CIPS assists individuals, organisations and the profession as a whole. Our members work across the public, private and voluntary sectors. We deliver our goals through four areas of activity. First, we provide professional qualifications and training for practitioners, from introductory to graduate level. Secondly, we promote excellence in organisations, helping them to maintain the highest standards in their purchasing and supply-management functions. That includes training staff and accrediting their procurement methods. Thirdly, we support academic research in our field. Finally, we represent the interests of our profession in the wider community and influence government and EU policy on procurement.
1769. I joined CIPS in 1990, achieved membership in 1991 and have been a fellow since 1998. CIPS asked me to represent it today because of my experience in the public sector. I have led the procurement function in a number of public-sector organisations, including the Department for International Development, Brighton and Hove City Council, the British Council and, most recently, Birmingham City Council. My interest in the economics of procurement relationships between the public sector and the private sector informed my work as director of contract innovation at the Office of Government Commerce (OGC) between 2002 and 2004, and my PhD, which I completed in 2004.
1770. CIPS is aware that small and medium-sized enterprises (SMEs) can play a significant role in the supply chain, and we are aware of some barriers to their participation. Those barriers have included economies of scale, standardisation drives, and the importance of security of supply. There are also perceived barriers, including bureaucracy, lack of understanding of SMEs and complexity of processes. We recognise the importance of the EU rules on public procurement and that those rules can make for a process that may seem daunting to the newcomer.
1771. In total, EU countries command a public-expenditure spend of €175 billion. That is a vast market, much of which is available to many SMEs once they have mastered the EU rules. By contrast, the Northern Ireland public-sector spend is in the order of €2·2 billion. CIPS supports initiatives that enable SMEs to contract with the public sector. Through training and influencing, CIPS encourages its members to facilitate SME participation in public procurement. We consider it essential that trained professional personnel exercise the procurement role in public-sector organisations.
1772. CIPS makes seven key points to its members and others on the topic of contracting with SMEs. Our first point is that contracting information should be made available and accessible to SMEs, especially for all contracts that fall below the EU limit, including through portals such as ‘supply2.gov.uk’ and the similar one that has been developed here by the Central Procurement Directorate (CPD). Our second point is to encourage prime, or first-tier, suppliers to work with SMEs, as BT, HP Enterprise Services and other big suppliers to central government are doing. SMEs should be encouraged to collaborate on public-sector contracting.
1773. Thirdly, guidance should be kept clear and easy to find. It is often difficult to make information easy to find, but it is crucial to do so. Unnecessary jargon and acronyms should be avoided. Fourthly, the training of local SMEs should be supported so that they can bid under EU rules, not only for local contracts but for opportunities across Europe. Fifthly, it should be ensured that all contract requirements that are set out are genuinely necessary to the delivery of the contract. Sixthly, effective communication must take place with all would-be bidders, and subsequently bidders, throughout the procurement process. Last, but by no means least important; open, constructive and educational feedback should be given to unsuccessful bidders.
1774. The institute recognises the complexity of public-sector procurement, which seeks to achieve three sets of objectives. I often think of it as a circle with arrows pointing in three different directions, rather like the Mercedes symbol. First, there is the importance of getting best value for taxpayers’ money. Secondly, there is meeting the requirements for transparency and regulatory compliance, including EU rules. Thirdly, there are policy requirements, including the SME agenda and other economic, social and environmental requirements. Those three aspects do not point in the same direction for all procurements. It is a difficult and challenging task to achieve the best possible outcome.
1775. Sometimes, private-sector procurement is more straightforward. We like to think, and, indeed, I believe, that CIPS professional training helps our members to relish the challenges of public-sector procurement and meeting those three sets of objectives. Public-sector procurement is a different task compared to procurement in many private-sector organisations. Colleagues who move from one area to the other are often taken aback by just how challenging it is; and, of course, how interesting.
1776. The Chairperson: Thank you. A number of members have indicated that they have questions.
1777. Mr O’Loan: Thank you for coming. Thank you, too, for your submission, which was sent in advance, and for your opening remarks. It might be useful if you were to give us copies of those afterwards.
1778. I want to talk about framework agreements. The Committee has heard evidence that SMEs can be ruled out of procurements at the pre-qualification stage over issues such as insurance, turnover and the exact type of past turnover. There is also the argument that frameworks offer value for money and economies of scale. What was your experience of frameworks in England? Do the same lessons apply to other regions; in particular to this region, which is distinctive in its characteristics?
1779. Dr Davies: Frameworks do not have to rule out SMEs. If one is dealing with a series of smallish contracts — and I have often been involved with such frameworks — one sets up a framework in order to avoid running big procurement exercises for relatively small contracts, and doing so repeatedly. In such a framework, it is possible, even likely, that the requirements to get through the first stage, the so-called pre-qualification questionnaire (PQQ) stage, are no tougher than for those smaller procurements that would have happened one at a time at great administrative cost to the public purse. There does not have to be a difference.
1780. However, some frameworks are intentionally larger. In those cases more insurance is required. One needs to know that the company will be in existence for the four years that the framework may run, and so on. Therefore, it is very much case by case. It is not possible to say that frameworks are good or bad for SMEs; it depends how they are organised. There is an argument that it costs an SME or private-sector organisation a great deal of money every time it bids in a major competition. Frameworks can also save money for bidders, because they submit their bid at the beginning, and are then included in the framework. After that, bidding is through mini competitions, the administration of which is cheaper for them as well as for the buying organisation.
1781. Mr O’Loan: What about economies of scale in this region compared with other regions? One argument is that if frameworks are used here, one will end up with a small number of big bargains, and that can end up excluding companies and can often lead to litigation, because the stakes are too high.
1782. Dr Davies: I confess that I have read the Hansard reports of previous meetings, so I have come across the arguments that other witnesses have made. I am not aware that it is a problem in Birmingham or Brighton, but it is a while since I sat in the OGC. However, at that point, we were not aware that it was a problem. It is about how markets operate. For example, Birmingham has an annual spend of well over £1 billion. The social care budget is difficult to estimate, so the total Birmingham spend could be £1·5 billion. However, for sake of argument, I will say that it is more than £1 billion. As members know, Birmingham is in the west Midlands, and, therefore, there is a lot going on around it. Any framework that Birmingham sets up does not exclude people who work in Wolverhampton or Coventry. On the other hand, I am aware that OGC Buying Solutions, when thinking about the whole of England, do consider the matter carefully and, as a result, set up the frameworks carefully.
1783. Mr McNarry: You are very welcome, and thank you for reading the Hansard reports. That is quite a compliment. Not many people read Hansard reports about certain things; so, you have done your homework. Your submission states that buyers perceive that SMEs can pose more of a risk than large organisations. What is your assessment of that negative perception of risk? How could it be overcome?
1784. Dr Davies: It is about appropriateness, and I must be careful not to tell incredibly local anecdotes that will not help the Committee. However, I am aware that when one is considering a contract and thinking about how to procure help to make the project progress, it is advisable to consider the size of the project and the size of the company. I am sorry; I will have to tell a local anecdote.
1785. Mr McNarry: You are bursting to do that.
1786. Dr Davies: The chap who put the roof on my house was concerned that he could not get work from the council. Later, I worked for the same council as head of procurement. Although I had sympathised with the chap two years earlier, my job in the council made me realise that, given the roofing work that the council required, there was no way that he, his father and his brother could have bid for the work. They did small roofs, and they did them very well. Indeed, I recommend him if members ever need a roofer in Brighton.
1787. Mr McNarry: Gordon Brown needs a roofer in Brighton at the moment.[Laughter.]
1788. Mr McLaughlin: He will need a roof soon.[Laughter.]
1789. Dr Davies: That roofer did not have the capacity to roof three or four schools.
1790. Mr McNarry: Did he tell you that or did you make that assumption?
1791. Dr Davies: I did not just make the assumption; our roof took a while to complete. By the time it was finished, I knew him and his business quite well. However, I am straying from the point.
1792. If someone wants a small job done locally — for example, craftwork — that person should use a small, local supplier. A lot of flint work is carried out where I come from, and I imagine the situation is similar here, with thatching and so on. However, if someone wants major work done, such as building a mass transit system, that person needs the backing of a big organisation. There is a very good place on big projects for smaller suppliers in the supply chain. The OGC has produced a very interesting document about how their suppliers use smaller suppliers. That works very well for everyone. For smaller pieces of work, one can use smaller suppliers.
1793. Mr McNarry: In your submission you say:
“Contracting authorities should also request feedback from suppliers on the tendering process in order to make adjustments for next time."
1794. How important is that feedback? It seems to me to be a valid point. Is there a gap, in that people do not have time to give feedback? What should happen with feedback when it is received?
1795. Dr Davies: Feedback is always important; it is the only way we learn. On many occasions throughout my career in procurement, I have given feedback to unsuccessful suppliers, and I have been thanked by them later for teaching them how to bid. I told them what was right and what was wrong in their bids. Similarly, supplier feedback on contracting processes can be very useful to the procuring organisation.
1796. However, one has to be careful to distinguish between helpful and unhelpful feedback. Bidders who have not won contracts are rarely happy, and they will sometimes give feedback that is not helpful. One should not acknowledge that with them: it is better to thank them for their feedback even if most of it could not be printed in a Hansard report. Of course, they also give helpful feedback; perhaps they have found a particular passage in the documentation easy to read while others were more difficult. One has to think about those things and improve them.
1797. Mr McNarry: Would you recommend that that should be encouraged more actively than it is now?
1798. Dr Davies: Our members generally get feedback. One should not encourage too much feedback, because it would be difficult to deal with if every supplier sent a 20-page document. I encourage procuring organisations to simply talk to suppliers afterwards to determine what they thought. We already encourage that, and I am aware that public-sector procurers generally do so. It is not an innovation.
1799. Mr McNarry: I do not think that it is practiced to that extent. From what I can gather, everyone seems in such a hurry, and perhaps lines of communication do not carry through.
1800. Dr Davies: I still hesitate to call it a recommendation for the future. It is something that I would continue to encourage.
1801. Mr McNarry: We might consider it as a recommendation.
1802. Dr Davies: Of course.
1803. Mr McNarry: Given the banking pressures that are being felt by everyone today, do you see evidence that SMEs are experiencing difficulties with their banks as regards credit facilities? Might that interfere with their ability to tender for and fulfil a contract?
1804. Dr Davies: I have read about that in the ‘Financial Times’ and heard about it from friends and colleagues, but I could not give you specific examples at the moment. I imagine that it is an issue.
1805. Mr McNarry: If we are both imagining the same thing; are there any easement practices that the Government might help with as an enabling process in those circumstances?
1806. Dr Davies: A proposal was made in the city of Birmingham some months ago that the council set up a Bank of Birmingham. When I handed over to my successor, work was still ongoing on that topic, and I do not know if it has got anywhere.
1807. The question is for finance people rather than procurement people. I understand that SMEs are having difficulties with banks. Cash flow is essential to small businesses, whether they have work or are tendering for it. Therefore, I think that the answers lie with the finance people rather than with my profession.
1808. Mr McNarry: Some companies in my constituency are experiencing cash flow problems, some of which are caused by the inability of the Government to pay them on time. From the procurement position, two things are happening; one is that there is a reluctance to tender, because the company may not be able to finance the work even though it has had a perfect record in the past; or the greater risk is that the company submits a tender and is successful, and the squeeze is put on it through the financial pressures that inhibit delivery.
1809. Another aspect is that gossip is very cheap in a small place such as Northern Ireland. I have no evidence for this, but I suspect that people in procurement positions are picking up on that gossip, and that that can therefore endanger the prospects of a company getting work. That is the greater picture, and it is why I wonder whether procurement people could have a wider look and understanding of the difficulties. There is value in knowing whether something is being tendered for and is not being delivered because of money. Money should not be an obstacle.
1810. Dr Davies: The straightforward response to your first point about payment is that public-sector organisations should pay promptly. Every contract contains terms about when payment will be made, and those should be adhered to. In the current economic situation, public-sector procurement people have been asked to include different payment terms. In Birmingham, I was asked recently to include payment terms of 14 days or even seven days, rather than 28 days. It is possible to do that.
1811. Mr McNarry: We are trying to specify a period of 10 days.
1812. Dr Davies: Ten days is a tough target for the payment systems to meet, but it is doable. That is the sort of thing that helps SMEs; they can ask for that timescale, and public-sector buyers can organise it with public-sector payment colleagues. It is feasible. However, it can be difficult; the systems have to be very slick. It would not be a problem as long as it is part of the original contractual agreement, or it can be negotiated post hoc, normally in exchange for something, otherwise our Treasury colleagues may become concerned that we are offering public money for nothing.
1813. Your point about gossip is quite different. That is one area where the example of the three arrows representing the three aspects of the procurement process point in different directions. If, as a procurement professional in the public-sector, I were to award a significant contract to a company that went under shortly afterwards, I would be called before a Committee like this one, to be told off pretty severely.
Obviously, one would not want to do that, because it wastes taxpayers’ money; but equally, one does not want to put companies out of business by refusing to consider them. It is a difficult balancing act, and I do not want to second-guess my colleagues in Northern Ireland who have that difficult job. I have done it elsewhere, and I can assure you that members of CIPS do their best to think of all the possible ways of dealing with a problem. But it is not an easy job.
1814. Mr O’Loan: I want to ask about the connections between central and local government. As you know, local government here is different; it has fewer functions and, it will be changing significantly in the immediate future. What is the relationship between central and local government in England with respect to public procurement policy, and what can you say about efficiencies with respect to collaboration?
1815. Dr Davies: How long have you got?
1816. Mr O’Loan: Not very long; we are looking for the short answer.
1817. Dr Davies: First, in England, with which I am familiar, central and local government have different political leaderships. Many local authorities are conservative controlled, and central government is Labour controlled, so central government is limited in the number of edicts that it can send out. I am sure that you are familiar with that situation here.
1818. In central government, the OGC sets policy, and Government Departments follow it. Setting policy is a consultative process; it is not a fiat from the top. However, once policy has been set, Government Departments are expected to follow it, and the OGC, with the assistance of others, produces procurement capacity reviews of all Government Departments that, basically, say how they are doing. The feedback from those reviews is taken very seriously.
1819. Mr O’Loan: How does that affect local government?
1820. Dr Davies: It does not affect local government. I am not saying that local government sets its own rules, but there is legislation about what local government can and cannot do. In addition, there have been a number of reports, such as the Byatt report, which is historical and has been completely implemented in most authorities. Local government sets its own requirements within the overall framework of local government legislation.
1821. Each authority takes a slightly different view on procurement, but, again, we must not forget the EU public procurement regulations, which sit over everything. Although the thresholds for public advertising are different for local and central government, the EU rules apply to everybody. For example, one will find different views on how authorities write specifications for environmentally-friendly procurement.
1822. In addition, some authorities club together. For example, Mid Sussex District Council shares its procurement lead with a neighbouring district authority. Similarly, Worthing Borough Council and Adur District Council share procurement and other functions.
1823. Mr McLaughlin: In your submission, you draw attention to the Government’s ‘CompeteFor’ website, which matches companies with supply opportunities connected with the London Olympics. You also referred to the Sellafield Ltd approach to a supplier ombudsman, which is an interesting idea. I presume that Sellafield Ltd is a private-sector company?
1824. Dr Davies: Sellafield Ltd?
1825. Mr McLaughlin: In your submission, under the heading “Collaboration", you describe its role. After a review by the company on rationalising its suppliers, presumably in its own interests as perhaps there were a number of suppliers with specialist skills that the company wanted to retain, it seems to have taken the initiative in encouraging those people to collaborate to be able to compete.
1826. I am interested in that idea. As I read it, that was a private-sector initiative, but is there any reason why the public sector could not follow through on that? For example, the CPD could take the same approach to proactively encourage SMEs to compete.
1827. Dr Davies: Do you mean to collaborate in competition?
1828. Mr McLaughlin: Absolutely.
1829. Dr Davies: It is always open to procuring organisations to present a procurement opportunity in a way that suits the local market. I must admit, my experience has been mostly of going to a first-tier supplier and encouraging it to engage with SMEs. However, collaboration between SMEs to bid for something as a consortium is perfectly feasible.
1830. Mr McLaughlin: More than 90% of our economy consists of companies that fall within the definition of SMEs. That is a very significant sector, and I think that that strongly supports the argument for a regional strategy which takes that into account. That may not apply to other regions in the European Union. Is there anything in EU legislation, or any other legislation, to prevent procurement authorities here from appointing such a person?
1831. Dr Davies: You have made an important point about the number of SMEs. As part of my homework, I have been reading ‘Accelerating the SME economic engine: through transparent, simple and strategic procurement’. It was a report that was made to Westminster in November 2008, and I assume that you have seen it. Apparently, across the UK, it is the norm that well over 90% of companies are SMEs. I agree that every region has its own unique issues, but I am not sure that is a unique issue.
1832. You may need legal advice as to whether someone could be appointed. If I were running a tender, and I got to know the market, I might decide that big company A could do this, or, that little companies C, D and E could get together and do it. I might write the invitation to tender in such a way that made that opinion evident. Therefore, if companies C, D and E wished to talk to each other, there would be an understanding that a consortium bid would be welcome. It could be written into an invitation to tender that one is interested in consortia bids.
1833. Mr McLaughlin: I think that we have taken that step. The question is whether that is effectively encouraging SMEs to collaborate. Experience has created a considerable chill factor, and SMEs see it as a waste of time because the system is biased and very difficult to satisfy. Declan addressed that problem in his question earlier.
1834. We have a situation in which, as a result of difficulties in the past, there may be missed opportunities for local companies. I think that the system is prepared to address those difficulties if we can find the ways and means. If we have to follow that up with research and legal advice, that is what we will do. You are not in a position, through your own experience or expertise, to advise the Committee on this?
1835. Dr Davies: No; the Committee needs legal advice on whether those ways and means would form some kind of state aid, but I am not an expert on that.
1836. Mr McLaughlin: Your submission also addresses the question of publicising tender opportunities that fall under the EU thresholds. The Committee is particularly interested in that issue. Your submission states that public-sector organisations “should", which could be translated as “must", publish notices of such opportunities. What is the requirement on public bodies to publicise such opportunities?
1837. Dr Davies: That depends on the public body. Below the EU thresholds, each public body has its own rules. I can tell the Committee about Birmingham City Council’s rules, but I am no longer in a position to outline the rules that apply in Brighton.
1838. Mr McLaughlin: I have just returned from Brighton, but I did not pick up any of that kind of information.
1839. Dr Davies: The information can be found on the website. Most large local authorities display the rules on their websites. An SME, therefore, knows that contracts over £10,000, £20,000 or £50,000 are supposed to be there. However, in most local authorities, that level of procurement is dispersed throughout the organisation, and it is difficult to get everyone to follow the rules. Every local authority has rules and, to a significant extent, follows them.
1840. Mr McLaughlin: The position here is that a legislative Assembly presides over the economy and, I suppose, a constituency that equates to some of the local authorities that you described. We are trying to determine, through our investigations, whether we have explored all the available opportunities of flexibility and wriggle room.
1841. Dr Davies: The Assembly’s constituency is a bit larger than the local authorities that I described, even Birmingham.
1842. Mr McLaughlin: Our population is just over £1·5 million.
1843. I want to pursue the issue of flexibility: is there a case for splitting the larger contracts, or framework approach, into smaller lots to ensure that they remain below the European tendering thresholds?
1844. Dr Davies: To do that deliberately, in the way in which you describe, would be in contravention of the rules. I advise against that, because it would simply lead to litigation.
1845. At times, when one considers the three drivers for public procurement, one might feel that one will get better value for money by splitting a contract in two: for example, separating grounds maintenance from tree work may allow for a better arrangement and one might benefit from better expertise. If one were to take that decision, and both contracts fell below the EU threshold, that would be fair enough. However, if one were to decide to split a contract specifically in order to ensure that the two resultant contracts would fall below the EU threshold, then that would lead to a great deal of litigation and unpleasantness, so I recommend not doing that.
1846. Mr McLaughlin: I appreciate the dangers that you describe in proceeding on the basis of attempting to disaggregate or dismantle existing frameworks. However, if we were to adopt an approach of setting out a suite of contracts that would deliver the same end product, would we face the same jeopardy? Does European, or any other, legislation require us to take the framework approach?
1847. Dr Davies: Legislation does not require you to take the framework approach, but please ask a legal adviser to second-guess this piece of evidence. My understanding is that you do not have to take a framework approach. However, in considering how to undertake procurement throughout the year, or over a series of years, you must bear in mind the total amount that you will spend in a particular area of endeavour.
1848. In Birmingham, for example, millions of pounds worth of grounds maintenance work was required. We did not want it all to be taken forward in one contract, so the tendering approach resulted in several bidders winning aspects of the work. However, because the total value of the grounds maintenance work was well over the EU threshold, we were obliged, and were happy, to follow the full EU route. In order to stay on the right side of the law, it is essential that one considers all of the work in an area over the lifetime of a contract. That does not mean that there has to be one big contract. There could be many small contracts, but they would have to be advertised in the Official Journal of the European Union (OJEU).
1849. Mr McLaughlin: Is there a threshold under which there is no requirement to advertise in the European journal? I wonder how practical that is. My information is that the threshold is €130,000, which, as regards public work, is quite a small amount of money. Are you aware of the detail? Is that an accurate sum?
1850. Dr Davies: I will have to check. The threshold that I recall is £139,000, but it is much bigger for works.
1851. Mr McLaughlin: It is still small.
1852. Dr Davies: It is of that order. It is much bigger for works, so the threshold for goods and services is, I think, about £139,000. That is the local authority threshold, but the central government threshold is lower.
1853. Mr McLaughlin: My understanding is that the local government threshold is €200,000, which is not far away from what you are suggesting.
1854. Dr Davies: Yes, it is set every two years, on 1 January.
1855. Mr McLaughlin: We also understand that European procurement legislation permits a 20% local placement allowance, which means that 20% of any contract can be exempt from the European tendering process. In effect, it is ring-fenced for local expenditure. Do you have any experience or knowledge of that?
1856. Dr Davies: No. I am sorry.
1857. Mr McLaughlin: That indicates that you are not aware of that practice being applied in England, for example?
1858. Dr Davies: No, I am not. If I may, I will leave that issue for another witness.
1859. Mr McLaughlin: That is fine; I am just exploring your own experience. You have been very helpful to the Committee. I am finished, but I would make a particular note of the issues. There is the idea of having an ombudsman whose job description would be to encourage the SMEs to cluster and effectively position themselves to win contracts. That does not necessarily mean the second tier, but they could help one another if they developed sufficient critical mass.
1860. We have been told that the matter of the 20% local placement is common practice across Europe, but we do not seem to be using it. I am concerned that the orthodoxy is that members of the European Union must advertise work throughout the wider European community. Sometimes, I think that that disadvantages local indigenous enterprises.
1861. Mr McQuillan: Your submission states that the ‘supply2.gov’ website should be used more frequently, and should speed up the process and make it simpler. Is that not happening already?
1862. Dr Davies: The ‘supply2.gov’ website exists, but it is up to public-sector organisations, local authorities, the NHS and small businesses to use it. My recent experiences suggest that it is not being used as much as it could be by public-sector organisations. I know that the procurement directorate here has a portal; I do not whether that has been set up yet, but it is certainly on the horizon. It may be that that is an alternative. I also understand that there is also an inter-Ireland trade portal, and that will be a useful alternative, but supply2.gov is useful and could be used more.
1863. Mr McQuillan: In your submission, you state that:
“BERR have recently launched a ‘Solutions for Business’ which is a streamlined portfolio of publicly-funded business support products".
1864. Will you explain more about ‘Solutions for Business’? Is there anything similar here?
1865. Dr Davies: I think that it is best if I say that I do not know whether there are similar initiatives here.
1866. Mr McQuillan: What approaches have been taken in England to maximise the social value from public procurement? To what extent have social clauses been used to effectively enforce procurement?
1867. Dr Davies: They have been used quite a lot, but I am aware of issues concerning them. I was in receipt of lobbying from companies in the west Midlands, which told me that the requirement upon them to engage long-term unemployed people or set up apprenticeships was leading them to lose good, experienced staff. Therefore it was a double-edged sword. Following that lobbying, I am unsure about the usefulness of those clauses, because it seems as though companies are not doing much good if they are taking a person who has been long-term unemployed off the unemployment register and, in exchange, taking someone who is long-term employed out of employment. However, the social clauses are there.
1868. I suspect that the Committee will be particularly interested to know that SMEs are the organisations which dislike social clauses the most. They talk about bureaucracy and red tape, but when you sit down with them and analyse what they mean, they will tell you that social clauses, which are closest to the hearts of politicians and the people at the top of the organisation, are the red tape. Many SMEs are more used to dealing with the private sector and with not having to observe social clauses, such as equal opportunity and environmental clauses, for instance. It is an interesting dilemma.
1869. Mr McQuillan: Is there any training available to help small businesses come to terms with that? Social clauses are important, perhaps more so here than on the mainland.
1870. Dr Davies: Training is useful. The report, ‘Accelerating the SME economic engine: through transparent, simple and strategic procurement’, which was published in November 2008, found that SMEs were unwilling to be trained and unwilling to pay £49 for an electronic course that the OGC made available. SMEs did not think that it was worth the money or the time. If we can find ways of encouraging them to learn about public-sector procurement, there will be some hope of bridging the gap.
1871. The misunderstandings are not all on one side. It is not only a case of the public-sector procurement people not understanding the SMEs; SMEs do not always understand the three-way push of public-sector procurement and the need for regulatory, transparency and public-policy rules, though I am sure that some of them do. Training, or, at the very least, conversation, can help with that.
1872. The Chairperson: Adrian said that social clauses are important here. I accept your comments about the hesitancy of some SMEs, because if they employ somebody who has been long-term unemployed, they are, perhaps, making someone else unemployed. However, there are pockets of disadvantage and need, particularly in the social-economy sector, and those areas could benefit more from social clauses. Local people who experience disadvantage and need could be helped, perhaps through employment opportunities, if social clauses were included in procurement practice. I believe that Adrian has highlighted an important issue.
1873. Mr McNarry: This evidence session has been very useful and extremely helpful. I will read with interest the exchange between Dr Davies and Adrian when the Hansard report is published, because the issues raised are crucial locally. Does the Committee have a list of the Northern Ireland members of CIPS?
1874. Dr Davies: May I take that question with me? I am sure that such a list can be created: whether I can pass it to the Committee without violating data protection laws is another matter.
1875. Mr McNarry: That is fine. Hopefully, we can twist your arm because you are here on behalf of the institute, and I like to know who I am talking to and who they represent. It would be helpful to know how many people from Northern Ireland belong to the institute for which you are speaking.
1876. Dr Davies: That is fair comment. At the very least, I can find out how many members we have in Northern Ireland. I can —
1877. Mr McNarry: I would like to know not just the number but who they are.
1878. Dr Davies: You want names.
1879. Mr O’Loan: Is the institute’s membership made up of individuals or does it include organisations?
1880. Dr Davies: They are individuals, and they must pass some pretty significant exams to obtain full membership. In Northern Ireland, we have a lot of members from the public and private sectors and, I believe, even some in the voluntary sector. In past years, it was alleged that most of our members were drawn from the private sector. However, recently, we have made significant inroads in attracting members from the public sector. Indeed, the OGC is keen that all key positions should be held by members of CIPS, which denotes a certain level of expertise and competence.
1881. Mr McNarry: I am not challenging the assertion that the institute has 50,000 members in 150 countries.
1882. Dr Davies: You are asking how many there are in Northern Ireland.
1883. Mr McNarry: Yes, and who they are. There is a genuine reason for knowing this, which is to see — notwithstanding what you have been doing today — whether contact with one or some of those members might be useful in the Committee’s daily work.
1884. Dr Davies: We have a number of members who work in CPD, as one would expect.
1885. Mr McNarry: We are quite used to spooks and all sorts of people in Northern Ireland, but I am told that we are moving on.
1886. Mr McLaughlin: Some of us are.[Laughter.]
1887. The Chairperson: I have another question about the social and economic benefits of public procurement practice. Listening to witnesses to the inquiry and other people outside the inquiry, it almost seems like the focus is on the value-for-money element of procurement and not on the wider social and economic benefits to the local community. What is your view on that?
1888. Dr Davies: Every public-sector organisation has to take its own strategic decisions on that. My profession’s job is to inform politicians about the choices, what is legal and not legal, and to set out the financial implications of the various choices. The choice made is based on a political decision.
1889. It is crucial that choices are made at the right point. If a choice is made at the point of specification, it is legal. I have dealt with contracts involving very strong environmental considerations at the point of writing the specification.
Similarly, social specifications can be made at that point. One can have a contract to deliver certain social outcomes; for instance, Sure Start would not have been legally feasible otherwise. It is always possible to put things into the specification.
1890. However, we must be careful not to discriminate across Europe; that is why the long-term unemployed clause comes in. One can write into a specification that the long-term unemployed should be taken on. However, if one says that one wants the long-term unemployed of east Brighton to be taken on, then there would be trouble. When one sets up a project in a place and talks about the long-term unemployed, they do tend to come from that place; they rarely come from elsewhere. However, there is the fundamental principle of non-discrimination.
1891. It is a matter of us, as a profession, setting out the choices for you, as politicians, and then doing what you ask of us, but pointing you in the direction of the legal advisers as to what is and is not going to lead to litigation. Litigation is very expensive: as a profession, we seek to avoid it where we can, and I am sure that politicians do likewise.
1892. The Chairperson: Thank you, for your presentation. I am sure that Members will agree that it was very thorough.
1893. Dr Davies: Thank you.
14 October 2009
Members present for all or part of the proceedings:
Ms Jennifer McCann (Chairperson)
Mr Simon Hamilton
Mr Fra McCann
Mr Mitchel McLaughlin
Mr Declan O’Loan
Ms Dawn Purvis
Witnesses:
Mr Derek Alcorn |
Social Economy Network |
Mr John McMullan |
Bryson Charitable Group |
1894. The Chairperson (Ms J McCann): I welcome Anne Graham, the director of the Social Economy Network; Derek Alcorn, the chief executive of Citizens Advice, and Marie Marin, the director of Employers For Childcare. I remind everyone that this evidence session is being reported by Hansard. Please make a short presentation, after which members will ask questions.
1895. Ms Anne Graham (Social Economy Network): We intend to focus our presentation on three aspects of the Committee’s inquiry: the extent to which Government contracts provide for social clauses; the scope for increasing the capacity of social enterprises to compete for public contracts; and the barriers faced by social enterprises in public procurement processes and procedures. I will provide an overview of the issues that we wish to highlight. Marie and Derek will draw on their experiences to illustrate how those issues impact on the social economy sector.
1896. Many social economy enterprises are experienced in delivering high-quality public services through service level agreements and contracts with Government Departments, their second steps agencies and local councils. We believe that the introduction of the competitive tendering process for such services puts social enterprises at a disadvantage and jeopardises the quality of service provision, because the people who are responsible for drawing up tender specifications often have little or no understanding of what is required beyond the specified expected outputs and monetary aspects of the service or of social enterprises as potential suppliers. The result of that are tender specifications that take no account of expected outcomes, social value or community benefits. If those aspects are not included in the tender specifications, there is no mechanism for scoring them in the assessment process.
1897. We believe that policy direction is needed to clarify which services should or need to go to competitive tendering. The purchasing method should be proportionate to the services, commodities and works required, and the method, and the determination of the method, of purchasing should be made clear to all parties. The Chartered Institute of Public Finance and Accountancy believes that positive steps to create a market can be taken if commissioners are convinced that using the third sector is the best way to deliver some public services and that social enterprises, or voluntary organisations, are able to deliver added value linked to their particular qualities.
1898. Where it is deemed appropriate to purchase services through the public procurement process, all aspects, impacts, costs and benefits of what is required in respect of service delivery should be considered at the initial stage of the process. Purchasers should consult with stakeholders — interest groups, customers or users — to help them understand what is needed before the tender specifications are drawn up. All costs and benefits should be valued in monetary terms where possible. If doing that is impractical or not cost-effective, then the non-monetary costs and benefits should still be taken into account. The ‘Northern Ireland Practical Guide to the Green Book’ allows for the consideration of non-monetary impacts, and it impresses the point that they may be crucial to the decisions that are being made. In practice, that does not happen: the emphasis tends to focus narrowly on the specific outputs and monetary aspects of the services required.
1899. Despite the Programme for Government’s recognition of the valuable role that public procurement can have in reducing inequalities and promoting social inclusion, social clauses still do not feature in public procurement contracts. The lack of progress in including social clauses is one of the most significant problems facing the development of social enterprises in Northern Ireland. Social enterprises operate in a marketplace that does not recognise or take account of the added value that they create, which puts them at a disadvantage when competing for public sector contracts. According to a Social Economy Scotland briefing:
“The Scottish Government has produced guidance on including social issues in public procurement, including the ability to ‘purchase’ wider social benefit as part of a procurement. The guidance concludes that it is entirely possible to recognise wider social issues within a procurement process, as long as these are part of the primary purpose of the contract and they are included in the specification."
1900. Pressure on public bodies to secure efficiencies by aggregating contracts discriminates against small businesses, including many social enterprises. Little cognisance is given to the expertise and ability of social enterprises with local knowledge and understanding of needs to best to address those needs in order to deliver services effectively.
1901. It should not always be assumed that larger suppliers offer better value for money. There are many advantages in using smaller enterprises, not least their flexibility and responsiveness to changing needs and their ability to tailor goods and services. In circumstances in which single, large contracts are the preferred option, commissioners should consider asking contractors to open up a percentage of the contract sum to small businesses for subcontracts and to package it in such a way that small businesses can compete for it. That practice is lawful.
1902. Additional barriers or difficulties faced by social enterprises include the emphasis on financial capacity in the pre-qualification process; the use of the same purchasing method or process for a small contract as would be required for multi-million pound contracts; limited use of special contracts; limited use of reservation of contracts for organisations providing supported employment opportunities to people with a disability where appropriate; and inconsistencies in public procurement practice across councils.
1903. If the goal is, as it should be, to improve and increase the capacity of social enterprises to access the £2 billion public procurement marketplace, it is essential to address the barriers that they face when competing for public contracts. This will be achieved through raising awareness of the social economy sector among public procurement practitioners in central and local government; the inclusion of social clauses in tender specifications as part of the primary purpose of the contract; investment in developing the tendering skills of social enterprises, including the establishment of a public procurement brokerage service for social enterprises; the ongoing collection of data on the number of social enterprises competing for and securing public sector contracts, so that we can see year on year whether the situation is improving; and, to address the inconsistency across councils, a commissioning framework should be developed for adoption by the new councils, as there will be an increased potential for services to be contracted out and an increased opportunity for social enterprises and small and medium-sized enterprises to access that marketplace.
1904. Mr Derek Alcorn (Social Economy Network): Thank you for the opportunity to speak to the Committee. I have brought a full copy of our documentation, which I will not read verbatim but will leave with the Committee Clerk.
1905. I will say a few things in general. Citizens Advice is a very traditional voluntary organisation in many respects, but we have been pushing a social economy model internally as a way of increasing the value and efficiency of what we do. We consider that we are trying to achieve social outcomes through business processes. We have welcomed service level agreements, and so on, from councils. We run about five different contracts from different Government agencies, some of which are based in London, and we set up a trading company to help with that. I see it as a way of trying to modernise the organisation.
1906. The example that I want to give the Committee is our experience of contracting with DETI for money advice between 2006 and 2009. In 2006, DETI advertised a face-to-face tender for money advice, which we were successful in winning. We delivered that service successfully. It was evaluated by KPMG, which was independently commissioned by DETI, and we came out of it very positively. We were awarded a second contract for what is called face-to-face debt advice between 2008 and 2011, and we are delivering that at the moment. In April or May this year, DETI advertised for a telephone tender for debt advice. In the end, the competition came down to us and a private sector company from England called Action for Employment (A4e). The tender was awarded to A4e because of the criteria that DETI had written into the contract.
1907. First, there was no requirement on the successful supplier to have any experience of giving debt advice in the legal jurisdiction of Northern Ireland. Therefore, a company with absolutely no experience of giving debt advice in Northern Ireland, which has a different legal structure, was awarded the contract and is proceeding to deliver it through its Northern Ireland subsidiary A4e Northern Ireland, which also had no previous experience.
1908. It then emerged that A4e was under investigation for fraud by DWP at the time the contract was awarded, and it remains under investigation. Indeed, there are questions in the Assembly about that. The DETI Minister is recorded as saying in the House that the Department has had no discussions with DWP about that and has taken no action on it. Had there been due diligence by the panel or a pre-qualification questionnaire, A4e would not have been awarded the tender.
1909. About three weeks after the tender was awarded, representatives from the company turned up in my office and asked whether we could help it to deliver the contract. We said no and told them that they were the people with £200,000 in their back pocket and that we would take a subcontract from them. I have not heard from them since.
1910. A4e then promptly recruited one of our staff as a senior manager of the contract, which is an issue of displacement. DETI paid for us to recruit and train that person. It then paid for A4e to recruit the same person and will now pay for us to recruit a replacement.
1911. There is also an issue of business design regarding the contract. In the middle of a recession, the tender document estimated that the telephone debt service would receive 35 calls a week, which is hilarious. The advice sector takes more than 1 million telephone calls a year. Therefore, the business design was totally askew. When we asked where they got the figure from — because one can ask questions in the run up to the submission date — they said that they based it on two organisations in England, neither of which is based here or advertises here.
1912. Understandably, some people can be helped over the phone, but others who have received a big wad of papers or a letter telling them that their homes are about to be repossessed will need to talk to someone in person. The telephone tender was deliberately designed to separate those two services. Therefore, the business design missed the opportunity of joined-up Government and integrated services.
1913. We believe that business design, the lack of due diligence, changing the commissioning criteria from one tender to the other, audit issues, and the separation of telephone and face-to-face advice prevented DETI from making best use of the public money already being expended. It also failed to optimise the economies of scale and synergies with existing providers by opening up two separate cost centres in Northern Ireland. I mentioned the issue of displacement earlier.
1914. We also have concerns about the panel’s marking system. I will not go into those concerns now, but I have detailed them in our document. On some occasions, we got negative comments for allegedly failing to provide information that we had provided. On other occasions, we got negative comments for not providing information that was not asked for. The panel also made comments that were contradicted in other parts of the marking sheet.
1915. In conclusion, because of that and a more recent experience with DETI, against which we have taken out an injunction, we are left without much confidence in the system. Suppliers are entitled to expect Government Departments to exercise due diligence and consistency in their approach to commissioning from one exercise to the next. They are also entitled to expect that panel members are competent in the area for which they are commissioning a service, that they have been trained in commissioning, and that the marks and accompanying remarks should be consistent.
1916. To sum up, we make seven recommendations. There should be a pre-qualification questionnaire and the right of appeal. Panel members should carry out a debriefing session within a pre-determined time, because we are still trying to get a debrief on the telephone tender. CPD should adhere to the 12 procurement principles listed in its website. Training in the commissioning process should be mandatory for all panel members and should be a requirement for membership of a panel. Finally, the issue of CPD commissioning organisations from outside Northern Ireland that have absolutely no experience in Northern Ireland or in the legal framework of Northern Ireland should be taken forward for much further discussion.
1917. The Chairperson: Marie, do you wish to add anything?
1918. Ms Marie Marin (Social Economy Network): I wish to give an example of the experience of Employers for Childcare. Our organisation was developed from a community project 10 years ago. Our aim is to make it easier for parents with dependent children to be able to get into work and stay at work in Northern Ireland. We address childcare as a labour market issue as well as an economic issue. We strive to put childcare on the boardroom agenda and ensure that employers recognise that it should also be their agenda.
1919. Our organisation comprises two separate companies; a campaigning charity and a trading company. One hundred per cent of the profit from the trading company is ploughed into charitable activities to support working parents throughout Northern Ireland. We have a range of services including a free-phone helpline and community outreach. The charitable activities include services that are funded by the Government in England, such as the childcare information service. That is an enormous operation, and it operates throughout the whole of Great Britain. However, there is no equivalent in Northern Ireland, and, therefore, an essential service that helps parents to contribute to Northern Ireland’s local economy is provided by a local charity.
1920. I will give members an idea of the scale of that service. We received £2 million over six years from European funds and from the Department for Employment and Learning (DEL). In the past 12 months alone, we helped employers and parents in Northern Ireland to save £4 million. That represents a substantial economic benefit. The social enterprise is the trading company. It has 40 large private sector competitors, all of which are based in England.
1921. There are detailed and specific differences in childcare between Northern Ireland and the rest of the UK. I assert that no English company is interested in knowing about those differences. Therefore, no English accompany is suitably qualified, or has enough experience, to provide a service that takes those differences into account.
1922. I will relate our experiences with a local university that purports to support the social economy. When it went to tender for services, we had to apply on a level playing field. We were asked to deliver a presentation on what made us different from the competition, so we based our presentation on the fact that we are the only social enterprise group in the UK and the only one in Northern Ireland. We gave details about what we put back into the community and about the work experience that we provide for the university’s students, but we were not even shortlisted. We did not get the contract, which was given to an English company with no experience of Northern Ireland.
1923. Although we won a contract with the Health Service in Northern Ireland, there was a great deal of confusion as to whether the contract was for one hospital trust or another. Also, councils do not act collectively and are able to make decisions on a whim. Even though we had been working with them for many years to provide services for their employees who were parents, the councils decided to go with an English company.
1924. In conclusion, we are not asking for favours because we are a local company. We are asking for recognition that there is local experience available that makes a contribution to the local economy and that that should be written into the social clauses. If private sector companies can demonstrate that they have local experience, that is fair enough; but the decision to use their services must be weighted. That has to be the case, not because we happen to be here, but because we are delivering an effective service for local people.
1925. The Chairperson: Thank you. That was a very good presentation. I invite members to ask questions.
1926. Ms Purvis: I am concerned about some of the issues that have been raised; particularly those raised by Derek Alcorn. The Committee must consider how to take some of those issues forward.
1927. I would like to start with Anne Graham’s paper, if I may. She talked about a public procurement brokerage service. We received some evidence from the Ulster Community Investment Trust (UCIT) on its proposal for a brokerage service. How do you see a brokerage service working in the interests of the social economy sector?
1928. Ms Graham: On 13 May 2009, UCIT made a proposal to the Committee for Finance and Personnel for a brokerage service. We are working with UCIT, the School for Social Entrepreneurs in Ireland and the Charity Bank to explore the development of a brokerage service that could build the capacity of social enterprises so that they are assisted through the process and can secure successful contracts.
1929. Ms Purvis: Would such a brokerage service focus on the ability of social economy enterprises to secure public contracts for themselves? Another aspect of such a brokerage service might allow social economy enterprises to work in partnership with larger contractors to deliver, for instance, the social clause aspects of any future procurement contracts.
1930. Ms Graham: We are in the early stages of discussions about how the initiative would work. Clearly, the goal is for social enterprises to secure public contracts, but not just for the social aspects of such contracts. There is potential for social enterprises to secure subcontracts from larger contractors.
1931. The door is wide open with regard to the potential for social enterprises. It is about building their capacity to secure large contracts, where possible, and subcontracts.
1932. Ms Purvis: There has been an aversion to including social clauses in public procurement contracts. Hopefully, the value that such clauses bring will be drawn out through our inquiry. If that does happen, will more emphasis be placed on social economy enterprises to deliver social clauses through contracts? Will the private sector seek to build relationships with, for instance, community and voluntary organisations to deliver social clauses in contracts? Alternatively, will it be an opportunity for social economy enterprises and the community and voluntary sector to bid for contracts in their own right?
1933. Ms Graham: Social clauses should not be seen as being separate from any main public procurement contract. As stated in the presentation, social clauses should be built in at the outset, and there should be an equal focus on economic and social outcomes. We are not looking for preferential treatment for social enterprises with regard to public procurement; we are looking for a level playing field. If social clauses are included at the outset, social enterprises will be able to compete against private sector organisations, enter into partnerships with them, or come together with other social enterprises and voluntary organisations to make the best possible bids for contracts.
1934. The Chairperson: As part of the inquiry so far, a lot of our talk about social clauses has centred round the benefit that they will have for the regeneration of local communities and the employment of local people. Ms Marin touched on local experience and expertise. Should those be included as part of the social clauses? Social clauses are about not only the regeneration of a local community; they are about looking at the best delivery mechanism that is available for expertise and experience.
1935. Ms Graham: Departments, or councils, who are looking to purchase services should consult with users, clients and organisations with experience of delivering such services, particularly if they have been evaluated and have proved to be effective. Such was the case in the example that Mr Alcorn highlighted. Why ignore that expertise and experience and merely go for something else?
1936. Mr McLaughlin: I am concerned about the significant development that there has been in the social economy sector over the past number of years. Enormous “social capital", as I call it, has been built up. However, we are in a situation in which, in particular, European peace moneys have started to dry up. I prefer to use the expression “social capital" because it seems to command the attention of those who are spending money and who value money more than the idea of social value. There is probably a challenge on the social economy sector to help CPD and the system understand the enormous resource that has been developed here in the past number of years. There is huge experience, and if one took the time to calculate what it would cost to substitute it, one would see that it would cost a fantastic amount of money.
1937. We have to find some way of helping the people who are administrating the capital investment programme to recognise that they have a quite remarkable resource on their doorstep. I think that they need help to do that. We can complain about this, but in the meantime the sector will shrink and it will begin to lose people. For understandable economic reasons, people with such skills will eventually take them to the marketplace. That would be detrimental. Does the network accept that?
1938. The Committee has heard very convincing evidence for the development of social clauses. I lean in that direction, and have done so for some considerable time. However, an opportunity is being missed to educate the system in working with this. I do not think the view that importing, hiring in or aggregating contracts is the best way of delivering value for money stacks up, particularly when one asks a challenging question about social value and social capital. We have to find a way of presenting this issue in those terms. We also have to be critical of CPD for its failure to recognise what is happening elsewhere. It is not as though this is a brand new argument. Other economies are already further down this road.
1939. Having said that, we must take due account of the resistance to change. There is a considerable amount of change, and I think that the system is at times under significant pressure, so there may be a need for the sector to take responsibility for changing the paradigm. I think that it can and should. I will ask a question to develop that. Can you enhance the information you are collecting through the directory to reflect people’s experience of the procurement process? Can it include the successes and, particularly, the failures, and the reasons for those?
1940. Ms Marin: Of the tendering?
1941. Mr McLaughlin: Yes.
1942. Ms Graham: You are quite right: the sector does have a responsibility to do an awful lot more. We have been engaging with CPD, although progress has been very slow. We could be a bit more innovative in educating the system about social capital. It is extremely important now, in advance of the establishment of the new councils, for us to begin to engage with those councils. That is a huge opportunity that we do not want to miss.
1943. Furthering and developing the information collected through the directory is something that we could consider. There is little enough intelligence on the social economy sector in Northern Ireland. We have already raised the issue with DETI. To strengthen our case, we need to build on that intelligence, so any initiatives that will pull that information together to strengthen the case will be seen as positive.
1944. Mr McLaughlin: Do the special contract arrangements apply to SMEs as well as SEEs?
1945. Ms Graham: The special contract arrangement that I referred to was the offer-back system, whereby if a bid by a supported business falls only on price, the purchaser can ask the business to resubmit its bid without having to indicate the price submitted by the other competitor. That particular clause is very rarely used.
1946. Mr McLaughlin: I appreciate that. I do not know enough about it, and I will seek more information. In your experience, is it possible to argue for a separate criterion reflecting the social inclusion approach of weighting of the social capital that a particular bid would represent?
1947. Ms Graham: In all honesty, I do not know at this stage. That is something that we could look into.
1948. Mr McLaughlin: Will you reflect on that? The Committee will get some information on how the special contract arrangements are designed to work to see if there is anything that it can do. Thank you very much; I have found that very useful.
1949. Mr Alcorn: We have been told that although Departments may want to include weighting for SEEs, it is very difficult to do so under European procurement rules. We have not gone into it very deeply, but although Ministers recognise that SEEs will put the money back into the enterprise, and not take it out as profit, it is actually very difficult to reflect that in the tender document, because of European procurement rules.
1950. The Chairperson: To be fair, we have had some sessions on that matter, and that does not seem to be the case.
1951. Mr McLaughlin: I agree. We are not convinced that that is the case.
1952. The Chairperson: We have been trying to get to the bottom of that, and it is not the case. That is being used as an argument.
1953. Mr McLaughlin: It is orthodoxy rather than requirement.
1954. Mr Alcorn: The other moot point is that if CPD and officials from several Government Departments are preparing a tender, and the lead Department is, for example, DETI, it requires people aside from those in CPD to have some cognisance of the issues. It is a very moot point in that I assume that the commissioning Department has a big, almost unspoken, influence on the tender, weighting and marking. It is not just a question of educating CPD, it is one of educating Government Departments.
1955. That is what happened to Citizens Advice as regards the telephone contract: we went back to the Department and asked whether we had lost the plot. We assumed that we were on a 20-year project to build up the social infrastructure in Northern Ireland. Possibly, from a Civil Service point of view, it looks good, or is trendy, to have more than one supplier — I do not know. Our assumption was that we were on a long-term project to build up the social infrastructure — and that was blown away. It is about getting everyone into that perspective; not just CPD.
1956. Mr McLaughlin: CPD is the gatekeeper. We have to try and exert influence where it will have the most effect.
1957. Ms Marin: In our experience, there does not appear to be any resistance to doing that per se, but there is lack of knowledge and consistency across the different organisations that are putting together the bids and tenders. They would be willing to look at that if they were educated about it and were informed about the social capital, as you referred to.
1958. Mr McLaughlin: The main issue to be addressed is that, if one were to approach the matter on the basis of policy, one would immediately run up against European labour and competition laws. The way to address it is through the construction of the contract and inserting the clauses at contract level.
1959. The Chairperson: CPD recently stated that most of the social clauses that it felt would be necessary would be in the construction industry. When CPD is talking about social clauses, it is talking about the employment of long-term unemployed apprentices as part of a contract. We are talking about SEEs, SMEs and more service-delivery based organisations. That indicates the need for an opening of minds to take in the broader issues.
1960. Mr O’Loan: Thank you very much for your presentations, which were very good and very useful. You presented a very good case that I share concerning social value and the wider social benefit.
1961. You said that non-monetary costs and benefits should be taken into account. Can you be more specific about the actual process through which that might be done?
1962. Ms Graham: A number of mechanisms around social auditing, social accounting and social return on investment are in use in the voluntary and social economy sectors. In Northern Ireland, NOW has recently set up a new social enterprise called Gauge. It aims to deliver training on the application of social return on investment, which should assist social enterprises to measure the social impact of their activities in financial terms.
1963. Mr O’Loan: Would that have to be recognised by the commissioners?
1964. Ms Graham: Yes; it has gained recognition in England. In fact, the Cabinet Office has invested in a roll out of the delivery of training on social return on investment with a view to it being accepted or, certainly, taken into account in the public procurement process.
1965. Mr O’Loan: From my experience of the social economy sector, I know that there are many things that it can do very well and can compete on in any marketplace. We are in Bryson House today, and we know about its experience in waste recycling. The Bryson Charitable Group has also won half of the contract for the warm homes scheme across Northern Ireland. Citizens Advice has proved its place in the wider advice network. There is also a lot of work being done in domiciliary health care.
1966. What does the social economy sector do better? Where is it best-placed? You made reference to a phrase in the Scottish guidance about being within the purpose of the contract, which relates to my question. Are there certain contracts that you regard as being better suited to the social economy sector, and could that be written effectively into the purpose of the contract?
1967. Ms Graham: The social economy sector is very diverse, and the business activities in which it is engaged are equally diverse. In Northern Ireland, quite a number of social enterprises are engaged in specific localities, or communities, and deliver, for example, health and social care services in those communities. Similarly, in rural communities, there are examples of social enterprises addressing some of the social issues faced by those communities. However, it is difficult to specify one particular area over another.
1968. Mr Alcorn: I always think that the social economy sector occupies the same space as the Post Office: possibly a bit boring but very trusted and everybody wants one near them. It is an area of the sort in which people come for a service that is essential to them but is not run on a commercial basis — a profit is not being made from them. If a health Minister were to decide that a hospice was needed, he or she would know instinctively that it could not be run by the Civil Service and that the private sector would not generate the range of people in volunteering, the level of donations and so on that the hospice sector generates. That is the space in which the social economy sector sits; it examines some social problems that others do not want to consider.
1969. Through volunteering, and other such leverage mechanisms, the sector can provide much of the face-to-face time that socially vulnerable people require. That is the contribution that it can make. The sector can also make much more hard-headed economic sense if it were to go into the area of economic development, because it can provide labour-intensive services that the private sector would never consider providing. That is particularly relevant in the areas of assisting pensioners and others in their own homes. Indeed, much of the social research that has been undertaken with respect to the provision of care for elderly or disabled people indicates that the informal care provided by neighbours and families far outweighs the formal care provided by social services. That is well established social research.
1970. Mr O’Loan: I was very interested in the example that you provided with respect to the telephone advice contract. Through your analysis of that example, and the recommendations that you have made you have given the Committee much food for thought. If the sector could provide the Committee with other such examples, that would be very telling. Why did you not legally challenge the loss of the contract or challenge it through the ombudsman?
1971. Mr Alcorn: We were stunned by the loss of that contract, and three weeks ago Citizens Advice took out an injunction against DETI on the basis of similar action that that Department took on another money advice contract. We were not sure of the processes, and I am still trying to get a debrief from the panel.
1972. Mr O’Loan: I find that extraordinary.
1973. Mr Alcorn: I fully intend to go through CPD’s complaints procedure and take the case to the ombudsman if necessary. The problem was that there was no system for challenging the decision to award the contract to another company, because it was a part B contract. Those contracts are generally very soft on procurement, making it very difficult to challenge them in the court. Furthermore, there is no appeal mechanism in CPD, so we had nowhere to go.
1974. Mr O’Loan: That might, in itself, be grounds for a complaint.
1975. Mr Alcorn: Indeed. As a result of another court case, CPD now does not allow a contract out for one week after it has been awarded. That allows it to ascertain whether a justifiable challenge can be made from any of the other suppliers who bid for the contract. With the other contract, we used that week to bring the matter to our lawyers.
1976. Mr O’Loan: Is the sector a little uncomfortable with the cold wind of competition?
1977. Mr Alcorn: I do not believe that the social economy sector should be awarded all contracts, and I do not believe that there should be no competition. If that were the case, Citizens Advice would not have set up a trading company to bid for contracts. However, we had delivered a contract and had been assessed very positively by an external evaluator. Furthermore, a great deal of hard work and time was involved in carrying out that contract.
1978. Had due diligence been undertaken by the panel, it would have found out that the company that was awarded the contract was under investigation for fraud. Furthermore, DETI changed the commissioning criteria so that a company with absolutely no experience of giving debt advice in Northern Ireland was allowed to take that contract.
1979. Debt advice can become technical when people in debt end up in court and are facing repossessions and Individual Voluntary Arrangements (IVAs). Therefore, I cannot understand what DETI was thinking about when it awarded that contract to a company with no knowledge of those matters and which then proceeded to recruit our staff. I can only think that DETI perhaps wanted another supplier or felt that Citizens Advice had won enough contracts, and I can see that argument. However, contracts cannot be awarded on that basis. They must be awarded on the basis of whether the chosen suppliers provide the best value and the best service to the community. Was it was another supplier’s turn or was there a need for a diverse range of suppliers for a given contract? I do not know, because I have not been able to speak to officials from the Department.
1980. Mr O’Loan: Perhaps that procurement process and specification were not well managed?
1981. We live in a small, inward-looking world in Northern Ireland, and the idea of opening ourselves up is challenging. We have seen that in the business world, where sometimes companies are forced to partner with others and in that partnership they win business elsewhere. The basic idea of opening ourselves to operators from the South of Ireland and elsewhere is potentially healthy.
1982. You spoke of an incomer poaching one of your members of staff. I am inclined to say that that is the real world and that it happens in the private sector all over the world. To me, that is not really a ground for complaint. There may well be valid justifications for criticism across a whole range of things, but I applaud the basic idea of opening up contracts to others. However, it has to be done on a sound basis.
1983. Mr Alcorn: It takes us back to whether we want a mixed provision in the economy regarding social issues and the social economy from the private and voluntary sector. If someone would state that clearly, it would be fine; but no one has done that, and we made the assumption that we were on a long-term project to build up the social infrastructure. There is a lack of any clear commissioning framework.
1984. The commissioning framework for the new councils now comes into focus as being extremely important, and it requires to be considered carefully. At one of our meetings, a speaker from the DOE said he thought that there was merit in shared services and that the 11 councils could undertake to commission as a single unit, rather than doing it 11 times. I do not know whether that will happen.
1985. However, I have no confidence now in the integrity of CPD’s procedures. That has come from the marking comments, the changes in the criteria and the failure to ensure due diligence. If laxity spills into councils’ procedures, it could wipe out the voluntary sector, or, people will give contracts to bodies just because they are new and for no other reason. The whole district council commissioning framework after RPA comes into focus as a very important area.
1986. Mr F McCann: Much of what I was going to ask about has been dealt with already. However, I want to ask two questions and make some comments. Mitchell touched on the shrinkage in the social economy within the broader community. That has begun and it poses difficulties.
1987. The value of the social economy sector has never been examined to any significant extent. Many Government Departments look on the sector as an old faithful that will always be there. One morning, they may wake up and find that most of has gone. Only then will they realise the cost of putting it back together.
1988. In most meetings with CPD, we have asked about social clauses and how they are dealt with. Is the Department afraid to push the boat out with respect to how social clauses in contracts are delivered? Are there any Government agencies or councils that stand out in how they promote social clauses in their tenders or contracts?
1989. Ms Marin: As regards the first question, I am not sure. However, as regards the second, our experience is that added value was written into the tender that the Civil Service issued. That specifically allowed organisations that competed for the tender to justify the added value that they were offering. Although it was not called a social clause; in effect, that is what it was. From feedback, I know that that is what swung the tender for us. Other public sector organisations followed suit. It enabled us to show the difference between a local social enterprise here and a private sector company in England. Is that helpful in answering your second question? Anne might be able to answer the first one.
1990. Ms Graham: The evidence suggests that CPD is reluctant to go down that road. I do not know why that is the case. Perhaps it is a fear of further litigation from private companies or just a lack of understanding about the broadness of social clauses and the best and most effective way to include them in tender specifications.
1991. Mr F McCann: I asked the question because several times I have raised the issue in Committee of design and build contracts being stopped here because of a case in Europe. We were told that there are strict guidelines on design and build contracts here and that they cannot go ahead. However, I have heard recently that some housing authorities in England have tested the waters by using design and build contracts. Departments here are putting up serious resistance to moving ahead with design and build contracts, and a substantial sector of the construction industry is being hampered because of that attitude.
1992. Ms Marin: My experience since the mid-2005 and 2006 is that there has been a lack of consistency and a general misunderstanding among not just DFP but different Departments, public sector organisations, and those who write the tenders as to what exactly they are able to include.
1993. You commented earlier on the capital available in the community and voluntary sector. We are very aware that given the depletion of European funding, community and voluntary sector organisations, which are at the grass roots of the community, as Derek said, now have to submit competitive bids for service level agreement tenders, despite the fact that they might not be as well versed in that as their private sector competitors. Therefore, there is an onus on us as a sector to ensure that we are as professional as the private sector companies that are applying for those types of tenders.
1994. Mr F McCann: I do not think that councils and Departments view what has been set up in the broad social economy as a threat. However, I think that they are concerned about the revenue trail that it may leave after European money disappears.
1995. The Chairperson: You said that social economy enterprises on their own may be weak with respect to their ability to bid for contracts. Last year, Capita Group, which I think is located just around the corner from here, told the Committee that it and the Ashton centre, which is a social enterprise in north Belfast, had submitted a joint bid. I know that the profits generated by the social economy go back into regenerating the local community. Would partnering with the private sector dilute your ethos? Do you foresee problems in going down that line in trying to secure Government contracts? If Employers for Childcare were to enter into a partnership with a private childcare firm, would there be any problems?
1996. Ms Marin: It would depend on how each organisation’s constitution is written, and what is in their memorandums and articles of association. It would not be possible for Employers for Childcare to do so because of our constitution: one hundred per cent of our profit must go to charitable activities.
1997. It would be an individual matter for the legal constitution of each company.
1998. Mr Alcorn: It is quite possible.
1999. Mr F McCann: I have raised this point previously, and I do not know where it fits in with what Derek has said. I am concerned that major companies seem to have the capacity and wherewithal to apply for tenders, but then subcontract, top-slicing the profit. Is there any evidence that that has taken place?
2000. Mr Alcorn: I think that that is A4e’s business model. Looking at its website, one will see that it is a very big enterprise. It is now taking contracts in Europe and Australia. A4e top-slices and subcontracts. It did so in Derry and the decision was reversed. To pick up the point that Declan made; if A4e has to recruit from our organisation, then I do not think that it had the skills to deliver the contract in the first place. It is a chicken-and-egg situation. That is certainly the model that A4e uses.
2001. Mr F McCann: It survives on the 15% or 20% that it takes off the contract.
2002. Mr S Hamilton: The discussion has been very useful. I will pick up on a point that Derek made about local council procurement. Although I understand the point, I am struggling to have any sympathy with it. We have sympathy with the general points about encouraging the social economy; we see the benefit that that has for local companies. However, as a Committee with a scrutiny role over a Department that has a tightening budget and is facing increasingly challenging economic times, we are charged with the whole idea of smarter and cheaper procurement.
2003. RPA, and local government reform in particular, appear to suggest that savings through council amalgamations will be minimal and that the real savings will be made through the centralisation of services; one aspect of which is procurement. The strong argument is that it is daft that 26 councils are not smartly procuring everything from IT to plant and machinery. There are huge economies to be made that will be passed on to ratepayers; the ordinary people in Northern Ireland.
2004. If local government carries out central procurement, and this is seen in central government when contracts are bundled or if they are huge; it is very difficult for small SEEs to get involved. Surely, there is still scope within that type of procurement for SEEs to become involved. Is there scope, and if so, how could it be broadened? Could it be done through some of the measures that you have mentioned; for instance, contracts including certain clauses? Is that the way to ensure that, even if the model of procurement is changing and getting bigger, there is still scope for the social economy to benefit?
2005. Mr Alcorn: My point about the procurement process for councils is that, whether there is one procurement exercise or 11, the process has to have integrity and people have to exercise due diligence. As far as we are concerned, all of those elements are missing at the moment.
2006. The broader point is that we have spent 35 years building up the infrastructure of Citizens Advice. We give advice free at the point of use. In Hull, we have lost £600,000 to A4e on a legal service contract. There is a philosophical point also. Should that type of service be delivered by a company with a private sector profit motive or should it be delivered on a social-economy, social-value basis? There are philosophical differences.
2007. I emphasised the commissioning framework for councils because if that framework is adopted and the process does not have integrity, we will disappear; and we have done a lot of work to get ourselves ready. I gave the example of an occasion when we delivered a contract that was very positively and independently evaluated; but for reasons unknown to us we did not get another contract. We have done a lot of work to get ourselves ready for contracts, but the danger is that the whole voluntary sector infrastructure, or large parts of it, could disappear if procurement is taken forward in the wrong way. The private sector may do the job for a while and then disappear. That is the conundrum. The framework must have pre-qualification questionnaires, integrity and proper training, and it must be very clear about what it is trying to buy.
2008. Mr Hamilton: Are you highlighting a problem with process rather than with the principle of sharing procurement across councils? Perhaps you can see it from our perspective; it is very difficult for us to say to the ordinary citizen that we have to increase their rates by a certain percentage in order to procure 11 different contracts, when we could have made a substantial saving by procuring one. That is the conundrum. I understand your point, but there is a flipside, in that we could procure in a better and more efficient way, not for Government, but for the people who pay for government.
2009. Mr Alcorn: We do not have a problem with having one procurement exercise across Northern Ireland. We feel that the process needs to be looked at.
2010. Mr Hamilton: That is fine.
2011. Mr Alcorn: The level of understanding of such things among staff of district councils is minimal. Council staff do not think in business terms. Even the service level agreements that we have with councils vary widely, and sometimes we are asked for examples from other councils. Council officers do not necessarily have business heads.
2012. Mr Hamilton: That is an argument for having one procurement exercise with a sound process and including those sorts of principles. I do not think there is a critical mass across 26 councils, or 11, to do what you are talking about in the right and proper way.
2013. Mr Alcorn: All I said was that a DOE official posed that possibility, and it was of interest to us. However, the whole commissioning framework is a matter for the Assembly and is extremely important for councils.
2014. Mr Hamilton: Thank you; that was useful.
2015. The Chairperson: That concludes the questions. Thank you for your presentation: you have given us a lot to think about. Hopefully, some of you may attend the conference next week; I look forward to seeing you there.
2016. I now welcome Sir Nigel Hamilton, the chairman of the Bryson Charitable Group, John McMullan, the chief executive, and Brian McGinn, the director of finance and corporate services. You are all very welcome. I thank John and his staff, and in particular Chris Anderson, for hosting the Committee today and for making the necessary arrangements. I invite you to make some opening remarks and give a short presentation, and then members will ask questions.
2017. Sir Nigel Hamilton (Bryson Charitable Group): Thank you very much indeed. It is a great pleasure for us in Bryson to welcome you, the members and officials today. I understand that this is the third time that the Committee has met outside of the Assembly but the first time it has met in the premises of a voluntary sector organisation; so we are delighted that you chose to come to Bryson House. The group is quite a famous organisation with an interesting history, which the chief executive will speak more about over lunch. May I also say that it is a fascinating flipside for me, having spent so much of my previous incarnation encouraging devolution, to see democratic accountability in action. I commend you for coming here to take evidence.
2018. Mr S Hamilton: Hopefully, you will be able to say that at the end of the session, and when you have seen the outcome.[Laughter.]
2019. Sir Nigel Hamilton: It is fascinating to see it happening. The voluntary sector has been a whole new experience for me.
2020. Mr McLaughlin: Hopefully, we will see it at some stage, too.[Laughter.]
2021. Sir Nigel Hamilton: I want to make a few general points before I hand over to my colleagues. The Bryson Charitable Group has existed for 103 years. The reason that we are delighted to give evidence is because, during the previous financial year, we were able to report that we employ more than 600 staff. That number is now 625. Last year, we had a turnover of over £20 million. In two years’ time, turnover will be £30 million. The most impressive part is that 89% of our expenditure comes as a result of procurement with other bodies — third-sector procurement. We believe that we can contribute to that in our four areas of work.
2022. On Bryson Recycling, we have a contract with Arc21, which represents 11 councils, and I was interested in the comments that were made a few moments ago. On energy, we have procurement contracts with DSD through the Housing Executive. On social care, we have contracts with a number of healthcare trusts. On training, we have contracts with DEL. Therefore, we come to the table with experience that we believe will be of interest and value to the Committee.
2023. We also regard ourselves as a leading social enterprise. The organisation puts 95p in every pound directly into programme and service delivery. Our business model is very much one of contracts and service delivery. We believe that we bring to the table that social value that you mentioned earlier, as well as considerable reinvestment back into the charitable group of any profits that our trading organisations make. We are happy to develop that further.
2024. I wanted to make those introductory comments. John McMullan, the chief executive, and Brian McGinn, the director of corporate services, have much more direct experience of the procurement exercise. Therefore, I shall hand over to them.
2025. Mr John McMullan (Bryson Charitable Group): We have provided the Committee with a copy of our presentation. I believe that the Committee Clerk has a copy as well. I will push through the presentation because I am conscious of time. It is important that members are able to ask questions.
2026. I will begin my evidence by echoing our chairman’s welcome to the Committee. As he said, the Committee’s willingness to meet offsite and hear evidence is a clear signal of members’ interest and intention to improve public procurement and maximise the benefits to the economy, the taxpayer and Northern Ireland society in general.
2027. Bryson, like other organisations, wants to draw the Committee’s attention to the importance of social enterprise to the local economy and the significant potential for it to provide greater value for money and, indeed, best value in the delivery of a broad range of public services.
2028. It is frequently assumed that social enterprise is a recent phenomenon, which is only now coming to Government’s attention. That is far from the case. Enterprise with a social purpose or objectives has been around longer than Bryson, which was founded, as the chairman said, in 1906. Much of what we now consider to be commonplace in society — hospitals, schools, a many other institutions — were developed from enterprising social action.
2029. For example, in Belfast, the delivery of clean drinking water to the city was a result of Belfast Charitable Society raising public funds for its installation. Volunteerism and, indeed, enterprising volunteerism has been at the heart of social change on the island, and throughout these islands, for hundreds of years.
2030. If you look at Bryson’s pedigree during the past 100 years, you will see that it is littered with enterprise that is designed to support and encourage Government to evolve policy and service provision that best meets the needs of society, particularly for people who suffer the greatest levels of deprivation.
2031. For example, during the 1920s and 1930s, Bryson, using donated funds, built model homes in Belfast in order to demonstrate to the Belfast Corporation, which was then responsible for social housing provision, what quality housing should have: electric lighting; hot running water; inside toilets; and front and back gardens in order to encourage people to grow vegetables, which are all commonplace in modern housing stock.
2032. Those homes were rented to tenants, with rents being set based on tenants’ ability to pay. That was a modern concept, which was well ahead of its time. The rent revenues contributed to the upkeep of those properties, with profits funding the charity’s work. That is social enterprise.
2033. Bryson’s rich heritage is littered with similar examples. In the 1930s, it piloted the development of the poor man’s lawyer scheme, a precursor to free legal aid and advice; in the 1940s, it developed and privately funded the citizens advice bureau network in Northern Ireland. It was good to have Derek Alcorn here; the beginnings of his organisation are in Bedford Street. In the 1960s, Bryson developed adventure playgrounds and community development support programmes. It was ahead of its time. In the 1970s and 1980s, it developed the first programmes to address fuel poverty in Northern Ireland; and, more recently, such organisations as Home Start, Extra Care and Victim Support are products of the enterprise that sits within this social-goal-focused organisation.
2034. I do not mention those to suggest that Bryson is different or better; only that the sector, which comprises many other examples, has social enterprise at its heart. It is important that public procurement should create the conditions which support the development of the social economy when, for practical reasons, that can provide better added value than either the public or private sectors.
2035. We explained in our written evidence that we have moved from our initial view that the green book assessment process was an impediment to a view that it provides the opportunity to encourage the development of social enterprise, because the green book process can register and assess a range of benefits delivered, if the need for those benefits is recognised within it. If those who use the process, and those who write specifications for bids that will be assessed by it, are better trained and required to extract maximum value across a fuller range of social priorities, it will be good not only for the economy, but for social enterprise.
2036. It is understandable that there should be purchasing rules and a common purchasing system for Departments in order to ensure that their purchasing is consistent, delivers value for money and treats all prospective suppliers fairly. However, it is our experience that, in practice, other issues can sometimes have a debilitating effect and, in fact, stunt the process; for instance, the desire of people who make purchasing decisions to minimise the risk of being criticised for their actions or decisions. It is our view that the procurement process is designed to procure what can be defended, rather than what is best value.
2037. We all understand the need for probity in procurement and the need to make correct decisions. However, making decisions correctly is not the same as making correct decisions. If that sounds complicated, I apologise. The problem is not the green book assessment process, because all procurement processes should begin with the need to define the objects and constraints — that is point 3 in the green book’s 10 key steps. That is at the heart of the public procurement problem. Rather than recognising objects, which are aims, and constraints, which are why people want something, what is wanted is rigidly specified in order to exclude ambiguity and defend eventual decisions. As a result, the opportunity to get best value from the process is missed.
2038. In general, a product or service is bought, not in order to have that product or service, but for the benefits that having it will provide. People do not buy a drill merely to have one, but to be able to put a hole in a wall. If the product or service being purchased is tightly specified, it makes it easy to see whether what is being offered meets that specification. However, it might also mean that an alternative offer, which does not meet the tight specification but which might nevertheless deliver the underlying objective and provide additional benefit, will be rejected.
2039. I will leave it to my colleague Brian McGinn to explain our experiences in procurement, in which we use variant bids to encourage innovative thinking; but I am reminded of one example which, I think, highlights the point well. In 1935, the army and the air force had a common problem — detecting enemy aircraft at a greater distance than the existing searchlights or sound rangers could achieve. Each sought to procure a solution from the scientific establishment, but each viewed the problem in a different way. The army specified searchlights that could be trained on aircraft 10,000 feet higher than was available and sound rangers that could detect aircraft 10 miles further than the current limit. In due course, they got what they asked for — stronger searchlights and better sound rangers. In contrast, the air force defined its objective less tightly, but more accurately. It wanted to detect and track aircraft from as great a distance as possible: the air force got radar.
2040. The point is clear; it does not need to be laboured. We need intelligent procurement processes to secure best value for taxpayers and, within that, a consideration to meet broader ranges of Government objectives through the inclusion of social clauses.
2041. It is understood that Departments purchase goods and services to enable them to achieve their aims and objectives. However, what if, as well as meeting the prime objective, those goods or services could help the Government achieve other objectives, either for the same Department, another Department, or all Departments. The essence of intelligent procurement is that tenderers should look for the widest possible community/social benefits to be taken into consideration, if it can be clearly shown that those benefits assist the Government in meeting one or more of their aims, even if those aims are not the primary subject of the contract in question.
2042. For example, when it comes to spending on infrastructure, we think of roads, schools, hospitals, sewerage works etc. More recently, there has been talk about a green new deal for Northern Ireland. If such a programme were procured by DETI or DSD, it would address the improvement of energy efficiency of homes; embed generation and fit smarter metering and energy and water saving devices in homes. It would also create substantial local employment, sourcing potential employees from those who are on the unemployment register and contract installers through small local firms, given the nature of the work. It would reduce carbon emissions, enhance security of supply and diminish dependence on fossil fuels while contributing towards eradicating fuel poverty. The challenge that needs to be addressed is the development of a modern, intelligent public procurement process, which seeks to maximise the socio-economic benefits to Northern Ireland.
2043. My final point, before I hand over to Brian, is concerned with procurement being an important tool for stimulating the Northern Ireland economy. Our written submission includes the suggestion that as RPA is designed to deliver leaner government, it must put in place a presumption on Departments and, particularly, on local councils to outsource for service development and provision, using their purchasing power to provide opportunities for all sectors of the economy but, in particular, social enterprise.
2044. We are concerned that the new social economy enterprise strategy, which is under consultation, suggests a substantive role for councils in the development of social enterprise. Our experience suggests that councils are gearing up towards enlarging their staff complement to provide support for the development of social enterprise. Having more staff, more advice and business plan producers misses the point. We are not convinced that councils have the skills or expertise to develop social enterprise. However, they do have spending power. The thrust of the draft strategy should be on the procurement role and procurement skills in local authorities that will enable them to use their spend to create opportunity. That would advantage not only social enterprises but private enterprises and, as such, hold closer to the intention of RPA; having a leaner government looking towards the added value it gets from its spend as a commissioner rather than as a deliverer of services.
2045. In recent years, Bryson has been successful in winning high value contracts through Government procurement processes: for example, DEL’s prime contractor award; the warm homes scheme management award, and a significant number of recycling contracts with individual councils and council waste management consortia. Although we have been successful, it has not been easy. Brian will take the Committee through some of the key issues, resulting from our engagement in those procurement processes, which we believe that we should draw to members’ attention.
2046. Mr Brian McGinn (Bryson Charitable Group): Thank you, John.
2047. Bryson has purposefully sought to increase its contractual income to allow it to gain independence; build reserve balance sheet strength; provide for reinvestment in the charity; and allow for long-term planning. To that extent, as our chairman pointed out, approximately 89% of our total income is now contractual, with the remaining 11% coming from grants and donations. 10 years ago, only approximately 40% of our income was from contracts. We have contract periods of one to eight years. Our longer term contracts have been secured through our training company, North City Training, with volumes of approximately £2 million per annum, and through Bryson Recycling, with contract values of around £5·6 million and a further £3·6 million in shared sales. Unfortunately, health trusts, with contract value of approximately £2·7 million, continue to offer contracts of only one year’s duration, but we believe and hope that that will soon change.
2048. In the coming year, we expect our contractual income to rise to 95% of total income, as we have been successful in winning the warm homes tender procured by DSD and the Housing Executive. That is a five-year long, £10 million-a-year, contract.
2049. All of the contracts that we have are with some form of government; councils, health trusts, or other governmental Departments. Many have been secured through European journal tender, and it is worth pointing out that we have no fear of that process. We believe that we can work closely in partnership with government bodies while maintaining the contractor relationship to which John has referred.
2050. The best example of that relationship working in practice is the materials recycling facility contract that we won with Arc21. The original tender asked for a price for treatment of mixed waste only, with tonnage volumes from 13 million to 15 million tonnes a year, for a period of either eight or 15 years. Bryson offered the compliant cost bid for each term, as well as four other options along with a 20-year model. That meant that for two bid prices requested, Bryson submitted 20 options. Our variant options introduced a source-separated waste collection into the bid, as well as the option to share risk and profit with the material sales price values.
2051. The successful bid was for eight years, with a potential seven year extension, and included the material sales price share option. That allows the value of material sales to be split 50:50 between Bryson and Arc21, together with our ability to provide high quality output materials and secure long-term price deals from which Bryson and Arc21 have profited immensely in the past three years.
2052. We continue to work in partnership with Arc21, and have recently allowed the contract to expand to include source separated materials, which Arc21 had originally precluded, as well as reducing fines to councils for delivery of contaminated stock. We have similar material sales price share deals in place with councils independently for the collection of materials.
2053. A question was asked by the Chairperson earlier, and it referred to whether social enterprises would partner with other independent and private organisations. To win and raise balance-sheet strength for the recycling contracts, we partnered and created a joint venture with a company from London called Ealing Community Transport, which, at that time, provided recycling and waste management contracts throughout England, Scotland and Wales. It had a turnover approaching £45 million a year, and employed approximately 1,200 staff. The joint venture was created around four years ago; and last year, we bought the 50% share of Bryson Recycling from ECT. That means that Bryson Recycling is now a fully-owned subsidiary of the Bryson Group.
2054. A further example of a partnership that we created that was unfortunately unsuccessful in its bid was a partnership with a company called Morgan Sindall, which again originated in England.
It had a £2·5 billion turnover last year, with £62 million pre-tax profit. We created a special purpose vehicle to tender for the in-vessel contract for waste recycling with Arc21. Unfortunately, we went for an extremely advanced technology with a large capital input, but which had the benefits of providing an energy surplus to the grid. We also considered the option of bringing in the surplus landfill burn-off from the current site in the docks area of Belfast.
2055. Government grants were available for the technology that we were looking at, but those were excluded from the bid evaluation. As I said earlier, despite pre-qualifying and getting to the final stages of the bid, we were not successful.
2056. It is also worth noting that although grants have an important role to play, survival on grants does not allow profits, and, therefore, growth of reserves with associated balance-sheet strength. Although Bryson has been able to grow, with turnover soon to reach more than £30 million and reserves of more than £7 million, others may not be in the same position and may be precluded from bidding for tenders due to size or lack of balance sheet strength. It is important that the Government recognise the contribution that can be made by social enterprises such as Bryson and the added value that can be obtained for local society.
2057. Mr O’Loan: I noted what you said earlier about the green book. Can you compete in an open market?
2058. Mr McMullan: Yes; however whether the whole sector will be able to compete when the system does not measure added value is another matter. Our chairman said clearly that we lock in all our profits. Procurement does not value that: why not? We are better placed to spend your pound, because 95p in every pound goes directly in-service and all our profits go back into developing our work of social value. The Government should take that into account. The private sector can do that if it wants, while continuing to hold its profits, and there is nothing wrong with that. We think that added value should be taken into account.
2059. Brian McGinn made the point that when we pitched for the recycling contracts, we told the procurers that they were[inaudible due to mobile phone interference.] We told them that they were doing it the wrong way, that they did not want more bin lorries or wheelie bins and that they needed people to change their behaviour. They did not heed that in their specification. We sold that idea to some councils, and the point that we were making became clear to them, because we knew more about recycling than the procurers.
2060. We showed that source separation provides better quality materials, higher volume and higher participation rates. We said that at the beginning, and it took us a while to show it. That is why we are happy to compete, but we want a level playing field, and we want the process to measure the added value that we bring, because it does not do that at present.
2061. Mr O’Loan: You may have already answered my second question.[Laughter.] If you could make one change to the procurement system, what would it be?
2062. Mr McMullan: We need more intelligence in the procurement process. I made the point that from our experience, what is procured is what can be defended but not is necessarily what is best. Procurement professionals need to be pushed to identify how they can amend the programme or use it better. They must train their professionals and the council professionals, because we find that there are significant impediments in talking to procurers at council level, where the process is even less sophisticated. That is interesting, given our view that the CPD process is not all that sophisticated either. There must be improvements in procurement training and development.
2063. Mr McGinn: There is no doubt that CPD has expertise in what it does, but I know that it will bring in consultants to help determine what is needed. Quite often, the people who are already doing the work and carrying out research may be best placed to offer the best solution. We have been made aware by CPD that we may continue to offer a variant bid in tenders, but it will only be judged if the compliant bid actually wins.
2064. Mr McMullan: That is silly.
2065. Mr McGinn: That seems to preclude what could be the best option.
2066. Mr McLaughlin: Thank you very much. It was a very interesting presentation, and has the credibility that arises from the record of Bryson, so it was quite authoritative. I am interested in social clauses, in relation to which you discussed the need for robust academic research. Will you briefly explain that? I understand and support what you are looking for, but will you explain what you have done so far. Have you discussed it with academics or the Department?
2067. Mr McMullan: The Bryson Charitable Group has applied, through the University of Ulster, for what is called the knowledge transfer partnership. For those who may not be aware of it, that involves a university bringing its academic expertise, across the range, to help an organisation become better. When we have spoken to procurement professionals, they have told us that we need to have robust numbers in relation to the added value that a social enterprise can bring. This will help us, and help the procurement specialists when scoring a particular bid, because all procurement comes down to how many points are awarded for the presentation of a proposal.
2068. We have asked the university to engage in a knowledge transfer partnership with Bryson and measure what we are doing. We can put the university in contact with other social enterprises through the network so that it can test the measurements across the range in order to determine metrics that can be used by procurers when scoring tender bids from organisations such as ours. That application is about to go through. We would like to see the Government stepping up to make a contribution to that knowledge transfer partnership. The charity might be prepared to make a contribution, but Government should be paying for that, because it will benefit government, as well as whatever benefits accrue to the university.
2069. Mr McLaughlin: Have you asked the Department?
2070. Mr McMullan: We asked DETI officials about that possibility, but they seemed somewhat reluctant. We will wait until we have an offer and then suggest that the Government should make a contribution, because the information provided will improve procurement and ensure that the full value of social enterprise is realised.
2071. Mr McLaughlin: Do you have a costed proposition that you could bring to the Department and Committee, or is it too early?
2072. Mr McMullan: We do, and would be happy to share that.
2073. Sir Nigel Hamilton: One of the things that we said earlier is that some of the profits that we make can be reinvested. We are very keen to work in partnership. There is nothing unique or particularly secretive about our proposition: we think it is a very good piece of work that we would happily share with the Committee and with Government. We are happy to put some of our own charitable money in to do it, but we think it would benefit the whole sector, and perhaps some of your consideration, if we could form a productive partnership.
2074. Mr McLaughlin: I strongly encourage that. I think you would find significant levels of support among the parties as regards the inputs they can make, both by influencing the ministerial tier through their party structures and at Committee level. I have a related question about the development investment idea, which is mentioned in your submission. Has that been discussed, and is it a costed proposition?
2075. Mr McMullan: It is not a costed proposition, but the idea of accessing investment funds that are specific to social enterprise is very attractive.
2076. Mr McLaughlin: The idea of accreditation, etc, enhances the business threshold.
2077. Mr McMullan: We are very clear in that we do not want to be measured as equal to the other players; we want to be better than them. We think that we are better than them. We think that we provide a more rounded and better service.
2078. I do not want to criticise the private sector; it is very good at what it does. Its role in life is to mine for profits and to provide maximum returns for shareholders. However, one characteristic of social enterprise that is not offered by the private sector is focusing on the issue. If the procurement is wrong, we work hard to get it changed to provide a better service and to evolve the service. In organisations, such as Bryson Charitable Group, continuous improvement and excellence is a challenge.
2079. Mr McLaughlin: I do not need to be convinced; I want to know why it is not a costed proposition. It needs to take shape and form, and it needs to pressurise the Department to respond.
2080. Sir Nigel Hamilton: We have been driving forward a number of the issues. I have been on the board for one year, since retirement, and I have been impressed with the activities that Bryson has been undertaking and by the fact that it leads the sector. We are happy to intensify that work.
2081. We are also happy to be benchmarked against other organisations, because we think that that is important for the social enterprise sector. We are not making any claim about who is better, but we have carried out external benchmarking in our staffing, with such initiatives as European Foundation for Quality Management (EFQM) and Investors in People. We are happy to do that as part of a wider procurement exercise with regard to an assessment of our strength. Mr McGinn referred to the strength of the balance sheet, which is important. It is not as though we are talking about an organisation that is here today, gone tomorrow. The other side is our professionalism and expertise in procurement and being compared with other people.
2082. Mr McMullan: We are showing you where the sector can go, if the right conditions are in place. We are more fortunate than some organisations that might come to the table: we have been around a long time; and we have built up a strong balance sheet, which helps us push our way through. Declan O’Loan said that we procured 50% of the warm homes scheme recently. Part of the pre-qualification requirements to be allowed to bid for that was a turnover of £10 million, because the programme was managing £10 million. Why is that required? What you need to be able to show is that your organisation can manage a programme that is worth £10 million.
2083. Other organisations in our sector had the competence to bid for the warm homes scheme. We were approached by one organisation that was excluded, because its turnover was not £10 million, and its competency was not tested, because it did not get that far. The root of solving the situation is to change procurement. That is what the Committee should focus on. It is not a case of merely encouraging the professionals; tell them to find ways to do it and challenge them to do it. That is democracy in action. The competence can be there. It is easy to hide behind a position that one believes to be safe. If procurement is challenged and forced to look at the situation and bring forward proposals for change, that will happen, and some of the clauses that exist to protect the decision, rather than get best value, can be driven out.
2084. The Chairperson: You said that the green book did not need to be amended because you believe that it already allows for non-monetary impacts, such as environmental and social benefits. You went on to mention training and raising awareness among commissioners. I understand why that is important, but how can it be taken forward? Training people and raising awareness are fine, but how will the required outcomes and outputs be achieved if the rules are not amended?
2085. Mr McMullan: We do not think that the rules need to be amended; we think that they need to be clarified and applied. In response to Mr McLaughlin’s question, we said that if we give the procurement specialists metrics to score against a source, they might even weight some of them and discover that they are better than the price. That means that when you procure you are getting those services. If I produce a range of social values, it will receive a one, two, three, four or five. At the moment, the box gets ticked but receives no weight or score. If it receives no weight or score then it does not have any impact on the assessment. I do not know whether that is clear.
2086. The Chairperson: Therefore you are talking about scoring. You want the scoring mechanism to be changed.
2087. Sir Nigel Hamilton: Yes. There is a broad phrase to be used here, and it is “corporate social responsibility". I am involved with another organisation, which, when involved with the procurement of physical contracts, encounters a box that has to be ticked and which asks whether the organisation is involved in corporate social responsibility. It is a box-ticking exercise. We are saying that this is a very important area and that if we could produce metrics to score it, through indicative actions and so on, it should be part of the assessment process.
2088. Ms Purvis: As an aside, has Bryson made a submission to the consultation on dormant bank accounts as regards the development investment in SEEs?
2089. Mr McMullan: We have not done so specifically, but the Social Enterprise Network mentioned a working group that was put in place to create a fund and a brokerage system, which is part of a pitch to that consultation to which we have lent our support. We thought it better to support their submission than say that we wanted it for something that we were going to do. If those resources were available to fund more organisations to help them learn what we have learned — and we are very prepared to share that knowledge — it would help them to come through and grow the network of social enterprises.
2090. The Chairperson: No other members have indicated that they have any further questions, so thank you very much for your presentation and for hosting the meeting.
2091. Sir Nigel Hamilton: We wish you well with your deliberations.
2092. The Chairperson: Hopefully we will see you at the conference next week.
25 November 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Acting Chairperson)
Mr Simon Hamilton
Mr Fra McCann
Mr David McNarry
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Witnesses:
Mr Des Armstrong |
Department of Finance and Personnel |
2093. The Acting Chairperson (Mr McLaughlin): The Committee will now take evidence from the Central Procurement Directorate (CPD). I welcome Des Armstrong, the director of CPD, Aileen Edmund of CPD, and Stewart Heaney the divisional director of construction and advisory division of CPD. You are all very welcome and I am sorry that there was a slight delay. I think you have all been here before. We are glad to see you, and I remind everyone that there will be a Hansard report of this session and that all electronic devices must be switched off completely.
2094. You have been provided with an indication of the broad areas likely to be discussed today and which have arisen from our inquiry to date. Unless there is something that you wish to say now, we will move directly to questions from members.
2095. Mr Des Armstrong (Department of Finance and Personnel): I have a brief opening remark. CPD welcomes the interest that has been shown in the inquiry and the submissions that have been made. Some views expressed and the perceptions they reveal have been useful to us, and we welcome that.
2096. The Acting Chairperson: That is good. We welcome that bit of collaboration to start with.
2097. Mr F McCann: A key theme that arose at the stakeholder conference was how the procurement process, and in particular, those assessing tenders, accommodate applications from consortia. What progress has been made on consortia by the construction industry working group?
2098. Mr D Armstrong: Stewart Heaney has been doing some work with the Construction Industry Group through the Construction Industry Forum for Northern Ireland (CIFNI) task group. He will be able to give the Committee a quick update.
2099. Mr Stewart Heaney (Department of Finance and Personnel): We have had very positive engagement with the Construction Industry Group following the procurement task group report. A number of recommendations were made in that report identifying issues that needed further work and engagement, one of which was consortia. We now have an agreement with the Construction Industry Group that structuring procurement opportunities should be structured in such a way that allows smaller firms to come together as consortia.
2100. We have agreed that, when a consortium submits a pre-qualification questionnaire (PQQ) to enter into a procurement process, a common set of questions will apply. One submission will represent the consortium for those areas relating to experience. Therefore, all members of the consortium may draw on the collective experience. Some issues, such as health and safety policy and financial standing, will still be assessed on an individual basis. The industry is comfortable with that and the Construction Industry Group has confirmed that it is content with that approach.
2101. Another key area in the task group report regarding SMEs was financial standing. We have agreed with the construction industry that we will ask contractors who are bidding for construction projects to have a Constructionline category value that is at least equal to the annual spend on the job. By way of background; Constructionline is the national database of firms that have pre-qualified to work for the public sector. In calculating the category value, Constructionline looks at aspects such as the company’s assets, its turnover and track record, through the use of references. For example, for a £20 million project, with an annual spend over two years of £10 million per year; we would be looking for a firm with a Constructionline category value of £10 million. That relates back to consortia, and the agreement is that, in such a case, each consortium member should be worth at least 40% of the project value. Therefore, if a project is worth £20 million and equates to £10 million per annum, each member of the consortium must be worth 40% of that sum. To bid for that project, a company must have a category value of £4 million. That is a significant step forward for us. The industry is comfortable with it and has accepted it as a reasonable way forward.
2102. The other key aspect is bringing together all those points into a standard PQQ, and we are at an advanced stage in completing the second draft of the PQQ to do just that. We hope to consult with the industry on that next week, with a view to completing it by the end of December.
2103. Mr F McCann: Recently, a group of housing associations came together as a consortium to operate a procurement programme. Should we keep an eye on that and how it is being implemented?
2104. Mr Heaney: Procurement by the housing associations is being handled by the Housing Executive, which is the centre of procurement expertise (COPE).
2105. Mr F McCann: It was brought in by the Department for Social Development (DSD) initially. Is that not correct?
2106. Mr Heaney: Yes. That is correct. CPD has a number of staff who give advice to DSD, but the procurement of the contract for the housing associations is a matter for the Housing Executive, which is the centre of procurement expertise in that area.
2107. Mr O’Loan: Good morning. Thank you for coming to speak to us. In weighting public and private experience, you previously told us that CPD does not value experience gained in the public sector higher than that gained in the private sector, and that the overarching requirement is best value for money. I understand that a CIFNI working group is considering how experience of work of a similar nature, scope and complexity should be used to evaluate the technical and professional ability of enterprises to be shortlisted for tender. Will you update us on the progress that has been made to give more equitable weighting to experience gained in the private and social economy sectors?
2108. Mr Heaney: CPD has never weighted public sector experience higher than private sector experience, but that issue was discussed with the industry. As part of the process of standardising the PQQ, we will be asking for relevant experience in a similar project. For example, if the requirement is to build a school, a contractor will not have had to build a school before. However, he will have to have constructed a building of similar size, scope and complexity, which could be a large commercial building. There will be nothing to state that the contractor has to have constructed a building of exactly the same nature as the one required. That has been agreed with the industry. Bidders will have to demonstrate capacity and capability.
2109. Mr O’Loan: The CIFNI working group felt that it had a job to do; therefore, it must have felt that the previous outcome was not balancing that weighting equitably.
2110. Mr Heaney: The industry has agreed to our proposals. The key requirement was that there would not be a barrier to a particular market sector, in that its members would have to have constructed a building of that type for the public sector before. We are clear that that will not be a requirement. As long as contractors have relevant experience, that experience will be considered by the assessment team.
2111. Mr O’Loan: Are there specific issues regarding health projects, for example?
2112. Mr Heaney: I am not aware of any particular issues.
2113. Mr O’Loan: I am aware of one instance in which a criterion for health projects was part of the tender requirements.
2114. Mr Heaney: Going forward, the work that we have done with the Construction Industry Group means that there will not be any requirement for specific experience. It will be up to a firm to sell itself through its quality submission and demonstrate its experience compared to that of other bidders.
2115. Mr O’Loan: In that one instance, it struck me that unnecessary barriers were being created for companies that had the capacity to do the job and had some experience in delivering a project in the private health environment but were not getting recognition for that and would not have pre-qualified.
2116. Mr Heaney: The industry has not raised that issue with the group.
2117. Mr O’Loan: Will you comment on any advances in the development of the PQQ used by government construction clients?
2118. Mr D Armstrong: I will make a quick point. From the feedback that we have received through the inquiry process we have learned that we need to look at having a greater degree of standardisation on the construction side and in supply and services. We have the platform and the vehicle for that in e-sourcing NI, which is the tool that we are using to bring procurement through the COPEs and out to the market. That has been a useful catalyst to allow us to standardise our documentation.
2119. There has not been any reluctance in the past to use standardised documentation, as long as it has been particular COPEs’ documentation. That type of process requires re-working of what the documentation looks like and training for staff as to how they might use it. We now have the opportunity to standardise, and I have not experienced any reluctance from the COPEs to use that process.
2120. Mr O’Loan: At your level, are you monitoring whether that is happening?
2121. Mr D Armstrong: The procurement practitioners group, which comprises the heads of procurement from all the COPEs, meets regularly. The commitments coming forward from that forum will, if appropriate, be included in CPD guidance notes.
2122. The Acting Chairperson: PQQs are a source of frustration for companies that wish to explore the possibility of submitting bids. Indeed, I have spoken to people who have had to fill in 15 PQQs. Could the forms not be pre-populated with data that has already been captured, with a box to allow the applicant to indicate whether the information is still relevant? An applicant would then only have to make appropriate amendments. Having to fill in the same information repeatedly seems like an awful waste of time and an inefficient way to go about things.
2123. Mr D Armstrong: That is a drawback of having paper-based tender submissions.
2124. The Acting Chairperson: Are we moving towards eliminating the need for such behaviour?
2125. Mr D Armstrong: Standard information that is given at the tenderer’s discretion will be logged in the system, but we will still need to gather information that is specific to each procurement process. Nevertheless, the need to repeatedly request the same information from suppliers will reduce. Initially, information will be requested in the same format, but, subsequently, we will be able to condense what is required.
2126. Mr Heaney: For the Construction Industry Group, a key element of the standard PQQ is a firm’s health and safety policy, which does not change every day; so we have agreed with the other centres of procurement expertise that health and safety will be assessed annually. Once that has been assessed, the contractor will be issued with a certificate. As long as nothing changes in the ensuing 12 months, contractors will not have to submit a health and safety policy with their PQQs. Likewise, details from contractors’ accounts, which are used to conduct financial standing assessments, will be held in Constructionline’s database. Therefore, when a contractor bids for a particular project, he will only need to quote his Contsructionline registration number. Working with the industry on those two key elements of the standard PQQ has been very important in taking it forward.
2127. The Acting Chairperson: That is progress. As you can imagine, for people who interface with the system, having to repeat the same information on PQQs can appear to be, at best, an inefficient approach.
2128. As you are aware, another key issue that came up at the conference was the minimum thresholds that companies must establish in relation to the tenders for which they apply. The requirements seemed disproportionate, irrational and arbitrary, and had the effect, whether intended or not, of knocking companies out of competitions that, given the opportunity, they would have been perfectly capable of delivering on.
2129. Mr D Armstrong: Working with the Construction Industry Group has been useful, because we have been able to hear directly from the industry about the problems that requirements that we put into contracts cause contractors. The group has tried to come up with a sensible and rational approach that secures value for money for the public purse without overburdening or presenting unnecessary barriers to the supply side.
2130. The Acting Chairperson: When will changes emerge that people can see? The requirements must be rational, proportional and prudent and must not knock people out of competitions because they are set too high.
2131. Mr D Armstrong: We are committed to completing work on the construction side by Christmas, and we are on target to do so. Our proposals are with the construction industry. On the supplies and services side, we realise that we do not have the same sort of interface with that market to deal with things at a strategic level; so we are thinking about how we might engage better with that sector. We plan to interface in a similar way to our approach on the construction side. We plan to deal with the market sectors using that a similar approach and obtain direct feedback for policy makers.
2132. The Acting Chairperson: With respect to proportionality, I am sure that you recognised immediately that that would also facilitate other businesses forming consortia. If thresholds are set too high, some firms may conclude that it is not worth considering an amalgamation, a joint venture, or forming a consortium. I think that that runs counter to what we are trying to do here, which is to provide as much access as is prudent to support local industry.
2133. Mr D Armstrong: I agree.
2134. The Acting Chairperson: This is not a major issue, but it emerged at the conference: respondents to the inquiry reported inconsistencies in the approach to tendering and feedback between CPD and the COPEs. They indicated that requests for statistical information during the course of the inquiry highlighted the lack of standardised data across CPD and the COPEs. Will you talk a bit about governance and the relationship between CPD and the various COPEs? Are we heading towards a standardised format that applies at all levels and sectors?
2135. Ms Aileen Edmund (Department of Finance and Personnel): CPD is the lead procurement body, and it therefore takes the lead in developing policies. It consults, shares, and develops best practice with the COPEs on a consensus basis as much as possible. CPD reports its progress and that of the COPEs against departmental and PSA targets.
2136. The Acting Chairperson: In your work, are you aware of variations or inconsistencies in approach? Are you indicating that the voluntary nature of this makes those variations and inconsistencies difficult to resolve?
2137. Ms Edmund: CPD produces guidance notes on different aspects of procurement. For example, we have a guidance note on disclosure of information. Guidance notes are agreed with the various COPEs. However, each has its own portfolio and has a feel for what suits its market best. Guidance notes will reflect what the COPEs are required to do in respect of best practice and the procurement regulations. However, they can choose to vary how they provide feedback to bidders. The regulations set out certain requirements with which COPEs must comply, such as the need to provide specific information to tenderers once a competition award is made. Whether COPEs give face-to-face or written debriefs is a matter for them, and each might take a slightly different approach. By and large, they follow the regulated process.
2138. The Acting Chairperson: The Committee, during its inquiry, has recognised that there are inconsistencies. You agree, but you are saying that there is an explanation. In fairness to the organisations, one can see how such a situation may arise, and the Committee’s report might make a recommendation on the issue. For a region as compact as this, we should be able to devise a consistent approach for bidders.
2139. Mr D Armstrong: That is a reasonable statement. The supply side has certainly said that standardisation of approach is important.
2140. The Acting Chairperson: I shall develop the point. Given the proposals to reduce the number of local councils; what discussions have there been about the potential for additional efficiencies in procurement through greater collaboration between central and local government?
2141. Ms Edmund: Councils operate separately to central government and have their own legislative framework. In the past year, seven councils have come on board with e-sourcing NI. That, in itself, brings greater opportunities for collaboration and consistency.
2142. The Acting Chairperson: Is that seven councils out of the 26 councils?
2143. Ms Edmund: Yes, seven of the current councils have come on board, including some of the bigger ones. Beyond that, I am not aware of any additional collaboration.
2144. The Acting Chairperson: Are you promoting the idea of collaboration, or is it organic?
2145. Mr D Armstrong: The review of public procurement recognised that councils had a different status and could take the policy on board on a voluntary basis. Our information is in the form of guidance notes and is available on a webpage. Occasionally, councils phone us to discuss different points that they might take forward with respect to procurement. However, CPD is ready to talk to councils if an approach were made. We have spoken to the Department of the Environment on that matter.
2146. The Acting Chairperson: The 11 councils will have greater powers than those of the 26-council model, and that will have an obvious impact on procurement. Therefore, I imagine that CPD will need to be anticipating those pressures and changes.
2147. Ms Edmund: CPD has spoken to the Department of the Environment and has a representative on the panel that is looking after the RPA procurement work stream. However, no concrete proposals have come from that group as yet. Nevertheless, CPD is part of that group: it is in the loop and it is talking to the Department of the Environment.
2148. The Acting Chairperson: Simon Hamilton is next. Simon, I congratulate you being the best up-and-coming MLA at the Slugger O’Toole awards last night. While I am at it, Dawn Purvis got the award for the best MLA. Commiserations to the rest of us. Well done to the pair of you. One can see what a powerful Committee this is.
2149. Mr Hamilton: Thank you. You were very wise to mention this while Peter Weir is out of the room. I will not tell him.
2150. I have two sets of questions; one relates to training and capacity building and the other relates to evaluating complaints and feedback. As regards capacity building, one commentator at the conference talked about a collegiate approach in which procurement professionals could come together for joint events such as training. Has that been looked at, or can it be done through existing structures?
2151. Mr D Armstrong: We have developed a career path framework, which is available for COPEs. It was designed to upskill those who might be involved in the procurement process. As part of the accreditation process for the COPEs that has just been completed, they were tested as to how they had taken on board that career path framework and worked with it. Some positive comments came back from that assessment suggesting that it was in place.
2152. As regards training, there has been a pretty good focus on pre-contract needs. The industry is telling us that there appears to be a weakness in commercial skills and contract management. So, we are focusing on the common approach that we take to contract management and on the commercial skills that are needed. Sometimes, the management of the procurement process will be given back to Departments once a contract is awarded. Therefore, we need to look at the skills that exist within Departments.
2153. Mr Hamilton: Another idea that came forward was the use of a licensing system for procurement professionals, and there could be different scales depending on the size of a contract. Have you any thoughts on such an approach?
2154. Mr D Armstrong: The COPEs get their licence from the Procurement Board, with respect to having an external assessment and a subsequent accreditation process. That has just been completed for the COPEs. From CPD’s perspective, all branches within CPD are required to have someone with a professional procurement qualification.
2155. On the construction side, there is a mix of disciplines involved, because of the variants in that area, but, in the supply and services area, all of our people are qualified at least to the standard of Chartered Institute of Purchasing and Supply (CIPS) membership. There is an ongoing staff development programme in association with the University of Ulster. In the past day or so, I have talked to the university about commercial skills on the construction side. Although we are in the early stages, we are looking at some input into an MSc course on commercial skills in construction.
2156. Mr Hamilton: I will move on to appeals and mediation. People who are disgruntled with a procurement process can get feedback by talking to you and seeing where they were marked down and went wrong. If they believe that there is something much more fundamentally wrong with the process, they have to jump into litigation, which, in some cases, could be like using a sledgehammer to crack a nut. However, people may feel the need to pursue the matter. Obviously, it is bad for you and the public purse to have to jump from an informal feedback process into the courts.
2157. It has been suggested that an ombudsman-type figure is needed. Evidence to the Committee indicated that people who lost out on contracts did not necessarily want to go to court and face the cost, etc. However, they felt that if something were wrong with the process, they wanted some acknowledgement of that and that things could be rectified through a slightly less formal process. Have you any views on that? Is it something that could fit into the process or be workable?
2158. Mr D Armstrong: The COPEs are required to have a complaints procedure in place. CPD has been looking at its complaints procedure in light of some of the legal action that has occurred to see whether we can have a system in which there is a greater sense of transparency in CPD’s decision making, rather than litigation being the first route taken.
2159. We operate a two-stage process. The first stage is usually an assessment by the relevant divisional director, after which there is a process of referral to the director of CPD. I have been in discussion with the Office of Government Commerce (OGC), which currently has in place a supplier feedback service. That allows the OGC to go into areas outside its responsibility, such as councils in England, to look at their procurement processes and decide whether they are compliant. That route is available, provided that there is not ongoing litigation. The OGC is prepared to allow us to modify our complaints procedure to allow for that type of reference. Therefore, the OGC could be asked to look at a complaint that is made to the director of CPD, and the award of contract could be suspended until a report comes back.
2160. Hopefully, that should reassure the market that there is a degree of external scrutiny, because the OGC will not come back with a report unless it can stand by the information that it has provided already. The OGC has agreed to do this, but I have not discussed whether it could be pushed out to the COPEs. I want to see how it operates first, and I want to have further discussions with the OGC; but we will shortly change our complaints procedure to allow for referrals to the OGC supplier feedback service.
2161. Mr Hamilton: Is the principle of doing something beyond the current system, short of litigation, something that you are considering?
2162. Mr D Armstrong: Suppliers need to raise their concerns as soon as possible if the process is to work really effectively. Once the award decision stage is reached and if the contract is over the European threshold, triggering the Alcatel mandatory standstill period, complaints start to move towards possible litigation.
2163. If suppliers have issues, I would prefer that they raise them as soon as they get the documentation, and those issues could then be clarified by clarification notes. If suppliers have a problem with the process at any time, they should put the flag down. CPD has seen the outcome of litigation and the surrounding issues, and we want to ensure that suppliers are reassured that the system is robust, reasonable, fair and transparent.
2164. Ms Edmund: If a supplier is not happy after the second-stage complaint, he or she is at liberty to go to our ombudsman, who has the authority to investigate the Department’s processes. The ombudsman does not have the authority to say whether a decision was the right one, but he can certainly investigate our processes. That mechanism is in place. If the complaint is about the award decision, the courts are the only place to go, because that is a very different issue.
2165. Mr O’Loan: I am interested in what you say, but I am not at all convinced that the model of piggy-backing on the OGC system is nimble enough or quick enough on its feet to address the issue. You refer to the ombudsman as another model, but that would make me start to tear out whatever hair I have left, because I know that that model is not nimble enough.
2166. It is not a question of wanting a pushy model. What are required are a conciliatory approach and an independent view. People are seeking a process that is lean, that can be invoked quickly, and that operates quickly. I am not convinced that invoking the OGC is the answer.
2167. Mr D Armstrong: We need to be able to get answers to questions quickly. If matters are raised after the award of contract, disappointment is with the unsuccessful tender, and the client desires to get the contract into place because it is there to help them to deliver public services.
2168. I am committed to ensuring that our processes are transparent the whole way through and that the supplier knows that they can raise issues at any time and that that will not affect the result of that competition or any involvement that they had in previous competitions. A good way to start the process moving forward would be to get the message to suppliers that they should raise concerns at the earliest opportunity.
2169. Post-award decision is a different matter, particularly if it is above regulations, because suppliers will have the opportunity to take legal action under the regulations. We are giving them another option of independent scrutiny of the decision. We need to consider whether we would give advice to a client to rush to contract when an issue is being raised.
2170. Ms Edmund: We record all complaints and their substance, and they go to the procurement board for review. One of the main reasons for that is to see whether we are doing, or have done, something wrong. There have been occasions when we have halted and re-run competitions because a complaint made at an early stage has given us pause for thought. We always reflect on the processes, but there have been occasions when a complaint has changed things at the right time and before the contract went any further.
2171. The Acting Chairperson: It is good to hear that an early complaint can result in such a response. However, I assume that there have also been occasions when an issue was flagged up early but was not accepted at the time, and the process was subsequently successfully challenged. Is that experience informing the more proactive approach that Aileen has just described? It is encouraging to hear people say that the process is not set in stone or that they have started so they will finish.
2172. Ms Edmund: We learn lessons.
2173. Mr D Armstrong: Even the case law suggests that, where a mistake is identified in the process, we need to move back to when the mistake was made and take a solution forward. That is the most sensible approach. We need to be committed to putting compliant contracts in place. If an issue is raised, it must be carefully considered before action is taken to go forward. We should move forward only when we receive advice that it is robust. We should not push things forward into unlawful contracts; that would be totally against what the COPEs have been set up to do.
2174. Mr Hamilton: Some contributors suggested the creation of a one-stop shop for guidance, capacity building and supply-chain management. Have you thought about that?
2175. Mr D Armstrong: As regards guidance, at the moment, we are considering our web page, which is probably a bit dated and is not necessarily easy to find information on. Aileen is leading a project to put that in place before Christmas. Is that right?
2176. Ms Edmund: No; we are aiming for the end of the financial year.
2177. Mr D Armstrong: The feedback highlighted two things. It showed whether the procurement process presents barriers and the way in which people understand it. Moreover, it highlighted the issue of people’s capacity to tender. How can an organisation that has not tendered for government work before be in a position to tender against the new PQQs that we are developing? That perhaps does not involve the CPD. We need to consider whether another organisation can provide the skills.
2178. When we talk about SMEs in the procurement sense, we mean SMEs from any part of Europe; it is an open market. From a procurement point of view, we are bound to treat people from Lisburn and Lisbon with the same degree of help and assistance. There are other agencies that could help to upskill local suppliers and local tenderers, not only to tender in Northern Ireland but to tender in the all-island market, in the UK, and in Europe. It is a big market.
2179. Ms Purvis: Has any consideration been given to a definition of social value for all procurement contracts that would go beyond employment and section 75 matters?
2180. Mr D Armstrong: I do not think that we have a definition.
2181. Ms Edmund: It would be up to the Department that is formulating programmes or projects to the procurement phase to consider what it wants to get from those. CPD is more concerned with building in community benefit clauses, such as opportunities for employment, apprenticeships or training for the long-term unemployed. The community benefit clause is where we fit in, rather than the measurement of the social value.
2182. Mr D Armstrong: Some social, environmental and economic measures sit within the scope of public procurement, although its definition is best value for money. CPD, along with the COPEs and the construction industry, tried to guess a set of proposals that could be facilitated by construction. However, Departments need to decide whether that is right or wrong or whether they should be doing something else. Now that those benefits are in place and in contracts, we see that the market can respond.
2183. It is early days for the construction side, but Stewart told me that 12 apprentices and four previously unemployed people are coming through on contracts that are now being let and are coming on stream. To be fair, CPD and the construction industry guessed what the Departments might want. We are also looking at annual procurement plans with Departments. In that process, we are suggesting that Departments need to think about what social or community benefit they need.
2184. Ms Purvis: The one thing that came out of the conference was the need to have clarity on the definition of social value. If that were clarified, Departments would possibly find it easier to define what they want in their contracts. Perhaps CPD should consider that when issuing guidance to Departments, because it may be thinking about the works, the goods and the services, as opposed to the social benefit that can come out of a contract.
2185. Ms Edmund: We produced the equality and sustainable development guidance, which was launched last year, and it is supported by a dear accounting officer letter. It gives detailed guidance on how Departments should approach the matter. There are also some case studies in it. Therefore, there is guidance to support social value, but case studies and good examples are required to inspire other Departments. It is relatively early in the process, but we are at the stage where we are trying to get the momentum going and getting good examples so that people can see what can be done.
2186. Ms Purvis: You are right; examples are a good way of showing how it can work. The integration of equality and sustainable development priorities is an identified target in the Programme for Government. Do you have arrangements in place to monitor and report on compliance with that guidance?
2187. Ms Edmund: Twice a year, we go to the procurement board with a report on how Departments say they are embedding the guidance. Departments and COPEs have been taking steps to get that guidance to where it needs to be. The procurement board is committed to a formal review of the effectiveness of the guidance after three years. The board decided to leave it for that length of time because it recognised that it was going to take a while for people to get used to thinking in that way, because it is a step change in the way in which Departments approach procurement and how procurement approaches procurement, so it does take a while to bed in. Therefore, there will be a formal review after three years.
2188. Ms Purvis: How will you measure that?
2189. Ms Edmund: We will measure the number of clauses in contracts, how many unemployed people are getting off the unemployment register and how many apprenticeships there are. That is the sort of thing that we will endeavour to count. As we go along, we will keep tabs on it.
2190. Ms Purvis: You talked about the action plans to deliver sustainable development priorities. How many COPEs have actually provided action plans? According to one PSA target, they had to provide them by December 2008. Have they all provided them? How many Departments have produced annual procurement plans setting out how procurement will assist delivery?
2191. Ms Edmund: They have all produced them.
2192. Ms Purvis: Can we have sight of those plans?
2193. Ms Edmund: Yes.
2194. Ms Purvis: More generally, the Programme for Government indicated that the COPEs would work with Departments to identify ways in which procurement could assist in the delivery of Programme for Government commitments and provide outcomes for 2008-2011. What progress has been made on that target?
2195. Ms Edmund: In CPD, each Department has key account managers who meet formally with the departmental finance directors to discuss how procurement can help them to deliver their Programme for Government commitments and discuss their procurement plans, again building in equality and sustainable development. Those are the sorts of things that we engage in dialogue with Departments about. Most COPEs have historic links with Departments, so they have very strong links with them. In many ways, that relationship already exists in respect of delivering the Departments’ commitments, especially if one looks at Roads Service, Water Service and Translink. Those are key areas of the Department for Regional Development’s responsibilities.
2196. Mr Heaney: The key account managers are approaching the matter from a higher level in the Department, whereas CPD staff, advisers and project managers engage on individual projects with client Departments. Our staff are well versed on the proposals that were agreed with the construction industry to deliver sustainability in projects, and they are very proactive in engaging with those clients. Even if a client is not familiar with those requirements, the CPD advisers would certainly put them on the agenda and encourage Departments to consider them. It is really a matter of coming at the issue in two ways, and the client adviser role in individual projects has proven quite effective.
2197. Ms Purvis: Does that include the delivery of what contributes to the most economically advantageous outcomes?
2198. Mr Heaney: Yes. All of our contracts are awarded on the basis of the most economically advantageous tender — MEAT, as we know it — not on the basis of the lowest price.
2199. The Acting Chairperson: The Audit Office and the Public Accounts Committee have looked at performance against the PSAs, and this Committee has been talking to its Department. I was interested in what you were saying, Aileen. Are you saying that CPD did not contribute to the Department’s review of its performance against the PSAs because it is taking a three-year cycle approach to review?
2200. Ms Edmund: No; we contribute to all Departments’ PSA targets, but the procurement board has a specific target in its strategy to formally review the effectiveness of the guidance after three years. We ask Departments and COPEs twice a year about their progress on embedding the guidance.
2201. The Acting Chairperson: Do you comment on the feedback that you get as to whether they are meeting those PSA timeline targets? I know that you have to allow a bit of time to see the overall achievement, but do you comment on those?
2202. Ms Edmund: Yes. We provide reports to OFMDFM and the Department on both of the PSAs that we contribute to.
2203. The Acting Chairperson: There are one or two other areas that we will write to you about, setting out some issues of concern, and perhaps you will be content to write back to us. I am conscious that we have kept you longer than we intended, and there are other people waiting to speak to the Committee. We will follow up on those issues. Thank you.