NORTHERN IRELAND ASSEMBLY
COMMITTEE FOR
FINANCE AND PERSONNEL
Inquiry into Public Procurement Practice in Northern Ireland
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)
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
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.
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?
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.
Mr McNarry:
I was not saying that they were not playing by the rules; I said that they are bending the rules.
Mr Smyth:
I do not have evidence of that.
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.
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?
Mr M Campbell:
I worked for the Ministry of Defence.
Mr McNarry:
Do you think that a culture is embedded in CPD that lacks professionalism and awareness of the private sector?
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.
Mr McNarry:
Do you have any evidence of specifications altering after a bid has been accepted and a contract has been signed?
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 —
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?
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.
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.
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.
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.
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?
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 —
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.
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.
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.”
Will you explain what you are getting at there?
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.
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.
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.
Mr McNarry:
Needless to say, Nigel, if you are worried, we are minded to be alarmed.
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?
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
Ms Purvis:
I understand. I was talking specifically about the framework.
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.
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.
Ms Purvis:
In that case, what happens to a firm that comes into the framework? Is another firm booted out?
Mr M Campbell:
No. Everyone is kept in the framework unless someone volunteers to leave.
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.
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?
Mr Smyth:
The Equality Commission and CPD produced a volume last year about equality of opportunity and sustainable development. The guidelines are there.
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.
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.
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.
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 —
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.
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?
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.
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?
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.
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.
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.
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.
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.
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.
Mr O’Loan:
Is there is variation in quality across the COPEs, as I suspect there may be?
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.
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?
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.
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?
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.
Mr F McCann:
Do you offer advice to the Department?
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.
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?
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.
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.
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.
Mr McQuillan:
Are you fairly happy with Invest NI?
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.
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?
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
Overall, considerable progress is being made, and it is being fostered by the level of dialogue that CBI is facilitating.
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.
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.
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.
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.
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.
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?
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.
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.
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?
Mr Smyth:
That is correct.
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?
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.
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.
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?
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.
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.
Mr Weir:
Do you wish to have more centralisation within CPD?
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.
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.
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.
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.
Process is very important, but if people are overworked and there is understaffing, the process sometimes becomes the end and not the outcome.
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?
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.
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.
The Acting Chairperson:
Were there any social economy enterprises among the 157 local suppliers who responded to your survey?
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.
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?
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.
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.
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.
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.
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.
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.
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.
The Acting Chairperson:
Are you happy to do that, Nigel?
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.
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.
Mr Smyth:
We do not have one at this stage, but we will have a look at it and discuss it.
Mr McNarry:
With respect, perhaps it is information that you should have and it is reasonable for us to ask you for it.
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.
Mr Smyth:
We certainly welcome the opportunity.