COMMITTEE FOR
FINANCE AND PERSONNEL
Inquiry into Public Procurement Practice in Northern Ireland
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
Mr John Phelan ) Royal Institution of Chartered Surveyors
Ms Ann Stewart
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
I thank the Committee for its time, and I welcome any questions that members might have.
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?
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.
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?
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.
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.
Mr F McCann:
Do you expect any changes?
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.
Mr F McCann:
My second question was on design-and-build schemes.
Mr Lavery:
I am not aware of challenges in that respect.
Mr Phelan:
We can come back to you on that point.
Ms Stewart:
Absolutely; we can look into it and get back to the Committee at a later date.
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?
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.
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.
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?
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.
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?
Mr Phelan:
In comparison with other Departments on the ground, roads have a very high value.
The Chairperson:
What has a high value?
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.
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.
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.
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?
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.
Mr O’Loan:
If that were the case, I could not quarrel with the process. I was putting a rather different spin on things.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
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?
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.
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.
Dr Farry:
In your submission, you say:
“Where possible frameworks should be geographically based.”
What do you mean by that?
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.
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.
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.
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.
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.
Dr Farry:
Is your organisation the Northern Ireland branch of the wider UK institution?
Mr Phelan:
Yes.
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?
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.
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.
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.
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?
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.
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.
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?
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.
Mr McNarry:
Thank you for your report; it is well worth reading, and it is well put together.
Do you have an insight into how self-employed specialist contractors and subcontractors are faring in the current situation?
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.
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.
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.
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.]
Dr Farry:
I remind the member that this evidence session is being covered by Hansard.
Mr Lavery:
I could not possibly comment.
Mr McNarry:
The black economy has a role, like it or not.
The Chairperson:
I am sure that you mean the informal economy.
Mr McNarry:
It has had a role in propping up certain things, like it or not. Is that coming across your organisation’s screen?
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.
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.
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.
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.
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?
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.
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?
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.
Mr McNarry:
Do you think that the Departments are holding back on some things?
Mr Lavery:
Sometimes the reason is as straightforward as resource availability; in other words, the resources not being available to carry out the assessment.
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?
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.
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.
Mr Lavery:
Process, accountability, who has the final sign-off and the visibility of the system after the tender is submitted are important.
Mr McNarry:
You make a recommendation in your submission that:
“It is essential that Government d epartments 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.”
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.
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.
Mr McNarry:
They would not dare.
Mr Lavery:
On the ground, we are struggling to understand how that is achieved.
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.
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.
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.
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.
Mr McNarry:
I would not assume that.
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 —
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?
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.
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.
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.
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 —
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?
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.
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?
Mr Lavery:
I think that it is both.
The Chairperson:
That is not helping me.
Mr Lavery:
It does not help you, but —
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 —
The Chairperson:
I am sorry. When was that?
Ms Stewart:
November 2008.
The Chairperson:
So, the first meeting with SIB was in September.
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.
The Chairperson:
Those are the details and information gaps that John outlined in the submission.
Ms Stewart:
If we have to give an example, that is one of which we have evidence.
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?
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.
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.
The Chairperson:
Every Department has a responsibility to report on its investment delivery plan and progress towards that.
Mr McNarry:
We heard about targets from the previous set of witnesses. I suppose that Hansard has reported that.
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.
Mr McNarry:
That would be useful, and I thank you for taking us in that direction.
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.”
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.
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.
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.
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.
The Chairperson:
There was some business with the accrual.
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.
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.
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.
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.
Colm, Ann and John, thank you very much. Apologies again for the delay; it was a very helpful and worthwhile session.