COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT

(Hansard)

Inquiry into Public Procurement

26 November 2008

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Ms Jennifer McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Mr Peter Weir

Witnesses:

Mr Wilfred Mitchell )
Mr George Dorrian ) Federation of Small Businesses
Mr Jonathan Walmsley )

The Chairperson (Mr McLaughlin):

I welcome the representatives from the Federation of Small Businesses (FSB): Wilfred Mitchell, who we have met often; George Dorrian, policy officer; and Jonathan Walmsley, public affairs officer.

Wilfred, in case you are not aware, the session is being recorded by Hansard so please switch off any telephones that you have as they will interfere with the recording. You may want to make some initial comments.

Mr Wilfred Mitchell (Federation of Small Businesses):

Thank you very much. I am Wilfred Mitchell, policy chairman for the Federation of Small Businesses in Northern Ireland. My colleagues here today are George Dorrian, also a policy officer, and Jonathan Walmsley, a public affairs officer.

Public procurement opportunities have great potential to benefit small businesses, especially in these difficult economic times. That is an area that the FSB in Northern Ireland has identified as a policy priority and is researching its development.

Part of that work will involve examining examples of best practice elsewhere. Initial findings indicate that almost three quarters of SMEs rarely, or ever, bid for Government contracts. Furthermore, more than three quarters of SMEs believe that there are barriers that prevent awareness of Government opportunities. More than half of SMEs believe that the tendering process for Government contracts requires more time and resources than their business will allow.

In general, SMEs find it easier to sell to the private sector than the public sector. The success rate in winning private-sector contracts is double the success rate in winning public-sector contracts. There is concern that the procurement process is becoming increasingly geared towards large organisations, particularly in the construction sector. That is negatively affecting local SMEs in the sector.

In light of the current economic conditions, many SMEs are struggling, and we appeal to the Assembly to do all in its power to break down existing barriers. We have some key recommendations: improved access for SMEs to information on public-procurement opportunities; clarification and simplification of the bidding process; a reduction in bureaucracy; an increase in the processes’ transparency; and the introduction of adequate support schemes for SMEs.

In 2007, we visited Atlanta, Georgia, to examine best practice. That region has achieved successful results over the past 25 to 30 years, with at least 28% of SMEs obtaining public procurements. Those models should be considered.

Mr Weir:

Thank you for the presentation. You mentioned Georgia; I presume that you visited Georgia in the United States rather than holding back Russian tanks. The Committee has heard evidence from central Government, and members noticed the lack of sharing of knowledge and the lack of learning of best practice. Do you have other specific examples that demonstrate best practice?

Mr George Dorrian (Federation of Small Businesses):

The most recent example of best practice with which we have been involved in Northern Ireland was the 2012 Olympic process. Our members have reported positively on that process. Many local organisations engaged in the process, and several national representatives visited Northern Ireland to explain the process to the businesses. Although we do not yet know how many businesses have been successful, the number that signed up to the process was higher than with normal public procurement contracts.

Mr Weir:

The problems in the construction industry have been uppermost in people’s minds recently. Does the FSB or the SME sector have an opinion on how the public procurement process is working for the construction industry, and whether it is fit for purpose?

Mr Jonathan Walmsley (Federation of Small Businesses):

The SME sector is experiencing difficulties with time frames. Businesses must produce evidence of four to five years’ tendering experience.

The Chairperson:

Can they not meet that threshold?

Mr Dorrian:

Unfortunately, for obvious reasons, members are reluctant to come forward. The biggest issue that has come to our attention recently concerns construction framework agreements. There is a perception that frameworks are being bundled up in order to exclude small and medium-sized enterprises in Northern Ireland.

Mr Weir:

Is there any possibility that you might issue an anonymous questionnaire? We were advised about, and you have reinforced, the view that a number of people in the construction industry are reluctant to talk. In part, people think that if they are seen to be giving off too much about what the Government are doing, they might be disadvantaged during procurement processes. I wonder whether you might find a way around that problem by issuing, for example, an anonymous questionnaire.

Mr Dorrian:

The Policing Board, which is another of our recent business clients, might provide a model for that. Much of the feedback from its members was anonymous, and the reply rate was much higher than we usually expect. So, a model exists to do that.

Mr Mitchell:

It may be worth sending an appropriately worded questionnaire to our members.

Mr Weir:

Obviously, that is a matter for you; however, such a questionnaire might be helpful to you and to us, because, given that you must speak generically about small businesses, you are less directly exposed to the market. Many of your members might be reluctant to come forward to give evidence because they feel that they would be whistle-blowing and, regardless of whether that might be a perception or reality, they feel that they might suffer, explicitly or implicitly, a level of disadvantage. Therefore, such a questionnaire may be a productive way forward.

Ms Purvis:

In your report, you said that many SMEs experience difficulty even getting hold of information about tenders and specifications. How much of that difficulty is due to the fact that larger contracts are advertised in one place; whereas smaller contracts are advertised all over the place? Moreover, is the time and effort that small businesses must put in to finding that information a factor?

Mr Walmsley:

With regard to time and effort, our members have told us in surveys that a considerable chunk of their week is taken up with bureaucracy and that they want simpler application and tendering processes.

Ms Purvis:

Have they requested a central source for such information?

Mr Walmsley:

A central source for information is a good idea. Although Invest NI operates a tender-alert service, awareness of that scheme is not overly high among our members.

Ms Purvis:

CPD told us that it has implemented a number of initiatives in order to help small and medium-sized and social economy enterprises access Government contracts. What experience have you and your members had of that support, and, given what you said about a single point of information, could CPD do more to help SMEs gain such access?

Mr Mitchell:

I am not aware of any support reaching the Federation of Small Businesses. The cost of insurance, such as public-liability insurance, is a problem that employers often encounter when filling in forms. When they attempt to fill in the first couple of lines on an application form, they are forced to drop out. Therefore, we are seeking a willingness to encourage small businesses and a general principle to remove simple barriers, such as those associated with filling in application forms. If applicants cannot afford insurance, they will believe that there is no point going any further with an application. Very often we are not able to reach those other barriers, because people do not get past the first one or two.

Mr McQuillan:

Following on from Dawn’s question, you have said that one of the things required is the provision of support schemes for SMEs. What other forms of support would be desirable?

Mr Mitchell:

Support could perhaps be offered in relation to education or self-help. That would help SMEs to fill in application forms, overcome misinterpretations and educate them in what they may have to do in the future.

Mr McQuillan:

Who do you envisage carrying out that role? Should Invest NI be taking a more proactive role or should that role be carried out by another organisation?

Mr Dorrian:

In relation to Invest NI — and returning to one of the questions that was asked earlier — that organisation currently runs many events for its client companies. If those events could be extended to include the wider small-business community, that would be very welcome.

Certainly, the numbers show that 300 companies used the service to stimulate new business. That is 300 from perhaps 100,000 small businesses in Northern Ireland. If that communication could be extended to small business, that would be a positive move. Most small businesses in Northern Ireland are not clients of Invest NI; therefore the establishment of some sort of system to widen awareness is required.

Mr McQuillan:

You need to be clearer when you say that there is a need for some sort of system to be established. If you do not know what you are asking for, it is very difficult to be given it. You need to be more specific in relation to what your needs are and then request that support. We can then examine your proposal and see what we can do to help.

Mr Dorrian:

One area of support would be the creation of awareness campaigns in relation to the qualification questionnaires, and the issuing of guidelines as to what SMEs need to have in place before they attempt to access the system. They could spend two or three days out of the working week investigating the system; therefore it would be helpful if there were a process either online, or somewhere else, where they could input their details and see if they were eligible or suitable. An easy, one-stop shop is what is required, and the technology is there for that to be established. Those businesses may be unsuccessful at a later stage, but a system to give them guidance and get the ball rolling is what is needed.

Mr Walmsley:

Additionally, the model of the Invest NI tendering workshops would be very helpful for SMEs. As George has said, Invest NI has assisted around 300 small firms through those workshops and has generated around £250 million for the local economy. A process that widens that out to SMEs would be very helpful.

Mr Mitchell:

The taxman may be another model to use. [Laughter.]

Mr McQuillan:

I do not think that we should go down that route.

The Chairperson:

You nearly scared the life out of the Committee with that suggestion.

Is any encouragement given to SMEs — particularly the small businesses — to cluster and join together to compete for public-procurement contracts or do they approach it individually, and as competitors to each other.

Mr Dorrian:

Largely, that is done on an individual basis. It is very difficult to get a number of SMEs to come together.

The Chairperson:

Therefore, the potential benefits of that approach are not considered in either the workshops or the training programmes that currently exist?

Mr Dorrian:

Not that we are aware of. The examples that we have are very much on an individual basis. The model that we referred to earlier — the 2012 Olympic process — was very keen to encourage clusters and groups, and that was one of its keynotes. However, in the wider sense that is not the case.

The Chairperson:

It is not really in their culture, is it?

Mr Dorrian:

That is another aspect.

The Chairperson:

They are very individualistic and independent, I suppose.

Ms J McCann:

I thank the witnesses for their presentation and their briefing paper. To sum up, the FSB seem to be suggesting that the processes must be opened to include more to small and medium-sized business and social economy enterprises.

In the paper provided, you state that 99% of the businesses here would be classified as small or medium-sized businesses. Furthermore, you state that three-quarters of those businesses do not apply for Government contracts, because they know that they would be unsuccessful. Clearly, that must change particularly given the economic downturn and the resulting need to create employment opportunities for local people.

You were present during the last evidence session, and you heard about the legal requirements under the EU regulations. Obviously, that is put up as a factor whenever anyone is trying to open up the process.

The Chairperson referred to clusters. I know that a number of private social partnerships have been set up to bid for public-procurement contracts, particularly delivery of services in local communities in the North Belfast and West Belfast constituencies. Have you ever considered linking up with some of the social-enterprise projects? Are the smaller businesses that have applied for contracts, but not secured them, happy with the feedback that they receive from the Central Procurement Directorate to say where they went wrong? Many smaller businesses are frustrated because they keep applying for contracts but do not get anywhere. However, no one is telling them where they are going wrong. Could the whole procurement process be opened up to smaller businesses in the social economy? Are there any small steps that we can take now? Is creating private social partnerships a way forward?

Mr Dorrian:

On the first point, we have arranged a meeting with the North Belfast Partnership to take a look at issues such as that. We met the partnership a while ago, and it had approached us again. We are looking to put something together.

Very little feedback comes in a structured fashion. It is more informal, such as making telephone calls and finding out. I have a list of names in front of me and, for them, feedback is an issue that needs to be addressed. Feedback comes largely on hearsay, who was there at the time, and contacts.

Mr Mitchell:

I think that you are right. If feedback were delivered in a structured form, we could look at each of the issues and see what has to be done to address them. However, that has not come together; it is more ad hoc at this stage.

Mr Walmsley:

A full explanation that sets out why firms did not secure a contract would be helpful. This is purely anecdotal evidence, but one of our members told me about a tender that his firm had applied for, and which went to a larger firm. Nevertheless, his firm was subsequently subcontracted to do the work.

Ms J McCann:

That happens all the time.

Mr Walmsley:

The firm was given no explanation as to why it did not receive the contract first time round.

Mr Hamilton:

Most of my points have already been answered. However, there are a couple of others that have not. You have outlined some of the barriers that small and medium-sized companies face. Aside from those barriers — even though they are major issues — some of the problems of smaller firms is that they do not have the capacity in-house to bid for the most simple public contracts. Is any assistance offered directly to firms — or to yourselves to pass on to your members — to heighten that capacity in the sector for people to bid for contracts?

Mr Mitchell:

I think that that issue was raised. However, we are not aware of anything.

Mr Dorrian:

Members, who are also clients of Invest NI, will receive assistance more formally, but that would be a very small number. The business and economic development section of North Down Borough Council ran workshops but, other than that, there is nothing structured. It was just an evening at the SIGNAL Centre of Business Excellence.

Mr Hamilton:

There should be something along those lines where guidance could be given.

Mr Dorrian:

There should be something along those lines. It would be helpful if there were facilities at local government, and if the economic development departments were to run workshops on that basis. If companies organise events, business people will attend, and that is important, but, if there are more technical issues, they will not attend. However, if business people know that such events will benefit their business, they will come out for them.

Mr Walmsley:

To put it into perspective, although SMEs account for around 98% of the economic environment here, the majority of the businesses that we represent have fewer than 10 employees. Therefore, they simply do not have time to fill in tendering documents, which are quite complicated.

Mr Mitchell:

Jennifer McCann hit the nail on the head earlier when she mentioned that people are not getting feedback on the reasons why their contracts are being turned down. There could be patterns for those failures, or there could be specific areas that could be addressed easily.

The Chairperson:

There is a debriefing for larger contracts, which I am sure is very valuable for larger contractors. However, it would be equally valuable to SMEs — even if only to find out what they are doing wrong, or to find out whether the process is as objective as it should be.

Mr McNarry:

I really like your slogan “Keep trade local”. It is a good byword, and I hope that everyone can live up to it. When we got ensconced up here during the Programme for Government times, we heard evidence from a very successful bus manufacturer who told us that if people want to do something, they can. He had ambition.

I will make a generalisation — and it is something that the Chairperson referred to earlier. It is a massive jump from a small to a medium business, and it is even a big jump to go into a small business. Are you aware of any rewards out there to encourage growth? If not, perhaps there should be. However, if they are seen as a hindrance or are dismissed, then we should take the figures that you offer and have them analysed. I accept the beef and support the beef, but how many people actually have a real beef? Are the rest just attached to numbers because of membership, etc?

I listened to the now infamous Mr Peston on the BBC last night, and it was very clear that the big boys will survive, but the small boys will find it difficult in the current economic climate. What we are discussing is very pertinent to the situation in which we all find ourselves. We are all major shareholders in banks now, but, when one sees the Bank of England having to more or less demand that the banks and the Government pull their finger out, one wonders what is going on. What role do the banks play in terms of cash flow for small businesses if they are not actually helping big businesses? I am really talking about how confidence is generated for your members to get on the procurement list.

Simon was quite right in what he said. The ability is not there — it is about capability. Is there any point in trying to say that there should be some kind of funding to help people into the tender process, because you need to be cute in this matter? This is a make-or-break situation for many people, and I am hearing that many of your members are opting out. There is a greater need now to opt in, because the work will be in shorter supply due to the economic situation. There may need to be a fund for this, but I do not know whether there is. I do not want to be too dismissive of Invest NI, but everything that it gets involved in seems too complicated for the type of people that we are talking about. We need to simplify that, because, as the representatives from Quigg Golden Ltd said previously, sometimes simple is best.

Are there rewards to help people grow? Are there any funds of the sort that Simon mentioned, because that is almost a stopping point? Owners of small businesses make decisions, but the bank has them by the short and curlies with regard to securities. That must be a horrendous worry for owners of small businesses. Can the banks be further pressured into providing the funding that will enable you to tender?

Mr Mitchell:

I will ask Jonathan to tell you about what we have done. We put a lot of pressure on the banks. It is interesting that last night’s programme said that it was only the big businesses that would survive. All the world leaders have accepted that the economy depends on the small businesses. That is crucial, and you are correct about the banks.

Mr Walmsley:

We are calling on banks now. A lot of our members are coming to us and talking about the terrible pressures that banks are putting on them by way of calling in loans, for instance. You talked about the jump from small to medium businesses. A lot of our members tell us that they are encouraged to start up a business, but then they are in a state of limbo; there does not appear to be a process to help them to the next stage.

Mr Dorrian:

There is a gap between starting a business and moving it from domestic to export. There is no incentive for the owner once the business is up and running.

The Chairperson:

Let us be careful not to go off the topic. We are not discussing the broad remit of the Federation of Small Businesses, or even the small businesses. Today’s discussion is on public procurement.

Mr McNarry:

I am considering the position of small business being in the position to chase the procurement, because I am not sure whether the situation is as bad as it could be or whether it is confined to a percentage of your members. If it is confined to a percentage of your members, I want to know whether there is a trail-off on it.

Mr Mitchell:

If a small business that has a contract for procurement went to the bank today to ask for more money or an increase to its overdraft, it would have difficulty getting it.

The Chairperson:

Following on from David’s line of questioning, if our Committee and the Assembly moved to the position of making procurement more possible for the SME sector as part of our response to the wider economic pressures — including the pressures that banks contribute — there is the question of capability and capacity when it comes to interfacing with the procurement process. If we decide to attempt to make it more straightforward, simple and objective, will there be a support mechanism that would improve that capability? I want to focus the discussion on procurement.

Mr Mitchell:

We do not think that it is there, but we would welcome that. We believe that is where some of the problems are. That knowledge is clearly needed.

Ms Purvis:

I have been contacted in recent days by various small businesses. Is there a difference in the small and medium-sized businesses that are gaining contracts? Are those who provide services or products, or those in the construction industry more likely to get contracts? Is there a disparity in the type of contracts won and by whom?

Mr Dorrian:

The vast majority of contracts are for services, but I have no further breakdown of the figures for the three areas that you mentioned.

Ms Purvis:

I am going off the subject, but is the help provided by Invest NI aimed more at exporting businesses?

Mr Dorrian:

Yes; almost all those companies are focused on export.

Ms Purvis:

So there is no help for small service providers at present?

Mr Dorrian:

No; not as far as we know.

Mr McNarry:

Has a value been placed on the business that you attained from the procurement process? Does anyone know how much that is worth?

Mr Dorrian:

I have not seen any figures on that.

Mr McNarry:

The business must go somewhere; I am just wondering how much it is worth.

Mr Walmsley:

One way to think of it is that 300 companies can generate £264 million and there are 132,000 small to medium-sized enterprises in Northern Ireland.

The Chairperson:

Yes, but those companies work across the economic spectrum, and it is the impact on the public purse that concerns the Committee. I note that Glover is considering the Government target that SMEs should win 30% of all contracts in the public sector.

Mr McNarry:

What are the contracts worth now, what are we chasing, and how much could small businesses handle?

The Chairperson:

The FSB is on list of stakeholders that the Committee is consulting, and you will be provided with the opportunity to make a written submission. Perhaps that will give you the opportunity to put on record more information arising from today’s discussion.

That ends members’ questions. Thank you, Wilfred and colleagues for your assistance and patience. You gave the Committee much more time than had been allotted to you. It has been a most helpful meeting, and we look forward to receiving your submission. If any issues arise that would specifically help the Committee to frame its approach to the inquiry, we will write to you about those separately. The submission is your contribution to the review, but the Committee may also require your assistance on particular issues, and we will let you know should that be the case.