COMMITTEE FOR FINANCE AND PERSONNEL
OFFICIAL REPORT
(Hansard)
Public Procurement Practice in Northern Ireland: Evidence from Carson McDowell Solicitors
11 February 2009
Members present for all or part of the proceedings:
Mr Simon Hamilton (Deputy Chairperson)
Mr Roy Beggs
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Witnesses:
Mr Declan Magee ) Carson McDowell Solicitors
Ms Catherine Thompson )
The Deputy Chairperson (Mr Hamilton):
The next item on the agenda is a discussion of public procurement practice. I advise members that, in our discussion with the witnesses, they should be mindful of the legal confidentiality attached to individual procurement cases; any discussion should stick to general terms rather than specific ones. I welcome Declan Magee and Catherine Thompson, who are both public procurement consultants with Carson McDowell Solicitors. I invite Declan and Catherine to make a brief presentation to the Committee; I am sure that there will then be a few questions.
Mr Declan Magee ( Carson McDowell Solicitors):
We have not prepared a presentation, but I believe that copies of our firm’s recent update on procurement have been circulated to some members of the Committee. We are here to answer any questions that Committee members may have in relation to public procurement and its growing influence in the legal sector in Northern Ireland. I am a partner in the litigation department of Carson McDowell Solicitors, and my remit includes any legal challenges brought to the courts in relation to procurement processes, either from private entities who submit tender responses or from public-sector organisations seeking to defend legal challenges.
Catherine works in the corporate team in Carson McDowell Solicitors and has a greater influence in advising our public-sector clients on how to procure safely and ensure that their systems are robust enough to withstand a challenge. We are here today because we have different experiences in the contentious and non-contentious areas of public procurement in Northern Ireland. We are happy to address any questions that the Committee has about those areas.
Ms J McCann:
My question relates to small- and medium-sized businesses and social-economy enterprises. We have had discussions with some such businesses and enterprises, and they have told us that it is very difficult to get into the tendering process. Is that your sense of the situation? How can that process be improved for them?
Environmental and social aspects of public procurement have been flagged up by the Central Procurement Directorate (CPD). Is there any legal barrier to including those social clauses at the tendering and contract stages? It seems that value for money is given the highest priority and is regarded as more important than social and environmental benefits. Is there a legal clause that prevents social and environmental clauses being included? If there is, how can that barrier be overcome by small- and medium-sized businesses and social-economy enterprises?
Mr Magee:
The difficulty that small- and medium-sized entities have with the procurement process is that it has become so labour-intensive for them. The days of being able to put in a straightforward tender submission to a public-sector body are going. A number of different procuring exercises are going on at the moment that requires companies to assign a procurement specialist to them. That can prove to be a heavy economic drain on small- and medium-sized enterprises (SMEs). As a result of the time that is required to prepare their responses, those businesses must carefully pick the tenders that they submit.
I found that some of the recent Roads Service procurement exercises placed a heavy onus on health and safety considerations. Roads Service asks many questions that must be answered in great detail in order to establish that organisations have the necessary health and safety standards to do work for the Roads Service, whereas the Construction Employers Federation (CEF) has a process called Safe-T-Cert, which is a very detailed exercise that businesses can go through in order to become certified by the CEF.
It would help small- and medium-sized businesses if that certification were deemed proof that they had undergone a recognised process to obtain third party accreditation from an organisation such as the CEF. That would remove the requirement to complete a separate detailed and substantive health and safety section in tender applications. It would be beneficial to have anything that provides small- and medium-sized entities with the ability to fairly procure projects locally and reduces the labour-intensive nature of the procurement process.
Ms J McCann:
Is it possible to insert the social clauses at the tendering and contract stages? The Committee has heard evidence indicating that there are legal barriers to doing that, even in cases in which the contract might provide social and economic benefits — do any such legal barriers exist?
Ms Catherine Thompson ( Carson McDowell Solicitors):
The regulations provide for what can be judged at each stage of the process. The contractors or providers are chosen at the selection stage; the contract is awarded on the basis of the proposed methodology at the award stage; then there is the contract stage — those are the three stages.
The regulations impose, in a way, barriers to incorporating certain social criteria at the beginning of the process. The process is complicated; the current law has a lot of grey areas and there have been quite a lot of court cases. However, there is more freedom to insert conditions into the contract. A detailed discussion about particular questions and particular social criteria would be required; we would normally suggest taking specific legal advice on the different criteria.
Ms J McCann:
Can conditions be included at the contract stage so that the social clauses are part of the contract?
Ms Thompson:
The terms that are included in a contract depend on which criteria are being considered. There is scope to insert certain environmental and social criteria not only at the contract stage but prior to it, but that would depend on the nature of those criteria.
Mr F McCann:
Social clauses — or the lack of them — is something that people have been lobbying us about. In the past, when tenders for contracts were awarded, several major contractors came in and, rather than allowing local people to compete, they brought a workforce with them. That raises a number of major concerns. Is there any regulation stating that jobs should be competed for on an equal footing, rather than companies being allowed to come in and bring an entire workforce with them? That practice is having an impact on local contractors.
Mr Magee:
Yes, it is possible to have such a condition. I am aware that some of the tenders for various infrastructure projects for the London Olympics contain such provisions, whereby part of the criteria for getting through the invitation-to-tender stage is that the applicant must indicate its procedures for bringing in long-term unemployed people from the locality of the project concerned.
The Deputy Chairperson:
From your experience, can you suggest how more flexibility can be found in existing European procurement law in order to encourage SMEs? Northern Ireland is heavily dependent on SMEs but there is a sense that they are losing out to bigger companies from here and elsewhere, and that is part of the reason why we are having this discussion today. Is there a case for splitting contracts into smaller lots by way of thresholds, for example, in order to allow SMEs to compete more vigorously for contracts? Do you have any other ideas of how to achieve that?
Mr Magee:
The main thing is to break up the contracts, as you rightly point out. Recently, some difficulties were encountered when vast projects were vacuumed up into framework scenarios. That automatically makes it difficult for small- and medium-sized entities to tender fairly for that work, and makes it more attractive to non-local firms to submit a tender. Therefore, although frameworks have their advantages in some circumstances, when a number of different contracts are packaged together to the scale that they were in the two recent frameworks, that presents a barrier for local firms, as it makes it difficult for them to get a fair return from local procurement practices.
Given the current market situation, it is in the interest of the public purse to split up contracts, because so many different entities are keen to obtain public work. It is in the interest of the Northern Ireland taxpayer to reconsider whether the public purse should be tied to four or five companies for a long period. I think that the short answer is yes — contracts should be split, as you have suggested, so that more people have the opportunity to go for them.
Mr F McCann:
What are the benefits and drawbacks of using large framework agreements in the NI public-procurement market?
Mr Magee:
The benefit of a framework agreement is meant to be the existence of a more collaborative spirit between contractors and clients. If a contractor and a client are thrown together for a four- or five-year period, they will want to create a situation in which they want to work together and that will enable the contractor to learn other elements about the client. That will reduce the risk of contentious situations arising and is the basic benefit of the framework set-up. It is believed also that frameworks make procurement easier on the public purse, because four or five entities can be called on to tender for projects rather than having to go through the full procurement process. Certainly, frameworks have their advantages.
In Northern Ireland, the problem was that we tried to introduce two significant frameworks, which meant that we went from one extreme to the other. So much work was pulled together in those two frameworks, which were both limited to five entities, that it was always going to be a risky situation. In creating the frameworks, a number of different public procuring bodies — which may have had good relationships with a number of different local firms — were told, all of a sudden, that the number of public procuring bodies would be limited to a set number of contractors, probably five. Therefore, creating the frameworks was always going to be high-risk, and a number of different companies felt threatened by the fact that so much work was going to be cut away from them. To be frank, the disadvantages of those two frameworks were obvious and that should have been obvious at the outset.
Frameworks are a good idea for procuring work such as professional services and consultancy. It is clear that they have advantages — they remove much of the labour-intensive element of the procurement process. However, the two frameworks that were used in Northern Ireland simply sucked up too much work and did not work in the local market. The situation is different in England, where there are 20 or 30 frameworks and if a firm does not hop on one, it can hop on the next one that comes along. Creating two frameworks in Northern Ireland was always going to be a recipe for trouble, given that the number of companies was limited and they had so much work under them.
Mr F McCann:
In another Committee that I am a member of, we discussed whether housing association projects could be grouped together so that larger procurement contracts could be put out to tender. One of our concerns was that local companies would be unable to bid for those contracts because they would be far beyond their means. In the past, major multinationals have applied for contracts, sliced off a profit from the top, and then subcontracted out the work. Is there a legal way to stop that happening? Our concern is that that affects the local workforce as well as the quality of work and the finished product.
Mr Magee:
The fact is that it is a European market; if a contract soaks up between £400 million to £600 million, it will attract UK and European-wide entities such as Laing or Balfour Beatty. That is a source of frustration for local companies, because those larger companies tender for a project and then bring in local subcontractors to do the work — the profit goes out and the workers stay here. The lesson is to make it less attractive for the UK and European entities to tender for those projects.
The current market is highly competitive; if a £15 million project is put out to tender, so many firms will tender for it that it will be keenly priced. In my experience, there has not been a particularly contentious situation between the local contractors and the public tendering bodies in Northern Ireland. The idea is that frameworks will bring this great collegiate spirit; however, I do not think that there has been a contentious relationship between the local contracting companies, the construction industry and the procuring bodies here. The rationale for having frameworks is that they will bring all the different interests together, but I think that we are pretty much together as things stand.
Mr Paisley Jnr:
In your experience, what are the main reasons for legal challenges being taken in Northern Ireland? Have you noticed any trends developing?
Mr Magee:
If a client is told that their tender has been unsuccessful, there may be a very sharp, hot period in which they will approach us. They may or may not have had a full debrief but, by and large, everyone who comes to us with a potential challenge has a genuine grievance about the way that the procurement process has gone. I have never had a client come in to say that they have not got a job but would like to have a crack at getting on the project. Without exception, everyone who comes to us has a genuine grievance about the procurement process.
The problem is that there is an Alcatel period, which is a pretty short standstill period during which the companies that tendered can communicate their dissatisfaction with the procurement process to the procuring body. That quickly brings about a siege mentality, as the client is unhappy because they think that they should have had a good chance of getting the job; also, the procurement process is being criticised, which causes the procuring body to become unhappy. The Alcatel period provides only a tight window in which to appeal a decision before a contract is awarded. By and large, companies are not interested in being awarded damages; they want a fair crack at getting the job.
In such a scenario, the next step is to advise the client to apply for an injunction to stop the contract being awarded. The client is not interested in receiving damages in 18 months’ time. Paying damages is not in the interest of the public purse either, because it means that it will pay double for a contract.
As I said, there is a very hot period of approximately 10 days before the award is made and the reason that we are drawn to making a court injunction application is because that contentious situation arises at a very early stage. Once the court process starts, it is very hard to stop. When our public-sector clients are dealing with a company that is unhappy with the procurement process, we advise them to try to let that hot period cool a bit.
Often, we engage in correspondence with the private entity that is dissatisfied. If the client is happy to do so, we propose that the dissatisfied tendering party be shown the winning submission, because, by and large, the procuring body has made the right decision. If that hot period is allowed to cool a bit and if the unsuccessful tenderer is allowed to see the successful tender, they will not, by and large, raise a challenge. That is because the matter has been allowed to cool and everybody has aired their views and issues, and usually the process continues without a challenge. The industry is looking at providing an avenue that tenderers could go down, which is a very good idea.
Mr Paisley Jnr:
Would that be something like a debrief after an interview?
Mr Magee:
It is post the debrief stage. For example, before a legal challenge is mounted, we would contact a retired judge and tell him about the issues and points that have been raised by both the dissatisfied tenderer and the procuring body. The judge will give a quick and dirty analysis of whether he thinks that the challenge has any merit. That analysis would, therefore, be made at an early stage, before a legal challenge is mounted. If a retired judge says that he does not think that there are any grounds for a challenge, nine times out of 10, a legal case will not be taken.
The regulations specify that a party must have a valid remedy, which is usually an injunction. The objective is to reduce the number of people who go to court to raise a challenge. Such a system — which I know that the CEF is working on — could eradicate a large percentage of the legal challenges that are taken. No one wants the entire public spend to be paralysed through procurement challenges.
Mr Paisley Jnr:
The role is similar to that of an ombudsman?
Mr Magee:
Yes; that is exactly right.
Mr Paisley Jnr:
In your experience, have you identified a common error in procurement exercises that normally results in tenderers presenting a case to you?
Mr Magee:
No. Procurement is such a varied beast. Every client wants different criteria and goes about the tendering process in a different way. The CPD does a pretty good job, by and large, but it covers only one aspect of the procuring of public money in Northern Ireland. If that body, or another body, were to cover more of the public spend in Northern Ireland, there may be more symmetry in procurement processes and we may see the same issues arising. However, at the moment, procurement is a pretty varied beast as regards the issues that arise from it.
Mr Paisley Jnr:
Again in your experience, is there more procurement litigation in Northern Ireland than in the rest of the UK or the Republic of Ireland?
Mr Magee:
Yes; unfortunately, we are a market leader.
Mr Paisley Jnr:
Why is that?
Mr Magee:
The market here is a lot tighter.
Mr Paisley Jnr:
What do you mean when you say that it is a lot tighter?
Mr Magee:
People here are more aware of their legal rights. Also, there may be an impact from the publicity that the challenges have received; that has a snowball effect. The two frameworks have received quite a lot of publicity, and people are aware of their ability to challenge contracts. From our experience of advising people in Scotland, England and Wales, procuring in Northern Ireland is pretty good — public procuring exercises in other parts of the UK are probably behind ours in relation to compliance.
Mr Paisley Jnr:
Are we market leaders because there have been a lot of successful outcomes and clever lawyers — such as you and Ms Thompson — can get successful outcomes, or is it due to the fact that there is a litigation culture here?
Mr Magee:
No. It is important to think about the reason why the regulations were brought in, which was to have an open and transparent public procuring process throughout Europe, so that everyone had a fair crack at the contracts and they were not were being awarded on the basis of historic reasons, such as people knowing each other. The courts will always view such cases very carefully, because the reason for the process is to ensure objectivity and transparency. I would be surprised if, in five years’ time, the experience that we are going through now had not been replicated in England and Scotland.
Mr Paisley Jnr:
Therefore, we are not only market leaders, we are trailblazers.
Mr Magee:
Yes; we can take some comfort from that. [Laughter.]
Mr McNarry:
That will provide pensions for Carson McDowell Solicitors.
Mr Magee:
Yes; and why not?
Mr Paisley Jnr:
Don’t kill the goose that lays the golden egg. [Laughter.]
You mentioned a process involving a retired judge reviewing cases — which I referred to as an ombudsman-type role — that may reduce some of the need for litigation or resolve some of the problems before they reach the injunction process. It is not that I want to talk you out of business, but could anything else be used to reduce litigation in the future?
Mr Magee:
I am more than happy to be talked out of business because what I gain on litigation, Catherine in the corporate team loses. Everyone is impacted by the outcome of cases. We have discussed why there are so many challenges: another reason is that public bodies seem to be conscious of their budgetary position; if they do not let a contract in a particular year, the money for that drops out of their budget. That is another factor that is mentioned regarding why people cannot come to an accommodation and understanding in relation to a particular challenge.
As regards reducing the number of legal challenges, even if there were an agreed process whereby dissatisfied people could take their case to a body that would do a quick and dirty analysis of it, we could still never get away from the fact that the regulations contain a provision allowing tenderers a fair remedy, which tends to be an injunction. We want to stop people getting to that provision in the regulations. At the moment, the siege mentality is the norm and we must try to get away from that.
The Chairperson:
Following on from your responses to Ian’s questions, what element of the cases that you see do you regard as people taking a bit of a punt?
Mr Paisley Jnr:
A grievance punt.
The Chairperson:
People may have invested a lot of time, energy and resources in tendering for what may be a substantial project, which would have given them a lot of work for a long time. They may be so annoyed that they did not get the contract that they may think that they have lost enough and decide to take a bit of punt to see what happens. From some of your answers earlier, I got the sense that an element of that is happening; is that a fair comment?
Mr Magee:
No; the opposite is the case. The number of clients who ask us to just have a crack at making a challenge is zero. In the case of a challenge, private companies are taking on the people who feed them work. It is extremely expensive to take procurement challenges. There are risks, and companies need to spend a lot of time preparing for, and being involved in, a case. I have never come across a company saying that it wants to give a challenge a go simply because it lost out on a big contract.
The Deputy Chairperson:
From a company’s point of view, that is not be the right basis to go on anyway.
Mr Magee:
No; it is not. We often have clients who have genuine concerns but who do not wish to challenge the procurement process, even though we have told them that the process was not compliant, because they do not wish to bite the hand that feeds them. In my experience, a company has rarely, in fact never, asked us to have a crack at a challenge after we have told them that the process was compliant. We would not take on such challenges.
Mr O’Loan:
Following on from Ian’s last question, I want to discuss the proactive approach that the public sector can take to avoid getting anywhere near a situation in which a legal challenge is made. What steps can the public sector take to ensure that it is fully compliant with legislative and common-law obligations in procurement?
Mr Magee:
The public sector’s systems for ensuring compliance are pretty good. The main thing is that the public sector learns the lessons from the cases in which it is unsuccessful, but I am not sure whether it does. The Department of Finance and Personnel (DFP) is appealing both the framework decisions to the Court of Appeal. I have a vested interest in that I am involved in one of those cases, but I have absolutely no idea why the Department is doing that. It does not serve anyone in Northern Ireland to have the frameworks frozen for another round of legal battle. The reasons why both cases were unsuccessful were clear.
The appeals impact not only on the construction sector but on directly related professional-services frameworks. When the framework agreements initially went out to tender, there was a framework for the consultants and a framework for the professional services — not lawyers, but quantity surveyors, architects and engineers. When the frameworks were put to the industry, all the professional services had to decide whether they went with the clients or with the contractors. It was very rare that they elected to ride both horses.
I am not sure why DFP is appealing the decisions. That impacts not only on the construction firms, but on the wider professional sector, which has been as badly affected by the slowdown as the construction industry has been. There are engineers, surveyors and architects who have been affected badly by the fact that they elected to go with the contractors and have no work as a result of that decision.
The systems for ensuring compliance are not bad; I would give them a mark of seven or seven and a half out of 10, especially the CPD processes — they are not that bad. It is important that the public sector learns the lessons from the decisions that have been emanating primarily from Belfast; however, it is in pretty good shape.
Mr O’Loan:
You have answered one of my supplementary questions. Do you feel that DFP is being too dogged in its stance on the appeals and is unwilling to say that it has made a mistake and that it needs to learn from that?
Mr Magee:
I am baffled as to why DFP is appealing. I must declare that I have a vested interest because I am involved in one of the cases; however, had we been involved on the other side, I would not have advised DFP to appeal. I appreciate that elements of the advice on those defences are not coming from within Northern Ireland, but I am strongly of the view that taking the cases to the Court of Appeal and thus delaying them for a further period, is not in the interests of the Northern Ireland public.
Mr O’Loan:
That is a very important piece of evidence. Your stance is that even though some major, embarrassing public challenges have been successful, the overall quality of the public procurement system — certainly at CPD level — is, nevertheless, pretty good, although clearly not good enough, given that those challenges have been successful. Is there also an issue with the system below the CPD level — that is, with the centres of procurement expertise in Departments?
Mr Magee:
Yes; that is right. The cases that I have been involved with have not only been challenges relating to the CPD. If there were a centralised process of procuring — that is, a unified and more structured procuring body that oversaw public procurement and took on board the issues that arise from cases — that would create a higher degree of confidence that the issues that are faced by one centre of procurement expertise would feed through and inform all of the procuring bodies in Northern Ireland. It would be good for both industry and the public sector to have a centralised body that has more control.
Mr O’Loan:
Some of us thought that the CPD ought to be performing that function but it does not appear to be doing so; not on the basis of that evidence, at least. There is a final and more particular point that I want to ask you — I do not know how far you can go in answering it, but obviously you have a lot of experience of the recent litigation processes. Can you say anything about the manner in which the public sector — particularly the CPD — handles those actions and the quality of its systems for dealing with litigation cases?
Mr Magee:
The two main challenges have been in relation to frameworks. In relation to the IST case that I was involved with, the judgement speaks for itself as it outlines clearly the main deficiencies that were found, particularly the lack of evidence from what was indicated as being a thorough, lengthy process of analysing the shortlisting process. That was one element that became very clear.
The other main point that arose from that decision was in relation to the aim of the regulations, which was to ensure that there was an open and transparent procuring process. In that instance, there were developments later in that process that did not follow the guidelines that were coming from throughout Europe about what was required in order to have an open and transparent process and what could and could not be done.
In relation to the schools framework the flaw was slightly different as it related to the way that the pricing system had been analysed and prepared, which may not have been reflective of the true market prices that tendering companies work with. I cannot say that lessons are not being learnt from those cases, nor can I cannot comment on what the CPD is putting in place to learn from these issues; the fact is that a different suite of issues arose in each case. The ways that the criteria are applied tend to be the problem.
Mr O’Loan:
Irrespective of what has happened before a challenge is made, is the CPD good at handling the challenge?
Do I understand by your silence that you want to pass on that question? [Laughter.]
The Deputy Chairperson:
You do not have to answer.
Mr O’Loan:
You can plead the fifth. [Laughter.]
Mr Magee:
I cannot recall whether I have parliamentary privilege.
Mr Paisley Jnr:
I think that he has answered already.
Dr Farry:
How does Hansard report a long pause? [Laughter.]
Mr Magee:
I am not sure whether the CPD fully reflects on issues that are raised at an early stage. There may be a better way of dealing with those issues — the ombudsman idea that was mentioned earlier, for example. I suspect that the CPD may not appreciate at an early stage the flaws in its system, because, quite often, procuring bodies — especially in Scotland and England — will recognise a problem and rectify it, but that is the exception rather than the rule here. In other jurisdictions, flaws in procuring processes are realised and dealt with before the hearing stage is reached. That is a problem from the taxpayer’s perspective, as there is no recognition at an early stage that a process may not be compliant.
Dr Farry:
The European Commission recently agreed accelerated procedures that will see the process reduce from 87 days to 30 days for major procurements, as an exceptional measure to help the economy. How can the benefit of that be maximised in Northern Ireland?
Ms Thompson:
I have not yet had to advise on that, because it is a recent change. We want to get the requisite projects lined up and ready to go. However, the preparation at pre-procurement stage is the most important stage for a lot of procurements. It is important to get everything set up before the Official Journal of the European Union (OJEU) process begins. Therefore, a lot of planning will need to have been undertaken before the accelerated procedure is used — the planning stage is crucial to that option being taken-up.
Dr Farry:
On the topic of European-wide issues, I am conscious of the economic downturn that we are all facing. Are you expecting an upsurge in litigation, which may reflect a potential bias from national or regional Governments trying to keep procurement contracts local?
Mr Magee:
The short answer is no. I would be very surprised if procuring bodies started putting in criteria that were so locally focused that the process would not be compliant. There would be challenges from non-domestic firms if that were to happen.
Dr Farry:
Is that a black-and-white process, or are there some grey areas?
Ms Thompson:
The founding principles of the EC treaty and the European Commission include non-discrimination, equal treatment and transparency. I have never come across anyone in Northern Ireland who would question those principles or who would go down the road of only buying local; I think that is very unlikely to happen.
Dr Farry:
I have confidence in our Government, but do Northern Ireland companies have difficulties when they are trying to do business with other European countries that may not have the same culture of compliance with European regulations?
Ms Thompson:
I do not have a lot of experience outside Northern Ireland, England and Wales, but the principles have been around for long enough now that there should not be any distinction. Everyone in Europe should comply with the directive and with those principles. Hopefully, therefore, no issues would arise if Northern Irish contractors were tendering for contracts in Europe.
Dr Farry:
Returning to the issue of speed, do you have any suggestions regarding how the tendering process can be made simpler, more streamlined and more user-friendly for SMEs and social economy enterprises?
Ms Thompson:
One of the major factors that we are addressing in Northern Ireland is accessibility to information. The 2004 directive, which was implemented here as the 2006 regulations, has permitted the electronic transfer of notices. A lot of information can now be gained from the Internet, so people can find out what tenders are coming up. Many public-sector organisations are posting their tenders on their websites; that is a good start and that practice should continue. Moreover, many organisations are considering standardising documentation to ensure that SMEs have the wherewithal to obtain and provide that information at not too much expense. Those are important measures that can be helpful.
Ms Purvis:
In your experience, what are the dominant award criteria for public procurement contracts in Northern Ireland?
Mr Magee:
The award of contracts has moved away from the lowest price; that is a welcome development and will continue to be the case. The awarding of contracts hinges on contractors’ quality and experience. Selecting on the basis of lowest price brings its own problems. No one from the procuring bodies, or from the sectors that procure, wants to return to awards based on lowest price. As the market gets tighter and more competitive, prices will become more similar, and I believe that quality and experience will remain the determining factors.
Ms Purvis:
How can quality criteria be marked objectively?
Mr Magee:
There is a variety of ways to do that, the best of which is to examine other examples or similar projects. At times, issues arise as to whether those examples are properly analysed and verified. That aspect might — and should — come to the fore more, whereby similar projects and experiences are analysed and tested by the procuring bodies.
Ms Purvis:
Will you give an example?
Mr Magee:
I know of examples of public-utility companies in Northern Ireland having tendered for equipment needs and having requested that tenderers satisfy them of their equipment standards and their availability to cover particular aspects of work. Some of our clients have known that they were the only company with the required equipment and that their competitors did not have the equipment to satisfy the tender criteria, yet our clients were still unsuccessful in the tender process. We have had to lean on those processes because we know that, had the tenders been analysed properly, the procuring body would have been satisfied that the company that won the contract was unable to carry out the required work.
Ms Purvis:
Should the criteria be tested more rigorously?
Mr Magee:
Yes. We should be moving away from awarding contracts to those tenderers who write the best essay and submission, because it is not a true test of a company’s ability to do the work.
Ms Purvis:
Will that result in more bureaucracy and be more time consuming?
Mr Magee:
Yes. However, if that results in public money being spent better, it is worth doing. There is no point in awarding contracts based on goodwill because that will, ultimately, lead to the system being abused and a contractor being unable to do the work.
Ms Purvis:
In your experience, what proportion of contracts is now awarded on the basis of price or contract duration only?
Ms Thompson:
In the past 12 months, I do not know of any contracts that have been awarded on the basis of price only. I advise the public sector on compliance with the regulations. The majority of awards are made on a qualitative basis ie to the “most economically advantageous tender”, as is stated in the Public Contracts Regulations 2006. That allows for an assessment of quality and functional characteristics, which procuring bodies are permitted to use under the regulations, rather than selecting the lowest-priced option.
Ms Purvis:
Is contract duration a criterion that is high on the list?
Mr Magee:
Contract duration tends to be stipulated in the terms of the contract and tends to be a specified period. Contracts now last for longer periods, because there is, unfortunately, a natural fear of procuring. People think that procuring for a longer period places them in a safe zone where they cannot be challenged. The average duration of contracts has started to lengthen.
The Deputy Chairperson:
Are procuring bodies allowed to give a ballpark figure when drawing up tenders? Can they state a certain sum that they expect the cost to be close to?
Ms Thompson:
Procuring bodies have to give an estimated value that covers the life of the contract. For example, it may be decided that a three-year contract is required for a project. If there is an option to extend that contract by another two years, subject to performance in the initial three years, a value would have to be given for five years, because that is the potential full life of the contract. In any European advertisement, it is essential that that box is ticked as it ensures that tenders are received from companies that are capable of doing the job. On the flip side, companies will not tender for a job if they deem the value or scope of the contract to be too large. It is important that figures are set out as accurately as possible at the outset.
Mr Magee:
Take the example of a health trust carrying out a procurement exercise for a hospital in which the main aim is to ensure that a hospital is well built within time; the trust may undertake that exercise through a set-price, open-book procedure that gives good collaboration between contractors and the trust so that they can see the various costs and profits. Therefore, the price for doing the work is set and there is not the scope for additions, variations or top-up fees. That is one example, but there are a variety of different ways of completing a project within budget.
The Deputy Chairperson:
Further to Dawn’s question about the contract not being awarded purely on the basis of cost, if a guideline price is given and a local company cannot get anywhere near it, price would be the determining factor that knocks that local company out of the procurement process. The local company would not even get past the starting gate.
Mr Magee:
By and large, price is a strength for local companies. Unless a project is particularly significant, local companies tend to be as cost-effective as companies that come from other jurisdictions to carry out the work. If price is a strong feature of the tendering process, that will favour local entities that are tendering for contracts.
Mr McQuillan:
What are the main difficulties encountered by SMEs and SEEs when delivering contracts?
Mr Magee:
As lawyers, that is a difficult question for us to answer. We tend to find that our clients are careful about what they do and do not tender for. A fair degree of time and effort is put into preparing a tender submission, and our clients ensure that the necessary skills, capabilities and subcontracts are all available locally. As regards getting involved in something and not realising what was involved, I have not come across that.
Mr McQuillan:
Can small- and medium-sized enterprises join together to tender for a contract? Are there any examples of that?
Ms Thompson:
That relates to the earlier point about the flexibility of the legislation. Splitting a contract into lots was one option that we discussed. A second option is for small- and medium-sized enterprises to come together as a consortium to tender for work; that is what is happening with a lot of the contracts that are going out to procurement at present.
Mr McQuillan:
Would that allow SMEs to take on large multinationals?
Ms Thompson:
Yes; that is the aim.
Mr McNarry:
Thank you both for coming to the Committee; I have found your professionalism useful and helpful. Can contractors be challenged, at tender stage, to indicate what subcontractors they are likely to appoint?
Mr Magee:
If it is anticipated that a company will call on subcontractors to carry out work, the tender process can have a provision that calls for those subcontractors to be identified. In the framework agreements, the full suite of people working on the contracts was spelt out in great detail. So, yes.
Mr McNarry:
In relation to specifications, how acceptable to a client is the use of other approved material? In other words, on a like-for-like tender basis?
Mr Magee:
That depends on how the specification is detailed. If the tender process is good and open, it will give the specification and also allow the tenderer to propose a cheaper way of fulfilling the contract. In the area of waste recovery, for example, the industry is perhaps ahead of the client. Those tender exercises should always be open, so that more cost-effective and environmentally effective procedures can be proposed.
If the specification is not open, clients can put in two or three different tender submissions, especially if they have several group companies. Tender processes should be as open as possible, so that out-of-the-box thinking can be encouraged. The problem with a lot of tender submissions is that some of them are very tight, and the applicant might have only 400 words with which to explain what he is going to do. In those situations, the tender is not open in nature, and the tenderer is watching where the commas and full stops go because the space is so limited.
Mr McNarry:
How can local manufacturers of materials that can be used in contract work — particularly building work — be afforded the opportunity to have their materials used? That would be of benefit to Northern Ireland and to that company and its workforce. Certain materials may have to be approved, but if they are not specified — and I do not think that the law allows them to be excluded — how much locally manufactured material, which was not the material specified, would the client accept?
Mr Magee:
We must be careful about suggesting that, for example, a contract which specifies that 80% of the material to be used in a project must come from County Antrim and 20% must come from County Down.
Mr McNarry:
I would put it the other way round. [Laughter.]
Mr Magee:
Returning to the key elements of the process — that is, transparency, openness and fair competition throughout Europe — it would be tricky to specify conditions such as those which I just mentioned. However, such conditions could be linked to the social elements in the tender documentation.
Mr McNarry:
How does a design-and-build contract operate within the procurement system? Perhaps it does not; I do not know.
Mr Magee:
A client can specify a variety of elements in a contract, in relation to what work it expects to be done and how that is priced. As long as a client complies with the various obligations of openness and transparency, it can tell tenderers that it wants a school, show them the land and ask to be shown what the tenderers will build and how much it will cost. There is great scope for design-and-build contracts; they are not affected by the regulations. At the end of the day, the specification comes down to client preference.
Mr McNarry:
To go back to the point that Ian Paisley Jnr raised, there is more potential for some form of litigation if a company failed to win a design-and-build contract that it had been invited to tender for but felt that its design was better than the design that won.
Mr Paisley Jnr:
A company might also suspect that its design was plagiarised.
Mr McNarry:
That could happen. Certainly, there was a time when schools were all built in the same way, but I know that we are looking for something a bit more than that now. Design-and-build concepts are more acceptable to the industry now, because they are easier to read and follow, but it is a much bigger decision to make — for example, if the tender is for the building of a hospital.
Mr Magee:
There will always be an argument between subjectivity and objectivity. No single answer covers all procurement projects. Courts will be loath to determine whether a client was right in preferring one design over another. In such a subjective area, a court will be reluctant to get involved in second-guessing what the client wants, unless the decision is badly out. The court is more concerned about whether the procedures were fair, just and complied with the regulations, rather than whether it prefers a different type of school to the one selected. A court will always be reluctant to second-guess the subjective element of the client’s decision.
Mr McNarry:
Having heard from the Committee, are there any additional issues that you believe we should examine during the course of our inquiry? Has anything been left out? Would you like to put your head on the block?
Mr Magee:
We all want greater public spend and fewer challenges. There should be a procedure for dealing with challenges before the litigation stage is reached — the ombudsman idea, for example. Once stuck in litigation, it becomes very difficult to pull one’s feet out of it. We are blessed with very good and responsible construction bodies, such as the CEF and the Quarry Products Association. If those organisations are shouting that something is not right for their members, it is not right for their members, by and large.
A dangerous scenario can arise when the industry cracks on with a tender process and makes comments about it, but the client does not listen to those comments. The main objective is to reduce the number of challenges, and the key to doing that is to have a facility that provides a quick analysis outside of concerns about timing and budgetary restraints.
Ms J McCann:
You said that quality and experience were the dominant award criteria — how is that calculated? Are percentage marks awarded for quality and experience, for instance? Where do the social and environmental criteria sit in the marking process?
Ms Thompson:
To clarify: experience and quality should not be assessed at the same time. Recent case law indicates that at the selection stage, the regulations allow for the experience of the tenderer to be considered. Therefore, the company’s experience is a pre-qualification hurdle at selection stage. After that, quality of the tender submissions can be assessed.
There is quite a restriction on how social criteria can be used at those two stages. It is easier to insert social conditions into the contract, which sits behind the tender. The fact that there are three stages makes it quite tricky to give a single answer to that question, because the way that those factors are judged will depend, first, on the criteria, and, secondly, the stage of the procurement process. We should be happy to reply in writing, if the Committee want to contact us with a particular question about that.
Ms J McCann:
The Committee has heard evidence that makes it clear that the social and environmental criteria exist. I am interested to know what percentage is awarded to those criteria at the marking stage. For example, how are tender applications from enterprises that employ the long-term unemployed or provide apprenticeships marked? The Committee has heard that tenders are being judged on experience and price as opposed to social and environmental factors, yet we are being told that those factors are taken into account. I know that you cannot go into detail on that now, but I am keen to contact you in writing with some questions about that.
Ms Thompson:
That is not a bad idea; thank you.
Mr Paisley Jnr:
I am aware that the witnesses’ experience extends beyond Northern Ireland and across other jurisdictions. How do you rate the Northern Ireland public sector compared to that of our neighbours? Sometimes, we take a narrow view: we look at how we stand and see things as being very good or very bad. Bearing in mind that we are top of the litigation stakes, how do our procurement practices compare with those in the rest of the UK?
Mr Magee:
We are pretty good; I would mark us at seven or seven and a half out 10. The last exercise in which we were involved in England related to a tender process for Manchester City Council. During one of its meetings, that council confirmed which company it had decided to award a contract to; however, it had forgotten to hold a procurement process. Lo and behold, the council carried out a procurement process and awarded the contract to the same body — unfortunately, that was not our client, which was a local company.
I believe that procurement practices here are fairly good. I have no doubt that we are going through the learning exercise and the core process that other jurisdictions will go through in due course. It would be unfair to say that the procuring processes in Northern Ireland are deficient compared to those in other jurisdictions; in fact, our processes may be better.
Mr Paisley Jnr:
That was very helpful.