Dáil Éireann debate -
Tuesday, 15 Dec 1970

Vol. 250 No. 7

Committee on Finance. - Adjournment Debate: State Company Contracts.

Mr. Donegan

I was dissatisfied with the reply given to me by the Minister for Transport and Power today. I asked the Minister:

If it is his Department's policy that State-sponsored companies should ascertain, before placing large and valuable contracts, that Republic of Ireland tenderers have had every opportunity to quote fairly and arrange or vary detailed items, so as to place themselves in a competitive position; and, if so, if this happened in the case of every large tender of £1,000,000 or more placed by State-sponsored companies in the recent past.

I do not want to weary the House by reading out the full text of his reply, as it can be read in the Official Report. I assure the Minister I am not taking this out of context when I read the last part of his reply which stated:

When drawing up specifications with a view to inviting tenders State-sponsored bodies, in order to make the maximum use of Irish materials and contractors take full account of the necessity for specifying works and materials in a form convenient for tendering by Irish firms. These factors were taken into consideration in all recent large contracts placed by the State bodies with which I am concerned.

Recently in this House a question was raised about a contract for boiler vans and brake vans by CIE. I did not find it possible to have a question down because of the Rules of this House and the fact that I was, as the Minister was, engaged in the by-election in Donegal.

After I returned I availed of the opportunity of putting down this question. I want it to be clear that I put down the question after having received information that the contrary to the answer given by the Minister was true, that in fact detailed information on all the variations that could have occurred on a recent large contract were not afforded to Irish tenderers nor were Irish tenderers in the position to know all those variations and therefore to make different quotations for different items. I want also to point to the fact that I am informed, in relation to this contract which was a £2½ million contract secured by British Rail Engineering Ltd., Derby, England, that the first tender which was sent out was for 40 steam heating boiler vans. I understand that the actual purchase ended up with 22 steam heating boiler vans and 11 electric generator brake vans.

I want the Minister to let me know in reply whether or not this is true, because this would make a great difference to any tenderer. There is also the question of the quality of goods supplied within this tender. I understand the contract did not give the opportunity to specify ancillary equipment. Apparently in this type of trade what you might call ancillary equipment is not really ancillary equipment at all. It is highly expensive and a very large portion of the cost of the tender. I understand that the bogeys on which the rail vans are built vary in price very considerably, by as much as 50 per cent in some cases. One tenderer was S. & S. of Dundalk. I am not dealing with them alone but also with whether or not this work should have been done in Inchicore. The Dundalk tender was for only portion of the work. Nevertheless, it is important to realise that on the question of the supply of those bogeys there can be this variation in the cost. I do not know what the situation was as far as the works in Inchicore were concerned, but I know the bogey which was to be supplied from the firm in Dundalk was in respect of what one would describe as the Rolls Royce type of bogey. There was no opportunity afforded for a variation here and a quotation for a different type if such different type were supplied by the British firm.

Electrical equipment in those vans accounts for a very large proportion of the cost, and again there is this great variation. I do not know about the Inchicore works but I know as far as the Dundalk firm were concerned the very Rolls Royce of electrics, namely Stone Platt electrics, were specified and no opportunity was given to vary the price of the electrics by in fact providing a cheaper type of electric.

I am informed that the variation here is also of the order of 50 per cent. When one realises that the cost of these vans is approximately divided as to 50 per cent on materials and 50 per cent on labour one starts to realise just what the difference would be if one were to go for the cheaper component parts as against the dearer component parts. If the opportunity was not afforded to the Irish houses, if I may so call them, to quote like for like, then in fact justice was not done and injustice was done.

My contention in this regard is further fortified by the statement of the Tanaiste in this House when questioned before I had time to put down my question. He stated that the Irish tender was so high compared with the other, that there was no question of unfairness of opportunity. If the opportunity to vary contracts was not afforded to the Irish houses, and particularly the one on which I have the information, namely the Dundalk house, S & S, like was not compared with like and whether a grade variation in price occurred was more a question of quality than of a successful tenderer or an unsuccessful tenderer.

In relation to the tender of the Dundalk firm I can inform the House that this was based on ten smaller vans which were produced some time ago. At that time the cost of those vans was something under £25,000. Based on this a pricing was done on the other vans. There was no reply to the Dundalk firm as to variations in the quality of component parts. The successful tenderer was the British Rail Engineering Company Ltd. of Derby, England.

I have made inquiries as to the practice in America in relation to State-sponsored firms or firms who have, shall we say, access to the public purse. In most States in America, the practice is that when a contract reaches a large figure, or even £½ million, the successful tenderer and the amount are announced to the public. I understand this is not available to us today. We are talking about the expenditure of £2.6 million. The firm to which I have referred quoted approximately £1½ million. As I said, the successful tenderer was the British Rail Engineering Company Ltd. of Derby, England. The loss to the Dundalk house was 100 men in employment for two years.

Let us now discuss the successful tenderer. It is not even a subsidiary of but is part and parcel of British Rail. Everybody knows the sort of losses that have been made by British Rail over the past ten years. Everybody who has addressed himself to the situation knows that there was a change in their accounting system and in their subsidy system from the Government. I am sure this is available in the Library but I want to refer the House to two letters in The Economist. The first is from a correspondent who did not give his name. He merely gave his initials and his point was that British Rail had done very well. I dislike quoting people who do not give their names and for that reason I merely refer the House to that letter. I want to refer the House to the letter of Mr. Dennis F. Taylor in The Economist and I want to quote from that letter.

An Ceann Comhairle

Would the Deputy give the date?

Mr. Donegan

I cannot give the date because it is a photostat copy I have. If the Chair wishes me to ascertain the date I will do so. It is from a recent copy of The Economist. There was a change in the financial structure of British Rail and the manner of subsidy by the British Government and, therefore, this letter could have been printed only recently. I am sorry I cannot give the exact date but I will now quote from the letter:

Compared with previous years it would be more realistic to express British Rail's financial performance as a £132 million deficit because that is the way in which it affects the taxpayer; approximately the same as for 1963, 1965 and 1966 and considerably more than it was ten years ago when it was for approximately double the manpower, number of stations and considerably more mileage.

That means that a subsidised British firm came in here and, whether you take it on the quotation of the Dundalk firm of S & S or on the ability of our own works at Inchicore to do the work, removed from here work to the value of £2.6 million, work for 100 men for two years in the Dundalk firm.

I am deeply hurt and pained at having to speak in this way but I want to refer the Minister to Article XI of the Anglo-lrish Free Trade Area Agreement. I want to quote from the Related Agreements, Exchanges of Letters and Understandings which were laid by the Government before each House of the Oireachtas in December, 1965. Article XI deals with dumped and subsidised imports. Paragraph (1) of this Article permits each country to take action on its own initiative against dumped or subsidised imports consistent with its other international obligations. The action may take the form of duties, the level of such duties to be limited to the degree of dumping or subsidisation. Paragraph 22 of the Record of Understandings states:

In the period preceding the accession of Ireland to the General Agreement on Tariffs and Trade it is the intention of each party in regard to dumped and subsidised imports from the territory of the other to act as if Article VI of the General Agreement on Tariffs and Trade were binding upon it in relation to the other.

The effect of this arrangement is to limit action to dumped or subsidised imports which cause or threaten to cause material injury.

In my opinion the Minister's answer today was entirely inadequate. Whether you take this as something which could affect one place of employment or another, it will cause material injury. The injury can be measured in respect of my information in relation to, I suppose, about two-thirds of the contract quoted by the Dundalk house. I do not want to be parochial and I do not want to be taken as wanting one place to vie against another, but it is quite clear that this falls within the terms of the Anglo-Irish Free Trade Agreement. If they so desired, even at this stage, the Government and the Minister could conduct an investigation into the affairs of British Rail Engineering Co. Ltd. of Derby and find that they are highly subsidised and are part and parcel of and not a subsidiary of British Rail. I have read out an opinion that their deficit is £132 million. I wonder was it £½ million, or £¼ million, or £1 million, that was used to remove jobs from Irish people. I want a considerably better answer from the Minister now than he gave us today.

Minister for Transport and Power (Mr. B. Lenihan)

First of all, I want to make one particular matter quite clear. It is better that we get this aspect out of the way because it was the second matter raised by Deputy Donegan. The main burden of his case related to the tender placed by the Dundalk firm. I want to refer, first of all, to the question of the Inchicore works. I am very glad to say that negotiations have been taking place in recent weeks and that CIE management have made certain proposals to the trade unions to overcome the shortage of skilled staff at Inchicore and I am hopeful that they are now about to reach an agreement that will enable some of the work contracted for by the British firm, referred to by the Deputy, to be sub-contracted and done in Inchicore. Arrangements are in train between the British firm and the CIE management in Inchicore and the trade unions concerned which caused the initial problem—the question of lack of skilled personnel due to a regrading system that could have been improved and on which agreement has now been practically reached between the management of CIE and the trade unions.

Mr. Clinton

An attempt to lock the stable door when the mare has gone.

Mr. B. Lenihan

There is no question of that. There has been no redundancy in Inchicore whatever right through this whole matter. Deputy FitzGerald is not accurate.

Mr. T. O'Donnell

How much has there been since 1961?

Mr. B. Lenihan

Please let me finish, Deputy. The Deputy has made no contribution at all. I want to speak in a rational way about what Deputy Donegan said. There has been no redundancy in Inchicore in this matter.

Mr. T. O'Donnell

That is an outlandish statement. There has been redundancy in Inchicore.

Mr. B. Lenihan

There was a difference of opinion between the trade unions and the management as to the personnel who could be employed to do a particular job of work that could be done in Inchicore on these carriages. I want to emphasise for Deputy Clinton that negotiations have not just been going on in recent weeks but have been going on over the past 12 months in regard to this matter. I shall not ascribe the blame to any particular side in this matter. Suffice to say, and I am very glad to say, that agreement now looks likely to be reached and that as much of the work as can be done in Inchicore will be done on a sub-contracting basis with the successful tenderer in Britain and that the successful tenderer in Britain, CIE and the trade unions look like coming together to a successful outcome as far as Inchicore is concerned.

Mr. Donegan

What about Dundalk?

Mr. B. Lenihan

I am coming to this. Let us be patient. I like to take things in stages.

As far as Dundalk is concerned, the problem fundamentally is that there is a preferential advantage given to Irish firms tendering of between 16 to 18 per cent. There were five tenderers for the contract for carriages and six for the heating vans. The only Irish tenderer was the Dundalk firm and they only tendered for the contract relating to the heating vans.

Mr. Donegan

I said that.

Mr. B. Lenihan

Of the six tenderers the Dundalk firm were way out the highest tenderer.

Mr. Donegan

What about the quality of their goods?

Mr. B. Lenihan

I can tell the Deputy that 16 to 18 per cent is not even half of it. They were way out and above 16 to 18 per cent higher than the next highest tenderer and they were substantially higher—I mean substantially higher in the strongest sense of that word—than the lowest tenderer.

Mr. Donegan

Is the Minister comparing like with like?

Mr. B. Lenihan

The Deputy knows my form. I always come to the point.

Mr. Donegan

By devious ways.

Mr. B. Lenihan

No, step by step. The Deputy raises matters concerning components of the equipment in which there was a variation made subsequently. I want to assure the Deputy that I have discussed this matter in detail with CIE. They have told me that the only significant variation related to numbers and that as far as the components concerned in the particular railway carriages and in the particular heating vans were concerned there was no significant variation in regard to these components.

Mr. Clinton

There was the exact specification?

Mr. B. Lenihan

The Deputy rightly makes the case that if there was a substantial variation allowed to a tenderer in regard to components this would be a cause for concern. All that happened was that eventually there were separate tenderers agreed upon for 62 railway carriages and 33 heating vans. In regard to the 33, originally a different quotation was sought for steam vans.

Mr. Donegan

That is right. Admission.

Mr. B. Lenihan

The eventual contract placed was for 22 steam vans and 11 electric heating vans.

Mr. Donegan

Is it not marvellous that I knew all that?

Mr. B. Lenihan

As regards the components of all the categories—the railway carriages and the heating vans —there was no difference whatever. There was an ultimate variation in the actual numbers of heating vans and a change from steam to electric in the case of 11 of the heating vans. That is all. There was no variation in regard to the components.

Mr. Donegan

The same brands by the same component manufacturers? The same bogeys?

Mr. B. Lenihan

This means that, as far as CIE were concerned, they were perfectly consistent all through in that they did not allow any resubmission of tender or variation in regard to the successful tender by reason of components that the successful tenderer may have been allowed to introduce. Substantially the tender submitted was not changed except the amounts in regard to the individual carriages and individual heating vans, whether electric or steam heated. The individual amounts relating to each particular category were not changed. There was a slight variation in the total numbers. That is all.

Mr. Donegan

May I ask the Minister a question? Did the contract for which the people tendered specify the brand of electric component? Did it specify the people who were to supply the components? Because the difference in quality in these components, I understand, can be as much as 50 per cent in cost and you can have one that will last five years or you can have one that will last 15 years.

Mr. B. Lenihan

I shall quote from the final paragraph of the actual letter from CIE to me, dated 7th December, in which they set out the case as far as they are concerned:

In the case of the recent contract for railway carriages and vans, tenders were sought by public advertisement. Five firms submitted tenders for the carriages and six firms submitted tenders for the vans. The three lowest tenders were from firms who had submitted offers for both carriages and vans, and as these offers were very close to one another, it was necessary to examine them in detail and to discuss the technical specifications with the three firms involved. It was finally decided to place the contract with British Rail Engineering Limited on the basis of a modified specification. This was done without conceding any competitive advantage to British Rail Engineering Limited. There was, therefore, no necessity to seek fresh tenders or to consider the higher tenders which were not competitive.

Mr. Donegan

On a modified specification?

Mr. B. Lenihan

A modified specification relating to less carriages and vans sought. That is all.

Mr. Clinton

That is not what is said in the letter.

Mr. B. Lenihan

I can assure the House that that is the situation. If the Deputy wishes to put down a further question, I can amplify on that aspect. The modified specification relates to the fact that the numbers sought in heating vans changed but the actual individual items did not change significantly. Even allowing for what the Deputy would wish, the actual tenders submitted by the Dundalk firm were so way out and beyond the highest of six tenders submitted and away higher than the fifth one submitted that there was no question of any investigation as to the different numbers of heating vans being pursued beyond the three front tenderers who were near enough to each other that investigation did take place.

Mr. Donegan

The same brand of bogey? The same subcontractor for electrical goods? Is this an absolute fact?

An Ceann Comhairle

The Minister has only two minutes left.

Mr. B. Lenihan

This is a matter entirely for the initial tendering and in regard to the initial tendering if certain people priced themselves away out because of the prices of components that is their business, provided they were in accordance with the specifications. What I am assuring the House is that the components tendered in respect of the successful tender accorded with the initial specifications and were not varied in the subsequent variation which arose purely in regard to the numbers tendered for and eventually contracted for.

Mr. Donegan

It could be a much cheaper component.

Mr. B. Lenihan

That is arguable, Deputy. I am telling the House that all the components in respect of all the tenders accorded with the specifications sought in the initial tender.

Mr. Clinton

That is not said in ClE's letter.

Mr. B. Lenihan

Well, I can get amplification of that. If one particular tender saw fit to have less expensive components well that is the whole art of tendering, as the House and everybody else knows.

Mr. Donegan

Then you bought cheaper goods from a British firm— subsidised and dumped.

Mr. B. Lenihan

The basic change was from the numbers; the final number was not the same as originally tendered for and there was a change also from steam to electric provision in some of the cases in relation to the heating vans. The problem, as I say, is resolved in regard to Inchicore. I met the people from the Dundalk firm and their main anxiety—and I want to tell Deputy Donegan this—was that they were genuinely interested in finding out where they went wrong in the tendering. We had a very constructive discussion on that in my office about three weeks ago. I interrupted the by-election campaign to see them and I saw them before any question was tabled by Deputy Donegan. We had a very fruitful discussion. I saw all the principals of the firm and the chief executive and they made no such case as has been made by Deputy Donegan. They were anxious to know if I could ascertain in what way they went wrong. They appreciated that they were away out in their costings and this was a source of concern to them. They made no attempt to suggest that in the event of the low tender which had been received that it was in any way wrong that the tender should go in that direction if the differential in regard to price submission was as high, and as substantially high, as I outlined to them.

Mr. Donegan

That is not their present view.

The Dáil adjourned at 10.55 p.m. until 10.30 a.m. on Wednesday, 16th December, 1970.