JOINT COMMITTEE ON ENTERPRISE, TRADE AND EMPLOYMENT debate -
Wednesday, 1 Oct 2008

Print and Packaging Industry: Discussion.

Chairman

Business people realise, probably more so than members, that time is critical. I welcome Mr. Gerry Andrews, director, Print and Packaging Forum; Mr. Terry Cummins from IBEC; Mr. Shane McKeane from the Irish Print Group; and Mr. Lorcán Ó hÓbáin, Irish Printing Federation.

Before we begin, I draw everybody's attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses have qualified privilege, but the committee cannot guarantee any level of privilege to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice that members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Mr. Andrews has provided the committee with a comprehensive document, setting out the background to the matter under discussion. The procedure is that he will make a presentation for five or six minutes and I will then ask members to apply themselves seriously to the issues raised.

Mr. Gerry Andrews

The printing industry in Ireland generates a turnover of €2.5 billion per annum and employs 19,000 people. We are fighting now for our very survival. The spend on public procurement is €16 billion per annum.

Irish suppliers and the printing industry specifically are being disadvantaged by public officials who are too rigid in their interpretation of EU rules. At a time when the economy is in crisis, when companies are closing and some of our people are losing jobs, public officials are awarding contracts worth millions of euro to suppliers outside the State. The EU rules under which officials make these decisions are far more flexible than the procedures applied in Ireland. The EU tendering threshold starts at €130,000 per contract for central government and increases to €200,000 for any other authority. Organisations funded by the Irish taxpayer are placing contracts abroad well below these thresholds.

Ireland is totally out of synch with the rest of Europe when it comes to public procurement. The EU rules state 20% of any contract can be exempt from the European tendering process; put simply that means that 20% of any one contract can be retained in Ireland in order to shore up small and medium-sized businesses and safeguard jobs. This rule is applied right throughout Europe and exploited to the full. Elsewhere in Europe contracts are unbundled and subdivided into small lots to ensure they remain below the threshold mentioned. The specifications of the contracts have stipulations included such as security, logistics and time constraints in order to ensure the contracts are kept within their own jurisdictions.

Frankly, officials elsewhere in Europe are cognisant of the fact that any revenue loss to their exchequer can be guarded against by exploiting the rules and availing of wriggle room. There is plenty of wriggle room in European procurement legislation and it is a source of frustration for Irish manufacturing that procurement officials elsewhere in Europe are more imaginative than Irish officials in the application of the regulations. In Ireland the principle that good competition means getting rid of local competition appears to apply. Irish manufacturing is being short-changed by officials who act as judge and jury when it comes to awarding contracts. Irish suppliers do not compete on a level playing pitch. An Irish company must comply with the following rules if it is to qualify for a Government contract. It must prove it is tax compliant in Ireland and comply with EPA legislation and all employment legislation, such as the Working Time Directive and the Minimum Wage Act. Procurement officials regularly award contracts to foreign suppliers on the basis of price alone. The successful company needs only to be tax compliant in Ireland. No checks are ever carried out to ensure that those companies comply with environmental or employment legislation. The cost of travel and expenses incurred by Irish officials visiting successful bidders in Europe is not factored into the price differential when it comes to awarding a contract.

We also have a problem with VAT. There is clear evidence that exempt bodies are placing significant contracts outside the State and not declaring their VAT obligations to the Revenue Commissioners when those goods are subsequently brought back into the State. An examination of the comparison between VAT rules in Ireland and the UK gives a clear indication of the savings an Irish budget holder can make as a result of importing goods at zero VAT rate. There is widespread belief that the decision to place some contracts outside the State is motivated by the savings on VAT. This opinion has been substantiated, off the record, by sympathetic officials and verified in some instances by the purchaser.

The Print and Packaging Forum request that Government take action to prevent the erosion of our marketplace as a result of inflexibility and inequitable procurement rules. We request that the Government issue a memo stipulating procedures for public procurement which are similar to those that apply throughout Europe. All we are asking for is a fair chance and a level playing pitch.

Chairman

Thank you, Mr. Andrews. You adhered to our first request by sending in an extensive document and our second by presenting that document in a resumé form. You have passed the first two tests. Now let us see if you can pass the third.

Deputy Dara Calleary

Mr. Andrews's reference to how we interpret EU regulations in Ireland resonated with those of us who were involved in the Lisbon treaty campaign.

I am intrigued by his comment on VAT exempt companies. At whom does he direct that comment? Are State organisations procuring printing from outside the State and are they unaware of their obligations in that regard?

Mr. Gerry Andrews

In our opinion that is happening.

Deputy Dara Calleary

Are such companies required to register the fact that they have done this?

Mr. Gerry Andrews

Yes. Returns to the Revenue Commissioners should state what goods have been bought and the local VAT rate should apply.

Deputy Mary Alexandra White

As someone who spent much of my previous working life in the publishing and book business, I welcome the delegation. We were very happy to have VAT removed from books and I appreciate their concerns. The printing and packaging industry consists of 700 companies and 19,000 people. It is a considerable industry. We want to protect it and ensure that it has a good future.

Mr. Andrews referred to the rigid application of procurement rules in Ireland. He says there is plenty of wriggle room. Could he tell us something about that wriggle room? Deputy Calleary mentioned VAT. I am sure Mr. Andrews's organisation has done the figures on VAT. I would like to hear those figures. The request that current procurement policy be examined and changed where necessary to guarantee that we are treated equitably seems a very simple one. I am sure the forum has lobbied extensively. To whom has it made its pitch, outside of this committee?

Mr. Gerry Andrews

In terms of wriggle room, we have already mentioned the 20% rule that applies. It is used throughout Europe to ensure a percentage of a contract is retained and is exploited particularly well in France. A practice evident in all contracts throughout Europe is the unbundling process which sees the subdivision of contracts into individual units, each below the threshold I mentioned. It has been proved that it happens all over Europe because many contracts similar to the ones we send are retained in the jurisdiction in which they are issued.

I was asked who I was lobbying and the answer is: anyone who will listen to me. We have spoken to many people, from politicians to procurement officials, but one message is clear from all procurement officials: "We follow policy. Get the policymakers to change the policy and we will follow the rule." While they are all sympathetic, they all claim to be restricted by the policy under which they work. I am sure my colleagues will add to this, but it is our opinion that some of the people who are in a position to control large budgets require training in strategic purchasing because they inherit a procedure over time, rather than receive training in how to apply the rules properly.

Senator Brendan Ryan

Is there hard evidence to support Mr. Andrews's statement that other countries are exploiting the 20% rule? I worked in a large organisation in several countries and it was always suggested measurements were different elsewhere, for example, in Italy, and that was why we looked poorer than they did.

Mr. Gerry Andrews

Much of it is based on hearsay, but Dr. Paul Davis of DCU attended a seminar elsewhere in Europe at which a Minister from France stated legislation was being introduced there to ensure this rule would be applied. I am not sure whether this has been done or which Minister said this but he was sufficiently clear on the matter to include it in a public address.

Senator Brendan Ryan

If we are to take this matter beyond the committee, we need hard evidence, not hearsay.

Mr. Gerry Andrews

Absolutely. It is either right or wrong and in our opinion my statement is correct. Colleagues of ours in the industry throughout Europe tell us that this is happening and we can see the evidence. It is happening for them but not for us.

Senator Brendan Ryan

The other brief point I want to make relates to procurement in sourcing printing. Generally, the higher the volume the better the price one can get.

Mr. Gerry Andrews

Absolutely.

Senator Brendan Ryan

Therefore, in terms of the 20% rule and splitting things up, this goes against procurement policy, which suggests higher volumes offer better prices.

Mr. Gerry Andrews

I totally accept that. I am not suggesting one size fits all, only that, where appropriate, this can be done. We have had instances of contracts worth as low as €20,000 being sent out for public procurement. Around four or five people may sign off on such a contract in a foreign country but the costs associated with the visit are not factored in in the price differential. The figure of €20,000 is well below the threshold. The cost of sending four people to sign off on such a contract would be greater than the difference between the winning foreign contract price and the best Irish bid.

Mr. Lorcán Ó hÓbáin

Mr. Andrews referred to training public procurement officials. One of the concerns is that price is the main factor to be taken into account. We would not suggest price is not a factor - it is in our businesses also - but it is only one factor. One of the difficulties in the public procurement model is that well intentioned officials tend to procure for relatively short periods of time. They may move to another area of responsibility in three to five years. This can create certain pressures not felt in the private sector, where purchasing is seen as a career path, like manufacturing, accounts and sales. One of the major issues we have discovered is that training for public procurement officials is scant. We are close to DCU in terms of research in this area. People are brought in and handed a set of regulations which they do not really understand but through which they must wade. There is absolutely no incentive for people to be innovative. That is a source of concern.

Deputy Dara Calleary

Procurement affects small businesses around the country and one issue has been brought to my attention. In the construction industry many small builders are not in a position to tender for contracts, even though they are perfectly qualified. Does IBEC have any plan to deal with that issue at partnership level?

Mr. Terry Cummins

An entire section on public procurement is included in the text of the new national wage agreement and there is a specific reference to the construction industry. IBEC has lobbied ICTU and one of the top print unions in Ireland on the matter. The net position is that jobs are being lost in the industry. In the past couple of years approximately 20 companies in the Dublin area have laid off a significant number of staff as a result of competition, much of which comes from Northern Ireland. As there are incentives for employers in the North, we are experiencing many problems in that regard. Our task is to work on behalf of the Irish Printing Federation and the industry. IBEC has taken up some of what we have suggested and that is included in the text of the national wage agreement.

Mr. Shane McKeane

Since the abolishment of the PPITCs the printing industry is the only group to come together to work under social partnership to ensure the retention of jobs. Between 3,500 and 4,000 jobs in the industry have been lost in the past ten years. When people are made unemployed, there is no place for them because of the reduction in the trade. The printing forum was set up to educate them and help them to get back into the workforce. We work under the social partnership ethos and proposals regarding procurement were brought forward by ICTU and IBEC during the negotiations just concluded.

Deputy Michael Fitzpatrick

This is the first time I have heard of the Print and Packaging Forum. We cannot do the issue justice this morning because of time constraints.

There is something wrong when Government agencies are in breach of the correct procedures and procurement officers do not meet the required standard because of a lack of adequate training. Can the delegates supply more specific examples to the committee? I am sure this applies to local authorities, health boards and a whole range of others. There is a mine of information on which the committee could do more work. It is important that we do whatever we can to ensure small businesses in the sector, most of which are family owned, are protected because these firms are the future of the country. I suggest the delegates supply us with more information and come back to us at a later date.

Chairman

I did not meet Mr. Andrews because he was not in contact with me but I concur that job losses in the industry have a tremendous impact. Small and medium-sized businesses such as these will be the ones to get us over the downturn and we do not want to do anything that will contribute to losses in the sector. It is our intention to meet the Minister for Finance who has overall responsibility for procurement policy. At the end of the day, it is the overarching agency. While several procurement agencies are involved, there must be an overarching agency. The person who holds the purse strings has the ultimate control. Will Mr. Andrews submit four or five proposals to the committee that he regards as essential to levelling the playing pitch in that context?

I am not surprised by what is happening in other countries and I have raised this in the Dáil. As Europeans, we have been too good. We take the literal interpretation of all regulations and directives and we apply it, sometimes to our advantage. The European Court of Justice is the ultimate arbiter in deciphering legislation and its intent and import but there are teleological, schematic and other different ways to examine legislation. Sometimes we interpret it literally. Other countries can devise ingenious ways to protect and preserve their indigenous industries. A high-tech industry such as printing has embraced significant technological developments and taken on training and expertise and it has slimmed down to face competition and change. Technological change has been rapid in that industry. If Mr. Andrews outlines four key proposals, we will convey them to the Minister. He has educated us but we are still only at C- rather than B+.

Mr. Gerry Andrews

I will outline two examples relating to education for Deputy Fitzpatrick. A €3 million contract is with the GSA and the decision will be made within the next few months. A prominent well placed high-tech company in Dublin which is best in class was discouraged from tendering for the contract in advance of completion of the tendering process. The decision for the company not to tender was made on the basis "why bother" because the decision to exclude it had been made. The official who made the statement did not even pay the company a visit to ascertain its capabilities and the company chose not to compete. It is more worrying that the company was told it would be incapable of matching its colleagues in the North.

Another example relates to the Lisbon treaty, the contract for which was placed with a Dublin-based company. The award notice stated this company should not subcontract anything. It is a marketing company with no production capabilities and it bought the printing in Portugal. The Portuguese company did not have the capability to match the requirements of the tender. The specification for the tender changed. Under the rules, the contract should have been re-tendered but it was not. It stayed with the Portuguese company, which was incapable of meeting the requirements of the tender and it further subcontracted an element of the contract to a mail marketing company for personalisation. The award notice stated no subcontracting would be involved, yet three different suppliers were engaged in the process.

Chairman

I do not want anybody identified.

Mr. Gerry Andrews

It is a matter of public record and I am not speaking out of turn. The job is done and dusted and we lost out on a contract worth €250,000.

Chairman

That is a worrying trend. As a committee, we must achieve the best for the consumer but, at the end of the day, we are also concerned about employment as well as enterprise and trade. Employment is a key element of our remit. It is something that exercises our minds and receives our attention. We are keen to ensure, where possible and although it may require ingenuity, that Irish jobs are protected. Where there are significant contracts in the public arena supported by Irish money, we appreciate that they must be entered in the European journal if worth more than €1 million but we hope competition is on a level playing pitch and that we are not discouraged from participating. I refer particularly to our industries which put in a sustained and substantial effort to allow them to participate and continue to provide sustainable jobs. In that context, we ask the delegates to make four or five key proposals. It would be our intention to raise these matters with the Minister for Finance. While it would require an examination of procurement policy and a change in official policy which would have to be commensurate with EU legislation, if there is wriggle room in sub-contracting and dividing which is exploited by other countries, there is no reason we should not ensure we exploit the same wriggle room in the existing legislative framework to the benefit of our workers in a highly competitive industry such as that in which the delegation is involved. If the delegates send us the five key issues, we will raise them with the Minister for Finance.

Senator Brendan Ryan

In respect of the four or five key points to be identified, will the delegation provide some case studies that support its line on this issue? That could prove helpful in discussions with the Department of Finance.

Deputy Michael Fitzpatrick

I listened attentively to what Mr. Andrews had to say about the referendum booklet, about which I would like to hear more. We should examine the matter. If it happened on that occasion, on how many other occasions has something similar happened to the disadvantage of Irish workers? That is what this is all about - creating and maintaining jobs. As all this is news to me, I am very interested in receiving more information. I refer to another case in County Kildare, in which a Northern Ireland company received a large contract. I wonder if something similar happened in that case. We must examine this issue in order that it does not happen in the future, if there is a second referendum.

Chairman

I would like to see examples from outside. The European framework would be better.

Mr. Shane McKeane

There is a belief in the industry on the trade union and employer sides that retaining even a percentage of the work in Ireland would save numerous jobs. The industry is under threat and representatives at factories are calling me to say there is very little work. They are afraid of the prospects for employment and asking how all this work is going outside the country. If we could secure even 25% of the work, under rules and according to statute, we would save jobs and create others. We hope to do this in the Print and Packaging Forum.

Mr. Terry Cummins

I cite the example of the State Examination Commission; from 2000 to 2004 junior certificate, leaving certificate and leaving certificate applied examination papers were printed in England.

Chairman

Without prejudging what the committee will do, one of the things I would like to see is the following measure. Where possible, officials, unless clearly obliged to do otherwise, should seek procurement of printing within Ireland. That could be a starting point. We should lay down in black and white that there is no escape route or wriggle room, unless they are clearly obliged to do otherwise. We should begin with that as an opening gambit.

It is interesting that all sides of the industry - employers, trade unions and everybody else - are represented and singing from the same hymn sheet to secure what is best for the industry, namely, maintaining jobs and sustaining what is in place, as opposed to creating new jobs. The battle is to try to retain jobs in the industry. If the delegates do this, we will be delighted to follow up the matter for them. We are grateful to them for coming. With the recession in the private sector, we are anxious that business continue with the public sector. We must be satisfied that the domestic private sector is not at a disadvantage due to the imposition of unfair regulations to which its European counterparts are not subject. We will pursue that matter in the format I have outlined.

Mr. Gerry Andrews

I thank the Chairman and members of the committee.

Chairman

We have concluded consideration of this topic and Mr. Andrews and his colleagues are excused. We thank them for attending. The next item on the agenda is managing talent, work-life balance, improving leadership development, becoming a learning organisation and measuring HR and employee performance, in respect of which we will be very efficient.

The joint committee went into private session at 10.57 a.m. and resumed in public session at 10.59 a.m.