I thank the committee for the invitation to attend this meeting.
It is important to note that the new structures for procurement are still at a very early stage. As chief procurement officer, CPO, I welcome this debate, and the advice and guidance that committees such as this can provide, as we start to make significant changes to how procurement is done in the State and the policy framework that underpins the processes involved. I understand the committee is interested, in particular, in the possible impacts of the new suite of procurement directives that were agreed by the EU Parliament and Council earlier this year. I welcome this opportunity to provide it with an update on the transposition process and the procurement reform programme currently under way across the public sector.
The procurement reform programme is an important element of the Government’s overall reform programme and is tasked with delivering increased value for money, more accurate and timely data and improvement in the capacity and capability of procurement across the public service. The State spends significant amounts of money on goods and services, with an estimated spend in 2014 of €8.5 billion. Of this, €5.8 billion was addressable by procurement. In addition, approximately €3.5 billion is spent by the State on capital works. This does not currently come within the scope of the operational reforms. A new model for procurement was approved by the Government in September 2012, with common goods and services to be procured by a new central sourcing organisation, the Office of Government Procurement, OGP, and with central sectoral sourcing organisations in health, education, local government and defence procuring sectoral-specific goods and services.
In January 2013, I took up my role as the State’s first chief procurement officer.
In consultation with the key State sectors, I developed a high-level implementation plan for the new model. This plan was approved by Government in April 2013. In addition to its operational procurement role, the Office of Government Procurement, OGP, also provides the national procurement policy function, customer support services, and systems for all the sourcing organisations, including electronic tendering systems, business intelligence and electronic catalogues, etc. The new structural arrangements for the OGP and the sector-sourcing organisations are currently being put in place. Staff are being recruited into the OGP largely from the public service, thereby concentrating and leveraging the public sector's procurement expertise. Similar processes are taking place in local government, education and health in order to create the centralised sourcing organisations in those sectors. Transition arrangements are being managed across these sourcing organisations to realign responsibilities. It is anticipated that completion of structural changes will take place in 2015. The OGP has met with most of its key customers, namely, Departments and agencies, to commence the process of transferring their pipeline of sourcing projects to the OGP and to the other sector-sourcing organisations.
The new model is underpinned by a common governance model. The arrangements include a procurement executive to bring together the sourcing organisations at an operational level to co-operate and collaborate; a steering group to oversee the transition to the new model; and an interim board chaired, by the Minister of State, Deputy Simon Harris, to provide strategic advice on procurement matters to the OGP and to the Minister for Public Expenditure and Reform.
Accountability for the legal compliance of the sourcing process will rest with the sourcing organisation that undertakes the tendering. The OGP does not have the resources or mandate to oversee or audit the actions of other sourcing organisations. The OGP relies upon the existing governance arrangements in place for those public bodies, including the offices of the Comptroller and Auditor General and the Local Government Audit Service, to provide such assurance. Budget responsibility remains with the public service bodies. The contractual arrangements put in place by the new sourcing organisations will help these bodies to remain compliant and to deliver value for money. Any savings arising from procurement remains with these bodies, enabling them operate within their budgets, to deal with increased demand or to deliver new projects or services. Value for money is defined by more than price alone; it also takes into account the quality of the goods or services provided, the management of risk, such as the financial stability of the service providers, and the contractual protections suppliers are providing to the State, such as the warranties they are providing and the risks they are bearing.
There continues to be wide-ranging data quoted regarding procurement spend. There are thousands of State bodies spending money, the larger of whom have IT systems for processing spend, the smaller of whom are probably using spreadsheets or even paper to record their spend information. The State previously had no mechanism for collecting detailed data on the amount of moneys spent across the public service on goods and services. It has not been possible to determine in detail how much is spent, with whom, on what, and at what price.
I will explain to the committee what OGP is doing to bring about better data on procurement. In autumn 2013, the OGP initiated a project to begin collecting the spend information from the larger sectors, namely, health, education, local government and justice, which account for over 80% of the State's spend on goods and services. The OGP has collected approximately €8.7 billion of the State's spend in one central repository. This is a total figure from 2011 to 2014. The project has moved on to a second phase which, when complete, will include central government. For the first time this will allow the OGP in the coming months to publish far more accurate estimates of spend.
The OGP is fully aware of the significant role that small and medium enterprises play in the economy and it is strongly committed to ensuring that SMEs are fully engaged with public sector procurement and the opportunities presenting. The office works with State and industry representative bodies in developing and implementing policy initiatives and in driving supplier education and awareness. In that regard, it is important to mention Circular 10/14 which was launched in April 2014 in order to further assist SMEs and which accelerates the delivery of certain measures in the new procurement Directive 2014/24/EC. The OGP has also delivered a number of improvements in Ireland's electronic tendering platform - e-tenders - including changes to registration and recording of awards for contracts in excess of €25,000.
As part of my submission to the committee, I have attached a report from the EU Commission entitled, SMEs' Access to Public Procurement Markets and Aggregation of Demand in the EU. The report, which was published in 2014, outlines the increasing drive towards centralised professional procurement and the administrative and competitive benefits arising. The report highlights the competitive nature of the Irish marketplace and the open nature of Irish public procurement in that context. The report - on page 71 - highlights measures which Governments can undertake to assist SMEs. Many of these have been implemented in Ireland.
I will speak about the legal framework for public procurement. The main purpose of the EU public procurement regime is to open up the market and to ensure the free movement of supplies, services and works within the EU. The legal framework for public procurement is drawn from the core Treaty of Rome principles, including openness, transparency, proportionality, non-discrimination and equal treatment. These principles shape the detailed rules governing the regime and as set out in the directives.
A new suite of public procurement directives was politically agreed under the Irish EU Presidency. The three new directives will govern general public procurement of goods, services and works, procurement in the utilities sector and new rules for concessions procurement. These new directives will repeal the existing rules governing the conduct of procurement across the EU but the overall framework of EU procurement remains intact. The implementing regulations will continue to uphold transparency in money outcomes for contracting authorities and entities.
The changes agreed in the directives are intended to help to make the public procurement process more efficient and to seek more simplified and flexible rules for the selection of suppliers in order to allow contracting authorities to carry out procurement in a more timely manner and with less red tape. In broader economic policy terms, the changes are intended to achieve better value-for-money outcomes for the taxpayer from public procurement; to facilitate greater SME participation in the public procurement market across Europe by improving access to public procurement opportunities; and to reinforce adherence to applicable obligations in the areas of environmental, social and labour law. It is important that in transposing EU rules into national law, contracting authorities and tenderers are not unduly burdened by requirements that increase their administrative overhead and bureaucratic load. The planned approach, therefore, is to avoid creating unnecessary legislative burdens on contracting authorities or in placing Irish economic operators - the suppliers - at a competitive disadvantage when compared with their EU neighbours. Where appropriate, contract conditions can be used in pursuance of policy objectives if related to the subject matter of the contract and if clearly set out in the tender documentation.
While most of the changes in the new directives are mandatory for Ireland and all member states to implement into national law, there is some limited policy latitude permitted to member states in transposing the new regime into national legislation. This office is exploring policy choices as part of the transposition process and has carried out internal consultation with key stakeholders and initiated a public consultation process. The public consultation on the new directives was launched on 31 October 2014 by the Minister of State, Deputy Simon Harris. Responses on the key policy questions posed in the document were required by 12 December 2014. Given the importance of public procurement, we received submissions across a broad spectrum of areas, including legal, SME, academic and industry representative bodies. This office is currently examining the submissions received and consideration will be given to the responses received when drafting the statutory instruments to implement the EU rules into national law.
