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Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Thursday, 1 Jun 2017

Procurement Issues: Minister of State at the Department of Finance

I wish to bring to the Minister of State's attention the difficulties small and medium enterprises, SMEs, have regarding the procurement issue. I have received numerous complaints from those in the SME sector who find it extremely difficult to bear the cost of the whole procurement process and they also face stiff competition from companies that are much bigger than them. As a result of that many smaller companies throughout the regions are facing the possibility of losing staff due to having to downsize because they have lost a particular portion of Government business. In some cases where small businesses have concentrated on getting Government business, they will be put out of business because they failed in some way in the course of the procurement process. Can the Minister of State bring about appropriate changes in the legislation, or in how the procurement process works, to give some sort of local advantage to the SME sector, whether it be by increasing the threshold or giving some preference, by way of acknowledgement for the services that the sector has given over the years, on a particular tender where that tender is competitive so that those in the sector will not lose out in terms of turnover or performance to the bigger companies? This issue runs across the cleaning sector. I discussed it with those who provide Rentokil services and they had the same difficulty. I also discussed it with a drain cleaning services company in Carlow. What has been happening is that the bigger turnover of the bigger company was winning the contract and eventually, at a far reduced rate and without much margin, the original contractor was being asked to do the job by the larger company. There are shortcomings in the way we approach the whole procurement issue. I would like to see it addressed to give an advantage to the SME sector without the process losing out and with us still getting value for money.

This is a matter that the Chairman has consistently raised during the six years that I have been a Member of Dáil Éireann and for the three years I served on the Committee of Public Accounts, when he was Chairman of it, during which time we examined the issue in detail. Having now had responsibility for a year for the Office of Government Procurement, what we have been trying to do is to refocus the office in a few ways. Certainly, this item of reform in terms of the €12 billion plus that is spent annually by the Government on procuring goods and services involves a huge budget. We need to bring together our expertise into a central location and we need to bring transparency and accountability to the way that goods and services are being procured by Government.

That was a big piece of work that has been under way for a number of years. It happened at the beginning of the recession, and began in 2010. It led to the new office being set up in the past couple of years. The focus has always been on saving money for the taxpayer and delivering value for money. Now we are very much in a space of ensuring that in meeting those objectives we do not undermine the ability of Irish SMEs to win tenders for Government business while recognising that we are in a Single Market. Whenever we introduce a protocol or bring a regulation into effect we try to ensure we do it in a way that does not undermine Irish companies and does not open us to a legal challenge from other entities in Europe, for example. In that, the Single Market is of benefit to us because statistics show that Irish companies have won more in other European jurisdictions than other European companies have won in Ireland. We will discuss this matter a bit later.

In the next couple of weeks I shall announce a couple of initiatives around SMEs in particular. For the past year I have chaired quarterly meetings of our advisory group on small and medium-sized enterprises on which all of the main bodies are represented, including the Small Firms Association, the Construction Industry Federation and IBEC. We have tried to improve the process whereby an SME can tender with a view to reducing the red tape involved but also getting better understanding out into the market when the Government is about to go to tender. If a tender framework is about to be put in place then businesses in the industry will be notified. They will be asked to submit their views on the criteria to be applied and how they might work. A number of steps will be taken before a framework is opened up and put in place.

The Office of Government Procurement, OGP, has four regional locations and we have started to take the office into constituencies. Deputies and Senators are very much in contact with local businesses and small businesses. We invite them along to open seminars to explain what the OGP seeks to achieve and, likewise, they can give feedback on what we do. Whenever one reforms something and makes a change one must review to check whether one has achieved one's aim and made an impact or if the initiative needs to be reformed even further.

Who looks after those information days?

So far we have held them in Cork, Galway, Cavan and Dundalk, and Mayo and Sligo are next on our radar.

I invite the programme to Kilkenny.

Yes, I would love to go to Kilkenny. We give advance notice through the industry representative bodies who contact their members. We also contact every Senator and Deputy in Fine Gael. Sorry, we contact all of the parties. I beg the Chairman's pardon for my slip. We have been meeting for two hours and my slip up was unintentional. It was a joke.

The Minister of State could have included Fianna Fáil at least.

No, we are good.

If the Minister of State wants a Government in two weeks' time then he had better start running it by us.

The purpose was to use Oireachtas representative from every party or none because they are very well connected to small businesses, in particular, in every part of the country, and they have invited along their contact base. When we were in Cavan we had almost 40 companies in the room who had been invited by local political representatives. On that occasion we received excellent feedback from the companies on the problems they have experienced on issues like subcontracting, as has been mentioned. The information will feed into the reforms that we will bring about.

An increased threshold has been mentioned or the existing €25,000 on etenders of up to €50,000. The initiative has pros and cons. I have brought this matter to the SME advisory group for its consideration as to whether we should make the move.

Is it €50,000 elsewhere in the European Union?

It depends on how they have decided to set the threshold, which is a decision for each individual state. As we increase the threshold we will lose less transparency on what has been awarded. Again, this is public money. We will have less data, which I think is a con. The pro is that more Irish businesses will be successful in winning contracts.

One of the things that I really want to achieve, and a number of Deputies have raised this with me, is we want to make the market fairer. We have a situation where certain companies have sat on the same contract for many years and the contract has never been opened up to competition from local Irish companies in the region, which is unfair. We need to strike the right balance between transparency and fairness but do nothing that impacts on local SMEs winning Government business.

Let us say an SME wins a cleaning contract. The SME must meet certain regulations set down in the contract and separately in terms of health and safety. The SME must train its staff to a high level and then enters the tender process but the company that wins the tender takes all of the SME's staff. The SME will have spent money on training and committed itself to the tender. We must examine how an SME can win a greater number of contracts under a certain level, how they can maintain a contract for a period of two years, three years or whatever and give them an opportunity to get into that space and understand it better. SMEs have found, alongside all of the other complications within the tender process, there is the cost. Those that invest in the tender process tend to win the contracts. They may not be the best at doing the job but they are certainly the best at getting the job and that is a difficulty. I have seen too many SMEs, certainly within my own country but in my region, that have lost out not on price but on some other aspect of the tender process. There was value for money but the SME loses out because it has not reached a critical mass in terms of turnover, number of staff or whatever. One of the cases that I saw highlighted was the library service, some of the contracts have gone to the UK-based companies. Many countries in Europe are structured to ensure that companies are within general EU guidelines yet they are well able to look after their own SME sector and get value for money at the same time. That is what Ireland must do. I get the value for money aspect. There is no point in creating unemployment while achieving little value for money.

I have often heard businesses complain to me that we have placed too much emphasis on price and not enough on the quality of the service delivered. The Chairman has made the point that we do not place enough emphasis on price. We must strike a balance. Depending on what we are contracting for, the quality will have more of an impact than the price. With utilities one goes for price and the lowest cost of securing the utility.

It is all obstructionism.

It is all about the entry level for smaller companies as against the other ones.

I invite the Chairman and the committee to carry out a helpful exercise, and I know it is because I have done it myself. I suggest that they go through a tender process in the offices of the OGP. They can see what a business must go through to get into one of the frameworks. Members will see the different steps that must be taken. We are considering ways to simplify the process further, which is currently under discussion with the SME advisory group. The exercise will give members a good understanding of the different weighting that is applied, how it is applied when it comes to quality versus prices and the different ratios. Once a company has successfully finished an application for a framework, certain information is kept on the system so one does not have to input the information a second time.

The administrative and cost burdens to successfully tender for a contract have been highlighted to me at the roadshows. As the Chairman has pointed out, a company's strength may be in winning the tender rather than doing the business. What has also come back to me from recent engagements is the need for proper oversight after a contract has been awarded to ensure that it is implemented in the way that it was meant to be. That is another piece that is missing in terms of the scrutiny conducted by the Office of Government Procurement. Other parts of government are contracting out the service and the OGP is the professional body that ensures that happens in accordance with guidelines. We need to be confident that where a local authority contracts out a service, the service is met to the specifications that have been laid out. We need to get sight over that matter ourselves. I invite the Chairman and committee members to visit the OGP. The exercise will be very instructive and will help everyone to understand what an SME must go through.

I shall not labour this point. I have been through an awful lot of the forms and read the feedback given. In many of the forms that I have examined the price is competitive and right but then management structures are measured, for example. The management structure is flat in an SME. When I worked in an SME I swept the floor of the warehouse, drove the van, managed people and gave a good service. In this sphere, the hierarchical structure of management is examined but that does not exist in the SME sector because SMEs cannot afford it for the price.

I cannot speak about a particular tender process or where there might be a mini competition under way at the moment. It is difficult for me.

This is just-----

The weighting given to something such as management structure will depend on the competition. We have made improvements in terms of turnover. We have brought down the turnover that is required on a capital project. We have to be mindful the company has evidence it has the capacity to do the project. If the State was to engage the services of a company to do something and the company failed, the taxpayer loses the money and people will ask what checks were done to make sure the company had sufficient resources to do it. We have to find that balance.

I am glad we are discussing this item on procurement. It permeates a wide range of Government and local authority activities. It has all gone a bit crazy. I understand the challenges in implementing the EU directives but something has gone seriously wrong in their implementation. I will give the Minister of State some examples. The Cathaoirleach talked about the broader contracts, creating a level playing field, providing equal opportunity to the smaller companies and looking at the value rather than the price. The value in terms of employment and sustaining rural areas in particular is important. I am glad the Minister of State is coming to County Mayo. To confine it to those in Fine Gael would be a missed opportunity. We will discuss it in more detail then.

I will talk about a very small item. We met with Leader groups recently. An example is the purchase of biscuits for meetings. They have to go to three different shops, some of which might be 5 miles away. It is about the purchasing of things and purchasing power. It comes down to that and the rules that are set up around the purchase of items for local authorities, for example. They have to go with the lowest tender. It is not always necessary. The biscuits might be cheaper 5 miles away but it does not take into account what has to be spent on travelling the 5 miles. In terms of Brexit, an example is the delivery of employment supports where a procurement process has been gone through and contracts have been awarded to UK companies such as Seetec which is registered in Essex. It is just an example. I cannot see the value in taking functions away from local areas, which have already been delivered efficiently and effectively locally, just to fulfil an EU directive on procurement. That examination needs to be done. In terms of local authorities and the purchase of items and minimum values that come under the procurement process, somebody cannot just go into a local shop. We are talking about smaller businesses being able to compete and tender. The days of somebody being able to go into a local shop or business to purchase smaller items has been done away with. It is foolish and has a bearing on the economic viability of rural areas. It needs to be looked at. We need a wider session on this in terms of procurement. It will be interesting to see the information the Minister of State gathers from his consultations around the country to see how we can look at how the procurement process is mitigating against small and medium size businesses and retail businesses right across the board.

It would be helpful for the committee to make a site visit to the Office of Government Procurement. It is a complex technical issue across a whole range of Government areas, as the Senator has identified. It would be a good opportunity for the committee to really get into the detail of these different issues. The suggestion to only invite Fine Gael Members of the Oireachtas was a joke. It is a Government office. I have been clear in my engagements to say come one, come all.

Poor Paddy has been-----

Is the Minister of State referring to new Members?

I do not understand the question.

I hear all the time from small businesses about their impression we are gold-plating EU directives in Ireland and putting more in than we need to when we should not be. We absolutely have to understand the directives are there and where they can be helpful we should use them. In many instances, we have to use them but we should not be putting anything more onerous on businesses in terms of regulation than we have to. The less regulation, the better in many areas that small businesses are working in. They are small operations with flat management structures, as the Chairman pointed out, and the more regulation, red tape and costs they have, the more difficult it is for them to do business. We need to be careful we get the balance right.

On the Leader issue and the biscuits, if they were spending more than €5,000 on biscuits they would have to start looking for quotes elsewhere. I do not know what biscuits they are buying.

It is certainly a rule within the Leader purchasing rules.

The officials have been engaging-----

Three quotes are required if it is between €5,000 and €25,000. That can be done with a quick phone call. It sounds onerous but over time, it is not a small amount of money if it is being done regularly and across the country. We have to have some standards in place. The office is in touch with Leader about explaining exactly what we are trying to do.

Yes, perhaps it is throughout the year. After Brexit, will British companies be included in the procurement process?

It remains to be seen what Brexit will mean for the Single Market, what access the UK will have to it and on what terms. The Office of Government Procurement has been preparing for Brexit-related issues in terms of risks we may face. We might already be contracting something from the UK that is an essential service we do not have here. Is there a gap there where we will not be able to procure something all of a sudden or have to procure it on much more expensive terms? We are doing that work at the moment. There will potentially be significant opportunities if the UK no longer has access to the EU Single Market for procurement. The UK is winning a number of bids in other European countries so there might be space for Irish companies to fill that gap and win more business abroad which will be very helpful. The other potential risk involves Irish companies procuring or winning bids from the Government when their supply chain includes UK goods and services. It would depend on where the UK ends up vis-à-vis its access to the Single Market. The Office of Government Procurement is aware of these concerns. Part of the Government's approach to Brexit is preparing for the various outcomes that might arise.

Workers' rights and conditions in some of the companies that win tenders based on price need to be examined.

It is being examined. It was raised in our recent road show engagement in Cavan because it came up quite a lot there. We are looking at it but I thank the Senator for raising it.

I have a number of questions. Each local authority and the health board have their own procurement sections. Is the Minister of State trying to have a national procurement agency that covers the whole country or is he designing models for all of the other procurement agencies?

There is a framework in which the Office of Government Procurement works with four other areas of Government. They work to a common standard of professionalism and expertise in contracting out public services. Local authorities will put in place tender arrangements for certain goods and services but they will do it under the auspices of the Office of Government Procurement or in line with its direction. We recognise that certain parts of Government, for example the HSE, have a long built expertise they should retain. The Office of Government Procurement is the office that is overseeing the procurement function.

What is it called?

The Office of Government Procurement.

Do we have a number of local authorities that come together or does each local authority have its own procurement section? Will there be an amalgamation of local authorities with one procurement agency for a number of agencies?

It is a local government management agency with that responsibility and function for local authorities where they contract goods and services. They interact with the Office of Government Procurement on how that should be done.

Is it a national body?

I do not know if it is a statutory body. It is made up of representatives of the local authorities.

They interact with the Office of Government Procurement, OGP, on the frameworks to be put in place.

They are tenders.

Is it proposed to amalgamate local authority contracts for vans, bulldozers and so on into one national procurement process?

It depends on the framework that is put in place. For example, in regard to contracts for legal services for local authorities we might put a national framework in place but we might break it down into lots by region. Therefore, a local authority could contract from a person in the regional part of the framework. There are different ways of doing it. Much depends on the good or service being tendered.

Who designs the regions? Are they designed by the OGP or does a local authority sign up to a particular region?

A lot of engagement takes place before a framework for a tender is put in place by the OGP. It engages with the relevant contracting authorities taking on the service, be that a local council or the committee of local councils. It will also engage with industry, recognising that it might have a better understanding of the matter at hand, to see what might be possible under a framework agreement. There are a number of steps that take place before a framework goes live.

It is a very complicated process.

It is because of the types of legal challenges we have seen in the past, including one unsuccessful bidder taking a legal challenge against the successful bidder and, as a result, flood protection works are delayed for five years. We are trying to do as much work as possible upfront on the Government side, in terms of planning, such that when we put a framework in place it is not open to legal challenge and there can be no delays from that point. We are trying to ensure we get this right.

There will be many different frameworks, such that a local authority could be signed up to a Galway-Mayo-Clare framework in respect of some services and to a Mayo-Sligo-Donegal framework for other services. Is that correct?

It depends on the service and how it is broken down within a framework. What the Senator suggests is possible in theory but I do not know if that is happening now. The manner in which the framework can be designed would make that a possibility. A legal service might be broken down by region which might include three particular counties but another service, such as purchasing of vans, might not be broken down at all.

What is the reason for putting in place of all of these frameworks versus the local authority procurement process through which local authorities have up to now advertised for services? Is the purpose of the new frameworks to reduce the cost of services provided or to ensure greater transparency and so on?

There are few different factors involved. Cost is a driving factor in terms of leveraging the overall buying power of the State. We are seeking to drive down costs. Lower costs is one of the main drivers behind this process. This is also about putting in place particular standards to ensure procurement is happening in the right way and also to ensure transparency in that regard. Another reason for this is to remove unnecessary delays, such that once there is clarity on what needs to be done the process can go ahead without legal or other interference. Costs, leveraging the purchasing power of the State and achieving value for money are the main drivers behind this.

The local authorities have always had their own procurement sections. Following on from the introduction of this process, will those sections be closed and staff numbers reduced?

Yes, over time. Again, it is dependent on how much a local authority continues to do itself, recognising the thresholds that are in place in regard to reference to the OGP platform.

Is it the case that only the cost of service being supplied will be reduced and that staff numbers in the local authority procurement section will remain the same? The cost of the service might be reduced but there will be many layers and more staff, which means any savings will be lost.

No. I imagine there will be a reduction in staff over time. However, a local authority cannot let staff go so they will be re-allocated. There will still be a procurement function within a local authority. Local authorities will still be able to procure goods and services under certain thresholds, depending on whether they are capital works or goods.

Will the Office of Government Procurement be able to indicate if staff numbers have been reduced as a result of the putting in place of these frameworks?

I will check that for the Senator. In terms of how the framework works, the Office of Government Procurement will put the framework in place nationally but there might be many competitions run under the framework, in which case the procurement function of the local authority would be necessary. One could envisage that there would be a reallocation of staff from procurement sections in certain local authorities or Departments but I do not have any data in that regard.

The Chairman is right to raise this issue which has been ongoing now for a long time. It is more than 20 years since the contract for the entirety of the country's phone books was contracted out to a company in France and a fairly significant portion of the staff of the Smurfit organisation on the northside of Dublin were laid off. We later discovered that in other countries they do this by region, such that the contract for the 01 phone book forms one tender and the 02, 03 and so on are contracted for separately.

In terms of the Office of Government Procurement, it would be helpful for us to know more about it, perhaps by way of site visit or a report. There is procurement going on all over the State, involving State money. I welcome any measure which ensures we get better value for money or greater purchasing power as long as it does not lead to contracts being awarded to companies abroad and people in Ireland being laid off. Presumably, the OGP framework applies to all sectors, including the universities, schools, the HSE, local authorities and the Civil Service. I have been on the boards of State bodies where procurement above the thresholds, three tenders and so on took place. We need to have a better understanding of the overall operation of the Office of Government Procurement and how it permeates through the whole of Irish society, which is, perhaps, a discussion for another day.

This reform is still a work in progress. All of the frameworks are not yet in place. As of now, not everything comes under a framework but the intention is to move towards that being the case for everything and everyone. The recent public service spend and tendering analysis report 2014 gives an understanding of the frameworks that have been put in place and what savings it is hoped to achieve in that regard. That information is available. The report will give information but a site visit involving a run through of operations with senior staff is a good idea. Taking a look at live competitions that are under way, in terms of the use of tenders to improve everything, is also a good idea. If a site visit can be arranged, I would recommend it.

I will conclude with a few points relating to an article on business in which Mr. Peter Brennan, an expert in this area, references that SMEs winning tenders starts to decrease above the value of €60,000. He also references the loss of jobs as a result of an etendering process within a local area and makes the point that the Oireachtas has never carried out a critical review of the process and that the annual report on procurement has not been debated in the Houses.

In regard to levelling the tender playing field he makes six points, which appear to me to be simple enough. For example, he suggests that the powers of the regulator to separate procurement policy and operational guidelines be put on a statutory footing; that the SME sector and businesses generally be provided with assistance to help them understand the process and to conduct an appeal and understand the appeals system; and that companies that win contracts be supported and trained up by Enterprise Ireland, thus giving them an input into a broader market, although the thresholds then come into question, including as mentioned earlier the €25,000 versus €50,000 threshold. He also recommends that all multi-party framework agreements should be divided into lots, the value of the lots should be as small as is practical and routine contracts under €50,000 should not be procured by use of framework agreements.

Finally, all contracting authorities should be required to use a reusable self-declaration form in terms of the etender process. The steps to be taken to make it possible for SMEs to be in a position to win more of the €9 billion available are easy. I refer to the point made by Senator Horkan. The procurement process should be subject to a debate in the Dáil and such a debate would be very worthwhile.

I invited the Minister of State to Carlow and Kilkenny and I hope he will take up the offer because it is worthwhile to do roadshows. They are about information. Perhaps the section should consider making a presentation to the broader membership of the Dáil and Seanad, facilitated by the office of the Minister of State, in the audiovisual room.

We did that last year. I also met Opposition spokespersons in this area to give them a proper understanding of what was happening. We then had a briefing with Oireachtas Members. Following on from that, we started the roadshow. We can do another Oireachtas briefing. I am all for having a debate on this in the Dáil but it is a complicated area.

There are three Senators here.

I beg the Senator's pardon.

We set aside 15 minutes to touch on this issue today.

It is a significant area.

There is keen interest in it.

If we are going to have a debate, I would like to have the Oireachtas presentation first so that people are as informed as possible about what the Office of Government Procurement is actually doing. I have not read the article to which the Chairman referred, but the six or seven actions he read out are all being progressed by the Office of Government Procurement. We would love the opportunity to explain the situation, and that is what we are doing.

Perhaps the office of the Minister of State could encourage the Business Committee to take on that-----

It would probably be inappropriate for the Government to try to influence the Business Committee of the Dáil.

It influences everything else.

The Business Committee is close to my heart as an important reform and a separation of the Dáil from the Government.

I merely ask the Minister of State is to ask it to facilitate the debate because it is an important issue. I would not worry too much about interference because it is a positive interference. The Minister of State is very much to the fore in the article to which I referred. There is a lovely colour image of him. He is the man now but he may be destined for a higher position.

Alternatively, I may be sitting over there with some of my colleagues.

Whatever happens, I am sure the Minister of State will make a contribution.

The Chairman's point is taken. It is a good time for the Office of Government Procurement to engage with the Oireachtas.

It would be worthwhile. In general, SMEs feel they lack a spokesperson on this issue. They want to contribute and are anxious to build a base within communities, and do so at a competitive price. We should facilitate the debate and information sessions. It is something which of is of interest to both Houses.

Absolutely. We always find ourselves talking about foreign direct investment but SMEs are the backbone of the economy. They are net job creators and employ more people. We have to take care of them.

The joint committee adjourned at 12.45 p.m. until 4 p.m. on Wednesday, 13 June 2017.