Joint Committee on Jobs, Enterprise and Innovation debate

Public Procurement Contracts: Discussion

Chairman

I remind members and those in the Visitors Gallery to ensure their mobile phones are switched off for the duration of the meeting as they interfere with the broadcasting equipment, even when left in silent mode.

I welcome Mr. John O'Brien and Mr. Dave O'Reilly from EMS Copiers, Mr. Michael O'Brien and Mr. Brendan Bannigan from The O'Brien Press, and Ms Mary Fallon and Mr. John McNamee from Alan Hanna's bookshop to discuss issues for small suppliers in seeking access to public procurement contracts and related matters.

By virtue of section 17(2)(i) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing ruling of the Chair to the effect that they 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.

I invite Mr. John O'Brien to make his presentation to the committee. I will then call on Mr. Michael O'Brien, followed by Ms Mary Fallon.

Mr. John O'Brien

If I may correct the Chairman slightly, Mr. Dave O'Reilly is a self-employed person. We have not subsumed him into EMS Copiers as of yet.

Mr. Michael O'Brien

Mr. Brendan Bannigan does not work for The O'Brien Press.

Mr. John O'Brien

I am grateful for the opportunity to make a presentation to the committee. While Mr. O'Reilly and I are representatives of the copiers and suppliers group, we believe the points we will be making apply generally to small businesses across the country which supply various types of equipment. The issues arising are not limited to the processes and procedures in which we participate. We represent a group of businesses based all around the country, including in Dundalk, Galway, Leitrim, Kilkenny, Tipperary, Cork and Dublin. The group formed in 2012 in response to the actions of the National Procurement Service, which we believed would have a severe impact on the people we employ, our own futures and the very survival of the businesses in which we are involved. As we felt we had to react to the position in which we found ourselves, we created the group and worked on the issue from there.

The Office of Government Procurement defines an SME as a company with 250 or fewer employees and a turnover of not more than €50 million. It is our sincerely held belief that this definition is not appropriate in an Irish context. The Central Statistics Office defines micro-companies as employing up to ten staff, small companies as employing between ten and 49 staff and medium companies as employing between 50 and 250 staff. Based on that definition, SMEs employ nearly seven out of every ten people who participate in the Irish workforce. A total of 90.8% of SMEs are micro-companies, employing 27% of the workforce. A further 7% of SMEs are small businesses, employing 22% of the workforce. Thus, 49% of the total workforce in this State are employed in companies with fewer than 15 employees. A total of 1.3% of SMEs are in the final segment of companies with 50 to 250 employees, which, as I noted earlier, I do not regard as appropriate or relevant to the definition of an SME. Companies in this category none the less employ a significant proportion of the workforce, at 19%.

We want to know why micro and small SMEs are being excluded from tendering for public procurement contracts, even at a local level. I will use Mr. O'Reilly as an example in Cork to explain what this means in practice. Even though he has serviced the needs of a small national school for 20 years while providing a level of service and good value to his client over the period, because of the actions of the Office of Government Procurement he will be excluded from even offering a proposal. It is not a question of being unable to compete; he is not allowed to compete. We argue that this is due to a slavish adherence to the concept of aggregation and centralisation. Aggregation is to do with how the Office of Government Procurement has taken responsibility for the requirements of the State, as it sees them, in specific sectors. This does not affect copiers exclusively because, as I noted earlier, it also has an impact on other businesses.

I have seen RFTs that relate to janitorial services, ICT consumables, paper and stationery, motor vehicles, etc., and the same rules apply. By aggregating the needs of the State, it artificially inflates the requirements of smaller individual organisations that might well be subject to this tendering process. A tender would be placed on the European e-tenders website and as a result of inflating the size of various contracts, a series of pre-qualification criteria would be applied. In effect, 97.8% of all businesses in the State are excluded from even responding to a request for tenders in the first place. If one is going to aggregate all of the State's requirements, one should centralise the procurement processes in order that all of the purchasing will be by a specific source, but that is not the case. Do one or the other, but one cannot have one's cake and eat it.

In its new persona of being SME-friendly which involved a series of statements and circulars issued earlier this year the Office of Government Procurement has maintained that small businesses should create consortia. At a previous meeting of the committee, attended by me and Mr. David O'Reilly, we were clearly advised by a representative of the Competition Authority that for us to sit in the room and discuss the equipment we supplied in terms of price or location would not only be a breach of common law but also a breach of criminal law. Therefore, we would be colluding on price, which is called creating a cartel. At that very meeting we also asked both the representative of the Competition Authority and a representative of the Office of Government Procurement to define how we could legally create a consortium that would enable us to respond to tenders, but we did not receive a reply. In our belief, there is no such thing. As we understand it, there is a precedent in respect of companies that have been brought to court. They ran the risk of incurring heavy fines and terms of imprisonment; therefore, it is not something we are taking lightly.

I have one more point that links with the next slide, of which the Office of Government Procurement is totally aware. If one reads any request for tenders that it issues, it may make reference to consortia. Ultimately, however, what has to be clearly identified in a request for tenders is a main contractor and subcontractors. My next slide refers to the potential impact this has on my business and similar businesses that have to act in that way. The point I am clearly making is that acting as a subcontractor to a main contractor does not constitute acting as an equal partner in a consortium. In fact, it is quite the opposite. As a subcontractor, my turnover would be decimated or reduced significantly. The main contractor would have to employ front-office staff to receive calls and need to employ back-office staff to fill orders. In addition, they would need to have collection staff to obtain money, bill for and take care of everything. I would simply take instructions from the main contractor to undertake specific jobs for which I would be paid a set fee.

The upshot of taking the main contractor-subcontractor route being put forward is that it would be called a consortium, which clearly it is not. The main contractor, that typically would be outside the State, would have to increase in size and employ my staff to meet the demands of the tenders secured. As a direct response, the size of the subcontractor would have to contract, dropping jobs to reduce the number of employees. Turnover would also be significantly reduced and, in turn, profits would be reduced.

At a previous meeting of the committee, a representative of the Competition Authority was clearly asked what a SME could do to survive in this environment. His comment was: "You have got to consolidate." When I asked him what he meant by this, he said: "You have got to merge with the people you deal with. You have got to create a brand new organisation that has no links to previous ones."

In his view an acquired merge or to acquire a third party was the only way we could legally advance the process outside of the main contractor-subcontractor route that I have just identified that we found so inappropriate.

Our group has incurred legal fees of €206,000 to date in undertaking a judicial review of the actions of the Office of Government Procurement. We are small businesses. We did not undertake that process lightly. We want to clearly flag it was an act of last resort. We had no choice given the processes and procedures we saw in front of us, other than trying to protect ourselves in that manner. I am not going to comment on the individual vagaries of the case but simply refer to it. That is what we have had to spend to date. I can only imagine what the State had to spend in the process and yet from our simple perception, small businesses are basically being ignored as part of this overall process.

What do small businesses need? We are a copiers suppliers group but could just as easily be a group of stationers, janitors or supplies companies, ICT consumer supplies, paper suppliers, all of which have been impacted by various requests for tenders that have been issued by the State in the past. What we need is a level playing field. All we want is an opportunity to quote for local business.

Mr. David O'Reilly would like the opportunity to retain the business he has which he has nurtured and looked after for the previous 20 years to gain additional business with the local companies and schools or State offices in his area. I simply ask that we be given an opportunity to tender. By all means, the State should do whatever it can to ensure it secures best value; that includes benchmarking price. At the end of the day small businesses have to compete. We compete with the larger businesses on a daily basis and we do that by offering value, price and quality of service so it is not as if the two processes can be mutually exclusive. Our clear requirement is for a level playing field, removal of artificial pre-qualification criteria, an opportunity to tender for local contracts and an inclusive approach. I wish to state clearly that we support the Office of Government Procurement in its attempts to secure best possible value for the State but that cannot be at the expense of closures of hundreds of small businesses, which is what we firmly believe is at stake, and the subsequent loss of thousands of jobs. That is before one considers any potential loss of further revenue to the State in respect of main contractors being outside the State.

Chairman

I thank Mr. John O'Brien and invite Mr. Michael O'Brien to make his presentation.

Mr. Michael O'Brien

My presentation will be a little more political. The O'Brien Press was founded 40 years ago. We are the biggest independent publisher, but that does not mean we are big; we are quite small. We have 700 titles in print, we employ 20 people and we create quite a lot of spin-off jobs among writers, artists, designers, editors, distributors and booksellers. I am also the vice president of Publishing Ireland, which is our publishing organisation.

I will preface what I have to say by noting that the current Government had a terrible job to do after the country was totally ruined by the previous Administration. A lot of very difficult decisions had to be made, and some of the things it did were admirable. One thing that came out of the Government's policy is the main thing they keep talking about, which is creating more jobs - jobs, jobs, jobs. It is in that context I make my presentation. The big disaster with regard to the proposal for a national library consortium for tendering is that the Government has now created a scheme to destroy jobs. This was never contemplated and it is very shameful. It sounds like a good idea - a national procurement policy for the whole State - but in fact, it was not thought out. I even began to wonder where the idea came from. Was it a secret deal with the troika? Where did the idea come from, an idea that runs counter to the Government policy of creating jobs?

Here are the negatives. First, it completely undermines local democracy. Where are the county councils, which are elected to look after their areas? County librarians did not ask for this and, having spoken to some of them, I know they were not properly consulted. The approach being taken is destroying local community bookshops, which are important to communities both culturally and economically. One example is Hanna's, a fifth generation bookshop in my area. The scheme has damaged book publishers such as The O'Brien Press, but it will also damage the writers, artists, distributors and printers downstream. That is the chain effect of this type of action.

The system has been designed perfectly for two very large British conglomerates, Bertram Books and Gardners, which are library suppliers. To give members some background information, before the British Government adopted a national procurement policy-----

Chairman

I ask Mr. O'Brien not to use names.

Mr. Michael O'Brien

Okay. Before the British adopted a national procurement policy similar to that which has been proposed here, there were 652 local library suppliers in the United Kingdom. Now there are two; I inadvertently mentioned their names. As friend of mine said, first we were colonised by the English, then we were colonised by Rome, then we were colonised by the banks and now we are slaves to a non-existent European Union policy. The reason say we are slaves to a non-existent European policy is this. I had the good fortune to meet the Minister of State, Deputy Jimmy Deenihan, when he was Minister for Arts, Heritage and the Gaeltacht and both he and the President were in London. We had a little meeting and I explained this issue in some detail. The first thing he said was that it must be the result of European Union policy. This is a default position. I told him he was completely wrong. In fact, the policy in most European Union member states is exactly the opposite of what is being proposed here. When it comes to national procurement in the European Union, outsourcing to other countries is a small proportion of the overall total. For example, the outsourcing of services from Germany to Sweden, amounts to 2% of public procurement. In Ireland, however, the figure is 28%. That is a massive drain on the economy, amounting to billions of euro. The Government's policy is shooting own goals, and it must stop now.

Elsewhere in Europe, books fall under cultural policy. A former Minister for Culture and Communications in France described culture in the following terms:

Culture is a formidable factor of growth, generating direct economic benefits that are infinitely superior to any investment mobilised. Culture must be viewed as an important tool for economic development. Culture is also a powerful factor in economic success.

In Ireland we do not look at culture in that way at all. We look at it as something for which we give very small handouts. We do not appreciate what we have. Almost all of the 27 EU member states have an integrated cultural policy. For example, many have fixed prices for books, by law, and local library procurement, sometimes within cities. This means, for example, that in a city the size of Cork local procurement to the library would be from a supplier based in the city. Elsewhere in Europe, books, tourism, information technology, arts, libraries, theatre, film and music are all stitched into one integrated cultural policy, creating millions of jobs and generating millions of euro for the economy. We must learn from other countries. The first Minister for culture in Europe was appointed in the 1880s in France, a country that is light years ahead of Ireland. The French know how to do it. We must abandon the brutal American and British race-to-the-bottom, winner-takes-all economic policies that we are mirroring. Other countries in Europe play smart and are highly effective in protecting their economies.

We must make culture an economic force. The annual budget of the Department of Arts, Heritage and the Gaeltacht is less than one day's expenditure in the Department of Education and Skills and is probably equivalent to about one hour's expenditure in the Department of Health. The Arts Council should receive an annual budget of €100 million, because the amount of spin-off jobs created would be way out of proportion to this. In other words, we would get more jobs for our money. Culture Ireland, which receives a budget of €3 million, should be given a budget of €20 million.

Another thing that really affects me as a publisher, because I publish writers, is the Government's decision to name two warships after James Joyce and Samuel Beckett. These are people who were drummed out of this country and could not live here. Lots of writers' works were banned. The hypocrisy of that compared to cultural policy is just mind-blowing. We should scrap the national procurement policy for libraries before it scraps us.

I feel a sense of shame for my country. I am a patriot, but I really do feel a sense of shame. Where are the strategic long-term policies from any Government, including this Government? We help generate wealth, and politicians spend it. It is important to remember that. There are very few businesspeople in the Dáil or the Seanad. Senator Feargal Quinn is an outstanding example, but they are a small minority.

Chairman

Can I remind Mr. O'Brien that we are here to discuss access to public procurement contracts for small suppliers and that we should remain within that remit?

Mr. Michael O'Brien

As we celebrate the 100th anniversary of 1916, I would not like to think that the proposed procurement policy will be implemented. Many of the 1916 leaders were writers and intellectuals. They did not die for this kind of stuff.

Chairman

I call on Ms Mary Fallon to make her opening statement.

Ms Mary Fallon

My contribution will be very short as Mr. O’Brien has discussed the book side of the industry. I am from Alan Hanna’s bookshop in Rathmines and my children are the fourth generation of a long-established bookselling family in Dublin. In this time, we have provided many local jobs and contributed substantially to the local economy through wages, rates, taxes, etc. I live in fear of this small business closing only on account of public procurement. We have been library suppliers for nearly 40 years and under tender to Dublin city libraries since 2000.

In 2012, all the Dublin local authorities - Dún Laoghaire-Rathdown, Fingal, Dublin City and South Dublin - put the library book supply out to tender. Dún Laoghaire-Rathdown County Council awarded €595,000 of the total €800,000 to a British company. In effect, this exported at least six jobs as the Booksellers Association of Great Britain and Ireland reckons €100,000 in book spend is equal to 1.5 jobs. Greene’s bookshop closed on account of this procurement tender going to Britain, with the loss of six jobs. The Collins bookshop in Cork also closed completely with four jobs lost. I lost 1.5 jobs. The girl who remains in my shop lives in south County Dublin and gets €100 a week in subsidised wages. If I had got a bit of that contract, she would be working a five-day week. Where is the saving to the Government? When I speak to politicians about this, they tell me it is not their place and I need to write to the Office of Public Procurement. When I do, it informs me it is all down to EU legislation, which it is not. The EU legislation on procurement states cultural and social policies may be taken into account when dealing with contracts.

Dublin City Council recently tendered its library contract. I have been supplying Irish-published books to Dublin City Council since I was a teenager. I lost the contract, however. No one has the experience I have in this area. One might think the library sends us an order and we send out a box of books. This is not how it happens. I source the books by trawling newspapers, periodicals, television and the Internet for small publications from the poet who walks in from the street to every other publisher. This tender had 65% for marks on price alone with only 35% on service. Service is a significant job in supplying books. We source the books and then the library makes a choice from the list we compile.

They do not make the choice of books and order them; we do. We cover the books with laminate and security-tag, stamp and label them as part of the service provided. Next year I will lose at least one further job and nobody cares. I have a girl who has been working with me for 35 years. What do I say to her - that the Government does not care? We could take the Scottish route, where they take into account local people. The Scottish Act provides that an authority has a duty to act with a view to securing improvements for the economic, social and environmental wellbeing of the authority's area. We could adopt the French approach whereby they purchase their books within a 30 km radius. Why do we have to go to a national consortium when it knocks every one of us out of the supply chain? I am passionate about this issue as I am going to lose this business.

Mr. John McNamee

Let me cite in part a memo which was recently created and ratified by the committee of the Booksellers Association of the United Kingdom and Ireland and submitted to the UK Government's review:

[T]here needs to be genuine competitive tendering and the avoidance of monopolies. We therefore do not support a single central buying authority acting on behalf of all libraries. A range of options and alternative sources of supply should be available to local authorities in order to create healthy competition for the contracts to supply.

This will include the creation and maintenance of jobs on a local basis throughout.

Our industry is built on knowledge. Like libraries, most bookshops are curators of our culture and locality. I trade in Portlaoise, in the Chairman's constituency, and we produce local books which would not be produced by large companies such as O'Brien Press. They are very important. It is also very important to have a stage from which to present them to local communities. Bookshops are as important in their local communities as libraries. We work hand in hand with librarians to ensure the community has access to this material and are creating jobs all of the time.

I am astounded that our colleagues in the copier and print supply sector had to spend €206,000 to prove that Irish jobs were important and should be maintained. It is an insult to the citizens of the State that we must take this legal route. It is very hurtful. We must bear in mind that in the tendering process I, as a company director, have an obligation to trade responsibly, not recklessly. If we go to the bottom dollar to win these contracts, it will make our trading capability unsustainable. Local authorities depend on businesses such as mine to fund them. We could be cutting off our noses to spite our faces. I feel passionately about the matter also.

Mr. Dave O'Reilly

To respond to Mr. McNamee's comment, I note that we had to proceed with a legal action because we felt we had no other route to take. There is no such thing as an ombudsman or an appeals process. If one finds something wrong in the way the tender is set out, that is simply the way it is. We had no other option. If one looks at the food industry, there is no Irish food supplier supplying the Defence Forces, the HSE or the Irish Prison Service. They are all supplied from outside the State. In the Chair's constituency the cash and carry in Tullamore which was 150 years old had to close as it could not tender for any business and 30 jobs were lost.

We looked at all these things and said we could not let this happen to our business. That is why we took this very expensive route. We did not want to do that. We brought up the matter of the way with which VAT is dealt with the Office of Government Procurement. The officials there said it is none of their concern.

People do not understand that a lot of the VAT is being returned to Her Majesty's exchequer because under the VAT rules, if the turnover is less than €41,000 per annum, the VAT must be returned to the jurisdiction in which the invoice was raised. They may make a 10% saving on purchasing that item from a UK supplier or somewhere else, but there is a 23% loss to the State as well as the jobs that are lost. The pork products in our hospitals come from Spain. Our pig farmers are on their knees and we are buying from Spain. It makes absolutely no sense.

They are aggregating contracts together and the OGP is saying it is helping SMEs by breaking the contracts into lots. I will give a classic example of how a lot would be broken up. A stationery supplier supplies stationery, toners and inks and copier paper. The OGP decided to break this into three separate lots: paper for the entire country; toners and ink for the entire country; and stationery items for the whole country. One of its stated aims was to reduce the administrative burden on the State, but the burden has been tripled. Instead of having one supplier there are now three. As they are for the entire State, each of these lots is now so big that they all breach the €125,000 limit. This pushes them into the Official Journal of the European Union, meaning that tendering must also be open to companies outside the State.

The people who are purchasing this stuff are not working from one common budget. Cork County Council still purchases out of its budget, as does Laois, but they are aggregated together as if they were one. That is how they are claiming to break it into lots in order for the SMEs to compete. It is untrue. It is just pacifying us; a way that they can come in here in a minute and say them have broken it into lots. The way they do this is ridiculous.

Chairman

I wanted to move to questions and answers but Mr. Bannigan is signalling.

Mr. Brendan Bannigan

Very quickly, there is a disconnect between procurement and the results of procurement. I am a book supplier and started selling books in one of Senator Quinn's shops. We do not need to imagine what is going to happen in library supply with tendering; it has already happened in the UK. As Mr. O'Brien mentioned, all the small suppliers are completely gone. Over the same ten-year period, although I cannot make an absolute connect between these, issues from libraries in the UK decreased by 75%.

Libraries in the UK are in crisis and are closing. The Irish libraries are vibrant. Their issues are increasing year by year. They are getting great service from local suppliers. I am a full-time library supplier and I employ people just to do library supply. The libraries, by definition, are services, delivering a service to the community. Just to purchase books on price alone - and we have tenders here where the criteria demanded 100% on price with nothing for service - is anathema to libraries. We have seen what happened in the UK, we know what is going to happen here. We are all going to go out of business and eventually libraries will go out of business too, if we follow the UK course. We are too small a country, our companies are too small and it is perverse to bring in a Government policy that discriminates against local suppliers. That is not just me saying that; it was stated in a Chambers Ireland press release on the Dún Laoghaire tender for book supply this year. They said that Dún Laoghaire-Rathdown was discriminating against local suppliers in issuing that tender and that was perverse and should not be allowed to happen. I call on the members to do something about it, to make sure something happens and that we get a result out of this meeting. I hope we are not just creating a report here that will go on a shelf while nothing happens.

Chairman

No problem at all.

Mr. John O'Brien

I can only speak in terms of our own individual group and in relation to our own industry. By our calculations, our group represents approximately 150 employees in total. We then add some of our individual businesses; for them, 50% to 60% of their business is predicated on securing local contracts with small schools, the local VEC or the local secondary school.

The industry as a whole would employ approximately 3,000 people nationally. We do not want to restrict it purely to the copier suppliers. For every batch of 3,000 people involved in copier supplies, there are 3,000 people in stationery, ICT consumables and so forth. Tens of thousands of jobs are at risk.

Chairman

I now call Deputy Kyne.

Deputy Seán Kyne

I welcome the groups here today. I appreciate the sincerity and the concern that they have expressed. A number of groups have contacted me, particularly art suppliers about schools. I represent Galway West so I do not think I was contacted regarding the particular concerns expressed. That is not to say that the speakers were not engaged with other people regarding them. I raised an issue with the Minister for Public Expenditure and Reform, Deputy Howlin, in the Dáil last June. The question related to the setting up of the office of public procurement and the measures taken to maximise the participation in the procurement process of small and medium-sized enterprises, SMEs. There were a number of points raised by him and I ask the groups to comment on them. The Minister spoke of circular 10 of 2014 launched in April setting out the new initiatives regarding procurement and the new guidelines aimed at reducing the burden of cost. He said the new circular has been broadly welcomed by the industry representatives on the SME working group, which includes ISME, IBEC, the Small Firms Association, Chambers Ireland, and the Department of Jobs, Enterprise and Innovation .

When I questioned him regarding the savings and so forth, he stated that less than 5% of the overall public procurement spend is now won by foreign companies. In excess of 95% of public procurement in Ireland is won by Irish companies, 75% of which are SMEs. That was the figure for 2013 up from 60% in 2012. The Minister said that whatever we are doing, we are moving in the right direction. That is at odds with what the groups are saying. I appreciate they have real examples of real job losses and the effect on their industry. Taking that as the overall scene and those figures - presumably those are the actual figures; the Minister has put them on the record in the Dáil - the Minister is saying the situation is good, we are moving in the right direction and that this is fine. Could the groups comment on those figures?

Mr. Dave O'Reilly

The figures that were given to the Deputy are at odds with the figures given to us in the High-Level Group on Business Regulation from the Office of Government Procurement. It said that the figure was 15%. However, it qualifies that by saying 15% was lost to the island of Ireland. One of the members at the meeting went berserk. He wondered when we annexed the North and asked what is the figure for the State. The figure for the State was 27%. The Office of Government Procurement is saying 27%. The Minister is saying something different. Somebody is wrong. I do not know who is wrong.

The next thing I wish to mention is the lovely circular, the replacement for circular 10 of 2010. However, the Minister forgot to mention the publication of another circular, circular 16 of 2013. This threatens public sector bodies, if they do not comply with its terms, with an audit from the Comptroller and Auditor General. No public sector body wants to draw this down on itself; it makes the decision that it is easier to go with it. There are two circulars. One saying all the right things, which the Minister can show to the Deputy. One saying the opposite, which is applied to us. We must have consistency. If two circulars are going to be published, tell everyone about them. People in public sector bodies are doing their jobs; they do not want to be drawing trouble down on top of themselves. The most ironic thing about the whole situation is that when the Comptroller and Auditor General went to get a managed print service, a decision was taken not to use the framework produced by the Office of Government Procurement. That speaks volumes. The people who are policing it say it is bad. However, everyone else is forced to use it.

Mr. Brendan Bannigan

I wish to refer to Circular 10/14 which came out this year. One issue - and this is also relevant in Chambers Ireland - concerns the library contract that was issued this year. It issued after the circular was published. Circular 10/14 was completely ignored. That was one of the issues raised by Chambers Ireland in a press statement on that contract. It said that while the document was very welcome, it was being completely ignored.

Chairman

Does Deputy Kyne wish to come back in?

Deputy Seán Kyne

I do.

Mr. John O'Brien

The Deputy has been quoting statistics.

Deputy Seán Kyne

I have been quoting the figures given to me in the Dáil by the Minister.

Mr. John O'Brien

I will provide some examples of where projected figures and actual outcomes varied significantly. We were involved in one tender where the overall value of the contract was deemed to be €100 million over two years, and it was the value of the contract that determined what the pre-qualification criteria would be in order for companies to have the right to tender in the first place. The actual value of the contract over two years was €16 million. I smile when I hear someone quote statistics without having the matrices in place to be able to arrive at the various statistics and ensure they are accurate.

Mr. O'Reilly referred to circular 16/13, which pays lip service to small suppliers. It projects concern for small and medium enterprises but makes constant reference to the creation of consortiums which, based on the advice we have been given, one cannot legally undertake. The representative from the Competition Authority, who is referred to in the minutes of the previous committee meeting, clearly stated that if a company wishes to respond to these consortiums it should buy another company, merge with a another company or be bought, but that it should not talk to another company that is a separate entity because that would be breaking the law.

Deputy Seán Kyne

Deputy Anthony Lawlor

This has been a bugbear of mine for a long time. Around €8.5 billion is spent on Government procurement on an annual basis. I would like to keep virtually all of the money within the State. I had many rows with the previous Minister of State at the Department of Public Expenditure and Reform, Brian Hayes, on this issue. I have some questions.

Chairman

I ask people to check their phones. I can hear interference. I apologise for the interruption.

Deputy Anthony Lawlor

Most procurement is done through eTenders. I have read the eTenders document. Does the delegation think eTenders documents are simple if one is able to pre-qualify for them? I found them very confusing.

Do we need to work on that issue? I am considering it from an overall perspective.

Deputy Anthony Lawlor asked how we could get away from aggregation and still show value for money.

If Cork County Council is purchasing equipment, it goes to tender in its local area and everybody will compete. If one allows aggregation, it is only those who pre-qualify who can tender. In certain situations there are five or seven, of whom only four might be interested. Therefore, one has only four instead of 24 competing for the business. In recent contracts there was central purchasing, but it failed to engage in a due diligence process in the case of existing equipment within the department. Currently, there are machines in councils, on which there are four years left to run on leases, and another batch of machines have been purchased centrally and they are trying to negotiate their way out of the first set of leases. They can say to members that they can show better value for money, but they forget to tell them about the second circular, Circular 16/13, and what is actually happening. They also forget to tell them that in the case of the last stationery contract awarded, there were 250 core items at ridiculously low prices and of ridiculously low quality. If one stepped one inch away from these 250 core items, one paid through the nose for them. If a lever arch file was black, it was bought at an extremely good price, but if it was blue, one paid six times more. A fortune was made out of it. There was a company in the United Kingdom which did not receive the contract but which referred to this country as Treasure Island.

Senator Feargal Quinn

I am reminded of an experience we had in Superquinn where central buying took place for all goods for resale, but we did not have central buying for things such as first aid equipment, items for desks and so on. We decided to centralise that process and I could not get over the huge difference in price as against when we bought locally. We had 22 branches and our own managers said: "But they give us great service." However, there was a gap in price of something like 72%. As we were having to pay out a huge amount, I can understand the Government stating we must do something to ensure procurement takes place as part of some rational wing.

I refer to the points made. There is an onus on us to do something about it. Scotland was instanced. I thought it was fascinating to hear that it was not just about price but other things also. A 60 mile or a 60 km gap was mentioned, as was the gap in Northern Ireland. It has a different policy and takes other things into account. The delegates have a job to do, which they have done today. We also have a job to do, which is to sell to the people of Ireland that it is not just about price, that there are other benefits also. This was mentioned and I hope it is not the first step but that we are a long way along the line in being able to make and win the case.

Ms Mary Fallon

That is very difficult when there is procurement and the tender is based 100% on price and goes to a company in Britain. This happened in the case of one of the tenders offered last Christmas. It went to a company in Britain, but it decided that it would not fill part of the tender. It went into the bin.

Mr. John McNamee

The business was gone in the sense that it could not be invoiced in the same way Irish companies had been invoicing and servicing the books. Some €70,000 was lost through the Irish Prison Service in the procurement of books.

Mr. Brendan Bannigan

On achieving value for money, I will give members a concrete example. In 2012 the library contract went to a company in the United Kingdom. By my estimate, the winning tender was perhaps 5% or 6% cheaper than mine. All of the jobs were lost to the United Kingdom for a figure of about 5%, a small percentage. We are not talking about double digit figures.

That is a real example. There is a duty on the procurement officer in Scotland to demonstrate a benefit to the local community. It can be seen in construction contracts and everything else in Scotland. We must bring that in here, so that it is enshrined in law.

Chairman

I thank all the witnesses for attending today to engage with the committee. We sincerely appreciate it. It has been a tremendous help to us. The difficulties they are experiencing are clear and I appreciate them coming in to share that with us. It will certainly help to inform the report that we will produce afterwards, to which they will have access and of which they will receive individual copies.

Sitting suspended at 3.20 p.m. and resumed at 3.25 p.m.

Chairman

I remind members and those in the Visitors' Gallery to ensure their mobile phones are switched off for the duration of this meeting as they interfere with the broadcasting equipment, even when left in silent mode.

I welcome Dr. Paul Davis, business department, DCU; Mr. Aidan Sweeney and Mr. Fergal O'Brien from IBEC; and Mr. Paul Quinn and Mr. Vincent Campbell, Office of Government Procurement, to discuss issues for small suppliers in seeking access to public procurement contracts and related matters.

I call Dr. Davis to make his presentation. I will then call Mr. Sweeney who will be followed by Mr. Quinn.

Dr. Paul Davis

Procurement in the public sector is often seen as a very traditional tendering role. In terms of the set of activities in place in it, it can contribute significantly more than just the tender; it is a wider process. What we see in the public sector is a lack of the use of the full range of the procurement process. In many cases of procurement in the public sector, engagement with suppliers through pre-market engagement or through ongoing contract evaluation does not take place.

In the past three to four years the Irish public sector has formally moved to a more centralised approach for procurement, yet research throughout Europe and elsewhere has shown that centralised state procurement can lead to a stifling of innovation and a reduction of competition and certainly does not allow for local needs and the increased participation of SMEs.

The general approach of Irish public procurement is to deal with the tactical issues of price and delivery and forgo the investment in strategic activities. There is some evidence of a cross-over between the jobs strategy and public procurement, but in other areas we are not seeing as much of a cross-over on policy into public procurement as we should.

In a recent review carried out for Enterprise Ireland I noted that there had been no follow up on policy implementation from 2009, where we had procurement of innovation. No key performance indicators had been put in place once that policy had been brought forward and there had been no monitoring of the policy over a five year period. Fve years later, we have no results of a positive or negative impact which we could measure coming from that policy being implemented. That is consistent with the public procurement policy we see.

In the programme for public sector reform, published in January 2014, there is less than one paragraph in four pages of text on public procurement that refers to SME participation. In that paragraph it is stated the Office of Government Procurement will only address policy which, to date, seems to have been Circular 10/14, with very little evidence that other policies will be addressed. It looks like the Office of Government Procurement has succeeded in ticking the box for policy implementation on a procurement plan that runs for two years.

The following are recommendations I have made to Enterprise Ireland and others over a number of years.

All future policies aimed at suppliers should be mindful of the significant differences within the SME sector. In a survey carried out by DCU over three years ago for the Office of Government Procurement and the national procurement service it emerged that 50% of companies competing for public sector contracts were micro enterprises. However, they do not form part of any policy we have seen to date. The State refers to small and medium-sized enterprises but not to micro enterprises in this regard. These are enterprises with between one and nine employees.

Clear key performance indicators for SME participation should be set for all public procurers. To date, no key performance indicators are used in any public sector body for the level of participation of SMEs or indicating what the level of participation of SMEs should be. Even if they were put in place, there is no contract monitoring to ensure they would be met.

Clarity needs to be provided from a Government perspective on the intended outcome of a policy when a public procurement process is being put in place. It is not always clear how public procurement supports policy objectives, in respect of which it should be upfront.

The Office of Government Procurement should set out clear rules and roles as to how collaborations might occur. I understand some progress has been made in this area with the Competition Authority but question marks remain over how small companies can form consortia and bid. Training on the issues such as consortium-building should also be provided. Certainly, procurers should be required to set targets related to market intelligence and gathering data at the outset of each procurement depending the size of the market, the level of participation by micro-enterprises and what needs to be done.

Chairman

We will move on to the presentation to be made by IBEC.

Mr. Fergal O'Brien

I thank the Chairman and the joint committee for the invitation. I will offer a brief introduction and then ask my colleague, Mr. Aidan Sweeney, an IBEC specialist in this area, to talk members through some of the detailed content.

IBEC has 7,500 members in business throughout all sectors of the economy. Within it there are 60 trade associations, many of which have a keen interest in the area of public procurement. The issues relevant to small business and SMEs are addressed extensively throughout the IBEC network. In particular, the Small Firms Association is part of the IBEC family. Given our direct membership interests, there is considerable interest in procurement which represents a significant sector of the economy.

Our priorities for public policy include supporting investment in the economy, of which public procurement is an important dimension. Supporting public sector efficiency and driving better government are important also. We have a strong agenda in terms of the need for efficiency in public expenditure. We believe in supporting entrepreneurship, start-ups and innovation and see public procurement as being a significant factor in that policy domain.

A final significant policy issue for us is helping our members to be successful in export markets. Again, we see public procurement as being a significant factor in helping companies to find business opportunities internationally. That is the IBEC context in dealing with the broad range of policy issues in the general field of public procurement.

I call on my colleague, Mr. Sweeney, to talk members through some of the detail. He leads our better government and, in particular, public procurement agenda.

Mr. Aidan Sweeney

I will begin by picking up on a point made by Dr. Davis about small businesses. I emphasise that what we are really talking about is small and micro enterprises, which is often confusing when we examine the procurement directives. Their definition of an SME corresponds to a large company in an Irish context. We need to be aware of this.

I joined IBEC six and a half or seven years ago. We have since seen a tremendous amount of change in the public procurement system in Ireland, not all of it positive. The economic downturn has had an impact, especially on the capital expenditure side, and we have seen a rapid reduction in the number of projects undertaken. This has had an impact on the marketplace, of which we also need to be conscious.

There was an emphasis on unilateral cuts. In February 2009, a circular implemented an 8% cut that particularly harmed small indigenous software companies. There were unilateral cuts and procurement was seen as a soft target. With the establishment of the national procurement service and now with the establishment of the Office of Government Procurement, we see greater centralisation and aggregation of contracts and the drive for efficiency through that. This is supposedly moving from the battle over price, which is a major constraint barrier to SMEs bidding in, to value for money. We would like to see many of the efficiencies on the administrative burden side rather than access for SMEs to win those contracts. There is a major concern for SMEs in terms of the lack of a level playing field and the removal of local buying knowledge. This applies to companies that already have public contracts and are concerned they will see the market and the contact point changing and to companies looking to bid for the first time. It is important that the Office of Government Procurement category councils under its jurisdiction and the sector leads across health, education, justice and defence establish more of an ongoing practical engagement with SMEs about what they will buy, who they will buy it from and the terms and conditions they seek. There could be more dedicated meet the buyer events and we would like to see someone on the category councils responsible for the SME community within those areas. Then, they can look at why SMEs that traditionally sold in are no longer able to win contracts and, if so, address the point.

We would like to see IBEC involved with the Office of Government Procurement through the SME procurement working group. Circular 10/14 was published earlier this year on improving SME access to public sector markets. The key for us is to see it fully implemented across the public sector. That is a start but there is much more we can do to improve the market through encouraging innovation and take-up from some of the newer companies, as well as looking at procurement as an export market. References in Ireland are very important for such companies to secure international contracts through the public sector market, which is a regulated market and the rules apply across Europe. In terms of using the administrative concerns, we would like to see greater use of e-procurement and technology to reduce costs, paperwork and constraints. We would like to see the Government producing an e-procurement strategy. The last such strategy was developed in 2001 and we would like to see one that goes beyond what is set out in the EU procurement directives in line with the national payments plan to allow full submissions and payment through the e-procurement process.

We would like to see an improvement in the standardised terms and conditions so that companies are familiar with the documentation, know how it is applied and know the criteria used. We increasingly see evidence of different terms and conditions being sought where these may not be relevant to the conduct of the contract. We would like to see more consistency about the indemnity liability provisions because they are a barrier. Once companies see them, many will walk away from bidding. Addressing such concerns will bring greater efficiency and this will benefit the taxpayers. We would also like to see a provision dealing with the framework contracts, particularly in regard to the use of category councils. We would like to see the comply or explain principle applied to the use of lots and how they are divided. Someone should have to explain why the contract has not been divided into lots and consider it across regions rather than categories to bring in more localised SMEs into the process.

That would bring more localised small and medium enterprises, SMEs, into the process also.

We would like buyers and the category councils to produce both annual and multi-annual procurement plans. This would help to inform the market and SMEs in looking at what strategies they should use to position themselves in order to bid for contracts. It would also help them to form consortia. As Dr. Davis indicated, the publication of new guidelines by the Competition Authority that will help SMEs to form consortia will be key in this process, as will training. We must ensure the development agencies will have adequate supports available to help SMEs, companies and client bases in seeking training.

Mr. Paul Quinn

I thank the joint committee for its invitation. I am accompanied by my colleague, Mr. Vincent Campbell, who is the policy director of the Office of Government Procurement. The document circulated in advance of the meeting will give the committee an understanding of the fundamental changes taking place within public procurement. I do not intend to go through it in detail as I have approximately five minutes in which to make my remarks. Nevertheless, I will highlight some of the areas that may be of interest to the committee.

It is important to note from the outset that the new structures for procurement are still at a very early stage. As chief procurement officer, I welcome this debate and the advice and guidance committees such as this can provide as we start to make significant changes to how procurement is done in the State.

The procurement reform programme is an element of the Government’s overall reform programme and is tasked with delivering increased value for money, more accurate and timely data and an improvement in the capacity and capability of procurement across the public service. The State spends significant amounts on goods and services, with an estimated spend in 2014 of €8.5 billion, of which €5.8 billion is addressable by procurement. 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, with central sourcing organisations in the health, education, local government and defence sectors procuring sectoral-specific goods and services.

In January 2013 I took up the position of the State’s first chief procurement officer. In consultation with key sectors, I developed a high level implementation plan for the new model and it was approved by the Government in April 2013. In addition to its operational procurement role, the OGP also provides the national policy function, customer support services and systems for all sourcing organisations, including electronic tendering systems, business intelligence and electronic catalogues. The new structural arrangements for the OGP and the sectoral sourcing organisations are going into place. Staff are being recruited into the OGP from across the public service, thereby concentrating and leveraging the public sector’s procurement expertise. Similar processes are taking place in the local government, education and health sectors to create the centralised sourcing organisations in these sectors. Transitional arrangements are being planned across sourcing organisations to realign responsibilities. The main changes will happen late this year and in early 2015.

The new model is underpinned by a common governance model that brings together the new sourcing organisations to co-operate and collaborate. The arrangements include a procurement executive, 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 for the OGP and the Minister for Public Expenditure and Reform on procurement matters. Accountability for sourcing rests with the sourcing organisation that undertakes the tendering. The OGP does not have the resources or mandate to oversee or audit the actions of the other sourcing organisations. The office relies on the governance arrangements in place for these 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 elements put in place by the new sourcing organisation helps these bodies to remain compliant and deliver value for money. Any saving from procurement remains with these bodies, enabling them to operate within their budgets, deal with increased demand or deliver new projects or services.

In the policy area public procurement has strong rules and regulations determined by the EU treaty and directives, as well as by national laws. The key principles enshrined in the treaty are openness, transparency, equitable treatment and non-discrimination.

This means that tendering must be conducted in a way that provides equal treatment to bidders regardless of whether they are big or small, are based in Berlin or Bantry or are a new or well-established business.

The OGP is fully aware of the significant role that SMEs play in the Irish economy and is strongly committed to ensuring that SMEs are fully engaged with public sector procurement and the opportunities presenting. In that context, the OGP has established the high-level group on SME access in conjunction with the Department of Jobs, Enterprise and Innovation, Enterprise Ireland and InterTradeIreland. The group is focused on monitoring the delivery of the procurement commitments under the Action Plan for Jobs and on developing further strategies to improve SME access to procurement. In addition, the OGP policy director chairs the SME working group, which brings together the Department of Jobs, Enterprise and Innovation, Enterprise Ireland, the Competition Authority and InterTradeIreland with industry representative bodies including IBEC, the Small Firms Association, CIF, Chambers Ireland and ISME.

On 17 April 2014, the Minister for Public Expenditure and Reform issued new guidance to public procurers regarding SME access in the form of circular 10/14. The guidance sets out that procurers should conduct market analysis in order to ensure they understand the markets they are addressing. This analysis will advise their strategies and actions to ensure they maintain competition in the market.

The guidance also encourages procurers to break larger tenders into "lots", which can enable smaller businesses to compete for tenders. It reduces the recommended thresholds for turnover to two-times contract value and sets out pragmatic insurance requirements. It also recommends that tenders are evaluated using the most economically advantageous tender, MEAT, methodology, which balances quality with price. The circular encourages consortia to come together and bid collaboratively. Finally, the circular requires procurers to electronically publish tenders for spends in excess of €25,000 on the national electronic tendering platform - e-tenders - and to record the outcome of the tender.

The OGP is leading on procurement policy development in a number of other relevant areas including the social clauses project group, the transposition process for the three new procurement directives and a number of developments relating to construction procurement policy, including the review of the public works contracts.

The OGP supports the work of Enterprise Ireland and InterTradeIreland in building awareness of public procurement and delivering training for small suppliers in bidding for public contracts. In particular, the OGP supports the "Meet the Buyer" events, which help suppliers meet public sector buyers to better understand how public procurement works and the relevance of their goods or services to the public service. InterTradeIreland data shows that attendees submit more tenders afterwards. The events this year are being held in Belfast tomorrow on 22 October and in Citywest on 12 November. I strongly encourage any members who are available to come along to the events and see the engagement with the SME community.

This year, the OGP has attended a number of business events such as Taking Care of Business and the National Ploughing Championships. At these events, the OGP focused on helping businesses understand how easy it is to register on the national tendering platform - e-tenders - and to receive alerts regarding business opportunities. The OGP also supports the State-subsidised Go 2 Tender programme for small businesses run by InterTradeIreland and a new programme on consortia building. The Competition Authority is currently developing guidance material for SMEs who are considering establishing consortia to bid for State contracts.

A wide range of data continues to be quoted regarding procurement spend. I would like to advise the committee on what the OGP is doing in respect of bringing about better data on procurement. Thousands of State bodies are spending money, the larger of which have IT systems for processing spend and the smaller of which are probably using spreadsheets or even paper to record spend information. The State had no mechanism in the past for collecting 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 was spent, with whom, on what and at what price.

In autumn 2013, the OGP initiated a project to begin collecting the spend information of the larger sectors, which account for over 80% of the State's spend on goods and services. To date, the OGP has collected approximately 53% of the State's spend in one database.

The project is moving onto a second phase, which 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.

In summary, good public procurement is key to delivering sustainable value for money. The new centralised structures for procurement are at an early stage but offer a significant opportunity to deliver value for money, consistent implementation of policy, reduced risk for the State, and improved data provision.

A key policy focus is to sustain competition in markets and work with other State bodies to fully support and encourage smaller businesses in competing for Government business. The information I have provided demonstrates that the OGP has been proactively working with all stakeholders in identifying issues of concern for SMEs and effectively dealing with those issues to the betterment of the procurement landscape in Ireland. These reforms are fundamental in their nature and will take time to implement and bed in. As chief procurement officer, I am clear that we must listen to, and be open to, our stakeholders in industry in delivering for the Government a complex and challenging agenda. I look forward to the questions and comments of the committee members.

Deputy Peadar Tóibín

One of the items of information that has struck me is that the Government has not yet fully collected information on State spending. For any enterprise looking in, to imagine that we have not been collecting this information to date is quite shocking. One cannot manage if one cannot measure. From working with small businesses, it is clear the procurement system in this country is a disaster from the perspective of small businesses. I am glad to see moves are afoot to change that. One of the great debates in this committee is how much money leaks from the State in State procurement. If we have roughly €8.5 billion, we have heard estimates of 28%, 27% and 20%. Some people save 15% on an island basis, others say 5%. It is a key piece of information because it determines policy by the State.

Can we have an example of the average size of tenders over the past three years? This will show us the trend. There is an argument over the bundling and unbundling of tenders to make them accessible to small businesses. My understanding where there is a debate about Bantry versus Berlin, we tend more towards the Berlin side more than other countries tend towards external businesses. That is not a good thing. We must fulfil our responsibilities within the law but we must also promote Irish businesses. The issue of consortia is a difficult issue for small businesses. We heard presentations that indicated no clear line of development with regards to consortia and their ability to access larger contracts. Many felt they would be criminally liable if they entered the space where they could be identified as a cartel. That line was not clear.

We also heard that prequalification criteria were often set before the size of the contract was identified. Contracts that were supposed to be €100 million had prequalification set and the initial tender went out for €16 million, with inflated prequalification criteria. In my work, I came across cases of contractors who bought tenders due to the cost issue. They pitch for a tender below the cost of reasonable delivery and then squeeze either subcontractors or workers along the supply chain. We see that workers at the Kishoge site are on strike because they receive a wage less than €5 an hour. The issue of economic costs has been identified as part of the new policy change. Will the economic costs include taxes forgone by the State due to the closure of business or people being made unemployed?

Where does the figure of 28% come from?

Mr. Paul Quinn

I understand that the number has come from a company called TenderScout. I have no idea how it derived the number.

Deputy Peadar Tóibín

We are dealing with such widely different figures here and this is a massive deal because the difference between 5% and 28% is about €2 billion. The Government announced a stimulus plan of €2 billion over three years so we are actually talking about a massive issue for ourselves. Would Mr. Quinn refute the figure of 28%?

Mr. Paul Quinn

I believe the number to be significantly less based on the information we have seen. Our analysis continues to show that over 90% of the spend is within the State. Over the coming months, we need to be in a position to publish data to give a much more detailed answer in respect of this. From my perspective, it is not about refuting it. It is simply around clarifying how the money is actually spent because having looked at and analysed the data and having been involved in the procurement space in the State for about 20 months, I have a good feel for where the money is spent within the system. I do not believe that it is 28% or anything like it but I need to be in a position to stand over the numbers that we provide to the Oireachtas, the public and the stakeholders within the system. I share the frustration in respect of not being in a position to give a definitive answer but at this moment, I cannot do so. However, I can indicate that in the coming months, we will be able to give a substantially better answer.

In my opinion, we will never be in a position to completely answer where every cent is spent because public bodies range from the large Departments and agencies like the Departments of Social Protection and Agriculture, Food and the Marine right down to the one-room school on Tory Island. They are all part of the public arena of spend. Some of them do not have systems. We will get to a point where we will be confident that we have detail in respect of 80% to 90% of our spend and that is the intention.

Deputy Peadar Tóibín

We are only at the second question out of about seven. It is important.

Chairman

I appreciate that but there are members waiting to put questions and no doubt, we can get all the answers over the course of our engagement. Could we ask that the answers be clear and concise?

Mr. Paul Quinn

I will do my best. The Deputy asked about consortia building. We want to make sure that, in conjunction with the Competition Authority, we get good clear guidance out into the marketplace for consortia. It is not unsolvable. We visited the Welsh procurement authority recently. It has published guidance relating to joint bidding guides. That is only a front page of a much larger document. These are mechanisms for bodies to keep themselves safe. That is the core issue reflected by the Deputy around bodies being able to work together and keep themselves safe with regard to competition law. We are working with the Competition Authority to make sure that guidance gets issued as soon as possible and to enable consortia to work together. InterTradeIreland offers training to bodies who want to come together and form consortia.

I will try and move on. We issued new guidance in April 2014, in particular guidance in respect of pre-qualification criteria.

Over the last couple of years we received a great deal of feedback that some of the pre-qualification thresholds were far too high. Having examined some of the examples, we believe that the thresholds in some cases have been set too high, so the guidance has been reduced to two times the turnover of the proposed contract. That is in the guidance that was issued. It also accelerates one of the measures under the new procurement directives. It brings the guidance down from three times to two times the turnover requirement.

The Deputy mentioned Kishoge Community College. I can give him some further detail on that matter. It is important to draw attention to the fact that the public procurement process for works provides a number of protections for the State and the labour force in the delivery of projects within the existing structure. Obviously, from a policy perspective the Government wishes to ensure that these projects are delivered with a high degree of cost certainty, on time and with value for money. Delays and issues on sites do not help anybody in that context. The public works contracts already require that main contractors and any sub-contractors providing services adhere to labour law, and provide for penalties from a contractual perspective, including withholding payments and contract termination in the case of infringement. The tools are in place.

There are three layers of protection in the process. The first one is at tender stage. The bidders must sign a declaration that they have fulfilled their obligations with regard to payment of social welfare contributions and taxation. At the award stage the contractor must submit a valid tax clearance certificate as a precondition. In particular, at implementation stage the obligations under the contract come into force. There are a number of these. I will not list them all but contractors and sub-contractors are required to adhere to all legal obligations. They extend to matters such as health and safety and labour law. Contractors must submit ongoing certification under clause 5.3 of the contract to make sure that they are paid. As each payment application is made, they must certify that they are complying in full with the requirements under the contract, and that includes the requirements for sub-contractors. The contractors must maintain records and time sheets of all those employed in the works. The State has the right to audit payments that are made. It has the right to withhold if certification is not provided and deduct if certification is proven to be incorrect, and the State has the right to terminate the contract or agreement where the contractor fails to remedy the situation.

It is important to note that public bodies rarely have the resources for the level of audit necessary to conduct some of these actions and in some cases they do not have the powers that are required to police what are quite complex and difficult areas. Therefore, it is important that they report any submissions to the appropriate statutory bodies, which have the necessary powers and expertise, and particularly the National Employment Rights Authority, NERA, with regard to disputed matters.

Deputy Peadar Tóibín

To make a brief point-----

Chairman

There are two other Deputies who wish to put many questions. It is not fair.

Deputy Peadar Tóibín

I ask your indulgence, a Chathaoirligh. There will be an investigation by NERA and the Revenue Commissioners, but the building site will be finished and complete before those investigations finish.

Chairman

We are outside the remit of the discussion today which is about the opportunities and challenges for SMEs in securing public contracts. We should stay within that remit so we can produce a better report at the end of the process.

Deputy Peadar Tóibín

I respectfully disagree. This issue is part of the experience, because there are good contractors who cannot pitch-----

Chairman

We must be careful not to speak about specific ones. The Standing Orders are quite clear about the parliamentary practice whereby we do not make comments in here about people outside of the House. There is absolutely no problem with you speaking in general terms, but please desist from specifics.

Mr. Paul Quinn

I will conclude with this point. From a procurement policy perspective, particularly in this area, the OGP supports the work of the Department of the Environment, Community and Local Government in developing a statutory register of contractors.

Such a register, operating on a statutory footing, would be a critical enabler in providing a transparent, objective and reliable mechanism for procurers of public works in selecting compliant contractors. That is an important step in the context of procurers being in a position to choose and select contractors who are in compliance with the law.

Deputy Seán Kyne

I welcome our guests. I wish to put a number of questions to Dr. Davis. Reference was made to the Scottish model, the Welsh model, etc. In the studies it compiled, did IBEC compare Ireland with its EU partners in terms of establishing what is the best procurement model? Is there a need to establish a separate working group - similar to that which obtains in respect of SMEs under the guidelines set down in the context of Circular 10/14 - to deal with microbusinesses? What figure does IBEC use in the context of identifying what constitutes an SME? IBEC is represented on the SME working group. Has it made suggestions to the Department with regard to the establishment of a similar group to deal with microbusinesses? Dr. Davis stated that Circular 10/14 has not been fully implemented but other speakers indicated that it has been totally ignored. Will Dr. Davis comment on that fact?

I recall the old saying about lies, damned lies and statistics and Deputy Tóibín referred to the number of Irish companies that are winning procurement contracts here. As stated earlier, the Minister for Public Expenditure and Reform, Deputy Howlin, stated last June that in excess of 95% of public procurement contracts in Ireland are won by Irish companies. This tallies with the 5% figure to which Mr. Quinn referred earlier. The Minister indicated to me in a reply to a parliamentary question that:

Less than 5% of the overall public procurement spend is now won by foreign companies. In excess of 95% of public procurement in Ireland is won by Irish companies, 75% of which are SMEs. That was the figure for last year, up from 60% in 2012.

Does the Office of Government Procurement stand over those figures, particularly as they have been disputed? Perhaps this relates to the methodology used to assess said figures. The Minister also indicated that the European procurement contracts market is worth approximately €2.4 trillion. How have the changes which have been introduced benefited Irish companies? Was the aim of the amalgamations, mergers, etc., to try to secure some of those European contracts? Is there any evidence that moves in this regard are working or is this something to which we aspire?

It has been stated that while the State might save 5% or 6% on a particular tender, jobs are actually being lost. Obviously, this means that people end up out of work because, in some instances, businesses are forced to close. This leads to a loss of tax revenues - including that relating to VAT - for the State and rates revenues for local authorities. Is there any methodology which can be used to take those issues into account in the context of the tendering process? Will Mr. Quinn indicate whether Circular 10/14 is being implemented or is it, as has been suggested, being completely ignored?

Dr. Paul Davis

As part of a recent review I carried out for Enterprise Ireland, I examined the models in Ireland, Wales, Scotland, England and Northern Ireland. One model - the local multiplier methodology - provides answers in terms of a number of the questions the Deputy posed. The local multiplier methodology looks at developing local economic benefits, so it is used as a measure in the context of awarding contracts. In other words, one examines the local economic benefits for investment by public authorities. It can, therefore, be built in as part of the most economically advantageous tender, MEAT, criterion. That takes into account how organisations re-spend their money back into local economies. The UK's Centre for Local Economic Strategies has discovered that small firms will re-spend 49p in every £1 they receive back into local economies, whereas large firms only re-spend 31p. There are models in action at this point and these are being adopted and rolled out across the UK. The attitude relating to them is "There is a better way of doing this" and "If we look at small companies, then we can actually place an economic value on what will be the spend locally".

On the question of a separate working group for micro-enterprises, it is worth revisiting the first question on the figures and statistics that are available. For the last three years, we have been working with the National Procurement Service and the Office of Government Procurement on a survey through e-tenders aimed at collecting information on how the market is made up and what are the reactions of buyers. Between 2011 and 2014, an average of 50% to 51% of companies bidding for tenders were micro-enterprises employing between one and nine people. Current policies are addressed at small to medium sized enterprises which employ between ten and 250 staff. As to whether we have policies that represent 50% of the bidding companies, it certainly should be considered. In terms of why and where they are competing, 30% of companies bid for local business within 120 km of their home bases. Only 20% of all businesses which replied to e-tenders sought business outside the Irish economy. When we hear policies stating that we are using public procurement to drive exports, we should bear in mind that only 20% of the companies competing for public procurement business are interested in exports. The other 80% are interested in competing nationally. When we develop centralised national policies, we run the risk of alienating those small businesses and not having them participate. We should be considering them as part of our policy and a more proactive approach should be taken.

Mr. Paul Quinn

I will start with the question on micro-enterprises. Rightly or wrongly, we have bundled all of our conversations regarding SMEs to include micro-enterprises. We have never specifically excluded them in any way. We believe the policies that have been set are inclusive of micro-enterprises because we know they do a huge amount of business in the Irish economy, particularly where larger contracts are broken down into sub-contracts.

In regard to the figures of 95% and 75% cited by Deputy Kyne, we stand over these figures because we provided them to the Minister. They are our best estimate at this moment in time of the composition of expenditure in the Irish economy. They are, however, based on our estimates and our samples. As I noted earlier, we will have substantially more detailed and accurate information towards the end of this year, which we will be able to provide to the Oireachtas, to stakeholders and to the public. I am comfortable that the numbers are of the correct order of magnitude. I do not think we will see a swing of 25% in any of the numbers. I spent the last 20 months examining in detail how the public service spends money. When one investigates what we buy and where we buy it, one realises that a huge proportion can only be bought locally. For example, nobody will come from Berlin to clean a Garda station in Bantry. Similarly, the energy that is used to light or heat that Garda station can only come from local sources. A significant amount of the money we spend can only stay within the economy. Goods can flow across seas in certain areas, such as the high technology and medical space.

In the case of defence and vehicles, we do not produce any vehicles and we do not, by and large, produce armaments in this country. There are some things which, by their nature, must come across but having examined and analysed what information we have over the last number of years, I am still very confident of those numbers. I look forward to the day when I can return to the committee and be able to give solid numbers to the best of our ability based on actual spend.

There were also questions about exports. We continue to work with Enterprise Ireland, and it is involved in most of our working groups, to help businesses get the process of public procurement right. The analogy I generally use is that it is a little like answering an examination question. Once one figures out how to approach and answer the examination question, one will get it right most of the time. Public procurement, because it involves largely the same processes across all of the states in the EU, follows a quite prescriptive mechanism in how it operates. We have worked with suppliers who have been successful not only in winning business in Ireland but also in figuring out that they can win business outside their natural geographic catchment and outside the State as well. I will not mention the names of those businesses.

The final question was about the holistic impact of public procurement. Public processes are very legally bound in what can and cannot be considered within the context of the directives and legislation in place. Every time we run a procurement there is one winner and usually several losers, who are disappointed that they have lost business. Some of them are incumbent businesses and might be losing business they have held for some time. However, that is what is required of us from a legislative perspective. The law requires us to offer the opportunities to the market in an open, fair and transparent way. That is a legal obligation and it is the way we satisfy the taxpayer that we are spending money wisely when it is offered to the marketplace.

Job losses is a very difficult topic and it is very emotional for most organisations, which is understandable. However, a reduction in labour that serves Government clients is not always a bad thing, particularly if it is enabled by new technology, innovative processes or simply more productive models in delivering for the State. Procurement can capture those improvements and in doing that can deliver value to the State, reduce costs and deliver better services. Should we not reward good suppliers who are innovative and find new and better ways to do things with Government contracts? It will build innovative businesses, a stronger economy and ultimately will help those businesses grow outside the State.

Yes, there are downsides to running procurement, but there are upsides as well. It is also important to bear in mind that, by and large, the Government is spending roughly equivalent amounts of money in the economy every year. That supports a certain number of jobs. We generally do not see large-scale reductions in jobs that serve the Government. Instead we see displacement, when jobs move from some suppliers to other suppliers. That should be taken into account as well.

Mr. Aidan Sweeney

Regarding IBEC's approach to the size of companies and SMEs, we typically adopt the approach that an SME is one that has approximately 50 employees or fewer. That is for our thinking on strategy, although we are conscious of the 250 employees and below and the €40 million turnover according to the European criteria. With regard to micro businesses and to pick up a point raised earlier, there is a lack of statistical analysis.

We will be pushing in the Action Plan for Jobs next year for a detailed economic assessment of the public sector market in Ireland, taking into account all the different actors, the dynamics of micro enterprises versus SMEs versus multinationals but also supply-based businesses and those that may be manufacturing. There is an urgent need to get that analysis out there to determine the policies that need to be addressed.

In regard to Circular 10/14 being largely ignored, it was published in April this year. Based on the experience of Circular 10/10, from our anecdotal evidence, many of the clauses ignored are not applied in a consistent manner. From our involvement with Circular 10/14 this time we have not seen any data on its performance and we would call for the OGP to monitor its implementation across all public sector bodies. It is a start. An issue to which I wish to draw attention because of the reference we made to the use of prequalification criteria, is a clause on the use of open tendering below threshold, below €134,000. One of the areas where it is necessary to get more SMEs involved and flexible in the approach and would reduce the cost of bidding would be to encourage the use of open tendering above threshold. Ireland, the UK and Denmark are, by and large, the largest users of the restricted procurement approach. That is one of four broad approaches we conduct. I would like to see more use of open tendering.

As Circular 10/14 is a guidance to all public sector bodies we would like to see the Office of Government Procurement and Government publish an SME procurement statement aimed at companies about what they can expect when bidding. This could be followed up. For instance, it is adopted in places across the US and other public sector bodies where there is a visible section on the websites of public bodies on how to do business with us, who would be purchasing, how one could approach it and what criteria one could expect. This could be a way of getting more visibility and communication out there on it. The major issue with Circular 10/14 is communication, getting out there and monitoring it. It is clear that the use of standardised terms and conditions in the document produced for general goods and services in 2011 have been applied on a consistent basis and have been applied for contracts but the contracts themselves were never so designed. We see them increasingly in the IT space. They were for general goods and services and not for anything more specific.

Deputy Anthony Lawlor

I thank the delegation for appearing before the committee. My first question is to Dr. Davis. With regard to our nearest neighbours, Northern Ireland, Scotland and Wales, how do the policies there relate to our policies? Does he see differences and how does he see us going in the future in terms of community benefits? My next question is for Mr. Quinn. In Circular 10/14, that reminds me of the Battle of Clontarf when we kicked out someone to get in something else - he mentioned a geographic basis. Perhaps he can provide more details on it? How does he expect it to work and what percentage of the contracts will be based on a geographical basis? He mentioned Scotland as having 20% under a collaborative centralised model. What percentage would he envisage for Ireland compared to Scotland? I am concerned about Belfast. In recent years there have been meet-the-buyer meetings in Belfast.

I do not see any for Cork, Limerick, Galway or Athlone. I am finding it difficult to comprehend why we should be actively looking for procurers outside the State. When money is being generated within this country we should be trying our best to keep it here.

Do the Northern Ireland and UK procurement offices have meet-the-buyer groups in Dublin? Does any other European network have one there? Why are we doing that? Mr. Quinn mentioned consortiums and that the OGP is looking at things like that at the moment. Is it not a bit late? We have brought in the policy. We are looking at trying to solve the problem but the horse has bolted. This has allowed the bigger companies to gain a foothold so the micro companies about which most of us are concerned have no chance whatsoever of gaining back that ground.

Dr. Davis had some research done on the UK and threw out some interesting figures. Are we going to be doing the research on the impact of procurement at local level? Is there ever going to be some sort of a way for us to measure the savings that will be made as a result of this policy change?

Mr. Paul Quinn

The first question concerns the geographic basis for the allocation of lots. In Circular 10/14 we have given guidance to public procurers that they need to perform a market analysis. Market analysis is critically important in that markets are structured differently depending on what the goods and services are. For example, the market for desktop software is an international market dominated by two or three suppliers. There is no desktop software supplier who is big in Kerry, for example, it is Microsoft and that is the answer. Something like cleaning services, however, would be very much locally delivered. There would need to be a strategy that reflects local delivery in the context of cleaning services because that is what matters. A supplier of cleaning services would not come from Donegal to Dingle to clean the local Garda station; it would not happen in that way. The lotting strategy would be determined as the market is analysed for each individual good or service. If I am buying software I might lot it in a fundamentally different way from locally delivered goods or services. If I need my PC fixed and I am sitting in Dingle, there is no point in ringing somebody in Dublin to come all the way down in a vehicle. I could have a strategy to deliver that locally. That is the geographic basis that the Deputy asked about.

The second question concerned Wales. They are centralising approximately 20% of their spend in their new national procurement services. We are going to go beyond that to 50% in our model. When we have looked at our goods and services and how they are split out, we have a higher percentage. The UK model is fundamentally different from the Irish model in that local government in the UK does a huge amount of delivery of goods and services across the island, for example many health and education services. That is not the case in Ireland so our model is a little bit different.

We have held meet-the-buyer events outside of Dublin. We had one in Kilkenny previously and we also put our wellies on at the ploughing championships recently.

I have spoken at quite a number of events outside Dublin, including one held by the Cork Chamber of Commerce. We have somebody attending an event in the west in November. If there is a sense that the approach is Dublin-centric, that is not the case.

There is one issue on which I wish to pick up. Reference was made to the medical devices sector, about which my colleagues in the Irish Medical Devices Association have particular concerns in the context of public procurement. One of the things they were constructively seeking was better engagement by buyers with the smaller indigenous medical device companies here. The health innovation hub established under An Action Plan for Jobs for this year has enabled them to adopt a more pragmatic approach to rolling out innovative solutions developed here. This can then be used as an export market. The scenario relating to software companies - particularly smaller ones - is similar. I recall speaking a couple of years ago to someone involved in IT in the Department of Finance about a two-company operation which had a central government contract. The problem is that we are not actually championing our successes. We need to be able to identify the small companies that are winning and then use them as case studies.

That will help initiatives like IntertradeIreland's Go-2-Tender programme and other training programmes that are needed, particularly around consortia, to help companies in terms of peer-to-peer learning. This will help us to see how they can do this, but will also help with the feedback mechanism to make sure that where some companies get favourable treatment in terms and conditions, we know why other suppliers are not getting that.

Chairman

I thank Mr. Sweeney and all of the witnesses for their contributions, which are of tremendous help to us. I thank members for their engagement.

The joint committee adjourned at 4.45 p.m. until 1.30 p.m. on Tuesday, 11 November 2014.

Joint Committee on Jobs, Enterprise and Innovation debate - Tuesday, 21 Oct 2014

Public Procurement Contracts: Discussion

Mr. John O'Brien

Mr. Michael O'Brien

Mr. John O'Brien

Mr. Michael O'Brien

Mr. Michael O'Brien

Mr. Michael O'Brien

Ms Mary Fallon

Mr. John McNamee

Mr. Dave O'Reilly

Mr. Brendan Bannigan

Ms Mary Fallon

Mr. Brendan Bannigan

Ms Mary Fallon

Mr. John McNamee

Mr. John McNamee

Mr. John McNamee

Mr. John McNamee

Mr. John O'Brien

Mr. Dave O'Reilly

Mr. Brendan Bannigan

Mr. John O'Brien

Mr. John O'Brien

Mr. Dave O'Reilly

Mr. Dave O'Reilly

Mr. Dave O'Reilly

Mr. John McNamee

Mr. John McNamee

Mr. Brendan Bannigan

Mr. Michael O'Brien

Mr. John O'Brien

Mr. John O'Brien

Mr. John O'Brien

Mr. John O'Brien

Mr. John O'Brien

Mr. Dave O'Reilly

Ms Mary Fallon

Mr. John McNamee

Mr. Brendan Bannigan

Dr. Paul Davis

Mr. Fergal O'Brien

Mr. Aidan Sweeney

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Dr. Paul Davis

Mr. Paul Quinn

Mr. Aidan Sweeney

Mr. Paul Quinn

Mr. Paul Quinn

Mr. Paul Quinn

Dr. Paul Davis

Dr. Paul Davis

Dr. Paul Davis

Mr. Aidan Sweeney

Joint Committee on Jobs, Enterprise and Innovation debate -
Tuesday, 21 Oct 2014