Tuesday, 23 July 2019

Questions (283)

Micheál Martin

Question:

283. Deputy Micheál Martin asked the Minister for Public Expenditure and Reform the changes made to the procurement process following recommendations made by a company (details supplied) for complex and risky projects; when the changes were introduced; if this coincided with increased demands in stage 2 of projects when contractors price the bill of quantities to make up the final target cost; and if he will make a statement on the matter. [31840/19]

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Written answers (Question to Public)

The majority of public works projects are currently delivered using fixed-price lump-sum contracts tendered on a competitive basis, with clear risk allocation set out in the tender documents. These contracts represent the default tendering position for projects delivered under the Exchequer-funded element of the National Development Plan.

In line with Circular 33/06 in exceptional and rare circumstances, consideration can be given to amendments to the forms of contracts which should be submitted to the Government Construction Contracts Committee (“GCCC”) in advance for consideration and approval, as appropriate. A total of 12 derogations have been given by the GCCC since 2011 in recognition of the particular circumstances pertaining to the projects. These derogations vary from minor amendments to the conditions of contract to the adoption of different forms of construction contracts.

It is important to note that a derogation, if agreed, does not sanction the approach or strategy of the Contracting Authority, but simply acknowledges that the circumstances are such as to warrant a different approach than the standard. It is a matter for the Contracting Authority and the Sanctioning Authority to satisfy themselves as to the adequacy of the approach with regards to compliance with procurement rules and project appraisal in accordance with the Public Spending Code.

There are only two projects in receipt of derogations which used the two-stage tender process. Two-stage tenders facilitate the early involvement of the contractor on complex projects to consider aspects such as buildability and evaluating construction risk. It was developed in response to the cost increases and delays that often arise in the course of traditionally procured construction projects as a result of a failure to adequately test the project’s design against the impact of construction operations.

The contractor is usually paid a tendered fee for their participation in the stage one process. The manner in which the price for works is tendered will depend on the stage of design development and the nature of the works, bills of quantities are not always used.

Typically the contractor is not actively engaged in construction works in stage one but investigation works would normally form part of the process. Stage one is focussed on determining the final cost of the works with the benefit of the contractor’s construction expertise.

The stage one process can severely test the project’s budget, particularly where further investigation identifies additional works or changes to the stated constraints that the tendered rates were based upon. These issues also arise post-award of contract on traditionally procured projects and are usually then dealt with through the claims and dispute resolution processes defined within the contract. The perceived advantage with the two-stage process is the potential for greater certainty of outcome for both parties if the process is robustly applied. Once the costs are determined the process allows both parties to walk away if the project cannot be delivered within the contracting authority’s budget.

A derogation was given to the New Children’s Hospital in recognition of its scale, complexity and programme timeframe to completion. Its procurement strategy, which saw basement construction works undertaken prior to determining the final price for the above ground superstructure works, is not typical of a two-stage tender and was adopted to achieve the challenging programme timeframe to completion. This approach will be avoided in future unless there is an urgency in delivery that demands it be considered and then only with robust budgetary provision for risk.

The upgrade works to the Dunkettle interchange are also being procured by means of a two-stage tender however, in this case, investigative works only are being undertaken as part of the process to arrive at a target cost for the works.

Whilst the procurement approach taken in the New Children’s Hospital is bespoke to that project, nevertheless there are lessons that can be applied across the NDP. Reviews of two elements critical to the NDP’s successful delivery are currently under way.

My Department is reviewing the Public Spending Code which is the set of rules, procedures, and guidance to ensure Value for Money in public expenditure across the Irish Public Service. The following reforms will be considered and implemented as part of the Public Spending Code review:

- Strengthen and harmonise capital appraisal guidance;

- Greater clarity on governance and roles and responsibilities, particular in terms of who is the Sanctioning Authority and who is the Sponsoring Agency for major projects;

- Introduce new mechanisms to improve the accuracy of cost estimates;

- Improve project life cycle to better reflect the realities of project delivery; and

- Complement the Project Ireland 2040 Capital Tracker in monitoring projects and costs.

The revised central elements of the Public Spending Code relating to the appraisal and management of public capital projects will be published this summer. Further technical guidance building upon these central elements will follow in the second half of 2019 and in 2020.

The Capital Works Management Framework (“CWMF”), which represents the procedures and conditions of contract that must be used in the engagement of consultants and contractors on public works projects, is being reviewed by the Office of Government Procurement.

A set of objectives have been developed to manage the review process which will permit a progressive refinement of the CWMF rather than awaiting the completion of the entire work programme prior to implementation. Enhanced risk management throughout a project’s lifecycle and quality of information will inform all aspects of the work programme.

Consultation has already commenced with industry and the public bodies charged with the delivery of public works projects on a broad range of issues that are impacting on the successful and timely delivery of projects.