The committee has asked the Department to provide information on the operation of procurement policies for public works contracts by local authorities in relation to projects financed under the Department's capital programmes. In particular, the committee wished to see if there was any evidence that the procurement process was indicating a bias towards larger firms. I would like to outline the general policy on public procurement and will then follow up with a summary of the evidence that emerged from the case studies in the areas of housing and water. I understand details of these case studies have been circulated to members. It was proposed that we examine projects with a value in excess of €5 million.
The European Union public procurement directives and the regulations that transpose them into Irish law set out the rules governing public procurement. Public procurement guidelines are issued by the Department of Finance which has overall responsibility at national level for public procurement policy. All public bodies, the Department and local authorities must comply with these EU and national public procurement rules. It is a basic principle of public procurement that a competitive process must be used, except in justifiably exceptional circumstances. The competitive process can vary depending on the size and characteristics of the contract to be awarded. The revised EU public sector directives permit four tendering procedures, namely, open, restricted, competitive dialogue and negotiation. For our purposes today, the open and restricted methods are the procedures relevant to the case studies.
Under the open procedure, any interested party may submit a tender. The procuring authority may seek information on the tenderers' capacity and expertise and only the tenders of those deemed to meet the specified minimum levels of technical and financial capacity and expertise are evaluated. It is important that any such minimum requirements are made clear in the notice or the request for tenders, RFT, to avoid bidders without the necessary qualifications incurring the expense of preparing and submitting tenders.
The restricted method is a two-stage process where only those short-listed parties which have been determined to meet minimum requirements in regard to professional or technical capability, experience and expertise and financial capacity to carry out the project are invited to submit tenders. As a first step in this process, the requirements of the contracting authority are set out through a contract notice in the Official Journal of the European Union and expressions of interest are invited from potential tenderers. The contract notice will indicate the relevant information to be submitted or the information may be sought via a detailed questionnaire sent on request to interested parties. EU Directive 2004/18/EC sets out the criteria which may be used in pre-qualifying candidates. These criteria relate to financial capacity, technical capacity, relevant experience, expertise and the competency of candidates. Contracting authorities may opt to short-list qualified candidates but they must have a minimum of five, provided at least this number meet the qualification criteria, and may have up to a total of 20. In our experience, the number of contractors short-listed is usually approximately five. In the second step those candidates who have pre-qualified are issued the complete specifications and tender documents, RFTs, with an invitation to submit tenders. Evaluation of tenders received is carried out on the basis of the most economically advantageous tender, MEAT, principle.
Housing and water are the two largest capital programmes in the Department with a 2009 capital budget of €1.6 billion for housing and €500 million for water programmes. The water services investment programme, WSIP, is the instrument through which all major public water and wastewater infrastructural schemes are delivered. The Department, in consultation with local authorities, undertakes periodic needs assessments which determine the priority listing of schemes. The Department is responsible for the approval of all major schemes and provides the requisite capital funding. Approval of projects with a value below €5 million is generally devolved to local authorities which are the water services authorities.
In housing, local authorities normally receive approval to take projects up to a capital value of €5 million that do not contain an unusual level of complexity straight through to procurement without further referral to the Department. The Department provides an overall budget cost for the project and approval is subject to compliance with all regulatory requirements, including procurement. Tenders for projects above €5 million are approved by the Department. Where a tender report is submitted to the Department for approval under any of the capital programmes, it will typically outline details on the preferred bidder and the unsuccessful bidders in order that the Department can be satisfied that the proper procurement principles have been observed. The Department has provided for the committee a list of projects in excess of €5 million in these areas indicating to whom each contract was awarded and the names of the other tenderers.
New projects represent only part of the expenditure incurred in any year under the main capital programmes. Projects over €5 million in value tend to be large projects and their construction would generally span more than one year. These cases represent the vast majority of the work in progress. The case studies represent the new projects starting off.
I will summarise briefly the information which emerges from the case studies. In the housing area, 41 traditional construction projects have been approved since January 2008. Of these, only three were in excess of €5 million. As this figure would be too small to be representative, we have included the next ten projects in the analysis supplied to the committee in order to give a more comprehensive picture.
The list is made up of a mixture of open and restricted tenders and the top eight tenderers in each case are included. As members will see, the list shows a wide range of contractors tendering for, and being awarded, contracts in the social housing area. Based on the range of firms listed, the Department is of the view that there is no evidence of bias towards larger firms either through the use of open or restricted tendering in the housing area.
On water schemes, there have been 44 new projects of over €5 million since the beginning of 2008. Of these, only 12 were referred to the Department for sanction. Approval of the remaining 32 contracts was a matter for local authorities under devolved procedures. Of these 32 contracts, only three involved the use of pre-qualification criteria and 29 contracts were procured using open tender procedures. Nine of the 12 projects referred to the Department for approval were design-build-operate projects and were subject to pre-qualification criteria. The use of this procurement method is most suitable for DBO projects which are generally of specialised nature and include elements of a complex civil engineering nature, tunnelling and treatment works.
Standard pipe laying projects are normally procured through open competition. It is worth noting that most DBO projects have been procured under the public private partnership umbrella and where a project, or grouped projects, is advanced as a PPP, a process auditor is appointed to record that each step on an approved procurement process checklist has been addressed by the project manager or project board. The process auditor must be satisfied that each step of the procurement process has been given due consideration by the responsible authority. This is an extra safeguard to ensure strict compliance with public procurement requirements.
As with the housing project, the list shows a range of contractors tendering for, and being awarded, contracts in the water area. The number for each contract is not as wide as in the housing area but this is not unexpected given the specialist nature of the work involved in water works construction projects. Based on the range of firms listed, the Department is of the view that there is no evidence of bias towards larger firms either through the use of open or restricted tendering.
I hope the committee finds this information useful. My colleagues and I will be happy to answer any questions members may have.