Dáil Éireann Debate, Tuesday - 24 July 2018
426. Deputy Barry Cowen asked the Minister for Public Expenditure and Reform if he has considered changes to the public procurement process to prevent low cost competition among construction firms whereby the financial stability of those companies is jeopardised; and if he will make a statement on the matter. [34183/18]
Amharc ar fhreagraThe impact of awarding contracts at low prices was highlighted in the Report on the Review of the Performance of the Public Works Contracts published in 2014. A range of measures was recommended in that report to discourage unsustainably low pricing, amongst other aspects. Most of these measures have been implemented since 2016 and are designed to
- give contracting authorities much greater visibility on the pricing strategy used by contractors in order to determine whether the project can be built for the price bid, and
- allow contracting authorities to directly tender specialist works packages thereby reducing the extent of the overall contract sum which is entrusted to a single bidder.
Further measures to discourage this practice and to address other issues that arise in the delivery of public works projects will be considered in the development of a medium term strategy for the procurement of public works projects. Engagement with industry stakeholder bodies has recently commenced on that strategy which will outline the optimum means of procuring the necessary expertise to deliver public works projects in a sustainable, efficient and cost effective manner.
It is important to note that contracting authorities have a duty to ensure that the projects they procure represent value for money. There is a balance to be struck between establishing the price for which the project can built whilst at the same time exploiting the market's capacity to innovate thus generating savings for the taxpayer. Whilst it is acknowledged that the lowest price does not always necessarily represent value for money, it is the simplest metric available where the project in question is well defined as it reduces the risk of challenge where other metrics are included in the tender evaluation. It also simplifies the tender submission from the point of view of the SMEs who comprise the biggest sector of the market for public works contracts.
Works contracts to which the procurement directives apply (those with a value in excess of €5.548m) are required to be awarded on the basis of the most economically advantageous tender (MEAT). The identification of the MEAT may be on the basis of price alone. Where technical or other non-price criteria are deployed in a MEAT award it is important that the process that determines the MEAT is transparent and non-discriminatory otherwise a contracting authority risks breaching the principles and rules that govern the award of public contracts.
Low cost competition is not exclusive to public works contracts. Recent studies undertaken in the UK, following the collapse of Carillion, highlighted the low margins (between 1 – 2%) that main contractors earn on building projects. Given the cultural similarities between the UK and Irish construction industries there is every reason to believe low margins are also prevalent in the Irish construction sector. This culture must be addressed by the industry if it is to service its client base in a professional manner in what is seen as a high risk activity.
