Official Report (Hansard)
Date: 17 June 2009
FINANCE AND PERSONNEL
Inquiry into Public Procurement Practice in Northern Ireland
17 June 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Ms Dawn Purvis
Mr Aidan Gough ) InterTradeIreland
Dr Eoin Magennis )
The Chairperson (Mr McLaughlin):
I welcome Mr Aidan Gough, who is director of strategy and policy, and Dr Eoin Magennis, who is policy research manager. I remind you, gentlemen, and those in the Public Gallery that the meeting is being recorded by Hansard. Mobile phones must, therefore, be turned off. To simply turn mobile phones to silent does not protect the electronic recording system from their interference.
Mr Aidan Gough (InterTradeIreland):
We welcome the opportunity to make a presentation on our work on cross-border public procurement on the island. It might be useful if I begin with some background information. Members will be aware that InterTradeIreland is one of six cross-border bodies that were created by the Belfast/Good Friday Agreement. Tourism Ireland was added subsequently.
Our purpose is to exchange information and co-ordinate work on trade, business development and related matters. Our corporate plan identifies two key strategic objectives. The first is to generate business value by enhancing company competitiveness through co-operative North/South initiatives; the second is to improve the competitive environment for doing business on the island to the mutual benefit of companies in the North and in the South.
Our work on public procurement meets both of those priorities. The Go-2-Tender programme that we operate assists companies to navigate the public procurement process in the other jurisdiction. It is a successful programme. To date, over 370 companies have attended workshops. Business value of £15·5 million has been reported in contracts that have been won by participants of the programme. From our point of view, the programme is value-enhancing, in that the rate of return is £73 for every £1 that InterTradeIreland invests.
You have invited us specifically to discuss the findings of our most recent research, which explores mutually beneficial co-operative initiatives to enhance the capability of small and medium-sized enterprises (SMEs) in particular to access public procurement contracts across the border. I will quickly run through some of the key findings of that research, which we are currently finalising and will publish within the next month.
As regards the scale, dynamics and characteristics of the marketplace, the total public procurement market in the North and South is worth around €19 billion. It is a substantial market. It breaks down to around €2·8 billion in the North and €16 billion in the South. In total, it equates to over 10% of GDP and presents substantial market opportunities for SMEs.
In the North, the buyer market is more centralised than it is in the South, although the South is moving towards a similar centralised approach to public procurement. The Northern Ireland market continues to grow, but it looks as though the Southern market has peaked. Survey evidence suggests an upsurge in interest and a hungry and competitive marketplace for business. There is a low level of tendering activity into the other jurisdiction: only 3% of tender submissions in the North come from Southern companies, and the percentage going from North to South is much lower.
Our findings and recommendations have been grouped around three key themes that seem to have been recurrent in evidence to the Committee. The first is visibility of contract information to SMEs; the second is access to contract information for SMEs; and the third is SME capability.
As regards visibility, the research highlighted two key themes: first, a lack of visibility to SMEs of lower-value, sub-threshold contracts, not only in each region, but on a cross-border basis as well; secondly, higher visibility of Republic of Ireland public procurement tenders to Northern Ireland SMEs than vice versa. That is primarily due to the eTenders website.
We are exploring a number of possible actions, including a single point of access to lower-value public-sector contracts, an awareness campaign to encourage registration of Republic of Ireland SMEs with the Central Procurement Directorate’s (CPD) eSourcing system, and encouraging Northern Ireland buyers to advertise open tenders on the Irish eTenders system. We are also exploring the possibility of a single sourcing system on the island that would have one point of access for all tenders across the island.
The research on the accessibility of public procurement opportunities to SMEs has highlighted a number of key findings. First, the process of responding to public procurement contracts is perceived by SMEs as overly bureaucratic and resource-intensive. Some of the issues cited are the perceived repetition between tender stages, particularly between the pre-qualifying questionnaire (PQQ) and secondary competitions, and limited standardisation of qualification criteria in PQQs among buyers.
Secondly, although the aggregation of contracts can create savings and efficiencies, the practice can inadvertently exclude SMEs because they do not have the critical mass for the larger contracts. Thirdly, SMEs are faced with a number of accessibility issues with regard to frameworks. There is a view that the returned benefit of framework agreements often does not justify the cost of the application process. A view expressed in the survey of SMEs was that the frameworks were too infrequently renewed, thereby excluding new companies in particular. That also precludes companies from gaining the necessary experience.
Possible actions that could be taken include giving consideration to ensuring that financial thresholds, such as those for professional indemnity insurance or company turnover, are set at a level appropriate to the individual contract. Also, in instances of consortia or collaborative partnerships, buyers could consider the joint turnover of all companies involved, which is permitted by procurement regulations. Secondly, consideration could be given to dividing appropriate tenders into smaller lots where possible; that would naturally encourage more SMEs to tender for public-sector contracts. It was suggested by some of the SMEs that were surveyed that such measures could go so far as to include contracting authorities setting a specified percentage of contracts below an appropriately low ceiling.
In regard to accessibility, a third possible action would be for more consideration to be given to the mutual recognition of standards across the border. For instance, in the construction sector there could be mutual recognition of standards such as Constructionline, Safe-T-Cert certificates, health and safety passports, etc. Buyers could also be encouraged to standardise the core components of the PQQs that are not sector-specific, which would reduce the administrative burden on SMEs. It could be done in a single jurisdiction first, and then perhaps on an all-island basis.
Consideration could also be given to the creation of a central repository where suppliers could provide key statutory information on things like public liability insurance, detailed accounts, environmental policies and tax certificates. They would then not be required to provide copies of that information for every tender that they apply for. Finally, a constant call from the SME sector is that frameworks should be reviewed more frequently.
The third area that I mentioned relates to the capability of SMEs to bid for the contracts. Inexperienced companies that have previously not been involved in the public procurement market and are now looking to that market cite a lack of knowledge or understanding of how to approach the market. That is a reason for not tendering, either in their own jurisdiction or on a cross-border basis, which is what we are interested in. Buyers also reported that a large number of SMEs that are bidding for public procurement contracts do not avail themselves of the debriefing process that is available after every tender competition. That is viewed as critical to enhancing capability on an ongoing basis.
In the past, SMEs tended to fail more on compliance issues, whereas, in recent years, the evidence from buyers suggests that levels of compliance have improved substantially and that SMEs are now perceived to fail more on a failure-to-answer-the-exam-question-type approach. That points to the need for additional capability support for intelligent tender writing and, in particular, for cross-border tenders, where the level of understanding about buyers is more limited. We are looking to address those recommendations through our Go-2-Tender programme by making a number of adaptations to enhance the capability of SMEs so that they can be successful in that large market.
That is an interesting summary of a report which is going to be very relevant even though it is set in a cross-border context. It appears to have thrown up some issues that have a general applicability to the other evidence that we have already heard.
Thank you for an interesting and detailed presentation, Aidan; it was much appreciated.
In the report, there is a reference to the ‘European Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts’. How useful was that in enabling member states to apply the EU legal framework in a way that enhanced SMEs’ access to public contracts? That guidance was supposed to produce some national rules and practices. Will you give a summary of what those are and how they have been applied?
Dr Eoin Magennis (InterTradeIreland):
The key change in Northern Ireland has been how the issue of experience is approached. A number of rulings in the past couple of years have caused a shift. Until a couple of years ago, a company submitting a tender could be asked to demonstrate what experience it had. Now, procurement authorities across Europe and here do not like to ask that question in that way; rather, they ask companies to detail the experience that they have gained in a particular area in the past two or five years in order to open up the market. That has been a key shift.
Buyers have some reservations about that because they feel that, although it opens up access, it makes it difficult to judge tenders if they cannot judge on experience and expertise. It has created some difficulties; instead of asking the question in a slightly different way, buyers have had to find other ways of judging experience, such as through the methodologies that are used in the tenders.
That is really interesting, because a number of the groups that have given evidence to us have said that that requirement to have experience gained in the past two or five years is actually excluding them from tenders and, in particular, from frameworks that lock them out for five years. Companies are locked out of tendering for five-year frameworks, if they have not had the opportunity to gain that experience in the previous five years. That EU rule is supposed to help SMEs to gain access to contracts.
Dr E Magennis:
In essence, the EU hopes to make experience no longer a criterion on which a tender is judged one way or the other. I suspect that the intention is do away with the requirement for any experience.
That might have been the intention, but what is the direction of travel? That is what Dawn is trying to get at. Is it being used as a method to weed out some of the applicants?
Dr E Magennis:
That depends on how the rule is implemented. One of the difficulties was that buyers were always looking for experience, particularly in goods and services, within a short time frame. That meant that new entrants to the market were not able to get into that market at all. If you were in a framework three years ago, you would have had that experience, and if you push it out further, it becomes a balancing act. I still think that the intention is to move away from using experience as a criterion at all.
Obviously we can only be concerned about how the Departments or procuring authorities approach the issue here, but has your study demonstrated that people are taking a more rigorous approach to interpreting EU regulations than they need to, or are they taking the opposite approach, which is to build capacity and experience by being faithful to the regulations, but not using the regulations per se as a means of —
We have not made a judgement on whether one jurisdiction on the island is more flexible than the other. However, in rolling out the European directives, the two jurisdictions could collaborate so that we could have a competitive environment that is the same across the island and that benefits all businesses across the island. With regard to experience, the counterbalance to that is more engagement with companies at the pre-commercial stage, particularly around the innovative needs of buyers, where there is scope for more pre-commercial dialogue.
In another part of your report, you talk about the limited understanding of the concept of sustainable development and procurement among buyers and SMEs, and we are gaining evidence of that through our inquiry. Given the potential of that, how would it work out through the EU legal framework? What can we do to raise awareness of that potential among buyers and SMEs?
We are adopting our Go-2-Tender programme, which takes companies through the procurement process. There is definitely a need for more education about what the whole process of sustainable development means, and awareness is the key. We are building that into our Go-2-Tender programme, which has already reached almost 400 companies. The key is to bring the buyers and SMEs together so that they are both aware and singing from the same hymn sheet.
Do you think that more work needs to be done at a strategic Government level around the potential benefits?
If the SMEs are telling us that they are not clear what it means, then more work needs to be done.
Dr E Magennis:
Another key area is social economy enterprises, and there are two sides to that. One side is the sense that the procurement market is open to social enterprises, and the other side is the capability of social enterprises to enter it. As Mr Gough said, we recently looked at opening out the Go-2-Tender programme to social enterprises through working with the School for Social Entrepreneurs. It is about building up capacity and capability in that sector.
It seems to be an obvious thing to do.
Thank you very much for your report, which is hugely important, because it illustrates how much public business is available, and everyone can benefit in the longer run. The public sector can get better value, and firms can get more business. The more active tendering that we can get in both jurisdictions and across the jurisdictions, the better. You analysed the different types of environment in both jurisdictions, and you said that in many ways the North is more structured through the CPD and the centres of procurement expertise (COPEs), which is quite complimentary to us. You also said that things are a lot more fragmented in the South.
A fair bit of clarification is required, because you go on to say that there are more examples of Northern Ireland SMEs winning business in the South than vice versa, and you refer to eTenders. If we are more structured in the North, and are putting our business up front and online, should it not be the case that it is actually easier for southern SMEs to access the system here than it would be to access a fragmented system in the South, where you have to look anywhere and everywhere to get a bit of business?
We find that the eTenders website is very widely and easily accessed.
Does it matter where you are?
It does not matter where on the island you are.
Is that the North’s e-tendering site?
No, eTenders advertises the Southern contracts.
I misunderstood. Your compliments about the North apply to the system and regulation around tendering, but the Southern e-tendering system is more effective at publicly presenting opportunities to businesses.
Dr E Magennis:
It is more effective. There is more visibility.
OK, there is a clear lesson for us there. What level of co-operation and empathy did you get from the governmental systems, North and South, when you were carrying out this survey? What interest did you get in achieving the type of objective that we are discussing?
We had very close engagement and co-operation with the major buyers in the North and the South. During the study, we had an advisory group drawn from the Departments of Finance, North and South, CPD, InterTradeIreland and the National Treasury Management Agency in the South. There was a very close engagement and a real willingness to share experience and best practice and to learn from each other.
OK. That is what I was looking for.
SMEs have said a lot to us about the difficulties of penetrating the system and how hard it is to tender. You have referred to some of that — the recognition of standards and so on. How big an obstacle is that going to be? Given that we are working across two jurisdictions that will presumably have different legislation, what opportunities are there to smooth the path for SMEs? Some of that legislation is EU-based and will be common; some of it will not be. There may be different ways in which EU systems are put in place. That could create a minefield for SMEs crossing the border. How much real opportunity do you see for smoothing the path for SMEs?
There is an immense opportunity in the scale of the business: the market is worth €19 billion, so the incentive for SMEs is massive. We have also made a number of recommendations in the report to address and improve the visibility of contracts, the accessibility of contract information, and to developing the SMEs’ capability. Actions have to be taken across those three areas to improve the success rate of indigenous SMEs in the public procurement market. One specific example that we are considering is having a single point of access for lower-value public-sector contracts.
You referred to local authorities, in particular?
The vast majority of smaller contracts are coming through councils and local authorities. A good example of sharing best practice in improving the visibility of lower-level local authority contracts is a website called LAQuotes, which has been started by Kerry County Council. That is now subscribed to by nearly all of the councils in the South, so there is real visibility of lower-level contracts.
And we have no equivalent in the North?
Not to the same degree, at the minute.
Is that like an ad hoc development, or is there any kind of institutional direction on it?
Dr E Magennis:
Initially, it was fairly ad hoc. Kerry County Council took the initiative to do that, and then it spread through Munster and beyond, particularly through county councils, but including other local authority bodies.
Will your report pick up on the value of that? Will it be a recommendation?
Dr E Magennis:
We put in a recommendation to look at that as a model, with potential to roll out, not just South of the border but also in the North.
The relevant local authorities in the North are looking at that.
Your three key areas are visibility, accessibility and developing the capability of SMEs. I want to ask about the third. I presume that it means that we should be thinking about Invest Northern Ireland having a particular project on that. I imagine that that is the direction in which we should go.
We work closely with Invest Northern Ireland and with Enterprise Ireland on our Go-2-Tender programme, which addresses that requirement specifically —
We have not seen the full report, but we are talking about visibility. Will social economy enterprises (SEEs) have the same visibility? When we talk of SMEs, we could very often be talking about SEEs. It is your report, but it might be helpful if awareness and visibility of that particular important sector was raised in the report.
Declan has focused on one of the things that is of particular interest to me. You can see the potential for efficiencies and cost savings in both jurisdictions through an enhanced or more visible procurement process on the island. Will your report emphasise that? Will it also address the wider economic benefits for both economies? I am relieved to hear that you did not meet much institutional resistance. I would have expected more, but that does not seem to have happened. People see the business benefit of this approach.
Without a doubt, there are two main competitive benefits. The first is a more efficient public procurement system; the second a more competitive system. It is a win-win situation for both buyer and supplier, if we get this right.
Dr E Magennis:
We all tend to think that people do things better elsewhere. The buyers in the South were interested to see what they could learn from this side of the border. Officials from CPD have assisted the new Department of Finance policy unit on public procurement in the South. That is trying to improve things on the buying side and looking at centralisation. It is interested in how centralisation happened in the North and how some of those systems might be applied in the South. There is sharing of practice there as well; it is an interesting situation, where the North has spread some of its practice into other jurisdictions. That might be something.
I think so.
Ms J McCann:
My question has been answered, but I would like to chip away at it a bit more.
You mention different levels of development in the report, between the North and the South and between central Government procurement policy and that of local government. There seems to be an uneven playing field. You mentioned €19 billion, the huge sum of money that is available for public procurement. SMEs do not feel that they are able to access the market in the way that they should be able to. That applies particularly to social economy enterprises.
At the moment, the South is creating a national public procurement policy unit, and local government here is in the process of creating a more centralised structure. Is this not an opportunity to consider public procurement on an all-island basis? I mean not just that the two structures should co-operate, but that there should be an overriding structure, to ensure that there is equal access for SMEs, North and South, and equal access for social economy enterprises.
I want to touch on the social clauses. I know that that is something that has arisen in our inquiry. Do you agree that the implementation of the social clauses from the advertisement stage right through to the delivery stage would help the social economy sector in particular? Organisations in that sector would be judged on the jobs that they create in areas of disadvantage and need, the jobs that go to the long-term unemployed and the creation of quality apprenticeships, and that would offer the sector an opportunity to compete at the tendering stage in a more equitable way.
Businesses certainly welcome fewer differences in regulations and bureaucracy within marketplaces. The level of engagement between the two main buyer organisations in the North and the South is, as I said, a win-win situation due to the creation of mutual efficiencies and mutual benefits for companies North and South.
Dr E Magennis:
The implementation of social clauses is probably a practice that is more advanced in Northern Ireland. There are good examples of social clauses being applied on an individual basis for some contracts in Dublin; the Dublin Docklands Development Authority has one such contract and the Limerick Regeneration Agencies will look at social clauses for some of its contracts. It is something that is being rolled out more.
With regard to accessibility and capability, a little more understanding is probably needed for both buyers and suppliers of what that actually means. In some cases there is probably a reservation that social clauses add an extra burden, which does not necessarily have to be the case. Therefore, education and awareness is probably required on what social clauses may mean and how social enterprises, as well as social SMEs and the local community, can benefit from them. Social clauses are coming to the fore; in 2003, this was not raised as an issue, but five years on it has risen far up the agenda.
That is very helpful. We look forward to the report being processed, adopted and implemented. There are some very important lessons and recommendations before us. The Committee looks forward to receiving the full report when it becomes generally available. I thank you for your assistance this morning; your evidence has been very helpful to our inquiry.