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Official Report (Hansard)

Session: 2008/2009

Date: 18 March 2009

COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT
(Hansard)

Lessons Learned from Legal Challenges to Public Procurement Exercises

18 March 2009

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson) 
Mr Simon Hamilton (Deputy Chairperson) 
Mr Fra McCann 
Mr David McNarry 
Mr Adrian McQuillan 
Mr Declan O ’ Loan 
Mr Peter Weir

Witnesses:
Mr Des Armstrong }
Mr Brian Doherty } Department of Finance and Personnel
Mr Brendan O’Neill }

The Chairperson (Mr McLaughlin):

You are very welcome. We are joined today by Des Armstrong, who is the director of the Central Procurement Directorate (CPD), and Brendan O’Neill, who is the policy adviser for the directorate’s corporate services division. We are also joined by Brian Doherty, who is the deputy head of the Departmental Solicitor’s Office. Thank you for arriving earlier than planned, as it solves a logistical problem for us. I invite you to make some opening remarks, Des, which will be followed by a question-and-answer session.

Mr Des Armstrong (Department of Finance and Personnel):

I wish to follow up on the remarks you made before this evidence session began, Chairperson, on what may or may not be said in an open forum. Brian Doherty is with us because he is an expert in the field, and he will advise us as we proceed.

I will give Committee members a brief background to the issue. EU directives set out the legal framework for public procurement. The directives apply when public authorities and utilities seek to acquire supplies, services or works — that is, civil engineering or building works. The two EU directives of particular importance are directive 2004/17/EC, which is for utilities, and directive 2004/18/EC, which is for the remainder of the public sector. Those directives have been implemented into national law by regulations, and they came into force on 31 January 2006. The intention has been to clarify, simplify and update the previous procurement regime and to introduce a number of new provisions. Therefore, we now have the Public Contracts Regulations 2006 and the Utilities Contracts Regulations 2006. Those regulations do not extend to Scotland — separate, but similar, regulations have been made there.

The purpose of EU procurement rules is to open up the public-procurement market and to ensure the free movement of supplies, services and works in the EU. The rules mostly require competition before contract award. Therefore, they reflect and reinforce the best value-for-money focus of Northern Ireland’s public-procurement policy. The definition of best value for money is:

“optimum combination of whole life cost and quality (fitness for purpose) to meet the customer’s requirement”.

It is important to note that the EU procurement regime that the directives and regulations describe is not static. It is subject to change and is driven by evolving European and domestic case law, by communications from the European Commission and by new and revised directives and amendments to the UK regulations.

In addition to the EU member states, the benefits of EU public-procurement rules also apply to a number of other countries, because of an international agreement — the Agreement on Government Procurement (GPA) — which the World Trade Organization (WTO) negotiated. Compliance with EU rules ensures compliance with the GPA, where it applies, and that ensures that GPA suppliers have the same rights as EU suppliers. GPA members include Canada, Hong Kong, China, Norway and the USA.

The Committee is interested in the experience of small and medium-sized enterprises (SMEs). The only references in the directives to SMEs lie in provisions on subcontracting and in a relief that the USA has negotiated from the GPA. That relief is designed to allow access to contracts to reserved sectors and minority communities in the USA.

The 2006 UK regulations introduced a number of significant changes, which we may touch on later in the session. The main changes are as follows: we now have a single set of regulations for supplies, works and services, whereas previously they were split across three sets of regulations; there is a requirement for a 10-day standstill period at the award stage, before contract signature, to allow those who have tendered unsuccessfully to consider taking action in the courts; and there is a need to inform those who have tendered unsuccessfully of the characteristics and relative advantages of the successful tender. The new regulations expressly provide for framework agreements.

Mr Hamilton:

Thank you for your introduction. I want to address the updated table of the number of legal challenges to contracts, which is contained in your submission. To a layman, it seems to be a cause for concern. From 2005 to the present is a short period, yet there are 12 cases. The legal costs borne by the taxpayer in only six of them are listed, and they total more than £4 million. Some of the costs that are not listed in the other six cases may be relatively insignificant, but, with £4 million spent on half of the 12 cases, it is clear that a great deal of money is involved. I am sure that other members and the public agree. It may not seem a great deal of money to members of the legal profession, but everyone else will be concerned.

Why were those cases brought? Is there a common theme, or is each case different? What are the implications for the procurement system in Northern Ireland? In your experience, does a total of 12 cases, brought over a four-year period, constitute a high level of legal challenge? How does it compare with other jurisdictions in the UK, and further afield? Is that our fair share of legal challenges? To me, it looks like a great deal of money, but is it when compared with Scotland, Wales, England and further afield?

Mr D Armstrong:

My first point is that the table shows firms that have tendered unsuccessfully exercising their rights under the regulations and directives. They have the right to take legal action, and we cannot avoid that: legal action is driven by the directives. We must learn the lesson that legal action is expensive. In EU procurement law, the time frames for legal action can be lengthy. Before one goes to court, it takes time to prepare the material to be presented. Time must also be allowed for the courts to reach their decisions and to take any clarifications that they need.

Obviously, set procedures in the legal system, such as the payment of legal fees, need to be facilitated. If the cost of each case were added up, the total would be fairly sizeable. Without detracting in any way from the legitimacy of the courts or unsuccessful tenderers to take legal action, I suppose that we could agree that the money could be spent in other ways.

We get a sense that the change in the regulations has driven the number of legal actions being mounted. Before the regulations changed, it was sufficient for contracting authorities to announce the award of a contract and to let the unsuccessful tenderers know who had been successful in the tendering process. The change in the regulations to provide for the 10-calendar-day standstill means that unsuccessful tenderers can now take legal action and ask for information. It is possible that that alone has allowed for a greater consideration of legal action, because unsuccessful tenderers can seek legal advice if they find out that they have been unsuccessful.

We appreciate that participation in procurement competitions draws on an organisation’s resources. Unsuccessful organisations experience a loss of the information that they must provide for the tender. There may also be concerns about the business impact on those organisations in the longer term. Unsuccessful tenderers will look at the award decision in a number of ways. We have discussed whether more cases are raised in Northern Ireland than in some of the other jurisdictions. Feedback from Scotland and Wales suggests that Northern Ireland is more active.

Mr Brian Doherty (Department of Finance and Personnel):

It is quite difficult to pin down the reason why there may be more legal challenges to Government procurement in Northern Ireland than there are in other jurisdictions. Recently, big cases — one case in particular and another to a certain extent — have focused on the new procurement techniques that are used in Northern Ireland. There is UK-wide policy on the use of frameworks and partnership procurement, which has been adopted and openly promulgated here. However, that policy appears to have created a particular attention. The Department of Finance and Personnel would say that it is following the policy that the Executive adopted in trying to derive best value for money from the system. However, we now face some fundamental questions that the courts have raised about aspects of that technique.

I do not know whether that addresses specifically the reason why more legal challenges to Government procurement in Northern Ireland are mounted. I must say that it is quite difficult to pin down the reason for that. One reason could be the controversial partnership technique that is used here. We know that that technique is used in other jurisdictions, so perhaps Des can assist by explaining the extent to which it is used in those jurisdictions. Given that we presented that technique more openly, or used it more here, we were perhaps more liable to have it challenged.

Challenges on new techniques are not unprecedented. Roughly a decade ago, the very concept of using framework agreements was attacked. The technique was challenged in a Northern Ireland procurement case, even though it was being used across the UK. I am always tempted to consider whether part of the reason for that is because there is a greater claims culture here. That is not to take away from work we, as legal advisers, and the Department do to try to keep as close a hold as possible on the accuracy of the techniques that we use, or their legitimacy.

One aspect of opting for a new technique, which was perhaps contemplated at the time that the legislation was passed, is that one must draw people to the latest understanding of how the public sector thinks that it can get the best value for money in current circumstances. I understand that the Department of Finance and Personnel and the Executive accept that the partnership technique in particular is one way in which we can get best value for money.

Mr Hamilton:

Not that that is not interesting, and it does mirror some of the evidence that we have received from folk who practise in the industry, but we do seem to be slightly ahead in where we are at. The belief was that other jurisdictions would see similar legal challenges; however, the previous regulations were lifted and shaken about, the pieces of which are now falling into place and will settle over time, and we seem to be slightly ahead of other jurisdictions.

Brian mentioned the frameworks, a subject that is hard to avoid, and one that we will probably spend most of our time developing. Of the £4 million in costs, £2·535 million relates to two frameworks contracts. Although there are acknowledged and accepted advantages to a frameworks approach, it can be argued that having super-contracts of such significant value increases the likelihood of a legal challenge, which is what we are talking about today. If big companies going for those huge tenders lose out, in those circumstances, they are much more willing to put in a legal challenge. In the past, when a tender was broken down into more manageable, bite-sized chunks, companies were perhaps not that keen to mount a legal challenge. They accepted that if they did not get the contract, there were other opportunities out there.

However, for the frameworks that those companies are excluded from — for which they are not on the list at all — it is almost a necessity, not a temptation, to give a legal challenge a bit of a go. Companies recognise that, given the immense value of the contract, they must challenge it on the off-chance that something has gone wrong during the tendering process. Does that approach — certainly in the initial stages — invite those challenges, and the substantial legal cost that accompanies them?

Mr D Armstrong:

In order to explain how we arrived at the procurement strategies that decided that framework agreements would be of benefit to the schools modernisation programme, and to the clients of the Central Procurement Directorate (CPD), I need to state that there are slightly different drivers in the CPD framework than there are in the schools framework. In the schools framework, there is a backlog of infrastructure investment in schools and quite a stepped rise in the amount of moneys that will be available in future. Therefore, a real opportunity existed to grab that resource and ensure that the procurement process was as efficient and as quick as possible to allow projects to be completed as quickly as possible.

By using framework agreements, we believe that we can shorten the procurement time frame by around five or six months, which represents almost one year of a child’s education. If one can provide a school almost one school year quicker, there are obvious educational benefits. In CPD’s situation, because we do not hold the budget, clients tend to come to us with a business case that has already been approved. In the past, we found that we would say to those clients that, although a business case was very good, they would have to come back in around eight months when we might have a designer for them. Once the design is complete, clients would have to come back in another eight or nine months by which time we might have a contractor.

There was a sense that we needed to get the infrastructure and the expenditure moving more quickly. Framework agreements were seen as a way in which to do that. There are advantages, in that they allow particular contractors and designers to focus on various bits of the market and to develop their expertise within that market, thereby providing a better service to the public sector. Those are the sorts of benefits that come out of framework agreements.

At the time, we did recognise that, although infrastructure spend by the Government was rising, the construction marketplace was rising substantially as well. In Northern Ireland, there is a perception that the bulk of construction spend comes from the Government, but that is not the case. Government spend is around 40% of the construction market; therefore, 60% of the market was also buoyant. Part of the strategy of the framework agreements was to grab resource and point it toward the various areas of infrastructure deficit. That would allow us, if one likes, to capture some resource and to make the Government’s business with those organisations more substantial. There is a balance to be struck in how to influence a contractor or designer’s business plan.

The system has been used in Wales. Welsh Health Estates uses a very similar framework arrangement to that which was intended for CPD. Before CPD developed the procurement strategy, it had a look at a number of organisations with sizeable procurement spend ahead of them, just to see that it was taking on board any learning that those organisations had on best practice. Framework agreements are the right things to do. However, there is the question of whether current market conditions will allow us to go with them. Obviously, there are different types of pressure on the resource available.

In our discussions with contractors, they are indicating clearly that they believe that there is a place for framework agreements. It is a matter of how we work with the local market to give it an opportunity to get into those framework agreements and to ensure that we do not end up with some of the problems that we have had in the past.

Mr Hamilton:

Finally, on a related issue, I accept that there are advantages to framework agreements, and I would not turn my face against the whole notion of framework agreements. However, the unfortunate experience of those major contracts is what we have before us — legal challenges. Those legal challenges put a cautious spin on the whole issue: are framework agreements right or wrong? There has also been fairly negative media coverage of the issue.

I understand that Northern Ireland Water is proceeding with a similar approach. Given that those challenges are there, and that we are awaiting their outcomes, is it wise for Northern Ireland Water to be pressing ahead with a framework arrangement — albeit under a different name; I think that they are calling it “alliance” — or would it be better for it to await the outcome of those legal challenges?

Mr B Doherty:

That is an interesting question. There is a balance to be struck: to what degree does one feel one ought to adjust the technique being used, at least in the interim period; or does one feel that the case is robust; or does one wish to apply for interlocutory relief, which was received in both of those key cases that DFP procurement side was involved in the initial hearings, so that one gets a certain cover from the courts in the interim period? Of course, that comes with the risk that one may be asked to give an undertaking to pay damages for what may have been lost by those who are otherwise in that period precluded from the opportunity of getting into a contract with the Department.

There is a delicate balance to be struck. It comes down, in part, to the use of the technique and, in part, to the case in question. The Department may wish to say more about what it is doing in those cases.

Mr D Armstrong:

I am not familiar with Northern Ireland Water’s framework arrangements. However, in the utilities area, framework arrangements have been used widely, because of the downward pressure that regulation puts on to funding for those organisations. The concept of strategic partnering is much more widely established in the utilities sector. Much of the procurement for utilities companies in England and Scotland has been carried out in that way.

There is the question of whether it is correct to proceed in that way at the moment. In the McLaughlin and Harvey judgement, for example, and even the Henry Brothers case, I do not think that the courts said that frameworks were illegal, because they are provided for under the regulations. As regards the issues around the selection process, and how one arrives at the eight, or the six, suppliers that would be on the framework arrangements, it was not that the framework arrangements were illegal — the problem surrounded the method used to select those that would participate in the framework arrangements.

Mr B Doherty:

I absolutely agree with that. The one issue in the education procurement — the schools case — was not the framework per se but the partnership approach and whether, at the time that the award was made, and at the time that people were put on the framework, and at the time that the award was given over, sufficient expression had been given to the “economic” element of the most economically advantageous tender.

The Department strongly believes that it is a sufficient articulation. The whole idea of the technique is to gain better value for money. It is proper to note that a finding of wilful discrimination has not been made against any party that is involved in those processes as a result of the court’s identifying perceived difficulties of compatibility with community law. It has simply to do with the technical technique, as opposed to any favouring.

In a sense, we are all travelling in the same direction, in that we are trying to get best value for money. In the case of the Government here, we are trying to utilise the freedoms that we still have under those directives and constraints to get the best value for money and to get firms to work to the best advantage in order to meet the Department’s objectives. For example, if one group of contractors were to carry out ongoing work on schools’ procurement, that should increase their experience and learning, as well as that of the Department, during the process. Des Armstrong will be able to describe that better than I can.

It was believed that that process would be able to drive down the ongoing costs. In a sense, the process has been bona fide, but there is now a difference of opinion over the legitimacy of aspects of the technique that has been used.

Mr D Armstrong:

The impact of the judgements on the frameworks applies to all procurement. It is not restricted to frameworks. The selection of a contractor or a supplier on the basis of a quality submission and a financial submission impacts across all procurement.

Mr McNarry:

Is all the legal preparation work done in-house?

Mr B Doherty:

There has been a mix, in that outside legal advisers were involved in the original preparation of the contractual documents. That was a bought-in legal service, both for reasons of the quantity of the legal service that was required and the knowledge of the outside service compared with what could be provided internally. To the best of my knowledge, Northern Ireland is no different to the commercial contractual areas of our colleagues in other parts of the UK.

Although the private-sector contractors were drawn in to a degree because of their knowledge of the contractual documentation, the cases have been defended by the Departmental Solicitor's Office in conjunction with the use of counsel. In both of the larger cases involving the Department, we have also used the skills of a Treasury counsel.

Mr McNarry:

Is a procurement process used when appointing or using, for want of a better word, outside people?

Mr B Doherty:

That process is carried out by the relevant Department.

Mr D Armstrong:

Legal services are subject to the same regulations. It is covered by part B of the regulations. Part B means that the full requirements of the directives do not apply, so advertising may not be required and the mandatory standstill period may not have to be used. In broad terms, a procurement is in place.

Mr McNarry:

That is interesting, and good to know. Of the 12 cases that your submission presents, two resulted in no damages being paid, two cases were withdrawn and four are not finalised so cannot be commented on. Four were “settled pre hearing” — I take it that that means that they were settled out of court.

Mr B Doherty:

Yes, that is correct.

Mr McNarry:

It is important that we can agree on that. One of the cases that was settled out of court is that of Workplace 2010. Your submission shows that the cost was £1·2 million. Can you separate the damages that were agreed from the legal costs?

Mr B Doherty:

I have not been at the centre of preparations for settlement in that case, but I would have thought that the answer is yes.

Mr McNarry:

It would be useful if we had that information, because that is the only case, as far as I can see, in which it is possible to identify legal costs and damages, so I would be interested in knowing the breakdown. I see no indication of the court awarding damages in any of those 12 cases.

Mr B Doherty:

To the best of my knowledge, that is correct.

Mr McNarry:

Is that a sign that, on the margins, the relevant Department is more willing — of course, both sides must be willing — to do a deal than to go the whole way in court and to take a risk with regard to what the judge may award? Legal costs are legal costs, but I am referring to the level of damages. There are 12 cases here, although I understand that four are not finalised.

Mr D Armstrong:

I would need to look into the detail of those cases a bit more. I am not familiar with that detail because the support is provided by other centres of procurement expertise. However, you may wish us to come back on that point.

Mr McNarry:

I only raised the issue to find out whether a judge had decided — like it or not — to award damages. What is taken out of other people’s hands is the decision to include damages in an out-of-court settlement. That is why I am interested in Workplace 2010. If that is how things are to be done, it would be as well to tell us so.

I know that most people prefer to settle out of court for commercial reasons, because they have no idea what a judge will do or say, and, although they can pursue a case, they must pay big bucks for that kind of legal representation. That is why I asked who handled your matters. Should I take it that, on the margins, when you are deciding whether to settle out of court, the Department briefs counsel fully about how much it is prepared to settle for?

Mr B Doherty:

In any case with which I have been involved, I have worked very closely with counsel, and I would always want counsel to be in the cockpit for the final decision-making on settling a case.

A more general point that I was going to make earlier, with which Des will be very familiar, is that we are not likely to settle any case unless, on the balance of probability and risk and taking account of commercial considerations, it is considered wise to do so. Some years ago, the problems that can be created by such precedents were experienced, whereby settlement became the order of the day.

Previously, in our sister Assembly in London, public-liability claims became a particular cause of difficulty, so resources were found, and efforts were made, to demonstrate that getting damages, or settlement in lieu of damages, is no easy matter. That is the background to this issue.

Mr McNarry:

I appreciate what you are saying about that approach; however, we are interested in how public money is spent. It is the control of public money, up to the point at which someone briefs counsel, which determines what the deal is here. I see a trend of settling out of court, only from the 12 cases that you have presented. Is that a fairly indicative trend? You may want to come back to that and give us a clearer picture; I would appreciate it if you could do that.

Court cases are a contest, as you well know. I would be concerned if public money was being spent on the basis that people might feel that it is prudent, or worth their while, to make a challenge in the secure knowledge that the Department does not take the full risk — and I realise the risk of going for a judgement — and is prepared to settle out of court, which would include damages and a share of legal costs. I do not want that to be the case, but I want to know whether you can give us a clearer picture.

The second aspect of the situation is the role of the Central Procurement Directorate, which provides a professional procurement service to public bodies. There are also various centres of procurement expertise. Is it true that known legal obligations are not being followed by Departments and other public bodies?

Mr D Armstrong:

The regulations provide for a challenge, if that is the case. Each of the centres of procurement expertise has a complaints procedure in place in the event that an unsuccessful tenderer feels that the process was not compliant with policy or the regulations. We ask the centres of procurement expertise to provide us with details of all complaints that they receive. That information is brought forward to the procurement board. We seek feedback from suppliers in a number of ways.

Mr McNarry:

I realise that this is not the best question to ask, but I will ask it directly: is it true or is it not?

Mr D Armstrong:

With regard to what centres of procurement expertise do?

Mr McNarry:

Do Departments fail to pursue their legal obligations?

Mr D Armstrong:

My experience in dealing with the heads of procurement is that we are clear about public servants’ obligations to follow EU law and how that is applied in procurement competitions. On occasions, unsuccessful suppliers may feel that the process has not been compliant; such instances may lead to legal cases. However, all of the centres of procurement expertise are accredited on a regular basis by the procurement board. We began an accreditation process at the beginning of the year, and there are other mechanisms through which unsuccessful suppliers can raise concerns.

The Chairperson:

It is not about the process. We seem to be developing what would, by any objective judgement, be the best-practice approach. Have the legal challenges that have been made demonstrated that Departments or other public bodies have not always followed their legal obligations? Has the experience of such challenges demonstrated that mistakes have been made or that legal obligations have not been understood or followed?

Mr D Armstrong:

I said at the start that case law, in itself, is a way of fleshing out the bones of regulations and directives. On the matter of the CPD framework, a number of significant case-law judgements were handed down after the procurement strategy was developed, after the procurement process was put into effect, and, indeed, after the pleadings had taken place in court, but before the judge had made his decision. We are in an area in which directives and regulations provide a great deal of information and guidance, but in which the case law can be ahead of a particular situation.

In the case of McLaughlin and Harvey Limited v the Department of Finance and Personnel, the method that was used was a direct reaction to changes in the regulations. The new regulations that came in placed an onus on contracting authorities to develop award criteria and to make them known to the marketplace. It also placed a requirement on contracting authorities to be able to explain the relative merits and advantages of the successful bid against an unsuccessful bid.

The second part is an additional piece of work that was introduced by the regulations, which came into force in January 2006. The case of McLaughlin and Harvey v the Department centred on how the Department handled the dual requirements of the regulations, one of which is to let the market know how much information was required, and how it would be judged by the competition. The next requirement was to be able to explain to unsuccessful tenderers, after the contract had been awarded, why the winning tenderer was awarded the contract in comparison to their bids.

Mr McNarry:

I understand that. I have been informed that Departments are not following known legal obligations. I do not have any basis or great evidence for that; that is why I asked you whether it was true. If you had said that it was true, I would have asked why that was the case. We need to do a bit more work on this and present more evidence whereby we could say that these legal obligations are not being followed.

Simon Hamilton talked at length, interestingly and correctly, on major projects and big companies. There are very extensive costs to prepare a tender on major projects. I only have the details of the 12 cases that we are addressing. Is there any danger that we could put people off from tendering because there are difficulties with the process? We could be developing a record for that, and they may wonder why they should go to the expense of tendering. That has been said in relation to Workplace 2010. People are asking why they should go to all the expense of tendering when the procurement service’s policy can be a frustrating waste of time. Why would people want to go through that? Therefore, the risk is that we would be left with, not the best tendering, but what we already have.

Mr D Armstrong:

We need to look at the type of projects that are being procured. In some way, you need to segment the market. Projects such as Workplace 2010 are complex in that the client sometimes cannot determine the service that it needs until it starts to engage with the market. Again, the regulations have changed in terms of replacing what would have been a negotiated procedure — negotiations require both parties to come to a conclusion. Some of the costs that are involved are around coming to that conclusion, getting parties to settle through a negotiated procedure on an award.

That has now been replaced by a competitive dialogue process that is supposed to end the procurement dialogue cleanly, and to get final bids. However, the feedback that we have at the moment is that there seem to be some issues and some problems. Those complex procurements require the tenderers to put quite a bit of resource into place so that they can commit, for a long term, on a procurement and its outcome. That is sensible.

We have received feedback on the more routine procurement processes, which, perhaps, are less complex and which are used in instances in which clients have a better idea of what they need and how the market might provide it. The feedback suggests that there is some duplication in those processes and that we are asking for the same thing in a different way. That loads costs into the marketplace. We received feedback from the Confederation of British Industry survey, and we received some directly. In the area of construction, for instance, we have tried to use the Constructionline method, where suppliers can load up their information on a one-time basis. That information is kept up to date and can be drawn directly into a procurement process.

There have been occasions when public-procurement authorities have asked for additional information or the same information that is held. If we move all the centres of procurement expertise into e-sourcing NI — the electronic tool — we are hopeful that, as part of that, we will seek to standardise the whole template of information. CPD has developed a number of templates as part of bringing forward the initiative, and we are encouraging the centres of procurement expertise to use those templates with the minimum of changes. Therefore the Northern Ireland public-sector’s approach to the marketplace should be more consistent. I would like to engage with the industry side to ensure that the information that we are asking for meets their needs. I would like to try to strip out any wasted effort.

Mr McNarry:

People have approached each of us in our constituencies and said that they would like procurement to be more user-friendly. Although we are not protectionist — and I should not even say that word — we would be sympathetic to that. I want to make sure that people will not be tendering merely because they know that the Department is a soft touch on the route to court and too easy to settle. That is how it looks to me, but, hopefully, that it is not the case. I want to ensure that the Departments are functioning within their legal obligations and that people are not put off from tendering. I accept the explanation on the complex issue, but it is good to hear that you are picking up on the feedback that is coming in on the more fundamental procurement exercises.

Mr D Armstrong:

The move away from the acceptance of the lowest price has added costs to the procurement process. In the past, suppliers were able to use their own pricing information for any requirement that was scoped up. Now, all contracts are awarded to the tenderer who has made the most economically advantageous tender. That requires that an assessment of the quality bid, as well as a costing bid, is carried out. Inevitably, suppliers have to provide additional information. That is of benefit to the winning bid and to the public sector as it is a better overall position to be in. I am clear, however, that more needs to be done in the centres of procurement expertise.

Mr McNarry:

The figures tell us that four are not finalised and four are finalised. That is over £4 million. I know that that is based on just 12 projects, but we do not know how many there may be. That is a lot of money that could be used elsewhere.

Mr F McCann:

The Committee heard evidence concerning the CPD integrated supply team framework agreement. During the court case, it was discovered that the tender-marking scheme was drawn up after tenders were received and that the panel of three individuals who carried out the assessment over a period of two months could not produce notes of their deliberations. How could CPD allow that to happen?

Mr D Armstrong:

The regulations contain the requirement to have the overall criteria specified, to provide a debrief to the unsuccessful tenderers and to be able to link their position to the successful tenderer. We prepared a detailed document on that framework for the marketplace, which showed not only the criteria and sub-criteria, but went beyond that and gave an indication as to how the tender would be marked.

We had another bit of the document provided for panel members, in order to assist them to provide the debriefing information, which is the second part of the regulations. The judgement in the case indicates that that approach was flawed. However, we believed at the time that we were following best practice. We had used the toolkit that the Office of Government Commerce had put forward in its guidance as to how evaluation should be made.

The practice was that the documents would go to the market and the assessment panel would be put together after the procurement process had started. Before the documents were opened, the assessment team would be brought together to allow it to make the assessment. The approach that we took was ruled unlawful; however, as members know, we have lodged an appeal on that basis. I cannot say more about that.

Mr B Doherty:

The court did not find that that point was covered in European case law. Up to now, case law, as established by the European Court, is that weighting and selection criteria that are formulated before notice is put in the Official Journal of the European Union (OJEU), need to be published. It does not say that they cannot be designed afterwards. The heart of the dispute in this case is: how far down the criteria, sub-criteria, the weightings attached to those and, in this case in particular, the guidance prepared for the team that will look at the bids, does the Department need to go to meet EU requirements?

It may be asked why all of that material could not be designed and made available to bidders at the outset. The instruction that I have from the Departments is that to go down as far as is now indicated by the court is more than is good for the Department’s purposes when it needs to give separate guidance to its own evaluators to allow them space to decide between bids.

Mr D Armstrong:

We have looked at the criteria used in a number of judgements. The case of Lianakis v Dimos Alexandroupolis in Greece, which came out in January 2008, gave some information as to where the cut-off line should be. There was then another case, called Letting International Limited v London Borough of Newham, which seemed to move the line a little further with regard to transparency. The case of McLaughlin and Harvey Limited v Department of Finance and Personnel moved the line substantially.

The issue is that award criteria need to, specifically, give commercial advantage to the contracting authority. It must be able to distinguish between one supplier and another. At some point, we have to close off transparency, but become transparent again when it is necessary to explain to someone why the tender has not been successful. That was our approach. However, the judge found that some of the information that we held for the assessment panel should have been given up, and some should have been retained. That leaves us in a difficult position in deciding how to proceed.

With respect to the debriefing material, we debriefed all those who tendered unsuccessfully. We received very good feedback from the tenderers: one of them said that it was the best set of information that he had ever received back from such a process, and that he would use it to improve his tendering performance in the future.

Mr F McCann:

Does that include the notes of the panel’s deliberations?

Mr D Armstrong:

The panel recorded its deliberations on a laptop computer. We must take into account the court’s ruling. The new system that we have, the e-sourcing NI tool, records a good audit trail as to when individual assessment-panel members have viewed documents and recorded information. We intend to issue fresh guidance to panel members, hopefully by the middle of next month.

Mr F McCann:

Having sat on various panels, I know that everything that is written down is usually gathered up at the end of a process in case there is a challenge.

Mr B Doherty:

In my view, the more transparency that is available in that respect afterwards the better, as is the case with personnel selection panels. Indeed, departmental officials spend quite a lot of time in the box explaining how they carried out assessments, and, had papers been available —

The Chairperson:

You are implying that this is not rocket science. It applies at almost every level of recruitment, appointment and selection processes. A careful record of reasons for decisions should be kept, in the event that someone feels that he or she was less than fairly treated. Yet, the Central procurement Directorate seems to have forgotten that. Have you learned that lesson over again?

Mr D Armstrong:

As I said, the assessment team in question logged its information on a laptop and developed information for a debriefing. We will have to look at that situation, for the purposes of transparency. If there is a criticism of our transparency at all, we must react to it and produce new guidance and procedures; that is well in hand.

The Chairperson:

With regard to development capacity, the completion of the debriefing is something that is helpful. I do not know all the bidders, of course, but those who have talked to me about the process have found the debriefing to be a valuable exercise and much appreciated from their point of view in going forward and learning what it is that they have to do to win contracts and to address their own deficiencies.

Mr F McCann:

As a layperson looking in, I would have thought that all of that would have been done at the start of the process, rather than in the middle of the exercise when the tenders come in.

Mr D Armstrong:

That is a throwback to custom and practice, but we recognise that public procurement moves on, and each case that comes up will have some learning in it for us. We are determined to ensure that our processes are up to speed and that we can give confidence to the public and to those who are involved in public procurement, either as clients or suppliers, that we are running a professional service and that it runs in accordance with best practice. We have to learn those lessons.

Mr F McCann:

In your experience, what are the dominant award criteria that are applied to public contracts in NI? How can quality criteria be marked in an objective manner? Are legal challenges not more likely where quality marks are too high a proportion of the award criteria? How do you ensure that tenders are marked equally, fairly and objectively? How much of the work that is due to be let under the integrated supply team and schools’ frameworks could now be put to tender under simple price and construction duration criteria?

Mr D Armstrong:

We moved away from lowest-price procurement, which drove the construction industry in particular in a certain way and made it less efficient. A whole set of tendering processes existed through which contractors would bid low, get the work and then set out, as they had to, to recover profit by claims, or by cutting back on quality or health and safety. Northern Ireland had a pretty poor health and safety record, much of which was down to taking the lowest price tendered, leaving contractors unable to price properly for the work.

Having moved to the practice of accepting the most economically advantageous tender, we find that two issues arise immediately. The first is the proportion of price as opposed to quality; the second is the assessment of quality and how to demonstrate that that assessment is robust. As a procurement professional, there is a certain comfort in opening six envelopes and finding, when looking for the lowest price, a long list of numbers; if one tender is £1 above another, there is not an awful lot of debate about that.

With the quality issue, one must first ensure that the questions asked are structured in a particular way. For example, one might want to reduce the number of tenderers that will produce a full tender, and that would be done using the restricted process. We would invite expressions of interest and ask people to provide information on their experience. We would then allow them to enter into a full tendering exercise. That makes the assessment and award of the tender manageable, reduces some of the cost to the industry and reduces the abortive tendering costs.

We were in a situation that had a tendency to produce a light first stage. It was the second stage at which tendering would really be gone for, and experience mixed up with quality. The courts have now ruled that that is illegal. Contractors or suppliers, or whatever, must be asked for their experience at the first stage. In order to get the most economically advantageous tender, criteria must be created that can be demonstrated to add a commercial advantage to the contracting authority. For example, the supplier may be asked to outline how it will approach the delivery of a service or how it will approach the creation of a product. The questions used, and the weightings given, need to be linked back to the subject matter of the contract. The questions must be relevant to the contract, and we need to be able to explain the split.

In construction, there was a move away from lowest price. Some competitions have, pretty much, been run with quality as the first stage, and then a split of quality. At the moment, the Department is doing some work on how that price/quality split should be taken forward. Some of the legal cases suggest that the courts were concerned that there was an over-reliance on the quality submissions and that decisions on those quality submissions were more subjective — or more a matter of professional judgement. That is an issue that we need to review.

Mr F McCann:

You talked about the lowest price, and I know that recently, in another Committee, we have been discussing procurement and the construction industry. One of the concerns that came up was that major construction companies can come in and outbid local companies, although the contract may go over to the local companies, in that the major companies subcontract the work. Is there anything that prevents that from happening, because, when we get down to it, that is profit-slicing?

Mr D Armstrong:

In Northern Ireland, we have been, for the most part, using local suppliers. In the current market conditions, other suppliers may be interested in the Northern Ireland marketplace. We have found that, when they do come to Northern Ireland, companies look for a local partner. The view is that that is an attempt to take the profit and force the work down the supply chain. I take a slightly different view: I think that we need to encourage that sort of thing to happen. Through the regulations and directives, the public-procurement process is quite clear: one cannot discriminate in favour of local companies. Given those directives, when an external company comes to Northern Ireland, it has to be allowed to tender for contracts. That presents an opportunity for local companies to become involved in the supply chain. What we need to do is to ensure that the supply-chain operation works well; that it feels like a Government contract; that there are back-to-back terms and conditions and payment processes in place; that we are not into the concept of “subby-bashing”. If we can do that, and the construction area has decided that that is what it wants to do, I think that it can work very successfully.

Local companies have been involved in some major roads contracts here, in partnership with companies from outside Northern Ireland, and those local companies have gone on to win contracts outside Northern Ireland. Therefore, Northern Ireland firms have nothing to fear from working with companies outside Northern Ireland, provided that we create conditions that are appropriate for subcontracting.

Mr F McCann:

One concern that arose was the question of major contracts being let out. There were questions around a company’s being awarded a contract and subsequently bringing its entire workforce with it. Therefore, as far as employment and delivery of supplies were concerned, there seemed to be no real benefit to the local economy, aside from what was being built.

Mr B Doherty:

My point relates to the earlier theme regarding procurement rules, with which, I am afraid, we all must comply. The rule regarding consortium bids states that bidders can be any combination of companies working together, and it is not for the contracting authority to try to influence how that takes place or who wants to work with whom. However, when it comes to signing the contract, the authority is allowed to tell those bidders to form themselves into an entity with which it can contract. Therefore, that bundle of different companies or expertise is all brought together. The contracting authority is permitted to do that, but it is not permitted to say who works with whom or in what way. In a sense, we simply have to be receptive to what is placed before us, according to the procurement rule on consortia.

Mr F McCann:

I thought that you could face in the direction of suggesting local supply and local employment.

Mr D Armstrong:

There are a number of ways in which sustainable development can be best effected. One way is for a public-sector client to start thinking about sustainable-development issues when it is deciding what it wants to buy. Another way is for the client to start thinking about those issues when the contract is being discharged.

In the construction industry, we have agreed a number of initiatives, including advertising for opportunities in local supply chains and ways in which to try to bring people out of long-term unemployment. However, the industry is saying that it is going to keep people in jobs, rather than bring unemployed people back to work. There are also issues around apprentices.

The issue of how contract management is taken forward is an important one, because that is where many of the benefits can be found. If we have contracts in place that require back-to-back conditions — that is, the same terms and conditions between Government and the main supplier, and between the supplier and their subcontractors — that will work better.

Mr B Doherty:

I have a copy of a flow chart from the document that the Executive have adopted on sustainable procurement, and it is a terrific way in which to point up the various methods from the beginning — from setting up the strategy to procurement technique. It allows one to build in the policies that are important to the Executive, to the greatest degree possible, in order to drive forward particular objectives, in so far as is possible within the European rules. All centres of procurement expertise (CoPEs) should pay attention to that, and they have been doing so.

The Chairperson:

Earlier evidence that we heard on the topic indicates that contract compliance and contract conditions are ways in which to address, within EU regulations, the issue of the local market. There is an inherent issue for indigenous companies dealing with consortia or joint ventures, particularly if tenders attracts outside bidders with far superior in-house legal and technical professionalism to prepare and present their bids.

We have also heard evidence that, in some instances, up to 100% of the work was subcontracted out to local companies that were not in a position to compete originally, but that ended up “dealing“. I think that someone used that expression earlier. They delivered the actual work and the product. We have that degree of capacity locally. The disadvantage exists at the technical level.

The Committee considered the more social priorities that the Executive are dealing with — the long-term unemployed and people on apprenticeship opportunities. At contract level, one can consider, legally, the issue of rewarding full delivery and compliance with those conditions. The issue of introducing sanctions for those people who do not comply can also be addressed.

I was interested to hear Des say that we must look at the idea of contract compliance. Perhaps we should be a bit creative in having those requirements built into the contracts in the first place. I do not regard that as being discrimination: I think that it is a way for the Executive to go about their work in a professional way and to deliver for the local market. We need to retain capacity, and to build and enhance that capacity.

The Committee also received trade-union information. I mention that now because of the reference that has been made about experience elsewhere in the EU — experience in the South. Within EU regulations, it is possible to have a percentage of the contracts designated to local contractors. Are you aware of that?

Mr B Doherty:

On the face of a suggestion put like that, I am somewhat troubled by it.

The Chairperson:

Not as a policy directive. The contract conditions are designed to produce that targeted outcome. Social dimensions have been built into the contracts, and local contractors can address those dimensions effectively.

Mr B Doherty:

There is absolutely no problem. We have advised Departments on issues such as the long-term unemployed in the past and have that put into the contract conditions, so that everybody can see that from the outset. In a sense, we are saying that this is neutral: the long-term unemployed can come from Sicily or Northern Ireland. The chances are that they would be more likely to come from Northern Ireland. That type of approach can certainly be taken. At the outset, it is the scale of the procurements that are put to the market. However, as Des would say, there is a good record of local firms competing for the bigger construction contracts, and so on.

I fully accept that there is a number of techniques that we can utilise. Interestingly, the trade unions played their full part in being consulted and in participating in the decision-making on the policy that the Executive have adopted. I am not quite sure, but there may be a stop date at which one could look and see whether that has been done —

The Chairperson:

Yes, to determine whether we are getting those outputs.

Mr McNarry:

This is one of those meetings at which one says, “So far, so good.” It does seem to be working well, and our agenda is made up of lessons learned from legal challenges.

Mr Hamilton:

You are about to ruin all that.

Mr McNarry:

However, my problem is that there is no report to work off, and I feel that the Committee should have a report of some kind. You have been frank about answering questions on your presentation. However, it is nobody’s fault — except yours, I suppose — in that the heading of your submission includes the words, “Lessons learned”, and I cannot find any lessons learned. No reference has been made to them.

Although the Hansard report of this evidence session will be helpful, I expect that you have an internal report — a list of dos and don’ts, or some kind of hit list that says, “Hang on, this is what happened to us because … Do not let it happen again.”

The key issue is to protect against a legal challenge — you may correct me if I am wrong. We cannot operate on the basis that we expect there to be a legal challenge. It is hoped that lessons have been learnt on the protection against that, at least.

I see that £4 million has been spent in four cases. I wonder whether there are areas in which Departments are sailing close to the wind, and, therefore, may not be protected. Is anybody looking at that? In view of what we have learnt, what might be on the horizon? Is there a chance that something else might arise? That is why I asked you whether the recommended guidelines were being followed. Is there something there? If you know, fine; if you do not know, someone should look for it. It seems to me that there is always something ready to bite.

I need to hear that the work on procurement is done — as much as to protect Departments from themselves as anything else. Procurement could become a contestant charter in which people find out how they are supposed to submit tenders, and, subsequently, discover that they might earn more money from settling out of court than they would from carrying out the work.

What lessons have been learnt from the legal cases so far? If possible, I would like written evidence of that. What steps does the public sector need to take to ensure that it is complying with legislation and with common-law obligations on public procurement? How can it reduce the amount of future litigation? We need to cover those matters.

Your submission contains legal costs, and you have said that non-departmental solicitors have been used. Do the costs provided in your submission include outside legal costs? Are they a breakdown of in-house legal costs? According to what was said earlier, in-house legal seem to account for the greater percentage by far? It is not an expectancy, but does your budget include a war chest that is to be used if required? From where did you obtain the £4 million? Who gave it to you? Do you make a bid for £4 million or £20 million, which is to be used in the event that you take a hit? If your house is in order, do you return £3 million, for instance?

Mr D Armstrong:

We certainly do not have a war chest.

Mr McNarry:

Perhaps that was the wrong choice of words.

Mr D Armstrong:

To obtain the funds that are needed, Departments follow the normal bidding process.

Mr McNarry:

Do you bid as required?

Mr D Armstrong:

That has been the case.

Mr B Doherty:

That is more Mr Armstrong’s territory than it is mine. However, my understanding is that there is not a war chest, but bids must be made for unanticipated cases for which damages are required to be paid.

The Chairperson:

Are the outcomes reflected in the monitoring rounds?

Mr D Armstrong:

Unsuccessful tenderers have informed us that they are being approached by others, who are offering to help them make legal challenges. We recognise that the potential for legal challenges in Northern Ireland has increased. We need to ensure that the way in which we choose to handle that potential threat is considered carefully. However, now that centres of procurement expertise have been established, we can draw together the right people to take the matter forward. We must ensure that people in Northern Ireland have confidence in the public-procurement process, which, in the event of legal challenges, must be capable of being defended robustly.

The Chairperson:

Assuming that you take cognisance of best practice elsewhere, has a lessons-learned report been produced for each of the contracts mentioned in your submission to which there has been a legal challenge?

Mr Brendan O’Neill:

Yes. However, there is some confusion, because the Committee has obviously not received the lessons-learned report that we produced.

Mr McNarry:

Things not arriving, or not arriving on time, would be nothing new for this Committee, but no matter.

Mr B O’Neill:

There is a report —

The Chairperson:

You sent it, so we will get it.

Mr B O’Neill:

The background is that heads of procurement have regular meetings at which those matters are discussed, and papers are produced, through the CPD secretariat, that set out the information gleaned from the CoPEs. Lessons-learned reports evolve from that process, and they may well end up as guidance, which my unit would draft in conjunction with the heads of procurement.

The Chairperson:

That is fine.

Mr B O’Neill:

The nature of the issue means that each private office must submit their proposals via its Minister. Last week, we submitted our report to our Minister, with a covering note for the Committee Clerk. Obviously, there was a hiccup somewhere along the line.

The Chairperson:

Another lesson learned.

Mr B O’Neill:

Indeed.

Mr McNarry:

It is hard to procure these reports. [Laughter.]

The Chairperson:

I am glad that you raised that point, David.

Mr B Doherty:

I cannot pick up on all the points made, but I can outline a few of the indicators on the way to our finally producing the report for the Committee. In answer to the question about the amount of legal costs, the figure given includes all legal costs. However, we will confirm that information.

On the lessons learned —

Mr McNarry:

In your confirmation, I ask that you account for the £1·2 million in legal costs and damages. You have already indicated that you will separate legal costs and damages. Will you specify how much money was paid in legal costs to commercial companies? The balance, obviously, will be in-house costs.

Mr B Doherty:

Yes.

The Chairperson:

Do you recollect whether there are any confidentiality requirements for that case?

Mr B Doherty:

I hope not. When I examine the matter more closely, I will discover whether there are any such considerations.

The Chairperson:

In any event, you will be coming back to us on that matter.

Mr McNarry:

Given that the matter was settled, there should not be any confidentiality requirements.

Mr B Doherty:

I would have thought that the water-under-the-bridge case is more likely to be simple.

As legal challenges continue to be brought, it is important that Departments, in the light of the lessons learned from the centres of procurement expertise, continually adjust their positions. I, or a colleague, but usually both of us, regularly meets with the Central Procurement Directorate, and also with its CoPEs, to brief and update it and to answer its questions, giving it as much general advice as we can in the light either of legal challenges or of any other legislative and technical developments, or in the light of issues raised by the directorate on which we have been asked to advise. One CoPE might approach us about a matter that we believe everyone should know about. Our system operates pretty flexibly in such circumstances.

Mr McNarry:

Des Armstrong’s remarks about the ongoing alertness — whether that is a red alert, I do not know — that people might attempt to make a legal challenge are helpful. That is the sort of protection that I wish to see built in somewhere. I hope that that has sent a message to the Departments not to be too casual. I sometimes think that Departments are not as on the ball as they should be with procurement.

The Chairperson:

I suppose that that propensity should also be subject to lessons learned, as should past mistakes or learning-curve issues.

Mr McNarry:

It is a sign.

Mr O’Loan:

Thank you for your evidence so far: I hope that I do not duplicate any questions. If I do, please tell me smartly so that we can move as quickly as possible through the session.

Carson McDowell solicitors suggested that it may be useful to have a public-procurement ombudsman figure available, rather than our only course of redress to be to go down the litigation route. There may be a retired judge who might do what is referred to as a quick and dirty adjudication on the matter. What is your opinion on that?

Mr D Armstrong:

I am certainly interested in anything that can help us to explain the awards decision and the impact on the unsuccessful tenderer, and that can mitigate the likelihood of costly legal action. The question is how binding any adjudication would be, and where it would sit in a legal framework. I do not think that we could introduce something like that as a direct replacement for anything that is contained in the regulations. However, some sort of mediator could be brought in to try to take the heat out of the situation.

Mr B Doherty:

I am sorry if I appear to be throwing cold water on the suggestion, because I am not at all adverse to it, but one problem is that there are debriefing requirements, and that they be as comprehensive as possible is part of the explanation process. If there is disagreement, and a Department is anxious to proceed with its procurement and award the contract, and the relevant 10-day standstill period has run out, it is possible for the courts to become engaged quite quickly. Once the courts are invited to come in, that is the forum in which the matter will be dealt with. Diverting from that is not easy, when there are Departments that wish to award a contract urgently — if that is where they are at, but that is not always the case — and when the disappointed bidder is anxious.

The Chairperson:

Is there any international experience of mediation in such circumstances?

Mr D Armstrong:

I am not sure about international experience, but we have mentioned it to representatives of the local construction industry, who have told us that they have come across such a model in Scotland. They are preparing some details to see how that might work in Northern Ireland.

Some of the cases have been at the leading edge of European case law. To reach an understanding on some of those cases requires the courts to present relevant case law in order to allow the judge to make a decision. Examples of the law are brought to a judge, and a judge then makes a decision on that basis. That is quite complex, but that is how it seems to work.

Mr B O’Neill:

I did some work with the accession states when they were applying for membership of the European Union, and each of them — Poland, Romania, the Czech Republic and Slovakia — opted to establish a public procurement office. The president of that office would then examine the issues. That is permissible under the European directives. However, the United Kingdom as a whole, and as a member state, decided not to go down that route, and to adopt only the taking of a challenge through the High Court. We, in the United Kingdom, are limited to challenges in the High Court. We cannot challenge in the lower courts.

Other member states have gone outside the legal system and established offices of public procurement. It is allowable under the directives, but the UK as a whole has decided not to go down that route.

The Chairperson:

Does devolution reopen that possibility for us?

Mr B O’Neill:

That is an issue that relates to the member state.

Mr O’Loan:

It is important that discussion continues on this. It would be very good if something could be found that would —

The Chairperson:

Des, could the paper with the reference to the Scottish experience be forwarded to the Committee? We may or may not follow it up but, if there is some other experience, it might be worth looking into. Sorry, Declan.

Mr O’Loan:

May I ask about your assessment of the impact of legal challenges, in relation to both direct and indirect costs to the public purse and also in relation to delays in projects?

Mr D Armstrong:

With regard to delays, projects are now being brought forward on a project-by-project basis, using single, one-off procurements. That will increase the time frame, by comparison with running a secondary competition off a framework. The delay is automatic. My understanding is that none of the projects that are designed to go to the frameworks are being held: they are moving forward, one at a time.

There is a more serious issue with respect to the potential impact on achieving value for money. The whole premise of using the frameworks was that by using them we could deliver better value for money for the taxpayer in Northern Ireland. From our discussions with the construction industry through the Construction Industry Forum for Northern Ireland (CIFNI) task group, we know that it is still looking at how frameworks might be re-established in order to get work to the marketplace as quickly as possible. The view at the moment is that the frameworks need to be broken down in terms of value, with some projects run to the market outside those frameworks. There is still a view in the construction industry that frameworks are needed in that respect.

Mr O’Loan:

I could say more about that, but I will not.

I have a few supplementary points. With regard to the table that we were given, Chair, I will take your opinion and guidance on that, but, to me, it would be helpful if it could be elaborated on. Another couple of columns could be added to specify who took the challenge, and to provide a summary of the basis of the challenge, perhaps in a maximum of 20 words. I am not sure that the “Outcome / Current Position” column is complete. Sometimes, there is a financial outcome; sometimes it takes the form of instructions to do certain things. I am not sure that we have all the information at present. As to the “Total Cost” column, I doubt that it is fully complete. We need to know the Department’s legal costs, those of the applicant or challenger if the case went against the Department, and damages. It would be helpful if we had all that information.

Mr B O’Neill:

This is a copy of the paper that goes to the heads of procurement. They took a decision not to include names, lest it be deemed to form a blacklist of people who take challenges. For that reason, we avoided using names in any of those documents.

Mr O’Loan:

The Committee would be interested in seeing them for its own purposes.

The Chairperson:

The information exists, obviously, but Brendan has raised a valid consideration.

Mr B O’Neill:

We could produce a separate list for the Committee. The reason that the table contains no names is that the Committee received the same information that goes to heads of procurement.

Mr O’Loan:

How would you react to the suggestion that you are not as economical in fighting these cases as your challengers are? In certain cases, awards were made against you and you know the costs of the challenge. Can you give us substantive evidence on that?

Mr B Doherty:

The costs as we have produced them for the Committee will help it to form its view on the economies involved. If there were another element that I would introduce for consideration, it is the fact that, in the larger cases, there are points of principle involved. They do not sit there academically; they are intended to produce better results, better economies and, for instance, better buildings. They must be as robust as possible in bringing the right resources to bear. It is obviously important not to let arguments go by default in any way. I am just putting that forward as a consideration.

Mr McNarry:

Are those the same points of principle by which the bankers were awarded bonuses, as in the case of Sir Fred Goodwin, which was discussed in another place yesterday?

Mr B Doherty:

No. The points of principle that I am talking about are those that govern partnership procurement techniques, or which are used to find more economical methods of procurement. They are to do with matters of policy.

Mr D Armstrong:

The question is really about the cost of providing the legal team to defend a case. I am not sure that I can comment on that.

Mr B Doherty:

In a sense, there is a combined responsibility; it is bouncing on the table between us. Legal resources are, obviously, required in order to fight a challenge, and we will provide the Committee with further information about that. Equally, however, there is the economic rationale for doing it. If we are talking about the most economically advantageous tender, lawyers can argue the points, but the points and theories come from the experts on the procurement side, or those who are drawn in by the Department. They are an element in this as well. Whether the technique is one that the Executive wish to take forward, it certainly falls four-square within the policy as it has currently been adopted. It is not for me to evaluate the costs against the policy gains. We can, however, certainly help identify the costs.

Mr O’Loan:

It would be interesting to have that information, if you could present it to us in as full a form as possible.

The point has been made about the process being very labour intensive for small and medium-sized enterprises. I will offer one example — you can extrapolate it more widely if it can be done — which is to do with the delivery of health and safety requirements. Could those be short-circuited by a system of accreditation that is, perhaps, run by the industry?

Mr D Armstrong:

There is no common recognised health and safety standard applied across Europe. Therefore, we must ensure that we do not preclude people from Europe because they do not have a local registration system in place, or one that we know of. We must ensure that the requirement is not a barrier to trade in that respect. We must then look at anything that might be proposed as an accreditation system and ensure that it is compliant with other legislation such as the Construction (Design and Management) Regulations 2007 (CDM) and the duties that those regulations impose on contracting authorities to ensure that a contractor is competent and is applying the right resources.

We have been working with the industry to try to come up with a more standardised approach to assessment. Again, a lot of this is around the fact that, if we hold some information, can we recognise that, can we ensure that we do not ask for it again, and can we ask for additional information? There has been a fair bit of debate about health and safety, and we have been involved in a drive to improve health and safety performance in Northern Ireland. Others may promote their accreditation schemes as a way of fulfilling the regulations, but we must ensure that they are compliant.

Mr O’Loan:

Again, beyond encouraging what can be done in that area, you are thinking along those lines and we would want to encourage that.

The point has been made that CPD, contrary, perhaps, to some views, is not bad at what it is doing.

The Chairperson:

That is a kind of compliment.

Mr O’Loan:

However, to some degree, there is a reluctance to learn key lessons at key times, and to keep ploughing a furrow that is not productive — in particular, in going to appeal on at least one of those major cases in which the decision has been made on a significant point of law. Why not simply get on with life and learn the lesson rather than obstinately digging your heels in?

The Chairperson:

I am not sure whether that was a question. [Laughter.]

Mr Weir:

It was like an A-level exam paper question.

Mr O’Loan:

It was a question.

Mr D Armstrong:

Informed decision-making is one of the key principles of public procurement. We must ensure that any decision that we make is informed, that we have taken the right advice and that we know the likely consequences and outcomes. Public procurement in Northern Ireland is not perfect, but I assure you that we have the necessary mechanisms in place to deal with issues and learn from mistakes.

A lot of procurement is driven by human beings, and, as we know, human beings do things at certain times. It should be borne in mind that we have spent around £4 billion in public procurements in the course of these cases. The figures involved in public procurement in Northern Ireland are large, but we recognise the importance of ensuring that that money is spent well and that there is confidence in the process.

The Chairperson:

As part of the new professional way of going about this, is there a process by which you examine what CPD presides over and compare that with traditional procurement methods? That would establish whether value for money is being delivered. The legal cases represent one perspective, but then there is the broad swathe of work that is rolled out under the new system with the central objective of delivering better value for money. Do we compare the new with the old to see if better value for money is being delivered?

The reason for my question is that we were once given an example of work that was being carried out at the Armagh Observatory. That was essentially remedial work — internal walls being taken down or whatever — and it did not appear to represent value for money in respect of the requirements of local management. Indeed, given how the work could have been carried out if it had been left to the local director, it appeared to be anything but good value for money. That is not a very good example because it is just off the top of my head, but it suggests that traditional procurement methods may have worked better in some instances.

Mr D Armstrong:

You asked whether we do anything to measure the effectiveness of public procurement. We achieved our target of identifying and recording £250 million of value-for-money gains. We are now setting up a system to record not only value-for-money gains in cash terms but to look at sustainability. We are looking at what is being put into contracts and what can be recorded as effective sustainable-development benefits for public procurement.

We have heard similar stories to the example that you outlined. Some local organisations feel that they will get a better deal if they bring in a plasterer or joiner that they have found in the Yellow Pages. However, that approach creates issues in respect of transparency in the management of public money in ordering and paying for work. Some of the systems that we have put in place to correct that cut across well-established processes and practices. That can cause concern as well

The Chairperson:

The meeting of the £250 million target seems to indicate that the current approach represents better value for money.

Mr D Armstrong:

Much of that £250 million was directly due to the more modernised approach to public procurement, and the target would not have been met if a lot of the traditional methods had still been in place.

Mr McQuillan:

You have presented a paper outlining 12 legal cases; are those all the legal challenges that have been made against Government procurement since 2005?

Mr D Armstrong:

Yes.

Mr McQuillan:

Are you aware of any more that may land on your table in the near future?

Mr D Armstrong:

In the past few weeks, a couple of judgements have come to light in the criminal justice sector. Those are not included in our submission because those bodies are not covered by public procurement policy. A case involving Federal Security Group and the Police Service is in court, and a judgement was made in a case involving Federal Security Group and the Court Service. Those two cases are not included in our submission because they are not currently covered by public procurement policy.

Mr McQuillan:

The next time you come to the Committee, can we expect to see many fewer cases because of the lessons that have been learned?

Mr D Armstrong:

There are lessons to be learned from all the cases. We have not made a very good job of presenting those cases to you, but the lessons are recorded and will be covered in a subsequent report. Lessons are being learned, and, as procurement people, we are talking among ourselves to ensure that staff are aware of what happened and how to prevent a reoccurrence.

Mr McQuillan:

What costs do you expect from the cases that are waiting on the outcome of a legal judgement? Can you provide an estimate or a guesstimate?

Mr D Armstrong:

In the case involving McLaughlin and Harvey Ltd, there is no likelihood of damages being awarded under the current judgement. The issue is the importance of award criteria and how that might impact on the achievement of best value for money going forward and whether that needs to be clarified by the Court of Appeal or through the European Court of Justice. We need to make that decision, and, in doing so, we need to ensure that we have an idea about what the ongoing legal costs might be for that process and what the time frame might be.

Mr B Doherty:

In a sense, we have to weigh up the arguments that are put by the other side, so, at this point, there is a degree of difficulty in providing a precise answer.

Mr McQuillan:

Are you aware of any cases in which the public authorities have taken legal action against contractors for the purposes of enforcing social or sustainable costs?

Mr B Doherty:

I am not aware of that.

The Chairperson:

Brendan, you said that a report will be compiled on the lessons that have been learned. Will that report also include action points that have arisen?

Mr B O’Neill:

Yes, the report will set out a brief history of the case, the lessons that have been learned and the action that a centre of procurement expertise or a Department needs to take to ensure that that is followed through.

The Chairperson:

What is the mechanism for responding to or monitoring the performance of Departments under the broad procurement strategy. Does that fall to the procurement board, to CPD or to both? The procurement board is chaired by the Minister.

Mr D Armstrong:

Yes, and all the permanent secretaries in the Northern Ireland Departments are on that board, along with the Chief Treasury Officer of Accounts, the director of Central Procurement Directorate and an observer from the Northern Ireland Audit Office and from the Strategic Investment Board. In practice, the monitoring of public procurement performance is developed when CPD asks the centres of procurement expertise to report on their performance. The CPD occasionally brings that forward into an overall report with some recommendations, and that is presented to the procurement board.

A couple of parts of the process are useful. Departments are required to provide annual procurement plans to identify the sizeable projects that there might be going forward. That gives us an opportunity, through the centres of procurement expertise, to talk to Departments about what they might want to do on sustainable development. It also gives us some idea of what the workload might be when considering procurement for larger projects going forward.

Public procurement, substantially, has to go through centres of procurement expertise. The target is to have 95% of public expenditure directed through centres of procurement expertise. The concept is that the expertise in those centres will lessen the likely risks of legal action — leaving aside the 12 cases. Therefore, there is a mechanism in Northern Ireland for having a good grasp of how public procurement is managed. We also use those structures to put any warning that might come from England or from Brian’s people into that system.

The Chairperson:

What happens when a challenge emerges, or when there is notification of a challenge? Does it go immediately to the Department, to CPD, or to the procurement board for assessment and direction?

Mr D Armstrong:

The challenge is directed immediately towards a Department, and it will then involve Brian’s people.

Mr B Doherty:

In addition to responding to the need for advice that might arise at the time, it almost becomes an agenda item to bring forward to any further general briefing meeting or update meeting that we have with CPD. There are a number of other sources used. For example, all European Court decisions across the remit cross my desk. Any procurement decisions are picked out immediately and clicked off to CPD, so that it is made aware of them, and, if officials have any issues arising from that, they can come back and ask for specific advice.

There is also a meeting of legal procurement experts across the UK held in London every quarter, and we aim to have a representative at each of those meetings to gather information on what is happening elsewhere, including techniques, as well as any difficulties that others are having. We will feed that back to our colleagues here.

The Chairperson:

The communication end appears to be quite effective. Has it ever resulted in an amendment to procurement practice, in advance of a legal challenge emerging? Has it required a change of tack?

Mr D Armstrong:

I am looking at one of the sheets from the report on the lessons learned, which, unfortunately, the Committee did not get.

The Chairperson:

The report that we did not get — we are going to harp on about that.

Mr D Armstrong:

It begins with a need to carry out a root-and-branch review of the terms and conditions to ensure clarity. Therefore, there are definite, clear words on paper that say that we need to do certain things. There is recognition that, in this case, we used standard terms and conditions that were used across a particular sector. There is also recognition that there is a need to review those because of the work that was done on that challenge. Therefore, it is clear that lessons have been learnt.

Heads of procurement meet in advance of the procurement board meeting, and, as a result of the issue with legal challenges, we have decided to meet more regularly to ensure that we are all familiar with any issues that are arising. Below that, we have a network of procurement practitioners who will look at the detail of tender competitions and make changes as necessary.

Mr McQuillan:

There was a case only last month that started on 6 February and finished on 13 February. Costs were borne by both parties, but have we learned anything at all?

Mr D Armstrong:

I have just referred to that case. We need to look at what happened in that case, as a standard set of terms and conditions were used, but they need to be reviewed. Therefore, there is a definite lesson to be learned from that.

The Chairperson:

That was a very interesting session, and it turned out that we needed the extra time. Thank you all very much. We will follow up on two or three issues, including Workplace 2010 and the reference to the Scottish experience. We are interested in hearing about that, and we are interested in getting a copy of the delayed report on the lessons learned.

Mr McNarry:

Are you sure that you actually have that report? You are not bluffing us.

The Chairperson:

We have every confidence that the report is on its way.

Thank you. It was a very interesting session.

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