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Official Report (Hansard)

Session: 2008/2009

Date: 26 November 2008

COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT

(Hansard)

Inquiry into Public Procurement

26 November 2008

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson) 
Mr Simon Hamilton (Deputy Chairperson) 
Dr Stephen Farry 
Ms Jennifer McCann 
Mr David McNarry 
Mr Adrian McQuillan 
Mr Declan O’Loan 
Ms Dawn Purvis 
Mr Peter Weir

Witnesses:

Mr Edward Quigg ) 
Mr James Golden ) Quigg Golden Limited 
Ms Caroline Eccles )

The Chairperson (Mr McLaughlin):

We now welcome Edward Quigg, James Golden and Caroline Eccles of Quigg Golden Limited, contract consultants. I understand that this is your first appearance before the Committee, so you are very welcome. If you would like to make some opening remarks, Edward, after which we will have a question and answer session. Simply cover the salient points, because I find that the questions are, perhaps, the best way to get to know each other and to drill into the subject matter.

Mr Edward Quigg (Quigg Golden Limited):

The background to the document that I produced for the Committee is very simple, and you will be glad to know that I do not intend to take the Committee through it word for word. The terms of reference document that the Committee Clerk forwarded to me is accurate in identifying the issues currently affecting the construction industry in Northern Ireland. I have taken the liberty of identifying one or two other issues which I have included in the document, and which members may decide are worth considering.

The first issue deals with putting policy into practice and the lawfulness of procurement procedure. There have been a number of disputes in Northern Ireland about the public procurement of construction works. I am sure that the Committee is aware that two contractors — Henry Brothers, and McLaughlin and Harvey Limited — mounted framework challenges for construction work that was worth some £1·5 billion collectively. In each of those procedures, the courts ruled that they were unlawfully conducted and, therefore, had to be scrapped. That work is now on hold until such times as the Central Procurement Directorate (CPD) decides, along with the industry, how they should proceed.

I am aware of at least 13 other disputes that have been settled by the public sector or have resulted in an award in favour of the contractor. Therefore, such challenges are not simply limited to the two cases that I mentioned. This is a big problem. It is fair to say that Northern Ireland is the UK leader in dealing with procurement issues, because we have had so many of them, which is not necessarily a good thing. I have tried, in the document before the Committee, to identify why that might be — or, at least, my initial view on the matter, which is something that the Committee will have to consider when taking evidence from the stakeholders.

I would like to express a word of warning: stakeholders — that is, the construction companies – are extremely nervous about commenting in a negative way about how procurement is being carried out in Northern Ireland at present, because they do want to the bite the hand that feeds them. The Committee should be aware, when taking evidence, that witnesses are very nervous because they do not want to criticise the people who are assessing their competency.

The terms of reference also addressed the issue of social clauses and the ability to include them in construction contracts. There is no difficulty with doing that if it deemed that you want to include social clauses for, for example, putting the long-term unemployed back into work or for green issues, such as recycling materials and using wood from environmentally friendly forests. There is no difficulty with doing that. However, the CPD must be careful about how that is done.

It is perfectly OK to specify in the contract that a contractor must comply with those issues. The difficulty, at present, is that there is no practical way of enforcing that. If a contractor does not do those things, ultimately, you can determine his contract and kick him off. That is what I refer to as a nuclear option, because it is draconian and disproportionate, and, therefore, is never done. A proportionate incentive and sanction must be built in to a contract, so that if a contractor fails to do the things that he said he would do, he faces a proportionate penalty; and if the penalty is proportionate, it might be imposed.

From a lawfulness point of view, however, taking social considerations into account at an award stage is extremely dangerous. The European Court of Justice is in a state of flux. For example, if one takes into account at award stage a contractor’s apprentice scheme that could be successfully challenged. I have said in the document that the CPD should take expert advice if it intends to do that, because it is not clear whether that is possible.

The terms of reference raised the issue of opening up the market to small and medium-sized enterprises (SMEs) and social economy enterprises (SEE). SEEs do not really play a key role in the construction industry. As regards SMEs, the answer is simple: plenty of work must be let on a simple basis in suitably sized packages. Much research has been carried out on the matter throughout the European Union, and my submission document refers to a paper by the European Commission which provides guidelines as to what should be done.

One issue is letting the work in suitably sized packages. Two frameworks that have recently been challenged represent about £1·5 billion of work, yet the individual projects that will be constructed under that framework will be much smaller than the overall project. Therefore, by bundling the projects together into one competition, SMEs are excluded from taking part in the tendering process. There is a role for SMEs that can offer best value, but work is not being let in that way as much, perhaps, as it could be.

Another issue that the Committee may wish to consider is the appropriate use of a contract form. I do not want to get bogged down in detail, but, at the moment, there is a move to use a target cost-type contract, which shares the pain and gain, depending on the financial out-turn of the project. If the project goes over budget, the contractor shares in the pain, and if it comes in under budget, the contractor shares in the gain. That procurement method is entirely suitable if the contract is large enough to merit it. However, I have heard of that type of contract being used for £1·5 million of construction work.

In my view, that procurement method is entirely inappropriate in that situation. The use of such a contract should be limited to occasions when the value of the project is high enough to justify the administrative burden involved. Equally, the use of early contractor involvement is very sensible. That option brings contractors in at design stage and asks them to help with the design process in order to produce an economic building. Again, such an approach is entirely sensible when the value of the work and the type of work merits it. It should not be the norm.

The final issue that the Committee might want to consider is tendering based on the duration of the contract. We tender on price and on what is referred to as quality submissions, when we consider how good the contractor is. However, we do not ask contractors how long it will take to complete the build; we tell contractors that. That approach does not seem sensible, because it is contractors who are best able to decide how long it should take to complete a project. That is factored into the awards, so a contractor who says that he will complete the build in 10 weeks can charge a higher price and still win the contract.

EU-wide, contractors are asked to price on duration as well as on price. In the UK, however, it is believed that employers are better able to specify the duration of a project. It is sensible for them to specify a range with maximum and minimum points, but we should let contractors tell us the duration. Depending on their methodology, they may wish to accelerate the works and can do so efficiently. Let them tell us that.

Towards the end of the document, I set out questions that the Committee may wish to consider in its evidence-taking. I will not go through them, but I have set out what I believe is a way forward. To summarise, unless one can justify a more complex approach, one should keep it simple. Some of the very complex procedures that procurement bodies are adopting are leading to disputes, and overcomplicating the process creates more opportunities for mistakes to be made and, therefore, for the process to be declared unlawful.

When dealing with relatively small construction works such as less than £5 million, and which are designed by the employer, price and duration should be considered. Adopting such a simple tender process would open the market up to SMEs. With a large or complex project, there is justification for using target-cost contracts, early contractor involvement and what, from time to time, may be referred to as more sexy procurement methods. However, those methods must be justified. For projects somewhere in between, one should be able to opt in or out, depending on the nature of the project.

Those are the issues that I wanted to talk the Committee through, and I am more than happy to answer any questions that members might have.

The Chairperson:

That presentation was excellent.

Mr Weir:

I would like a few points clarified. You mentioned legal requirements and the issue of over-complication. You mentioned the two high-profile cases that have been settled, and another 13 of which you are aware, and there may be others. Apart from the issue of over-complication, are there any other areas that you think it would be useful for the Committee to explore when trying to determine why those sorts of legal challenges keep arising? Are there any particular areas that you feel the Committee should be probing in relation to that?

Mr Quigg:

There are two principle reasons why contractors would like to challenge and dispute tendering processes. One is the size of the contracts. The contract tendering for the IST framework, which was challenged by McLaughlin and Harvey Limited, was worth between £500 million and £800 million. When that firm was told that it was not getting on the list, it simply could not afford not attempt to challenge it. Therefore, letting very large contracts in comparison to the total public sector construction spend is inviting trouble.

Secondly, in my opinion the procuring bodies have a tendency to over-mark quality. The CPD’s own guidelines say that quality in repeat-type typical construction work should be marked at between 5% and 10% — price being the balancing factor — yet I have seen maintenance contracts let by health estates in which quality has been marked at 70%. Quality is marked according to the answers given by the construction companies to a number of questions. That is a very subjective approach, and it is, therefore, very easy for a contractor to claim unfair treatment, or to complain that they did not get the work even though they are as good as their peer. Therefore, that leads to contractors wanting to challenge decisions. Ultimately, however, the challenge will fail unless the process has been unlawful.

It is sad to say that there has been a total failure to stick to the rules. I cannot understand the underlying reason for that, but one example is the case that was disputed by McLaughlin and Harvey Limited. Apart from the technical breach, which was referred to in the CPD’s submission to the Committee, the marking scheme was drawn up only after tenders were received. Only then was it decided what weighting should be given to various characteristics. The process was carried out over two months, and yet the CPD could not produce one note of what its assessment was. That is very strange. In relation to some of the other cases of which I am aware, it is as if everyone knows what the rules are, but decide not to stick to them. I cannot understand why that is the case.

Mr Weir:

Those appear to be schoolboy errors. I understand your point that the more the qualitative and quantitative nature of factors are considered, the more subjective the process becomes. There are more grey areas, and, therefore, the process is more open to legal challenge.

You spoke of a distinction between having potentially allowable built-in social factors in contracts, such as taking into account using the long-term unemployed or particular types of material, and taking into account the issue of individual schemes or firm schemes at award stage, which clearly would be illegal. What could be a potential grey area when putting together a procurement process, in order that, from a social economy point of view, it is not seen to favour or exclude particular companies? For example, I presume that it would be potentially illegal to require tendering firms to have a particular type of scheme in place, as that would seem like an unfair disadvantage to firms without such a scheme. Presumably that would pose a legal danger.

Mr Quigg:

That is true. What can be done at selection and award stage is: first, firms that do not comply with legislation can be excluded. Therefore, an employer who does not follow equal opportunities legislation can be excluded. That is simple.

Secondly, at selection award stage, the capacity of a firm to comply with what it will be asked to do can be examined. For example, if the contract states that 10% of the workforce must be apprentices, and if, at award stage, a contractor says that he does that anyway, that contractor has demonstrated his ability to do that. However, if another contractor says that he has never done that and would not know how to go about it, he can be marked less highly because he has not demonstrated his ability to do what he will be required to do.

Mr Weir:

However, to take that example of apprentices, if we were to say to the firms that will be awarded contracts that they must put in place a scheme that would have a certain number of apprentices, that would be legitimate, but, say, we were seeking a certain number from a firm that already had a scheme in place, would that firm fall on the wrong side?

Mr Quigg:

That would probably be unlawful.

The Chairperson:

Just to be clear, when does that discussion take place? Does it happen during pre-contract negotiations or at the pre-qualification stage when people are trying to get on the list?

Mr Quigg:

The first stage would be for the procurement body to decide what it wants at an early stage. In Northern Ireland, there should be discussions between the construction industry and CPD as to what is wanted, so that people can point their firms in that direction. Ultimately, the contract documents that come out from CPD, or whoever, state what must be done and how the firms will be marked. The discussion happens at that stage.

A bone of contention with some construction firms is that they discussed those issues and were encouraged to put in place quite heavy management and training systems in their organisation, only to discover that a competitor who did not do any of that and, therefore, did not incur any of the cost of doing it, was winning the work. The process must be fair; if a firm is being asked to do something, it must be rewarded and allowed to earn that money.

Mr O’Loan:

Can you summarise what you see as the intended rationale for using a framework method? You have already talked about the size of frameworks. Do you think that they are a good idea generally?

Mr Quigg:

Probably not. There are occasions where I can see framework agreements being a good and useful practice. I do not know the rationale behind the way that the two framework agreements were let, because I cannot follow it. I cannot justify what someone has done, and whether I would have done it in the same way. However, to award £1·5 billion of work in two competitions, bearing in mind the size of the public-sector market in Northern Ireland, is very disproportionate. It has not proved to be successful.

I do not think that the advantages of doing it in any way outweigh the disadvantage of doing it. We talked about opening the market to SMEs. However, the top company in the IST framework was a joint venture between Farrans (Construction) Ltd, Heron Bros Ltd and Tracey Brothers Ltd — three very large, very competent construction companies in Northern Ireland — yet they did not feel that they could go in on their own. They had to join forces to be able to compete and to get on the list.

Mr O’Loan:

Is there any argument that encouraging companies to form consortia could be good for public procurement? Could there be greater efficiency and economy for the public sector as a result?

Mr Quigg:

I have not seen any arguments that would persuade me of that.

Mr Golden:

That is part of the thinking behind the development framework. By forcing the construction industry to step up to the mark as regards consolidation will deliver economies of scale and higher quality, but that is with the intention of assisting small and medium enterprises. It is a justifiable policy to have consolidation in the construction industry, and to deal with larger entities within the industry, but that is largely intentioned with the idea of encouraging small and medium-sized enterprises.

Mr O’Loan:

If it is used, does the process permit SMEs, including quite small ones, to get in on a subcontract basis?

Mr Quigg:

Yes, absolutely; there is no difficulty with SMEs coming in as subcontractors. The question is whether it is acceptable, as a policy, to tell small or medium-seized enterprises that they cannot work as a main contractor, but that they can work as subcontractors. Caroline and I have been involved in a case where my client had done the same work for 30 years, and was then told that he did not pre-qualify. The eventual winner was then going to appoint him to do 100% of the work; 100% of it would be subcontracted to the same man and the Centre of Procurement Excellence said, on affidavit, that that would be fine, and that it did not have a problem with that. The same people would be doing 100% of the work, and the only difference would be that the person who pre-qualified would take a percentage.

The Chairperson:

Value for money.

Mr McQuillan:

Regarding all those bigger firms merging in order to get into the procurement exercise, is that not doing away with part of the competition?

Mr Quigg:

Yes, it is. First, they are merging only for the purpose of that one competition; they will compete against one another elsewhere. However, there is an argument that it is doing away with part of the competition. In fairness, if five people are competing, that should give a reasonable spread that should ensure competition. It has encouraged contractors who have traditionally not been based in Northern Ireland to compete for the work. Firms from the Republic of Ireland and England have taken part in that competition because it has attracted them. There is an argument that that will help to increase competition by bringing them in — giving them a big enough carrot, if you like.

Mr McQuillan:

A double-sided coin?

Mr Quigg:

Yes.

Ms Purvis:

Thank you for your report; it is excellent. You said that the inclusion of social clauses poses no difficulties particularly in relation to specifications. Some of the briefings that we have had suggest that there could be difficulty with regard to the size of the award and also in relation to EU legislation. I wonder if this is in terms of equality and being able to appoint or employ who you like, or if it is for some other legislative reason. There seems to be a very restricted view coming from CPD about the inclusion of social clauses. Some Assembly Members want to see public procurement opened up to include more and more social clauses, not only regarding employment, but sustainability and environmental issues. I am trying to find out where the barriers are to that.

Mr Quigg:

I will try to answer that. In stating that the way in which the contract is carried out means that you must comply with all of the requirements therein; there is very little restriction. If you wanted to introduce a clause stating that you would only employ people from Northern Ireland, then that would be a restriction because that is infringing the principles of the EU Treaty. For most of the types of clauses that people have wanted to introduce, there is no difficulty in specifying that in the contract.

However, a big problem arises where a contract is awarded, or a contractor selected, based on track record, experience or promises to do things. If you try to do that at award and selection stage, it becomes difficult: people will then talk about infringement of EU directives. As I have said, the European courts are, to some extent, sending mixed messages about social clauses. A ruling was made on a contract in Paris, which stipulated that a certain number of local unemployed people had to be employed. It was decided that that was not a factor on which a contractor could be selected, or one which could be taken into account at selection or award stage. What you could do is make it a condition of the contract, so that the successful bidder would have to comply. That is the difference.

Ms Purvis:

Therefore, it is best that the conditions of the award are laid down at the specification stage, rather than made at selection or award stage?

Mr Quigg:

Yes. Let us take an example: the use of wood from sustainable forests. Contractors should not be asked what their policy is on that, or what they have done in the past; rather, it should be a term of the contract that, say, at least 50% of the wood should come from sustainable forests. At award stage, the contractor can be asked to demonstrate his technical ability to comply with that provision. He would have to demonstrate that he understands what that issue is about and that he has a supply-chain management system able to verify that. If he can show that he can do it, that is as far as you can go with it. I do not know if that has helped.

Ms Purvis:

It has. Thank you.

Mr Golden:

Allow me to make a point about social clauses. The biggest problem by far in achieving the social aims that social clauses are supposed to advance is at enforcement stage, rather than getting them into the contract. Making social clauses clear enough to be enforceable, and ensuring that they are enforced at contract stage, is difficult.

Ms Purvis:

That is something I wanted to ask about. You talked about a proportionate sanction, something that will affect the contractor’s pocket. I worry that that would lead to more litigation and more protracted negotiations. If the contractor does not comply with the terms of the contract, he is liable to make a lump-sum payment, or an award will be made to the contractor if he does comply. Which do you think is best: to try to recoup money for failure to comply, or to award it for compliance?

Mr Quigg:

It depends on the issue. Some things can only be done as a penalty, as opposed to an incentive. It depends on the nature of it. The member has identified one factor — it can create more disputes. However, the construction industry is getting better at dealing with disputes. The decision of whether the contract has been complied with is made by the contract administrator. The penalty or incentive will be subtracted or awarded in the same way as any other variation. It is dealt with in the same way as a wall that is built 10 metres longer than specified on the drawing.

Two weeks ago, I met the secretary general of the Joint Contracts Tribunal (JCT), which is the drafting body for the standard form of building contract. We talked about this. He will consult to see whether JCT can produce standard clauses that will implement that. I hope that that will take away the worry. However, sanctions and incentives must be proportionate, or there is no point in having them. There is always the danger that contractors will ignore such clauses, ask what you are going to do about it, and get away with it.

This is at a tangent to the discussion, and I hope you do not mind my introducing it, Chair. In construction, there is now an adjudication process to deal with disputes. It is a 28-day process to resolve disputes, and it could easily deal with this.

I brought that up because, when I was asked to come here by the Committee Clerk, I noticed that a reform of adjudication procedures is one of the matters under consideration. I was surprised to discover that CPD was consulting on such a reform, because, for the last two years, I have been involved in the reform of adjudication procedures in the UK, through the Adjudication Society. No adjudicator or person who represents anyone in adjudication in Northern Ireland has been approached by CPD in relation to that, yet we understand that a review is being undertaken. That sort of thing rocks people’s confidence in such processes.

Adjudication has totally changed the way that construction disputes are dealt with. It is extraordinarily important to the industry, and it seems that a review is going on, yet there is no consultation on it. I am sorry; I know that that is at a tangent to the matter. I thank the Committee for its patience.

The Chairperson:

That issue will come back to the Committee when the proposed legislation is introduced — probably after the summer recess.

Ms Purvis:

I have one final question. The Committee heard some research statistics on SMEs earlier. One of the complaints from SMEs is the overemphasis that is placed on price by the awarding body. However, in your submission, you say:

“Price and duration has to be the dominant award criteria”.

If we are to try to open up more opportunities for SMEs, how can we reconcile those views?

Mr Quigg:

I suppose that the cop-out response is that you must ask the SMEs what they want. I looked at the issue, and I thought that one of the barriers to SMEs was the pre-qualification questionnaire, which is a bar that businesses must get over in order to get on to the tender list. I felt that it was biased in favour of larger contractors and, therefore, made it more difficult for SMEs to take part in public procurement. Therefore, I felt that simplifying the questionnaire and setting the bar lower and then asking for details of price and duration might attract SMEs. SMEs may be saying something different; they are the experts. I have looked at the issue and offered my view on it.

Mr Golden:

I am sure that what Mr Quigg said is applicable to the medium-sized enterprises — especially the larger ones — but not to the small enterprises. There is tension within the industry about how to deal with such matters.

In my direct experience, the smaller enterprises in construction, which are the building blocks that make it all happen, cannot paint a picture — many of the quality questions that are being asked are mere picture-painting exercises, rather than questions that are objectively assessed. Many of the smaller contractors cannot present the picture as clearly as the larger ones can, but they are often presenting quality. The way in which they are assessed is subjective and inconsistent. If the process were consistent over a long period, I presume that it would settle in and smaller enterprises could compete. However, the remarks in the paper, to which you referred, apply only to the larger end of the medium-sized enterprises, in my experience.

Ms J McCann:

Thank you for your presentation. You have already answered some questions that I wished to ask, but I want to ask about the social clauses. Recent procurement guidelines are supposed to be centred on the concepts of equality of opportunity and sustainability. It seems that, every time we propose including social clauses, we face the argument that, if we go down that road, we will be in breach of EU regulations. Is there anything in the EU regulations to say that a project should not be marked on the social value that it will give?

Mr Quigg:

Yes. I must be clear about that, and perhaps I have not been. At the selection stage of determining who is best suited, you must be extraordinarily careful not to take such factors into account. You cannot state that firm A is more socially responsible than firm B. However, after the selection has been made, the contract can require the successful company to fulfil many requirements.

Without knowing the specific social clause that you would like to be included, I cannot understand how someone could say that it would impinge on EU regulations — unless it is something such as being willing to employ only Northern Ireland workers and not Spanish workers. That is highly discriminatory on the grounds of determining the nationality of workers and, therefore, the clause would be declared invalid.

Ms J McCann:

My question was more about recognising a project’s social value and what it delivers in local communities, as opposed to its monetary value alone.

Mr Quigg:

I cannot see how that decision is relevant to the relationship between you and the contractor. Many factors could be taken into account in determining the need for a project, whether to allocate some of the budget to it, and whether it should be done in-house or by the private sector, and social value may be a consideration in that case.

However, it is not a relevant consideration in the relationship between the public sector and the contractor who carries out the work, because contractor A will be no better at adding value to the social economy than contractor B or contractor C.

Mr Golden:

Perhaps I misunderstood the question too, but the legislation specifically states that factors such as aesthetics can be taken into account in considering the design and build or value of a project. Therefore, I do not understand how a project that is delivered from a social perspective would be automatically excluded. I imagine that the devil will be in the detail.

Ms J McCann:

It is particularly relevant to social-economy projects when contractors are not marked according to the social contribution that they deliver to the community when bidding for a contract, but simply on monetary contribution.

Mr Golden:

If you try to procure in a way that would discriminate against EU-wide procurement, you will run into difficulties. As long as you were happy, for example, that a project contributed to the social development in Berlin or anywhere in the EU, that would be fine. However, I completely understand why a clause that would require particular social value could be discriminatory in an EU sense.

Mr Quigg:

Yes; that is correct. If Ms McCann is suggesting that she wants to give the job to contractor B because that contractor employs the long-term unemployed and a certain percentage of disabled people, she would run into trouble.

Ms J McCann:

Is that in the EU regulations?

Mr Quigg:

Yes, because you would be selecting and awarding a contract on a basis other than the highest economic advantage. You can state that everyone is welcome to tender for the work but that whoever wins the contract will have to do x, y and z, and that is not a problem. However, if you want to say that contractor A is 10% more expensive but that all that he does for the community should be taken into account, you will run into difficulty.

Ms J McCann:

So any social value would have to be stipulated in the tender process?

Mr Quigg:

Yes, that is where you can state what you want the contractor to do.

Ms J McCann:

My second question is about the thresholds. There is a certain threshold at which EU regulations come into force and a threshold beneath which they do not apply. Is that right?

Mr Quigg:

That is not quite correct. Perhaps I am being slightly pedantic, but, if the value of a construction contract is over approximately £3·5 million, EU directives must be applied. Even if the contract is worth less, your hands are not free because you must still comply with the principles of the EU treaty: the free movement of goods and services; no discrimination on grounds of nationality; and so forth. Therefore, even if you are below that threshold, you still have to comply with certain requirements, although they are less stringent — you cannot do what you like.

Ms J McCann:

If contractors break the terms in their contracts, is disallowing them another contract a proportionate penalty?

Mr Quigg:

In the selection procedure, you can ask that the contractor demonstrates that he has satisfactorily completed similar works in the past five years. If a contractor has not completed similar works in the past five years because he did not comply, that is a reason for not selecting him. I am not sure about suspension as a penalty for breaching terms of a contract — my gut feeling is that you could not do that, but you might be able to.

Mr Golden:

The difficulty is that, although you would exclude contractors who have failed, you will also allow people into the competition who never would pass. Just because someone comes from outside, that does not mean that they will provide a better quality of service or that social aspects will be included properly in the contract.

When I referred to proportionate penalties, I meant defined penalties in the contract for people who do not comply with certain measures. For example, if someone is caught using timber that is not from a renewable source, the damage is liquidated as £1,000, which comes out of the contractor’s account. Similarly, if a contractor states that he will use a certain amount of apprentices and fails to do so, there is a proportionate financial penalty.

I suggest that course of action because it is in the contract, which means that you do not have to go to court and sue the contractor to get the money, and it is not something that will continue into a bigger arena. If a Government organisation tells a contractor that he will never work for it again if he does not employ the correct number of apprentices, it is in the contractor’s interest to dispute that because the penalty is so severe. When I talk about proportionality, I mean small penalties for small breaches to encourage people to conform rather than ignore the rules.

Ms J McCann:

I understand that, but the difficulties arise when there are contractors who habitually breach the terms of their contracts. That does not give other people who would act differently an opportunity.

Mr Quigg:

All the contracts provide that habitual offenders are served a notice stating that they will be kicked off site if their breaches of contract are not remedied. Although it is the last resort, that option still exists to deal with a habitual non-performer. An earlier sanction regime is required.

As James said, if you try to suspend a contractor from future work, he will dispute it. Equally, from an employer’s viewpoint, because it is such a big issue for the contractor, it is less likely that the sanction will be imposed, which renders it ineffective, because everyone knows that it will not happen.

The Chairperson:

Given that some contractors may decide that they can take the hits, how do you financially calculate the balance between incentivising contractors who perform and penalising those who breach their terms of contract?

Mr Quigg:

I have suggested two ways, although I am sure that there are others. One is attaching a lump sum to work being done. Another is through key performance indicators whereby the contractor is told everything that needs to be done, and, depending on his mark, the contractor gets paid a percentage more or a percentage less. However, that creates the danger of the contractor calculating that, financially, it is better to breach the contract and take the hit, rather than to comply. In that case, the problem is that the penalty was not set at the right level.

The Chairperson:

The contractor could, therefore, be in breach yet still satisfy the contract.

Mr Quigg:

The contractor could be in breach, but no one would terminate the contract if it was a minor breach.

Ms J McCann:

Will a contractor who has breached a contract and been turfed off the job be able to secure future contracts?

Mr Quigg:

If a contractor has his contract determined or has failed to complete work, those factors can be taken into account at the selection and awards stage.

Mr Hamilton:

This is such a serious and technical subject, but I am going to ask Edward the question that has been on the tip of my tongue since he walked in, and which may elicit a more interesting and riveting discussion: are you any relation to Eoghan? [Laughter.]

Mr Quigg:

No.

The Chairperson:

A penalty clause would be attached to that.

Mr Quigg:

It has helped people to spell my name, especially when I am working in London.

Ms Purvis:

You hair is different than Eoghan’s. [Laughter.]

Mr Quigg:

That is only because it is growing back.

Mr Hamilton:

At the risk of making the Committee sound as if it is obsessed with social clauses, I have a couple of questions on whether such clauses are appropriate. Are there contracts in which a social clause, or a clause of that kind, is not correct, whether because of the size, scale or complexity of a contract? Can social clauses be applied to every contract, or are there some contracts for which they are more trouble and hassle than they are worth?

As you rightly identified, the Committee is, obviously, concerned that small and medium-sized enterprises get a fair shot at accessing contracts. Correct me if I am wrong, because I am as new to this as many other Committee members: SMEs already have difficulty getting contracts without the inclusion of social clauses; does the inclusion of such clauses inhibit or hinder SMEs from getting a contract at all?

Mr Quigg:

If I take off my civil engineer’s hat and put on my lawyer’s hat, the answer is that it depends on the social clause. An obvious example is an equal opportunities policy for employees, which is, arguably, a social clause. I do not see any contract being let in which it would not be appropriate to have such a clause. SMEs will not find that a barrier because, in common with any employer, they have equal opportunities duties.

If the social clause was that X percentage of people with a disability must be employed, or that there must be X number of apprentices, there is an argument that, in the small and medium-sized enterprise category, small companies in particular would find it difficult to comply because they are so small. However, medium-sized companies should not have that difficulty.

The answer, therefore, truly depends on the social clause. One must ask whether it is something with which every employer — regardless of size — should comply; in which case, it should be included. If it is something with which only larger employers should comply — such as those that are involved in the scheme — then its inclusion should be limited to contracts that concern only those larger employers.

Mr Hamilton:

Are some contracts beyond the possibility of having a social clause included, or are there social contracts to which companies should adhere as a matter of right, and which should be in any contract?

Mr Quigg:

Yes. Those could be called the minimum-hygiene social clauses that are desirable, such as the equality clause. In all honesty, I do not know of any reason why that should not be included across the board.

Mr McNarry:

Gentlemen, you are a breath of fresh air, which I appreciate. Thank you very much for your file, the contents of which we will read very carefully. Edward, I noticed from your CV that you have acted as a crisis project manager. Are you available to do that at the drop of a hat from time to time?

Mr Quigg:

Yes — for the right money.

Mr McNarry:

That is a good answer. We could, perhaps, do with you up here. Your document states that the solution — rather than being found in the contracts — was generally found by refocusing the design teams and the contractors. Perhaps you could briefly elaborate on that, and also suggest something that you would like to see the Committee highlight as a net result of our work.

Listening to the answers that you gave and to the recent questions, is there a risk that so many clauses could be inserted that contractors — particularly small subcontractors — could be unwittingly trapped, as they are anxious for work and they could get roped into something, and large contractors will be concerned only with looking for errors in the contract. Large contractors do that already, which is probably where you come in and make a living. I have been there. In other words, they will be delighted so sign up because they have already gone through the contract and know that they will be able to recoup losses.

I know that that is what happens. If we extend that, the small boys could become unwittingly trapped and the big boys will have a field day. Are we so good that we could draw up a contract in which people would not be able to pick holes?

Mr Quigg:

You highlighted several points. It is fair to say that small and medium-sized enterprises and larger contractors are sometimes their own worst enemies. When one investigates why they get excluded from competitions, sometimes they simply have not answered the question that they were asked. They are not totally off the hook in that regard.

As far as building too many clauses into a contract is concerned, it is all about keeping things simple. Unless making a contract more complicated can be justified regarding policy or saving the public purse, things should be kept as simple as possible.

Mr McNarry:

I appreciate that, and I agree wholeheartedly with the idea of keeping things simple. However, how on earth do we keep things simple when we are dealing with bureaucracy?

Mr Quigg:

You employ consultants. [Laughter.]

The Chairperson:

Experience should have told you that, David.

Mr Quigg:

Not those that you have used in the past, however.

Mr McNarry:

Oh, right.

Mr Quigg:

It is a big difficulty, and it relates to the amount of cases that are going through the courts. Peter Weir referred to schoolboy errors being made. The more complicated the process, the more likely it is that those errors will be made. Therefore, the process must be kept as simple as possible. Rather than trying to reinvent the wheel every time works are tendered for, there should be standardisation. We have tried and tested contracts and specification that can be amended, but everyone should stick to any new standardised process that is produced.

Small and medium-sized enterprises will, hopefully, not be penalised if the process is kept simple. The more complex procurement should be used for only larger-value work, which small and medium-sized enterprises would probably not be chasing. With regard to larger contractors seeking opportunities, that, I imagine, is part of the thrills and spills of tendering. The simpler the process, it is less likely that you will create a trap for yourself, or an opportunity for a contractor. Furthermore, if a standardised process is adhered to, revision 2·1 would remedy a situation in which a contractor attempts to exploit an opportunity. The opportunity for exploitation will increase dramatically if people try to reinvent the wheel every time works are tendered for, because the documents will not have been tried and tested or exposed to contractors for a sufficient time period.

Mr McNarry:

My constituency of Strangford is highly populated by contractors and subcontractors. I find it very difficult to deal — or cope — with the serious allegation of a backhander culture. Can that backhander culture be stamped out?

Mr Quigg:

A procedure can be designed that limits the opportunity for that culture to exist. Some 10 or 15 years ago, contracts were awarded to contractors based solely on the lowest price. Some contractors abused that system by submitting blank documents or documents with one or two sections left blank. They would then pay someone to complete the work for just less than the next lowest price. However, that problem was fixed. Contractors were obliged to complete documents in full, and those were then opened in front of several people.

The current system is extremely exposed to corruption. Consider what happened in respect of the IST framework, for example. I must be clear that there is absolutely no allegation or suggestion of wrongdoing, but it is not difficult to see. I mark essay papers for Queen’s University. I could award an exam paper 65 marks if I was in a good mood, and 55 marks to the same paper if I was in a bad mood. No one could say that I had done anything wrong in that situation.

Similarly, no one is able to produce notes about what has gone on when tender weightings are produced only after tenders have been received. In that current system, it is extraordinarily easy for someone on the marking panel to be very sympathetic to one tender over another. The way to stamp down on that is to make the system as objective as possible. The more subjective the process, the more opportunity there is for people to massage the marks up or down. The system is exposed to people who are inclined to do that. It is a big problem.

Mr McNarry:

We might return to that matter, because it is a major problem. Do you wish to highlight any other issue to the Committee?

Mr Quigg:

Every project can be procured in a different way. There is a danger in some of the ways that target-cost contracting, including early-contractor involvement and complex award procedures, are being used in low-value works. Many low-value works are being grouped to form mega contracts, and, therefore, SMEs are being excluded from the place. I have suggested three categories into which projects could fall, and it will be interesting to see whether any stakeholders pick up on that.

If a £100 million complex is being built, a case can be made for taking early contractor involvement, for working with target costs and for doing so in a sophisticated way. However, that is not appropriate in the case of a school that costs £1·5 million. If such a process were taken, SMEs would be excluded.

Before I came to the Committee, I talked to many contractors in order to sound out what they felt were the issues. The big lesson that I took from that was that they were very nervous about biting off the hand that feeds them in today’s marketplace. Bearing that in mind, perhaps pictures could be painted that are rosier than they are. I suppose that if contractors do not complain now, they cannot complain later.

Mr McNarry:

You may not be able to answer my last question now, but you may be able to come back to us. Is there anything in this field that should be considered as cost-saving efficiencies that bring added value?

Mr Quigg:

Cost savings will be achieved if the smaller-scale works are opened up to SMEs. Ultimately, they are more efficient because they do not carry the same overheads, and, therefore, they have a place. Equally, however, some of the procedures that are used in larger value contracts, such as target costs and early contractor involvement, will introduce better value. I have no difficulty with that; it is horses for courses. In my opinion, too much of it is trying to be too sophisticated and too clever. It must be simplified and standardised, which will save money.

Mr Golden:

One way in which considerable efficiencies could probably be made is by trusting the supply chain. Contractors and those with whom they work should be trusted to deliver solutions. The Latham report, with which I am very familiar, and the subsequent Egan report, produced by Sir John Egan in England, emphasised that leadership by the public sector and trusting the private sector is a way of achieving efficiencies. It is obvious from the way in which design-and-build contracts are being procured that there is an ingrained lack of trust, which leads to inefficiencies.

I will illustrate that with an anecdote. A colleague of mine who is an architect thought that design-and-build contracts would be the death of architecture. He thought that design-and-build contracts would mean that an architect would be wheeled in once to design one building, which would be reproduced 50 times. I suspect that that might also have been on the minds of Latham and Egan. In fact, he is delighted with design-and-build contracts because the way in which those contracts are procured means that an architect will work with the contractor and another architect has to be employed by the public sector in order to check that the architect who is working for the contractor is doing what they think is the right thing. Therefore, it is now architects galore.

Mr McNarry:

Is that because architects do not trust each other?

Mr Golden:

A lack of trust — not by architects [Laughter.] — is inculcated in the system. For example, a school may need to be built to fit a certain number of pupils in a certain kind of environment that will have a certain level of heat efficiency and use a certain amount of electricity. Instead of having the confidence to ask a contractor to deliver on that and saying that the contractor will be sued if it does not deliver, we are wedded to traditional contracting in that we want to control everything from where the doors go to what colour the walls will be.

The contractor should be allowed to get on with it and be allowed to develop repetitive techniques in order to become more efficient. If that was freed up, if the level of trust was developed and if we accepted the solutions that the private sector gave us, there would be dramatic savings in the industry.

The Chairperson:

As the Committee proceeds with the inquiry, it may be valuable if you would consider returning to a subsequent meeting, because I suspect that we will reach some issues that we may want to rehearse with you.

Mr Quigg:

Yes; I would be delighted to return to the Committee.

The Chairperson:

I am aware that other witnesses are waiting and that they have been very patient; however, I just want to finalise this discussion. There is a current project — Workplace 2010 — that has run into some difficulty because the fall in property prices has affected the capital receipts that were estimated, and because, of the two preferred bidders, one is considering eating up the other. The options facing the Executive are to continue the suspension until that situation clarifies itself, or, perhaps, to review the entire project.

I am intrigued by the reference that you made, because I was thinking that if that package was disassembled, would that not provide opportunities for local contractors and the local construction industry to engage in the project. That is a mega project that has attracted two mega players, and the locals have been squeezed out of the picture altogether.

Mr Quigg:

That is a problem. I am sure that you have heard of PFI and PPP, and one of the difficulties with such schemes, particularly the larger ones, is that there is a lack of competition. Royal Brompton Hospital was a classic example of that. Initially, three bidders went through to the preferred status, one then pulled out while the other two kept going but, at the very end, another bidder pulled out. That left only one bidder and, therefore, the public authority said that it could not continue because there was only one bidder and the entire system had to be scrapped, which resulted in a delay of two or three years. By establishing what may be called mega projects, there is a danger of reducing competition and excluding lots of contractors who would do the individual projects very competently.

The Chairperson:

Those contractors could, incrementally, achieve the same objectives.

Mr Quigg:

Yes. The question then arises about whether the cost-benefit analysis really exists and whether you are persuaded by the argument for allowing a project to be undertaken as a mega contract.

The Chairperson:

That was very interesting. We may, from time to time, correspond with you if issues arise in our work. I want to flag up the possibility that we may ask you to come to the Committee again.

Mr Quigg:

I would be quite interested to do that. We can see how the review goes.

The Chairperson:

Thank you very much. We must move on quickly.

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