Mr. Seamus McCarthy:

The principal activity of the Office of Public Works is the delivery of architectural, engineering, property management and project management services for both its own projects and those of other State agencies. The OPW manages a large property portfolio, consisting of State-owned property with a book value of around €3 billion, and substantial leased property. The OPW’s appropriation account records spending of around €400 million in 2011, divided between three programmes: estate portfolio management, flood risk management and the national procurement service. The major expenditure from the Vote in 2011 included rent and rates on leased properties amounting to €118 million; purchases of sites and building, new works, alterations and additions at a cost of €56 million; payment of €54 million in respect of the National Convention Centre public private partnership project; flood risk management and drainage maintenance at a cost of €51 million; property maintenance works and supplies costing €36 million; spending of €37 million on upkeep and visitor services at heritage properties. In addition to its spending on Vote 10, the OPW manages works reimbursed from other Votes. The expenditure in 2011 in that regard is estimated at €68 million, and is mainly property related.

The Department of Public Expenditure and Reform has estimated that the procurement of goods and services by public bodies amounted to €8.6 billion in 2011, with a further €4.5 billion spent on capital works. A procurement capacity review commissioned by the Department and completed in August 2012 highlighted that significant savings would be possible through the implementation of changes in public procurement practices. One of the functions of the OPW’s national procurement service, which was set up in 2009, is to establish national framework agreements which aim to help public sector bodies to obtain better value for money when they are procuring commonly used goods and services. A framework is an agreement with one or more suppliers setting out the terms that will govern contracts awarded to those suppliers during the term of the agreement. The aim is to reduce tendering costs for suppliers and allow public bodies to purchase without the need for multiple tendering procedures.

Chapter 14 reviews the extent to which centrally-agreed procurement framework agreements have been established in the public sector. At the end of 2011, there were 43 such agreements in place. Annual expenditure by public bodies under those frameworks was estimated by the national procurement service at €180 million. Energy purchases, in the form of electricity, natural gas and fuel for vehicles, account for 87% of that spend. In the past, public bodies could avail of framework arrangements but were not obliged to do so. Since September 2012, public bodies are required to use the central framework agreements for specified goods and services, or to have value-for-money justifications for failing to do so.

The report also examines the methodologies used by the OPW to calculate the savings achieved from procurement initiatives, including use of frameworks. The national procurement service reported estimated savings of €46.5 million in 2011 and projected that 2012 savings would be €78 million. Various approaches were taken to calculating those savings. The audit examined the methodologies used in four areas, and concluded that the savings estimates were not reliable. For example, estimated savings in 2011 on the cost of energy procurement included potential cost reductions of €4.2 million related to tariff changes and potential reduction of €8 million if public bodies paid energy prices notionally achievable by large private sector purchasers. However, insufficient evidence was available to the audit team about the extent to which the potential savings had been achieved. All contracts with an estimated value of €25,000 or more must be advertised on e-Tenders. Estimated savings of almost €12 million on newspaper advertising spend were based on the assumption that there would be a specific level of newspaper advertising in the absence of e-Tenders. While that assumption may have been realistic for high value contracts, the assumed level of advertising was unlikely to be incurred for many low value contracts. Estimated savings of €7.3 million in the cost of administering motor fuel purchases worth €11 million using purchase cards were found to have been based on a 1998 UK costing model which the UK National Audit Office subsequently concluded does not reflect current standard payment processing procedures. This suggests that the claimed saving is significantly overstated.

Overall, the examination found that there was a need for clearer definition and more consistent application of saving calculation methodologies. In response, the Accounting Officer stated that a more robust system of performance measurement is being put in place and that a working group had been established to develop a common approach to the measurement and reporting of procurement savings. The Accounting Officer will update the committee on the work of that group and on developments in savings estimation methodologies.

Chapter 14 also outlines the circumstances surrounding the extension by the national procurement service of a contract with an energy procurement advisor. Following an advertised invitation to service providers, a three-year contract for energy procurement advice was awarded in 2009 at an estimated cost of €20,000 a year. Due to very significant expansion in the scope of the work, a total of just over €1 million was paid to the service provider. Public procurement rules require that major extensions to contracts should be subject to tender but this was not done when the energy advisor’s role was extended. The work was re-tendered at the end of 2011 and a new contract with an estimated value of €2 million plus VAT over three years, was awarded to the same service provider. The level of expenditure incurred on that service underscores the importance of ensuring that the costs involved in undertaking procurement initiatives are factored in to any process of estimation of procurement savings achieved.