Oireachtas Joint and Select Committees
Thursday, 5 March 2015
Public Accounts Committee
Procurement Issues: Small Firms Association and Irish Schools Arts Supply Federation
10:00 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I remind members, witnesses and those in the public Gallery that they should turn off their mobile phones as they interfere with the sound quality and transmission of the meeting.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official, either by name or in such a way as to make him or her identifiable.
Members are reminded of the provisions within Standing Order No. 163 that they should also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or of the merits of the objectives of such policies.
I welcome Ms Róisín Fleming, secretary of the Irish Schools Arts Supply Federation, ISASF, and Ms Breda Gibson. I also welcome Mr. A.J. Noonan, chairman of the Small Firms Association. I call on the witnesses to introduce themselves.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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You are all welcome. I invite Ms Fleming to make her opening statement.
Ms Róisín Fleming:
I thank the Chairman and the committee sincerely for this opportunity to speak on this issue, which is of such importance for small businesses throughout Ireland.
We represent the Irish school art supply industry, a group of family run micro businesses which serve their local schools and employ approximately 1,600 people.
Our industry, like many others, is under threat of extinction from the Office of Government Procurement, OGP. We need the committee’s help, not just for the companies we represent but for microbusinesses throughout Ireland. The heart of the problem is that Ireland has a public procurement policy which is not fit for purpose. Our economy is mainly comprised of microbusinesses which are locked out of the €9 billion public procurement spend. The current OGP policy is to get the lowest price for goods and services and to use large aggregate contracts to achieve price economies. These policies exclude microbusinesses in several ways. While microbusinesses may not offer the cheapest price they do offer value for money. If the criterion of the most economically advantageous tender were used instead of price, then value for money, after sales service and social value could be assessed. This approach is encouraged by the EU and would allow microbusinesses to win tenders. Procurement savings can be made while achieving other Government goals such as boosting job creation, preventing regional imbalances and fostering innovation. The OGP sees these goals as outside its remit and contrary to EU policy, despite their successful use in other jurisdictions such as Wales. The narrow price focus has led to the OGP exporting vital business to other countries. The amount lost is unknown because there are no figures. When the amount is tallied in the future, probably by the EU, Irish people will demand answers.
It is a practical impossibility for a group of microbusinesses to win an aggregate contract. It needs one principal applicant big enough to take responsibility for the entire tender, and if our products become the subject of an aggregate contract, our industry will be wiped out overnight. Even if groups of small companies overcome the practical difficulties of forming consortia, they cannot win against multinationals with deep pockets such as Office Depot, the winner of the stationery contract, which has an annual turnover of $17 billion. The OGP has insufficient safeguards against predatory pricing. Aggregate contracts are not designed to deliver quality or, in some instances, safe products. They may also have losses on non-core items. There have been piecemeal attempts to make current procurement policy more SME, not microbusiness, friendly but they have failed to stanch the haemorrhaging of jobs. Educating SMEs about procurement was one. Lack of participation is not down to ignorance but to a business decision not to waste money chasing contracts they have no hope of winning. Circular 10/14 is another. It encourages SME involvement but is purely aspirational and has no sanctions for non-implementation. Breaking contracts into lots will not work unless the lots are sufficiently small and limited to one per company.
Why save microbusinesses? We would make a costly addition to the live register and microbusinesses put more money back into the localities than large firms, which has a multiplier effect. We support local supply chains, regional employment and pay rates. Our profits remain in Ireland and, unlike multinationals, we support our communities. We maintain competition and, by destroying so many microbusinesses, the OGP may be acting anti-competitively. We ask the committee to conduct an economic impact study on the effects of current procurement policy and find a new model more suited to the Irish economy, one which utilises the €9 billion spend to achieve value for money, boost employment and support local communities. The OGP is capable of so much more than merely delivering cheap goods and services. Why waste it?
Mr. A.J. Noonan:
I thank the Chairman and members of the committee for the invitation to make a submission and have a discussion on issues regarding public procurement today. I am joined on our delegation by the Small Firms Association, SFA, director, Patricia Callan, and Ian Martin, who is a member of the SFA national council and the managing director, MD, of his own business, Martin Services. I too have my own business, Rhonellen Developments. The SFA is the voice of small business in Ireland and internationally, with 8,000 members and seven affiliated organisations in all sectors and parts of the country. Our written submission today contains some detailed commentary on the issues our members face with public procurement and some examples of the type of specific feedback we have received from members on the tendering process.
In my brief opening remarks, I would like to highlight a few key points. In its pursuit of lowest price, the Government is neglecting the fact that this will not deliver either the quality, cost in use savings or service levels it desires, but will result in lost jobs here at home. Centralised large aggregated contracts make it increasingly difficult for small innovative companies to compete and this means a serious potential loss of business. These should be broken into lots. The idea that small companies can simply join together with their competitors and compete for larger contracts is simplistic in the extreme.
In 2013, the published data suggest that 28% of tenders are being awarded to countries outside of Ireland, up from a previous high of 18% recorded. Ireland frequently tops the list of countries most likely to award to non-national countries, and this trend is increasing all the time. This is completely unsatisfactory. We need to put supporting Irish SMEs and microbusinesses at the heart of all Government policy-making. While some progress has been made over the past year with the publication of circular 10/14, the establishment of the SME working group on public procurement by the OGP, and the development of the Competition and Consumer Protection Commission guide to consortium bidding, there has been no tangible improvement in SME access to public procurement over the past year.
What is now needed is removal of the price priority. Where price accounts for more than 35% of a contract, the whole contract becomes based on price. We need to set targets for SME procurement, as in other jurisdictions, and 75% is reasonable for local communities. The OGP needs to start thinking value as opposed to price. We need regionalised contracts, lower thresholds and a change in the provisions around subdividing a contract into lots as currently set out in circular 10/14 because it is easier for procurers to opt out than in. A full appeals mechanism should also be implemented forthwith, which would include mandatory feedback on all lost tenders, more scrutiny and transparency throughout the system, an internal appeals procedure in each Department and the opportunity to appeal to an ombudsman.
I thank the committee for its time and attention and we look forward to a discussion.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Many thanks, Mr. Noonan. May we publish both statements? We may. Thank you.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I welcome all the witnesses very warmly. I know their organisations have been very active on this and have advocated strongly. I commend that work. They have put forward a very compelling argument and identify quite precisely the flaws in the system. I am conscious of the necessity for the State to get this right given the level of spend, €9 billion, and the cost if we get it wrong in respect of jobs and innovation for SMEs and particularly for microbusinesses. The submissions and discussion today can inform from the front line the questions we pursue with the OGP and the Department.
The witnesses have said making price the benchmark is problematic. Can they say a bit more about that? They mention predatory pricing. An alarm goes off in my head when I hear that term. I would like to hear more about that. Mr. Noonan mentioned quality being undermined or not considered. Could he tell us about that? Both witnesses identify the problem of aggregate contracts. When we raise this with the system we get a simplistic view that people can club together if they are trained and join forces. We need to hear the reality check on that. What is the realistic level for the unbundling of contracts?
Mr. A.J. Noonan:
I will give a good example of quality versus price. In the past year the Health Service Executive, HSE, awarded a contract for a machine in a hospital. The unsuccessful bidder was 12.5% below the price.
I made the point that it was way off the mark and was the same machine. He said his machine had a life cycle of 20 years, but the machine that was bought has a life cycle of two years and parts would not be available in two years time. It is a good example of the quality issue.
One of the major issues in regard to unbundling is that 50% of Irish companies only operate within a 25 km radius. They will not tender for any business unless it is regionalised and in much smaller lots. They will not bother tendering for business, because it is outside their comfort zone. I understand another 40% operate within 100 km. Many companies do not get a chance to tender because it is outside their comfort zone. The unbundling, regionalisation and disaggregation of contracts is necessary. The Minister's predecessor supported that, and I pay tribute to Deputy Perry.
There is disengagement with the system. Reference was made to training in SMEs. The first people who should receive training are those working in procurement. They have no training in procurement and are awarding contracts willy-nilly. Many go for the lowest bid and keep things simple. They will say their job is to get savings for the Exchequer, but they are not doing that. They are doing the polar opposite. If the Committee of Public Accounts was so minded, it could do an exercise on some of the contracts that were awarded over the past year or 18 months. It will find there were no savings. Ms Fleming will discuss predatory pricing.
Ms Róisín Fleming:
I will give an example in respect of a stationery contract in regard to predatory pricing. We had a long meeting with Mr. Paul Quinn from the Office of Government Procurement and asked him about his predatory pricing policy because when we spoke to the office in the past we were told that the only thing which triggers an investigation of predatory pricing is a price difference between competitors of 10% to 25%. We explained that was a difficulty because if more than one company is engaged in predatory pricing, that safeguard goes out the window.
When we asked about the stationery contract, the office explained it had investigated predatory pricing at the framework stage. However, the problem is that the contract is not awarded at the framework stage, but rather at the mini-competition stage. At that stage, during which anybody participating in it can only go below the initial quoted price, there was no investigation of predatory pricing.
Some of the largest companies in Europe are involved. I spoke about Office Depot. It has since merged with Staples and is now a company with a turnover of €34 billion. One has to remember that Office Depot supplies small companies throughout Ireland. Through the Office of Government Procurement it has been given the opportunity to take all of its suppliers away and go directly to the Government, cutting out an entire layer of small businesses.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Is it Ms Fleming's impression that predatory pricing has happened in the stationery sector?
Ms Róisín Fleming:
It is my impression that there is the possibility that current safeguards are insufficient and leave the possibility open for predatory pricing in the future. I cannot say for sure whether there was predatory pricing, but there are insufficient safeguards in place. The more one goes with large contracts, the more incentive there will be for larger companies to use their deep pockets and resources to oust competition in the marketplace.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I ask Ms Fleming to remind us of the numbers currently employed in her sector.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Can Ms Fleming quantify that loss for us?
Ms Róisín Fleming:
Unfortunately, we cannot. We would need to do some surveys. We are a very small group of microbusinesses, which means we do not have the resources. That is why we are asking the committee to do an in-depth survey of what is happening, how many companies are going down and how many jobs are being lost. It is not just us. We recently met other groups - the Minister, Deputy Noonan, was there - that have lost business because their industries have come under contract. Ours is not under contract yet.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I will finish on this point to allow others to come in. Ms Fleming said that the aggregate contract model is so dangerous to the sector that if it is applied, it will wipe it out.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I will speak very directly. In the absence of a change of policy and approach, if we do not go for a regionalised, unbundled, disaggregated model that does not set price as the be-all and end-all but factors in things like quality, service and so on, is Ms Fleming saying that we are facing inevitable large-scale job losses?
Ms Róisín Fleming:
We are facing inevitable job losses on a large scale. To put this very simply, Ireland has a supply structure which is based on microbusinesses. The Government has put in place a public purchasing structure with a €9 billion spend which is only accessible to large companies. There is an imbalance. There is a supply chain of microbusinesses and a purchasing system which means only large businesses can win. There has been an attempt to force the current supply model to fit the current purchasing model. It has not worked. We have to start again.
Ms Breda Gibson:
We sat at a table last week with Senator Darragh O'Brien. Among us there were 280 companies. It is another small sector comprising people involved in paper. This is widespread. The candlestick maker, baker and vegetable supplier are all affected. When we use the term "microbusiness", we mean every business on every high street in Ireland. That is our problem.
Ms Patricia Callan:
I want to add to that. The critical element is data. The absence of data is problematic for all of us. In particular, it is noticeable that this was one of the major tasks placed upon the Office of Government Procurement when it was established. We do not know what type of contracts are involved, how much they are worth, who is getting them and so forth. Until we have all of that information, it is impossible for any of us to give the committee the answers. In terms of good governance and the public accounts, it is essential that we get those data.
We would go further in terms of the economic assessment of the price piece in saying that we have to work out the consequences. One of the consequences of eliminating the supply chain is that 1,600 more people will be on the live register at a cost of €20,000 per person. In terms of the overall economic impact of the decision to save X amount in a contract, the State costs itself money because, in the round, it will end up paying out more money. This is not just about one office or Department. There has to be a whole-of-Government approach to assessing the impact on jobs.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Do we take that as an ask from the organisations that we pursue this matter with the office-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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-----and consider what the committee can do by way of assessment and analysis?
John Perry (Sligo-North Leitrim, Fine Gael)
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I am delighted to have the opportunity to raise a few important issues affecting the survival of small and microbusinesses. With regard to the €9 billion market share to which Ms Fleming referred, what is the total market in Ireland in cash terms?
John Perry (Sligo-North Leitrim, Fine Gael)
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I want to deal with the school market. I understand the figure is 28%. I would prefer to deal with the issue before us today, namely, the schools supply end. What is the total market for that area?
John Perry (Sligo-North Leitrim, Fine Gael)
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I will explain from where we are coming. I refer to circular 10/14. Ms Fleming indicated that schools would be the only customer.
John Perry (Sligo-North Leitrim, Fine Gael)
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I want to get some balance. Would suppliers be doing other normal distribution?
John Perry (Sligo-North Leitrim, Fine Gael)
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We are dealing with conglomerates, unfortunately, in Ireland, not alone in Government agencies.
Those of us in the business world know very clearly about both wholesale and retail. It is very much a conglomerate backdrop.
Ms Róisín Fleming:
We have spoken to the Deputy about this matter. I wish to take this opportunity to thank the Deputy for his assistance in keeping us afloat when he was Minister of State. He gave us a letter which said that if we could provide value for money then we could continue to trade with schools. If Deputy Perry had not given us that letter we would not be sitting here today.
John Perry (Sligo-North Leitrim, Fine Gael)
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That letter was issued from the Department to state that the principal of a school could be deemed to be the Accounting Officer for the school. Once that letter was issued, regardless of quality, quantity and value, the school was not obliged to deal with a centralised customer billing system. What has happened since then?
Ms Róisín Fleming:
There are two issues with regard to our industry. The first is the effect of current aggregate contracts. Previously we were a one-stop-shop for schools. A small country school could come to us and get everything it needed. Now those schools must get their paper from one supplier, their cartridges from another supplier and their stationery from a third supplier. If the janitorial contract goes ahead - which we all hope it will not - this will add a fourth supplier. There is also the addition of arts and graphic supplies from ourselves. The result could be that a small country school with a couple of hundred euro to spend must go to six different suppliers.
John Perry (Sligo-North Leitrim, Fine Gael)
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The position of the Accounting Officer was clarified by the procurement officer, Mr. Quinn, that if the principal of a school could certify that the school was getting value for money across the whole range, then it would not be prevented from dealing with the local supplier. Does this situation still pertain?
Ms Róisín Fleming:
At the moment it does but we are finding that there is a general level of unease and fear among school principals. As more aggregate contracts come along, many principals feel compelled to go ahead with them and, for example, to buy stationery from Office Depot. There is a core and a non-core problem in that many principals feel they are tied in to the likes of Office Depot for stationery and they feel they must buy all products from one supplier rather than just the core products. There is a definite perception among principals and it has been an uphill struggle for us.
John Perry (Sligo-North Leitrim, Fine Gael)
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It is very important to take the benchmark that is accepted by the Office of Government Procurement that the principal of a school as the Accounting Officer can still deal with a supplier and the school does not have to go through centralised billing.
John Perry (Sligo-North Leitrim, Fine Gael)
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We are attempting to resolve this issue. We are talking about the definition of micro and small business. National procurement is a bigger issue but we are dealing here with the supplies to schools. I refer to Circular 10/14 which deals with the breaking down of that contract. Has direct contact been made from the small firms? I presume there is a database of school suppliers. Schools are quite within their rights to buy from local suppliers based on the authority given to the school principals.
John Perry (Sligo-North Leitrim, Fine Gael)
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I ask Ms Fleming to explain the systems used in Wales and Scotland.
Ms Róisín Fleming:
The Welsh have 99% micro-businesses. Their situation is similar to ours and they understand the importance of the spend. They look at getting the best value for every single Welsh pound. They look for the most economically advantageous tender referring to the full life cycle of the goods while looking at the economic and social benefits that the contract can have to the locality and the least possible environmental impact. If we were to take that as a starting point, as the remit for the Office of Government Procurement, it would certainly go a long way towards alleviating many of these problems. The most economically advantageous tender is extremely broad. It can include an after-sales service and technical support. Because schools suppliers give a professional service, 85% of us give good competent after-sales service and we provide information. This could be taken into account. Social value is very important because it can take job losses into account. It can take into account potential job creation. It can take into account taking people off the live register. It can take into account community groups. It can be sufficiently broad to incorporate all Government goals into procurement and give us a world-class procurement service.
John Perry (Sligo-North Leitrim, Fine Gael)
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I ask the chairman his opinion on the anti-competitiveness aspect.
John Perry (Sligo-North Leitrim, Fine Gael)
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Yes.
Mr. Ian Martin:
I can give the committee a couple of examples of some of these tenders. We are a small business in the first aid and hygiene business. We deal with many of the big multinational companies operating in this market place. Those multinational companies have, perhaps, 20, 30 or 40 people who are also selling their goods, including the multinational companies who are also based here. From a pricing point of view, the multinationals are in a very awkward position because they may want to charge me €10 for something and charge somebody else €12. They are then trying to control the pricing in the marketplace. They are saying to us that they will give us the price we put in for that tender and that they will give us a margin of X%. That is how they are starting to do pricing which means a fixed price from everyone. They are trying to get the SME to talk to the larger company, so that the SME name gets on the list. It is a bit like me going to my larger competitor and saying, "Mr. Competitor, there is a tender out there at the moment. Would you mind putting my name down on your list as one of the suppliers because we have common goods which we are supplying". My competitor will not do that, rather he will be trying to buy me out. That application is not practical.
The aggregation of contracts is happening. We are specialists in first aid supplies and we have been in the business for about 30 years. The industry is a specialised industry. The safety clothing and first aid industries have been put together. We had a tender last year where we gave some pricing to one of our competitors for the first aid items and we got some pricing for safety clothing. We partly won the contract on the safety clothing but we are not experts in safety clothing. We lost the overall contract because we were told we did not have sufficient knowledge of the first aid market. The person who got the contract is a safety company whom we are supplying with first aid and this is all going to the same customer. The logic does not make sense. Then they said we had left out one line in the tender - because we did not know what the item was - but we did not quote for it. That was the reason we lost the contract.
There is currently a very large contract in our industry. The tender document contains 122 pages of information. One would need an MBA in a couple of subjects to actually understand the document. There are 291 lines of product which are to be supplied and they require a price for every line of product. For example, the multinational company will decide to tender for one of the lines, such as a pen. That company will decide to tender a price of €1 for the pen. It will go to the world-wide market and say it has a contract from the Irish Government for 1 million pens and that it needs them for 10 cent each. They will go to three or four suppliers in the world who will give them a similar pen. They have the world-wide buying power whereas the SME market does not.
We have a small business in the North. We are successful in some of the public tendering businesses in the North of Ireland because they will award contracts of under €30,000 to the micro-businesses. That is a nice big order for an SME turning over €100,000 or €150,000 and an SME can cope with that order whereas an SME cannot cope with an order worth €1 million because we do not have the resources.
An SME going for any reasonably sized contracts here will take on extra people and buy extra vans when the contract may be for two years. However, if the contract is lost after two years, the SME has a van fleet it does not need and workers have to be let go. The loss of a contract involves a massive cost. What they are doing is not practical.
John Perry (Sligo-North Leitrim, Fine Gael)
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I have a final question about the national procurement office which is audited by the Comptroller and Auditor General. I refer to the question of value for money, quality and business methods.
What might the Office of Government Procurement do to enhance the opportunity for SMEs to compete? One must take into account economies of scale and so on. We are increasingly seeing a centralisation of operations in the grocery sector. There are no longer delivery vans going to different towns, because it is all about centralised distribution in the retail market. The whole thing is gone in the direction of automated ordering, with no sales representatives on the road. That is the shift we are seeing. While it would be lovely to have more individual small suppliers, the marketplace has shifted dramatically around all of that. How can we beat this change?
Mr. A.J. Noonan:
Ms Fleming made the point that the Welsh and Scottish models are working well for communities in those countries. The social element is very important in that. Notwithstanding Deputy Perry's point about centralised distribution, there are still many opportunities for small businesses in this country. We have spoken before about examining what local authorities spend in their communities and encouraging them to target expenditure locally. A target should be set for them in this regard, perhaps something like 75%. If a school principal, say, has to go to six different suppliers to get six different products, that is pure madness and creates many difficulties.
We have come to the conclusion during our discussions that we are very close to a situation where the Office of Government Procurement is simply not fit for purpose. We are getting to that stage. The experience of Ms Gibson, Mr. Martin and people like them is that the office is not doing its job in the way it should be doing it. It is supposed to be looking after our country by delivering good quality products for the public service. In my view, it is not doing that.
Ms Breda Gibson:
The committee asked us to educate it because we have been doing this job for so many years and know what it is all about. We would not question what members know in terms of their job and expertise. In the case of the Office of Government Procurement, it must educate its staff and give them a remit beyond simply price. If it educated its staff on the ten steps, as has been done in Wales, it would be very hard for them to go outside that. If that format were followed, it would be very difficult for the money to go outside the community.
On 17 February, the Government announced its decision to put €250 million back into rural areas. We told it two years ago that companies on the high street would close down. There is a knock-on or domino effect in that if one business goes, every shop in the high street may go. Only now is €250 million being given to try to address this. We could have saved the Government that money if the Office of Government Procurement had listened to us and it could have been spent elsewhere. That is all we are asking.
Ms Patricia Callan:
On the specific question about demonstrating value for money, which is important, I would throw that back and ask how can the Office of Government Procurement demonstrate that it has secured value. Going back to the data aspect, there is plenty of anecdotal evidence that even after these large contracts are awarded, a lot of off-contract buying goes on, which ultimately ends up being more expensive than what was originally projected. All of that buying must be monitored but, equally, we need to look at the other end of the equation. Large contracts present particular problems, but we also have a lot of members telling us that some contracts are simply too small. In our submission, for example, we note that some local enterprise offices, which should know all about micro-businesses, are tendering for a half-day training course. One of our member companies, TenderScout, which works in this area professionally, has given us data showing that €200 million is being spent by suppliers each year on tender proposals, only some 20% of which will be successful. In essence, some €150 million is being wasted in our economy by all of these businesses spending time and money on unsuccessful tenders. I was talking to a business owner yesterday who is in the website business. This person told me that for one large contract, applicants were given just ten days to respond even though the process was not simply producing a written document but involved a design component and showing what the website might look like. There are problems at both ends, with large contracts and with small contracts, and too many companies are wasting a great deal of money trying to operate within the system. It is important to note that in Ireland, approximately double the number of companies would be trying to get into the tendering process as would be the case abroad. It is a waste of their time.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Was the contract which gave only ten days to tender a Government contract?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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A ten-day timeframe is astonishing.
John Perry (Sligo-North Leitrim, Fine Gael)
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Ms Callan referred to local enterprise offices, whose mandate is small business and micro-enterprise. Has there been any link-up by those offices with small firms, principals of schools and so on? A seminar I am dealing with is all about local business-building, which is important.
Ms Patricia Callan:
InterTradeIreland has been exceptional in this regard, running very useful "meet the buyer" events in many parts of the country that have been very positively received. As we move towards specialised category councils, the idea in the new framework is that the Office of Government Procurement will come to the market and talk to us before producing the tenders in the first place. It will be about training per contract or per category council, and getting in front of the people who are buying for the specialists in that industry. It is only by doing this that everybody will up their game. As I said at the launch of Circular 10/14, unless we make feedback mandatory, we are at nothing. If a company has not been successful in a tender, there must be information given as to why it was not successful. That is not happening at the moment because, we are told, it takes too much time, but all these small companies are expected to spend time writing tenders. One will never learn and improve if one does not get feedback.
Mr. Ian Martin:
A new trend I see in the marketplace in the United Kingdom relates to facilities management companies. Twenty years ago these types of companies would essentially have provided contract cleaners and not much else; these days they provide stationery supplies, security staff and a range of other services. They are becoming massive conglomerates in the UK. I am aware of a tender over there worth €20 million for just one facilities management company. In my industry, we would be talking about a contract worth perhaps €10 million a year. I have never seen such an amount of documentation required for a tender. We are dealing with much larger contracts in the UK, and this type of aggregation is going to exclude a lot of the marketplace.
Paul Connaughton (Galway East, Fine Gael)
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I welcome the delegates. Most of the points have already been covered. The overriding problem here is the remit of the Office of Government Procurement. Essentially, if it can come out in a year's time and say it saved X amount, then it can claim to have done its job and that will be the headline. The difficulties with that approach have been clearly outlined by the witnesses today. Departmental officials came before the committee last year to discuss these issues, at which time the Secretary General committed to reviewing matters with the Office of Government Procurement. However, there has been only a figleaf acknowledgement of what we were trying to say. Mr. Noonan hit the nail on the head when he asked whether the office is really fit for purpose. The problem is that some of the people in the office will say they were told to do a job, namely, save money, and must do that come hell or high water.
Having had a quick look through the report by the Office of Government Procurement, I did not see the words "jobs" or "employment" mentioned once.
Paul Connaughton (Galway East, Fine Gael)
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Yes, that is precisely the problem. There is reference to the target of ensuring 66% of public expenditure goes to the SME sector. That sounds good and like everything is going in the right direction but, as the delegates pointed out, we never find out the figures behind it.
Ms Patricia Callan:
There is an issue, too, with the definition of an SME. The definition used is the EU definition, which includes any company with fewer than 250 employees. In this country, however, there are only 500 companies employing more than 250 people. By that definition, many of the multinationals operating here are categorised as SMEs. We need to see what is happening with micro-enterprises, which make up 84% of all businesses, and small companies, which make up 97%. That is the level at which we need to see the data.
Mr. A.J. Noonan:
Deputy Connaughton made a very good point that it is up to the Government to set the remit for the Office of Government Procurement. That office can only implement the policies that are put in front of it. When he was Minister of State with responsibility for small business, Deputy Perry would have heard us say time and again that the remit for the Office of Government Procurement is too narrow. The word "savings" can justify anything. If its remit were along the lines Ms Fleming outlined, it would be a completely different ball game for everybody.
Paul Connaughton (Galway East, Fine Gael)
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To play devil's advocate for a moment, if representatives of the office were to come in to us and say we need to prove to them that what they are doing is wrong and show evidence of the problems it is causing, how should we respond to that?
Ms Patricia Callan:
Let us go back. I give a lot of credence to this committee as it was amazing how quickly the circular was reissued and republished after the hearing last year. It was actually done within four weeks. The circular in and of itself is good, but the implementation on the ground is not. What is the point in having a circular if it is guidance not law and, therefore, not mandatory? I took an approach last year whereby every time somebody brought to my attention a tender that was in breach of the circular, I would e-mail Paul Quinn and say "Tender". He would reply "I have no power to tell them that they are wrong or to stop and do something different". He would e-mail them and say "By the way, this is in breach". Sometimes, they would come back, put their hands up, apologise, rewrite and give people extra time. Sometimes, they would not. That is only those which were brought to my attention. Certainly, it has improved in the last year in the sense that turnover threshold, insurance threshold and all those basic things were changed and that is all good. However, there are many other things on which we need to make progress.
Robert Dowds (Dublin Mid West, Labour)
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I apologise that I was not here for the opening addresses. I had to be elsewhere. A couple of years ago, I sent a circular letter to all the businesses in my constituency and one of the responses I got was from people the witnesses are trying to defend at the moment. I made an intervention at the time and spoke to the then Minister of State responsible, who was Brian Hayes. My timing was probably not good because at that stage the Government was under huge pressure to save money, come hell or high water. I suspect that was part of the reason I did not make progress.
Robert Dowds (Dublin Mid West, Labour)
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He has now gone on to what are, if not higher things, different things.
Robert Dowds (Dublin Mid West, Labour)
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I ended up being frustrated as I recognised the problem. As a former principal, I could understand the benefit for a school of dealing with one supplier for the maximum requirements of the school. I do not want to quiz the witnesses on the truth of what they are arguing, but I ask the Chairman and the Comptroller and Auditor General whether we can bring in the relevant Minister and the Office of Government Procurement on this matter.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They are coming at noon. The Minister is not coming in but the Deputy can have a chat with him himself.
Robert Dowds (Dublin Mid West, Labour)
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I knew representatives of the Department of Public Expenditure and Reform were coming at noon. I would really like to see some progress on this. In a sense, two arms of Government are contradicting each other. On the one hand, Government is saying get jobs going, help business start-ups, protect small rural towns and villages, but on the other it is asking to save as much as possible. I get the impression the witnesses do not have a great sense of whether the system has actually saved money for the State or not.
Robert Dowds (Dublin Mid West, Labour)
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I do not mean there is a contradiction, but they are operating in contradictory ways.
Ms Breda Gibson:
Their priorities are different. What we need is for the two of them to talk. If businesses close down, we are looking at the loss of jobs. While we might have gained money somewhere, jobs will have been lost. We have to balance the books. If jobs are going, we have to acknowledge that the social bill is higher. That is what we have to look at. If the Departments spoke to each other, we might get somewhere. We have to balance both sides of the equation.
Robert Dowds (Dublin Mid West, Labour)
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Is there a role for the Department of Education and Skills in this? One of the witnesses mentioned circulars. From my time as a principal, I note that circulars dictated what one did. If a circular came from the Department of Education and Skills stating that one had to do things in a particular way, that was what one had to follow. Is there a role for the Department to issue a circular allowing people some flexibility?
Robert Dowds (Dublin Mid West, Labour)
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I will speak to the Minister for Education and Skills in that regard.
Robert Dowds (Dublin Mid West, Labour)
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To some extent, she is being directed by the Office of Government Procurement also. It is a pity we do not have a picture from the Department of Public Expenditure and Reform of whether money has been saved. Perhaps we can get one. I take on board fully Ms Gibson's remarks on the social consequences of this. Job losses must be taken into consideration as they are a cost to the State. There are also huge social costs. I will go back to it again. If a few of us do, maybe we can make more progress this time. I regret the fact that some small firms have closed as a result of this. Hopefully, we can turn things around a bit.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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While the members were contributing, I had an opportunity to look at the annual progress report on the public service reform plan for March 2015. It was in our post this morning. On page 6 of the report, it states the procurement reform programme is implementing a new centralised model for public procurement to generate significant savings in non-pay expenditure. It is stated that €63.5 million was saved on procurement in 2014. To arrive at that figure, the Department must have carried out some sort of analysis.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is news to me too. This is a Government publication and probably comes with a health warning.
Robert Dowds (Dublin Mid West, Labour)
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Did that just come today?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Another item in the report on which I would like the witnesses' views is set out on page 25. It refers to public procurement and circulars. The report states that Circular 10/14, the infamous one, which contains new public procurement guidelines that make it easier for small businesses to bid for State business, was launched in April 2014.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is Circular 10/14?
Ms Patricia Callan:
The big improvements were that it reduced the turnover threshold, insurance threshold and details around finances to make them more sensible and workable. The big thing is that in terms of things like breaking into lots, the circular is very fuzzy. The language almost encourages procurers not to do it rather than to do it. It recommends feedback but does not say it has to be given. It tinkered around the edges. Certainly, we welcome the turnover and insurance changes, which have been significant of themselves. Certainly, it is something we welcome.
Robert Dowds (Dublin Mid West, Labour)
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Is the circular being referred to from the Department of Education and Skills?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am referring to the annual report from Mr. Watt's office. Are the witnesses saying that Circular 10/14 was worthwhile, but nothing has been achieved on foot of it?
Ms Patricia Callan:
Something has. Certainly, the threshold changes have meant that other companies are able to tender. In terms of how it is implemented, many tenders which have come out since have been in breach of it. They had the wrong insurance and turnover thresholds. When we raised that, tenders were changed and reissued in the main. It is up to us to enforce it where we see a breach rather than it having to be followed by people.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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On page 26 of the report, it is stated that the OGP continues to engage with the Department of Jobs, Enterprise and Innovation, IntertradeIreland, local government and Enterprise Ireland to support SME engagement in public procurement and to progress the supporting actions in the Action Plan for Jobs. Has the OGP been in contact with the witnesses on the supports they require?
Mr. A.J. Noonan:
To say I was fortunate is one way of putting it. There was a very good lady in attendance from the Office of Government Procurement.
Deputy Perry and I soldiered together that day. It was fractious, if he recalls. It was small businesses in that region being put out of business, in their eyes, by the Office of Government Procurement, but, by the same token, it is Government policy on the savings. It is the whole remit. Deputy Connaughton has got the nub of it that the remit is too narrow. There was €63.5 million, if that is what they are claiming, in savings. How many companies have been put out of business? How many communities have been destroyed by their actions and by them interpreting their remit very narrowly? That is important.
Ms Fleming has articulated very well what we believe would be a superb remit for everybody in which business, Government, the taxpayer - everybody - wins. If we have left the committee with anything today, that is what we would like to have left the committee.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it Mr. Noonan's view that it does not function?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Let me give Mr. Noonan the priority of the OGP for 2015. It is to take on all sourcing activity in scope from Departments and agencies valued above €25,000 for spend falling in eight categories, one of which is marketing and stationery. If what it is doing is not modified in some way to suit microbusinesses in this country, it will continue to have the catastrophic effects that it is currently having on small businesses.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Therefore, what Mr. Noonan is telling us this morning is that all of this is of absolute urgency and that it needs to be addressed, not with the flowery language that one finds in these releases but with some real action from the Minister and the OGP.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Deputy McDonald want to ask a question?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is fairly stark, when Mr. Noonan puts it in those terms. Given the volume of State spend and given that one has the latitude under the EU directives, which tie all of this together, to take account of the best overall economic value, it is an inexcusable fault at this stage. It is not as if the system does not know about this. They are well aware of it.
I wanted to get back to the issue of data and measurement and analysis. It is claimed the quantum of savings is €63.5 million. As against that, I do not believe that takes into account any offsetting consequences. I refer to the point Ms Callan made earlier in terms of job losses and their cost and burden on the Exchequer.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Absolutely. More interestingly, they have gathered some data. There is a recent report of €3.791 billion spent, with €2.74 billion being tracked across 35,000 suppliers involving 3.8 million payment transactions from 64 public service bodies, for instance, in health. All of that sounds impressive, but one has to drill into all of this to see what it means. What we can know is that it is a partial analysis. The entire spend has not been captured.
Is there scope or a role for the Comptroller and Auditor General to analyse this area or how we go about doing what these witnesses sensibly suggest? I am certain that they speak for SMEs and microbusinesses everywhere. I know that because I have heard it everywhere that I have gone. They are credible in their position and their ask of us is reasonable. We need to figure out how we do it. Is there a role for the Comptroller and Auditor General to cast a fairly forensic eye across a piece of work such as this?
Mr. Seamus McCarthy:
Yes, there is. We have reported previously on the mechanisms used by the precursor of the OGP, which was based at that time in the Office of Public Works, on how it calculated savings. We found that the savings estimates presented at that stage, in 2012, were not reliable. It is a very tricky process to calculate savings. What one can be calculating is reductions in expenditure and in some cases, they were being called savings. The point that was made on the importance of taking the life cycle of an expenditure into account would be an aspect that would need to be examined.
We are always concerned that procurement guidelines are followed. It is important that any system of guidelines would not have perverse effects because of the way it is structured. One wants to achieve efficiency and economy, but not at the expense of detrimental effects elsewhere.
A point has been made in a couple of contributions about who is going to come up with the data. There is an obligation on every public body to demonstrate that it is achieving value for money. They should be doing that as a routine. It should not require my office to do the work for them. They should be reporting on where they have achieved savings and how they have achieved value. If that was a routine presentation by Departments in their annual reports and so on, it would be amenable to my office examining it.
It is a vast scope of expenditure. It is interesting that, in a relatively new circular, the feeling from the supply side was that it was not working or, at least, it was not working yet. There is a concern that if it does not work soon, there will not be anything left to save. It is probably a fairly urgent matter.
It is also interesting, from what I have heard this morning, the extent to which they do things differently in other jurisdictions and there may be lessons to learn there. It is probably something the committee can reasonably take up with the OGP, that is, what it has done to look at what happens in other jurisdictions and its reaction to what happens elsewhere that may be helpful. That is a line of questioning.
I have no difficulty with the suggestion that I would do a piece of work but the urgency that has been expressed this morning and the time it will take to commence a piece of work and to report to the committee may not fit.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I thank the Comptroller and Auditor General. I am conscious of that as well but, following today's hearing, I am doubly convinced that one issue is the model upon which the OGP bases its work, that is, price only, versus the most economically advantageous, but another that is important is how the OGP analyses its own target and performance. If we do not get a piece of work done fairly urgently, this new office, which will not always be new, will take root and establish a rhythm of working, an outlook and a set of precedents to which, unfortunately, it will wed itself and be loyal, and it will be like trying to turn, dare I say it, RMS Titanicif we leave it too late. I do not know whether we can do it here but we need to figure out what we are doing and what is the tightest timeframe.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will not do it in this session of the meeting-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is fine.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----but we will do it after we hear from the Department in our next session, which starts at 12 o'clock. I am conscious of time and I want to conclude this section of the meeting.
John Perry (Sligo-North Leitrim, Fine Gael)
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On the special work that the Comptroller and Auditor General can carry out, it is important that we achieve balance. While there are anomalies with the procurement facilities, would the Comptroller and Auditor General, in his audits with the Accounting Officers of all the different Departments, carry out a report on the processes of procurement in every Department? Would that be the case?
Mr. Seamus McCarthy:
Yes, it would. We are looking at compliance, particularly with competitive processes.
That is the fundamental issue. There needs to be competition. To go beyond that to look in detail at conditions set or mechanisms used for evaluation is quite a different process and would be very time-consuming.
John Perry (Sligo-North Leitrim, Fine Gael)
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Many insinuations are being made today. One has to be careful to strike the correct balance in what one says.
John Perry (Sligo-North Leitrim, Fine Gael)
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I would not like to prejudge the entire national procurement office.
John Perry (Sligo-North Leitrim, Fine Gael)
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I fully agree that the schools can deal with Accounting Officers on the supply of products. Equally, there is nothing to stop a school or Accounting Officer from dealing with the supplier coming in. Issues arise in regard to value for money, however. Can Mr. McCarthy's office help us to put this issue to bed once and for all by preparing a value for money report on the national procurement office? We can all make allegations but it is important that we are balanced.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is important but, as I noted earlier, we have only heard from one side.
John Perry (Sligo-North Leitrim, Fine Gael)
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I fought tirelessly on this issue when I was Minister of State at the Department of Jobs, Enterprise and Innovation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know the Deputy did.
John Perry (Sligo-North Leitrim, Fine Gael)
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I got a letter issued to allow the schools deal directly with their supplier of choice, subject to the Accounting Officer for the school signing off as being happy with the value offered. Other insinuations have been made today about the national procurement office which need to be clarified. I will be asking the Comptroller and Auditor General to prepare a special report if such insinuations continue to be asserted.
John Perry (Sligo-North Leitrim, Fine Gael)
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This has been circulating for quite some time. It is very easy for people to make statements with regard to various contracts or value for money but we have to allow the staff of that office to do their job and to use their purchasing powers. They deal with business worth €9 billion in contracts and suppliers. It is not a simple job by any means. We have to be careful in striking the right balance.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are going to be careful.
John Perry (Sligo-North Leitrim, Fine Gael)
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We want to have balance.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Part of being careful is hearing two sides of an argument. We have heard one side of the argument this morning, which greatly impressed me. I am fully supportive of the SME sector and the micro-enterprise sector. We will hear the other part of the argument when the officials come before us in the next few minutes.
John Perry (Sligo-North Leitrim, Fine Gael)
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The point-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Sorry, I am not finished. After that, the members of the committee can engage with the Comptroller and Auditor General in a discussion in order that we do not simply leave today's contributions from both sides in this room. Arising from these discussions, I intend to ensure action is taken to assist the sector we heard from this morning. We will revisit the overall issue after we deal with the Department and the Office of Government Procurement. That is our intention.
John Perry (Sligo-North Leitrim, Fine Gael)
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The point I was raising was about the collation of figures and the role of the Accounting Officer, who audits the 15 Departments on their procurement sections and how they purchase goods. I assume the relevant figures are collated by the national procurement office.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will return to that.
John Perry (Sligo-North Leitrim, Fine Gael)
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I am asking the Comptroller and Auditor General for his views.
John Perry (Sligo-North Leitrim, Fine Gael)
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His office carries an audit of every Department on procurement procedures and how goods are purchased. Does that not include an audit of value for money of purchases?
John Perry (Sligo-North Leitrim, Fine Gael)
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Why is that not the case?
John Perry (Sligo-North Leitrim, Fine Gael)
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Is that not a huge anomaly if the office is not carrying out value for money audits on goods supplied or preparing national value for money reports on the procurement office?
John Perry (Sligo-North Leitrim, Fine Gael)
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It could be done in respect of the procurement office.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Perry is missing the point.
John Perry (Sligo-North Leitrim, Fine Gael)
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I am not missing the point. I am very clear.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Sorry, I am going to rule on this. We have learned a lot from the group that is before us. We will shortly commence our next session with the Department. I am bringing this part of the meeting to a conclusion. After our next session we will consider what would be required to ensure these small firms are protected and included in any procurement process.
John Perry (Sligo-North Leitrim, Fine Gael)
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They are protected at the moment.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Sorry, Deputy-----
John Perry (Sligo-North Leitrim, Fine Gael)
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It is important.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Deputy has made his point. I am adjourning the meeting for ten minutes and then we will have the officials.
John Perry (Sligo-North Leitrim, Fine Gael)
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You made a point about-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Deputy can put his points to the officials. He is not going to deal with it now.