Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

The Government does not oppose the Bill. In fact, we have never opposed it. I am not sure to what rumour Deputy Marc MacSharry is referring. We have always sought to work constructively on this matter because we value social clauses and access for small and medium-sized businesses to public procurement.

I commend Deputy Frank O'Rourke for bringing forward the Bill. I also commend the work of his two colleagues in the last Seanad on getting the issue on the agenda and making progress.

A total of 95% of the State's procurement spend is with firms within the State, the majority with small and medium-sized enterprises. Significant work has been undertaken at national and European level to support SME participation in public procurement and ensure SME firms can compete on a level playing field with larger companies. These initiatives include the division of public contracts into lots, for example, by sector, region and value, where possible; the acceptance of consortia bidding to allow SMEs to participate in procurement procedures where they do not have the relevant capability or scale to bid as sole tenderers; and the use of less onerous turnover and insurance requirements as part of the selection process.

There is a perception that lowest price is the most important factor in competitive processes. That is not the case. The best quality over price ratio is used in the majority of cases, with quality being the most important factor. The Office of Government Procurement engages with InterTrade Ireland and Enterprise Ireland to actively support go-to-tender workshops, meet-the-buyer events and consortia training.

Last November I briefed Opposition spokespersons on public procurement and last December arranged a similar briefing in Leinster House for Members of the Oireachtas and their special advisers. We are now taking this approach to local level. Earlier this month I arranged an event in UCC at which we met local Deputies, Senators and individual SMEs. We listened to their concerns. In turn, we explained the various measures the Office of Government Procurement wass undertaking to ensure SMEs were able to compete on a level playing field with larger companies during public tendering. This exchange was useful for both sides and I have arranged a similar event in Galway this coming Friday.

Under the programme for Government, I chair quarterly meetings of an SME working group, at which the representative bodies of the SME sector, including ISME, the Small Firms Association, IBEC, the CIF and Chambers Ireland, are given an opportunity to voice concerns about public procurement and provide input into policy development in this area from an SME perspective. Through this forum I have canvassed the views of representative bodies on the proposed legislation. They have expressed concerns about the blanket approach formulated and the adverse effects it could have on the SME sector. We can work on this issue.

Overall, the Government supports the principle of social clauses and sees significant merit in developing an effective approach to their use. Any legislation and guidance in this area must, of course, comply with the fundamental principles of EU law, including the free movement of goods and services, equal treatment, non-discrimination and transparency. Conditions of social clauses must be made known to all interested parties and not restrict participation by contractors from other member states or geographical areas. Once a decision has been taken by a contracting authority to use social clauses, they should be clearly signalled at all stages of the procurement process, from business case and specification through to selection and award stage, as well as through to contract implementation and monitoring.

Challenges in the deployment of social clauses in public procurement arise from the need to ensure the clauses cannot be discriminatory; value for money is not adversely affected; additional costs are not placed on domestic or smaller suppliers relative to other potential suppliers; social clauses are linked with the subject matter of the contract; and the targeted benefit is capable of being measured and monitored during the execution of the contract.

Social clauses have, or are, in the process of being rolled-out by a number of public service bodies, even without primary legislation. I bring to the attention of the House a number of these projects. The devolved schools programme is a pilot project that was administered by the National Development Finance Agency. The aggregate capital value of the contracts was approximately €70 million and work was completed at the end of 2015. A total of 50 long-term unemployed and 18 apprentices or trainees were hired during the course of the programme as a result of the use of social clauses. I am also aware that the new national children's hospital project includes an ambitious and wide-ranging community benefit programme for all construction contracts and that Dublin City Council is developing social and community benefit clauses for use in works projects. I am bringing these examples to the attention of the House because there are valuable lessons to be learned from the experience of these projects, both good and bad. In respect of the latter, I understand that, in some cases, contractors have found that the requirement to take on additional workers has meant having to let others to. In such cases, social clauses are simply leading to job displacement with no net benefit to the economy. The upturn in the construction industry also means that unemployment in this sector is less of an issue; in fact, there is a shortage of trainees and apprentices. Market forces are reducing the need for Government intervention and the use social clauses in the sector.

It is clear that the implementation of social clauses in all of these projects is resource intensive in money and labour terms and requires a co-ordinated multi-agency approach. The scale and duration of projects are also key factors in considering whether to deploy social clauses. Typically, training and employment targets are best suited to projects lasting at least 12 months, while experience in other member states suggests social clauses are best suited to larger scale works contracts.

The Government sees certain difficulties with the Bill as formulated. The Bill is proposing social clauses that would be of specific benefit to local areas targeted at tackling local unemployment and benefiting local SMEs and subcontractors. This, however, would run contrary to EU public procurement rules designed to remove barriers to trade between member states. Clauses that are perceived to restrict entry to local contractors and local unemployed would be open to legal challenge from unsuccessful Irish and European tenderers, as well as the European Commission. Moreover, from a practical perspective, we need to ensure the introduction of additional requirements does not simply increase bureaucracy and paperwork. In fact, the SME sector is keen for us to simplify and streamline processes for suppliers.

From a contractor's point of view, there is a risk that by imposing extra rules we run the risk of losing sight of the need for the efficient delivery of goods, services and works. An analysis of the costs and benefits of social clauses to the community and the taxpayer must be weighed against the business objectives of the public body or contracting authority. This will place additional work on the contracting authority in terms of design, implementation and enforcement. This additional work cannot be understated. Let us suppose the social clause states the employees of the company must be from a given local area, for example, Dublin 3. Is it fair that employees in neighbouring areas would be excluded from working on that job? In addition, there would be difficulties in verifying the addresses of employees. What would happen if an employee moved address? What if the company was to move address? These questions highlight the practical difficulties in implementing social clause provisions in a blanket way.

Additional burdens would arise for contracting authorities. Would a small contracting authority have the capacity to assess the life cycle costs or innovation in a tender? In the case of the Dublin City Council initiative on social clauses to which I referred, it is envisaged that additional dedicated resources will be required to implement the social clauses, for example, an employment co-ordinator and a contractor liaison officer? The support of staff from a nominated Intreo centre will also be required. Contractors would face all or some of the direct costs of extras hires, as well as the additional administration costs of maintaining the relevant work records for inspection on regular basis. That is why they envisage social clauses being aimed at works contracts above €5 million. Scale is an important consideration. In Northern Ireland social clauses only apply in buildings contracts above £2 million and civil engineering contracts above £4 million.

The Bill is being put forward as a way to enhance the ability of SMEs to compete for public procurement tenders. As stated, however, we have canvassed the views of the SME representative bodies which have indicated concerns, including the concern that social clauses would place additional costs on SMEs and put them at a comparative disadvantage to larger companies which would be in a better position to absorb the extra costs.

While the Government does not oppose the Bill, work needs to be done before it can become viable legislation. Social clauses impose additional costs on the State and suppliers, both in meeting their requirements and demonstrating and verifying compliance. Further debate and discussion are required to put in place the correct policy approach to facilitate the effective use of social clauses. Any legislation and guidance in this area should afford individual contracting authorities sufficient flexibility to design social clauses relevant to the needs of their specific contracts and that will allow them to decide how and when to use them.

I am agreeable to working closely with the Deputy and proposing consultation on the application of social benefit clauses, with a view to adopting a similar approach to that taken in other jurisdictions. The approach should encourage public bodies to consider non-discriminatory social clauses. It should evaluate the specific requirements of a labour market or specific social or environmental requirements at the time the procurement process takes place to ensure the best outcome. The approach should judge the ability of SMEs to absorb additional costs. It should assess the additional cost versus the benefit of any social clause to the public body. Comprehensive guidance is already available to public authorities on the use of environmental clauses in the action plan on green public procurement, published in 2012, as well as the green procurement guidance for the public sector, published in 2014. In addition, the Office of Government Procurement is finalising practical guidance to assist contracting authorities in using social clauses, where appropriate.

A copy of the Private Members' Bill has been forwarded to the Attorney General's office with a request for views on the text of the Bill in terms of its compliance with the directives and EU treaty principles. Government amendments to the Bill will be tabled on Committee Stage.

I again commend the Deputy for bringing forward this important measure and I look forward to working with him and others to build on the measures already in place to promote SME access to public procurement and to developing appropriate social clauses.

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