Mairead Farrell (Galway West, Sinn Fein) | Oireachtas source

I move: “That the Bill be now read a Second Time.”

Táim chun m'am a roinnt le mo chomhghleacaithe.

I am delighted to speak alongside my colleague Deputy Patricia Ryan on the Second Stage debate of our Bill. I might say a few words on what motivated us to table it, why it is necessary and how it will improve the regulation of tender bids for capital works. We are firmly of the opinion that, if enacted, it will improve value for money for the taxpayer when it comes to large capital projects.

It is no secret this State often encounters significant problems in getting value for money for large capital projects, which can often arise from poor regulation. Most people will be aware the new national children's hospital is expected to be the most expensive hospital in the world, given its latest estimated final cost is €2 billion, having run over cost by well over 100%. The national broadband plan has also proved a fiasco, with its latest estimated cost standing at €3 billion, a cost overrun of approximately 500%.

This is by no means a recent phenomenon. In 1999, the national road improvement works for the likes of motorways, primary roads and the M50 was completed. It began with an estimated cost of €7 billion but its final cost was more than double that, at €15.5 billion, a cost overrun of 125%. In 2005, the Luas green line cross-city extension was completed at a final cost of €991 million, just shy of the €1 billion mark, and its initial cost was estimated at €358 million, meaning it ran over cost by 161%. One year later, the Dublin Port tunnel was completed and, aside from the poor planning that meant it is unable to take the largest trucks coming to and from the port, it ran over cost by €295 million, or 65%. Four years later, Dublin Airport terminal 2 was completed having overshot the mark by €139 million. I could go on but I think we get the point.

Cost overruns can arise, as we know, from a wide range of factors. There can be poor planning on the part of the contracting authority or the contractor, litigation arising from contractual disputes, poor performance in the management of risks and so on, but poor value for the taxpayer can also arise for more nefarious reasons. We can take the issue of bid-rigging, a form of price-fixing behaviour by which firms co-ordinate their bids to maintain high prices, which is a serious issue. The Government recently acknowledged that with the introduction of its competition (amendment) Bill 2021.

The Bill that Deputy Ryan and I have tabled is designed to target another source of cost overruns, namely, those arising from the issue of abnormally low tender bids in the procurement process for capital works. These abnormally low bids are sometimes referred to as lowball offers and they can be one contributor, albeit a significant one, to cost overruns. In practice, these abnormally low bids are often a result of a contractor submitting a very low bid. In the case of the building of a school or hospital, for example, given the heavy focus on lowest price criteria in this State, a contracting authority may choose the lowest offer believing it to be the best value for money. Due to unforeseen circumstances, the contract may then run over cost, leading to poor value for money for the taxpayer. This is something the Tánaiste himself has acknowledged is a serious problem, when he stated, "... some companies [are] lowballing, coming in with very low tender prices to get the contract and then coming back with claims thereafter."

Another angle to the Bill concerns a matter that is quite topical and that must be dealt with in as a timely a fashion as possible, namely, the issue of bogus self-employment. The Committee of Public Accounts has been dealing with this issue in depth and our Bill will help to tackle one aspect of this kind of fraud. A great deal of bogus self-employment takes place in the construction sector. If, for instance, a contractor misclassifies a significant number of its workers as self-employed, it will dodge the employer PRSI and other obligations and reduce the overall labour cost. This means the contractor could submit an abnormally low bid and win the competition for the contract.

As for how our Bill would address these issues, the European Union (Award of Public Authority Contracts) Regulations 2016, which govern this area, allow for bids that are abnormally low to be excluded from the process. That legislation does not, however, define an "abnormally low bid", which means strong subjectivity is involved and contracting authorities can, understandably, be hesitant to exclude contractors from the process.

Our Bill will enact a new objective criterion such that, where four or more tender bids are submitted for a public works contract or a works contract of contract value equal to or more than the EU threshold value, a bid that is more than 15% below the adjusted average will be considered abnormally low and rejected if it cannot be adequately explained to the contracting authority. If a contractor makes an abnormally low bid for a contract, thus claiming it can complete the contract at a significantly lower cost than its competitors, it must explain to the contracting authority how this is achievable. If the contracting authority does not receive a reasonable explanation for the abnormally low bid submitted, it will be rejected and the contractor disqualified from the procurement process. The contracting authority should record the reason for rejection and submit it to the Office of Government Procurement, OGP.

The Bill will also ensure that poor performance in prior public contracts will be grounds for exclusion from participation in procurement procedure. Where these contractors have shown significant or persistent deficiencies or failures in the performance of public contracts, the contracting authority, such as the local authority, should record the reasons for the rejection and submit them to the OGP. The State needs to improve regulatory oversight and enforcement when it comes to certain aspects of public procurement, a view backed up by a number of studies by the likes of the World Bank, Transparency International and the OECD. The OGP does not provide a regulatory function and contracting authorities often lack the capacity to carry this out themselves, which is why legislation is needed in this regard.

This legislation is reasonable and desirable and would lead to better value for the taxpayer in the context of large capital projects and the cost overruns that often arise. It will also help to tackle one aspect of bogus self-employment. We often hear the Government talk of fiscal prudence - it has become something of a watchword - but it seems to do little to tighten regulations that would ensure the prudent fiscal management of the public finances regarding procurement. While the OGP has no regulatory function, the interim procurement reform board that has been established is not on a statutory footing and thus is limited in what it can do.

That makes legislation in this regard all the more important. Deputy Ryan and myself are presenting a simple and clear-cut measure that could help tackle abnormally bids, or lowball offers as they are more commonly known. The legislation is reasonable and will give guidance in the form of an objective criterion about what should be deemed to be an abnormally low bid. Without it, that is an extremely difficult matter to assess and we must ask contracting authorities to do it.

The Bill will also allow the contractor to explain its abnormally low bid. It might be the case that the bid is in fact fair and the contractor might have a reason for how low it is. For example, it may have devised some innovative industrial process or gained access to cheaper materials. We are not saying that just because it is an abnormally low bid, we should not take it, but it is important we have information on why it is low. The contractor may have found a more effective way of doing business and, therefore, its bid could still be permitted. Crucially, however, it will also allow poor performance in prior public contracts to be a ground for a contractor to be excluded from participation in a procurement procedure for capital works.

In light of the scandals there have been, and of companies wilfully and recklessly dodging their PRSI obligations, are these the kinds of companies we want to win public contracts? Surely not. I urge the Minister of State and all Deputies to support the Bill.

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