Ossian Smyth (Dún Laoghaire, Green Party) | Oireachtas source

I thank Deputies Mairéad Farrell and Patricia Ryan, the proposers of the Bill. I welcome the opportunity to address the House on the subject of abnormally low tenders and poor past performance in the procurement of public works contracts. The Bill is well intended and seeks to address the issue that arises on public works tenders from time to time where a contractor will bid low to win the contract and seek to recover its costs through claims under the contract.

The Government, having considered and reflected on the proposals in the Bill has decided to oppose it on two grounds. First, the provisions to exclude abnormally low tenders and tenderers for poor past performance already exist in the regulations that govern the award of public contracts, and, second, the proposals may have an adverse impact on the award of public works contracts.

The Government has significant concerns about the Bill's potential impact on the ability of the State to seek value for money on all projects delivered under the Exchequer-funded element of the national development plan and the implications for Ireland of the Bill with respect to EU public procurement directives.

Public procurement is governed by EU legislation and national rules and guidelines with the aim of promoting an open, competitive and non-discriminatory public procurement regime, which delivers best value for money. The measures proposed in the Bill seek to modify those, which are already provided for under the 2016 European Union (Award of Public Authority Contracts) Regulations.

The capital works management framework, CWMF, is the tool a public body must use to procure and manage the external resources necessary to deliver public works projects that are delivered under the Exchequer-funded element of the national development plan. The Office of Government Procurement, OGP, has introduced amendments to the public works contracts in the interest of improving tender outcomes. This work will continue in the ongoing review of the capital works management framework.

The measures already introduced include the following. Fully measured bills of quantities are required for those projects which use the traditional contract type. This measure increases the focus of the design team in preparing more comprehensive design information that can be accurately measured for pricing purposes. With a comprehensive price breakdown, it is easier to identify abnormally low pricing strategies. A mechanism to directly tender specialist works was also introduced so that these critical work elements are priced directly by the specialist, thus reducing the extent of the contract sum for which the main contractor has overall price responsibility.

A review of construction procurement policy is under way and will deliver significant changes to the capital works management framework over the coming years. One of the work streams identified as part of the review is performance evaluation. Engagement will take place with industry on developing robust key performance indicators as part of this work stream in 2022.

The reform of the public procurement function is driven by the need to obtain value for public money in procuring goods, services and works. It is essential that value for money is not adversely affected and projects are not delayed by arbitrary formulas and onerous administrative and reporting procedures that go beyond the provisions already set down in the national regulations transposed from the EU procurement directives.

There is a balance to be struck in deciding to award a public contract between value for money and a quality project outcome.

From the perspective of a public body's duty to taxpayers, it can be difficult to justify a decision to reject the lowest price as being out of hand, particularly in circumstances where the contractor who has bid the price is willing to undertake the project.

I will now discuss the Government's concerns in respect of the proposals within the Bill. In order to avail of the long-standing provisions, as set down in the EU procurement directives for dealing with abnormally low tenders, it is vital that projects are adequately defined so that a proper analysis of the constituent elements of the project can be undertaken. The existing regulations already impose a duty on contracting authorities that require economic operators to explain the price or cost proposed where the tenders seem abnormally low regarding works, supplies and services. When investigating what appears to be an abnormally low tender, contracting authorities must take into consideration the possibility that the tenderer may be obtaining terms that are more favourable from suppliers and subcontractors than rival tenderers. A contracting authority is not obliged to reject an abnormally low tender except where it is established that the tender is abnormally low because it does comply with relevant labour, social and environmental law. In that case, it must be rejected. The Bill does not address this aspect and if enacted, it may conflict with this important provision of EU procurement law.

Guidance on abnormally low tenders is published by the Office of Government Procurement, OGP, under the capital works management framework, CWMF, and in the public procurement guidelines for goods and services. The CWMF guidance on abnormally low tenders applies to all contract values above and below the EU thresholds, and is included in all CWMF instructions to tenderers templates.

The provisions in section 2 seek to define an abnormally low tender where no such definition exists in the regulations or in the EU directives. It defines an abnormally low tender as a tender that is 15% lower than the adjusted average of the tenders received. The adjusted average is the average of all tender prices provided excluding the highest tender price. The arbitrary nature of the definition may have unintended consequences given the range of tender prices that can arise on some works tenders. While it is fair to say prices may be received that are below pre-tender estimate, prices well in excess of that estimate may also be received. It also raises the question as to whether the operation must be repeated should a tender identified as abnormally low is rejected, and perhaps lead to further rejections as the average value increases depending on the range of tender prices.

In common with existing regulations, a contracting authority is not obliged to exclude a tender that is identified as abnormally low. However, the provisions in section 2 would force a contracting authority to engage with the tenderer and, in so doing, would have to disclose the other prices received as part of the tender in order to explain to the tenderer why his or her tender was identified as abnormally low. In accordance with the principle of equal treatment, that information would then have to be shared with all tenderers, which may raise questions with respect to broader competition in the market. Under the existing regulations, the price of the successful tenderer is only required to be disclosed upon the publication of the contract award notice, which must be no later than 30 days after the contract is awarded.

The Bill also caters for situations where fewer than four tenders are received. However, the provisions proposed in subsections (2) and (3) leave it to the discretion of the contracting authority, or on the basis of professional advice, to determine whether a tender is abnormally low. The term "discretion" is problematic. It is not found in the existing regulations and would leave the contracting authority open to a challenge on the grounds that there had been a breach of the principles of transparency and equal treatment.

The view of the Government is that the Bill may drive tender prices higher than might otherwise be bid, as contractors seek to avoid the examination that follows identification of an abnormally low tender based on the formula proposed. It may disadvantage smaller contractors who may be able to offer lower prices than their larger competitors. It may significantly delay the award of a contract, and it may give rise to procurement challenges both from those whose tenders are rejected and who believe a tender should have been rejected.

It is not clear how the role of the chief procurement officer in the OGP, as proposed in the Bill, will fit with the public spending code and devolved authority to accounting officers. There are provisions for oversight of capital projects in the public spending code, and it is a matter for the contracting authority and the approving authority to satisfy themselves as to the adequacy of the approach with regards to compliance with procurement rules and project appraisal in accordance with the code.

Section 4 permits a contracting authority to exclude a tenderer where the economic operator has shown significant or persistent deficiencies or failures in the performance of a prior public contract. The existing regulations already contain this provision and, crucially, the Bill does not require evidence of that poor performance. The regulations require poor past performance to be demonstrated through the early termination of a prior public contract, damages or a comparable sanction. This is a key balancing provision to ensure a contracting authority may not abuse its position. The proposed section 4, therefore, extends the contracting authority's power to exclude tenderers beyond the parameters in Article 57(4)(g) of the EU Directive 2014/24 on procurement and, to this extent, is unlikely to be permitted under EU law. The key to the successful deployment of this provision is consistent contract administration and the application of the sanctions that are already available under the public works contract to address poor performance. A contractor may not be excluded simply because he or she raised claims or adopted an adversarial approach under a prior contract.

The Bill refers only to works procured under the European Union (Award of Public Authority Contracts) Regulations as transposed from EU Directive 2014/24. There is no reference to works procured under the utilities directive or concessions directives.

Ambiguity in the project requirements can easily result in a price that may adequately cover the tenderer's interpretation of the tender documents, but may not necessarily align with the contracting authority's expectations. The formula approach set out in section 2 may impact upon innovation, particularly in a design and build tender where there is real scope for innovation from a construction point of view. The formula approach may result in a tender being categorised as abnormally low that is well considered and very efficient to build, meets the brief and output specification and is generally cheaper to build. Whilst it may pass the test set out in section 3(1)(a) and-or (c), meaning it does not have to be rejected, it will nonetheless have been identified as potentially being an abnormally low tender leaving the decision of the contracting authority to award the contract open to challenge from other tenderers.

The Bill, which deals with how the State regulates for abnormally low tenders for construction works with a contract value equal to or above the EU threshold for public works, and poor past performance to be grounds for exclusion from participation in a procurement procedure, has not undergone a regulatory impact assessment. It places an additional administrative burden on contracting authorities and the chief procurement officer in the Office of Government Procurement.

The Government appreciates the intention behind the Bill. However, for the reasons I have outlined, the Government has significant concerns regarding the Bill's potential impact on the ability of the State to seek value for money on all projects delivered under the Exchequer-funded element of the national development plan and the implications of the Bill for Ireland with respect to EU public procurement directives. I thank Members for the opportunity to address them on this.

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