Dáil debates

Tuesday, 9 November 2010

Reform of Structures of Government: Motion

State Procurement Contracts

9:00 am

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The issue I am raising is different from the very serious issue the House has just been debating. At the end of the summer, the Government gave a commitment to make it easier for Irish companies to apply for public procurement contracts - essentially, to compete to do work for the State and its agencies. Each year, up to €15 billion is spent on public procurement contracts. I am raising this issue because I am frustrated that Ireland continues to be absolutely out of step with practically all other EU member states in terms of the percentage of public procurement contracts awarded to companies outside the member state. France, Spain and Poland award less than 1% of state contracts to companies from other countries; Italy, Denmark and the UK award less than 2% of state contracts to companies from other countries; and Sweden, the Czech Republic and the Netherlands award less than 3% of state contracts to companies from other countries. Ireland, by contrast, gives almost 18% of the €15 billion we spend getting things done - building roads and schools, putting software programmes in place for State agencies and building boats for fisheries protection etc - to companies outside the State.

This debate is taking place at a time when Irish small and medium-sized enterprises are desperately in need of stimulus and support. The SME sector employs 250,000 people in areas of the Irish economy like the service and construction industries. I ask the Government to give the House a progress report on what it has been doing to make it easier for Irish companies to compete in domestic tender competitions. What has it been doing to prepare and train Irish companies to compete for contracts in other parts of Europe? I am primarily concerned that we facilitate companies that may seek public contracts in Ireland. Even in these difficult times, significant amounts of money are being spent on public contracts. I want to be told it has become simpler and cheaper for companies to participate in tendering processes. Until recently, Irish SMEs could not enter the tendering process in many cases because it cost so much to do so and they had no certainty of success. At the moment, companies cannot borrow money to put contracts in place without some certainty of success.

I ask the Minister of State to assure the House that no charge is imposed on companies that tender for the vast majority of public contracts. I want to know that where appropriate, State agencies are required to send officials to meet people who are tendering for business. The officials should give them guidance, where possible, and ensure they are competing. I want reassurance that Enterprise Ireland is helping to support and prepare Irish companies, to ensure they are as competitive as they should be and to increase the percentage of public procurement business obtained by such companies. Do we have an import substitution strategy for replacing the amount of work that is being done in Ireland by foreign companies with Irish companies, when and where appropriate? I am not satisfied that is happening. Small businesses, companies and entrepreneurs in Ireland are going out of business at a time when large contracts are being successfully completed by large multinationals based out of Ireland, even though Irish SMEs have the skill set necessary to do the job.

Photo of Martin ManserghMartin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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The number of non-domestic suppliers winning public procurement contracts in Ireland has been the subject of controversy from time to time. The Deputy referred to a statistic, released by the EU Commission, which suggested that 17% of contracts awarded in 2008 went to suppliers outside the jurisdiction. This statistic is based on incomplete data relating only to above-threshold procurements where contract notices were published and the nationality of the winning tenderer disclosed. When one compares the value as opposed to the number of contracts going to non-Irish companies in 2008, the figure amounts to less than 5% of the overall public spend on procurement.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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It is not about the value of the contracts. This is a spin job.

Photo of Martin ManserghMartin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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The figures quoted by the Commission do not distinguish between companies based in Britain and those based in Northern Ireland. Therefore, many of the contracts going abroad may have stayed on the island of Ireland. As the Deputy will be aware, part of the remit of a North-South institution, Intertrade Ireland, is to expedite trade and business growth across the island. It offers practical advice and support in targeting new cross-Border business opportunities, obviously in both directions. The Commission agrees that an alternative interpretation of its figures is that approximately 95% of all procurement by value was from domestic suppliers. The Deputy will understand that the relevant percentage cannot be predetermined by the Government, but emerges from open and fair competition. When one is making comparisons, one also needs to take into account the size of the country in question.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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Why?

Photo of Martin ManserghMartin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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Public procurement in Ireland is governed by EU legislation and national rules developed by the Department of Finance. The most significant development in facilitating the SME sector has been the publication by the Minister for Finance in August 2010 of Circular 10/10, which sets out guidelines for public contracting authorities. The guidelines aim to ensure tendering processes are carried out in a manner that facilitates participation by SMEs and all procurement is carried out in a manner that is legal, transparent and secures optimal value for money for the taxpayer. They address the concerns of SMEs regarding access to public procurement opportunities and highlight practices to be avoided where they can unjustifiably hinder small businesses in competing for public contracts. The new arrangements include greater open advertising of opportunities, with a new threshold of €25,000; a reduced requirement for paperwork, such as accounts, at the early stages of tendering; an instruction that suppliers are not to be charged for access to tender opportunities; an assurance that all criteria used would be appropriate and proportionate; and an instruction that turnover and insurance levels would be set at proportionate levels.

All these actions are consistent with the recently published EU-commissioned research carried out by GHK on behalf of the European Commission enterprise and industry directorate general, entitled Evaluation of SMEs' Access to Public Procurement Markets in the EU September 2010, which recommends actions contained in circular 10/10 in support of SMEs and which notes in its executive summary that SMEs in Ireland secured greater access to public procurement than in other European countries.

The national procurement service, NPS, seeks to encourage participation by SMEs in the tender competitions it runs. SMEs that believe the scope of the NPS competitions that may be beyond their technical or business capacity are encouraged to explore the possibilities of forming relationships with other SMEs or with larger enterprises. It is envisaged that through such relationships they can participate and contribute to the successful implementation of any contracts, agreements or arrangements that result and therefore increase their social and economic benefits. Larger enterprises are also encouraged to consider the practical ways that SMEs can be included in their proposals to maximise the social and economic benefits of the contracts that result from this tendering exercise.

Before going to tender, the NPS strategically analyses each category of goods or services to determine the most effective approach to the market, including aspects such as achieving better value for money and SME participation. In some cases involving low risk, high demand categories of goods, economies of scale and better contracts management can be achieved through the use of a centralised contract, with a reduced administrative burden, which will in itself result in savings. In other categories of goods, dividing the contract into lots, taking on board our obligations under the procurement directives, is the appropriate process to follow.

Benchmarking from other jurisdictions confirms that using centralised competitions such as these can result in administrative savings of €6,000 to the contracting authorities availing of such contracts as a result of not having to administer the procurement themselves. The cost of putting a centralised contract in place is estimated to cost €25,000 but, clearly, the more organisations that avail of the centralised frameworks, the greater the administrative savings to those organisations will be.

In addition to the work being done by the NPS and the Department of Finance, Enterprise Ireland is running strategic workshops to assist companies, such as management development workshops and strategic and change management programmes. Enterprise Ireland also offers assistance with exports, management development, lean manufacturing, research and development and overseas offices programmes.

It needs to be understood clearly that we cannot revert, when it comes to public procurement, to a pre-1958 model of the economy, or a sort of covert under the table protectionism, which would infallibly lead in short order to expensive lawsuits or tribunals and to investigations by the European Commission. Neither can the State, when it has to cut expenditure, afford by such a method de facto to subsidise or prop up firms that find it difficult to compete unless the dice can be loaded in their favour.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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No one is suggesting that.

Photo of Martin ManserghMartin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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The allegation and insidious lobbying that everyone is doing it is not a justification. Many SMEs will need to compete for contracts outside the jurisdiction and across the EU to maintain their viability.

We cannot be seen to close ourselves off from the EU marketplace by adopting a protectionist stance because in 2009 alone, 80 companies have won €210 million in overseas public procurement opportunities with the support of Enterprise Ireland which has set up a new public procurement section.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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We want the same playing pitch as other member states. That is all we are looking for.

Photo of Martin ManserghMartin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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The Government is supporting SMEs generally through the range of initiatives I have outlined but under EU procurement law and the principles of transparency, non-discrimination and equal treatment, it cannot set out deliberately to discriminate in their favour when tendering for goods and services. As long as I hold this office, and I am sure my successors will adopt the same attitude, I will insist that procurement practices in the NPS meet the highest standards of integrity without interference from Ministers, lobbyists or anyone else. It is important for Ireland's reputation as to how we do business publicly. Public procurement is of great strategic significance to our economy and to the firms operating within it, and for that reason we will always seek to make procurement as user-friendly as possible within the law. I thank the Leas-Cheann Comhairle for his indulgence.

The Dáil adjourned at 9.15 p.m. until 10.30 a.m. on Wednesday, 10 November 2010.