Wednesday, 22 April 2015
Public Services and Procurement (Social Value) Bill 2015: Second Stage
I move: "That the Bill be now read a Second Time."
Cuirim fáilte roimh an Aire Stáit. Senators on both sides of the House are aware of the importance of small and medium businesses. The sector employs almost 900,000 people and was responsible for more than 60% of the growth achieved in the past two years.
I have been critical of the record of successive Governments on procurement and the use of State contracts and tenders to support business. We can do better in this regard by catching up with other countries in Europe.
I accept that the Bill is not perfect and may need to be amended on Committee Stage. The purpose of the legislation is to address the absence in our procurement guidelines of a social value clause which other European countries have included in their procurement legislation. Section 3 which deals with community benefit requirements sets out how a social value clause would work. It would require any State body, local authority or Department issuing a tender to take into account the benefit of awarding the contract to the local and national economy when assessing bids. The Minister of State has engaged with the Small Firms Association, Chambers Ireland and other associations, including representatives of printing companies with regard to library services, that have been effectively excluded from State contracts as a result of the current approach to assessing tenders.
In recent months my colleagues and I have consulted widely across all business sectors, with a particular focus on the small and medium enterprise sector, to identify what the Oireachtas can do to improve public procurement. The €8.5 billion the State spends each year on goods and services generates a significant amount of business. Ireland's ranking in Europe in respect of the proportion of public goods and services procured outside the State is high. While it is not always possible to award contracts and tenders to Irish companies, the objective of the Bill is to achieve a level paying pitch. One of the criticisms made of the potential privatisation of certain Dublin bus routes is that complete adherence to turnover rules would mean that a company pitching for the contract would require an annual turnover of €30 million. We must examine how to unbundle tenders to set the bar somewhat lower.
Section 3 on community benefit requirements reads as follows:
3. (a) For the purposes of this Act, a community benefit requirement is a contractual requirement imposed by a contracting authority—The Bill does not provide all of the answers. For this reason, we ask the Minister of State to publish guidance.(i) relating to—(I) training and recruitment, or(ii) which is otherwise intended to improve the economic, social or environmental well-being of the authority’s area in a way additional to the main purpose of the contract in which the requirement is included.
(II) the availability of sub-contracting opportunities, or
(III) facilitating the involvement of small and medium enterprises, third sector bodies and supported businesses in the process, or
(IV) promotes innovation,
(b) (i) The public procurement process, in taking into account community benefits as outlined in this Act, must conform to the legislative provisions of the European Union.(ii) The Minister shall publish guidance on the community benefits duty.
(iii) Contracting authorities shall have regard to any guidance published under this Act.
(iv) The Minister shall lay a copy of any guidance published under this Act before the Houses of the Oireachtas.
I have examined closely the social value clauses provided for in the successful Scottish legislation on public procurement. The approach adopted in Scotland is not protectionist but one which goes beyond consideration of the bottom line and cheapest price. Cost and quality must be considered but so too must the overall value of the contract to the area in which it is being tendered. To use the example of local authority housing, a couple of years ago in my area of Fingal the awarding of a contact to a firm from Northern Ireland resulted in the closure of a local company with the loss of 74 jobs.
Library, printing, photocopying, food and beverage services and many other areas must be included. No one, including the Small Firms Association, the Irish Small and Medium Enterprises Association, ISME, and companies affiliated to Chambers Ireland, is seeking to have all contracts awarded to Irish firms. We simply want to catch up with the rest of Europe by creating a level playing pitch.
The stock answer to my queries on this matter both in this term and the term of the previous Government has been that we must not do anything that is not in compliance with European Union rules, laws and regulations. While I fully appreciate that is the case, Denmark has successfully introduced social value clauses, as have Scotland, the rest of the United Kingdom, France, the Netherlands, Austria and Belgium. Ireland should follow suit.
The Minister of State and I should consult further on how to improve this legislation. While he and his two immediate predecessors, Mr. Brian Hayes, MEP, and Dr. Martin Mansergh, introduced guidance in this area, companies have not noticed an improvement in their ability to secure State or local authority contracts.This is a way forward in my view. Surveys show that 82% of respondents in Ireland believe that the lowest cost is not always the best option and that there is a need to consider overall value and quality. It is unfortunate that in many areas the consideration is purely the base cost and too heavy a weighting is given to it.
The problem arises when local authorities group their tenders. For example, the four Dublin local authorities in some instances will group their tenders and, by doing so, exclude hundreds of Irish businesses from even tendering for those contracts. The Department and the Office of Government Procurement need to work out a solution. That office is very active in seeking feedback and it has engaged with businesses. There needs to be an improvement in the percentage of the number of businesses, goods and services procured from outside the State. Many people have cited the example of the reason the French police drive Citroen cars, which is not because they are the cheapest or the best cars but because the French want to support their own industries within EU rules and guidelines. Other EU states do likewise and so should we. Irish industries and companies employ almost 900,000 people. These are the sustainable businesses. We all welcome FDI, foreign direct investment and large companies and their investments, but our indigenous firms are rooted in every town and village throughout the country and they are the businesses the State and the local authorities can support better.
This legislation, if accepted and passed, would send a message to all State bodies, Departments and local authorities that we are changing the way we do things, that we will catch up with the rest of Europe, and that we will use the money we spend on goods, services and products to better support Irish businesses. While this legislation is not perfect and needs improvement, in my view it provides a basis. If Second Stage is agreed to and amendments are accepted on Committee Stage, the Bill can be further improved. We could consult stakeholders, local authorities, the Office of Government Procurement and, most important, those running enterprises, employing people and looking to expand their businesses. I do not think any Government wants to put our firms at a disadvantage against EU and worldwide competitors. Unfortunately, in some instances, we do that. This may not be done knowingly and certainly not deliberately but that is what happens. We must grasp this nettle once and for all. No more should we have the examples of leaving certificate papers being printed in Spain while people in Ireland are losing their jobs as a result. Irish firms have proven they have the track record, expertise and quality of work to undertake large State contracts and they should not be losing out purely on the basis of cost, which means people lose their jobs, the State picks up the tab and there is a knock-on effect on subcontractors and other businesses. The schools summer work schemes has an effect on communities whereby schools are permitted to procure their own services. Much of that business stays within the community and it keeps people afloat.
I am pleased to introduce the Bill to the House. I am interested to hear the Minister of State's comments. The Bill is a step in the right direction and it will put momentum behind this issue. We talk about the issue of procurement every two or three years. In 2008 and 2009, the former Deputy Bernard Allen from Fine Gael and I wrote a report on public procurement for the Committee of Public Accounts. As I have defined in this Bill, one area in which public procurement could be improved is through social value clauses in tenders issued by Government agencies, Departments and bodies. This would have a very significant and positive effect and would help to improve the number of Irish firms procuring State and local authority contracts.
As the proposer of the Bill, I thank all those who contributed to this legislation, such as the Small Firms Association, Chambers Ireland and many business groups that have taken an interest in this legislation. I look forward to the Minister of State's comments and response.
I am delighted to second my colleague's proposal. It is good legislation which takes stock of the system of public procurement as well as attempting to deal with other aspects. Other than European Union law which applies to certain contracts over a certain value, we do not have public procurement law in this country. We have public procurement practice instead. I do not know if the green book, which contained guidance for public bodies in this regard, is still in use.
The Minister of State would do well to consider the possibility of enacting a public procurement law to give statutory guidance on what is and is not permitted. This issue drives people mad and it is very difficult to explain to them when they see contractors from other countries doing work in this country that Irish contractors are doing abroad. This legislation is an attempt to address inequity in what companies are meant to do. People see different regulations being applied here which are not applied in other jurisdictions, in the United Kingdom in particular.
I know of people who worked on major contracts in the North of Ireland and they were subject to community benefit requirements in contracts, such as employing and training local trainees and employing local subcontractors. People could not understand why this could not be done here. It is argued that the European Union regulations do not allow for such considerations and that the best price must be awarded the contract. However, I note that the sale of Siteserv did not go to the best priced tender. If the Government can do it for Siteserv, then any Government should be able to do it to ensure a community benefit requirement is included, along with getting the best possible price for the State, which is also very important.
The Bill is not designed to increase prices. Public procurement is essential for the running of an economy such as ours but factors other than pricing must be considered. The lowest price may not always be successful. This Bill attempts to put meat on the bones of what would be required from contracts with regard to training, recruitment, the availability of subcontracting opportunities, facilitating the involvement of SMEs and the promotion of innovation. At all times the legislation provides that we must conform with the legislative provisions of the European Union, which is critical. It is also clear that social clauses in contracts are used in public procurement contracts in Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands and the UK. If they can do it, we should be doing it because if we are not, we are putting ourselves at a competitive and a social disadvantage. This proposed legislation should be considered seriously and amendments should be proposed by the Government on Committee Stage. We are proposing this legislation as being very beneficial while also securing the openness of our economy which is to everyone's benefit. I am proud to be associated with this legislation and I am delighted to second it. I wish the House would support it on Second Stage.
I thank the Fianna Fáil Party for proposing this Bill which is a good idea. I note that the key proposals contained in this Private Members' Bill require that before entering into a public contract or concluding a framework agreement, contracting authorities should consider how the delivery of the contract will meet community benefit requirements. This is very important because we all wish to ensure that communities benefit from contracts and that these contracts will improve the economic, social and environmental well-being, all equally important in the social contract.Emphasis should be placed on environmental well-being in procurement and consideration given to how it might be considered in securing improvements.
I agree with the sentiments outlined in the Bill. I understand Sinn Féin proposed a similar Bill in the Dáil and that the Government did not oppose it. The principle underpinning the procurement process in this Bill is worthwhile. Many of the principles underpinning public procurement processes are based solely on economic considerations in the provision of particular public services at the lowest price. However, the inclusion of social responsibility clauses in tendering requirements has the objective of achieving other socially desirable goals, for example, the employment of local unemployed individuals. This and other provisions would be beneficial.
Everything cannot be measured in monetary terms. We must also consider the benefits to society and people. European Union rules on tendering and public procurement permit the use of social clauses and promote social considerations, which is good. These clauses must satisfy certain requirements; they must be objective, made publicly available and strike a balance between competitive tendering and social considerations. They must not be discriminatory, which is an important element of contracts.
Several EU member states have already made use of social responsibility clauses. The United Kingdom introduced such a clause two years ago and its legislation at the time was heralded as "transformative" because it required public bodies to take into account social and environmental benefits. However, after two years in operation, the evidence suggests not much has changed. The Government must try to avoid the same happening here. It is all well and good to pass legislation and take credit for this, but it must be implemented properly. The evidence in the United Kingdom suggests that of the 480 English councils surveyed in the social value portal, only 15% stated they were applying the clause. Why is that and why is it not being used more widely, especially at a time when it would generate much needed income for community based organisations employing disadvantaged persons? A recently published UK Government review highlighted three main barriers as to why the clause was not being used. The Government here must ensure it does not face the same pitfalls when the legislation is passed. One of the pitfalls in the United Kingdom was a failure to understand how the clause should be applied in government procurement. Another pitfall was related to the agreed standards for measuring social value. Paradoxically, the focus on measurement has got in the way of implementation. Another issue concerns the measurement tools used. Do we have the tools to measure social value and can we use them to bring about innovation in the public service? It is important to consider this issue.
Public procurement in Ireland is undergoing great change, with a shift towards a more socially responsible focus that will result in better outcomes for society, not being entirely based on value for money. The public procurement section of the OPW has undertaken a number of projects involving a social value clause, even before the legislation is enacted. The OPW has demonstrated a spirit to implement such a clause. Modernising services and bringing public procurement processes up to speed with technological developments are also central to this issue. A targeted approach to the use of social value clauses where employers are likely to be hiring additional workers to deliver a contract must be taken. The reform of public procurement processes remains driven by the need to obtain value for money, but it must also include social value clauses in the supply of services. It is, however, essential to ensure value for money is not adversely affected by the inclusion of a social value clause. Senator Darragh O'Brien mentioned we should ensure SMEs were facilitated. Where we have larger companies that can absorb the extra cost of including a social value clause, we must try to ensure it does not discriminate against smaller local companies. We must not cut off our nose to spite our face.
In June the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, established a social clause project group, led by the Office of Public Procurement. Would the Minister of State like to tell us how the group is performing? Two of the projects in which the Government has incorporated a social clause are the Grangegorman development and the devolved school building programme. I understand some 48 long-term unemployed persons have been employed on 15 sites where social clauses are being implemented. Therefore, a significant amount can be done without legislation. Of course, it would be better to have the legislation in place, but we must learn the message on the experience in the United Kingdom, where only 15% of companies are implementing such a clause two years after its introduction. We must ensure any legislation we introduce works.
Would a more effective measurement tool help? I believe it would. We need to consider the modern technology available to aid in measurement. For example, it is not always easy to measure social good or assess and put a figure on the mix of tangible results such as new jobs for disadvantaged persons, increased self-esteem and self-reliance or the self-assurance that comes from having a job. I attended the launch of a mental health programme by Comhairle na nÓg today. We should also consider what procurement can do in providing jobs for people with mental health difficulties. There is significantly more to be measured than just the number of jobs created. Of course, we must always take into consideration the fact that taking a person off the unemployment register is worth €20,000 a year to the State.
I welcome the Minister of State. Nobody denies that community benefit requirements and social clauses in public contracts can only work in the best interests of the local community. They are a way of supporting the development of local economies and can lead to the promotion of social goals. For example, they can help to protect the environment or support the disadvantaged. Most importantly, community benefit requirements and social clauses can help to protect the most vulnerable in society. All of these benefits could reasonably be achieved through clauses embedded in the terms of contractual awards and enshrined in legislation. Community benefit requirements require public moneys to be spent in the best possible way and with the best possible results, not just for the contractor but also for the wider community which can share in the rewards. The Sinn Féin Party has experience in this area. As Minister for Regional Development in the North, Mr. Conor Murphy ensured social clauses were written into public contracts to young people, for example, the opportunity to pursue apprenticeships. In major capital road building contracts the Minister ensured social clauses were written in to allow for the provision of jobs for the long-term unemployed.
In Dublin City Council last year the Sinn Féin group succeeded in having a motion passed to allow for the inclusion of social procurement clauses in council contracts. In 2013 Sinn Féin introduced the Social Clauses in Public Procurement Bill 2013. On Second Stage in the Dail Deputy Mary Lou McDonald stated it was Sinn Féin's view that, to best serve the public good, any value for money strategy for the spending of public money should not focus exclusively on the bottom line. She went on to say current procurement policy had all but ignored the potential benefits for small and medium-sized indigenous businesses, social economy enterprises and wider society from Government spending.
Without question, such legislation will give SMEs a fair bite of the apple and an opportunity that has not always been open to them. It could allow for the unbundling of large contracts which ordinarily would be the preserve of large corporate organisations. They could now be allocated to a multitude of SMEs to the benefit of the local economy and community. We would welcome legislation to impose community benefit requirements as part of contractual requirements in contracts awarded by public bodies. This is something on which we have delivered in the North and we tried to do the same here when we introduced our legislation in 2013. We have similar legislation parked on Committee Stage. We urge the Government to act on this issue and will, therefore, support the legislation.
I welcome the Minister of State.
I agree with most of the comments on the Bill made by Senator Darragh O'Brien and I am pleased the Government does not intend to oppose it.We all agree that public expenditure is critical to the national economy. A recent report by the Office of Government Procurement entitled, Public Service Spend and Tendering Analysis for 2013, stated:
Prior to the Government’s establishment of the Office of Government Procurement, the State had no mechanism for collecting, analysing and reporting on spend data across the thousands of State-funded bodies in the public service.
We have €2.742 billion of non-pay expenditure data [which shows the extent to which public expenditure is important in this country] from the health, justice, local government and education sectors for 2013.Given the economy has been improving since 2013, that amount of expenditure will have increased quite substantially. The data the office gathered “indicates that 93% of the State’s expenditure is with firms within the State [that is good news] and that 66% of the State’s expenditure is with SMEs [small and medium-sized enterprise sector].”
However, the report also stated:
The Office of Government Procurement, which commenced sourcing operations in 2014, has a clear remit to deliver sustainable savings for the taxpayer through centralising procurement.No one will argue that we want State bodies splurging money unnecessarily. However, sustainable savings for the taxpayer may not necessarily be achieved through centralised procurement. There is a doubled-edged sword to this on which we need to reflect. It can be argued at European level, as I have done myself, that EU policy on investment under the Juncker plan should take into account regional disparities. There was a proposal that investment under the Juncker plan should be analysed on a profit basis, namely on the added value - words we all know and love - and profitability to the overall European economy. The difficulty for Ireland is that it is a small open economy on the periphery of Europe. If that is going to be the only basis on which investment under the Juncker plan is to be delivered, then it would not be in our particular interests. In such a system, expenditure would be sucked into the centre while countries on the periphery would lose out.
This is no less valid for Ireland’s procurement process. If public service contracts are centralised and preference is given to a centralised tendering process, investment in these contracts will start going to larger companies and inevitably will be sucked into eastern parts of the country. There is plenty of evidence to show that is the case. We need to be aware of the cost of unbalanced regional development, a cost which is difficult to quantify. I am concerned that we need to balance cost against social considerations but in a different way than that laid out in some of the documents I have examined.
I am also concerned by the language used. Value for the taxpayer must be considered in the broadest possible way. Take a job in a small town on its knees. The multiplier from one additional job to such a town will be much more significant to that local community than giving it, for the sake of argument, to Smurfit in Dublin 6. There would be significant additions to local communities by disbursing jobs across the country.
I am concerned we go too far in centralising State contracts. There was talk of centralising the arts and crafts supplies for all schools. Most schools would over-order at the start of the year to ensure they did not run out of supplies as they could not go down to a local supplier if they needed additional supplies. It would also mean small local firms would not have access to that business.
I accept the establishment of the Office of Government Procurement is a step in the right direction. However, the levels of insurance required for standard contracts, RFTs, request for tenders, are too high for some of the jobs tendered, such as those for the schools summer works programme. I do not believe reasonably small contracts, which should be going to local firms, should require high levels of insurance that have nothing to do with the contract tendered. I am aware of cases where State contracts have been put forward for small consultancy work which have required employee insurance when there were none. This needs to be examined. Being the best boy in the class in Europe when it comes to procurement is pointless because our small businesses are losing out. We had the benefit of the recent announcement of the summer works programme for schools by the Minister for Public Expenditure and Reform, Deputy Howlin. I want to see that business going to small local employers and the money seen on the ground, not the nonsense of €3 million worth of employment insurance being required. Will the Minister of State ask the Office of Government Procurement to look again at the requirements for insurance limits and ensure they are reasonable for the work commissioned?
It gives me great pleasure to speak on the Public Services and Procurement (Social Value) Bill 2015 which will require public bodies to have regard to economic, social and environmental well-being in connection with public service contracts and related matters.
This is a perfect example of an opportunity for the Government to put indigenous industry on a par with multinationals and foreign direct investment. Everything is done to facilitate multinationals to come into the country while SMEs and indigenous industries are not given the same momentum. There has to be a balance with our SMEs getting the same taxation benefits and other measures as multinationals get. As Senator Hayden said, SMEs are in every part of the country while multinationals want to locate only in large urban environments.
Fianna Fáil has brought forward this legislation to ensure Irish SMEs have a level playing field with their European counterparts in successfully bidding for public procurement contracts which provide significant social benefits. Successive Governments, including Fianna Fáil Administrations, have failed to introduce such legislation resulting in the loss of potentially thousands of local jobs in the SME sector. Every year the State tenders for over €8.5 billion worth of goods and services. Ireland, unlike many EU countries, focuses on the lowest tender price, offered with no consideration to the social impact certain tenders of a higher cost may have. Most European countries have introduced social clauses to allow the State chose offers which may not be the lowest in cost but would have significant social benefit for the local and regional area such as allocating jobs to the local unemployed or taking on local apprentices for contracted work. By failing to introduce this type of legislation, successive Governments have undermined indigenous industries by not putting them on the same par as foreign direct investment, leaving them disadvantaged by different tendering rules to those in other EU member states.France is a particular example. It is gung-ho and very nationalistic about contracts, as Senator Darragh O'Brien said in referring to how the police force used Citroën cars, although I do not know whether the Citroën cars are good, bad or indifferent. We have not worn the green jersey on this issue and all Governments have failed to do so.
Fianna Fáil's legislation would require public bodies to have regard to economic, social and environmental well-being when public service contracts were being put out to tender. This would level the playing field for small and medium Irish businesses when competing with their European counterparts and have the potential to increase the number of jobs in and the profitability of the Irish SME sector.
I wish the Minister of State, Deputy Simon Harris continued success. He is doing a great job and doing brilliantly for such a young man.
I am very pleased to be in the Seanad to deal with this legislation. I respectfully say it is a constructive use of Private Members' time to debate such issues of substance rather than the behaviour in which we can all engage from time to time. As Senator Mary White said, there is a substantial amount of money being spent in the public procurement of services. Breaking down the figure to which the Senator alluded, it works out at roughly €23 million a day being spent by the Government and its agencies in buying goods and services.
I disagree with little of what has been said by Senators on all sides of the House. There are, however, some misconceptions, to which I will get. The Office of Government Procurement has been set up as a very honest and constructive way of making sure we build expertise in procurement in the public sector. Up to this point, lots of people in the public service have had procurement as a small part of their jobs but not many have had it as their full-time job. With the Office of Government Procurement, we are building real expertise in an office that is going to be able to interact with the SME community and the Oireachtas and develop best practice over time. It is fair to say to the officials in the office and others that while 2014 was the year of establishment, 2015 has to be the year in which the structures bed down and there is upskilling and a reach-out to SMEs.
There are always reasons Ministers can find to oppose legislation, but in a spirit of co-operation and acknowledgement that this is constructive legislation, I do not intend to oppose the Bill on Second Stage or divide Seanad Éireann on the issue. The Bill is an attempt by Senator Darragh O'Brien and his colleagues to have a constructive input to the ongoing debate on and the development of procurement policy and I do not believe procurement policy is a partisan issue. There are many changes in this area which is somewhat in a state of flux. It is, therefore, very helpful that we thrash out the issues together on all sides of the House, just as we did on all sides of the Dáil a number of months ago.
The Government is committed to driving an ambitious reform programme designed to modernise the public sector and improve service delivery. We recognise that public procurement must be a key element of the programme, not only in terms of its potential to assist in the delivery of improved public services but also as a platform to add value by maximising the impact procurement can have in enabling community benefits in areas such as employment, training, assisting small business and promoting innovation. The Government is, therefore, not opposed to the principle of having community benefit clauses and sees significant merit in developing a targeted community clause framework. There are a number of initiatives where such clauses are being deployed.
Last year my colleague the Minister, Deputy Brendan Howlin, established a social clauses project group, which has been mentioned. Led by my office, the Office of Government Procurement, the project aims to proactively look at public contracts where social clauses could be deployed to contribute to employment or training opportunities for the long-term unemployed. The objectives of the project are the identification of suitable policy priorities to be addressed through the insertion of social clauses in public contracts; the provision of guidance on suitable candidate project types and spend areas; identification of suitable contract clauses developed in conjunction with the Office of the Chief State Solicitor; and the design of a monitoring and reporting framework which can be applied to future projects where social clauses are to be used.
It is important to adopt a targeted approach to the use of community benefit clauses in contracts where employers are likely to be hiring additional workers to deliver a contract. This is very important in mitigating any risk of displacing workers already in employment, while offering the opportunity of assisting with labour activation measures for the long-term unemployed. Two examples of this approach in progress, to which Senator Cáit Keane alluded, are the Grangegorman development and the devolved schools build programme. On the latter, a clause has been included in the public works contracts which requires that 10% of the aggregate time worked on site must be undertaken by individuals who have been registered on a national unemployment register within the European Union for a continuous period of at least 12 months immediately prior to their employment on the project. Additionally, 2.5% of the aggregate time worked on site must be undertaken by individuals who are employed under a registered scheme of apprenticeship or other similar national, accredited training or educational work placement arrangement.
The devolved schools build programme is being administered by the National Development Finance Agency on behalf of the Department of Education and Skills. It involves three contracts covering 14 sites, with the works comprising stand-alone, new build and extension and refurbishment works. Construction work started on all three contracts during spring 2014. The aggregate capital value of the contracts is approximately €70 million.
I understand the overall compliance rate with the pilot clause has been good. The Department of Social Protection, through its Intreo offices, is providing support for the contractors in meeting their obligations under the contract by providing suitable candidates to match the skills requirements from long-term unemployed construction workers. This is an example of joined-up thinking between public agencies. To date, approximately 48 long-term unemployed persons have been hired across the 15 sites out of a total workforce of about 440. The project is about getting people back to work and we are seeing the public and private sectors working together and providing real information on the types of people they need and their training requirements for employment in a sector.
Overall, we want to ensure we learn from the practical experience gained where community benefit clauses are utilised. This is a complex area, as has been acknowledged by Senators on all sides. It is important to develop a robust structure that will assist the contracting authority to develop the correct clause and provide support from the appropriate agency to aid the company in implementing the clause. We do not want unintended consequences that would inadvertently put any SME at a disadvantage.
I note that the Bill contains provisions which recognise that public procurement is governed by EU rules, national legislation and World Trade Organisation agreements. The aim of the rules is to promote an open, competitive and non-discriminatory public procurement regime. In order to be compatible with EU law, social clauses must be made known to all interested parties and not restrict participation by contractors from other member states. It would be a breach of the rules for a public body to favour or discriminate against particular candidates and there are legal remedies which may be used against any public body which infringes these rules. The EU procurement directives primarily envisage that social considerations may be included as contract performance conditions, provided they are not discriminatory and included in the contract notice or contract documents and relate to the performance of the contract.
In 2010 the European Commission documented a long list of possible policy issues which might be taken into account within the framework of a socially responsible public procurement policy. The list includes the promotion of employment opportunities for various groups of employees; the promotion of decent work; compliance with social and labour rights; support for social inclusion; the encouragement of human rights; and the consideration of ethical and fair trade principles. The proposed Private Members' Bill clearly goes beyond this by seeking to include certain mandatorysocial clauses in public contracts. The revised EU directives, when transposed, will provide greater scope and legal clarity in the use of social benefit clauses in the context of an open, competitive and non-discriminatory public procurement regime which delivers value for money. The new rules will contribute to the implementation of the Europe 2020 strategy for a more social, innovative and inclusive economy. The transposing of the directive provides a further opportunity to examine and seek clarity on the legal possibilities and how it might interact with the suggestions made in the Bill.
The reform of the public procurement function remains driven by the need to obtain value for public money in procuring works, supplies and services. It is essential to ensure value for money is not adversely affected by the inclusion of social clauses or that additional costs are not placed on domestic suppliers relative to other potential suppliers. We do not want to have inadvertent consequences or disadvantages for SMEs. Merely inserting clauses that require additional employment or training of additional staff could give rise to increased public procurement costs because of higher input costs imposed on suppliers.This may disadvantage SMEs in favour of larger companies which can absorb the additional costs and may lead to displacement of the current workforce with no net employment gain for the economy. For this reason the proposal to require all public procurement contractors to employ a quota of long-term unemployed poses a number of significant risks. In the current economic climate and bearing in mind the difficulties in the construction sector, businesses have for obvious reasons been reducing their existing workforce rather than taking on new employees. Consequently, it is likely that where a business is awarded a public contract, in particular a small-scale contract, the work would be carried out by existing employees. In such circumstances a social clause requiring that a number of long-term unemployed be taken on to deliver a public contract could impose an additional cost on SMEs which they may not be able to afford or result in an employee of the supplier being let go in favour of a long-term unemployed person. The final legislation will need to provide the flexibility to adapt to the economic environment that prevails at any given time. I acknowledge Senator Darragh O'Brien's willingness to engage on these issues and to anticipate any unanticipated consequences of being too rigid in our approach.
The Office of Government Procurement, OGP, has been proactive in developing measures designed to assist SMEs in accessing public procurement opportunities and to encourage innovation. Where practical and legally possible, policy also seeks to promote whole-of-government objectives, including the promotion of innovation in procurement. The stated aim of the OGP is to provide value for money and solutions that are smarter and more efficient. The OGP has established category councils for categories of goods and services bought by the public service. Category councils are responsible for developing commercial strategies for sourcing goods and services in each of their categories, in line with the needs of customer organisations and in the context of obtaining value for money. The scope for innovation in procurement will form part of this exercise and it is part of the remit to examine this where it is appropriate and relevant to do so. Given that the OGP is still newly established, it is too early to say what obstacles, challenges or lessons it will face in this regard. However, there is a clear focus within the office on fostering and facilitating innovation in public procurement.
The new EU procurement directives will contribute to facilitating public procurement of innovation in Ireland, particularly because they allow greater scope for interaction and dialogue with the market in regard to preliminary market consultation, competitive dialogue and competitive procedures in terms of negotiation and innovation partnerships. The Government's Action Plan for Jobs, which was developed by the Department of Jobs, Enterprise and Innovation, also recognises that procurement can be an enabler of private sector innovation and can support the drive to reduce costs in procurement budgets. It acknowledges that many innovative companies can offer solutions to the needs of public sector bodies with lower whole-of-life costs than more conventional purchases. It recognises the need for contracting authorities in Ireland to be become more open to procuring innovation. It commits to examining practical ways to highlight the merits of purchasing innovative products and services, where appropriate, as a means of achieving cost savings in public procurement.
In April 2014, the OGP published circular 10/14, which sets out the measures buyers should take to promote SME involvement in public sector procurement. Buyers are advised to undertake market analysis prior to tendering to better understand the range of goods and services on offer and the competitive landscape, including the specific capabilities of SMEs. The circular promotes transparency in procurement by requiring supplies and general services contracts with an estimated value of €25,000 to be advertised on the Government's electronic tendering portal, eTenders, and it encourages suppliers, including SMEs, to use eTenders fully and avail of its facilities for registration, e-tendering and automatic alerts of future tendering opportunities. Buyers are encouraged not to set turnover thresholds at more than twice the estimated contract value and to put limits on insurance levels for suppliers where possible. The circular also promotes greater use of open tendering and less use of restrictive tendering and encourages SMEs to consider using consortia where they are not of sufficient scale to tender in their own right or where they may lack certain capabilities necessary to provide a compelling proposition. It also encourages contracting authorities to break large contracts into lots where it is reasonable to do so and where it does not expose the State to undue risk or significant management overheads. Buyers are encouraged, where possible and appropriate, to promote new and innovative solutions by indicating in tender documents whether they are prepared to accept reasonable variants to the specifications. Requirements can adopt an output oriented approach in the tenders to encourage creative and innovative solutions.
The OGP also supports the work of Enterprise Ireland and InterTradeIreland in building awareness of public procurement and supporting training for small suppliers in bidding for public contracts. For example, in 2014, the OGP supported two meet the buyer events in Belfast and Dublin which were attended by approximately 1,600 suppliers. We also supported the Go-2-Tender programme organised by InterTradeIreland, which was attended by approximately 400 SMEs. This year, InterTradeIreland also delivered a programme on consortia building to assist SMEs to bid jointly for State contracts. We will continue to work with suppliers to ensure winning Government business is done in a fair, transparent and accessible way and that government procurement policies are business friendly.
Senator Darragh O'Brien referred to the great work being done by SME representative bodies. I will not name those bodies in order to avoid the risk of leaving one out. When I recently attended a meeting of the SME advisory group, the view was expressed to me that there is a good level of engagement. SMEs want to have other issues addressed but they recognise that steps have been taken. We have established a tender advisory service through which it is possible to lodge queries or problems with a tender and receive a factual response within a set period and in an informal manner. We are also involving the local enterprise office in this engagement. These offices are already working with chambers of commerce and interacting with businesses on the ground, and we have commenced the process of upskilling them on procurement matters. The meet the buyer event which I attended in Dublin offered a superb opportunity for small businesses to engage face to face with State agencies, but I would also like to see that happening on a local level. We have a responsibility to provide local leadership in our communities in ensuring such events take place on a smaller scale through our enterprise offices.
While the Government does not oppose this Bill, considerable work needs to be done before it becomes viable legislation with the necessary flexibility to procure the wide variety of works, goods and services necessary to deliver vital public services. Further debate and discussion is required to put in place the correct policy approach to facilitate effective use of community benefit clauses. We must be mindful of the need to maintain flexibility to reflect changing economic and social circumstances. I want the discussion to continue and I support the Bill on Second Stage in that spirit. I encourage Senators to engage with the OGP and the various initiatives on procurement. Public procurement is in a state of change for the better. We should use 2015 to build structures of which we can be proud.
Senator Hayden referred to a report providing an analysis of public expenditure in this area for the first time. I encourage Senators to study the report, which found that 93% of the value of public procurement is spent in the country and that 66% of procurement expenditure is being won by SMEs. The report also drew attention to the gaps in the data and the need to capture more data. In regard to the local person not losing out, we need to consider further how we can break contracts into lots. This conversation is only the beginning. The Bill represents a constructive contribution and I look forward to its passage and the continuation of the debate.
I welcome the Minister of State and thank him for his contribution. Unfortunately, I was dealing with the banks earlier today but I like what I heard from the Minister of State. I missed the earlier debate because I was down in the basement where I observed on the monitor that Senators were discussing important issues. I wish I had been here.
A significant example of efficiency improvements is in the aviation sector, where fares have undergone an immense decline in real terms. That has been beneficial to this country. These efficiency gains are a function not only of productivity within airlines but also of pressure on suppliers. If a reduction of 40% can be extracted from Boeing, the savings are passed on to the consumer. Airlines also extracted discounts at airports and sought more efficient methods of retailing. Travel agents have largely disappeared because travellers can do the job themselves. Check-in desks are no longer required at airports because passengers can check in online. Procurement is one element in the efficiency gains we are seeking. I appreciate the Minister of State's comments on SMEs. The current tendering process for 10% of Dublin bus routes is controversial for the wrong reasons. It has been criticised from the point of view that it opens up the market too much when in fact 98% of the small companies in the bus business are precluded from tendering by the requirement that companies tendering for the routes must have an annual turnover of at least €7 million and carry 1.2 million passengers. The school bus service could not operate if this condition were applied to it. This is clearly a case of protectionism by the incumbents. It makes it very difficult to generate competition for a subsidy of €90 million, which our friend and colleague, the Minister for Transport, Tourism and Sport, Deputy Paschal Donohoe, is attempting to open to some competition.
As it currently operates, my impression from the use of listed hotels by organisations which have hospitality is that people can obtain lower prices on the open market. It may be the case that the listed hotels are required to have a certain number of rooms or that rooms must be available for a certain length of time. External examiners and others have told me they were required to stay in a certain hotel because it is the only one that is recognised.
One would not wish for a large bureaucracy to develop. The warning from the National Health Service in the United Kingdom is that an immense administrative edifice was built around services such as bed linen, for which prices were often higher than if the matron had simply bought new bed linen in the local Marks & Spencer store. We do not want to create another bureaucracy.
I have concerns about many services in this country, including the cartelisation of accounting and legal services. I realise the Minister for Justice and Equality is moving legislation on this very area in the Dáil today and the Bill will soon come before the Seanad.
Efficiency and competition do not just happen; they must be made to happen. The Ministers for Finance and Public Expenditure and Reform, who have been in charge of these areas, have been doing well. The Bill before us is a useful addition to that picture and I am pleased the Minister of State has accepted it. Nevertheless, eternal vigilance is the price of freedom, including in this case. If we all encounter cases of competition being obstructed in our areas of expertise, the rule of thumb to be applied is that the incumbents are trying to find ways to keep out new entrants. Overall efficiency, particularly in a country such as Ireland with so many young people, demands we ensure incumbents are put under pressure by new entrants because they are the good guys in this regard.
I am pleased with the Minister of State's contribution and I compliment Senator Darragh O'Brien on introducing this legislation, which is a good way forward.
I compliment my colleague, Deputy Darragh O'Brien, on introducing this important Bill. Departments frequently tell us that a tender was awarded for value for money reasons. Value for money is not the only issue at stake in the awarding of public contracts. As previous speakers noted, we often find that contracts for simple items are awarded to foreign companies. It beggars belief that the leaving and junior certificate papers are printed elsewhere.
Other countries have introduced a social impact clause, which is provided for under European Union rules. Ireland, however, is not using the full powers available to ensure the highest benefit for the country from public contracts, including in the area of job retention. In one astonishing case in County Kerry, tenders for the RIBs used by the Coast Guard service were drawn up in such a manner and with such specifications that the contract could only be awarded to a company that was not based in Ireland. Irish companies were precluded from tendering for the contract.
In addition to more transparency, we also need a level playing pitch, as Senator O'Brien noted. We must ensure the lowest price is not the only issue considered when assessing tenders because it does not necessarily deliver the best return to the State or the best value for money to citizens for the tax revenue that is being used for tenders and contracts.
Small and medium-sized enterprises wish to compete fairly but are being frozen out of contracts in other jurisdictions by social clauses which are not used for similar contracts in this country. Germany, Italy, the Netherlands, the United Kingdom and Austria all use social clauses to great effect and keep money in their economies. Unfortunately, Ireland is not availing of European legislation which would allow us to act in a similar fashion.
I welcome the Minister of State's positive response to the Bill and look forward to its enactment before he becomes a senior Minister.
I thank the Minister of State for his comprehensive response to the Bill and all Senators for their contributions. I especially thank Senators Keane and Hayden on the Government side. I accept that the Bill needs to be improved and hope we can use the momentum gained today to produce a law that will assist in increasing the number of jobs in and profitability of our small and medium enterprise sector as will as deliver additional value for money and social value for the economy and society.
Senators made good contributions to the debate. I hope the Bill will be advanced and I thank the Minister of State for allowing it to pass Second Stage. This matter should be a priority for the Government, which appears from the Minister of State's contribution to be the case. While many Ministers of all parties, including the Fianna Fáil Party, have spoken about this issue, we have not delivered at the necessary pace. Notwithstanding the improvements made and action taken, we must take up the baton and run with it to ensure legislation is enacted before the Government's term concludes. It is evident there is a will to do so across parties and on the Independent benches. This can also be achieved in the Dáil. The most important issue is that the enactment of legislation would send out a message to businesses that the Oireachtas cares about and supports them and will not place insurmountable roadblocks or barriers in their path.
I thank those who had an input in the Bill, specifically a good friend of mine, Brendan Bannigan, who is in the Public Gallery. He was very helpful when we discussed this legislation some months ago. I also thank Breda Gibson and a number of others who were extremely helpful and made their case as business owners and employers who have taken a risk to employ people and improve their communities.
I was struck by a number of points made by Senator Hayden, including on the need to avoid centralising contracts and tenders. We must unbundle and break up tenders to give people a fair shot.
I thank the Minister of State for accepting the Bill on Second Stage and look forward to making further progress in the coming months. Let us make this legislation a priority by ensuring this Oireachtas takes concrete action on the issue of procurement. I thank the officials present and all those who contributed to the debate.