Robert Troy (Longford-Westmeath, Fianna Fail)
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349. To ask the Minister for Public Expenditure and Reform the measures in place to prevent contractors from below cost tendering and failing to pay subcontractors. [8081/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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A below cost tender, or an abnormally low tender as it is termed in the EU procurement directives, is not defined in legislation.  Under the directives a contracting authority is obliged to require a tenderer to explain the price in their tender where it appears to be abnormally low in relation to the works required.

Directive 2014/24/EU, transposed into Irish law in April 2016 has clarified the circumstances where a tender may be rejected on the basis that it is abnormally low as against where it must be rejected.  There are a number of reasons outlined in article 69 which may be cited by tenderers to explain how the low price was achieved and these include; favourable conditions available to the tenderer from suppliers; an efficient method of working to name but two.  A contracting authority may reject a tender where the tenderer's evidence fails to explain the low price taking into account these circumstances.

It is important to note that a contracting authority is not legally obliged to reject a tender except where it can be established that the price is abnormally low because the tender is non-compliant with applicable environmental and labour law.

Notwithstanding that, below cost tenders may present a risk to the delivery of public services and the tender and contract performance requirements that may be brought to bear on public works projects to counter such behaviour include;

- Enhanced project definition;

- Better identification of the pricing strategy;

- Enhanced performance evaluation; and

- Better payment protection in the supply chain.

These measures deter contractors from adopting below cost tendering as a commercial strategy in the first place and, should they ignore the deterrent, the first two provide greater evidence with which to confront the tenderer on their pricing strategy.

A review of the public works contracts was undertaken in 2014 and a series of interim recommendations has been implemented since January 2016 to provide far greater detail on the prices submitted by tendering contractors.  These include a) a requirement for an extremely detailed price breakdown in a bill of quantities which accurately measures the works and b) encouraging contracting authorities to directly tender specialist works where these works make up a significant proportion of the contract value.

Where the extent of works and the expected quality are tightly defined and the price associated with each element of the works is identifiable, the contracting authority can ensure that the tenderer is in a position to construct the project accordingly, thereby addressing points 1 and 2 above.

Where the project is tightly defined it is a relatively straightforward task to hold the contractor to account for poor workmanship and programme performance.  Point 3 above will be more comprehensively addressed through the development of the medium term strategy for the procurement of construction projects which is a further recommendation of the review of the public works contracts.  A key objective of this strategy is the development of a standard means of recording performance under a public works project to be used by all contracting authorities.  This will mean that the implications of poor performance will not simply be reserved to a single project but will impact on their ability to apply for future public works contracts.  Evaluation must be on a continuous basis in accordance with the contract terms and contractors must be given an opportunity to make amends during the course of the project rather than handing out a score card upon completion.

In relation to point 4 above, the Construction Contracts Act imposes rights on all those engaged under construction contracts that are aimed at addressing the issue of non-payment to construction sector contractors and sub-contractors who have completed work in accordance with their contract.  The Act applies to all construction contracts entered into after 25 July 2016 in both the public and private sectors.  It provides a statutory right to payment for work completed at defined stages, a right to suspend work where payment is not made in accordance with the contract (or the schedule to the Act where payment terms are not defined) and a right to refer a payment dispute to adjudication.