Barry Cowen (Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

123. To ask the Minister for Public Expenditure and Reform the public procurement rules surrounding public construction contracts; his views on whether small and medium sized construction companies are being forced to bid too low and are being put at risk; and if he will make a statement on the matter. [28605/18]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Public Procurement is governed by EU legislation and National rules and guidelines. The aim of these rules is to promote an open, competitive and non-discriminatory public procurement regime which delivers best value for money.

All public works projects that are delivered under the Exchequer-funded element of the Government's capital plan must be procured in accordance with the provisions laid down in the Capital Works Management Framework (CWMF).  The CWMF is mandated by circular and was developed to assist contracting authorities in meeting their ongoing procurement requirements.  It provides an integrated set of contractual provisions, guidance material, technical templates and procedures which cover all aspects of the delivery process of a public works project from inception to final project delivery and review.

Public works contracts are awarded following a competitive process where tendering contractors, respond to an invitation to tender issued in accordance with EU or National rules.  Projects up to €50,000 may be awarded following a direct invitation to at least 5 contractors, between €50,000 and €5.548m a contract notice must be published on eTenders, the national tendering portal.  All projects with a value in excess of €5.548m must also be published on the Official Journal of the EU.  In the case of the latter two, contracts are usually awarded using the open or restricted procedure.

In the case of the open procedure, the tenders of all contractors who meet the minimum pre-stated selection criteria will be considered for evaluation and award in accordance with the stated award criterion.  In the restricted procedure, contractors respond to a request to participate notice, they are normally shortlisted by reference to selection criteria and only those who are shortlisted are invited to tender.

In all cases tenderers are provided with identical sets of tender documents which provide significant detail on the project.  Tenderers, when arriving at their tendered price, must take into account the requirements of the project, the constraints within which it is to be built and the attendant risks allocated under the conditions of contract.

The management of the tendering process for a public works contract is a matter for each contracting authority.  It is the responsibility of each contracting authority to ensure that tenderers comply with all the requirements of the process.  Under the EU procurement directives contracting authorities are obliged to seek an explanation from tenderers where the price bid appears to be abnormally low in relation to the works defined in the tender documents.  Having undertaken an examination of the make-up of the price, a contracting authority may only reject a tender where it is satisfied that the evidence supplied does not account for the low price taking into account:

- The economics of the construction method;

- The technical solutions chosen or the exceptionally favourable conditions available to the tenderer from suppliers;

- The originality of the works proposed by the tenderer;

Where the evidence suggests that the tenderer’s price is low because of non-compliance with labour or environmental law, or where the tenderer is in receipt of State aid then it must be rejected.

It is worth noting that recent studies undertaken in the United Kingdom, following the collapse of Carillion, have highlighted the meagre margins that main contractors earn on building projects.  Given the commonality in approach between the UK and Irish construction industries there is every reason to believe it is prevalent in the Irish construction sector.  This culture must be addressed within the industry if it is to service its client base in a professional manner.

There are consequences both to the contractor who tenders a price that is unsustainable and to the contracting authority who accepts that price.  From the contracting authority’s point of view, poor quality materials and workmanship can often arise in these circumstances, claims and disputes may also arise and in cases where the contractor becomes insolvent it can lead to extensive delays to the project’s delivery.  Where the contractor is concerned they may be operating without a profit (if not incurring a loss), may have very poor relationships with suppliers and, in the worst cases, may become insolvent as a result of a failure to properly account for real cost of the works.

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 taxpayers perspective it can be very difficult to justify a decision to reject the lowest price out of hand, particularly in the circumstances where the contractor who has bid the price is willing to undertake the project.

The impact of awarding contracts at low prices was highlighted in the Report on the Review of the Performance of the Public Works Contracts published in 2014.  A range of measures was recommended in that report to discourage unsustainably low pricing, amongst other aspects.  One of these measures, which has been implemented since 2016, requires contracting authorities to prepare a bill of quantities to a defined set of rules which accurately measures all the necessary works on larger projects.  Tenderers are required to price all of the measured items providing a very detailed breakdown of the price bid meaning that low pricing can be identified.

A further measure identified in the Report is the development of a medium term strategy for the procurement of public works projects.  Engagement with industry stakeholder bodies has recently commenced on that strategy which will outline the optimum means of procuring the necessary expertise to deliver Ireland 2040 in a sustainable, efficient and cost effective manner.