Public Procurement Opportunities

Private Members' Business – in the Northern Ireland Assembly at 3:30 pm on 24th September 2013.

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Debate resumed on amendment to motion:

That this Assembly notes that the procurement of goods, services and infrastructure projects is a key driver of the economy; further notes the ongoing work in other devolved regions in this area; and calls on the Minister of Finance and Personnel to take action to address the criticisms of the current system and to ensure that there is sufficient access for small and medium-sized enterprises, as well as the social economy, to public procurement opportunities. — [Mrs Overend.]

Which amendment was:

Leave out all after ‘system’ and insert

"to ensure that there is sufficient access for small and medium-sized enterprises, and for organisations in the social economy, to public procurement opportunities and to ensure that employees in companies that are contracted and sub-contracted through government procurement are paid at least the living wage."

Photo of Roy Beggs Roy Beggs UUP

The Minister is not able to be in the Chamber.  Therefore, I call Steven Agnew to wind-up the debate on the amendment.

Photo of Steven Agnew Steven Agnew Green

Mr Deputy Speaker, please tolerate me for two seconds, as I was not quite prepared. 

I think that we have an opportunity with the amendment to —

Photo of Roy Beggs Roy Beggs UUP

I ask the Member to give way.  I see that the Minister has just arrived.  If the Assembly is agreeable, I will call the Minister and then return to the winding-up speeches.

Photo of Jim Allister Jim Allister Traditional Unionist Voice

On a point of order, Mr Deputy Speaker.  Will you draw the situation to Mr Campbell's attention, please?  He seemed very concerned about the minutiae of these matters, so perhaps he should be alerted to this failure on the path, this time not of a mere Back-Bencher but of a Minister.  I am sure that that will greatly exercise Mr Campbell.

Photo of Roy Beggs Roy Beggs UUP

With the approval of the Assembly, I call the Minister of Finance and Personnel to respond to the debate.

Photo of Simon Hamilton Simon Hamilton DUP

Mr Deputy Speaker, thank you for your help in that regard, and I thank the House for its tolerance.  I apologise for being momentarily late into the House.

From the outset of my appointment as Minister of Finance and Personnel, I have said that I am aware of the criticisms that have been levelled at public procurement in Northern Ireland and which have been echoed in the debate.  In fact, in a speech that I made to the Confederation of British Industry (CBI) a few days after my appointment, I said that I am sensitive to the criticisms of our system.  Therefore, I am not surprised that procurement is the first issue that I have to respond to as Minister, and I thank Mrs Overend for bringing this motion to the House and for giving me the opportunity to address the issues that she and others raised during the debate. 

Having listened to the feedback that I have received, including from party colleagues, in the past few weeks and that which has been offered in the past number of years, I think that if I were to declare that I wanted to do away with public procurement in Northern Ireland, there would be rounds of cheers and pats on the back for me.  Maybe I would be carried out of the Chamber on people's shoulders.  However, of course, that is neither sensible nor possible. 

Public procurement, as has been accepted, operates under a heavily regulated regime established by the European Union.  I am resistant to step into what I think is sometimes a family squabble between the Ulster Unionist Party and Mr Basil McCrea, but I acknowledge that Mrs Overend, in her opening remarks, mentioned that the regime is heavily regulated by the European Union.  She also mentioned the new public procurement directives, which I will touch on in a moment or two.

The system is seen by the European Commission as a key driver in establishing the single European market and opening up competition to firms in all member states.  Those aims immediately create tension for all of us who are focused on the development of the Northern Ireland economy and on the well-being of our citizens and businesses.  Fortunately, the European Union has recognised that the directives it agreed back in 2004 require reform.  Indeed, the process of revising the rules and agreeing new directives is almost complete.  In that regard, my predecessor made strong representations to Europe, through the Cabinet Office, for a reduction in the levels of bureaucracy and a simplification of procurement processes.  He was particularly keen on the directives that contained procedures that were friendlier towards SMEs, which, of course, are the focus of today's debate.

I am pleased to say that the new public procurement directives are catching up with approaches that have already been adopted in Northern Ireland over recent years, particularly for low-value procurements.  Those changes will help to make all public procurement faster and less costly for government and for businesses of all sizes.  They include a much simpler process for dealing with bidders' credentials by self-declaration, with only the winning bidder being subjected to validation. Central Procurement Directorate (CPD) has already moved ahead on that.  For example, in a recent office furniture contract tender, suppliers were permitted to self-declare details of their financial position, and only the winning tenderer’s audited accounts were checked.  The changes also include provisions to encourage buyers to break large contracts into lots, allowing SMEs to participate.  Again, CPD has already adopted that approach.  For example, catering and cleaning contracts are now awarded in regional lots. 

The new directives will look at a cap to prevent buyers from setting supplier turnover requirements at more than twice the contract value.  Again, CPD has already worked with the construction industry to reduce the financial standing requirement for construction contracts to just three quarters of turnover as part of a broader Constructionline assessment. 

A new procedure for innovation partnerships will mean that suppliers can bid to enter a partnership with government to develop a new product or service.

One area that I am especially interested in is that the new directive will also allow contracting authorities to reserve contracts for mutuals and social enterprises for a time-limited period, provided certain conditions are met.  We will be exploring how that could be used to facilitate further reforms in the way that public services are delivered in Northern Ireland.  It is intended that the public sector directive will be transposed into legislation covering England, Wales and Northern Ireland next year, and CPD will be taking forward the consultation on that new legislation shortly.

Small businesses are key drivers of the Northern Ireland economy and an important source of job creation.  That was recognised in the report that followed the inquiry into public procurement by the Committee for Finance and Personnel in 2010.  I am pleased to confirm that the report’s recommendations, which were focused on measures designed to improve the position of SMEs, have set the policy agenda over the past few years.  Many of those recommendations have been actioned.  For example, CPD now considers the impact on local SMEs for all procurements, and that is included in the documented procurement strategies that it provides to Departments.  I believe that the Committee’s report, which was referred to by a number of Members who spoke, including Mrs Cochrane, has helped to bring about significant change in the public procurement environment, and we are now in a better position to harness the potential of small businesses through public procurement to drive economic growth.

The motion refers to criticisms of the current procurement system.  I appreciate that they exist.  I hear complaints far too often to think that there are no issues with our procurement system, but I believe that some of those criticisms are based on misperceptions of how public procurement operates and a lack of appreciation of what has already been achieved.  However, I recognise that other criticisms are valid, and I want to set out what we are doing to address each of those.

The first and most frequently voiced criticism is that procurement processes are rigid and inflexible, which places local SMEs and social economy enterprises at a significant disadvantage when bidding for government work.  My Department responded to those concerns by changing the way that it undertakes procurements.  Those changes have been enabled by a number of specific measures, including, as Mr Ross mentioned in response to Mr Bradley, a programme of "meet the buyer" events, at which SMEs can hear at first hand how they can access public procurement opportunities.  Earlier this month, for example, CPD jointly hosted an event with InterTradeIreland, which was attended by over 600 suppliers.  Other measures include the reduction and removal of barriers for smaller businesses wishing to compete for public sector opportunities.  Suppliers are not required to provide evidence of financial standing for tenders for supplies or services contracts below the EU threshold.  We have also looked at increasing the visibility of opportunities by requiring all central government contracts above £30,000 to be advertised on a single procurement portal.  Departments are encouraged to seek out local suppliers to tender for contracts below £30,000.  We ensure transparency by publishing contract awards, and we are streamlining procedures and reducing the paperwork associated with low-value procurements, as those are of particular interest to SMEs.  CPD, for example, has removed the minimum eligibility requirements for low-value supplies and services contracts.

We have been looking at reducing liability and insurance requirements, which was mentioned by some Members, by making them proportionate to the risks associated with the contract.  CPD now sets modest levels of professional indemnity insurance for architects and engineers, and it limits their liability.  We promote prompt payment and fair conditions of contract for construction subcontractors by putting monitoring and reporting arrangements in place in main contracts.  Those measures will be further enhanced as CPD rolls out project bank accounts. 

The changes are being applied across government, and the benefits are beginning to be felt.  Since the new procedures were introduced for low-value procurements, CPD has reduced the time taken to tender and award contracts.  We will continue to monitor the impacts to ensure that benefits are achieved for SMEs and social economy enterprises.

Contrary to perceptions, local businesses win the majority of public procurement contracts in Northern Ireland.  Of course, not every business wins every contract that it tenders for.  We need to distinguish between legitimate criticisms and those voiced by people who have not won contracts.  In 2011-12, 78·5% of all supplies and services contracts awarded by centres of procurement expertise went to businesses based in Northern Ireland.  For construction contracts, the figure was significantly higher at 96%.  Some 80% of all contracts awarded by COPEs in 2011-12 were awarded to SMEs, and 60% of all contracts were awarded to businesses with fewer than 50 employees.  Those are pretty impressive statistics.  The figures are on a par with those in Scotland and Wales, where it is only 60%, and are substantially ahead of the position in England, where it has been reported that, in 2012-13, only 10·5% of direct spend was with SMEs.  Northern Ireland firms are also doing better when it comes to getting work in Great Britain and Northern Ireland.  In the past weeks, I have met firms that are building harbours, airports or rapid transit systems elsewhere in the United Kingdom.  That shows that the work that we do here and that we procure through the public sector in Northern Ireland can benefit our companies, as and when they bid for work across the water or down South, where Northern Ireland firms tend to do much better than those in the Republic of Ireland when bidding for work in Northern Ireland.

That brings me to the next area of criticism, which is that everyone else is better at public procurement than we are in Northern Ireland.  The motion refers specifically to what is being done in the other devolved regions.  Northern Ireland has been at the forefront of public procurement developments in the UK.  The structures set up by the Executive in 2002 to deliver public procurement have now been followed, to varying degrees, by the other devolved Administrations.  The strategic approach adopted by the Executive has been endorsed by public procurement reviews in Scotland and Wales, which have recommended similar governance arrangements.  Likewise, Northern Ireland has been in the vanguard with measures to promote SME participation and deliver community benefits from public procurement.  We have led the way in the construction sector, where CPD has worked very closely with the construction industry to implement key initiatives.  CPD is spearheading work on project bank accounts, which will be an important mechanism to speed up and protect payments to key subcontractors on relevant contracts.  That is in advance of anything being done in the other devolved regions.  Indeed, representatives from the Scottish Government have been in contact with CPD to learn more about what we do here in Northern Ireland.

The Welsh Government recently established its National Procurement Service to coordinate the purchasing of common goods and services across the public sector.  Given that Northern Ireland already has structures in place to enable collaboration, CPD assisted Wales in the establishment of that new service.

In Northern Ireland, a revised strategy for collaboration across those bodies, subject to public procurement policy, was approved by the procurement board in June.  Following on from that, CPD intends to publish a pipeline of forthcoming collaborative arrangements early in 2014.  Supplier information sessions will also be held well in advance of any collaborative procurement competitions.  That will allow suppliers to discuss directly with buyers the forthcoming opportunities.

Members may also be aware that the Cabinet Office recently launched a consultation on the creation of an SME-friendly single market for public procurement.  The consultation considers changes in three areas:  pre-qualification, transparency, and payment and financial practices.  We will look in more detail at the proposed reforms, but a preliminary analysis indicates that, in the main, those measures are already in place in Northern Ireland.  I assure the Assembly that there is no major initiative being taken forward by the Cabinet Office or the other devolved Administrations that is not being addressed here in Northern Ireland. 

I turn now to the criticism that the Government are not open for business when it comes to fostering innovative approaches through procurement.  On the contrary, we recognise that the buying power of the public sector has a major role to play in stimulating companies to develop new innovative solutions.  Those developments will allow companies to secure a competitive advantage in the marketplace.

We have seen some examples in Northern Ireland of the small business research initiative, which was referred to by Mr Ross, being used to help firms to develop solutions to particular problems.  I am pleased to say that Northern Ireland was the first devolved Administration to run an SBRI competition — for mobile phone apps for the Northern Ireland Tourist Board — and that we have a major project under way to develop a sustainable solution for the disposal of poultry litter.  However, one or two projects is not enough.  I want to see many more projects coming forward.  The Executive have now put in place funding for a team of innovative procurement executives, including one in CPD.  Those officials will work with Departments and companies to increase the number of SBRI competitions run by public bodies.  I will look to my Executive colleagues to help to reinforce this in their Department.

The last area of criticism that I want to touch on is the management of infrastructure investment.  Given its importance to the economy of Northern Ireland, we need to ensure that we have efficient and effective systems in place for the delivery of that investment.   Although procurement is a key part of that process, the delivery of infrastructure is about much more than that.  That is why my officials have been working with the Strategic Investment Board to commission a review of the whole delivery system.  The aim of that review is to produce proposals that will ensure that the commissioning, planning, procurement and delivery of major infrastructure result in value-for-money projects.

Before I close, I want to address the amendment.  My Department has looked in detail at whether the payment of a living wage to a contractor's employees could be made a condition of public contracts.  However, it concluded that any requirement to pay employees at a level above the national minimum wage would contravene European legislation.  That is in accordance with advice that the Scottish Government received directly from the European Commission.  Contracting authorities can encourage contractors to pay a living wage, but that cannot be taken into account when awarding contracts.  Although I have some sympathy with the points that the Member made, there would be incredible difficulties in implementing that measure.  

SMEs and SEEs are the lifeblood of our local economy.  Over the years, my Department, with the endorsement of the procurement board, has taken forward a range of actions to support them.  In implementing the programme, it has worked closely with industry, business and social economy representatives, and I am grateful for their constructive engagement.  My Department will continue to focus on removing barriers to SME participation, simplifying the procurement process and standardising our engagement with suppliers.

This has been a useful debate, certainly when I was here.  I thank Members for their questions and views on this key area of activity for the Executive.  I will echo my predecessor's view and say that I, too, have an open door.  If anybody has issues with procurement, please feel free to bring them to me.  If there are things that we can do to resolve those problems, we will.

Photo of Roy Beggs Roy Beggs UUP 3:45 pm, 24th September 2013

Before I call Mr Steven Agnew to wind on the amendment, I apologise for having interrupted him and thank him for facilitating me in calling the Minister to respond to the debate.

Photo of Steven Agnew Steven Agnew Green

I appreciate the apology and accept it wholeheartedly.

We talk a lot in the Chamber about social issues and social problems.  We talk about their symptoms, but we very rarely talk about the structural causes of some of them.  In-work poverty is a huge issue in our society, and, indeed, the number of people on low pay has increased throughout the past 30 years as a proportion of our working population.  That is something that needs to be addressed structurally.  It cannot simply be fixed by government programmes, which, in some cases, ask the community and voluntary sector to mop up some of the problems that our economic policies have created.  We have to tackle those structural issues, and although we have some restrictions in Northern Ireland with the availability of economic levers, I believe that, in public procurement, there is a real opportunity to use public resources not just to create employment but to go further and guarantee a basic living wage for all those employed through government contracts.

The other issue related to that, and which continues, is the inequality between the genders in pay rates.  I mentioned in my opening remarks that the majority of those in low pay — something like two thirds of those working below the living wage — are women.  Again, that is a social issue that we could help to begin to address through a policy such as this.  We need to grasp the structural issues that lock poverty and inequality within our economic system and start to reverse some of those harms. [Interruption.]

 [Laughter.] I will briefly address some of the comments that have been made.  Mr Weir described this as well-intentioned but unworkable.  However, we see, in England, that this is being worked by no less than the Greater London Authority.  While the debate stood suspended, I saw a comment on Twitter that my proposal was somehow "economically illiterate".  Last I heard, the London city economy was doing OK.  It has not collapsed due to the living wage.  Just as we had with the minimum wage, there will be a certain amount of scaremongering.  However, I understand that both the Labour Party and the Conservative Party are making noises that this is something that they would implement.  For Northern Ireland to make a first step to move our economy onto that footing may well help to prepare us for the changes that lie ahead. 

I could not understand Mr Weir's point about competitive disadvantage to local businesses.  In fact, this provision would have completely the opposite effect.  By requiring a living wage to be paid by those who engage in government contracts, we would help local businesses, which tend to pay more than some foreign companies that can access cheaper labour.  So, it would do the opposite of creating competitive disadvantage; it would tackle some of the competitive disadvantages that we face.

Ms Cochrane called it "aspirational".  Again, I would say that it is a worthy aspiration, but it is something that authorities in England have taken on.  It does not have to be an aspiration; it can be achieved.  She also raised the point, and I think that it is a valid one, about whether this would make it more difficult for SMEs.  I propose — and, again, this is being done by local authorities in England — that, as with regional contracts with the Treasury, benefits to the Treasury could be reinvested in Northern Ireland to support SMEs and to enable them to tender for government contracts.

I will just mention briefly the Minister's comments that the advice to the Scottish Government was that it was unworkable.  I am not sure what their exact proposals were, but I point to the Greater London Authority and to the answers received by my colleague in the European Parliament, Jean Lambert, from the European Commission, which very clearly state that, within certain conditions, this type of public procurement policy is legal and within EU law.

Photo of Roy Beggs Roy Beggs UUP

Will the Member draw his remarks to a close?

Photo of Steven Agnew Steven Agnew Green

I am happy to provide those to the Minister, and I hope that this is something that he and his Department will explore further.

Photo of Leslie Cree Leslie Cree UUP

It gives me great pleasure to be able to make a winding-up speech for what has been an important debate today.  Indeed, it is the first debate on the economy in the new Assembly term. 

As MLAs, we should all have a particular interest in the topic, due to its significance to an economic recovery.  Public procurement, if taken correctly, can help to positively address the unemployment that is so prevalent, particularly among our young people aged between 18 and 24.  It can help to address the high levels of economic inactivity in the economy, and it can help our struggling construction sector through investment in infrastructure.  The Ulster Unionist Party has, of course, been vocal in its support for increased infrastructure, particularly through the provision of sufficient funding to the Minister for Regional Development to advance road projects such as the A26.  I was told to mention that.

Many Members outlined the scale of public procurement in financial terms.  It amounts to £3 billion per annum, when local councils are included.  That is a very high figure, and it is important that we ensure delivery in the most effective way.

Before giving some consideration to what other Members said, I want to raise a few issues, the first of which is subcontracting.  The motion mentions specific "criticisms of the current system".  All too often, I find that the practice of subcontracting comes under that banner.  Those in the constituency of North Antrim were all too aware of that recently, with the news that Ballymena-based Patton had gone into administration.  Patton Group Ltd was a family-run business that was established some 100 years ago and that employed over 300 members of staff.  The effect of that company going into administration was felt by banks, suppliers and contractors across that constituency and, indeed, the whole of Northern Ireland.  A group of subcontractors who said that they were owed about £17 million by Patton asked the Executive for a rescue package to help them.  That was not possible.  That is an area that we must get to grips with, because there must be sufficient protection for those subcontractors.

Project bank accounts were introduced in January of this year, and government construction contracts were awarded by the Central Procurement Directorate on behalf of Departments.  The Minister already referred to those.  The intention of that new payment method is to help to safeguard subcontractor payments in many government construction contracts.  That is a welcome move, but its success can be judged only over time, and it must be evaluated and, if necessary, improved upon.

Clearly, there is also more work to be done to understand the methods and procedures best designed to prevent poor performing suppliers and to ensure compliance to procurement.

I will move now to the social economy.  Similar to other Members, I want to consider access to the public procurement market for the social economy.  Social enterprises, such as Bryson Charitable Group, undertake some excellent work and reinvest profits back into the community.  It must be remembered that the social economy can flourish during economic hardship by reaching those who are most in need and bringing about positive social change.  That is something that we should get behind and support as much as possible.  We should be an enabling government for that sector.

Due to the fact that public procurement is the spending of public money, I believe that it must achieve more than the purchasing of a service and, as such, should require tendering organisations to demonstrate how that spend can maximise local social impact.  On that note, Northern Ireland is currently the only region of the UK that will not be covered by the recently introduced Public Services (Social Value) Act 2012, as Scotland will be introducing its own version.  I believe that the Executive should be looking at our own version of that legislation, which places a duty on public bodies to consider social value ahead of procurement.

It has also been said to me that many procurement exercises are driven primarily by price competition.  That often results in a race to the bottom, and, by providing marginal profit level, it increases the risk of failure, as seen in the Housing Executive maintenance contracts.  We must guard against such an approach to public procurement and get that balance right.  The case remains that the public procurement process is frequently lengthy and excessively costly.  That has a consequence of significantly reducing the level of competition, with many social enterprises finding the cost of bidding to be prohibitive. 

Lastly, on the area of social enterprise, pre-qualification criteria are important and must be appropriate.  In particular, they must not act as a barrier or lockout to social enterprises or, for that matter, SMEs.

I will now deal quickly with the review of public administration.  With the review imminent, we must ensure that there is consistency in practice across Departments.  It is the case that some councils do procurement better than others.  The introduction of a new council model should present an opportunity to standardise approaches across the board to a sufficiently high level.

I will quickly summarise some of the issues raised by other Members.  I was pleased to listen to the Minister.  He contributed significantly to the debate and was very impressive on his first outing.  I hope that that keeps up, Minister.  I appreciate the DUP's support for our motion.

Mrs Overend made it clear that we need more in-depth statistics to give a proper outline of our performance.  She reiterated that the Ulster Unionist Party is unapologetically pro-indigenous business in its approach to public procurement.

Sinn Féin has been vocal on this matter in the past through its chairmanship of the Committee for Finance and Personnel and in motions in the Chamber.  It is apparently behind increased access for the social economy, and we can certainly agree on that point.  However, I was rather amused by Mr Flanagan's comment that civil servants could do much of the work themselves.  I look forward to work being done in that particular theatre.

The SDLP, I believe, was supportive, as was the Alliance Party.  I congratulate Judith Cochrane for highlighting the importance of productivity in the whole exercise.  That is a very important issue, which had in fact been overlooked up to that point.

Mr Agnew made his points in his usual fashion.  All that I will say is that he continues to demonstrate a lack of business experience.  I am afraid that we cannot support his amendment.

I call on all Members to support the Ulster Unionist motion, which places SMEs and the social economy at the heart of our thinking and holds the Minister of Finance and Personnel to account in his plans for public sector reform.

Question, That the amendment be made, put and negatived.

Main Question put and agreed to.

Resolved:

That this Assembly notes that the procurement of goods, services and infrastructure projects is a key driver of the economy; further notes the ongoing work in other devolved regions in this area; and calls on the Minister of Finance and Personnel to take action to address the criticisms of the current system and to ensure that there is sufficient access for small and medium-sized enterprises, as well as the social economy, to public procurement opportunities.