Official Report: Minutes of Evidence

The Chairperson (Mr McKay): We move on to the next session.

Ms Boyle: I want to ask about the human rights issues. What are the most vulnerable sectors of public procurement in terms of the risk of human rights breaches? What measures are in place to check and verify the human rights records of contractors or suppliers, both at the selection and contract implementation stages?

Mr Gareth Johnston (Department of Finance and Personnel): Two areas have been highlighted. As you know, the Human Rights Commission has produced a report on human rights and procurement, and I will come to the discussions that we have been having with the commission about the way forward. There are two particular areas where there is risk. One is in the provision of personal services, for example, social care services, where you have carers going into people's homes or where you have people moving into residential care. That is obviously an area where human rights considerations are seen as having a particular importance and impact.

The other area is maybe where we get into more difficulty, which is when there is a supply chain. For example, uniforms may be bought from a local supplier but are manufactured in the Far East. What can you do to make sure that human rights standards are being observed down the supply chain, and that you are not going to have, as has happened, a factory that collapses or something else because those standards have not been observed internationally? That is a more difficult one, and you probably have to rely more on people's assurances that those matters are being given consideration. We cannot always send inspectors out to the Far East to look at what is happening there. Those are the kind of areas where that is an issue.

There is certainly an awareness of the measures that are in place among those across the system, not just in the Central Procurement Directorate (CPD) but in the centres of procurement expertise (COPEs). There is certainly an awareness of the importance of human rights issues, and the Human Rights Commission's report has helped with that. We are proposing with the commission to identify a pilot project to look from start to finish at the human rights aspect. It will look at how best you can specify at the commissioning stage that you want to focus on human rights, how you evaluate that during the procurement process and how you then monitor it at the contract management stage. So, we are in discussions with the commission about a suitable pilot for that, and we will talk to the COPEs about that. That would give us some useful learning about how you target that and how you apply it in practice. As I say, it is not that people are unaware of it but that, as the commission identified, we can maybe put better structures in place if there is a risk that there might be human rights issues in a contract.

Mr Des Armstrong (Department of Finance and Personnel): We have undertaken to look at our documentation to make sure that we flag up more clearly the fact that human rights obligations that are with the Department are transferred across to contractors when they take a contract on. We will look to do a bit of work around being clearer about the type of obligation and about type of contractor that we want to carry forward those areas that are at risk. We have committed to do that work with the human rights folk. We will be happy to share the detail of that once we have it.

Ms Boyle: Absolutely. You talked about the pilot project and said that it is only at the discussion stage. Do you have a specific time frame for that?

Mr Armstrong: The new regulations that are coming through put in place the overall European directives, which are quite clearly now a policy instrument. They allow us to consider the whole-life operation of a particular service or whatever else. It goes beyond just that; it also manages to look at the process. Those are things that were not clearly allowed for or brought up front. So, we can start to look at not only the service that is being provided but at the processes that might be used to provide that service. We need to involve the experts in procurement in specific sectors, who are more aligned to the type of thing that Gareth mentioned, in looking at what the human rights aspects might be in terms of social care, education or whatever as well as at a general view of how contractors need to carry that obligation forward.

Ms Boyle: What potential options are there for strengthening human rights protections in public procurement through guidance and legislation?

Mr Armstrong: We need to look at how clearly we make sure that contractors realise that human rights obligations are being passed to them and what that means for them, and we have seen some statements around what that means for a contractor and the type of contractor that has to be there to fulfil that. There is a growing feeling that contractors have a duty of care not only to deliver the thing that they are obliged to in a contracting sense but how they produce a duty of care to the taxpayer and to the communities that are impacted by their works. Those are the sorts of things that we need to look at for the next lift in terms of what public procurement can help achieve.

Mr Johnston: We are certainly open to producing formal guidance, and my concern is that that is focused on the areas where there is greatest risk so that we can take a proportionate approach.

Ms Boyle: I recently attended a public meeting in my area about post-19 provision for people with learning difficulties. I know that DEL is doing a review at the minute around post-19 provision, and there is a very vocal post-19 lobby group, as you will be aware, but what equal opportunities will there be in social clauses for contractors and individuals to employ people with learning difficulties? Has that been a factor?

Mr Armstrong: There is provision in the existing regulations for reserve contracts where 50% of employees in a particular firm are disabled. The new regulations talk about not only the issue of disabled people but disadvantaged persons. The threshold of 50% has dropped down now to 30%. So, there is intent in the directives and the regulations to allow for that type of activity or contracts to be reserved for those types of organisations that will have to employ 30% disabled or disadvantaged people to meet the regulations. The issue here is that, while there is a definition for disabled, there is no definition of what disadvantaged might be. That produces further uncertainty.

Ms Boyle: Is that something that will be worked on?

Mr Johnston: The Cabinet Office is looking to produce some guidance on that, so we are waiting to see what it comes out with that we will be able to circulate. It is another area where it illustrates the importance of the commissioning phase. In CPD, we are not necessarily best placed to know that there are opportunities there to provide help to people with learning difficulties. The people who are best placed are those who are at the front end of the commissioning stage in Departments. Again, that is why we want to bring more attention to that stage and to the commercial skills and other skills that are needed at that stage so that people can think about how we will bring those collateral advantages to public procurement.

Ms Boyle: So, that would have an impact on the ground. That would be a critical stage.

Mr Johnston: Indeed.

The Chairperson (Mr McKay): Des, there has been a lot of criticism of the ISNI delivery portal, especially from the Construction Employers Federation (CEF), and we have met with it on a number of occasions when it has been raised. The most recent correspondence on 30 January made reference to the fact that, to date, the portal has failed to be of any particular use to the construction industry in planning ahead. The points that it has raised are concerning, and I hope that they have been addressed. For example, it says that the current report provides no way for Assembly Committees or the construction industry to monitor project slippage. It suggests that this level of information could be provided online. It also suggests that each future project should have a status attached to it and a traffic light system for monitoring and contract value bands. It also says that a lot of information on the portal is out of date and of no use to it at all. Does what you are doing now in regard to the new guidance cover all those points?

Mr Armstrong: The guidance that we produced is at the final stages of approval. We have consulted with the construction industry, the COPEs and Departments on that. The guidance note is now in its final wash-through with the COPEs that will be responsible for putting the information in place. The actual management of the system is a Strategic Investment Board (SIB) tool, and, as I understand it, SIB has produced the resource that will specifically help Departments and COPEs understand how the system operates and deal with any wrinkles there might be. That guidance note is ready for approval by the procurement board.

Mr Johnston: Yes, it is at the very last stage. In terms of the reporting issues which you highlighted, Chair, the SIB is now producing a range of reports that will go to MLAs, Ministers and others. So, you can see where exactly things are in the procurement pipeline.

The Chairperson (Mr McKay): Is the CEF happy with the guidance? Just because you publish guidance, it does not mean that it will deliver what you seek to deliver. How can we be assured that the changes that the sector and the industry are looking for in terms of transparency and up-to-date information will change in —

Mr Armstrong: We have agreed to have a standing item on the Construction Industry Forum Northern Ireland (CIFNI) agenda that will look at how that system is operated. Behind that is the issue around Departments declaring a procurement pipeline. We have also committed to meeting the construction industry to look at what the forward work programme might be. We have committed to doing a number of things, and CEF and others in the construction industry will have the opportunity to make their criticism directly to CPD because we will be organising the particular meetings. I have no doubt that, if the system is not impacted by the guidance note, they will raise it, as they have done previously.

The Chairperson (Mr McKay): So, in terms of these problems, do you —

Mr Armstrong: We anticipate that —

The Chairperson (Mr McKay): — believe that they will be ironed out within the next six months?

Mr Armstrong: We will certainly get an indication at the next CIFNI meeting in early summer. We will see whether the guidance note being issued has had any impact at all. We will monitor the quality of the material on the system.

Mr Johnston: There has been a lot of contact directly between the SIB and the COPEs on particular issues, even down to technical issues and how you format the spreadsheets to get the information onto the database. All of that has been about improving the quality of the information that is going on. That is all been happening in the background in the run-up to issuing the guidance note.

Mr Weir: I want to touch on two aspects. First, given the fact that we are under greater levels of financial constraint, what is your assessment of the risks or dangers that Departments will move towards simply a lower price and trying to save money in the short term as the basis for awarding contracts, rather than looking at the best overall economic tender?

I will come to a different point in a minute or two, but the guidance on the EU threshold about lowest price in terms of the definition contains a limitation regarding very simple and straightforward contracts. What is your take on any definition of that?

Mr Armstrong: We operated on the very clear position that, generally, lowest price can result in not delivering the quality of output that you want, particularly in construction. Study after study suggests that simply picking up the lowest price will mean that the next price will be lower, and, before you know it, you are into sub-economic, which means that you cannot achieve what you want. There is a famous saying about spending a little money and losing money — I cannot remember the detail of it. If you have a simple thing, such as a simple storage building with no great office accommodation or mechanical and electrical works inside it, about which you could say, "That looks like quite a simple thing", you can price on that basis. However, best value for money — going back to that again — is a combination of price, quality and sustainability, albeit that we have to make sure that, in trying to arrive at the best assessment of that, we do not load up the industry with lots of submissions that turn into essay-writing competitions. Lowest price should be by exception, or where there is a very simple product or whatever to purchase.

Mr Weir: On a slightly different aspect, government always needs to be reasonably acutely aware of the broader economic context of whatever it is signing up to rather than almost just the headline figure. Although it became a moot point, I know from experience locally, where a council was selling land that would have gone to various potential activities, that, to some extent, the problem at one stage was that the advice from a finance point of view was that it would be difficult to step outside whoever was putting the highest price simply on the table, despite the fact that one of the offers would have been a bit less than that but would have generated a lot more rates for the council and, over a lifetime, would have brought in a good deal more money. The issue became slightly moot in that regard.

However, you get a situation where, because there was at times a certain constraint, it meant that — in that case local government, because of central government regulations — things could sometimes be skewed because they were not looking at the full picture. That may be more of a comment than a question.

Let me talk about another aspect; project bank accounts (PBAs). One of the main purposes was to try and help with cash flow, particularly to try to reduce the level of late payments going to subcontractors. I appreciate that it is early days with that. Is there any emerging evidence of that having an impact?

Mr Armstrong: Certainly, at the last Construction Industry Forum, we gave feedback on the pilot projects that CPD was operating. The feedback generally is that it takes a little time for folk to understand how you set them up, but that is just a learning exercise. Once they are in place, there is quite good feedback from contractors that it helps their business process. There is no real detraction from the concept that firms should pay promptly, if they are being paid. Industry repeatedly says that, if government can create a level playing field and push forward to have that applied consistently, then contractors will work on that basis. We can then flush out those contractors who do not keep to best practice.

Mr Weir: Two aspects arise out of that. Apart from the PBAs themselves, have you any other thoughts about additional measures that could be taken to advance the situation as regards late payments?

Mr Armstrong: We already have the situation of back-to-back subcontracts. We have guidance that subcontracting should not go ahead unless it is approved by the contracting authority or the client, and that the conditions of contract that are applied to the main contractor should be similar to those applied to the subcontractor. So, contractually, there is a commitment from the main contractor to the subcontractor. We also have, as you know, the Construction Contracts (Northern Ireland) Order 1997, which allows for a way of resolving disputes. So we have a number of things in place. In my view, none of it goes beyond the project manager. The best bit of this is the project manager being interested in it.

Mr Weir: That is often the case. That is the crucial element.

Mr Johnston: On the Fair Payment Charter, it may be worth mentioning that there has been a percentage validation to ensure that payments from contractors to subcontractors are happening promptly. Over the last six months or so, we have validated probably around 15% of payments. Only one irregularity has been identified, which is being chased up. So, we are certainly seeing a fair degree of compliance, which is helpful.

Mr Armstrong: The feedback I get from representatives of the industry is that, when CPD's systems are applied, the contractors are getting their cash.

Mr Weir: It seems that there is empirical evidence on that, but, obviously, as you indicated, the project bank accounts were pilot projects. The issue about that, and about any pilot situation, is the extent to which they can be evaluated and rolled out across the board. Have you any information on when you will be in a position to do a formal review of the projects; and what is the timescale for that? Hopefully, if it gets a clean bill of health, it can then be used in a wider context and rolled out.

Mr Armstrong: We were committed to the pilots for a 12-month period, in order to see how they would operate. However, other organisations — the Highways Agency, for example — pushed them, so we had an opportunity to look at that. The policy, through the Cabinet Office, has been to put quite a substantial value through on project bank accounts. We have an opportunity to look at those examples. Typically, the contract values will be much in excess of where we are —

Mr Weir: There are still potential lessons to be learnt from them. They are ahead of the game because they moved earlier.

Mr Armstrong: It goes back again to community benefit. If subcontractors are being paid and they are paying their employees, that drips out into the community. There is that imperative to ensure that the supply chain operates effectively. At the end of the day, you get better performance when people are being paid and are committed to the project.

Mr McCallister: The new regulations are in line with this Committee's report of a number of years ago. For SMEs and social enterprises, to what extent do you see the regulations being binding on public procurers, and how will you enforce them?

Mr Armstrong: There is an obligation under the new regulations that will require an assessment of whether contracts are suitable to be broken into lots, and the option will then be to restrict the number of lots that can be won by any contractor. So, there will be an opportunity to produce contracting at lower values. One of the big constraints in the past, in SMEs accessing public procurement opportunities, was simply the value of the contracts. So, if the contracts are in smaller values, hopefully, there will be more on that.

There are also requirements in the value of turnover that an SME might have, and that is now limited, under the new regulations, to twice the contract value. Again, this should prevent an inadvertent barrier being put in place if someone wants to make sure that a contract will be fulfilled with a contractor who has a good track record and good finances. You might inadvertently suggest a turnover level that will remove quite a raft of SMEs from participating. So, there are things around that.

The other issue that comes up is on the levels of insurance that contractors have to hold. We have some guidance out on that. One of the thrusts in the review of public procurement legislation across Europe was the impact of SMEs and the fact that economic growth across Europe is going to come in large measure from SMEs and, critically, that the spending that comes through on public procurement has to be an open opportunity for SMEs. So, there is quite a focus on making that happen in the review of public procurement and in the legislation that is coming forward.

Mr McCallister: You are quite a bit into getting your regulations worked up. This then gives you an obligation to communicate. Have you had any —

Mr Armstrong: We monitor the take-up of public procurement opportunities and the success of opportunities to SMEs, right down to the micro level, and it is reported each month in the economic bulletin. There, you will see the value of contracts awarded and the percentage that has gone to SMEs and local firms. We get a report in CPD on a monthly basis on how that breaks down as part of our monitoring of projects. I think that we probably need to do a bit more in broadcasting the success rate for SMEs.

Mr Johnston: Alongside the directives and new regulations — and there are important guarantees for SMEs there — it is worth mentioning the new e-tender system, which we are looking to roll out from April. This is the replacement for eSourcing. It will make things easier for firms. You will need to sign up a lot of your basic details only once, and, once you register the details and keep them up to date, you will not have to enter all the same information every time you bid, particularly in some of the pre-qualification questionnaires, a lot of which will be standard and in the system. You just keep the details up to date and they will be automatically downloaded every time you bid. So, there is straightforward administrative stuff that will help smaller businesses.

We continue to work very closely with InterTradeIreland in running "Meet the Buyer" events every year. We had one in the Ramada in the autumn, when 600 firms came along to meet government buyers. We participate in events in the South as well. These are quite important in being able to demonstrate practically to small businesses that government is open to small business, even to the level of having the computer system, the eSourcing system, set up. We sit down with people and talk them through it and say, "Here is what you need to do. This is the important stuff when you are looking to tender for government work".

Mr McCallister: Finally, on Lord Young's proposals for the rest of the UK, not including Northern Ireland; is anything being pushed in England and Wales that we are already doing, or are not doing but should be doing?

Mr Armstrong: We looked very carefully at Lord Young's proposals and at what we have been doing following the report that was produced by the Committee. The activities we have put in place to deal with the Committee's recommendations are actually pushing us along a little bit further ahead of the Lord Young proposals. So, in discussion with the Cabinet Office, we have been able to convince it that we already have a number of those issues embedded in guidance in Northern Ireland and that they did not need to be applied here.

We will continue to watch the development of the new regulations as they are rolled out. We are in regular contact with the Cabinet Office and with others in Wales and Scotland. In fact, we had some people across in Scotland last Friday. We are in a network of people who are trying to develop various bits and pieces of procurement activity to meet their particular location. We have always tried to pick the best bit from wherever it is and make sure that it fits back into Northern Ireland so as to take advantage of that as quickly as we can. We will continue to watch whether the Lord Young proposals start to move the folk in England and Wales ahead of us, and we will bring proposals forward here if we have to.

Mr Cree: I am glad to hear that the subcontractor protection is working. It was a major issue when I was on the Enterprise Committee. Indeed, many subcontractors were forced to the wall through late payments and, in some cases, non-payment. I want to take you back to the e-tender situation. When officials were with us, last May I think it was, they told us that it would all be ready and operational by January. What is the reason for the slippage, and what effect does that have on the cost, if any?

Mr Armstrong: The ultimate aim of the system is that it will be a single portal for the whole of Northern Ireland. Any publicly-funded — or largely publicly-funded — projects can be put on it. To do this, we have had to deal with the COPEs and a number of users that are in councils. We had a particular requirement from one of the COPEs to produce a piece of software in the overall system that we were procuring. Having looked at its request, we felt that it would be useful to delay the thing by a few months to allow for that piece of software to be integrated into the system.

Mr Cree: So that was not anticipated last May.

Mr Armstrong: No, it was not, because we had quite a detailed schedule of requirements in place, but that requirement came out of left field, it would be fair to say. I think it is better to have the system with the full support of all of those who operate in it, rather than trying to put it in place and then tweak it for a particular aspect later on. That was the advice that we had.

Mr Cree: The aim now — and I must say I agree with it — is to have one location for all Northern Ireland public sector opportunities. What sanctions or incentives would you need to make sure that local authorities and non-departmental public bodies, for example, become part of that?

Mr Armstrong: We are providing the system free of use. The way we have set up the licensing arrangements in the system is so that bodies can come on board. Gareth will keep you right, as he is the senior responsible officer on it. We have also been looking at the configuration of the new councils. A number of councils have been working on the old e-tender system. Oddly enough, when it has been combined with the new system, we have found that at least one of the partners in the new councils has already been on the e-tender system, so we hope that it will be an easier transition for the new councils to move entirely on to the e-tender system.

Mr Cree: And what if they do not?

Mr Armstrong: We will continue to encourage them, because the new system has additional functionality that will make it easier to run procurement competitions and give them management information back. We are obviously in a situation where budgets will be constrained, so the less resource we spend on putting stuff in envelopes and pushing it around the system or managing a separate system, the better. The imperative will be to have a system that works, with a number of bodies that are able to use it that say that it works OK. That is the case there is by example and persuasion.

Mr Cree: OK. What lessons have you learned from the eSourcing system, and have they been applied to the new —

Mr Armstrong: The eSourcing system was primarily there to record the transaction bit of the procurement process — issuing tenders, receiving bids and issuing clarification letters. The system we hope we will have will give us better management information. One of the criticisms we had was that we did not hold sufficient management information that allowed us to make strategic decisions. We have also made improvements to the user interface, not only for the procurement people who will be using it but also for the suppliers who have to interact with the system.

Mr Johnston: There is the ability for suppliers to sign up to receive notifications in particular categories. So, you can specify the categories you are interested in. Obviously, when we get more public bodies to use the system and sign up for that, we will get a much more comprehensive picture, as a supplier, of what opportunities are out there across the public sector.

Mr Cree: You will be able to monitor that much better than the previous system, which really was, I guess, a by-default system.

Mr Johnston: We are developing, internally, a business information system that will sit on top and will draw information out and help our management monitoring.

Mr McQuillan: What steps is CPD taking to ensure that the pre-qualification marking criteria it uses does not favour an incumbent contractor or those who have held contracts before?

Mr Armstrong: In drawing up a procurement competition, we are not allowed to favour or hinder any supplier. We cannot create a situation where an incumbent supplier has a commercial advantage and, therefore, we level the playing field by doing something that supports the non-incumbent. There has to be a level playing field.

We have to make sure that we do not put barriers in by requiring fresh entrants into the market to have had 10 years' experience in doing whatever. Therefore, we can use general experience, and we can take on board private-sector experience. For example, in social housing, you would not say that you want to restrict it to contractors who have been involved in a framework for social housing, when you also have contractors who have been involved in private-sector housing and commercial development. It is that type of thing.

When you draw up the criteria, you must make sure that there is a level playing field and that you do not introduce barriers to effective competition. We have seen examples where incumbents do not always win the competition, because the new entrant may have a better idea or a better way of doing things.

Mr Johnston: On a practical level, when we are looking for experience and, as Des said, looking for broader experience, we are extending the period from five years to seven years, so that there is more opportunity for people to demonstrate work that they were doing before the economy reached the problems it had recently.

Mr McQuillan: How confident are you that the pre-qualification criteria being applied by COPEs or the contract authorities do not act as a barrier to increasing the number of SMEs accessing public contracts? It is something that we hear about fairly often in our constituencies and in the Committee; they just cannot get a foot on the ladder at all.

Mr Armstrong: Clearly, I have no instruction in the areas where we are not used. When it moves out into another COPE, I am not sure that I can comment unless I have the specifics of a particular problem. We have agreed that if the contractor raises an issue with CPD we will pass that on to the COPEs for them to look at. COPEs should have a complaints procedure process that allows for an independent review of what they have been doing in the procurement process. We have one in CPD, so we are happy to take it directly in that way, but we do not have a role to say to another COPE that they must do things in a certain way.

Mr McQuillan: There is no role there for CPD at all then?

Mr Johnston: We monitor overall the number of contracts going to SMEs, and that continues to touch 80% across construction supplies and services when you total it all up. We monitor the figures monthly and publish them. If things were starting to go badly wrong, at least you would see it reflected.

Mr McQuillan: You get those figures every month.

Mr Johnston: Yes.

The Chairperson (Mr McKay): To come back to the e-tender facility; obviously, that could address a lot of the issues that the Committee had during its procurement inquiry. Is there any way that the Committee could get involved in raising awareness of this in the months ahead?

Mr Armstrong: We have been considering how we start to communicate the fact that the new system will be in place. Obviously, it will have an impact on those who are registered on the existing system. For a short time, we will be operating two systems, because contracts will be brought through on the existing system at the same time as we are setting up and bringing bodies across to that. If the Committee could do anything to help us, we would certainly welcome that help. If you have anything in mind, we will take it away and look at it.

The Chairperson (Mr McKay): Committee members can certainly visit initial points or raise awareness with businesses in their constituency and so on.

Mr Armstrong: Maybe we could produce a short briefing for MLAs on how the system operates, the guidance available and what to do if people come across an issue or problem. If that would be useful, we would certainly look at producing a short information note on it.

The Chairperson (Mr McKay): OK, members. Des and Gareth, thank you very much.