Wednesday 30 September 2015, Westin Hotel, Dublin

Opening

As the Minister of State with special responsibility for public procurement, it gives me great pleasure to be here today at this conference on Smart Public Procurement.

The State has immense purchasing power, spending in the region of €12 billion per annum on goods, services and works. Smart public procurement is key to delivering sustainable value for money for the taxpayer in relation to this very significant element of overall public expenditure.

The reform of the public procurement infrastructure is a key element of the reform programme for the public service. The Government established the Office of Government Procurement to centralise procurement more; enable consistency and standardisation of approach; deliver better value for the taxpayer; and facilitate policy in a consistent fashion. The Government is fully aware of the significant role that SME’s play in the Irish economy and that public procurement represents significant business opportunities for them. The OGP’s remit is therefore to deliver sustainable savings for the taxpayer – through centralising procurement across the public service and encouraging SMEs to fully engage in public procurement.

SME Access to Public Procurement

Prior to the Government’s establishment of the OGP, the State had no mechanism for collecting, analysing and reporting on spend data across the thousands of State-funded bodies in the public service. As a result, there have been wide-ranging data quoted regarding procurement expenditure.

Now, with the OGP’s Public Service Spend and Tendering Analysis 2013 Report, which was published in March of this year, we have a robust analysis of €2.742 billion of non-pay expenditure data from the Health, Justice, Local Government and Education sectors for 2013 – representing a significant portion of overall 2013 procurement expenditure. For the first time, we have a view as to how and with whom that money was spent and the analysis is very encouraging. The data analysed indicates that 93% of the State’s expenditure is with firms within the State and that 66% of the State’s expenditure is with SMEs. This can be contrasted with the UK, where recently produced statistics indicate that just over 10% of Central Government spending is directly with SMEs.

The report also indicates that, in the majority of our expenditure areas, the typical tender value is less than €100,000, which provides a significant opportunity for SMEs. The OGP will produce similar reports each year as it continues to gather spend information from public service bodies. Such reports will inform future procurement strategy and increase openness and transparency on public expenditure.

Initiatives to Assist SMEs in Public Procurement

Public sector procurement can be daunting. Therefore, improving public procurement practices by removing obstacles and encouraging the involvement of SMEs is a key priority of Government. Much of the sector’s feedback to the OGP has been to the effect that many bidders need information on how public sector procurement works and how to answer tender questions.

Through bodies such as InterTrade Ireland and Enterprise Ireland, the OGP provides direct support to businesses in terms of information and advice.

Last year, for example, the OGP supported two ‘Meet the Buyer’ events attended by over 1,100 businesses, the ‘Taking Care of Business’ events run by the Department of Jobs Enterprise and Innovation which had over 1,750 attendees, and the ‘Public Procurement for SMEs’ events run by the Local Enterprise Offices at a local level. In addition, the OGP launched a campaign to get more businesses to register with e-tenders (the national tendering portal) which resulted in 12,300 new supplier registrations in 2014.

At EU level, there is also a growing recognition of the need to promote and facilitate SME participation in public procurement. The new EU Directives on Procurement are currently being transposed by the OGP. They are intended to make it easier for businesses and SMEs to tender for public sector procurement contracts. The directives contain provisions specifically designed to improve access for SMEs and start-ups. Examples of the changes involved are the following:

• Except in justified cases, turnover requirements will be explicitly limited to twice the estimated contract value;
• Acceptance of self-declaration for evaluating capacity and capability until the award stage;
• The promotion of e-procurement with mandatory electronic availability of procurement documents;
• Contracting authorities to comply or explain in relation to the division of contracts into lots; and
• Member states to provide the Commission with detail on SME participation.

The OGP has accelerated some of the key measures of the directives in Guidance it issued to public sector buyers in April 2014 including the requirements to tender in an open and transparent process on-line, reductions in bidder’s turnover requirements, proportional and reasonable insurance requirements, and breaking larger contracts down into lots.

Social Clauses

The new structures also provide an opportunity to implement other elements of Government policy in a consistent fashion, such as actions supporting social inclusion. The Government sees significant merit in developing a targeted social clause framework.  Last year saw the establishment a Social Clauses Project Group, led by the OGP to proactively look at public contracts where social clauses could be deployed to contribute to employment or training opportunities for long term unemployed.

It is important to adopt a targeted approach to the use of community benefit clauses on contracts where employers are likely to be hiring additional workers to deliver the contract.  This is likely to mitigate the risk of displacing workers already in employment while offering the opportunity of assisting with labour activation measures for the long-term unemployed.

An example of this approach currently in progress is the Devolved Schools Build Programme.

The Devolved Schools Build Programme is being administered by the NDFA on behalf of the Department of Education and Skills.  The aggregate capital value of the contracts is approximately €70m.  Construction work commenced last year. I understand that overall compliance in relation to the pilot clause has been good. The Department of Social Protection, through its Intreo offices, is providing support to the contractors in meeting their obligations under the contract by providing suitable candidates to match the skills requirements from those long-term unemployed construction workers.  To date, approximately 48 long term unemployed have been hired across the fifteen 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 and training requirements they need for employment in a sector.

The OGP is developing expertise in this area. The procuring bodies involved are monitoring the impact of the social clauses. The OGP will collate this information and report on its implementation.  I want to ensure that we learn more from our experience as well as experience from other jurisdictions. The work of the Social Clauses Project Group has provided the necessary basis to issue effective guidance. The Group will continue to assist contracting authorities pursuing the use of social clauses.

I am focussed on developing a robust and effective policy approach to the use of social clauses that is mindful of the need to maintain flexibility and the ability to adapt to changing circumstances.  In this regard, I have instructed the OGP to produce practical guidance material on social inclusion clauses from which contracting authorities will work from. Similar initiatives in other jurisdictions have lacked the necessary support and practical advice which I believe is critical to a successful policy outcome in this area.

Conclusion

Smart public procurement is key to delivering sustainable value for money for the tax-payer.

The OGP is driving a programme of procurement reform, encompassing the entire public service. The Procurement Reform Programme is gaining increasing traction in delivering a new more ‘joined-up’ model for government’s procurement of goods and services. The benefits from the programme include enabling cost reductions, resisting inflationary increases, reducing implementation risk, improved supplier performance, increased expenditure transparency and facilitating consistent aligned policy implementation.

The potential for benefits for the State from procurement reform remains strong. The economic recovery may reduce the pressure for further budget cuts for public sector bodies, but inflationary pressures are already emerging which will need to be resisted and avoided on input costs. Through increasingly professional procurement both the total cost and the risk to the State are reduced while public sector bodies are helped to build performance into contracts, thereby improving efficiency and effectiveness. The OGP is progressively putting into place sectoral or whole-of-government arrangements in areas such as professional services (legal and consultancy), ICT, facilities (building maintenance, catering, cleaning, security), travel and HR Services, managed services, etc. Some expenditure areas have not been tackled before at a whole-of-government level such as legal costs, large IT vendors, insurances, etc. For the first time, the OGP is looking at such services across the public service and putting in place commercial arrangements that leverage scale, bring consistency and manage risk. In this activity, the OGP is committed to encouraging SMEs to fully engage in public procurement. In order to ensure that savings are sustainable in the long term, market analysis is undertaken by procurement staff to ensure that markets are not distorted by the actions of the State and that markets remain competitive. As the economy continues to improve, such strengthening of procurement capability in the public service will continue to be key to contributing to deficit reduction targets and enabling the State to deliver much needed services to citizens more cost effectively.