Facilitating SME's in Public Procurement - is it too little too late?

The department of finance issued a circular back in August in relation to new guidance for the procurement of public works.

These new guidelines are aimed at facilitating Small and Medium Enterprises (SME's) and ensuring that the public works market remains open to these companies.

Is the publication of this circular too little too late?

The basic changes of the new guidance and the changes pertinent to the construction sector can really be synopsised in 2 paragraphs as follows:

1 - The 'dual' stage / pre-qualification procedure for projects valued below €250,000 is now history.

Prior to this change the local authorities and other contracting authorities were using the two stage system or 'dual stage' where companies had to first make a shortlist. These shortlists are usually no more than 10 candiates and more often than not they are limited to just 5 candidates (particularly where the NRA were involved), whom then get to price the actual work.

The drawing up of these shortlists of contractors for each individual project, are derived from the first stage of the 'dual' stage by means of a pre-qualification questionnaire competition, or a beauty contest. These documents created a huge additional workload for small family run operators who in the current climate weren't geared up to undertake the completion of these PQQ's. In my own experience I have carried out some of these PQQ applications and this involves multitudes of paperwork for projects that would be for example €500k, and this was just to get the chance to price the work.

2 - The vast amount of paperwork will now no longer be requested until the pricing stage is completed, i.e. the winning bidder or bidder who is coming under consideration for the project will be asked for their insurance, tax clearance, bond undertaking, company structure etc only after the price is submitted and they are deemed the most economically advantageous.

One would imagine that these new guidance issues are as a result of lobbying by ISME, IBEC the CIF and various other groups working on behalf of SME's.

Is it too little too late or is it a case of any change to the current process is a step in the right direction?

Personally I believe it is a bit of both, i.e. they could have stretched the threshold to €500k or even €750k, however in this climate I'm sure any change where SME's will be allowed enter the market is a good one.

Sometimes its best to weigh up whether a change like this will work and function the way it should by way of everyday examples:

The DOF has stated (in this circular) that the SME sector is a very important business sector for the economy and that they are not hindered from competing for Contracts.

Example: Joe Bloggs Civil Contractor has done small culvert type bridges and many other structural concrete works down the years as a small sub-contractor to one or two of the 'mega' motorway contractors. He can't pre-qual to the pricing stage for a medium type standard bridge due to alleged lack of experience and also because he won't gain enough marks in the PQQ system ahead of the 'mega' lads he has worked for in the past. How does Joe ever build a bridge or how does Joe every compete in the market if it will be closed to those who have only built bridges in the past? Will this new system allow Joe as an experienced SME get into the bridge construction market? It is highly unlikely as one doubts there will be a bridge in this new process valued below the €250k threshold, whereas if the threshold was €750k at least Joe has a chance. Even if there was a bridge project at the €250k value then the parameters set down by awarding authorities on a larger bridge project (where Joe would have to pre-qualify) would in fact hinder Joe.

This is where an opportunity has been missed by the National Procurement Service and the Department of Finance.

Another flaw is the evaluation of the projects. Who values the projects and states whether they are within the threshold or not? Is it the awarding authorities? If so what is their basis of calculating if a job falls within the threshold or not?

This blogger also notes that the National Procurement Service was set up in 2009, another quango set up slap bang in the middle of a recession? Where the hell was this outfit during the boom when we had work to procure?

The DOF circular paragraph 6 is interesting reading. Its almost as if the DOF are only now letting the local authorities know that there is an agency in place to help them with procurement matters!!

Finally, if this NPS is around then what are the National Public Procurement Policy Unit (NPPPU) working at these days? I do know they run the excellent etenders website which I note is been copied by local authorities / public authorities in cities and countries around Europe presently, so well done to them on that front but could they not also manage to carry out the role of the National Procurement Service also?

Here is the link to the relatively new circular discussed above:

http://www.constructionprocurement.gov.ie/CWMFDocs/Circulars/Circ1010.pdf

Recession in Ireland is Over

http://www.irishtimes.com/newspaper/breaking/2010/0630/breaking24.html

Technically anyhow, Irish Times article attached above.

I haven't had much time to publish lately due to this bloody recession with chasing work and chasing money but at least I still have a job (for now).

I would estimate that it will be at least another 18 months before the construction industry picks up.

At least the figures today will boost market confidence and boost the service sector and people will be less frugal and perhaps consumer spending might pick up again.

This should lead to more jobs. More than likely any jobs will be re-employment ones and I can't see house building in the private sector commencing again for another 12 months at least.

Any positive news is welcome however and if this leads to job creation and an decrease in the unemployment pay role and an increase in the tax take this should have the knock on effect of stimulating public sector infrastructure spending.

More anon.

NAMA - Good Indo Article

This article in today's Irish Independent synopsises the 'major' players and properties involved in a simple and clear format.

http://www.independent.ie/business/commercial-property/hot-property-linked-to-toxic-loans-2118154.html


FOGRA:

My guess on the 'haircut' wasn't too far away:

http://constructionconciliation.blogspot.com/2009/09/final-quarter-2009-what-is-outlook-for.html

Are the Public Servants Holding Constructors to Ramsom in Eire?

Greetings colleagues. I haven't published for a while but I make no apologies for this.

Chasing work has kept me busy. Similar to many people in Ireland in our Industry I've a house to pay for and a family to keep. Work is very very scarce indeed.

As a matter of fact for the first time in 12 years as a permanent employee for a long established Civil Engineering Contractor I now fear for my job security and I'm even gearing myself up to get plan 'B' into operation which will most likely involve freelance work.

Freelance work would not pose any fear for me as during the boom years I managed to squeeze in a Post Graduate Contract Law Course and a Post Graduate Arbitration Course. However having a steady job and job security was very comforting and regardless of the Public Sector pay cuts and their pension levies they still have the comfort and security of knowing that they have a job to go to every Monday morning.emm(?)

The current situation in the Civil Engineering market is diabolical to say the least. Sources tell me that some Public Sector Area's are failing to release Contract Documents where funding is in place. If this is true then it is an almighty scandal as the chain affects of not issuing necessary infrastructure work is catastrophic as this will only lead to further job losses in the industry.

I do know for a fact that my company has completed pre-qual after pre-qual in the period May 2009 until mid-February 2010 and for the large majority of these pre-qual competitions not even the pre-qual result was published.

This is crippling small and medium Civil Contractors around the Country and in the long term only add to the Public Spending Bill by virtue of the fact that another 40,000 construction personnel are expected to be unemployed for 2010.

If the government start acting now and the Public Servants are made to start releasing tenders immediately then some of these jobs would be saved and important infrastructure works would commence.

Some such project examples are as follows:
Lough Forbes Water Treatment Works - First advertised in May 2009
The Metals Dun Laoighaire - First advertised in May 2009
Grange Bridge in Kilkenny - First advertised in May 2009
Ballymahon and Granard Water Treatment - June 2009
River Fergus Flood Alleviation - September 2009
Belcamp Lands Remediation - January 2010
Embankment Road Extension Tallaght - February 2010

All of the above are 2 stage select tenders (pre-qualification competition first) yet all but one of these projects has yet to reach the second stage; the pricing stage. Why is this?

In the meantime the other projects that were advertised in the back end of 2009 and so far this year have been few and far between, so one wonders where the so call 'Capital Spend' promised in the last budget is going?

My guess is that the government are holding off until the NAMA transfers have commenced properly or else perhaps some Public Sectors are acting in a similar fashion to our friends in the Passport office. Maybe funds are in place for Contracts but the Public Servants are on some sort of work to rule and not bothering to issue the tender documents?

FOGRA:
I noticed in the Sunday Business post at the weekend that the Department of Finance are reviewing the PPP model and now deem it bad value for money.

This blogger and many more amongst us and even people with a level Pass C leaving certificate maths would realise this. The Government pumping the circa € 110,000,000 subvention into the Kilkock - Kinegad bypass motorway PPP back in the day was a complete disgrace.

This amount of cash, at the time, would have built 15 to 20 km of motorway on its own without having the necessity for a toll.

Anyhow, as soon as this Blogger hears more on the DOF review I will post some thoughts and comments. However, it would appear to be a more than likely a Fianna Fail PR move in order to ditch the Metro for a few years without upsetting the Greens too much.

You know what ... all of the above reminds me of something familiar.......................
http://constructionconciliation.blogspot.com/2009/07/irish-government-needs-to-stimulate.html

Public Works Contracts for Minor Civil and Building Works (IRELAND) - Important Amendment

Remarkably for personnel in the Construction Industry a new version of this Form of Contract was published on 4 November 2009 last - follow this link or copy and paste it for the downloadable version...

http://www.constructionprocurement.gov.ie/CWMFDocs/PW-CF/PW-CF5_Contract.pdf


What is so remarkable about this new publication is that it appears to have taken place completely under the radar of Contractors. Colleagues of mine say that I was the first to inform / notice this new issue. I only noticed it lately on receipt of a tender.

On a very quick perusal so far the most significant change / amendment to the August 2007 version of the Form of Contract is the amended Sub-Clause 10.6.4 (extract below with the change / amendment highlighted in bold).

10.6.4 The Employer’s Representative may conclusively direct that additional or substituted work required as a result of a Compensation Event be determined (in full or in part) on the basis of the cost of performing the additional or substituted work, compared with the Contractor’s cost
without the Compensation Event, determined as follows:
(1) the number of hours worked or to be worked by each category of work person stated in the Schedule, part 2D, and engaged on the work to which the Compensation Event relates, on or off the Site, multiplied in each case by the tendered hourly rate for that category stated in the Schedule, part 2D (But if any of the tendered hourly rates are less than 75% of the relevant rate in the construction industry registered employment agreement current on the Designated Date, they will be read instead as 75% of the relevant rate in that agreement) and
(2) the cost of materials used in that work, taking into account discounts and excluding VAT, plus the percentage adjustment tendered by the Contractor and stated in the Schedule, part 2D (But if the percentage adjustment tendered is negative or blank it will be read as 0%) and
(3) the cost of plant reasonably used for that work, whether hired or owned by the
Contractor, at the rates in the document listed in the Schedule, part 1K (as that
document may be modified according to the Schedule, part 1K) plus or minus the
percentage adjustment tendered by the Contractor and included in the Schedule, part
2D (But if the percentage adjustment tendered is a deduction of more than 100% it will be read as a deduction of 100% or if the entry is blank it will be read as 0%). If the document listed in the Schedule does not give a rate for a plant item, a market rental rate shall be used, plus or minus the percentage adjustment.

The 'old' sub-clause 10.6.4 relied totally on the tendered rates filled out in the schedule to the Form of Tender. The obvious problem with this was that tendering contractors were leaving the schedules blank (which they were allowed to do) in order to minimise their overall tender total and thus give them better chance of winning a particular contract. Assuming that schedules on hourly rates were left blank at tender stage would have appeared to be a technical breach of clause 5.3 "Pay and Conditions of Employment" or the "GAMA clause" as it has become known. This is the clause where Contractors are bound by both Law and the Contract to pay the agreed rates of pay per current industry employment agreements. Perhaps the amended clause 10.6.4 now tackles this anomaly.

One thnig it does tackle and where it sheds some light for Contractors is that the sub-clause forms part of the Valuation of Change Orders or Adjustments to the Contract Sum Clause 10.6 (as a Result of Change Orders).

The hurdles or steps to take in evaluation of Change Orders are Similar to the Old IEI or ICE form of Contract where 3 cascading rules are followed, these are,
1 - Pricing Document (BOQ) Tender Rates used for evaluation for Work Similar to that in the tender BOQ and in similar conditions to that work Priced in the Original Tender.
2 - Works that are not of a similar nature or not carried out in similar conditions then tender rates are used as a basis of evaluation.
3 - If 1 or 2 cannot lead to the evaluation of the change order then the Employers Representative makes a 'fair valuation'.

So the next step is then 10.6.4 (we don't know how an employers rep is supposed to make a fair valuation?) - where hours and rates are utilized and thus a Contractor's worst case scenario is to suffer a 25% loss on his labour costs (assuming the schedules are not filled in at correct employment agreement rates by the contractor in his org tender). If a Contractor has the schedule completed correctly (i.e. at his labour cost rates) and a dispute occurs during a project regarding the valuation of change orders then one would assume that the Contractor at worst will recover his cost based on the test of sub-clause 10.6.4?

One flaw with this amended clause is that where a Contractor hasn't the registered rates compiled in the schedule of his tender then the Employers Rep will have to calculate what 75% of the registered rate is, how will he / she carry out this task?, i.e. a Contractors Cost isn't just the Nett rate per the published registered agreement but the obvious on-costs such as employers PRSI, levies, insurances etc that have to be factored onto the registered agreed hourly rate. This perhaps is a discussion for another day as well as any other changes that may be included in the November 2009 version of this Form of Contract.

Polish A2 highway, Chinese Consortium

Two large sections of the A2 motorway project in Poland were recently awarded to COVEC Ltd.


Other European Contractors have raised concerns at the award of these projects as COVEC is essentially state owned and thus can rely on funds from their home state. European Contractors deem that this point leads to unfair competition. It is illegal for EU contractors to rely on state aid but the EU / EU commission cannot do anything about, and, appear powerless to do anything about companies outside the EU relying on state aid. Another gripe EU Contractors have is the issue of EU Contractors been unable to gain access to the Chinese Construction market.


COVEC is a wholly-owned subsidiary of China Railway Group Limited (CREC), a state-owned construction contractor.

The Sound of Tumbleweed..........

"October and the leaves are stripped bear of all they wear what do I care, October and Kingdoms rise and Kingdoms Fall but you go on" ........................U2 October.

By the way that's the whole song up there, probably Bono's shortest. This October for anyone involved in the Irish Civil Engineering Industry hasn't been a short one. In fact it's a month that combined with this coming November will be dragging and dragging. The reason for this apparent prolonged Autumn is due to the customary (or recent customary) slow down on release of tenders coming up to budget time. I say recent because now it is quiet the opposite to those boom years of the mid noughties. During those good ole days and at this time of year the civil construction industry via the public sector would have large enough capacity of tender releases. The reason for this was that during the month's coming up to budget time many Local Authorities would've actually had a surplus of cash and they would be getting rid of this annual surplus in order to get the same matching funding the following year. Oh how times have changed.

It is now completely the opposite and the figures speak from themselves; For the whole month of October 2009 in the Republic of Ireland so far only 5 fairly straightforward Civil Engineering Public sector projects were advertised for tender in the open market. Take this combined with the approximate total of 8 in the whole of September; then you know where this topic is heading.

Lets consider then for arguments sake and with a knowledgable quantity surveyors hat on, that the value of these projects was / will be approximately, on average, somewhere in the region of €1mil per project - that's €13m worth of supply coming into the civil engineering sector market for a capacity / demand that was of the order of €5 to €6 billion per-annum. Getting back to Bono, "Kingdoms rise and Kingdoms fall"; surely we mustn't let the Kingdom collapse and disappear altogether?

One also has to note the many 'dud' or 'shelved' projects advertised during the year via the 'two stage' tendering process. This two stage process (adopted from EU public procurement legislation) involves the first batch of tendering candidates to be whittled down to a select bunch of say 8 to 12 contractors (in this climate the first bunch has known to be up to and over 40 candidates). This 1st stage is "assessed" on a marking / technical capability system and a pass/fail system which is supposed to be objective but for anyone who has read one of these actual pre-qualification criteria documents and questionnaire documents then they will see how subjective they actually are.

On some of these pre-qualification type tender projects even when the stage reaches past the whittled down process to the actual pricing of the contracts one has noted that many of these projects have disappeared into oblivion and documents have never left the design offices for this 2nd stage, the actual pricing stage. One presumes these were shelved for reasons on unavailability of funding. Has anyone in the Government Departments considered the wasted funding and resources spent by each contractor in preparing these questionnaires and going through the first stage?

Back in July I noted that their wasn't a sod to be turned in the Country and that we need a stimulus package in the next budget to get some form of Industry and work in the Country. Since then my research has led me to the CIC (Construction Industry Council) who have already lobbied the Government last march on this subject in an excellent report ---http://www.scs.ie/press_submissions/submissions_files/29-04-09-CIC-Submission-to-Government.pdf.

However, if the well is already dry and no funds are available then we need to look outside the Government for a boost. Maybe these guys will help? http://www.spiritofireland.org/mission.php

More about Spirit of Ireland in a later blog; as a young Bono has said "kingdoms fall, but you go on" - hopefully the people in the Spirit of Ireland will go on and the 'no brainer' obvious potential projects they have their sights set upon will be up and running soon which will help to stimulate the civil infrastructure sector and in turn create thousands of badly needed jobs rather than waiting on Government and Government Departments to get off their holes and come up with a viable plan to do something about the state we are now in.