Governments across the world spend €10 trillion, more than 10 per cent of world income, on buying goods and services. This includes construction contracts for roads, schools and hospitals, purchase of computer systems, and of defence equipment like the recent helicopters for our Air Corps. Given the scale of money involved, it’s hardly surprising that many countries have experienced corruption in public purchasing, like Italy’s Tangentopoli scandal of the 1990s.
Research on public procurement in the 2022 American Economic Review found that, in countries with weak bureaucracies, tightly drafted laws on procurement are important to protect against corruption. However, in countries with efficient public services, they found that if the legal framework allows no discretion to decision makers the outcomes may also be unsatisfactory. For example, if there is no facility to disbar companies that have previously performed badly in public contracts, this underperformance may be perpetuated if those companies bid at the best price.
We are fortunate the Irish State ranks very highly on the integrity and transparency of its contracting practices. This was not always the case. When the awarding of local authority contracts was in the hands of local councillors in the early decades, friends of the dominant parties were seen to have an edge. In the early 1940s, responsibility for award of contracts was transferred from councillors to county managers.
At the central government level also it is officials, not politicians, who decide on public contracts. With few exceptions, public servants have performed this role with integrity, though the outcome doesn’t always produce efficient expenditure on major infrastructure. As fans of Room to Improve know, changing the specification for any construction project midstream is an expensive business. This has bedevilled the cost of public projects ranging from the National Children’s Hospital to the infamous Leinster House bike shed.
EU procurement rules require tenders over a certain value to be advertised throughout the EU and set out other principles such as fairness and transparency. Tenders for goods and services for central government worth more than €143,000, and construction contracts worth more than €5.538 million must be so advertised. Ireland has a national threshold of €50,000 above which there must be a full open tendering procedure, while contracts worth between €5,000 and under €50,000 may be awarded on the basis of three written quotes against a specification.
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Contracts are awarded on the basis of the most economically advantageous tender, which may not be the lowest price tendered – other criteria may relate to the quality of the proposals received or the qualifications of the bidders, for example. The criteria used, and the weightings for each, must be specified in advance.
In Ireland, contracts over the minimum threshold are advertised on the electronic e-tenders platform. Most public sector buyers use the standard Requests for Tender forms produced by the Office of Government Procurement. While this standard documentation ensures the process is in keeping with EU rules, even the simplest of goods and services may involve a 45-page standard purchase document that is sufficiently detailed to cover purchase of a power station from a consortium of businesses. Sole traders tendering for a piece of documentary research may be required to swear that they do not hire slave labour and have insurance for their employees against falls.
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The purpose of all these procurement rules is to ensure the State gets value for money through a genuinely competitive process and to prevent corruption. However, complicated tender procedures come at a cost to potential bidders – and may have the contrary effect of deterring smaller bodies from bidding. Preparing a bid that is likely to be in contention costs time and thus money – pro forma bids that ignore the specific asks are likely to fail. If it costs €10,000 to prepare a bid for a contract worth €50,000, the net value of a successful bid is just €40,000, and failed bids are simply a loss. The bigger the cost of tendering, the less likely firms are to compete for business, and the worse the value the State is likely to get from the process.
Too many bids can also be a headache for buyers, as evaluating dozens of bids to scrupulous standards of fairness also comes at a cost for State bodies.
It would be worthwhile for the Office of Government Procurement – or an independent body – to conduct research on the costs of tendering to both State bodies and potential bidders, to see how unnecessary costs could be minimised through simplified arrangements. That could leave more money available to provide the services the State needs.
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