Construction SMEs excluded from public sector contracts

Small and medium Irish businesses are excluded from securing public sector contracts by multiple barriers. Currently, SMEs account for 99% of businesses in Ireland but smaller companies deliver less than 33% of public sector projects.

A CIF report identified several barriers militating against SME participation in public sector contracts. These were identified as:

· a lack of access to finance and funding,

· the prohibitive costs of tendering with no recovery of costs

· lack of infrastructure such as broadband access in rural areas

· prohibitive conditions that effectively rule small companies out such as large turnover requirements

Disparity between construction levels in Dublin and the rest of the country are a major barrier for SMEs and their procurement of construction projects. In a recent CIF member survey 75% of respondents were not confident that essential projects Project 2040 will materialise in their regions, with 48% of Irish construction workers often travelling for jobs in Dublin, despite 76% being located outside our capital. The survey also showed that 56% of companies have seen a slow down of activity in their area over the past year.

According to The Construction Industry Federation (CIF), the majority of construction SMEs don’t compete for government tenders because they are essentially excluded from the process due to unnecessary stringent financial requirements such as a track record of exceptionally high turnover levels.

Justin Molloy, CIF Regional Director said:

“The current procurement system militates against SME involvement in public sector contracts. Very often regional SMEs have the relevant experience, track record and local relationship to deliver the optimum for contracting authorities. However, unrealistic and unnecessarily restrictive prequals and bundling rule them out of public sector projects to their detriment and that of the contracting authority.

Our government needs to urgently rethink its stance on procurement. SMEs are extremely important to the Irish economy, and to continue to exclude them from securing these contracts is catastrophic for regional economies. A level playing field is needed for all businesses wishing to participate in public tendering. When you look at the level of SME participation in public sector procurement, there is a lot more to do”.

Tom Parlon, CIF Director General said:

“SME businesses account for 99% of businesses, yet smaller companies deliver less than one third of public sector projects. The current value of the public sector contract market is somewhere in the region of €12 billion – and it is vital for the growth of many SMEs that they have an understanding of how best to tender for these vital contracts.

The key challenges that are facing construction SMEs are how to attract and retain skilled workers. We are a labour-intensive sector and highly competitive, and with a declining number of graduates in construction-related courses, this is leading to low profitability and low productivity. We are also seeing building inflation, with rising building costs and tender price inflation. There is also the potential impact of Brexit on construction material imports. Securing public sector contracts are a lifeline for construction SMEs and would put the industry on a sustainable footing. It’s vital for Project 2040 that there are adequate numbers of dynamic construction companies to deliver the infrastructure and housing required outside the Greater Dublin Area if we are to achieve ambitious growth strategies for regional cities and rural towns.

Many Irish SME business owners speak of an uneven playing field when it comes to competing for and securing lucrative public sector contracts. It is time that we gave a fair chance to our small and medium businesses, because continuing to exclude them from this process only serves to damage the economy.

It is time to do away with these ridiculous barriers that SMEs face. We are calling on the government to work with us as an industry and create workable solutions to the problem.”

The CIF has proposed several amendments to the public sector procurement process that can increase SME involvement. These solutions include:

· Streamlining the pre-qualification process with a view to ensuring SMEs can meet criteria

· Consistent evaluation of tenders across contracting authorities, monitored by the OGP

· Ensuring lowest price is not the sole or most significantly weighted evaluation criteria

· Ensuring award criteria are proportionate the scale of the project, particularly turnover requirements that exclude SME contractors who have the technical and financial capability to deliver

· Amendments to the Government’s contract that imposes all liability for unforeseen issues on contractors leading to an adversarial relationship

· Reducing retention levels, sometimes up to 10%, as they put an unmanageable cashflow burden on SME contractors

· The standard GCCC Form of Bond wording is too onerous, requiring a AAA Bondsman to provide the surety, again placing a disproportionate financial burden on SME contractors.

The CIF is continuing to engage with the Office of Government Procurement and the Department of Public Expenditure and Reform to bring about these amendments. These will allow SMEs to participate in public sector projects leading to better value for money for the exchequer and regional economies.

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