Vote for change

7 November 2011

10 November 2011 | Adam Leach

While the mainstream press has fixated on the debt crisis, there has been an altogether different topic circulating European parliamentary halls: procurement’s ability to generate indigenous economic growth.

And the EU is not alone: as reported on page 12, South Africa is gearing up to introduce preferential public purchasing rules – and elsewhere, Canada has just awarded CAN$33 billion of shipbuilding contracts to two companies in the country – an intentional move to boost local production and 
create jobs.

In the UK, a storm blew up earlier this year when a contract to build train carriages went to German manufacturer Siemens, instead of Canadian company Bombardier, which owns and operate the last remaining train factory in the UK in Derby. The decision prompted uproar from the shadow cabinet. And now politicians across Europe are discussing how to reform regulations to factor in procurement’s wider economic 
role. If successful, EU states may soon be able to use procurement as a lever for economic, social and sustainable development.

Under the current system, deals are generally awarded on the grounds of best value – which often equates to the lowest realistic bid. Under suggested reforms, a bid’s value would have to be assessed against a wider range of factors. These criteria could include the employment opportunities a supplier would bring to the local area, as well as apprenticeships, and also consider environmental factors, such as local suppliers’ ability to travel shorter distances. SME access is also of key importance across the continent.

Speaking to SM, Alastair Merrill, director, commercial and procurement in the Scottish government, which this month called on the EU to account for the overall economic impact of awarding contracts, outlined why he believes the EU rules need to change. “Everybody agrees current EU legislation is out of date. It’s well overdue for review and it’s far more complicated than it needs to be.”

He believes the regulation surrounding deals should be more proportionate to the financial rewards. “At the moment, even if it is a £150,000 contract, it’s got to go through OJEU, so you can’t take 
into account local economic considerations. I don’t think 
that’s proportionate.

“If we can get an increase in the threshold and some ability to factor in economic and social considerations, we can use procurement in a much more intelligent fashion. It’s not to be protectionist, but to regenerate communities, develop skilled workforces and help businesses get 
to that critical mass and become 
world beaters.”

He’s keen to stress the point about it not being a protectionist policy. “Good procurement is about competition, competition drives performance and value. Whatever we get out of the reform of European legislation has to contribute to that [economic growth] and that is achieved through making businesses more competitive, not through giving contracts simply because they’re Scottish.”

Chris White, MP for Warwick and Leamington, who has had a private member’s bill proposing procurement reform before the UK Parliament since mid-2010, believes that purchasing can play a pivotal role in empowering the UK’s social enterprise sector. He told parliament the most effective way to reform is to change things at the pre-procurement stage.

Under White’s bill, which will receive its third reading in the House of Commons on 25 November, commissioners would be asked to consider how a deal might promote wider economic, social and environmental impacts and consider how it commissions such a contract accordingly. He said: “Say there are two bidders. One will simply renovate social housing so seeks to put in a very cheap bid. Another will do that as well as taking on long-term unemployed people and teaching them some of the skills of the construction sector as well as going out to local schools to provide hands-on training. Yet providing it costs less, the first bidder will often get the contract. This is completely narrow-minded.”

However, Christopher Bovis, a professor of European business law at the University of Hull, believes there is already scope for governments to target local suppliers.

He argues that through the ‘most economically advantageous tenders’ or ‘MEAT’ criteria already in place, governments and public bodies can take wider economic implications into account. Speaking at the Procurex conference in Scotland last month, Bovis argued Germany and France already take advantage of MEAT by utilising institutional public private partnerships. He said the UK, on the other hand, rarely considers 
the wider benefits. In July he wrote: “The UK public sector is fixated with costs and economic considerations in public procurement. This is a false economy and not best practice, as its delivery is procedurally correct, but substantively wrong.”

If proposed reform goes through, it could make it much easier for the UK to pick the more complex option – to consider wider benefits, not just cost – as standard. And if the MEAT criteria doesn’t offer the flexibility the UK and Scottish parliaments want, they could be about to get it. Last month, the European Parliament adopted a report on modernising procurement. This proposes that lowest price should not be allowed to be the determining factor in a contract award.

While reforms at the EU level still have a long way to go, the appetite from national governments suggests change is on the horizon and when it does arrive, procurement’s impact on achieving policy goals will be more closely examined. Where before it was tasked with bringing down cost, procurement would now officially have to balance expenditure against employment, environmental and social factors. Merrill describes this 
as a “sea change in how procurement is viewed”.

“One of the first things they [policy makers] think about in policy 
design and delivery is, ‘how do we 
go to market?’, and, ‘how do we 
ensure we procure in the most intelligent way possible?’. That’s
 a fantastic opportunity.”

Procurement’s growing priorities

Areas public sector procurement would 
have to consider if reforms go ahead

  1. Employment – The strength 
of a potential supplier’s bid could be measured against commitments to create jobs 
for the local community.

  2. Training and apprenticeships – Chris White MP would like 
to see reforms encourage companies to provide professional training to 
young people through apprenticeships and also teaching skills in schools.

  3. Environment – With sustainability becoming an increasingly important issue in procurement, there is pressure for the reforms to take account of this. Carbon emissions, transport miles and waste management plans would all come into play.

  4. Economic growth – A more flexible procurement process (especially if the EU threshold is raised) would increase procurement’s role in supporting economic growth strategies, for example strengthening the SME market.

  5. Policy – As procurement becomes more strategic, its importance in policy development is likely to increase. Outcomes will be scrutinised more closely.

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