News focus: Will Scotland be brave?

Gurjit Degun
8 September 2014

After a heated run up to the referendum with strong ‘yes’ and ‘no’ campaigns, Scottish citizens will on 18 September get the chance to vote for or against becoming independent. What will this mean for procurement professionals north of the border?

With uncertainties over which currency Scotland will use, border controls, and whether the country will be part of the EU, there are a lot of issues that could be problematic for supply chains. The Scottish National Party says that a ‘yes’ vote would deliver “even more procurement opportunities” for SMEs through government spending and contracts.

“While only 10.5 per cent of the value of UK government public contracts go to small to medium enterprises (SMEs), devolution has helped SMEs benefit from 46 per cent of public procurement spending in Scotland,” it says. “With independence this will be expanded to all parts of public sector spending” – a suggestion dismissed as ‘simply nonsense’ by the pro-union Better Together ‘no’ campaign.

But in terms of day-to-day purchasing activities, many procurement leaders believe there will be little impact as Scotland already operates in an independent manner in many respects. “With the passage of the Procurement Reform (Scotland) Act 2014 into statutory law, coupled with the implementation of various recommendations made in the October 2013 Review of Scottish Public Sector Procurement in Construction, we shall have a 
Scottish procurement law regime 
that effectively mirrors our current compliance with the EU directives, whatever the outcome,” says Anthony Newjem, CPO at Heriot-Watt University Group.

He adds the issue of EU membership after a vote for independence “is important as it will establish the over-arching regulatory regime we will operate in the future”. The Scottish government proposes to agree the terms of the country’s continued membership of the EU. But the UK government adds all 28 member states would need to agree the terms of Scotland’s membership “and Scotland could not expect to retain the same terms of membership as the UK”.

In the oil and gas sector, Graeme Urquhart, group procurement and supply chain manager at Dana Petroleum in Aberdeen, says the industry is used to dealing with many international companies, so trading with England as a separate country would not have a great impact. “There’s a lot of wider economic factors [such as EU membership and currency] that may have an impact on procurement as opposed to day-to-day how we manage it.

“Within oil and gas we are used to working internationally anyhow… so generally oil and gas companies are quite agnostic. We’ll deal with whichever regime or political system is put upon us because that’s what we do, we operate in many different countries around the world.” He adds energy prices are set internationally, and the companies always deal with different currencies so a change in currency should not have an impact.

But Natalie Henfrey, principal consultant at Crimson & Co says currency should be of concern. 
“If I were signing a contract now I would think creatively about how I protect myself against exchange rate fluctuations,” she says. “The best way would be to put break points which renegotiates the contract if 
Scotland becomes independent. 
But that doesn’t give businesses, especially small companies, much commercial certainty.”

John Milne, a procurement consultant at Hampco with extensive experience in the oil and gas sector, echoes Urquhart’s view. He says as many large decisions around oil and gas are made outside of the UK, because of the multi-national companies involved, procurement in Scotland will not see any immediate changes if the country votes for independence.

“There’s a big presence in Scotland from the oil and gas industry but if an incoming government needed to raise taxes then those companies would move out of Scotland and cancel their investment. I think that would scare an incoming government and they wouldn’t change any of the tax policies,” explains Milne, who is based in Aberdeen. “I don’t think other procurement professionals think there will be much change at all. Procurement people are a service function and followers, and will go with owners and financial directors.”

He did though voice concern about the potential departure of major financial companies, such as Standard Life and RBS, if Scotland became an independent country. “I think the big risk is not the little operational changes, it would be the big capital decisions made by the owners,” he says. “In financial services there would be a big departure – that’s just too scary to contemplate.”

One outcome for procurement if big businesses do move out is Scotland will become a smaller job market. Henfrey believes many professionals will be left looking for a new job if they do not want to follow the company to England. “I think there’s potentially a fairly unpleasant downrating of procurement skills in Scotland,” she says. “That will have a knock-on effect with salaries – if there are an excess of well-qualified procurement professionals that can only drive salaries down.”

Ruth Smith, national head of procurement law at Mills & Reeve, believes some procurement professionals have not considered the implications. She says small to medium sized companies around the border could face more red tape if Scotland gained independence.

“Procurement professionals in Newcastle or in southern Scotland are going to have to be a lot more careful around things like sub-threshold contracts,” she says. “Currently, because the UK is an island, cross-border interest is perhaps less common because we haven’t got another member state right next to our border.”

Mahomed Ladha, an interim corporate procurement officer at Elmbridge Borough Council, says there will be “border queues galore” and smaller companies near the border will have to take on more paperwork. “It will also be a nightmare for the smaller companies in England,” he adds. “The big boys will have their processes sorted out but the SMEs will struggle. Simply sending something across the border will not be the same.”

But Henfrey compares the situation with trade between Northern and the Republic of Ireland which “has not been an absolute disaster”. She adds: “We shouldn’t have this vision of barbed wire at the border of Scotland where no trade can pass. But there are some challenges that people need to think creatively about such as custom charges and additional lead times.”

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