Home advantage

6 November 2011 Playing by EU procurement rules hasn’t helped UK contractors at home. Can the government take a new approach with only a limited number of models at its disposal, asks Colin Leopold
The government’s decision to award the £1.4bn Thameslink rolling stock PPP to Siemens, leaving 1,400 Bombardier workers in Britain facing the sack, has placed a spotlight on foreign firms winning public contracts. 
At a time when unemployment figures are proving an embarrassment to the government, the Thameslink decision struck a chord with the government and the public as a whole. Business Secretary Vince Cable and former Transport Secretary Philip Hammond felt so moved by the decision that these two big beasts of their parties joined forces in writing a joint letter to the Prime Minister, bemoaning a failure to prioritise the country’s “strategic needs”. 
In the wake of the Thameslink decision, the Cabinet Office confirmed it will now look into the issue of procurement in the next phase of the government’s Growth Review. 
Private finance is constantly being criticised over its value for money. But ironically it was precisely because of EU procurement rules that Bombardier’s more expensive bid was rejected. 
A fixation on best price is understandable in the current climate – out of the nine officials who evaluated the Thameslink tender the majority were accountants, and Siemens is well known for its aggressive bidding style, particularly in foreign markets. 
But look to France, and public contracts rarely stray from the laps of three domestic names: Vinci, Bouygues or Eiffage. Spanish giants such as Ferrovial and ACS rule at home(and abroad) and the Dutch and Belgian markets often give a sense of favouring local contractors. 
UK names such as Carillion and Balfour Beatty may have built up strong reputations in markets such as Canada and North America, but it’s a different ball game when they’re on home turf. 
So are British firms getting a raw deal and if so what can the government do about it? 
“For the last 12 years we have played very strictly – too strictly [by EU rules],” says a source at one technical advisory firm. “We have total adherence to EU procurement rules. We don’t complain about it, we just get on with it.” 
According to lawyers, two options exist for the coalition: interpreting current law differently, or seeking to change existing legislation through official channels. Many in the industry believe the government will now do both – but it’s not an easy ask. 
“How can you discriminate in favour of UK firms? You can’t,” says Jennifer Skilbeck, lawyer at Monckton Chambers. “It can only be achieved with great subtlety.” 
An opportunity for this “subtlety” exists through the negotiated procedure, where critics argue a lack of transparency in the process can be exploited by the procuring authority. 
A suspicion of bias is very difficult to prove and the number of cases enforced by UK courts is low relative to other European markets. Those that do end up in court tend to be won by public bodies. 
Interestingly, in response to the European Commission’s green paper on the modernisation of EU public procurement policy in July, the Cabinet Office called for a more “generalised” use of negotiated procedure and greater guidance on how social and environmental issues can be taken into account. 
“With a new 30-day limitation period introduced by a recent amendment to the 2006 Regulations, effective from 1 October 2011 it will become increasingly easy for public bodies to take a calculated risk with compliance, and wait 30 days to see if there is a challenge before proceeding,” says Skilbeck. 
Public authorities could also seek to alter contracts, rather than just evaluation procedure. 
“[You can] reward environmental considerations such as haulage distances and social considerations such as employment of local labour, within reason,” says David Gollancz, lawyer at Keating Chambers. 
Although this doesn’t necessarily exclude foreign firms from bidding, it does bring issue such as local supply chain to the fore – the central economic issue behind Cable and Hammond’s letter. 
“A good example is when Building Schools for the Future (BSF) came along,” says one of the advisers to Bouygues when it was intent on breaking into the UK market in 2004. 
“Partnerships for Schools wanted international contractors but at the same time wanted to ensure the use of a local supply chain. BSF is more about long-term supply chain. Procure 21 [in health] was also about local supply chain so UK-based contractors had already adopted that style of working.” 
Political dilemma Employment levels may be a political hot potato at the moment but Craig McDougall, of technical consultancy Davis Langdon, argues that getting the lowest bid price will always be the more important economic issue. 
“The best bid should always win. It has to come down to price, whether it’s a Yorkshire, Brazilian or Spanish company. Everything we do is about competition at the moment. And after 20 years of doing PFI, we have the data to know the best price.”
The government is clearly not going to get the best price by limiting competition but it could argue there are external costs to focusing on the lowest bid: the economic and social costof 2,000 people getting made redundant in the West Midlands won’t be captured in a bid price, for example. 
But as the localism agenda pushes an increasing amount of schemes through local authorities, the government will struggle to steer any subtle approach to EU rules. 
“At a central government level the impact of procurement decisions on local economies and jobs can be taken into account. But how are you going to force local level procurers to take account of externalities that don’t accrue locally?” asks Mark Hellowell, academic at Edinburgh University. 
As well as this, the procurement environment is very different at local level to central government, so any new guidelines would be hard to implement. 
“There is more pressure on local bodies to favour local providers – you have much more immediacy,” says Gollancz. 
Countries such as Australia get over procurement hurdles like this with a toolkit of five or six methodologies. But following the demise of BSF and a lack of partnership frameworks focusing on non-price criteria, the government’s hands may be tied. 
“You are faced with a choice between doing some things which are essentially spin and look good but mean nothing and not getting into trouble or doing something effective and getting into trouble,” saysGollancz. 
In either event, Gollancz doesn’t see the government doing anything effective: “I think it’s about 89% spin.” 
If it does challenge the status quo, the risk of action by the European Commission on the basis of discriminating in favour of national firms is real, but small, says Skilbeck. 
But it’s a Catch-22 situation for ministers. If the government alters its procurement strategy it also faces losing the fair and open reputation it had in the first place. 
“It would be difficult to see where to draw the line,” says McDougall. “[Our fairness] is the one good thing we have going for us. It would go against the whole UK set-up.” The government has a decision to make but first it needs to clarify what it wants.

This page was last updated on:
7 February 2012.

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