Power of Procurement

The, often born-again, Eurosceptical rising generation around Ed Miliband: the Vice-Chairman of the Labour Party, Michael Dugher (born 1975), writes:

The Government recently confirmed that the German conglomerate, Siemens, has won the £1.6bn contract to build rolling stock for the Thameslink line.  This decision is a huge blow to Bombardier, the Derby-based train manufacturer, and a stark example of the Government’s approach to British industry.  Ministers have defended the appalling decision by citing EU procurement rules, but it is inconceivable that any other EU country, bound by the same rules, would have made the same decision.

This month also saw the first meeting of Labour’s new cross-departmental procurement group [which Dugher co-chairs with Chuka Umunna, born 1978], made up of a frontbench shadow minister from every shadow team.  The quality of procurement practise across the public sector varies markedly and part of the problem is that there is still a fragmented approach with Whitehall operating in silos.   The aim of the new group is to address this, as well as to develop new thinking to feed into our ongoing policy reviews.  One of the major issues we will be looking at is the need for more flexibility in relation to EU procurement rules.

The problems around EU procurement are complex and far from new.  Initially, EU Directives were designed to ensure transparency and non-discrimination, leading to outcomes which represent good value for money.  But there has been a growing sense amongst British businesses that when it comes to EU procurement rules, the current system simply doesn’t function fairly and that our continental neighbours (and competitors) manage to support their domestic industry in a way that simply doesn’t happen enough in the UK.  This has got to be bad for the British economy.

In 2004, Gordon Brown commissioned Alan Wood to look into this area and he produced a report which showed just how one-sided the procurement rules have been operated.  Many British business leaders quoted in the report spoke of an uneven playing field and how other European countries were able to fit the specifications of a contract to give a good chance to domestic suppliers.  This explains, for example, why all trains in Germany are built by Siemens.

In countries like Germany and (above all) France, contracts are often sliced up into parts so that each slice falls below the minimum required for compulsory international tendering.   There is also often an important specification that states that as well as considering price, the final choice has to represent “best value”, a concept which forces Ministers to take into consideration wider economic, environmental and strategic industrial factors.

The result is that the single market in procurement is often a bit of a chimera, with countries tending to support home industries and domestic taxpayers as much as they can.

The obvious question then is this: why have we not been acting in the same way in the UK?  In Britain, it seems, many of the problems have stemmed from what might be described as Whitehall's rather ambivalent attitude towards British industry.  For years, civil servants in Whitehall have too often used EU procurement rules as a basis - an excuse even - to make recommendations to Ministers that simply do not do the right thing by the UK.

As the procurement expert Professor Dermot Cahill said when giving evidence to the new shadow procurement group this month, purchasers often hide behind EU law as “the problem”.  He added that to start with only 20 per cent of public procurement tenders are large enough to fall under the EU rule requirements, and that even large contracts are more flexible than they are sometimes made out to be.

Unfortunately, Ministers in this Government appear either to share the indifference to British industry or are simply content to sign off advice without properly challenging their officials.  The Government’s handling of the Thameslink contract is an example of this attitude.  And another scandalous recent example was with the London Olympics – where out of the 2,717 cars procured to drive officials and athletes around during the event, only a 360 were manufactured in the UK.

So a complete shift in mind-set is needed in Whitehall.  Public procurement is an important driver for economic growth and employment and its creative use can help maximise the impact of public spending.  As Ed Balls has said recently, Labour could be set to inherit a very difficult financial situation in 2015, which will require us to govern in a different way with much less money around.  So how we use procurement to best effect and best value will become increasingly important.

Ed Miliband and Chuka Umunna have both already spoken about using the power of procurement to support British innovation and jobs, calling for large suppliers to offer apprenticeship opportunities on public contracts as a way of sharing the proceeds of growth. And over the last few years, the Labour Government in Wales has been successfully moving towards this wider approach.  For example, Dermot Cahill said that the introduction of “community benefit” criteria in Wales has meant that there is public value left behind when procurement contracts finish.

This approach is certainly not about being anti-open competition. It is about being smarter. It is about considering what is best for the UK, in a wider economic context, when deciding the criteria for major public procurement contracts and when spending British tax-payers money.

And despite perceived wisdom, none of this is incompatible with EU law. Of course, there are technical revisions to EU procurement rules that will help remove barriers for British businesses trying to access the European market - and this will be part of Labour’s determination to drive reform in the EU so it once again works in our national interest.  But crucially, we need to look at why we are not showing the same ingenuity and flexibility that other EU states currently do.

The irony is that by standing up more for our national interest, and refusing to be a slave to EU procurement nonsense, our approach might actually make us more European in that we would be acting in a way that is more like our European counterparts.  The consequence of this would be Britain left better off.