Public Contracts Regulations - Regulation 20

Regulation 20 - Reserved Contracts

Regulation 20 transposes Article 20 from Directive 2014/24/EU on reserved  contracts for sheltered workshops and economic operators aiming to integrate disadvantaged or disabled workers. The transposition is fairly straightforward fashion and once more, almost word for word with a minor difference. The very minor difference both provisions is on paragraph 2, where the Regulation states the need of the contract notice to make reference to "Article 20 of the Public Sector Directive", whereas the Directive states reference should be made "to this Article".

If from a transposition perspective there is not a lot to say, the same cannot be said about the the substance of the underlying provision. The logic of Regulation 20/Article 20 is to restrict competition i) sheltered workshops or ii) to economic operators whose aim is to integrate disabled or disadvantaged persons in professional life. I am not aware of wide take up of this exception by contracting authorities (although the scope has widened in comparison with Directive 2004/18/EC) and personally I do not see it as a negative thing as this constitutes a big exception to the principle of competition (incidentally without any competition cautions or safeguards of any kind). Exceptions to the principle of competition for pursuance of other goals are laudable but introduce opportunity costs and inefficiency into the system: the only reason this provision exists is to allow less competitive suppliers to have a chance of winning public contracts. If they were competitive by themselves on an open market, there would be no need for this exception. People can argue about the positives for the wider good and society at large. That is true, but we need to be honest about the conversation and put the downsides on the table as well. And the downsides are either a worse service, a higher cost or both in comparison with a more competitive tender. For proponents of measures such as this one, this looks like a free lunch. Well, I am with Milton Friedman on this one: there is no such thing as a free lunch, so let's talk about the downsides. For me the downsides are higher complexity, lower quality or higher price, and in consequence probably higher taxes (or a higher deficit).

Furthermore, affirmative action measures in public procurement have a mixed record at best as they skew the incentives of participants. Look at what happened in the US (with plenty contracts set aside for veterans, minorities, etc), Brazil and Mexico (buying local provisions, SME protection) or South Africa (protection for black owned companies). Unfortunately Steven Schooner cannot join us for Procurement Week next week in Cardiff, but Geo Quinot from South Africa will be there and he has plenty to say about affirmative actions in his country.

It is interesting to note that Regulation 2 includes a long list of definitions but none for "sheltered workshop" or "disabled or disadvantaged persons". However, if one searches the consultation document produced last year by the Cabinet Office (p.13), we can see that guidance will be produced to explain these concepts. Why? If a definition of sorts will be provided, why not just include it in the Regulations? Why forcing people to find yet another guidance document (which constitutes soft and not hard law...) when the answer could and should be provided here? In my view, defining these concepts is part of the transposition obligations of a Member State for Directive 2014/24/EU. Therefore, unless the guidance constitutes a transposition of sorts (which I do not think it does due to its soft law nature), my take is that the UK will be in breach of EU law once the deadline for transposition expires as this provision is effectively being denied any useful meaning or application.

The Regulations are now in force, but the guidance is nowhere to be seen. So effectively, contracting authorities are on their own for the time being at least. Once more, a few more months would have been welcome to help sorting these problems.

PS(1): I did a cursory check on ContractsFinder and could not find a single contract containing the reference to Article 20. Let me know in the comments if you are aware of any.

PS(2): Yes, I jumped from Regulation 18 to 20 to be back on track. Regulation 19 will come tomorrow and normal service resumes on Monday.