UK Government tests protectionism in public procurement, social and enviromental considerations style.

The Government put out late last week a new Procurement Policy Note - Procuring Steel in major projects. The first two lines read as follows:

The Government is committed to implementing measures that will address any barriers that prevent UK suppliers of steel from competing effectively for public sector contracts
— p.1

Any doubts about the intended objective of the Policy Note?

I have nothing against reducing barriers in public procurement. But as becomes apparent once we start reading the policy note, the logic is simply to tilt the balance in favour of domestic suppliers. To do so, the Government is requiring that for contracts over £10M involving steel, some measures need to be followed by contracting authorities covered by the Policy Note. At least one of the measures has a clear protectionism intention and as such is discriminatory and illegal under EU law. Two others can potentially be interpreted in a similar fashion.

1. Effective market engagement

Trade bodies such as UK Steel can advise on engaging effectively with the domestic
— p.2

Again, market engagement when well done is perfectly legal, but the problem here is that the Government shows its hand and intention on i) singling out UK Steel as advisory body in pre-market engagement and ii) referring to the domestic market. As all* public procurement contracts over £5M are subject to Directive 2014/24/EU, this is immediately a discriminatory measure and one I have alerted for the last 18 months.

2. Life-cycle costing

Cost-effectiveness can include the assessment of the cost of transport, insurance, assembly and disposal as well as costs over the life-cycle of a product, service or works, including: costs of use, such as consumption of energy and other resources, and maintenance costs; and costs associated with environmental impacts, including the cost of emissions.
— p.3

At first instance there is nothing irregular or strange about this measure. However, some have already pointed out that transport costs can be taken into consideration and that these will benefit local producers. That is indeed true, however for life-cycle costing to be done correctly other externalities must be used as well. For example, steel making is incredibly energy intensive and the British grid is not exactly the greenest in Europe, so that criteria may help producers outside the UK. And if we see a "life cycle costing" formula which magically only includes transportation, then this is another indication of discrimination against foreign suppliers.

3. Social considerations:

Where relevant and proportionate, in-scope organisations should take full advantage of these new flexibilities when letting major contracts such as construction, or infrastructure. Environmental criteria could include the carbon footprint of construction materials. Social criteria could include taking into account the benefits of employment and supply chain activity, including the protection of the health and safety of staff involved in the production process, the social integration of disadvantaged workers or members of vulnerable groups among the staff performing the contract, such as the long-term unemployed, or training in the skills needed to perform the contract, such as the hiring of apprentices.
— p.3

At face value I do not have a lot against the proposed measure. There is, however, something important missing in it that is usually associated with social clauses: the place where they produce their effects. In other words, the Policy Note does not mention local or national benefits which is the usual bandwagon people jump in when talking about social considerations in public procurement. I am glad it did not mention local benefits but I am not sure contract authorities will note the omission and its importance.

A couple of years ago I decide to test the bias of procurement officers in what concerned social considerations. On a simulated competitive dialogue that lasted two days, one of the suppliers in the dialogue offered to put in employment the long term unemployed in Romania and creating apprenticeships there. One participant (head of procurement, no less) howled about the idea. That was precisely the point I was trying to make.

I have very strong reservations against social considerations, but for these clauses to work, we need to make sure they are not used for discrimination against foreign suppliers.

*Yes, I am not even paying attention to concessions or utilities to make my argument.

Sentences to ponder [Green Public Procurement]

On the tail of Albert's comment earlier today and Abby Semple's from a couple of weeks ago:

"Politicians expect green public procurement (GPP) to serve as an environmental policy instrument. However, in order for GPP to work as an effective policy instrument, it is important to take into consideration potential suppliers’ decisions to participate in the procurement process, the total number of bidders, and the screening of bidders with respect to mandatory green criteria. The aim of this paper is to empirically study GPP in this respect. The analysis presented here is based on data from Swedish cleaning service procurements that are unique in that they contain very detailed information on various environmental standards set by the contracting authorities. We find at best only a weak effect on supplier behavior, and this suggests that the use of GPP in this situation does not live up to its political expectations."

By Sofia Lundberg and her co-authors. Ungated version of paper here.

I suspect this is not the final say about the efficiency of green measures in public procurement, but as far as good empirical (ie, quantitative *and* data driven...) research goes, it is a start. More, please.

Hat tip to Robert Agren.