Closet protectionism in UK Government's balanced scorecard for large projects?

The UK Government published recently a "balanced scorecard" for works, infrastructure and capital investment contracts valued above £10 million. Here's a snapshot from the press release:

The new scorecard system has been designed to help ensure that major government procurements have a positive impact on economic growth, as well as achieving best value for the taxpayer.

The guidance, developed by the Crown Commercial Service, introduces a balanced scorecard approach, which government departments should use in designing major works, infrastructure and capital investment procurements where the value is more than £10 million.

The scorecard helps procurers to consider the project requirements and needs, with criteria such as cost balanced against social, economic and environmental considerations.

By using this method, government departments can clearly set out how priority policy themes such as workforce skills development, small business engagement and sustainability may be integrated into their procurement activities.

Albert has already put the finger where it hurts: it appears to be designed as a protectionist tool or at the very least with protectionist consequences. I would add that this approach increases procurement complexity (and cost) for both contracting authorities and economic operators but as we are talking about large projects probably the expectation is that such cost will be diluted in the grand scheme of things.  

Having been on the record for the last few years saying social considerations can be easily manipulated for protectionist purposes, I cannot be surprised by yet another protectionist Trojan Horse having been found out in the wild. At this rate we might as well call it a day and just give up on the idea of a single market for public procurement.

As Brexit nears I expect a reduced influence of EU law and the CJEUs effectiveness as a deterrent in terms of compliance with key tenets of EU Law in the UK - and not only in procurement. This is just the clearest example so far.




Home bias in EU public procurement

The difference between intra EU trade and direct cross-border procurement levels has puzzled me for year. Whereas the first hovers at around 15% (speaking of memory here), the second is stuck at around 3.7%,* a figure 5 times smaller. Why? Should they not be at least in the same league? If business-to-business transactions account for such amount of intra EU trade, why are we not seeing something similar in procurement?

Over the years I heard a few explanations for the difference: language(s), legal framework(s), country size, geography or assorted "Acts of God". None was entirely convincing on its own and it took me to come across a paper from economics to find a more plausible umbrella explanation: good old fashioned home bias. Plus, apparently there is a whole body of literature in economics around this topic. Another example that it pays to read outside our discipline as a matter of good practice. Home bias is also known by another technical term: protectionism.

Home bias and EU procurement rules

Let's not forget why we have EU public procurement rules. They exist precisely to bring down barriers to trade between Member States when it comes to public purchasing. That's pretty much their raison d'etre, notwithstanding recent forays into other policy areas. To find out today that home bias is probably a major cause in the abysmal direct cross-border procurement values is like finding out we are all living inside the Matrix.

Over the last 40-50 years, most of the regulation has focused on transparency and in the procedurelisation of public procurement. Nothing wrong with that, other than it has not really worked insignificantly improving cross-border competition. By now we should have brought down those trade barriers which were identified back in the 60s and that are behind the home bias issue. In other words, we have lost the internal market forest for the procedural trees.

The paper I refer to above is by Zornitsa Kutlina-Dimitrova from the European Commission and Csilla Lakatos from the World Bank. The findings are based on a statistical analysis of contract information available in the TED database published between 2008 and 2012. This is a more complete and recent dataset than previous attempts. The whole paper is well worth a detailed reading, with some interesting points about public enterprises, local authorities (where cross-border procurement is even more dire) or the fact cross-border success rates go up with contract value and down when number of bids is increased. Plus the conclusions are spot on:

In terms of policy implications brought along by the findings in this paper, we
highlight the importance of product market regulations affecting the scope of public
enterprises, regulatory protection of incumbents and barriers to FDI as factors that
have a significant (negative) influence on the propensity of governments to award
public procurement contracts cross-border.

No surprises then why Member States are not in favour of reducing the public procurement thesholds and why we may see an actual increase in their nominal values in the next few years. Even bearing in mind that around 82% of procurement spend is currently below thresholds and by and large exempt from EU rules.

* Data from Kutlina-Dimitrova & Lakatos for 2012. Bear in mind that it is 3.7% of 18% - the value of public procurement spend included in contracts above thresholds - and not 3.7% of the total public procurement spend. The other 82% are even more likely to stay home.

Oh, food procurement and supply chains...

If you are based in the UK watch this BBC series about Gareth Wyn Jones, a Welsh farmer trying to understand modern food supply chains. Episodes 1 and 2 are engaging but it the third one is a killer in what comes down to food procurement.

Before I start, let me say this clearly: there is awesome food in Wales, from meat to cheese/dairy, going through potatoes and, yes, even whisky. If you are a foodie check out the restaurants in Abergavenny. In Carmarthenshire you will find a gem or two also. I could go on and on with tips and recommendations.

Local schools, global procurement

Gareth is concerned that school meals in Wales are, well, not what they should be in terms of quality. Plus, he is also concerned  why they are not stocked with "local produce". Food procurement is a perennial punchline for those calling for more "locally" driven procurement measures. In economic terms we would call this attitude "protectionism".

As for the food quality in school meals Gareth has a valid point, but prefers to point the finger to the usual strawman: those damn, damn procurement rules. Gareth, you heard it first here: it is not the rules, but what people do with them instead. If the food is crap, do not blame the rules but the buyer behaviour. The old saying is valid here: you pay peanuts, you get monkeys (food pun intended). Contracting authorities are under huge pressure to lower their budgets so they prioritise price over quality. Only that would justify "meals" like these. Again, not the rules fault as other countries applying the same rules have no problems in providing good meals to students.

When a contracting authority goes for price only usually quality suffers unless a clear indication of minimum quality standards is provided *and* the contract is properly managed. Again, two things well inside those pesky procurement rules. Furthermore, going for lowest price also tends to price out smaller suppliers which by default defines Welsh food suppliers. I suppose the Welsh Government could double the price so that smaller suppliers would be able to compete but in the end that would mean higher taxes. Would you like to pay higher income tax, Gareth? Or, in alternative, how would you feel if your excellent lamb was taxed at 25% VAT?

Buying local and disaggregating demand (ie, getting each school to procurer its own food separately) might lead to more being bought locally but would certainly lead to a higher cost overall once overheads costs were factored in. Someone inside the school would have to manage all those local suppliers (procurement planning, process and contract management, even if value was below EU thresholds), be up to date with legislation (procurement, but not only) and be prepared to have backup plans in case there was say a harvest failure. Gareth complained about the long supply chain used in the schools but for all its downsides it brings resilience and security of supplies (we cannot get potatoes for Ireland this year? Ok, here are these Dutch ones instead).

However, I suspect that the real grater for Gareth is actually that at least some of the food comes "across the Severn" (meaning, it is English or foreigner). In other words, damn EU single market rules that allow suppliers every free access to buyers in other Member States. I suspect however that Gareth has no objections in selling his excellent lamb in France though. In a previous show, however Gareth was surprised that Chinese buyers would pay top dollar for the excellent crab that can be fished (crabbed?) in Wales. I can attest that it goes down a treat in Portugal and Spain as well. Oh and my mother loves Welsh mussels.

Gareth complains about the amount of money being "lost" in the transaction. This is a common complaint with procurement in Wales that money is being "leaked" across the border to other areas of the United Kingdom and one I have heard often over the last five years. Bearing in mind that there is plenty of tax money originated elsewhere ending up in the Welsh Government budget or that Wales still receives plenty of EU funds (including Common Agricultural Policy monies which benefit farmers), it seems a little bit rich to just want the flow of money to go in one direction. We cannot have our cake and eat it.

Gareth talks about these issues an academic from the University of Cardiff, Dr. Roberta Sonnino, who also advocates for a short food supply chain for schools and rails against the "obsession with cost effectiveness". I wonder if Dr. Sonnino wants to pay higher taxes to compensate for the obsession with cost effectiveness". She has a point, however that the more a buyer squeezes a supplier on price the more tempting it is to flout the rules or lower the quality. But again, that is not an issue with the rules or the length of the supply chain as we saw with the horsemeat scandal which involved a Welsh abattoir. I would guess that Dr Sonnino, like myself, is a net beneficiary of that pesky, pesky EU principle called "freedom of movement". As before, let's be careful with what we wish for...

Although it is true that the Welsh Government refused an interview, it is a shame the BBC did not reach out to any procurement law expert, academic or otherwise.

Food and procurement rules

Yes, it is true that procurement rules and general EU principles forbid discrimination based on the origin of the goods or the suppliers and rightly so. These and other rules flow both ways. I am sure Gareth would be incensed if he was banned from exporting his lamb to say Ireland because they also raise cattle there.

But let's not hide political or budgetary decisions behind legal scapegoats (food pun intended).

PS: In one of the programmes Gareth washes praise on a particular local supplier for the supposed produce quality. The irony is that I have seen said supplier multiple times at a Aldi car park loading boxes of produce at 8am. Yes, loading boxes. I guess that counts as local sourcing.

PS2: I once had an amazing conversation with a cheese lady at a farmers market. She was complaining about the quality of cheese sold in supermarkets and rightly so. I agreed and said I loved pairing her excellent and expensive cheese with some nice wine sold in the shop around the corner. Foolishly, I suggested she should try it. "Oh no, that is a very expensive place! I buy all my wine from Tesco's half price offers!", was the answer. Well, there are some expensive wines in there for sure, but virtually all I buy are in the £5-10 price bracket which is essentially the same price range large supermarkets target.

Her cheese is absolutely divine though.

PS3: I will not even address the madness of strawberries grown in fossil fuel heated greenhouses (but hey low food miles!) or how unpopular wind and solar power energy projects are in the UK.

PS4: The list of countries which in modern times tried to go it alone on food supply is short for a reason. We all know what happened in China in the 1970s and what is happening in North Korea these days. And what about the effects of exporting the sales of specific cereals, like rice?