Here's an article (in Spanish) that caught my eye this morning. A couple of interesting tidbits:
"The Spanish cleaning companies Association and the Unions trust that the new Public Contracts Law covers labour costs and to guarantee the social rights of workers in all tenders from the various contracting authorities."
Here's what is meant by it, in the words of the Association president:
"...to include in the award criteria various elements related to the service quality, such as the working conditions offered by the companies..."
I find this article interesting for a couple of reasons. First, it is very uncommon to see both business and unions agreeing on labour costs. Second, it is possible to explain it by looking at the incentives and how they are both aligned in this instance. Let's start with the companies.
Cleaning services are incredible price sensitive and (as it is claimed) 90% of the cost incurred with each contract is simply labour costs. Companies hate competition and honestly price is the most liquid of comparators wether we like it or not. Since those contracts tend to be awarded based on price, if the costs is essentially fixed (the minimum wage) then they are effectively competing in the narrow sliver of their margin (those 10%) and that is where it hurts. No wonder they want to either take price out of the equation or dilute with "service quality" criteria. More about this in a second.
As for the unions, they simply want a better deal for their members and there is nothing wrong with that, so they also want prices to rise assuming they translate into higher wages (they won't) or at least better working conditions for cleaning staff.
So, both parties interests are aligned in reducing price importance in the equation. In other words, both want the contracts to get more expensive. One side wants better margins, the other either more pay or better working conditions.
About the "service quality" then. The second citation above is a direct citation. The example of service quality provided by the President of the cleaning companies association has nothing to do with service quality (well, at least not directly) but with working conditions instead. To conflate the two is disingenuous to say the least. Working conditions are a problem for companies like cleaning services companies due to attrition and costs of training/recruiting new staff.
It is not surprising for me that he did not pick up other award criteria for quality. No mention of efficiency (although price is a proxy for it), availability/turn around of staff in case of spike in cleaning needs, technology to manage the contract/communications, etc. It may well be, however, that he did mention them but the reporter chose that tidbit instead.
In any case this is a roundabout way of solving the fundamental problem: wages are probably too low. It will lead to worse outcomes than solving the fundamental problem. And even then, let's be honest and assume that solving that problem implies higher taxes. There are no free lunches in public procurement.
1. UK East Coast rail franchise expected to be scrapped 'in days'. For the third time in 10 years one should add...
2. Carillion used its suppliers to "prop up falling business model". 120 payment days are not really new or unexpected in the field of public procurement (and others - just check Amazon's payment terms and how it survives on free cashflow...)
Thought provoking piece on The Guardian from an Oxfam manager about social audits as means to drive change in supply chains:
"The ethical audit industry is estimated to be worth $80 million dollars a year. The World Bank recently calculated that parallel, or duplicate, audits in the Vietnamese garment industry had added $50 to the cost of each worker per year. In terms of "lean manufacturing", audits could be seen as a form of waste, adding cost but not real value."
Funny how social/ethical audits do not seem to work for NGOs but somehow they will be great in procurement as I have seen mentioned time and time again at conferences?
As I argued in my paper about the growth of external compliance in procurement (of which sustainable procurement is a key example), it is important to follow the money and the interests behind such proposals. I am yet to see their proponents having an honest debate about the costs and downsides of their proposals.
1. The fiscal costs of PPPs are higher than anticipated. Told you so...
2. Aragon Regional Government trials blockchain in public procurement (Spanish only). A small step for man... Sweden gets it feet wet with the land registry as well.
3. UK Government spending more with AWS. Unsurprising, expect to see more concentration in the cloud space as time goes on and requirements rise too.
4. MPs slam Nuclear Decommissioning Authority (NDA) procurement. But somehow, we need more flexibility and negotiations to make procurement work...
5. Manchester’s ‘social value’ procurement boosts local economy. I would love to see the assessment of the "20% social value weighting" and how it complies with the requirements of award criteria being linked to the subject-matter of the contract.
2. Brexit Implications for UK Public Procurement one day workshop at the Leicester Business Festival. Not free, but organised by my good friend Richard Craven.
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:
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.
1. Company Owned by Former Kotayk Governor Wins 34 Million AMD in "Non-Bid" State Contracts. Oh the joys of lack of transparency and competition.
3. Public Procurement Trade-Offs Should Be Acknowledged and Addressed, Not Ignored. Agreed and I have been saying the same for years. Anyone wants to talk about social considerations in procurement?
5. Only a quarter of councils have social value commissioning policy. See 3 above. The Social Value Act is working as intended - social clauses have to be considered, not used. The fact they are not being used more indicates they imply tradeoffs proponents are not willing to address or acknowledge. If there were no tradeoffs they would simply be used a lot more.
I have given a quick look to both the new Public Contracts (Scotland) Regulations 2015 and the accompanying Policy Note from the Scottish Government. At first sight, the differences between the Scottish Regs and the Public Contracts Regulations 2015 are smaller than I originally anticipated them to be. Having said that:
1. No contracts can be reserved for third sector organisations in Scotland
This is probably one of the most surprising distinctions between the two sets of Regulations. I did not expect Scotland to zig where England and Wales zagged with the transposition of Article 74ss.
I do agree with this decision as the set aside regime of Article 74 is a slippery slope but the arguments provided by the Scottish Government that "this can seldom occur in real life" do not appear to be the strongest. In fact, I am of the opinion that they are dangerous precisely because there is the risk that it will be quite easy to make common and tilt the playing field in favour of specific suppliers.
I addressed this briefly on a paper that is coming on the next number of the EPPPL. You can find an ungated copy of that paper here.
2. No full ESPD system until October 2018
Although the Scottish Government claims in the Policy Note that some of the changes introduced by the new Regulations will make life easier for SMEs, it is a shame that it was not consistent in its drive to reduce transaction costs for economic operators. As such, it is delaying the mandatory use of ESPD and the restriction on contracting authorities requesting information from economic operators until late 2018.
3. Living wage may be required from economic operators
Granted, this requirement is not set in the Public Contracts (Scotland) Regulations 2015I, but is spelt out as statutory guidance. I think this will be an interesting battleground for social policies in the coming years and Scotland is charging head on
4. There will be a "sustainable procurement duty"
I am not even entirely sure of what this will entail, but it is apparently connected with Community Benefits policy which will become mandatory from June 1st onwards. However, there is no mention to either concept on the new Public Contracts (Scotland) Regulation 2015 so I suspect (and need to confirm) that the Policy Note is referring to an obligation included in the Procurement Reform (Scotland) Act 2014 which will now come into force.
5. Last but not least...Why not merging the Procurement Reform (Scotland) Act 2014 into the new Public Contracts (Scotland) Regulation 2015?
I am quite puzzled that the Scottish Government would pass on the opportunity to have all the public procurement legal framework in a single act, as was done for England and Wales ("statutory guidances" notwithstanding). It makes sense from a systematic perspective to have all regulation in the same place, instead of passing on the cost of compliance with scattered legislation to the market and the contracting authorities.
I could understand the separation in case they covered different contracts - but they do not. As far as I can tell and according to Regulation 3 of the Procurement Reform (Scotland) Act 2014, all contracts above £50,000 (goods and services) and £2,000,000 (works) are covered. Therefore, the Scottish legal regime applicable to contracts covered by Directive 2014/24/EU is to be found on the two sets of Regulations.
As for the compatibility of certain provisions of the Procurement Reform (Scotland) Act 2014 (yes, community benefits, I am looking at you) with EU law, that remains to be seen. I find it puzzling (or not) that neither community benefits nor the living wage requirements are mentioned at all in the new Public Contracts (Scotland) Regulations 2015...
1. Why don't Open Government Commitments get implemented? Some good points in there and relevant for public contract disclosure.
2. Pushing for open government in Africa. Open government is not a end all solution for corruption but raising the likelihood of corruption discovery certainly helps.
3. Open Data Portals are only the beginning, not the end. Good post from someone on the inside arguing the need to move forward, instead of keeping stuck on a 2008 mental framework.
4. New Horizon 2020 tender to help small companies access markets. The irony the Commission is using the SME-unfriendly competitive dialogue for this does not evade me...
5. Parla local council will include social clauses on its public contracts (Spanish only). Well, good luck with that.
The Government put out late last week a new Procurement Policy Note - Procuring Steel in major projects. The first two lines read as follows:
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
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
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:
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.
I mentioned yesterday a plan by the UK Government for introducing social considerations under the guise of supporting apprenticeships through mandatory apprenticeship programmes in some larger contracts.
The actual policy note is out (Action Note 14/15 27 August 2015) and applies to all contracts over £10M lasting for longer than 12 months and tendered by Central Government departments irrespective of their object. I was under the impression the policy would cover only works contracts, but that is not the case.
My view on social considerations is probably well known by regular readers: I am not a huge fan and remain sceptical particularly due to the lack of interest by their promoters to discuss the downsides - never a good sign.
Having said that, as far as social considerations go, this policy is reasonably sensible. It only covers large(ish) contracts and needs to be tied to the contract’s subject matter. In my view, this constitutes an improvement over similar policies which are bolted on as contract performance clauses, since at least they will have to be assessed and subject to analysis before award. Looking at the policy note the care and attention in ensuring a link to the contract’s subject matter is obvious (paragraphs 9 and 10).
The structure adopted by Central Government appears to constitute a secondary object attached to the main contract. Something akin to a mixed contract (without really being a mixed contract). Maybe a mixed contract approach would have been preferable.
Implementing this policy implies for contracting authorities even more work before the tender launch as they are now expected to “consult the market” to know what apprenticeship levels are reasonable on that type of contracts. As if most authorities did so most of the time for the mail contract object anyway...
At the end of the day however, we are still talking about more complexity and someone will end pay up for the extra apprenticeship services being delivered. There are no free lunches.
1. Wales will have its own regulatory powers in public procurement. I do not know how this will pan out since the Public Contracts Regulations 2015 cover Welsh contracting authorities for the most part. Maybe their powers will be restricted to regulate the areas that are not already regulated by the PCR2015, ie contracts below-thresholds whose provisions do not apply to devolved contracting authorities. Either way I would expect the Welsh Government to push some of their policies, particularly SQuiD and community benefits.
2. Central Government wants to mandate apprenticeships in large construction contracts. Now that was quick. There was a rumour flying around for the last few years that Francis Maude was really not keen on social clauses in procurement. My opinion on this is clear: no one knows the costs involved by introducing social clauses (which raise complexity and imply transaction and opportunity costs). the impact on SMEs and that these are the gateway drug to offsets as they exist in defense. There are no free lunches, but at least the Central Government will apparently limit this obligation to contracts above £10M. For now.
3. What would a 'Brexit' mean for public procurement in the UK? Not much in the short run, particularly if the UK decided to join the GPA. A useful scapegoat would be lost however (oh those damn, pesky Directives, source of all evil..).
5. Data in Whitehall: which UK departments are the least and most open? It is so much easier to get on the high horse of claiming transparency than actually delivering it.
6. Edinburgh drops BT for CGI, claims to save £45M over 15 years. If it is true, another sign it pays to go to the market regularly for large projects.
1. Kahneman is relevant for public procurement. I agree with Peter Smith and we are just scratching the surface in what concerns bias/heuristics in public procurement.
2. Majority of OECD countries support social objectives with public procurement but fewer measure outcomes. Every time I ask supporters of social objectives to show me the numbers and underlying data proving whatever benefit is claimed, all I hear back is silence. Not to talk about what downsides have been found or trade offs done.
3. Zambia adopts e-procurement system to curb corruption. It is a step but a lot more will be needed to effectively curb corruption in public procurement.
5. The e-invoicing Directive could (can?) be much better. I agree with most of the comments.
Regulation 77 allows contracting authorities to reserve [certain] contracts for [certain types] of organisations. In other words, it is legally possible to foreclose the some markets to suppliers of a specific nature, referred to in the Regulation as "qualifying organisations".
This is an enormous Rubicon being crossed in what concerns equal treatment a non-discrimination and a first for the Public Sector Directive. It is true that Directive 2004/18/EC already had a provision in Article 19 for sheltered workshops, but this is a completely new playground for discrimination. Like Han Solo would say "I have a bad feeling about this" and so does Albert.
The Regulation operates based on a positive list of contracts where discrimination - sorry, reservation - is admitted. These contracts have to exclusively target one or more of those services. To save you the headache, I have converted the CPV codes on the regulation to the corresponding names so that we can have idea of the kinds of services that can be reserved:
Administrative Educational Services
Administrative Healthcare Services
Administrative Housing Services
Supply Services of Domestic Help Personnel
Supply Services of Nursing Personnel
Supply Services of Medical Personnel
Pre-School Education Services
Higher Education Services
Adult-education Services at University Level
Staff Training Services
From Health and Social Work Services (85000000-9) to Community Health Services (85323000-9)...[that's one long list of medical services contracts...]
Library, Archives, Museums and Other Cultural Services
Services Furnished by Social Membership Organisations
Services Provided by Youth Associations.
The list is quite long but one must not forget that the NHS procured health care services are not subject to reservation (paragraph 6). From the way paragraph 2 is drafted it appears that mixed contracts are not admitted (thankfully!) unless all the different services are covered in the list.
What is a "qualifying organisation"?
For the purposes of this regulation a qualifying organisation needs to comply with a cumulative list of requirements. First, it needs to pursuit a public service mission linked with any of the contracts mentioned above. It does not appear though that they are precluded from bidding for other reserved contracts.
Second, their profits need to be reinvested in that social objective and "any distribution of profits is based on participatory considerations" (emphasis mine). What are participatory considerations?! I have no idea. I also do not understand why it appears that profit-based models are authorised as long as they comply with the "participatory considerations" requirement. Call me a cynic but this smells of socialwash, or at least leaves the door wide open for it.
Third, the management and ownership structures need to be "based on employee ownership or participatory principles" (emphasis mine) or, in alternative "require the active participation of employees, users or stakeholders". Am I the only one at loss for words here? Maybe this makes sense in Germany where employees of companies tend to have a say in management, which would explain why I was puzzled profit motives were not banned outright.
I can totally see an exam-type question like "Can John Lewis bid for a contract covered by Regulation 77?" about this.
The fourth and final requirement is that the organisation has not won a contract under Regulation 77 for the same services and by the same contracting authority in the last 3 years. Therefore they can win contracts with other CPV codes awarded by the same contracting authority or win contracts with the same code but awarded by other contracting authorities.
What will happen?
The market will adapt to the incentives. If plenty of contracts are reserved I can see a booming trade on front organisations which comply with the requirements but that are in reality controlled by for profit entities.
Furthermore, I will go out on a limb here and predict a reduction in efficiency in the contracts subject to the reservation clauses, on average. On average, contracts will be more expensive or quality will suffer. Looking into this makes for fascinating research and I will be adding the idea to my ever growing binder of research ideas.
PS: I am somewhat surprised lawyers were unable to include Legal Services into the list as they appear to have had no problems in lobbying to keep legal services within the generic scope of this Part 7. Oh wait...
PS2: For the promoters of this new regime on the run to the publication of the Directive: do not even think about complaining about the complexity that this brings and that the rules end up being bent in practice and not achieving the original objectives. The road to hell is paved with good intentions after all.
Regulation 70 allows contracting authorities to establish specific conditions for the performance of contracts. This is a short regulation with two simple paragraphs but full of implications for public procurement. You can find Albert's entry here. Unsurprisingly, he is much a fan of these clauses as I am...
The general rule is that said contract performance clauses need to be connected to the subject matter of the contract and indicated in the procurement documents. Furthermore, said contract performance clauses may have economic, innovation, employment, social or environmental nature. An example of a perfectly reasonable contract performance clauses: i) obtaining a recycling rate over x% of materials disposed during building works; ii) powering a festival only with renewable energy; iii) releasing in open source whatever intellectual property was developed in the contract development.
Although the subject-matter link is still present, I suspect the next few years will be fundamental in establishing exactly what constitutes a contract performance clause that is linked to the subject matter (hint, hint CJEU...). These clauses have been used in parts of the UK (mostly Scotland and Wales as far as I know) under the guise of Community Benefits clauses. An example of a community benefit clause is the need for the contractor to take on apprenticeships on a construction contract. Is this performance clause linked to the subject matter of the contract? I will go out in a limb and say no. This is a mixed contract composed of works and services parts. The apprenticeship part is a separate part (contract) and one that should be analysed separately with its own set of award criteria. Otherwise the contracting authority may be taken for a ride as it is not assessing how good the contractor is in delivering that part of the contract. Furthermore, companies that specialise in training are out in the cold: they cannot bid for the contract and there is no incentive for a construction company to get them in a consortia as that costs money and the training element is not being measured at the award stage. Finally: some apprenticeships have to last for longer than the main contract duration, ie electrical services: would they still pass the subject-matter link test? Again I do not think so.
I see another big, big problem with this idea of contract performance obligations: the fact that they are to be disclosed at the start of the procedure albeit not being part of the award criteria. Why is this a problem? Because suppliers will have an incentive of coming with ever more outrageous ways of complying with those contract performance clauses in an attempt to influence the contracting authority during the award stage. "But, but that would be illegal!" Of course it would, but as any trial lawyer knows even mentioning an illegal piece of evidence has an influence in the decision-makers, irrespective of all rational attempts to purge said piece of evidence from the actual decision-making process. But that's me being a cynic.
Another issue for me is where the boundary lies once more for requirements such as paying a living wage instead of the minimum wage. I suspect that imposing as a contract performance condition the UK's living wage as a minimum would be illegal by contravening the Posted Workers Directive, however I do not see a problem if the contracting authority stated that it wants workers to be paid say at least 10% more than the applicable minimum wage, wherever the workers are coming from. Albert?
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.
1. Apparently I want to overthrow the current procurement framework. Well, sort of. (Will post heretic text here later today or tomorrow)
2. There is (was?) an enterprising trade in fake social security declarations/certificates in Portugal. (Portuguese only) A few thousand euros was all it took to get a phoney certificate.
4. Some thoughts about below-threshold procurement. I will have plenty to talk about once we get to Part 3 in the ongoing procurement tennis match with Albert.
6. Apprenticeships are just the start for social considerations in procurement. I am firmly on the suspicious column and concerned with the end game on this.
7. See you all in Cardiff next week. Although I am told that Thursday and Friday are sold out, it is looking to be one of the best public procurement conferences of the year.