Cllr Daniel Moylan represents the Queen’s Gate Ward on Kensington and Chelsea Council and was until recently Deputy Chairman of Transport for London.
Public sector procurement is governed by European directives and, in Britain at least, is now a sacred cult tended by a caste of unchallengeable initiates. Anyone who has worked in proximity to local government or other large governmental bodies, has seen how this has added cost, inflexibility, and inefficiency to the operation of the public sector, while tending powerfully to exclude smaller enterprises from competing.
The intentions were good. There were parts of the EU where public procurement was riddled with corruption, as over-priced contracts were routinely awarded to bribe-payers or even family members by venal officials and politicians. A transparent and justiciable system could help deal with this.
But this sort of corruption was not, by and large, Britain’s problem. Nonetheless, we are subject to the same, now highly bureaucratic system – and it hurts.
The problem is not that it increases competition by allowing firms from all over the EU to compete: competition should be good for the taxpayer. The problem is in fact that it does the reverse, producing poor value, often by reducing competition.
How can that be? A walk through the process will help.
The first step is the set-up of the specification of the goods or service to be procured and the allocation to different elements (principally cost and technical features) of a numerical value that will be used for scoring bids. So, if you are buying a fleet of vehicles or commissioning engineering services, you might allocate 60 per cent to cost and 40 per cent to other factors. These allocations are arbitrary but, once set, are wholly inflexible and their interpretation will largely determine the outcome, even when examination of bids reveals better solutions that could deliver what is desired more effectively.
Because now the procurement lawyers step in – and henceforth every step is taken with a view to warding off the threat that a disappointed bidder might sue, although the number of instances when this has happened, let alone successfully, is tiny.
Notices are placed in the Official Journal of the European Union (this is mandatory) and interested parties are invited to complete a Pre-Qualification Questionnaire. This is already a powerful disincentive to smaller enterprises, because the costs of bidding rapidly mount up as a result of this lawyerly bureaucracy and many are deterred. But the system discriminates further against smaller bidders by usually including as a pre-qualification requirement, the financial standing of the bidder, something that favours larger firms. Little account is taken of the relevance of financial standing to the procurement in question. If the contract is for the long-term supply of goods and services, then it would be naturally disruptive if the successful bidder went bankrupt, but for one-off supplies it is less of a concern. Nonetheless, the priestly tenders of the cult are an over-cautious breed and the bar is normally set high in all cases, such as to exclude the smaller firm.
For large contracts the costs of bidding, once one is through to the next round (having passed the PQQ stage) can be several million pounds: even large firms can be deterred from bidding for too many contracts in those circumstances, further reducing competition.
The bids are then scrutinised and I think this stage is normally conducted very professionally, but it is important to note that it is an essentially mechanical process, scoring the bids against the numerical criteria set at the outset. Even if it becomes clear at this stage that a better solution has emerged from the process, the procurement lawyers are there to ensure that the contract is awarded to the highest-scoring bidder (though there might be a bit of wiggle-room among the top two or three, if scored close to each other).
I remember once at Kensington and Chelsea, when we were commissioning architects for a school, being threatened by our own lawyers that we were simply not allowed to pick a leading, world-renowned architectural practice because they had scored only eighth. When we asked why this was, it became clear that they fell down only by being a small practice, therefore of dubious financial standing. We pointed out that even a bankrupt architect can continue working but apparently we were trapped by the numerical weightings and so the contract went to one of the large multi-disciplinary firms.
In fact we were lucky to be allowed to know who the bidders were. For more standard contracts, where design flair is less impotent than it is in architecture, the lawyerly initiates do their best to keep politicians in ignorance of the bidders’ names until after the decision is taken; we are all familiar with those decision-papers in which all we know is that four bids have been received but not what firms lie behind the “John”, “Paul”, “George” and “Ringo” monikers they have been given to protect the process from political corruption (the lawyerly initiates being themselves of course incorruptible).
Now, of course, the European directive allows a degree of flexibility, but it is remarkable that it is other countries, not Britain, that tend to exploit these flexibilities, often in order to protect domestic bidders, while here in Britain we ensure the most value-destroying course is rigorously adhered to.
What do we learn from this ?
First that, however sound the intentions, one-size-fits-all does not work for 28 countries: the problems you are seeking to address are not common to all.
Second, that the process, like so much in the EU, favours bureaucratic and large corporate interests, since it makes the unaccountable bureaucrats king and benefits the large corporates by creating enormous barriers to entry for smaller firms that wish to compete. Third, that at least in Britain it is applied in a way that tends to destroy value for the public purse rather than increase it, though the actual loss, being counter-factual, is probably impossible to quantify. Given the size of the public sector, however, the costs are potentially huge.
Leaving the European Union would not free us from the need for procurement processes that make corruption difficult (and remember that we also have the sanction of the criminal law available to us when we discover corruption has occurred). But it would allow us to develop a system better adapted to our needs, one that encouraged bidders from all over the world, not merely from the EU, and was more capable of achieving good value for the taxpayer. This, after all, is the real problem we face in this country, rather than a tradition of awarding public contracts to our cousins.
Written by Daniel Moylan on conservativehome.com