One of the specific policy commitments made by Ed Miliband in his conference speech yesterday related to public service procurement from the private sector. Suppliers will only be awarded contracts by a Labour government if they provide apprenticeships.
This is a progressive and welcome announcement.
For too long, the public sector has failed to recognise the power of public procurement to deliver wider social, economic and environmental objectives.
Public services have always contributed to public value in ways that are wider than the actual services themselves. Public procurement involves public money so there is no reason why the objectives that would be set for an ‘in-house’ service should not be demanded of contracted providers from public, business or third sectors.
As long as there is public procurement, it should contribute more widely than historically it has. With the right political will and technical procurement expertise, this should be possible.
Local authorities and other public bodies do not have to wait for Whitehall – and therefore potentially for a change of government at the next general election – to tell them or to grant them permission to align procurement strategies and practices with their wider policy goals. Today many but not all local authorities of all political persuasions seek to secure some of these policy goals through their buying power.
And be under no illusion and do not be misled by procurement zealots. It is eminently possible to adopt such an approach within the domestic and EU procurement rules. Apprenticeships and related opportunities for young and other unemployed people are very important but they are not the only social, economic and environmental gains that are being or could be secured through public procurement.
Already, a range of public bodies require their suppliers to pay the ‘living wage’. This has a dual benefit since payment of the living wage reduces the government subsidy for providers in the form of tax credits to their employees. Further, other procurers require providers to offer staff decent employer supported pension arrangements.
There are more goals that could and should be pursued when the public sector is letting contracts or buying goods funded by public expenditure. The potential issues that should be considered include:
- full compliance with the letter and spirit of Tupe; and no ‘two-tier workforces’
- employer supported and funded pension schemes for staff who have transferred under Tupe and those that have subsequently been recruited (the precise parameters of any pension scheme can also be specified)
- payment of the ‘living wage’ and further requirements in respect of staff terms and conditions; and remuneration parameters for the highest-paid employees and the relationship of their pay to the lowest paid
- trade union rights and the right of staff to belong to trade unions
- company tax policy requirements including commitment to avoid tax avoidance and to make tax payments in the UK
- commitment to honour the spirit of the Freedom of Information Act even though it does not yet apply to private and third sector providers
- environmental and climate change related behaviour standards and practices
- conditions on performance transparency including financial performance and profit margins
- governance standards
- supply chain management practices and, where third sector organisations are part of such supply chains, to go beyond the ‘Merlin’ standards which apply in the DWP’s Work Programme contracts; and requirements to support third sector sub-contractors through access to affordable capital and in other ways
Of course, this list of ten potential contractual requirements is not exhaustive or comprehensive. Individual public bodies will decide their objectives but one would hope that there could be some consensus on social goals. They will wish to consider the implications for new entrants and smaller providers from all sectors but must always make their decisions on the basis of a public value test.
The ‘Best Value Social Value Act’ places a duty on public bodies to take social value into account when awarding public contracts. The set of proposals described in this article accord with the spirit of the Act and provide some tangible, though not the only, means of testing social value.
Business ethics are being challenged. Much of the public sector will wish to demonstrate that it is contracting with ethical providers and, in turn, progressive providers will be keen to demonstrate their social and ethical credentials. Businesses will need to aim to show that they add just as much social value as the third sector.
There will be those who will argue that such an approach violates the use of competitive tendering and that such conditions may force prices higher than they might be without them. And some will argue that providers will move to other markets including international ones. However, values have to triumph and the case can be successfully argued on a cost benefit as well as an emotional basis.
The UK public services market is currently worth at least £75bn annually. This expenditure should not be exempt from contributing to wider public sector goals.
Miliband’s commitment that a Labour government would only award contracts to providers that offer apprenticeships is to be welcomed – but he and others could go much further. They, and all of us, just have to recognise the power of public procurement.
Written by John Tizard on PublicFinance.co.uk