Big changes are afoot for the public sector procurement process after a whole new raft of legislation was approved by the European Parliament in January. The most recent of these directives, to be implemented by each Member State within the next two years, aims to bring social and environmental provisions out from the cold, giving them weight and importance by allowing them to be considered in the tendering process.
Eager to stand behind these new directives, the government is looking to fast track their implementation, with rumours that this may happen as soon as late summer 2014. But what exactly do these changes mean for public sector entities and those tendering on lucrative public contracts? How do the social and environmental benefits these directives look to promote stack up against the potential costs and risks that they may result in?
Social and Environmental provisions – an overview
The new procurement directive is set to make it legal for public sector bodies to consider social and environmental provisions when reviewing tendering parties and their offerings, though care must be taken to do so only in a material and proportional manner. Public sector procurements will be able to take the rights of workers and the sustainability of production processes into account when selecting a winning bid. Other aspects of the new EU directives are designed to level the playing field for SMEs by encouraging contracting authorities to break their contracts into smaller, more manageable chunks that SMEs can afford to take on. There are also plans, pushed through by the coalition, to cut red tape by requiring only the bid winner to submit the full array of paperwork necessary to secure a contract.
Controversially, under the new directive, public sector initiatives will also be able to exclude certain businesses and suppliers from the very beginning of the bidding process, based on previous bad performance.
While these directives may seem all very well on paper, what will they mean in practice for public sector initiatives and tendering companies in the UK?
How prominent should these factors be in the procurement consideration process?
As we all know, public sector tendering is complex and highly regulated, and even if a public sector entity wished to show favour to a bid based on its environmental or social benefits, this would not have been possible in the past. Such a change to allow for workers’ rights and conditions, along with the sustainability considerations made by businesses in the creation of their products within the tendering process should be commended, and this new directive underlines how seriously the European Parliament considers them to be.
However, there could be significant issues with the incorporation of such changes within an already complex public sector tendering process. The most important of these is the materiality and weighting that such factors are given within the tendering process.
The new directive states that social and environmental factors may be considered ‘as long as they are linked to the subject matter of the contract’. This may not necessarily be a simple matter to assess. If, for instance, you are buying bandages for a healthcare trust, it could certainly be argued that the working conditions and wages of those producing the bandages and the environmental and health and safety credentials of the factories they work in should be taken into consideration as they are directly linked to the subject matter of the contract.
But, how deep should this responsibility go in the supply chain? What about the working conditions of those in the fields in India or Bangladesh where the cotton is farmed before being shipped to factories in Europe? Also, if the same healthcare trust was looking to buy computer hardware, could the same considerations apply? While it could still be argued that those manufacturing the components for, and assembling these technologies should have as much right to a minimum wage and humane working conditions, it would be more difficult to suggest that PCs fall under the protection of the new directive.
With no defined rules yet on how sustainable goods or services need to be, or how well a bidder needs to treat their workers, guidelines could vary dramatically between different public bodies.
Essentially, care has to be taken to ensure that public sector bodies take a measured approach to the weight they give these factors and when they should be included in the evaluation process at all.
Potential issues arising from the new social and environmental provisions
Some of the primary issues that could arise from the implementation of this directive are as follows:
- The potential for increased costs
- Complexity and ambiguity in the procurement and evaluation process
- Opening the door to challenge
1. The potential for increased costs
The danger for public authorities if they place social and environmental considerations at the forefront of their decision-making process is the potential for increased costs which runs contrary to their responsibility to do their best to ensure value for money for the public purse.
Businesses entering the tendering process could be required to invest more in their goods and services to bring their environmental and social credentials up to scratch, but with no set standards, these expectations could vary hugely from public body to public body, so how can a business know what ‘good enough’ looks like?
2. Complexity and ambiguity in the procurement evaluation process
With no set boundaries, the tendering process is sadly set to get even more complicated and competitive under this new directive as businesses try to out-compete one another ethically while struggling to keep prices low.
The problem, largely, is due to the fact that there is no guidance on how to apportion consideration to these social and environmental factors. While important, in practical terms they are not as key as price, quality and delivery. Arguably, a lack of clarity in the new directive leaves the door open for public sector bodies to inadvertently go to the extremes of either crusading too much for, or ignoring these factors.
This lack of boundaries could also leave the tendering process open to subjectivity, with each public authority able to impose its own unique set of guidelines on tenderers.
3. Opening the door to challenge
With unclear rules and parameters, public sector entities may be at an increased risk of exposing themselves to legal challenges from losing bidders and substantial legal costs are the last thing an increasingly underfunded public sector needs.
The EU’s new rules on exclusion could leave public entities in danger of accusations of subjectivity. There’s even a potential risk that professional grudges and business rivalries could come into play, leaving public entities once again exposed to legal challenges that could cost a significant amount of time and money to resolve.
Careful implementation is required
It is crucial then, that public sector entities are fully aware of all the potential risks before applying these new EU Procurement Directives to their tendering process. To minimise any legal repercussions it is vital that policies are clearly defined and understood from the outset and are communicated in a completely transparent way with potential bidders.
A proportionate and considered approach is needed to determine which contracts may be suited to the inclusion of the relatively small, but potentially transformative 5% or so of the overall scoring that could be apportioned to social and environmental factors. Alongside this, a robust monitoring and management framework needs to be created to ensure that bids are considered within agreed parameters.
Given the potential problems inherent in the employment of this new directive in its current form, we hope that the government will provide clear guidelines for their application before they are implemented here in the UK.
And though social and environmental factors are undoubtedly important, we must not lose sight of the duty of local governments to ensure that they achieve the best possible results while at the same time safeguarding value for money when it comes to the public purse. Social and environmental responsibilities are worthy considerations so long as they are reviewed objectively against the many other factors involved in the procurement process.