Public Procurement Policy

Gustavo Piga, Tunde Tatrai, Gustavo Piga, Tunde Tatrai

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317414889
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Appropriate laws and regulations are an essential tool to direct the action of procurers toward the public good and avoid corruption and misallocation of resources. Common laws and regulations across regions, nations and continents potentially allow for the further opening of markets and ventures to newcomers and new ideas to satisfy public demand. This book collects original contributions, from both economists and lawyers, related to the new European Union Directives just approved in 2014 by the EU Parliament.

Uniquely, this book combines juridical and technical expertise so as to find a common terrain and language to debate the specific issues that a Public Administration in need of advancing and modernizing has to face. This format features, for each section, an introductory exchange between two experts of different disciplines, made of a series of sequential interactions between an economist and a lawyer that write and follow-up on one another. This is to enrich the liveliness of the debate and improve the mutual understanding between the two professions.

There are four sections characterized in this book: supporting social considerations via public procurement; green public procurement; innovation through innovative partnerships; and Lots - the Economic and Legal Challenges of Centralized Procurement.

This book will be of interest to policy-makers, practitioners working in the field of EU public procurement as well as academics.

Part I

Supporting social
considerations via public
procurement

1 Colloquium

Martin Trybus
Gustavo Piga and Tünde Tátrai

1 Martin Trybus – Supporting social considerations through public procurement: a legal perspective

1.1 Introduction

The primary objective of public procurement is to provide the contracting authority and entity with the supplies, services, or works it needs to operate – unless it wishes to provide them itself, in-house. Connected to this function are the objectives of value for money, competition transparency, and the opening of procurement markets (non-discrimination). Public procurement laws need to serve these primary objectives and should also be simple and user-friendly for the contracting officers or committees. However, governments and legislators have always been aiming to promote other objectives such as social, environmental, and industrial policy objectives through public procurement. These are called “secondary”, “horizontal” (Arrowsmith and Kunzlik, 2009), “strategic” (EU Commission, 2010), or “sustainable” objectives, or just “green and social procurement” (Caranta and Trybus, 2010). Secondary objectives can be taken into account inter alia in the technical specifications, in the qualification and selection process, at the award stage, in the contract conditions, and other stages of a procurement procedure. Procurement laws will require, accommodate, or prohibit such practices. Technical specifications and contract conditions may inter alia specify environmental standards, require the employment of young people or the long-term unemployed, require adherence to labour laws for example on the basis of the ILO standards, or prohibit certain sources for materials, for example if their production involved child or slave labour or if these goods originate in politically problematic areas. Rules on qualification and selection may either limit the procurement procedure to certain favoured groups (for example to disabled workshops as in the 2004 and 2014 EU procurement Directives) or disqualify or de-select bidders who do not meet certain minimum social or environmental requirements. At the award stage bidders from a favoured group may inter alia be given a margin of preference (as for example black-owned businesses in post-Apartheid South Africa), additional points in their overall score in comparison with non-favoured bidders (as for example in some contracts in the US), or require the life-cycle costing of goods (inter alia the 2014 EU procurement Directives). Other measures include the compulsory splitting of larger contracts to make them more accessible to (employment creating) SMEs (as for example in France) or the requirements of direct payments from the contracting entity to (SME) subcontractors (as for example in Italy) for similar reasons.

1.2 Primary v. secondary objectives

The better but not unanimous view is that secondary objectives compromise the primary objective(s). A German expression for secondary objectives – vergabefremde Aspekte (English: “aspects alien to procurement”) – linguistically captures this problem and leaves no doubt as to the opinion on these “alien” aspects. This opinion advocates that contracting authorities and entities should only aim to achieve value for money and ensure the timely and efficient procurement of goods and services. The concern of those opponents of secondary objectives is that their promotion in public procurement laws and procedures will compromise these primary objectives disproportionately. It is after all the taxpayer’s money that is spent in times of tight budgets. The disqualification or de-selection of bidders because they do not meet certain social or environmental requirements will reduce competition through the exclusion of these bidders. Social and environmental specification and contract conditions might discourage certain economic operators from bidding and thus reduce competition and create an unnecessarily complex and burdensome procurement process which will increase the costs of the procedure and the risk of litigation when this complexity leads to mistakes. Similarly, the splitting of contracts may add complexity, discourage participation (of larger companies), and might be abused to keep a contract under the value thresholds of some procurement laws (such as those in the EU). Limitations and margins of preference compromise competition and value for money, for example driving companies of non-favoured groups into costly alliances with companies owned by favoured groups, the costs of which are ultimately shifted to the contracting authority or entity. Overall, contracting officers are overburdened with a complex procurement process and a difficult set of contract conditions which they often do not have the expertise and resources to enforce anyway. Advocates of the promotion of secondary objectives through public procurement argue that especially the State and bodies governed by public law cannot simply conduct their considerable purchasing activities like any private individual or company. The taxpayer’s money has to be spent efficiently but the State also has important social and environmental policies to promote. Public procurement is one instrument at the disposal of the State, in addition to inter alia criminal law, labour law, environmental law, planning law, State aids, and tax law, by which the State can pursue these policies. To a certain extent the State is buying social justice (McCrudden, 2007) or a clean environment. Purging procurement law from any social and green objectives would deprive the State of an important policy instrument. This divide between opponents and advocates of secondary objectives is often a political one amongst law makers, with (post-)communists, socialists, social democrats (labour, democrats) and greens normally in favour and conservatives (republicans), Christian democrats and liberals against (for example Germany).

1.3 Social considerations

The controversy over secondary objectives outlined above is most pronounced with regards to social considerations. For example, in EU public procurement law, there has been a move towards accommodating environmental objectives, most clearly progressed in the landmark decisions of the European Court of Justice in Case C-513/99, Concordia Bus Finland and Case C-448/01, EVN Wienstrom and in the innovations regarding inter alia environmental standards and Life-cycle costing in the new Public Sector Directive 2014/24/EU and the new Utilities Directive 2014/25/EU. The promotion of SMEs is also accommodated in the new EU instruments but is generally seen as a separate issue anyway, due to the positive impacts of increased SME participation on competition. In contrast, social objectives, addressed by the European Court of Justice in the seminal judgments of Case C-31/87, Gebroeders Beentjes and Case C-225/98, Nord Pas de Calais and also accommodated more than before in the new Directives 2014/24/EU and 2014/25/EU, are subject to an inconsistent and overall much more reserved regime. While it could almost be argued that environmental considerations and the promotion of SMEs are (no longer) secondary objectives, social considerations clearly still are. With the benefit of being able to look at a long tradition of US federal procurement regulations since the nineteenth century, Joshua Schwartz has described the role of social objectives as a pendulum: swinging from periods during which the emphasis is clearly on value for money and social considerations are almost not taken into account, to periods were issues such as the promotion of gender and race equality, support for under-developed regions or employment programmes are more important. The EU pendulum has recently swung slightly towards secondary considerations, but it is too early to say whether it will swing further in that direction or swing back towards value for money.

1.4 Conclusions and thesis

The promotion of social considerations through public procurement and its regulation remain one of the most controversial issues in public procurement regulation. To facilitate discussion, the following conclusions are deliberately provocative. The author himself is not as sure about his overall position on the topic as these conclusions might suggest.

1 Public procurement law at national, European or international level should generally not aim to promote social considerations because this compromises the primary objective of effective procurement and the related objectives of value for money, competition, non-discrimination, and transparency.

2 Public procurement should not aim to accommodate social objectives since it makes public procurement procedures excessively complex and difficult to conduct without mistakes and violations of such a convoluted procurement law, often resulting in costly litigation. A public procurement law accommodating social considerations is not a user-friendly law. Excessive complexity and litigation also compromise the primary objective of efficient procurement through added costs and delays.

3 Social objectives are nevertheless important considerations which governments and legislators must not neglect. However, there are many alternative and better suited instruments to promote social considerations – inter alia criminal law, labour law, tax law, or State aids (subsidies) – normally with their own control and enforcement system to ensure the legal obligations regarding these objectives are complied with in practice. Procurement officers or committees normally lack the staff, powers and/or resources to effectively control and enforce social objectives enshrined in procurement law. Thus public procurement law is not the most effective instrument to promote social considerations.

4 There can be and should be exceptions to the “no social considerations in public procurement rule” advocated in points 1–3 above. Examples include labels guaranteeing that the production of a certain good did not involve slave or child labour, since these labels can easily be integrated into the qualifications stage of competitive procurement procedures and the additional costs are limited. Disabled workshops are another example for a desirable exception, also because most of the relevant contracts will be of low value (and thus for example below the value thresholds of the EU procurement Directives). However, single-source direct awards should be possible in such a case – the competitions between disabled workshops under the EU Directives, for example, are only justified for higher value contracts. Finally, in extreme political situations such as post-Apartheid South Africa, a temporarily and substantially limited regime promoting previously disadvantaged groups can be justified. In such a situation certain social considerations can be more important than value for money.

2 Gustavo Piga, Tünde Tátrai – Supporting social considerations through public procurement: economic perspective

There is no consensus in the scientific literature regarding the enforcement of social considerations in public procurement. The original meaning of social aspect in public procurements included the following: labor standards, unemployment, equal employment opportunities for disabled workers, racial equality and human rights. This approach has been recently broadened in the official EU position.

Taking the European Guide (Buying Social – A Guide to Taking Account of Social Considerations in Public Procurement, 2010) as a starting point, the following priorities should be considered as relevant in public procurement:

• promoting ‘employment opportunities’

• promoting ‘decent work’

• promoting compliance with ‘social and labor rights’

• supporting ‘social inclusion’ and promoting social economy organizations

• promoting ‘accessibility and design for all’

• taking into account ‘ethical trade’

• seeking to achieve wider voluntary commitment to ‘corporate social responsibility’ (CSR)

• protecting against human rights abuse and encouraging respect for human rights

• promoting ‘SMEs’.

It is a question of both theoretical and practical importance how to divide various public procurement policy purposes into groups. However one has to acknowledge that it is problematic to define the content of ‘social aspects’, especially when ‘partly social’ aspects are also involved in public procurement. Furthermore, it is also a valid assumption to state that such purposes are inseparable from each other. For example, according to McCrudden’s (2004) view, it is – by nature – difficult to divide the social and the environmental considerations from each other since both of them are to be included into the broader notion of sustainability:

There remain tantalising issues concerning how similar ‘green’ procurement is to social procurement, including the extent to which these two sets of initiatives complement or cut across each other. This will clearly affect the extent to which acceptance of international or regional standards in the area of social procurement will be possible in the context of sustainable procurement.

(McCrudden, 2004)

According to the latter opinion: Are green procurement aspects similar, and can they be merged into social procurement aspects? In order to make the necessary distinction between the competing categories, we would have to identify which social procurement raises certain specific legal and policy issues regarding their compatibility with international and regional legal frameworks.

One of the most typical examples is given by Medina-Arnáiz (2010) when assuming that a gender equality aspect exists in public procurement. Based on a Spanish case, she clarifies that even the legal argumentation should be based on the primacy of the social aspect:

the principle of equal treatment between women and men, as well as the express prohibition of any type of discrimination on the grounds of gender can be seen as a guiding principle for legal systems and as such, should be integrated and observed in all public action (gender mainstreaming).

While one needs different legal frameworks to promote specific policy preferences, from our point of view it is necessary to handle the different preference aspects uniformly in order to promote systemic sustainability in public procurement. Ideally, one would want to find an existing model which classifies and positions the development of public procurement systems with regard to sustainability so as to enable progress for contracting authoritie...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• List of contributors
• Introduction
• Part I Supporting social considerations via public procurement
• Part II Lots – the economic and legal challenges of centralized procurement
• Part III Innovation through innovative partnerships
• Part IV Green public procurement
• Index