Toby Johnson
29 April 2014

Will social procurement yield any benefits? It all depends on implementation

The EU’s new public procurement directives are heralded as being simpler and more social. Nevertheless, a panel debate in Brussels showed that there are still some areas of ambiguity and some areas of disagreement between the social partners. One point was uncontroversial – whether Europe’s population reaps the potential benefits will all depend on how the member countries implement the law at home.

Some disparate views on how Europe’s new public procurement law is likely to work emerged at a European Commission conference on 19th March. The event was divided into four panel discussions, on social and green procurement, simplification and SMEs, innovation, and concessions – the last a new area for EU rules.

1. Social & green procurement

This is the aspect of the directive that is of most interest to social enterprises. The EP’s rapporteur Marc Tarabella – the only man in the panel, for a change – reported that this section of the directive had aroused a lot of interest among stakeholders – who submitted 2,500 amendments!

He highlighted article 18.2, which allows companies that do not comply with social conditions to be excluded – savings due to innovation are fine, but many contracts are 90% made up of labour costs, and abnormally low bids may be the result of ‘social dumping’ – an example being the cleaning contract for the Luxembourg station, right underneath the EP building!

He made the point that it is the implementation that will be fundamental. That’s why public authorities need training in how to do it.

An end to the dictatorship of the lowest price

Heide Rühle, who co-ordinated work on fair trade and environmental aspects, said that the main problem in the past had been a lack of legal certainty, especially on whether the production process and environmental labels could be taken into account in procurement. This has been improved. The general principle is that contract shall be awarded according to the ‘most economically advantageous tender’ (MEAT), and decisions based simply on lowest price have disappeared. Authorities will be looking for quality and lifecycle costs – and the EU will have to build up a database to make these factors transparent. Fair trade and animal welfare labels can be taken into account. However, as before, such conditions have to have a link with the subject matter of the tender.

Speaking for one of the social partners, Kathleen Walker-Shaw of the EESC and the British GMB trade union felt that one key point was that the new directive restates that public authorities can do things for themselves – it had got to the point before where people thought that everything over the threshold had to be tendered out, and this is not the case. Veronica Nilsson of the ETUC felt that the directive is weak on sub-contracting. She added that the exclusion of companies that violate social conditions is a choice for the purchasing authority.

On behalf of the other social partner, Arnhild Dordi Gjønnes of Business Europe recognised that the social aspect was the most difficult part of the negotiations. She welcomed the fact that there is no clause obliging suppliers to adhere to national collective agreements – if that had been written in, it would have excluded the vast bulk of SMEs, which don’t have collective agreements with their workers.

Welcoming the EU’s action, British MP Hazel Blears intervened from the floor to say how 50 authorities in Britain are enthusiastically applying the Social Value Act to retain local talent and support local supply chains.

Social criteria must be transparent

It emerged from the debate that exactly which social criteria can be included in purchasing decisions is still disputed. Some commentators fear an avalanche of appeals. In Marc Tarabella’s view, issues such as long-term unemployment and social exclusion, as well as health and safety, can be taken into account, so long as there is a transparent definition at the start of the process. They cannot be used as an excuse to justify decisions ex posteriori. The objective is to spend public money better at the service of citizens and local employment -– so for example you can reserve contracts for local park maintenance for local unskilled workers.

Against this, Ms Dordi Gjønnes argued that it is a grey area whether local employment clauses are ‘linked with the subject matter of the contract’ or not. To avoid a slew of court cases, the Commission needs to come up with good guidance. To this, Kathleen Walker-Shaw hoped that the guidance would be more encouraging than at present, and should be published faster than the present Buying Social guide, which took six years to appear.

2. Simplification and SMEs

Most social enterprises are SMEs, and so should in theory benefit from simplification. However in this panel Riccardo Viaggi of the European Builders’ Confederation felt that many of the supposed benefits for SMEs will in fact go over their heads: SMEs cannot afford to go through long-drawn-out procedures such as competitive dialogue or innovation partnerships. And a significant reason that SMEs don’t bother with public contracts is late payments. This is something that requires permanent monitoring by the EC – even Germany has not transposed the Late Payments Directive.

An interesting suggestion came from the floor – the UK has a system of anonymous feedback – a sort of ‘mystery shopper’ – which might be interesting to try at European level. The consensus was that the legislation is enabling, but the issue is enforcing its application.

3. Innovation

There was some relevance to social enterprises in the innovation panel too. Miguel Ángel Cabra de Luna, the EESC’s rapporteur, said that innovation is an implicit part of sustainable development, just as social and environmental aspects are. But the rules are complex, and making them work in practice will depend on the training of procurement officials. Otherwise nothing will change. Innovation needs to happen in services, not only in products.

The main novelty regarding innovation is the ‘innovation partnership’. Jean-Christophe Maisonobe from the Conseil Générale de l’Isère pointed out that one way for SMEs to become pioneers and make use of innovation partnerships is to group together in consortia. Malcolm Harbour MEP noted that the EC provides financial support for innovation and research networks.

4. Concessions

Concessions are typically public-private partnerships to operate public utilities such as waste disposal, ports and toll roads. They are typically high-value, long-term and complex and require detailed negotiation. The new directive regulates them for the first time, closing a loophole in competition law. But it applies a lighter touch than applies in other types of procurement, and has a €5m threshold. Responding to public pressure, water supply was specifically excluded, as are ambulance services provided by non-profit organisations or associations.

Toby Johnson