Do EU procurement rules discriminate against UK and Scottish construction interests? 1


This short paper on procurement policy was written by Keith Kintrea and Kenneth Gibb for the Scottish Government as part of its procurement review (Review of Procurement in Construction: International Evidence, University of Glasgow). The client has kindly allowed the authors to produce briefings on the paper on the Policy Scotland website.

Background

It is often anecdotally observed by a number of Scottish Government stakeholders that non-UK (and non-Scottish) companies appear often to win public contracts in their own Member States while, within the UK, home companies are said to often lose out to competition from elsewhere.  A case which caused particular controversy (outwith the construction sector) was the implications for employment in the UK of an award in 2011 of a £1.4bn train building contract for Thameslink. The contract went to Siemens of Germany rather than to Bombardier, which although a Canadian company, has a factory in Derby (see Maer, 2012).

The full paper arises from a review of UK and international evidence addressed to this question whether there is any substance to the allegation that the operation of EU procurement processes results in UK construction firms being shut out of public contracts in the rest of the EU, while non-UK firms are provided with access to UK markets through the same processes. The implication of the allegation is that other European Member States compared to the UK are able to provide more support to their home construction industry within the confines of EU frameworks when procuring Public Works.  The focus is particularly on other comparisons with other large western European Member States such as France, Germany and Italy.

The observation at the heart of this paper is aligned with the argument that is often popularly made that the UK is overly compliant with EU rules and has sought to ‘gold plate’ them through an excessively regulatory approach (e.g. Burgess Salmon, 2012) to the detriment of UK business. In response, the Department of Business and Skills (2013) has sought to develop new guidance for UK government departments in transposing EU regulations into UK law in order to contain any such gold plating.

We approached the question recognising that by its nature it is difficult to adequately answer in the absence of rigorous, specific research. It also turns out that the data available on cross-border procurement are weak, and the literature is relatively sparse, often indirectly rather than directly relevant. Nonetheless, we reviewed what is available based on online search using standard Google Scholar and social science search engines. We have also snowballed from sources in the papers and reports we identified. In addition to the review stage we also discussed the basic findings with colleagues in the Law School at the University of Glasgow who have specific expertise in EU law.

Findings

The main findings from the review are as follows:

(1)  The UK appears to represent a relatively high proportion of the traffic through the public procurement procedures of the European Union compared to other large western European Member States. The reasons for this are not possible to identify fully but there is at least an implication that the UK’s approach leads to it being more open to international competition than some other Member States.

(2)  Variations in activity between different Member States are significantly accounted for by commentators in terms of legal, administrative and policy differences, which have roots in national politics and cultures. However, the EC believes that progress continues to be made towards a more inclusive and open procurement system in line with EU objectives.

(3)  The quantitative evidence of procurement outcomes does not point to a pattern of cross-border procurement for the UK that is markedly different to other large European Member States. Contracts for UK public bodies are not disproportionately awarded to non-UK contractors compared with EU averages within the volume of UK activity.

(4)  High transaction costs, such as language and local networks, and supply chains are effective barriers to firms offering tenders across-borders other than where the size of contracts, potential returns and ‘asset specificity’ expertise provide competitive advantage for non-domiciled construction businesses.

(5)  There does not appear to be convincing evidence of discriminatory or deliberately advantaging behaviour by national governments to support their own domiciled construction companies which explain these patterns. Nevertheless suspicions that discrimination occurs are popularly held and frequently voiced, and not just in the UK.

(6)  Two decades after open advertising of contracts was initiated, the useable information base about procurement process outcomes is surprisingly poor and inconsistent between national and supranational levels. There is very little specific data which concerns the procurement of Public Works, or construction-related service contracts such as building maintenance.

Conclusions

It is impossible to address fully the validity of the anecdotal claims about the impact of the EU procurement procedures on of degree of penetration of UK (and Scottish) construction firms in European markets, and vice versa. The data and the research are too underdeveloped.  It is interesting to note that the perception that there might be (direct or indirect) discrimination with the system is held far more widely than in the UK. A Europe wide business survey reported by the EC showed that nearly half of all business surveyed believed that local preferences influenced public procurement to a high extent, and only 14% believed there was no discrimination against no-domestic bidders (EC, 2011, p. 143).

For the UK, what we can observe is that it is relatively a stronger player in the OJEU advertised processes than its economic scale would indicate compared to EU averages- which might suggest that it is more compliant than some other Member States. But, within that level of activity, its proportion of cross-border procurement is also close to the average. Overall, especially for the bigger EU Member States, the overall level of cross-border activity is quite low, especially for Public Works’ procurement.

There are various explanations for the relative position of different Member States. There is some suggestion that variations in OJEU throughput arise from legal and administrative and policy differences between Member States which help to shape engagement with the system, the size of contracts (above or below thresholds), whether concessions are used, and the form of procurement for example. This is in line with the findings of Wood (2004) who identified the diverse experiences with public procurement across Europe, the uneven development of procurement systems over time, and the different pattern of state support for key sectors as explanatory variables. The survey evidence quoted above also shows there are practical explanations as to why firms do not make more of EU cross-border public procurement.

With regard to possible discrimination, the European Commission  believes that the evidence suggests that non-compliance is becoming less important, suggesting more openness in the system, and so less risk of potentially discriminatory non-compliance. The 2011 report (EC 2011), prepared in order to support the process of consulting on further changes to directives, assessed that the 2004 Directives (European Parliament and Council, 2004) were succeeding in promoting transparency and cross-border competition to secure better public procurement outcomes.

It also found evidence of structural change underway in procurement practice, notably the aggregation of demand through central purchasing and framework agreements, greater use of e-procurement and other centralising processes (although these still varied hugely across the EU), which Strand et al (2011) suggest are more strongly associated with cross-border activity. What is more, the volume of procurement activity within the OJEU system continues to rise. In other words, even accepting that the EC itself may be naturally positive about the benefits of the system, the evidence does seem to point to a system which is becoming more comprehensive, unified and robust.

All the reports that have considered the question of direct discrimination find it difficult to demonstrate it unequivocally. Both Wood (2004) and Europe Economics (2006) have reported suspicions on discrimination, but found no clear evidence. Wood commented: ‘Few respondents mentioned examples of discrimination in direct breach of EU procurement rules. Those provided are difficult to evaluate as to the substance of the allegations, particularly as no concrete evidence was submitted to us’ (2004, p.6) and ‘there was no concrete evidence of discrimination by other EU countries’ (2004, p.2). It is also impossible to extract any clear conclusions from the reports on enforcement activity (which is published at EU level at Member State level) without knowing more about how infringement allegations are reported, how many there are, which parties are allegedly at fault, as well as detailed case considerations. There is also little solid information about enforcement at national levels.

Altogether, we recognise that there is a need for a lot more understanding in this area. Despite the more than 20 year history of EU public procurement processes it is only now that that the EU has started to provide the kind of data that helps to bottom these questions out. It is notable that in the important field of Public Works the extant data does not disaggregate for us to understand its particular position definitively. There is a clear need to understand better the role of indirect cross-border procurement through affiliates and the role of imported supplies.

References

Burgess Salmon LLP (2012) Comparative Procurement: Procurement regulation and practice in Germany, Sweden and the UK, London: Burgess Salmon

Department of Business and Skills (2013) Gold Plating Review: The Operation of the Transposition Principles in the Governments’ Guiding Principles for EU Legislation, London: BIS

Europe Economics (2006) Evaluation of Public Procurement Directives:  Final Report, London: Europe Economics. Sourced at: http://ec.europa.eu/internal_market/publicprocurement/docs/final_report_en.pdf

European Commission (2011) Evaluation Report: Impact and Effectiveness of EU Public Procurement Legislation. Brussels, Brussels:  European Commission Internal Market and Services. Sourced at:         http://ec.europa.eu/internal_market/publicprocurement/modernising_rules/evaluation/index_en.htm

European Parliament and Council (2004) ‘Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of Public Works contracts, public supply contracts and public service contracts’ OJ L 134, 30.4.2004, pp.114–240. Sourced at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32004L0018:EN:NOT

Maer, L. (2012) ‘Public Procurement’, House of Commons Research Library Standard Note Economic Policy and Statistics SN/EP/6029 (20 January).

Strand, I., Ramada, P. and Canton, E. (2011) Public Procurement in Europe: Cost and Effectiveness: A Study for the EC by PWC, London Economics and Ecorys, London: PWC Sourced at: http://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cost-effectiveness_en.pdf

Wood, A. (2004) Investigating UK Business Experiences of Competing for Public Contracts in Other EU Countries, London: Office of Government Commerce

 

 

 


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