How is value determined in awarding OJEU contracts?

  • By John Chudleigh
  • 30 Oct, 2015

Blink and you’d probably have missed it, but the Government, adding a seemingly perverse twist on the erstwhile Transport Secretary Stephen Byers’ hapless special advisor Jo Moore’s infamous epithet, thought that the 31st January 2013 was a good day to bury good news. Why? Well it was then that the Public Services (Social Value) Act receiving its Royal Assent, came into force, requiring the public sector in England and oddly ‘some Welsh bodies’ defined by as ‘those not solely or mainly under the jurisdiction of the Welsh Assembly Government’ to comply with the new law, so local authorities, Whitehall, the NHS, Housing associations, emergency services etc. Such a law as yet doesn’t apply to Scotland or Northern Ireland.

Sponsored as a Private Members’ Bill by Tory MP Chris White in 2010 as the Public Services (Social Enterprise & Social Value) Bill, it perhaps understandably attracted widespread cross-party support.

In an age of belt tightening, austerity, etc. the public sector increasingly has to finely balance the competing issues of maximising value against reduced funding. It would be difficult enough if demand was a constant but it isn’t, with a seemingly insatiable increase being met upon core public services over the next few years. The Act therefore is designed to influence the pre-procurement stages of tendering so that social value is properly accounted for. What therefore is social value? Is it an unquantifiable warm feel good thing organisations espouse in their ‘core values’ or corporate governance mission statements or is there more to it? One thing is self evident and that is that contracts cannot be awarded on price alone but must factor in socio-economic, environmental and well-being issues which must be of collective benefit to the communities they serve. A crude but very real example is would Primark if it were in the public sector have been allowed to accept bids from the Rana Plaza textile factory in Bangladesh?
Oddly, the basic principles of the act i.e. that price isn’t the ‘be all’ have always existed within the EU’s procurement rules, albeit within the confines of commercial considerations. The awarding criteria procedures allow for basically two choices, the cheapest and the most economically advantageous tender. These contain a mix of commercial and technical criteria beyond price including Delivery/Completion Date, Running Costs, Profitability, Aesthetic characteristics and Technical Assistance to name but a few. However little thought was ever given to the wider considerations of communities and their ‘well-being’ other than that open procurement in the single market would bring best value for the tax payer. Well that was the idea at least.

Within the UK now, legislation now underpins taking the interpretation of ‘Most Economic Bid’ as the awarding criteria beyond commercial issues easily quantifiable on a balance sheet. These and Social Values will now have to jostle for equal or perhaps in time via back door positive discrimination, unequal billing as commissioning bodies try to demonstrate how squeaky clean and right on they are. Research borne out by Social Enterprise UK, one of the major forces behind the new Act, shows there’s an appetite amongst commissioning bodies for ‘delivering social value, with 75% of survey respondents already engaging with suppliers to increase social value’. However, they go onto to say that ‘the same research showed that 41% of authorities pointed to a lack of experience as a barrier to developing this approach further’ illustrating quite an alarming gap between intent and reality.

The facts do bear out Social Enterprise’s research and it is clearly still very early days. For 2012 Price and Quality were jointly King in the weighting stakes, closely followed by Technical Support, Delivery and other commercial considerations. Out of all the UK’s publicly advertised tenders for 2012 (96% of which encouragingly were based on a mix of criteria – see below) only 12% actually disclosed weighting values. Moreover, out of these only 13% contained awarding criteria in their weighting which could be construed as social values. So this means less that 2% of tenders last year made reference to social value issues. These were variously referred to as:

• (Undefined) Additional Benefits
• Apprenticeships
• Carbon Efficiency/Footprint
• Corporate Governance
• Environmental
• Equal Opportunities/Diversity
• Sustainability

So nothing about tax compliance as a social value yet but who knows? It’s a start you might think if a supporter. Well don’t get your hopes up too high. The percentage weightings on these criteria are only between 2 and 15 and remember we’re looking at less than 2% of UK tenders in total for last year.

The legislation is there, according to Chris White MP in Patrick Buller’s excellent article on the Social Value Act in The Guardian on the 5th February to stop the ‘supermarketisation of public services outsourcing’ and in so doing facilitate better opportunities for Social Enterprises so they’re not always squeezed out by big corporations. Yet references to Social Enterprises only occurred in 1% of tenders advertised in the UK last year. Clearly there’s still a long way to go and the one thing hard to fathom is how on earth any of this is going to be measured and therefore enforced? Will a regulatory body called something like OFVAL be established specifically tasked with policing public sector purchasing criteria and how would such rules be defined?

Still, one mustn’t be too dispirited and these things are all relative. Compared to much of Europe, the UK looks good in at least awarding the vast majority of its contracts through a mix of awarding criteria.

A like for like comparison on the Social Value Act isn’t possible but what’s interesting is that within existing Public Procurement procedures many countries preferred awarding criteria are simply price related when awarding contracts.
Figure 1 shows the European Averages for last year. 63% of all tenders advertised throughout the EU and beyond (EEA, EFTA & Switzerland through the WTO Govt. Purchasing Agreement) involved a mix of award criteria, with 32% having none other than price with 5% either not specifying or declaring they’re not applicable

Breaking this out reveals what might appear like some very strange bedfellows with the UK ranking third behind France and Switzerland in the mix of awarding criteria. Put another way for last year, not one of Switzerland’s publicly awarded OJEU contracts through the WTO GPA was judged on price alone and in France’s case it was only 3% and the UK’s 4%. Further down the ranking the EU Institutions i.e. the Commission, European Investment Bank, European Parliament, European Environment Agency etc. award 20% of their contracts on the basis of cheapest price and so on. All those therefore in Figure 1 are above the European average for having a mix of awarding criteria.
Come on down, the price is right!
Figure 3 shows the ranking of states falling below the European average. The top states, in particular Malta, Slovakia, Lithuania & Romania are in the Bargain Basement procurement league all awarding over 80% of their public procurement contracts solely on the basis of lowest price. This group is largely made up all Central, Eastern and with the exception of Spain, Southern European member states, yet oddly states like Luxembourg still award over 50% of their contracts on the basis of cheapest price too. It is understandable perhaps for the bulk purchase of commodity items like toilet rolls but for anything more complex be it a Service, Supplies or Works project it seems an odd approach. The reasons for this are not known and would involve considerable research to shed light on but this is what is submitted collectively by these countries’ awarding authorities to the OPOCE and analysed and presented below by yours truly. Given that the ongoing Euro and debt crisis are hardly waning, pressures on keeping public purse costs down are likely to be even greater and therefore at odds with any similar attempts across Europe to enforce a more holistic approach to the concept of value for money.

As already stated, one of the objectives of the EU Internal Market’s open procurement regime was to ensure better value for money for the European Tax Payer. It is difficult to know whether the literal interpretation of that across many pan European public purchasing organisations is simply to find the lowest cost rather than using more sophisticated decision making procedures to find the most cost effective solution but that on the face of it seems to be the case. As Professor Sue Arrowsmith, Director of the Public Procurement Research Group within Nottingham University’s School of Law points out in her publication EU Public Procurement Law: An Introduction ‘Ensuring the wise expenditure of public money and improving the quality of public services are not per se objectives that the EU is, in general, competent to pursue, and general power to implement policies to this effect cannot be found in the powers to adopt secondary legislation. A more specific argument to support the view that the EU regime is – or, at least, can be – concerned to ensure value for money might be that an internal market can only work if public purchasers behave ‘efficiently’ in choosing the best supplier. The “Invisible Hand” of the market can work to allocate resources effectively, including in international trade, only if purchasers that seek value for money actually do so effectively, and only in these circumstances will the most efficient firms survive and develop, ensuring that the benefits of competition in the market are realised. It can be argued that whilst commercial pressure ensures that private sector firms obtain their requirements from the most competitive source, this cannot be assumed to be the case with the public sector, even if it does not engage in discriminatory behaviour. Thus, it might be argued, it is necessary to regulate the award of contracts in the public sector to ensure efficient behaviour.’

Maybe the Social Value Act, whose timing is clearly prescient with the current zeitgeist for higher standards from our institutions, both public and private, is unwittingly the progenitor to Ms. Arrowsmith’s perhaps academic suggestion for pan European regulation in the awarding of public contracts to ensure efficient behaviour whatever that may mean?

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