APPENDIX 18
Memorandum submitted by the Department
of Trade & Industry
THE FUTURE OF MANUFACTURING INDUSTRY IN THE
UK: PUBLIC PROCUREMENT
INTRODUCTION
The Department welcomes this inquiry.
This memorandum has been produced in conjunction
with the Office of Government Commerce (OGC) and should be read
alongside the Memoranda on Marketing UK plc and Skills Shortages.
The memorandum focuses on three areas:
1. The impact of UK public procurement policy
and EU procurement legislation on the scope for Government to
support UK industry in competing in the public sector marketplace.
2. An outline of key measures the UK Government
has undertaken to further open the public sector market to suppliers,
including manufacturing companies.
3. Activities currently underway to help
alleviate barriers within the Internal Market.
1. UK GOVERNMENT
PUBLIC PROCUREMENT
POLICY AND
THE EU PROCUREMENT
RULES: SCOPE
FOR GOVERNMENT
SUPPORT OF
UK INDUSTRY
UK Government Public Procurement Policy
The Government's procurement policy, as set
out in Chapter 22 of Government Accounting[39],
is that all public procurement of goods, works and services is
to be based on value for money, having due regard for propriety
and regularity. Value for money is not about securing the lowest
upfront price. It is defined as the optimum combination of whole
life cost and quality (or fitness for purpose) to meet the user's
requirement. This means that there is scope for wider economic,
social and environmental objectives to be achieved through public
procurement, where they are relevant to the specific contract
in question.
In the pursuit of value for money, goods, works
and services should be acquired by competition unless there are
convincing reasons to the contrary. Competition promotes economy,
efficiency and effectiveness in public expenditure, bringing benefits
not only to the procurer, but also contributing to the competitiveness
of UK suppliers, including in the manufacturing industry, improving
their ability to participate in both domestic and overseas markets.
EU Procurement Rules
All public procurement must comply with legal
obligations under the EU and international procurement rules.[40]
These obligations include the following:
— EU Treaty principles which prohibit
discrimination on grounds of nationality, restrictions on the
free movement of goods and services, restrictions on the freedom
of establishment and measures of equivalent effect. These Treaty
obligations apply to all public procurement contracts, regardless
of value.
— EU procurement directives, which
reinforce the Treaty provisions for contracts above certain values,
(about £100,000 for central Government supplies and services
and just under £4 million for works contracts) and which
include detailed rules for advertising contracts, specifications,
selection and award.
— Relevant case law, which clarifies
aspects of the EU rules over time.
— World Trade Organisation (WTO) Government
Procurement Agreement (GPA) rules, which are similar to the EU
rules but apply to the GPA signatories—a limited number
of WTO members, including the US, Japan and Canada—as well
as to the EU.
New UK Regulations, which implement the consolidated
EU public sector and utilities sector procurement Directives,
came into force on 31 January 2006. These simplify and update
the previous public procurement rules, for example, by providing
clarification on the scope to take social and environmental issues
into account in public purchasing. They also take account of modern
procurement methods such as e-auctions, framework agreements and
competitive dialogue for complex projects. The new procurement
methods that the rules provide for, including electronic systems,
together with the simpler and clearer rules generally, will reduce
the burdens of the procurement process and should encourage suppliers
within the manufacturing industry, including SMEs, to participate
in public procurement opportunities either directly or as sub
contractors, both in the UK and abroad.
Impact on UK manufacturing
The Government is committed to British manufacturing
and helping manufacturers in Britain to gear up to compete for
public procurement opportunities. However, the requirement of
competition to achieve value for money, and the underlying themes
of the EU rules comprising transparency, equal-treatment and non-discrimination,
mean that it is not possible for UK contracting authorities to:
— Give preference to UK suppliers in
the manufacturing sector in the award of contracts simply because
they want to "buy British".
— Take account of the impact on UK
manufacturing jobs when deciding on contract award.
— Provide extra support to local industry,
through increased funding, narrowed advertising routes, or other
forms of state aid activity, to distort the playing field for
non-UK companies.
Ensuring a healthy and competitive public marketplace
in the UK ensures that the Government is able to achieve best
value for money for the taxpayer in the goods, works and services
that it procures, and also that UK industry is well equipped to
compete for contract opportunities against overseas suppliers.
In addition, the fact that the EU and GPA rules apply to contracting
authorities in other Member States and beyond provides the opportunity
for our suppliers to participate in these markets also.
Of course, the Government wants to see British
companies winning contracts to supply the public sector where
they are competitive. It therefore has instigated a range of measures
to further open the public sector marketplace to all suppliers,
including manufacturing companies. A number of these are described
in more detail in Section 2.
2. UK GOVERNMENT
MEASURES TO
OPEN THE
PUBLIC SECTOR
MARKETPLACE
The Government is the single biggest customer
in the economy, spending around £125 billion/year on goods
and services. This is equivalent to around 10% of GDP and about
25% of total public spending.[41]
The Government has undertaken an extensive programme
of work to open the public sector marketplace to all suppliers,
including manufacturing companies. This work is being undertaken
by a range of different Government Departments, and includes guidance
and supporting documents published by the OGC that aims to help
public procurers manage their supply chains more effectively.
Below are some of the key current activities,
including work in progress, relevant to the manufacturing sector:
Small and Medium sized Enterprises (SMEs)
— The development of a web based portal
(http://www.supply2.gov.uk/) to give companies easy access to
smaller value contract opportunities (i.e. those that fall below
the EU threshold levels).
— The promotion of the Small Business
Concordat, which forms part of the National Procurement Strategy
for Local Government[42],
by the SBS.
— The development of an online training
package by the SBS following on from the successful training of
over 3,000 small businesses to become "fit to supply"
the public sector last year.
— The creation of a simplified, standard
pre-qualification questionnaire, for below threshold contracts,
by the OGC.
— A joint OGC/DTI study into the effect
of third party supplier accreditation. Published in December 2005,
this study identified some of the key barriers to the participation
of businesses in the public sector market created by accreditation
practice in the UK.
— Working with the Department for Culture,
Media and Sport (DCMS) and the Olympic Delivery Authority (ODA)
to ensure the visibility of both contracts and procedures for
the London 2012 Olympics to all companies, and particularly small
firms.
Innovation
— Championing the use of strategic
procurement and the need for Government to become a more intelligent
customer, as highlighted by the Innovation Report (2003) and DTI's
Five Year Programme (2004). DTI will make proposals as to how
government can adapt its procurement practices to help it and
to help business in this way later this year.
— Fostering the innovation and creativity
of small businesses through the Small Business Research Initiative,
which provides Government Departments with a target of purchasing
at least 2.5% of R&D from SMEs.
— A joint OGC/DTI project aimed at
identifying and showcasing best practice in procuring innovative
solutions, drawing for example on work done by the NHS National
Innovation Centre and the DTI/DEFRA Joint Environmental Industries
Unit.
Sustainability
— The business-led Sustainable Procurement
Task Force published its report, "Procuring the Future"
in June 2006. This made recommendations for Government on ways
to embed sustainable development considerations into procurement
and investment decisions across the UK public sector. The Government
will deliver its response later this year.
— The joint DTI-DEFRA Environmental
Innovations Advisory Group is piloting the use of public procurement
to drive markets for innovative environmental goods and services.
— DEFRA's Public Sector Food Procurement
Initiative launched in 2003 to highlight practical ways in which
the public sector's £1.8 billion annual food budget can help
deliver "a world-class sustainable farming and food sector
that contributes to a better environment and healthier and prosperous
communities".
Sectoral initiatives
— Working with the Manufacturing Forum,
which has identified public procurement as a priority and has
a specific working group looking at how UK manufacturing industry
can realise some of the huge economic benefits from public procurement.
— The Government launched its Defence
Industrial Policy in October 2002, which committed it to be more
innovative in its major defence equipment procurements. It challenged
procurers to fully consider wider factors (including industrial
benefits) at the outset of procurements.
3. CURRENT ACTIVITIES
TO HELP
ALLEVIATE BARRIERS
WITHIN THE
INTERNAL MARKET
In the 2003 pre-budget report, the Chancellor
of the Exchequer announced a review into UK businesses' experiences
of competing for public contracts in other EU countries. This
was undertaken by Alan Wood, Chief Executive of Siemens UK plc.The
Wood Report was published in November 2004[43].
It found few clear cases of provable discrimination against UK
suppliers, concluding that EU public procurement law did not itself
create problems for UK businesses. However, it recognised that
many UK businesses felt there were "grey areas' where national
firms appear to be unfairly favoured in procurement projects carried
out in other Member States. It also identified barriers to British
firms in competing for contracts in other EU Member States, which
reduce the opportunities available to them. These included:
— lack of market opening in defence
and transport;
— different paces of market liberalisation—for
example in sectors like energy;
— a lack of professional public procurement
officials which made it harder for companies to access opportunities.
The report's recommendations aimed to build
on the change programme already underway in the UK. In particular,
they aimed to encourage a step change in approach by the EU Commission
and all member states, improving compliance with procurement rules
but also placing greater emphasis on best practice.
Following the Wood Report, the Government is
aware of the following activities that are currently helping to
alleviate barriers within the Internal Market:
— The European Commission is currently
working on price comparisons across the EU of frequently purchased
products and services. The Commission reported on progress in
March 2006.
— The EU Learning Laboratory has conducted
various studies including in 2004 "An exploratory analysis
of public procurement practices in Europe".
— The European Commission has issued
a consultation document on state aid for innovation in September
2005 as part of a roadmap for reform of the state aid regime over
the next five years.
— The European Commission has continued
its firm action, through its formal infraction proceedings, to
make sure that EU Member States adhere to the procurement Directives
to counter unfair national preference.
— The 2005 publication by the Public
Procurement Network—an informal Network of all Member States
helping to resolve disputes within the EU relating to procurement,
rather than following the formal route via the Commission—gives
guidance on cross border dispute settlements.
March 2007
http://www.ogc.gov.uk/documents/Introduction_to_EU_Procurement_Rules.pdf
http://www.communities.gov.uk/index.asp?id=1136697
39 Government Accounting 2000-HM Treasury-http://www.government-accounting.gov.uk/current/frames.htm Back
40
Introduction to EU Procurement Rules-OGC- Back
41
Source: Office of Government Commerce (OGC) and Office for National
Statistics; Public Sector-Statistical Analyses-HM Treasury, May
2003. Back
42
National Procurement Strategy for Local Government 2003-06-DCLG- Back
43
Wood Review-OGC-November 2004-http://www.ogc.gov.uk/other_key_procurement_policy_issues_wood_review.asp Back
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