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PROCUREMENT � from Complexities to Opportunity by 6d974q


									  PROCUREMENT – from
Complexities to Opportunity

  Jim and Margaret Cuthbert
             What this talk is about

• Government procurement policy has a huge effect on the
  structure of industry and the economy: we illustrate this
  by three examples.

• Government policy has had adverse effects from the
  point of view of achieving a balanced economy,
  particularly as regards SMEs.

• We argue steps could be taken to improve the situation,
  within the constraints set by WTO and EU Directives.
   Importance of Public Procurement in
              the Economy

• there is currently £9 billion or so of public procurement
  annually in Scotland, and even after forthcoming cuts,
  there will still be many billions.

• So it is vitally important to get maximum impact on the
  Scottish economy.
               Example 1 : PFI

• Large: £60 billion capital value in the UK by
• Designed to be “off the books”: so non-
  separable projects, and intention to transfer risk
  to private sector.
• Implication: large, complex projects
• “Tender costs and complexity reduce
           PFI continued: the effects
• Study of 37 schools PFI projects in Scotland: 245 new
  schools, 45 refurbishments: £3 billion capital value.

• Large: 5 largest contracts accounted for 107 schools.

• Limited competition: 30 out of the 37 projects had 2 or
  fewer viable bids at final selection stage.

• Of 24 firms involved in construction work, only 6
  headquartered in Scotland.

• Only 2 Scottish firms gained facilities contracts, covering
  9 projects.
                Example 2: Water
• Large: £500 million per annum capital programme in

• Charges set on basis of “lowest reasonable overall cost
  of discharging Scottish Water’s obligations to its
  customers and environment”.

• No duty placed on regulator to consider economic impact
  of procurement decisions.

• Emphasis on cost reduction and increasing efficiency
  has led Scottish Water to out-house many specialist
  functions: employees dropped from 5,648 in 2001/02 to
  3,737 in 2008/09.
       Water continued: the effects

• Development of partnership arrangements to
  deliver capital programme.

• Current partners Thistle (Veolia, Jacobs
  Engineering, Laing O’Rourke)

• Stand alone contractors now 18, of which 3
  headquartered in Scotland.
     Example 3: McClelland Review

• Review of public procurement in Scotland in

• Goal: to secure collaborative procurement
  arrangements which consistently deliver Best
  Value performance.

• Result: centralised procurement organisations
  for central and local government: Procurement
  Scotland and Scotland Excel.
           McClelland Review effects

• Procurement Scotland
  for example
  general stationery contract, £10m per annum: Lyreco (French)
  office paper: £7m per annum: Lyreco

• Scotland Excel
  for example
  waste containers: 14 recommended suppliers, 1 Scottish, 12
  English, 1 Irish.
  early learning materials: 8 recommended: 1 Scottish, 6 English, 1
             What are the lessons?

• It is clear that government procurement policy has a
  huge effect on local businesses and the structure of
• In the cases we have examined, the actions of
  government have not been favourable for Scottish
  suppliers and SMEs.
• This is going to have adverse dynamic effects on the
  Scottish economy – on employment, business
  development, and on research and development: and
  the necessary critical mass in the construction industry
  may itself be severely damaged.
What we are not saying
  We are neither being protectionist nor anti-big business.
  Nor are we saying that value for money criteria are irrelevant.

What we are saying
  A healthy economy needs an appropriate balance where SMEs
  have opportunities. And it is not just us saying this. E.g., Francis
  Maude “I would like to see more government business go to SMEs,
  not just in sub contracts where bigger companies will want their
  margins, but directly in contracts placed between departments and
          What could be done: 1

Remember, any action has to be within the limits set by
the EU procurement directive.

But the people who drafted the directive were
themselves conscious of SMEs: and as we will argue
there is a lot that can be done entirely consistent with the
             What could be done: 2
•   Unbundle contracts: this will require retaining and
    developing expertise in the public sector: for example,
    in design and project management.

•   Use the Scottish Enterprise network to help firms
    compete effectively: they have to identify why Scottish
    firms are unable to compete, and take effective action.

•   The public sector itself could help firms to form
    consortia for individual bids. This itself could be a role
    for the Futures Trust.
               What could be done: 3
  Exploit the provisions of the EU directive itself: in particular as
• Subcontracting: Article 60 of the directive means that the public
  sector can require the contractor to subcontract for a specified
  percentage of the job.
• Research and development: Article 16 of the directive states that
  R&D services other than those where the benefits accrue
  exclusively to the contracting authority for its own use are exempt:
  so R&D contracts could be placed directly with firms/universities in
  Scotland if appropriate.
• To exploit the latitude to define appropriate contract award criteria
  (see next slide).
                EU Directive Article 53
     “The criteria on which the contracting authorities shall base the
     award of public contracts shall be either:

a)  when the award is made to the tender most economically
    advantageous from the point of view of the contracting authority,
    various criteria linked to the subject-matter of the public contract in
    question, for example, quality, price, technical merit, aesthetic and
    functional characteristics, environmental characteristics, running
    costs, cost-effectiveness, after-sales service and technical
    assistance, delivery date and delivery period or period of
    completion, or
(b) the lowest price only.”

     There is clearly considerable latitude allowed in this article: and
     the “for example” clearly suggests other criteria could be specified.
     Interestingly, the “for example” was omitted from the Scottish
     version of the Directive.

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