Do EU Procurement practices discriminate against UK and Scottish construction firms

by Ken Gibb

Keith Kintrea and I recently completed a short paper as part of the Scottish Govenrment’s procurement review[i] (Review of Procurement in Construction: International Evidence by Keith Kintrea and Kenneth Gibb, University of Glasgow). The client has kindly allowed us to produce briefings on the paper and, in addition to this post, a longer version will shortly appear on the Policy Scotland website (http://policyscotland.gla.ac.uk).

It is often anecdotally observed by a number of Scottish Government stakeholders that non-UK (and non-Scottish) companies appear to dominate public contracts in their own countries while, within the UK, home companies are said to often lose out to competition from elsewhere.  A case which caused particular controversy was the award in 2011 of a £1.4bn train building contract for Thameslink to Siemens of Germany rather than to Bombardier, based in Derby (see Maer, 2012).

The essential question posed to us was: is 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 countries 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 argument 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 limit 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 is weak and the literature relatively sparse, and often indirectly rather than directly relevant. We conducted a desk based UK and international review and drew on academic literature, grey evidence, online sources including social sciences database search engines and Google Scholar. We also snowballed from sources in the papers and reports we identified.

It is impossible to address fully the validity of the anecdotal claims about the impact of the EU procurement procedures or the 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 countries. But, within that level of activity, its proportion of cross-border procurement is also close to the average. Overall, especially for the bigger EU countries, the overall level of cross border activity is quite low, especially for ‘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), and whether concessions are used, 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 good reasons why firms do not make more of EU cross-border public procurement.

All the reports that have considered the question of direct discrimination find it difficult to demonstrate unequivocally. Wood (2004) 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’ (p.2).

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 EC has started to provide the kind of data that helps to bottom these questions out. It is notable that in the important field of construction the extant data does not disaggregate helpfully for us to understand its particular position. There is a clear need to understand better the role of indirect cross border procurement through affiliates and the role of imported supplies.

There is considerable variety of practice across the EU and that the key to this lies in differences in administrative and legal systems and policy positions across Member States. This may lead to variety in outcomes but we do not believe there is robust non-anectdotal evidence of UK firms being systematically disadvantaged.

 References

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

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

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 Commission (2012) Annual Public Procurement Implementation Review

2012, Brussels: European Commission. Sourced at: http://ec.europa.eu/internal_market/publicprocurement/docs/implementation/20121011-staff-working-document_en.pdf

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

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


[i] This post was co-authored with Keith Kintrea and draws closely on parts of the report submitted to the Scottish Government referenced in the text.

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