Procurement Bill [HL]

Baroness Stroud Excerpts

Committee stage
Monday 18th July 2022 Grand Committee

[Lord Aberdare (CB)]

My Lords, I have added my name to both of the amendments in the name of the noble Lord, Lord Mendelsohn. Until he performed his remarkable imitation of a human ping-pong ball, I was all ready to introduce the amendment on his behalf. I am very relieved that he made it back from the Schools Bill just in time and has relieved me of the necessity of saying almost anything at all, other than to give full support to his amendments.

These two amendments would ensure consistency and complementarity between the provisions of this Bill and those of the code, while also having the positive effect of encouraging more potential suppliers of government contracts to sign up to the code and, indeed, to abide by its requirements. I very much support the noble Lord in everything he has said and in saving me the trouble of saying it.

[Baroness Stroud (Con)]

My Lords, I rise to introduce Amendment 353, tabled in my name and in the name of the noble Lords, Lord Alton and Lord Coaker, and the noble Baroness, Lady Smith, demonstrating cross-party support for this amendment. I also want to underline my gratitude to the Government for seriously engaging with this amendment to the Bill; I know that we share a desire to mitigate the two key risk areas in public procurement which this amendment covers, and I am grateful for their engagement.

Amendment 353 seeks to give the Government two things: first, it seeks to provide the tools to monitor and control the UK’s dependency on authoritarian states; and, secondly, it seeks to ensure a consistent approach to modern slavery across all government procurement. So let us look at how it seeks to monitor and control the UK’s dependency on authoritarian states first. Clause 1 places a burden on the Secretary of State to create regulations that reduce the dependency of public bodies on authoritarian states. There is no agreed definition of what constitutes an authoritarian state in UK law or regulation, therefore Clause 2 adopts the categorisations contained within the Integrated Review of Security, Defence, Development and Foreign Policy, allowing for the legislation to adapt to contemporary geopolitical developments in line with the latest iteration of the review. The countries this amendment would currently apply to as threats are Iran, Russia, North Korea, and, as a systemic competitor, China.

It should be noted that Clause 1 applies to all goods and services which originate in whole or in part in one of the named countries. The amendment is constructed to apply not solely to entire products but also to their constituent parts. So, for example, where a solar panel has been constructed in the UK but relies on polysilicon from another region of the world categorised as a threat or a systemic competitor, that solar panel would, therefore, be within scope of these regulations.

Clause 3 sets out what must be included in the regulations. So, proposed subsection (3)(a) provides for an annual review of dependency to be published by the Government, while proposed subsection (3)(b) requires the Government to define “dependency” and to establish acceptable levels of dependency across industries. Proposed subsection (3)(b) also seeks to appreciate that the risks associated with dependency vary across products and industries. For example, reliance on one region for semiconductors presents very different challenges for resilience from reliance on another region for PPE. So proposed subsection (3)(b) allows the Government the flexibility to take these nuances into account.

Yet the risks of economic dependency are not the only relevant matter here. The second part of this amendment, proposed new subsections (4) and (5), addresses a separate issue: the question of modern slavery in the supply chains of publicly procured goods. The presence of modern slavery in supply chains is clearly unacceptable. This has rightly been acknowledged by the Department of Health and Social Care, which has already taken steps in the Health and Care Act to eradicate from its supply chains goods which have been “tainted”—its word—by slavery. Proposed new subsection (4) adopts substantially the same language as Section 81 of the Health and Care Act, passed earlier this year. The requirement to bring regulations to, in the Department of Health and Social Care’s words, “eradicate” from public contracts goods and services “tainted” by slavery now stands as part of that Act.

When the Health and Care Act regulations are drawn up and passed, those procuring health equipment will have to apply different human rights standards from those procuring goods and services on behalf of other departments, as things currently stand. The main intention of this amendment is to ensure that the UK Government speak with one voice and apply these standards across government. It seems odd for us to be unwilling to procure goods from Xinjiang for the NHS but comfortable doing so for Defra. This is about correcting a loophole in the law and seems to be a matter of simple common sense.

In addition, paragraphs (d), (e) and (f) of proposed new subsection (5) provide improvements on the current modern slavery framework. I particularly commend to the Minister (5)(d), which will improve standards of disclosure and transparency by requiring firms to provide evidence and trace their full supply chain if necessary. Requiring public disclosure of supply chains will considerably improve compliance when compared with the current audit measurements. This is because it is difficult to conduct a credible audit in an authoritarian state. In this context, it is better to know where companies are sourcing from, rather than have an auditor who has no ability to get accurate information.

In conclusion, the two risk areas of economic dependency and modern-day slavery cut to the heart of our character as a nation. We want to stand as a beacon for liberal, democratic values around the world. To do this, we need to ensure we retain the autonomy to act in line with our values by reducing dependency on authoritarian states. We need to ensure that we are living consistently within our values by ensuring there is no modern slavery in our supply chains. The Department of Health and Social Care has shown the way; this amendment enables the rest of government to come into line.

[Lord Hain (Lab)]

My Lords, I commend the speech from the noble Baroness. It was compelling and I hope the Minister will find it so too. I wish to speak to Amendments 184 and 187 in my name and those of my noble friends Lord Hendy, Lady Wheatcroft and Lord Kerslake, to whom I am most grateful. These amendments grant Ministers the power to bar companies which have acted unlawfully or unethically from tendering for public contracts. It is hard to understand why that will not be acceptable to the Government.

The two amendments have the same objective but use different means. Amendment 184 requires a statutory instrument for Ministers to act to bar companies in that way, whereas Amendment 187 enables a quicker route but one that is capable of being challenged if any party considered that the Government had acted unjustifiably. As I say, it is hard to see why the noble Lord, Lord True, would not accept both amendments with acclamation.

It will come as no surprise to either him or many of your Lordships that the particular target I have in mind and which I am angry Ministers have been so shamefully slow and negligent about—despite the generous remarks about me from the noble Lord, Lord True, in the Chamber following a Question I asked, for which I am grateful and thank him—is Bain & Company. I first raised this scandal in your Lordships’ House nearly six months ago and have tried to get the Government to act on it by barring Bain from accessing public contracts.

It is a global brand and presents itself as reputable global consultancy operating right across the world. Bain has its second-largest office here in London, which has been awarded multimillion recent UK government contracts and has influence across our economy, so this company is particular to us. We should take account of the fact that in South Africa Bain purposefully assisted former President Jacob Zuma to organise his decade of barefaced looting and corruption, the company earning fees estimated at £l00 million or 2 billion rand from state institutions.

South Africa’s state capture commission, a judicial inquiry headed by Chief Justice Zondo, which recently concluded its work, and to which I gave written and oral evidence in November 2019, condemned Bain’s deliberate immobilising of the South African Revenue Service—SARS—as “unlawful”. So concerned is the commission with Bain’s illegal behaviour in the South African public sector that it has recommended that law enforcement authorities examine every public sector contract Bain has had, not just the SARS one, with a view to prosecution.

The Zondo report was devastating about Bain’s behaviour. The evidence,

“bears out the pattern of procurement corruption which has dominated the evidence heard by this Commission. These include … the collusion in the award of the contract between Bain and Mr Moyane”—

he was President Zuma’s crony put in to head SARS and effectively dismember it—

“the irregular use of confinement and condonation to avoid open competition, transparency and scrutiny … and the use of consultants to justify changes that were necessary to advance the capture of SARS.”

As expected there has been an upswell of civil society opposition to Bain’s continued presence in that country. Such public pressure recently forced Bain to withdraw from South Africa’s largest business association in disgrace.

These findings and events are devastating indictments of a company which operates at and influences the highest level of civil service and business around the world, including profitably from our own Government’s contracts for many years, and relies on the trust of its clients to deliver social and economic value.

Yet in South Africa, Bain used its expertise not to enhance the functioning of a world-renowned tax authority, as SARS was acknowledged to be, but to disable its ability to collect taxes and pursue tax evaders, some of them former President Zuma’s mates, all in the service of its corrupt paymasters. The very company which possessed the expertise to bolster South Africa’s defences against the ravages of state capture in fact weakened these defences and profited from it, yet this is the very company that works across our government and economy in the UK, influencing our public institutions and impacting millions of British lives.

Bain would have us believe that what happened in South Africa was the work of one rotten apple, but its South African office’s work was endorsed by leaders in London at the time and in its US headquarters in Boston, and many senior people currently working for Bain in London were in the South African business during the corrupt President Zuma era. Some of the very people who broke public procurement rules, colluded with Zuma and committed a “premeditated offensive” against SARS, as an earlier judicial commission described Bain’s actions, are now working in Bain’s London office through which it consults to our public institutions and businesses, including government departments.

We are not only dealing with the matter of to whom we pay taxpayers’ money, although that is a major issue; what should make us shudder is that we allow these people into the inner workings of our public institutions, including government departments. A company has demonstrated a propensity to act selfishly in its own commercial interest at the expense of public good. This is what Bain South Africa did, and it led to the devastation that followed. This is a warning to us all.

Given the scandalous collusion of Bain UK and Bain USA, I am asking that the UK Government and the US Government immediately suspend all public sector contracts with Bain and bar it from entering any new contracts. I wrote to the Prime Minister in February of this year requesting this, which resulted in Cabinet Office officials meeting with Bain. Subsequent to this meeting, the right honourable Jacob Rees-Mogg wrote to me in March this year and was clearly swayed by Bain’s superficial internal changes and repayment of only a tiny fraction of the fees that it had earned from South African public sector contracts in the corrupt Zuma era. Using weasel words, he assured me:

“The Cabinet Office continues to monitor the situation and will engage with Bain & Co again … to determine the most appropriate set of actions.”


To date, I have not heard anything about what has resulted from this monitoring or what set of actions has been determined. It sounds to me like Ministers are shelving any action, which is disgraceful if true, although I am encouraged that Mr Rees-Mogg has now invited me to meet him this Wednesday to discuss these matters.

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[Baroness Neville-Rolfe (Con)]

My Lords, I have listened to the debate and rise to address the Question that Schedules 6 and 7 be agreed. I am grateful for the support of my noble friend Lord Moylan, although he cannot be here today.

As the Committee knows, I speak from the perspective of someone who has worked in business and as a company secretary and a chair of the compliance committee in a British multinational business employing half a million people in several regions of the world, as well as in smaller for-profit and not-for-profit operations. I have also worked in government as a civil servant and a Minister. I worry intensely about the perverse effects of these provisions. My fear is that they will exclude good, dynamic and honest operators from contracts and serving the public good through procurement. Some firms and social enterprises could be put out of business. Many others, especially SMEs, will be persuaded to have nothing to do with procurement; and of course this Bill is immensely wide-ranging and covers at least £300 billion-worth of UK value added, including most utilities, which I have argued against.

The lists in Schedules 6 and 7 are very wide. Some exclusions are entirely new compared to the EU law they replace. Others have been promoted from the discretionary category to become mandatory. The new mandatory exclusions include corporate manslaughter, theft and fraud, and failure to co-operate. Schedule 6 also brings into the Bill offences in areas including money laundering and competition law, which are dealt with perfectly well in existing and separate regulations. There have also been several extensions to the grounds for discretionary exclusions; for example, a breach of contract, poor performance and “acting improperly in procurement”—goodness knows what that means.

I ask the Minister to think again about every new item and consider whether this gold-plating is justified, as I think it may be in the case, for example, of national security, assuming that is not covered in other regulations. Each and every firm and social enterprise will be involved in more red tape in having to verify compliance with every item across their organisation.

Clause 54, defining excluded suppliers, is key, so I want to play devil’s advocate. First, it gives contracting authorities a lot of discretion, so they can be difficult if they want to favour a particular bidder. Secondly, a mandatory exclusion applies to a supplier or an associated supplier, so compliance checks have to be spread into the nooks and crannies of their supply chains, over which prime suppliers have no direct control—that will help the French, by the way, who have more integrated supply chains. Finally, if there is a contravention such as a tragic manslaughter on a major building project, a theft or a fraud, a single conviction for modern slavery, or a tax or cartel offence a firm is pushed into settling by the regulators, that firm will then have to operate a tick-box system across all its operations to demonstrate in the words of Clause 54 that the circumstances giving rise to the application of the exclusion are not “likely to occur again”. How will they be able to do that?

Of course, I am against most of the evils listed in the schedules, but they do not need to be in this statute. In trying to do the job of the policemen, we risk seriously undermining the procurement sector and choking it with red tape. If we want to nationalise procurement, we should be more honest about it.

For large companies in many climes, compliance with these two schedules will be a nightmare, so they could decide not to bid and stick to non-public sector activities. Firms focused on procurement alone will be in constant fear of a contravention which will write off the value of their company, as they would be excluded from bidding in future, although officials reassured me that they would be allowed in again after five years.

This is not the public sector; a company cannot hang around for five years without any new business. I know from my own experience that small firms may be put off completely. We will see the loss of small suppliers to prisons, local authorities, transport systems and even defence, as we have already seen in the City and in housing because of complex regulation in financial services and delays in planning. Small firms do not have the risk capital needed to operate in such high-risk environments. This negative behavioural change is not costed in the impact assessment, although there is a brief non-monetised discussion on page 36. My concerns about Schedules 6 and 7 are not discussed at all; more unscrutinised guidance is suggested as the answer.

I feel that this is cross-compliance of the worst sort. It is inconsistent with a productive economy, and the people who will flourish will be lawyers and their counterparts in the public sector trying to apply these complex, wide-ranging regulations. I think that the schedules will have chilling effect. I ask my noble friend the Minister to look at both schedules again in the light of my comments on practicality, and devise arrangements that will avoid the perverse effects I have outlined.

As regards the other amendments, as I think I am speaking last, we had a good debate on small business last week, for which the noble Lord, Lord Mendelsohn, was sadly absent. I think we all agreed that it is an area that needs to be looked at again. However, for the reasons I have stated, I am a little nervous about a further exclusion to achieve the noble Lord’s objective, as proposed in Amendment 174, but we must come back to this issue.

As to further extending exclusions by SI, as proposed in Amendment 184, this is far too wide-ranging and vague, and could be abused. It could also cast yet a further chill on procurement by honest and good organisations and lead to retaliation against our own UK exporters. The more political we make procurement, the less vibrant the sector will be, hitting our growth and productivity, which already sadly lags behind that of many other countries. I hope that the noble Lord, Lord Hain, can find another way forward at his prospective meeting with the Minister of State.

My questions about compliance and resources also apply to Amendment 353, however well intentioned. I worry a bit that we are over-influenced by our experience on PPE, which was poor. However, we are now looking forward, of course, not backward. I am sorry to be critical.

In conclusion, there are many problems with this Bill. The easiest and best thing would be for it to be withdrawn, to look at the various points that have been made in recent days, and for the new Government to think again. In the meantime, I stand by the points that I have made as a practitioner.

[Baroness Stroud (Con)]

I just want to respond to my noble friend’s comments about Amendment 353 and underline a comment that my noble friend Lord Alton made. Actually, this is something that has already been done in the United States of America; there is already an Act that has been passed there. There has no chilling effect at all on government procurement. In fact, their Act is significantly stronger than anything we are proposing here. I ask my noble friend to be mindful of that. Companies are appreciating more and more being able to be confident and to tell their customers that they are in fact free of slavery in their supply chains.

[Baroness Neville-Rolfe (Con)]

The point is well made. I would be interested to know how long that Act has been in operation in the United States. One of the concerns I have had, looking at these various provisions in all their complexity, is that we are actually continuing relatively new EU requirements; they came into our law between 2014 and 2016 with a directive and a number of regulations. I am not clear to what extent they have been reviewed to be effective. You need them to be fair and effective, and you need to consider the people who are excluded as well as those who happily champion them—as one does if one works for a big multinational; I have worked for one. My comments are intended to encourage the Committee to look at the detail to ensure that perverse effects are minimised and excluded where they can be.