Public Procurement

Lord Watts Excerpts

Tuesday 6th March 2012 Commons Chamber

[Mr Harper]

I agree. It is an important principle, and where it is sensible to raise it, we should do so.

Let me turn to the substance of the proposed directives. Although the motion before the House rightly refers to the draft directives as a whole, the specific issue on which the ESC has drafted the reasoned opinion is the requirement that member states must establish “national oversight bodies”. I will therefore briefly outline the proposals as a whole and the Government’s position, and then I shall turn to our specific concerns, which are shared by the Committee, about the oversight body provisions.

To recap the background, since the early 1990s there have been EU rules governing procurement by public authorities and utilities. In this context, utilities are certain bodies operating in the water, energy, postal and transport sectors, where those bodies have certain special rights or a monopoly position. The directives currently in force were adopted in 2004, and were transposed into law in the three United Kingdom jurisdictions in 2006 by means of procurement regulations. In line with the devolution settlement, the Scottish Government did that separately in Scottish law by making their own regulations; that is relevant, as I shall explain shortly. In addition, there are directives that govern the rights and remedies available to aggrieved suppliers or other interested parties if a public body or utility breaches the rules when awarding contracts. In the UK, those remedy rules have been implemented by amendments to the procurement regulations.

The directives require EU-wide advertising of many requirements and establish specific procedures to promote fair, open and transparent procurement decisions to promote open market public procurement across the EU, encouraging competition, innovation and value for money. The Government are keen to see that those rules are properly respected across the Community to ensure opportunities for UK businesses and a level playing field for all.

Perhaps at this point I should say a few words about the Government’s wider position on public procurement. My right hon. Friend the Minister for the Cabinet Office and Paymaster General announced a series of major reforms to public procurement with the aim of using the public sector’s considerable purchasing power to promote efficiency and growth. The reforms will fundamentally change the way in which the Government buy by providing an open door for current and future suppliers to discuss upcoming procurement opportunities; making it faster to do business with Government by speeding up the procurement processes to world-class standards and removing unnecessary wasteful practices; working with industry to identify and address any key capabilities needed to meet future demand; ensuring that SMEs can access the value of procurement; and reforming the EU directives that govern public procurement.

Following consultation by means of green papers, the Commission published proposals for new directives. Its declared aim is to modernise, simplify and increase flexibility in the procurement rules. The public procurement proposal covers five main areas of improvement: simplification of procedures; the strategic use of public procurement to meet new challenges, such as increased innovation and environmental protection; better access for SMEs; sound procedures to discourage corruption and favouritism; and improved governance procedures. As the European Scrutiny Committee’s reports mention, the Government support many of those elements of simplification and modernisation and I am pleased to note that the Committee also welcomes those improvements.

There are some areas where the Government will continue to press for further improvements through the negotiations, working with other member states when they have similar aims. Those improvements include a review of and increase in the financial thresholds as early as possible consistent with wider international procurement agreements and a specific time-limited exemption for mutuals, so that they can become established before being subject to competition.

[Mr Dave Watts (St Helens North) (Lab)]

The Minister is setting out the rules to which the Government will work to ensure that there is free and fair competition across borders, but is not the rest of Europe ignoring all those rules and, in some instances, has no intention of opening up its markets to British companies? By not taking the same position, are we not disadvantaging our businesses?

[Mr Harper]

There are two separate issues. The first is what other European countries do, and the European Commission should be our ally in taking action to open up those markets. The second is what we do to open up competition, and I do not think that our adopting a protectionist strategy benefits us at all. Our companies trade globally, not just in the European Union, and we need them to be competitive and to be able to win business not just in the EU but in countries with fast-growing markets.

[Mr Watts]

Let me give an example. Recently, all police forces have decided to buy foreign cars with no parts made or manufactured in the UK. Can the Minister name another European country with a car industry where that has happened? I do not think there is one.

[Mr Harper]

Off the top of my head, no, as I do not pretend to have an encyclopaedic knowledge of all public procurement for cars across Europe. We will not help our car industry by having people make procurement decisions to buy such cars regardless of other criteria. We need to ensure that we take into account a wider range of criteria and the hon. Gentleman will know that the Government set out our steps towards making procurement decisions, taking wider features into account. The European Commission suggests using public procurement strategically to meet challenges such as increased innovation and environmental protection to ensure that some of those extra, wider issues are built into procurement decisions.

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[Michael Dugher]

I thank my right hon. Friend for his intervention: he is not noted for being on the left of any party, so it is refreshing—surprising—that he refers to Chairman Mao, but he is of course right.

I referred to weaker Ministers, but I pay tribute to my right hon. Friend: whether he was a Defence Minister or a Transport Minister, he was assiduous in standing up for British industry and challenging his officials—indeed, challenging other Ministers, whether in this Government or the previous Government—on behalf of the UK taxpayer and British industry.

The strictest and most inflexible approach to EU procurement rules seems to be almost an article of faith for some parts of the system here at home. Officials and Ministers might believe that they are acting like good Europeans, but the truth is that they do not act like other Europeans. Little wonder that the British public remain so sceptical of many of the European institutions.

[Mr Watts]

Is it not worse than that? Even when British civil servants and Ministers have a right not to apply European rules—for example, in defence—on more than one occasion we have seen those same civil servants advising Ministers to buy something that is not created in the UK.

[Michael Dugher]

My hon. Friend makes an excellent point. Defence is a good example—

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[Jacob Rees-Mogg]

With enormous success, which is acknowledged around the country and for which we are all grateful. However, I agree with the fundamental point that it is a political rather than a theological reality in this case.

By virtue of article 5 of protocol No. 2, any draft legislative Act should contain a “detailed statement” making it possible to appraise its compliance with the principles of subsidiarity and proportionality.

I turn now to the Committee’s view, as expressed in the draft reasoned opinion. The first conclusion we came to was that the Commission had failed to consult member states in the Green Paper, or otherwise, on the possibility of setting up a single national oversight body. This is in clear breach of article 2 of protocol No. 2, and I ask the Minister to say whether he agrees with this, and whether he intends to pursue it with the Commission.

Similarly, there is no evidence in the Commission’s explanatory memorandum or impact assessment of it carrying out the requirement under article 5 of protocol No. 2 to prepare a “detailed statement” containing

“some assessment . . . in the case of a directive of its implications for the rules to be put in place by Member States, including where necessary the regional legislation”.

As a consequence, the draft directive on public procurement and, by implication, the draft directive on procurement by public entities is said by the National Assembly for Wales to breach the devolution principle in both Wales and Scotland. I quote from the letter of 23 February from the National Assembly for Wales:

“The proposal also fails to have regard to the principle of devolution in imposing the duties on a single body.”

[Mr Watts]

I agree wholeheartedly with the thrust of the hon. Gentleman’s speech. The only weakness that I perceive is that it is clear to me that the Commission believes that there is not fair trade within Europe. Some countries abide by the rules and others do not. We have heard examples of that today. How would the hon. Gentleman address that problem?

[Jacob Rees-Mogg]

I am in complete agreement with the hon. Gentleman that one of the problems of the European Union has long been that we as a nation are particularly good at obeying the rules and our continental colleagues are not necessarily so good at obeying the rules. This is for all sorts of historical reasons and understanding of our constitution as against their constitutions. The problem, and the reason why I am fairly relaxed about them not obeying the rules, is that one would have to argue for more Europe and more intrusive regulation to get them to obey the rules. That would be a bad thing. I happen to believe, though I am not sure that Opposition Members share this view, that one-way free trade encourages efficiency in the home economy, that one can compete very effectively even with one-way free trade, and that we should be relatively relaxed about how they cheat, if I am allowed to use such a term in relation to our continental friends.

The National Assembly for Wales went on to say about the proposal:

“It fails to reflect the way in which separate implementing regulations have hitherto been made in Scotland, and the way in which extensive administrative and advisory functions in relation to procurement in Wales are exercised by or on behalf of Welsh Ministers.”

The Government’s explanatory memorandum does not consider the impact of the proposals on the devolution settlement, so I would be grateful if the Minister said whether the Government agree with the concerns raised.

Before turning to the Committee’s final conclusion, I should emphasise how important it is that the Commission, which has considerable executive power to initiate legislation, is obliged to consult properly, and prepare a “detailed statement” which assesses its proposals for compliance with subsidiarity. If it does not do so, we risk ending up with a provision such as this, which conflicts with a fundamental principle of the UK’s constitution. I trust that the Government agree with this and will take the Commission to task over it.

Finally, I turn to the proposal to establish a national oversight body, which not only would have a range of administrative and regulatory powers, but could “seize” the jurisdiction of the courts. The Committee thought this an alarming proposal, and it really is. It hits against the heart of our understanding of the separation of powers between governmental agencies and the judiciary. Again, no consultation on that proposal took place and it was not in the Green Paper—it came out later—so we have this great leap in our understanding of the law without any proper consultation. The Committee concluded that the proposal amounted to an unwarranted interference in the domestic legal order of the United Kingdom, where administrative and judicial powers have traditionally been exercised separately, and so infringed the principle of subsidiarity.

The Committee also considered that the combination of functions would be likely to prevent the oversight body from acting judicially without suspicion of a conflict of interest—we looked at that fairly recently when the European Court of Justice ruled in its own favour over the pay of EU officials, so we know how corrupt these EU courts can be—contrary to article 6(1) of the European convention on human rights. That is the core of the matter. It undermines one of the principal objectives of these two directives: to increase legal certainty in the award of procurement contracts. It is for these reasons that the Committee asks the House to approve the Government’s motion on subsidiarity.

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[Mr Cash]

I do not need to go any further down that route, other than to say that public procurement amounting to 18% of the EU’s GDP represents a significant advantage to countries with the maximum degree of foreign direct investment, if they are able to induce the Governments and official bodies of those countries to procure for them the return that they no doubt feel is justified, given the contribution that countries such as Germany make to the European Union as a whole. All that requires a great deal of careful analysis.

I do not want to be unduly suspicious, but I fear that there is a considerable amount of hand-wringing over the extent to which Germany is expected to contribute to the European Union in relation, for example, to Greece and to Spain, when in fact, as Wolfgang Münchau said in the Financial Times a couple of days ago, the root problem is the imbalance that Germany is creating by its refusal to import. I cannot be sure about this, but BIS should ask itself the serious question whether there is not a similar problem in relation to public procurement.

If Germany, for example, makes massive contributions to other countries in Europe, no doubt it believes that if it in turn obtains contracts for the roads, railways and all the other things that make up the public procurement system, it will therefore, through the contracts that it has secured there, receive a repayment—with fantastic profits attached, no doubt—that returns the money to Berlin. That is no doubt what it wishes to achieve—and is achieving.

[Mr Watts]

The hon. Gentleman hits on a real problem. As far as I can see, the German authorities, whether they be the Government, civil servants or politicians, all tend to see manufacturing as the core of what they do. They make every effort to maximise the potential work that they can generate for their own manufacturing industries. That is not the case in the UK, and we are in an unfair position because of it, so do we, as well as the Germans, need to change?

[Mr Cash]

I am glad that the hon. Gentleman raises that issue, because it is very much the direction in which we should go. We need an analysis and we need to know whether the UK is stepping up to the plate. We know that we have incredibly good industries, but are we making the most of them? Are we being cheated? Are we—if it falls short of cheating—being taken for a ride? Are the rules being properly complied with, and should BIS not conduct a strategic analysis of the issue, irrespective of the fact that the Business Secretary, being a Liberal Democrat, has an apparent abhorrence of investigating what I should like him to look at in terms of the inadequacies and manipulations of the European Union?

I am not being hostile or over-suspicious, but when 18% of GDP is tied up in such public procurement, it is very important for us to be completely sure that we are having a calm and collected look at the extent to which it operates for or against us. The evidence on Bombardier suggested that things had gone badly wrong. I do not really care which side of the House is at fault; as far as I am concerned, this is an opportunity to get it right. I am glad to see that those on both Front Benches are nodding in agreement, because I know that their main concern is to serve the national interest, and that would be well achieved by making such an analysis.

The document contains, as part of the study that the European Union conducted, issues relating to small and medium-sized enterprises. Bigger manufacturing industries tend to be able to look after themselves, but some SMEs need to be carefully monitored and given every possible advantage to enable them to get into the procurement market. The document also refers to the “strategic use” of procurement in Europe—strategic, I imagine, in the context of global trade.

There are deep concerns about the extent to which our water, electricity and many other main utilities are exposed to degrees of competition that are apparently not complied with in some other countries. I hope that that, too, will form part of the overall strategic analysis.