Procuring A Better Economy

The flurry of commentary which met the Scottish Government’s economic strategy in November 2007 focused heavily on the targets introduced for GDP growth. This was inevitable given the novelty – no other developed nation has such a target – and ambition of the growth targets.

The other targets included in the strategy received much less attention. Mindful that over a 30 year period the living standards of ordinary workers had become decoupled from economic growth, the Scottish Government also included targets on solidarity, cohesion and sustainability (collectively known as its ‘golden rules’), in an effort to ensure that rising output and employment would once again contribute to the broadly-based prosperity of the Scottish people.

All the signs are that the new majority SNP Government economic will not substantially modify its economic strategy so it is reasonable to assume that pressure to account for performance across the full range of its targets will increase though the course of this Parliament. The Scottish Government must therefore cleverly utilise the levers it currently possesses to effect solidarity and cohesion across the Scottish economy.

The relationship between government and industry will have to be closer and much longer-term and, yes, industrial policy – ignored for decades – has to become a reality once again

One such lever is public procurement. It is estimated that the public sector spends some £9bn in Scotland procuring goods and services. The way in which this money is spent could exert significant influence over the quality and shape of the Scottish economy. However, procurement is a fraught area for Government as it finds itself wrestling with three fundamentally contradictory imperatives:

  1. to make the procurement process more ‘efficient’ primarily through the aggregation of contracts to drive lower cost. Maximising the public sector’s buying-power through more professional collaboration between contracting authorities will reduce the scarce resources currently being wasted in costly and inefficient procurement. This approach is strongly associated with the McClelland Review of Public Procurement (Scottish Executive 2006).
  2. to engage more SMEs in the procurement process. This has been a campaigning priority for the small business lobbying community which believes that arcane, bureaucratic processes necessarily exclude the SME community and favour large companies. Action taken to remedy this situation (assuming for the moment that the small business gripes are legitimate) has included the establishment of Public Contracts Scotland (PCS) – a ‘portal’ designed to improve access to public contract opportunities the lowering of the thresholds at which contracts must be advertised.
  3. the delivery of ‘community benefits’ through the procurement process. Building on the view that public money should benefit the communities in which it is being spent, community benefits clauses on social, employment or environmental objectives can be embedded within public contracts; the delivery of skills training and apprenticeships is probably the most common such benefit. The Scottish Government lists a number of such projects where social benefits have been or will be delivered such as the Commonwealth Games, the new Southern General Hospital and the Energy Assistance Programme.

As public spending is slashed over the coming years, it is reasonable to assume that the ‘efficiency’ agenda will trump the other imperatives. Such an approach would however necessarily lead to economic value being sucked out of Scotland as the global corporations best placed to bid for larger contracts cut jobs, repatriate profits and drive down wages. It also risks strangling the nascent community benefit approach before more communities experience the positive change precipitated by enlightened procurement policy.

The STUC has developed its policy on public procurement around two central aspirations:

  • For procurement to play a pivotal role in securing the future of Scottish manufacturing. Trade unions recognise that public authorities must operate within EU competition rules but so far other countries have been far better at giving their manufacturers a slice of the public procurement cake; and
  • For procurement to be used to drive up standards across the economy. Contracts drawn up with suppliers and service providers can incorporate clauses on better employment standards, training provision, health and safety and environmental sustainability. There is significant potential for procurement to help make Scotland a better place in which to live and work.

A new approach to procurement in Scotland should not start with a consideration of what is possible under EU law; it should instead build from an analysis of ways in which as much economic value as possible can be retained in Scotland. This will involve forward-looking assessments of procurement requirements and the capacity of the Scottish economy to deliver. An approach which gave equal weight to the range of economic strategy targets would focus on three areas: community benefits, standards and manufacturing.

Recent progress with community benefits must be maintained in order that such clauses become the norm in public sector contracting. The Scottish Government’s pilot Community Benefits in Procurement (CBIP) programme confirmed that there is scope within the EU legal framework to use contracts to deliver community benefits and also that practical and ‘value for money issues’ can be overcome.

The economic and social value of such clauses is manifest: in areas of persistent economic inactivity more local people are employed in full-time jobs having been provided with the opportunity to develop new skills. There is an immediate impact on individuals, families and communities and a longer-term benefit to the public purse.

Building on the CBIP lessons by bringing procurement and wider economic policy closer together, contracts must be drawn up in such a way that standards are improved across the economy. The CBIP pilots, in areas such as Raploch and Inverclyde, were primarily focused on targeted training and recruitment requirements. The STUC believes that targeted training and recruitment should only be the start. We firmly believe that issues around quality of employment (living wages, pay, employee engagement, length of contract etc) and environmental standards can and should be included as community benefits. These might include commitments to:

  • Pay at least a living wage – or union negotiated standards for the industry;
  • Excellence in health and safety and a formal role for trade union workplace reps;
  • A narrow range of pay over the workers involved in the contract i.e. preventing executives looting the contract;
  • Employee engagement. Evidence confirms the value of workplace democracy and the Scottish Government has been happy to promote this approach through its ‘skills utilisation’ agenda; it should embed this approach in public procurement;
  • Skills training – not just for unemployed workers taken on through separate community benefit clauses but for the enterprise as a whole. If the Scottish Government places such a high priority on skills and apprenticeships, it simply shouldn’t contract with firms which refuse to maintain such standards;
  • Sustainability of employment/length of contract etc.

There are precedents. Trade union campaigning led to several such clauses being included in the tender for the Clyde and Hebrides Ferry Services in 2007. Although the Scottish Government could not state explicitly that TUPE would apply as a matter of law, a clause was inserted which ensured that, if TUPE was found not to apply, any savings accrued through cutting jobs, wages or terms and conditions would be clawed back by the Scottish Government. Therefore there was no incentive for private operators to do what they usually seek to do. For any government concerned with a fairer distribution of income and the economic stability a fairer distribution helps support, such clauses must become the norm.

Procurement policy must also ensure that Scotland’s manufacturers have confidence that they will benefit from public procurement. Other member states are far more adept than the UK at retaining economic value within their borders. Far-reaching culture change is required if Scotland is to achieve similar outcomes. The civil service will have to be guided by economic and employment outcomes in Scotland rather adhering to the letter of EU law. The relationship between government and industry will have to be closer and much longer-term and, yes, industrial policy – ignored for decades – has to become a reality once again.

For instance, much of Scotland’s ferry capacity will have to be replaced over the next 15 years. Over a period when defence contracts are likely to be scarce, keeping these contracts in Scotland could prove vital to sustaining jobs and key strategic skills. Is there any proactive work underway to appraise industry of forthcoming opportunities?

Similarly, recent decisions by the UK Government have all but ensured that the UK will lose its remaining capacity to build rolling stock for the railways. The Scottish Government has invested heavily, and will continue to invest, in Scotland’s railways. Increasing capacity is essential if climate targets are to be met. Is the Scottish Government talking to for example bus manufacturer Alexander Dennis to identify whether it has the skills and infrastructure necessary to invest in this market? It could even provide seed funding to assist with diversification while working to ensure that the firm was best placed to benefit from future contracts.

The Scottish Government could also create lead markets through ‘Forward Commitment’ procurement initiatives – learning from examples in Sweden and the US, the Government can play a key role in developing programmes to design and sell innovative green products. Forward Commitment programmes draw together a group of organisations to define a need (i.e. a more energy efficient IT system). Bids are then sought to deliver a product or service that meets this need. The specification of the need will include a range of criteria that must be met and the procurement group commits to purchasing a minimum amount of the new product or service provided these criteria are met.

Unfortunately, it is necessary to conclude by stating that enlightened procurement policy alone will not lead to a new fairer, more sustainable economic and social model. At UK and Scottish level, economic and industrial policy is so deficient and government at all levels so deferential to employer lobbying that major structural problems will persist with or without better procurement.

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