Public Procurement Analysis

Socially responsible public procurement after Brexit: Will it get easier?

EU rules have often been portrayed as a barrier to including social considerations in public contracts. Undoubtedly, having rules about competition limits the scope for implementing social policies if these discriminate against non-local suppliers. But outside of such discriminatory policies, the 2014 directives offer a wide range of options to pursue socially responsible public procurement (SRPP). For example, there is an increased ability to reserve contracts for social enterprises or programmes employing disabled and disadvantaged workers. While not a derogation from competition, contracts can be reserved for organisations where at least 30% of the workforce is disabled or disadvantaged. There is also now a clear ability to address social considerations such as fair trade in award criteria, a position written into the directives following the European Court of Justice’s judgment in the Dutch Coffee case (C-368/10). Bidders who have been convicted for child labour or people trafficking, as well as those who have failed to pay taxes or social security, must be excluded from tenders.

Perhaps most significantly, the 2014 directives contain a ‘mandatory social clause’ requiring governments to ensure that environmental, social and labour laws are observed in the performance of public contracts. This includes obligations under applicable collective agreements, and was one of the many amendments introduced by the European Parliament during the negotiation of the new directives. While England and Wales chose not to transcribe this article directly in the 2015 Public Contracts Regulations (PCR), it still has effect and is embodied in various other provisions – for example the obligation to reject tenders which are abnormally low due to non-compliance with such laws or collective agreements. Contracting authorities can also verify compliance on the part of parent companies or subcontractors where reliance is placed on these by the bidding company. Tenders which are based on illegal social dumping can therefore be rejected, even if the company has not been convicted of an offence.

While these may seem like relatively modest measures, they represent a substantial evolution from previous directives – and reflect the involvement of the ECJ and European Parliament as well as Member States. In particular, they offer substantially more support for SRPP than other international instruments concerned with procurement – including the WTO Government Procurement Agreement (GPA) and Comprehensive Economic and Trade Agreement (CETA) with Canada. In a recent paper comparing these agreements with the EU directives, I identify a number of areas in which the GPA and CETA appear to restrict social procurement measures which would be allowed under the directives. For example, neither agreement explicitly allows rejection of abnormally low tenders based on non-compliance with social or labour law, and the use of third-party labels (such as the Fair Trade mark or SA 8000) is also not endorsed. While these agreements are more general in nature than the EU directives and also less widely enforced, the lack of a clear legal basis for SRPP is a cause for concern given the vastly different social protection systems which exist in the countries which are party to them.

Turning to Brexit, the extent to which contracting authorities are able to pursue socially responsible procurement will be one of many issues to be resolved as the UK leaves the EU. It seems unlikely in the short term that the PCR or the remedies regulations will be repealed. However as noted previously on this site, public bodies may come under renewed pressure both to ‘buy British’ and to implement social policies such as employment skills and training via public contracts. These objectives need to be separated and careful consideration given to any proposals to change the legal framework. Any change in policy or practice is certain to come under scrutiny in the context of trade talks with the EU, and may also arise if the UK finds itself relying on WTO rules. The EU is still considering adopting a regulation on third-party access to its public procurement market, which would apply price penalties to companies from countries which do not open their own public contracts to competition. Aside from the trade implications, discriminatory procurement policies tend to undermine value for money and effectiveness in public service delivery. This is why the work done at EU level (with heavy UK input) to reconcile social protections with fair competition is so important.

One of the key areas where these two objectives have seemed to conflict is over the question of wages paid to workers on public contracts. While the Posted Workers Directive (PWD) makes clear than minimum wages set out in laws, regulations, administrative provisions and certain collective agreements can be applied, there has been greater doubt around living wage[1] policies in public contracts. The Scottish government engaged in correspondence with the European Commission on this issue several years ago; at that time it was advised against including the living wage as a mandatory condition for award of contracts. However two developments since that time suggest a shift in EU law which may make implementation of the living wage easier. The first is the aforementioned Dutch Coffee judgment, which endorsed the use of award criteria based, inter alia, on the payment of wage premiums to workers in developing countries. This creates an arguable case for use of award criteria based on the living wage, as I have set out in a paper to be delivered in Nottingham. The second factor is the proposed change to the PWD which would allow enforcement of a broader range of pay-related conditions in host Member States, rather than just minimum wages.

Questions such as the application of a living wage in public contracts have been subject to a detailed legal and political bargaining process within the EU. The balance reflected in the procurement directives and PWD is neither final nor static – it is subject both the ECJ’s ongoing interpretation and to legislative change. In this area, as many others, disentangling these bargains and cross-references to allow the UK to take an à la carte approach is far from easy. Moreover, it is not clear that the UK’s constituent regions would wish to make the same choices from that menu. Divorcing the text of ex-EU legislation from the evolving body of EU law in the manner set out in the Government’s March 2017 White Paper may lead to unintended consequences and risks creating a stricter, rather than more flexible, regime for UK contracting authorities. This would occur where CJEU case law is ‘fossilized’ in the manner set out in the White Paper, and where flexibilities introduced by the revision of the PWD, for example, do not form part of UK law. While a hard Brexit involving reversion to WTO rules might provide some additional flexibility on living wage issues, it is also likely to be accompanied by severe economic pressures which would undermine both the public and private sector’s ability to pay a living wage to employees in the United Kingdom.

[1] In the UK, the Living Wage Foundation has since 2001 calculated the rate of pay necessary for workers to meet basic needs given prevailing prices, including a small margin for unexpected expenses. The Living Wage has typically been 20-30% higher than the national minimum wage, with the separate London Living Wage being 30-40% higher. Voluntary commitments to pay the Living Wage have been made by some 2900 private and public sector organisations in the UK. This should be distinguished from the ‘National Living Wage’ introduced under the National Minimum Wage (Amendment) Regulations 2016, which is the legal minimum for workers aged 25 and over (£7.50 per hour as of April 2017).


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