The UK's referendum on future membership of the European Union is in full swing, with voting on June 23rd. The campaigns are geared up and passionate arguments are being thrown back and forth. Many topics dominate the discussion, particularly immigration and the economy. Typically, less discussed is procurement, but it has not been totally ignored. In late May, the official campaign for the UK to leave the EU, Vote Leave, entered into the thus-far industry-specific discussions on whether procurement in the UK is better off in our out of the EU. This month's article disputes the claims and the evidence presented by Vote Leave and argues that the UK's procurement industry should wish to remain in the EU.
The crux of the argument by Vote Leave is that the EU imposes huge costs on the UK public sector by enforcing unnecessary regulations and excessive red tape. The EU certainly does create a lot of procurement regulations that the UK must follow through the European Procurement Directives. This means that procuring entities in the UK must publish tenders above certain thresholds continent-wide and allow bidding from all other 27 EU member states, with regulations around all manner of areas, such as minimum timescales, equality for bidders and countless procedural elements.
Whether these regulations are a help or a hindrance is one topic, but the first point to address here is whether leaving the EU would actually mitigate the undeniable costs of the regulations.
The idea that leaving the European Union would somehow remedy the challenges is not accurate, for three reasons.
Firstly, the EU Procurement Directives are transposed into UK law – in the circumstance of Brexit, the laws would not suddenly become void, rather would need to be actively repealed and replaced with something new. In the meantime, procurement regulations would be unchanged.
Secondly, if the UK left the EU, it would still likely be required to comply with EU procurement regulations. Under most trading relationships that are possible between the UK and EU, the UK would still need harmonised regulations to ensure British businesses could effectively trade in the EU on equal terms. To maintain unrestricted access to the single market, going by its rules is not very negotiable.
Finally, even if the UK did not need to comply with European Procurement Directives, it is almost unthinkable that the UK government would opt to regulate in totally dissimilar ways. The UK's procurement market was regulated in various ways before the EU Procurement Directives and requirement of continent-wide tender notices. If the UK obtained a more distant trading relationship with the EU, the regulations that would be drafted in the UK would be different of course, but probably not radically. Although the figures are unclear, the majority of the legislation in all areas created in the UK is domestically-drafted and these regulations are often-times no less stringent than regulation from the EU.
So are the regulations a help of a hindrance? A key tenet of the Leave Campaign is that the regulations impose extensive operational costs on the UK public sector, as their procurement is slowed down by burdensome regulations and all affiliated overheads. As a lead campaigner for Brexit, Michael Gove has stated that EU regulations on procurement "add significant operational costs and generate expensive delays to construction projects”. Meanwhile, the campaign claims that “procurement costs amount to 30% of the value of a small contract and procurement exercises cost £45,000 on average and delay contractual awards by 193 days” and that 0.7% of costs would be saved by leaving the EU.
Again, this assumes that the post-Brexit UK would have no procurement regulations and no red tape or inefficiencies, making this a highly misleading claim. Not just that, the cost of 0.7% is all costs of procurement, so assumes that procurement would have no cost whatsoever, including the “business as usual” costs. That means no overheads when buyers prepare specifications, evaluate offers or suppliers make bids, which is patently untrue. It is also not accurate to lay the blame of efficiencies on the EU, as the UK has higher operational costs than the majority of EU states and tender timescales are some of the longest of all member states – clearly delays are not just caused by EU regulations if other countries are doing better. Finally, when procurement goes horribly wrong, it is because of poor management, bad research and specifications or corruption, not because someone followed the regulations.
It is undeniable that the regulations have costs. In the very research quoted by Vote Leave however, there was clear evidence of benefits of the regulations, but this was omitted. The competitive tender process stipulated by EU procurement lead to overall prices being 2.5% lower than they otherwise would have been – clearly a huge saving.
Of course, there is far more to public procurement than just cost-saving and the campaign reducing the value of procurement to simply time and money is an affront to the entire industry. Whether the UK's procurement industry experiences a net cost or a net gain as a result of EU membership is only part of the story. EU processes and competitive tenders as a whole are designed to do far more than save money. With partial success, they are designed to spend government money more fairly and transparently. They are designed to make procurement equitable, giving opportunities to all bidders and removing discrimination from the process. Vote Leave seem to want to return to the days when government contracts were awarded on the golf course.
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