James Arneill and Stephanie Hamer of Rawlison Butler LLP consider the current fall-out for the face of UK public procurement from the controversial decision to award a £1.6 billion contract to build 1,200 new rail carriages to German manufacturer Siemens, rather than UK-based Bombardier.
The Government’s decision in July to award a £1.6 billion contract to build 1,200 new rail carriages to German manufacturer Siemens, rather than UK-based Bombardier (leading to at least 1,400 job losses), caused much controversy, both locally and nationally.
Generally, public opinion, and also the recent view emanating from the current government, has been that British manufacturing should be supported as much as possible in the current economic climate and that the skills base should be protected. It is therefore unsurprising that the government’s decision led to much criticism and questions being raised over the UK’s application of the EU procurement rules.
But is it right to place the blame for the award of the contract to Siemens on the UK’s application of the EU rules? This article considers whether the UK is making the best use of the EU laws and the impact of the controversial decision.
Basis for the Decision
The government’s response to criticism over its decision has been that it had no choice but to award the contract to Siemens under European Procurement law and that its hands were tied by the rules put in place by the former Labour government in relation to that particular tender process.
The UK government was constrained by EU public procurement rules which require all public sector contracts – those issued by local authorities, central government and utilities over £100,000 for services and supplies, or over £4million for works – to be advertised in the EU’s Official Journal throughout Europe. Organisations throughout Europe can then place bids for the contract and each bid is then evaluated on their technical and financial merits. Usually the bid which is most advantageous in terms of price and technical quality will be favoured; however discrimination on national grounds is strictly prohibited.
The UK government abides by the EU rules and the result of the Thameslink process was no different to the numerous other procurements which have taken place in the past, with governments awarding contracts based on what will essentially provide the British taxpayer with the best value for money. In this case the Siemens bid was simply seen to be more appropriate, based on the above considerations, than the proposal put forward by Bombardier.
Criticisms
However, the Woods Report, produced for the government in 2004, alleged that it is common elsewhere in the EU for countries to support their own domestic producers without obviously circumventing the EU rules. The Report also highlighted ways in which the rules were being circumvented so that domestic producers could be selected, including:
(a) writing tenders in a precise manner so that only domestic contractors can fulfil them; and
(b) dividing the contracts into smaller segments so that each part falls below the threshold to trigger the compulsory EU tender process.
Furthermore, a possible loophole in the EU rules exists stating that the final decision as to who is awarded a contract should not necessarily be based solely on price but on the best value, which in theory could enable domestic contractors to be favoured on aesthetic, environmental or social grounds.
It is arguable that the government could have made use of this loophole when awarding the Thameslink contract and factored in social considerations such as the need to use local labour, maintain employment levels or establish a UK manufacturing base. If this line had been followed, the government could potentially have sought to protect the jobs at Bombardier without contravening the EU procurement rules, as sometimes appears to happen in many other European countries.
Reaction
But what does this mean for public procurement in the UK going forward (and would moving towards a more protectionist mindset every really be sustainable)?
Following public outcry over the decision, David Cameron has ordered a review of UK procurement rules in relation to major projects to identify how the rules may be amended so that UK companies can be placed on a more competitive standing with EU competitors for contracts in future (whilst remaining within the EU procurement framework). The results of this review are expected towards the end of this year.
What is also interesting is that the European Commission has also consulted on reform of the procurement rules and its evaluation, along with responses to a Green Paper on modernisation, were published on 24 June 2011 – just 1 week before the Thameslink decision. Further, the Remedies Directive is also now affecting how procurement professionals make decisions on whom they award contracts to. Key changes introduced by the Directive have been to the rights to challenge procurement awards, including:
(a) in limited circumstances, allowing cancellation of the contract; and
(b) allowing unsuccessful bidders to automatically suspend a contract award procedure by issuing a claim against the authority making the award; automatic suspension remains in place until either the authority applies to have it removed or the claim is determined by a court.
Crossrail
In light of the decision to review the UK’s application of the procurement rules following the award of the Thameslink contract to Siemens, the tender process to manufacture 60 carriages for the new Crossrail project has now been delayed until early 2012. The delay means that the government may potentially now consider the wider interests of the UK economy in its procurement policy whilst remaining within the EU rules and its recommendations can then be included in the tender made by domestic contractors.
It seems that the wider impact of job losses, support for local suppliers and the local economy, which were not considered in the Thameslink contract award, may now be of importance in deciding who is successful in the Crossrail bid and it has also been suggested that a British firm may be in a much stronger position to be successful on this project. This perhaps indicates a willingness on the part of the coalition government to find ways to support its own domestic workforce rather than simply abiding strictly by the EU rules and taking the benefit of the cheapest alternative from foreign competitors (even though in the long-run that may mean better value for the tax-payer).
Whether the adoption of such a line (if it is taken) may in turn be challenged by unsuccessful businesses elsewhere in the EU, on the basis of the underlying ethos of EU public procurement law (being the basic principles of equal treatment, non-discrimination and fair competition within the European single market) shall remain to be seen.
NOTE: In a recent development, the Thameslink procurement decision is now being investigated by both the National Audit Office, whose initial results are expected in October, and the Commons Select Transport Committee. The trade union Unite has also indicated that it is preparing an application for a judicial review of the decision.
For further information on public procurement law or public tenders within the UK or elsewhere in the EU, please contact James Arneill by emailing James or by calling him on 08450 990045, or speak to your usual contact in the Commerce & Technology Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.
