Bannon, the shambolic former chief strategist to President Donald J. There is, however, a significant point on which they both agree: The financial crisis of , along with the bailouts that followed, exposed the seamy underbelly of a global economic system that was supposed to be so finely calibrated that political wrangling unseemly, inefficient was beside the point. He connects the mortgage crisis to the American banking crisis to the European debt crisis to the crisis of liberalism.
Having published previous books on the turbulent post-World War I era and the economic policies of Nazi Germany, Tooze has made a specialty of financial collapse and historical disaster. He also understands the language of corporate balance sheets and sovereign debt deeply enough to know that he ought to use it sparingly, translating some of the most byzantine gibberish into elegant English. In contrast, potential drawbacks of schemes which replace public decisions with private ones include:.
Unfortunately, both the Green Deal and Verify vividly illustrate these problems. I discuss these in more detail in the paper, but will summarise here. At its launch in , the Green Deal was expected to support 14 million UK households and businesses to implement energy-efficiency measures. It wished to achieve this without significant public expenditure, by setting up a finance structure to allow householders to pay back the costs of improvements via energy bills. The Green Deal employed a complex structure of private and public actors, as illustrated in the below diagram.
This was intended to ensure the scheme was both attractive to households and financially viable for lenders. The Green Deal quickly ran into a number of problems. Chief amongst these appears to be that the interest rates under the scheme were too high to make investment attractive to a large number of households. The complexity of the assessment and application process was also off-putting to many.
Despite the intention to set up a trustworthy supply chain, multiple scams involving fake Green Deal assessors were reported. A short-lived grant scheme, the Green Deal Home Improvement Fund, provided cash incentives in an attempt to boost take-up — but this created uncertainty for households deciding whether to take on a loan. Surveys indicated that property owners were concerned about the need to gain permission from their mortgage lenders, as well as potential difficulties in switching energy provider or selling their property.
These problems combined to make the scheme unattractive to householders. The lack of take-up for the scheme undermined the finance model. The expectation was that the Green Deal Finance Company would become self-financing, however its loan book never reached sufficient volume for this. Unlike many of their European neighbours, British citizens do not hold any universal form of identification.
The services to be supported ranged from filing tax returns, to applying for or renewing driving licences, to accessing social welfare payments. Pre-existing methods of accessing government services online, such as the Government Gateway system used by HMRC, often required a code to be sent by post. Verify aimed to replace such systems, as part of the broader Government as a Platform GaaP programme. Following a procurement exercise in , seven companies were appointed to a framework agreement to provide identity assurance services under Verify.
Providers would be paid a fixed fee for each user signing up, and a further fee for each year their profile remained active. By appointing multiple providers, the GDS aimed both to enable citizen choice and to encourage innovation within a competitive marketplace, in particular to develop alternative approaches to identity assurance. Figure 3 illustrates the structure of Verify. However, it ran into a number of problems which have severely limited its take-up. These problems arose both internally, with departments reluctant to commit to switching to the service, and externally, with providers experiencing difficulty in meeting the target verification rates.
These problems became mutually reinforcing, as low s uccess rates meant departments did not feel confident in abandoning older systems, and low demand meant providers could not afford to invest in more effective approaches. The cost to government was also intended to reduce as user numbers increased.
By February , just 3. Twenty government services currently use Verify, less than half the number expected by March At least 11 of these services can be accessed through other online systems. The low take-up means the ambition for Verify to be self-funding has not been met. The Cabinet Office has announced that it will stop funding the service in March — with the intention that the private sector will take over the service.
Both the Green Deal and Verify employed novel contracting arrangements which involved citizen choice. Although the primary aim was not to avoid application of the procurement rules, these schemes vividly illustrate the pitfalls of removing government from the decision-making process. Reflecting an underlying small-state philosophy, the Green Deal and Verify aimed to create competitive private markets for the provision of technically challenging services. The attraction is clear: where the ultimate beneficiary of a service is the citizen, surely removing an inefficient intermediary such as the state will yield better results?
As has been seen, the picture is not so simple. With the legal environment encouraging further experimentation with such schemes, it is important to subject them to proper scrutiny, including on their ability to deliver much-needed environmental, social and innovation objectives.
However, this Act was repealed in due to widespread public concern about its scope and use, and the database was destroyed. However, neither report appears to have taken evidence from providers involved in Verify.
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The NAO report does include a very moving piece of written evidence from a frustrated user, Mr. Just to prove your identity. Ultimately, no system can ever really confirm who you are. Ironically, I still have an Identity Card from the s which was issued when you were born, so that you could use the post-war rationing system. It also excludes users who drop out before finishing their applications. This is a blog about public procurement.
Audacious I know. The draft regulations represent an attempt to preserve the substance of EU-derived procurement law in the UK while transferring certain powers currently exercised by the European Commission to the Minister for the Cabinet Office.
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The regulations are designed to be relatively uncontroversial and do not introduce substantive changes, although they will require some adjustments to the practices of UK contracting authorities. The draft regulations also provide that for a period of eight months after Brexit day, economic operators from EU countries and other parties to the WTO Government Procurement Agreement will continue to be subject to the same treatment as UK operators. So far, so uncontroversial. But what clues do the draft regulations give us about the future direction of UK procurement policy? And is this different to the direction of EU policy?
What is certain is that these changes will require additional cost and time to implement, and create a few headaches for civil servants, procurers and bidders. Perhaps there will be time to do these things later on. But the opportunities to do so will be constrained by the desire to achieve trade deals which include access to government procurement abroad, the price of which will be reciprocal access to UK procurement and the guarantee of fair and transparent procedures.
What will the landscape be in ? The Commission will be nearing the end of its term, along with the European Parliament. The UK Government will have changed, at least once. The UK will be pursuing its international trade ambitions, and will be cautious about adopting any radical changes to procurement law which might put off trading partners.
Procurement will become a bargaining chip in larger negotiations regarding trade. Developing truly bottom-up procurement policy driven by citizen needs and expectations would be the radical option; more probably it will be driven by international deals and institutions which are considerably less responsive and transparent to citizens than the EU is. On the other hand, EU institutions will find it difficult to draw back from the engagement with social and environmental issues which characterised the last reform of the directives — and which lead to unprecedented public interest in the procurement rules.
Ultimately the UK and EU may choose to pursue very different procurement policies: one aimed at securing the maximum number of trade deals, and another aimed at protecting the integrity of the single market while incorporating the social market economy principles set out in the Treaty of Lisbon. Such divergences could lead to very different legal frameworks despite the shared objectives which both jurisdictions have for government procurement: transparency, fairness, sustainability and competition.
They would also inevitably increase costs for companies bidding in both markets, and reduce the transfer of knowledge and innovation between public sector bodies in an area which has the potential to support sustainable economic growth. Forget the ferry from Ostend to Ramsgate; we should all be worried about these bigger ships passing in the night. Passport procurement blues. They already have a similar contract to print UK driving licences, and are proposing to use several British facilities to deliver the passport contract — so concerns about national security and job losses are likely to be overblown.
Nevertheless it still seems to make for good politics — on both sides of the spectrum — to bellow about foreign companies winning contracts and to point out that France, Italy and other EU countries have availed of exemptions to the procurement directives in order to keep such contracts for domestic firms. It is true that France, Italy, Spain and some other countries do not run public tenders for the printing of passports. This is because they are printed in-house by state owned companies — meaning no private firm gains an unfair advantage over its competitors.
This approach would also be open to the UK, but the decision was taken years ago to outsource. Many other countries also outsource the printing of passports and secure documents, as the company seeking to challenge the decision, De La Rue, knows well. The scope of the exemption from the procurement rules for security reasons was recently tested in a case concerning the printing of passports in Austria.
Austria had argued that it was entitled to award all contracts for the printing of passports and other official documents directly to a single private company, in order to protect its essential security interests and sensitive data. The Court of Justice comprehensively rejected this argument, as Austria had not shown how its security interests would be jeopardised by a public tender process.
The Court did however accept the direct award of a small contract for the printing of fireworks licences to the company in question, as this fell below the thresholds for application of the procurement rules and the Commission had not shown that it was of cross-border interest. Fireworks licences aside, there are good reasons to allow international bidders to compete for public contracts.
Contrary to popular perception, the number of bids received from international bidders and the number of contracts awarded to them is quite low — just 2. In contrast, UK companies do relatively well at winning public contracts in other EU countries, second only to German companies.
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Given the wide range of goods and services purchased by government, it is natural that for some contracts the best bidder will be a foreign company, and the decision to award on a cross-border basis should not be met with political opprobrium. As the fallout from the collapse of major government contractor Carillion became clear on Monday, Cabinet Office minister David Lidington defended the decision to award contracts to the company despite a series of profit warnings and other signs of deep financial problems.
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But do the public procurement rules really require the government to award contracts to financially unstable companies? There are many ways under the UK and EU procurement rules to evaluate the financial stability of a contractor, and to exclude them from bidding or end contracts where appropriate. This begins at the selection stage with the ability to assess financial and economic standing, continues through the bid evaluation stage with the obligation to identify and, in certain cases, reject abnormally low tenders, and includes an almost unlimited number of measures which can be taken at contract performance stage to ensure ongoing financial viability, and to enable termination or assignment of a contract where the contractor is in trouble or failing to deliver.
I discuss these measures in more detail below. While the Carillion debacle cannot reasonably be blamed on the procurement rules, there appears to have been a failure to properly interpret and apply the relevant rules. What went wrong. Nevertheless, the strategy of piling numerous low profit contracts upon each other was a high risk one. It seems the government adopted a strategy of hoping that Carillion could trade its way out of trouble, not an entirely unreasonable idea Serco did something similar, although by adopting a different strategy , but riskier than extricating itself from troubled contracts and excluding Carillion from bids once its problems became clear.
Contracts awarded after Carillion began issuing profit warnings in July can be seen as bailouts-by-other-means — an attempt to help Carillion maintain its cashflow despite its problems. Can a company be excluded if it has issued a profit warning? The Court of Justice has upheld the use of various indicators in this regard, including a requirement that bidding companies demonstrate successive periods of profitable operation.
Public bodies can also require that performance guarantees be issued by financial institutions at selection stage. Of equal importance to the choice of criteria is the ability to meaningfully assess the information submitted by bidders, seek clarifications where needed and to decide when a bidder should be excluded. While many contractors will seek to challenge an exclusion decision, provided the rules are clear and proportionate to the size and nature of the contract, such challenges are unlikely to succeed.
Beyond assessment of economic and financial standing, there are two exclusion grounds which may be relevant in cases where a company is carrying large amounts of debt. The first applies if the company has not kept up with tax or social security including pension payments. What if a profit warning or other evidence of problems appears after the qualification stage? The directives and Public Contracts Regulations are very clear that a company may be excluded at any point in a procedure where one of the grounds is found to apply.
Both Lidington and Manzoni pointed out that the major contracts awarded to Carillion including HS2 after July were those in which it served as part of a joint venture or consortium. Does this change the situation regarding selection and exclusion? Again, the procurement rules are very clear that when a bidding company relies on other entities whether as part of a consortium or otherwise for the purposes of qualifying for a bid, the exclusion and selection criteria must also be applied to that entity.
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If a contractor does manage to satisfy a contracting authority of its financial stability and proceeds to the bid stage, there is still a need to evaluate the financial viability of the bid itself. The rules on abnormally low tenders require that these be investigated, with bidders being given an opportunity to explain any pricing which appears to be unsustainable.
It is ultimately up to the contracting authority to decide whether such explanations are convincing or whether a real risk of non-performance or other problems remains. Where a tender is abnormally low due to a company not complying with environmental or social laws including pension regulations and any applicable wage agreements , then it is mandatory to exclude that bid.
The Public Contracts Regulations require contracting authorities to pay undisputed invoices within 30 days, and also require contractors to apply these same payment terms to subcontractors. Any robust public sector contract awarded since should include sanctions for contractors not applying such terms in their contracts — which it seems Carillion was not.
Sharing information between departments. One factor which seems to inhibit government departments as well as the wider public sector from applying selection and exclusion rules robustly is the fear that other authorities will take a different approach. This is not necessarily a bad thing — as mentioned the assessment of financial capacity should be specific to each contract and a company may be perfectly capable of performing a smaller or lower-risk contract.
However given that much financial information is not in the public domain, there is some value to having common sources of information about major government contractors. Contract management measures. The procurement rules have always left public bodies a wide discretion to define their contract terms. Where concerns exist about the financial stability of a company, special terms may be added to provide government with early warning of this and to take appropriate measures to minimise the risk to public services. Undoubtedly some of these terms exist in the Carillion contracts, but there is a question as to why they were not activated earlier, potentially averting the major scale of intervention which must now be taken — placing considerable stress on government resources.
Like selection and exclusion criteria, contract terms should reflect size and risk, and provide for a range of interventions which may be appropriate for situations of varying gravity. An in-house solution? The public sector cannot and should not directly provide all of the goods, services and works which citizens expect it to deliver — that would limit both the quality and quantity of public services while undermining competitive markets. Given the number of prominent failures in outsourced contracts, it is understandable that questions are asked about the overall benefits of outsourcing.
There is no obligation under the EU procurement rules for a public body to award a contract for any service if it doesn't wish to. In-house bids can be considered either in advance or as part of competitive procurement procedures, meaning that if the public sector is in a better position to deliver a particular service directly, it should do so.
Naturally private contractors are not always keen on this approach, but they have also failed to challenge it successfully. These rules seek to balance the idea of fair competition with the right of the public sector to choose who it wishes to contract with, and allow government to include a wide range of economic, environmental and social considerations in these decisions.
This article has identified five separate grounds on which companies in a similar situation to Carillion may either be excluded from bidding for public contracts, have their bids rejected or have contracts terminated under the current EU and UK procurement rules:. It is therefore grossly misleading to suggest that the procurement rules required the government to continue awarding contracts to Carillion after its financial difficulties became clear.
While hindsight is a wonderful thing, Carillion may be a canary in the coalmine for poor procurement and contract management practices which extend to other major government contractors who find themselves in similar financial holes. The original case, brought under the Financial Regulation which governs procurement by EU institutions, is notable for its detailed discussion of manifest errors of assessment, conflicts of interest, exclusion for corruption and the duty to give reasons to unsuccessful bidders.
ED came fourth in the competition, despite obtaining the highest score on each of the three technical criteria. It challenged the decision on three grounds: failure to exclude the other bidders based on alleged conflicts of interests and corruption, numerous alleged manifest errors of assessment in the evaluation of the technical and financial criteria, and the level of detail provided by EUIPO regarding the scoring of its tender. Conflicts of interest and corruption. The first alleged conflict of interest related to the participation of PwC Spain in one of the consortia admitted to the framework.
While some scepticism about the efficacy of Chinese walls within corporate groups may be natural, the existence of a specific confidentiality obligation, together with the lack of opportunity to influence the content of the tender, does seem to greatly reduce the risk of a conflict affecting a tender. Under the directives, the duty on contracting authorities to prevent conflicts of interest is balanced against the right of a bidder to demonstrate that it could not have gained an unfair advantage.
This is an issue which must be considered from the early planning stages, particularly in IT or other complex tenders where external input is often needed to prepare specifications. While contracting authorities may require companies preparing specifications to refrain from bidding for the main contract, they may not be able to bind other companies in the same corporate group — and the proportionality of this approach might in any case be questioned. The Court also appeared to attach significance to the fact that the consortium had scored lower on the technical criteria than European Dynamics — in my view this does not in itself mean that no unfair advantage was gained, as any such advantage may have been outweighed by other factors.
A second alleged conflict of interest arose from the fact that one of the bidders had also bid for a second framework being established by EUIPO, which would involve developing specifications for, and monitoring work carried out under, the first framework. At the time of the tender in question, no contracts had been awarded under this framework. European Dynamics itself was also eventually admitted to the second framework, leading EUIPO to argue that if the conflict of interest argument succeeded on this count ED would also have to have been excluded from the procedure and would lose its claim for damages.
In the event, the Court did not consider the claim valid, as the second framework was not yet in existence at the time of the disputed tender. This raises an interesting question regarding the possibility under Art. EUIPO had specifically referred to the possibility that holding a contract under the other framework might amount to a conflict of interest and result in exclusion, however as this was not the case at the time of the tender it had not excluded the second consortium. Finally, ED alleged that Siemens, a key partner in one of the successful consortia, should have been excluded on the basis of its admissions of fraud, corruption and bribery in cases brought in Germany and the United States, and its payment of fines to settle those cases.
While Siemens had not been convicted of any crime, the Court found that EUIPO had failed to seek the necessary evidence of this required under the Financial Regulation. It had also only received the declaration from one of the two Siemens entities involved in the consortium. The General Court held that it had breached its duty to seek evidence in respect of the grounds of exclusion. Is this also a duty under the directives? Bidders are able to rely upon self-declarations including the ESPD to prove that they comply with the exclusion grounds in the first instance, but contracting authorities must seek documentary evidence in relation to the exclusion grounds prior to contract award.
They may also do so at any earlier point where this is necessary for the proper conduct of the procedure. In situations where there are clear grounds to suspect a company of wrongdoing, this obligation is likely to be activated see my previous blog below about the Rolls-Royce deferred prosecution agreement. Manifest errors of assessment. ED also advanced a large number of claims of manifest errors of assessment, roughly half of which were upheld by the Court.
The financial evaluation consisted of two parts: 70 marks were assigned based on the average day-rate tendered with the lowest average rate receiving full marks and other bids marked proportionately and 30 marks were assigned based on the average efficiency ratio based on the number of days required to carry out three hypothetical jobs, with the lowest average again receiving the highest score. Arguably any cost evaluation formula which is divided into parts which are weighted separately is capable of giving rise to distortions for example, if a bidder had a high average rate but was extremely efficient, they might score lower than a bidder who had a higher overall cost but a low daily rate — however ED did not succeed in demonstrating this.
Duty to give reasons. The concept of bidders losing marks must be treated with caution in my view, as in most evaluation techniques it is not the case that each tender starts out with full marks and points are then deducted for specific shortcomings. While some contracting authorities do in fact use model tender answers, this can make evaluation formulaic and detract from a genuine exercise of discretion on the part of evaluators.
It is also inappropriate where specifications are output- or performance-based, as there will be more than one way to gain full marks under qualitative criteria. While ED had received its scores and the scores of each of the three successful bidders, it sought a full copy of the evaluation report and copies of the successful tenders. The Court thus appeared to introduce a higher standard of disclosure than has previously been contemplated in EU case law on tender evaluation.
In some ways this case perhaps says less about the duty to give reasons and more about choice of evaluation method. EUIPO had adopted one of those unfortunate, but common at least in recorded case law evaluation methods which results in only a very small number of marks se parating tenders on the technical criteria. To me this almost always indicates a failure to use the marks available to properly distinguish between bids, keeping in mind that they are being compared to each other and not to some ideal standard.
Contracting authorities may be better off using intervals spread across the whole range of marks to score technical criteria. Otherwise there is effectively a distortion of the published marking scheme — as the full range of marks may be used to score cost whereas only a very limited range of marks is used to score quality. The result is that cost ends up having a heavy influence on the final result, even when there is not a large spread of tendered costs.
As so often in procurement, it is when the contracting authority itself generates detailed rules but then fails to explain or follow them that it gets into trouble. Regardless of whether the Court of Justice chooses to follow AG Mengozzi and the General Court on this point, contracting authorities are well advised to apply relatively simple scoring methods for technical criteria, explain them in the tender documents, and give tenderers a full statement of reasons which shows how they have exercised their discretion in evaluation. 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 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. 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 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 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. 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. 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 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.
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. 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 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. Moreover, it is not clear that the UK's constituent regions would wish to make the same choices from that menu.
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. Voluntary commitments to pay the Living Wage have been made by some private and public sector organisations in the UK. Discover how to become an effective strategic thinker Some people seem to achieve the best results, again and again.
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