Agenda: How to ensure companies abide by our laws when given public contracts

Agenda: How to ensure companies abide by our laws when given public contracts
The Herald Scotland, by David Faith
22.01.16

 

The EU regulations on public procurement are not sexy. They do not make for thrilling reading and most people pay them little or no attention. In fact, normally the only people who are interested in procurement law are procurement lawyers and procurement professionals.

 

With recent debates about the Living Wage and the privatisation of Caledonian MacBrayne and Business Stream, that may be changing.

 

Procurement regulations are important. They regulate which companies win public contracts and, if they are implemented correctly, can ensure that unethical companies – those that dodge their taxes or interfere with human rights – don’t receive public money.

 

The debates around the Living Wage in procurement and the privatisation of the CalMac and Business Stream contracts were curious not only because they were about procurement law but also because, in one sense, everyone agreed that companies paying below the Living Wage shouldn’t win public contracts. They agreed that the CalMac and Business Stream contracts should remain publicly owned. Where the disagreement came was with the law. One side argued that the Scottish Government had no choice as its hands were tied by EU regulations. The other side argued that there was a choice and the EU regulations were being used as a smokescreen for inaction.

 

Now we have an issue where, to my mind, there can be no debate on either the desired outcome or the choices available to the Scottish Government.

 

Let’s look at the desired outcome first: a company that does not pay its taxes should never be given taxpayers’ money in the form of a lucrative public contract. These companies not only cheat the public out of money, they also unnaturally inflate their profits, which creates an unfair competition and cheats ethical companies that inevitably lose out.

 

Similarly, a company that does not respect human rights by breaching environmental, social and labour laws should not profit from public contracts. Freedom of association and the right to organise are fundamental principles and rights at work. These are legally binding standards recognised in international treaties as ratified by the UK. Again, I’m confident we can all agree that companies that interfere with these rights have no place winning public contracts.

 

If we’re agreed on the desired outcome, that just leaves the available choices. Here we turn to the 2014 EU Procurement Directives. Under these directives, the Scottish Government can exclude, from all public contracts, any company that fails to meet its tax obligations or breaches any environmental, social or labour laws. There can be no debate about this choice. Article 57 makes clear that any state implementing the regulations can choose to make these issues mandatory grounds for exclusion.

 

In Scotland, we are in the process of implementing the regulations. Legislation has been laid before Holyrood and will become law shortly. Unfortunately, the Scottish Government has made the wrong choice. Tax-dodging is not a mandatory ground for exclusion and – with one welcome exception – neither are breaches of environmental, social or labour law.

 

This means the Scottish Government will leave it up to the contracting authority to decide whether to exclude companies that dodge their taxes or interfere with human rights.

 

That might not sound so bad. Surely the contracting authorities – councils, non-departmental public bodies, universities and so on – will exclude companies engaging in these unethical practices? Unfortunately, from the consultation responses provided by these bodies, it’s clear they are unlikely to use these ground of exclusion for fear they might be sued. Without a mandatory exclusion and clear guidance to public bodies from the Scottish Government on how to demonstrate a company has failed to meet its tax obligations, companies that dodge their taxes or interfere with human rights will continue to win public contracts and receive taxpayers’ money.

 

Action on Procurement isn’t about party politics: we are a cross-party collective that includes SNP activists; it’s about drawing attention to a not-so sexy topic to help make sure the right choice is made. We have sent an open letter to Keith Brown MSP (Cabinet Secretary with responsibility for procurement) asking him to send this legislation back and have it re-written. Everyone should do the same.

 

David Faith is a non-practising solicitor and co-founder of Action on Procurement.