Official Report 573KB pdf
Agenda item 2 is an oral evidence-taking session with the Cabinet Secretary for Infrastructure, Investment and Cities on public procurement reform. I welcome to the meeting the cabinet secretary, Keith Brown, and from the Scottish Government, Paul McNulty, deputy director of the procurement policy division; Iain Moore, head of the procurement policy branch; and Mark Richards, solicitor.
I invite the cabinet secretary to make an opening statement.
Thank you very much, convener, and thank you for the invitation to come along and update the committee on our proposals for implementing changes to procurement legislation in Scotland. I will try to outline the progress that I believe we have made so far as well as our current position and our plans for implementing the changes, which, as I am sure the committee is aware, we must implement by April 2016 to comply with the deadlines set out in the European Union procurement directives.
The committee will be aware that the past few years have seen a period of significant improvement in public procurement in Scotland through the reform agenda. Some committee members will be familiar with much of the background, having been involved in the development of the Procurement Reform (Scotland) Act 2014, which builds on that improvement. The act, which establishes a national legislative framework for sustainable public procurement to support Scotland’s economic growth through improved procurement practice, received royal assent on 17 June last year.
Since then, work on developing regulations and statutory guidance arising from the 2014 act has been carried out in conjunction with work on transposing into Scots law three new European procurement directives covering public sector procurement, utilities sector procurement and the award of concession contracts. The changes, taken together, are complex and the timetable is challenging, so in order to be as cohesive and consistent as possible, we are taking forward the changes as a suite of activity.
Our intention is to make the changes as simple and as easy to follow as we can for all our stakeholders and the procurement community alike and to avoid, where possible, one set of rules applying to large-value contracts and a different set of rules applying to lower-value contracts. We believe that such a situation would be unhelpful to public bodies and the business community.
Although we must complete the transposition process by 18 April 2016, our aim is to try to do so before then; indeed, our intention is to lay the regulations before the Scottish Parliament before the end of this year. Those in the procurement community and beyond have requested that we allow a reasonable period of time between the laying of regulations and their coming into force to give time for public bodies to make the necessary changes to their internal processes and procedures, and we will have to look at that issue quite carefully.
Some of the changes introduced by the new directives are mandatory, but there are certain elements where the Scottish Government has a choice about whether to—or, indeed, how best to—implement further change. Those discretionary elements, and the Scottish Government’s plans to implement them, were the main focus of our recent public consultation, which closed on 30 April. We hope to be in a position to publish the final consultation analysis in the coming weeks, and we intend to use its findings to inform the policy decisions that we need to take as we develop the content of the new regulations.
Unfortunately, I am not yet in a position to provide the committee with a copy of the analysis report. However, I can say that, with regard to those elements of the consultation in which the Scottish Government has set out its view on the best way of giving effect to new legislation in Scotland, respondents seem, for the most part, to have agreed with our proposed way forward.
The consultation might be over, but that is not the end of our stakeholder engagement. You will also be aware that, under the 2014 act, we are required to produce statutory guidance on a number of issues. We have been speaking to stakeholders about the content of that guidance, and we will continue to do so as we develop it.
I repeat what I have already made clear in the chamber: we are looking to introduce in the autumn statutory guidance that addresses workforce-related matters such as the living wage. Alongside that guidance, we will need to commence a number of other provisions for technical reasons. We might also take the opportunity to commence fairly straightforward and, I hope, non-controversial provisions, such as the prohibition on charging companies to participate in a tender exercise.
The changes introduced by the directives and the 2014 act represent a significant opportunity to make procurement easier and administratively less burdensome. As a major consumer in the economy, the public sector, which spends £10 billion a year, can exert significant influence through its procurement policy to support economic growth. We can play a key role in promoting jobs and growth, encouraging innovation, boosting training and apprenticeship opportunities and helping Scottish firms, particularly small to medium-sized enterprises and third sector organisations, compete effectively for contracts.
I welcome the opportunity to engage with the committee at this stage. I hope that this update will provide you with the opportunity to understand our position, and we intend to keep members informed through written updates as we progress.
Thank you for your attention. I am happy to answer any questions.
Thank you, cabinet secretary. Alex Johnstone will open the questioning.
Does the Government have an overall view on the European reform package? Is it a good thing or a hindrance?
It is a good thing. The starting philosophy is to make it as straightforward as possible for companies to bid for contracts, and we certainly share that aim. The changes remove a lot of the current provisions, and they are also largely consistent with what we have been trying to do through the 2014 act. We can fine-tune them, because we can take decisions, some of which are discretionary, on how public bodies go about their business in Scotland.
Do the changes fit well with the Scottish model of procurement? Will implementing them be problematic in some areas?
That depends on how we go about the transposition process. By and large, however, they fit well.
Obviously, there are some issues. For example, the issue of the living wage has been played out a number of times in the chamber and in public debates, and, in that respect, we probably want to go further than we are allowed to by EU law.
There are also certain areas of tension, which are perhaps only inevitable when 28 countries are involved. We can address most of those through the 2014 act, the guidance that we are about to publish and our transposition of the directives. The point is that we are going with the grain of what Europe is trying to do.
You mentioned the living wage. Is there a conflict in that respect between the directives and the Government’s long-term objective?
I was trying to point out that we would have liked to have had the backing of European law to ensure that we could insist on the living wage being paid in contracts. However, I think that it is now acknowledged that we do not have that backing.
It has been said that certain public bodies have been providing the living wage or have been making it a condition of the awarding of a contract. However, when all those examples of local authorities and other bodies are examined, it appears that that is not the case. As everyone acknowledges, insisting on the payment of the living wage as a contract condition would be subject to challenge. There are other ways of achieving that aim, and that is the approach that we have been trying to take. We will make the best of the legislation to achieve our ambition for everyone to be paid a living wage and certainly for that to happen through public procurement. One might not call that conflict as such, but the fact is that European and procurement law does not allow us to go as far as we would want to in this area. However, we will try to achieve the aim by other means.
I am trying to look into the future and see whether any difficulties might arise. Are there any other areas where EU reforms might bring Government policy into conflict with EU objectives?
We intend to try to avoid that through the action that we are taking now. Some of the things on which we have consulted are discretionary, because European procurement law allows us to make them so. Public bodies could obviously end up on the wrong side of that if they did not function in the correct way, but as a general principle, we are obliged to comply with European law and that is what we intend to do.
Finally, why has the Government waited a year to publish its consultation when other bodies, including the UK Government, have already introduced new rules?
I think that we took a different approach to that taken by the UK Government. We wanted to consult, because we had just gone through the process of passing the Procurement Reform (Scotland) Act 2014. The UK Government just copied out legislation; in some cases, it just reproduced what it had been given by Europe. We decided not to go down that route, and we also wanted time to consider the implications of our legislation and the statutory guidance.
When I first got this job last October, I met the Welsh Minister for Finance, and when we discussed this issue, she told me that she had a high regard for the way in which the Scottish Government was using procurement law for other means and as a tool to achieve other things—I have to say that that was not down to me; it happened before I came into post—and the Welsh Assembly was trying to reflect that in its own legislation. I do not want to misrepresent her, as I am sure she can speak for herself, but in her view we have used procurement law imaginatively to achieve other ambitions, whereas elsewhere in the UK, procurement law has been used in a fairly straightforward way. That is perhaps reflected in the fact that the UK Government merely copied out much of the legislation from Europe, instead of doing as we have done. I think that it is right to consult and take people with us.
Good morning, cabinet secretary. What is the timescale for introducing and implementing the new Scottish regulations?
We are required to give effect to the three directives that I have mentioned by 18 April next year at the latest, and we intend to introduce legislation to Parliament by the end of the year. As I said in my opening statement, some people have already asked for a gap between the laying of the regulations and their coming into effect to give public bodies and others time to change their internal procedures. We will consider that proposal further.
What has been the level of response to the Government’s consultation? Are you able to give a broad overview of the emerging themes at this stage?
I have already mentioned one or two. We are still analysing the 140 responses, 133 of which have come from organisations and seven from individuals. As expected, there has been broad consensus in some areas, and there is agreement on the Government’s position on how best to implement the new legislation.
With regard to the statutory guidance, respondents have asked for consistency, proportionality and transparency—and not surprisingly so, given that these are features of European and, I think, Scottish legislation. There was agreement on consistency of rules, irrespective of the contract value, but of course there is discretion with smaller contracts and a different approach can be taken in that respect.
By and large, there was agreement that, instead of things being too prescriptive, public bodies should have as much discretion as possible to take decisions in procurement exercises that they believe are relevant and proportionate to individual circumstances. We have identified those broad themes from the responses, but detailed analysis is still on-going.
What happens post consultation? Do you intend to tweak the regulations according to the responses that you have received?
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Certainly. After all, that was the point of the consultation. Given that, in a number of the areas on which we have consulted, the Scottish Government has been left with a certain amount of discretion, I think that it is right that we talk to public bodies. Some of those public bodies are, of course, local authorities, and we want to take into account the fact that they have their own mandate and are democratically accountable.
As I have said, we have so far been able to identify a number of broad themes in the responses. It was always our intention for the statutory guidance and the regulations that we lay to be informed by those views. Sometimes we might not agree with those views, but as I have said, we have been able to identify certain large areas of broad agreement, and that will inform what we do.
Thank you.
Good morning, cabinet secretary. To what extent do the EU reforms simplify the procurement roles for business and for public bodies?
I think that that was the intent of the EU legislation but until we see how the rules operate in a practical context, we cannot be absolutely sure whether they will simplify things.
Removing a fair bit of the existing architecture could have two effects. On the one hand, it could free things up and make it much easier for companies to apply for contracts. On the other, it could open up areas of doubt and hinder people. It is like what they used to say happened in Scotland with regard to planning applications and local government, although I am sure that it never happens anymore; in the absence of definitive guidance from the planning authority, people often had to put in their application and hope. Some people liked not having definitive guidance, because it gave them freedom of action, whereas others would have liked a bit more certainty or guidance. I suppose that there are always two sides to such matters but, by and large, we have come to the view that we want to make procurement as open as possible and to take away as much bureaucracy as possible. However, we will not be able to see the exact effect of that until we have moved forward.
The European Commission and member states set out with the goal of modernising and simplifying the procurement regime as a means of fostering economic growth. Either because of the recession or for other reasons, they have decided to look at the existing procurement architecture. Over the years, we have all seen different problems with procurement. Certain challenges have arisen that, in my view, have been driven by the fact that we are in a period of recession—although others can speak for themselves on that matter. The Commission and member states have tried to make sure that we do what we can to foster economic growth, and I think that that objective has driven them to take out a lot of the architecture.
One key change is that we can give non-central public bodies a free hand in deciding how they run certain types of competition, and it is no secret that that move has been welcomed by many bodies. The only legal obligations on us will be to publish, for certain contracts, a prior information notice to demonstrate that we are going to run the competition in accordance with the treaty principles and an award notice at the end of the process. Such very light stipulations mark a pretty radical departure from the existing regime, which has detailed rules that govern both the detail of the process and the timescales that have to be adhered to.
The clear expectation is that this change will simplify the rules for businesses and public bodies. However, there is a risk that it will not achieve that objective in practice, because allowing such flexibility might make it more difficult for businesses to understand the processes that public bodies apply. I know that that sounds a wee bit odd, but I think that the planning analogy is, again, a good one. It is true that Governments and other bodies sometimes took action when they were not certain of how the Commission would respond. If they asked the Commission in advance to give them comfort about what they were doing, they often got either an equivocal response or no response at all, and they had to take the action and just wait to find out whether it was going to be challenged. The Commission is now trying to right the balance between making the process as easy as possible while giving enough guidance to ensure that people act correctly.
You have talked about simplicity and simplification. In its consultation document, the Government states that it does not intend to mandate that larger contracts be broken down into lots. Given that such a move would help small to medium-sized enterprises, can the Government explain why it does not intend to take that approach? Surely it cannot just be about simplicity.
One of the key themes that emerged from the consultation and which we expected to see was that the types of procurement activity in which public bodies are involved vary so much that applying a one-size-fits-all approach is rarely appropriate. It is important that public bodies retain flexibility to structure contracts according to their individual circumstances. Apart from anything else, public bodies often know what the marketplace is like in their area and might want to tailor their procurement processes towards it. We have to remember that the Procurement Reform (Scotland) Act 2014 places a clear duty on public bodies to consider, when they plan their contract, how they can facilitate access for SMEs and third sector and supported businesses. That duty should ensure that, where a larger contract can be broken down into lots without disadvantaging the authority, it will be.
We already have a pretty good track record on supporting SMEs in Scotland. We are one of only three EU countries where the SME share of the public procurement market exceeds the SME share of the economy. The process is taking time. I remember how, in the early years of the public finance initiative and public-private partnerships, a lot of smaller companies had to rule themselves out of bidding for contracts not only because of the costs of bidding but because of the size of the contracts. They were consigned to only ever being subcontractors and were very much at the mercy of the main contractor. That was 10 or 15 years ago, and we have changed things substantially since that time.
We have a good track record. That is the way that the culture is just now in Scotland, and that is why we have taken this approach.
So you are comfortable that the safeguards in place will protect SMEs from being squeezed out of the process.
The safeguards and also the culture will do that. Central Government, local authorities and other bodies are now sufficiently well aware of the benefits of a vibrant SME economy, which in itself will drive change further. As I have said, we have already achieved a great deal, and we are one of the top three EU countries in that respect. That will safeguard the position of SMEs.
Are there any resource implications for businesses or public bodies in implementing the new rules?
There is no doubt that there will be implications for the Scottish Government. No obligations are placed on businesses under the new legislation; all the obligations that have been brought in rest on the public bodies and relate to how they conduct their activities. Given that, as I have said, the new regime is designed to bring in simplification and modernisation, there should be overall benefits for businesses rather than new obligations on them.
During the first six to 18 months, there will be obligations on public bodies to get up to speed. I have mentioned the representations that we have received from bodies on giving them a bit of time to implement the legislation and the regulations. Obviously, this will involve a cost to public bodies, as they will have to change their processes, and we are seeking to mitigate those costs by developing, among other things, training materials. We are working with the United Kingdom Cabinet Office to take advantage of material that it has already produced, including e-learning packages. The intention is to make the process easier and lighter; indeed, that will have to be the case, as European procurement law and the Scottish procurement legislation are moving in that direction. We are working hard on that, as the last thing that we want to do is to make the process burdensome.
A wide range of social and environmental factors can now be taken into account in public procurement. Which of those will bring the biggest change in procurement, and what will be the benefits?
The answer is partly that we will know that in due course as we see the way in which the system is applied by different public bodies. You are right that there are a number of benefits. Eco-labels, which are a kind of shorthand way of knowing whether bodies that bid for contracts meet certain standards of environmental practice, can be taken into account. You mentioned social factors, which will be tangible and measurable—they are already there. We have done tremendously well in recent years on professional and apprenticeship opportunities through community benefit clauses.
In our view, the changes that will have the greatest impact are those under the new sustainable procurement duty, which includes the requirement on bodies above a certain level of procurement activity—£5 million, I think—to produce a procurement strategy and to report annually on performance against that strategy. That is quite a discipline for public bodies, which, every year, will have to account for what they have done.
As I said, making the process as easy as possible can create a vacuum, and a public body can help by putting its strategy out there. That will allow all those who are considering dealing with that public body to know what it is trying to achieve. Of course, they will also be able to use the public contracts Scotland portal.
We are looking to do some innovative things on workforce practice as well, but, like everyone else, we will have to put our strategy out there so that everybody knows the ground rules.
I think that that will produce the biggest benefits.
How will you monitor that? Will there be a review process? Might you change the guidelines on the factors that are taken into account and sustainability?
The review process will be forced on people, of course, because they will have to report each year on their strategy.
Obviously, we do not make regulations with the idea that they will be changed quickly. We would not want to do that, but we have to be open to the fact that times change. For example, with the economic cycle, the environment that we are in now is quite different from the environment five years ago.
The pace of change has been fast. I have been involved in the matter for 27 years in local authorities and the Government. That is a long time, and things have changed dramatically in that period. When I first went into local government, local authorities had a huge degree of discretion and sometimes did not go out to tender at all.
Things have changed and will continue to change. In the circumstances, we will, of course, want to be able to revisit matters, but we hope that this set of procurement regulations will be sustainable and that we will not have to change them too soon.
Okay. How will the reforms on supported businesses work in practice? Contracts can be reserved for sheltered workshops, as long as 30 per cent of the employees are disadvantaged. I am not particularly comfortable with the term “disadvantaged”, which has not been defined in the European Union directives. How will you interpret it?
We will arrive at a conclusion on that after we have had a look at the consultation responses in more detail, but you are absolutely right: a very vague term has been used, which we can see as either a problem or an opportunity. It could cover any class of employee who might have a harder time getting into the job market than others, whether because of their gender, race or disability or because of things such as geographical access. We are given that level of discretion.
We would want to try to apply the ethos, which is about proportionality and relevance. The changes in the rule book will substantially broaden the categories of business that can be regarded as supported in two ways: first, by broadening the categories in the way that you have mentioned, to include all “disadvantaged” people; and, secondly, by reducing the percentage of employees who fall within the classification from 50 per cent to 30 per cent. Most of the supported businesses that I have seen probably have closer to 100 per cent of employees who are “disadvantaged”. The reforms might even give someone the idea of taking up the opportunity to employ people with a disability, so that they make up 30 per cent of the workforce, for example, which would allow that business to become a supported business.
You are right. The directives do not define “disadvantaged”, and we have not defined it, either. We will wait to see the responses and the analysis before we come to a conclusion, but we want to try to see this as an opportunity.
Okay. Thank you.
Adam Ingram has a quick supplementary question.
Cabinet secretary, you will probably recall that, when the Procurement Reform (Scotland) Bill went through the Parliament, there was some discussion about the level of prescription with regard to support for supported businesses. You might also recall that there was discussion about the number of contracts that public bodies should award to supported businesses, and perhaps also the issue of the value of contracts.
In what way will public bodies be monitored in practice so that each reports on the level of support that it provides or the number of contracts that it awards to supported businesses? If there is to be a monitoring regime, is it possible that the regulations could be reviewed or revisited, depending on the performance of public bodies in supporting supported businesses?
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The main thing is that, as I mentioned, bodies that procure above the £5 million level will be required to issue their strategy publicly, and awarding contracts to supported businesses can be part of that strategy. That would be a way to achieve the support that you are asking about.
When I was involved in a different area of Government, I was less aware of developments relating to the 2014 act—ministers tend to be focused on the area that they are involved in. However, we have all been to a number of events in the Parliament that have had supported employment at their centre.
I have mentioned annual procurement reports, and—this might relate to the second part of your question—a contracting authorities is
“required to prepare or revise a procurement strategy in relation to a financial year”
and
“must prepare an annual procurement report on its regulated procurement activities”.
The report must include a number of things, such as
“a summary of any community benefit requirements”
and
“a summary of any steps taken to facilitate the involvement of supported businesses in regulated procurements during the year”.
Contracting authorities will have to report on those things in any event, which will help to drive change. Those things will be reported on annually.
How will reforms of the use of labels such as the Fairtrade mark work in practice? What benefits will those reforms have?
Those labels have to carry credibility. They can be a useful way for companies to avoid substantial tick-box exercises. They are a kind of shorthand. As far as I am aware—Paul McNulty or another official could perhaps talk about this—the reforms are not prescriptive. Some labels will already be understood, such as the Fairtrade mark or eco-labels.
You might see the development of a fair work label. To some extent, the business pledge that we are encouraging people to sign up to is a shorthand way of saying that a company adheres to certain fair work standards.
There are provisions in the new EU directives on labels, but they come with a number of preconditions, one of which is that the label must be relevant to the characteristics of what is bought. That presents certain challenges when you get into issues such as fair work or fair trade, because quite often the schemes relate not to the characteristics of what is bought but to the circumstances in which it is produced.
We are looking at the issue carefully and we will see what guidance is issued when the new rules come in. We will do whatever we can to promote fair trade, but the changes in the new rules are not a panacea that will mean that people will all of a sudden be able to use the Fairtrade label without going through the existing legal framework that people are required to go through.
Will the preconditions overcomplicate things and make them more challenging?
In a way, they merely clarify the existing position, on the back of a European case that involved a Dutch authority that sought to buy fair trade coffee. That case says that you can specify the characteristics of what you require, but you cannot focus on a particular labelling scheme in isolation. You have to leave it open to other participants to demonstrate that they can meet the same criteria.
The new directives go a little further and say that you can refer to labels, but those labels must be relevant to the characteristics of what you are buying. That presents a challenge when you are looking at labelling schemes that deal with the way that a producer is rewarded, if you like.
Good morning, cabinet secretary. What approach does the Government intend to take on the options for exclusion of businesses on the ground of tax evasion?
The important point is that our approach must be legally defensible. Our options in relation to that question fall into two categories. The first is whether we want, through regulations and so on, to change from discretionary to mandatory the grounds on which public bodies can exclude a business from a tendering exercise. The second option is whether we want to replicate the rules that the directives make for higher-value contracts so that they apply to lower-value regulated contracts.
The proposals that we set out in the consultation paper were broadly that those grounds for exclusion—you mentioned tax evasion—that are at the discretion of public bodies should remain so, because making those mandatory would place them at significant risk of legal challenge, both from companies that claim to be wrongfully excluded and companies that complain that their competitors have been wrongly included. There is also the question of proportionality.
In addition, we propose that the same rules should generally apply both to lower-value regulated procurement exercises and to higher-value exercises. That is largely for reasons of consistency and to ensure that there is a properly transparent process.
The analysis of the responses to the consultation has not been completed, but the responses have been overwhelmingly supportive of our proposals. Trade unions are of the view that businesses that transgress in any way should not be allowed to win public contracts at all. Non-payment of tax, where that is not supported by a legal process—where a company has not been found legally to have not paid tax—is a key example for the trade unions. Firms that are in bankruptcy or insolvency proceedings have also been raised as a concern. Seventy-one per cent of respondents agreed with our proposal that public bodies should still have discretion over whether to exclude such firms. We all know of examples from our constituencies where a company might be in that situation and we want to try to safeguard the jobs that are there. That is why it is important to allow local bodies discretion.
We have not finally decided on the issue, but that is the thinking and the process so far.
Perhaps I can give a practical example of a Scottish Government contract, such as the ferry contract that will be coming up next year, in which, as you know, I have a particular interest. When you carry out the tender exercise, how will you ensure that there are no skeletons in the cupboards of the firms that tender? There might have been tax avoidance, whether inside or outside the EU, that has gone through a legal process, or breaches of health and safety, where a worker may have died or been injured. Those are examples of things that can be proved, because they have been through a legal process. Even the Scottish Government does not have perfect knowledge and sometimes it is very difficult to determine what has happened to a firm. How sure can you be, particularly with high-value contracts, that bidders do not have skeletons in their cupboards?
That is a good question. You have identified that there is a tension between trying to find out everything that we possibly can about a company and trying to have a process that is open to companies and that they can get through.
Companies, including those that are bidding for the ferry contracts, already have to go through a substantial amount of diligence in relation to financial and other statements. That process will be bolstered by the legislation and by the regulations that we intend to introduce. However, you are right that we cannot have perfect knowledge.
Without being too specific, I can give the example of another recent contract—for rail—where one of the companies concerned had been debarred by the UK Government from bidding for public contracts and was then un-debarred shortly beforehand. The Scottish Government felt fairly safe that if the UK Government said that a company could not bid for public contracts, we could also say that it could not bid. When the UK Government ban was lifted, that made it very hard for the Scottish Government, or any other body, to say that that company could not bid. The contracting authority would be open to legal processes and, potentially, claims for compensation for debarring.
We cannot have perfect knowledge, but even before we go through the processes that will be in the regulations, we already have pretty stringent processes.
You rightly predicted that that was the example that I was going to give next.
If you are going through a procurement process and your officials have checked the background of a company and given it a clean bill of health, yet subsequently you find that there has been a problem such as tax evasion in the EU, can you pull it from the bidding process once that process has started?
I will ask the officials to come in on that, but I can say that, because of the rules around blacklisting, any contracting authority that finds out that a company has been blacklisting can take a contract away.
It is standard practice to make it a condition of participation that a company tells the truth. If we find out subsequently that a company has not told the truth, certain steps can be taken. I have to say that that has not happened in my experience.
The cabinet secretary mentioned blacklisting. The guidance that we issued to public bodies in 2013 recommends that they include a clause in contracts that specifically says that, in the event that a company is found guilty of an offence connected with blacklisting—under the 2010 UK Government regulations—the contract can be terminated.
There are things that can be done if we find out that someone has not told the truth. It is standard practice in larger-value contracts for pretty dire warnings to be issued to companies of what the consequences will be if they do not tell the truth during the process.
Again, in the new ferry contract I notice that there is a break clause, so if you find that there are problems you can pull the contract half way through its term.
Yes, contracts often have break clauses.
On the general issue of perfect knowledge, when the concept of mandatory exclusion was introduced at a European level just over 10 years ago, the European Commission had on the table a proposal to create a pan-European database of relevant offences. However, I think that that project died a death, given its complexity.
I will not extend the debate, convener, as I know that time is moving on. I remember the committee having a meeting with a European commissioner who talked about contracts. What the commissioner said was interesting; he said that it was a state issue and that it was up to the member state to carry out the obligations.
As a general rule, sometimes we are far too dependent on getting legal advice handed down to us. In my experience, there is a halfway house: in many other European countries when something is not totally clear, they take the ball and run with it. As the lawyer here will testify, the law is not always totally clear when it comes to the EU. I sometimes think that we are little introverted when it comes to going ahead with what we feel is right; instead, we get our hand held by the Commission. Perhaps that is an argument for another day.
Since the cabinet secretary mentioned blacklisting, I will ask about that. Do the new European directives give us more clout to ban firms that have been blacklisting?
The directives give us the opportunity to do that. However, to go back to your previous point, you are right to say that sometimes it is possible to be too inhibited by what the EU might do. It is also true to say that that applies to the UK Government. The UK Government might decide to take a different approach, and because it is the member state we have to have regard to that. If we take the wrong approach, the UK Government does not like it. Those are not matters without consequence: a contract might cost several million pounds and cause individuals significant disruption. However, you are right to say that we should not be too inhibited; there are times when we could stretch those things as much as possible.
In relation to blacklisting, there are no substantive changes in the new directives. In drafting the regulations, we are taking the opportunity to make it explicit that breaches of employment law—over which we do not have control, of course—are to be regarded as grounds for exclusion; that also applies to the 2010 blacklisting regulations that you mentioned. We have given the Scottish Trades Union Congress a commitment that we will work with it and with interested trade unions on what that guidance should say. As I said, we expect to publish that guidance in the autumn.
I agree with your point about the member state, but notwithstanding that issue, if there is a potential disagreement between the Scottish Government—of whatever political complexion—and the UK Government, surely that should be raised at the joint ministerial committee on Europe, given that that is what it was set up to deal with. Have you had personal experience of that committee and of making the case for a Scottish Government view that is different from the UK Government’s view?
I have been at the joint ministerial committee before, but it is usually the external affairs ministers who are involved in that committee. However, that might not always be the best route to ensure that there is no legal dubiety.
It is not necessary for there to be two different parties in government at the Scottish and UK levels for there to be disagreement. Certainly, there were various disagreements between 1999 and 2007, when I was quite involved in the European side of things.
We can try and eliminate uncertainty, because uncertainty will inhibit people’s actions. If we can make something as certain as possible, without being prescriptive, that will be the best outcome. We have discussions with the UK Government on those things, although not necessarily through the joint ministerial committee on Europe.
Alex Johnstone has touched on the living wage already. Do the procurement reforms help to give more clout to the idea that the living wage should be dictated? I know that you have received some advice from Europe. Can you put into a contract the expectation that the winning bidder will pay the living wage? As you know, there is a legal form of words that can still comply with directives on the matter.
10:15
Yes—but the point is that we cannot stipulate as a condition of the contract that a bidder should pay the living wage.
You know as well as I do—I am glad to have the opportunity to say this—that it has often been alleged in the chamber that my Government and party voted against the living wage, but it is not possible to stipulate it. Although other places—including a number of London boroughs and other local authorities—have said that they have done that, it has been proved that that is not the case and they have now explicitly recognised that it is necessary to act in compliance with European law.
We know that we cannot stipulate the payment of a living wage and we are considering what provisions would allow us to achieve that without stipulating it. There are a number of measures; we can take into account workplace reforms and the economic benefits of awarding a contract in a particular way, for example. The measures have to be proportionate and relevant. If we can say that people being paid a living wage would make a contract more sustainable, we can achieve our aim through that different process, as we have managed to do in the Scottish Government.
Is it not possible to make it clear to everyone who bids in a competitive dialogue tender negotiation, such as you had for the northern isles ferry contract, that the Scottish Government expects that the winning bidder will pay the living wage?
Which contract are you talking about?
I am using the northern isles ferry contract, which I think was a competitive dialogue, as an example.
That is the case—although we cannot make it too clear to bidders that success depends upon their making a commitment to pay the living wage because, if we did, that would get us into a breach. For example, if we were not to give a bidder a contract because it did not make that commitment, it could take action through European processes. We must use other methods to achieve payment of the living wage—for example, by making a case that payment of the living wage will make the contract more sustainable. What we do has to be proportionate.
Perhaps the officials might like to comment.
Last year, we published guidance that says that account should be taken not only of the living wage but of how a bidder generally treats its workforce. That is important because a bidder could be a living-wage-paying company but still not be a particularly good employer because of other terms and conditions that it applies to its workforce. We strongly recommend that, wherever it is relevant to the quality of service that is delivered under the contract, public bodies take account of workforce matters in general. We piloted that approach in our catering contract, and all five shortlisted bidders made a commitment to pay the living wage, so it seems to have the desired effect where it is applied.
I take Mr McNulty’s point that just paying the living wage does not make a company the best employer in the world. For what it is worth, my experience with the trade union movement is that that is unlikely—Rachman-like employers do not tend to pay the living wage and then be poor in other areas—but I bow to a different view of the world.
No—our guidance says that we regard payment of the living wage as a key indicator of whether an employer is a good employer. It is just not the only indicator.
A public authority recently ensured that the living wage was paid but there were subsequent changes to conditions of service, including cuts to employees’ hours. It is difficult to say whether such changes happen as a result of the company paying the living wage. The approach that we have taken in the Scottish Government is designed to try to prevent that from happening. Even if a company is not a Rachman-like employer, it is possible for them to accept that they must pay the living wage but then to denude employees’ conditions of service.
I will give one last example. Paul McNulty mentioned the catering contract, but the biggest contract that we let is the rail contract. Through that, we managed to get not only all directly-employed individuals but every sub-contracted individual, including cleaning and catering staff, to be paid the living wage.
By and large, people who are paid the living wage need to spend all the money that they have. That increases discretionary spend within the economy, which is beneficial to companies and the economy in general.
I agree with that. The jargon for it is “virtuous circle”.
You have had a good run now, David.
Thank you, convener.
The Scottish Government has made it clear that it is committed to paying the living wage to its employees. If I have understood correctly what you have said this morning, you would have liked, when awarding contracts, to stipulate that contractors pay the living wage, but European Union legislation prohibits you from doing so. Am I right so far?
Yes. We are pretty clear that we would be challenged, or would be susceptible to challenge, at European level if we were to make payment of the living wage mandatory.
Have officials explored whether member states—which I accept Scotland is not, in this case—could seek a derogation on the matter?
That is a good question. Perhaps the officials can comment on that.
We have had such discussions with the Cabinet Office, as the lead UK policy department on public procurement, and it shares our view of the legal position. We have also had discussions on the issue with the European Commission. It is clear that member states that have tried to stipulate payment of wages that exceed the local minimum wage that is set by statute have found themselves in the Court of Justice of the European Union. There have been three cases to date, and there is another one in the pipeline, on which we expect a judgment this year. All the judgments so far have gone against the member states.
That is clear. Would you be able to share information on those cases with the committee to inform our understanding of the issue?
Certainly.
Would it be possible for the UK, as the member state, to seek a derogation from the legislation?
No. It is not possible to seek a derogation because the fundamental issue is the treaty, despite cases having involved the posted workers directive, which could be repealed by the Commission if it had the will—which it does not, as far as I am aware—to do so. The treaty would have to be reopened and rewritten in order to get over the European obstacle.
Why has it been possible for the UK to have derogations on other issues, such as the social chapter, but not on this issue?
That is because the obstacle is the fundamental treaty principle of free movement of services and workers. I will happily write to the committee on the matter, if that would—
Derogations tend to be won and lost at the point when the treaty is agreed. The Danish have won derogations in that context.
The more important point is that the UK Government could make it an obligation right now for the living wage to be paid, simply by ensuring that the national minimum wage is the living wage. If we had power over the national minimum wage, we could raise it to the amount of the living wage.
That is exactly the point. One of the reasons why the Commission tends to view this whole issue as one for member states is that there would be absolutely nothing to stop the UK Government from setting a national minimum wage that reflected local, regional or devolved Administration priorities on what they wished to pay. The UK Government is entirely free to set whatever national minimum wage it likes without infringing EU law.
The EU law position is that the Government cannot, having set a minimum wage in statute, then set a higher hurdle for participation in public contracts.
Thank you for that. We will move on.
Good morning, cabinet secretary. As you know, I am a firm advocate of using technology to boost our efficiency and productivity. Could you describe the Government’s approach to implementing the e-procurement requirements? What work needs to be done by public bodies and businesses to ensure that Scotland is ready for implementation, which I think will be in 2018?
We are well placed because of the actions that have been taken so far, although there are new obligations. The Parliament is a very good example of an e-environment, if I can call it that.
We have some examples already. There is a comprehensive suite of e-commerce tools, including an e-ordering system, which is currently in use by about 100 public bodies and which currently processes about £5 billion-worth of transactions every year. For the most part, the e-commerce systems are operated as national shared services, which are centrally funded by the Scottish Government. The financial memorandum that accompanied the Procurement Reform (Scotland) Bill identified the need for further investment in staff to support the development of those systems, but we are satisfied that we are at a pretty advanced stage of that development and at an advanced stage of readiness for implementation of the new legislation. We welcome it, and it goes with the grain of what we have been doing for a number of years. We do not foresee any problems with our implementing the Procurement Reform (Scotland) Act 2014.
Thank you. My final question is this: are there any other particularly novel or significant aspects of the new procurement directive or of the other directives on utilities and concessions that you wish to highlight to the committee?
The provision that is different, I suppose because it has come from the UK Government, is to do with social enterprises—mutuals, for example. The UK Government, through its big society initiative, has sought to move some public services to, or to facilitate public services being delivered by, social enterprises. We do not share its view, so we do not intend to push things in that direction. The guidance that we eventually issue will reflect that. That is a fairly novel aspect. I am trying to think whether there is anything else. That provision is limited to circumstances in which, for example, the social enterprise that is bidding for the public works has not had a similar contract from the public body in a previous three-year period. As I say, that was negotiated by the UK Government in order to facilitate its broader policies. However, we do not share that policy objective, although it is possible that it could be of use in some limited circumstances. The UK Government has also excluded health services from that provision, which is the one that stands out to me. The officials may want to add to that.
It is probably worth drawing to the committee’s attention the obligations in relation to enforcement in monitoring procurement activity. The new European directives introduce an obligation that organisations, including in Scotland, must monitor how procurement rules are being followed and must publish the results of monitoring every three years. Monitoring will look at things such as confirmation, which is often done incorrectly and causes legal uncertainty. The new rules also talk about the level of involvement of small and medium-sized enterprises and information on preventing, detecting and reporting all procurement fraud.
One of the options that we asked about in the consultation paper was what sort of body that responsibility should fall to. The suggestion that seems to be coming back at the moment is that an option that should be considered is the Government’s single point of inquiry, which currently resides within the procurement directorate. It is currently the place for both suppliers and buyers to seek advice where there are concerns about procurement roles.
In addition to monitoring, another element that we have to consider is that we will need to ensure that the new directives have within them some form of remedy. Currently the remedy process in Scotland is an application to the court, so it involves court action. Again, we are seeking views from stakeholders as to whether it would be appropriate to take forward that process in the new directives or whether there should be an alternative—something sitting alongside, or perhaps below, a court action—such as a tribunal or an ombudsman. Those are options that we are considering as we look at the analysis.
Thank you.
As there are no final questions from members, I will ask the cabinet secretary to give a commitment to the committee. Will you keep us updated on the outcome of the Scottish Government’s consultation on changes to public procurement rules and do that prior to publication of the regulations?
I said in my opening statement that we would keep the committee up to date, so I am certainly happy to give that commitment.
I thank the cabinet secretary and other witnesses for their evidence this morning. I suspend the meeting briefly to allow for a changeover of witnesses.
10:29 Meeting suspended.