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The procurement scandal

Posted by Richard Sunday, July 11, 2004

In today's Sunday Telegraph, Booker’s main story deals with the growing scandal of the EU’s procurement system.

The focus of the story is a letter to Gordon Brown, sent by the chairmen of the UK's four social housing federations - representing nearly 2,000 housing associations, which provide homes for 3.6 million people. This warned him that, thanks to a 2001 ruling by the European Court of Justice, a significant chunk of the £7 billion spent by housing associations each year will have to be brought into the net as public expenditure, from which until now it has been excluded.

The story continues:

The letter, from the heads of the English, Scottish, Welsh and Northern Ireland housing federations, told Mr Brown that, under the ECJ ruling, they count as "bodies operating under public law". Not only does their spending - most of it privately financed - now have to be included in public expenditure under the requirements of the growth and stability pact, but, as "public bodies", they have to comply with the EC's three "procurement directives".

The first and best known condition of these stipulates that all contracts for works and services above a certain value must be advertised in the EC's Official Journal, theoretically to allow firms from all over the EU to bid for the work. But when the federations looked further into the procurement procedures, they found that these amounted to 350 pages, significantly changing the way housing associations are allowed to operate and landing them in a labyrinth of time-consuming bureaucracy. Richard Clark, the chairman of the English National Housing Federation, said: "Time and money that could have been used to provide better homes and services will instead be spent complying with regulations from Brussels."

Aware of the implications both for the housing associations and for the Treasury, in February 2002, the Government protested to the European Commission. The commission replied that it would take Britain before the ECJ. In face of this threat, the Treasury's Office of Government Commerce has recommended that the Government should back down - which is what has now prompted the alarmed federations' call to Mr Brown to fight on.

But Booker, as always, does not leave it there. "The 'procurement regime'", he writes, "is one of the greatest, if largely unreported, scandals of the EU. As can be seen from the advertisements in the daily Official Journal, Britain is far more punctilious in obeying these rules than most other countries, just as it is in obeying the rules on 'illegal state aid'."

For an example of the lack of reporting, he cites Radio 4's Today programme last week, when Derek Simpson, the leader of the trade union Amicus, called for more of the £109 billion we spend on public procurement to be diverted to British firms, to boost manufacturing jobs, neither the interviewer, James Naughtie, nor the minister Patricia Hewitt, pointed out that this would be prohibited under the procurement rules.

Mr Simpson asked why Britain was about to lose its last train-building capacity when every train in France or Germany is built in those countries. Neither Mr Naughtie nor Mrs Hewitt explained that this was because both those countries were in flagrant breach of the procurement and state-aid rules, which is why our steel, shipbuilding and coal industries have found it so difficult to compete with their state-subsidised Continental rivals.

The inability of the "establishment" to understand what is going on is legion – and puzzling. As another example, the NFU – backed by the Farmers Weekly – has been running a campaign aimed at convincing the Department of Defence that it should buy British farm produce. Yet, despite being told innumerable times, the NFU consistently ignores the salient fact that the DoD is bound by procurement rules and could not favour British producers without breaching EU law.

Nor do any of our savants even begin to realise how pervasive the system has become, and how corrosive its effect. When I first worked for local government, we had a "buy local" policy, on the basis that, if the council was taking tax from local businesses, it should return its money wherever possible to those local businesses. Any such policy would now be totally illegal.

Furthermore, the sheer weight of the bureaucracy is daunting. For some years in my past, I ran a small but successful kitchen cleaning business – professional kitchens that is. I had a good team and we were extremely good at the job, so much so that I had as clients a number of local hospitals, for whom we provided a much appreciated service. But then came the procurement directive, and every contract application was accompanied by reams of paperwork which a small business just could not deal with. The jobs started going to the big contractors – not because they were better than us (they weren't) or cheaper (they were vastly more expensive), but because they had the systems for generating the requisite paperwork.

These same procurement laws, incidentally, govern our trading "partners" in the EU but while you can see the Renault ambulances, the BMW police cars and the Volvo fire engines tearing round British streets, I have yet to see any non-French municipal vehicles anywhere during my extensive travels in France. And, when the European parliament in Strasbourg recently bought a fleet of luxury limousines to ferry MEPs from the parliament to their luxury hotels (while the staff were provided with the crappiest old bus on the inventory), guess what it bought – top of the range Renaults.

As Booker says, "the 'procurement regime' is one of the greatest, if largely unreported, scandals of the EU". If you want to read his full column, click here. There is also further comment on one of his pieces on my other Blog click here.