What price ethics?
7 April, 2005

Helen Randall, Chair, NLGN and Partner, Trowers & Hamlins
Guardian PUBLIC

The legitimacy of including environmental and social considerations in the government’s purchasing decisions has recently assumed greater importance.

The United Kingdom now has presidency of the G8 and is seeking to encourage compliance with the Kyoto protocol and to promote sustainable development defined as “development today without compromising the needs of the future”. The UK Government is also considering how sustainable development can be factored into its procurement decisions.

Although there has been an increase in corporate social responsibility by business and increased consumer demand for ethical purchasing, the legitimacy of government pursuing “secondary” policies through purchasing power remains controversial.

Perhaps this depends on the nature of the policies being pursued. Whilst many can support the government using its purchasing power to protect the environment, prevent discrimination and encourage small and medium sized enterprises the use of the government purchasing power to support stipulation of the use of local labour and the isolation of oppressive regimes is not universally approved.

Domestic and European law also prevent government from using its purchasing power freely to pursue secondary policies.

United States municipal authorities were known for pioneering “contract compliance” requiring contractors supplying the government to employ minimum percentages of underrepresented groups. Similar policies were used by the GLC in the 1980s and were then reined in by the Conservative government in 1988 through legislation which prohibited local authorities from having regard to certain matters designated as “non commercial” when making purchases for example having regard to a contractor’s conduct in industrial disputes, involvement with government defence or foreign policy or its political, industrial or sectarian interests. The Labour government then adjusted the legislation after lobbying by the Local Government Association and Trades Unions. However, most of these restrictions remain on the statute book as do European law restrictions preventing public contracts from specifying contractors’ use of local labour.

When then are ethical considerations in public procurement acceptable? Politicians are after all democratically accountable, public money is being used and Joe Public would probably be surprised if government contracts did not prohibit socially or environmental undesirable practices (for example the use of child labour).

Hearteningly, some public authorities still manage to use purchase power creatively and legally to promote sustainable development and encourage community cohesion.

Thurrock Council has a contract for front and back office services with Vertex which encourages employee training and development and the increase of high quality local employment opportunities. The CRE has practical guidance as to how authorities can prevent racial discrimination in public contracts.

Ethical procurement needs to be balanced with the public authority’s duty to obtain value for tax payers money. Traditionally, government contracts have been awarded on the basis of the lowest price. The Best Value legislation enacted in 2000 allowed local authorities to have regard to both quality and cost when awarding contracts. Quality could embrace a contractor’s ability to apply environmentally sustainable or socially responsible working practices in its contract.

A dilemma arises if the environmentally sustainable or socially responsible option comes in at higher cost of the conventional option. Also what if there is only one contractor in the market capable of meeting government’s needs for an environmentally sustainable or socially responsible contract. Does this distort open market competition or is it the government’s role to stimulate the market?

Is the pursuit of social and environmental policies through public purchasing power fair? Particularly if a purchasing policy discriminates against SMEs or new market entrants.

Some public authorities have purported to pursue socially and environmentally friendly purchasing policies and have then awarded on the basis of lowest price. This has caused disillusionment in a private sector reluctant to waste bidding costs where lowest price wins at the end of the day.

If government purchasing policies are to include environmental sustainability and social responsibility, government should consult the market, think creatively and share best practice. The policies should be applied consistently throughout the procurement in a way that is relevant to the contract subject matter (for example organic foods for school meals), objectively proven and fair to all market sectors. However, both domestic and European legal constraints remain complex and confusing and reform is needed if the government wishes to pursue the sustainable environment and social cohesion agenda in a credible and cohesive way.