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Vote Leave’s imaginary procurement goldmine

by Jack Schickler | 28.05.2016

Brexiteers just launched their latest attack – on the EU procurement rules that govern public contracts. “If we vote leave we can scrap the EU’s foolish rules on how Whitehall runs procurement processes, which add billions to the cost of government every year,” the Guardian quotes Michael Gove as saying, with an accompanying Vote Leave analysis putting the price tag at £1.69 billion a year.

But scrapping the rules after a Brexit could lose us the benefits of access to public contracts in other EU countries. Moreover, the UK would have to devise its own rules on public contract spending if it scrapped the EU ones, and it is questionable that new UK rules would be any less onerous on business or government.

A 2011 study for the EU Commission estimated the average cost of a UK procurement process at 0.7% of contract value. This amounts to £1.69 billion of the £242 billion 2014 total.

This sum represent the cost for all public authorities, not just the central government in Whitehall. More importantly, it is the total burden of the process – not just the cost incurred under EU law.

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Even in the private sector, transaction costs are a fact of life, and purchasing with public money generally calls for greater safeguards.

Detailed EU rules – requiring, for example, publication of adverts in the EU’s official journal – kick in once a contract is over a certain limit – £4 million in the case of public building works.

But the 2011 study found procurement was more or less equally burdensome whether the contract was above or below those EU thresholds, in terms of both cost and delay. In other words, it is not EU directives that cause these costs.

For contracts under the thresholds, public bodies just have to follow certain general EU principles – to be transparent and impartial, for example. And if the contract is so modest it would not interest foreign companies, no EU principles apply.

To encourage small businesses to tender for government contracts the UK has gold-plated EU law when it drew up its public procurement rules – rules we’d be unlikely to scrap after Brexit. But keeping them would reduce or eliminate Vote Leave’s cost savings.

Costs are one side of the bargain. Procurement rules also come with significant benefits – ensuring authorities seek out the best deals for taxpayers, promoting competition, and constraining favouritism or corruption by public officials.

Crucially, EU rules also give British companies the right to bid for foreign tenders. According to the House of Commons library, public contracts from other EU countries represent 0.8% of the value of the bids won by British firms. That’s not a huge proportion – but a couple of billion pounds per year is not to be sniffed at, and is still more than the supposed cost of the EU rules.

Without the protection of EU law, UK companies could not take this market access for granted – they are often shut out of American contracts, for example, while a 2009 law forbade US public authorities from buying iron and steel from abroad. After Brexit, we could probably negotiate to keep our EU access – but we would almost certainly be required to return the favour, both following the EU rules on our side, and allowing reciprocal rights to EU companies.

Vote Leave did not respond to our request for comment.

Edited by Geert Linnebank