Public procurement in Europe. Jobs for the other boys

The chancellor says British companies are badly treated in Europe

THE timing was perfect. On November 15th, a government-commissioned study by Alan Wood, boss of Siemens in Britain, described the difficulties faced by British firms competing in the vast market for European government contracts, estimated to be worth 16% of European GDP. The next day Gordon Brown, the chancellor of the exchequer, raised the matter at a meeting of European finance ministers.

The report does not criticise the rules governing public procurement, but points out just how easy it is to evade them. British firms, it says, have to contend with everything from cultural bias and difficult regulatory conditions to state subsidies for competitors and outright corruption.

Methods for dodging the rules are as varied as they are creative. Contracts above a certain value must be put out to tender by law, but one particularly ingenious government got round this by splitting a road-surfacing job in half - creating separate contracts to surface the top and bottom layers of the road. Often, foreign firms are invited to bid only to push down the prices offered by domestic companies: there is no intention of actually granting them the contract. Many firms have complained that, while collusion between foreign firms and governments shut them out, the British government was happy to give contracts to those same foreign firms.

Because it is very hard to prove that a company has been treated unfairly, almost all of the evidence in the report was anecdotal. But it notes that only a sixth of available contracts are advertised in the Official Journal of the European Union, the relevant gazette. Direct cross-border trade with the public sector is only 10% of the total, compared with 20% in the private sector.

The European Commission, which is responsible for the public procurement rules, accepted the idea that the market was flawed, but said, rather frostily, that it had no evidence that British firms suffered any more than those in other countries. Complaining that it had been left out of the consultation process, it muttered darkly about the chancellor's long-standing tradition of anti-European remarks. Rubbish, said a spokesman for Mr Brown, pointing out that the report had been written after a public consultation to which the commission could have contributed. Yet the commission and Mr Brown could be natural allies: both want to see the rules enforced more stringently.

Partly, the spat reflects genuine frustration on Mr Brown's part with the glacial pace of liberalisation in much of Europe. But domestic politics may also play a role. As Mr Brown knows, Britain's Eurosceptic public likes to see its ministers doing battle with the perfidious continentals. But politicking aside, both sides agree that the market needs reform. There's no suggestion that Britain should retaliate by protecting its own companies. The commission estimates that competition for government contracts can cut prices by as much as 30%. So the British taxpayer, if not the British businessman, has reason to cheer.

The UK Chancellor of the Exchequer, Gordon Brown, thinks that UK companies are badly treated in Europe because other countries do not follow EU public procurement legislation. This follows the publication of a report chaired by Alan Wood, Chief Executive of Siemens plc, who was asked by the Chancellor of the Exchequer to investigate British business experiences of competing for public contracts in other EU countries.

United Kingdom: Office of Government Commerce: The Wood Review http://www.woodreview.org/

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