Credit: Julien Harneis via AciaAfrica.org

Why do (some) liars, cheats, thieves and incompetents get state contracts?

File Photo: Mining in Kailo, Child labour in Sub Saharan Africa. Photo Credit: Julien Harneisunder CC licence

Ross McCarthy is MD of Keystone Procurement, a company that works with state, private and charitable bodies on procurement matters. Ross has previously written for Gript on the issue of modern slavery in supply chains.

Several years ago, at the height of the European car emissions scandal, I presented to a group of public relations people. In the blurb circulated to promote the event, as it was a group of PR personnel, I mentioned that I’d talk about the links that exist between procurement and crisis management. I suggested that the offending car companies were, probably, ineligible for any state contracts that they had bid for in the EU at that stage as they had by then admitted that they had misrepresented the environmental performance of their vehicles. I received an official PR response admonishing my advance taster by the Irish based PR firm representing one of the brands at the centre of the scandal. I held my ground on this on the day but didn’t rock the boat when challenged as I didn’t want to embarrass my gracious host.

The lessons of this are in fact salutary. Those companies could have lost all state contracts everywhere in the EU for their misrepresentations (I’m being charitable). The fact that the contracts weren’t challenged by other manufacturers and why that might be the case is for people more cynical than I to surmise (I am sure there is at least one person that is sufficiently cynical to do so). Given the billions of euros at stake, all the other companies who obviously had perfectly clean bibs on their emissions performance could have mopped up all those contracts. These would have included all the fleet of police fleets or municipal authorities across the EU but those contracts stayed with their existing providers. Nobody tried to overturn these contracts. As somebody that is fascinated by microeconomics and how people respond to incentives and disincentives, it remains an interesting conundrum that this article is unlikely to solve.

The reason I started with this anecdote is that many people have a passive awareness of the emissions scandal and it’s a useful way for me to bring up the economic, environmental and social criteria that are codified in the EU Procurement Directives that apply in all EU and EEA countries. Their application in the real world is at best uneven. As the car emissions scandal demonstrated.

The standards exist to protect citizens in Europe from sectors that are seen to be high risk for corporate malfeasance. A selection of the sectors deemed highest risk are included in the tables below.

 

Environmental risk Social & Labour Law risk
Manufacturing

Chemicals

Agribusiness

Pharmaceuticals

Haulage sector

Power generation

Transportation

Fishing & marine

Producers of waste by-product (convenience food / fast food & retailers using single use packaging)

Construction

Cleaning services

Facilities management

Landscaping

Security services

Retail

Event management

Hospitality & catering

Waste management

Care related services

 

 

A little known or understood fact is the minimum standards underpinning these obligations are very basic. In most EU states, these standards have been taken for granted for a long time, often predating the Treaty of Rome. While it is broadly the case that breaches of the conventions captured in the table below are rare in the EU/EEA, it is not true to say that is the case for products being brought into the EU. Clothing, technology devices, coffee, tea, cocoa are all products with notoriously poor standards that are considered extremely high risk for non-compliance with the very basic standards outlined below.

To put this more clearly, could anyone confidently say that the PPE product purchased in response to the COVID crisis, primarily from China, is compliant with the extremely basic standards below. If the answer, as I would assert, is that they cannot do so, the question then becomes does a company misrepresent to a material degree, their compliance in a tender process if they declare that they are compliant with these standards while selling products that may not be compliant with these standards. If you are reading this on a smartphone or tablet, there is a good chance the screen on your device was produced using chemicals that are not compliant with the Convention on the prior informed consent procedure for certain hazardous chemicals and pesticides (last in the table below). Yet these products are often produced using lower standards than are permissible in the EU, breaching these standards, and State bodies purchase them. Why? This well researched report by an Australian human rights charity documents a damning list of evidence here.

 

Relevant treaty referenced in EU Procurement Directives My summary of treaty purpose
ILO Convention 87 on freedom of association and the protection of the right to organise People in an organisation (employer and employee) are not obstructed from joining lawfully formed representative bodies that obey the rules of the land.
ILO Convention 98 on the right to organise and collective bargaining People cannot be prevented from joining trade unions or employers’ bodies that are lawfully formed and conduct their business in a lawful manner. There is no obligation to recognise collective rights in Ireland in the private sector but there is an obligation to allow people join unions should they choose to do so. Negotiation can still be undertaken on a case-by-case basis.
ILO Convention 29 on forced labour People cannot be forced to work (there are five limited situations excluded from this provision – military or civic conscription that is time bound in nature etc.).
ILO Convention 105 on the abolition of forced labour Makes punishment for strikes and as a punishment for holding certain political views impermissible.
ILO Convention 138 on minimum age Establishes a base age before children are legally allowed to be engaged in employment.
ILO Convention 111 on discrimination (employment and occupation) It requires states to enable legislation which prohibits all discrimination and exclusion on any basis including of race or colour, sex, religion, political opinion, national or social origin in employment and repeal legislation that is not based on equal opportunities.
ILO Convention 100 on equal remuneration This is the main convention aimed at equal remuneration for work of equal value for men and women.
ILO Convention 182 on worst forms of child labour This deals with slavery, trafficking and the physical / sexual exploitation and abuse of children.
Vienna Convention for the protection of the Ozone layer and the Montreal Protocol on substances that deplete the ozone layer Provides framework for the international efforts to protect the ozone layer which are defined in the Montreal Protocol.
Basel Convention on the control of transboundary movements of hazardous wastes and their disposal (Basel Convention) This is intended to minimise the amount and toxicity of wastes generated, to ensure that they are managed in an environmentally sound way as close to the source of their generation as possible. It is also meant to assist lesser developed countries in the environmentally sound management of the hazardous and other wastes they generate. It is also to reduce the transfer of such materials across international borders.
Stockhold Convention on persistent organic pollutants (Stockholm POPs convention) This relates to action taken on POPs which it defined as “chemical substances that persist in the environment, bio-accumulate through the food web, and pose a risk of causing adverse effects to human health and the environment”.
Convention on the prior informed consent procedure for certain hazardous chemicals and pesticides in International Trade (UNEP/FAO) The PIC Convention Rotterdam, 10/09/1998 and its three regional protocols This covers pesticides and industrial chemicals that have been banned or severely restricted for health or environmental reasons.

 

People may think it odd that a centre right news site is accommodating an article explaining what may sound like progressivism. It isn’t. There is nobody in the EU opposed to these standards and the procurement directives were passed unanimously. Further to this, it is also important to consider the role soft pedalling on these standards plays in the rise of populism – the Brexit/Trump phenomenon. It is worth understanding who in society is baring the costs of cheap products from the far east in the long run. While it results in access to cheaper goods, there are social costs including lost jobs or jobs that would be viable in the EU if standards were actively applied.

Further to the foregoing, these standards sit alongside other important fit and proper standards that focus on whether organisations (or their key management) have been convicted of any offences relating to:

  • Money laundering;
  • Tax evasion;
  • Terrorism or related offences;
  • Participating in organised crime;
  • Corruption; and/or
  • Human trafficking / child labour.

If they have been convicted, they must be able to demonstrate a record of self-cleansing. Changing organisational culture is a very difficult thing to do. Several sporting associations for instance, and charities, have found themselves struggling with the ability to improve their governance and culture in recent years. None of the parties to any of the most high-profile cases have been convicted of any of the serious offences mentioned above as of the time of publishing and they are struggling to change their cultures. Can an organisation that isn’t entirely purged of its prior management and perhaps all its staff ever really change?

The general fitness and probity standards go beyond these criminal standards and also seek declarations from the suppliers that they:

  • Are not bankrupt
  • Pay their taxes including payroll taxes
  • Have not tried to rig the tender process
  • Have no conflict of interest
  • Respect their obligations as they relate to social, environmental and labour law (outlined above).

This latter point is why the companies embroiled in the emissions scandal may well have been caught bang to rights in “misrepresenting” their fitness and probity and any contracts where that applied could have been cancelled and retendered. The fact that this does not seem to have happened does not mean it should not have happened nor does it mean that it should not happen in the future. In fact, it is explicitly provided for in Article 57.4(h) of the procurement directives which states:

Contracting authorities may exclude or may be required by Member States to exclude from participation in a procurement procedure any economic operator in any of the following situations:

where the economic operator has been guilty of serious misrepresentation in supplying the information required for the verification of the absence of grounds for exclusion or the fulfilment of the selection criteria, has withheld such information or is not able to submit the supporting documents required pursuant to Article 59.

Next time you hear about a scandal on a publicly funded contract, ask yourself whether these criteria are being applied. If they are being applied, there will be fewer rogue actors dumping household waste into rivers or bogs, abusing vulnerable workers, people or animals or running contracts that should not be operated by private operators because it is more expensive to use them than provide the service internally (IT consultancy is an area where this is quite apparent to me).

Where you see people being awarded a contract that has a prior record of poor performance, you could ask why Article 57.4(g) isn’t being applied to exclude companies that have a poor track record. It states that a contract should be excluded from tendering:

where the economic operator has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity or a prior concession contract which led to early termination of that prior contract, damages or other comparable sanctions.

When you do ask this, you’ll be joining those of us that have wondering why we don’t see more of this for years. Whether it is fear of litigation, inertia or something else that explains this, it ill serves the public when rogue actors are allowed to compete as equals with companies that are well run and have a moral purpose – they do exist.

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