Passport procurement blues
There’s something incredibly depressing about the recent furore over the contract to print British passports. Perhaps it’s the idea that Britain’s national pride is so fragile that it cannot survive a French-Dutch company winning the contract. Or perhaps it’s the idea that £120 million extra of taxpayers’ money should be spent to ensure a British company wins the contract, and that this is just the first of many such demands stretching far into the post-Brexit future. Added to the £55 billion hit to the public finances which the Department for Exiting the EU has estimated even if a comprehensive free trade agreement is agreed (£80 billion if WTO rules apply), the money available to spend on things that might actually improve life in the UK seems to be rapidly dwindling.
The procurement rules don’t require that contracts be awarded to the lowest bidder. The Home Office was free to take various cost and quality considerations into account, and it appears it did so. If Gemalto’s bid was abnormally low this should have triggered an investigation to ensure that they had not gained an unfair advantage through state aid or other means. A legal challenge may well raise this argument, but it’s also perfectly plausible that Gemalto won the contract fairly. They already have a similar contract to print UK driving licences, and are proposing to use several British facilities to deliver the passport contract – so concerns about national security and job losses are likely to be overblown.
Nevertheless it still seems to make for good politics – on both sides of the spectrum – to bellow about foreign companies winning contracts and to point out that France, Italy and other EU countries have availed of exemptions to the procurement directives in order to keep such contracts for domestic firms. It is true that France, Italy, Spain and some other countries do not run public tenders for the printing of passports. This is because they are printed in-house by state owned companies – meaning no private firm gains an unfair advantage over its competitors. This approach would also be open to the UK, but the decision was taken years ago to outsource. Many other countries also outsource the printing of passports and secure documents, as the company seeking to challenge the decision, De La Rue, knows well. Their website lists a number of such contracts which the firm has won around the world.
The scope of the exemption from the procurement rules for security reasons was recently tested in a case concerning the printing of passports in Austria. Coincidentally, judgment in Case C-187/16 Commission v Austria was handed down just two days before the Home Office announced its provisional decision to award the contract to Gemalto. Austria had argued that it was entitled to award all contracts for the printing of passports and other official documents directly to a single private company, in order to protect its essential security interests and sensitive data. The Court of Justice comprehensively rejected this argument, as Austria had not shown how its security interests would be jeopardised by a public tender process. The Court did however accept the direct award of a small contract for the printing of fireworks licences to the company in question, as this fell below the thresholds for application of the procurement rules and the Commission had not shown that it was of cross-border interest.
Fireworks licences aside, there are good reasons to allow international bidders to compete for public contracts. Contrary to popular perception, the number of bids received from international bidders and the number of contracts awarded to them is quite low – just 2.1% of UK contracts were awarded on a cross-border basis between 2009 and 2015 according to a 2017 study. In contrast, UK companies do relatively well at winning public contracts in other EU countries, second only to German companies. Given the wide range of goods and services purchased by government, it is natural that for some contracts the best bidder will be a foreign company, and the decision to award on a cross-border basis should not be met with political opprobrium. The UK’s willingness to keep its public contracts open to outside bidders will be under scrutiny as it aims to establish new trade deals over the coming years, so now is a particularly bad time to give in to jingoism over fairness in procurement.