Launch of the Procuring for Growth Balanced Scorecard - Some Initial Thoughts

The UK's Crown Commercial Service and Cabinet Office have launched a new scorecard system to "use its huge purchasing power to help support economic growth" (emphasis added). Ultimately, the UK Government considers that it "can play an important role in supporting economic growth by helping to level the playing field through the way it buys public goods, works and services. It can maximise the economic benefit of what it spends through public procurement, directly through the outcomes of major investments or by playing a catalytic role in the development of supply market capabilities and competitiveness through the way it designs its procurement and requirements" (emphasis added). Quite frankly, and already from the outset, I struggle to understand the reference to levelling the playing field in any terms that do not hint at protectionism of the local industry as a means of promoting (domestic / local) economic growth (which is also a claim open to contention).

In very similar lines, they also indicate that the aim of this policy is "to maximise the value of taxpayers’ money through public procurement in a way that supports economic growth by ensuring that full value for money is taken into account. The Public Contracts Regulations 2015 provide greater clarity on how broader policy considerations, such as social and environmental factors, may be integrated into procurements. Taking account of relevant broader policy considerations will help to ensure value for money is fully considered and reflected in the procurement process where appropriate, contributing to economic growth in the UK" (emphasis added). Thus, there seems to be a rather strong link between the aim of promoting economic growth in the UK and the inclusion of social and environmental considerations. Certainly, smart procurement can contribute to economic growth (for example, by investing in infrastructure that enables the emergence of new economic activity) but this is an issue on decisions of what to invest in / what to buy, rather than decisions on how to buy it / who to buy it from. In my view, the whole policy seems to focus more clearly on the second type of questions, which should raise some flags concerning its compatibility with EU law.

In that regard, a maybe cynical remark is that the policy comes with an excusatio non petita when it stresses that "On 23 June, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation". This was not necessary at all. It could be seen as a hint that the Government is trying to already implement "Brexit-aligned policies" (whatever that means) within the (recognised?) constraints of EU law. Two points here. One, if everything in this policy is EU compliant, what is the point of mentioning Brexit? And two, if everything that the policy aims to do is EU compliant, then is there any reason to believe that the Government will change its procurement policy in any meaningful way after Brexit actually takes place?

Regardless of those more general ideas, overall, it seems necessary to assess the new scorecard together with the also very recent CCS Guidance on social and environmental aspects of public procurement (Guidance on S&E aspects, criticised here), and, more generally, in view of the economic analysis of the effects that exercising such buyer power can create. 

Scorecard, Guidance on S&E aspects and EU procurement law

According to the press release, 

The new scorecard system has been designed to help ensure that major government procurements have a positive impact on economic growth, as well as achieving best value for the taxpayer.

The guidance ... introduces a balanced scorecard approach, which government departments should use in designing major works, infrastructure and capital investment procurements where the value is more than £10 million.

The scorecard helps procurers to consider the project requirements and needs, with criteria such as cost balanced against social, economic and environmental considerations.

By using this method, government departments can clearly set out how priority policy themes such as workforce skills development, small business engagement and sustainability may be integrated into their procurement activities.

This underlines to suppliers the overall impact that the department wants to achieve and signals how this will be assessed when considering individual tenders.

Each department should produce a project-specific balanced scorecard to be published with their procurement documentation.

The full scorecard paper provides additional details. It stresses that "A balanced scorecard (BSC) approach is a way of developing a procurement (e.g. the requirements and evaluation criteria) so that more straightforward matters such as cost, are balanced against more complex issues such as social and wider economic considerations" (emphasis added). This may seem to indicate that the BSC is actually a new method that aims to operationalise social and wider economic considerations in a way that makes them compatible with cost-based and legal requirements. 

However, an crucially, the document clearly sets out that "It is important to remember that nothing within the [BSC] guidance ... should be interpreted in a way that overrides or conflicts with departments’ obligations to comply with the PCR 2015, in particular departments’ obligations to determine whether potential requirements would be linked to the subject matter of the contract and proportionate to apply" (emphasis added). 

Thus, obviously, the scorecard cannot be seen to create more space for broader economic, social or environmental considerations than the applicable rules themselves. However, this raises the practical questions (a) why, if the BSC is nothing else than a method that needs to be assessed against regulatory requirements for the inclusion of social, environmental and broader economic considerations, it has been adopted separately from the Guidance on S&E aspects, and (b) to what extent the BSC is actually a useful tool for contracting entities beyond the mere formal aspect of formalising their tender / contract design analysis.

Moreover, the full scorecard paper runs the risk of misrepresenting regulatory requirements in the way that it pushes for the creation of discretionary space for the application of the BSC. Indeed, it stresses that

The EU Directive and the PCRS 2015 make clear that the award of contracts should be on the basis of the most economically advantageous tender (MEAT). The price or cost assessment part of the evaluation of bids must be on a whole life cost basis, and, as set out in the PCRs 2015, the entire cost-effectiveness of the project should be examined, not just the initial price. Cost-effectiveness can include the assessment of the cost of transport, insurance, assembly and disposal as well as costs over the life-cycle of a product, service or works, including: costs of use, such as consumption of energy and other resources, and maintenance costs; and costs associated with environmental impacts, including the cost of emissions (emphasis added).

In my view, this is problematic because Art 67 Dir 2014/24/EU and reg.67 PCR2015 do not actually impose an obligation to assess the price or cost on a "whole life cost basis" but simply allow contracting authorities to do so. This is recognised in technically more accurate terms in a separate piece of Guidance on awarding contracts also published by CCS in October 2016, where it is stated that "When a contracting authority uses cost as an award criterion, it should do so on the basis of a cost effectiveness approach. Life cycle costing (LCC) is an example of this approach, but contracting authorities are free to use other approaches" (emphasis added). 

Indeed, Art 67(2) Dir 2014/24 establishes that "The most economically advantageous tender from the point of view of the contracting authority shall be identified on the basis of the price or cost, using a cost-effectiveness approach, such as life-cycle costing in accordance with Article 68, and may include the best price-quality ratio, which shall be assessed on the basis of criteria, including qualitative, environmental and/or social aspects, linked to the subject-matter of the public contract in question" (emphasis added).

This requires that cost or price (ie cost-effectiveness) forms part of the award criteria (which is nothing new), and simply opens up the opportunity of adopting a life-cycle method, always provided that is in compliance with Art 68 Dir 2014/24, which in turn establishes that "Where contracting authorities assess the costs using a life-cycle costing approach, they shall indicate in the procurement documents the data to be provided by the tenderers and the method which the contracting authority will use to determine the life-cycle costs on the basis of those data." And additionally requires, amongst other issues, for that method to be "based on objectively verifiable and non-discriminatory criteria. In particular, where it has not been established for repeated or continuous application, it shall not unduly favour or disadvantage certain economic operators" (emphases added).

Therefore, unless contracting authorities have a pre-defined (and pre-published) methodology for the assessment of life-cycle costing (which they generally do not, at least currently), the award of contracts on the basis of "whole life cost" analysis is subjected to the double requirement that it focuses on requirements linked to the subject matter of the contract and is also not such as to unduly favour or disadvantage certain economic operators. In my view, this may be sufficient to disincentivise contracting authorities from aiming to actually award contracts on the basis of "self-made" life-cycle costing methods and the BSC may only be effective if such method was developed by the CCS itself for general use.

Further, it seems difficult to square the fact that, on the one hand, the guidance stresses that the BSC must be tailor-made to each procurement process (which would result in evaluation methods not designed for repeated or continuous application), while in that case the contracting authority must not only develop its own life-cycle costing methodology but also ensure that it does not result in an undue advantage of specific economic operators--which pretty much neutralises the incentive effects that the use of the BSC may be intended to create.

The detail of the BSC is also not helpful in that regard because it does include criteria that are discriminatory, such as "Number of UK jobs created or sustained by new government contracts" in terms of employment impacts; or the assessment of community benefits and legacy, which are more likely to advantage domestic contractors. In my view, contracting authorities will be in a difficult position when trying to translate these general criteria into legally-compliant and useful evaluation criteria that are not discriminatory.

More generally, on (ab)use of public buying power

The second perspective that is worth considering is that of the long-term effects of the Government's attempt to "use its huge purchasing power to help support economic growth". This reopens yet again the discussion on the desirability of the instrumentalisation of public procurement for extraneous policy goals. Suffice it to say here that (a) the inclusion of social, environmental or wider (community) requirements does not come free because it either raises bidders' costs or reduces competition, or both and (b) that the long term effects can be very significant in terms of reduced dynamic competition. This is an issue I have repeatedly raised (see here, for example) and a more structured analysis is available here. 

A conversation on horizontal policies in public procurement

I was kindly invited to talk about centralisation and public procurement at the Law School of the University of Lisbon last week by Prof. Miguel A. Raimundo. At the event, Prof. Nuno Cunha Rodrigues provided an initial overview on the opportunities that centralisation can create for the pursuit of horizontal or secondary policies. Based on my general views (here), I opposed the use of centralisation to achieve secondary policy goals, for the standard economic reasons, as well as for the issue of the democratic deficit that would ensue from allowing centralised purchasing bodies to act as market regulators.

Prof. Cunha Rodrigues has followed up on our discussion via email and has provided me with some detailed remarks (plus a short rebuttal/further thoughts I am adding at the end)(*). With his consent, I am posting them below (in black), accompanied by my own reaction to his points (in blue). I hope this "virtual" conversation on horizontal policies in procurement will be of interest. By all means, please feel free to comment.

Dear Albert:

As I told you personally, I´m a great admirer of your work which I´ve been following through your several publications and your blog. I saw your last post and I just wanted to make some comments on it.

Far too kind.

As a matter a fact, I don´t have a close view on secondary or horizontal policies. It´s still to be proved their efficiency knowing that State has several other tools in order to promote the same goals associated to secondary policies, like the use of sectorial legislation, taxation or subsidies.

In my view, this should suffice to at least refrain from their expansion, particularly under centralised procurement.

Nevertheless, I think we shouldn`t regret the importance of the (possible) use of public procurement to pursue (some) secondary policies like social policies. Said this, I just want to make some telegraphic notes:

i) It´s true that the pursue of secondary policies through public procurement does not have (enough) democratic legitimacy. Still, knowing that (most) of the central purchasing bodies in Europe directly depend on central government, we can say that centralisation of public procurement is the (ideal) way to develop secondary policies because governments can directly control those bodies and the policies they pursue (in Portugal, central government can send direct instructions to the central purchasing body). The issue of democratic legitimacy is one that can provoke a huge discussion namely in the field of EU law (and the powers of the European commission…);

I strongly disagree with this approach. The issue is quite significant because the establishment of higher requirements (green, social or otherwise) in procurement than in general consumption of goods in services shows a clear regulatory/legislative double-standard that can hardly be monitored or resolved through governmental control of the central purchasing body. There is no good reason why the public sector cannot purchase goods and services legally marketed to private buyers. If the government/legislator considers that a given product or service should not be consumed for objective reasons, it needs to legislate in that way. Otherwise, this approach does not only lead to a clear democratic deficit, but also to a cross-subsidy that can go both in favour of or against the public purse / consumer purse.

ii) Public bodies are subjected to the legality principle. As so, and knowing that most European constitutions (and the TFEU) acknowledge the precaution principle in environmental issues and also the equality principle, one can recognise that secondary policies (namely social policies) should be consider by public bodies on the decision of what to buy;

Yes, but only expressed and articulated (by hard law instruments) environmental and social rules. Again, as above, there is no reason why procurement policy needs to be more cautious in environmental or social terms than the explicit and legislated environmental and social policies themselves.

iii) Your last post mentions some articles that stress that set-asides are a bad ideia. Some of those articles come from the 80’s and the 90’s, knowing that (modern) secondary policies (like the one connected with environmental and social policies) appeared mainly last decade (after Concordia Bus case, although I’m aware of previous Du Pont de Nemours case and others) and that some authors have recognised their importance in the recent past, like Arrowsmith, Kunzlik and MacCrudden (despite the fact that some may disagree with these policies). After the Concordia Bus case, the 2004 and 2014 directives, the national experiences and, mainly, the ECJ cases (like Concordia Bus, Wienstrom and Ruffert) it became clear that there was a new role to public procurement in this field;

In my view there is no new role (maybe some more regulatory space, but no new role) for secondary policies in the current rules and, in economic terms, the situation is exactly the same assessed under the studies I refer to. I agree that new empirical studies would be really useful in trying to price or measure the distortions created in EU markets at present, but I would stress that the value of proper empirical work is that it allows us to test economic theories. And, as far as I can read, there is no question that secondary/horizontal policies create economic inefficiency. The burden of proof, in empirical terms, lies on the other side.

iv) The economic crises that some European countries have been facing showed the importance of public procurement as an economic policy tool, like we saw mainly between 2009 and 2010 when the European Commission inducted member states to spend more public money is order to stabilise economy;

I partially agree, in that there is an economic role to be plaid by public procurement as a macroeconomic policy. However, that is a decision on the level of expenditure and, possibly, on areas of priority. However, that has nothing to do with what should be bought or how. I develop these issues distinguishing the different economic roles of procurement in my book and I stick to that [A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 52-56].

v) In fact, market failures must be covered by state and they can be through multiple ways (depending on how efficient they prove to be), namely by regulation through contract (but sometimes, for sure, not directly through public procurement but through other instruments such as sectorial legislation, taxes or subsidies).

Not sure about this point. However, market failures are not the only ones that concern procurement, which should also be wary of regulatory or government failures. Capture or gold-plating by the central purchasing body is at least equally worrying.

vi) In the EU law, secondary policies appeared in a shy way with the 2004 directives and they are one of the main causes of the 2014 directives so we can’t deny the will of the European legislator in this matter;

Yes, but that does not mean we need to acritically accept that whatever the legislator wants to do is in the society's best interest. There are too many theoretical and historical objections to list them here.

vii) If we exclude the use of secondary policies, we are comparing, at the end, public procurement with private procurement. Still, public procurement must follow public interest and this one is not always connected with an idea of the lowest price or efficiency (or an idea of simplification of public procurement).

I disagree. We are just disentangling the regulatory/public power of deciding what to buy from the economic mechanism of procurement, which should be concerned with how to buy that in the most efficient way.

Nevertheless, even the criteria of the lowest price can be used to promote secondary policies (e.g. through technical specifications or the use of eco-labels) and, on the other hand, by choosing the most economic advantageous proposal, public bodies can promote secondary policies even without a clear legal base, so every guidance we can give in this area will be helpful;

Guidance may or may not be helpful. I agree that secondary policies could permeate different parts of the procurement cycle. However, the rules on technical specifications are much more stringent than those on award criteria in terms of accepting equivalent solutions and limiting formal restrictions to participation. Hence, I would much rather see green procurement limited to technical specifications and social clauses to contract compliance requirements (both of which have been limited in Dutch coffee and Bundesdruckerei) than in award criteria, where the scenario is much less streamlined.

viii) We know that, at the end, secondary policies can determine that prices get higher for public bodies. Still, the goal of public procurement is not only to assure value for money but also to promote public interest and this one can allow public bodies to buy in a more expensive way in order to promote, v.g., social policies.

This is very contentious. I completely disagree. Arrowsmith (in mild terms) and Kunzlik (in more enthusiastic terms) may agree with you. Here is a summary of the academic "conversation" we have been having for a while.

ix) Public interest (and European interest) has raised environmental policy to one transversal European policy (and the ECJ has said that) that must be included in public procurement concerns (and it was not in the past). The ECJ has said the same about social policies, namely in the Viking case;

That sounds like a bit of a simplification to me, particularly because the CJEU has always been stressing the need to comply with enacted secondary rules, rather than with policies. In any case, the opposition to secondary policies is not to be extended to procuring goods or services in compliance with the applicable legislation, which is an altogether different discussion.

x) I´m aware that the use of secondary policies may cause distortions in the market (and in competition). But public procurement is not concerned just with the competition principle (knowing that this one has been raising its importance after FENIN-SELEX ECJ cases and the new directives). Here, proportionality principle may help to balance competition principle with the pursue of secondary policies connected with the public interest. In some cases, it might be necessary to exclude some competitors that act in the same relevant market (e.g. State can exclude competitors that sell cars that pollute excessively or sellers of inefficient lamps) in order to promote secondary policies, namely promoting a change in technology that its consider to be needed according to the public interest.

I disagree. If the State does not want excessively polluting cars, it needs to legislate against them. If it is legal to sell those cars, there is no justification for an exclusion of the offeror from public procurement. Secondary policies cannot be a fix for the inability to legislate appropriately.

xi) In the field of secondary policies, the use of soft law is a way to, step by step, get to hard law and sometimes it has a fundamental role in order to allow the operators to understand the functioning of hard law. For example, competition law wouldn`t really be comprehensive without soft law (knowing that, in most of the times, it follows ECJ case law) even if, sometimes, the road gets away from soft law (e.g. what happens with the relevant market definition and the modern economic approach to merger control). We can also see the same use of soft law in tax law and I think we shouldn`t deny it`s value in the interpretation and development of public procurement law in the future.

If we don´t have soft law, the discretionary power of public bodies would be even bigger knowing that the use of secondary policies is allowed in the 2014 directives in general terms. As so, soft law can have a role in order to make more clear the use of secondary policies (and the situations where they can´t be used) although we are aware of the risks concerning the frontier between hard law and soft law (that were already raised by the ECJ);

I disagree with this, particularly in the competition field. Soft law is an asymmetrical lye we tell ourselves simply to allow regulation to be developed below the radar screens. My more developed views are available at A Sanchez-Graells, Soft Law and the Private Enforcement of the EU Competition Rules (July 2010)].

xii) The use of social policies through public procurement was, in some countries, a case of success in the past (v.g. USA; UK; Canada; South Africa; Malasia) so we shouldn`t throw the possible use of it immediately away;

I remain to be presented with any evidence about the success of any of those policies in any of those jurisdictions.

Like I said, this is just a short reaction to your post, without quoting any article or book to support me, that I’m sending you with friendship and admiration. I really don`t have a close view on this issue but I think (and I agree with what you say on your blog) that, concerning secondary policies, we won`t go back after 2014 directives. As so, operators will need guidance in this matter in the future.

Well, it is certainly an area where we will continue holding academic debates. :)

Postscript: Some further thoughts by Prof. Cunha Rodrigues

i) You say that secondary policies, at the end, can produce "a cross-subsidy that can go both in favour of or against the public purse / consumer purse." I think that this idea is stick to one of economic efficiency that is not necessarily linked to public interest. Sometimes, it`s necessary to pay more (public purse / consumer purse) in order to get a superior social outcome or to have a change in technology so cross-subsidy can have a positive effect to tax payer in a near future (namely when we prove that the outcome is more efficient if compared with other public tools).

Promoting social policies buying to companies that employ handicapped persons may not satisfy economic efficiency but it will meet public interest and satisfy public procurement goals. Another example: every time technology moves forward, prices get higher at the beginning so State, through public procurement, can have a role in helping to develop that technology and getting prices to be cheaper, namely by buying those products. That happened, in several countries, for essence when some public bodies decide to buy electric cars (and, in those cases, I think that competition would be more distorted if we exclude from the market inefficient cars through hard law rather than excluding them through public procurement).

ii) You mentioned that “secondary policies cannot be a fix for the inability to legislate appropriately”. I think that this idea, at the end, would translate to hard law the decision to exclude some (inefficient) products from the market what might agravate the effect of distorting competition because: a) it wouldn´t allow private parties to decide what to buy; b) it would exclude private producers from the market, causing an even bigger distortion of competition than the one (eventually) caused by using secondary policies through public procurement.

This is somehow an idea similar to what happens in competition law where, in some cases, R&D can justify antitrust behavior (along with others conditions, for sure, according to article 101.º, n.º 3 of the TFEU). In both cases, one can say that competition principle or an idea of economic efficiency doesn`t necessary prevail. Naturally this example can’t be understood in cases where public procurement comes along with monopsony power (and I fully agree with you that the possible application of article 102.º of the TFUE can be wider, in the future, even knowing FENIN and SELEX cases, because of the role that central purchasing bodies can and will have under 2014 directives).

Some comments on Robinson (2013) "Social Public Procurement: Corporate Responsibility Without Regulation"

In a recent paper entitled "Social Public Procurement: Corporate Responsibility Without Regulation",  John Robinson Jr., a student at the University of Utah College of Law, 'explores the EU’s framework for achieving [...] social goals and suggests that the US should undertake many of the same policies. In the US, public procurement accounts for over 10% of GDP. Therefore, using the marketplace rather than regulation to achieve positive change offers a powerful tool: the upside of social good without the downside of increased regulatory burden' (emphasis added). 

 

Even more specifically, the paper claims that 'EU’s position on CSR, specifically that expenditure of public funds provides a powerful mechanism with which to drive corporate responsibility. Essentially, this reflects a collective EU decision (sic) that market forces are superior (eg., more efficient) to regulation in terms of promoting socially responsible business practice' (emphasis added). However, the superiority or efficiency of the mechanism is not an issue that can simply be agreed upon or opted for, but an empirical question. And, difficult as it may be to measure, economic theory does not support the premise that exercising buyer power is a more efficient mechanism than (adequate) regulation when it comes to the pursuit of social (or any other) regulatory goals.

In my view, the whole argument in the paper and the final policy recommendation (as, more generally, the use of public procurement to pursue secondary considerations) is problematic because it does not duly take into account the short-term, static competitive distortions and the (implicit) higher costs of procurement based on non-economic considerations, nor the undesirable dynamic distortions that can be created by the public buyer. Readers may be bored already with my argument, but I cannot help stressing that using public buyer power to achieve regulatory goals is an inefficient strategy [for further discussion, see my Distortions of Competition Generated by the Public (Power) Buyer].

 

Nonetheless, Robinson completely ignores the fact that imposing regulatory requirements through the backdoor of public procurement decisions significantly muddles the working of the market. Such ommission is clear in the argument that 'Using their already-existent presence in the market, governments may encourage corporate social responsibility through favoring those corporations, goods, and services that produce better social outcomes. The EU terms this as socially responsible public procurement, and has actively engaged in SRPP for some time'. In passing, it is worth stressing that the CJEU has created some important limitations as to what can be done in terms of pursuing CSR objectives through procurement (see case C-368/10 and my comment, in Spanish, though).

In my view, the foundations of the logic behind the proposals to 'use' the market (ie buyer power) to achieve regulatory objectives (which Robinson borrows from McCrudden's 'Buying Social Justice') are essentially flawed. Remarkably, it can hardly be supported that 'Although not perfect, markets constitute the best method yet found for “optimizing the use and distribution of scarce resources.” Traditionally, society placed social justice and equality outside of the market, but within the sphere of government influence. However, the movement towards [socially responsible public procurement], particularly within Europe, signals a recombination of the two—integration of social justice into the marketplace'. In my view, such a recombination is simply not possible, as the preference for social (or other) regulatory requirements distorts the market mechanism and, consequently, there can be no guarantee that it can still optimize the use and distribution of scarce resources.

 

Contracting authorities are clearly in a position to decide what to buy and to require that the products or services they purchase or hire meet certain technical specifications that include environmental or social requirements. They will be able to do so as long as there is a market for such products or services. Equally, they are free to decide to what social or environmental projects they give preference and where the money should be spent. And, once they do that, they should aim to take full advantage of the undistorted market mechanism to maximise the value of their expenditure or investment to achieve those goals. However, they are in a very bad position to attempt to regulate the market through purchasing decisions, and they should refrain from doing so. Otherwise, they may see how their own efforts are in vain as a result of their unforeseen impact in the market.

 

The boundaries of what can and what cannot be done in terms of promoting social and environmental goals through procurement still require some further clarification (particularly in light of the novelties in the new public procurement directives), but it should come with some sound understanding of the economics underpinning procurement mechanisms. Bottom line: public procurement needs to take place in properly functioning markets and any (pseudo-regulatory) strategies that distort the market will be inefficient, however appealing it may seem to exploit buying power in the short term.

#PublicProcurement Promoting #PublicHealth: A New Risk for Potential Distortions of #Competition or a Fat Chance?

In their recent paper Government Purchasing to Improve Public Health: Theory Practice and Evidence, Noonan, Sell, Miller and Rubin explore how using government purchasing power to stimulate demand for healthier products provides a pathway to healthier food purchasing. At first sight, this is yet an additional instance of the use of public procurement to achieve secondary policies [see Prof. Arrowsmith's taxonomy of horizontal policies in procurement here] and, consequently, deserves some attention.

As the authors clearly stress,

The sheer amount of money government spends on procurement gives it a unique capacity to shape markets that, in turn, may affect public health. Through public procurement, government can, for example influence private companies competing for its business. Government’s influence can shape not only the types of products and services offered to government by private contractors, but markets themselves and the choices available to both corporate and individual consumers.

And, it is precisely this vast potential to shape (rectius, distort) the markets where the public buyer is active that justifies the need to take such impacts on commercial markets when designing public procurement rules and practice [as clearly emphasized recently by Prof. Yukins and Cora here, and as I have argued elsewhere]. However well-intended the 'secondary policy' promoted by the government, it may (will) come at a significant (and opaque) cost if it is not thoroughly assessed and carefully designed in view of its potential impact on the competitive dynamics of the markets concerned.

Focusing on the promotion of public health, Noonan, Sell, Miller and Rubin consider that

Although the specific elements and the aims of healthy procurement policies may vary, the key component of such initiatives is their use of government’s role as a buyer to shape the food environment in ways that promote better public health [...] Through healthy procurement, governments have an opportunity not only to improve the nutritional quality of the food they distribute or sell to the public, but by increasing the market demand for and availability of healthful products, to influence the options available to a much broader range of consumers.

Government procurement policies provide an alternative to policies where government regulates industry directly. Rather than establishing rules that require an industry to alter its products to meet certain standards, government can purchase products that already meet those standards. This approach can alleviate the administrative burden for the government; overcome political resistance often associated with traditional regulation; facilitate less adversarial relationships with private industry that places more emphasis on achieving outcomes than on punishing violations; and stimulate and promote innovation that the market, alone, may not produce (emphasis added).

The use of public procurement as a tool of industrial policy has been discussed for the best part of the last 25 years (see Geroski's seminal work in 1990). As a counter-argument to the advantages perceived by Noonan, Sell, Miller and Rubin, I think that it is clear that the use of public procurement as a regulatory tool creates significant issues of democratic and legitimacy deficit, as well as difficulties in monitoring and oversight--not to mention the potential (implicit) economic costs and losses in economic efficiency that would have otherwise been identified in the regulatory impact assessment (RIA) / cost-benefit analysis that would have preceded the adoption of the regulation now substituted with public procurement practice. Therefore, the picture is far from the ideal / neutral description provided by Noonan, Sell, Miller and Rubin.

Therefore, it should not be lightly used as the preferred 'regulatory tool' and, in any case, the implications of allowing the government to intervene in the market through the sheer use of its buying power would then need to be subjected to some kind of check and balance--which, in my view, should be competition / antitrust law and, more specifically, the rules on abuse of dominance / monopolisation [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) ch 4].

The process diagram designed by Noonan, Sell, Miller and Rubin is interesting because it helps explain the way in which secondary policies work and the (indirect?) way in which the substitution of legislation with procurement (specifications) may affect industry structure.

Noonan, Sell, Miller and Rubin (2013: 8) circles added.

It is clear that moving public health (or any other secondary policy) from the set of legal requirements to the public procurement specifications completely alters the framework in which the public buyer operates, sets it free from significant regulatory constraints, and diminishes the transparency and predictability of the system for companies active in these sectors. On the other hand, the expected industry adjustment may not always be comprehensive, and it can generate a truncation of an economic market (eg that for foodstuffs) into two artificial (sub)markets: a 'public market for food' and a 'private market for food'. The economic consequences of such truncation are hard to predict but, in all likelihood, they are bound to be negative from a social welfare standpoint.

However, in the specific case of 'healthy procurement' discussed by Noonan, Sell, Miller and Rubin, it seems apparent that the pursuit of public health objectives is done exclusively through the setting of the 'technical' specifications of the food to be provided (in most instances, to schools). In this regard, the promotion of public health in procurement should not be seen as a 'classical' exercise of secondary policy promotion, since the government is defining what to buy and the 'healthy' component is intrinsic to the goods to be delivered. In that regard, the choice of healthy food for schools seems unobjectionable also from a competition perspective. The issue would be different if the government decided to buy from vendors that only sold 'healthy food'--an issue that, at least in the European Union, has been clearly prohibited by the Court of Justice in the Commission v Netherlands (Fair Trade) case.

In any case, given the growing attention to the promotion of public health and the prevention of obesity and its related health issues (see the World Health Organisation and its initiatives),  this new potential area of pursuit of 'secondary' / horizontal policies in public procurement deserves academic and policy-making attention.