UK issues guidance on social and environmental aspects of procurement, but it is not very useful

The UK's Crown Commercial Service has issued Guidance on social and environmental aspects of public procurement carried out under the Public Contracts Regulations 2015 (see full commentary here), which transposed Directive 2014/24/EU into UK law. The Guidance on S&E aspects includes an overview of the use of procurement to further environmental and social considerations, stresses key points to consider, offers a list of measures that a contracting authority can implement in order to ensure compliance with environmental and social aspects (although it boils down to making sure that it obtains the right information from the contractor), has a list of FAQs and includes suggested contract clauses in its appendix B.

Overall, though, the Guidance on S&E aspects does not go much beyond the text of the relevant rules and, when it provides specific examples, it does not work out the limits derived from general principles of procurement and, most importantly, the requirement for a link to the subject matter of the contract and the implicit proportionality analysis [on that, see A Semple, 'The Link to the Subject-Matter: A Glass Ceiling for Sustainable Public Contracts?']. Thus, in my opinion, the Guidance on S&E aspects is bound to not to be of much practical assistance to contracting authorities.

In uncontroversial terms, the Guidance on S&E aspects stresses that the new Directives "have clarified that contracting authorities may consider incorporating social, ethical and environmental aspects into specifications, contract conditions and award criteria. In addition specific rules have been included for handling abnormally low tenders, and on the exclusion of suppliers who have violated certain social, labour and environmental laws." It also stresses the new light touch regime for social and special services (on which it has also published guidance), as well as the possibility to reserve contracts for sheltered workshops as tools for the inclusion of social aspects in procurement. 

It then goes on to list the rules it considers relevant for the design of social or environmentally-oriented public tenders and goes on to discuss the flexibility they create, including all stages of the procurement process. It includes some useful guidance on the context within which checks of compliance with labour standards need to be carried out by indicating that "It is the law of the country where the work or services are taking place that is relevant. If services are provided at a distance, for example call centres, then it is where the call centre is located and the employees’ work that is key rather than the country to which the services are directed. Consequently a tenderer may only be excluded from a tender for non-compliance with labour law if that labour law is the law of the EU Member State in which the employees are working". This is correct and in line with the recent case law of the ECJ in Bundesdruckerei and in RegioPost. However, it does not provide guidance on the next step of practical difficulty, which concerns the ways in which a UK-based contracting authority can (or not) check compliance with, for example, Spanish employment law and labour standards. 

Moreover, in key aspects such as the use of labels, the use of award criteria, the requirements linked to fair trade certification or life cycle costing methodologies, the Guidance on S&E aspects simply summarises the rules in the PCR2015 and Dir 2014/24, and offers very generic or too open-ended examples. 

For example, it indicates that "Fair trade requirements related to the contract subject matter may be included as a contract award criterion, including the requirement to pay a minimum price and price premium to producers, provided they meet the principles [of proportionality, non-discrimination and transparency]". Or that "Award criteria may include environmental and / or social aspects that relate to any respect and any stage of a life-cycle of the requirements as long as they relate to the subject matter of the contract, namely the works, supplies or services provided under the contract. For example, requesting confirmation that the production of an item did not include toxic materials, or services were and are performed using energy efficient machines, resource efficiency and waste minimization".

This limited level of detail in the examples does not provide very effective guidance. Some of these issues could have been addressed at the level of setting technical specifications and the Guidance on S&E aspects does not include any suggestion of how should contracting authorities decide to go down one or the other route. It could, for example, have stressed that the use as technical specifications (particularly if linked to labels) will imply a pass/no pass assessment, whereas the use as award criteria will allow for a more nuanced approach that allows the contracting authority to balance those considerations with other aspects of the offer (and, very clearly, its price). Moreover, both examples given in terms of life-cycle requirements could be challenged on grounds of proportionality and/or lack of specificity. Thus, the Guidance on S&E aspects may end up creating more uncertainties than intended.

The Guidance on S&E aspects is also confusing because it further indicates that contracting authorities "could, for example, include Fair Trade requirements as contract performance conditions where they are linked to the subject matter of the contract. (See [above] for more details on how fair trade, can be taken into account at an earlier stages)". Reading all this together makes one wonder what additional fair trade requirements could be included as contract compliance requirements that were not already either product specifications (either via labels or as self-standing requirements) or award criteria. They would seem to be linked to employment or labour standards during the execution of the contract, but then this is not necessarily consistent with the part of the guidance mentioned above that clearly stresses that an analysis of those issues is dependent on the jurisdiction where the work is being performed. It also does not address whether this is dependent on that jurisdiction being in the EU, a country covered by the WTO GPA, or otherwise. This does not contribute in any meaningful way to reduce the uncertainties in this area.

It is also worth stressing that the Guidance on S&E aspects also contain some controversial issues regarding the inclusion of social considerations in procurement. That is the case of the reference to the additional guidance on Steel procurement in major projects, which I do not necessarily consider as leading to practices 100% compatible with EU law (see also Pedro Telles' criticism here). The stress put in that additional Steel guidance on issues such as transportation costs and effects on employment and health and safety can clearly be interpreted and used as measures equivalent to non-tariff barriers to trade (in steel), which were coincidentally adopted at the time when the British steel industry was under great international pressure due to its loss of competitiveness. The significant drop in the value of the British pound that has followed Brexit may now have made this redundant, but the fact remains that the (soft) Buy British Steel policy created by that additional guidance had clear protectionist elements.

Further, there are "clarifications" that can lead to the creation of the wrong incentives for tenderers. A case in point is the answer to the following question: "Why is it mandatory to reject an abnormally low tender when it has been proved that costs are low because the tenderer has not complied with environmental, social or labour laws (regulation 69(5)), but only optional to decide not to award a contract when it is proved that the tender does not comply with environmental, social and labour laws (regulation 56(2))?". This is actually a legitimate concern and, in my view, indicates that jurisdictions that want to be serious about smart or sustainable procurement should have made the discretionary exclusion ground mandatory for contracting authorities, as Directive 2014/24 permits. What I find puzzling is CCS' answer to this question in the Guidance on S&E aspects, where it indicates that:

These two are similar in that they both breach the requirement to comply with the applicable environmental, social and labour laws, however, the difference lies in the effects of this non-observance: normal pricing in one case and abnormally low in the other (sic). Tenders that are abnormally low because they are not observing environmental, social and labour laws can lead to ‘social dumping’ and therefore they must be rejected. Where the pricing is normal, the risk of ‘social dumping’ is reduced and the contracting authority has the option to award the contract if it considers the non-compliance is tolerable, or if it works with the supplier to ensure compliance going forward (sic). The UK Government’s policy is that contracting authorities must take appropriate measures to ensure compliance throughout the procurement process. Contracting authorities have flexibility to determine those measures on a case-by-case basis. CCS strongly recommends that when contracting authorities are exercising their option whether or not to award a contract to a tenderer that does not comply with environmental, social and labour laws, that the contracting authority takes note of overarching procurement policy and statutory requirements and carefully considers the potential damage to the environment and society before accepting such a contract (footnotes omitted and emphasis added).  

I find at least two aspects of this answer problematic. First, I do not understand the link that CCS creates between non-compliance and 'normal'/abnormal pricing. If the company infringing labour, social or environmental standards has the right information (and transparency in procurement will generally facilitate that), it will be able to engage in limit pricing so as to avoid an investigation of abnormality of its tender while still undercutting compliant companies. By not rejecting tenders that appear to have 'normal' prices where there is evidence of infringement of the relevant rules, the contracting authority is actually encouraging this doubly-damaging behaviour of legal non-compliance and artificial creation of financial margins to cover for the effects of non-compliance (and/or to extract additional rents derived from non-compliance). Thus, this does not seem to me to make any economic sense.

Second, because the contracting authority cannot "work with the supplier to ensure compliance going forward", or at least not in all cases, because this would potentially imply substantive modifications of the tender and the contract, which can fall foul of a number of additional requirements in the PCR2015 and Dir 2014/24/EU, not least the principle of transparency and equal treatment. Overall, then, I think that the Guidance on S&E aspects offers a wrong and dangerous answer to this question and I would rather see it modified to ensure that contracting authorities do not create perverse financial incentives and do not breach basic procurement guarantees, even if they are acting on the good intention of promoting compliance with otherwise breached social, labour and environmental standards.

Finally, it is worth focusing on the suggested contract clauses for social and environmental issues included in Appendix B. There are clauses concerned with sub-contracting, but those create the same shortcomings as the general clauses, so it is worth focusing on the clause  giving the Authority the right to terminate if the Contractor fails to comply with social, environmental or labour law obligations. It has two options:

Option 1 (free-standing) The Authority may terminate this Agreement [with x months’ notice] if the Contractor fails to comply in the performance of the Services with legal obligations in the fields of environmental, social or labour law.
Option 2 (where there is a defined Supplier Termination Event giving the Authority the right to terminate) Add to definition of Supplier Termination Event - (..) a failure by the Supplier to comply in the performance of the Services with legal obligations in the fields of environmental, social or labour law.
NOTE: in either case the consequences of termination must be considered in the light of the other provisions in the contract.

I find these suggested contract clauses of very limited use. First, because they fail to determine which obligations in the fields of environmental, social or labour law are those that can trigger termination, as well as which evidence of infringement will be required. Second, because it is not clear whether the breaches refer to the execution of the specific contract (in which case there is a closer link to the subject matter) or the general activities of the contractor (in which case there could be issues around the proportionality of the requirement, in particular if the "legal obligations in the fields of environmental, social or labour law" are some that could not have been included in the contract as specific contract compliance requirements, for example). And third because there is no attempt to establish links to other necessary mechanisms to give effectiveness to these clauses, such as information obligations or potential certification by third parties.

Overall, I find the Guidance on S&E aspects rather poor and I would think that contracting authorities will be better off by relying on the European Commission's guidance on buying green and buying social which, despite its own shortcomings and need for an updated in the case of social aspects, have a more practical orientation.