Public procurement In some sectors, public institutions and public...

Public procurement

In some sectors, public institutions and public utilities have the position of a monopolist. One example is aerospace. This case explores what happens when the external business environment creates uncertainty about the role of the purchasing and supply functions in the aerospace value chain.

It has been estimated that 14% of GDP across Europe and 20% of UK GDP is spent on Public Procurement. 'On 29 March 2017, the UK Government served formal notice to end the UK's membership of the EU. Based on Article 50, the EU Treaties shall cease to apply to the UK and the UK exit is expected to take effect in January 2020' ("Bird and Bird, Brexit", 2017). Most commentators consider that in the short term, the UK public sector will still be required to comply with the Public Contracts Regulations 2015 and not only will be obliged to, but will still want to advertise contracts in accordance with the EU Directive. In the long term the UK Government may want to improve those regulations for the benefit of businesses and communities alike.

The European Commission's public procurement strategy, adopted in October 2017, focuses on strategic policy priorities including the following.

Legal rules, implementation, and enforcement

• The core principles of these directives are transparency, equal treatment, open competition, and sound procedural management. They are designed to achieve a procurement market that is competitive, open, and well regulated. This is essential for putting public funds to good use.

E-procurement

• E-procurement refers to the use of electronic communications by public sector organizations when buying supplies and services or tendering public works. Increasing the use of e-procurement in Europe can generate significant savings for European taxpayers. These savings would maximize the efficiency of public spending in the current context of fiscal constraints. E-procurement can also provide a new source of economic growth and jobs, including through facilitating access to public procurement contracts by small and medium-sized enterprises.

International public procurement

• Accounting for 15-20% of global GDP, public procurement represents a substantial portion of the EU economy and the economies of many countries around the world. Public procurement commitments under the World Trade Organization's Agreement on Public Procurement (GPA) have been estimated at around EUR 1.3 trillion. The EU advocates open international public procurement markets for certain goods and services, and works to help EU companies get access to global public procurement markets.
• The EU also collaborates with EU candidate countries and potential candidates to ensure that their public procurement sectors are compatible with EU rules, and negotiates with other countries in the framework of trade negotiations. It holds regulatory dialogues with countries having important public procurement sectors as well.

The UK's aerospace industry has expressed its concern about the United Kingdom leaving the European Union. According to its trade body - Aerospace, Defence, Security & Space (ADS) 'The UK's Aerospace sector is the largest in Europe and second globally to the USA, generating well-paid jobs, high-tech exports and sustainable growth across the country' ("ADS facts and figures", 2017). It also notes 'the aerospace industry has expanded 39% in five years, with growth being driven by export orders. 90% of final demand in Aerospace comes from exports'. ("ADS UK Aerospace Outlook 2017", 2017).

But, according to the BBC, UK firms could be 'excluded' from space contracts by Brexit' (Nov 2017). The aerospace industry is worth about 14bn to the UK, with about 40,000 direct employees, according to ADS. The nature of aerospace contracts is that firms tend to collaborate across national boundaries. And according to Accenture, 'Companies are already automating tasks and processes in their organizations, with extensive use in knowledge worker and IT tasks. This is set to increase across all areas of aerospace and defence. Research shows 85% of the industry's executives expect artificial intelligence to have a significant impact on the industry in the next three years.'

In response to the opportunities and threats, ADS warned;

'Although membership of the European Space Agency is not part of the EU discussions because it is not an EU body, many of the contracts, including Galileo, are EU funded.'

'And it's a requirement that the companies that participate and get funding for their contracts are part of an EU country, so we are already seeing contracts being turned away from UK industry.' Katherine Bennett, senior vice president of Airbus UK, which builds wings at Broughton in North Wales warned that the impact of Brexit meant future investment could go outside the UK. 'Other countries would dearly love to design and build [Airbus] wings and some already do - we actually build wings in China, and believe you me they are knocking at the door as a result of the situation we find ourselves in in this country,' she said.

As noted by the BBC 'People within the aerospace industry are clearly getting nervous - largely due to uncertainty around the form Brexit will take, and the nature of any transitional arrangements. Currently aerospace businesses don't know what will happen when we leave the EU - and a no deal scenario would be pretty disastrous' ("UK firms 'excluded'", November 2017).

Question 1

Aerospace is one sector of the UK economy that may be affected by a 'chaotic' withdrawal. Conduct your own research into the projected European Defence Agency spending and procurement across Europe and explain the EDA's major expenditures.

Question 2

On behalf of the Aerospace, Defence, Security & Space (ADS) industry group, consider the advantages and disadvantages of a potential withdrawal from the Public Contracts Regulations and its impact on member organizations in the UK.