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October 2013SCIAF Briefing: The Procurement Reform Bill

What is procurement?

Put simply, procurement means ‘buying things’.  And every year the Scottish Government buys lots of things – ranging from teabags for the Parliament canteen, to uniforms for nurses or materials to construct roadsand buildings. Every year the Government spends approximately £9bn a year procuring  – or purchasing -

goods and services

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. We think that’s a lot of purchasing power .

What is ethical procurement?

Ethical or responsible procurement is purchasing which takes into account how a product is produced andtraded. For instance, have producers been given a decent price for their product? Is the supply chain freefrom exploitation and meets good labour conditions, respecting human rights? Does the product or company adhere to good environmental practice?

The Procurement Reform Bill

This October the Scottish Government introduced the Procurement Reform Bill, which sets out how the

Government thinks its officials and public bodies should procure things. MSPs will now discuss theseproposals and have the opportunity to make changes to the Bill before it becomes law.

 A Bill to reform the procurement process was mentioned back in 2011, when the Government pledged tointroduce what it called a ‘sustainable procurement bill’ to “make clear the legislative framework for  procurement decisions and support the greater use of social and environmental benefit clauses”2.

This pledge built on the Government’s Sustainable Procurement Action Plan from 2009, which definessustainable procurement as: “A process whereby organisations meet their needs for goods, services,works and utilities in a way that achieves value for money on a whole life basis and generates benefits not only to the organisation, but also to society, the economy and the environment 3”. 

Like others, SCIAF was encouraged by the Government’s recognition that procurement can providepositive social and environmental impacts. We looked forward to a Bill that would put fairness and justice atthe heart of the procurement process.

We are concerned though that the Bill currently being discussed has lost its original focus and is trying tobe ‘all things to all people’. SCIAF believes that the objective of the Government’s proposals needs moreclarification. Without making it clear that officials and public bodies must procure responsibly we areworried that cost will dominate purchasing decisions.

How can we make procurement more ethical and responsible?

There are various ways to make procurement more ethical and responsible. These might include procuringfairly traded products and by insisting that suppliers adhere to high labour standards, like those set out bythe Ethical Trading Initiative.

Fair trade and the Fairtrade brandThe purpose of fair trade is to get a better deal for disadvantaged farmers and workers in developingcountries by calling for fairer prices for producers, better working conditions and environmentalsustainability.

The Fairtrade brand standards are agreed through a process involving key people in the Fairtrade brandscheme, including producers, traders, NGOs, academia and labelling organisations such as the FairtradeFoundation. This certification does not assess fair trade practices in the supply chain. The process of 

1Scottish Government, Procurement Reform Bill Consultation, August 2012, http://www.scotland.gov.uk/Resource/0039/00398733.pdf  

2SNP Manifesto, 2011 http://votesnp.com/campaigns/SNP_Manifesto_2011_lowRes.pdf  

3Scottish Government, Sustainable Procurement Action Plan, Introduction, October 2009, http://www.scotland.gov.uk/Publications/2009/10/sspap

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agreeing Fairtrade brand standards can take time and there may not be standards available to certify allproducts – despite this, organisations may still be dedicated to trading fairly.

Ethical trade and the Ethical Trading Initiative (ETI)Ethical trade is about suppliers taking responsibility for improving the working conditions of the peoplethat make the products they sell4. Companies that support ethical trade adopt a code of labour practicethat they expect all their suppliers to work towards. Such a code would address issues like wages, hours of work, health and safety and the right to join free trade unions.

The ETI is an alliance of companies, unions and NGOs5 which work together to improve workers lives.Companies that join the ETI must sign up to the ‘ETI base code’ which is a code of labour practice basedon International Labour Organisation (ILO) standards. The ETI doesn’t ask companies to be ‘perfect’ to joinbut it does ask that they commit to working towards improving conditions, regular audits and meaningfulaction where unethical practices are uncovered.

Why ethical procurement matters

‘You go into the kitchen to drink your coffee for the morning, and that’s poured into your cup by a South American. And maybe you want tea: that’s poured into your cup by a Chinese. Or maybe you’re desirous of having cocoa for breakfast, and that’s poured into your cup by a West African… And before you finish

eating breakfast in the morning, you’ve depended on more than half the world .’Dr. Martin Luther King Jnr. A Christmas Sermon on Peace, 1967

Unfair tradeInternational trade is unfair. All over the world people are denied a fair price for the products theygrow or make. Trade rules are weighted in favour of rich countries. For instance, when the price of coffeeplummeted in recent years it wasn’t an accident; oversupply was created when dozens of countries wereforced to move into cash crops as a condition for loans from the World Bank6. Ultimately we need toaddress the unfair trade rules which lead to poverty and exploitation in developing countries. In themeantime, the Fairtrade system can guarantee that at least some producers and workers are notexploited. 

CASE STUDY: The trade in cotton7  About 100 million rural households are involved in the production of cotton in 70 countries around theworld. Two-thirds of this cotton is produced in developing countries with West Africa and India being thebiggest producers. For most cotton farmers, cotton is their only means of income and their only cash crop.

World cotton prices have been unstable and farmers have been severely affected by falling prices. Farmersare under pressure from rising costs of fuel, pesticides and insecticides needed to produce cotton. Thismeans that few farmers can cover the cost of production because they cannot pass these costs on whencotton is sold at a low price. Cotton farmers in the USA, the EU and China are highly subsidised leading tooverproduction. When their huge volumes of cotton are dumped on world markets, prices are driven downand small scale cotton farmers cannot compete.

Fairtrade provides a lifeline to farmers by ensuring that they get a guaranteed minimum price for their cotton which has been calculated to cover the costs of production. They also receive additional money toinvest in community projects –the Fairtrade premium – which they can decide how to invest, perhaps in aschool, health centre, equipment or investing in better agricultural practices such as drip irrigation. Fairtradegives small-scale farmers access to global markets as well as helping them work their way out of poverty.

Poor labour standards All over the world people endure poor, sometimes shocking, working conditions. Some 12.3 millionpeople globally are forced to work for their employers and tens of thousands of workers lose their jobs

4 ETI, www.ethicaltrade.org/about-eti5 Private sector members include M&S, Primark, Sainsbury’s, Next, Cooperative, Tescos, London Underground, Bodyshop, GAP, WHSmiths.NGOs include CAFOD, Oxfam, Save the Children, Fairtrade Foundation, Christian Aid.6

Fairtrade Foundation, http://www.fairtrade.org.uk/get_involved/trade_justice.aspx7Fairtrade Foundation, http://www.fairtrade.org.uk/products/cotton/default.aspx

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every year for attempting to join a trade union or improve working conditions. Most workers can be laid off when it suits an employer 8. 3 billion of the world’s poor live on less than $2 a day. Such low salariesencourage adults to send their children to work and it is estimated that 218 million children work to supporttheir families, missing out on education and damaging their health. This reinforces the cycle of poverty9.

Demanding high labour standards from suppliers can help to improve labour conditions for millionsand increase awareness of practices within the supply chain.

Climate changeThe increasing occurrence of erratic weather and natural disasters caused by climate change is a greatthreat to fighting poverty and hunger. Those who have done least to cause the problem are being hithardest. It is estimated that because of climate change, crop yields from agriculture are likely to fall by up tohalf by 2020 in some African countries and by up to nearly a third by 2050 in parts of Asia 10. Deforestationis also posing a serious threat to hunger and poverty reduction. Forests play a vital role for somecommunities - they contribute to sustainable livelihoods by providing food, wood for fuel or sale intraditional markets and medicines for millions of the world’s poorest people11.

Clearly there is a need for richer nations to cut their carbon emissions as a matter of urgency andhelp the most vulnerable adapt to the effects of climate change.

CASE STUDY: Village Headman Josamu Chikalema, Salima District, MalawiIn the last three years, Josamu’s community has experienced two bad floods and a prolonged drought.With 90% of people in Malawi dependent on agriculture for their livelihoods climate change is a major issue; a drought in 2005 caused a food crisis in the country.

Josamu explains: “Crops can’ t survive the dryness and heat. Droughts are worsening- we can’t plant at all late as crops won’t survive. Right time to plant is very first rains. [In 2010],[the] first two weeks of rainy season were not as rainy as expected, farmers weren’t sure if it was time to plant or not, so they waited, but there was a dry spell and all the crops dried up. Then there was heavy rainfall for three weeks- but tooheavy rainfall. There were floods, it was too wet. We couldn’t plant again. The cl imate every year ischanging .”

Tax-dodgingTax dodging by multinationals is estimated to cost developing countries around £100 billion eachyear   – more than the global aid budget12. Research by the Tax Justice Network estimates that $21 –32tn infinancial wealth is being hidden in tax havens. If the capital gains on this wealth were taxed at 30 per cent(a typical rate for developing countries), it would generate revenues of $190 –280bn a year 13. It is only right

that companies that dodge their taxes are not rewarded with public contracts.

What do we want?

The Procurement Reform Bill provides an opportunity to think about the purpose of procurement. SCIAFbelieves public money should be used for public good. Scottish procurement then must never exploit

workers, harm the environment or reward unethical companies.

Scotland has a proud history of standing up against injustice in solidarity with the world’s poorest people.Thinking carefully about how this money is spent is a huge opportunity to make a difference to peopleliving in developing countries and for Scotland to lead the way in ethical and responsible procurement. 

8 ETI, http://www.ethicaltrade.org/about-eti/why-we-exist 9 ETI, http://www.ethicaltrade.org/about-eti/why-we-exist 10 IPCC, Summary for Policymakers, in M Parry et al (eds), Climate Change 2007: Impacts, Adaptation and Vulnerability: Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, pp7 –22; D Lobell et al, Prioritizing Climate Change Adaptation Needs for Food Security in 2030’ , Programme on Food Security and the Environment Policy Brief , 2008.11 UNDP, The MDGs Report 2013, June 2013, http://www.undp.org/content/dam/undp/library/MDG/english/mdg-report-2013-english.pdf 12

Christian Aid, Death and Taxes, 2008, http://www.christianaid.org.uk/images/deathandtaxes.pdf  In 2012 was $125billion in aid was pledged bymembers of the OECD Development Assistance Committee (DAC)13

Tax Justice Network, Estimating the Price of Offshore, July 2012

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By thinking about the carbon emissions lifecycle of products and services, procurement is also a way for Scotland to cut its carbon emissions; helping Scotland meet its ambitious climate change targets as setout in the Climate Change Act 200914. Scotland is now a Fair Trade Nation and has committed toseeking “to develop pro Fair Trade public sector procurement guidance and promote Fair Trade public sector procurement wherever possible15 ”. Our new status should then involve taking this opportunity toprocure fairly and ethically wherever it can. Scotland can also make a strong statement against tax-dodging by ensuring that its contracts are not given to those who avoid paying their fair share of tax.

How could the Bill be strengthened?

We welcome the Government’s recognition that public procurement can have a positive impact on societyand the environment. However, we are concerned that the initial intention behind the Bill is in danger of being lost in what has become the Procurement Reform Bill.

SCIAF believes that there is a need for further clarity on the objectives of the Bill. We hope that thedecision to remove the term ‘sustainable’ from the title of the Bill doesn’t represent a shift in emphasistowards a merely technical reform of the procurement system, or one that is designed to promote economicand business growth without consideration of wider social and environmental goals. 

We would like to see a ‘statement of intent’ on the face of the Bill. This must send a clear signal to

public bodies from the Government that best value does not mean low cost. When considering economic,social and environmental criteria for procurement it must be clear that economic considerations do notautomatically ‘trump’ social or environmental ones.

Clear guidance and trainingWe would like clear guidance and strategy from the Government which stresses the preference for ethical procurement and sets out to officials clearly how this is possible. Officials directly involved inprocurement should be provided with training so that they understand the importance of ethicalprocurement and how this is possible.

Meeting our climate targetsThe Scottish Climate Change Act (2009) includes a duty for all public bodies to contribute to meeting our 

targets. To make sure officials and public bodies adhere to this duty when purchasing, the Bill should:require suppliers to publish an annual assessment of carbon emissions attributable to their business;provide information on the carbon emissions attributable to the whole life of goods and services supplied;and should require procurement of certain quantities of goods and services meeting specified emissionsstandards.

Promoting fair and ethical tradeThe opportunity to sell products for a fair price and to work in safe and decent conditions could help millionswork their way out of poverty. To this end, the Bill should empower officials and public bodies toprioritise fairly-traded products wherever these are available, especially when no locally-sourcedalternatives exist. In addition, public contracts must request that suppliers all adhere to high labour standards, such as those set out in the Ethical Trading Initiative Base Code.

Standing up against tax-dodgingProcurement should be used as part of stronger efforts to tackle tax dodging and tax avoidance, both athome and in developing countries. There should be pre-qualification disclosure of company taxationpolicies, not just illegal tax evasion. Public bodies should also be able to demonstrate that a companypaying tax would benefit the community through funding for education, roads etc. This would allow them toevaluate a tender on the basis of which company pays tax or not. There should be penalty clauses for taxevasion and aggressive tax avoidance, post contract.

For more information please contact Joanne O’Neill, Policy Officer,  joneill@sciaf.org.uk 

14 This requires that our country’s greenhouse gas emissions must reduce by 42% by 2020 and 80% by 2050 compared to 1990 levels and includesa duty upon all public bodies to contribute to meeting these emissions targets.15

Scottish Fair Trade Forum, Can Scotland Call itself a Fairtrade Nation, Jan 2013,http://www.scottishfairtradeforum.org.uk/reports/Assessment%20report/Final%20Signed%20Report.pdf