Public procurement is often used to promote various policy objectives other than simply obtaining the required goods or services on the best possible terms. Such objectives range from industrial development to environmental protection and social objectives like equality. The latter objective has resulted in various mechanisms in public procurement supporting suppliers belonging to particular groups or categories in society that are or have been marginalised. Examples include suppliers owned and operated by minority groups, women or the disabled. Christopher McCrudden has famously referred to this practice as “buying social justice” in his book Buying Social Justice – Equality, Government Procurement, and Legal Change (2007 OUP).
The basic rationale behind such schemes is that positive steps in support of these suppliers in the procurement process will result in the economic upliftment of the group. This, in turn, should support the pursuit of equality in society.
Marginalised groups can be supported in procurement in various ways. One can consider these different actions on a continuum. At one end are those actions that impact least on actual procurement transactions such as advice to marginalised suppliers. At the other end of the continuum are actions that reserve contracts for marginalised suppliers. In-between are schemes that give preference to marginalised suppliers in the adjudication process or that incorporate terms in the tender contract that oblige suppliers to support marginalised firms when performing under the awarded contract.
The specific option on this continuum that a procurement regime will adopt depends on the strength of the policy underlying the scheme. The stronger the policy the more exclusionary the chosen mechanism is bound to be. One thus commonly finds set-aside schemes for women owned and operated suppliers in terms of which particular contracts or percentages of contracts are reserved for women owned and operated suppliers. This is understandable given that the policies on gender equality are typically strong policies in most countries and widely supported in societies. On the other hand, policies supporting marginalised groups such as minority groups are typically more controversial (at least politically) and do not enjoy as wide support. The result is that “softer” mechanisms are typically used to promote these policies through procurement. An example may be preference schemes in terms of which suppliers from these designated groups are given a margin of preference during adjudication of bids, but without reserving contracts for the exclusive benefit of the group.
The more invasive forms of support to marginalised groups are open to criticism. It is not always clear that there are indeed links between preferencing marginalised suppliers in procurement and achieving equality. At times preferential procurement schemes come at a price premium, that is higher prices are paid, because the pool of suppliers is reduced. However, one may argue in response that the preference scheme itself may result in more suppliers entering the market with the result that competition is increased in the long term with a positive price impact. Short term price increases may also impact adversely on public programs behind the procurement, which may have (unintended and/or unforeseen) adverse implications in other areas of public service in support of marginalised groups.
The key question is perhaps not whether procurement regimes should include schemes in support of marginalised groups. This is a normative position that one would expect most societies to support. However, the mechanism to provide such support is the issue that merits close attention. The ultimate success of any scheme to support marginalised groups through procurement will depend on a carefully designed balance between the social policy objective and best value for money in procurement.
Author: Professor Geo Quinot, Stellenbosch University
Date: 18th March 2015