The £1.4bn contract to provide new Thameslink trains has been awarded to Siemens in Germany. Over a thousand jobs will be lost at Bombardier’s Derby plant. Something must have gone horribly wrong, someone must be to blame for all those jobs being lost when some of them might have been saved if only Britain bought British trains. Or so the argument goes.
The boring fact is that all large contracts for the supply of goods, works or services which are bought for the public sector in the EU are subject to the EU Public Procurement Rules. These grew up to prevent EU countries from distorting their local economies by favouring domestic businesses over those from other parts of the EU – regulating the terms on which the private sector does business with itself turned out not to be enough to do this because the state everywhere is one of the largest customers around.
The rules set out in great detail how purchasing by the state has to be carried out to make all contracts contestable by all suitable businesses around the EU and to ensure that all bids are judged on the same criteria in the same way without giving an unfair advantage that could not be justified on economic grounds.
So, the Thameslink contract went out to tender and after applying all these criteria, the only decision that could be taken on the basis of the bidders’ responses was to award the contract to Siemens. Making the decision on any other, undisclosed criteria which would have disqualified Siemens would simply have led to an easy legal challenge by Siemens which would have resulted in the award to Bombardier being overturned or substantial damages being awarded to Siemens. Perhaps as the Transport Secretary said it would have been possible to have designed the particular process so as to give more weight to other criteria which might have given Bombardier a better chance, but the scope for doing that in a fair way would still have been limited.
All that has happened is that the rules of the EU have been implemented. Maybe the French and the Germans are “better” at designing their procurement processes to favour local businesses, but there’s no strong evidence of this. Eurostar, majority controlled by the state-owned SNCF has not bought French but gone with Siemens. SNCF also recently awarded a contract to supply the whole French railway network with that most iconic French product, the baguette, to a British manufacturer. SNCF has bought a lot of trains from Bombardier, as has the German railway, Deutsche Bahn – albeit that Bombardier manufactures trains in both France and Germany.
There are easy political points to be scored and they’re being scored all over the place – the unions say that somehow the evil Tories would rather buy from Germany than look after British union members, the Tories say that their hands are tied by the bad criteria chosen by Labour in 2008 and everyone says that Europeans don’t bother complying with inconvenient rules so why should we.
However, as with many EU issues, there’s a distinct lack of hard fact. It is implausible that the government would want to give a contract to a foreign manufacturer if it didn’t have to. The extent to which broader local economic impact can be taken into account in public procurement is fairly limited. We don’t know how much more economically advantageous the Siemens bid was than the Bombardier one. We don’t know that Bombardier would have put in the winning bid even if the criteria had been different and differently weighted – bidding is complex and technical and there is a competitive advantage to having a good bid preparation team. A parallel might be drawn with things like the Olympics and World Cups (FIFA corruption aside…) – objectively a country like ours will have much stronger underlying infrastructure and ability to deliver such projects than less developed countries but that doesn’t mean we can present a pitch that is always more appealing. At least in the trains scenario it is unlikely that there would be backhanders and bribes involved.
Finally, there’s no solid evidence that the UK is somehow too much more scrupulous in applying the procurement rules than its EU neighbours. One of the arguments put by pro-EU campaigners is that access to European markets for British business is worth the cost of opening up our markets. If in fact EU markets are closed, it begs the question why we should be part of the EU. Are there other benefits that make protecting British jobs and direct interests worth giving up? Closing up our markets in response would not be a solution because it would involve defeating the key underlying feature of the EU, the opening up of a huge, single market.
It would be nice if one day we could argue rationally about such real impacts of EU membership rather than have our politicians take the easy way out and the easy and unfounded arguments based on prejudice, whether it be about evil Tories, inept Labour, or vicious foreigners fooling us into giving away what they wouldn’t give us.
UPDATE – facts about the actual process
Part of the confusion in the media and political debate over the Thameslink train procurement has come from the use by Philip Hammond, the Transport Secretary of the term “value for money” in describing the reason for selecting Siemens. This was seen in Jeremy Paxman’s interview with him on Newsnight on 5th July where he was pressing the Secretary of State for a figure on the saving that was being obtained by going with Siemens over Bombardier. The unions and others have also criticised “value for money” as the award criterion by saying that crude comparisons of lowest cost would necessarily ignore the huge economic impact on Derby both for Bombardier employees and more generally for Bombardier’s local supply chain.
This is misconceived. I have now had the chance to do some quick research and have found the DfT’s own documents explaining the process and detail of the project. These are readily publicly available at the DfT’s Thameslink rolling stock page http://bit.ly/ndTk40 . The most interesting document is the set of presentation slides used to provide information to potential bidders ahead of the procurement process being launched back in April 2008 which can be found at http://bit.ly/pikgMI. Slide 80 makes it clear that the procurement was being conducted on the basis of selecting the most economically advantageous tender (colloquially known as “MEAT”) – that is, not the lowest price bid but the bid which offers the best combination of price and quality. Slide 77 sets out the weightings to be given to different features at the pre-selection stage, 40% going to “Business excellence and approach” and 60% on “technical capability and experience”. Having been tested at this first stage, these two elements would not generally be capable of being tested at the final evaluation stage.
The rest of the presentation gives a strong flavour for the key issues being considered by DfT as fundamental to the project. There is nothing there that would suggest that any thought had been put into preserving employment in the UK or maintaining a base of train production capacity. It would be interesting to see if a journalist could dig further into things to get hold of the documents for the next stage, the Invitation to Tender (“ITT”). The ITT will contain the actual detailed criteria on which the ultimate decision to award was to have been based upon.
A further feature of the Thameslink procurement is that it was not just a contract for a train manufacturer to build a load of trains. The DfT presentation shows that the project split into two interdependent parts – first, the building and maintenance of the trains, and second, a financing structure for leasing the trains to the train operating companies. This points to the strong possibility that even if Bombardier was able to put a good case for its ability to do the first part, it might have failed overall because Siemens found a better partner to provide the financing side of the deal.
At least on an initial inspection it looks like Philip Hammond was right that the terms of the procurement process put in place by the previous government made it difficult if not impossible to consider the broader economic impacts of letting the contract go out of the country in selecting the winning contractor. This cannot be seen to be a mere oversight. The detail of the publicly available information I’ve linked to gives a flavour of how much work went into the project from the DfT and ministers – added to this is the fact that the procurement process followed after in depth public consultation in a long-term project.
The procurement process started in the first half of 2008, before Lehman Brothers’ collapse but after Northern Rock. Unemployment was still low at what would subsequently be seen to be the end of a long period of growth and prosperity. Keynesian stimuli hadn’t been thought of as relevant to the British economy by any mainstream politician for decades. Being charitable one could say that the government at the time rightly concluded that designing the procurement of trains for Thameslink ought to be done on the basis of the best deal for the project rather than protecting Bombardier and jobs in Derby. We need to beware of the risks of hindsight.