Sustainability considerations are increasingly important in both public and private sector supply chains, says Sandra Hamilton.
The COVID-19 pandemic thrust the role of public procurement into the spotlight like never before. PPE shortages and political scandals dominated the headlines, with eye-watering amounts spent on rapidly awarded contracts that often lacked public scrutiny and accountability.
Yet with public procurement accounting for such a large portion of public expenditure, how value is defined in outsourced taxpayer-funded contracts is vital to stimulating fair competition, to rewarding socially responsible firms, and to advancing a more sustainable future economy.
For governments, best value in taxpayer funded contracts has long been defined as lowest price, but my recent paper identified a rapidly changing public policy landscape, with non-financial sustainability considerations becoming increasingly important in both public and private sector supply chains.
The research identifies three distinct dimensions to public procurement policy - localism, globalism and sustainability – as well as a number of emerging policy themes in high-income countries. Such findings suggest that public procurement is rapidly gaining legitimacy as a social policy mechanism.
Indeed, one of the UN’s Sustainable Development Goals (SDG12.7) calls on all states to implement sustainable public procurement policies and action plans, and some governments are already mandating the integration of non-financial social and environmental criteria into taxpayer funded contracts, as well as enacting supply chain due diligence legislation.
These moves are significant, and the belief that in a post-COVID-19 world companies bidding on public contracts must also contribute to addressing socioeconomic problems has rapidly gained traction and legitimacy.
For instance, research has already noted how the pandemic has amplified pre-existing socioeconomic inequalities across the world. Poverty has increased and inequality has deepened, with women, the young, and children most affected. Indeed, the World Bank estimated that the pandemic pushed as many as 163 million people into poverty by the end of last year, threatening progress towards sustainable development goals.
Mark Carney, the former governor of the Bank of England, has also written about how the crisis has further exposed the disconnect between value and values – between what matters most to society and what the market values.
Business as usual?
It is clear that business-as-usual management practices that exploit people and planet in pursuit of profit will not contribute to the SDG agenda. Instead, we are seeing the dawn of a new political landscape with civil society, politicians and governments all calling for a change in the role of business in society. This is prompting a paradigm shift in procurement practice and how value is defined in publicly funded contracts.
Given the urgent need and responsibility of high-income nations to act collectively to address climate change and inequality, in their role as major buyers one might reasonably expect governments in high-income economies to be leading by example in advancing socially responsible and sustainable public procurement.
Yet there is still much work to be done. For instance, the World Trade Organisation’s (WTO) Government Procurement Agreement (GPA) is the preeminent global governance framework setting the standards for open, fair, and transparent global trade in taxpayer funded contracts. Since 2014 it has permitted the inclusion of environmental criteria in public procurement, but while environmental criteria may be considered there is still no obligation to do so, and the WTO-GPA remains silent on social aspects of sustainability.
Leading by example
To safeguard the public interest and ensure the accountability of public spending, governments must lead by example by leveraging public procurement to stimulate and reward responsible business conduct in public procurement.
But while there are increasing international commitments to link public procurement and responsible business conduct, the OECD (Organisation for Economic Co-operation and Development) has identified a lack of practical implementation.
This concern about the slow progress in the adoption of sustainable public procurement has led to frontrunner nations strengthening regulatory frameworks beyond the minimum requirements of the WTO-GPA. But the consequence is that as more central governments follow sub-national big-city leaders in mandating sustainable, circular, and socially responsible public procurement, the international regulatory landscape is becoming increasingly fragmented.
As the rush to award contracts in response to COVID-19 showed, public trust requires full visibility and transparency in terms of public procurement. But society’s problems will not be solved within the silos of government. Instead, a more socially responsible and sustainable approach to public procurement holds significant potential for public policymakers looking to weave a stronger social fabric for future generations.
Sandra Hamilton is a PhD researcher at the Manchester Institute of Innovation Research at Alliance Manchester Business School. Her paper Public Procurement: Price-Taker or Market-Shaper? is published in a Special SDG Issue of Critical Perspectives on International Business (CPOIB)
Citation for published version (APA): Hamilton, S. G. (2022).
Public Procurement – Price-Taker or Market-Shaper? Critical Perspectives on International Business.