Norway: Public procurement – new thresholds introduced despite joint protest from social partners

The government has doubled the value of public procurement contracts above which strict rules designed to discourage social dumping must be followed. The change brings Norway into line with European Economic Area Agreement rules. In a joint letter to the Minister of Trade and Industry, the employers’ and workers’ peak-level confederations expressed concern about the change. 

Background

Labour migration has had a major impact on the Norwegian labour market over the past decade; government, employer associations and trade unions have voiced fears about social dumping and breaches of labour law.

The ‘red–green’ coalition government (consisting of the Labour Party, Socialist Party and Centre Party), in power between 2005 and 2013, launched three different strategies to combat social dumping. In 2015, the Conservative government that had replaced the coalition responded to pressure from the social partners and launched a strategy for fighting work-related crime. Several instruments were introduced, among them the possibility of placing certain restrictions on public procurement. The public sector is by far the largest purchaser in Norway, with the value of public procurement totalling NOK 462 billion in 2014 (almost €50 billion).  

Two instruments were included in the strategy to combat work-related crime. First, a limit was placed on the number of subcontractors allowed to work on state or municipal contracts; multiple subcontractors are seen as one of the major impediments to transparency on wages and working conditions. Use of fewer subcontractors makes easier the monitoring of compliance with legal regulations with the and use of extension mechanisms. A second requirement was that contracts should include the use of a certain number of apprentices.

The changes

A new act on public procurement (PDF) was passed by the Norwegian parliament in June 2016. The act implemented the three EU directives that cover public procurement (2014/24/EU, 2014/25/EU and 2014/23/EU). Each directive is given its own administrative regulation (forskrift) in the act. The government also sought to include in the act recommendations made by a public committee on how the distinctively Norwegian regulations might be simplified. Eliminating red tape had been a major commitment of the new government when it took office in 2013.

The resolution on all three regulations by the Ministry of Trade, Industry and Fisheries was made in August.  In the regulation aimed at public procurement, the threshold was increased from NOK 500,000 (€53,000) to NOK 1.1 million (€116,500) for procurements in general, while the threshold for health and social services contracts was set at NOK 6.3 million (€667,500). The new thresholds came into effect on 1 January 2017.  

The Agency for Public Management and eGovernment (Difi), an agency subject to the Ministry of Local Government and Modernisation, has estimated that 80% of public tenders are below the new NOK 1.1 million threshold.

The new threshold has several consequences. The first is that there is no longer a duty to publicly announce all tenders and the contract providers themselves are required to collect information on upcoming tenders below the threshold. Secondly, there is no obligation to arrange a tender competition and a public body is free to approach possible providers themselves. Thirdly, altering the threshold affects the two restrictions designed to combat social dumping and work-related crime – the obligation to include apprentices in a tender and the limit on the number of subcontractors.

Social partners’ reactions

In line with the three directives, the main argument made by the government for increasing the threshold is to simplify the regulations and make the procurement processes more efficient. Fear of wrongdoing, says the government, has in the past made public buyers concentrate on unproductive processes rather than proper procurement. Increasing the threshold means that thousands of parties to such contracts – both buyers and providers – will be able to concentrate on quality rather than compliance with complex and rigid rules. The Ministry stressed the tension between simplification and the use of public procurement regulations as a strategic instrument to deliver political aims such as company’s social responsibility.

The peak social partners – the Confederation of Norwegian Enterprise (NHO) and the Confederation of Trade Unions (LO) – publicly expressed concern about the new threshold. in a joint letter to the Minister for Trade and Industry (PDF), they stressed two key areas of concern: social responsibility and work-related crime; and the situation of small and medium-sized enterprises (SMEs).

Social responsibility and work-related crime

Contractors bidding for tenders above the threshold must have no more than two subcontractors in the production chain. The social partners claim that the new threshold might damage efforts to reduce work-related crime for a number of reasons. Less public announcement of procurement may lead to less transparency and so make monitoring of wage and working conditions more complicated and time-consuming. The social partners also believe that the removal of restrictions on the number of subcontractors will lead to a higher probability of social dumping and work-related crime. This concern, in fact, suggests a need for greater transparency rather than less, and the higher threshold suggests a need for increased monitoring.

Since the vast majority of public procurement contracts fall below the threshold, most will not be obliged to include the employment of apprentices. The social partners argue that the use of apprentices is a token that tendering companies do take social responsibility seriously. Removing the requirement for apprentices creates better conditions for ‘unserious’ companies. 

Concern for SMEs

Both NHO and LO support initiatives to reduce red tape and lessen the administrative burden for companies and public bodies. But they question the effect of the changes on SMEs. Doffin is the database through which calls for public procurement tenders are announced, and it has been an important source of information about business opportunities for all companies, regardless of size. It is thought that up to 90% of such tenders will no longer be announced and, in fact, may not even be put out to competitive tender at all if the public bodies chose to use their new power to approach the provider of their choice.

However, these arguments have been criticised by two other employers’ associations, Virke and Bedriftsforbundet. While they agree that the new threshold might create problems for SMEs, they see less need for concern about work-related crime and social dumping. They argue that mechanisms to ensure monitoring and compliance of contracts below the threshold remain in place.

NHO and LO have urged the government to evaluate the effect of the changes after six months and have suggested several ways to do this, including finding out whether tenders below the threshold disappear from Doffin. They argue that public bodies should be encouraged to continue using the rules for public procurement tenders on a voluntary basis, even if their value falls below the threshold, and that all tenders should be made visible.

Commentary

The new law on public procurement states that regulation must ensure both efficient use of public resources and equal treatment for all parties. Public bodies must act with integrity and make sure that the public trusts them to behave in a socially responsible way. Public procurement amounts to about 15% of Norway’s gross national product (GNP). As in a number of other countries, there is an ongoing debate in Norway about privatisation and competitive tendering. 

The social partners are often at odds on these issues. However, the joint initiative between LO and NHO on this issue suggests that both feel they have benefited from the previous rules designed to prevent social dumping and work-related crime.

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