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EU procurement and Bombardier - the debate continues

November 1, 2011 2:04 PM
By Steve Coltman in Public Service Europe
Originally published by East Midlands Liberal Democrats

European procurement laws and PFI have left the British train-making industry in dire straits

This year, it was announced that Siemens had been awarded a contract to build trains for the Thameslink service in London - in the United Kingdom. This caused controversy when it seemed it might cause the closure of Britain's last train making factory, belonging to Bombardier in Derby. The political outcry came from all quarters including the local Conservative Party in Derby, the leader of which shared a platform with trade union leaders at a public rally. But the most vocal complaints came from the opposition Labour Party, who accused the Conservative -Liberal Democrat coalition government of betrayal. Liberal Democrats in the East Midlands decided to investigate the issue.

Thameslink was a private finance initiative contract to provide trains, infrastructure and maintenance over 30 years. We know that PFI is a tool, designed by the banking community, to persuade the state to borrow money from them for capital projects at higher interest rates than would be the case for conventional government borrowing. The banks persuaded the politicians to look at the issues of each scheme on its own, rather than looking at the overview of how governments operate. In this view, buying infrastructure on credit looks - initially - attractive until you actually add up how much it will cost over the life of the scheme. In this system, the government has the works built for them with the capital cost borne by a loan taken out by the builders of the works. This is then repaid by the government over a period of 30 years.

Because the cost of this process is so sensitive to the financial deals that can be arranged - in many cases, the successful tender is a consortium led by a bank or finance house. It now seems quite clear that, when the Labour government drew up the tender document in 2008 - they did so without having much idea of what they were setting in motion. Siemens is a conglomerate, which includes a banking arm. Siemens could obtain cheaper finance than Bombardier, giving them a great advantage in this type of contract. Lib Dem Business Secretary Vince Cable said it simply - the tender document was so narrowly drawn that there could be no other outcome.

Transport Minister Theresa Villiers, in a recent letter to Lib Dem Transport spokesman John Leech made a pertinent observation: "It is worth noting that the invitation to tender and evaluation criteria were published on the Department for Transport website in 2008, and at no stage prior to the preferred bidder decision were any concerns raised regarding this process". Not even, by Bombardier themselves. As has already been established, the government does not have now - and the Labour government did not have then - any socio-economic data on the train-building industry. Indeed, it seems that no-one in the Labour government was performing the kind of analysis that Manchester University and the Nottingham Business School have performed. No-one in New Labour worked out what outcome would be in the best national interest.

There is little the government can legally do to stop the contract going to Siemens. The only legal option would have been to cancel the Thameslink contract entirely and re-launch it under different terms. Even then, European Union competition law does not give the government a free hand. It is hard to disagree, for once, with British newspaper the Daily Mail when it says: "If this government is serious about rebalancing the economy, it must look beyond blinkered PFI-style contracts drawn up in the spirit of Gordon Brown's rush to get anything he could off the national balance sheet. Let's be clear. Derby did not lose out because its workers were inefficient or its trains of poorer quality. It was pipped because it wasn't such a clever financier as Siemens. Hardly a sustainable basis for ensuring an enduring manufacturing base."

This story sheds a revealing, and not very reassuring, light on the way the UK government machinery works. So, what can be done? In the short term, the government has drawn up a task-force to try and mitigate the effect of these job-losses in the Derby area. Also there are a couple of new contracts that Bombardier would be well-placed to bid for in the short term. In the medium term, there is a review of public procurement under way - which is examining the UK's application of EU procurement rules. The review will consider any actions the government need to take to help ensure that UK businesses can compete for government work on an equal footing with their competitors. For the East Midlands economy, the important thing is to ensure Bombardier Derby's long-term survival both as a manufacturing plant and as a design centre. We are cautiously optimistic that the Bombardier plant in Derby will, indeed, survive.

Steve Coltman is chairman of the Association of Liberal Democrat Engineers and Scientists, in the United Kingdom