Local Authorities (Tendering) (Hansard, 23 May 1986)

§ Mr. Richard Alexander (Newark)

I am grateful for this opportunity to draw to the attention of my hon. Friend the Parliamentary Under-Secretary for the Environment and the House the growing practice of some Left-wing local authorities of importing non-commercial conditions into the tendering and contractual process before contracts can be awarded. Indeed, the practice now has a description of its own in common parlance: contract compliance.

I have the first 30 pages of a questionnaire circulated by Leicester city council to tenderers. They are asked, for example: How many of your employees are members of a Trade Union? State the numbers of (a) Afro-Caribbean, (b) Black Asian, (c) White European or (d) other employees directly employed by you. Provide a copy of your policy statement with regard to equal opportunities to secure fair treatment of ethnic minorities and women. Has your organisation ever been involved directly or indirectly with contracts which facilitate the manufacture and location of nuclear installations and weapons in Europe? Has your organisation ever had any interest directly or indirectly in South Africa? Others ask wheter the firm has ever contributed to political funds, and whether any employee, director or owner is a freemason.

Apart from the volume of work which this stuff causes employers who are really there to make a living for themselves and their employees, few employers employ people because they are black, disabled or freemasons. They do not ask and they do not keep records. Indeed, if they did, it would be discrimination and grossly offensive in many cases. Employees are employed to do a job. To enjoin an employer to import non-commercial considerations such as those into his employing policy is discriminatory and offensive.

This abuse continues. The Federation of Civil Engineering Contractors tells me that the St. Helens council tells those on its select tender list that it is raising money for a hospital in North Vietnam, and asks for a contribution. The message is clear: "If you want to work for us, you must pay protection money." One can imagine how far a firm would get if it refused. I have been told of another council which asks tenderers for money for a project in Nicaragua. This is straight protection, and the shades of the Mafia are not far away. Where will it stop if it is not curbed? Indeed, it is the authorities which claim to be prominent in outlawing discrimination on grounds of colour, race or sex which require employers to do just that, and then discriminate against employers who do not hold their political views or finance their projects. It is an abuse and a disgrace.

Nobody objects to councils making sure that their contractors will comply with the law and provide proper employee protection, but to bring social engineering into their policies, at the expense of ratepayers getting the best deal and at the expense of contractors being able to take on labour, must cause concern. These clauses are used as an excuse not to accept the lowest tender or outside contractors but to use in-house departments. I understand that at the Labour party conference in 1982 a resolution was passed that contract compliance should be used positively to discriminate in favour of in-house tenderers.

704 An additional evil of the system I have described is that the policy works covertly. The policies are stated and the questions are asked, but no one knows whether he has been rejected because he has run foul of them. Some employers just accept the whole thing as a farce and give up. They do so at the expense of the ratepayers and the future employment prospects of others.

This abuse and the need for action was recognised by the Department of the Environment. My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) announced in 1985 when he was Secretary of State for the Environment that legislation would be introduced in the next Session of Parliament to ban contract compliance clauses which went beyond the assessment of the contractor's technical, managerial and financial capacity successfully to carry out the requirements of the contract.

Then along came the case of Wheeler v. Leicester City Council, where it was decided that such clauses could be challenged as an unreasonable discharge of the council's functions. I am afraid that the Department of the Environment saw there an excuse not to introduce contentious legislation. It said that it would now go back on the word of the previous Secretary of State and that legislation would not be introduced. If, however, the law is adequate, why do these abuses continue? Why have the Building Employers Federation and the Federation of Civil Engineering Contractors been pressing for action?

I suggest that that is for several reasons. First, the test of reasonableness is not one upon which anyone is willing regularly to go to law. A contractor goes to law only if he has no other choice. The law ought to be clear enough for him to go about his daily business. In addition, if he goes to law with one council, others of similar political persuasions will find reasons for blackballing him from any of their contracts.

The burden of showing why a contractor has been refused work is virtually impossible to prove. In my view, it is unfair that he should have to go to law on such shifting sands. The council would merely turn round and tell him that it had blackballed his company for a reason different from the one claimed by the employer. And who would be able to prove otherwise in court?

My hon. Friend may say that it would be difficult to frame legislation to cover abuses that would not at the same time prevent councils from concerning themselves with proper matters, such as health and safety requirements. The Government accept that there is abuse. My hon. Friend the Parliamentary Under-Secretary of State for Transport, who spoke in an earlier debate, in a letter dated 14 April to the Federation of Civil Engineering Contractors said that the introduction of non-commercial considerations such as I have described into the contractual process for obtaining goods and services, was to be deplored.

Until the Wheeler case, legislation was proposed by the Department, and although it had not seen the light of day it was clearly intended. Until that case the Department never actually said that it could not be done. In the interests of ratepayers in the areas affected and in the interests of expanding the labour force in areas of high unemployment—and it can be no coincidence that those interests are often the same—I ask my hon. Friend to consider the case that I have put to him, to dig out the original proposals and to implement them. If the will is there it can be done.

§ The Parliamentary Under-Secretary of State for the Environment (Mrs. Angela Rumbold)

My hon. Friend the Member for Newark (Mr. Alexander) has raised a matter which, as I know from the number of letters that I have received on the subject from hon. Members, is of interest to the people those hon. Members represent, to the construction industry and to other industries that have dealings with local authorities.

My hon. Friend wrote to me on 14 May about a civil engineering firm in his constituency which has been excluded from a city council's approved list of contractors. That firm's demand for action by the Government to deal with political discrimination echoes the campaign being waged by the Federation of Civil Engineering Contractors. I was amused to see the notes issued recently by the FCEC to its members on lobbying Members of Parliament. These said: a letter from a constituent, particularly if that constituent represents an important local business interest, is always likely to have some effect. I do not know whether my hon. Friend's constituent is a member of the FCEC, though I suspect that his is, but his letter has certainly had some effect.

I congratulate my hon. Friend on the eloquent manner in which he has brought this matter before us. This is not the first time that the matter has been raised in the House and I should like to take some time and care in answering the points that have been raised.

The combination of self-indulgent arrogance and petty-minded vindictiveness of local authorities which, for example, refuse to allow contractors working at our crucial defence installations even to tender for their work, is almost unbelievably breathtaking. Such actions have no place in the contractual processes of local government, and it is clear that the vast majority of local authorities, irrespective of political colour, share that view. From my experience of working in local authorities I can say that this kind of attitude towards tenders was unheard of and quite beyond the pale even a few years ago. However, few authorities indulge in these amazing and rather unorthodox actions. Nevertheless, they present problems for the contractor, and for the small contractor the problems can be vital. I share my hon. Friend's anxiety and take the view that we must look seriously at this matter.

I am, of course, fully aware of the commitments given by a former Secretary of State, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), and by my hon. Friend the Minister for Environment, Countryside and Local Government, that we would introduce legislation to put a stop to this nonsense. Those commitments were given at a time when the Court of Appeal had ruled, in the case of Wheeler and Others v. Leicester City Council, that the action of the city council was not unlawful. But the subsequent reversal of that decision by the Law Lords has altered the balance of considerations.

I accept that the Law Lords' decision does not put beyond doubt the legality or otherwise of the sort of politically based discrimination that we are discussing, but it reinforces the view that local authorities, albeit democratically elected, are not free to take capricious or ill-founded decisions. Democracy is about responsibility, not irresponsibility, and the courts have shown that authorities must exercise their considerable powers in a reasonable manner. There is informal but distinguished 706 legal advice that the existing law is adequate to deal with the more blatant examples of political discrimination such as the banning of contractors who are connected with the cruise nuclear missile programme or who have some South African connections.

This legal advice recognises that these are uncharted waters and acknowledges that a challenge to such local authority practices is unlikely, It would be a costly exercise and any contractor taking action risks being blacked by other Left-wing councils. This is relevant to the small firms that may feel that they cannot afford to take action or, if they did so, might find it impossible to obtain work from neighbouring authorities because they have a similar approach.

Our legal advisers say that there are two options. One is the hope that there is someone around with sufficient funds to make a challenge, and the other is to seek the advice of the Audit Commission with a view to getting policy guidance for authorities on this matter. I can give some hope about the possibility of action.

I recognise that companies and their trade organisations face a difficult problem in deciding whether to challenge such abuses in the courts. I am still not sure, although my hon. Friend has gone a long way towards convincing me, that legislation will be the answer. I appreciate that it may appear attractive to spell out in legislation the limitation on authorities' powers to act in this way, rather than rely on non-statutory tests such as that of reasonableness, to which my hon. Friend referred.

It is acknowledged that there are clear problems in framing legislation that would prohibit political discrimination without either restricting the imposition of desirable, although not strictly commercial, conditions concerning, for example, equal opportunities and health and safety. One recognises that, within that framework, one has to ask about the habits of firms tendering.

One must not be seen to be inviting the courts to say that anything that is not covered in such legislation would, by implication, be permissible. We have a case. and, although, I say this with hesitation, we must avoid rushing into what might be called bad law, and we must not forget that whatever laws we enact can be enforceable only through the courts.

We should not forget that, even if we introduce fresh legislation to prevent overt discrimination, it is much more difficult to prevent covert action. My hon. Friend mentioned the tender document issues by Leicester city council. I also have a copy. I found it daunting. It is thick and filled with questions. I imagine that it is unusually long and complicated. I have seen other documents put out by local authorities which set so many hurdles as to make it almost impossible for ordinary contractors even to contemplate filling them in. If such firms receive a 95-page document with 200 questions they are likely to decide that they have neither the management skills nor the available labour to fill it in.

Unlike some of the documents that I have seen, the Leicester city council one does not say that no contractor who works at a nuclear missile site or has connections with South Africa will receive work. It says: The City Council would wish, as far as practicable, to dissociate itself from anything which directly or indirectly facilitates the manufacture and location of nuclear installations and weapons in Europe. The Council recognises the legal implications of a boycott of firms connected with nuclear installations but wishes to draw the attention of its prospective contractors to its policies in this respect". 707 The contractor is then asked to state: whether or not he is involved directly or indirectly with contracts which facilitate the manufacture and location of nuclear installations and weapons". There is similar provision in regard to trading with South Africa. The Leicester city council document contains the quite amazing statement: The Council would rather you did not tender for contracts if your company has interests in South Africa. In the event of legislation which outlaws politically based discrimination being passed, it is clear that the determining factor could not be simply what is or is not said in the tender specification or the contract. It would have to be the action of the local authority. It would be for the aggrieved contractor to establish, through the courts if necessary, that he had been unfairly discriminated against. That seems to be precisely where we stand now.

It is and always has been a fundamental principle that, in the exercise of powers and duties conferred upon them, local authorities must act reasonably. My hon. Friend knows the confines of our interpretation of "reasonably". That fundamental principle underpins our local government system and we must think carefully before we undermine its generality by introducing legislation to tackle the egocentric actions of a mere handful of authorities.

We do not underestimate the importance of the problem. In his former capacity, my right hon. Friend the Secretary of State for Education and Science invited the Federation of Civil Engineering Contractors and the Building Employers Confederation to liaise with our officials with a view to establishing how best to proceed. We have said that if appropriate provisions can be drafted and it can be clearly demonstrated that the benefits from further legislation outweigh the risks that I have described, the Department will give every consideration to legislating at the earliest opportunity. I hope that that assurance will go some way towards answering my hon. Friend's points. I understand exactly what he means. If we do not take steps now to challenge that practice, the problems could soon become serious.

The FCEC and the Building Employers Confederation will submit their proposals to us shortly. The Department has not ruled out the possibility of legislation. However, since announcing last October that we were not minded to introduce legislation, my colleagues and I have often 708 expressed the hope that a company would challenge in the courts this blatant abuse of the contractual process. My hon. Friend will share my considerable delight in learning recently that a coach operator, with the backing of the Bus and Coach Council, has obtained leave to commence proceedings for a judicial review of a decision by the London borough of Newham. I understand that the coach operator's grievance is that Newham borough council refused to renew an educational transport contract, because the firm also has a contract with the Metropolitan police and is transporting police officers to take up duty at the News International print works at Wapping.

That is a good example of my hon. Friend's point, which has been prayed in aid by several colleagues. Although I cannot predict the outcome of the judicial review, it may be found that the firm has been discriminated against for reasons other than the normal practices of commercial tendering — local authorities usually consider several tenders and choose the one that provides the service that they require at the lowest price. We are talking about competitive tendering in its honest sense. We await the outcome of the case with considerable interest. If the courts decide that there has been malpractice, other companies will have a clear legal precedent on which to take local authorities to court.

Although I appreciate the problems facing companies in deciding whether to take action, I hope that even now other firms will find people who are willing to support them and follow this example. Thereby, they will uphold the well-established principle that in this area, as in all others, local authorities must act reasonably and in accordance with the fiduciary duty that they owe to their ratepayers. I feel strongly about that fiduciary duty in relation to local government. During the past few years, the practices of some extreme local authorities have caused the problems my hon. Friend has clearly exposed in this interesting debate. Sadly, the Government and their supporters will have to rectify the position.

That is not a situation which the Government, nor, indeed, the large mass of local government, enter into with any great joy. Therefore, I hope that today's debate, introduced so eloquently by my hon. Friend, will be taken note of and that at some stage we shall happily reassert the fiduciary duty and the accountability that the locally elected people sensibly hold.