23 January 2006 | Anusha Bradley

Private and voluntary sector suppliers to public sector organisations face unfair competition in securing contracts, according to the Confederation of British Industry (CBI).

A report published today by the CBI concludes that public procurement rules are biased towards public sector providers and discriminate against private companies and voluntary organisations.

A fair field and no favour: competitive neutrality in UK public service market examined areas including education, social housing and local authority support services, where public, private and voluntary providers compete for business.

It says the new EC procurement directives - which are to be implemented in the UK from the end of this month - do not address the issue of public sector bidders having an unfair advantage by virtue of their ownership structure.

The report said inconsistencies in the application of tax rules create an uncompetitive environment. For example, local authorities can claim refunds on VAT for repairs and maintenance of housing but housing associations cannot.

In some cases, public sector bodies have an unfair advantage because they are permitted to view bids before submitting their own. In other cases, it said, they fail to give a complete account of costs making their bid artificially attractive. This may damage the quality of services and the value for money for the taxpayer, the CBI said.

Report author Gary Sturgess, a member of the CBI's public services strategy board and executive director of the Serco Institute, a sponsored thinktank, said the whole process was "biased" in favour of the public sector.

However, speaking to SupplyManagement.com, Sturgess said the disadvantages were often a "matter of perception".

"For example, private defence firms feel QinetiQ receives an unfair advantage because it is partly owned by the government. But QinetiQ believes it suffers from a disadvantage because the government tends to overcompensate for the fact."

He said the growth of hybrid private-public organisations highlighted the need for clear guidance on how to act in each circumstance.

The study found that organisations were reluctant to complain to government about these issues and suggested an informal complaints procedure be established to allow problems to be identified early.

The CBI has joined voluntary and public providers in calling for "competitive neutrality", and called for a full inquiry into the issue.

An Office of Government Commerce spokesman told SupplyManagement.com: "OGC welcomes this comprehensive CBI contribution to the debate on competitive neutrality. All public procurement should be based on the principle of non-discrimination and OGC is considering the procurement-related aspects of the report."

SMjan2006