Industry-led procurement solution holds the key to a positive future for steel

Concrete – March 2017

Industry-led procurement solution holds the key to a positive future for steel

Lee Brankley of CARES finds optimism for the steel sector in the publication of Government procurement advice and its new Industrial Strategy.

Steel is woven into the nation’s past and forms part of the fabric of its future – regardless of Brexit, the slide in the value of sterling or radical change in transatlantic trade triggered by a new incumbent in the White House.

 The Government’s unveiling last month of a new ‘Industrial Strategy’ may have caused some to sneer at what they saw as a re-run of failed 1970s-style command and control economic models, but in it there is much to welcome, albeit with one notable absence – there is no specific mention of steel and its critical contribution to the UK economy. However, this gap can be addressed promptly and ought not to distract from the largely positive focus on manufacturing and innovation.

 Finding grounds for optimism in the wake of three years’ seemingly endless gloom is justified because there are at last, a series of steps being taken which point towards real clarity for steel manufacturers, traders, processors and the wider design, planning and construction sectors.

One of the most critical pieces of the jigsaw landed with none of the fanfare that surrounded the unveiling of HMG’s Industrial Strategy. Through the Procurement Policy Note 11/16⁽¹⁾, from the Crown Commercial Service published late last year, we see real focus on addressing the barriers preventing steel producers from competing effectively for public sector contracts.

It means, for example, a requirement that those procuring steel base their calculations on “whole life cost and not lowest purchase price” when sourcing product for public sector projects. This is critical. It seeks an overarching understanding of product sustainability, not just a price snapshot.

And, out of this procurement guidance, there now flow demanding requirements as to what counts as ‘responsible and sustainable’ in terms of the steel supply chain. Measures, in other words, that can really get to grips with some of the social, environmental and economic characteristics that differentiate markets internationally.

The guidance – which CARES helped shape through extensive engagement across Whitehall – serves to augment many of the Industrial Strategy’s goals that have a direct bearing on steel, including:

• addressing the sector skills gap through training and support for the long-term unemployed
• the ‘balanced scorecard’ approach across all major public sector infrastructure projects
• significant investment in research and innovation plus bespoke technical education
• a review of how best to achieve cost-effective improvements in energy efficiency.

Many of these themes align with a third piece of the bigger picture, Steel 2020⁽²⁾, a sector review unveiled by a cross-party group of MPs, which seeks to create a stable environment for the industry, backed in part by tighter controls to stem the impact of any changes in global trading patterns that result in an influx of imports.

This is another critical point – and once again there is scope for the Industrial Strategy to take on board recommendations within the MPs’ report. In Steel 2020, a powerful case is made for a strategic view of the supply chain – in other words an industry-led solution to the procurement challenges of maintaining free and fair international trade, while levelling the playing field for locally produced steel.

One simple step would be to offer specific support for local trading. In our discussions across the political spectrum in recent months, including meetings with Defence Secretary Sir Michael Fallon and leading backbench Labour MP Stephen Kinnock, we have found that free trade and support for this foundation British industry are not mutually exclusive. The route to achieve this is in the common ground recent developments have highlighted, particularly if the market entry requirements are client focussed, robust and transparent.

For our part we see this as an opportunity to create a new ‘gold standard’ in constructional steel products entering the supply chain, where the industry can take reassurance from a proven certification process that reflects stringent sustainability criteria and full product traceability, demanded by responsible clients – as well as meeting specific requirements of both public and private sector UK procurers. These might include:

• ‘traceability’ to identify whether raw materials are sourced from suppliers able to operate under international human rights and labour laws, including freedom of association
• evidence of a meaningful contribution to the local economy and positive impact through proven investment in that local community, as well as the wider economy
• a demonstrable commitment to investment in human capital through training, apprenticeships and relevant skills development courses.

All of these, and many more, have been central to the discussions that have led to this moment in the steel market which, taken together, represent a real opportunity to create a step-change in the sector’s sustainability performance.

Following several meetings with manufacturers large and small across the industry, it is clear that the appetite is there to formalise these themes into a workable and transparent scheme helping transform the market, while at the same setting a strong foundation for continuous improvement.

What is particularly important from a CARES perspective is that any such comprehensive sector scheme launched in the UK may be readily adapted to meet the requirements of other markets. This is certainly true in places like the United Arab Emirates, Singapore and Hong Kong where similar pressures have grown, but the emphasis can be amended to better reflect local needs and expectations.

The key to future stability closer to home lies in creating and delivering a new ‘gold standard’ of the steel supply chain’s sustainability performance that is client focused, robust and transparent. Through cross-sector industry collaboration, adoption of the government’s procurement guidance and an enhanced industrial strategy that refers to the sector, we can deliver an industry-led solution that would be good for the steel industry, the construction industry and the wider UK economy.

 [References]:

1. Procurement policy note 11/16: procuring steel in major projects – revised guidance. December 2016, available at: www.gov.uk/government/collections/procurement-policy-notes
2. THE ALL PARTY PARLIAMENTARY GROUP ON STEEL AND METAL RELATED INDUSTRIES. Steel 2020: Forging a Future for the British Steel Industry. Available at: http://bit.ly/2jQV3er, January 2017.