Thank you for your letter of 16 February requesting a note on the extent to which local government can accommodate ethical procurement preferences.

  The Local Government Bill now before Parliament will subject local authorities in England and Wales to a new duty to make arrangements for the achievement of best value. Best value for these purposes is described as securing continuous improvement in the exercise of all functions undertaken by the authority, having regard to a combination of economy, efficiency and effectiveness. This will be done by subjecting services to rigorous review, setting challenging targets for improvement and putting in place a regular reporting mechanism which will inform local people of the extent to which their authority is meeting the best value duty.

  Public procurement activity in the UK is governed by Government policy, European Directives, international treaties and national legislation as appropriate. The objective of Government procurement policy is to achieve value for money for the taxpayer, normally through competition. It is the Government's view that modern public procurement should not be used as a means to pursue other, wider, aims.

  The European Directive reinforce the free movement and non-discrimination provisions of the Treaty of Rome and are implemented into UK law by a series of Statutory Instruments. They apply to contracts above certain thresholds on the basis of prescribed criteria for the selection of suppliers and the award of contracts. This includes the ability of a contracting authority to treat as ineligible any service provider who has been convicted of a criminal offence relating to the conduct of their business and similarly treat those who are guilty of an act of grave professional misconduct.

  Clause 18 of the Local Government Bill provides a power to amend, by order, Part II of the Local Government Act 1988. Part II of the 1988 Act applies to all local authority contracts regardless of value and sets down provisions prohibiting local authorities having regard to specified "non-commercial" matters in the contractual process. These matters include a contractor's workforce, country of supply of goods or the location in any country or territory of the business activities or interests of contractors.

  The Government's intention in bringing forward powers to amend by order Part II of the 1988 Act is to update the legislation in line with current good procurement practice and with best value. Any changes will need to be consistent with the regulatory and policy framework as outlined above.

  The Government believes that open and fair competition is an effective way of establishing the most cost effective solution, not necessarily the lowest price, for each specific requirement. To bar suppliers from public contracts because any general selection criteria were judged by a contracting authority not to be accceptable would put that policy at risk. In these circumstances it would be difficult for public bodies to demonstrate value for money if they attempted to evaluate unquantifiable criteria which were not directly relevant to the performance of the contract in question.

  In response to a Parliamentary Question asking if he would instruct officials to serve coffee and tea furnished by suppliers who adhere to fair trade standards, the Prime Minister gave a written response on 13 November 1997 as follows:

"No. Individual Government Departments are responsible for taking decisions on the goods and services they acquire, taking into account the Government's policy of seeking value for money for the benefit of the taxpayer. However, as my right hon. Friend the Secretary of State for International Development has made clear, the Government are also committed to promoting and supporting ethical trading wherever possible."

  This approach was endorsed by all major departments.

5 March 1999