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Mr Philip Hollobone (in the Chair)
In one moment I shall call the first speaker in the debate. I can confidently predict that after Mr Irranca-Davies has made his opening speech, I will not be setting a time limit. The next speakers will be Andrew Bingham and Iain McKenzie, and we will then see who else turns up. I shall, however, call the Front-Bench spokespeople at no later than 3.30 pm, and perhaps sooner.
Huw Irranca-Davies (Ogmore) (Lab)
I admire your confidence, Mr Hollobone; I have been known to wax eloquent for days, but on this occasion I will be happy to allow others to contribute as well.
This is a welcome opportunity to debate an important subject. There is cross-party interest in ensuring that procurement works far better for small and medium-sized enterprises than it has done in the past. The Government here are doing work on that, and I will refer to some of the innovative and pioneering work of the Welsh Government. I also want to deal with some of the myths about why we cannot do more—not least, those about the European Union.
I know that props are not allowed in this or any other parliamentary Chamber, but I have in front of me an exposé from Farmers Weekly, which ran a good campaign called “Get Better, Get British”. We know that over many years, if not decades, British farmers have been asked, often quite rightly, to invest heavily in the highest standards of animal welfare, environmental measures and so on, but doing that brings costs. In the UK, we now have British buying standards, and the question is this: how do we translate those standards in food produce into being represented by SMEs that can supply to local government, the NHS, the Ministry of Defence and others? That does not seem to be happening.
If I may, I will briefly plug the Farmers Weekly “Get Better, Get British” campaign, which identified that one in 10 NHS hospital trusts sources 50% or less of its food from Britain. The campaign also points out that the cost of feeding a patient varies between £14.40 and £2.11 per day across trusts. Most people would think, “We can see how you could use good ingredients and get good nutritional standards by spending £14.40, sourcing, where the standards are appropriate, locally and regionally from British farmers.”
However, hospital spending on food goes down to as low as £2.11 per day. Most people would struggle to explain not simply the divergence in the figures but how the nutrient value can be achieved with that little money, and how there can be procurement for SMEs within the locality and the region. The NHS trusts at the lower end of the spend range would be performing a magic trick if they were pulling that off.
In addition, according to the campaign, 93% of NHS trusts do not carry out any traceability checks on their food. We know that, despite what I said earlier about British standards within food—the British buying standards and so on, of which the Government are a keen proponent—the standards do not apply to hospitals and NHS trusts. Hospital food does not have to meet British farm-assured standards, for example, that are signalled by the Red Tractor logo that everyone knows and in which many trust. That is a practical illustration of the job of work that has to be done. I am focusing on food in this debate, but we could go right across the spectrum—many producer organisations are SMEs. SMEs are where the bulk of our employment, innovation and entrepreneurship is, and they need a fair opportunity to get into procurement.
Often, the argument has been that we cannot specify British products—or products from Cornwall, Devon, Wales or wherever—because we have to play by the EU and World Trade Organisation rules, but a lot of Welsh Government work over a number of years has shown clearly that that argument is unjustified.
Excellent work is being done by not only the Welsh Government but leading-edge people in Bangor university. Dermot Cahill leads on a procurement project at Bangor, which considers the legality of the issues and the technical implementation of more innovative approaches. He will point clearly to the fact that EU law is far more flexible than it is often given credit for. Something like 80% of procurement contracts fall outside EU legislation anyway, as far as their size and shape is concerned, so the excuse that we are bound by EU regulations when tendering contracts does not seem to apply to eight out of 10 of those contracts.
The Public Services (Social Value) Act 2012 is often held up as a reason why we have difficulty in applying local and regional procurement, particularly with SMEs, but although neither the Act nor EU law is pertinent here—perhaps the Minister can confirm that—the latter is often directly blamed.
The McClelland review in Wales produced a groundbreaking report. It found, on the basis of the best available legal advice and technical interpretations, that there was no evidence that EU law obligations were inhibiting procurement reform. We must remember, of course, that EU law itself promotes transparency, and that is something that is lacking at the moment. I do not say that to criticise the Government but to highlight the point that we have come to: despite everything I have just said, all of which is legally grounded within the McClelland report and the work of legal experts in academia in Wales and elsewhere, the UK is the highest user, at 55%, of the restricted procedure.
We know from experience that many other EU countries use an open procedure, which makes procurement opportunities far more visible to SMEs and allows them much more participation within tendering competitions and bids.
Mr Iain McKenzie (Inverclyde) (Lab)
Does my hon. Friend feel, as I do, that the McClelland report, which has also been used in Scotland, shone a light on procurement practices that were very much set in the past and brought procurement up to date sooner rather than later?
Huw Irranca-Davies
I agree with my hon. Friend. We seem to have a legacy of mythology about why we cannot do things with procurement for SMEs, and those myths are used as the excuse not to do anything.
We first need to shatter some of the myths, and then say to those who work in procurement departments, “There is no excuse. We will encourage, support, offer guidance and put in place, when necessary, light-touch regulatory approaches, but you need to get on and design procurement contracts in a way that will encourage the highest level of competition—not simply between four or five big companies—and put the information out there that there is a competition going on.”
Far too often, procurement contracts are simply not well publicised and promoted, so it is no surprise that local food producers, haulage companies, building contractors and so on have no idea that procurement is going on. How will they get the business if there is no proper promotion?
My hon. Friend the Member for Inverclyde (Mr McKenzie) is absolutely right. Through the McClelland report and its application in different devolved jurisdictions, we are seeing a different way forward. First, we need absolutely to shatter the mythology, and then to say, “Let’s all work together to devise a way in which we can open the market up”. By so doing, we are not creating unfair competition; we are increasing competition. We are not levelling the field to promote just local farmers or food producers; we are saying, “You should be aware of the tendering processes coming up in your local school, the fire service and so on, and we will design the contracts in a way that allows you to go for them, just as anyone else can.” We first need to open the door, to allow them to do just that.
I do not claim to be an expert in the field, but strong consensus is now building in the devolved Administrations and elsewhere about the way forward. Some of that relates to inadequate feedback, or its complete absence, from public procurers to those who want to bid. SMEs might bid for something and not be successful, and that is the end of it—they are not told where they have gone wrong, what their weaknesses are and how they might improve.
It is no surprise, given the cost and resource intensity of putting some bids together, that many SMEs say, “Well, that was a waste of our time. We don’t know where we went wrong. We aren’t going to do that again.” Big corporations, whether in the food sector or elsewhere, have units and departments specifically to do procurement and they can take off the shelf the computer model of their recent bids and put in a lot of effort. An SME might be a local haulage company with 20 people working for it, of which one, in addition to their other jobs, is told, “Have a try for this one. We’ve finally heard about a contract coming up, so have a go for it.” However, they hear nothing back, so they receive no guidance. That is simply wrong.
Many tender documents for procurement are inadequate: some are too large or too extensive, to the point that it is no wonder that SMEs do not apply—they identify that the profit margin could be the same as the cost of devising the bid. Why would they bother to go for it?
The issue is often to do with the fact that some of the bonds or liabilities required are absolutely beyond the reach of SMEs. It is fair enough if there is a reason for having large financial guarantees, but some contracts are relatively small and the procurement could easily be intelligently devised so that hurdles—liabilities and bonds—were far lower. That would encourage more SMEs to apply. It is not rocket science, but it does require procurement officers and departments at all levels—central Government, local government and all agencies—to have the necessary will and capabilities, which I shall touch on in a moment.
Inappropriate use of frameworks can amount to market exclusion. Frameworks—long-enduring ones with four-year-long contract applications, for instance—are sometimes there for a good purpose, but once they are won the process is over. Long frameworks are normally linked to large, onerous contract documents of immense detail and complexity, and they are sometimes not the right way forward, particularly if we want to encourage more SMEs to take part in the bidding process.
There is a flip side: the more we go for frameworks, the more we are likely to minimise the number of those wanting to tender and possibly to encourage cartel operation. If there are only four, five or six large players in any particular sector that can bid through a framework document over several years, with all the complexity involved, that is likely to lead to their taking the opportunity for cartel behaviour. I have to stress that I will not, under parliamentary privilege, lay any direct accusations before the House. [Interruption.] Not today.
How do we get through some of these things? I will use the example of the Welsh Government. There are good local examples of local authorities, such as Camden and others, doing really innovative work on procurement by applying ideas about increasing transparency and extending the offer to more SMEs, but the example of the Welsh Government is instructive and, as a Welsh MP, I know it well. I am not saying that the Minister must do what the Welsh Government say and follow their example—although sometimes that is not a bad thing—but simply that they are carving out a method that is in its early days, but is legally and technically sound and already seems to be having significant effects in opening the market to SMEs in procurement at all levels in Wales.
In the Welsh Government’s policy statement on procurement in December, based on the McClelland review, they set out the principles against which the Welsh public sector—including the NHS, education, fire and rescue, local authorities and any bodies sponsored by the Welsh Government—should carry out procurement. It was made in recognition of the fact that the value of Welsh public sector procurement is approximately £4.3 billion a year, which is almost a third of the overall Welsh public sector budget. We can see what an impact it would have locally and regionally if we could encourage SMEs to take part, with a multiplier effect not only through the supply chain, but in the wider communities where the money goes.
Jane Hutt, the Minister responsible, said in the policy statement:
“We must use innovative, evidence based, approaches to procurement to support the design and delivery of efficient and effective public services”—
yes, let us make them efficient and effective, with value for money, and so on—
“and to optimise the added value that is delivered to the economy and communities of Wales.”
Why have we argued that we cannot say those things about procurement, when the Welsh Minister, with the support of the Counsel General for Wales in the Welsh Government, can make such a statement? That statement can be followed through in procurement practices at all levels, and we need not hide from it. We must be open, transparent and competitive with anybody who wants to bid in such processes, but we can gear our policies towards supporting our own communities.
On added value, the Minister said that the Welsh Government
“will utilise public procurement creatively as a strategic tool to deliver economic benefit to the people and communities of Wales through employment, training and supply-chain opportunities.”
That will be part and parcel of the procurement approach and design. As Jane Hutt said, it supports other strategies, such as tackling poverty in communities and economic regeneration.
On the back of the exhaustive work done by the Welsh Government, the statement makes it clear that not only are the approaches legally sound, but they are tried and tested, and proven to work. In the December policy statement, Jane Hutt said:
“There are no reasons or excuses why all organisations cannot fully adopt them and there must be no delay in so doing.”
Let me explain the principles of the Welsh public procurement policy that she is asking organisations to adopt. The first principle is strategic:
“Procurement should be recognised and managed as a strategic corporate function that organises and understands expenditure; influencing early planning and service design and involved in decision making to support delivery of overarching objectives.”
That will be set out as the strategy.
The next is professionally resourced procurement, which is that
“procurement expenditure should be subject to an appropriate level of professional involvement and influence”.
That relates to one of the big criticisms of procurement, which is absolutely true. Accountancy and many other disciplines are careers that people aim to go into and design themselves for: they want to do the levels of continuing professional development and to pick up chartered institute qualifications. There are good procurement officers, but all too often people fall into procurement inadvertently and get minimal resources to do it.
The issue of minimal resources is fascinating because, as the Minister will know, good analysis has been done of procurement departments by looking at the correlation between the number of people dedicated to procurement in a local authority, fire services and so on and the number of SMEs that are successful in bidding. There is a direct correlation between the number of people—not only the number, but their expertise—working on procurement in a local authority, a fire service or the NHS and the degree of success in getting bids to SMEs. Why? Because those people take more time and more care for detail intelligently to design procurement contracts so that they are suitable for SMEs to bid for, so that they are not onerous and do not include huge barriers of complexity, finance and bureaucracy, and so that the pre-qualifying operation does not look like a tender bid.
On professionally resourced procurement, the policy statement continues that it should adopt
“the initial benchmark of a minimum of one procurement professional per £10m of expenditure.”
The Welsh Government have actually set it down and said that because there is a direct correlation, they demand of all their organisations that they move towards adequate resourcing, because they know that it benefits SMEs.
On the economic, social and environmental impact, the Welsh Government will use sustainable risk assessment and take account of the long-term impact on the combination of benefits of sustainability and community. If I turn to community benefits, they specifically say that
“delivery of added value through Community Benefits policy must be an integral consideration in procurement.”
On open accessible competition, the Welsh Government say:
“Public bodies should adopt risk based proportionate approaches to procurement”.
That is the thrust of what I am saying today. We have got into a dilemma with large, off the shelf risk averse procurement contracts: either very few people are doing them or people are specifically rewarded for driving down costs on what they were awarded last year, instead of being rewarded for the wider social and community benefits that also flow from procurement bids. We are allowed to reward on that basis, so why are we not doing it more? We need open accessible competition and
“risk-based proportionate approaches to procurement to ensure that contract opportunities are open to all and smaller local suppliers.”
On a simplified standard process, the Welsh Government say:
“Procurement processes should be open and transparent and based on standard approaches and use of common systems that appropriately minimise complexity, costs, timescales and requirements for suppliers.”
One thing that is specifically pushed is e-procurement. Rather than submitting 20 versions of highly complex, onerous, expensive documentation that has to go to different people for consideration, it is a lot easier for SMEs to do it in a simplified way, by e-procurement. The Welsh Government are pushing hard on that and will expect their agencies, providers and local authorities to move towards it at a rate of knots.
The Welsh Government talk about collaboration among SMEs, so that SMEs can come together locally and bid, and advise them how to do it. There are so many ways in which we can take these things forward, including the supplier qualification information database—SQuID—innovation. I will not go on and on.
The essence of my argument is that we can no longer hide behind the idea that because of EU rules or World Trade Organisation rules, we should not be devising intelligently appropriate procurement bid documentation that works for SMEs. I say that unashamedly because I am all in favour of open and transparent competition for anybody who wants to bid into the system, but the way we have traditionally done it has favoured very few small players. There is a real issue of investment, both financially and in guidance on the expertise of procurement departments. We should force the pace of change with local authorities, the NHS, fire services and Government agencies to go down that line to ensure that we deliver the maximum benefit for our local and regional SMEs.
What we are trying to do is level the playing field. It frustrates me, because I am tired of employers coming to me and saying, “Why is it that I always end up just picking up the crumbs from larger contracts? Even though I am a pretty reasonably sized medium-sized firm, I have not got the expertise or the time to bid for some of these massive contracts. The only ones bidding are the likes of Laing O’Rourke and Carillion. Why do I have to be a subcontractor for them?” Things are starting to change in Wales, and it is happening on a good sound legal basis. I am interested to hear what the UK Government are doing and what they are learning from Scotland and Wales and from places such as Camden local authority in London so that they can do more and do it more quickly. There is a way forward. Let us stop making excuses and drive ahead for the social, economic and community benefits of our own areas and of UK plc.
Andrew Bingham (High Peak) (Con)
It is a pleasure, Mr Hollobone, to serve under your chairmanship. I congratulate the hon. Member for Ogmore (Huw Irranca-Davies) on securing this very important debate. He spoke with great passion and I agree with many of the points that he made.
I ran a very small business for many years and know how hard it is to procure contracts with public sector organisations. When dealing with private sector businesses, I used to find that the public sector had three questions. “Can you supply the goods? What is the price? Is the quality of the product good enough?” Indeed if any of us were buying something for ourselves, whether a three-piece suite or a new carpet, those would be the three questions we would ask. However, I understand that when considering public sector procurement, life is not quite as simplistic as that; there are other significant issues to be addressed. Moreover, as a public body dealing with public money, there are certain other considerations that should be taken into account. Ostensibly, though, they should be looking for the same thing: a good reliable service or product that is properly produced at a competitive price and has a robust after-sales back-up service.
Let us stand up for the public sector. Small businesses derive one advantage from dealing with a public sector organisation—as I can vouch from experience—and that is security of payment. I have lost count of the number of times over the 25 years that I was in business when private customers delayed payment, were slow in payment or, even worse, went into liquidation or receivership owing my business money. Sometimes they owed me very small amounts. Thankfully, it was only on a few occasions that I was owed large amounts. At this point I could veer off into the issue of phoenix companies, but I am sure that you, Mr Hollobone, would soon call me to heel.
We are talking about SMEs, which can employ 100 employees, but I also want to bat for the micro-businesses with five or six employees. When a public sector body sends an inquiry to a small business, that SME knows that its money will be safe, which is important. My late father used to say, “It is not sold until it is paid for, son.” An order from a local authority was almost as good as getting cash in the bank. When the public body comes knocking, it should be a cause for hope and perhaps even celebration for a small business; they have an inquiry from a responsible public authority that they know they will be paid for and from which they can hopefully make a reasonable profit. However, in reality, for the people I have spoken to, that is not the case. I know of businesses that have actually ignored public sector inquiries on the basis that they are not worth the effort the business has to put in to get the work. I understand the amount of rigour that has to be undergone for some huge infrastructure contract, but let us be honest, a company the size of Laing O’Rourke has the capacity and resources to deal with all that stuff. I am talking about the SMEs that do not have such resources.
From my experience, when a small company gets an inquiry from a public sector body, it comes bound up in a lot of bureaucratic red tape. The small business owner, which is what I was, looks at it and considers what they have to do even to put a price in. When they work that out and look at the value of the contract, they find that by the time they have fulfilled all the bureaucratic criteria, the profit is so small that it is not worth doing. Some people might say, “So what? There are plenty of other companies that will do it.” That is not the point. The big companies might do it, and the hon. Gentleman made some good points in that regard, but is it necessarily achieving the best result for the taxpayer? I do not believe that it is. Although I do not want to alienate the large companies in my constituency, I have to say that many small and micro-businesses run lean and tight ships.
Neil Carmichael (Stroud) (Con)
I have been listening carefully to the debate, although I arrived late, for which I apologise. One point of great relevance is about missed opportunities. A large number of small businesses have quite useful inventions and new technologies that do not always see the light of day. They apply to the national health service or to some other large public sector organisation and the simple process of getting them on to the table for negotiation is impossible. Let us think too of the lost opportunities in new inventions and new engineering ideas.
Andrew Bingham
My hon. Friend makes a good point, and I will come to something along those lines in a moment.
As I was saying, many small and micro-businesses run tight ships—they are hyper-efficient. Consequently, they can offer products and services at much reduced prices, and every bit equal in quality. However, all the bureaucratic muddle and red tape is not only depriving small businesses of the opportunity to supply but means that public sector bodies are paying more money for the services they procure. The process is costing public sector bodies more twice over. First, someone in the public body must administer all the paperwork, with all the forms having to be read, checked and all the rest of it, so that creates a higher cost for procurement. Secondly, because the public sector bodies are ruling out—shall we say?—more competitive companies by their system, they are also paying more for the products they procure. In many respects, the public sector is paying more for goods; I hate to use the phrase, “paying through the nose”, but it is paying a premium because of its own processes.
About 18 months ago, I held a small business event in my constituency to help my local small enterprises deal with local authorities and other big public bodies, to try to break down some of the bureaucratic barriers that the public sector bodies put in their way; to be honest, sometimes they do so unwittingly. In total, 85 local companies came along to that event, and they all came with a very similar tale. They all mentioned the dreaded pre-qualification questionnaire, or PQQ, which seems to be the bane of every small business person’s life. As the hon. Member for Ogmore said, public sector bodies seem to have a system whereby they say, “This is the procurement package we use, whether the contract is worth billions, millions, thousands or tens of pounds.” It just seems to be the same process and it seems like a sledgehammer to crack a nut.
In discussing the PQQs, I will change the names, because I want to protect both the innocent and the guilty. I have one PQQ here, which is 64 pages long. It was given to me by a local small supplier. I will not say what the company does, because that would give a clue, but we will work on the theory that it supplies wallpaper, because that fits. Obviously, I do not want to disclose the company owner’s details, because it is not fair on him. He tendered for a fairly modest contract with a public sector organisation, which will also remain nameless. He sent me a PQQ that is 20 pages long and asks for information such as cash-flow forecasts. It also asks for a bank letter outlining the company’s current cash and credit position. I am sure that the bank would supply that information, but from my experience of dealing with banks I would say that it will probably charge him.
Looking at the level of detail of the contract, I see that there is an extra cost. It does not matter about all the paperwork and all the rest of it; the company owner has got a bill from his bank. The public sector body wants details of his company’s equal opportunities policy, its health and safety policy and it even asks him to
“describe your organisation’s current workforce development and training programme”.
The company is a micro-business that employs three or four people, supplying goods—as I say, we will go with wallpaper—and it has to supply all that information. I read the form with incredulity; I have even torn the page off, so that the cameras in Westminster Hall cannot pick up who sent it to the company owner. I could go on at great length, and given that we have the time I could actually read the whole of a 64-page PQQ I have, because I could get it all in before the debate finishes. In fact, I was thinking that there are people who collect different things, and we should have a name for people who collect PQQs, because I could be one of them.
The Parliamentary Secretary, Cabinet Office (Miss Chloe Smith)
I hope that my hon. Friend will excuse me for quickly intervening. I am sure that he is right to want to protect those involved, but anyone watching this debate and regretting that they cannot pick up the details on camera might like—if they know the details—to go to the Mystery Shopper page on the Cabinet Office website, which I will discuss in my response to the debate, and before the end of the debate we can “shop in” some bad practice.
Andrew Bingham
Perhaps so, but I have promised not to give out any names and with the greatest of respect to the Minister she does not vote for me and those people do, so I do not want to upset the applecart from that point of view.
As I say, the PQQ that I referred to is just 20 pages long; there are some that are much longer. I have seen some that are 64 pages, and more. If someone was procuring, for example, High Speed 2, I could understand that process, but for buying some wallpaper it is absolutely ridiculous. I could give the House numerous examples from my own experience. I remember tendering to supply power tools to a local authority. I lost the contract and I am not bitter about it because it was 20 years ago—well, I am not very bitter about it. I lost it by a very small amount of money. However, what was not factored in was the fact that the local authority I was tendering to, which was very close to my premises, wanted an option to pick up and take away tools. I lost the contract, but I lost it to a supplier 70 miles away. Because my headline price was a little higher than they had quoted, I did not get the contract, but I thought, “Well, how much is it going to cost for the vans for the authority to go to and fro 70 miles to pick up odd bits and bobs for the next two years?” It was then that I started to see the difficulties and—shall we say?—shortcomings in dealing with local authorities.
Not many years before I was elected, we had a campaign in Glossop in my constituency to restore some park gates, which were a big thing in Glossop. I instigated the campaign, I raised the money, I put in for the planning permission and I managed to get a local company to make the gates. The local authority at the time put up what I think it called an “interpretation board”. The chap putting it up said to me, “How much did the gates cost?” I told him and he said, “Crikey. The interpretation board cost more than that.” That made me think, “Hang on a minute, who’s buying smart here?”, and I think that “buying smart” is the phrase we should use.
From my experience, I do not think that the public sector does “buy smart”. I think that the Government are trying to get to grips with the problem and they are doing some good things, but from what I see across a wide range of public sector bodies there seems to be too much focus on the process and not on the outcome. As a former small business man myself, that drives me mad. The process is absolutely ridiculous: it costs the authority more to administer; it costs the suppliers more to fill in all the paperwork; and it is just a form-filling culture. That culture does not exist in the private sector—small businesses do not send forms round, tick them and all the rest of it.
Somehow we have to drive that practice out of the public sector. I know that we cannot get rid of all of it but we really need to clamp down on it, because our small businesses, as I have often said, are the engine room of the country, employing a huge percentage of our work force, and we need to give them every chance to supply big public sector organisations for all their different contracts, be they for pens and paper clips or for roads and railways. We need to give our small businesses a fair chance, because they will put people in employment, and all the community benefits will keep spinning through our local communities.
What public procurement should be about is buying the right goods or services at the right price and the right time, and getting the best value for money for the taxpayer. The evidence I have seen is that there is still a long, long way to go with public sector organisations to make that happen.
Mr Iain McKenzie (Inverclyde) (Lab)
It is indeed a pleasure, Mr Hollobone, to serve under your chairmanship today.
I start by congratulating my hon. Friend the Member for Ogmore (Huw Irranca-Davies) on securing this very important debate. He spoke on this subject with passion, enthusiasm and knowledge. I could not agree more with what he said, to the point that I fear I may just repeat his speech with a Scottish accent. Without doubt, the importance of small and medium-sized enterprises across the UK cannot be overstated. SMEs are the backbone of the British economy and we need to ensure that both central Government and local government do everything they can to help them through the procurement tendering process to secure contracts.
SMEs employ more than 14 million people and have a combined turnover of £1,500 billion, which accounts for some 47% of private sector employment and about 34% of turnover. Importantly for a local economy, 83p of every £1 spent with a local business will go back into that local economy.
Those are just some of the statistics about SMEs. They are vital to the economic well-being of Britain and vital to employment opportunities. They are the driving force of our economy and they deserve their fair share of public sector procurement. Small businesses are struggling to survive in these challenging economic times, so it is essential that they have every opportunity to win Government contracts or to become part of the supply chain to local and national Government.
Public procurement spend is significant even in these challenging times. Public sector bodies, including central Government, the armed forces and the NHS, spend around £220 billion a year on goods and services—everything from stationery and office furniture to medical equipment and catering services. Despite that, however, public procurement is an underused tool when it comes to keeping trade local. Nearly three quarters of SMEs rarely or never bid for government work, and more than three quarters of SMEs believe that there are barriers to awareness of government opportunities. Many say that lengthy and complex pre-qualification questionnaires disadvantage smaller businesses. The playing field has been stacked against SMEs trying to win public sector contracts. To many SMEs, public procurement seems to have been deliberately designed so that they do not succeed.
More than half of SMEs feel that the process of tendering for Government contracts requires more time and resources than their business can allow for. Some 50% of SMEs find it significantly more difficult to deliver to Government agencies than to the private sector, mainly because of the additional formalities required by public sector clients. SMEs say over and over again that the bureaucracy needs to be simplified to help them bid for public sector contracts and especially low-value contracts.
The majority of SMEs are relatively unaware of where to look for opportunities, and they believe it is too time-consuming to try to find out about them. In addition, they do not bid, because they feel they are unable to compete with larger suppliers. One in five SMEs believes it is unsuccessful in a bid because it is unable to offer better value for money than other suppliers.
One member of the Federation of Small Businesses said:
“Local authorities are the bureaucratic mind at work, busily inventing disproportionately complicated procedures.”
Does that not sound familiar?
Could the Minister look at the following points—she will be glad to hear that the list is not overly lengthy—to improve SMEs’ prospects of securing Government contracts? First, could access to public contracts and pre-qualification questionnaires not be simplified? Secondly, could there not be education seminars on how to tender for contracts, especially through e-procurement? Thirdly, there could be much better access to information about public sector procurement opportunities for SMEs. More needs to be done to improve channels of information, so that small businesses know what contracts are up for tender.
Government buyers need to develop business associations with local SMEs and to set up standard contracts of terms and conditions before inviting companies to tender for released contracts. That will, of course, entail a separation of duties, in that those who source would not be those who evaluate tenders and place contracts. There also needs to be a focus on building an integrated supply chain, in which there are no weak links, and on applying green procurement to keep that supply chain as short and as local as possible.
Where possible, e-procurement should be used to enable SMEs quickly and economically to bid for contracts. The Government also need to target and improve contract monitoring for performance if business associations are to continue and to be justified. In addition, the Government must prove best value by having multiple bids that are evaluated against clear contract weighting.
What of the spend of local authorities? The procurement spend of many councils is significant, averaging £185 million for each local authority. Nationally, that is billions of pounds per year. On the basis of the rather limited figures available, however, less than 50% of that spend goes to SMEs. A significant proportion of councils do not record the size or location of the businesses they spend with, and that should be rectified.
Cost savings are overwhelmingly the biggest driver of procurement policy, outweighing other factors, such as the quality of goods and services, and economic development. That is understandable, given the constraints on local government, but it is, none the less, regrettable, because cost should not always be the most significant factor in awarding a contract, and savings can also be made through quality.
If you will allow me, Mr Hollobone, I will describe what has been taking shape in Scotland over the past couple of years. There has been a total redesigning of the procurement process, which has embraced private, cutting-edge procurement practices to bring about the maximum savings. I hope that will banish the days of off-the-shelf, catalogue procurement.
Some years ago, Scotland Excel was developed, bringing together the combined spend of the 32 local authorities in Scotland. More to the point, it updated and standardised procurement practices, which was necessary if local government was to deal with these challenging times and bring about the savings required in their spend. Many SMEs have been successful in gaining contracts through this collaborative buying consortium. Many other areas of the UK employ buying consortiums; they have had many successes, and they have many good practices they could and should share across the country.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
I apologise to the hon. Member for Ogmore (Huw Irranca-Davies) for being rather late for the debate. The hon. Member for Inverclyde (Mr McKenzie) is making an important point. About 75% of procurement in Scotland is sourced in Scotland, but only about 50% of procurement in Wales is sourced in Wales. What are the major lessons Wales could learn from Scotland?
Mr McKenzie
They are working jointly, and the McClelland report has been shared by both Administrations. As I said, it shone a light on procurement practices in local and national Government and updated them, bringing in many good, cutting-edge practices. It is recognised that if we devolve procurement to a local level, the supply chain can be improved and can be kept as short as possible. I should also mention the green procurement card, which is used across Europe to justify a local spend.
Can SMEs do anything to improve their situation? Yes, they can. They can prepare before bidding for contracts. They should know their strengths and highlight them in any bid. They can become aware of appropriate opportunities and select the right ones. They can engage with their clients, discussing their requirements if they are unsure about them.
SMEs can also use their clients’ chosen method to deal with those clients. If that is online, they should learn how to load to the bid portal and about what limitations the portal has in terms of the size of the tender document and the time it takes to load. SMEs should not miss a bid by running over the deadline because their data was slow to upload.
SMEs should also fully meet their clients’ needs and know what matters most in their hierarchy of weighting. Finally, they should combine expertise with innovation, and explain themselves clearly if any new practices or processes are involved on their side of the supply chain.
We should always remember that awarding to local SMEs has many rewards: it builds local businesses, with many becoming subcontractors to the initial contract winner; it creates local employment opportunities and secures employment locally; and moneys spent locally tend to circulate locally, supporting other businesses and jobs. To conclude, SMEs are important, and they will always be important to our economy.
Chris Evans (Islwyn) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Ogmore (Huw Irranca-Davies) on securing the debate. My only sadness is that a debate of such magnitude and gravitas does not have a much wider audience and that more Members could not be here. However, it is good to see that the Welsh are in a majority today, with four Members here, along with another Member from the Celtic fringe. We will look closely at what the Minister has to say.
Chris Evans
There is the hon. Member for Pudsey (Stuart Andrew) behind the Minister. He is a sleeper; we sent him on reconnaissance to Pudsey. Come back to Wrexham!
When we talk about the role of businesses in the economy, we are often talking about small and medium-sized enterprises. Let us not forget that half of private sector turnover is accounted for by SMEs. In Wales, the public sector spends approximately £4.3 billion per annum through procurement, which accounts for more than a third of the overall Welsh public sector budget. That includes everything from stationery, paper clips and office furniture to medical equipment. In my constituency, up in Croespenmaen, we have Abingdon Flooring, which supplies furnishings for MOD properties.
What is more, the public sector is the largest user of services and goods from the private and voluntary sectors in Wales. The scale of public sector procurement in Wales and across Britain means that it is the biggest driver of economic growth and the biggest lever the Government can use. No one, on either side of the House, can fail to recognise the importance of public sector procurement.
I remember going to a seminar with Lord Sugar, when he talked about green industry. He said that is okay having wind farms, but they need steel: where are we procuring that? My frustration about procurement is that everyone knows its importance; but, for all the companies that come to me and tell me that they are trying to procure for something, there are hoops to jump through. It gets to the point where they are frustrated and give up on the process.
I read recently that the Prime Minister’s enterprise adviser David Young said he was not convinced that the value of SMEs was being fully exploited across the public sector. It worries me that it seems from a Cabinet Office report that the target of 25% of all government contracts has been quietly dropped. Indeed, from some statements from the civil service it seems that the 25% target is not a target but an aspiration. I agree with the Government that that target could be a catalyst to achieve change in the economy; but that must be driven from Whitehall, and be more than an aspiration. It must be measurable, constant and universally accepted. Also, which businesses does it apply to? Is it for larger businesses or for small and medium-sized business? Are micro-businesses included as well? I do not believe there is anyone who does not see SMEs as job creators. The SMEs of today will be the major companies of the future.
What the debate comes down to essentially is this: we will cut the welfare bill and bring down the deficit only through people in jobs paying taxes. The only way we shall achieve that is by encouraging SMEs and other businesses to have the confidence to create jobs.
Huw Irranca-Davies
My hon. Friend makes a valid point about the strategic importance to SMEs of procurement. Does he agree that there are practical things we can work through? Will he pay tribute to Bangor university, which is working with SMEs and the Welsh Government to, for example, reduce 50-page contract tendering documents to as few as 10 pages? We can see that those things can be done, and will create jobs through SMEs.
Chris Evans
I agree, and there was a discussion about that this morning in another place.
From my constituency experience of micro-businesses, such as painters and decorators, they make their money from painting council houses, school buildings and hospitals; but they must jump through rings of fire to get through the procurement process. I pay tribute to the work that Bangor university and the Welsh Government are doing to reduce the paperwork that SMEs must go through. That paperwork turns them away from a vital source of income, because of the complexity of the system.
I was interested when my hon. Friend the Member for Ogmore mentioned procurement examples in the food sector, and I want to touch on another example of best practice, which I am pleased to say comes from my constituency. It concerns the defence and security industry, which is a massive industry for us. We are lucky in Islwyn that we have General Dynamics UK, which moved there specifically because of a Ministry of Defence contract. It has access to markets and cutting-edge technology that can be used by small businesses. I am delighted that the EDGE UK facility is in Oakdale at the moment. It does an incredible amount of work with SMEs, helping them to get access to defence and security markets nationally and internationally. Not only that, but its modus operandi protects the intellectual property of the SME and ensures buy-in from all sides, offering clear benefits to both parties. If the Minister wants to see an example of innovation in the procurement process, she has an open invitation to come to Islwyn and to Oakdale. I shall be happy to show her round; I think she will find it is a beautiful constituency.
Anyone who has dealt with SMEs will say how important it is for them to work with larger companies, retain their intellectual property and win new business in the market. EDGE UK is appreciated by the customers of General Dynamics UK, including the Ministry of Defence, as it helps those with a niche capability from SMEs who usually cannot get access to the customer. Through EDGE UK General Dynamics works with an average of 50 SMEs a year, constantly seeking out and reviewing innovative developments. I know from speaking with people from General Dynamics that it is always keen to attend business events, to expand awareness of EDGE UK through the SME community, and to invite new SMEs to talk about ways they can engage with a company through EDGE UK. I remind all those with small businesses, if any of them are watching the debate—hopefully on television on a Sunday morning—that they have an open invitation to get involved with EDGE UK, and to get access to its innovation and capability. It is fantastic.
Not every SME can work with General Dynamics, of course. Products may need maturing. EDGE UK provides support to such SMEs, to help them identify avenues for funding that will help them develop their technologies. Those include, for example, the Centre for Defence Enterprise, the Technology Strategy Board, and the various business funding streams available from the Welsh Government. We cannot talk about SMEs and procurement in the public sector without looking at examples such as EDGE UK and seeing what we can learn and apply. For every General Dynamics success story and every EDGE UK there is someone in Wales, or somewhere in Britain—perhaps a micro-business employing five people, such as a painter and decorator—who is desperate to get hold of a contract: to paint a council house or school building. That is because those are what I like to term Bank of England contracts—they will not fall apart under someone’s feet, and they will not walk away: the business owner knows they will get the money at the end of the day. When there are businesses that pay their bills late, access to contracts of that kind is vital.
I find it frustrating that, as my hon. Friend the Member for Ogmore mentioned in an intervention, people have to wade through 50 pages of tendering documents. The time and money that goes into public contracts makes it harder and harder for small and micro-businesses to tender for them. The process costs money that is precious to them, and they become caught in a vicious cycle. They have no money for the tender, but they need to tender to make money. The fact that the Government are willing to promote the tendering process, but allow companies to get stuck in a system where they cannot get hold of contracts, is a bit of a hare-brained scheme. On a recent visit to Axiom Manufacturing Services, a successful manufacturer in my constituency, the frustration of the situation was pointed out to me. First, no help is provided with filling in the contracts: the business does not know what is being looked for in the tender. Secondly, feedback is rarely given to those who are unsuccessful, so it is not possible to move on and improve processes the next time.
To return to the 25% aspiration, let me say that now is the time for a coherent Government plan. Since I entered the House I have often heard the accusation that all the Opposition do is oppose everything, but I want to set out concrete plans, and I hope the Minister will listen to five points. First, there should be agreement by Government that procurement will be used as an engine of economic growth. I do not mean central Government but all levels of government, including councils and the NHS. Secondly, a border line should be established and we need to set a target in stone. If 25% is too high, and is just an aspiration, we need to bring the target down; but we need to begin achieving targets, and they need to be measurable.
Thirdly—and I must return to the example of General Dynamics UK and EDGE UK for this—every company with more than a certain number of employees, in receipt of a Government contract, needs to produce a training plan and an apprenticeship scheme, to enable young people to get on the ladder, so that skills and training will improve. That cannot be put in place at zero cost.
Fourthly, we should take a leaf from the book of General Dynamics UK and use procurement to encourage innovation, allowing bidders to come up with new, fresh ideas. That should be in the tendering process. My fifth point relates to what I said before about Axiom. There is a need for help from public bodies, for contracts to be designed in a way that allows SMEs to compete. We need standard contracts across the board. We also need a helpline or someone in Government, in the Department for Business, Innovation and Skills; at Axiom I discussed bringing troubleshooters in. There is a need for a crack team that can be called free and told, “I need help to fill this contract in.” The Government could send it on.
Those would be innovative processes. However, we must remember that, without Government will, a limited number of suppliers will still reinforce their market share, stifle competition and keep prices high. Government will and action are needed, and I hope that we see that today.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Ogmore (Huw Irranca-Davies) on securing this debate on an important issue that does not attract the attention it deserves. As my hon. Friend the Member for Islwyn (Chris Evans) said, hon. Members from all parties are aware of the importance of this issue and it would have been fitting if more had attended this debate. However, important points have been made by hon. Members from both sides of the House. My hon. Friend the Member for Islwyn said that there was a Celtic emphasis to the contributions. This is a cross-party, national issue.
Contributions, particularly from my hon. Friends the Members for Islwyn and for Inverclyde (Mr McKenzie), and the passionate opening remarks made by my hon. Friend the Member for Ogmore, emphasised the importance of procurement for small and medium-sized enterprises and their importance to our economy.
This has been a remarkably non-partisan debate and I hope that that will not change too much as I make some remarks on behalf of the official Opposition. If there is one thing that all hon. Members agree on, it is that small and medium-sized enterprises are the lifeblood of our economy and should be supported. They account for 99.9% of all private sector businesses in the UK, 59.1% of private sector employment and almost half of private sector turnover.
As has been said, given the economic challenges that we face, encouraging small and medium-sized enterprises must be a focal point for Government policy as we seek to find growth again. In short, they are critical to our economic recovery. Yet still the proportion of public spend on dynamic small and medium-sized enterprises is far too low. As the UK’s biggest single consumer, government must do more to support SMEs across the country.
In February 2011, the Prime Minister and the Minister for the Cabinet Office and Paymaster General, the right hon. Member for Horsham (Mr Maude), outlined Government procurement reforms at a conference for SME suppliers, where the famous pledge was made that
“25% of all government contracts”
should be
“awarded to small and medium-sized enterprises”.
Regrettably, that 25% target did not last long. It has been downgraded, rather like our credit rating, and is now merely an aspiration. Last month, the Prime Minister’s enterprise adviser, Lord Young, said that he was
“not convinced that the value of SMEs is being fully exploited across the whole public sector.”
I think that we can all agree with him.
I am sure that the Minister will tell us that procurement figures for SMEs are up. The Government do not have a particularly good record on statistics, but it is still depressing to hear the Minister for the Cabinet Office say that most Departments do not know their spend on SMEs and that therefore people “cannot trust the numbers”.
Mark Taylor, the former co-chair of a panel set up to advise the Minister for the Cabinet Office on SME procurement, has accused the Government of “recounting” their procurement SME figures. He said that Government contracts to SMEs were “drying up”, that things were “going backwards” and that SMEs were
“finding it more difficult to do business with Government.”
Huw Irranca-Davies
Perhaps a way forward is to replicate the Welsh Government’s approach. They are now asking all their local authorities, the NHS and any procurers to carry out regular procurement fitness checks, including monitoring how many contracts are going out to SMEs.
Chi Onwurah
My hon. Friend raises an excellent point that I hoped to make later. It is useful to see concrete examples of where that is being done successfully, but the measurement and understanding of procurement practices and, most importantly, what the outcomes are, particularly for SMEs, is a key way of improving the situation.
What is being done to measure SME procurement in Government? What is the Minister doing, specifically, to stop things going backwards? Will she confirm that only two Departments have increased SME procurement spend to any significant degree and that one of those—the Ministry of Justice—only achieved that by including providers of legal aid?
Will the Minister say what concrete action has been taken to increase the proportion of spending with SMEs? Fine words are all very well, but we want to know what is actually being done to address this issue, which everyone agrees is critical. Speeches and leaning on Departments can only go so far. We have all read reports of bloody battles going on between Departments and the Treasury over spending envelopes in the next Budget. There is a huge pressure on Departments to use their buying power to cut costs and, unfortunately, that tends to be through ever-larger contracts.
The Government have spoken many fine words of encouragement to social enterprises, without delivering. Most social enterprises are SMEs. The message that I get from social enterprises—I recently held workshops in Newcastle and London—is that often, how Government contracts are bundled makes it impossible for them to bid. That is, as we have heard, a general concern among SMEs. Will the Minister explain what specific actions have been taken, and what actions are planned, to unbundle as many contracts as possible, to level the playing field for smaller enterprises?
Support through direct procurement is not the only way to support SMEs. The previous Labour Government introduced the innovative small business research initiative programme to drive innovation through procurement. The SBRI allows small businesses to bid for contracts to provide innovative solutions to procurement problems, supporting innovation and small businesses at the same time.
We in the official Opposition had been calling for some time for the programme to be expanded, so we were glad when the expansion was agreed to by the Treasury. This is good news for innovative SMEs. However, a recent survey by the Federation of Small Businesses found that nearly 40% of small firms felt that they were being “sidelined” by the Government because of their persistent belief that bigger firms are better. What are the Government doing to address that?
I turn briefly to the Government’s Contracts Finder, which I am sure the Minister will address. The value of contracts published on the website each month is still very small compared with the £15 billion total value of Government procurement contracts that are outsourced each month. Does the Minister agree that more needs to be done to ensure that contracts are put on the Contracts Finder system? What is happening on that?
What are Ministers doing to ensure that local authorities are properly engaged with Contracts Finder? What work are they doing with councils to improve their procurement from SMEs? We have heard of a number of examples from local authorities across England and Wales that are being very innovative in that respect, and I would like the Minister to say whether she is studying what is happening in our local authorities.
There are a number of rivalries between cities in the north-east, particularly between Newcastle and Sunderland, but as we subsume them within a combined local authority, I am pleased to say that I can hold up Sunderland city council as an example of innovative and successful work in procurement.
Indeed, only last night, at the Federation of Small Businesses reception, Sunderland city council was praised for its intensive engagement with the FSB and local suppliers before implementing the Buy Sunderland First system for quotations below the tender threshold and the North East Procurement Organisation portal for all opportunities above the threshold. Consequently, spend with north-east businesses now accounts for more than 68% of all third-party spend by Sunderland city council. What other examples would the Minister like to hold up for us of ways in which local authorities are successfully engaging with small businesses?
I have asked a number of questions of the Minister. My hon. Friend the Member for Ogmore has raised a number of important points, and my hon. Friends the Members for Islwyn and for Inverclyde have made a number of suggestions. I draw my remarks to a close by saying to the Minister that, although we have seen some small steps forward, the Government’s approach lacks the required urgency. Whether on procurement or bank lending, Ministers across Government are failing SMEs.
Responding to a recent National Audit Office report on improving Government procurement, the head of the CBI said:
“Two and a half years after the Government committed to centralising public procurement, individual departments are still too often doing their own thing. We need to see strong leadership from the Cabinet Office to drive a culture shift across…Whitehall”.
Such complacency is all too common among Ministers. The CBI survey report recently stated:
“Across the board the rate of reform requires more urgency. The lack of progress on turning sound policy into actual change is not only damaging to government and costly to the taxpayer, but it also stunts growth.”
Will the Minister now take action to ensure that permanent secretaries prioritise and buy into that? Will they visibly start to split major contracts into smaller chunks? Will they take steps to record the success or failure of those policies?
Successfully changing the mindset on procurement so that we use and support our SMEs more effectively is an issue that unites the whole House, so will we see decisive Government action so that our ambitions can be realised?
The Parliamentary Secretary, Cabinet Office (Miss Chloe Smith)
I am grateful to the hon. Member for Ogmore (Huw Irranca-Davies) for initiating this debate on such an important subject and for setting us off so passionately. As has been echoing around the Chamber this afternoon, we share a passion for the same thing: seeing excellent procurement that serves the customer—in this case, the taxpayer—and promotes growth. I am confident that every Member here supports those aims and that my remarks will outline the action merited by that.
From the outset, the Government have fully recognised the vital role that SMEs play in helping us achieve the best possible value for money—in some cases for reasons of cost and in others for reasons of innovation, a theme that has also rightly reverberated around the Chamber—when we buy goods and services for the citizen, such as school, hospital or prison meals, wallpaper or any other goods or services.
In the minutes remaining, I will take the hon. Gentleman’s invitation to shatter some myths. Let us do that together this afternoon, because he is absolutely right in laying down his support for the theme and in his desire to see increased awareness of what is available for SMEs, of the ways in which they can grab it and of the ways in which we can hold procurers to account.
I will start by addressing the goal that, by the end of this Parliament, 25% of direct and indirect Government procurement by value should go to SMEs. Although I want to move on to some content that I know will be of great help to every Member when talking to their constituents, I first need to make an overtly political point. I am sad to say that we had to take the bold step of setting a 25% aspiration because before that, under the previous Government, no effort was made to measure such things. The lecture I have just received from the Opposition Front-Bench spokesman is more than a little rich in that context. Even a member of the previous Government has had the dignity to look ahead and say what we need to do better for SMEs, and I am afraid that I do not think the Opposition Front-Bench spokesman is hitting the same heights.
After a lot of hard work in 2010, we found out that SME procurement in 2009-10 amounted to 6.5% of all procurement, or £3.1 billion—a shamefully low figure given that 95% or more of private sector businesses in the UK are microfirms, or companies with fewer than 10 employees. We recognised that something had to be done to remove the barriers facing many companies when bidding for Government contracts, and we have gone a long way towards removing those barriers. I will work through a couple of points that will help Members to express that to their constituents, which is one important thing we can do to send the message outwards.
Over the past three years, we have increased accessibility and transparency, identified and addressed poor procurement practice and provided practical assistance to help SMEs. I will start with accessibility and transparency. We have made contracts smaller and broken them up under various headings. Some of the finest examples of that can be found in information and communications technology, where historically Governments have been subject to procurement disasters. We have instead deliberately gone out to approach SMEs for Government ICT needs and have had some good successes. We have also set up Contracts Finder to increase accessibility; it is a one-stop shop to enable suppliers to find procurement and subcontracting opportunities. They can also find tender documents and contracts online, all free of charge. I urge anyone listening to or reading this debate to look at that.
People will also find online and accessible pipelines of what the Government are looking to procure under a range of topics. All those kinds of thing help would-be suppliers to know what we are looking for. As I said in my opening remarks, we believe in procurement for growth, and we believe strongly that pipelines can help in that endeavour by explaining to industry what this very large customer, the Government, are looking for over time.
In the dynamic marketplace, companies can register without cost to provide quick quotes for low-value Government contracts below £100,000. That enables them to bid and compete at minimal cost alongside larger suppliers. I recognise the points made this afternoon about the cost of bidding. We are doing something about that. On the other side of the deal, what does that give customers—Departments and the taxpayers whom they represent? It gives us cost-effective access to pre-registered Government suppliers and allows bids to be issued and responded to electronically, which again makes the procurement process quicker and more effective.
On the theme of transparency, I also note that we have established a Crown representative for SMEs, which I know will be of great interest to the hon. Member for Islwyn (Chris Evans), who wanted to know where SMEs could turn for help. There is a Crown representative in Government especially for the purpose of giving SMEs a voice at the table. That is vital, and we have done it. We have also set up an SME panel to provide a regular forum for SMEs to raise the issues that concern them most and hold our feet to the fire. I assure the hon. Gentleman that the SMEs on that panel do so. I have been there, and I have enjoyed meeting the panel very much.
Moving on to tackling poor procurement practice, we have heard a couple of good examples in this debate, particularly from my hon. Friend the Member for High Peak (Andrew Bingham), who spoke about a wallpaper supplier in his constituency. I will start with that example. It is a great shame that he and his constituents felt the need for anonymity in that example. I understand entirely, but we would all like to live in a world where they did not receive bad service and did not feel the need to hide it for fear of reprisals.
We have introduced a mystery shopper service that will be familiar to anyone who has seen such a thing in supermarkets or reputable businesses throughout the private sector. It allows poor procurement service to be identified and acted on. If a supplier encounters poor procurement practice, such as the overly bureaucratic pre-qualification questionnaire in my hon. Friend’s example, or unreasonable selection criteria, as in other examples, they can refer it anonymously to the mystery shopper service, so that we can investigate it on their behalf.
I encourage and urge all constituency Members to push that information out to SMEs or anybody bidding in their constituency for Government work. It is the only way that one by one, piece by piece, we can tackle that kind of bad practice. It allows us to identify the broader themes that we can perhaps tackle more systematically, but it also allows us to put right individual cases where something has gone wrong.
Jonathan Edwards
Based on what the Minister is saying, does she consider the move towards centralising legal aid contracts an example of bad procurement?
Miss Smith
I suspect that I do not have time to do that topic justice and that you would not wish me to go there, Mr Hollobone. However, if the hon. Gentleman thinks that it is bad practice, he or anybody else ought to enter it into the mystery shopper and see what comes out the other end. We regularly publish the outcomes of mystery shopper investigations on the gov.uk website, and I am sure that the hon. Gentleman will find it easy to use.
By 31 May this year, we had received 425 mystery shopper cases. Of those that we have closed, a great majority have had a positive outcome. Once again, I encourage all Members to ensure that their constituents are aware of it.
Huw Irranca-Davies
Briefly, and in case the Minister does not touch on these two issues, what are the UK Government doing in terms of the threshold for advertising on the web? The Welsh Government have moved to advertising any contract of more than £25,000 on the web. Also, what are the UK Government doing to reduce the insurance and turnover thresholds to break down more barriers for SMEs?
Miss Smith
On the first question, all central Government contracts of more than £10,000 must be advertised on Contracts Finder; I am sure that those who have their smartphones out will find it a helpful source of information. The second question brings me to a point that I shall make later. We need to leave some areas of professional competence for the contractors themselves. It may be under the headings that the hon. Gentleman mentioned. There are instances in which a particular contractor will need to find particular characteristics that suit their procurement.
I turn to a couple of other points that have been made. Hon. Members have asked for there to be ways of giving feedback to unsuccessful bidders. We have used the mystery shopper to provide that in some cases; I am interested in how we can encourage it as a far wider practice. I will also give an example of the move away from frameworks, another point made earlier. In some cases, it can be an instance of poor procurement practice when frameworks are used inappropriately. They can certainly be a blunt instrument. I point hon. Members to the example of the G-Cloud, a way that we are procuring for IT across Government that has done away with frameworks entirely. There are many more such examples.
PQQs, or pre-qualification questionnaires, are undoubtedly a burden to small and medium-sized businesses. To address that, we have eliminated their use in 15 of 17 Departments for all central Government procurements under the EU threshold of £100,000. The two Departments still using PQQs are doing so only for security reasons.
Miss Smith
I am terribly sorry, but I need to finish some points before I run out of time. For procurements that still require a PQQ, we have introduced a much simpler standard set of questions that reduces the burden on suppliers.
On late payment, we recognise that being paid promptly is vital to enabling SMEs to manage their cash flows. Again, we have addressed that by making Government a fair payment champion. We have a policy of paying 80% of undisputed invoices within five days and ensuring that prime contractors also pay suppliers in tier 2 within 30 days. We expect our suppliers to follow that example.
My hon. Friend the Member for High Peak briefly mentioned the fact that Government can end up paying through the nose for procurement. I make the point in passing that we are one of the best clients going. I think that the hon. Member for Islwyn said that, actually, we have some of the best credit available as a Government purchaser. We can take advantage of that and get results for the taxpayer, which is crucial because that is whom we are procuring for, as well as shaping the market. I suggest that fair payment is a way in which we can do that.
I turn to a couple of other points about assistance to SMEs. Hon. Members have spoken about the small business research initiative, under which we have provided more opportunities within Government for SMEs. To address a further point made by the hon. Member for Islwyn, we have also produced a series of “top tips” videos that help SMEs and voluntary organisations pitch for Government business. Again, he should get out his smartphone right now and find out how good those videos are.
On how the measures are giving results, I should say that direct spend with SMEs across Government has increased from the paltry 6.5% when we took office to 10% in 2011-12. We will shortly announce, two years on, the results of our efforts in that area. SMEs have also benefited from a further 6% in indirect spend through the supply chain in 2011-12, meaning that spend with SMEs across Government has increased steadily since 2010.
Looking ahead, we must keep up the pressure on Departments. The hon. Member for Newcastle upon Tyne Central (Chi Onwurah) will be delighted to know that I am personally scrutinising plans from Departments to increase their spend with SMEs and sharing them with the Prime Minister throughout. We have appointed SME champions to do so at ministerial and official levels in all Departments.
Hon. Members will also be pleased to know that we are working closely with the Department for Business, Innovation and Skills to ensure that unified advice is available to SMEs. To conclude, we are aware of the recommendations in Lord Young’s work, and I want to do more to support growth with SMEs throughout the public sector.
Mr Philip Hollobone (in the Chair)
All good things must come to an end. I thank all the hon. Members who took part in that most interesting and illuminating debate, and ask those who are not staying to leave quickly and quietly.