Local Government Procurement
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Mr Clive Betts (Sheffield South East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Amess, and to introduce the debate on the sixth report of the Select Committee on Communities and Local Government in the 2013-14 Session.
The main theme of what I have to say is that there is an awful lot of agreement on local government procurement, which is probably unusual, given some of the subjects that we discuss in debates on communities and local government. Many of our recommendations—a little unusually for our reports—are aimed at local authorities and at the Local Government Association, rather than at central Government. That is consistent with the Committee’s intention to take a localist approach to such matters. Indeed, if I may tease the Minister, the extent to which the Government agree with the Committee’s recommendations is partly because most of the recommendations are not aimed at them, but at local government. That might be a little unkind, because generally we are on the same page.
Talking of the LGA and its supportive response to our report, I am pleased to be going to the LGA conference next week, and to the launch of its national procurement strategy, which is an important part of delivering the Committee’s recommendations. I look forward to giving a presentation, and to hearing what the LGA has to say.
Local government procurement might not be the most exciting of subjects, but it is an important one, because local authorities spend £45 billion a year, which is not an inconsiderable sum of public money. Indeed, 25% of local authority expenditure is involved in procuring goods and services from outside local government. In our inquiry, we found some really good examples of councils moving ahead and developing good or excellent practice, which in some instances central Government might learn from.
We clearly identified that many councils are doing the right thing and getting better all the time at procurement, although some councils have not moved forward at all. Patchy performance was highlighted by our inquiry, and the obvious requirement is for those councils that have not addressed the issue seriously, or are not performing well, to get up to the standard of the authorities where there is first-class procurement. In that way, an awful lot could be achieved, an awful lot of money saved and better value delivered.
Returning to the localist theme, we were strongly of the view that the problem would not be solved by the imposition of centralised purchasing, or by the Department for Communities and Local Government coming up with new regulations to compel local authorities to behave in a certain way. This is about encouraging the local authority sector, with the LGA in a key role, to look at best performance and to replicate it in many more circumstances.
Three overarching messages come out of the report. First, we welcome the LGA and local government in general taking a lead on procurement. It is for local government to sort out, but of course in partnership with central Government. The Cabinet Office, the DCLG, the LGA and local government can work together on this, as well as with business, listening to what it has to say about procurement and the ease with which it can engage with the process. There is also the third sector; we must not forget that a good percentage of local authority services are delivered not only by private businesses, but by the third sector.
The second overarching message is that procurement is not only a job for specialists. There is the idea that some expert procurement officer in a local authority can be given a problem, if there is one, to sort out. First, however, we have to ensure that what we are procuring will result in the service that we want to see delivered. Procurement is simply another way of delivering a service to the residents of an area. Getting what we want delivered, how we want it delivered, right from the start is important. In councils, that involves councillors who are responsible for service delivery, as well as experts in procurement.
Procurement is not just about cost. Cost is vital, particularly at the moment, but other issues must be looked at as well: the effect on local businesses, environmental issues, the possibility of getting training for apprentices as part of any procurement arrangements —they are all important, and need to be thought about by councils when procuring. There is no point complaining afterwards that no local businesses got any tenders, if the response is that perhaps the way that councils designed the contracts excluded those businesses. The delivery of services must be monitored. Procurement is not only about getting tenders in and selecting the lowest price, the one with the best quality or a mixture of the two, but about seeing whether what is promised is delivered. That is crucial and involves not only procurement officers, but other council officials, councillors and members of the public.
The third overarching message is political leadership. We welcome the fact that some authorities have appointed a cabinet member to be responsible for procurement, and that some involved front-line councillors in monitoring what happens when a contract is let. A simple proposal that we made—I do not think it has been made elsewhere—which the LGA endorsed, is that every year the whole council should provide an annual report on its procurement strategy, setting out what it is trying to achieve, rather than thinking of things after contracts have been let.
[Hugh Bayley in the Chair]
Turning to the specific proposals, we argued strongly that a centralised approach should not be imposed, but we estimated that willing and voluntary collaboration by councils could deliver about £1.8 billion. I do not want to be held to every £100,000 of that, but it is a reasonable ballpark estimate of what might be achieved. We recognise that collaboration will sometimes not be appropriate, and that councils sometimes have specific local issues and intentions when making purchases. Sometimes, forcing collaboration could lead to extra bureaucracy and delay, but with a simple purchase of a fairly standardised product, such as energy, councils can gain a lot by collaborating and ensuring that they have market power and influence. Provided it is done in a considered way, collaboration can certainly produce benefits.
Cost is important, but there are other issues to be considered, such as the impact on local companies, whether small and medium-sized enterprises really have access to the tenders, and whether tenders can be split up to allow more access by smaller companies. That is important for small businesses and for apprentices. It is not simply the council that should employ apprentices; the private sector can also do that, and it could be encouraged or be required to do so as part of a tender. The Government’s aspiration is to have 25% of their contracts with SMEs. Local government already has 47% of its contracts with SMEs. Central Government will probably never get anywhere near that, so full marks to local government, which is ahead of the game again. We should congratulate it on that.
On the cost of procurement, there were quite a lot of complaints about EU rules and regulations, and suggestions that we sometimes over-apply them. We thought it was desirable to have a proportionate approach to the application of EU rules. We would like a clearer definition from the Minister of what the Government believe a proportionate approach might be. If he cannot give that today, it would be helpful if he would write to the Committee.
We received a lot of evidence about pre-qualification questionnaires, and we heard that for every tender, different authorities, or parts of the public sector, seem to devise different questionnaires. Businesses, particularly small businesses, are upset about that and about the cost. The Committee’s view was slightly different from that of the Government, and the LGA sided with us on this. We still think that pre-qualification questionnaires are useful in virtually every respect, because without them, even for fairly small contracts, it is open to anyone to put in a bid, and far too many firms end up wasting time and effort trying to bid for a contract. There may be dozens of firms tendering. If there is a questionnaire, at least the number can be thinned out and a reasonable number of tenders made, giving firms a reasonable chance. In addition, the local authority does not have to do quite as much work analysing lots of tenders that will not be successful. We welcome the LGA’s response, and thought the Government were perhaps not quite up to the game on that and should think about it again.
There was a lot of agreement on the requirement to pay subcontractors on time. There has been a lot of pressure on local authorities to pay their contracts on time, and the evidence shows that they are generally pretty good at that. The problem is further down the chain. Small companies are probably most affected by cash-flow issues, and may be put out of business if a contractor does not pay them. We welcome the Government’s proposals to legislate in this area, which are positive; the Committee may return to scrutinise the legislation when we see it. There is general agreement on that.
The Committee made it clear that outsourcing—changing the organisation that delivers a service—does not absolve the council of responsibility for delivering that service. As far as the public are concerned, it is a council service being provided by a different organisation, and they expect their councillors, whom they elect, to be accountable and responsible. Sometimes, it is not always clear in the contract and when the service is delivered how that accountability goes back to the council. That calls into question the front-line councillors who represent their constituents. If something goes wrong, how is that dealt with? Does the council simply say, “Well, that’s the contractor’s responsibility; it’s nothing to do with us any more”? That is not so, and contracts should recognise that as far as the public are concerned, the service is a council one delivered in a different way. There must be a clear line of accountability when things go wrong, and the public must be clear about whom they complain to when that happens, and how their complaints will be dealt with.
The same applies to employment. When services are outsourced, the council does not directly employ the workers, but it nevertheless has a responsibility. It puts the contract out and decides which contractor does the job. TUPE arrangements are in place when staff are transferred as part of the outsourcing, but we felt in general terms that there is a responsibility on councils. We did not come to the view that they had to do one thing or another, but they should at least consider issues such as the operation of zero-hours contracts. The Government have promised proposals, and we welcome that and look forward to seeing what they suggest.
We discussed the living wage. Some councils insist not merely on paying the living wage, but that their contractors do so. When the Committee went to Sheffield, we saw some excellent procurement practices. The council was very honest with us, and said that it writes into contracts for construction and many other council services a requirement for contractors to pay the living wage. The one area where they are unable to do that is social care. There is concern that social care contracts are outsourced not to improve the quality of service, but because the cost of paying the workers will be reduced.
There are real issues about the future cost of social care. The Committee did not go into that, but raised it as an issue of concern. It is a challenge across the party spectrum to look into the future, when more people will require care, the population will get older, and we will encourage and help people to remain in their homes, instead of spending nights in hospital when they need not be there. There are challenges in how that social care is delivered, in paying the people who provide that care, in training and in other costs.
We did not find much evidence of fraud in local government. We asked for information and evidence. Clearly, there are examples, but nothing like those the Government have been grappling with in the Ministry of Justice recently involving contracts for monitoring prisoners and so on. We found very little fraud, but that does not mean that the Government should be complacent. We believe that there should be a proactive approach, particularly on transparency. Making information available to the public and councils is one of the best ways of ensuring that fraud does not happen.
We welcome the fact that the LGA will produce guidance to councils, so that when they write contracts, they ensure that they have a right to data created under those contracts. It is a bit of a worry that private companies sometimes hide behind commercial confidentiality, saying, “We can’t let you know what’s going on because this is our information, not yours.” If they are being paid public money for delivering a service or providing goods, there is a public interest. Some councils are looking at extending the freedom of information provisions to contracts that they let. We concluded that that was for councils to decide on, but transparency is important.
If there is corruption, it is likely that it will not be revealed by highly paid auditors searching through books. They will sometimes find evidence of fraud, but it is more likely to be found as a result of whistleblowing by people who see at first hand what is going on, and who say, “This is not right. I’m going to tell.” It is therefore important to have methods of enabling anonymous reporting.
We said that councils should insist on a requirement in contracts that where whistleblowing is identified and information is made available to the contractor, the contractor must pass that information on to the council. In that way, the information will be available to the council, not just the contractor, who may cover it up because something is going wrong in their organisation. We await the Government’s proposals on strengthening the whistleblowing framework, but we welcome their approach; again, we are moving in the same direction.
To summarise, Mr Amess—sorry, Mr Bayley; welcome to you—there is general agreement on the way forward. I have highlighted one or two areas where we have a slight difference of emphasis from the Government, and where we need a bit more clarification, as on the policy on EU directives. Essentially, procurement is a matter for a localist approach; it is about identifying best practice in local government and getting all local authorities to implement it, following the example of others.
I very much look forward to going to the LGA conference next week and hearing from its members at the national procurement strategy launch, where I will be speaking. I also look forward to working with the LGA on developing many of the ideas the Committee recommended in its report.
Roberta Blackman-Woods (City of Durham) (Lab)
May I say what a pleasure it is to serve under your chairmanship again, Mr Bayley?
I find myself here again on a Thursday afternoon congratulating my hon. Friend the Member for Sheffield South East (Mr Betts) and his Select Committee on an excellent report. I want to take a few moments to explain why it is an excellent report, before going on to look at some of the issues it raised. As we can see from looking around the Chamber, few of our parliamentary colleagues think local government procurement is a really exciting issue or one they want to spend their Thursday debating, so I might be one of the few who are interested in it.
Given the cuts facing local councils, particularly those serving poor areas, and given the jobs that will be lost as a result, I decided, as the shadow Minister with responsibility for the issue, to see whether councils were using procurement to support local employment where possible. I sent out two rounds of freedom of information requests to 400 councils and got 367 responses, which is pretty good. The responses highlighted a number of the issues raised in the Committee’s report.
The responses to my first request demonstrated that a significant number of councils want to take on a more proactive role in deciding who to award contracts to. Everything else being equal, they want, where possible, to prioritise local service delivery, but many felt unable to do so because of EU legislation, and the issue was raised again and again. Some 67% of the responding councils said they did not prioritise local goods and services and that the main reason for that was the perceived restrictions in European legislation. I should say that that was before we saw the new directive on procurement.
Armed with that information, I did a second round of freedom of information requests, seeking more detail on what councils were doing locally, and it showed that there were differences, depending on the councils’ political make-up. On average, a Labour council will procure about 40% of its goods and services from the local authority area, while the average Conservative council procures about 31%, although that might have improved. What was striking, however, was the range of local procurement. The highest proportion of goods procured locally was 80%, while the lowest was 2.5%, so there is great variation in practice.
The second set of questions also asked about the use of social value clauses in contracts, and I discovered that about 56% of councils used them in their procurement strategy. Indeed, most councils—about 90%—had a written procurement strategy, which was also pretty good. I also asked councils whether they took into account whether suppliers gave employees non-statutory benefits such as the living wage, and about 40% said they did.
That was all very interesting, and as we have a few moments, I thought I would outline some of the good practice I discovered, because it reflects some of the issues in the report.
Newcastle city council supports a living wage and promotes it not only in the direct delivery of council services, but in its supply chain. The council also said that 53% of its spend was with local—north-east—suppliers, compared with a national average of 35.8%. In addition, the corporate procurement team seeks to obtain at least one north-east quote for all contracts not requiring a formal tender process.
The council also ensures that the lots within larger contracts are a proper size to encourage bids and competition, and it works with north-east procurement organisations to streamline procurement documentation, making procurement processes consistent across the region and easier to understand.
The council has participated in a regional supplier development pilot to educate, and improve competitiveness of, the region’s small and medium-sized enterprises. It has also ensured that SMEs have received training on procurement. The council’s “Quick Quotes” initiative was launched to streamline and speed up the process for small bids. The council is also committed to e-procurement and to making communication on all aspects of procurement much easier to understand.
Finally, through its targeted recruitment and training programme, the council focuses on job creation by including clauses on it in the procurement process, bringing new jobs to the area. Through their procurement strategies, a number of other councils have also tried to deliver jobs where possible.
There were equally good examples at Sheffield city council, which has adopted the national procurement concordat for SMEs to encourage trade between SMEs and the council. It looks at how to get more local businesses, particularly small businesses, competing for council contracts. It also monitors closely the proportion of the council spend that goes to local businesses, which is about 72%. There were similar processes in Birmingham, although there was much stronger focus there on delivering local jobs and local training opportunities.
That is all by way of preamble. Like my hon. Friend and his Committee, I thought there was really good practice out there in opening up procurement processes and ensuring, where possible, that SMEs got a chance to bid for contracts and that procurement could deliver for the local community. There were issues, but it was comforting—this is why I wanted to go through the preamble—to know that the Committee and I had discovered similar issues and concerns. Indeed, I was reflecting this morning on the fact that I could probably have sat back and let my hon. Friend’s Committee do the work I did through my freedom of information requests.
We need to ask a fundamental question: why are we here discussing procurement? The public sector spends about £220 billion a year on procurement, of which about £50 billion a year is for local government procurement. That is a huge amount of money, and we are asking whether it is being spent wisely. About 47% of what local government spends on procurement goes to small and medium-sized enterprises. The Federation of Small Businesses has shown that for every £1 spent in the local economy 83p goes back into it. Obviously, it makes a lot of sense for local governments that want to build their local economies to try to get as much local procurement as possible.
The way local authorities choose to spend their money can have significant impact on businesses and jobs, and on wider social value. What they do could include using more SMEs; ensuring that suppliers give staff non-statutory benefits, such as the living wage or extra training; and asking suppliers to provide apprenticeships or jobs for those who struggle to find work and to use local businesses if possible. There is growing evidence to suggest that SMEs provide better quality and more flexible services, and that they are more responsive when the procurer’s demands change, or there is a need to change a contract.
I was therefore interested in the excellent report that has been produced, and in the evidence that the Select Committee took on the need for local authorities to get better at procurement. Interestingly, the report reached the same conclusion as the shadow team. It is always tempting for people involved in central Government to think that centralising everything will get things done better, because of economies of scale and because there can be, for example, one pre-application questionnaire, simplifying the whole process, but I wonder about that. Many councils told us they could not do certain things because of EU legislation, which we were not sure was really the case. Some local authorities seemed to manage to do what others could not. However, I agree with my hon. Friend’s conclusion that it would be wrong to centralise the procurement system for local government, because that could mean services being unresponsive or inappropriate, which would be a major disbenefit. It could, indeed, lead ultimately to higher service delivery costs in the long term, particularly if contracts broke down and had to be retendered.
We thought that there was much good practice in local government. We saw that local authorities would come together voluntarily in an area that made sense to them, to deal with procurement. Often they would procure back office functions between several authorities, or they would look at working more effectively to improve value for money. Large contracts were another reason for them to come together. We hope that the Government will support local authorities in working together voluntarily, and perhaps in setting up, at regional, sub-regional or combined authority level, ways to make procurement easier, more consistent and easier to understand.
I also agree with the Select Committee’s conclusion that the difficult balancing act for local authorities is to get best value while supporting local businesses. In many cases, simply going by cost may not necessarily mean the best service, or the one that local people want, and it can mean employees from another area providing the service: local authorities thus cannot use procurement to benefit the people they represent. That is a difficult balancing act, but the people who are best able to chart a course through the difficulty are the local authorities, either alone or in co-operation.
I was pleased that the report showed that smart procurement can bring other benefits, such as a living wage, training and upskilling opportunities, and apprenticeships. It is right to suggest that the Local Government Association could and should do more to promote sharing good practice of that kind. We came across good examples, and felt that all local authorities need to understand how to use procurement more effectively.
In the responses we received, European rules that were never really outlined in detail were often used to justify a lack of imagination in the way councils procure services. Things were often very bureaucratic, and the reason we were given was, “We have to do this because of Europe.” However, some councils managed to avoid that. I was therefore pleased that the Select Committee paid attention to the issue, informing us that procurement takes longer and is more expensive in the UK than in other EU countries. I hope that that worries the Minister; it worries me. I thought that it showed that the Select Committee report is timely, and that its recommendations should be acted on.
The report states:
“Some 75% of all contracts tendered in the UK have a value below the thresholds at which the full EU requirements apply, but witnesses contended that councils applied the full rules to many of these lower value contracts”.
We came across that, and clearly it must cease. It is imperative that the Department for Communities and Local Government and the Local Government Association act on the relevant recommendation, at paragraph 59 of the report. Local authorities need to become more competent in applying EU rules. The first step is surely for the Government and sector leaders, including the LGA, to spell out what constitutes a sensible approach that complies with the regulations proportionately. The LGA should produce guidance on that aspect of the new EU directive on public procurement, and work with local authorities to disseminate best practice.
The report is right to highlight the need for a consistent, measured approach to the management of the procurement process. We, like the Select Committee, found huge variation in practice for pre-qualification questionnaires. We interviewed small businesses, and for some of them—with some councils—the PQQ experience was truly frightening. Often there is a lack of consistency between councils in dealing with PQQs, but sometimes the lack of consistency is between departments within a council. Our plea would be that if there is to be support to enable councils to get more streamlined systems, attention should be paid to PQQs. Indeed, there should be assistance from central Government or the LGA in developing a better system.
There was much good practice. We found, as did the Select Committee, good examples of streamlining to make the procurement and tendering process more straightforward, but there is a big role for the LGA to play in ensuring that all local authorities follow best practice. That is what the Select Committee report says, I think.
I was pleased that the Select Committee considered the quality of employment that is provided, through outsourcing in particular, and that it pressed the Government to monitor the quality of employment. As my hon. Friend said, that is particularly an issue for the care sector. I note that his Committee was not able to pay a huge amount of attention to that, but I hope that it will examine it in more detail later, because, again, we found real issues there.
The Minister can tell us later whether he is in favour of zero-hours contracts. We are not against them, but we want to see them only where they are appropriate and welcomed by staff. I feel strongly that they should not be imposed on people, as they often are, but there is a wider issue of outsourcing that can happen as a result of the local authority procurement process. We also want to reflect on the issues of accountability that the report produced by my hon. Friend’s Committee went into in some detail. It is all too easy for councils, once they have outsourced a particular service, to think that they no longer have any responsibility for the quality or delivery of that service, which would be quite wrong.
Elsewhere, the report talks about the need for councils to demonstrate probity, have good monitoring and complaints systems in place, and, critically, have a whistleblowing system, so that if there is fraud or bad practice, it is easy for people to highlight that, bring it into the open and make it transparent. We thought that there was some very good practice, which the report highlighted, but again, this is about the LGA and the Department encouraging the sharing of good practice.
The report was excellent, so I looked forward to reading the Government’s response, which I thought started well. It is good that, over the coming year, the Government will take a range of further actions to promote the Public Services (Social Value) Act 2012, and that they will review progress throughout the year and consider what actions to take as a result of that review. There is also a commitment to continue reviewing the impact of the community right to challenge. Will the Minister tell us when those reviews are likely to be completed and how they will be published and put into the public domain?
Roberta Blackman-Woods
That is wonderful. I am interested and pleased to hear that, and look forward to seeing the report.
I am not exactly sure what action the Government will take to enable local authorities to understand better the new EU procurement framework, which is a result of the new directive published on 28 March. I would like to hear what the Minister’s Department is doing to communicate that to councils. If the Minister and the Department intend that the LGA should take that role on board, he should make that clear today and assure us that the LGA has the resources to undertake the task, because it is critical in improving procurement. Local authorities have to get away from the belief that the EU directive stops them doing all sorts of interesting things locally. I also look forward to seeing the Government’s response to the consultation on zero-hours contracts and the implications for the care sector in particular.
I was perhaps a bit disappointed that the Government’s response did not seem to show any real determination, or vigour, to assist local government in transforming procurement, so that it would not only deliver value for money, but take on all the social value issues and deliver jobs and improvements for their local communities, although perhaps I am being unduly unfair to the Minister, and perhaps he will convince me that he finds this a really interesting area, and that the Government need to put their weight behind it to get real changes in local government procurement. I look forward to hearing what he has to say.
The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)
It is a pleasure to serve under your chairmanship today, Mr Bayley. I thank the hon. Member for Sheffield South East (Mr Betts) and congratulate him on securing the debate. He is quite right: we absolutely welcome the Select Committee’s report and endorse its view on the need for councils to improve the way in which they procure goods and services. The hon. Member for City of Durham (Roberta Blackman-Woods) made a good point about the number of Members who have joined us for this debate this afternoon. I appreciate that there is also an important debate in the Chamber, but this is an important matter, and it is good to have the chance to air some issues, discuss good practice, which I will touch on, and highlight how important procurement is and what local government should be doing to focus on it.
I will resist the urge to go too far down the road that the hon. Lady tempted me down at the end of her speech, when she mentioned social values and jobs. As meritorious as those issues are, and as important as it is that councils are aware of them, going in that direction would tempt us towards having some sort of central governance over what those values should be, which is the very opposite of the localism that I believe in. It has to be for local authorities to decide what the right values are for them.
We agree with the Communities and Local Government Committee that councils, with the support of the Local Government Association, should absolutely take the lead and have the responsibility for delivering on the procurement agenda. Councils are uniquely placed—geographically as well as structurally—to understand the needs of their residents and communities and to be locally accountable to them for their actions and decisions.
The hon. Lady gave some figures, and just to put things in context, this is a hugely important area, not least because last year the local government sector spent £57 billion on procuring goods and services. As she said, that accounts for roughly a quarter of all public sector procurement. Councils are often one of the largest spenders and one of the largest employers in their local economy. By being more astute and imaginative in how they use that spending power, they can do much more to ensure that they achieve greater value for money and help their local economies to grow. When we talk about savings, most sensible business people, hearing that local government spending is £57 billion, would come to the conclusion straight away that just a little improvement in procurement could bring a small percentage saving, which would be a very large amount of money.
I accept that the Government have an important role to play, at least in incentivising service transformation and encouraging innovation. As set out in our evidence and response, we have already introduced a range of key public sector procurement reforms that will open up procurement opportunities to both small and medium-sized enterprises. As the hon. Member for Sheffield South East said, the FSB has targeted those opportunities. Sometime last year, I was on a platform with the LGA and the FSB talking about the added local benefit that can be brought particularly by small businesses but also, as he rightly says, by voluntary and community organisations—the third sector as a whole.
The Small Business, Enterprise and Employment Bill was introduced into the House on 25 June. It will help to deliver our commitment to build a stronger economy by supporting small businesses. The Bill contains a number of measures intended to improve public sector procurement, which will, subject to consultation, ensure that procurers run an efficient process, accept electronic invoices, do not charge for bid information and do proper pre-market engagement.
The Bill will also make it easier for small businesses to raise concerns about public procurement practices and cut down on red tape by ensuring that regulations affecting businesses are reviewed frequently and remain effective. It will deter employers from breaking the national minimum wage legislation by creating a power to allow the penalty for underpayment to be imposed on employers on a per-worker basis, and it will stop the abuse of zero-hours contracts—the hon. Member for City of Durham mentioned them, and I shall come back to this point in a moment—by preventing the inclusion of exclusivity clauses, which are used to prevent individuals from working for other employers, even if the current employer is offering no work.
Other key reforms, which will be introduced later this year, include the abolition of the pre-qualification questionnaires for contracts below the EU threshold—I note the comment by the hon. Member for Sheffield South East, and I will come back to that in a moment—and the requirement for public bodies, including local authorities, to use Contracts Finder, which is a national procurement portal.
We are developing a standard pre-qualification questionnaire—for contracts that are above the EU threshold, I stress—and councils will be encouraged to use that. The aim is to ensure that businesses no longer have to complete the countless different versions that currently exist. That will make it easier for small businesses and voluntary organisations to bid for contracts and increase collaboration across authorities.
I noted the hon. Gentleman’s comments and the Select Committee’s points on pre-qualification questionnaires. I can understand why local authorities like them, but if we want to get more small businesses involved, I think the risk of having more tendering is a good risk and one that could actually be to the benefit of local authorities. If they want to reduce that risk, they can do that by getting their tender documentation right in the first place.
Mr Betts
Clearly, this is one of the few areas of specific disagreement. We picked up from small businesses that if suddenly they found that they were putting a tender in along with 20 other organisations, 19 of them would be wasting their time. As long as it is a standardised and simple pre-qualification questionnaire to thin out the number that will tender, it could be greatly to the advantage of small businesses in particular and reduce their costs overall.
Brandon Lewis
Of course, if councils are giving an up-front line on their procurement process, that gives companies more time to plan and, particularly for small businesses, allows them to decide whether it is right for them to tender and whether they want to do so. However, most small businesses also tender for business in the private sector, where they will be used to being involved in competitive tendering for work that they want and going up against anything from one to a countless number of competitors. That is how the market works. From my experience of working in and talking to businesses—small, medium and large, but small businesses in particular—I know that another piece of paper from an authority that they have to fill in before they even start to tender is just another layer of bureaucracy, red tape and paper that they do not want.
We have been providing support for councils by encouraging them to use Contracts Finder now rather than waiting for its use to become mandatory. We have pointed out the benefits that it can bring for both procurers and suppliers, because it opens up procurement opportunities and makes them transparent. We have been encouraging councils to start using the current simplified pre-qualification questionnaire for contracts that are, I stress again, over the EU threshold. The hon. Member for City of Durham made a good point about the myths that exist about what can be done in a whole range of areas that local authorities deal with. I will come back to that.
We have been encouraging the improvement of commissioning skills among local authority employees—a very important issue—by offering access to the commissioning academy. We have been sharing expertise by offering access to courses and learning tools provided by the Crown Commercial Service. We are providing £16.5 million of funding over two years to change behaviour and perception in respect of tackling fraud in local authorities, including in local government procurement, regardless of how small it may be. We should bear in mind the fact that overall fraud and error in local government costs more than £2 billion, but that does not necessarily involve procurement. However, it is still an important matter, and we need to ensure that we are on top of it. We are providing guidance on social value considerations and the pre-procurement market engagement process.
Following the success of last year’s transformation challenge award, which was hugely oversubscribed, we have launched another one for 2014 to 2016, and £320 million will be available over that period. The aim of the award is to encourage and reward local authorities that are able significantly to improve their services so that they better meet the needs of local residents. That can include making improvements to and transforming how services are commissioned and procured through greater sharing and efficiency, such as integrated commissioning in shared financial planning, testing new tools and pooling budgets. There can also be joint procurement of things such as ICT, and services can be extended to nearby local authorities. In addition, we have been working with the Local Government Association on its draft national procurement strategy and supporting the Chief Fire Officers Association’s national procurement group in developing a national procurement strategy.
However, the central Government cannot deliver better local procurement ourselves, nor should we try to. That can only lead to more red tape, bureaucracy and top-down control, which no one in local government or the small business sector wants. What we can do and should aim to do is to create the right conditions for it by eliminating unnecessary red tape and removing barriers to local innovation. As the Select Committee recognised, it is then for local authorities themselves to take the initiative.
We do see examples of good practice throughout the country. We have time, so I will place on record some good examples that we know exist. Halton borough council has abolished pre-qualification questionnaires for all its contracts below the EU threshold. In Norfolk, my home county, the county council no longer uses them for contracts under £100,000, and a number of other local councils do not use them for low-value contracts. Oxford city council had the idea of running a programme of workshops specifically targeted at small and medium-sized enterprises. That is about helping them on how to tender for business. Herefordshire council has a programme of opportunities and events for current and potential suppliers, which it developed as a way of informing, and maintaining strong relationships with the local supply market.
A number of local authorities have developed local procurement hubs, such as Supply Hertfordshire, Procurement Lincolnshire and the East Sussex procurement hub. Those hubs cover large areas. There are also hubs that cover even larger areas, such as The Chest, which covers much of the north-west. Across the country, there are also a number of multi-authority purchasing and public buying organisations, such as the Yorkshire Purchasing Organisation, which has already helped North Yorkshire county council make savings of about a third of a million pounds by buying social care equipment to help people with daily living. That was done through the organisation’s assistive technology contract. The Central Buying Consortium can also help councils deliver savings. For example, the royal borough of Kingston upon Thames, which I visited today, achieved 26% total cost savings on a £32 million project to expand its primary schools by using a public buying organisation. That was a substantial saving for that community.
However, despite the examples of good practice, too many local authorities still have a long way to go. They need to go further in saving money and doing more for less through better procurement. Councils need to adopt a strategic approach to their procurement and use their collective buying power to best effect. They need to ensure that their procurement officers have the necessary skills and that they take advantage of the learning opportunities and tools that are available to them. They also need to find ways of sharing best practice around local government. That is a role not just for councils, working with their partners, but for the Local Government Association.
All too often small firms are locked out of local government contracts, or at least perceive and believe that they are, by councils adopting over-complicated procurement processes. Councils need to be sure that they are doing everything they can to remove those barriers. I always say to councillors, and I will say it again on the record today, that if officers are quoting to them regulations, guidance or EU bureaucracy that is getting in the way, they need to ensure that that is correct. Let us bust those myths. Let us ensure that councillors are challenging the officers and getting to see what is in the way to make sure that it is real rather than perceived. That will mean that we can start to open things up even more.
There are many simple things that councils can do to improve their procurement practices. For example, in addition to abolishing unnecessary requirements to complete a pre-qualification questionnaire for contracts below the EU threshold and publishing all their tenders and contracts online, they should build up a supplier network and engage with suppliers.
That is related to one of the myths that I would like to bust and be clear about. EU procurement rules apply only once a council has made a decision to procure goods and services. Early engagement with suppliers can mean that innovation and co-design are built in from the outset, leading to better services. Creating and publishing a future pipeline of commercial activity so that suppliers can plan ahead is another positive step that councils can take. They can publish details of contracts that have been awarded so that contractors can not only see what has happened before, in order to get an idea of what will be expected of them in the future, but view subcontracting opportunities.
Councils can ensure that they have robust procedures in place to tackle fraud. We need to ensure that we keep fraud low and aim to drive it to zero. An important point, which relates to one that the hon. Member for City of Durham made, is that they can stop gold-plating on equalities. Equalities impact assessments are not, and never have been, a legal requirement. Officers can use their judgment to pay due regard to equality without resorting to time-consuming, often bureaucratic tick-box exercises at the end of a decision-making process—the very thing that can put people off. Councils can break contracts up into smaller lots to open up procurement by bringing in more competition on price and attracting some of the smaller firms that prefer to go for smaller contracts.
Better procurement, the sharing of senior management teams, service transformation, asset rationalisation and the driving of local economic growth all contribute to the overall improvement in local government productivity. Some councils—I have given just a few examples, but there are many more—have already made considerable progress in improving their procurement processes, making it much easier for businesses to bid effectively for contracts. However, I am not yet convinced that all local authorities have made the necessary changes, although I am confident, based on its approach to the Select Committee report, that the Local Government Association and its national procurement strategy can play an important part in helping driving forward the changes. Nationally, we need to keep talking about it in order to motivate and encourage local authorities, but it is vital to remember that it is for local authorities to deliver.
Mr Betts
I will take a couple of minutes to summarise this constructive, well-informed debate, in which agreement has generally been found across the parties and between the Select Committee and both Front Benches. That should be welcomed. I think that we have all ultimately agreed that this is a matter for local councils, and that it is for local government in general, and the Local Government Association in particular, to help councils that are not up to the same level of procurement practice as their counterparts that are delivering a first-class service to learn from that best practice and emulate it. I am sure the Select Committee will want to return to the issue in future to monitor and assess whether the improvements that we think can be made have been made.
I have one slight worry about a disagreement that I had not expected. On behalf of the Select Committee, I identified £45 billion in local government procurement. To show that I was paying close attention to what the two Front-Bench spokespeople said, I think my hon. Friend the Member for City of Durham (Roberta Blackman-Woods) put the figure at £50 billion, while the Minister set it at £57 billion. If we had had more speakers, we might have seen an exponential growth in local authority procurement. Clearly, there is a difference in how we evaluate it. We may want to clear that up at some point in future.
Finally, I am sure that it is appropriate for me, on behalf of the whole Committee, to thank Sarah Coe, our second Clerk, who was the lead officer in helping us produce this report. We very much appreciated her excellent support, which was instrumental in helping us get to the end result. I also thank Colin Cram, our specialist adviser, who was extremely helpful as well.
Hugh Bayley (in the Chair)
Thank you all for an interesting debate.
Question put and agreed to.