Procurement Bill [HL]

Baroness McIntosh of Pickering Excerpts

Committee stage
Wednesday 26th October 2022 Grand Committee

[Lord Scriven (LD)]

My Lords, as I was saying before I was so rudely interrupted by the Division Bell, the concept of Amendment 272 is to ensure that the KPIs support in more detail the public benefit test. There will be economic, social and environmental factors that provide sustainable local improvement. The reason for this is that many times when a provider goes in and provides a service—I speak as a former leader of a council and I have seen it in some of the work I do in public sector reform—the public good that happens, whether it be social or environmental, lasts only while that provider is there: that is, the jobs are dependent on that provider providing that service, or are adjacent to or an adjunct to the work it is providing. This amendment tries to ensure that when public sector contracting authorities are writing their KPIs, they have a view that they should be economic, social or environmental but also sustainable—that is, when the contract ends or the contractor leaves, the things it has put in place are sustainable, rather than being for just a limited period. That is reason behind Amendment 272.

I shall take a little time to speak to Amendment 353AA in the name of the noble Baroness, Lady Hayman of Ullock, to which my noble friend Lord Fox has added his name, which is about the public sector interest test being applied when a service is at present provided by a public sector body and is being outsourced. I want to be clear that this amendment does not stop outsourcing. I do not subscribe to the view that public is good and private is bad, or vice versa. In a mixed market you can get good and bad in both providers. This amendment stops the sometimes very narrow view of public sector contracting authorities that they will outsource without thinking about the wider implications for citizens and the economy of the area.

Let us look at some of the issues in this amendment. Paragraph (c) of subsection (2) of the proposed new clause refers to

“implications for other public services and public sector budgets”.

I have seen outsourcing in social services that has no assessment of what it will mean for working with the NHS. A contract that is purely for one part of what the citizen goes through could fragment the citizen journey or the service.

The other issue is the effect on employment conditions. If, for example, the contract is on lowest price, particularly in a deprived area, it could have the disastrous result, which I have seen, of reducing wage rates, which works against the wider public benefit of increasing prosperity and having better jobs in the area.

While the amendment would not preclude outsourcing, it is important for the wider public benefit test and for ensuring that services, which in many cases join up with another part of the organisation or a different organisation, think through the implications for that service and the citizen’s journey through the service being provided, whether by a public provider or private provider, if part of it is going to be outsourced. I therefore commend this amendment, which, if accepted, would not preclude outsourcing. It would simply get public sector bodies to think more widely about why outsourcing needs to take place.

[Baroness McIntosh of Pickering (Con)]

My Lords, Amendments 370ZA and 370ZB are tabled my name and I thank the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Coaker, for their support which is much appreciated.

The thinking behind these amendments relates to the plight of the wholesale sector, which supplies food and drink to critical public service infrastructure on which we all depend, including schools, hospitals and care homes. According to the briefing I have received from the Federation of Wholesale Distributors, wholesalers are struggling to fulfil these contracts due to unfavourable contractual terms, which are resulting in these businesses making significant losses. That does not bode well for the future viability of the sector. They are facing rising costs and food inflation, which we know has hit 15.1% as of August 2022— this week it looked as though it could be higher still. It leaves the wholesalers unable to negotiate any price increases; or the smaller price increases they have negotiated on certain contracts have been well below inflation. This is an unsustainable circumstance going forward.

Given the situation where price reviews occur only every six months or, in some cases, only once a year, this gives wholesalers very little room for manoeuvre to negotiate price increases. This means that wholesalers are not making a profit on the product and service they provide to their customers. This is affecting the quality of the products they are able to serve to children and the most vulnerable, and the viability of providing catering services in the long term. They would argue that the quality of catering services is of paramount importance, as we have seen with Jamie Oliver’s campaign in hospitals and during the pandemic.

I support the fact that the Government’s food strategy is seeking to drive up standards of public sector food by requiring caterers to use more organic and locally sourced foods. This is not sustainable, however, without funding that matches inflation—it is just not viable going forward. In the federation’s view, small and medium-sized enterprises will be the most affected of all businesses. Without quarterly price reviews, the trend will continue towards market consolidation and homogenisation, driving standardisation not the localisation of publicly produced foods.

I expressed my disappointment previously that the public procurement contracts we signed up to under the European Union conditions have been replaced by the GPA; this is something we need to look at on an ongoing basis. Of course, it is right that the Procurement Bill aims effectively to open up public procurement to new entrants such as small businesses and social enterprises, so that they can compete for and win more public contracts. It is just the case that SMEs are more acutely affected by price increases. They are smaller in scale, less resilient and need to pass the increases on in real time. They do not have the capacity to absorb those increases and, as such, are more vulnerable to these pressures if price increases are not passed on. We can therefore envisage a situation where SMEs are either closing down or being sold to larger national conglomerates. If these conditions continue, the sector believes that this will undo competition and the diverse market that brings a number of benefits to the public sector.

To ensure that the targets in the Procurement Bill are met, to encourage more SMEs to supply contracts and to ensure the continued supply of public sector food—which I think the Committee would sign up to—I ask my noble friend the Minister to consider publishing guidance to instate quarterly price reviews to allow contract price increases more regularly than once a year or every six months, and only if a certain threshold is met—for example, inflation over 5%. This is what I have set out in Amendment 370ZA to Clause 69 and in Amendment 370B to Schedule 8, regarding a review when inflation is 5% or more.

The quarterly price reviews would allow contract price increases more regularly, as I have stated, than either once a year or once every six months, if the threshold is met. I propose that that threshold should be over 5%. I remind the Committee that we have seen record increases in the price of staple goods such as milk, dairy, bread and even pasta, and some of the cheaper products that these public sector wholesalers would seek to provide in the context of the contracts we are discussing this afternoon.

I put on record that public sector caterers are struggling to meet the food standards, being forced to reduce portion sizes and using less UK-grown and produced product, which is against both my better judgment and the Government’s aims. I would like to see the quality of the food used to service public sector contracts improve, under the amendments I have spoken to. Without these amendments, standards will continue to decline to mitigate the rising costs if the Government do not step in to support the industry. A number of wholesalers rely on profitable contracts subsidising loss-making contracts at the moment. However, with the ever-decreasing level of profitable contracts, the balance is tipping towards overall loss-making, which is unsustainable in the long term.

Other advantages of these amendments are that they would enable meeting the government targets which would otherwise not be met in the current climate, and would enable those in this sector to bid for more contracts, which would impact the supply of food and drink to public service infrastructure. Some 95% of wholesalers have said that the current climate and rising costs mean they are unlikely to bid for new contracts, especially ones with unfavourable terms, such as the long pricing review.

I ask my noble friend to respond to these issues to help SMEs and secure more bids for future contracts, in particular by a three-monthly review and a 5% review of inflation. The level of food inflation is pushing up the level of inflation across the piece. We are woefully short on food self-sufficiency, particularly fruit and vegetables. I hold the Minister’s feet to the fire, because we heard from her colleague the Minister for Agriculture in this place, my noble friend Lord Benyon, that the Government are seeking to do something to help produce more fruit and vegetables locally, even to increase production such that we can export. Nowhere is that more important than in the delivery of public sector contracts.

I really regret that we are going backwards, having left the European Union, and are relying on more imported and more expensive food. We should be sourcing more food, whether it is meat, bread or dairy—milk and butter—as all these staples have been hugely impacted by inflation. I urge my noble friend to look favourably on these two amendments.

[Lord Mendelsohn (Lab)]

My Lords, this is my first opportunity to welcome the Minister back to her place and to say what a pleasure it is to see her here. We who have experienced time with her have always been impressed by her courtesy and the seriousness with which she takes these deliberations. I am returning to a theme we first discussed during the Small Business, Enterprise and Employment Bill in 2014. As they say, some songs are so good, they may be old but are worth repeating. I hope she will forgive me for coming back to some of the issues we had then, of which, during her time on the Back Benches, she has been a doughty supporter. I am conscious that there is an awful lot to respond to in this group of varying themes. I look forward to seeing her do so with aplomb.

When I saw the amendments tabled here, I had a moment of undiluted joy when I noticed that Amendment 356A in my name suddenly had the addition of “g” before it. I initially thought that, in the chaos of the last few months, I had been called into government service unbeknown to me and without the benefit of a phone call. Having realised that that was probably not the case, I then thought that I had won the lottery—that, for once, one of my amendments was so good that the Government had finally adopted it and were prepared to champion it. Of course, it is a printing error.

I return to some of the things we talked about before, such as how we can align this Bill with the Prompt Payment Code and the Late Payment of Commercial Debts Regulations, for example. Genuine progress has been made in trying to deal with the curse of late payments, which affects small, medium and even large businesses, to try to improve their payment terms and to make sure that the Government play their part where they can, both as an agency of regulation and a procurer.

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[Baroness Neville-Rolfe (Con)]

I thank my noble friend for her intervention. I agree that we need to try to get at the issue of the balance of power; indeed, we were discussing it at my briefing meeting. I think it may be worth having a further discussion with the Government Office for Technology Transfer, because it needs to understand the importance of these small companies to innovation and how the kinds of decisions that they make on rights and intellectual property can make an important difference. I am grateful to her for raising that further point.

[Baroness McIntosh of Pickering (Con)]

I listened very carefully to what the Minister said to our noble friend and to her response to my two little amendments. I am struggling to understand how she believes that Amendments 370ZA and 370B would transfer cost to the public sector. I know from her time on the Back Benches how much my noble friend likes impact assessments, so I refer to page 44 of the impact assessment, which states strongly that this is to encourage SMEs. I hoped that I had made the case—as did a number of others, including my noble friend Lady Noakes—for how SMEs should be benefiting from this, but, in two specific areas that I set out, SMEs are actually being handicapped by the current provisions under the Bill.

[Baroness Neville-Rolfe (Con)]

I will certainly look carefully at Hansard. I think my noble friend was basically talking about an inflation adjustment.

[Baroness McIntosh of Pickering (Con)]

Five per cent, plus the three-month review.

[Baroness Neville-Rolfe (Con)]

And a three-month review. The point about inflation is that if you build it in—this is a wider economic point—and then it goes up further, you can get an inflationary spiral. We have to try to find a way for people to come together and think about how we can best handle that, and I think the current system does that well. That is certainly my own experience, having been involved in procurement on both sides of the divide.

You can write in three-monthly reviews, but the difficulty is that this is an all-embracing Act and putting that into the Bill could lead to a lot of extra meetings and reviews that might not fit in with simplicity. But obviously this is Committee and we will be reflecting further on the right thing to do. I thank my noble friend for, as always, pursuing her point with such clarity and doggedness.

Finally, this is not in my script but I would like to confirm that I and the team are looking back at the undertakings made on earlier days in Committee to make sure that balls are not dropped. I confirm that we will be arranging meetings on the SME angle, even though I am not able to champion them. I have already had a round table with SMEs and the official team to see what can be done. I do not want to overpromise, but we want to do our best. I respectfully request that the various non-government amendments be respectively withdrawn or not moved.

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[Lord Purvis of Tweed (LD)]

My Lords, I support the noble Lord’s endeavours. He and I have debated with Ministers on many occasions the interaction between the CRaG process, our international negotiations and the regrettable times when there has been, to some extent, circumvention of that approach. Therefore, I am glad he has put forward his amendment to seek clarification, as he outlined.

I have Amendment 441 in this group, which is a probing amendment to test a little further the Government’s thinking about the interaction with treaty state suppliers. It is my understanding that the countries in the schedule are only those with which we have an agreement where there is a procurement chapter or some procurement elements. It has not entirely been spelt out; I will be grateful if the Minister can confirm that this is the case.

When I looked through those countries, I noticed that there is not a single country from Africa in any of these arrangements. It may be that none of the EPAs we have rolled over have procurement chapters. The noble Lord, Lord Lansley, asked a question, and I ask the Minister whether that is the case. For example, in the SADC agreement, we have a chapter for co-operation which may lead to formal procurement agreements. I will be grateful if the Minister can simply clarify the reasons why those countries are in Schedule 9 and others were left out. It may lead to a couple of jarring interactions on the approach, but I am sure the Minister will be able to clarify that point.

My second question relates to our debates on the interaction between the UK system now, including guidance, and treaty state supplying nations. In a debate on Monday, I asked questions relating to exclusions. For example, on human trafficking and slave labour, why is it only a discretionary ground if a supplier would have met a threshold of having a prevention order, whereas if they had met the threshold of a conviction, it would be a mandatory exclusion ground? We in the All-Party Group on Human Trafficking and Modern Slavey have lobbied hard to ensure that, where there are serious allegations of modern slavery, forced labour or human trafficking, there are mechanisms that UK purchasing bodies and supply chains can automatically trigger. This could bring in some grey areas. I do not believe that is the Government’s intention, but it could be an unintended consequence, especially when it comes to very large frameworks and supply chains within those countries.

I will give an example regarding one of the countries in this list, Colombia. We have debated the human rights situation in Colombia with regard to the agreement we have signed. The EU paused the agreement, but the UK did not. There are very few mechanisms in this Bill where we can use the rest of the text of the Colombia agreement on human rights as a triggering mechanism when we procure from organisations or state enterprises in Colombia.

This is just my ignorance, so the Minister might be able to clarify this: are state-owned enterprises in treaty state countries treated the same as private sector companies? I assume they would be, but it opens up a different area of concern for me.

The second linked area is on human rights elements. We have an agreement, and are looking for future agreements, with Israel. The Minister will know that, under the European agreement that we have rolled over, there had been a clear dividing line when it came to the illegal occupation of Palestine. As I understand the Bill, when it comes to technology companies or other companies, it will be very hard for contracting bodies in the UK to consider whether services provided will meet the equivalent criteria for goods imports for those within the Occupied Territories. I would be happy if the Minister would write to me on that specifically, rather than give me a response at this moment.

There is a wider concern regarding this Bill when it comes to how a contracting authority would consider fair competition in procurement. On the Australia agreement, we debated whether produce that came from Australia that was manufactured or reared in different ways and on industrial scales provided unfair competition for UK suppliers. Australia also uses pesticides that are banned in the UK. There is an interesting clause in the Australia agreement that allows for those contracting bodies to

“take into account environmental, social and labour considerations throughout the procurement procedure”.

My amendment lifts text from the Australia agreement and suggests that this should be uniform across all agreements, if that is what the Government consider a gold-standard agreement, as they told us it was. The Australia agreement is broadly in line with what we inherited in the European directive, which had the requirement to take into account social criteria and environmental and labour factors. We have adopted that for the TCA, but it is absent for other treaty state suppliers.

For example, our agreement with Japan has no social or labour considerations in the procurement chapter in Article 10.9. I do not know why—that is a separate issue; we have debated the Japan agreement—but I have not been able to find any consistency in any of the treaty state suppliers. I understand that this Bill will then provide that consistency, and it will either be above or below treaty obligations, which I find curious. For example, unless my amendment is accepted by the Government and the Bill is changed, our legal requirements will be less than our treaty obligations in our Australia agreement. I do not know how that is going to operate when it comes to legal challenges.

It is also potentially the case that there will be inconsistency in application. I simply do not know how contracting bodies are going to navigate their way around this, especially as the Minister says so much is going to rely on guidance. In many of the areas, when it comes to the previous group that we were debating on conflict of interest and on other requirements in the Bill, a contracting authority will have to satisfy itself that the treaty supplier meets all of the criteria in this Bill. I do not know how it will do that when it comes to taking into consideration the other ethical factors or conflicts of interest—what are they going to ask a treaty supplier from Colombia, for example, unless there is some stronger mechanism?

The Minister might also help me with something that has been puzzling me. I do not know why, when it comes to operating no discrimination in relation to treaty state suppliers, that does not apply to Scotland. For Scotland, the Bill provides only that there “may” be regulations which mean that there cannot be discrimination. With the Government’s amendment requiring consistency with the United Kingdom Internal Market Act, which means that there cannot be any internal discrimination, I do not how that is going to interact. The Bill currently allows Scottish Ministers, for example, to say that they will be able to discriminate against certain treaty state suppliers on the basis, perhaps, of the overall human rights record of that treaty state—of which Colombia or Israel may be an example. I do not know, so I am hoping that the Minister might be able to help me with that.

Finally, I am not sure how investigations will be carried out when it comes to treaty state suppliers. Of all the areas we discussed previously regarding the grounds for the investigations by the PRU, which the Minister said will be a non-statutory element that will pursue these, I do not know what powers the PRU will have to secure information from treaty state suppliers. There is no mechanism under this Bill, and unless the provision of information is provided for, as happened in the Australia agreement, I do not know how the PRU will get that information. On all those areas, I hope the Minister will be able to reassure me, because at the moment I am fearful that there is a rather high level of opaqueness.

[Baroness McIntosh of Pickering (Con)]

My Lords, I will speak to Amendment 443A, in my name, to Clause 83. The amendment is, very simply, to leave out

“A Minister of the Crown”,


and its purpose is to remove the power from Ministers of the Crown to make regulations under Clause 83. It may be the case, because this relates especially to the situation in Scotland, that my noble friend the Minister is not able to reply this evening, so I would be very grateful if she could write to me, and I can then share that with the Law Society of Scotland, which has raised this matter with me.