Local Government Procurement

Debate between Clive Betts and Bob Blackman

Thursday 13th March 2014 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab)]

(Select Committee Statement): I am delighted to present the sixth report from the Communities and Local Government Committee on local government procurement, HC 712. I thank the Backbench Business Committee for giving us this opportunity, as well as our special adviser, Colin Cram, and the second Clerk to the Committee, Sarah Coe, who led the work in producing the report.

Local government spends about a quarter of its annual expenditure—some £45 billion—on procuring goods and services. At a time of financial constraint in local government, my Committee thought it timely to examine how successfully councils across the country are delivering value for money and meeting wider objectives. I am pleased that we found evidence of much good progress in many local authorities. Councils are cutting costs and reducing the burdens on those doing business with them, strengthening links with the delivery of community objectives, improving risk management, and taking steps to reduce fraud. We also found, however, that evidence of progress was patchy across the country. That is extremely worrying given that councils face the challenges of managing increasingly complex procurement operations, while at the same time, for obvious reasons, they need to make cost savings and preserve the quality of services for their communities.

The Committee makes a number of recommendations in the report about how the sector and its partners, including central Government, can work together to ensure that councils step-up their efforts to commit to delivering first-class procurement. As in all our reports, the Committee takes a localist approach, giving councils the freedom to tailor their approaches to meet local needs—hence we urge the sector to take the lead in this matter. The Committee makes three overarching recommendations and a number of specific points. I will refer initially to the three overarching points.

First, local government needs to lead the change in partnership with central Government and other partners. We commend the work undertaken to date by many councils and the Local Government Association. We endorse the sector-led approach to supporting council action since it is an effective means of spreading good practice while tailoring procurement to local needs. Nevertheless, a step-change is now needed for successes to be replicated across the country, and for detailed support to be provided to tackle all complex aspects of procurement. We therefore conclude that the LGA, with the support of DCLG, should establish a taskforce with representatives of the private and third sectors to develop an action plan for improving council capacity to conduct effective procurement. We recommend that the Cabinet Office dedicate resources to ensure that lessons learned in central Government are translated into effective council action where appropriate, and vice versa.

Secondly, procurement excellence needs to be embedded across councils, not seen as the preserve of a handful of specialists. A lesson we learned during the Committee’s visit to my city of Sheffield, was that procurement should not be seen as a niche activity, conducted in back offices by a narrow set of specialists, but rather as a vital cross-cutting activity that requires in-depth skills from all staff involved in designing, commissioning and particularly managing services once contracts are let. To achieve that, councils must step up training, and the sector—especially the LGA—needs to ensure that procurement skills are embedded across councils. Investment in procurement skills should be seen as a wise investment now because it saves money in the future. Councils should look at adopting the toolkit developed by Sheffield city council, and the Cabinet Office should consider how the Government’s Commissioning Academy can help develop the skills of local government officers.

The third overarching recommendation is the need for political and officer leadership. Procurement improvement must be spearheaded by council cabinet members and front-line councillors, with the close involvement of senior officers. We commend the LGA for putting procurement at the top table within councils. We can see considerable advantage to councils identifying a lead cabinet member and a senior officer who will take overall responsibility for procurement. Councils should also ensure that front-line councillors have a clearly defined role in reviewing and scrutinising procurement, including outsourced contracts, and their impact on services for residents. In the end, that is what is important: services for residents.

We would like all councils to make an annual statement to their full council meetings to set out their strategy for incorporating economic, social and environmental value in procurement, including employment terms and conditions, impact on local economies and small businesses, and relationships between contractors, customers and the relevant councils.

In total, the Committee makes 29 specific recommendations. You will probably be pleased to hear, Madam Deputy Speaker, that I do not have time to go into all of them, but I will mention some key recommendations.

On value for money, councils have shown that they can save millions of pounds through joining up with each other and other public sector bodies, directly or via procurement organisations, to buy some goods and services. However, opportunities are not being taken fully and we estimate, conservatively, additional savings of approximately £1.8 billion could be achieved with better collaborative approaches. The LGA should review collaborative approaches and produce best practice guidance. It should continue to focus on supporting councils to collaborate in key spend areas—particularly in IT, energy and construction, where it is relatively easy for collaboration to save money—while recognising the importance of local freedoms and flexibilities. Securing savings should not come at the expense of delivering wider commissioning objectives, such as supporting local economies. There can be no compulsion to collaborate or to join a centralised procurement body. Councils must retain the flexibility to deliver local priorities, but should consider examples of good practice.

On delivering economic, social and environmental objectives, the Committee was clear that councils should exploit fully the potential of their procurement spend to deliver local strategic priorities, including social, economic and environmental objectives, by letting contracts, as appropriate locally, on the basis of best value, not simply lowest price. A case in point is support for small local businesses, which all local authorities are keen to support. Some 47% of council spend is currently channelled via small and medium-sized enterprises. There is clearly much good practice, but more could be done, for example by the LGA disseminating best practice and guidance.

On reducing costs to businesses, the cost to a business of a typical council procurement exercise can be about £40,000 to £50,000. A Centre for Economics and Business Research report published in July 2013 found that UK procurement processes were the most expensive in the EU and took some 53 days longer than average. Too many councils are applying EU regulations over-zealously. The Government and the LGA should spell out what is a proportionate approach. Pre-qualification questionnaires should be standardised, so that councils do not require a new form for every contract and potential suppliers do not find themselves having to fill in different forms for every local authority and every public body. There should be standardisation to reduce costs. Councils must include requirements in contracts that contractors stick to timetables for paying their subcontractors right down the supply chain, with spot checks on implementation. It is not acceptable for firms to delay payment, which puts smaller firms, in particular, at risk of cash-flow crises.

Outsourcing a contract does not mean outsourcing responsibility for ensuring quality and consistency of service to residents. It is therefore alarming that in the worst cases councils not only fail to monitor quality but bear the costs when a contractor fails to deliver its side of the contract. It is vital that councils are equipped to manage complex contracts. Greater voluntary collaborative work between regional procurement bodies can open up access to specialist procurement skills to help to tackle this problem.

On fraud, we found little hard evidence of significant fraud, but widespread unease that, as more services are put out to tender, local authorities are at much greater risk. Councils must not “let and forget” contracts, but proactively tackle fraud throughout the lifetime of a contract, not just during the tender phase. Contracts let by public bodies must be transparent and performance against them auditable. We support the Government’s commitment to open-book accounting. Councils should consider placing similar requirements on information provision by contractors as applied to a public body under freedom of information regulations to provide a level playing field. We heard that one of the best means of identifying fraud was whistleblowing. More needs to be done to support whistleblowers and the Government must publicise arrangements for an anonymous reporting channel.

The measures set out in our report will help to achieve a vision of better procurement and commissioning from local councils. We hope that the Government, local government sector leaders and individual councils will pay heed to our recommendations.

[Bob Blackman (Harrow East) (Con)]

I welcome the statement and the contribution we have all made to the report. Does the hon. Gentleman agree that we uncovered many examples of good practice, but that no authority is doing all those things? We desperately need to ensure that examples of good practice are followed by all local authorities, so that every resident benefits from the good practice of the best authorities.

[Mr Betts]

Absolutely. That was the theme right the way through the inquiry. There is a lot of good work out there and the best way to persuade local authorities to change is to show them another local authority that is doing things in a better way. That is why the LGA is key to delivering improvements; with many of our reports, that is probably not the case. We are looking to the LGA and the Department for Communities and Local Government to work together to set up a taskforce to bring examples of good practice together and disseminate them to councils up and down the country.

Local Government Finance

Debate between Clive Betts and Bob Blackman

Wednesday 8th February 2012 Commons Chamber

[Bob Blackman]

I thank the hon. Gentleman for raising that.

I shall come on to some of the issues that every local authority in the country should be examining. Are they using their procurement capability properly? Have they joined with other local authorities to procure services, such as adult social care, using their buying power instead of competing one on one for the private sector services that are available? Have they shared their services across the various councils that operate within their area? Very few local authorities have done that.

Have local authorities fundamentally restructured the services that they deliver, to eliminate multiple handling? The vast majority of councils handle a multitude of grant applications and applications for different services, yet that information is input for every single service, so we have a multiplicity of inputs coming from the most needy families. That means that we employ in local government far too many people to repeat the handling of those cases. Those services should be simplified so that the vulnerable in society supply their data only once and then benefit from whatever services the local authority provides. Has the local authority properly considered outsourcing its services? There are direct suppliers that can deliver those services, often at a fraction of the cost of the public sector.

[Mr Betts]

One of the problems with outsourcing that many councils find, including mine in Sheffield, is that when they have to make cuts to a contract that was agreed some years ago, the cost of changing it can be considerable, and they have less flexibility to adjust services under the new financial constraints than if they had employed people directly, in-house.

[Bob Blackman]

I thank the hon. Gentleman for that contribution. One of the necessary aspects of outsourcing is making sure that local authorities work on a partnership basis, rather than just by the letter of the law as set out in the contract. Far too many local authorities are not smart enough in the way they write procurement contracts to make them fit for purpose. By ensuring that contracts are demonstrated and written in the right sort of way, flexibility can be built in and services maintained.

Local Government Finance Bill

Debate between Clive Betts and Bob Blackman

Wednesday 18th January 2012 Commons Chamber

[Bob Blackman]

I take the hon. Gentleman’s point, but we have to consider cause and effect. I do not decry what the last Government instructed local authorities to do, but the key point is that it failed. The areas of deprivation then are still the areas of deprivation. This Government are trying to introduce a direct incentive to business growth and economic growth in those areas and right across the country. They are giving local authorities an opportunity to change their view and see the direct incentive to have economic growth. Local authorities will keep the money, which they can then invest in the local services that people need. That does not mean that there is not a need for national investment in local areas when infrastructure improvements and regeneration are needed, but that is very different from creating economic growth.

[Mr Betts]

There is a danger that we will get locked into a discussion in which we simply assume that the current system has always been in place. Prior to the poll tax local authorities kept all their business rates, yet since 1945 and probably before, the difference and disparities in deprivation have continued to grow. Local economies in different parts of the country have performed very differently, despite local authorities having had the incentive of business rate retention prior to the poll tax. The hon. Gentleman’s argument therefore lacks a little if it is taken beyond the particular complications of the current system.

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[Bob Blackman]

One of the key historical points is that local authorities used to set their own business rates, but then pressure from the House changed that situation for the simple reason that large local authorities saw the opportunity to milk businesses and set exorbitant rates, because business did not have a vote. They could then keep local tax low because they had increased business rates to milk businesses. That was why the national business rates were introduced.

I do not believe that there is an argument for changing the position so that local authorities determine the level of business rates, but there is a very strong argument, which the Government are advancing, for their retaining the money that is collected locally. I believe that the Government are being a bit timid in their approach, because I would like more money to be retained locally, possibly with a slightly less complex formula to make it more transparent. However, I recognise that the Government are taking the first step along the way.

[Mr Betts]

I intervene briefly on a factual point about what happened prior to the poll tax. Probably one of the reasons why it was brought in was the very large rate increases made by some authorities, such as the one in Sheffield of which I was a member at the time. It is not true that authorities sought to pile all the pain on businesses and keep their other taxes low. Actually, the domestic and non-domestic rates were linked and could be increased only in line with each other. It was not possible to increase one without increasing the other. Domestic ratepayers had a vote, of course, and in many cases were prepared to vote for large increases to protect services.

[Bob Blackman]

That, of course, is local democracy—if people want to pay higher taxes, they are welcome to do so. I am personally a great advocate of annual elections to local authorities instead of referendums, so that if councillors want to raise local taxes exorbitantly they will be voted out at the ballot box. I therefore take the hon. Gentleman’s point.

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[Bob Blackman]

That is exactly my second point. In large parts of the country, particularly in suburbia, there has been a gradual leakage of businesses, as business land—areas designated for business land and investment—have been turned over to housing. There is an incentive for local authorities to do that, because it increases the council tax base and makes it easier for local authorities to get new homes bonus money. It does, however, reduce the business rate income. At the moment, those local authorities suffer no penalty for doing that.

Under the new system, there can still be a leakage of land and employers. I am talking not about a catastrophic failure where one major employer closes down—that would obviously be a huge loss to the local authority—but a gradual process, over a number of years, under which industrial land has been turned over to housing, resulting in a leakage in business rate income. Has the Minister considered that point? How will it be looked at in the round? I raised the matter on Second Reading but so far we have not had an answer.

Finally, one thing that will be true in this brave new world is that there are risks associated with both the income and expenditure of local authorities. We know that there are huge numbers of demand-led services that every local authority must provide—they have been mentioned already: adult social care, children’s care, and so on—and I recognise that. It is also the case that income levels can sometimes be unpredictable. The more predictable they are, the better. However, there is the pooling approach. I wonder whether the Minister can say what directions will be given if certain local authorities just sit back and say, “We’re alright, Jack. We’re fine. We’ll just keep the money. We’re not going to pool our risk. We’re not going to pool our opportunity. We won’t co-operate with our neighbours.” That is an important point, which the hon. Member for Hyndburn (Graham Jones) raised. How will the Government direct local authorities to pool resources, in order to spread risk across a number of authorities?

[Mr Betts]

I want to speak about set-aside—the principle and the calculations—and, in particular, to draw attention to my amendments 44 and 45. This is the first opportunity that I have had during the Committee stage to talk about the new, simplified system of local government finance that the Government are proposing. [Interruption.] Is that a smile from the Minister? We have to have a laugh about the terminology, but it was the terminology that the Secretary of State used when introducing the consultation proposals. He called it a simplified system, but I do not think that anybody, even—