Procurement Bill [HL]

Lord Mendelsohn Excerpts

Committee stage
Monday 18th July 2022 Grand Committee

[Lord Aberdare (CB)]

My Lords, I added my name to Amendment 445, tabled by the noble Lord, Lord Hunt, and I shall make a couple of points in addition to what he has said.

Clause 84 requires pipeline notices to be published where the contracting authority expects to pay more than £100 million under relevant contracts in the coming financial year. However, this will be required only for contracts with an estimated value of more than £2 million. This threshold will do very little to improve transparency or, indeed, preparedness and competitiveness for SMEs and charities. According to research by the Federation of Small Businesses, over the past three years almost half—48%—of public sector contracts applied for by SMEs were worth below £25,000 and nine in 10, or 89%, were worth below £100,000.

My second point is that the amendment merely requires contracting authorities to consider publishing a pipeline notice where this would be likely to enable a wider range of providers to participate, thus improving the quality and value for money of services tendered. This would surely be a useful, if relatively mild, way of promoting greater awareness of the importance of engaging more small businesses, charities and social enterprise in public contracts. It deserves support.

[Lord Mendelsohn (Lab)]

My Lords, I rise to support Amendment 445, which I was also pleased to sign. The noble Lord, Lord Hunt, made a very good case for why it would be so useful for charities and the noble Lord, Lord Aberdare, extended that. I wish to extend it further to reinforce the point that the importance of the pipeline notice is that it provides guidance for the authorities to take a risk that, in a sense, goes slightly beyond the principle that no one got fired for choosing IBM. If we are trying to get the best service, we must look for the right opportunities and the right people, not just in the context of charities, or even small businesses. Those especially penalised are microbusinesses, freelancers or even start-ups in the commercial sector, not-for-profits and social enterprises. All are massively disadvantaged by tendering for any contract. Many have more than enough skill to be able to do it, and many of the people who provide the backbone for those areas are people who accomplished it very comfortably in larger companies. The effective use of pipeline notices is a strong signal that the Government expect all contracting authorities to make a judgment that will help all those sorts of businesses and those people who can provide excellent and outstanding service. They deserve the opportunity to do so.

[Lord Berkeley (Lab)]

My Lords, I shall speak to Amendment 449A tabled in my name and that of the noble Lord, Lord Clement-Jones. I support the two amendments to which my noble friend Lord Hunt of Kings Heath has just spoken. Amendment 449A covers much the same ground as his Amendment 449, but it probably goes a bit further in arguing for the need for transparency. It relates to public service contractors and where information about them should be available under FoI.

The Bill’s disclosure provisions are very limited in comparison with what would be available under FoI. Authorities responsible for contracts worth over £200 million would be required to set and publish key performance indicators, but they do not give the same information, there is a delay of probably up to one year in them and they do not help members of the public and others who might be interested in getting the information.

The amendment sets out that the FoI Act should be extended to cover information held by public sector contractors about these contracts. At present, it allows access to such information only if it is held on behalf of the commissioning authority, which normally applies only where the contract specifically entitles the authority to obtain particular information from the contractor. Where it does not, the information held by the contractor is outside the scope of FoI provisions.

There are many examples of this. Some of those cited by my noble friend probably also apply here but I shall mention one or two others. The first is a report on potential fire safety defects at Hereford County Hospital, constructed and managed under a PFI scheme by Mercia Healthcare Ltd under an agreement with the NHS trust. The report was commissioned by Mercia Healthcare from the now-defunct contractor Carillion, which was still operating at the time. The request to the trust for information about this was refused on the grounds that the report was not held by or on behalf of the trust. There are many such examples. I could explain at length some of the contracts that HS2 has got into; I shall not, but the same comments apply. There is a complete lack of transparency about information on that.

The extension to cover information held by contractors about contracts with public authorities has been supported by the Information Commissioner, the Public Accounts Committee, the Public Administration and Constitutional Affairs Committee, the Justice Committee, the Committee on Standards in Public Life, the Independent Commission on Freedom of Information, set up by the Government to review the FoI Act in 2015, and the Institute for Government. There are many other examples from around the world where transparency is thought necessary and desirable. I believe the UK FoI provisions should be extended to allow access to such information via a request to the public authority responsible for the contract.

While I am on my feet and while we are talking about transparency, I should like to ask the Minister about a Written Statement giving guidance to Ministers participating in government commercial activity. It comes from the Minister for Brexit Opportunities and Government Efficiency and says that the Bill we are discussing

“creates a simpler and more flexible commercial system that better meets our country’s needs while remaining compliant with our international obligations. Ministers have the opportunity to participate fully in this system with certain safeguards to protect them from the risk of legal challenge.”—[Official Report, Commons, 15/7/22; col. 17WS.]

I could add that it does not protect the taxpayer and does not seem to protect anybody from the Minister making lots of money out of NHS contracts, as we have heard. It is odd that this Statement has come out in the middle of our deliberations on this Bill. Could the Minister explain when we can see the guidance—I have asked the Library and it does not have it yet—and how it fits in with the Bill we are discussing?

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Moved by

[Lord Mendelsohn]

174: Clause 30, page 19, line 16, at end insert—
“(d) a supplier is not a signatory of good standing on the Prompt Payment Code.”Member’s explanatory statement
This amendment would strengthen requirements of good practice and simplify checking processes for all contracts either under this Act or in the open market.

[Lord Mendelsohn (Lab)]

My Lords, I think the phrase in a situation like that is “follow that”; that was an impressive performance by the chair.

In moving Amendment 174, I will speak to Amendment 317 in this rather interesting little group. The amendments I propose relate to the Prompt Payment Code. Amendment 174 aims to ensure that suppliers are signatories to the code and of good standing; and to ensure their exclusion in government procurement if they are not of good standing, not signatories to the code or have been subject to an investigation and not done the right thing having been found wanting.

I suggest these amendments for three reasons. First, the Prompt Payment Code offers a public and obvious ease of reference for any public authority or anyone involved in public procurement, even just checking the process. The real value of what the Government have done in increasing its resourcing and housing it with the Small Business Commissioner is that it makes it much easier to use it as a reference point. Making sure that you have something clear, public, available and transparent is of great use.

Secondly, it is worth acknowledging that the Government have taken steps to try to encourage a more effective Prompt Payment Code by creating a series of initiatives that came into force this year to encourage much stronger compliance with good payment terms. We do not talk just about late payments, of course, because there has been a greater imposition of long payment terms; the Prompt Payment Code has reduced those. Also, it starts to help clarify the problems that are now being felt by many where either an agreed contract is delayed or payments are reduced post hoc, with only one side making that conclusion using the asymmetries of power.

Those initiatives on the Prompt Payment Code have been welcome. In September 2019, the Government made an announcement about the importance of how people pay for government contracts, including how they must pay within the right payment terms and on the right timescale. It is useful that all these initiatives are brought together quite nicely—as I say, they are publicly available—through the code so that we have one reference point.

However, it is important to start introducing these measures together because all of them constantly need strengthening. The Government’s attempt to use their new code to make sure that suppliers cascade the money to all the people who are due has faced difficulties because master contracts are now used so that the main supplier to the Government can say that it discharged its duty easily while all the other payments are held up by people who pay the next layer. Those dates have then been massively extended, as we have seen.

Indeed, it is not as if the Prompt Payment Code is immune to certain problems. For that reason, it is important that the Government show their full commitment to it and use it most effectively to encourage those are not doing the right thing on payment terms. The members of the Prompt Payment Code pay better but the difference between them and those who are not members is widening, although the code has a huge advantage. It is also clear that what was hoped—that the code would be some sort of cultural change or even encourage people to do more of the right thing—is not happening. We are starting to see that the Prompt Payment Code is something that companies find easy to evade. The idea of naming and shaming does not seem to have much significance.

I say this because we have seen a series of substantial, prodigious suppliers to government walk out on the Prompt Payment Code. They include some of Britain’s biggest companies. Tesco left because the code’s definition of a small business did not correspond to how it viewed a small supplier. Recently, in only the past few months, two of the top five Britain-based listed companies—that is, two of our largest companies by market capitalisation—have left the code: Unilever and Diageo. The culture of compliance is not there. We must reinforce the mechanisms that we use to ensure that, across the chain, prompt payment and good payment terms are properly enforced.

We now know the costs of this. We have always talked about the costs and consequences, about the number of businesses that are at stress, but we also now know the benefits. The recent report from the Centre for Economics and Business Research—Cebr—said that, if invoices were paid as they were presented, small businesses would increase their turnover by £40 billion to £60 billion. That shows, as always, the importance of the velocity of cash.

If the Government can play an enhanced role in making sure that payment terms are done properly across any procurement in the public sector, and can encourage the private sector in all of its transactions to do the right thing, this will be extremely useful. Bringing the Prompt Payment Code into the canon of law for public procurement will be a very important and useful step in that regard.

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[Lord Mendelsohn (Lab)]

My Lords, that was the very definition of a wide-ranging debate. I do not want to delay the Committee for too long, but I must just say that I appreciate the difficult hand that the Minister is having to play at this stage. I reflect on the fact that I have been in this House for just over eight years, and during that time, there is not a single piece of legislation I have been involved with that has been delivered with the intention that the Ministers wanted. All have failed for one reason or the other, and all are coming up for some form of revision at different points. It seems to me that yet again we have a problem in drafting and delivery that will bedevil this Bill as it goes on.

I also have to say that I do not really think it is that radical a Bill. As the chairman of a public limited company, I think that the Government, who have been pressing the corporate sector to take ESG and other matters more seriously, have been leap-frogged by the private sector and are quite behind. There can be a better process in thinking this through to delivery—one that either takes a different form of comply or explain, or other sorts of things—but the Bill is starting to get to the point where it does not really address the issues or create good behaviour. In the end, we are going to end up with an overreliance on decisions made by people who I suspect have not really seen how these things work in real life. So, while I beg leave to withdraw my amendment, I think it is important to understand that over time we may live to regret quite a few of the provisions we have put in this Bill.

Amendment 174 withdrawn.