Government Procurement Policy

Lord Palmer of Childs Hill Excerpts

Thursday 24th November 2011 Lords Chamber

[Lord Palmer of Childs Hill]

My Lords, I, too, compliment the noble Lord, Lord Sugar, on securing this debate on government procurement policy. The trouble may be that there are a number of policies, most of which are not delivering what is required at the right price. I have seen this in local government, in defence procurement and in procurement in the construction industry—the industry which is supposed to contribute to leading us out of the recession.

The Strategic Defence and Security Review was published a year ago and said that it would fundamentally re-examine how the MoD was structured and managed. Nowhere is this more needed than in its procurement policies and their implementation. The MoD, in deciding its procurement policies, must have a clearer idea of what wars and battles it could be required to fight. There are large items of equipment in various war theatres, and we always end up with the difficult decision about what to do with the equipment at the end of the engagement. As an example of how not to do things, the building of two aircraft carriers which, it appears, no one knows what to do with—we do not have aircraft that can use them—is a prize example of poor procurement policy. The Member of Parliament for the area embracing one of the dockyards said:

“To rip up these contracts worth millions at this stage would not only be financial madness, but political suicide and I hope the coalition government sees sense”.

He is right, but because the previous Government made unbreakable contracts for ships that no one really wants, they will be built. Is that procurement policy or procurement madness? Our home-based defence industry complains, through its trade association, that the MoD has yet to define its indigenous capability requirements, which leaves the acquisition process unguided on what should be procured onshore, and industry with little on which to base investment plans.

The UK's requirement is for a continuously available critical mass of core skills in disciplines such as systems engineering, plus design and development engineering, that can rapidly be placed on a war footing. Assured off-shore access—which my noble friend Lord Lee describes as “buying off the shelf”—alone may be inappropriate for a number of reasons. It invites, as the noble Lord, Lord Sugar, said in another context, home-based inertia. It leads to the fading of skills. It jeopardises the need to maintain a critical mass in the support environment, and it could be subject to political restraints, legal challenges in other countries or third-party regulatory regimes which, together, cannot guarantee the necessary level needed in a national emergency.

ADS, the defence trade organisation, maintains that the majority of equipment costs for the MoD are now incurred in maintaining and upgrading existing systems through life, rather than in the acquisition phase. This means that “Through Life Capability Management” implications must be taken into account during acquisition. So what is needed is an effort to predict what could be needed in 2012 and beyond to work with UK industry to promote a holistic approach to decision-making. Short-termism does not help the MoD, the defence industry or the country.

Good procurement is needed not only in defence. The current economic crisis has created what some see as an opportunity to transform how our public infrastructure is procured and delivered. Much attention has been given to the future of the economic recovery, starting with the construction industry. At least one of the UK's largest construction businesses has strong beliefs on how the construction industry can help the Government to achieve our objectives of reducing the fiscal deficit while maintaining a platform of economic growth by actually reducing—reducing—the costs of construction. The basis of how to achieve this result is in how public infrastructure assets are procured.

Where possible, our Government should group its infrastructure procurement into programmes by geography and type, so that cost-reduction targets can be set over periods of five years. The Government should select the successful bidder or bidding teams on their ability to deliver the acceptable cost and their ability to deliver the cost reductions over a defined period. Bidders would need to accept that projects would not proceed unless the acceptable cost and cost reductions were achieved. The construction industry believes that, in that way, public sector procurement costs will be significantly reduced. Small and medium-sized enterprises will benefit through the supply chain and, with programmes of work defined over a future period, there will be significant opportunities for training and apprenticeships.

A number of noble Lords have referred to small and medium-sized enterprises. Listening to what other noble Lords have said, I throw into this debate that, since January, the Treasury has awarded a total of 16 contracts and put notices on the contracts finder, where there is a total of just over £12 million—none of which has been awarded to small or medium-sized enterprises. The Department of Transport has advertised 122 contracts with a value of more than £135 million on the contracts finder website since May 2010. Of those contracts, only £125,000 went to small businesses: under 1 per cent. Other figures are equally damning.

I never say that a project, be it in defence or construction, should take place purely to make employment, such as with useless aircraft carriers. However, where a contractor agrees to carry out the work and to employ local labour, it must surely weigh heavily in a successful bid. With such improvements in procurement processes, there could be guarantees in the use of SMEs, local employment and apprenticeships. If someone finds a way to do something cheaper and give better quality and value, be they SMEs or large enterprises, then they will prosper and increase market share—until, of course, their competitors catch up, seeing what they need to do in order to compete.

We must tackle why it costs a business twice as much to win a UK government contract as it costs to win a French government contract. We must ask why we often take sensible European laws and apply them overliterally, making the tendering process far more complicated than it needs to be.