Cyberattack: UK Defences

Lord Sugar Excerpts

Monday 7th December 2015 Lords Chamber

[Lord Bridges of Headley]

I pay tribute to the work of the noble Lord and a number of other of your Lordships in this area. On the specific point, the financial sector, including the City of London, has undertaken a number of exercises in recent years: Waking Shark I, Waking Shark II and the Market Wide Exercise, as well as the more recent Resilient Shield exercise between the US and the UK last month. In June, the FPC agreed that the Bank, the PRA and the FCA should also establish arrangements for CBEST tests to become one component of regular cyber resilience assessment within the UK financial system.

[Lord Sugar (Non-Afl)]

My Lords, the Minister may be aware that the infrastructure in most of the exchanges of internet service providers in this country is supplied by a Chinese company, Huawei. In the previous coalition Government, Sir Malcolm Rifkind was commissioned to inquire about this country’s vulnerability to a possible instruction by the Chinese Government to shut our systems down. Does the Minister have the results of this investigation? He should also be aware that the United States does not allow that company to operate there.

Public Services: Private Sector Companies

Lord Sugar Excerpts

Monday 28th October 2013 Lords Chamber

[Lord Wallace of Saltaire]

My Lords, I wish that every potential risk was clear before one ever signed a contract, as that is part of the problem. The Government are aware that part of the problem with public procurement is that it has proved easier to contract with very large-scale providers which then very often subcontract to other suppliers. We are moving towards the target of 25% of contracts going to small and medium-sized suppliers so that there are direct relations with those who are actually on the ground providing the service in the regions and the localities. That is one of the things that we hope will improve the quality.

[Lord Sugar (Lab)]

My Lords, does the Minister agree that the original concept of hiring commercial enterprise to conduct the business of the Government was meant to gain better efficiency and value for money? Does he agree that this has failed in the sense that most of these private contractors actually spend most of their time enhancing their profit margins instead of looking after the service that they are supposed to be providing? Serco, as he has already mentioned, is the classic example where, I believe, there are allegations of fraudulent activities.

[Lord Wallace of Saltaire]

My Lords, in the case of Serco, the noble Lord will have seen that a number of senior executives have resigned in recent weeks. We welcome that and see it as a positive first step in the process of corporate renewal. Across the board, however, I am not sure that I would wish to blacken every company providing services for the state in the way that the noble Lord has perhaps suggested.

Government Procurement Policy

Lord Sugar Excerpts

Thursday 24th November 2011 Lords Chamber

Moved by

[Lord Sugar]

That this House takes note of government procurement policy.

[Lord Sugar]

My Lords, I am encouraged to see so many of your Lordships joining this debate. Government procurement is an important issue. After all, as taxpayers, it is our money that is being spent every day, and we have the right to ensure we are getting good value. Before I move on, I should like to state that, pursuant to the Code of Conduct, I have registered with the Table Office any relevant interests that may arise from those listed in my name in the House register of interests.

Government expenditure was in the region of £238 billion on procurement in the past year. I believe that this was spent on a whole range of items and services, from paper clips to guided missiles. In referring to getting good value for money, I shall break this down into three categories, the first and most obvious being that the best prices should be obtained for any product or service required by the Government. The second is value for the country and the third is value for SMEs.

Starting with real value for money, your Lordships will agree with me that the world has moved on a lot as far as internet connectivity is concerned. For that reason, there is simply no longer the need for local purchasing. Centralised purchasing should be implemented immediately. I regret to say that, from my experience in running so many businesses, when you place the task of procurement in the hands of unqualified people, it is similar in some cases to letting kids run riot in a sweet shop. The main issue, of course, is that it is not their money, and it is amazing how irresponsible some people can be when spending other people's money as opposed to their own. Obviously, that is stating the obvious.

In August 2010, Sir Philip Green was asked by the Prime Minister to carry out an efficiency review. He published his findings in October 2010. The report spoke of inefficiency and waste in government spending. One of its observations was that it was impossible for the Civil Service to operate efficiently with current processes in place. Expensive IT contracts were for too long with no flexibility; there was no motivation to save money or to treat cash as one’s own—the point that I have just made; there was no process for setting and challenging detailed departmental budgets; and, most importantly, there are inconsistent commercial skills across departments. The report gave factual examples of variations of up to 80 per cent across central departments in prices paid for the same product.

For a commercial person like me, these issues are very easy to resolve. What I am about to suggest will be controversial but very commercial. My assumption is based on the fact that a centralised group of real procurement professionals purchasing the same goods and services obtained in the past for £238 billion would be able to procure the exact same amount of goods for £200 billion. I am of course putting to one side the fact that maybe a lot of the stuff should never have been ordered in the first place, but that is another story.

It is here that a controversial issue arises. There is a need to recruit professionals from private industry and offer not just an exciting challenge. More importantly, they should be able to earn what they can earn in the commercial world as well as having bonus targets. These people would in turn have to employ others. This new group should then be responsible for training existing public sector staff to deal with business effectively to get the best possible value for money for the public purse. Hypothetically—I am just dreaming here—if this group of procurement experts costs £50 million a year, that sum pales into insignificance against my forecast saving of £38 billion given in the earlier example.

The reason why the issue is controversial is down to the following question: would the Government have the guts to do this, or would they be frightened off by headlines about the head honcho in charge of procurement earning X millions of pounds a year? One can see a certain national newspaper carrying the headline: “Fred Smith earns £X million a year, while Joe Bloggs in the north-east of England struggles”. Of course, that newspaper would not be interested in the £38 billion being saved because it does not make good headlines. So I ask the Government to consider the implementation of this idea, to rise above the inevitable external criticism and to do the sensible commercial thing.

My second point is value for the country. So many government contracts are awarded to foreign companies or companies that pay little or no tax in this country. Now, I know that we are all fully aware of the requirements under EU rules and regulations on procurement, but I am sure that your Lordships will not be surprised when I cite our cousins in France, who seem magically to manage to be very patriotic when it comes to dishing out orders from their Government.

There are examples of ECJ rulings that have allowed for European countries to widen the criteria for what they see as the “most economically advantageous tender”— more commonly known as MEAT—which should not be based on price alone. Both France and the Netherlands have used this for environmental and social benefits. In 2000, the French Republic was taken to court by the European Commission for failing to comply with European procurement legislation. The case referred to the construction and maintenance of school buildings.

The European Commission’s main objection was the use of an award criterion that required contractors to recruit local workers from a project specifically to combat unemployment. The ECJ defended the French and ruled that a contracting authority can use the fight against unemployment as an award criterion. Dare I say that this could have been used in the recent Bombardier case, thereby saving 1,400 jobs in Derby? Instead, the decision was made that the train carriages would be produced in Germany. This is where I think this Government could learn some serious lessons from our European counterparts. I am sorry, but if I was in charge of procurement I would have fought tooth and nail to keep that Bombardier deal in this country.

When it comes to government procurement of information technology products, many of us will have noticed that in many government offices, hospitals and other government-run establishments desks are littered with computer equipment made by a certain Japanese and German partnership. There is a funny story here. Some of your Lordships may recall a British computer company, ICL, which was Britain’s equivalent of IBM many years ago. That company was eventually sold to a Japanese company, which in turn associated itself with a famous German company. Many years ago the then Government rightly awarded a lot of their IT business to ICL, a British company. That made sense. However, your Lordships may be interested to hear that the Government are still entrenched in contracts dating back years, which originated with ICL but are now enjoyed by this foreign entity. It is what I call “grandfathered-in” contracts. There has been a total lack of flexibility in using and assessing other supply chains.

I apologise for raising the conflict of interest issue again but I do so merely to demonstrate what is going on. I have one of the few computer companies that still produce computers in this country. We supply certain government-run organisations and schools and employ about 200 people. We are typical of many other companies in this country in that regard. I would like to make it perfectly clear that I am not touting for business but merely using this example to show the scale of what I am talking about. If we were awarded a tenth of the computer and IT system services that the Government purchase in the course of a year I would have to employ at least 350 to 400 more people. I have made this point clear to those involved in procurement, but it seems that the penny has still not dropped. As I say, my example is most probably not unique. I am sure that the same point could be made by people in other industries.

I am certainly not advocating that the Government should pay more for British-assembled products. The process of winning government contracts still has very strict criteria on price, quality and delivery but the priorities are wrong. If my company employed another 300 to 400 people, thus removing from the Government the burden of having to look after some of those people through the unemployment benefits system, it would outweigh some of the minor additional costs that may have to be paid to smaller companies trying to compete with the giant foreign organisations that simply dump products in Britain.

My IT company is inundated with inquiries from young school leavers requesting work experience and wanting to get into the IT field. We simply cannot take them on as we have no work for them. Even if apprenticeship schemes or other allowances are available, there simply comes a point when the company has to face harsh commercial reality.

The Government must support British companies and find a way to make the procurement process work for the country, as the French and other European countries have done. The most economically advantageous deal may not always be about the cheapest price. There are wider social impacts to consider, and this is about what the Government should be doing to support jobs and our UK businesses.

The third and final element of value for money relates to SMEs—the small to medium-sized enterprises. I heard the Government say when they were elected that they were going to ensure that at least 25 per cent of contracts are awarded to SMEs. To date, I understand that figure is about 7 per cent. However, there seems to be another 25 per cent rule, which is that an SME cannot bid for a contract if its value is more than 25 per cent of its turnover. This seems crazy because the SME may be the market leader, yet the contract has to be placed with larger companies that do not have the same expertise.

The Government say that they are angry with the banks for not lending to SMEs. Well, they can encourage such lending by making sure that orders are given to SMEs to impress the banks into lending them money. When government contracts are handed out to large organisations, there should be clauses clearly stating that they must give a certain percentage of the contract out to British SME subcontractors.

I am sure the Minister will advise your Lordships’ House that many of the issues I have raised are already under control and that I should not despair. Indeed, I am aware that, coincidently, the right honourable gentleman the Minister for the Cabinet Office held an event on 21 November entitled, A New Way Forward. The agenda showed that the Government had acknowledged many of the things that I have raised today, particularly in respect of IT. As an example it stated that businesses should understand the Government’s intention to,

“move away from large projects that are slow to implement or pose a greater risk of failure and to end the oligopoly of large suppliers that monopolise its service provision”.

That is fighting talk and exactly what we would like to hear. I have had the good fortune to meet some senior civil servants from the Cabinet Office who have politely debated these issues with me, and I am somewhat impressed with the approach they have taken to date but, with the greatest respect, they may also be the first to acknowledge that these plans will not be achieved with those who are currently responsible for procurement. This Government need to engage serious professionals, centralise their procurement processes and get a genuinely better deal for SMEs in the UK.

I have opened up a whole host of topics to which I am sure your Lordships participating in this debate will add, and I await with interest the comments of the speakers who will follow. I beg to move.

--- Later in debate ---

[Lord Sugar]

My Lords, I thank the noble Lords who have contributed to this debate, many of whom have endorsed some of my sentiments. The Minister is right in pointing out that the head honcho to whom I referred is John Collington. I referred to having met somebody in the past whose thoughts and plans I found quite interesting. When I mentioned recruiting someone from industry, I was thinking more of the former CEO of Tesco rather than someone who had worked for the Football Association, which is where Mr Collington came from.

The noble Lord, Lord Lee, made the very good point that some external commercial people run rings around those who are in charge of procurement in government departments. My noble friend Lord Puttnam referred to waste in procurement with items that never get used, and the noble Lord, Lord Sutherland, made an excellent point in concluding that the culprits were amateurs in the procurement department.

I hope that all the comments from noble Lords have not fallen on deaf ears. Once again, I thank everyone for participating.

Motion agreed.