Small Business, Enterprise and Employment Bill

Lord Young of Graffham Excerpts

Wednesday 14th January 2015 Grand Committee

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, my Amendment 35X draws attention to the importance of the Localism Act and the Public Services (Social Value) Act by adding a new clause after Clause 39, in part in parallel to some of the remarks made by the noble Lords, Lord McKenzie of Luton and Lord Whitty. I find their arguments not entirely without foundation but I hope they will forgive me if I say that I do not find them especially nuanced to reflect the reality on the ground. I will take a few minutes to explain why I have reached that conclusion and then ask my noble friend to put some flesh on the bones of the philosophy behind what the Government seek to achieve.

My interest in this topic arose from my appointment by the Cabinet Office as the chairman of a task force to look at aspects of government regulation that affect the growth of smaller charities and voluntary groups. The report that we produced, entitled Unshackling Good Neighbours, focused on three things: what stopped people volunteering; what stopped people giving money at an individual level; and what stopped charities and voluntary groups growing. It identified a number of factors about why these groups were inhibited. High among them was the question of commissioning by the Government both at national and local level. I was very pleased to see that this issue had made it into the Bill following further work by my noble friend Lord Young of Graffham, and I referred to the topic in my speech at Second Reading. I was subsequently approached to have discussions with the LGA, which provided me with a draft of Amendment 35X, which I have tabled. I fear that the LGA will not entirely like what I have to say, so I need to put on record my thanks to it.

I understand the point of the noble Lord, Lord Whitty, that the drafting of Clauses 38 and 39 could give rise to concern that the underlying purpose may amount to a land grab by central government. However, I have to say to the Committee that, from my research and my report, all parties at every level have lessons to learn about commissioning, procurement and how to increase local involvement and participation in the communities that they serve. Very often, seemingly perverse decisions by local or national government are not the result of malice aforethought but overly heavy bureaucratic procedures.

Several hundred examples were sent in to us and I would like to touch on three to show the Committee the background to the points I am driving at. The first, from a national point of view, is from a local hospice in Worcestershire that had been providing end-of-life palliative care on a 25-page contract to the local primary care trust. It came to the end of its contract and asked to sign another 25-page contract. It was told that it could not do that any more. The new model contract ran to 130 pages with 111 pages of guidance. When I asked the Department of Health why that was, it was explained that this was a contract for all seasons. You were supposed to take blocks out of it to suit your particular purpose. Of course, the PCT had passed on the whole thing and said, “Sort it out yourself”. When this was explained to the Department of Health, one could persuade it to go back to the earlier, simpler model.

At the local level, a London borough sent us a letter saying:

“Voluntary organisations are told we need to move from grant funding to contracting, but too often tenders”,

from local authorities,

“are written with onerous conditions, both in applying and in reporting, for quite small contracts. (I have a 68-page tender we had to complete, together with supporting documents, to provide out-of-school-hours activities for disabled children in one London borough for £10,000)”.

So that amounts to 68 pages for a total contract value of £10,000.

Then again, Solihull SUSTAiN and Colebridge Trust secured a grant for the local authority to deliver a £200,000 project. They were clever enough to secure some pro bono support from a local hotel where they could hold their meetings, as a result of which they were able to make a £600 profit on a £200,000 contract. The local authority spent a great deal of time chasing them to return the £600, which they could have retained or used to build their operation a bit further. So I argue very strongly that there is work to be done in this area and that the challenge is to find the right balance between the one-size-fits-all approach, to which the noble Lord, Lord McKenzie of Luton, referred, which tends to result in overly prescriptive national standards, and local standard setting, which can be equally overprescriptive and in a way that does not necessarily best serve the local community. Behind it all in our research was the risk-averse approach often adopted by many commissioners at local and national level, which disadvantages smaller local charities and voluntary groups.

I recognise the work that the LGA has carried out in establishing a national procurement strategy, to which the noble Lord, Lord McKenzie, referred, but equally I recognise and support the Government’s commitment to localism. I conclude that the best way to find this elusive balance is for the Government to make it clear that these regulations are intended to set standards and yardsticks for good practice, on which local authorities have some flexibility in application. If I may use the “comply or explain” approach, those noble Lords who are familiar with corporate governance will know that those codes lay down standards with which you are expected to comply—and if you cannot comply with them, you have to explain why not. That approach would give the flexibility to avoid the straitjacket of one-size-fits-all and, at the same time, enable egregious behaviour by local authorities to be identified and prevented.

Such statements could be seen to be a little bland, so I should like to put a little flesh on these bones with some examples of the sorts of topics that I hope would be covered by the regulations—my shopping list, so to speak—which would give reassurance to local and national government and to those who will provide the services. The commissioners should work more closely to understand their motivation and the potential value that they can add in their contracts.

Secondly—I know that the LGA will hate this— the PQQs should be dispensed with. To be honest, the PQQs that I have seen could easily be filled in by the local authority using either Companies House returns, Charity Commission returns, or other local information.

Thirdly, tender documents should be proportionate to the value of the contract being awarded. Too often, as in the example that I have given, very small contracts have very large tender documents attached to them. Commissioners should also think carefully about the number of tenders that they seek, particularly for the small contracts below, say, £50,000 or £100,000. Of course, they have a duty to ensure value for public money, but there can be only one winner. If a commissioner decides that, to avoid controversy, he will accept a large number of tenders, he is inevitably inflicting a degree of economic efficiency and organisational friction on the losers.

The monitoring processes should be fixed for a contract. Too often they are moved in the middle of the contract, which changes the basis for measurement mid-contract and adds an unnecessary strain. The costs of monitoring should also be related to the size of the contract. Last but not least, there needs to be some mechanism for a proper sharing of risk and reward between prime contractors and their subcontractors. Too often the prime contractors take the easy ones and leave the more difficult cases to the sub-contractor.

I appreciate that these are pretty detailed requests, but this is an area where detail matters. The LGA has properly raised concerns about upsetting the balance between local and national government, so an explanation of the philosophical and practical purposes behind these clauses would do much to reassure us. I hope that my noble friend can help on this score.

[Lord Young of Graffham (Con)]

My Lords, I carry the heavy burden of having your Lordships in this Room this afternoon, but I thought it might be worth spending a moment or two on putting the whole picture and where it fits together; otherwise we are in danger of examining the twig and not even the forest.

My responsibility for the past few years has been to encourage small firms—start-up small firms and growth in small firms. Some 18 months ago, I was going round the country inquiring why very few small firms dealt with the public sector. When I was introduced to the dreaded PQQs, I saw that some were 30 or 40 pages long, which small business owners were expected to fill in. I do not exaggerate; they covered areas such as sexism, racism and a whole lot of areas that had very little to do with the work itself. Time after time, I was told by small business people that they would get their tender in, see these documents, put them aside and go on to do something else.

Other problems are dealt with later, such as the fact that the public sector is not the greatest payer in the world and small firms are much more dependent on prompt payment, and the difficulty of finding the opportunities. The invidious part of PQQs is simply that large companies can take them in their stride; they have PQQ departments and people whose job is to fill them in all day long. I have no doubt that they have boilerplate answers to all these things. It was about not having a level playing field.

Therefore, what we have done is simple. We abolish PQQs under €200,000 and above that we have a standard PQQ, which will be online, which every firm can fill in. It will resemble a tax return because there will be different sections, depending on the business, so the small firm registers once and the public sector reads it many times. Around the county, I have heard very few complaints, other than from the LGA, about the abolition of PQQs. The measure is designed to give localism its head; it is designed to help local firms get contracts with their local authorities, whereas time after time I have seen them excluded by large companies by the nature of the bureaucracy. We are also mandating payment within 30 days and requiring public authorities to publish the fact that they are doing so.

The essence of all these regulations is about simplifying procurement and getting better value for procurement. From the description I have heard this afternoon, I fail to recognise my own regulations.

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I would be grateful if the Minister would do me the kindness of providing in her response any good reasons why these amendments would not be helpful. Is there any part of what I have said that the Government disagree with or would not like to be covered either by Bill, regulation, guidance or practice in future? I beg to move.

[Lord Young of Graffham]

Perhaps I can assist the noble Lord over some of the difficulties that he sees in this particular clause, in three areas that he raised. First, the mystery shopper—it is a bizarre name, but people understand what it means—has been operated by the Cabinet Office on central government contracts for the past few years. It had a great defect; it was reactive—somebody had to complain—and there were very few small firms in this world that would willingly make a complaint against a big customer. So we have made it proactive, so that the Government will, on a random basis, go and question people. That covers the possibility that any small firm can now complain without having the finger of blame put on them.

Secondly, we have now substantially modified PQQs. For example, there is now a standard PQQ for every contract worth more than €200,000. The small firm or the large firm does it once and the public sector reads it many times.

One element of our reform that we have not referred to this afternoon may well satisfy some of the noble Lord’s concerns. Next month we are launching a site, provisionally titled Contract Finder, that will record on it every public sector contract—worth £250 million a year—whether it be fire, ambulance, education, health, central government or local government. These will be postcoded, so that firms around the country can see what is coming up. More than that, we will expect local authorities, the health service and others to give notice of impending contracts, to enable firms to prepare for them. If a subcontractor sees that a new school is being contemplated in its area, it can go to the contractors that normally do it.

Thirdly, after each contract is won, the results will be placed on the site, so that people can see how near they were to winning. This is the first time in the world that this has been done. It is getting a great deal of interest overseas. It is a substantial undertaking, but its whole purpose is to create a level playing field for small firms and large firms. I hope that, if we see it through as intended, we will be looking at a very different small firms sector in a few years’ time.

[Lord Deben (Con)]

My Lords, I would first like to say how pleased many of us are at the changes that the noble Lord, Lord Young, has just described. They will make a big difference for small firms around the country.

However, there is another part to this on which I hope that the Minister will be able to help. There are reasons to disagree with the specifics put before us, but the noble Lord, Lord Mendelsohn, has made it clear that he is seeking a response from the Minister that shows that she understands the real problem that is being adumbrated, which is that small firms often find that they are not competing fairly simply because what is asked of them is a much bigger ask than the same thing asked of a big firm. That is the fundamental issue.

There is a second part to that, which is the reaction of those who place the contracts. I am increasingly worried that, in the public sector, there is a safety culture that means that people would prefer to have a firm whose name they know and which they feel no one can blame them for taking on, even if that firm does not in the end do the job properly. It is much easier if it is a national company with a national name—when you have taken it on, nobody can make the complaints that they might make if you were taking on a smaller firm.

Even if the Minister is not able to accept these aspects, I wonder whether she would help us by saying what the Government intend to do to try to make it easier for the public sector to take on companies that might be less assured because they are smaller and because they have not had a contract of that kind before. Are there not serious institutional ways in which we could make that easier? I have not yet seen any indication that, in their plans, the Government have sought to make it less dangerous for a public servant to take on a firm that has perhaps not previously worked with the public sector or perhaps does not have such a long history of doing so. Where there is a risk involved, I think that it is a risk that the public sector ought increasingly to be willing to take if we are to have entrepreneurial innovation in Britain.