Government Procurement Policy

Baroness Garden of Frognal Excerpts

Thursday 24th November 2011 Lords Chamber

[Lord Young of Norwood Green]

My Lords, I, too, thank my noble friend Lord Sugar for creating this opportunity to debate a subject of vital importance, especially in today’s economic circumstances, against a background of government policies that are not delivering the growth that we need but delivering, unfortunately, the highest level of unemployment for 17 years. I congratulate my noble friend on his customary and characteristically robust analysis, and I look forward to the ministerial response to some of the points that he raised. I am not sure that centralised purchasing is the total answer, but there are certainly savings to be made—we saw that in the recent Green analysis. I am certain that my noble friend is right to call for a more holistic analysis that goes beyond the lowest price. He made a valid point also about the restrictions that still exist in relation to SMEs.

To pay our way in the future, we need to build an economy that works; we need private sector growth, more people starting businesses and growing businesses succeeding in business. But we need that to work with public investment and procurement. To set this new direction, government cannot just stand at the sidelines. Government must use every tool purposefully and consistently to shape and support this business environment, from competition policy to taxation, and from regulation to procurement. That means developing institutions for collaboration and support, making sure that the right finance is in place, as well as the research base, the skills base and the other elements that support innovation and growth. It means investing in infrastructure, offering certainty in the policy environment and giving businesses the confidence to invest. It is active government, shaping markets, growing key sectors of the economy and supporting the growth of more companies which build value over time, invest long term, innovate, offer good jobs, pay fair wages, and train.

Governments cannot tell individual companies what strategy to pursue—we know that that will not work—but nor should they be indifferent to the choices that they make. There are many businesses already pursuing these strategies—it can make good business sense—but the policy environment does not always mean that this is the case. The challenge for policy-makers is how to create the framework so that that which is good business—socially valuable, sustainable—is also that which is most profitable, good business always being good business. This brings me back to procurement: getting it right so it can shape that environment and enabling procurement to play a critical role in the economy that we need for the future.

In government, we took steps to improve the way in which services are procured. In 2006, for example, we launched the Supply2.gov portal to make it easier for SMEs to access government contracts. In 2008, we commissioned a report on using public sector procurement to encourage SME growth. In the Pre-Budget Report, we committed to advertise government contracts worth more than £20,000 via a single, free online portal; to introduce measures to reduce bureaucracy and make opportunities more transparent for small businesses; to standardise the qualification criteria and encourage innovation by specifying outcomes rather than prescribing solutions; and to help SMEs get a fair deal when they were subcontractors.

Just before we left office, we set in the 2010 Budget central departmental targets to increase the proportion of central government procurement spend that goes to SMEs by 15 per cent throughout the supply chain. I know that this Government have a deep-rooted aversion to targets, but as we have heard a number of noble Lords say in this debate, it is all very well saying that one is going to encourage SMEs, but the track record to date shows that there is a lot more progress to be made.

This Government have sought to build on that legacy: they want 25 per cent of government contracts to be delivered by SMEs and to eliminate pre-qualification questionnaires for all central government procurements under £100,000. They have sought to introduce a one-stop shop that displays every central government tender opportunity and they want to iron out wasteful practices and unnecessary complexity in procurement processes. These measures are welcome but there have been contradictory signals too. The Government’s own adviser, Sir Philip Green, suggesting ways that government procurement would squeeze out SMEs and delay payments is an example. In recent months we have seen the case of Bombardier, which brought into focus the failure of the Government to recognise the significance of this procurement to our future competitive success, the consequences of which have placed the future of the train manufacturing industry in the UK in jeopardy. We believe it is essential that there is a UK-based train-building industry capable of designing, building and, of course, winning orders for those trains. We are urging the Government to outline the strategy for ensuring that this can happen, including for the new Crossrail rolling stock. We want to see UK rail manufacturing in a position to win these orders, not put at a disadvantage following the Thameslink decision.

This draws me to the fundamental question we need to consider—how we ensure that procurement is an engine for growth and how we improve the processes but, critically, the ambition that procurement can unlock. The Government are unfortunately missing this opportunity in our view. With £240 billion to spend, the Government are by far and away the UK’s biggest single consumer. Procurement can and should be a driver of growth, driving innovation, opening up markets, creating new markets and opening up to new businesses and new ways of doing things. That means putting procurement centre stage. We know that that has not always happened across government, local government and in the public sector. We must ask how we can demand more of procurement. How can this buyer power be leveraged to support the kind of economy we want to see? How can we make every single pound of spending create the most value to our economy and society? I suggest that it can be done in the following ways. We should build broader objectives into public procurement contracts, as we did with the Olympics. Construction contracts included clauses requiring the training of apprentices, creating 350 new apprenticeship places. For the life of me I cannot understand why the Government will not act in this area. There is no legal prohibition against doing that. When we have more than a million unemployed young people, it seems to me that every apprenticeship place that we can create is vital. Haringey is doing this; through its procurement process it has opened up business to SMEs and created new employment opportunities for many long-term unemployed people, while saving £8 million over five years. EU law is often put up as an obstacle to so-called “social clauses”, not least because they can limit competition. However, they do not have to, as the noble Lord, Lord Sugar, and other noble Lords have said. This is an area where we need to explore the full potential and test the boundaries rigorously and robustly. Other countries manage to do it and we have heard references to French and Dutch examples.

We need to create markets for innovative products and services. My noble friend Lord Haskel referred to the importance of innovation in design. When in government, Labour created the Small Business Research Initiative, using procurement to create markets for innovative companies which often lack financial backing during exploratory development phases. However, it remains very small; it is worth between £10 million and £15 million a year. By contrast, the US SBIR programme, on which it is modelled, has now been running for almost 30 years and is worth $2.5 billion a year. Properly scaled, we should probably have a programme worth something like £240 million in the UK.

I have already talked about Bombardier so I will not develop that further. However, I was grateful to my noble friend Lord Davies for giving a more balanced assessment of where we are going on Labour’s defence industrial strategy. I know from my experience of being a member of the Armed Forces’ Pay Review Body for four years that our record in ensuring that the forces had the best possible equipment was well appreciated. Labour's defence industrial strategy, which gave certainty to the UK industry, is being replaced by a commitment to buy off the shelf. There are arguments about whether this really is cheaper given the costs of adaptation. My noble friend Lord Davies demonstrated the importance of having a very strategic analysis in the area of defence.

This has been a very wide-ranging, important and constructive debate. I cannot possibly hope to deal with all the points that were raised. My noble friend Lord Puttnam said that there were ways of driving costs down and value up and mentioned the Promethean experience and the interesting incorporation of Phil Smith of Cisco on to the Technology Strategy Board. I share his optimism on that front. My noble friend Lord Kestenbaum made the important point about the need for government investment in vital areas such as global positioning satellites or the development of the internet protocol. Without those seed-corn investments it is doubtful whether important progress would have been made in those areas.

[Baroness Garden of Frognal]

My Lords—

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Motion agreed.

[Baroness Garden of Frognal]

My Lords, I remind noble Lords that the next debate is timed. Back-Benchers have seven minutes, so when the Clock shows seven, their time will be up.