Local Government Procurement

Bob Blackman Excerpts

Thursday 13th March 2014 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab)]

(Select Committee Statement): I am delighted to present the sixth report from the Communities and Local Government Committee on local government procurement, HC 712. I thank the Backbench Business Committee for giving us this opportunity, as well as our special adviser, Colin Cram, and the second Clerk to the Committee, Sarah Coe, who led the work in producing the report.

Local government spends about a quarter of its annual expenditure—some £45 billion—on procuring goods and services. At a time of financial constraint in local government, my Committee thought it timely to examine how successfully councils across the country are delivering value for money and meeting wider objectives. I am pleased that we found evidence of much good progress in many local authorities. Councils are cutting costs and reducing the burdens on those doing business with them, strengthening links with the delivery of community objectives, improving risk management, and taking steps to reduce fraud. We also found, however, that evidence of progress was patchy across the country. That is extremely worrying given that councils face the challenges of managing increasingly complex procurement operations, while at the same time, for obvious reasons, they need to make cost savings and preserve the quality of services for their communities.

The Committee makes a number of recommendations in the report about how the sector and its partners, including central Government, can work together to ensure that councils step-up their efforts to commit to delivering first-class procurement. As in all our reports, the Committee takes a localist approach, giving councils the freedom to tailor their approaches to meet local needs—hence we urge the sector to take the lead in this matter. The Committee makes three overarching recommendations and a number of specific points. I will refer initially to the three overarching points.

First, local government needs to lead the change in partnership with central Government and other partners. We commend the work undertaken to date by many councils and the Local Government Association. We endorse the sector-led approach to supporting council action since it is an effective means of spreading good practice while tailoring procurement to local needs. Nevertheless, a step-change is now needed for successes to be replicated across the country, and for detailed support to be provided to tackle all complex aspects of procurement. We therefore conclude that the LGA, with the support of DCLG, should establish a taskforce with representatives of the private and third sectors to develop an action plan for improving council capacity to conduct effective procurement. We recommend that the Cabinet Office dedicate resources to ensure that lessons learned in central Government are translated into effective council action where appropriate, and vice versa.

Secondly, procurement excellence needs to be embedded across councils, not seen as the preserve of a handful of specialists. A lesson we learned during the Committee’s visit to my city of Sheffield, was that procurement should not be seen as a niche activity, conducted in back offices by a narrow set of specialists, but rather as a vital cross-cutting activity that requires in-depth skills from all staff involved in designing, commissioning and particularly managing services once contracts are let. To achieve that, councils must step up training, and the sector—especially the LGA—needs to ensure that procurement skills are embedded across councils. Investment in procurement skills should be seen as a wise investment now because it saves money in the future. Councils should look at adopting the toolkit developed by Sheffield city council, and the Cabinet Office should consider how the Government’s Commissioning Academy can help develop the skills of local government officers.

The third overarching recommendation is the need for political and officer leadership. Procurement improvement must be spearheaded by council cabinet members and front-line councillors, with the close involvement of senior officers. We commend the LGA for putting procurement at the top table within councils. We can see considerable advantage to councils identifying a lead cabinet member and a senior officer who will take overall responsibility for procurement. Councils should also ensure that front-line councillors have a clearly defined role in reviewing and scrutinising procurement, including outsourced contracts, and their impact on services for residents. In the end, that is what is important: services for residents.

We would like all councils to make an annual statement to their full council meetings to set out their strategy for incorporating economic, social and environmental value in procurement, including employment terms and conditions, impact on local economies and small businesses, and relationships between contractors, customers and the relevant councils.

In total, the Committee makes 29 specific recommendations. You will probably be pleased to hear, Madam Deputy Speaker, that I do not have time to go into all of them, but I will mention some key recommendations.

On value for money, councils have shown that they can save millions of pounds through joining up with each other and other public sector bodies, directly or via procurement organisations, to buy some goods and services. However, opportunities are not being taken fully and we estimate, conservatively, additional savings of approximately £1.8 billion could be achieved with better collaborative approaches. The LGA should review collaborative approaches and produce best practice guidance. It should continue to focus on supporting councils to collaborate in key spend areas—particularly in IT, energy and construction, where it is relatively easy for collaboration to save money—while recognising the importance of local freedoms and flexibilities. Securing savings should not come at the expense of delivering wider commissioning objectives, such as supporting local economies. There can be no compulsion to collaborate or to join a centralised procurement body. Councils must retain the flexibility to deliver local priorities, but should consider examples of good practice.

On delivering economic, social and environmental objectives, the Committee was clear that councils should exploit fully the potential of their procurement spend to deliver local strategic priorities, including social, economic and environmental objectives, by letting contracts, as appropriate locally, on the basis of best value, not simply lowest price. A case in point is support for small local businesses, which all local authorities are keen to support. Some 47% of council spend is currently channelled via small and medium-sized enterprises. There is clearly much good practice, but more could be done, for example by the LGA disseminating best practice and guidance.

On reducing costs to businesses, the cost to a business of a typical council procurement exercise can be about £40,000 to £50,000. A Centre for Economics and Business Research report published in July 2013 found that UK procurement processes were the most expensive in the EU and took some 53 days longer than average. Too many councils are applying EU regulations over-zealously. The Government and the LGA should spell out what is a proportionate approach. Pre-qualification questionnaires should be standardised, so that councils do not require a new form for every contract and potential suppliers do not find themselves having to fill in different forms for every local authority and every public body. There should be standardisation to reduce costs. Councils must include requirements in contracts that contractors stick to timetables for paying their subcontractors right down the supply chain, with spot checks on implementation. It is not acceptable for firms to delay payment, which puts smaller firms, in particular, at risk of cash-flow crises.

Outsourcing a contract does not mean outsourcing responsibility for ensuring quality and consistency of service to residents. It is therefore alarming that in the worst cases councils not only fail to monitor quality but bear the costs when a contractor fails to deliver its side of the contract. It is vital that councils are equipped to manage complex contracts. Greater voluntary collaborative work between regional procurement bodies can open up access to specialist procurement skills to help to tackle this problem.

On fraud, we found little hard evidence of significant fraud, but widespread unease that, as more services are put out to tender, local authorities are at much greater risk. Councils must not “let and forget” contracts, but proactively tackle fraud throughout the lifetime of a contract, not just during the tender phase. Contracts let by public bodies must be transparent and performance against them auditable. We support the Government’s commitment to open-book accounting. Councils should consider placing similar requirements on information provision by contractors as applied to a public body under freedom of information regulations to provide a level playing field. We heard that one of the best means of identifying fraud was whistleblowing. More needs to be done to support whistleblowers and the Government must publicise arrangements for an anonymous reporting channel.

The measures set out in our report will help to achieve a vision of better procurement and commissioning from local councils. We hope that the Government, local government sector leaders and individual councils will pay heed to our recommendations.

[Bob Blackman (Harrow East) (Con)]

I welcome the statement and the contribution we have all made to the report. Does the hon. Gentleman agree that we uncovered many examples of good practice, but that no authority is doing all those things? We desperately need to ensure that examples of good practice are followed by all local authorities, so that every resident benefits from the good practice of the best authorities.

[Mr Betts]

Absolutely. That was the theme right the way through the inquiry. There is a lot of good work out there and the best way to persuade local authorities to change is to show them another local authority that is doing things in a better way. That is why the LGA is key to delivering improvements; with many of our reports, that is probably not the case. We are looking to the LGA and the Department for Communities and Local Government to work together to set up a taskforce to bring examples of good practice together and disseminate them to councils up and down the country.