Local Government Procurement

Brandon Lewis Excerpts

Thursday 3rd July 2014 Westminster Hall

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

It is a pleasure to serve under your chairmanship today, Mr Bayley. I thank the hon. Member for Sheffield South East (Mr Betts) and congratulate him on securing the debate. He is quite right: we absolutely welcome the Select Committee’s report and endorse its view on the need for councils to improve the way in which they procure goods and services. The hon. Member for City of Durham (Roberta Blackman-Woods) made a good point about the number of Members who have joined us for this debate this afternoon. I appreciate that there is also an important debate in the Chamber, but this is an important matter, and it is good to have the chance to air some issues, discuss good practice, which I will touch on, and highlight how important procurement is and what local government should be doing to focus on it.

I will resist the urge to go too far down the road that the hon. Lady tempted me down at the end of her speech, when she mentioned social values and jobs. As meritorious as those issues are, and as important as it is that councils are aware of them, going in that direction would tempt us towards having some sort of central governance over what those values should be, which is the very opposite of the localism that I believe in. It has to be for local authorities to decide what the right values are for them.

We agree with the Communities and Local Government Committee that councils, with the support of the Local Government Association, should absolutely take the lead and have the responsibility for delivering on the procurement agenda. Councils are uniquely placed—geographically as well as structurally—to understand the needs of their residents and communities and to be locally accountable to them for their actions and decisions.

The hon. Lady gave some figures, and just to put things in context, this is a hugely important area, not least because last year the local government sector spent £57 billion on procuring goods and services. As she said, that accounts for roughly a quarter of all public sector procurement. Councils are often one of the largest spenders and one of the largest employers in their local economy. By being more astute and imaginative in how they use that spending power, they can do much more to ensure that they achieve greater value for money and help their local economies to grow. When we talk about savings, most sensible business people, hearing that local government spending is £57 billion, would come to the conclusion straight away that just a little improvement in procurement could bring a small percentage saving, which would be a very large amount of money.

I accept that the Government have an important role to play, at least in incentivising service transformation and encouraging innovation. As set out in our evidence and response, we have already introduced a range of key public sector procurement reforms that will open up procurement opportunities to both small and medium-sized enterprises. As the hon. Member for Sheffield South East said, the FSB has targeted those opportunities. Sometime last year, I was on a platform with the LGA and the FSB talking about the added local benefit that can be brought particularly by small businesses but also, as he rightly says, by voluntary and community organisations—the third sector as a whole.

The Small Business, Enterprise and Employment Bill was introduced into the House on 25 June. It will help to deliver our commitment to build a stronger economy by supporting small businesses. The Bill contains a number of measures intended to improve public sector procurement, which will, subject to consultation, ensure that procurers run an efficient process, accept electronic invoices, do not charge for bid information and do proper pre-market engagement.

The Bill will also make it easier for small businesses to raise concerns about public procurement practices and cut down on red tape by ensuring that regulations affecting businesses are reviewed frequently and remain effective. It will deter employers from breaking the national minimum wage legislation by creating a power to allow the penalty for underpayment to be imposed on employers on a per-worker basis, and it will stop the abuse of zero-hours contracts—the hon. Member for City of Durham mentioned them, and I shall come back to this point in a moment—by preventing the inclusion of exclusivity clauses, which are used to prevent individuals from working for other employers, even if the current employer is offering no work.

Other key reforms, which will be introduced later this year, include the abolition of the pre-qualification questionnaires for contracts below the EU threshold—I note the comment by the hon. Member for Sheffield South East, and I will come back to that in a moment—and the requirement for public bodies, including local authorities, to use Contracts Finder, which is a national procurement portal.

We are developing a standard pre-qualification questionnaire—for contracts that are above the EU threshold, I stress—and councils will be encouraged to use that. The aim is to ensure that businesses no longer have to complete the countless different versions that currently exist. That will make it easier for small businesses and voluntary organisations to bid for contracts and increase collaboration across authorities.

I noted the hon. Gentleman’s comments and the Select Committee’s points on pre-qualification questionnaires. I can understand why local authorities like them, but if we want to get more small businesses involved, I think the risk of having more tendering is a good risk and one that could actually be to the benefit of local authorities. If they want to reduce that risk, they can do that by getting their tender documentation right in the first place.

[Mr Betts]

Clearly, this is one of the few areas of specific disagreement. We picked up from small businesses that if suddenly they found that they were putting a tender in along with 20 other organisations, 19 of them would be wasting their time. As long as it is a standardised and simple pre-qualification questionnaire to thin out the number that will tender, it could be greatly to the advantage of small businesses in particular and reduce their costs overall.

[Brandon Lewis]

Of course, if councils are giving an up-front line on their procurement process, that gives companies more time to plan and, particularly for small businesses, allows them to decide whether it is right for them to tender and whether they want to do so. However, most small businesses also tender for business in the private sector, where they will be used to being involved in competitive tendering for work that they want and going up against anything from one to a countless number of competitors. That is how the market works. From my experience of working in and talking to businesses—small, medium and large, but small businesses in particular—I know that another piece of paper from an authority that they have to fill in before they even start to tender is just another layer of bureaucracy, red tape and paper that they do not want.

We have been providing support for councils by encouraging them to use Contracts Finder now rather than waiting for its use to become mandatory. We have pointed out the benefits that it can bring for both procurers and suppliers, because it opens up procurement opportunities and makes them transparent. We have been encouraging councils to start using the current simplified pre-qualification questionnaire for contracts that are, I stress again, over the EU threshold. The hon. Member for City of Durham made a good point about the myths that exist about what can be done in a whole range of areas that local authorities deal with. I will come back to that.

We have been encouraging the improvement of commissioning skills among local authority employees—a very important issue—by offering access to the commissioning academy. We have been sharing expertise by offering access to courses and learning tools provided by the Crown Commercial Service. We are providing £16.5 million of funding over two years to change behaviour and perception in respect of tackling fraud in local authorities, including in local government procurement, regardless of how small it may be. We should bear in mind the fact that overall fraud and error in local government costs more than £2 billion, but that does not necessarily involve procurement. However, it is still an important matter, and we need to ensure that we are on top of it. We are providing guidance on social value considerations and the pre-procurement market engagement process.

Following the success of last year’s transformation challenge award, which was hugely oversubscribed, we have launched another one for 2014 to 2016, and £320 million will be available over that period. The aim of the award is to encourage and reward local authorities that are able significantly to improve their services so that they better meet the needs of local residents. That can include making improvements to and transforming how services are commissioned and procured through greater sharing and efficiency, such as integrated commissioning in shared financial planning, testing new tools and pooling budgets. There can also be joint procurement of things such as ICT, and services can be extended to nearby local authorities. In addition, we have been working with the Local Government Association on its draft national procurement strategy and supporting the Chief Fire Officers Association’s national procurement group in developing a national procurement strategy.

However, the central Government cannot deliver better local procurement ourselves, nor should we try to. That can only lead to more red tape, bureaucracy and top-down control, which no one in local government or the small business sector wants. What we can do and should aim to do is to create the right conditions for it by eliminating unnecessary red tape and removing barriers to local innovation. As the Select Committee recognised, it is then for local authorities themselves to take the initiative.

We do see examples of good practice throughout the country. We have time, so I will place on record some good examples that we know exist. Halton borough council has abolished pre-qualification questionnaires for all its contracts below the EU threshold. In Norfolk, my home county, the county council no longer uses them for contracts under £100,000, and a number of other local councils do not use them for low-value contracts. Oxford city council had the idea of running a programme of workshops specifically targeted at small and medium-sized enterprises. That is about helping them on how to tender for business. Herefordshire council has a programme of opportunities and events for current and potential suppliers, which it developed as a way of informing, and maintaining strong relationships with the local supply market.

A number of local authorities have developed local procurement hubs, such as Supply Hertfordshire, Procurement Lincolnshire and the East Sussex procurement hub. Those hubs cover large areas. There are also hubs that cover even larger areas, such as The Chest, which covers much of the north-west. Across the country, there are also a number of multi-authority purchasing and public buying organisations, such as the Yorkshire Purchasing Organisation, which has already helped North Yorkshire county council make savings of about a third of a million pounds by buying social care equipment to help people with daily living. That was done through the organisation’s assistive technology contract. The Central Buying Consortium can also help councils deliver savings. For example, the royal borough of Kingston upon Thames, which I visited today, achieved 26% total cost savings on a £32 million project to expand its primary schools by using a public buying organisation. That was a substantial saving for that community.

However, despite the examples of good practice, too many local authorities still have a long way to go. They need to go further in saving money and doing more for less through better procurement. Councils need to adopt a strategic approach to their procurement and use their collective buying power to best effect. They need to ensure that their procurement officers have the necessary skills and that they take advantage of the learning opportunities and tools that are available to them. They also need to find ways of sharing best practice around local government. That is a role not just for councils, working with their partners, but for the Local Government Association.

All too often small firms are locked out of local government contracts, or at least perceive and believe that they are, by councils adopting over-complicated procurement processes. Councils need to be sure that they are doing everything they can to remove those barriers. I always say to councillors, and I will say it again on the record today, that if officers are quoting to them regulations, guidance or EU bureaucracy that is getting in the way, they need to ensure that that is correct. Let us bust those myths. Let us ensure that councillors are challenging the officers and getting to see what is in the way to make sure that it is real rather than perceived. That will mean that we can start to open things up even more.

There are many simple things that councils can do to improve their procurement practices. For example, in addition to abolishing unnecessary requirements to complete a pre-qualification questionnaire for contracts below the EU threshold and publishing all their tenders and contracts online, they should build up a supplier network and engage with suppliers.

That is related to one of the myths that I would like to bust and be clear about. EU procurement rules apply only once a council has made a decision to procure goods and services. Early engagement with suppliers can mean that innovation and co-design are built in from the outset, leading to better services. Creating and publishing a future pipeline of commercial activity so that suppliers can plan ahead is another positive step that councils can take. They can publish details of contracts that have been awarded so that contractors can not only see what has happened before, in order to get an idea of what will be expected of them in the future, but view subcontracting opportunities.

Councils can ensure that they have robust procedures in place to tackle fraud. We need to ensure that we keep fraud low and aim to drive it to zero. An important point, which relates to one that the hon. Member for City of Durham made, is that they can stop gold-plating on equalities. Equalities impact assessments are not, and never have been, a legal requirement. Officers can use their judgment to pay due regard to equality without resorting to time-consuming, often bureaucratic tick-box exercises at the end of a decision-making process—the very thing that can put people off. Councils can break contracts up into smaller lots to open up procurement by bringing in more competition on price and attracting some of the smaller firms that prefer to go for smaller contracts.

Better procurement, the sharing of senior management teams, service transformation, asset rationalisation and the driving of local economic growth all contribute to the overall improvement in local government productivity. Some councils—I have given just a few examples, but there are many more—have already made considerable progress in improving their procurement processes, making it much easier for businesses to bid effectively for contracts. However, I am not yet convinced that all local authorities have made the necessary changes, although I am confident, based on its approach to the Select Committee report, that the Local Government Association and its national procurement strategy can play an important part in helping driving forward the changes. Nationally, we need to keep talking about it in order to motivate and encourage local authorities, but it is vital to remember that it is for local authorities to deliver.